Shownotes Transcript
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Hey, I'm Kramer. Welcome to Mad Money. Welcome to Kramerica. Other people and my friends, I'm just trying to save you a little money. My job is not just to educate, but I got to teach you about today's like today and give you some context. So call me, 1-800-743-CNBC. We meet Jim Kramer. Look, I was working on my talk for the CNBC Investing Club last night, and it hit me like a bright bulb snapped on in a dark room. The real reason it's so hard for us to game all these tariffs is
is that the company's now being punished. We're doing exactly what companies were supposed to do, burrow deep into the host country and become indispensable to them. And for that, their businesses are being ravaged by the president of the United States, who has an agenda that has nothing to do with theirs and is often, at very cross purposes, to you, the shareholder. That's why the Dow plunged 700 points today. S&P plummeted 2.24%. NASDAQ nosedived 3.07%.
Hundreds of billions of dollars were lost today on the same order of tariffs and the great Chinese tariff embargo.
Let's think about the travails of one of my all-time favorite companies. Let's think about NVIDIA. Here's a business that makes the best technology product the world has ever seen, run by one of the greatest visionaries of all time, not just our time, Jensen Wang. NVIDIA's advanced chips are the key to everything from magentics and thinking bots to humanoid robots, self-driving cars. Its chips practically sell themselves and are at the heart of the new industrial revolution. Now, this is a company that makes our nation proud.
No country wants to be left behind by the industrial revolution, particularly one based on AI, right? And no country like China wants to be left behind. For Nvidia, China's the best kind of customer they could possibly have. I'm sure that China would happily buy huge numbers of chips. They'd probably buy all the chips. But what Nvidia didn't know was that it was selling its chips to an enemy nation.
I don't blame them for not knowing because nobody knew. At least nobody was operating under the rules of either President Biden or the previous president, President Trump. China was very open for business under those two. Sure, in its first term, President Trump was no friend of the People's Republic of China, but he wasn't a rabid hater either. Then again, China did grow more oppositional, although it's not like it was ever a secret that the PRC was an authoritarian dictatorship with global ambitions, sometimes antithetical to that of our own.
Both parties now want to contain China. The Biden administration decided to limit some to some dumbed down NVIDIA chips, literally ones that were nowhere near as good as the cutting edge stuff that you could sell here. It was a shocking move. But even NVIDIA's lesser chips were fast enough to China lap them up. They even found a way to stream together, produce more efficient AI models like deep sea. So those sanctions did backfire.
At that point, two imperatives burst forward in the new administration. One, the Trump team realized that NVIDIA's dumbed-down H20 chips were way too powerful for a country that's now a serious rival in pretty much everything. If you're putting an effective economic...
economic embargo on China, you shouldn't be sending them potato chips, let alone microchips. Second, the Trump team decided that companies like NVIDIA and Apple should move their manufacturing back home and do so pronto, Trump time.
But everybody knows that America is a very expensive place to manufacture things. If you want to successfully mass produce great products at affordable prices, you need to move your manufacturing overseas to countries with lower wages or countries where the government more or less subsidizing manufacturing, like China. We practice free market capitalism in this country, and the free market wants you to outsource.
If you're a rich, developed country and you try to make this stuff domestically, you end up being like Research in Motion, a.k.a. BlackBerry. The Canadian also ran Smartphone Player. But those are the rules now. So NVIDIA commits to producing up to $500 billion AI infrastructure here in the U.S. They already started making Blackwell chips in Arizona. They're going to make supercomputers in Texas. Yes! Now here's where things get interesting. The president's known for being the most serious practitioner of the art of the deal, correct? You agree with me, right?
When we saw that Nvidia was going to make $500 billion with its computers and so much other stuff here, Wall Street mistakenly believed that there had to be some sort of quid pro quo. Nvidia would spend big here to increase its domestic manufacturing footprint, and Trump would leave Nvidia alone elsewhere. Nvidia never said there was a quid pro quo, though. But how do you do a half a trillion dollars worth of business and not think that you get something out of it?
And the answer is you did get something out of it. You get to build in the highest cost country in the world. The one that has few engineers and tough environmental regulations. Doesn't sound like a great deal to me, but it was the only one that seemed to be offered. The same thing happened to Apple. Like so many companies, they realize that they want to dominate the world. They need to dominate China. So Apple takes advantage of the situation, builds a vast majority of phones over there. Americans get cheap iPhones we all love. Everybody wins.
