GE & GM Earnings, Plus Deals, Deals, Deals

Before, when we were planning the show, I went to you guys and gave you free runs, whatever you find, whatever its Hidden Gems recommendation or maybe one of your personal favorites in the area. Basically, I want to say, what are the companies you were looking at, and what is the market getting right and wrong about the companies? Lou, I'm going to start with you because you first pointed out GE Aerospace. I think with rising jet fuel prices around the world, everyone's like, "Is that going to change how these airlines are doing what they're doing?"

Lou Whiteman:Eventually. I think that's the big takeaway, is I think the market is getting this one right. GE Aerospace beat, surprisingly, strong led by engines, 7% above consensus on engine earnings. A lot of that is Tyler, and we've talked about this a lot. A lot of this is services. It's not exactly new sales, but it's that these engines are being run hard. They need to be serviced, spare parts were up 20% on the engine side of the business. Services just GE going in, doing some of the maintenance work up 17%. But look, here's the deal. How long will this last is I think the question that everybody's asking right now. I think the airlines have basically said that they're going to be strong through the holiday season, but at current demand trends, schedules are going to fall off a cliff come January. I think that GE is seeing that too.

Interesting, they raised full-year guidance for earnings, but they just beat. If you take that full-year guidance and add up the three quarters that we know, their raised guidance implies that the fourth quarter will come in below consensus. I think the takeaway here is the cycle hasn't collapsed, but we are in the late innings, and you're buying a 40-times earnings right now. I think the market has this one right to yawn at these. It's not the end of the world here, but it does look late in the cycle.

Tyler Crowe:One of our deep market theories has been on maintenance companies in the airlines; it's the discussion you and I have been having a lot. As you were saying, spare parts are really up. Do you think that we're going to see a lot of that trickle down into some of those maintenance service overhaul companies?

Lou Whiteman:To some extent, I do think that, look, these companies, the airlines, see a great advantage in just taking one cycle out of their existing fleets right now because, again, they are running these planes as hard as they can. If you can just go from, say, four round trips a day to three round trips and some of this equipment, you can delay maintenance because maintenance is mostly by miles or mostly by minutes run. I think you see a world where demand still remains relatively strong but not quite as strong, and the airlines get to save on cost by reducing just the maintenance turn -- how fast they have to do maintenance. That's not great news for the MROs. The good news is that there is still a lot of work to be done, and if we do see a slowdown, we'll see more conversions because the freight industry is desperate for capacity right now. Even in the worst-case scenario, even if planes come out of the passenger systems, that becomes the next cargo jet; there's still work to be done.

Tyler Crowe:Matt, I want to turn to you. We'll go from airlines or airborne mobility to on-the-ground mobility because you wanted to talk about General Motors, which, at first glance, I saw the numbers looked pretty good, but the market reaction was a little bit on the tiptoe side. What is the market saying, and what are they getting right? Maybe what the market is missing with this most recent earnings reports and maybe anything else that came out of the conference call or something like that.

Matt Frankel:I'm talking about the other general here, General Motors. I feel like it's par for the course for General Motors to do exactly what you said, issue numbers at first glance look great. The market just shrugs it off and said, "We're going to value this thing at six times earnings forever and ever." You're right. It was a very solid quarter on the surface. Revenue and earnings both beat estimates. North America was especially strong margin expansion due to a great product mix. Their trucks and the big SUVs are where they make the most money and had best Q3 pickup sales ever. That's a pretty nice accomplishment in a market that's supposedly struggling. Automotive free cash flow is almost $6 billion to four-year high. They bought back $2.5 billion of stock in the third quarter, another billion dollars so far in October, and they just announced a new $20 billion buyback authorization. This is a company whose market cap is about $68 billion. A $20 billion buyback is significant. That's a lot. Software and services revenue were especially strong. Their EV cleanup is mostly done, all those charges they're taking related to the EV split down.

Why was the stock down about 5%? A couple of reasons no guidance raise is a big one. When you beat expectations for the third quarter and fail to raise guidance for the full year, you're implying that you're going to have a slowdown in the fourth quarter. I think that's what the market's perceiving here. They mentioned commodity inflation, that's adding to costs, and that includes memory chips, which are a big component of cars these days. International profits were just ugly. GMis a North American story right now. The international profits were not doing well. Financial delinquencies on the GM financial side of the business rose from 3.2%-3.7%, indicating that consumers might be getting strained. They take a lot of credit risk with their loans. They really used softer language when discussing 2027. I'm not sure that the market's getting this wrong. There's legitimate reason to worry that they are at the peak of their margins for this cycle. GM Financial is certainly a reason to be concerned. The buyback math is enormous. Trades for six times earnings. Their software revenue is doing fantastic, $7.5 billion of deferred software revenue and Supercrws revenue alone grew 60% year over year. There's a lot to like.

