WEBVTT - BI Weekend: Mars, Kellanova Deal, New Starbucks CEO 0:00:00.600 --> 0:00:07.720 Bloomberg Audio Studios, Podcasts, radio news. 0:00:10.560 --> 0:00:14.400 This is Bloomberg Intelligence with Alex Steinel and Paul'sweenye. 0:00:14.480 --> 0:00:17.720 The real app performance has been the US corporate high yield. 0:00:17.880 --> 0:00:20.239 Are the companies lean enough? Have they trimmed all the fats? 0:00:20.280 --> 0:00:24.079 The semiconductor business is a really cyclical business. 0:00:23.560 --> 0:00:27.160 Breaking market headlines and corporate news from across the globe. 0:00:27.240 --> 0:00:29.840 Do investors like the M and A that we've seen? 0:00:30.080 --> 0:00:31.040 These are two. 0:00:31.000 --> 0:00:33.120 Big time blue chip companies. 0:00:33.280 --> 0:00:36.920 The window between the peak and cut changing super fast. 0:00:37.080 --> 0:00:41.960 Bloomberg Intelligence with Alex steel and Paul'sweenye on Bloomberg Radio. 0:00:43.040 --> 0:00:45.480 On Today's Bloomberg Intelligence Show, we dig inside the big 0:00:45.520 --> 0:00:47.839 business stories impacting Wall Street and the global markets. 0:00:47.960 --> 0:00:49.920 Each and every week we provide in depth research and 0:00:50.000 --> 0:00:51.720 data on some of the two thousand companies and one 0:00:51.800 --> 0:00:54.360 hundred and thirty industries our analysts cover worldwide. 0:00:54.400 --> 0:00:57.800 Today we'll discuss a leadership shakeup at the coffee chain Starbucks. 0:00:57.840 --> 0:01:00.160 Plus we'll look at why the US Justice Department and 0:01:00.200 --> 0:01:02.560 maybe considering a breakup of Alphabet's Google. 0:01:02.680 --> 0:01:04.680 But first we dive into a big deal in the 0:01:04.800 --> 0:01:05.399 M and A space. 0:01:05.560 --> 0:01:08.080 This year, Mars agreed to buy Calenova for nearly thirty 0:01:08.120 --> 0:01:10.960 six billion dollars and this brings together two major food 0:01:11.000 --> 0:01:12.920 companies and the biggest deal this year. 0:01:13.000 --> 0:01:15.000 And this comes as a package food industry has been 0:01:15.040 --> 0:01:17.959 grappling with declimbing volumes, slow in growth, and a weakening 0:01:18.040 --> 0:01:18.880 global consumer. 0:01:19.080 --> 0:01:21.960 For more, we are adorned by Jennifer Bartasha's Bloomberg Intelligence 0:01:21.959 --> 0:01:24.920 senior analyst Retail, staples and packaged Food. We first asked 0:01:25.000 --> 0:01:28.160 Jennifer why this Mars Kelenova deal is actually happening. 0:01:28.520 --> 0:01:30.840 There's a couple of things. The first is, you know, 0:01:30.880 --> 0:01:33.760 from a Mars portfolio perspective, when it comes to the 0:01:33.800 --> 0:01:38.360 snacking category, they are heavily exposed to chocolate and coco 0:01:38.400 --> 0:01:41.280 has been a structural issue in terms of cost for 0:01:41.319 --> 0:01:44.280 a while and we think that's going to continue indefinitely. 0:01:44.959 --> 0:01:48.160 And so this helps them diversify out that snacking side 0:01:48.160 --> 0:01:50.840 of their portfolio, and it also helps them do a 0:01:50.840 --> 0:01:53.120 little bit more in emerging markets, which is an area 0:01:53.160 --> 0:01:54.680 where Kelenova has some strength. 0:01:54.960 --> 0:01:58.640 So, okay, so is it offense or defense from that perspective, 0:01:58.640 --> 0:02:00.560 because it feels like it could be a combination both 0:02:00.600 --> 0:02:04.040 like diverse by away from just pure cocoa but also expand. 