WEBVTT - Retailers Pivoting To ’What’s Your Walmart Strategy?’ in 2018: Ed Yruma 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm Pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Bramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg p m L 0:00:20.840 --> 0:00:35.239 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. This 0:00:35.400 --> 0:00:39.600 year has been one of relative pain for the retail industry, 0:00:39.640 --> 0:00:42.680 at least outside of Walmart and Amazon, with a lot 0:00:42.680 --> 0:00:47.920 of brick and mortar stores closing, companies reconsidering their balance sheets. 0:00:48.040 --> 0:00:51.360 What will next year bring with us to discuss his 0:00:51.520 --> 0:00:54.720 Eddi Ruma. He's an equity research analyst covering retail in 0:00:54.760 --> 0:00:58.360 e commerce for key Bank Capital Markets in New York 0:00:58.400 --> 0:01:00.600 and just comes from the Key Bank but the Market's 0:01:00.600 --> 0:01:04.760 Consumer conference which went from through today and ed, we're 0:01:04.760 --> 0:01:06.800 so happy to have you and what are you looking 0:01:06.840 --> 0:01:09.480 for for next year? Glad to be here. Look, I 0:01:09.520 --> 0:01:11.520 think one of the things that's been an interesting takeaway 0:01:11.520 --> 0:01:14.280 from the conferences that results seem to have gotten a 0:01:14.280 --> 0:01:16.240 little bit better towards the end of this year, and 0:01:16.319 --> 0:01:19.400 so we think that you know better demand plus hopefully 0:01:19.440 --> 0:01:23.920 inventory levels that are aligned should drive a much better alright, 0:01:23.920 --> 0:01:27.440 a much better that's a very general statement. What are 0:01:27.480 --> 0:01:31.720 the pressures that you see afflicting the retailers on a 0:01:31.880 --> 0:01:34.360 day when we find out that Walmart is even taking 0:01:34.440 --> 0:01:37.560 the words stores out of their name. It is an 0:01:37.560 --> 0:01:41.000 interesting move by Walmart. I mean certainly, Um, you know, 0:01:41.120 --> 0:01:44.040 Amazon is the innovator in retail today and we've seen, 0:01:44.080 --> 0:01:46.600 as you pointed out, a Walmart that has been incredibly 0:01:46.640 --> 0:01:49.760 innovative as well, and you know is racing to catch up. 0:01:50.040 --> 0:01:51.960 And I think what we've been hearing from retailers here 0:01:51.960 --> 0:01:54.320 at the conference and even prior to the conferences that 0:01:54.480 --> 0:01:57.000 continued focus on e commerce, right, this is a business 0:01:57.000 --> 0:02:00.280 that requires a constant investment the consumers. No of what 0:02:00.360 --> 0:02:03.360 e commerce is or should be is changing. Uh. And 0:02:03.440 --> 0:02:06.200 certainly those best in class competitors like an Amazon or 0:02:06.240 --> 0:02:08.680 Walmart continue to get better. Okay, But did you say, 0:02:08.720 --> 0:02:12.560 did you hear anything at your conference that made you think, gee, 0:02:12.600 --> 0:02:15.480 this is something I hadn't thought of before, or these 0:02:15.480 --> 0:02:17.799 guys have really figured out a way to do something 0:02:17.840 --> 0:02:19.600 that no one else has. What have you learned from 0:02:19.600 --> 0:02:22.079 the conference? You know, one thing that we've heard that's 0:02:22.080 --> 0:02:24.400 pretty interesting is there's been this rush of companies to 0:02:24.440 --> 0:02:26.760 sell on Amazon, and I think there's a lot of 0:02:26.760 --> 0:02:29.359 discussions today on is that actually the right decision for 0:02:29.440 --> 0:02:32.280 my business? And what I mean by that specifically is 0:02:32.919 --> 0:02:35.959 Amazon is a great place if you're not seeing promotions 0:02:36.000 --> 0:02:38.720 other places in the market, but if one competitor promotes, 0:02:38.880 --> 0:02:41.760 Amazon matches it and that drives down price. So we're 0:02:41.800 --> 0:02:45.480 now hearing retailers and apparelmenters rethink whether having their product 0:02:45.520 --> 0:02:48.799 in having that on the Amazon platform is the way 0:02:48.840 --> 0:02:51.520 to go. Well. Having said that, though, I was reading 0:02:51.520 --> 0:02:55.040 a story today that