But when tensions rise with China, Apple picks Vietnam to diversify from China, a friendly country, but one that's known also as a transshipper of Chinese goods. At first, it seems fine. Then Trump, too, comes in and their escape valve even gets hit with a huge tariff. So they got huge business in China. Vietnam? No. It's almost like you can run, but you can't hide.
Apple's done so much to create new jobs in this country, but there are not many manufacturing jobs, although they have partnered with other companies to do a lot of manufacturing here. Instead, Apple creates service jobs, especially in software, millions of them.
That's a pillar of our economy. But for whatever reason, nobody in Washington seems to care that much about protecting the all-important service sector. Bizarrely, with this administration, service jobs don't seem to count. So when Trump comes back in and starts talking tariffs, Apple knows it's in a jam. They commit to doing more than $500 billion worth of investments in this country over the next four years. Could there be a quid pro quo?
Does Apple get anything for that $500 billion? Yes! It gets a real expensive country to do business in with not enough engineers to go around because our country doesn't produce a lot of them. Last night, not long after we thought that Nvidia could still sell China those H20 chips, we found out that was over too, and it had to take a $5.5 billion charge. For all intents and purposes, Nvidia may be done with China. If that's the case, Wall Street acted as if they were done with Nvidia, and its stock got crushed down almost 7%.
Apple's got some sort of stay of execution to move out of China. I no longer trust or believe there will be an electronics exception that will give the company anything near a permanent break. The clock is ticking. I don't know if the Trump administration believes in the greatness of Apple any more than they believe in the greatness of Nvidia. It seems to me nothing to them versus creating a successful Chinese embargo. That's their imperative. It's fine. He's the president, not us.
Not only that, I keep getting affiliate the White House doesn't think either company is a good actor, no matter what they do. Somehow our leaders seem to think that Jensen Wong and Tim Cook do in this country what they do just isn't important. It's the building of the inside of the phone that matters to them. It's like how they don't like the assembly of cars here. They want the engines built here, too. Intellectual property is no more important than any other property. Like poor walks equal to a Mediterranean. Places are boring.
If you think this is bad policy, I got some news for you, partner. It doesn't matter what you think or what I think. It only matters what they think. Now, it's starting to dawn on people that there's no immunity from the president's wrath on the issue, just like there's no immunity for any law firm that's yet forgotten on his bad side or any university, for that matter, if it's too woke.
We don't trade law firms or colleges here. It just doesn't work. I mean, I've tried. But we do trade stocks. And we're recognizing a theme here. When a company decides to do business with China, no amount of tribute to the American economy can make up for it, at least in the eyes of the White House. And don't think that going to Vietnam matters. This isn't 2018. This is 2025. Vietnam's apparently not good enough. It's here or nowhere for these guys.
So what happens? The Nasdaq inevitably gets crushed with the Nvidia leading the decline because it's been a good supplier to the Chinese. You will hear from others today that it was all about J-PAL, the Fed chief. They couldn't be more wrong. I mean, honestly, just because a guy's on TV, don't make them right. The battle to contain China has everyone on edge. A quarter of a point here is meaningless versus this stuff, the real stuff, the stuff that's powering, power driving, pile driving everything here.
It's not in Chicago with the Fed chiefs, much as I like that guy. The bottom line, in this new world, any company that outsourced their manufacturing is a target. And short of moving everything back to America, which is impossible, there may not be anything they can do to make it up for including spending a half a trillion dollars to try to change the brand new equation, the embargo on China.
Robert in Alabama. Robert. Hey, Jim. Thank you very much for taking my call. My pleasure, Robert. What's up?
I want to say one thing, and then I've got a question for you. You have single-handedly changed my life. I was barely getting by four years ago when I got involved with this and watching your show and joining the investment club. And last year, I bought a house in Florida for $750,000 and paid cash for it, all with the money that you helped me make. Smoking.
Thank you. Well, you're thank you. Thank you for telling me that because, you know, I get up at three thirty in the morning. I'm thinking, what the heck am I doing here? I know what I'm doing. I'm playing for Robert. I'm playing for Robert Alabama by a cash house. Makes me a winner. I think you change a lot of people's lives for the better, for sure. Well, sweet home Alabama here.
Let's make some money again. Okay. My question is, do you think AMD is, with it going down like it did today, like everything else did, do you think that is reasonable for just a short-term trade?
No, no, no. And, you know, I think the word of Lisa Sue. But we're going to try to limit, as I said in the club, we are going to try to limit our exposure to what I regard as being a charnel house, a semiconductor charnel house. Not unlike the Guernica painting I liked at the Modern Museum. It's really terrific. Anyway, thank you for those kind comments. Holy cow. See? See?
