WEBVTT - Deere’s Disappointing Outlook Shows Farm Recovery Is Elusive 0:00:02.759 --> 0:00:10.600 Bloomberg Audio Studios, podcasts, radio news. You're listening to the 0:00:10.640 --> 0:00:14.600 Bloomberg Intelligence Podcast. Catch us live weekdays at ten am 0:00:14.640 --> 0:00:17.920 Eastern on Apple, Cocklay and Android Auto with the Bloomberg 0:00:17.960 --> 0:00:21.080 Business App. Listen on demand wherever you get your podcasts, 0:00:21.400 --> 0:00:23.560 or watch us live on YouTube. 0:00:24.280 --> 0:00:28.360 One of my favorite American companies is Dear John Dear Company, 0:00:28.400 --> 0:00:31.040 because it just to me. A the products are just awesome, 0:00:31.560 --> 0:00:34.000 the big tractors and stuff like that, and B they're 0:00:34.159 --> 0:00:37.360 such high quality, and they're just known around the world. 0:00:37.440 --> 0:00:41.000 Great engineering, great technology, and they're just the backbone for 0:00:41.040 --> 0:00:43.400 the American farmer. It's the tool for the American farmer 0:00:44.120 --> 0:00:46.800 who feeds the world. So I just always followed this 0:00:46.840 --> 0:00:50.120 company really closely, and they came out with some numbers disappointing. 0:00:50.120 --> 0:00:52.320 It's a little tough out there in farm country. So 0:00:52.360 --> 0:00:54.440 we want to break it down with Chris Chiolino. He 0:00:54.480 --> 0:00:59.160 covers all the big machinery companies for Bloomberg Intelligence, just 0:00:59.200 --> 0:01:02.000 one of our top top analysts. He knows this story well. Chris, 0:01:02.000 --> 0:01:04.039 tell us what you heard from Deer with their most 0:01:04.040 --> 0:01:07.399 recent quarterly results. Yeah, thanks, Paul. 0:01:07.520 --> 0:01:11.840 You know, we expected pretty conservative guidance coming into the print. 0:01:11.840 --> 0:01:14.959 But this was, you know, well below our expectations, and 0:01:14.959 --> 0:01:17.000 I'd say even you know, below some of the most 0:01:17.040 --> 0:01:20.199 bearish estimates out there, and really just kind of points 0:01:20.200 --> 0:01:23.160 to a lower for longer agg cycle here in North America. 0:01:23.840 --> 0:01:27.240 Their twenty sixth net Income guide calls for another ten 0:01:27.280 --> 0:01:31.480 percent decline in twenty twenty six. It implies roughly earnings 0:01:31.480 --> 0:01:34.440 per share in the sixteen dollars and fifty cent range, 0:01:34.800 --> 0:01:38.520 which is, you know, eighteen percent below consensus. So it's 0:01:38.720 --> 0:01:40.960 not great news. I would say there are a couple 0:01:41.080 --> 0:01:45.360 positive takeaways though. One, we do finally now have I 0:01:45.360 --> 0:01:49.000 think visibility and line of sight on trough earnings this cycle. 0:01:49.520 --> 0:01:53.080 In two, I think there's probably some inherent conservatism built 0:01:53.120 --> 0:01:56.160 into this outlook, just given the lingering you know, trade 0:01:56.360 --> 0:01:57.480 and tariff uncertainty. 0:01:58.440 --> 0:02:02.000 Yeah. Well, Chris, I'm looking add that net income guidance, 0:02:02.040 --> 0:02:04.960 which is down sharply from last year's levels, right, So 0:02:05.000 --> 0:02:06.720 talk to us about that. Do you think that is 0:02:07.200 --> 0:02:09.720 more of a cyclical thing or are we actually seeing 0:02:09.760 --> 0:02:13.080 something more structural that's playing out in this space. 0:02:14.040 --> 0:02:17.040 No, it's the cycle, you know. I think we always 0:02:17.080 --> 0:02:20.160 tend to kind of undershoot on the way down and 0:02:20.160 --> 0:02:24.400 overshoot on the way up. But this cycle is, you know, 0:02:25.160 --> 0:02:27.680 playing out I think probably a little bit more severe 0:02:27.760 --> 0:02:31.840 than we had initially expected. Large eg. Retail sales here 0:02:31.840 --> 0:02:34.840 in North America are going to be down roughly thirty 0:02:34.840 --> 0:02:37.720 percent this year. That's the second year of the decline, 0:02:37.760 --> 0:02:41.360 and now Deer is expecting another fifteen to twenty percent 0:02:41.400 --> 0:02:44.920 decline in twenty twenty six. That would put volumes at 0:02:44.960 --> 0:02:47.600 the lowest level in more than four decades. I don't 0:02:47.600 --> 0:02:49.480 think I have a model that goes back far enough 0:02:49.520 --> 0:02:54.239 that shows that trough level of volume, So I think 0:02:54.280 --> 0:02:56.720 it's we're pretty confident that this will be the bottom. 