Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: This is Bloomberg Intelligence with Alex Steinel and Paul'sweenye.
Speaker 3: The real app performance has been the US corporate high yield.
Speaker 4: Are the companies lean enough? Have they trimmed all the fats?
Speaker 3: The semiconductor business is a really cyclical business.
Speaker 2: Breaking market headlines and corporate news from across the globe.
Speaker 4: Do investors like the M and A that we've seen?
Speaker 5: These are two.
Speaker 3: Big time blue chip companies.
Speaker 4: The window between the peak and cut changing super fast.
Speaker 2: Bloomberg Intelligence with Alex steel and Paul'sweenye on Bloomberg Radio.
Speaker 3: On Today's Bloomberg Intelligence Show, we dig inside the big
Speaker 3: business stories impacting Wall Street and the global markets.
Speaker 4: Each and every week we provide in depth research and
Speaker 4: data on some of the two thousand companies and one
Speaker 4: hundred and thirty industries our analysts cover worldwide.
Speaker 3: Today we'll discuss a leadership shakeup at the coffee chain Starbucks.
Speaker 4: Plus we'll look at why the US Justice Department and
Speaker 4: maybe considering a breakup of Alphabet's Google.
Speaker 3: But first we dive into a big deal in the
Speaker 3: M and A space.
Speaker 4: This year, Mars agreed to buy Calenova for nearly thirty
Speaker 4: six billion dollars and this brings together two major food
Speaker 4: companies and the biggest deal this year.
Speaker 3: And this comes as a package food industry has been
Speaker 3: grappling with declimbing volumes, slow in growth, and a weakening
Speaker 3: global consumer.
Speaker 4: For more, we are adorned by Jennifer Bartasha's Bloomberg Intelligence
Speaker 4: senior analyst Retail, staples and packaged Food. We first asked
Speaker 4: Jennifer why this Mars Kelenova deal is actually happening.
Speaker 1: There's a couple of things. The first is, you know,
Speaker 1: from a Mars portfolio perspective, when it comes to the
Speaker 1: snacking category, they are heavily exposed to chocolate and coco
Speaker 1: has been a structural issue in terms of cost for
Speaker 1: a while and we think that's going to continue indefinitely.
Speaker 1: And so this helps them diversify out that snacking side
Speaker 1: of their portfolio, and it also helps them do a
Speaker 1: little bit more in emerging markets, which is an area
Speaker 1: where Kelenova has some strength.
Speaker 4: So, okay, so is it offense or defense from that perspective,
Speaker 4: because it feels like it could be a combination both
Speaker 4: like diverse by away from just pure cocoa but also expand.
Speaker 1: Yeah, I think it's a combination of the two. It's
Speaker 1: on the cocoa side, it's a little bit of risk mitigation,
Speaker 1: you know, and helping to ease some of the costs
Speaker 1: they're feeling there. And you know, traditionally chocolate has held
Speaker 1: up actually really well through the pandemic and after the pandemic,
Speaker 1: but we're finally starting to see a little bit of
Speaker 1: weakness and consumer demand for chocolate just because of food inflation,
Speaker 1: and so diversification will will certainly help with that. And
Speaker 1: then you know, on a global basis, Mars has leading
Speaker 1: you know, they're in the top three market share in
Speaker 1: almost every region in confectionery, and so having more of
Speaker 1: the salty snack side and getting more into that can
Speaker 1: only consolidate their market share position in a lot of
Speaker 1: leading global, you know, regions.
Speaker 3: Jen, what makes us deal really interesting for me is
Speaker 3: the Mars company. Because it's a private company. What do
Speaker 3: we know about Mars? Maybe I don't know the size capitalization,
Speaker 3: did they ever talk to investors.
Speaker 1: Very rarely, you know, but what they have disclosed, you know,
Speaker 1: their annual revenue is a little over fifty billion dollars,
Speaker 1: So definitely a sizable company. And what I think is
Speaker 1: very interesting is when you break that revenue down, nearly
Speaker 1: sixty percent of their revenue is coming from pet food.
Speaker 1: So although everybody associates Mars with chocolate, the larger portion
Speaker 1: of their business is pet and so they own the
Speaker 1: Pedigree brand, they own the Whiskers brand, and that is
Speaker 1: a big powerhouse for them. That's part of the reason
Speaker 1: we think there actually won't be a lot of FTC
Speaker 1: pushback on this because it's a smaller port of their
Speaker 1: portfolio and the products are there's really no overlap between
Speaker 1: what Kelenova does and what Mars does.
Speaker 4: Amazingly, I did not know that.
Speaker 3: I did not know that at all.
Speaker 4: Why we love John Bartras. I mean, that would kill them,
Speaker 4: but sure right, dogs can't have chocolate from that thing.
Speaker 4: And so Jen, does this mean we're going to see
Speaker 4: a lot of other m and A in the space?
Speaker 4: And if so, sort of who and where would we
Speaker 4: see that.
Speaker 1: We've seen a lot of a sentiment towards tuck In
Speaker 1: acquisition over the last couple of years. But there are
Speaker 1: some pressures that are affecting the industry. So when you
Speaker 1: listen to what all of these package food companies are
Speaker 1: saying their priority for twenty twenty four and headed into
Speaker 1: twenty twenty five is regaining volume. But the problem is
Speaker 1: that consumers not yet in a position where they're buying
Speaker 1: bigger volumes of food, and so M and A is
Speaker 1: a potential route to be able to better navigate the market.
Speaker 1: So you know, in this instance, with this deal, we're
Speaker 1: expecting over a billion dollars in synergies between Mars and Kelenova,
Speaker 1: coming from procurement, coming from manufacturing, things like that. So
Speaker 1: I think that this deal may spark at least some
Speaker 1: consideration for larger deals again in the package food space,
Speaker 1: as they're trying to find ways to contain costs, expand
Speaker 1: their geographic and product footprint at a time when it's
Speaker 1: hard to spend to spur consumers into buying greater volumes,
Speaker 1: So it may be an alternative for them.