0:02:04.480 --> 0:02:06.840 Yeah, I think it's a combination of the two. It's 0:02:07.360 --> 0:02:09.600 on the cocoa side, it's a little bit of risk mitigation, 0:02:10.240 --> 0:02:11.920 you know, and helping to ease some of the costs 0:02:11.919 --> 0:02:15.200 they're feeling there. And you know, traditionally chocolate has held 0:02:15.240 --> 0:02:18.120 up actually really well through the pandemic and after the pandemic, 0:02:18.440 --> 0:02:20.280 but we're finally starting to see a little bit of 0:02:20.320 --> 0:02:24.120 weakness and consumer demand for chocolate just because of food inflation, 0:02:24.880 --> 0:02:28.320 and so diversification will will certainly help with that. And 0:02:28.360 --> 0:02:30.959 then you know, on a global basis, Mars has leading 0:02:31.120 --> 0:02:32.960 you know, they're in the top three market share in 0:02:33.000 --> 0:02:37.360 almost every region in confectionery, and so having more of 0:02:37.400 --> 0:02:40.480 the salty snack side and getting more into that can 0:02:40.520 --> 0:02:42.919 only consolidate their market share position in a lot of 0:02:43.040 --> 0:02:44.760 leading global, you know, regions. 0:02:45.760 --> 0:02:48.200 Jen, what makes us deal really interesting for me is 0:02:48.480 --> 0:02:51.000 the Mars company. Because it's a private company. What do 0:02:51.040 --> 0:02:55.440 we know about Mars? Maybe I don't know the size capitalization, 0:02:56.520 --> 0:02:59.280 did they ever talk to investors. 0:02:59.240 --> 0:03:02.560 Very rarely, you know, but what they have disclosed, you know, 0:03:02.560 --> 0:03:05.320 their annual revenue is a little over fifty billion dollars, 0:03:05.639 --> 0:03:09.320 So definitely a sizable company. And what I think is 0:03:09.400 --> 0:03:12.800 very interesting is when you break that revenue down, nearly 0:03:12.840 --> 0:03:16.160 sixty percent of their revenue is coming from pet food. 0:03:16.800 --> 0:03:20.600 So although everybody associates Mars with chocolate, the larger portion 0:03:20.639 --> 0:03:22.680 of their business is pet and so they own the 0:03:22.680 --> 0:03:26.600 Pedigree brand, they own the Whiskers brand, and that is 0:03:26.639 --> 0:03:29.160 a big powerhouse for them. That's part of the reason 0:03:29.200 --> 0:03:30.919 we think there actually won't be a lot of FTC 0:03:31.080 --> 0:03:33.400 pushback on this because it's a smaller port of their 0:03:33.440 --> 0:03:37.800 portfolio and the products are there's really no overlap between 0:03:37.840 --> 0:03:39.520 what Kelenova does and what Mars does. 0:03:39.840 --> 0:03:41.160 Amazingly, I did not know that. 0:03:41.200 --> 0:03:42.080 I did not know that at all. 0:03:42.520 --> 0:03:46.960 Why we love John Bartras. I mean, that would kill them, 0:03:47.000 --> 0:03:49.880 but sure right, dogs can't have chocolate from that thing. 0:03:50.320 --> 0:03:51.920 And so Jen, does this mean we're going to see 0:03:51.920 --> 0:03:53.560 a lot of other m and A in the space? 0:03:53.560 --> 0:03:55.680 And if so, sort of who and where would we 0:03:55.720 --> 0:03:56.080 see that. 0:03:56.680 --> 0:03:59.240 We've seen a lot of a sentiment towards tuck In 0:03:59.400 --> 0:04:03.160 acquisition over the last couple of years. But there are 0:04:03.200 --> 0:04:06.240 some pressures that are affecting the industry. So when you 0:04:06.480 --> 0:04:08.760 listen to what all of these package food companies are 0:04:08.760 --> 0:04:11.480 saying their priority for twenty twenty four and headed into 0:04:11.520 --> 0:04:16.279 twenty twenty five is regaining volume. But the problem is 0:04:16.320 --> 0:04:18.760 that consumers not yet in a position where they're buying 0:04:18.839 --> 0:04:22.040 bigger volumes of food, and so M and A is 0:04:22.080 --> 0:04:25.760 a potential route to be able to better navigate the market. 0:04:25.920 --> 0:04:28.599 So you know, in this instance, with this deal, we're 0:04:28.640 --> 0:04:32.480 expecting over a billion dollars in synergies between Mars and Kelenova, 0:04:32.600 --> 0:04:36.280 coming from procurement, coming from manufacturing, things like that. So 0:04:36.600 --> 0:04:39.080 I think that this deal may spark at least some 0:04:39.400 --> 0:04:42.920 consideration for larger deals again in the package food space, 0:04:42.960 --> 0:04:45.880 as they're trying to find ways to contain costs, expand 0:04:45.920 --> 0:04:48.920 their geographic and product footprint at a time when it's 0:04:48.960 --> 0:04:53.000 hard