Tyler Crowe:I do want to follow up on this because GM has clearly, after they did EVs, hybrids, wasn't exactly the most successful rollout, really doubled down on the gas engine. With rising gas prices, rising diesel prices, maybe bringing that back into focus. Is there a possibility that we see General Motors maybe start to pivot back towards the electric vehicle, smaller vehicle, more affordable vehicle? The price tag on an SUV in one of their trucks these days is getting pretty high, and affordability has been a pretty big talking point lately.

Matt Frankel:No, somebody in the market for a car right now, you don't have to tell me about SUV and pickup affordability. But yeah, no, that's a really good question because GM has pulled back on EVs a lot less than most of its competitors. They've all pulled back on EVs to one extent or the other. But for example, the Cadillac brand is still over half EVs in their lineup. They are still investing in EVs. Mary Barra has said that's their long-term strategy. They didn't embrace hybrids and plug in hybrids as much as some of their peers. I think that's where they're going to be pivoting a little bit in the near term, but they still have more EVs and more successful EVs. A lot of their EVs are very well received. Then some of its other rivals. Fordpumped the brakes on EVs a whole lot more than GM did, and I think that could serve to help them in the affordability crisis.

Tyler Crowe:Just like an anecdote as somebody who lives overseas. The proliferation of Chinese EVs is getting louder and louder by the moment. I do genuinely wonder if in the next couple of years, we do start to see some partnership where it comes that Chinese EVs start working with the Detroit art pop makers to make it happen. After the break, we're going to jump into a couple of merger and acquisition deals that have been happening this week and get our take on it.

ADVERTISEMENT:You just found out that your sales team is at risk of missing quota. Don't panic. Just ask Rippling AI. Since it's built on your real-time people and business data, Rippling AI can pull metrics from Rippling and Salesforceinto a meeting-ready dashboard showing quota attainment, headcount plan, and monthly revenue to quota by region. In seconds, you'll see exactly what's behind your quota risk and fix it before it's missed. Question answered, action taken, crisis averted. When you have critical business questions that need answers, don't just file a ticket and wait weeks for an outdated report. Describe what you need and have Rippling AI build it instantly from your live people and business data, whether it's a dashboard with detailed charts or automated workflows with the right triggers, conditions, and approvals. Ready to rule your business, head to rippling.ai/fool to get the only AI built to give you full visibility and take complex actions across your entire organization. That's R-I-P-P-L-I-N-G.AI/F-O-O-L. Sign up for exclusive access today, rippling.ai/fool.

ADVERTISEMENT1:Let Abercrombie handle the season ahead. They've always set the standard for automatic fitting with key pieces for the season. Sweaters, layers, and everyday denim make cooler weather dressing easy, while polished shirts and tailored pieces take you from day to night. When the holidays arrive, elevated essentials and occasion-ready styles make dressing for every plan easy. From autumn days to holiday nights, find the pieces for the season ahead. Shop Abercrombie in the app online and in stores.

Tyler Crowe:As we said, normally we'd like to talk about mergers on a merger Monday. I don't know, use a little alliteration here, but I guess that came a little bit later than expected, but we did have two deals that have come across our desk lately, both of which do relate to companies that are in, if not, Hidden Gems, our recommendation service, one of what we call the Hidden Gems Universe of Services that we have out there. I want to start with the larger of the two and probably the more recognizable name for everybody that's in our services, and that's Salesforce. Salesforce announced today early. It was a little bit of a news fairy for us that they were buying the company Brazefor about $5.7 billion, guys, I'm going to admit it. I'm not even going to try to hide it in any way. I have no idea what Braze is. Matt, can you just explain to me what it does and why Salesforce thinks it actually needs it.

Matt Frankel:Have you ever gotten a marketing text on your phone? I don't know if this happens overseas, but have you ever gotten a marketing text on your phone and swear someone was listening to what you were trying to buy or thinking about? Maybe you and your wife were having a talk about what you were going to buy, you spontaneously get a marketing text. Do you ever have that happen?

Tyler Crowe:No? Not recently, but I do get them in foreign languages, unfortunately. Maybe I am. I just don't realize it.

Matt Frankel:Braze might have had something to do with it. They are a customer engagement platform, and it lets brands send out personalized real-time text messages based on what their customers are doing. They have about 2,800 customers. The business has been growing nicely, 24% revenue growth every year. I just turned profitable, and it's really a personal, mobile-first, modern marketing tool. Salesforce's marketing cloud is a lot weaker than its peers when it comes to modern mobile-first engagement.

Lou Whiteman:That's exactly. Salesforce has a massive marketing operation, but they aren't really good at this AI-driven or the personalized, tech-savvy side of marketing. This is them trying to get good at a core place to support their business, 50% premium in a cash deal, obviously, Salesforce thinks they need to get this done.