I told you I was a good guy. Look at the staff, you know. Look, I think it's starting to dawn on people that no one is immune from the president's trade agenda, including companies like Nvidia and Apple. That's okay. It's the great China trade embargo. I mean, after post-earnings popped from Prologis today, I got the CEO to hear how the logistics industry is shaped by these tariff headlines. 4% yield there, by the way.
Then how are companies supposed to give guidance when faced with an uncertain market? I'm running through the latest comments from United Airlines after last night's report. Those guys are doing well. And later, where do small businesses stand after today's sell-off and the latest trial of turbulence? I got to see you have HR payroll company paychecks, which is now with PayCorp, to learn more. So stay with Kramer. ♪
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Now that we've got a 10% tariff on exports from the entire world, an effective embargo on most Chinese merchandise aside from electronics, what does it mean for the logistics industry? Take Prologis, the real estate investment trust that mainly owns warehouses and fulfillment centers for e-commerce. Naturally, the stock's been hammered over the past month and a half, although it's rebounded nicely from its lows last week. Now, this morning, Prologis reported slightly better than expected quarter.
Management reiterated their full year forecast. In response, stock rallied nearly 2% on an otherwise horrible day. So could this be an attractive entry point or is it just too much worry about this to get behind it right now? Let's talk with Hamid Moghaddan. He is the co-founder, chairman, CEO of Volodnus. Hamid, welcome back to Mad Money. Thank you, Jim. Good to be with you. I got a theory, sir.
When this stock yields 4%, it's an unbelievable opportunity. It has been for as long as I've known you, but this one surprised me. Why would it yield 4% when people need warehouses more than they've ever needed them in the world? I have no idea, Jim. So all I can tell you is that our customers are continuing to lease space.
Look, there's going to be some pause in some level of business activity, but the year certainly started stronger than we thought. Even in the last two weeks, since the tariff discussions have really accelerated, we've been leasing space. Again, it's softened a little bit in the last two weeks, but it's not like it's a dead market.
I don't I never try to understand what the stock market is doing. I try to see what our customers are doing and what the earnings trajectory is. And I feel comfortable with our business. And I know we have the balance sheet to take us through any kind of a downturn. So I'm actually optimistic. I don't blame you. I mean, if I were a big importer or something.
And I was afraid that that tariffs are going to go up. I think I would reach out to you personally and say, look, I'm in a jam. I need maybe a six to eight month lease. Can I take a year lease? Maybe. I don't know whether you're able to prorate or anything like that. But I would call you because I think this is an emergency, sir. I don't think people realize it's an emergency. And they need to speak to someone like you who has been through other emergencies to know what the hell to do.
Absolutely. You know, every one of these downturns, whether it's the early days of COVID or the global financial crisis or many others that we've been through during the course of the last 42 years, they're all different. But at the end of the day, life goes on. Our business is tied to consumption.
We don't really care as much about where goods are being made. We really care about where they're being consumed. And where they're being consumed is where people are and where the income and disposable income is. So those things are pretty static. And I'm not trying to be Pollyannish about this. I mean, this is certainly the uncertainty is weighing on the market and our customers' decisions. But it's not the end of the world. No, I mean, not only are you not being Pollyannish, but I...
I'm going to go a step further. There were times when I was concerned about the Southland. And I said, wait a second, sir, you're in the 80s here, 80 percent. And you told me not to worry about it. It will come back. It's a vibrant area. And every one of those came back, even though you could argue that things are wrong with the economy. You know when things are going to bounce back because you've been around.
Exactly. By the way, our customers are doing exactly what you just talked about. They were front-loading demand, for sure, bringing stuff in before the tariffs took place. And even during this 90-day pause, they're trying to get as much stuff as they can in the country. So we are having a lot of demand for search space. And a sector of our customers are third-party logistic providers.
And that sector particularly, which deals with fluctuations in demand, is very much in the business of leasing space today, those customers. Now, I also know when I was talking to people at Amazon, they are more and more convinced that they have to have same day, even if possible, same hour. I can't figure out how they could ever do same hour without Prologis and where you are.
Well, there is a possibility. I mean, they could invent a transporter and borrow it from Star Trek and beam it in. But other than that, the higher the level of service becomes from two day to one day to two hours, the more warehouse and inventory you need a stage closer to the customer. That's kind of the laws of physics. And we're well positioned for that because we control a lot of real estate around the major metro areas, not just in the U.S.
but everywhere in the world. And these consumption centers don't move like tariff policies do. They're pretty static. All right. Just tell me, what are you thinking about data center build-out? You know, the theory right now on Wall Street is that the data center business is slowing down rather dramatically. I can't find that. It's not. I go out on the ground. I don't get that story. But you are in the thick of things. Tell me whether you think it's slowing down dramatically or it's doing just fine.