Publicist, w PP and Omnicom, these 0:02:55.040 --> 0:02:57.840 are the big ad firms. They plan to boost ADS 0:02:57.880 --> 0:03:04.200 spending with Amazon between forty and one hundred percent next year. 0:03:04.600 --> 0:03:08.519 WPP says that it's currently spending around two hundred million 0:03:08.880 --> 0:03:13.119 that could increase about fifty Publicists spends anywhere from two 0:03:13.120 --> 0:03:17.080 to three hundred million on Amazon, and on the COMES 0:03:17.120 --> 0:03:19.560 spends about a hundred million dollars a year. They say 0:03:19.560 --> 0:03:22.880 they could double that amount next year. So I mean, 0:03:23.080 --> 0:03:26.120 is that something that the companies at your conference didn't 0:03:26.520 --> 0:03:30.160 recognize or are they going in another direction? I think 0:03:30.200 --> 0:03:33.680 it's certainly recognized that Amazon is the dominant force in retail. 0:03:33.960 --> 0:03:36.240 The question is is it best to have your products 0:03:36.240 --> 0:03:37.840 on Amazon or is it best to try to have 0:03:37.920 --> 0:03:41.280 them be sold directly on your website. I'd also had 0:03:41.360 --> 0:03:44.240 We've heard a lot of conversation here about Walmart and 0:03:44.280 --> 0:03:46.240 what they're doing with Lord and Taylor and whether it 0:03:46.280 --> 0:03:49.240 makes sense for more partners to uh be on that 0:03:49.320 --> 0:03:52.400 Walmart platform that quite frankly is in a much earlier 0:03:52.400 --> 0:03:56.320 stage of development. What they say, I think they're very 0:03:56.320 --> 0:03:58.840 open to it, you know, I think they clearly like 0:03:58.960 --> 0:04:02.360 Lord and Taylor, Lord tailors, lots of existing relationships, and 0:04:02.440 --> 0:04:05.680 to be on that Walmart platform, which traffic could be 0:04:05.760 --> 0:04:09.040 very exciting. So I heard from numerous companies here that 0:04:09.080 --> 0:04:11.680 this is something that they were actively involved in discussions around. 0:04:12.080 --> 0:04:15.520 So you hear constantly what's your Amazon strategy? We think 0:04:15.560 --> 0:04:17.240 next year you're going to hear more of this, what's 0:04:17.240 --> 0:04:20.960 your Walmart strategy? So just shifting gears a little bit, 0:04:21.000 --> 0:04:22.919 are more people going to be wearing yoga pants to 0:04:22.960 --> 0:04:26.640 work next year? Certainly, comfort is a big theme that 0:04:26.680 --> 0:04:29.839 we're continue to hear. What's interesting is that that comfort 0:04:29.839 --> 0:04:31.800 that used to only get in the yoga pant is 0:04:31.839 --> 0:04:34.440 now you're able to get that in denim that stretches, 0:04:34.480 --> 0:04:37.160 You're able to get that in other types of apparel, 0:04:37.200 --> 0:04:39.919 and so a certainly comfort is going to continue to 0:04:39.920 --> 0:04:42.920 be big. Is that specifically yoga pants? Time will tell, Well, 0:04:42.920 --> 0:04:45.720 I'm talking specifically at leisure because I know there were 0:04:45.760 --> 0:04:48.840 some pretty disappointing earnings this year from the likes of 0:04:48.960 --> 0:04:51.880 Nike and under Armor. And you're gonna get Lulu Lemon 0:04:51.960 --> 0:04:55.520 results after the market closes today, So we'll be watching 0:04:55.560 --> 0:04:58.159 for that some of those transparent yoga pants. But what's 0:04:58.200 --> 0:05:00.719 your what's your sense for at leisure? But there's certainly 0:05:00.720 --> 0:05:02.280 a little bit of pressure, you know. I think this 0:05:02.360 --> 0:05:05.360 has been a great growth market for almost ten years now, 0:05:05.400 --> 0:05:08.640 and certainly as the market's load, we've we've seen a 0:05:08.680 --> 0:05:11.559 little bit of change and performance. Um. We had Kevin 0:05:11.600 --> 0:05:14.880 Plank doing a talk yesterday and I think he was 0:05:14.880 --> 0:05:17.520 pretty forthrighting the challenges that his businesses faced both in 0:05:17.600 --> 0:05:20.560 seventeen uh and as his market continuous see that level 0:05:20.560 --> 0:05:24.120 of disruption. So uh, no all clear yet in in 0:05:24.200 --> 0:05:27.279 sports and and and athletic um, but you know, we 0:05:27.320 --> 0:05:30.480 are hopeful that at least this very very well. Seventeen 0:05:31.040 --> 0:05:33.520 uh ends up being leading a path to hopefully I'm 0:05:33.520 --> 0:05:36.479 more calm eighteen ed. Where are we with respect to 0:05:36.640 --> 0:05:39.919 brick and mortar store closures? How many are you expecting? 