to spend to spur consumers into buying greater volumes, 0:04:53.279 --> 0:04:55.040 So it may be an alternative for them. 0:04:55.160 --> 0:04:58.760 In food inflation, you cover the package good companies, you 0:04:59.000 --> 0:05:02.680 cover the grocery stores as well. Those prices, while the 0:05:02.760 --> 0:05:06.159 rate of inflation has slowed, those prices ain't coming down, 0:05:06.240 --> 0:05:06.880 are they. 0:05:06.880 --> 0:05:09.560 They're coming down, but very very slowly. And so if 0:05:09.560 --> 0:05:11.919 you look on it on a basis, you know, comparison 0:05:11.960 --> 0:05:15.040 back to twenty nineteen, food prices are still almost twenty 0:05:15.080 --> 0:05:18.520 percent higher than they were in twenty nineteen. In certain 0:05:18.600 --> 0:05:22.960 categories where there's been relief, especially from the cost of commodities. 0:05:23.320 --> 0:05:26.080 So as corn has come down and soy has come down, 0:05:26.080 --> 0:05:29.719 and wheat has come down, sugar has come down, we've seen, 0:05:29.800 --> 0:05:32.120 you know a little bit of price relief, but it's 0:05:32.120 --> 0:05:35.000 going to take some time for that to really translate 0:05:35.040 --> 0:05:39.520 into something that consumers feel in their pocketbook instead of 0:05:39.560 --> 0:05:43.400 just individual products being you know, either not getting increases 0:05:43.839 --> 0:05:45.279 or coming down slightly in price. 0:05:45.640 --> 0:05:47.720 So which company in your space do you feel like 0:05:47.880 --> 0:05:49.760 is doing pretty well on the margin and the top 0:05:49.800 --> 0:05:51.560 line side, because if margins are going to get squeezed, 0:05:51.600 --> 0:05:52.880 you need the top line to grow. But the top 0:05:52.920 --> 0:05:55.159 line is still really struggling with consumers right now. So 0:05:55.160 --> 0:05:56.840 who's managing that the best? 0:05:57.640 --> 0:06:00.520 Well, you know, up until the probably the the you know, 0:06:00.560 --> 0:06:03.520 the last quarter or two, Mandalies has actually navigated that 0:06:03.600 --> 0:06:08.120 pretty well, you know, because the demand for suites and 0:06:08.240 --> 0:06:12.000 indulgences has had held up pretty well. You know, companies 0:06:12.000 --> 0:06:15.760 that do have that exposure to snacking, generally speaking, are 0:06:15.800 --> 0:06:18.560 doing better overall than companies that are more center store, 0:06:19.040 --> 0:06:21.120 and I would point to Kraft Hines as an example 0:06:21.120 --> 0:06:23.680 of center store or Campbell's Soup as a center store type. 0:06:23.839 --> 0:06:25.440 Is center store, I mean, I haven't heard that before. 0:06:25.760 --> 0:06:28.400 So center store is when you're in a grocery store. 0:06:28.480 --> 0:06:30.919 Everything that's not on the outside, so it usually is 0:06:30.960 --> 0:06:34.320 like shelf stable products. So think about your canned soups, 0:06:34.800 --> 0:06:38.400 your pasta, your pasta sauces, things like that. Those are 0:06:38.560 --> 0:06:42.400 the pantry staples that most people you know purchase. And 0:06:42.440 --> 0:06:44.600 then the perimeter is of course all of your fresh food. 0:06:45.000 --> 0:06:48.839 Thanks to Jennifer Bartasha's Bloomberg Intelligence senior retail analyst, we move. 0:06:48.760 --> 0:06:51.320 Next to the home improvement retailer home Depot. This week, 0:06:51.400 --> 0:06:55.000 home Deepot reported quarterly earnings and sales that top analyst expectations, 0:06:55.200 --> 0:06:55.520 but the. 0:06:55.440 --> 0:06:58.000 Company cautioned that sales will be weaker than expected in 0:06:58.040 --> 0:07:00.800 the back half of the year. Home Depot cited high 0:07:00.839 --> 0:07:03.400 interest rates and economic uncertainty. 