Speaker 3: In food inflation, you cover the package good companies, you
Speaker 3: cover the grocery stores as well. Those prices, while the
Speaker 3: rate of inflation has slowed, those prices ain't coming down,
Speaker 3: are they.
Speaker 1: They're coming down, but very very slowly. And so if
Speaker 1: you look on it on a basis, you know, comparison
Speaker 1: back to twenty nineteen, food prices are still almost twenty
Speaker 1: percent higher than they were in twenty nineteen. In certain
Speaker 1: categories where there's been relief, especially from the cost of commodities.
Speaker 1: So as corn has come down and soy has come down,
Speaker 1: and wheat has come down, sugar has come down, we've seen,
Speaker 1: you know a little bit of price relief, but it's
Speaker 1: going to take some time for that to really translate
Speaker 1: into something that consumers feel in their pocketbook instead of
Speaker 1: just individual products being you know, either not getting increases
Speaker 1: or coming down slightly in price.
Speaker 4: So which company in your space do you feel like
Speaker 4: is doing pretty well on the margin and the top
Speaker 4: line side, because if margins are going to get squeezed,
Speaker 4: you need the top line to grow. But the top
Speaker 4: line is still really struggling with consumers right now. So
Speaker 4: who's managing that the best?
Speaker 1: Well, you know, up until the probably the the you know,
Speaker 1: the last quarter or two, Mandalies has actually navigated that
Speaker 1: pretty well, you know, because the demand for suites and
Speaker 1: indulgences has had held up pretty well. You know, companies
Speaker 1: that do have that exposure to snacking, generally speaking, are
Speaker 1: doing better overall than companies that are more center store,
Speaker 1: and I would point to Kraft Hines as an example
Speaker 1: of center store or Campbell's Soup as a center store type.
Speaker 3: Is center store, I mean, I haven't heard that before.
Speaker 1: So center store is when you're in a grocery store.
Speaker 1: Everything that's not on the outside, so it usually is
Speaker 1: like shelf stable products. So think about your canned soups,
Speaker 1: your pasta, your pasta sauces, things like that. Those are
Speaker 1: the pantry staples that most people you know purchase. And
Speaker 1: then the perimeter is of course all of your fresh food.
Speaker 3: Thanks to Jennifer Bartasha's Bloomberg Intelligence senior retail analyst, we move.
Speaker 4: Next to the home improvement retailer home Depot. This week,
Speaker 4: home Deepot reported quarterly earnings and sales that top analyst expectations,
Speaker 4: but the.
Speaker 3: Company cautioned that sales will be weaker than expected in
Speaker 3: the back half of the year. Home Depot cited high
Speaker 3: interest rates and economic uncertainty.
Speaker 4: For more and all of this. We were joined by
Speaker 4: Red Brown, Bloomberg News earnings reporter, and we first asked
Speaker 4: Red to break down what home Depot's numbers actually mean.
Speaker 6: I think overall kind of the message that I'm sort
Speaker 6: of taking away from the results is this seems like
Speaker 6: they might have kind of found bottom. If we look
Speaker 6: the last six quarters, they've seen earnings top and bottom
Speaker 6: line shrinking, and then for the first time since twenty
Speaker 6: twenty three, things are flattening out a little bit. So, yes,
Speaker 6: they cut the top line outlook maybe a bit of
Speaker 6: a reset there, But I think there's a lot to
Speaker 6: be optimistic about these results.
Speaker 3: Well, I think I guess one of the questions that
Speaker 3: I had, just being a grizzled veteran having listened to
Speaker 3: a million conference calls, is you know, suggesting that maybe
Speaker 3: this is a little bit temporary, that maybe these are
Speaker 3: purchases that are being deferred in anticipation of lower rates.
Speaker 3: How does that kind of stand with you? I mean,
Speaker 3: I think it does.
Speaker 6: I think I maybe I believe it a little bit
Speaker 6: more than that. It sounds like you two might just
Speaker 6: because the one thing that analysts are putting to a
Speaker 6: lot is contractors backlogs. So those are you know, contracted
Speaker 6: that they are expected to eventually fulfill. It's just a
Speaker 6: matter of when the customers are ready to actually you know,
Speaker 6: follow through with that and say yep, let's do it.
Speaker 6: You know, those are long term projects to take several months,
Speaker 6: so it's not something that people are kind of likely
Speaker 6: to back out of their big something you probably need
Speaker 6: to get financing for as well. So it's it's you know,
Speaker 6: it's a significant commitment for the consumer. And yeah, I
Speaker 6: mean this deferral mindset I think is an interesting way
Speaker 6: to spin the situation for for Home Deeper right now.
Speaker 4: Yeah, that's interesting. So you have contractor backlog because customers
Speaker 4: want to get their project in the queue, but they're
Speaker 4: not putting down the money for it yet. So it's
Speaker 4: always like, hmmmm, is that kind of wind the economy really turns?
Speaker 4: What winds up happening? So I guess if we just say, okay,
Speaker 4: we're at the trough, I wonder if we have any
Speaker 4: visibility yet into what the recovery then looks like for
Speaker 4: a home depot.
Speaker 6: Yeah, so I think, you know, if we look into
Speaker 6: what they said the commentary around the guidance cuts, they said,
Speaker 6: if it's going to be the same store sales, the
Speaker 6: top end is down three percent this year. They're saying
Speaker 6: that that will happen if things stay stable from the
Speaker 6: first half of the year, and right now they say
Speaker 6: all signs point to consumer demand like staying at that
Speaker 6: same level, and they're not guiding towards the bottom end
Speaker 6: of that range right now. So right now, that seems
Speaker 6: to be where the company is at with some positive
Speaker 6: outlook here as well.
