The 2017 Industry Focus Awards: Biggest PR Blunder and Rookie of the Year

The new year is here, and it’s time to look back on some of the biggest and weirdest stories from 2017. For the first time ever, Industry Focus is hosting the Industry Focus Awards, where the hosts from all five shows come together to pitch their contenders for various titles. In this episode, the cast looks at Biggest PR Blunder and Rookie of the Year.

A full transcript follows the video.

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This episode was recorded on Dec. 26, 2017.

Kristine Harjes: Welcome to Industry Focus, the podcast that dives into a different sector of the stock market every day. I'm your host, Kristine Harjes, and we'll be doing something pretty different than our usual on this week's set of shows. We took, Monday, Christmas day, off, but we'll be releasing episodes for the rest of the week, each of which is a cut of one long show we taped earlier in the month. Joining me for a recording marathon today is the host of each Industry Focus episode. We have Financials host, Michael Douglass.

Michael Douglass: Howdy!

Harjes: Consumer Goods host, Vincent Shen.

Vincent Shen: Hey, Kristine!

Harjes: Energy and Industrials host, Sarah Priestley.

Sarah Priestley: Hey, Kristine!

Harjes: And Tech host, Dylan Lewis.

Dylan Lewis: Hey, Kristine! [laughs]

Harjes: [laughs] Hey, guys! I'm thrilled to be with you all in the studio today. It's not often that we all get to sit down and look each other in the eye while recording an episode. So this should be a ton of fun. We'll be presenting a bunch of different award categories to ring out 2017 with the first-ever Industry Focus Awards show. Over the next four episodes, you will hear a bunch of different categories and some nominations for each. To kick us off, 2017 has been a year of unforgettable moments, of course, and there are some people who probably wish we would forget some of them. So our first award category is Biggest Public Relations Blunder. Who has a nominee?

Priestley: I have the winner. I'm going to go out and say it.

Douglass: Wow, OK!

Harjes: With confidence, Sarah Priestley.

Lewis: So you're going to lead. You're not going to wait for the dramatic build-up and go last in this category.

Priestley: No.

Douglass: It's that strong.

Priestley: I mean, you'll all have to compete with it if I go first.

Douglass: True. Gold standard.

Priestley: Do you want me to go?

Lewis: Yeah.

Harjes: Let's hear it.

Priestley: OK. You may or may not remember, in April of this year, David Dao, the passenger on the United Airlines flight, was forcibly removed from the plane after the airline asked for passengers to leave so they could accommodate United (NYSE: UAL) staff that they needed to transport for work. The incident was pretty horrific. It caused a media firestorm. It brought a lot of attention to the practice of overbooking. But that's not why. [laughs] The reason I'm promoting this as a PR blunder was, CEO Oscar Munoz' response to -- and I hope I got his name right -- he said, initially, "We apologize for the overbooking situation." That's all the statement that was released on the Monday after the event on a Sunday. He followed that up later in the day by releasing a public statement that was a little bit more sensitive. He said, "This is an upsetting event for all of us here at United. I apologize for having to reaccommodate these customers."

He also said they were investigating the incident and contacting the passenger involved. However, in the evening, a letter that he sent to employees got leaked, and these are the edited highlights. He said "the situation was unfortunately compounded when one of the passengers we politely asked to deplane refused, and it became necessary to contact Chicago Aviation Security officers. Our employees followed established procedures for dealing with a situation like this, and while I deeply regret the situation, I emphatically stand behind all of you." He goes on to say that lessons can be learned, but the letter included a recap of events that described David Dao as disruptive and belligerent. And you can imagine the response to that situation. We had all kinds of people weighing in, including the very Warren Buffett, who said that the situation was made so much worse by the CEO's response. The whole thing was a lesson on how not to do it. So that is my nomination for PR Blunder of 2017. [laughs]

Harjes: And a strong contender. [laughs] Who else wants to compete with that?

Douglass: Alright, I'll hop in the ring here. In early September, Equifax (NYSE: EFX).