Tyler Crowe:The market actually reacted not 100% favorably. I think premarket, stock was down about 2.5% and we're hinting at it, whether or not Salesforce needed. They paid a big premium for this, and like you said, Lou, it's addressing a soft spot in their offerings. Thinking about Salesforce, almost the investment, it's had an up-and-down journey, but I think right now, its stock is more or less where it was six years ago, not exactly been the expectation that people were hoping for with this stock. What exactly has plagued Salesforce? Is this really a cure for it?

Matt Frankel:I point to two things. One is the SaaS apocalypse. That's the more obvious concern, meaning that there are fears out there that the AI agents are going to replace human workers. Salesforce is largely a seat licensing model. No. 2, the business has just really reached maturity in a lot of ways in the past couple of years. They're only expecting about 10-11% revenue growth in the current fiscal year. Not that the business is doing bad. It's a big player, and it's transitioning between growth and maturity right now.

Lou Whiteman:I think the SaaS apocalypse talk of just like these companies getting blown away is overstated. But I do wonder, do we need these one-stop-shop, all-encompassing enterprise software packages in a world where AI is making specialists better? I think that's the core question. That is basically what Braze is to Salesforce right now. Salesforce can't be more nimble. They're not in a point where they are going to say, "Let's break up the company." The second-best option, or their best option, is to be best in class throughout their offering, and that means admitting that they're not best in class in areas and going out and buying who is. I do think this deal makes sense for them. I don't know if it solves their problems, but I do think it is the right strategy in reaction to the world around them.

Tyler Crowe:Overall, it sounds like it's a relatively favorable deal if maybe slightly overpriced, but maybe a price that Salesforce has to pay. I want to get our to our second one and maybe not the most household name here, but certainly something that, like I said, is in the Hidden Gems Investing Service Universe. That's trade web markets, electronic marketplace for a lot of trading of securities, not necessarily stocks, but more rates, credit swaps, a lot of the things that maybe institutional investors are doing. It announced yesterday or this morning, I can't remember specifically which one, that they're acquiring privately held fixed income trading company Trumid. Since it isn't exactly a household name, guys, No. 1, explain what Tradewebdoes, and then can you give me the elevator pitch of why investors should like this kind of business?

Matt Frankel:You just mentioned that they do a lot of trading, not necessarily stocks, which makes it sound like a small platform, but they do treasuries, corporate bonds, mortgages, money markets, some equities, there's over $3 trillion of trading volume per day across asset classes on Tradeweb's platform. They are a big player in the electronic marketplaces for fixed-income trading, especially. Why we like it? It's a toll road on what is a huge market that has been very slow to digitize. It's well known that equities trading has been digital for 25 years, and no one buys a stock without doing it digitally. That's not the case for a lot of the markets I just mentioned. Every trade on the platform pays a fee, it's a slow, steady digitizing process that's going on, and more of the bond market is moving online every year.

Tyler Crowe:Lou, how does Trumid specifically fit into this then as we try to assemble the picture of what Tradeweb is doing and why Trumid makes sense at this point in time.

Lou Whiteman:It gets into the weeds a bit, but Tradeweb is mostly focused on a secondary market. Bonds that are already issued out there trading, they have tried to become the marketplace for those bonds. They do have a presence in new bond issue trading, but they don't have a big presence. That's what Trumid is focused on and specializing in and has probably been more aggressive in pricing, which is how they've gotten their better than Tradeweb. This is Tradeweb trying to create a more end-to-end solution, a one-stop solution. It's very defensive because they have a lot of competitors who are trying to do this as well. But this is their stab at becoming the answer to a question that has plagued these markets for 20 years or so. How do we get online?

Tyler Crowe:As we think about this, like you said, it gets into new issues, which is which I assume probably a little bit more lucrative than secondary trading. How do you rate this deal in terms of the strategic fit price, how does this rate in terms of moving the needle for Tradeweb, which I think is a $27 billion company as we're tapping?

Matt Frankel:I would give the Salesforce deal a C. I would give this probably a B+ in terms of how strategically smart it is, it's an all-cash deal. There's some integration risk, but the deal just makes a whole lot of strategic sense, especially given like Lou said, the competitive nature of the market. This seems to be a competitive move against market access against Bloomberg really in the war to digitize the bond markets. It seems like a really smart strategic play.

Lou Whiteman:This is a reaction. I might be a little more not negative but cautious about it than Matt just because, look, they are the underdog here. We gave you the elevator pitch of the problem they're trying to solve. Bigger rivals are also trying to solve this problem. Matt mentioned market access, ICE, Intercontinental Exchange, bought them. This is a clear reaction to that. To me, they're overpaying here, but it's a turf war and this is a business where scale will win. When your biggest competitor is for-exercise and aggressive, you have to make aggressive moves. I think it's the right move, but it doesn't secure success.