0:02:56.760 --> 0:02:58.280 It's just kind of a lower floor. 0:02:58.800 --> 0:02:59.560 On the flip side. 0:02:59.600 --> 0:03:01.560 I mean, the earnings per share are still, you know, 0:03:01.800 --> 0:03:03.880 we think are structurally higher just given some of the 0:03:04.120 --> 0:03:07.120 improvements they've made in the business model. But from a 0:03:07.160 --> 0:03:09.959 cycle and volume perspective, this is as bad as it gets. 0:03:10.280 --> 0:03:12.959 Why do you think that is what's different around about 0:03:13.000 --> 0:03:15.360 this cycle versus past cycles here? 0:03:16.200 --> 0:03:18.120 Yeah, it's a combination of a couple things. I mean, 0:03:18.120 --> 0:03:20.280 at the end of the day, farmers aren't going to 0:03:20.320 --> 0:03:23.360 buy equipment when you have crop prices that are down. 0:03:23.520 --> 0:03:25.320 You know, we've seen a little bit of improvement in 0:03:25.720 --> 0:03:28.720 corn and soy over the last three months, but at 0:03:28.720 --> 0:03:30.919 the end of the day, we've had too much production 0:03:31.160 --> 0:03:33.400 over supply, so that's put a lid on where crop 0:03:33.440 --> 0:03:37.760 prices have been going. We also have high input costs, 0:03:37.800 --> 0:03:40.720 so while we're starting to see some of that inflation moderate, 0:03:41.160 --> 0:03:43.160 a lot of the input costs for farmers are still 0:03:43.320 --> 0:03:49.240 very elevated. Even on the interest rent, labor, fertilizer costs 0:03:49.240 --> 0:03:51.000 are still too high. And then on top of that, 0:03:51.000 --> 0:03:52.800 you have all the trade uncertainty. Who am I going 0:03:52.840 --> 0:03:56.840 to sell my crops to? China had essentially stopped buying 0:03:56.840 --> 0:04:01.000 our soybeans. That's our largest ad customer and a particularly 0:04:01.040 --> 0:04:04.280 important market for deer in row crop farmers. So the 0:04:04.280 --> 0:04:06.720 combination of those three I think has really kind of, 0:04:06.800 --> 0:04:09.320 you know, extended the duration of this downturn. 0:04:09.920 --> 0:04:12.160 Yeah, well, we know, of course that South American demand 0:04:12.280 --> 0:04:14.800 expected to be flat, so I suppose a lot of 0:04:14.840 --> 0:04:19.200 growth potentially coming from a North American farm economy. But 0:04:19.360 --> 0:04:21.320 what are the signs that you would want to look 0:04:21.360 --> 0:04:24.000 out for to suggest that, Look, the worst really is 0:04:24.040 --> 0:04:27.120 behind this company. There's a turn and forthcoming in the horizon. 0:04:28.279 --> 0:04:30.120 Yeah. I think the first you're going to look at 0:04:30.160 --> 0:04:32.040 crop prices, and I think we're starting to see a 0:04:32.080 --> 0:04:35.360 little bit of positive momentum there with China, you know, 0:04:35.560 --> 0:04:37.960 getting back into the US market and making a few 0:04:37.960 --> 0:04:41.520 soybean purchases. So some stability on the crop price front 0:04:41.839 --> 0:04:43.880 that would be one. And then two is really having 0:04:43.960 --> 0:04:48.760 China back in the market more consistently, right, We need stability, 0:04:48.800 --> 0:04:52.520 we need predictability around their purchases. You know, they kind 0:04:52.520 --> 0:04:55.279 of fell short on their Phase one trade deal agreement 0:04:55.320 --> 0:04:58.320 during the first Trump administration, so we need to see them, 0:04:58.360 --> 0:05:01.160 you know, consistently back the market, and I think that 0:05:01.200 --> 0:05:04.280 will kind of give farmers confidence then maybe then to 0:05:04.640 --> 0:05:07.160 go out and start replacing some of this aged equipment. 