1 00:00:01,440 --> 00:00:05,320 Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live 2 00:00:05,400 --> 00:00:08,479 Speaker 1: weekdays at ten am Eastern on EFFL car playing Android 3 00:00:08,520 --> 00:00:11,640 Speaker 1: otto with the Bloomberg Business app. Listen on demand wherever 4 00:00:11,680 --> 00:00:16,000 Speaker 1: you get your podcasts, or watch us live on YouTube. 5 00:00:16,600 --> 00:00:20,120 Speaker 2: Michael halein, Bloomberg Intelligence Senior restaurant and food service analyst, 6 00:00:20,600 --> 00:00:24,000 Speaker 2: joins us Now. Michael McDonald's down the most in twenty 7 00:00:24,079 --> 00:00:26,360 Speaker 2: twenty two. What do you think of the quarter? What 8 00:00:26,520 --> 00:00:27,400 Speaker 2: was the big takeaway? 9 00:00:29,400 --> 00:00:34,000 Speaker 3: Yeah, it was a weaker quarter than most expected. For sure, 10 00:00:34,479 --> 00:00:36,600 Speaker 3: sales growth was kind of weak. 11 00:00:38,080 --> 00:00:38,320 Speaker 4: You know. 12 00:00:38,920 --> 00:00:41,879 Speaker 3: They cited the impact from the Israel Hamas war, and 13 00:00:42,520 --> 00:00:45,040 Speaker 3: obviously that hurt results in the Middle East, but also 14 00:00:45,200 --> 00:00:49,960 Speaker 3: in Muslim countries like Malaysia and Indonesia, and then also 15 00:00:50,120 --> 00:00:55,320 Speaker 3: countries like France that have a large Muslim population. It 16 00:00:55,440 --> 00:00:57,760 Speaker 3: may have impacted sales here in the US a bit 17 00:00:57,800 --> 00:01:00,800 Speaker 3: as well. There were some calls to boycott a brand 18 00:01:01,720 --> 00:01:04,440 Speaker 3: right after the start of the Israel Hamas war. Those 19 00:01:04,520 --> 00:01:08,759 Speaker 3: kind of went away in December. In January, however, so 20 00:01:09,040 --> 00:01:10,920 Speaker 3: there could have been a mild impact in the United 21 00:01:10,959 --> 00:01:14,679 Speaker 3: States as well. And then in terms of key takeaways 22 00:01:14,680 --> 00:01:18,880 Speaker 3: from the call, you know, they don't expect their developmental 23 00:01:18,880 --> 00:01:21,679 Speaker 3: markets where the Middle East is located to improve really 24 00:01:21,800 --> 00:01:26,480 Speaker 3: until the war ends. And they cited some consumer weakness 25 00:01:26,480 --> 00:01:28,880 Speaker 3: in the United States, which they have before, right, but 26 00:01:30,360 --> 00:01:32,440 Speaker 3: it seems like it may be spreading in terms of 27 00:01:32,760 --> 00:01:36,319 Speaker 3: you know, just low income consumer weakness. You know, it 28 00:01:36,400 --> 00:01:41,560 Speaker 3: sounds like their customers right now are managing their guest checks. 29 00:01:42,080 --> 00:01:45,120 Speaker 5: Hey, Mike, I'm just looking at the PGeo function on 30 00:01:45,120 --> 00:01:47,360 Speaker 5: the Bloomberg turbine. I see that roughly sixty percent of 31 00:01:47,360 --> 00:01:50,760 Speaker 5: the revenue comes from franchise operated stores in about forty 32 00:01:50,760 --> 00:01:53,880 Speaker 5: percent from company operating stores. How did they make that 33 00:01:54,000 --> 00:01:56,120 Speaker 5: decision about what when they go to a particular location, 34 00:01:56,160 --> 00:01:57,880 Speaker 5: whether the franchise or own it. 35 00:01:59,440 --> 00:02:02,880 Speaker 3: I think a big part of it is return on investment, right, 36 00:02:03,040 --> 00:02:05,560 Speaker 3: So if the returns on the investment are very strong, 37 00:02:05,600 --> 00:02:08,840 Speaker 3: they typically want to hold on to those stores or 38 00:02:08,919 --> 00:02:11,639 Speaker 3: develop stores. You know, they'll they'll do some store development 39 00:02:11,639 --> 00:02:15,320 Speaker 3: in the United States and in their more established markets, 40 00:02:16,120 --> 00:02:18,160 Speaker 3: but it's going to be a small percentage of what 41 00:02:18,200 --> 00:02:21,040 Speaker 3: they're doing going forward. You know, most of their growth 42 00:02:21,120 --> 00:02:23,040 Speaker 3: is going to be you know, done by their strong 43 00:02:23,080 --> 00:02:28,320 Speaker 3: franchise partners, particularly particularly in China and some of these 44 00:02:28,360 --> 00:02:30,840 Speaker 3: other very fast growing markets talk. 45 00:02:30,720 --> 00:02:33,360 Speaker 2: About the input part of the situation in terms of 46 00:02:33,400 --> 00:02:36,960 Speaker 2: their costs, in terms of their labor and all that 47 00:02:37,040 --> 00:02:37,760 Speaker 2: kind of good stuff. 48 00:02:39,240 --> 00:02:43,320 Speaker 3: Yeah, so come on, you know, inflation is easing for 49 00:02:43,400 --> 00:02:48,520 Speaker 3: them this year, but it's still probably higher than normal. 50 00:02:49,760 --> 00:02:52,519 Speaker 2: They're looking at cows, man cows. 51 00:02:52,600 --> 00:02:55,440 Speaker 3: That's part of it, for sure. Beef and dairy costs 52 00:02:55,639 --> 00:02:58,600 Speaker 3: are expected to be higher this year. So but they're 53 00:02:58,639 --> 00:03:01,320 Speaker 3: looking at a you know, low single digit commodity inflation 54 00:03:01,400 --> 00:03:04,480 Speaker 3: in the United States and abroad. Abroad had you know, 55 00:03:04,520 --> 00:03:07,640 Speaker 3: Europe had very high inflation last year, and that that's 56 00:03:07,680 --> 00:03:11,480 Speaker 3: gonna settle down a bit. Labor inflation is going to 57 00:03:11,560 --> 00:03:16,200 Speaker 3: be continue to be, you know higher, and a big 58 00:03:16,320 --> 00:03:19,200 Speaker 3: chunk of a big part of that here is you know, uh, 59 00:03:19,320 --> 00:03:23,880 Speaker 3: in the US, you know, their California April first puts 60 00:03:23,880 --> 00:03:26,360 Speaker 3: in the twenty dollars minimum wage for fast food workers, 61 00:03:26,360 --> 00:03:28,880 Speaker 3: and so that's going to impact some of their stores, 62 00:03:28,919 --> 00:03:33,320 Speaker 3: primarily their franchisees. However, so so they're still seeing you know, 63 00:03:34,080 --> 00:03:37,960 Speaker 3: higher inflation than you know, we had in the twenty 64 00:03:38,000 --> 00:03:38,880 Speaker 3: teens for sure. 65 00:03:39,480 --> 00:03:41,200 Speaker 5: Hey, Mike, I look at the stock and you know 66 00:03:41,400 --> 00:03:43,520 Speaker 5: I need to pay a twenty two twenty three times 67 00:03:43,840 --> 00:03:46,840 Speaker 5: earnings for this stock. What am I really getting? Is 68 00:03:46,840 --> 00:03:49,640 Speaker 5: it something more than GDP top line growth? What's really 69 00:03:49,720 --> 00:03:52,720 Speaker 5: the call behind this kind of stock? 70 00:03:53,800 --> 00:03:56,360 Speaker 3: Yeah, Well, with their global growth, they should They're gonna 71 00:03:56,440 --> 00:04:01,440 Speaker 3: probably grow higher quicker than GDP. Know, what you're buying 72 00:04:01,480 --> 00:04:06,440 Speaker 3: with a franchise business is you know, pretty pretty stable 73 00:04:06,480 --> 00:04:11,880 Speaker 3: and predictable earnings growth, free cash flow growth. There's not 74 00:04:11,960 --> 00:04:14,120 Speaker 3: a lot of operating leverage in the model, and so 75 00:04:15,080 --> 00:04:17,520 Speaker 3: they're asset light and so they can lever the business 76 00:04:17,600 --> 00:04:21,880 Speaker 3: up and return cash to shareholders pretty aggressively. So it's 77 00:04:21,920 --> 00:04:25,279 Speaker 3: definitely an attractive model, especially one with the strong top 78 00:04:25,320 --> 00:04:29,720 Speaker 3: line growth like McDonald's has. And they they're also you know, 79 00:04:29,839 --> 00:04:33,760 Speaker 3: most investors can consider them slightly insulated against a recession 80 00:04:33,760 --> 00:04:35,920 Speaker 3: in slower economic times, and a big part of that 81 00:04:36,080 --> 00:04:39,360 Speaker 3: is that the is the value that they offer. During 82 00:04:39,360 --> 00:04:44,039 Speaker 3: the Great Recession, they outperformed the quick service industry pretty significantly, 83 00:04:44,120 --> 00:04:47,080 Speaker 3: acquired a lot of market share during that time, and 84 00:04:47,120 --> 00:04:51,440 Speaker 3: so investors feel there's some safety investing in McDonald's versus 85 00:04:51,480 --> 00:04:53,000 Speaker 3: some of the other restaurant chains out there. 