Priestley: [laughs] Oh, I forgot about that.

Douglass: [laughs] Yeah -- 143 million Americans' personal data potentially stolen in the big Equifax hack. Mine included, by the way. I am one of the people potentially affected. Probably other people in this room, maybe. So when you have a company whose job is to collect your data lose control of your data, that tends not to engender a lot of confidence. I'm going to keep it short and sweet. But if, dear listeners, like me, you were potentially affected, there's a simple way to find out. Go to They actually have this big banner still there that says "Notice: Equifax cyber security incident." You can click below to enter, give them your information, which hopefully they will keep track of this time, and then they can let you know whether you're potentially affected, and then also sign you up for some free credit protection services. So that's a good thing to do.

Harjes: Can I add on to why that was such a PR blunder?

Douglass: Sure!

Harjes: Correct me if I'm getting any part of this wrong, but in their response to this, didn't they set up a website that -- it was the one that you probably just pitched -- you could plug in your information to see if you were affected, but by doing that, it also inhibited you from being able to join a class action lawsuit?

Douglass: Yes. There was some chatter as well because the Consumer Finance Protection Bureau, the CFPB, had put in a rule making it easier to join class action lawsuits as opposed to being forced to take arbitration, and the Senate recently repealed that rule in a 51-50 vote. So yeah, it was very tone deaf in a lot of ways.

Harjes: OK. Yeah, all around a huge fiasco. I'm going to hop in here and do my own nomination, which definitely didn't make as widespread headlines, but I think you would agree with me that this is kind of egregious. I want to nominate a biotech company called Allergan (NYSE: AGN). It requires a little bit of backstory to explain how this works. In the wake of various drug pricing scandals, Allergan CEO, Brent Saunders, released a statement in which he committed to not raising the price of any given drug by more than 10% in a year. So one might point out that a 9.9% increase is a good bit more than inflation, so that's not really much of a moral high ground. But that's actually not what I want to call him out for.

I actually think that was generally a good PR move. Consensus opinion was that it's a good thing to do. And here's where the blunder comes in: In order to protect one of their key drugs from having its patent challenged, Allergan struck a deal with a Native American tribe, giving them $13.75 million in exchange for the tribe owning the patents to this drug and claiming sovereign immunity in order to dismiss the patent challenge, thus delaying a market entry of the generic to the drug, which of course, does exactly the opposite of keeping drug prices in line.

Priestley: Wow!

Shen: That's shady!

Lewis: [laughs] Have you guys seen the Arrested Development clip where Buster goes on a tirade of expletives, and then Michael pans and he's like, I don't think anybody's going to top that? [laughs] Vince, I know you still have one, but that's hard.

Shen: OK, mine's light. The United is a strong candidate, in terms of what I see as a straight-up PR blunder. The Equifax thing, in my opinion, is just a huge shortcoming on the company's part. And then, the response, yes, PR blunder. And then, what you just mentioned, Kristine, that's just so shady.

Mine is pretty recent, and I picked this one because I thought it was really funny. My nominee for biggest PR blunder this year is Papa John's (NASDAQ: PZZA), because ... they had comments recently from the founder and CEO John Schnatter and other chief executives of the company during their Q3 earnings call, and I think these comments were originally intended to shield them from their underperformance in that quarter, but it really ended up just blowing up in their faces completely. The company announced its third quarter results, and the headline numbers weren't too bad. They largely met expectations. But they got dinged, because they reduced their guidance for domestic comparable sales and earnings per share. And the stock traded down about 9% following the announcement. Reduced guidance tends to do that, nothing too surprising there. But overall, this company has been growing its comps for 20 straight quarters, they have been growing their domestic and international businesses for over 15 years straight. So doing pretty well overall, nothing to be too worried about as a long-term investor.