0:07:02.960 --> 0:07:04.359 For more and all of this. We were joined by 0:07:04.440 --> 0:07:07.000 Red Brown, Bloomberg News earnings reporter, and we first asked 0:07:07.000 --> 0:07:09.240 Red to break down what home Depot's numbers actually mean. 0:07:09.760 --> 0:07:11.920 I think overall kind of the message that I'm sort 0:07:11.920 --> 0:07:13.680 of taking away from the results is this seems like 0:07:13.680 --> 0:07:15.400 they might have kind of found bottom. If we look 0:07:15.480 --> 0:07:19.440 the last six quarters, they've seen earnings top and bottom 0:07:19.480 --> 0:07:22.320 line shrinking, and then for the first time since twenty 0:07:22.360 --> 0:07:25.640 twenty three, things are flattening out a little bit. So, yes, 0:07:25.720 --> 0:07:28.800 they cut the top line outlook maybe a bit of 0:07:28.800 --> 0:07:31.680 a reset there, But I think there's a lot to 0:07:31.720 --> 0:07:33.560 be optimistic about these results. 0:07:33.640 --> 0:07:35.480 Well, I think I guess one of the questions that 0:07:35.520 --> 0:07:37.840 I had, just being a grizzled veteran having listened to 0:07:37.880 --> 0:07:40.760 a million conference calls, is you know, suggesting that maybe 0:07:40.760 --> 0:07:42.560 this is a little bit temporary, that maybe these are 0:07:42.640 --> 0:07:46.720 purchases that are being deferred in anticipation of lower rates. 0:07:47.040 --> 0:07:49.040 How does that kind of stand with you? I mean, 0:07:49.080 --> 0:07:49.640 I think it does. 0:07:50.280 --> 0:07:51.680 I think I maybe I believe it a little bit 0:07:51.680 --> 0:07:53.360 more than that. It sounds like you two might just 0:07:53.360 --> 0:07:55.280 because the one thing that analysts are putting to a 0:07:55.320 --> 0:07:59.360 lot is contractors backlogs. So those are you know, contracted 0:08:00.400 --> 0:08:04.600 that they are expected to eventually fulfill. It's just a 0:08:04.640 --> 0:08:07.440 matter of when the customers are ready to actually you know, 0:08:07.560 --> 0:08:09.240 follow through with that and say yep, let's do it. 0:08:09.760 --> 0:08:12.200 You know, those are long term projects to take several months, 0:08:12.240 --> 0:08:14.440 so it's not something that people are kind of likely 0:08:14.480 --> 0:08:16.920 to back out of their big something you probably need 0:08:16.960 --> 0:08:18.760 to get financing for as well. So it's it's you know, 0:08:18.760 --> 0:08:22.720 it's a significant commitment for the consumer. And yeah, I 0:08:22.760 --> 0:08:25.560 mean this deferral mindset I think is an interesting way 0:08:25.600 --> 0:08:28.080 to spin the situation for for Home Deeper right now. 0:08:28.120 --> 0:08:31.880 Yeah, that's interesting. So you have contractor backlog because customers 0:08:31.920 --> 0:08:33.560 want to get their project in the queue, but they're 0:08:33.559 --> 0:08:35.520 not putting down the money for it yet. So it's 0:08:35.520 --> 0:08:38.600 always like, hmmmm, is that kind of wind the economy really turns? 0:08:39.559 --> 0:08:42.400 What winds up happening? So I guess if we just say, okay, 0:08:42.440 --> 0:08:44.280 we're at the trough, I wonder if we have any 0:08:44.360 --> 0:08:46.920 visibility yet into what the recovery then looks like for 0:08:46.960 --> 0:08:47.600 a home depot. 0:08:47.840 --> 0:08:50.320 Yeah, so I think, you know, if we look into 0:08:50.480 --> 0:08:54.080 what they said the commentary around the guidance cuts, they said, 0:08:54.120 --> 0:08:56.720 if it's going to be the same store sales, the 0:08:56.800 --> 0:09:00.160 top end is down three percent this year. They're saying 0:09:00.200 --> 0:09:02.800 that that will happen if things stay stable from the 0:09:02.800 --> 0:09:04.920 first half of the year, and right now they say 0:09:04.920 --> 0:09:07.840 all signs point to consumer demand like staying at that 0:09:07.880 --> 0:09:10.280 same level, and they're not guiding towards the bottom end 0:09:10.320 --> 0:09:12.680 of that range right now. So right now, that seems 0:09:12.720 --> 0:09:15.319 to be where the company is at with some positive 0:09:15.320 --> 0:09:16.160 outlook here as well. 0:09:16.600 --> 0:09:18.480 You know, I'm just looking at the chart here and 0:09:18.600 --> 0:09:20.600 just thinking back to the pandemic that stuck you know, 0:09:20.800 --> 0:09:23.040 was up about one hundred and seventy percent from you know, 0:09:23.080 --> 0:09:24.720 the beginning of the pandemic through the end of twenty 0:09:24.760 --> 0:09:26.920 twenty one. It's come off since then. So that was 0:09:27.000 --> 0:09:30.400 just such a moonshot for the company. What does the 0:09:30.440 --> 0:09:34.120 company say about the consumer their business kind of now 0:09:34.559 --> 0:09:36.600 versus pre pandemic. Did they ever put it in that 0:09:36.679 --> 0:09:37.559 kind of context. 0:09:37.640 --> 0:09:40.400 Well, the reason for that ride up, if you remember, 0:09:40.600 --> 0:09:45.520 was because of so much DIY activity. Everyone was stuck home. 0:09:45.559 --> 0:09:47.360 I mean, I'm tired of looking at this shelf, Let 0:09:47.400 --> 0:09:49.840 me fix it, or I hate this paint color. 0:09:49.640 --> 0:09:50.240 Whatever it was. 0:09:50.640 --> 0:09:52.520 Now there's a little bit less of that, just because 0:09:52.520 --> 0:09:54.320 we're spending less time at home, you know, we have 0:09:54.400 --> 0:09:57.520 less time on our hands, and Home Depot is kind 0:09:57.520 --> 0:09:59.679 of accepted that that they're not going to see those 0:09:59.760 --> 0:10:02.400 levels as much anymore, and what they are focusing and 0:10:02.679 --> 0:10:05.679 similar thing happening at Low's as well, is focusing on 0:10:05.720 --> 0:10:08.800 that contractor business. It's a higher margin business, it's a 0:10:08.800 --> 0:10:12.240 little bit more consistent. And we saw what their their 0:10:12.280 --> 0:10:16.400 latest acquisition, eighteen billion dollar acquisition for SRS Distribution, and 0:10:16.440 --> 0:10:19.720 that is part of this pivot towards can we capture 0:10:19.720 --> 0:10:22.319 more of the market share for those contractors. 0:10:22.640 --> 0:10:25.320 Oh yeah, love me some contractors working with some right 0:10:25.360 --> 0:10:28.440 now in the Berkshires. The allowance for my kitchen island 0:10:28.520 --> 0:10:28.800 was huge. 0:10:29.120 --> 0:10:31.600 Are there good contractors up like in that part of 0:10:31.600 --> 0:10:31.920 the world. 0:10:32.000 --> 0:10:34.280 Yeah, yeah, really good? Yeah, Okay, I mean we went 0:10:34.320 --> 0:10:37.000 to one we didn't do like comparison shopping because this 0:10:37.240 --> 0:10:39.200 company had, like we done our roof, had did our 0:10:39.400 --> 0:10:41.120 did our kitchens, like we'd already worked with them for 0:10:41.160 --> 0:10:43.800 the last you know, ten fifteen years. Read when you 0:10:43.800 --> 0:10:45.360 take a look at earnings in general, so you're your 0:10:45.400 --> 0:10:49.040 earnings reporter, like this is as your jam. What are 0:10:49.040 --> 0:10:51.040 some of the takeaways that we can learn from earnings 0:10:51.040 --> 0:10:51.920 in general? Right now? 0:10:52.080 --> 0:10:55.240 I think with home depot it's just a kind of 0:10:55.280 --> 0:10:59.360 repetition of this same pattern in retail, which is consumers 0:10:59.480 --> 0:11:01.040 are trading down you know, last year there was so 0:11:01.120 --> 0:11:02.880 much were when is it happening? When is it happening? 0:11:02.920 --> 0:11:05.640 And it's kind of been slowly trickling in quarter over 0:11:05.720 --> 0:11:08.640 quarter more people are trading down or what that looks 0:11:08.720 --> 0:11:10.720 like on the ground is I'm delaying some of those 0:11:10.720 --> 0:11:14.520 bigger purchases, those bigger, high margin for the company's purchases. 0:11:14.679 --> 0:11:17.720 I'm focusing on what I need. And I think Walmart 0:11:17.800 --> 0:11:21.679 will be the kind of exemplar example of that of people. 