I think it was a bit overheated towards the end of last year and everybody and their brother was talking about getting into the data center business. So you were seeing a lot of headlines. But the hyperscalers that are driving most of this, there are five or six of them. I can think of two or three of them that are actually increasing their needs.
and i know of one who's spoken about pulling back and of course the market focuses on that one that is talked about slowing down so um we see yeah we see we see the customer interest in data centers going uh going strong and the obviously real issue is procuring the power now this this quarter we actually got 400 acre 400 megawatts of extra power
And now we have three point four megawatt's of power that is available or will be available shortly. And that's a lot of power to complete our data center activity. Would you be then teamed up with like a core? We have a switch. I mean, who does who is the actual guy who wants that that power?
Well, the hyperscalers directly want that power. Who operates the facility for them? They can do it directly. They can do it through a core weave or other providers. But at the end of the day, it's the five or six big hyperscalers that are driving the demand for the large data centers. Now, there's a whole other business.
which is the cloud business, much closer to the customer that doesn't consume these hundreds of megawatts. They're more in the 20 and 30. And that business goes on like it always did. That business hasn't died. It just doesn't get talked about quite as much. Well, I tell you, I actually feel better about the world if you're talking to you. There's a lot of hysteria.
Historia doesn't make anybody money. There was Historia in 2007, 2009. You kept your cool head then. That's why I'm so glad that you're on with us now. I still hope that you'll come on for a couple more quarters. Will you do that for me? Thank you. I will, for sure. All right. Thank you so much. That's Hamid Moghedani. He's the chairman and CEO of Prologis, one of my favorite stocks literally since 2007. PLD. Thank you so much, Hamid. Good to see you.
Thank you. Nice to see you. We have money back after the break. At Firestone Complete Auto Care, we hold our service to the highest standard. That's why we have thousands of ASE certified technicians nationally. So don't wait any longer. Give us a call and book your next appointment today.
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In just the past few weeks, we have had to process the introduction of a sudden mass tariff agenda, including a 10% base tariff rate on all imported goods, tariff rates that could be as high as 245% on goods from China, 25% on Canada and Mexico, with some very high tariffs on every other country set to go into effect in less than 90 days.
Sure, there have been some exemptions and modifications, but the White House keeps talking about throwing in some sectoral tariffs on top of everything else, even as sectoral as beyond my ken. That makes it impossible for companies to figure out their own costs, especially because we don't know how long the tariffs will be in place or when the next ones might be coming. And that doesn't even get into the ripple effects. We've got retaliatory tariffs from many of our trading partners. China's no longer taking delivery of Boeing planes. There's been a sudden drop in tourism. Everything's a bit of a mess.
So aside from purely domestic companies with little economic sensitivity, how on earth can executives give you any kind of forecast for 2025 year? Coming into earnings season, I figured most of them would just simply pull their outlooks. I mean, who could blame them?
But now that we're almost a week in, we're seeing some pretty creative solutions. The big banks mostly reiterate their full year forecast, but the banks mostly don't offer formal guidance for things like revenue or earnings per share to begin with. Citi does, though, and while they mostly left their full year guidance unchanged, they also said that, quote, subject to macro and market conditions, end quote. Well, that's what you should do, right? That should go without saying. So when they do say it, you know, they're not too sure about where the economy is headed.
At JP Morgan, CEO Jamie Dimon said that, quote, the economy is facing considerable turbulence, including geopolitics, with the potential positives of tax reform and deregulation and the potential negatives of tariffs and trade wars, ongoing sticky inflation, high fiscal deficits and still rather high asset prices and volatility.
He added, as always, we hope for the best, but prepare for the firm for a wide range of scenarios. Basically, they're not ready to cut the guidance, but they feel compelled to throw in some caveats because who the heck knows? You know what? Hey, they could have just said hope for the best, expect the worst. They didn't do that. Very positive. A number of companies have beaten the estimates for the quarter and chosen to merely maintain their full year forecast, implying it's because of uncertainty from the tariffs.