86 00:04:53,000 --> 00:04:54,960 Speaker 2: But Mike, that confuses me with what you said about 87 00:04:55,360 --> 00:04:59,360 Speaker 2: customers watching their checks and their items and what they're buying, 88 00:04:59,360 --> 00:05:01,640 Speaker 2: because you would think if things are hard and people 89 00:05:01,680 --> 00:05:03,880 Speaker 2: are struggling, that you would get more value and people 90 00:05:03,880 --> 00:05:06,200 Speaker 2: would go to McDonald's. But you were mentioning how in 91 00:05:06,279 --> 00:05:09,240 Speaker 2: general people are watching their money more so they're not 92 00:05:09,400 --> 00:05:10,600 Speaker 2: How does that kind of square? 93 00:05:11,560 --> 00:05:13,960 Speaker 3: Yeah, So what we've seen is a lot of traffic 94 00:05:14,120 --> 00:05:17,040 Speaker 3: deterioration over the last couple of years because price increases 95 00:05:17,080 --> 00:05:21,359 Speaker 3: have been so aggressive and people's spending is being pinched. 96 00:05:21,520 --> 00:05:21,760 Speaker 1: Right. 97 00:05:22,800 --> 00:05:25,440 Speaker 3: But the thing about quick service, you know, they're in 98 00:05:25,480 --> 00:05:28,599 Speaker 3: the lower end of the market, right, and so they'll 99 00:05:28,640 --> 00:05:32,200 Speaker 3: see during an economic slowdown, they'll see higher and middle 100 00:05:32,200 --> 00:05:35,000 Speaker 3: income consumers kind of fall into their bucket. They'll try 101 00:05:35,040 --> 00:05:39,560 Speaker 3: they'll spend less at higher cost full service occasions, and 102 00:05:39,640 --> 00:05:43,080 Speaker 3: they'll visit McDonald's more often, whereas a lot of the 103 00:05:43,120 --> 00:05:45,320 Speaker 3: low income consumers will kind of fall out of that 104 00:05:45,440 --> 00:05:49,560 Speaker 3: bucket and decide to opt for the grocery store more often. So, uh, 105 00:05:49,760 --> 00:05:52,279 Speaker 3: they'll lose some traffic on the low end, but they'll 106 00:05:52,320 --> 00:05:54,960 Speaker 3: they'll probably gain some with some of the middle and 107 00:05:55,600 --> 00:05:56,719 Speaker 3: upper income consumers. 108 00:05:56,880 --> 00:06:00,480 Speaker 5: So, like, who's really their competition these When I was 109 00:06:00,520 --> 00:06:02,240 Speaker 5: a kid, it was Burger King and Wendy's, but now 110 00:06:02,279 --> 00:06:04,359 Speaker 5: there's so much more out there. 111 00:06:04,760 --> 00:06:06,240 Speaker 6: How do you kind of slice it? 112 00:06:07,160 --> 00:06:10,760 Speaker 3: Yeah, it's the restaurant business, man. It's it's so fragmented. 113 00:06:10,800 --> 00:06:14,000 Speaker 3: There's there's competition every may everywhere, man, you know, to 114 00:06:14,080 --> 00:06:18,920 Speaker 3: your point, convenience stores, grocery stores, food trucks, you know, 115 00:06:19,040 --> 00:06:22,839 Speaker 3: you name it. Still, primarily their biggest competition are the 116 00:06:22,839 --> 00:06:26,880 Speaker 3: fast food restaurants that are located closer closest to them. 117 00:06:26,960 --> 00:06:30,320 Speaker 3: So it depends on the market. You know, California, Jack 118 00:06:30,360 --> 00:06:33,320 Speaker 3: in the Box is number two, you know, on the 119 00:06:33,360 --> 00:06:36,440 Speaker 3: East Coast, Yeah, you know, Burger King is number two, 120 00:06:36,520 --> 00:06:38,840 Speaker 3: and in most markets, i'd say in the United States, 121 00:06:38,839 --> 00:06:41,400 Speaker 3: Wendy's obviously is a big competitor of theirs, but also 122 00:06:41,800 --> 00:06:44,919 Speaker 3: you know, places like Chipotle and shake Shack, you know, 123 00:06:46,040 --> 00:06:50,400 Speaker 3: are also all competing for restaurant dollars with McDonald's. But 124 00:06:50,760 --> 00:06:53,039 Speaker 3: you know, we don't look too closely at market share 125 00:06:53,240 --> 00:06:57,919 Speaker 3: in this business because it is so fragmented. And you know, 126 00:06:58,200 --> 00:07:01,160 Speaker 3: I don't really like total addressable more getting restaurants because 127 00:07:01,200 --> 00:07:03,800 Speaker 3: nobody's gonna eat at McDonald's three times a day, seven 128 00:07:03,880 --> 00:07:05,080 Speaker 3: days a week, you know, so. 129 00:07:05,960 --> 00:07:07,960 Speaker 2: That who's there documentary that doing that? 130 00:07:08,720 --> 00:07:11,840 Speaker 3: There was Yeah, yes there, we gotta. 131 00:07:11,680 --> 00:07:13,440 Speaker 2: Leave it there. Mike, thanks a lot. Mike Calin, Bloomberg 132 00:07:13,480 --> 00:07:16,600 Speaker 2: Intelligence senior restaurant and food service analysts, joining us. 133 00:07:17,960 --> 00:07:21,840 Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live 134 00:07:21,920 --> 00:07:25,000 Speaker 1: weekdays at ten am Eastern on Apple Car playing Android 135 00:07:25,040 --> 00:07:28,120 Speaker 1: Auto with the Bloomberg Business App. Listen on demand wherever 136 00:07:28,200 --> 00:07:31,320 Speaker 1: you get your podcasts, or watch us live on YouTube. 137 00:07:33,200 --> 00:07:33,960 Speaker 6: Es Day Lauder. 138 00:07:34,400 --> 00:07:37,360 Speaker 5: The stocks of thirteen percent today, that's the short term 139 00:07:37,400 --> 00:07:39,080 Speaker 5: pop well, and I guess some cost cuts. We'll get 140 00:07:39,120 --> 00:07:41,560 Speaker 5: to that with our next guest. Down forty two percent 141 00:07:41,640 --> 00:07:43,720 Speaker 5: on a trailing twelve month basis. That's the longer term 142 00:07:43,760 --> 00:07:45,520 Speaker 5: story I want to dig into as well, and we 143 00:07:45,560 --> 00:07:48,960 Speaker 5: can do it all with one Deborah Aichin. She is 144 00:07:49,000 --> 00:07:53,560 Speaker 5: the senior Luxury analyst for Bloomberg Intelligence. She joins us 145 00:07:54,040 --> 00:07:58,480 Speaker 5: from London via zoom You want to talk luxury, you 146 00:07:58,480 --> 00:08:00,880 Speaker 5: want to talk high street shopping, talk to Debacon. 147 00:08:01,120 --> 00:08:01,920 Speaker 6: So deb let's. 148 00:08:01,760 --> 00:08:04,680 Speaker 5: Start with s day Lauder today. Good day for the company. 149 00:08:04,760 --> 00:08:07,960 Speaker 5: Stocks up thirteen percent today. What's driving the stock today? 150 00:08:08,960 --> 00:08:15,400 Speaker 4: Absolutely, it's all about well, let's let's say having really 151 00:08:16,240 --> 00:08:21,520 Speaker 4: impacted negatively with several earnings with earnings down grades and 152 00:08:21,560 --> 00:08:26,040 Speaker 4: misses over the last six seven quarters, the company positively 153 00:08:26,360 --> 00:08:31,000 Speaker 4: positively surprised. It met its organic sales decline of eight percent, 154 00:08:31,240 --> 00:08:35,319 Speaker 4: not a growth, and its EPs came in slightly better, 155 00:08:35,440 --> 00:08:40,040 Speaker 4: so down twenty percent. But the big thing is the 156 00:08:40,080 --> 00:08:43,240 Speaker 4: restructure program. So it already has a restructure program in 157 00:08:43,280 --> 00:08:47,160 Speaker 4: play that didn't seem to be deep enough, wide enough, 158 00:08:47,160 --> 00:08:50,400 Speaker 4: and have enough detail to it. And now they've raised 159 00:08:50,720 --> 00:08:53,160 Speaker 4: five hundred to seven hundred million of cost on a 160 00:08:53,200 --> 00:08:57,800 Speaker 4: deeper restructure program to bring up to one point four 161 00:08:57,800 --> 00:09:01,640 Speaker 4: billion through twenty five and twenty six, mostly twenty five 162 00:09:02,000 --> 00:09:07,160 Speaker 4: or majority twenty five weighted, so with the expectation. So 163 00:09:07,240 --> 00:09:09,760 Speaker 4: that's kind of like four hundred million extra on what 164 00:09:09,760 --> 00:09:13,440 Speaker 4: they were expecting before in terms of operating profitability. 165 00:09:13,800 --> 00:09:15,719 Speaker 2: What was the problem that they had to fix by 166 00:09:15,760 --> 00:09:17,600 Speaker 2: doing that? Like, why is it so hard to be 167 00:09:17,679 --> 00:09:19,760 Speaker 2: s day Ladder? I thought everyone would pay a million 168 00:09:19,800 --> 00:09:22,520 Speaker 2: dollars for perfect skin, not talking my book or anything. 169 00:09:23,520 --> 00:09:23,720 Speaker 1: Right. 