0:05:08.120 --> 0:05:11.479 Is there a fact concern that again, last time, the 0:05:11.520 --> 0:05:13.880 last Trump administration, the last time it deal was to 0:05:13.920 --> 0:05:16.800 reach for China to buy more US agg China did 0:05:16.800 --> 0:05:18.560 not really follow through at the end of the day. 0:05:18.600 --> 0:05:20.440 Is there a belief that maybe this time could be different. 0:05:21.760 --> 0:05:24.880 It's a good question, and I don't know that's the 0:05:24.920 --> 0:05:27.440 million dollar question, right. So I think ultimately this is 0:05:27.480 --> 0:05:29.200 why this is going to be a show me story 0:05:29.520 --> 0:05:32.240 and until China, you know, delivers on some of their 0:05:32.240 --> 0:05:35.760 commitments and delivers consistently. Farmers aren't going to go out 0:05:35.760 --> 0:05:38.400 and spend. So when we see that occur, I think 0:05:38.400 --> 0:05:42.760 that will lend more support to improvement and crop prices. 0:05:43.120 --> 0:05:45.080 And then I do think, you know, you start to 0:05:45.080 --> 0:05:47.360 see farmers start to go out and some replace some 0:05:47.440 --> 0:05:51.480 of those you know, aged equipment in the on their fields. 0:05:51.760 --> 0:05:54.440 But again it's very much I think we need to 0:05:54.440 --> 0:05:55.520 see it to believe it first. 0:05:57.240 --> 0:06:00.359 Stay with us. More from Bloomberg Intelligence coming up for this. 0:06:03.920 --> 0:06:07.640 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:06:07.720 --> 0:06:11.119 weekdays at ten am Eastern on Applecarplay and Android Auto 0:06:11.200 --> 0:06:14.279 with the Bloomberg Business App. Listen on demand wherever you 0:06:14.320 --> 0:06:17.279 get your podcasts, or watch us live on YouTube. 0:06:18.240 --> 0:06:19.840 Earnings continued to come in. We had a couple of 0:06:19.880 --> 0:06:22.839 the tech companies Dell and HP report numbers. Let's break 0:06:22.880 --> 0:06:27.159 it down with Woujinho, senior Technology anals Bloomberg Intelligence joining 0:06:27.200 --> 0:06:31.400 us from our Princeton HQ Tennant Jersey. All right, would 0:06:31.400 --> 0:06:34.080 you let's start with Dell here. It looks like they're 0:06:34.160 --> 0:06:37.320 raising their annual projections for the AI server market. Is 0:06:37.360 --> 0:06:39.479 that still the heart of the story. 0:06:40.560 --> 0:06:43.560 Hey, Paul, Yeah, so it's the leading part of the 0:06:43.600 --> 0:06:48.839 story for results. They raised their AI server guidance from 0:06:48.839 --> 0:06:51.000 twenty billion to twenty five billion, a lot of that 0:06:51.040 --> 0:06:54.680 coming into the fiscal fourth quarter. And look at the 0:06:54.760 --> 0:06:56.760 end of the day, we're starting to see some of 0:06:56.800 --> 0:07:01.760 these clustered Blackwell deals starting to come through. Think about 0:07:01.760 --> 0:07:03.880 the open aiyes and the core weaves and so on 0:07:03.920 --> 0:07:08.080 and so forth. That are billions of dollars for each 0:07:08.120 --> 0:07:10.720 of these deals, and that's probably going to carry through 0:07:10.720 --> 0:07:12.000 into fiscal twenty twenty seven. 0:07:12.600 --> 0:07:15.440 Now ougent a lot of folks. Of course, in that 0:07:15.600 --> 0:07:19.400 positive story, I suppose the less positive spin here is 0:07:19.400 --> 0:07:21.200 the fact that this is going to cost Dell a 0:07:21.200 --> 0:07:24.760 lot of money to deliver these orders, right, And I 0:07:24.760 --> 0:07:27.480 think some analys are taking a look at the margins 0:07:27.480 --> 0:07:31.080 that they reporter, which came slightly under estimates depending on 0:07:31.200 --> 0:07:33.520 the measured are you're looking at. But you know, what 0:07:34.040 --> 0:07:36.600 is it. Where does kind of the layer of the 0:07:36.640 --> 0:07:38.880 land go when it comes to kind of cost versus 0:07:38.920 --> 0:07:43.760 return for Dell's ability to deliver these AI service and 0:07:44.320 --> 0:07:45.440 get some profit off of that. 0:07:46.200 --> 0:07:49.000 Yeah, Hey, hey Christina, so sore, there's actually a tale 0:07:49.000 --> 0:07:53.239 of there are two stories behind the margins. The gross 0:07:53.240 --> 0:07:57.000 margin expectations. You