Speaker 3: You know, I'm just looking at the chart here and
Speaker 3: just thinking back to the pandemic that stuck you know,
Speaker 3: was up about one hundred and seventy percent from you know,
Speaker 3: the beginning of the pandemic through the end of twenty
Speaker 3: twenty one. It's come off since then. So that was
Speaker 3: just such a moonshot for the company. What does the
Speaker 3: company say about the consumer their business kind of now
Speaker 3: versus pre pandemic. Did they ever put it in that
Speaker 3: kind of context.
Speaker 6: Well, the reason for that ride up, if you remember,
Speaker 6: was because of so much DIY activity. Everyone was stuck home.
Speaker 6: I mean, I'm tired of looking at this shelf, Let
Speaker 6: me fix it, or I hate this paint color.
Speaker 5: Whatever it was.
Speaker 6: Now there's a little bit less of that, just because
Speaker 6: we're spending less time at home, you know, we have
Speaker 6: less time on our hands, and Home Depot is kind
Speaker 6: of accepted that that they're not going to see those
Speaker 6: levels as much anymore, and what they are focusing and
Speaker 6: similar thing happening at Low's as well, is focusing on
Speaker 6: that contractor business. It's a higher margin business, it's a
Speaker 6: little bit more consistent. And we saw what their their
Speaker 6: latest acquisition, eighteen billion dollar acquisition for SRS Distribution, and
Speaker 6: that is part of this pivot towards can we capture
Speaker 6: more of the market share for those contractors.
Speaker 4: Oh yeah, love me some contractors working with some right
Speaker 4: now in the Berkshires. The allowance for my kitchen island
Speaker 4: was huge.
Speaker 3: Are there good contractors up like in that part of
Speaker 3: the world.
Speaker 4: Yeah, yeah, really good? Yeah, Okay, I mean we went
Speaker 4: to one we didn't do like comparison shopping because this
Speaker 4: company had, like we done our roof, had did our
Speaker 4: did our kitchens, like we'd already worked with them for
Speaker 4: the last you know, ten fifteen years. Read when you
Speaker 4: take a look at earnings in general, so you're your
Speaker 4: earnings reporter, like this is as your jam. What are
Speaker 4: some of the takeaways that we can learn from earnings
Speaker 4: in general? Right now?
Speaker 6: I think with home depot it's just a kind of
Speaker 6: repetition of this same pattern in retail, which is consumers
Speaker 6: are trading down you know, last year there was so
Speaker 6: much were when is it happening? When is it happening?
Speaker 6: And it's kind of been slowly trickling in quarter over
Speaker 6: quarter more people are trading down or what that looks
Speaker 6: like on the ground is I'm delaying some of those
Speaker 6: bigger purchases, those bigger, high margin for the company's purchases.
Speaker 6: I'm focusing on what I need. And I think Walmart
Speaker 6: will be the kind of exemplar example of that of people.
Speaker 6: You know, I'm just looking at you know what I need.
Speaker 6: I need food, I need groceries, I need toiletries, things
Speaker 6: like that, and then maybe I'll delay until I get
Speaker 6: a little bit more clarity on when I'm going to
Speaker 6: buy that TV.
Speaker 3: So for our home depot, I think I just think
Speaker 3: of walking into home depot and boyd there's a lot
Speaker 3: of stuff. They're huge, huge stores and there's a lot
Speaker 3: of stuff there. Talk to us about inventory. Inventory management,
Speaker 3: I know for some of these big box retailers is huge.
Speaker 3: What are they saying these days?
Speaker 6: So one thing to look for the inventory is actually
Speaker 6: the transportation costs have been coming down, So I think
Speaker 6: overall that just speaks to an easy supply chain for
Speaker 6: home depot, so they are able to manage a little
Speaker 6: bit better. In general, they're managing their costs quite well.
Speaker 6: That's part of the reason that they were able to
Speaker 6: kind of flatten out the earnings trough there. And yeah,
Speaker 6: I think overall the inventory has been shifting well and
Speaker 6: they are, you know, they have so much stuff there,
Speaker 6: able to manage it well and they're able to get
Speaker 6: the products that people want in the stores.
Speaker 3: Our thanks to Red Brown, Bloomberg News Earnings Reporter.
Speaker 4: Coming up, Starbucks has a new CEO. We're going to
Speaker 4: break down the leadership change. Next.
Speaker 3: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
Speaker 3: depth research and data on two thousand companies and one
Speaker 3: hundred and thirty industries. You can access Bloomberg Intelligence via
Speaker 3: b I go on the terminal.
Speaker 4: I'm Paul Sweeney and m Alex Steel, and this is Bloomberg.
Speaker 2: You're listening to the Bloomberg Intelligence podcast. Catch us live
Speaker 2: weekdays at ten am Eastern on Affo car Playing and
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Speaker 2: wherever you get your podcasts, or watch us live on YouTube.
Speaker 4: We look next to a shake up at the copy
Speaker 4: chain Starbucks. This week, Starbucks out did its CEO and
Speaker 4: picture otlet Mexican Real CEO Brian Nickel as its next leader.
Speaker 4: For more and all of this, we are joined by
Speaker 4: Jody Lori Bloomberg Intelligence credit Analysts, and we first asked
Speaker 4: Jody for her reaction to this week's news.
Speaker 7: I think, as the credit analysts were always sort of
Speaker 7: hesitant when there's these full scale changes that happen overnight,
Speaker 7: and when you've had a CEO that's only been there
Speaker 7: since March of last year, so we have just only
Speaker 7: gotten comfortable with the concept they were giving back twenty
Speaker 7: billion dollars and now you have two activists investors very
Speaker 7: heavily involved, one getting a board seat and pushing out
Speaker 7: the CEO with a new CEO. That could be a
Speaker 7: positive for the company long term in terms of performance.