170 00:09:23,760 --> 00:09:25,760 Speaker 4: The big thing over the last couple of years that 171 00:09:25,800 --> 00:09:29,280 Speaker 4: we've seen We've always known that Estill order a very 172 00:09:29,320 --> 00:09:32,040 Speaker 4: premium product, and it did so well for so many years, 173 00:09:32,080 --> 00:09:34,800 Speaker 4: but it had very high exposure in Asia. So we 174 00:09:34,920 --> 00:09:39,360 Speaker 4: ended up a couple of years ago with a stuffed retail, 175 00:09:39,440 --> 00:09:44,160 Speaker 4: duty free travel retail area across China and some parts 176 00:09:44,160 --> 00:09:47,160 Speaker 4: of Asia, which were exacerbated by South Korea also in 177 00:09:47,240 --> 00:09:50,120 Speaker 4: the issues there with the Dae Goose shopper and what 178 00:09:50,240 --> 00:09:52,640 Speaker 4: we found, and we'd always been saying, you know, there's 179 00:09:52,800 --> 00:09:56,080 Speaker 4: supply side, the way that they organized themselves, the logistics. 180 00:09:56,320 --> 00:09:58,560 Speaker 4: They didn't have the hubs in place in Asia to 181 00:09:58,600 --> 00:10:00,600 Speaker 4: do as much as they were doing, so they were 182 00:10:00,600 --> 00:10:03,520 Speaker 4: caught short or caught overstuffed, so they had far too 183 00:10:03,600 --> 00:10:06,720 Speaker 4: much in trade and that has taken a long long 184 00:10:06,800 --> 00:10:09,680 Speaker 4: time to temper down and start to normalize. And we 185 00:10:09,679 --> 00:10:13,040 Speaker 4: should return overall to growth this next quarter. 186 00:10:13,360 --> 00:10:15,080 Speaker 6: And dead let's stay with the China stories. 187 00:10:15,160 --> 00:10:16,720 Speaker 5: I know from talking to you over the years and 188 00:10:16,760 --> 00:10:21,480 Speaker 5: reading your research, the China consumer is just critical for 189 00:10:21,720 --> 00:10:23,040 Speaker 5: luxury shopping. 190 00:10:23,080 --> 00:10:24,479 Speaker 6: Can you give us a sense because. 191 00:10:24,280 --> 00:10:26,920 Speaker 5: I don't want to walk down Madison Avenue or Fifth Avenue. 192 00:10:27,360 --> 00:10:29,920 Speaker 5: I see all the European tourists back, they're back in, 193 00:10:30,360 --> 00:10:33,720 Speaker 5: you know, in size, not so much with the Chinese. 194 00:10:34,040 --> 00:10:34,880 Speaker 6: What's going on there? 195 00:10:36,720 --> 00:10:40,280 Speaker 4: The big thing. We very late in getting visas through 196 00:10:40,320 --> 00:10:44,840 Speaker 4: the reopening of you as we thought from the beginning 197 00:10:44,880 --> 00:10:48,120 Speaker 4: of last year reopening of travel, but the viewers that 198 00:10:48,240 --> 00:10:52,040 Speaker 4: travel internationally won't come back until the second half the year. 199 00:10:52,320 --> 00:10:54,360 Speaker 4: And we are starting to hear some of those luxury 200 00:10:54,360 --> 00:10:58,720 Speaker 4: companies sane. We're seeing more Chinese, more Asian customers in 201 00:10:58,760 --> 00:11:02,640 Speaker 4: our stores back home. There's a lot more spent in 202 00:11:02,800 --> 00:11:06,080 Speaker 4: flights are fuller. The surveys that we're doing are saying 203 00:11:06,120 --> 00:11:07,880 Speaker 4: that they will travel, but a lot of that travel 204 00:11:07,960 --> 00:11:09,560 Speaker 4: so far has been across Asia. 205 00:11:10,400 --> 00:11:13,520 Speaker 2: But what's interesting is that not all are created equal. 206 00:11:13,559 --> 00:11:15,640 Speaker 2: I feel like you can Jerry pick a couple of 207 00:11:15,760 --> 00:11:19,440 Speaker 2: luxury stocks that have been somewhat immune and I'm just 208 00:11:19,480 --> 00:11:23,000 Speaker 2: wondering what those are. And I still and in the 209 00:11:23,000 --> 00:11:26,960 Speaker 2: skincare world too, like what is that immune skincare high 210 00:11:27,080 --> 00:11:29,600 Speaker 2: end product? That doesn't matter, We're all buying it anyway. 211 00:11:31,480 --> 00:11:33,880 Speaker 4: I think that you know there are there's some huge 212 00:11:34,559 --> 00:11:37,360 Speaker 4: numbers in terms of some of the brands within the 213 00:11:38,040 --> 00:11:41,360 Speaker 4: portfolio doing extremely well, lots of the brands of double 214 00:11:41,400 --> 00:11:44,280 Speaker 4: digit but it's that trade that draws down. When you 215 00:11:44,280 --> 00:11:48,240 Speaker 4: look at the Europe number for Estill order that's where 216 00:11:48,280 --> 00:11:50,520 Speaker 4: they stock travel retail, that's where it sits in its 217 00:11:50,559 --> 00:11:53,280 Speaker 4: P and L, and it's down minus fourteen. But actually 218 00:11:53,280 --> 00:11:55,760 Speaker 4: Europe underline is flat and it's the same for the 219 00:11:55,800 --> 00:11:58,720 Speaker 4: North American market. Within that there are brands like the 220 00:11:58,840 --> 00:12:03,120 Speaker 4: Ordinary and and several of the higher end brands doing 221 00:12:03,320 --> 00:12:05,920 Speaker 4: very very well up double digit. And it's the same 222 00:12:05,960 --> 00:12:09,640 Speaker 4: across if I think about the way that actually luxury 223 00:12:09,800 --> 00:12:13,199 Speaker 4: and you know Lorel aside Loreal is doing phenomenally well 224 00:12:13,280 --> 00:12:15,920 Speaker 4: with a high base of its product in what a 225 00:12:15,960 --> 00:12:18,120 Speaker 4: classes as Lorel looks. But let's go to some of 226 00:12:18,120 --> 00:12:21,199 Speaker 4: the luxury companies and the way that LVMH and others 227 00:12:21,240 --> 00:12:26,599 Speaker 4: are building sizeable scale in perfume and cosmetics. That's for 228 00:12:26,800 --> 00:12:29,280 Speaker 4: growth of six to eight percent per year and very 229 00:12:29,280 --> 00:12:31,920 Speaker 4: strong margin. So there are a lot of brands out 230 00:12:31,920 --> 00:12:35,959 Speaker 4: there doing very very well. But in particular what has 231 00:12:36,000 --> 00:12:40,920 Speaker 4: happened is and stockpicking, cherry picking. It's about the brands 232 00:12:40,920 --> 00:12:44,560 Speaker 4: who've had the portfolio that hasn't had so much Asia 233 00:12:44,600 --> 00:12:47,400 Speaker 4: travel retail or where it's really been able to manage that. 234 00:12:47,440 --> 00:12:50,840 Speaker 4: Because even if I think about LVMH within its selective 235 00:12:50,880 --> 00:12:54,880 Speaker 4: retail and it hous dfs due to free stores and Sophora, 236 00:12:55,000 --> 00:12:57,079 Speaker 4: and at one point last year they were both down 237 00:12:57,480 --> 00:12:59,800 Speaker 4: and they've now fully recovered. We're starting to see if 238 00:12:59,800 --> 00:13:02,959 Speaker 4: the US some robust numbers coming through even from that 239 00:13:03,080 --> 00:13:06,920 Speaker 4: aspirational end across the luxury across brands. It's getting a 240 00:13:06,920 --> 00:13:09,199 Speaker 4: little better, but it's going to take time. 241 00:13:09,640 --> 00:13:11,440 Speaker 6: And that's John Talker with the aspirational spend. 242 00:13:11,559 --> 00:13:12,880 Speaker 2: Do you invest in your face. 243 00:13:13,640 --> 00:13:19,280 Speaker 6: Other than maximum No? No, I invest in my face 244 00:13:19,400 --> 00:13:20,319 Speaker 6: maximum strength. 245 00:13:20,440 --> 00:13:22,600 Speaker 5: You know, sunblock is basically the only thing for this 246 00:13:22,640 --> 00:13:23,280 Speaker 5: Irish American. 247 00:13:23,360 --> 00:13:25,439 Speaker 2: Okay, but that's a really good thing. I mean, you're 248 00:13:25,440 --> 00:13:28,319 Speaker 2: doing something, you know. I was just thinking that the 249 00:13:28,360 --> 00:13:30,560 Speaker 2: only thing that I will not buy on sale is 250 00:13:30,600 --> 00:13:33,640 Speaker 2: my skincare. Skincare because you just it never goes on sale. 251 00:13:33,920 --> 00:13:36,240 Speaker 2: If you find something that works for you, you're sick 252 00:13:36,280 --> 00:13:39,839 Speaker 2: with a certain aged woman who does media and on TV, 253 00:13:40,160 --> 00:13:42,800 Speaker 2: like I will pay for it. Then that's I mean, 254 00:13:42,880 --> 00:13:43,880 Speaker 2: I'm not wrong, deb right. 