know, I was back into about twenty 0:07:57.040 --> 0:08:00.600 point three percent, twenty point four percent on growth margins 0:08:00.640 --> 0:08:05.080 for the company. Contestants that twenty two percent. Uh, and 0:08:05.120 --> 0:08:08.880 you're right, AI server margins are lower, but that's always 0:08:08.960 --> 0:08:12.200 consistently been the case. Now, the one thing I will 0:08:12.240 --> 0:08:16.760 say the AI several margins have improved this quarter relative 0:08:16.800 --> 0:08:20.640 to the fiscal two quarter results, as as their supply 0:08:20.760 --> 0:08:25.400 chain has gotten better. Now, the bigger story is, and 0:08:25.880 --> 0:08:29.760 it actually applies to HP is that the DRAM pricing 0:08:29.800 --> 0:08:32.760 has gone up and these higher commodity costs is bringing 0:08:32.760 --> 0:08:36.000 a drag to potentially bringing a drag to not only 0:08:36.000 --> 0:08:38.680 their PC business, but their server business as well. So 0:08:38.760 --> 0:08:42.280 I think there's something else underlying that's driving the margins lower. 0:08:42.559 --> 0:08:45.840 All right, so let's talk about HP HPE. Is the 0:08:45.920 --> 0:08:52.920 tickery HPQ, HPQ exactly? Okay, talk to us about the 0:08:52.960 --> 0:08:55.040 current I guess it gave an estimate that fell short 0:08:55.280 --> 0:08:57.319 on the profits they're going to and I also saw 0:08:57.440 --> 0:08:59.720 like they're going to cut four to six thousand employees 0:09:00.040 --> 0:09:03.320 through fiscal twenty eight by using more AI tools. See 0:09:03.320 --> 0:09:05.640 that goes to my thing. I think my thesis has 0:09:05.640 --> 0:09:07.040 been from the beginning that AI is going to be 0:09:07.080 --> 0:09:10.160 a net job destroyer. Here talk to us about HP. 0:09:10.280 --> 0:09:11.640 What did they tell us this quarter? 0:09:12.440 --> 0:09:16.600 Yeah, so, just as I was saying, Paul, the higher 0:09:16.600 --> 0:09:20.400 commodity costs is actually going to be pinching gross margins 0:09:21.200 --> 0:09:24.640 the way I'm looking at it right now, they cut 0:09:24.679 --> 0:09:27.760 their EPs guidance. Well, they're saying that the higher commodity 0:09:27.760 --> 0:09:30.199 cost is going to pinch about thirty cents an EPs 0:09:30.200 --> 0:09:33.960 and fysical twenty six, and that's roughly about eight to 0:09:34.000 --> 0:09:37.760 ten percent of earnings that's being pulled away because of 0:09:37.760 --> 0:09:40.719 the higher commodity costs. There's going to be more back 0:09:40.800 --> 0:09:42.719 end loaded. So what that tells me is that the 0:09:42.840 --> 0:09:47.160 stockpiled inventory at least into the first half of the year. 0:09:48.360 --> 0:09:51.319 But I think there's a bigger part of the story too. 0:09:52.080 --> 0:09:55.480 You don't cut back on a headcount. It looks like 0:09:55.520 --> 0:09:59.280 about an eight percent riff or reduction in force because 0:09:59.320 --> 0:10:02.480 of AI if you're in a position of strength. So 0:10:04.000 --> 0:10:06.360 they've been in cost cutting mode for the past five 0:10:06.480 --> 0:10:08.400 six years now, and they've continued to be in cost 0:10:08.440 --> 0:10:12.080 cutting mode. So you know, profits are going to be terrible, 0:10:12.200 --> 0:10:14.319 and they're going to try to preserve their cash flow 0:10:14.360 --> 0:10:17.120 to pay back their shareholders by cutting headcount. 0:10:17.640 --> 0:10:19.880 Yeah, well interesting region. As you mentioned, they've been in 0:10:19.880 --> 0:10:22.400 cost cutting mode for years now, this is their second 0:10:22.480 --> 0:10:26.800 round of major workforce reductions in three years. The shares 0:10:26.800 --> 0:10:30.960 though not really liking what they saw from HP yesterday. 0:10:31.000 --> 0:10:33.200 How do you think investors are interpreting this? Are they 0:10:33.240 --> 0:10:36.199 wanting more cost cuts? Like? What do you think they're 0:10:36.320 --> 0:10:37.960 expecting from HP moving forward? 