0:05:39.920 --> 0:05:43.680 Are people in the industry expecting next year? Uh? This 0:05:43.720 --> 0:05:46.279 is one area where the train is likely not to change. 0:05:46.400 --> 0:05:50.680 We continue to hear retailers talking about store closures, examining, 0:05:50.880 --> 0:05:53.680 you know, kind of what's the optimal store footprint? UM 0:05:53.839 --> 0:05:56.520 and so I think eighteen will be a repeat of seventeen. 0:05:56.560 --> 0:05:59.120 I I continue to think that we're going to see 0:05:59.160 --> 0:06:01.799 focus shift to eat com I think though the offset, 0:06:01.920 --> 0:06:04.479 and this we did hear quite frequently, it's that the 0:06:04.520 --> 0:06:07.520 store fleet that you do have should be compelling, it 0:06:07.560 --> 0:06:10.560 should be engaging, it should bring a sense of community. 0:06:10.640 --> 0:06:14.200 So we had companies like Shinola, which is um largely 0:06:14.240 --> 0:06:16.960 direct brand, talking about the strength of having a store fleet. 0:06:17.040 --> 0:06:19.800 So clearly the number of stores are coming down, but 0:06:19.839 --> 0:06:22.680 hopefully the stores that remain in existence are more interesting. 0:06:23.279 --> 0:06:26.560 Just quickly, Harmon International, which is owned by Samsung, they 0:06:26.600 --> 0:06:29.960 announced that they've got a combination with under Armor for 0:06:30.040 --> 0:06:34.680 what's called the U A sport wireless flex headphones. Is 0:06:34.720 --> 0:06:37.479 that the kind of thing that under Armour and companies 0:06:37.520 --> 0:06:40.719 like that apparel makers should be focused on. Obviously, the 0:06:40.839 --> 0:06:45.000 convergence of technology is impacting all industries, but certainly in 0:06:45.040 --> 0:06:48.360 apparel um under Armor understands, you know. They they've got 0:06:48.360 --> 0:06:51.800 a great data platform, so they know how long your 0:06:51.839 --> 0:06:54.240 run is, they know what you've been eating, and sort 0:06:54.240 --> 0:06:57.599 of capitalize on that by giving other tech products around 0:06:57.600 --> 0:07:00.040 that I think are really important. But ultimately, what's to 0:07:00.160 --> 0:07:02.679 drive the success of underarmers selling more shirts and shoes 0:07:03.839 --> 0:07:06.360 and that that's been a that's been a challenge for them. 0:07:06.360 --> 0:07:10.000 The shares of under Armore down more than fifty so 0:07:10.080 --> 0:07:13.280 far this year, Thanks very much. Eduma. He is equity 0:07:13.280 --> 0:07:16.120 research channelists covering retail and e commerce for a key 0:07:16.160 --> 0:07:37.120 bank Capital Markets. President Donald Trump is set to make 0:07:37.160 --> 0:07:40.880 a statement on Jerusalem from the Diplomatic Reception Room in 0:07:40.880 --> 0:07:44.240 the White House that will take place at one pm 0:07:44.400 --> 0:07:46.720 Eastern time. Will of course bring that to you live 0:07:47.240 --> 0:07:51.320 and to speak more about the topic of foreign relations, 0:07:51.360 --> 0:07:54.360 we have with US Caitlin Weber or Bloomberg News, government 0:07:54.360 --> 0:07:59.560 analyst for Bloomberg Intelligence, and Nick Wadhams are foreign policy reporter. Nick. 0:07:59.680 --> 0:08:02.400 Let's be again with you, what do we expect the 0:08:02.440 --> 0:08:06.720 president to say in any detail about Jerusalem as the 0:08:06.800 --> 0:08:11.640 capital of Israel. Well, he will say that the US 0:08:11.720 --> 0:08:16.720 recognizes Jerusalem as Israel's capital, and he will also direct 0:08:16.840 --> 0:08:20.080 the State Department to begin the process which is expected 0:08:20.120 --> 0:08:22.680 to take many years, you know, at least four or 0:08:22.680 --> 0:08:28.800 five years of the process of building an embassy there. Um, 0:08:28.880 --> 0:08:32.440 he will continue to sign a waiver as required under 0:08:32.520 --> 0:08:36.760 US law, Um that he'll keep the embassy for now 0:08:36.800 --> 0:08:40.559 in Tel Aviv. But really this is a symbolic move 0:08:40.600 --> 0:08:44.880 where he will declare that the US recognizes that Jerusalem 0:08:44.920 --> 0:08:47.760 is the capital of Israel. Nick and Caitlin, I'm going 0:08:47.840 --> 0:08:50.040 to get you at one in one second. But Nick, 0:08:50.080 --> 0:08:52.000 you say it's a symbolic move, but it's one that's 0:08:52.000 --> 0:08:55.200 gotten a lot of attention worldwide. Of course, the Middle 0:08:55.200 --> 0:08:57.880 East has been a spot of incredible tensions, and the 0:08:57.960 --> 0:09:01.720 U s allies are coming out sharply critical of this move, 0:09:01.760 --> 0:09:04.360 saying that it will hinder any attempts to broker a 0:09:04.400 --> 0:09:07.600 peace agreement just quickly. Uh, do you think that this 0:09:07.640 --> 0:09:10.079 could have a much bigger consequence that it might seem 0:09:10.160 --> 0:09:13.920 just based on its sort of symbolic nature. Yeah, I mean, 0:09:13.960 --> 0:09:18.440 the concern about from allies UM about this move is 0:09:18.480 --> 0:09:22.640 that it will basically pre judge negotiations over the status 0:09:22.679 --> 0:09:26.480 of of Jerusalem has worked out in any negotiation. And 0:09:26.520 --> 0:09:29.680 then also it would UH sort of cast doubt on 0:09:29.720 --> 0:09:32.439 the idea that the US is a neutral uh and 0:09:32.679 --> 0:09:36.439 unbiased arbiter in these negotiations, that the US is willing 0:09:36.480 --> 0:09:41.400 to recognize Jerusalem is the capital as Israel's capital, than uh, 0:09:41.480 --> 0:09:45.320 it is biased towards Israel and against the Palestinians in 0:09:45.400 --> 0:09:47.760 these negotiations and can't be seen as a sort of 0:09:48.040 --> 0:09:51.280 an honest and neutral broker. So it's it's important also 0:09:51.480 --> 0:09:54.280 to think that the relationship that the US has with 0:09:54.320 --> 0:09:57.959 its allies will also UH dictate some of the path 0:09:58.120 --> 0:10:01.600 of the ongoing tensions with North Korea. Kaitlin, can you 0:10:01.640 --> 0:10:04.920 just bring us up to up to speed with respect 0:10:04.920 --> 0:10:07.640 to the state of play in North Korea, the UH, 0:10:07.920 --> 0:10:10.880 the sort of exercises that have been going on with 0:10:11.200 --> 0:10:13.640 South Korea and the US and kind of where are 0:10:13.760 --> 0:10:17.240 allies stand right now. Yeah, over the past year, we've 0:10:17.280 --> 0:10:20.439 really seen tensions between the West and North Korea kind 0:10:20.440 --> 0:10:23.520 of ebb and flow. UM. Earlier, this fault looked like 0:10:23.600 --> 0:10:26.760 they were sort of um decreasing. They had been, you know, 0:10:26.960 --> 0:10:29.560 a couple of months, but when North Korea didn't launch 0:10:29.600 --> 0:10:33.559 any any missile tests, that all changed last late last month, UM, 0:10:33.600 --> 0:10:37.920 when North Korea really escalated, UM it's test launching. They 0:10:38.360 --> 0:10:41.400 they potentially the furthest reaching I CBM missile it had 0:10:41.760 --> 0:10:45.800 UM had so far. So you know, looking sort of 0:10:46.040 --> 0:10:48.160 you know to next year, we think it could be 0:10:48.160 --> 0:10:52.480 potentially a really decisive year in that conflict. UM. Some 0:10:52.559 --> 0:10:54.600 people think it might be the sort of the last 0:10:54.679 --> 0:10:57.120 chance to prevent North Korea from becoming really a full 0:10:57.160 --> 0:11:00.839 fledged nuclear weapons power. And there's an number of released 0:11:00.840 --> 0:11:04.240 sensitive events on the on the calendar next year, UM, 0:11:04.320 --> 0:11:06.800 including the Olympics in South Korea in February, and then 0:11:06.800 --> 0:11:09.679 also the the end of the the the anniversary of 0:11:09.720 --> 0:11:11.520 the end of the Korean War, and the anniversary of 0:11:11.559 --> 0:11:13.640 the founding of North Korea. Those are both events that 0:11:13.679 --> 0:11:18.080 are often marked with missile tests. Caitlin, if you could 0:11:18.080 --> 0:11:23.600 comment on the perhaps not bipartisan and the more unilateral 0:11:23.679 --> 0:11:26.680 approach on the part of US foreign policy under President 0:11:26.720 --> 0:11:30.719 Donald Trump, because I believe that allies such as UK 0:11:30.840 --> 0:11:35.840 Prime Minister Theresa May coming out and offering negative comments 0:11:35.920 --> 0:11:40.079 about the upcoming speech that President Trump is going to 0:11:40.160 --> 0:11:43.040 make detailing a Jerusalem as the capital of Israel. So 0:11:43.040 --> 0:11:45.760 he's got allies who do not agree with that stand. 