0:11:21.720 --> 0:11:24.120 You know, I'm just looking at you know what I need. 0:11:24.160 --> 0:11:26.320 I need food, I need groceries, I need toiletries, things 0:11:26.360 --> 0:11:28.839 like that, and then maybe I'll delay until I get 0:11:28.880 --> 0:11:30.360 a little bit more clarity on when I'm going to 0:11:30.400 --> 0:11:30.960 buy that TV. 0:11:31.240 --> 0:11:32.760 So for our home depot, I think I just think 0:11:32.800 --> 0:11:35.360 of walking into home depot and boyd there's a lot 0:11:35.400 --> 0:11:38.079 of stuff. They're huge, huge stores and there's a lot 0:11:38.120 --> 0:11:41.040 of stuff there. Talk to us about inventory. Inventory management, 0:11:41.040 --> 0:11:43.040 I know for some of these big box retailers is huge. 0:11:43.360 --> 0:11:44.559 What are they saying these days? 0:11:44.679 --> 0:11:46.720 So one thing to look for the inventory is actually 0:11:46.720 --> 0:11:48.800 the transportation costs have been coming down, So I think 0:11:48.840 --> 0:11:51.960 overall that just speaks to an easy supply chain for 0:11:52.160 --> 0:11:54.720 home depot, so they are able to manage a little 0:11:54.720 --> 0:11:57.080 bit better. In general, they're managing their costs quite well. 0:11:57.480 --> 0:11:59.920 That's part of the reason that they were able to 0:12:00.280 --> 0:12:03.680 kind of flatten out the earnings trough there. And yeah, 0:12:03.720 --> 0:12:07.840 I think overall the inventory has been shifting well and 0:12:07.880 --> 0:12:09.600 they are, you know, they have so much stuff there, 0:12:09.600 --> 0:12:11.120 able to manage it well and they're able to get 0:12:11.160 --> 0:12:12.960 the products that people want in the stores. 0:12:13.320 --> 0:12:15.720 Our thanks to Red Brown, Bloomberg News Earnings Reporter. 0:12:15.920 --> 0:12:18.360 Coming up, Starbucks has a new CEO. We're going to 0:12:18.400 --> 0:12:19.880 break down the leadership change. Next. 0:12:19.960 --> 0:12:22.760 You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in 0:12:22.800 --> 0:12:25.240 depth research and data on two thousand companies and one 0:12:25.280 --> 0:12:28.320 hundred and thirty industries. You can access Bloomberg Intelligence via 0:12:28.360 --> 0:12:29.480 b I go on the terminal. 0:12:29.559 --> 0:12:32.400 I'm Paul Sweeney and m Alex Steel, and this is Bloomberg. 0:12:39.960 --> 0:12:43.839 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:12:43.920 --> 0:12:46.599 weekdays at ten am Eastern on Affo car Playing and 0:12:46.760 --> 0:12:49.640 broud Oto with the Bloomberg Business app. Listen on demand 0:12:49.679 --> 0:12:54.400 wherever you get your podcasts, or watch us live on YouTube. 0:12:54.760 --> 0:12:56.480 We look next to a shake up at the copy 0:12:56.559 --> 0:12:59.520 chain Starbucks. This week, Starbucks out did its CEO and 0:12:59.559 --> 0:13:03.280 picture otlet Mexican Real CEO Brian Nickel as its next leader. 0:13:03.440 --> 0:13:04.920 For more and all of this, we are joined by 0:13:05.000 --> 0:13:08.080 Jody Lori Bloomberg Intelligence credit Analysts, and we first asked 0:13:08.160 --> 0:13:10.120 Jody for her reaction to this week's news. 0:13:10.679 --> 0:13:13.320 I think, as the credit analysts were always sort of 0:13:13.800 --> 0:13:17.320 hesitant when there's these full scale changes that happen overnight, 0:13:17.480 --> 0:13:19.719 and when you've had a CEO that's only been there 0:13:19.760 --> 0:13:23.880 since March of last year, so we have just only 0:13:24.000 --> 0:13:26.400 gotten comfortable with the concept they were giving back twenty 0:13:26.400 --> 0:13:29.319 billion dollars and now you have two activists investors very 0:13:29.320 --> 0:13:32.120 heavily involved, one getting a board seat and pushing out 0:13:32.160 --> 0:13:34.320 the CEO with a new CEO. That could be a 0:13:34.400 --> 0:13:37.199 positive for the company long term in terms of performance. 0:13:37.520 --> 0:13:40.040 But I do also think that shareholders might make it 0:13:40.160 --> 0:13:41.760 better than bondholders at this point. 0:13:41.880 --> 0:13:43.400 Why do you say that you think they're just going 0:13:43.480 --> 0:13:45.559 to maybe start returning cash shareholders. 