That happened with Prologis, the logistics real estate investment trust, whom we just heard from before the break when it reported this morning. Hey, how about Abbott Labs? Yes, charitable trust name. They reported a solid quarter this morning. Pusley said they'd previously thought about raising their four-year forecast because business was so good, but decided not to after the tariffs hit. Stock shot up 3%, almost 3% today, because given tariffs,
even maintaining their guidance is a pretty strong sign of confidence in this environment. And watch, by the way, weaker dollar going to help them. Keep your heads, keep your head out of the sand. The weaker dollar is good. But the most interesting responses we've seen so far came from two large airlines, Delta United. Delta reported last Thursday turning a small revenue miss, solid revenue,
7 cent earnings beat off a 39 cent basis. Looking forward, though, Delta declined to reaffirm its full year earnings forecast because the environment is too uncertain and they just don't have enough visibility. By the way, this stock had popped 23 percent the previous day after most of the Liberation Day tariffs were paused for 90 days. Then it fell over 11 percent last Thursday because management pulled the guidance. Delta's being conservative here. They know it's impossible to predict the future when the White House can change its aggressive trade policy on a dime. So I wouldn't even try.
United, though, this is really interesting. United Airlines took a very different approach. Last night, they reported a surprisingly strong quarter with inline sales up 5% year-over-year, 17-cent earnings beat off of 74-cent basis. But the stock, which was already down from 116 in January to 67 at last night's close, barely got any credit, finishing down a penny today. Why?
Because United decided to be diligent about its guidance and gave us two sets of forecasts, one for a stable economic environment and one for a recessionary environment. management says, quote, it's impossible to predict this year with any degree of certainty, end quote. So what they're doing, they're laying out multiple scenarios. Instead, I thought this was brilliant. United conceded the macroeconomic environment has gotten softer, but they said the company has been, quote, closely monitoring bookings, end quote. And as of now, booking trends have been
If demand basically holds steady here at somewhat low level, the manager says they can still earn $11.50 to $13.50 per share, which was the original earnings forecast from back in January. But as CEO Scott Kirby said on this morning's conference call, quote, we read the same headlines as you, and so we think that there's a reasonable chance that bookings could weaken from here, end quote. Meow.
a recessionary environment. He believes in a recession they can only earn seven to nine bucks per share. I think it's very reasonable the way to do things. But obviously, when you lay out a dual track forecast for the year, everyone's going to wonder, which of these scenarios do you actually expect? And that was one of the first questions asked of Kirby when he joined CNBC's own Phil LeBeau for an exclusive interview on Squawk Box this morning. I love this. Take a listen to this.
I don't know, is the short answer. I mean, the economy, we have slowed down. But I think there's a lot more water to go under this bridge before we settle out into a new normal. So we might and we might not. That's why we also gave two different ranges, two different scenarios, two different outcomes.
Now, there's an honest fella. Kind of refreshing, isn't it? Even if it doesn't give us a ton of clarity on the situation. But then again, why wouldn't United Airlines have any clarity when nobody else has? And hey, I'd rather get two forecasts than no forecast. He's a better person than I am. I would have just said, we crushed it this quarter. I hope you do the same.
And Corder was so good that he had a right to do that, but he didn't. Good for him. But here's the bottom line. With earnings season in full swing, I'm surprised more companies haven't pulled their full year for guests like Delta. The most common strategy that has been seen so far is being maintained from a handful of companies like the banks and a couple of health care companies holding up so far. But so as far as I'm concerned, you just heard my favorite, the two track Delta.
All aboard from United Airlines, because while things might end up fine, this company will do very badly in the January recession. And both of the potential outcomes, unfortunately, are very much on the table. I feel like taking calls. I would actually like to start with Nick in Illinois. Nick. Booyah, Jim. First time, long time. Oh, fantastic. Nick, welcome aboard. What's going on?
I want to get your opinion on Tesla. Do you think all the bad news is already priced in? Thanks. Do I think all the bad news is already priced in? What a great question. You know what? I'll tell you that with the stock down 40%, when this stock's down 50%, that's when I feel. Because that's at the level where people just say, I've had it.
So let's take a little bit more, a little bit more pain, and then some gain there. All right, with earnings season now in full swing, we're seeing companies handle their full-year forecast very differently. My favorite approach so far has been the guidance from United. Since it's accounting for all the uncertainty out there, it makes me feel more certain, even if it's uncertain.