0:11:46.920 --> 0:11:49.560 I think in terms of North Korea, UM, the Trump 0:11:49.600 --> 0:11:52.439 administration has sort of gone back and forth between whether 0:11:52.520 --> 0:11:55.800 or not they want to UM work with China and 0:11:56.000 --> 0:11:58.079 the U N in terms of pressuring Piong Yang I 0:11:58.160 --> 0:12:01.959 sort of come into line. UM. You know, the there 0:12:02.120 --> 0:12:05.200 was un sanctions about six months ago that went into 0:12:05.240 --> 0:12:10.240 place UM, and since then the US has passed UM 0:12:10.480 --> 0:12:13.280 much stronger unilateral sanctions, something that was really looked at 0:12:13.400 --> 0:12:17.920 UM negatively by the Chinese government. It's it's unclear, UM. 0:12:17.960 --> 0:12:21.400 You know what going forward what the Trump administration stands 0:12:21.559 --> 0:12:23.160 will be, whether they want to continue to go it 0:12:23.200 --> 0:12:27.040 alone or or work sort of more multilaterally. I think, 0:12:27.559 --> 0:12:30.920 you know North Korea, before it agrees to talks, is 0:12:31.160 --> 0:12:33.560 it's likely going to you know, going to have to 0:12:33.559 --> 0:12:37.640 be a high level multilateral effort. Nick, come on in here. 0:12:37.679 --> 0:12:40.560 I want to talk about just generally the U S 0:12:40.600 --> 0:12:43.480 foreign policy. I know there's been a lot of criticism 0:12:43.520 --> 0:12:46.800 aimed at Rects tillersting questions about whether he will remain 0:12:47.040 --> 0:12:50.760 in place as Secretary of State. I'm just wondering, is 0:12:50.800 --> 0:12:55.800 there behind the scenes more cohesion among the foreign policy 0:12:55.840 --> 0:12:59.280 walks in this administration than perhaps it might seem from 0:12:59.360 --> 0:13:03.719 the outside It My impression is there is not cohesion. 0:13:03.840 --> 0:13:06.040 And and one of the challenges that we've faced in 0:13:06.160 --> 0:13:10.720 reporting out the foreign policy priorities of this administration is, uh, 0:13:11.200 --> 0:13:13.839 you never really know who is calling the shots or 0:13:13.960 --> 0:13:15.840 or what the priorities are. I mean, if you look 0:13:15.880 --> 0:13:20.040 at North Korea, for example, Uh, you saw the U. S. 0:13:20.120 --> 0:13:22.439 Investador to the UN, Nicky Hamley, make remarks at a 0:13:22.520 --> 0:13:26.719 Security Council meeting last week where she basically gave a 0:13:26.880 --> 0:13:30.080 sort of policy prescription that was different from what the 0:13:30.080 --> 0:13:32.840 State Department said. She said, country should cut off all 0:13:32.920 --> 0:13:36.880 ties with North Korea and uh, sever all diplotic ties. 0:13:37.200 --> 0:13:40.440 When we question the State Department spokeswoman on that um 0:13:40.480 --> 0:13:44.040 a day later, she said, uh, she wouldn't go that far. 0:13:44.280 --> 0:13:48.240 She said that essentially they're encouraging countries to reduce ties, 0:13:48.280 --> 0:13:50.880 but she wouldn't say they wanted countries to cut off 0:13:50.920 --> 0:13:53.560 all ties. So, I mean, that's just a small example 0:13:53.600 --> 0:13:55.959 of something we face all the time. Where you never 0:13:56.080 --> 0:13:59.240 quite know who is speaking for the President, who is 0:13:59.280 --> 0:14:03.520 speaking for US US policy, because in the different branches 0:14:03.640 --> 0:14:07.839 and the different agencies there are substantive differences on what 0:14:08.000 --> 0:14:11.160 various people say the US is doing and should be doing. 