0:13:45.720 --> 0:13:47.760 I think they'll get a little bit more aggressive with that, Paul. 0:13:47.800 --> 0:13:50.560 I mean, I think you know, it could end up 0:13:50.559 --> 0:13:52.079 being the type of thing that they look at the 0:13:52.120 --> 0:13:54.160 company and that you sort of think about ways to 0:13:54.440 --> 0:13:56.520 sort of boost the value, whether it be spin off 0:13:56.559 --> 0:13:58.760 some entity or what have you. I'm not sure what 0:13:58.920 --> 0:14:01.520 entity they could spin off to Starbucks because so much 0:14:01.559 --> 0:14:04.000 of the non core business has already been peeled away. 0:14:04.520 --> 0:14:07.520 That said, I mean, I think that when when you're 0:14:07.520 --> 0:14:10.400 dealing with activists, you're always sort of hesitant because you say, Okay, 0:14:10.760 --> 0:14:12.600 how much are they going to risk the balance sheet? 0:14:12.679 --> 0:14:14.880 How much are they going to lever to get the 0:14:14.960 --> 0:14:18.240 company into a different spot. Now that might be a 0:14:18.280 --> 0:14:22.200 short term pain for long term gain, but for bond holders, 0:14:22.240 --> 0:14:23.880 when you think about that short term pain, that's not 0:14:23.880 --> 0:14:25.840 always necessarily the best thing. Which you know, we have 0:14:25.880 --> 0:14:29.200 a long history of yam for for example, you know, 0:14:29.240 --> 0:14:32.160 which which the new CEO is part of. When they 0:14:32.240 --> 0:14:35.120 spun off their entity Young China, you know, they ended 0:14:35.200 --> 0:14:37.680 up giving back so much of their money to shareholders. 0:14:37.400 --> 0:14:40.000 Which then to the point breaks a question like how 0:14:40.080 --> 0:14:42.960 is Starbucks actually doing from a bond holder perspective. 0:14:43.280 --> 0:14:46.160 From a bond holder perspective, you know, over the past year, 0:14:46.160 --> 0:14:48.720 they've been a little bit more volatile. Something that that's 0:14:48.840 --> 0:14:51.320 very clear that we've been tracking is the aldi the 0:14:51.360 --> 0:14:52.760 Bloomberg second measure data. 0:14:52.960 --> 0:14:53.560 Yeah, okay, so. 0:14:53.520 --> 0:14:55.160 Wait, first all, what is this? Because I got to 0:14:55.160 --> 0:14:57.240 be honest, for I've never heard of this before, and 0:14:57.280 --> 0:14:58.960 you mentioned it and you're going to talk about it, 0:14:59.000 --> 0:15:01.320 and now I'm a little obsessed with it. 0:15:01.320 --> 0:15:05.080 It is pretty amazing, Alex, particularly when it comes to Starbucks, 0:15:05.120 --> 0:15:07.600 because the R squared or you know, the sort of 0:15:07.640 --> 0:15:10.760 predictive value of it is pretty great when it comes 0:15:10.800 --> 0:15:11.960 to Starbucks in particular. 0:15:12.400 --> 0:15:14.840 So what it is. It's credit card and debitcard. 0:15:14.400 --> 0:15:18.360 Swipes only in the United States, and Bloomberg aggregates the data. 0:15:18.440 --> 0:15:19.720 You can see it. You can see it both on 0:15:19.760 --> 0:15:21.120 a year over year basis. You can see it on 0:15:21.160 --> 0:15:23.360 an actual value basis. If you look at the year 0:15:23.440 --> 0:15:26.280 over year where it's trending, it's actually very much down 0:15:26.360 --> 0:15:29.120 when it comes to sales and transactions, which is not 0:15:29.200 --> 0:15:32.200 surprising because they've had a couple of sort of disappointing points, 0:15:32.200 --> 0:15:35.520 one of them being geopolitics, so the Astro turf effort 0:15:35.680 --> 0:15:38.800 related to the Middle East. The other portion is obviously 0:15:38.920 --> 0:15:41.400 China and the fact that they really went all in 0:15:41.440 --> 0:15:43.760 on China and it's been a little bit of a disappointment. 