Mad money has got tons ahead. Got exclusive with Paychex after its recent all-cash acquisition of enterprise software company PayCore. Plus, from potato chips to workout wear, are consumers getting tired of sticker shock? I'm looking at the long term for stocks like PepsiCo and Lululemon. And all your... That's Lululemon. And all your calls rapid fire in tonight's edition of The Lighting Round. So stay with Kramer. ♪
We haven't seen a lot of mergers in the tough tape, but on Monday, Paychex, one of the leading payroll processors for small and medium-sized businesses, and a company that you know I like very much, big outsourced human capital management division, announced that it'd complete its acquisition of rival Paycor HCM for $4.1 billion. Now, this is the first step toward the consolidation industry that I think could certainly use it. Now that the deal's complete, I think Paychex is in a much better position to take market share. Now, we last caught up with Paychex a few weeks ago in March,
after the company reported a really good quarter. But that was before Liberation Day, through the entire market and the chaos. With the pay cord deal complete, I want to see how they can navigate this much trickier environment. So let's check in with John Gibson, the president and CEO of Paychex, to get a better read of the situation. Mr. Gibson, welcome back to Mad Money.
Hey, Jim, thanks for having back so soon. It's it's been an eventful three weeks since we spoke. Well, a lot of things have changed. But first, let's deal with the matter at hand. This acquisition, I think, is brilliant. I have liked PayCorp for a long time, in part because I like these young companies that have a lot of new good ideas. How about the two teams together? What is going to change if I'm in an account for paychecks?
Well, what I would tell you, Jim, this is a major milestone, not only for paychecks, but as you said, I think for our industry. This transaction really strengthens our competitive position upmarket. It's going to unlock a lot of new revenue opportunities for us as a company. We're going to be able to use the power of a lot of PayCorp's products and move them into the paychecks ecosystem. And we're going to be able to take a lot of the power of paychecks and move it into the PayCorp ecosystems. We've already started that process.
effective Monday. So I see a lot of opportunities for us to really position paychecks and pay core together. We're stronger together and really continue the strong long-term growth and the margin expansion that everyone's accustomed to at paychecks. Now, Wall Street itself is very, I think they're very biased toward enterprise software and not toward old-fashioned. Peg,
was exactly what they want. There have been people who have been fighting your stock the whole way for 100 points for some guys fighting your stock. Will they not be more inclined to think, oh my God, with Paycard, they had the best technology. You marry the best technology with the best client book, you're going to do a lot more business with those clients.
Well, I think you're absolutely right, Jim. This acquisition is all about growth. Together, we're going to serve nearly 800,000 clients. We're going to be paying one in 11 private sector workers in the U.S.,
This extends our total addressable market by about $10 billion, closer now to $100 billion market opportunity for us. It's extending our capabilities up market. We're going to be able to serve a lot larger enterprises. The other thing I don't think people understand is how much even large enterprises rely on
on HR outsourcing and advisory support. We certainly have been doing a lot of that in our HR outsourcing business and paychecks. And what I'm finding, including I just been down in the sales team, the inside sales team here at Paycor. I'm coming live from Paycor headquarters in Cincinnati. So I've been down in the pet
And what I can tell you, they're excited about what they're gonna be able to bring to PayCore's clients in terms of our advisory solutions. So I really think we've got the best SaaS technology capability coupled with world-class advisory services. And then Jim, you couple that with our huge amounts of data on small medium-sized businesses and the AI investments we've been making. I think we are going to be unrivaled in terms of what we can provide from a technology and advisory solutions perspective.
for clients of all sizes and all types. All sizes. That means it's not necessarily your small, medium-sized business. I look at PayCore, and I think they never had the ambition to be just small, medium-sized. They want to be big, and they want to be international. I mean, you're ready to challenge the big guys. You've always been big, but I'm able to challenge the big guys for big accounts, and they may not be ready, I got to tell you.
Well, look, Jim, I think that Paychex has the capabilities to serve clients of any size, of any needs.
From a person starting a company with one or two employees all the way up to the largest enterprises. We've put together a portfolio of capabilities. We're committed to investing in our go-to-market and in innovation, our technology platforms. And I think with the combination of Paychex and Paycor, we now have the critical assets we need to be able to address the market needs that we see out there.
Many times when I read about PayCorps, they always add the word talent management. Talent. What is talent management? Well, really, it's the full spectrum of the ability to not only attract, as you know, that's an area we've been focused on in the small, medium-sized businesses. They've been doing a lot in the enterprise size. First of all, how do we attract? How do we recruit employees in this market? Then they've done a lot in terms of employee engagement, performance management, compensation management.
all the way the entire employee lifecycle. That's an area we were investing a lot of money in, and we certainly see that we're going to be able to take their talent management capabilities and actually move that into our Paychex Flex ecosystem. So now our clients are also going to have access to their leading edge talent management and workforce management when we think about scheduling and complex scheduling that particularly happens in large enterprises. Excellent.