0:14:12.040 --> 0:14:15.120 Is there is there any surprise that the oil prices 0:14:15.160 --> 0:14:17.800 are actually lower today as a result of this. I mean, 0:14:17.920 --> 0:14:19.960 normally you would say, all right, there's turmoil in the 0:14:20.040 --> 0:14:22.280 Middle East and they're going to be problems because of 0:14:22.400 --> 0:14:24.560 some policy change on the part of the United States. 0:14:25.080 --> 0:14:28.360 You don't see any any reaction in the market. Well, 0:14:28.560 --> 0:14:31.040 I mean, we will see. I think we really have 0:14:31.200 --> 0:14:34.080 to wait until after the President speaks. Everybody I've been 0:14:34.200 --> 0:14:37.080 talking to it the State Department says, wait till you wait, 0:14:37.160 --> 0:14:38.920 wait till you hear what he says. It will be 0:14:39.040 --> 0:14:42.600 a more nuanced speech than you than you think. Um. 0:14:42.800 --> 0:14:47.000 But so far, yes, there people are saying that they 0:14:47.080 --> 0:14:50.640 have not seen a great deal of protests outside US 0:14:50.680 --> 0:14:54.920 embassies on the street in places like Cairo. Uh So 0:14:55.640 --> 0:14:58.160 a muted response so far. But the real test will 0:14:58.200 --> 0:15:00.840 be after the President delivers his speech. And of course 0:15:01.120 --> 0:15:04.640 we're also looking at what the trade ramifications will be 0:15:05.160 --> 0:15:08.360 with some of our allies stemming from the tax plan, 0:15:08.560 --> 0:15:12.520 because it evidently is not being met with some criticism overseas. 0:15:12.600 --> 0:15:16.600 Caitlin Webber, government analyst for Bloomberg Intelligence focusing on US 0:15:16.640 --> 0:15:20.040 trade policy, as well as well as Nick Waddam's foreign 0:15:20.080 --> 0:15:23.240 policy reporter for Bloomberg News. Both of you thank you 0:15:23.440 --> 0:15:26.240 so much for your insights. Definitely a lot of moving 0:15:26.320 --> 0:15:28.960 piece is hard to get your arms around, but really, 0:15:29.000 --> 0:15:30.560 Pim and when we talk to people, what's going to 0:15:30.640 --> 0:15:33.640 affect the markets? Are some of these trade tensions that 0:15:33.720 --> 0:15:53.800 are picking up. Well. The company is Transao, and it's 0:15:53.880 --> 0:15:56.840 chief executive is Chris Poppas, and he joins us here 0:15:56.960 --> 0:16:00.360 in our eleven three oh studios and Transio Well, it 0:16:00.440 --> 0:16:04.520 has its fingers in many different industries, automotive building as 0:16:04.560 --> 0:16:09.000 well as electrical medical packaging. It's in the plastics business 0:16:09.080 --> 0:16:11.720 as we remember. Chris, thank you very much for being here. 0:16:11.840 --> 0:16:16.320 Much appreciated. I wanted to just skip ahead to Hurricane 0:16:16.400 --> 0:16:20.000 Harvey and the rebuilding efforts that have gone on because 0:16:20.040 --> 0:16:22.880 I know that several of your facilities were affected by 0:16:23.000 --> 0:16:25.200 the hurricane, and I wonder if you could just give 0:16:25.280 --> 0:16:27.400 us a quick update on what's going on. Well, we 0:16:27.560 --> 0:16:31.240 had in our case actually no real impact on our facilities. 0:16:31.720 --> 0:16:35.440 We were a distance from the hurricane and Louisiana, So 0:16:35.800 --> 0:16:38.600 in our case, UM we had a short term lift 0:16:38.640 --> 0:16:40.800 because our facilities are up and running while others were not. 0:16:41.000 --> 0:16:44.720 But more broadly, the hurricane, while devastating a course for 0:16:44.800 --> 0:16:49.520 the region, UM is going to stimulate construction activity post 0:16:50.080 --> 0:16:53.400 for rebuilding and automotive you know, something like a million 0:16:53.520 --> 0:16:56.200 cars will have to be replaced over the course the 0:16:56.280 --> 0:16:59.880 next year or so, so aside from blips or sort 0:16:59.920 --> 0:17:03.040 of temporary effects from the hurricanes. I'd love to get 0:17:03.080 --> 0:17:06.000 your take just overall of what you're seeing with respected demand, 0:17:06.040 --> 0:17:10.800 because Trina really has a pretty amazing view of the 0:17:10.880 --> 0:17:15.159 economy since the products are and everything from automake automobiles 0:17:15.280 --> 0:17:17.920 to smartphones to anything else that you buy that has 0:17:18.359 --> 0:17:21.520 plastic