255 00:13:45,000 --> 00:13:47,520 Speaker 4: The other thing that you do is you actually, without realizing, 256 00:13:47,559 --> 00:13:50,400 Speaker 4: you trade up and right right now at the moment, 257 00:13:50,520 --> 00:13:52,720 Speaker 4: there are some youngsters who are under twenty who were 258 00:13:52,760 --> 00:13:55,800 Speaker 4: already moving into antih and the market is trying to 259 00:13:55,840 --> 00:13:58,640 Speaker 4: stop that so as you get older, you're trading up. 260 00:13:59,040 --> 00:14:01,360 Speaker 4: My story, which I think car relate to Paula Wellbach, 261 00:14:01,559 --> 00:14:05,640 Speaker 4: was late in the autumn. I was in England and 262 00:14:05,760 --> 00:14:09,720 Speaker 4: Cambridge and there were three Chinese consumers who couldn't get 263 00:14:09,880 --> 00:14:13,439 Speaker 4: product from La Prairie very high end skincare product which 264 00:14:13,520 --> 00:14:16,880 Speaker 4: is under the House of Biased Off. It's bigcause brand 265 00:14:16,880 --> 00:14:20,240 Speaker 4: b Niveia, and they were there spending over three thousand 266 00:14:20,320 --> 00:14:23,680 Speaker 4: pounds on a little gift pack. Each of La Prairie 267 00:14:24,040 --> 00:14:27,360 Speaker 4: very high end eye product was way up of my 268 00:14:27,480 --> 00:14:28,160 Speaker 4: price range. 269 00:14:28,200 --> 00:14:31,520 Speaker 2: And these names, these real companies, What is this? 270 00:14:31,840 --> 00:14:34,280 Speaker 6: I just used Irish spring and a wash cloth. 271 00:14:35,920 --> 00:14:39,960 Speaker 2: Kind of the lebable hurts my soul, invest in your face? 272 00:14:40,000 --> 00:14:41,720 Speaker 2: This is this is a strong takeaway from that. 273 00:14:42,560 --> 00:14:44,280 Speaker 5: How are the luxury stock? What's what's kind of the 274 00:14:44,320 --> 00:14:46,760 Speaker 5: luxury call here? I look at the FA function for 275 00:14:46,920 --> 00:14:48,840 Speaker 5: es Day latter and it looks like for your the 276 00:14:48,880 --> 00:14:51,640 Speaker 5: fiscal twenty twenty five, the June of twenty five year, 277 00:14:51,960 --> 00:14:54,280 Speaker 5: the street's looking for a big pickup in revenue and 278 00:14:54,400 --> 00:14:55,720 Speaker 5: profitability for Esday latter. 279 00:14:55,960 --> 00:14:57,920 Speaker 6: What's behind that? 280 00:14:57,920 --> 00:15:01,240 Speaker 4: That's that's all about that inventory. The to put that 281 00:15:01,400 --> 00:15:05,440 Speaker 4: inventory in Asia into context, it's dragged down skincare in 282 00:15:05,480 --> 00:15:09,840 Speaker 4: this quarter organic cells minus ten percent. It's dragged down 283 00:15:09,880 --> 00:15:13,360 Speaker 4: Europe to minus fourteen, where underlying Europe was flat because 284 00:15:13,400 --> 00:15:17,440 Speaker 4: it stores that travel retail. So it's about that inventory normalizing, 285 00:15:17,480 --> 00:15:19,720 Speaker 4: and they're saying that that has happened right now at 286 00:15:19,720 --> 00:15:22,080 Speaker 4: the end of two Q, so we head into three 287 00:15:22,240 --> 00:15:25,320 Speaker 4: Q with normalized level and so therefore if that is 288 00:15:25,360 --> 00:15:27,840 Speaker 4: the case, then it's better manage. We should start to 289 00:15:27,840 --> 00:15:31,040 Speaker 4: see double digit growth coming from there. And if we 290 00:15:31,040 --> 00:15:34,680 Speaker 4: were looking underlying without that area, then we saw mid 291 00:15:34,680 --> 00:15:37,400 Speaker 4: single digit growth. So that's what that's about. And then 292 00:15:37,440 --> 00:15:40,560 Speaker 4: also on top of this new restructuring program and with 293 00:15:40,680 --> 00:15:42,840 Speaker 4: some of those benefits to come through twenty five, we've 294 00:15:42,840 --> 00:15:45,880 Speaker 4: been playing around on MODL on the calculator and what 295 00:15:45,920 --> 00:15:48,680 Speaker 4: we see there is around an expectation of twelve to 296 00:15:48,720 --> 00:15:52,760 Speaker 4: thirteen percent uplift to that twenty twenty five operating profit 297 00:15:52,840 --> 00:15:54,920 Speaker 4: to hopefully come through one consensus. 298 00:15:55,280 --> 00:15:57,680 Speaker 2: Hey, deb really appreciate it. Thank you so so much. 299 00:15:57,760 --> 00:16:00,880 Speaker 2: Debora Aig and Bloomberg Intelligence. I've seen industry analyst so 300 00:16:00,960 --> 00:16:02,400 Speaker 2: just releases the question at the end of the day 301 00:16:02,640 --> 00:16:04,480 Speaker 2: when it's trying to wind up coming back and traveling 302 00:16:04,560 --> 00:16:06,720 Speaker 2: and like that we're back to that trade, which was 303 00:16:06,800 --> 00:16:09,400 Speaker 2: the trade last last year at this exact same time. 304 00:16:09,440 --> 00:16:11,040 Speaker 2: And do we buy it this time? Do you think 305 00:16:11,040 --> 00:16:11,720 Speaker 2: it's really. 306 00:16:12,080 --> 00:16:14,080 Speaker 5: Boy, I don't know. I think so now they're back 307 00:16:14,080 --> 00:16:17,000 Speaker 5: to that. We heard from the mccow and Singapore gaming companies. 308 00:16:17,040 --> 00:16:18,920 Speaker 5: The Chinese travelers are there. 309 00:16:19,200 --> 00:16:20,000 Speaker 6: Okay, let's go. 310 00:16:19,960 --> 00:16:21,360 Speaker 5: A little bit further now so they can get the 311 00:16:21,440 --> 00:16:25,200 Speaker 5: visas and the flights, uh to come to Europe and 312 00:16:25,280 --> 00:16:28,280 Speaker 5: to come to the US. Because again Fifth Avenue talked 313 00:16:28,280 --> 00:16:30,440 Speaker 5: to merchants on Fifth Avenue and Madison Avenue. 314 00:16:30,160 --> 00:16:31,440 Speaker 6: And they're just they're waiting for that. 315 00:16:31,520 --> 00:16:33,280 Speaker 5: They thought it would be a twenty yeah, you know 316 00:16:33,360 --> 00:16:35,920 Speaker 5: this year. I mean at twenty three event was not so, 317 00:16:36,400 --> 00:16:37,240 Speaker 5: but they're I'm. 318 00:16:37,080 --> 00:16:39,120 Speaker 2: Going to see Paul like strolling down Fifth Avenue, like 319 00:16:39,160 --> 00:16:40,400 Speaker 2: going into stores. 320 00:16:40,080 --> 00:16:43,840 Speaker 5: Like like I was into my Mega store getting some 321 00:16:43,920 --> 00:16:45,840 Speaker 5: work on my watch, and I did ask that question, 322 00:16:45,960 --> 00:16:48,520 Speaker 5: and I typed a deb acon right away, say here's 323 00:16:48,520 --> 00:16:52,080 Speaker 5: some feedback from the store on fith Avenue coming starting 324 00:16:52,080 --> 00:16:53,880 Speaker 5: to come back a little bit, starting to come back 325 00:16:53,880 --> 00:16:56,080 Speaker 5: a little bit over the last three or four months. 326 00:16:56,160 --> 00:16:58,520 Speaker 5: So but you know, they're just not taking over the 327 00:16:58,560 --> 00:17:01,120 Speaker 5: city in the same time. Yeah, yeah, traffic they. 328 00:17:01,000 --> 00:17:02,880 Speaker 6: Did in some of these luxury shopping areas. 329 00:17:04,400 --> 00:17:08,280 Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live 330 00:17:08,320 --> 00:17:11,840 Speaker 1: weekdays at ten am Eastern on applecar Play and Android 331 00:17:11,880 --> 00:17:14,680 Speaker 1: Auto with the Bloomberg Business app. You can also listen 332 00:17:14,800 --> 00:17:17,880 Speaker 1: live on Amazon Alexa from our flagship New York station 333 00:17:18,240 --> 00:17:21,760 Speaker 1: just say Alexa playing Bloomberg eleven thirty. 334 00:17:22,880 --> 00:17:25,040 Speaker 5: So Alex and I were talking earlier this morning at 335 00:17:25,080 --> 00:17:27,960 Speaker 5: you know, around ten am Wall Street time. ISM released 336 00:17:28,040 --> 00:17:30,160 Speaker 5: us some really good services data, So let's get right 337 00:17:30,200 --> 00:17:32,639 Speaker 5: to that with Anthony Nieves. He's the chair of the 338 00:17:32,680 --> 00:17:36,640 Speaker 5: ISM Services Business Committee. He joins us at via zoom. 339 00:17:36,680 --> 00:17:39,920 Speaker 5: So Anthony again, the ISM Services Index came in at 340 00:17:40,119 --> 00:17:43,200 Speaker 5: fifty three point four. That's the headline. Consensus was fifty 341 00:17:43,200 --> 00:17:46,240 Speaker 5: two in the last period. Is fifty point six. Big 342 00:17:46,359 --> 00:17:48,000 Speaker 5: jump there? Can you walk us through that? 343 00:17:50,680 --> 00:17:53,920 Speaker 7: Certainly when you look at the composite index, it was 344 00:17:54,040 --> 00:17:58,000 Speaker 7: driven by new orders increasing two point two percentage points 345 00:17:58,040 --> 00:18:01,040 Speaker 7: from the fifty two point eight to fifty five point zero, 346 00:18:01,560 --> 00:18:06,639 Speaker 7: and employment rebounded nicely. We contracted last month in December 347 00:18:07,080 --> 00:18:10,800 Speaker 7: was attributed to the pullback. The pullback was attributed to 348 00:18:10,840 --> 00:18:13,679 Speaker 7: the fact that the cycle time of hiring with the 349 00:18:13,720 --> 00:18:17,359 Speaker 7: holidays and vacations and whatnot, and that rebounded nicely to 350 00:18:17,400 --> 00:18:21,480 Speaker 7: fifty point five, up significantly six point seven percentage points. 