0:10:38.360 --> 0:10:44.120 Yeah? So, Christina, no one likes cost cuts shareholders made 0:10:44.320 --> 0:10:47.640 from a profits perspective, but you're not getting the profit gains, right, 0:10:47.760 --> 0:10:52.000 So consensus was at three thirty five and EPs, and 0:10:53.040 --> 0:10:58.360 if it's thirty cents of the EPs cuts were primarily 0:10:58.440 --> 0:11:01.560 from the supply chain edwins, you're not getting the games 0:11:01.600 --> 0:11:04.280 from the cost cutting cuts, at least not in fiscal 0:11:05.000 --> 0:11:07.400 twenty six, but hopefully a little bit better in twenty 0:11:07.440 --> 0:11:09.760 seven and twenty eight. So it's more a wait and 0:11:09.840 --> 0:11:12.760 see and what those impacts are going to be. And again, 0:11:12.840 --> 0:11:15.720 like I said, you're not cutting costs from a possession 0:11:15.760 --> 0:11:17.800 of strength. It's more of a position of weakness. 0:11:18.280 --> 0:11:21.720 Hey, for Dell, going back to Dell, silver Lake owns 0:11:21.760 --> 0:11:24.679 a big, big chunk of the stock here. What have 0:11:24.800 --> 0:11:26.920 they said about their intentions with the stock? 0:11:27.880 --> 0:11:32.720 Well, look, look, I believe Michael Dell is a has 0:11:32.720 --> 0:11:35.480 a seat with silver Lake. I think they're going to 0:11:35.559 --> 0:11:37.760 hang on to it for quite a bit. I mean, 0:11:37.760 --> 0:11:40.439 if you think about where where Dell was when they 0:11:40.440 --> 0:11:43.320 came out of being a private company to a public company, 0:11:43.320 --> 0:11:46.319 the returns on that has been fairly good. So if 0:11:46.360 --> 0:11:49.199 the AI story continues to take hold, right and they 0:11:49.200 --> 0:11:51.880 continue to take market share and they can drive margin expansion, 0:11:53.400 --> 0:11:58.320 you know, I wouldn't be surprised if valuations continue to 0:11:58.360 --> 0:12:01.600 expand from here because we're coming we're still coming off 0:12:01.600 --> 0:12:05.080 the peak and the performance of the shares or could 0:12:05.120 --> 0:12:08.559 continue to drive returns for civil Lake going forward. 0:12:09.320 --> 0:12:14.040 Okay, why do you walk us through the Dell operating 0:12:14.400 --> 0:12:17.559 leverage standpoint? Here's what's your take on that, because that's 0:12:17.559 --> 0:12:20.160 been kind of a point of I guess focus for 0:12:20.280 --> 0:12:23.840 markets recently. Just the fact that are these companies that 0:12:23.960 --> 0:12:28.880 aim to deliver the servers, are the equipment related to 0:12:29.160 --> 0:12:31.720 AI demand? Are they going to have to borrow a 0:12:31.760 --> 0:12:33.559 ton of money to be able to deliver that? For 0:12:33.679 --> 0:12:36.400 some companies like Oracle is not working out, But how's 0:12:36.400 --> 0:12:37.160 it working out for Dell? 0:12:38.120 --> 0:12:41.520 Yeah, I mean, the one great thing about Dell is 0:12:41.920 --> 0:12:44.720 they have a very solid balance sheet. They don't have 0:12:44.800 --> 0:12:47.400 much debt coming out, They deliver a lot of cash flow. 0:12:48.440 --> 0:12:50.760 They're only half full of hardware companies that can do that, 0:12:50.840 --> 0:12:53.920 So this goes another one that has a strong enough 0:12:53.920 --> 0:12:57.600 balance sheet to support that. And also, you know, going 0:12:57.640 --> 0:13:01.640 back to Paul's point on the Silver Laker relationship, Soblick 0:13:01.760 --> 0:13:04.520 actually has ties to some of these customers who are 0:13:04.520 --> 0:13:08.000 buying these larger deals, so funding really shouldn't be an 0:13:08.040 --> 0:13:11.560 issue with them. Now to your point about margins and 0:13:11.600 --> 0:13:15.040 the marginal leverage, having a diversified business is a very 0:13:15.080 --> 0:13:18.640 good thing for Dell. I know that the AI server 0:13:18.720 --> 0:13:21.040 margins are pretty weak, and the PC margins are weak 0:13:21.080 --> 0:13:23.959 as well, but they have a fairly sizable traditional IT 0:13:24.320 --> 0:13:28.000 service business traditional servers as well as storage, and that's 0:13:28.120 --> 0:13:31.920 going through an upgrade of modernizations cycle and that has 0:13:32.000 --> 0:13:35.400 higher margins that