0:15:43.960 --> 0:15:46.480 And then you've also just had consumers pulling back in 0:15:46.560 --> 0:15:49.320 terms of their spending on things like Starbucks, McDonald's, what 0:15:49.400 --> 0:15:52.080 have you. And so companies have been trying to just 0:15:52.120 --> 0:15:53.960 get people in the door. Now if you look at 0:15:53.960 --> 0:15:56.720 it for you know, transaction value, or if you look 0:15:56.760 --> 0:15:58.600 at you know, the PLACER data which we also have 0:15:58.640 --> 0:16:01.200 embedded on the terminal, and the placer data is down, 0:16:01.240 --> 0:16:04.400 so that's estimated visits. So people physically going into stores 0:16:04.440 --> 0:16:07.160 has been down recently. And so how does the new 0:16:07.200 --> 0:16:09.560 CEO get these people back? How does he get them 0:16:09.560 --> 0:16:12.080 comfortable with the Starbucks that we used to know and love. 0:16:12.320 --> 0:16:13.560 I'm not sure talk. 0:16:13.400 --> 0:16:16.120 To us about China, because I know you've flagged that before. 0:16:16.160 --> 0:16:19.920 It talks about China and what it means for Starbucks. 0:16:20.200 --> 0:16:21.960 I think China means a lot of things for a 0:16:21.960 --> 0:16:23.880 lot of the companies in our space. I think it's 0:16:23.920 --> 0:16:28.360 been a very common word, more so than normal when 0:16:28.360 --> 0:16:31.760 it comes to across the consumer and leisure space. 0:16:32.200 --> 0:16:32.400 You know. 0:16:32.440 --> 0:16:35.960 So if you listen to earning calls this quarter, anyone 0:16:35.960 --> 0:16:39.480 from Hilton to Hyatt to you know, even the cruise 0:16:39.480 --> 0:16:42.200 lines have been mentioning China either as an avenue for 0:16:42.240 --> 0:16:45.000 growth or as a disappointment for an avenue for growth. 0:16:45.000 --> 0:16:47.440 I mean, we haven't seen the value of China. We've 0:16:47.440 --> 0:16:48.000 seen sort of. 0:16:47.920 --> 0:16:50.239 The sluggish, slow growth of late. 0:16:50.320 --> 0:16:53.240 And for someone like Starbucks that last year they mapped 0:16:53.280 --> 0:16:54.680 out their plan and they said, we're going to be 0:16:54.720 --> 0:16:57.160 building out more stores in China and that's our international 0:16:57.200 --> 0:16:59.360 growth plan, and that's how we're getting the company back 0:16:59.400 --> 0:17:02.200 on track. All of a sudden, you don't necessarily have that. 0:17:02.600 --> 0:17:04.480 I mean that's kind of a big problem. 0:17:05.000 --> 0:17:07.760 Yeah, and when they talk about like strategic options for 0:17:07.800 --> 0:17:11.159 that are partnerships, what does that wind up looking like? 0:17:11.200 --> 0:17:12.879 They're not gonna spin it off, right, So it's not 0:17:12.920 --> 0:17:16.480 gonna be a Yum and Yum brand's China kind of situation. 0:17:16.640 --> 0:17:17.880 So how do you digest that? 0:17:18.280 --> 0:17:20.440 I mean, it could be a Yum and China situation. 0:17:20.480 --> 0:17:22.720 Who knows what's on the table at this point. I mean, 0:17:22.760 --> 0:17:25.640 we could fathom any sort of measures. I mean, most 0:17:25.680 --> 0:17:27.880 of Starbucks stores are owned, but then when it comes 0:17:27.920 --> 0:17:29.320 to international it's a little less so. 0:17:29.560 --> 0:17:31.720 And even places like you know, I mentioned the cruise lines. 0:17:31.720 --> 0:17:33.760 You know, we were on a Royal Caribbean ship a 0:17:33.800 --> 0:17:35.560 couple months ago and they had a like in our. 0:17:35.520 --> 0:17:37.760 Bas always like, remember at the time, I was on 0:17:37.760 --> 0:17:40.160 that cruise and it was really awesome. Sorry continue. 0:17:40.800 --> 0:17:44.080 They did actually have a collector mug for Icond of 0:17:44.080 --> 0:17:47.960 the Seas that I did buy, which was a Starbucks mug, 0:17:48.200 --> 0:17:49.919 but it was Starbucks with a bunch of Icon of 0:17:49.920 --> 0:17:50.480 the Sea stuff. 0:17:50.640 --> 0:17:52.160 I had to get it. I mean, it was two 0:17:52.160 --> 0:17:52.880 companies I cover. 0:17:52.960 --> 0:17:55.320 I was like, I can't one shot. Well, on the 0:17:55.359 --> 0:17:59.000 flip side of this this transaction Chipotle, what's the outlook there, 0:17:59.040 --> 0:18:00.600 what's the feeling there in the street. 0:18:00.920 --> 0:18:03.200