351 00:18:21,760 --> 00:18:24,440 Speaker 2: Hey Anthony, great to see you. We love this data. 352 00:18:24,480 --> 00:18:27,480 Speaker 2: I love the ins and analysis from it. It wasn't 353 00:18:27,520 --> 00:18:29,880 Speaker 2: like all sunshine and rainbows though. Walk us through sort 354 00:18:29,880 --> 00:18:32,320 Speaker 2: of what areas of services did well, what area of 355 00:18:32,320 --> 00:18:33,840 Speaker 2: services may be still contracting. 356 00:18:36,560 --> 00:18:38,920 Speaker 7: That's a great question. And you look at the composite 357 00:18:38,920 --> 00:18:44,320 Speaker 7: index and also prices were increasing seven point three percentage 358 00:18:44,359 --> 00:18:48,280 Speaker 7: points fifty six point seven up to sixty four. Food 359 00:18:48,320 --> 00:18:53,520 Speaker 7: prices still remain very strong. That I feel has impacted 360 00:18:53,600 --> 00:18:57,919 Speaker 7: the FED. Looking at interest rate cuts, our respondents are 361 00:18:57,960 --> 00:19:01,040 Speaker 7: telling us that they'd love to see continued cuts in 362 00:19:01,080 --> 00:19:04,480 Speaker 7: the interest rates. But the bright side of that, there's 363 00:19:04,600 --> 00:19:08,400 Speaker 7: capital spending, new projects of being released. When you look 364 00:19:08,440 --> 00:19:12,720 Speaker 7: at the top five industries that contribute to GDP, overall, 365 00:19:13,200 --> 00:19:18,560 Speaker 7: real estate rental and leasing is still contracting. The increases 366 00:19:18,640 --> 00:19:22,640 Speaker 7: coming from professional, scientific, technical services as well as healthcare 367 00:19:22,760 --> 00:19:24,680 Speaker 7: social assistance very strong this month. 368 00:19:25,760 --> 00:19:30,359 Speaker 5: So I mean the services is seventy percent of our economy. 369 00:19:30,480 --> 00:19:31,680 Speaker 6: I mean I can't. 370 00:19:31,480 --> 00:19:35,320 Speaker 5: See a GDP contraction scenario coming out of you know, 371 00:19:35,359 --> 00:19:36,320 Speaker 5: we get data like this. 372 00:19:36,560 --> 00:19:38,600 Speaker 6: I mean, are you guys at ism or what's your 373 00:19:38,640 --> 00:19:39,520 Speaker 6: economic call here? 374 00:19:41,880 --> 00:19:45,280 Speaker 7: When we look at this monthly report coupled with the 375 00:19:45,320 --> 00:19:48,399 Speaker 7: semi annual forecast, what our respondents indicated to us that 376 00:19:48,560 --> 00:19:51,760 Speaker 7: the first half, especially in services wasn't going to be 377 00:19:51,880 --> 00:19:54,520 Speaker 7: that robust, but the second half was going to be better. 378 00:19:54,800 --> 00:19:57,399 Speaker 7: I feel we're slightly ahead of the trend. And to 379 00:19:57,440 --> 00:20:01,560 Speaker 7: your point about GDP growth, think what was it three 380 00:20:01,600 --> 00:20:04,480 Speaker 7: point three percent last year? When we look at the 381 00:20:04,560 --> 00:20:08,040 Speaker 7: composite index this month annualized, it's at one point five. 382 00:20:08,560 --> 00:20:11,400 Speaker 7: And if we see the second half as they indicated 383 00:20:11,400 --> 00:20:16,080 Speaker 7: to us, being stronger, we'll have this incremental growth continue. 384 00:20:16,400 --> 00:20:19,040 Speaker 7: It'll be a good story for the services sector. 385 00:20:19,280 --> 00:20:21,240 Speaker 2: So when we jump to the prices paid, though, I 386 00:20:21,280 --> 00:20:24,440 Speaker 2: mean it's pretty staggering, jumped the most since twenty twelve. 387 00:20:24,960 --> 00:20:28,280 Speaker 2: Was this a supply story or a demand story because 388 00:20:28,320 --> 00:20:30,440 Speaker 2: we have seen a lot of supply chain snarls, et cetera. 389 00:20:32,440 --> 00:20:37,040 Speaker 7: Well, we definitely see that it's a demand issue, especially 390 00:20:37,040 --> 00:20:39,359 Speaker 7: with new orders. Even though it looks like, you know, 391 00:20:39,359 --> 00:20:43,520 Speaker 7: it's fifty five, it's middling as far as the growth 392 00:20:43,600 --> 00:20:45,719 Speaker 7: two point two percentage points up in the fifty two 393 00:20:45,760 --> 00:20:50,800 Speaker 7: point eight, but definitely it has some constraint on transportation, 394 00:20:51,280 --> 00:20:53,800 Speaker 7: and that was indicated to us by our respondents. They 395 00:20:53,840 --> 00:20:57,520 Speaker 7: said that there's challenges with the Suez Canal with the 396 00:20:57,560 --> 00:21:00,199 Speaker 7: conflict over in the Red Sea, as well as the 397 00:21:00,200 --> 00:21:04,800 Speaker 7: Panama Canal. We're seeing the capacity has reduced to less 398 00:21:04,840 --> 00:21:07,720 Speaker 7: than half of what it was based on the issues 399 00:21:07,800 --> 00:21:09,919 Speaker 7: with being able to fill up the locks with the 400 00:21:09,960 --> 00:21:11,520 Speaker 7: water shortage over there. 401 00:21:12,200 --> 00:21:14,920 Speaker 5: Interesting, all right, So what are you looking for going 402 00:21:14,960 --> 00:21:17,120 Speaker 5: forward here? Just to kind of get a sense of 403 00:21:17,160 --> 00:21:19,040 Speaker 5: the consumer. Is it the labor market? Is that the 404 00:21:19,040 --> 00:21:22,000 Speaker 5: primary driver here or what else kind of from your perspective, 405 00:21:22,000 --> 00:21:23,080 Speaker 5: influences the consumer? 406 00:21:25,160 --> 00:21:27,640 Speaker 7: Well, you know, the labor market and employment you look 407 00:21:27,640 --> 00:21:31,440 Speaker 7: at it a fifty point five. That's a really interesting 408 00:21:31,480 --> 00:21:34,520 Speaker 7: story there. It continues the same trend and pattern that 409 00:21:34,640 --> 00:21:38,680 Speaker 7: we've seen. Certain industries they're still going through job cuts, 410 00:21:38,720 --> 00:21:42,720 Speaker 7: whereas others are finding competitiveness in the marketplace and trying 411 00:21:42,720 --> 00:21:47,520 Speaker 7: to recruit and hire applicable workers. But overall, it's really 412 00:21:47,760 --> 00:21:50,600 Speaker 7: coming down to where is it driven from, and right 413 00:21:50,640 --> 00:21:53,199 Speaker 7: now it seems to be those two industries that I 414 00:21:53,280 --> 00:21:57,439 Speaker 7: mentioned previously, professional scientific, technical services, as well as the 415 00:21:57,760 --> 00:21:59,040 Speaker 7: healthcare and socialists. 416 00:21:59,440 --> 00:22:02,840 Speaker 2: Before you go, Anthony, before we let you go, is 417 00:22:02,840 --> 00:22:05,879 Speaker 2: this an economy that has the risk of actually running 418 00:22:05,920 --> 00:22:08,680 Speaker 2: hotter if you're just looking at the responding data here? 419 00:22:10,840 --> 00:22:14,359 Speaker 7: Not really, because looking at it at the fifty three 420 00:22:14,400 --> 00:22:18,040 Speaker 7: point four, it's not over. It's not in any rook 421 00:22:18,080 --> 00:22:19,920 Speaker 7: of overheating at this point. 422 00:22:20,280 --> 00:22:22,479 Speaker 2: Hey, Anthony, really great to get your perspective. Thank you 423 00:22:22,560 --> 00:22:25,359 Speaker 2: so much. Interested in goldilocks, I mean the end of 424 00:22:25,400 --> 00:22:27,119 Speaker 2: the day, like, hey, prices paid a little bit, but 425 00:22:27,160 --> 00:22:30,160 Speaker 2: this is definitely a goldilocks story, Anthony Navis. He joins 426 00:22:30,200 --> 00:22:32,600 Speaker 2: us chair of the Ism Services Business Committee. It's really 427 00:22:32,680 --> 00:22:34,840 Speaker 2: nice to get the details of the big data. 428 00:22:34,680 --> 00:22:39,800 Speaker 1: Points at you're listening to the Bloomberg Intelligence Podcast. Catch 429 00:22:39,880 --> 00:22:43,240 Speaker 1: us live weekdays at ten am Eastern on applecar Play 430 00:22:43,280 --> 00:22:46,080 Speaker 1: and Android Auto with the Bloomberg Business App. You can 431 00:22:46,119 --> 00:22:49,399 Speaker 1: also listen live on Amazon Alexa from our flagship New 432 00:22:49,440 --> 00:22:54,040 Speaker 1: York station just say Alexa playing Bloomberg eleven thirty. 