that helps cushion the lower margin profiles 0:13:35.400 --> 0:13:38.640 of the AI servers for them. So diversity in the 0:13:38.760 --> 0:13:42.200 business model is actually a good thing, not only for Dell, 0:13:42.360 --> 0:13:45.600 but for Cisco and Hpe Stay with us. 0:13:45.760 --> 0:13:48.120 More from Bloomberg Intelligence coming up after this. 0:13:52.000 --> 0:13:55.720 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:13:55.800 --> 0:13:59.160 weekdays at ten am Eastern on Applecarplay and Android Auto 0:13:59.280 --> 0:14:02.360 with the Bloomberg Business Up. Listen on demand wherever you 0:14:02.400 --> 0:14:05.360 get your podcasts, or watch us live on YouTube. 0:14:06.160 --> 0:14:09.240 Lots of earnings out, one of them is Petco. Some 0:14:09.280 --> 0:14:12.560 concerns out there. Deanna Ressett Openia, she's a consumer Staples 0:14:12.600 --> 0:14:16.400 and at Bloomberg Intelligence, Dianna talk to us about Petco. 0:14:16.520 --> 0:14:18.240 What did they what did you learn with their earnings 0:14:18.240 --> 0:14:19.960 and what's their strategy going forward? 0:14:21.000 --> 0:14:25.360 Yes, so there were pretty much pretty in line with consensus. 0:14:25.360 --> 0:14:31.680 In terms of Phase two. EBIDA was very strong. They 0:14:31.720 --> 0:14:35.440 grew more than one hundred basis points EBIDA margin, So, 0:14:36.480 --> 0:14:41.000 you know, phase two of their strategy of creating profitable 0:14:41.040 --> 0:14:44.760 sales growth seems to be on track. Now the next phase, 0:14:44.800 --> 0:14:50.320 which is actually getting consent comparable sales to grow, that's 0:14:50.360 --> 0:14:53.320 probably going to be an inflection they will probably see 0:14:53.360 --> 0:14:55.200 in the second half of twenty twenty six. 0:14:55.800 --> 0:14:59.040 Yeah, so, Dana, very interesting that Petco actually managed to 0:14:59.160 --> 0:15:02.920 expand their margins, especially in the environment where costs are 0:15:03.000 --> 0:15:05.680 rising left and right. Talk to us about what sort 0:15:05.680 --> 0:15:08.120 of strategy is they used to be able to achieve 0:15:08.120 --> 0:15:10.280 that is something that they can sustain moving forward. 0:15:11.280 --> 0:15:15.000 Yes, so basically they try to be a little bit 0:15:15.600 --> 0:15:22.440 smarter with their inventory, their you know, displaying better margin 0:15:23.880 --> 0:15:29.720 items on the shelves. They're relying more on services. They're 0:15:29.760 --> 0:15:32.680 trying to do a little bit more on the on 0:15:32.760 --> 0:15:37.040 the grooming side and on the bed side. That generates 0:15:37.480 --> 0:15:40.480 a lot of income and a lot of profitability for them. So, 0:15:41.640 --> 0:15:47.000 you know, obviously costs store closings also helped in the quarter. 0:15:47.200 --> 0:15:50.200 So that is how they have managed to grow more 0:15:50.240 --> 0:15:54.080 than one hundred basis points margins in the past three quarters. 0:15:54.760 --> 0:15:58.720 What is the competitive landscape of the pet food business? 0:16:00.200 --> 0:16:06.480 So they said that it has not it's stabilized. You know, 0:16:06.520 --> 0:16:09.080 in the past few quarters we have seen the likes 0:16:09.080 --> 0:16:12.760 of Chewy and pet Costs say that consumers remain a 0:16:12.800 --> 0:16:18.400 little bit more conservative with their spending, particularly on discretionary items. 0:16:18.760 --> 0:16:22.560 It seems that that has stabilized and family formation or 0:16:22.600 --> 0:16:27.320 pet family formation has stabilized as well. We actually think 0:16:27.360 --> 0:16:30.080 that by twenty twenty six, we're probably going to see 0:16:30.600 --> 0:16:34.200 more pets being adopted probably at the same pace as historicals, 0:16:34.240 --> 0:16:37.160 which is usually in the low to mid single digits. 