But then the leadership has to go and try and blame their underperformance in the quarter on a ridiculous scapegoat, which is the NFL protests and the corresponding ratings declines for football games that have occurred last season and this season. Schnatter and his team say multiple times how Papa John's is the No. 1 most recognized brand partnered with the NFL, and how these protests and the controversy led to tying the brand to the controversy. And then, by making these statements, they really tied the company to the controversy! Because honestly, earnings calls comments usually don't make it into the mainstream use, while these absolutely did. Schnatter basically says, NFL leadership did not nip this problem in the bud. They mention it again and again. This NFL partnership became a headwind rather than a tailwind. And what happened was, it started a huge debate with a lot of people criticizing the company for attacking the player protests. Their competitors also took the chance to absolutely rake them over the coals, making fun of their slogan "Better ingredients, better pizza," by saying, "Better pizza, better results."

And about two weeks after their earnings call, the company ends up apologizing for the comments they made on Twitter saying, we did not intend to be divisive, that they support the player's ability to protest what they see as an injustice, things along those lines. But by calling attention to this, it completely blew up in their faces. They had some very unsavory groups, like Neo-Nazi groups, for example, saying, "Oh, Papa John's, this is our No. 1 pizza." So they really associated themselves with groups they did not want to, and they had to come out in their Twitter response with something that counters that. This was just a disaster.

Harjes: Let's not forget, though, that their Twitter response also included the middle finger emoji to Neo-Nazis.

Shen: Yes, exactly, that was the counter that I was mentioning. I didn't want to ... you know? [laughs]

Douglass: [laughs] We're a family site.

Priestley: You know what's interesting about all of this, though, is just how short people's memories are. I mean, I had already forgotten about the Equifax breach, and I had actually already forgotten about the United event until Kristine reminded me. And it shows in the reports, too. United Airlines reported 39% grow to profits year over year in the second half of the year than they did last year. So it just shows you, despite calls for a boycott and other such things, it doesn't really have that much of an effect over the long term.

Lewis: Since I don't have a horse in this race, I'm not submitting anything for the PR category. I want to add some commentary on why I think I'm leaning towards Vince and Sarah as the winners here. Or losers? I don't know what the right way to phrase this is. It's not good.

Douglass: They're going to get the award.

Lewis: Because, when I think PR mistakes, with both of them, that's something where bad things happened, and management didn't just own it. Part of being leadership and being management is understanding when you have a shortcoming and when you maybe don't provide the best service, and actually maybe provide terrible service, or when you provide bad numbers. And I think you want to see management coming out and saying, "You know what? We messed up, and here's why." With the Equifax one, that's a tough one-off event to deal with. It is exactly what their business is supposed to prevent, so you would think they'd be better at it. Man. Kristine, yours is tricky too, but I have to go with either Vince or Sarah on this one.

Douglass: One of the reason I'm leaning toward Vince and Sarah's is, theirs blew up in a way that Kristine's didn't. And fair enough on the Equifax thing, I will take myself out of contention now. But I think Allergan, for better or for worst, either through effective PR or just other news of the day, I don't know, that issue with the tribe did not blow up in the same way that these other two did. For what it's worth, I think I'm leaning towards Vince's, because it was just boneheaded, top to bottom, it was just not great. They took something bad and just made it so much worse.

Harjes: Yeah, the very casual tone of the tweeted response is really what gets me with that one. So I agree with Michael.

Lewis: I think that's the icing on the cake. Sorry, Sarah.

Priestley: No, it's true. I think Twitter is the fall of a lot -- if you look at Chipotle's response to some of the foodborne illness issues that they've had, they did a Twitter response, and it just seems so casual, it doesn't seem serious enough for the event. So yeah, I agree.

Shen: The funny thing is, I appreciate the support, I actually think Sarah's is the worst, because that blew up so bad in United's face, and it cascaded with all these other stories coming out. If they did anything wrong, it became front page news for a lot of online media and other places. But I'll take the votes.

Harjes: [laughs] Alright, guys, let's move on to our second award of the day. This one is for Rookie of the Year.

Lewis: I kind of want to hop in on this one because I didn't get to pitch one for the last category. Is that all right?

Harjes: You're allowed. Can you explain for us what the award is about?