433 00:22:55,160 --> 00:22:58,480 Speaker 2: Is the ISM Services index really solid? Price is paid, 434 00:22:58,720 --> 00:23:02,320 Speaker 2: really solid? Employment higher, new orders higher? So let's get 435 00:23:02,320 --> 00:23:04,960 Speaker 2: the breakdown here on what this all means. Danielle de 436 00:23:05,040 --> 00:23:09,600 Speaker 2: Martino Booth, the CEO and chief strategist of QI Research. Danielle, 437 00:23:09,640 --> 00:23:13,080 Speaker 2: what do you make of this economy? I mean, it's 438 00:23:13,200 --> 00:23:16,160 Speaker 2: really hard to see any kind of slowing. It's really 439 00:23:16,200 --> 00:23:19,200 Speaker 2: hard to see sort of where that's going to come from. 440 00:23:19,240 --> 00:23:23,639 Speaker 8: What's your take, Well, I think of all of the 441 00:23:24,520 --> 00:23:26,359 Speaker 8: of all of the indicators that we've seen in the 442 00:23:26,440 --> 00:23:30,280 Speaker 8: last few days, where it's going to come from part 443 00:23:30,680 --> 00:23:33,160 Speaker 8: is the most apparent at this juncture. 444 00:23:33,440 --> 00:23:33,560 Speaker 4: You know. 445 00:23:34,240 --> 00:23:36,680 Speaker 8: One of the things that we noticed when the ISM 446 00:23:36,720 --> 00:23:40,480 Speaker 8: Services report came out in December was that the employment 447 00:23:40,560 --> 00:23:43,200 Speaker 8: component had dropped to forty three and change. We went, oh, 448 00:23:43,200 --> 00:23:45,520 Speaker 8: my gosh, that's absolutely the worst we've ever seen. 449 00:23:45,720 --> 00:23:45,920 Speaker 9: Hurse. 450 00:23:45,960 --> 00:23:49,879 Speaker 8: This morning it rebounded back above the fifty line that 451 00:23:50,800 --> 00:23:54,680 Speaker 8: separates expansion and contraction. All good and well, you say, right, well, 452 00:23:55,359 --> 00:23:59,400 Speaker 8: you look under the hood. ISM Services covers eighteen industries. 453 00:24:00,080 --> 00:24:04,480 Speaker 8: In November, there were ten that had rising employment. In 454 00:24:04,520 --> 00:24:08,919 Speaker 8: December there were seven of those eighteen with rising employment 455 00:24:09,040 --> 00:24:13,600 Speaker 8: in seven sectors. In January there were three. And so 456 00:24:13,960 --> 00:24:16,280 Speaker 8: I think we have to be very careful with the 457 00:24:16,359 --> 00:24:21,199 Speaker 8: data about getting too excited about any one headline, you know, 458 00:24:21,320 --> 00:24:23,639 Speaker 8: One of the things that came out on Friday in 459 00:24:23,640 --> 00:24:26,960 Speaker 8: the employment report was that the headline employment had increased 460 00:24:26,960 --> 00:24:29,199 Speaker 8: by three hundred and twenty five thousand. You peel the 461 00:24:29,240 --> 00:24:32,119 Speaker 8: onion back a layer and you find out then since 462 00:24:32,320 --> 00:24:34,600 Speaker 8: the month of February, since February, we have been at 463 00:24:34,640 --> 00:24:37,960 Speaker 8: a single full time job created in the United States. 464 00:24:38,160 --> 00:24:40,600 Speaker 8: In fact, it's been negative ninety seven thousand since then. 465 00:24:40,920 --> 00:24:44,439 Speaker 8: So the reason I think markets are a little bit 466 00:24:44,480 --> 00:24:47,920 Speaker 8: schizophrenic is because you have to keep looking left and 467 00:24:48,000 --> 00:24:49,840 Speaker 8: right or you're gonna get run over. 468 00:24:50,240 --> 00:24:50,440 Speaker 4: Yeah. 469 00:24:50,480 --> 00:24:52,520 Speaker 5: One of the many reasons I like Kevin Danielle on 470 00:24:52,560 --> 00:24:55,360 Speaker 5: the show because I like to just take the headline 471 00:24:55,400 --> 00:24:57,760 Speaker 5: number and run with it. She doesn't do that. She 472 00:24:57,800 --> 00:24:59,240 Speaker 5: doesn't allow me to do that. She says, I got 473 00:24:59,320 --> 00:25:02,400 Speaker 5: to peel back lets and onions and things like that. So, Danielle, 474 00:25:02,480 --> 00:25:06,520 Speaker 5: I think if I kind of read your very good 475 00:25:06,600 --> 00:25:10,200 Speaker 5: social media profile, you're not in the soft landing camp, 476 00:25:10,400 --> 00:25:10,719 Speaker 5: are you. 477 00:25:10,760 --> 00:25:12,400 Speaker 6: What's your call here? 478 00:25:12,440 --> 00:25:15,080 Speaker 5: I sense you're more cautious and you think the market 479 00:25:15,119 --> 00:25:16,040 Speaker 5: should be more cautious. 480 00:25:17,440 --> 00:25:19,840 Speaker 8: Yeah, I do think the market should be more cautious. 481 00:25:20,119 --> 00:25:23,439 Speaker 8: We have we have several sign posts that show that 482 00:25:23,520 --> 00:25:28,280 Speaker 8: October is probably when the National Bureau of Economic Research 483 00:25:28,320 --> 00:25:32,199 Speaker 8: is going to go back and backdate the recession. We 484 00:25:32,280 --> 00:25:36,280 Speaker 8: actually have one of their main indicators that they follow UH, 485 00:25:36,920 --> 00:25:42,159 Speaker 8: which is income X transfers ex Government transfers, adjust it 486 00:25:42,200 --> 00:25:46,080 Speaker 8: for inflation. That's negative. If you if you look at 487 00:25:46,080 --> 00:25:49,399 Speaker 8: in adoption production, one of the huge arbiters of recession for 488 00:25:49,520 --> 00:25:53,080 Speaker 8: the nb ER, it also UH is negative. And in 489 00:25:53,119 --> 00:25:57,040 Speaker 8: fact we're starting to see problematic inventory build in autos. 490 00:25:57,560 --> 00:25:59,600 Speaker 8: We had that we had at auto sales come in 491 00:25:59,640 --> 00:26:03,560 Speaker 8: at fifth teen point zero million seasonally adjusted annualized rate 492 00:26:04,040 --> 00:26:06,520 Speaker 8: they were expected to commit at fifteen point seven. That 493 00:26:06,680 --> 00:26:09,760 Speaker 8: was a quiet report that kind of went by the 494 00:26:09,800 --> 00:26:14,719 Speaker 8: wayside last Thursday. So there are so many revisions going on. 495 00:26:14,840 --> 00:26:17,080 Speaker 8: Goldman SAX did a huge report at the end of 496 00:26:17,119 --> 00:26:19,960 Speaker 8: the year that said every single month of retail sales 497 00:26:20,280 --> 00:26:23,239 Speaker 8: in twenty twenty three had been revised downwards and that 498 00:26:23,320 --> 00:26:26,960 Speaker 8: retail sales were flat on the year. I think we're 499 00:26:26,960 --> 00:26:31,359 Speaker 8: having such an issue with statisticians in Washington, DC because 500 00:26:31,359 --> 00:26:35,800 Speaker 8: so many of their seasonal analysis modeling is based off 501 00:26:35,800 --> 00:26:40,120 Speaker 8: of and includes the pre pandemic era. So the time 502 00:26:40,160 --> 00:26:42,040 Speaker 8: the dust settles are like, oh, wait, wait, now that 503 00:26:42,040 --> 00:26:44,960 Speaker 8: we've got everything in or maybe we've got the smallest 504 00:26:45,000 --> 00:26:48,480 Speaker 8: sample size in the history of say the non farm 505 00:26:48,480 --> 00:26:52,639 Speaker 8: payroll survey. Once we get all of the data in hand, 506 00:26:52,760 --> 00:26:54,639 Speaker 8: we were incorrect, We're going to go back and revise 507 00:26:54,680 --> 00:26:55,280 Speaker 8: that down. 508 00:26:55,920 --> 00:26:58,960 Speaker 2: That's a lot of Danielle. This makes your job difficult, 509 00:26:59,040 --> 00:27:01,840 Speaker 2: our job difficult, and the Fed's job even more difficult. 510 00:27:02,440 --> 00:27:05,479 Speaker 2: So we're now looking at a little over four cuts 511 00:27:05,520 --> 00:27:09,000 Speaker 2: priced in for this year. What do you think is legit, 512 00:27:09,200 --> 00:27:11,760 Speaker 2: particularly with all this uncertainty and revisions that you're talking about, 513 00:27:11,800 --> 00:27:12,680 Speaker 2: and when would it start. 