Tyler Crowe:We have had a lot of capital market consolidation over the years, whether it be market trading platforms or selling information services like S&P Global companies like that. It'll be interesting to see how many of these actually end up being value creative versus just that nuclear arms race of being the biggest one possible. Coming up after the break, we're going to hit the mail bag.

ADVERTISEMENT:If you're building AI agents, you should check out Strands Agents. It's an open-source SDK for Python and TypeScript. The idea is simple. Give a model some tools that it decide what to call and when and loop until it's done. No chain confix, no graph orchestration, and works with any model provider. It's also open source and built and tested for production agents. Get started at strandsagents.com.

ADVERTISEMENT:Purina ONE, visible health for today and tomorrow. When a cat is healthy, you can see it on the outside. But you know what makes them look healthy on the inside? It's your cat's gut microbiome, a dynamic ecosystem of trillions of microorganisms. Purina ONE by fences, balances the bad and good bacteria to help support their gut microbiome. Search today for Purina ONE's blue pack, online and in store.

Tyler Crowe:Everyone, if you want to get your question read on air, go ahead and email us at podcast at fool.com. That's podcast with an S. I've also left the email in the show description so you can grab it there as well. Today's question comes from J in Oshkosh, Wisconsin, and Lou, it's a little bit of fan mail because it's directed specifically at you. Maybe it's fan mail, maybe it's calling you out a little bit here. He says, "Thank you all for your daily insights analysis. I'm a longtime listener and Fool. My question is from Lou. I've heard him on several occasions talk about his interest in QXO, which is a building supply roll-up company, and it's mainly because of the proven success of CEO Brad Jacobs in other ventures. I don't believe I've heard Lou comment much on the acquisition or his current thoughts of the company unless I missed it. I was hoping to hear what he thinks about QXO now," and one of the reasons I think he's asking is there was a big acquisition at QXO of TopBuild and ever since the stock is tanked ever since.

Lou Whiteman:Stock's down 46% of year to date, so I doubt it's fan mail, but that's fine. Look, my answer would be, I remain optimistic. The stock has struggled, and I think that's because, look, TopBuild was a well-run company. I think there was a narrative in the market that QXO is going to just buy up poorly performing companies, fix them up, and get great deals on it. They have done that in the past and other roll-ups, but sometimes you have to pay up for quality, and they did. I think TopBuild gives them a lot that just pre-ready to go that they would have had to build on their own, otherwise. But fundamentally, this is the same story today, it was a year ago. It's all about execution. Brad Jacobs has a great history of doing these roll ups, finding value, and creating value over time. If they execute on their goals here, QXOwill be a much larger company, and shareholders will benefit. But acquisitions are not easy. The market is looking at rising interest rates, thinking about just the price you have to pay for capital to do deals. Patience was always going to be required, and I think that it always has been a show-me story. It remains a show-me story. I'm happy with what they're doing, and I think along for the ride.

Tyler Crowe:For those who may not be familiar, Brad Jacobs was the founder of companies like XPO Logistics, United Rentals, a couple of others that have been acquired ever since. Bit of a pretty well-known founder-investor in a lot of companies, and it's created a lot of wealth for investors. Matt, what are your thoughts on QXO as well?

Matt Frankel:In general, it's tough to buy a company that's levered to a market when every fundamental in that market then goes the wrong way. I'm talking about the housing market. Having TopBuild is a play on housing, a lot of what QXO does is a play on housing. TopBuild is definitely levered to the housing market. Mortgage rates have gone up since they bought it. Housing volume has existing home sales, new builds, they both trended in the wrong direction. It's going to be really hard to outperform when you see something like that happen. That's really my take. I like the deal. I think they definitely paid up for it and they paid up for it, in retrospect, not the most opportune time.

Tyler Crowe:One of the things with building products, too, is you can make good deals, but it can still not exactly create value, at least in the short term, with a cyclical industry like housing, it's certainly an industry that the three of us like to follow a lot, and I'm sure we'll be doing shows on it coming up in the future. But that's all the time we do have for today.

As always, people in the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for against, so don't buy or sell stocks is all what you hear. All personal finance content follows Motley Fool editorial standards, and it's not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. See our full advertising disclosure, please check out our shall-nots. Thanks to Dan Boyd and the rest of The Motley Fool team for Matt, Lou, and myself. Thanks for listening, and we'll chat again soon.

Lou Whiteman has positions in QXO. Matt Frankel, CFP® has positions in General Motors. Tyler Crowe has positions in QXO. The Motley Fool has positions in and recommends Braze, GE Aerospace, QXO, Salesforce, and Tradeweb Markets. The Motley Fool recommends General Motors. The Motley Fool has a disclosure policy .

GE & GM Earnings, Plus Deals, Deals, Deals was originally published by The Motley Fool