Speaker 7: But I do also think that shareholders might make it
Speaker 7: better than bondholders at this point.
Speaker 3: Why do you say that you think they're just going
Speaker 3: to maybe start returning cash shareholders.
Speaker 5: I think they'll get a little bit more aggressive with that, Paul.
Speaker 7: I mean, I think you know, it could end up
Speaker 7: being the type of thing that they look at the
Speaker 7: company and that you sort of think about ways to
Speaker 7: sort of boost the value, whether it be spin off
Speaker 7: some entity or what have you. I'm not sure what
Speaker 7: entity they could spin off to Starbucks because so much
Speaker 7: of the non core business has already been peeled away.
Speaker 7: That said, I mean, I think that when when you're
Speaker 7: dealing with activists, you're always sort of hesitant because you say, Okay,
Speaker 7: how much are they going to risk the balance sheet?
Speaker 7: How much are they going to lever to get the
Speaker 7: company into a different spot. Now that might be a
Speaker 7: short term pain for long term gain, but for bond holders,
Speaker 7: when you think about that short term pain, that's not
Speaker 7: always necessarily the best thing. Which you know, we have
Speaker 7: a long history of yam for for example, you know,
Speaker 7: which which the new CEO is part of. When they
Speaker 7: spun off their entity Young China, you know, they ended
Speaker 7: up giving back so much of their money to shareholders.
Speaker 4: Which then to the point breaks a question like how
Speaker 4: is Starbucks actually doing from a bond holder perspective.
Speaker 7: From a bond holder perspective, you know, over the past year,
Speaker 7: they've been a little bit more volatile. Something that that's
Speaker 7: very clear that we've been tracking is the aldi the
Speaker 7: Bloomberg second measure data.
Speaker 5: Yeah, okay, so.
Speaker 4: Wait, first all, what is this? Because I got to
Speaker 4: be honest, for I've never heard of this before, and
Speaker 4: you mentioned it and you're going to talk about it,
Speaker 4: and now I'm a little obsessed with it.
Speaker 7: It is pretty amazing, Alex, particularly when it comes to Starbucks,
Speaker 7: because the R squared or you know, the sort of
Speaker 7: predictive value of it is pretty great when it comes
Speaker 7: to Starbucks in particular.
Speaker 5: So what it is. It's credit card and debitcard.
Speaker 7: Swipes only in the United States, and Bloomberg aggregates the data.
Speaker 7: You can see it. You can see it both on
Speaker 7: a year over year basis. You can see it on
Speaker 7: an actual value basis. If you look at the year
Speaker 7: over year where it's trending, it's actually very much down
Speaker 7: when it comes to sales and transactions, which is not
Speaker 7: surprising because they've had a couple of sort of disappointing points,
Speaker 7: one of them being geopolitics, so the Astro turf effort
Speaker 7: related to the Middle East. The other portion is obviously
Speaker 7: China and the fact that they really went all in
Speaker 7: on China and it's been a little bit of a disappointment.
Speaker 7: And then you've also just had consumers pulling back in
Speaker 7: terms of their spending on things like Starbucks, McDonald's, what
Speaker 7: have you. And so companies have been trying to just
Speaker 7: get people in the door. Now if you look at
Speaker 7: it for you know, transaction value, or if you look
Speaker 7: at you know, the PLACER data which we also have
Speaker 7: embedded on the terminal, and the placer data is down,
Speaker 7: so that's estimated visits. So people physically going into stores
Speaker 7: has been down recently. And so how does the new
Speaker 7: CEO get these people back? How does he get them
Speaker 7: comfortable with the Starbucks that we used to know and love.
Speaker 5: I'm not sure talk.
Speaker 3: To us about China, because I know you've flagged that before.
Speaker 3: It talks about China and what it means for Starbucks.
Speaker 7: I think China means a lot of things for a
Speaker 7: lot of the companies in our space. I think it's
Speaker 7: been a very common word, more so than normal when
Speaker 7: it comes to across the consumer and leisure space.
Speaker 5: You know.
Speaker 7: So if you listen to earning calls this quarter, anyone
Speaker 7: from Hilton to Hyatt to you know, even the cruise
Speaker 7: lines have been mentioning China either as an avenue for
Speaker 7: growth or as a disappointment for an avenue for growth.
Speaker 7: I mean, we haven't seen the value of China. We've
Speaker 7: seen sort of.
Speaker 5: The sluggish, slow growth of late.
Speaker 7: And for someone like Starbucks that last year they mapped
Speaker 7: out their plan and they said, we're going to be
Speaker 7: building out more stores in China and that's our international
Speaker 7: growth plan, and that's how we're getting the company back
Speaker 7: on track. All of a sudden, you don't necessarily have that.
Speaker 7: I mean that's kind of a big problem.
Speaker 4: Yeah, and when they talk about like strategic options for
Speaker 4: that are partnerships, what does that wind up looking like?
Speaker 4: They're not gonna spin it off, right, So it's not
Speaker 4: gonna be a Yum and Yum brand's China kind of situation.
Speaker 4: So how do you digest that?
Speaker 7: I mean, it could be a Yum and China situation.
Speaker 7: Who knows what's on the table at this point. I mean,
Speaker 7: we could fathom any sort of measures. I mean, most
Speaker 7: of Starbucks stores are owned, but then when it comes
Speaker 7: to international it's a little less so.
Speaker 5: And even places like you know, I mentioned the cruise lines.
Speaker 7: You know, we were on a Royal Caribbean ship a
Speaker 7: couple months ago and they had a like in our.
Speaker 4: Bas always like, remember at the time, I was on
Speaker 4: that cruise and it was really awesome. Sorry continue.