514 00:27:14,040 --> 00:27:17,000 Speaker 8: Well, had it not been for the very strong tone 515 00:27:17,520 --> 00:27:22,000 Speaker 8: that Chair j. Powell voiced on sixty minutes last night, 516 00:27:22,200 --> 00:27:25,440 Speaker 8: I would be more in the camp of saying if 517 00:27:25,480 --> 00:27:28,239 Speaker 8: they do start to cut rates, they will do so 518 00:27:28,359 --> 00:27:32,280 Speaker 8: at every meeting beginning in May, so May, June, July, 519 00:27:32,840 --> 00:27:37,879 Speaker 8: and September. But Chair Powell seems so adamant in communicating 520 00:27:37,920 --> 00:27:41,879 Speaker 8: that he will be the apolitical FED chair. He will 521 00:27:41,920 --> 00:27:46,040 Speaker 8: be nonpartisan, he will not be viewed as being political. 522 00:27:46,080 --> 00:27:48,680 Speaker 8: In an election year, it's a toss up fifty to 523 00:27:48,720 --> 00:27:52,639 Speaker 8: fifty whether or not the Fed historically has cut rates 524 00:27:52,760 --> 00:27:56,400 Speaker 8: or raised rates. May taken any action in the FMC 525 00:27:56,520 --> 00:27:59,720 Speaker 8: that immediately precedes the election. That would be the September, 526 00:27:59,760 --> 00:28:03,639 Speaker 8: the eighth, eighteenth FOMC. I wouldn't be surprised to see 527 00:28:04,240 --> 00:28:07,919 Speaker 8: three rate cuts May, June, and July and then a pause. 528 00:28:09,040 --> 00:28:09,520 Speaker 6: Interesting. 529 00:28:09,720 --> 00:28:12,440 Speaker 5: So, from your perspective, Danielle, the data you look at, 530 00:28:12,480 --> 00:28:15,159 Speaker 5: which is not necessarily the data that lay people like 531 00:28:15,200 --> 00:28:16,960 Speaker 5: me look at, which is basically how much does it 532 00:28:17,000 --> 00:28:20,440 Speaker 5: cost to fill up my car with gas? Is inflation 533 00:28:20,520 --> 00:28:21,720 Speaker 5: whipped in this country or no? 534 00:28:23,520 --> 00:28:27,600 Speaker 8: You know, it's interesting you asked that question because recently 535 00:28:28,160 --> 00:28:32,320 Speaker 8: true inflation truflation, which a bunch of bond traders introduced 536 00:28:32,320 --> 00:28:34,600 Speaker 8: to me. They actually gave me the raw data. We 537 00:28:34,680 --> 00:28:36,960 Speaker 8: ran a quick correlation. It's got a point ninety seven 538 00:28:37,000 --> 00:28:42,160 Speaker 8: correlation with headline inflation, the headline CPI. Two times ago, 539 00:28:42,160 --> 00:28:45,760 Speaker 8: true inflation hopped down underneath the FEDS two percent target. 540 00:28:46,000 --> 00:28:48,160 Speaker 8: I said, well, what happened there? And it was mostly 541 00:28:48,240 --> 00:28:51,520 Speaker 8: led by hotels. It was one sector. Last week it 542 00:28:51,600 --> 00:28:56,040 Speaker 8: dropped down to one point four one point four percent YEP, 543 00:28:56,160 --> 00:28:58,040 Speaker 8: And so I reached out to the founders of trueflation, 544 00:28:58,120 --> 00:29:00,719 Speaker 8: I said, what gives what was that huge swing factor? 545 00:29:00,760 --> 00:29:02,360 Speaker 8: Did I miss it did I fill up at the 546 00:29:02,360 --> 00:29:05,080 Speaker 8: gas tank for a lot less and they said no, Danielle, 547 00:29:05,280 --> 00:29:10,920 Speaker 8: ten out of twelve categories had appreciably large declines, meaning 548 00:29:11,760 --> 00:29:15,880 Speaker 8: the disinflation that was a one off here or there 549 00:29:16,360 --> 00:29:19,800 Speaker 8: has become extremely widespread. If you've got ten out of 550 00:29:19,840 --> 00:29:23,720 Speaker 8: your twelve major categories more than three hundred million real 551 00:29:23,760 --> 00:29:28,240 Speaker 8: time prices feed this monster model per day, with again 552 00:29:28,280 --> 00:29:32,400 Speaker 8: a ninety seven percent correlation with headline CPI. I think 553 00:29:32,440 --> 00:29:38,239 Speaker 8: that Pal's bigger impediment going into the second half of 554 00:29:38,560 --> 00:29:42,120 Speaker 8: twenty twenty four might be larger rate cuts than he 555 00:29:42,320 --> 00:29:47,080 Speaker 8: anticipates or would like, if inflation's coming down as quickly 556 00:29:47,120 --> 00:29:47,520 Speaker 8: as it is. 557 00:29:47,600 --> 00:29:49,280 Speaker 5: All right, Danielle, thank you so much for joining us. 558 00:29:49,280 --> 00:29:52,480 Speaker 5: We always appreciate getting your input. Danielle di Martino Booth. 559 00:29:52,560 --> 00:29:56,320 Speaker 5: She's the CEO and chief strategist at QI Research, joining 560 00:29:56,360 --> 00:29:59,840 Speaker 5: us via Zoom from Big d Dallas, Texas. She was 561 00:29:59,880 --> 00:30:03,600 Speaker 5: on the Fed Dallas fed down there years past. A 562 00:30:03,680 --> 00:30:06,400 Speaker 5: great perspective there. We appreciate chatting with her. 563 00:30:07,960 --> 00:30:11,840 Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live 564 00:30:11,920 --> 00:30:15,440 Speaker 1: weekdays at ten am Eastern on applecar Play and Android 565 00:30:15,480 --> 00:30:18,240 Speaker 1: Auto with the Bloomberg Business app. You can also listen 566 00:30:18,360 --> 00:30:21,480 Speaker 1: live on Amazon Alexa from our flagship New York station, 567 00:30:21,840 --> 00:30:25,560 Speaker 1: Just say Alexa playing Bloomberg eleven thirty. 568 00:30:26,840 --> 00:30:31,000 Speaker 5: Just talk about the real company out there, Element Solutions. 569 00:30:31,000 --> 00:30:34,640 Speaker 5: Ben Glicklich joins us. He's the CEO of Element Solutions. 570 00:30:34,840 --> 00:30:37,120 Speaker 5: He joins us live here on our Bloomberg Interactive Broker Studio. 571 00:30:37,160 --> 00:30:40,200 Speaker 5: We appreciate you're based done in Fort Lauderdale in Miami. 572 00:30:40,480 --> 00:30:40,760 Speaker 1: Nice. 573 00:30:40,960 --> 00:30:41,600 Speaker 2: Why are you here? 574 00:30:41,880 --> 00:30:44,680 Speaker 6: Yeah, well in Miami because everybody's is it going crazy 575 00:30:44,680 --> 00:30:45,000 Speaker 6: down there? 576 00:30:45,000 --> 00:30:45,320 Speaker 4: What is it? 577 00:30:45,320 --> 00:30:47,040 Speaker 6: I mean, is it just nuts with all these people 578 00:30:47,040 --> 00:30:47,520 Speaker 6: coming down. 579 00:30:47,640 --> 00:30:48,640 Speaker 9: There's a ton of energy. 580 00:30:48,680 --> 00:30:50,480 Speaker 6: It's a great place to live and work. 581 00:30:51,280 --> 00:30:53,200 Speaker 9: For better or worse. I'm on the road three months, 582 00:30:53,400 --> 00:30:55,360 Speaker 9: three weeks out of the month because the business is 583 00:30:55,400 --> 00:30:55,920 Speaker 9: very global. 584 00:30:56,120 --> 00:30:57,920 Speaker 2: Just for background. Paul wants to be there, like he 585 00:30:57,960 --> 00:30:59,440 Speaker 2: wants to move to Florida. He wants to do the 586 00:30:59,440 --> 00:30:59,960 Speaker 2: show from there. 587 00:31:00,080 --> 00:31:02,760 Speaker 6: Exactly. I talked to us about Elements Solutions. I know 588 00:31:03,080 --> 00:31:05,600 Speaker 6: you guys are in. Just tell us about your company, 589 00:31:05,640 --> 00:31:07,520 Speaker 6: what you do, and then we'll go from there. 590 00:31:07,600 --> 00:31:07,920 Speaker 4: Great. So. 591 00:31:07,960 --> 00:31:11,200 Speaker 9: Element Solutions is a provider of chemical technology that enables 592 00:31:11,280 --> 00:31:15,520 Speaker 9: high performance applications so our materials and process solutions are 593 00:31:15,600 --> 00:31:19,360 Speaker 9: used in manufacturing high value products from semiconductors to smartphones 594 00:31:19,600 --> 00:31:21,000 Speaker 9: to high performance autom So. 595 00:31:21,040 --> 00:31:23,840 Speaker 5: Your customers are technology companies primarily. 596 00:31:23,480 --> 00:31:27,160 Speaker 9: So our customers are technology supply chains. Technology supply we're 597 00:31:27,560 --> 00:31:31,360 Speaker 9: we're selling to printed circuit board manufacturers, semiconductor manufacturers, it's 598 00:31:31,520 --> 00:31:34,880 Speaker 9: very fragmented below the original equipment manufacturers that make the 599 00:31:34,880 --> 00:31:38,040 Speaker 9: smartphones in the cars. So we're a critical enabler of 600 00:31:38,080 --> 00:31:40,640 Speaker 9: their technologies, but we're not selling directly to them. 601 00:31:40,680 --> 00:31:44,000 Speaker 2: So you're not making like plastic for the end user 602 00:31:44,120 --> 00:31:46,080 Speaker 2: kind of thing either, because usually, like what I love 603 00:31:46,120 --> 00:31:49,440 Speaker 2: about chemicals is that is that really closed early cycle 604 00:31:49,520 --> 00:31:51,840 Speaker 2: read on the global economy, right, like what air Products 605 00:31:51,840 --> 00:31:54,400 Speaker 2: is doing when relationship telling me about China, that's not you, guys. 606 00:31:54,760 --> 00:32:00,520 Speaker 9: So we're selling critical components that enable performance of high 607 00:32:00,640 --> 00:32:04,440 Speaker 9: value products. So we do have a read on what 608 00:32:04,520 --> 00:32:07,600 Speaker 9: the next generation smartphone is going to look like. We 609 00:32:07,680 --> 00:32:10,840 Speaker 9: have a read on trends in automotive and other electronics 610 00:32:10,880 --> 00:32:11,480 Speaker 9: and markets. 