Lewis: The Rookie of the Year, this is like, you're coming out. You're a fresh, new company looking to make a splash. The company that I'm going to be pitching for this, this is one that I've talked about plenty on the Tech show, I have to give a nod to Roku (NASDAQ: ROKU) on this one.

Douglass: [laughs] Tell us how you feel about Roku, Dylan.

Lewis: Everyone's laughing about this because we may have gotten an e-mail from a listener saying, "We know exactly how you feel about Roku and Snapchat, you can talk about other companies." I have taken that feedback into consideration and will incorporate it into my programming plans for the Friday show. Moving forward. The reason I think Roku is a candidate for Rookie of the Year is, they're a streaming TV player, and they've done something that's pretty incredible as a hardware business -- they've made this amazing pivot to creating a decent platform business. You look at their first results as a publicly-traded company. They posted 40% growth on the back of their platform business growing 124% year over year, and their hardware business being relatively flat. That platform business for them drives 90% of their gross profits, which can be far more consistent, way more reliable than a hardware business. You look at a lot of the hardware makers out there -- GoPro, Fitbit. One of the struggles they have is, it's very lumpy with product issuances, and you're always subject to consumer upgrade cycles. So for Roku, not only really strong results, good growth, and the market reaction has been fantastic, but they're building a good long-term business, and it's something that a lot of companies have struggled with that operate in a similar space.

Harjes: Solid pitch. Alright, who else has a rookie to nominate?

Shen: I'll jump in with mine. My Rookie of the Year also IPO'd this year, it's Canada Goose (NYSE: GOOS). This company is one that Asit and I actually covered not too long ago, about a month ago, so fresh for anybody who heard that episode. This is an apparel company based in Canada. They make high-end outerwear and other apparel. They priced their IPO in March at about $12.78. It has since traded up over 115%. For shareholders, the stock price performance is definitely there. And I understand that might be a little bit more common, that kind of return for tech, maybe healthcare companies, too. But for the consumer and retail space, that's pretty good. That definitely puts you up there.

I like this company because they have a very well executed and long-term vision in terms of their retail footprint, both online and with their physical stores, they're focused on key fashion hub type cities, if you think about places like London, Tokyo, and New York. Over the past three fiscal years, the company has grown its revenue about 37% annually. They've expanded the gross margin over 10 percentage points, and the growth in the top and bottom lines is expected to be in the double digits through 2020. And I think the company is in the right place right now with a slow but steady approach to its growth in that over 50 years, they've managed to develop this prestige that allows them to charge -- I remember showing you these, Dylan, online -- $1,000 for one of their parkas, for example. So they definitely occupy a high-end space in terms of fashion. It's very difficult to build up that brand cache, that reputation, not only within high fashion circles, but they also outfit technical users, for example, like the U.S. Antarctic Program.

With that in mind, so many companies will spend years and years and so much money on their advertising and marketing, trying to build up their brands to this level that Canada Goose has, and even then, they might not be successful establishing that. But they're taking that reputation and spreading it out slowly. We've seen issues with a company like Coach, for example, where they essentially watered down all of that prestige that they developed over many years by expanding too quickly, and they put themselves in that position where they had to discount, and their products were available in a lot of places. Canada Goose embraces, on the other hand, having sold out items, because it builds up that demand and that hype around their products. Again, in this space, in a very competitive, difficult year or two for apparel, Canada Goose definitely stands out.

Harjes: It's like the Birkin bag of coats?

Shen: There you go.

Harjes: Alright, I think we have one more pitch for Rookie of the Year?

Douglass: One word: cryptocurrency.

Lewis: [laughs] Boo.

Douglass: [laughs] Now, hear me out, because of course, cryptocurrencies have been around for a while, but they only entered the zeitgeist, the central stage, in 2017. Jan. 1, 2017, let's go back 12 months. Jan. 1, 2017, Bitcoin is trading at $997.69. And wow, that's a really high price for something that's totally unproven. Fast forward to today, it's over $17,000. And a lot of other cryptocurrencies have begun trading. There have been a ton of ICOs, or initial coin offerings, that occurred in 2017, and the CBOE has even begun trading Bitcoin futures. Now, I think that's a strong contender for Rookie of the Year, because it's really entered, finally, central stage here in the U.S. financial system.