Speaker 7: They did actually have a collector mug for Icond of
Speaker 7: the Seas that I did buy, which was a Starbucks mug,
Speaker 7: but it was Starbucks with a bunch of Icon of
Speaker 7: the Sea stuff.
Speaker 5: I had to get it. I mean, it was two
Speaker 5: companies I cover.
Speaker 3: I was like, I can't one shot. Well, on the
Speaker 3: flip side of this this transaction Chipotle, what's the outlook there,
Speaker 3: what's the feeling there in the street.
Speaker 7: So Chippote is an interesting one because they don't really
Speaker 7: have that much dead outstanding. So it's one that you know,
Speaker 7: Mike Hallen really deeply covers. We a little less, so
Speaker 7: we cover it from the standpoint that obviously it's a
Speaker 7: very important player in the space. It's that fast casual
Speaker 7: we love talking about Yalm and obviously Chipotte sort of
Speaker 7: lines in perfectly with Yalm and it's sort of that
Speaker 7: intersection between Yum and Darden, which we like talking about.
Speaker 7: And so I mean, I think, you know, Chippote obviously
Speaker 7: had a lot of negative headlines. We're talking five years ago,
Speaker 7: you know, in terms of safety for their food, which
Speaker 7: is obviously never never a good thing. Since then, they've
Speaker 7: turned around the company quite substantially. Now, I don't know
Speaker 7: what this means when you have a Darling CEO jump
Speaker 7: ship and go to another company. I'm not quite sure
Speaker 7: what we'd expect there. I do sort of wonder what
Speaker 7: shareholders are.
Speaker 3: Thinking our thanks to Jody Lourie, Bloomberg Intelligence credit Anios.
Speaker 4: We move next to my favorite space energy. We have
Speaker 4: something here at Bloomberg called Bloomberg New Energy Finance. The
Speaker 4: idea behind it is to provide data on commodities, power, transport, industries,
Speaker 4: buildings and agriculture and new technology.
Speaker 3: This week we looked at battery storage, because you can't
Speaker 3: make a transition if you can't store the energy for more.
Speaker 3: We're dravened by Yea yu Sakhani, head of Energy storage
Speaker 3: research at Bloomberg, and.
Speaker 4: We first ask Yayo just how much energy storage we
Speaker 4: realistically need going forward and how hard is it to
Speaker 4: get there?
Speaker 8: To give you some context, when we talk about storage,
Speaker 8: we're talking about multiple types of technologies. You mentioned batteries specifically,
Speaker 8: we're really talking about many tarotwood hours of battery storage
Speaker 8: capacity that's a little bit hard to make it tangible.
Speaker 8: But just to give you some context on where the
Speaker 8: market is today, we are at about one point two
Speaker 8: tarotwood hours of total batteries Tara what hours, Yeah, exactly, Yeah,
Speaker 8: so that's yeah, when you get to Terra's that's that's
Speaker 8: pretty big, it's bigger.
Speaker 3: Thank okay, thank you exactly.
Speaker 8: So essentially where we're at is like we've had record
Speaker 8: years in terms of total deployment of batteries in the world,
Speaker 8: and the this is in the form of both evs,
Speaker 8: so batteries that go in electric vehicles, that's in the Tesla's,
Speaker 8: the byds that you see being sold, as well as
Speaker 8: in stationary storage markets. So that's like big grid batteries
Speaker 8: that are installed to shift solar and wind generation to
Speaker 8: evening hours as well as you know, some people are
Speaker 8: installing them in their homes because they would like to
Speaker 8: have some backup power or they have their own solar
Speaker 8: system and they would like to shift some of that
Speaker 8: energy to their evening consumption. So that's that's quite a
Speaker 8: lot and definitely records still continuing to be broken.
Speaker 3: There is the efficiency of batteries. Is that getting better?
Speaker 3: And how does it get better?
Speaker 5: Yeah?
Speaker 8: I mean, good question. There, so they are they have
Speaker 8: been getting better. So a lot of the trajectory around
Speaker 8: batteries and improvement on technologies is very much focused around
Speaker 8: with immine batteries. We've seen over the last decade improvement
Speaker 8: in many aspects of the technology, so becoming more energy
Speaker 8: dense so you can carry more energy storage capacity.
Speaker 4: I mean, like it's not one or two hours, maybe
Speaker 4: it could be days.
Speaker 8: It could be it could be days. Although today the
Speaker 8: majority of the systems that we're seeing deployed are pretty
Speaker 8: much two four hours. There is some extension of that
Speaker 8: so that that means like we can shift more energy
Speaker 8: to maybe not another like the next day, but maybe
Speaker 8: then a day in the next week. But primarily today
Speaker 8: the majority of the use cases are are generally two
Speaker 8: four hours within a day.
Speaker 4: Why is it so hard to increase storage life? Like,
Speaker 4: why is it so hard to go from a couple
Speaker 4: hours to longer?
Speaker 8: So it's not technically hard to do, it's more about
Speaker 8: the cost. So once you start looking at multiple hours
Speaker 8: and multiple days, that means you have to add more
Speaker 8: energy storage duration, more capex to that project. And if
Speaker 8: there isn't really a mechanism for you to be paid
Speaker 8: for that additional investment that you're adding the more batteries
Speaker 8: for for duration, You're not really going to want to
Speaker 8: do that as somebody who's building these batteries, and so
Speaker 8: it's it's a lot of it is related to what
Speaker 8: is the market paying for today and what the market
Speaker 8: needs to day in the future. Our expectation and based
Speaker 8: on VNIF analysis, is that we're going to see longer
Speaker 8: duration needs and that's primarily because we're going to be
Speaker 8: we're going to need to be shifting more solar and
Speaker 8: more WIN generation to other hours and for longer periods.
Speaker 8: If we're decommissioning those gas plants that are currently providing
Speaker 8: that service.