components. Right. We we cross over many applications as 0:17:21.560 --> 0:17:25.760 you mentioned, you know, including carpet construction, packaging, and we 0:17:25.840 --> 0:17:27.800 do it globally, so we have a good view. Now 0:17:27.880 --> 0:17:30.359 sixty sixty two percent of our sales are in Europe, 0:17:31.040 --> 0:17:32.480 so I have a better view of Europe, of course 0:17:32.520 --> 0:17:36.080 than the Americas. We have twenty in Asia, but you know, 0:17:36.119 --> 0:17:40.119 we're pretty constructive on all of those segments. Um. And 0:17:40.560 --> 0:17:42.800 when we gave our guidance, for example, for next year, 0:17:42.840 --> 0:17:45.160 which we just just came out with about seven dollars 0:17:45.200 --> 0:17:48.240 and ninety cents of share of earnings, we did not 0:17:48.400 --> 0:17:52.080 forecast any real uplift in the economy from seventeen to eighteen. 0:17:52.680 --> 0:17:55.199 We generally felt the economy of eighteen would be similar 0:17:56.080 --> 0:17:59.200 to seventeen, which is pretty modest actually in terms of 0:17:59.359 --> 0:18:01.960 actual growth. And you're talking global here, and we're talking 0:18:02.000 --> 0:18:04.399 global here, so we're thinking in a two two and 0:18:04.400 --> 0:18:09.399 alf Uh, you know, economic growth agenda to drive our 0:18:09.440 --> 0:18:12.040 earnings growth. But if we had more than that, if 0:18:12.040 --> 0:18:14.440 the economies in fact grew faster, because we're in so 0:18:14.520 --> 0:18:17.320 many different segments, we would generally see a rise across 0:18:17.359 --> 0:18:20.479 all those segments. I'm fascinated by this because we've been 0:18:20.560 --> 0:18:23.000 hearing from a number of strategists saying that the FED 0:18:23.119 --> 0:18:25.320 is going to hike four times next year, that we're 0:18:25.560 --> 0:18:29.920 reaching the synchronized global growth story. Uh, this forecast that 0:18:30.040 --> 0:18:32.280 you just gave out their flies in the face of that, 0:18:33.600 --> 0:18:37.480 Why are you bearished? No, we're not bearish. We're saying 0:18:37.560 --> 0:18:40.760 that we can see a rise in our earnings this year. 0:18:40.840 --> 0:18:44.160 We forecast about seven sixty a share next year seven nine. 0:18:45.000 --> 0:18:47.040 We're saying that we can see a rise in our 0:18:47.119 --> 0:18:51.280 earnings independent of whether there is in fact a global lift. 0:18:51.400 --> 0:18:53.560 So we gave our guidance. We were just saying that 0:18:54.560 --> 0:18:58.560 on the basis of today's economic activity, we could see 0:18:58.600 --> 0:19:01.399 earnings next year of seven dollars ninety cents. If in 0:19:01.560 --> 0:19:05.440 fact the economy grows globally, then we would in fact 0:19:05.520 --> 0:19:08.520 have generally higher earnings in that so we're not barished. 0:19:08.560 --> 0:19:11.119 We just wanted to make that reference to our forecast, 0:19:11.440 --> 0:19:13.600 to our earnings guidance. I just want to make it 0:19:13.680 --> 0:19:16.640 even simpler. You make the plastic that makes lego blocks, 0:19:17.200 --> 0:19:19.800 isn't that right? Well, that's an application that we are in, 0:19:19.920 --> 0:19:22.440 of course, along with many, many, many many others. No, No, 0:19:22.600 --> 0:19:27.080 I clearly, but I mean you know everybody knows. Or 0:19:27.160 --> 0:19:31.040 yogurt cups would be another example. Very good, Um, tell 0:19:31.119 --> 0:19:33.399 us about a business in China, because I know that 0:19:33.560 --> 0:19:37.119 you've just really started production there at a new plant. 0:19:37.320 --> 0:19:39.440 We have a new plant. We've been in China for years. 