Excellent. Now, I want to posit something because I also know you work with the Federal Reserve. We have these talents, these tariffs. We have a lot of turmoil. But when it comes to the average worker in this country who is always going to be worried about inflation because of the dinner table issue, that worker is not really feeling exactly the kind of pain that we're feeling on Wall Street right now. Is there any truth to the idea that small, medium-sized businesses may be the winners in this kind of environment?
You know, Jim, when we talked three weeks ago, I told you that what we saw in small to medium-sized businesses was a combination of optimism and uncertainty at the same time. I think it's fair to say there's a little more uncertainty in the market. But I would tell you from a – take the emotions aside. We talked about this last time. When I look at the data –
The data continues to say we have very, when you and I talked, I told you we had our jobs report. I told you I thought you were going to see good job numbers. You saw good job numbers. I told you we were seeing moderating wage inflation. I thought inflation was going, why did the inflation numbers come back? When you look at the data right now, now I'm looking at some of our leading indicators. And what I would tell you is I'm not seeing any signs of
of a recession. I'm not seeing any movement at this time. It's almost, Jim, as if people are frozen a little bit. And I think they're trying to figure out what exactly is going on. What is the strategy here? And I think the more we can do to have a clear path, the more stability, both in terms of the tax policies, I think that's real important to small business owners,
But I step back and say this that I said all the time. Small business owners are extremely resilient. They face a lot. They don't have a lot of control of their macro environment. And so they are very adept at changing with the times. And I think what you're going to see is small businesses will continue to adapt regardless of what happens in the future. And I really have a lot of confidence in small, mid-sized businesses to really lead the way. We do need more certainty, I think, in terms of where we are going with the tariff policy.
Do people ask you, is my Social Security going to be OK? Is my Medicare going to be OK? My Medicaid? Are they asking existential questions like that because of all the all the stuff coming out of Washington?
We're not getting a lot of those type of questions at that point in time. You know, one of the things we watch a lot is our 401k business. I've not seen a lot of hardship withdrawals. I would tell you small, medium-sized business workers are in reasonably good shape based upon the data I see. I don't see any major deterioration. Now,
We're only about three weeks into this higher level of uncertainty. I'm going to be anxious to watch what I see as April develops and May develops. And we roll into into June and we begin to see more what the administration has in mind in terms of resolving some of the tariff negotiations they've got going on and how they're going to deal with the China situation. Well, I sure hope they talk to you because we don't want the backbone of America to be upset by all this stuff.
And I know that you have more of a pulse about small and medium-sized business than anyone in Washington. And it's really important for us, which is why also, besides the congratulations to PayCore, it was great to have you back on the show so quickly. John Gibson, president and CEO of Paychex. Thank you, John. Thank you, Jim. Absolutely. May I have money to be back after the break? It is time. It's time for the White Room. That's right. I'm Paul. I'm here with my staff. I'm here with my staff.
And then the lightning round is over. Are you ready? Ski Daddy. Time for the lightning round. We're going to start with Mark in Texas. Mark. Hey, Jim. How you doing? Booyah from South Texas. Good to have you on the show, Mark. What's going on? Hey, I'm calling tonight about AFG, Harrison Financial Group. Oh, you know what? To the Linder family, I've always liked that stock, and I really like it. It sure is. Your traveler's had a nice number. Let's go to Brady in Florida. Brady. Brady.
No.
Not a chance. Hey, they've got to make the garages bigger in Europe. I've been thinking about that. Now, listen to me on this, okay? Ford is epoxy to $9.40. You can't pull that thing off at $9.40. But that's good because it's not $8.40. Let's go to Drew in North Carolina. Drew. Jim, you changed my life, too. Oh, yeah? What do you think about NXT? Tell me.
NXP, it's a semiconductor company. It's closely connected with autos, which means it's a semiconductor company that I do not want to own. Let's go to Steve in Illinois. Steve. Hello, Jim. I'm a longtime fan. Been watching for decades. Very interested in Newt, N-E-W-T.
Barry Sloan, man. Barry Sloan. Oh, man. Can you believe? We got to do work on Barry. Okay, I got to come back on that one. Barry's a clever fella. So we got to do work on Newton. At least I learned how to spell it. I pronounced it correctly. I thought it was Newton code. There we go. That shows you my lack of knowledge. Let's go to Gus in Utah. Gus. Yeah, Jim. Impressive. Doing my best. First time.
long time. I wanted to have your opinion on FFK. Okay, it's this, but it's also this. It's this and it's that. I'll tell you why, because this is a business development company, and those have high yields, and I don't want to trust them because they take so much leverage, and they do all the things that we don't do when it comes to mad money. And that, Lendim, gluten, other, Lendim Round! ...