Speaker 3: What are the next in terms of batteries and stores,
Speaker 3: what's the next thing that lay people like Alex and
Speaker 3: I and John we should be looking for thinking.
Speaker 8: About so some exciting things aside from the market level stuff,
Speaker 8: which is like as I mentioned, record levels of battery
Speaker 8: capacity being deployed. Probably it's more about like the evs
Speaker 8: becoming more more affordable. So if you want to go
Speaker 8: into the store and buy instead of buying conventional car,
Speaker 8: you want to buy an electric vehicle, actually having that
Speaker 8: at a price point that's more accessible for your focket.
Speaker 8: That's essentially a factor of multiple things, one of which
Speaker 8: is the battery costs. So for the battery costs to
Speaker 8: come down, which a big portion of an electric vehicle cost,
Speaker 8: that actually makes those.
Speaker 3: Big coming down.
Speaker 8: They are coming down, and that's actually a major story
Speaker 8: for this year. It's the fact that we've seen batteries
Speaker 8: at record low prices, especially in China, but that's starting
Speaker 8: to have a knock on effect in other markets in
Speaker 8: the world as well, and so there's a lot of
Speaker 8: factors around the markets related to that. There's huge over
Speaker 8: capacity in the battery manufacturing sector in China today, and
Speaker 8: then there's the back of that intense competition of the
Speaker 8: battery manufacturers in the Chinese market, and that's essentially really
Speaker 8: putting a lot of pricing pressures downwards in that market.
Speaker 4: Before I let you go to subsidies help from governments
Speaker 4: to make all this happen.
Speaker 8: Yeah, absolutely so. I think in the context of the
Speaker 8: US specifically, we've seen a lot of gigafactories being announced
Speaker 8: in the US at the back of the Inflation Reduction Act.
Speaker 8: They provide multiple types of subsidies. A major one is
Speaker 8: for the production of batteries, battery cells and battery modules,
Speaker 8: which are the building blocks of batteries that you see
Speaker 8: in electric cars, stationary storage. And that's a significant amounts
Speaker 8: thirty five to forty five dollars per kilo what hour
Speaker 8: for the production of these batteries. And so we've seen
Speaker 8: a lot of gigod factories announced, although as of late
Speaker 8: there's been some delays to some of those announcements because
Speaker 8: of the slowdown around av demand growth.
Speaker 3: Our thanks to Yeyu Sakhani, head of Energy storage research
Speaker 3: at Bloomberg and.
Speaker 4: EF coming up on the program laingre retailer Victoria's Secrets,
Speaker 4: appointing a new CEO to lead its turnaround more in details.
Speaker 3: Next, you're listening to Bloomberg Intelligence on Bloomberg Radio, providing
Speaker 3: in research and data on two thousand companies in one
Speaker 3: hundred and thirty industries. You can access Bloomberg Intelligence vmb
Speaker 3: I go in the terminal.
Speaker 4: I'm Paul Sweeney and am Alex Deal and this is Bloomberg.
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Speaker 4: We move now to big tech and Google. This week
Speaker 4: we heard the US Justice Department is considering breaking up
Speaker 4: Alphabet's Google.
Speaker 3: This comes after a landmark court ruling found that the
Speaker 3: company monopolized the online search market.
Speaker 2: For more.
Speaker 4: We are joined by Jen Reeed, Bloomberg Intelligence Senior litigation Analyst.
Speaker 3: Your first ask Jen, what exactly the DOJ is thinking
Speaker 3: about doing when it comes to Google.
Speaker 9: You know, now push comes to shove with this case
Speaker 9: because it hasn't the DOJ hasn't really talked too much
Speaker 9: about remedies. It's been working on liability in it won,
Speaker 9: and it won pretty resoundingly. So now it has to
Speaker 9: think about what it wants to ask the judge to
Speaker 9: do to remedy what the judge found to be anti
Speaker 9: competitive about what Google's been doing. And I have to
Speaker 9: say that the idea of a structural request or a
Speaker 9: breakoup's been around since twenty twenty because the Department of
Speaker 9: Justice inserted it into the first complaint it filed back
Speaker 9: in October of twenty twenty. It said, we may be
Speaker 9: asking the judge for structural relief as necessary, and it's
Speaker 9: something the DOJ's thinking about, and I don't think it's
Speaker 9: a surprise. Why not go for it? You know, there's
Speaker 9: kind of a big as bad mentality right now, and
Speaker 9: if that's the case, then you want to break apart
Speaker 9: these dominant firms and they have this win, why not
Speaker 9: try to go for the gold on this?
Speaker 4: So that's the case, though, I mean, is it one
Speaker 4: of those things where they're going to go for it
Speaker 4: but really it's going to be okay and they're not
Speaker 4: going to do it, and they're going to do something else,
Speaker 4: and then what's that something else instead?
Speaker 9: Look, I think they will. It's going to be up
Speaker 9: to the judge. And my gut here is that the
Speaker 9: judge probably would not order that kind of drastic relief.
Speaker 9: I just think that the judge was really specific here
Speaker 9: about finding that it's the default agreements that Google had
Speaker 9: entered into that were anti competitive, and what was harmful
Speaker 9: about them was that it did not allow the rivals
Speaker 9: to gain the data they needed through searches to have
Speaker 9: scale to be a good enough search engine. And those
Speaker 9: are two big issues. So if those are the two
Speaker 9: things that are anti competitive. My suspicion is the judge
Speaker 9: will say, hey, no more default, no more payment to
Speaker 9: be the default search engine at these key search access points.
Speaker 9: And by the way, maybe you need to share some
Speaker 9: of this data you've collected over the years through all
Speaker 9: these searches with these to give them a chance to
Speaker 9: get better. Those are two options. And leahon Island's reporting
Speaker 9: was great about also this AI issue and concerned about
Speaker 9: using its dominance to get a lead in AI. And
Speaker 9: maybe the DoD will do something there.