Lewis: I'm a little annoyed that you said cryptocurrency. I thought you were going to go with Bitcoin, and I had this whole metaphor built up about how Bitcoin winning Rookie of the Year was like how Bon Iver won Best New Artist at the Grammys in 2012, five years after his first album came out. Unfortunately, you said crypto, and there are so many other currencies that fall into that.

Harjes: But crypto has been around even longer than Bitcoin.

Shen: I think Michael should be technically disqualified.

Douglass: [laughs] Woah!

Harjes: [laughs] You pitched a company that's 30 years old!

Shen: Yeah, but they just went public. That's the whole point of Rookie of the Year.

Harjes: I don't know, I feel like that's kind of skirting the rules a little bit.

Shen: I think it would be hard to find a company that's less than a year old.

Harjes: [laughs] True.

Lewis: We're talking about issuances here. Otherwise both of us are disqualified.

Priestley: You know how I know that cryptocurrencies have gotten popular is, I received a text this morning from my brother, who has zero interest in investing, zero interest in money management, and said, "Do you think it's a good idea if I buy IOTA?" Is that a cryptocurrency that's trading right now?

Douglass: It probably is.

Priestley: I haven't even responded to him yet, because I was just so shocked.

Lewis: For me, that moment happened, I got an e-mail -- not to my work e-mail, my personal e-mail -- and it was from a scammer-style operation, and they said, "I'm a person who won all this money, and I decided to give it to all of these random people. I would like to give it to you in the form of Bitcoin. All I need you to do is set up a Bitcoin wallet, send me 0.02 Bitcoin to prove that you're there and verify, and then I will send you your lump sum of Bitcoin." So this person is trying to get all of these people to send them fractions and fractions and fractions of Bitcoin. And I was like, you know what? If scammers are turning over to this, this is becoming part of the consciousness. Because they wouldn't be trying --

Harjes: That's what validated it for you?

Douglass: Scammers are involved, so it must be.

Priestley: You attempted to go for it?

Lewis: I was thinking about it, because Bitcoin was a lot cheaper back then. [laughs]

Douglass: Whereas, nowadays, that's a chunk of change. By the way, live fact check, IOTA is a cryptocurrency.

Priestley: OK. Well, at least he's truthful.

Lewis: You had a 50-50 shot there. [laughs]

Douglass: Google is a wonderful thing.

Shen: So, votes?

Harjes: I'm going to dig my heels in and say it has to be Dylan.

Lewis: Yes! Well, that's only one vote, though, I guess.

Priestley: I also think Dylan. It's very compelling.

Shen: I'm a huge Roku fan, and we spoke about the company, you asked me a lot of questions about my experience using it before you ran the show. And I, too, will vote for Dylan.

Douglass: Well ... [laughs]

Lewis: This is a rare moment for me, because I am not very often better than Michael at something.

Douglass: Well, maybe I just picked the wrong thing, the wrong horse to back. I'll vote for Dylan as well.

Harjes: We have a ton more awards to get to, but we will do them on subsequent shows, to be released later this week. We're going to cut off part one of our four-part mega show here, and we will return tomorrow with the continuation.

As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. Or cryptocurrencies, for that matter. This show is produced by Austin Morgan. For Michael Douglass, Vincent Shen, Sarah Priestley, and Dylan Lewis, I'm Kristine Harjes, thanks for listening and Fool on!

Dylan Lewis has no position in any of the stocks mentioned. Kristine Harjes has no position in any of the stocks mentioned. Michael Douglass has no position in any of the stocks mentioned. Sarah Priestley has no position in any of the stocks mentioned. Vincent Shen has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Fitbit and GoPro. The Motley Fool has a disclosure policy.