Even before the trade war, we already had real problems in this country. It's a problem of high price. And I'm telling you, it's no longer sustainable. You keep hearing that companies will have to raise prices with tariffs. That's wrong. What they really need to do is cut prices or their stuff isn't going to move off the shelves. And these companies have to stop pretending they can make it all up by endlessly cutting costs.
Things are just too expensive right now, and they're about to get even more expensive with the tariffs. But a lot of companies just aren't ready. They want to keep playing the same old, same old, cutting costs, keeping gross margins up, even with sales slowing. No day goes by without signs of this. When we read a PepsiCo downgrade yesterday, and it talks about how the price of potato chips has gotten too expensive.
Well, you can't even laugh. The price of a one ounce bag of Frito-Lay chips has increased by 66 percent from 2020 to today, according to multiple surveys online. I think it must have hit a tipping point where people are just fed up, especially when published reports show that the chip count has dropped from 18 down to 14 or 15 per bag.
So what can PepsiCo do? Well, it's been trying to sell different form factors. That apparently hasn't worked. Wrench costs out wherever it can. While they can probably find more ways to save money because they're geniuses at it, at some point, you run out of costs to cut.
To me, the answer is quite obvious. Consumer product companies simply have to take the hit. They've got to lower the prices. Of course, if they take the hit, then indeed the gross margins go down. No company ever wants that to happen. Once the gross margins come down, they fear their earnings will come down big. And at that point, only a sizable dividend can prevent your share price from falling to the floor. I've got to tell you, guys, it is worth it. This incremental game of cuts...
It's giving you a lower stock price anyway, every day. It is time to rip the darn band-aid. Let me get another. Consider the terrible numbers from the Sephora division of LVMH. The weakness came from the United States. Seriously enough, Sephora will soon be in 1,100 Kohl's locations as a store within a store. And
And Kohl's is hanging on by its fingernails. Do you think Sephora can keep prices high? I think it's got to roll back some of those price increases put through over the last few years. But then critics will say, see, Sephora's maxed out, and parent company LVMH's stock will get it. I don't care. It's another one that won't cut, and it will lose for not cutting.
And Sephora isn't the only one. LVMH brand that has to cut. I mean, these guys also make this expensive cognac called Hennessy. Judging by the double-digit decline in sales, there is no way that Hennessy can keep charging these high prices. The premium isn't worth it. Premiumization is over in this country. Now, I can see them coming with a new, cheaper kind of cognac, maybe stabilize some growth. Well, but it won't help their gross margins. They need to cut the price of Hennessy. Next, I thought that Lululemon stock might be able to stabilize, but I just don't know if it can. Why? Because it's tough
costs too much versus the other guys. Same with RH, Silk Restoration Hardware. Now, their furnishings are breathtaking, but the tariffs are going to force them to raise prices, make a lot of stuff in Vietnam, probably substantially. And that's real bad because these prices are already too high. You know what they have to do? Cut price.
Of course, companies have been managing inflation for years now, and I think they've done a pretty good job at taking price, taking dribs and drabs, a little bit of pricing here and there, a couple of pennies here, maybe a couple of times this year. But even late last year, we knew that the consumer was getting fed up with high prices. Now we have all the tariffs to deal with. And I don't know retail. I don't think retail is ready for what's about to occur. I don't know the supermarkets are ready for what's going to occur.
The customers demand lower prices, but the government's basically forcing them to raise prices to cover the cost of the tariffs. They've got to eat it. I don't know which companies will break the gross margin buck first, but I do know this. It will happen. It will happen in 2025, and they're going to do the eating. There just aren't enough costs left for them to cut. They've trimmed most of the fat. Now what's left is flesh and bone.
When these retail gross margins finally start coming down, maybe then their stocks can at last bottom. But until then, it is indeed death by a thousand cuts. There's only one choice. Merge. That's what they really have to do. When companies merge, that creates new cost-cutting opportunities, which is exactly what can prevent the margins from getting annihilated here. Otherwise, be prepared, because when potato chips are too expensive, everything's too expensive.
Alex Hedges, always bull market somewhere. Just for you, right here on MadMoney, I'm Jim Cramer. I will see you tomorrow.
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