Speaker 3: Too, because the AI thing is the one that I
Speaker 3: think has a lot of people concerned, not investors, but
Speaker 3: just people think about AI and what it means for
Speaker 3: privacy and all these other issues. What does it mean
Speaker 3: for jobs and security and all these things which the
Speaker 3: market nobody has an idea and certainly not the courts
Speaker 3: or regulators here. But what are Google's defenses here here,
Speaker 3: given that they did lose that anti trust case.
Speaker 9: I think one of the things Google will do will
Speaker 9: point to language by the judge, And actually there was
Speaker 9: quite a bit of it in the complaint about the
Speaker 9: fact that it really has been a great innovator, that
Speaker 9: it's been ingenius, that the fact of the matter is
Speaker 9: it developed the best quality search engine in the world
Speaker 9: by putting in money, by putting in innovation, by hiring
Speaker 9: great engineers and ingenuity. The judge did say that, and
Speaker 9: also the judge, by the way, said even though Google
Speaker 9: had obtained a monopoly position, it continued to innovate, even
Speaker 9: though it didn't really have to once it gained that spot.
Speaker 9: So Google will say, look, you know, you have no
Speaker 9: guarantee that that same kind of innovative spirit will be
Speaker 9: behind the parent of this new company. If you cleave
Speaker 9: offf Android or cleaveoff Chrome and it's run by some
Speaker 9: other entity, you know that might not be in that
Speaker 9: entity's DNA. You have acknowledged that we're innovators and that
Speaker 9: will continue to innovate, and it makes the most sense
Speaker 9: for these assets to stay in our hands. That's what
Speaker 9: I think Google.
Speaker 4: Will say, all right, our thanks to Jen Ree, she's
Speaker 4: Bloomberg Intelligence senior litigation analyst.
Speaker 3: We'll turn out to news in the banking industry, Bank
Speaker 3: of Nova Scotia has agreed to buy a minority stake
Speaker 3: in the US regional bank Key Corp. For about two
Speaker 3: point eight billion dollars.
Speaker 4: This comes a Scotia Bank makes good on its plans
Speaker 4: to invest more capital in the US.
Speaker 3: For more on this, we were joined by Herman Chen
Speaker 3: Bloomberg Intelligence, senior analysts for US regional banks.
Speaker 4: I first asked Herman to walk us through what Key
Speaker 4: Corp actually was before Scotia Bank got involved this week.
Speaker 10: Key Corp regional bank based in Ohio, Cleveland, strong presence
Speaker 10: in commercial ending and has a really robust investment bank
Speaker 10: and capital markets capability for its size. On the flip side,
Speaker 10: the bank has been really pressured by the higher interest
Speaker 10: rate environment. It got caught off sides a little bit
Speaker 10: by both its hedging strategy and its investments in low
Speaker 10: yielding securities when interest rates were near zero. So it's
Speaker 10: margin and profitability has lagged the peer group over the
Speaker 10: past couple of years. That being said, things were improving
Speaker 10: and didn't require any additional capital infusion. There was on
Speaker 10: a path to self help. Margin had already reached the bottom,
Speaker 10: but now with the two point eight billion capital infusion
Speaker 10: from Scotia Bank, they can accelerate that earnings profitability improvement story.
Speaker 4: How long does it take to get something like this done?
Speaker 4: Like has this been in the works for a while
Speaker 4: or what.
Speaker 10: Yeah, it seems like based on both the calls that
Speaker 10: that Key Corp and SCOO been conducted, the CEOs had
Speaker 10: ongoing conversations about a potential investment. From what I understand,
Speaker 10: Scotia Bank wanted to expand in the US and had
Speaker 10: done a lot of due diligence in looking at opportunities,
Speaker 10: and Key Corp was their top choice. So it adds
Speaker 10: a great earning stream and exposure to the US for
Speaker 10: Scotia Bank and for Key Corp. It really improves its
Speaker 10: capital and liquidity and really puts them on offense rather
Speaker 10: than playing defense for the past couple of years.
Speaker 4: How are the banks like Key Corp doing as interest
Speaker 4: rates may fall somewhat soon.
Speaker 10: Yeah, I guess I would contrast it with a tumult
Speaker 10: of March and April of last year. The banks had
Speaker 10: largely been very defensive pretty much up to the end
Speaker 10: of last year, reducing its lending capacity, trying to improve
Speaker 10: its capital and liquidity ahead of both fears about deposits
Speaker 10: leaving and also higher regulatory burden. Right now, it seems
Speaker 10: like they're in a much stronger position. Capital has been
Speaker 10: built up, they're back to lending the only issue is
Speaker 10: there's not a lot of demand, and the banks are
Speaker 10: positioned for potentially lower interest rates that can improve some
Speaker 10: lending going forward. They've had a lot of the potential
Speaker 10: rate decline, so they're in a fairly good position to
Speaker 10: really prosecute the opportunity.
Speaker 4: What about deposits? Has deposit flight stopped, particularly if rates
Speaker 4: wind up coming down. I'm just waiting for my market's
Speaker 4: account all of a sudden started to tick lower and
Speaker 4: yield where are we here with that?
Speaker 10: My high savings account is already ticked down in anticipation
Speaker 10: for Rencooks, So American Express, I'm not a big fan
Speaker 10: of that. I would say that the posits have really stabilized.
Speaker 10: There's no real rush to build deposits now because as
Speaker 10: I said before, there's not a lot of demand for
Speaker 10: the lending site, so you don't need a lot of
Speaker 10: deposits to really fuel that muted demand appetite out there
Speaker 10: for loans. That being said, the positle cards aren't rising either,
Speaker 10: and they're pretty stable because the FEDS stabilized the Fed
Speaker 10: funds rate for a bit now, and we'd expect, you know,
Speaker 10: some stable margin. Depending on the bank, some could be
Speaker 10: down over the next year just based on their balance sheets.