0:16:37.720 --> 0:16:37.920 Yeah. 0:16:37.960 --> 0:16:39.800 Well, I'm certainly not in a market for a new 0:16:39.840 --> 0:16:41.480 pet at the moment, and I think my cat would 0:16:41.480 --> 0:16:44.080 allow for that. But Dana, well, how you talk to 0:16:44.160 --> 0:16:46.400 us a little bit more about what you mentioned earlier, right, 0:16:46.480 --> 0:16:49.160 kind of like diversifying the services they offer. They're focusing 0:16:49.200 --> 0:16:51.840 on grooming as well. Are you seeing signs that this 0:16:51.920 --> 0:16:55.480 is translating into sustained traffic, especially into their stores. 0:16:56.360 --> 0:16:57.400 Yes. Absolutely. 0:16:57.560 --> 0:17:02.160 We actually run a survey every you know, we have 0:17:02.240 --> 0:17:04.320 been running it for the past three years, and actually 0:17:04.359 --> 0:17:07.000 this year was the first time that we saw that 0:17:07.040 --> 0:17:09.400 people were a little bit more willing to spend more 0:17:09.440 --> 0:17:12.679 on discretionary items compared to previous two years. So we 0:17:12.800 --> 0:17:16.159 actually saw that coming earlier this year then, you know, 0:17:17.240 --> 0:17:20.479 before everybody was saying it that that was happening. So 0:17:20.640 --> 0:17:22.960 people seem to be a little bit more. While they're 0:17:23.000 --> 0:17:26.560 being very cautious in their spending, they're actually willing to 0:17:27.000 --> 0:17:30.760 you know, groom and take their pets to the. 0:17:30.800 --> 0:17:34.840 Vet for sure. All right, so we're in your retail space, 0:17:34.880 --> 0:17:37.200 where do you see some of the best opportunities when 0:17:37.200 --> 0:17:38.719 you're talking to clients, what do they want to talk 0:17:38.760 --> 0:17:40.760 to you about your names of coverage because you cover 0:17:40.800 --> 0:17:42.959 a lot of the consumer products that package goods companies 0:17:42.960 --> 0:17:43.640 and things like that. 0:17:44.560 --> 0:17:48.199 Yes, so on the pet side, definitely, there seems to 0:17:48.240 --> 0:17:52.320 be a little bit more appetite for you know, those 0:17:52.880 --> 0:17:56.480 companies that seem to be on the upswing. We have 0:17:56.600 --> 0:18:00.760 Chewy that they have expanded their you know, their their 0:18:00.800 --> 0:18:05.800 revenue channels beyond merchandise and they're doing more ads and other, uh, 0:18:06.440 --> 0:18:10.600 you know, revenues that are going to increase profitability. On 0:18:10.960 --> 0:18:13.959 the long term. You have pet Co that is probably 0:18:13.960 --> 0:18:17.120 going to start growing in the second half of next year, 0:18:17.280 --> 0:18:21.040 so by that time it's probably going to be a 0:18:21.080 --> 0:18:24.000 good name that is probably going to be in the 0:18:24.080 --> 0:18:25.200 in the business for a while. 0:18:25.920 --> 0:18:26.120 Yeah. 0:18:26.160 --> 0:18:28.879 Well, a lot of disruptors in the space for sure, 0:18:28.960 --> 0:18:31.080 But you know, as far as kind of Petco is concerned, 0:18:31.160 --> 0:18:34.439 it seems like no dividends, really no by passes are 0:18:34.480 --> 0:18:36.640 on the table at the moment. Is that something that 0:18:37.040 --> 0:18:40.800 could turn away investors, maybe something that could push towards 0:18:40.840 --> 0:18:42.960 some of these emerging competitors in the space. 0:18:43.960 --> 0:18:47.280 Yes, So that is something that they mentioned last night 0:18:47.400 --> 0:18:51.560 in the call. Obviously, they did not specify when they're 0:18:51.600 --> 0:18:56.399 going to start returning to shareholders. They're focusing on the 0:18:56.440 --> 0:19:01.720 strategy getting the right inventor on the shelf as well 0:19:01.760 --> 0:19:06.439 as getting profitability up there and getting leveraged down to 0:19:06.640 --> 0:19:10.560 like less than three times. So once that happens, they 0:19:10.640 --> 0:19:13.920 might be a little bit more willing to see where 0:19:13.960 --> 0:19:19.000 that goes. You know. It's it's something that the new 0:19:19.080 --> 0:19:23.040 CEO is thinking about, but not necessarily a timeline just yet. 0:19:23.080 --> 0:19:26.920 So yeah, shareholders might not necessarily get a return similar 0:19:26.960 --> 0:19:31.080 to other package food or other consumer stable companies, but 0:19:31.400 --> 0:19:33.840 it's you know, it seems that this is more of 0:19:33.920 --> 0:19:37.840 like an investment opportunity in terms of the strategy that 0:19:37.840 --> 0:19:39.119 they're going through. 