0:19:39.560 --> 0:19:42.119 We're in China, or in Korea, we're in Indonesia with 0:19:42.320 --> 0:19:45.119 with assets with plants and sales, of course, but we 0:19:45.240 --> 0:19:48.440 just started up a new plastics facility and ABS plant 0:19:48.520 --> 0:19:52.640 we call it, which is used in engineered applications, automotive 0:19:52.720 --> 0:19:56.040 apply and smartphones, and we put it in China, and 0:19:56.119 --> 0:19:58.480 we just started up a month ago on time, on 0:19:58.640 --> 0:20:03.040 budget because of the growth in that particular region for 0:20:03.160 --> 0:20:06.080 those markets and the kind of material we make there 0:20:06.680 --> 0:20:10.240 is relatively unique compared to others, and our customers, mainly automotive, 0:20:10.840 --> 0:20:13.119 want us to be where they're going to be building 0:20:13.400 --> 0:20:15.960 their cars, which of course is in China. So in 0:20:16.080 --> 0:20:17.960 that scenario, it made sense for us to put that 0:20:18.040 --> 0:20:21.280 asset in China, which we did. Which product do you 0:20:21.320 --> 0:20:23.840 think will be the biggest growth story next year? I 0:20:23.920 --> 0:20:28.520 think too are rubber products for high performance tires, where 0:20:28.560 --> 0:20:30.920 we also have a new plant coming up in January 0:20:31.000 --> 0:20:35.879 in Germany, and our engineered performance plastics where we have 0:20:35.960 --> 0:20:38.719 the new plant in China. Those two will be our 0:20:38.760 --> 0:20:41.479 growth story for next year. Now. We on our investor 0:20:41.560 --> 0:20:43.600 Day about a year and a half ago, we suggested 0:20:43.960 --> 0:20:47.800 a hundred million dollars of EBITDA growth in performance plastics 0:20:48.040 --> 0:20:50.960 and we outline investments that would drive that. Two of 0:20:51.040 --> 0:20:54.480 those are the rubber plant in in Germany and the 0:20:54.560 --> 0:20:56.639 A B. S plant in China. So we're delivering on 0:20:56.720 --> 0:21:00.800 those investments as we described in November of two thousand six. 0:21:01.720 --> 0:21:05.040 Is it easy to raise money we have, Well, we 0:21:05.119 --> 0:21:07.600 have a fantastic balance sheet, you know, we're our leverage 0:21:07.640 --> 0:21:10.320 is one point three times. We're generating. We have the 0:21:10.400 --> 0:21:12.719 highest free cash flow yield of anybody in the chemical 0:21:12.800 --> 0:21:16.240 space at about so we have very strong cash flows. 0:21:16.280 --> 0:21:19.920 We just refinanced our balance sheet just a few months ago. Um, 0:21:20.200 --> 0:21:22.840 we have a terrific balance sheet in our case. But 0:21:22.960 --> 0:21:24.760 the answer your question is it is easy to raise 0:21:24.800 --> 0:21:26.480 money if you need to raise money. In our case, 0:21:27.160 --> 0:21:30.280 we have a stellar balance sheet, lots of free cash flow, 0:21:30.440 --> 0:21:34.280 lots of capability to grow anymore without having access the 0:21:34.400 --> 0:21:39.840 capital markets. We just complete our first acquisition successful nice 0:21:40.119 --> 0:21:44.040 comping in in Italy that makes some term plastic glastomers. 0:21:44.160 --> 0:21:46.960 Very nice product line. We're looking. But it's hard, it's 0:21:47.040 --> 0:21:51.480 really hard. Valuations are high, very hard to do acquisitions. 0:21:51.560 --> 0:21:54.240 In our view, in today's market, high valuation is tough 0:21:54.320 --> 0:21:56.479 to do. Chris Pappas, thank you so much for joining us. 0:21:56.520 --> 0:21:59.560 A pleasure speaking with you. Chris, Pappas is chief executive 0:21:59.600 --> 0:22:03.360 officer of Trinco, which is based in Pennsylvania but has 0:22:03.880 --> 0:22:07.480 plants and sells products all over the world. It's amazing 0:22:07.640 --> 0:22:10.840 how big the market is for all this stuff that 0:22:10.960 --> 0:22:14.680 you buy, all the components, the plastics, uh and and such. 0:22:30.600 --> 0:22:33.320 A year ago, if you asked too many credit fund managers, 0:22:33.359 --> 0:22:36.000 they would say, we're in the eighth, maybe ninth inning 0:22:36.440 --> 0:22:39.720 this year. Perhaps we're in the seventh inning, or perhaps 0:22:39.760 --> 0:22:41.800 we're in the eleventh inning. We're gonna go extra innings 0:22:42.200 --> 0:22:44.399 to fifteen. Here to talk about that. As Frank oh 0:22:44.480 --> 0:22:47.520 c No. He has senior portfolio manager at new Fleet 0:22:47.560 --> 0:22:50.640 Asset Management, which oversees twelve billion dollars and it's based 0:22:50.680 --> 0:22:53.639 in Hartford. Thank you so much of Frank for joining us. 0:22:53.760 --> 0:22:55.879 I want to start with how close we are to 0:22:55.960 --> 0:22:58.280