Speaker 4: Are there other potential targets for investments from other banks
Speaker 4: in this kind of scenario.
Speaker 10: Yeah, from what I understand that there's a unique way
Speaker 10: of accounting for the Canadians. A small portion of investments
Speaker 10: in financial institutions has as a positive capital calculation, so
Speaker 10: it might be more focused on the Canadians in general.
Speaker 10: But that being said that, we have seen some pickup
Speaker 10: in traditional m and A activity in the United States.
Speaker 10: Discover Capital one is the biggest one that we're still
Speaker 10: waiting for regulatory approval on, and then there's some smaller
Speaker 10: banks that have done some deals as well, So it
Speaker 10: seems like that the activity is going to rebound even
Speaker 10: more once we get rate cuts.
Speaker 3: Our thanks to Herman Chan and Bloomberg Intelligence senior analysts
Speaker 3: for US regional banks.
Speaker 4: We move next to the lingerie retailer at Victoria's Secret.
Speaker 4: This week we got news at Victoria's Secret is poaching
Speaker 4: the top executive from Rihanna's Lingerie brand to lead the
Speaker 4: retailers turnaround.
Speaker 3: Hillary super will replace Martin Waters, who was terminated as
Speaker 3: CEO and resigned from the board.
Speaker 4: For more on this, we are joined by Mary Ross,
Speaker 4: Gilbert Bloomberg Intelligence senior equity analyst covering retail.
Speaker 3: We first asked Mary if this week's news is a
Speaker 3: big deal for Victoria's Secret.
Speaker 11: I think this is a big deal. Being a woman
Speaker 11: focused brand, we think that Hillary Super And as you mentioned,
Speaker 11: she was just the CEO at Rihanna's brand Fenti x Savage,
Speaker 11: and that's a lingerie company. It's a teeny, teeny tiny company.
Speaker 11: But Hillary has three decades of experience, was the chief
Speaker 11: of the Anthropology brands more recently and prior to that,
Speaker 11: she's worked at a number of other brands, including American Eagle.
Speaker 11: And speaking of competition to Victoria's Secret and why they've
Speaker 11: lost share, American Eagle has a brand called Airy and
Speaker 11: that's about, you know, one point six billion dollar business.
Speaker 11: So Victoria's Secret has lost market share, but they have
Speaker 11: been in a turnaround mode for the past three to
Speaker 11: four years and we're starting to see some traction. But
Speaker 11: we really think that with Super's understanding of the consumer,
Speaker 11: working with multiple brands and really getting the brand heat,
Speaker 11: we think that she could really make a difference here
Speaker 11: at the HELM. So we think this is good news,
Speaker 11: and of course it comes as they say that they
Speaker 11: just beat two Q earnings. You know, they gave preliminary
Speaker 11: estimates for their second quarter.
Speaker 4: When did things really fall apart for Victoria's Secret, what
Speaker 4: was the trigger?
Speaker 11: Yeah, the trigger was really this sort of me too
Speaker 11: move movement, and given that it was a brand that
Speaker 11: was sort of focused on the perspective of what made
Speaker 11: women sexy from a male perspective rather than from the
Speaker 11: female consumer perspective, and that has has shifted. It used
Speaker 11: to be part of limited brands. It was then spun off.
Speaker 11: They've become a more inclusive brand. I mean, how many
Speaker 11: companies out there can say that they have one hundred
Speaker 11: percent equal pay across the business. I don't know of
Speaker 11: any others, but they have achieved that. You know, it's
Speaker 11: third party documented or certified, I should say. So, they've
Speaker 11: made tremendous progress. They've really improved the lineup.
Speaker 9: But I think kind of getting it to.
Speaker 11: The next level and really getting that turnaround to a
Speaker 11: point where they can get back to growth. I think
Speaker 11: this is the right time at the moment to pivot
Speaker 11: and bring in somebody like Hillary super So. I think
Speaker 11: it's very, very exciting for the company at this time.
Speaker 3: Well, Mary if the industry has changed, that the lingerie
Speaker 3: part of the business has changed. Where are success coming
Speaker 3: from in that new world?
Speaker 11: Yeah, well, so there's a couple of things that happened.
Speaker 11: I mean, the category had been growing for many years
Speaker 11: and had been expected to grow, but they did experience
Speaker 11: a slow down last year. But we're already starting to
Speaker 11: see improvements in the category, at least in the US. Internationally,
Speaker 11: by the way, Victoria's Secret is growing in the double digits.
Speaker 11: I think in the last quarter international was up eleven percent.
Speaker 11: So the category did weaken, but it looks like it's
Speaker 11: starting to turn back up again. And really what happened
Speaker 11: is with this sort of me too moment, it became
Speaker 11: more inclusive, and so Victoria's Secret has adopted their brands
Speaker 11: to be more inclusive, and you know, once again to
Speaker 11: come from the perspective of a woman and what the
Speaker 11: woman needs, you know, and it's a whole assortment. And
Speaker 11: if you go into the stores, you will see a
Speaker 11: dramatic improvement in the assortment that they have. In the
Speaker 11: employee culture. I would say it's very positive, very exciting
Speaker 11: environment when you go into the stores. But they do
Speaker 11: need to remodel most of the stores. They've only been
Speaker 11: able to touch a small percentage of the store base
Speaker 11: so far, so there's still more to go. And then
Speaker 11: the Pink brand is really at an earlier stage of
Speaker 11: a turnaround, but we're already seeing fallen assortments really improve.
Speaker 11: And they brought on Natalia Bryant as a brand ambassador,
Speaker 11: so that's pretty exciting. We're heading in the right direction.
Speaker 4: Thanks to Mary ros Gilbert, Bloomberg Intelligence and your equity
Speaker 4: analyst covering retail.
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