0:19:40.200 --> 0:19:43.440 Stay with us or from Bloomberg Intelligence coming up after. 0:19:43.200 --> 0:19:50.600 This, you're listening to the Bloomberg Intelligence podcast. Catch us 0:19:50.680 --> 0:19:53.719 Live weekdays at ten am Eastern on Apple, Coarclay and 0:19:53.720 --> 0:19:57.000 Android Auto with the Bloomberg Business app. Listen on demand 0:19:57.040 --> 0:20:00.439 wherever you get your podcasts, or watch US Live me too. 0:20:01.560 --> 0:20:03.679 O heay. Just in the last year or two, this 0:20:03.800 --> 0:20:07.880 AI is crept into a vocabulary. I think before it 0:20:07.920 --> 0:20:09.919 was just big data, and then before that it was 0:20:09.960 --> 0:20:12.560 just data. I don't know, but it's just everywhere, and 0:20:12.600 --> 0:20:14.439 I think it's I'm being told it's also going to 0:20:14.440 --> 0:20:16.600 be part of our shopping experience as well as we 0:20:16.640 --> 0:20:18.840 head into the big shopping part of the year. I 0:20:18.880 --> 0:20:21.320 have no idea that's going to work. Matt Brittin, he does. 0:20:21.560 --> 0:20:25.080 He's the CEO of market research firm Susie and he 0:20:25.200 --> 0:20:28.480 is the author of a book entitled Generation AI, Why 0:20:28.560 --> 0:20:33.240 Generation Alpha and the Age of AI will Change Everything. Okay, 0:20:33.280 --> 0:20:35.399 that that kind of gets at you, Matt, Thanks so 0:20:35.440 --> 0:20:41.000 much for joining us here AI Shopping Go. What's going 0:20:41.080 --> 0:20:41.440 to happen? 0:20:42.720 --> 0:20:45.320 Well, you know, the Internet looks like it's about to 0:20:45.320 --> 0:20:47.879 have a new front door. For the last two decades 0:20:48.200 --> 0:20:50.439 if we wanted to find out anything, whether it's for 0:20:50.520 --> 0:20:53.400 research or we're booking travel or we want to buy something. 0:20:53.800 --> 0:20:56.239 You know, the word Google has become a verb in 0:20:56.280 --> 0:20:59.280 our culture, but that is starting to shift. In fact, 0:20:59.280 --> 0:21:01.960 Google repoorted nine percent year of your decline in their 0:21:02.000 --> 0:21:05.200 classic link search in Q three of twenty twenty five, 0:21:05.520 --> 0:21:08.440 and at the same time, chat GBT saw one point 0:21:08.480 --> 0:21:12.359 eight billion week week queries as of October twenty twenty 0:21:12.359 --> 0:21:14.520 five and over forty percent of those quarries are searched 0:21:14.680 --> 0:21:18.280 like in nature. So consumers are sort of acting with 0:21:18.359 --> 0:21:20.840 their fingers, so to speak, in terms of the sites 0:21:20.880 --> 0:21:23.240 that they're going to, and they're going to these large 0:21:23.280 --> 0:21:25.880 language models. Now, it should be stated that Google also 0:21:25.960 --> 0:21:28.760 has its own large wagage model called Gemini, which released 0:21:28.760 --> 0:21:31.800 an incredible version of Gemini three just this week. So 0:21:32.400 --> 0:21:35.199 I'm not saying that Google itself is in trouble, but 0:21:35.680 --> 0:21:38.320 the notion of going to a traditional search engine to 0:21:38.400 --> 0:21:41.040 find things at the beginning of your shopping journey, I 0:21:41.040 --> 0:21:42.679 don't think we'll ever look the same way again. 0:21:43.040 --> 0:21:45.119 Yeah, Matt, I know exactly what you mean, because just 0:21:45.240 --> 0:21:48.080 yesterday I was searching in my chat GBT for more 0:21:48.119 --> 0:21:51.520 affordable dupes of this really expensive skincare product that I'm 0:21:51.800 --> 0:21:55.400 in the market force. So yes, exactly what you're talking about. 0:21:55.440 --> 0:21:57.439 But you know, for mine and Paul's generations, this is 0:21:57.440 --> 0:21:59.960 something that we're still kind of wrapping our heads around, right. 0:22:00.200 --> 0:22:03.680 But you were talking about Generation Alpha as the generation 0:22:03.760 --> 0:22:08.280 Dot's basically just very this is innately something that they do, 0:22:08.359 --> 0:22:11.080