611 00:32:11,640 --> 00:32:14,760 Speaker 6: How did you find yourself to this business. It's a 612 00:32:14,800 --> 00:32:16,760 Speaker 6: fantastic business. 613 00:32:17,160 --> 00:32:18,680 Speaker 5: I'll take your word for it, but I mean it's 614 00:32:18,720 --> 00:32:20,640 Speaker 5: not something I would have thought about just off. 615 00:32:20,960 --> 00:32:23,480 Speaker 6: You have to been dropped in there somehow. 616 00:32:23,240 --> 00:32:26,400 Speaker 9: So better lucky than good, I would say. I partnered 617 00:32:26,440 --> 00:32:29,760 Speaker 9: with our chairman, Sir Martin Franklin, who's been very successful 618 00:32:29,800 --> 00:32:33,880 Speaker 9: building multiple different businesses, and together through acquisitions, we've built 619 00:32:33,880 --> 00:32:36,480 Speaker 9: this portfolio of market leading companies. 620 00:32:36,480 --> 00:32:40,320 Speaker 5: Doesn't when I think chemical company, I don't think South Beach, true, 621 00:32:40,400 --> 00:32:43,480 Speaker 5: I think like Cleveland, What are you doing in South Beach? 622 00:32:43,640 --> 00:32:43,880 Speaker 7: Not that? 623 00:32:44,000 --> 00:32:46,440 Speaker 6: Or Miami? What's no reason not to be there? Everybody 624 00:32:46,440 --> 00:32:46,840 Speaker 6: else is. 625 00:32:47,640 --> 00:32:51,120 Speaker 9: So we are there because it's as good of a 626 00:32:51,120 --> 00:32:53,920 Speaker 9: place as any, and our business is very dispersed. We 627 00:32:53,960 --> 00:32:56,440 Speaker 9: have one hundred and sixty locations in over thirty countries, 628 00:32:56,760 --> 00:32:59,760 Speaker 9: more than sixty manufacturing sites, and so my job is 629 00:32:59,800 --> 00:33:01,400 Speaker 9: to make sure that our folks are working on the 630 00:33:01,440 --> 00:33:04,800 Speaker 9: right things with the right incentives. And so I'm traveling 631 00:33:04,920 --> 00:33:07,680 Speaker 9: as chief cheerleader to visit our people all over the 632 00:33:07,720 --> 00:33:10,959 Speaker 9: world most of my time, and coming home to Florida 633 00:33:11,000 --> 00:33:11,480 Speaker 9: is in such. 634 00:33:11,320 --> 00:33:12,160 Speaker 6: A bet that's not a bad thing. 635 00:33:12,200 --> 00:33:14,959 Speaker 5: And so public and traded company EESI is the ticker 636 00:33:15,960 --> 00:33:18,200 Speaker 5: for those playing at home, it's up. I guess it's 637 00:33:18,240 --> 00:33:20,160 Speaker 5: got a market cap about five and a quarter billion, 638 00:33:20,200 --> 00:33:23,280 Speaker 5: dollars on a trailing twelve month basis up at about two percent, 639 00:33:23,400 --> 00:33:25,280 Speaker 5: and you're to date off about six percent. What's the 640 00:33:25,400 --> 00:33:27,840 Speaker 5: message you bring to your shareholders? You're in New York, 641 00:33:27,840 --> 00:33:30,040 Speaker 5: I'm sure you're seeing some shareholders as well. What's the 642 00:33:30,160 --> 00:33:31,760 Speaker 5: message for your company? 643 00:33:32,240 --> 00:33:35,920 Speaker 9: So this business has come off of a difficult demand 644 00:33:35,960 --> 00:33:39,760 Speaker 9: environment in twenty twenty three, Electronics markets drew down significantly, 645 00:33:40,160 --> 00:33:44,400 Speaker 9: the global industrial economy stuttered a little bit. And as 646 00:33:44,400 --> 00:33:47,440 Speaker 9: we enter twenty twenty four, we manage twenty three well, 647 00:33:47,560 --> 00:33:51,680 Speaker 9: preserve profits, made some great capital allocation decisions to position 648 00:33:51,720 --> 00:33:53,560 Speaker 9: the business well for growth, and our end markets are 649 00:33:53,600 --> 00:33:56,920 Speaker 9: getting better. Semiconductor markets are improving, Electronics markets are improving, 650 00:33:57,200 --> 00:34:00,200 Speaker 9: So we're well positioned for you know, several years here 651 00:34:00,520 --> 00:34:03,479 Speaker 9: of above cycle above cycle average growth. 652 00:34:04,240 --> 00:34:06,360 Speaker 2: Is that an inventory thing or is it an end 653 00:34:06,440 --> 00:34:09,399 Speaker 2: user demand thing? I mean just restocking inventory At this point. 654 00:34:09,160 --> 00:34:10,680 Speaker 6: It's an end user demand thing. 655 00:34:11,360 --> 00:34:14,720 Speaker 9: We did have a drawdown of channel inventories post COVID. 656 00:34:14,760 --> 00:34:18,040 Speaker 9: There was a bullwhip effect. Electronics were overbought by the 657 00:34:18,040 --> 00:34:20,359 Speaker 9: supply chain in twenty twenty one into twenty twenty two. 658 00:34:20,880 --> 00:34:23,520 Speaker 9: There was a big inventory clearance in twenty twenty three, 659 00:34:23,800 --> 00:34:27,279 Speaker 9: and now we're starting to see semiconductor production increase. We're 660 00:34:27,280 --> 00:34:31,280 Speaker 9: starting to see new smartphone models gaining traction. Our story 661 00:34:31,320 --> 00:34:34,040 Speaker 9: is not just one of units, it's content per unit, 662 00:34:34,080 --> 00:34:37,600 Speaker 9: and so the more technically challenging, the more robust the application, 663 00:34:37,640 --> 00:34:40,160 Speaker 9: the more value for a company like ours. And so 664 00:34:40,360 --> 00:34:43,480 Speaker 9: we're going to grow over and above units through the cycle, 665 00:34:44,239 --> 00:34:46,640 Speaker 9: and unit growth is poised to recover nicely here. 666 00:34:46,719 --> 00:34:49,320 Speaker 5: So I'm just looking at the FA function on the 667 00:34:49,360 --> 00:34:51,799 Speaker 5: Bloomberg terminal financial analysis. It looks like the street's got 668 00:34:51,880 --> 00:34:54,040 Speaker 5: kind of mid single digit kind of revenue growth over 669 00:34:54,040 --> 00:34:56,800 Speaker 5: the next several years, mid teens EPs growth. So it 670 00:34:56,800 --> 00:35:00,279 Speaker 5: some operating leverage in your business model? Is is that 671 00:35:00,320 --> 00:35:03,000 Speaker 5: what you're telling investors to buy or do you also say, hey, 672 00:35:03,160 --> 00:35:05,160 Speaker 5: this is also a fragmented business and if we see 673 00:35:05,160 --> 00:35:08,040 Speaker 5: things out there to buy to maybe goose our growth rate, 674 00:35:08,040 --> 00:35:09,000 Speaker 5: we'll do that. 675 00:35:09,040 --> 00:35:09,799 Speaker 6: How do you think about that? 676 00:35:09,880 --> 00:35:12,680 Speaker 9: So the answer is yes, in the first instance, the 677 00:35:12,680 --> 00:35:15,799 Speaker 9: business's asset light. It generates incredibly strong cash flows. So 678 00:35:15,880 --> 00:35:20,800 Speaker 9: our moat isn't in manufacturing process, it's in technology and people, 679 00:35:21,040 --> 00:35:22,440 Speaker 9: and so we don't have to invest a lot of 680 00:35:22,480 --> 00:35:24,799 Speaker 9: capital in order to drive the business's growth, and then 681 00:35:24,800 --> 00:35:27,040 Speaker 9: we're able to find very interesting things to do with 682 00:35:27,040 --> 00:35:29,279 Speaker 9: that strong cash flow. So we've been very inquisitive in 683 00:35:29,320 --> 00:35:32,560 Speaker 9: our history, and we doubled our adjuster learnings per share 684 00:35:32,600 --> 00:35:34,200 Speaker 9: in our first three years as a public company. We 685 00:35:34,200 --> 00:35:35,840 Speaker 9: set a goal to do that in five years. We 686 00:35:35,880 --> 00:35:37,799 Speaker 9: set another goal to double it again in five years, 687 00:35:37,800 --> 00:35:39,480 Speaker 9: and we're in the middle of that process right now. 688 00:35:39,520 --> 00:35:42,680 Speaker 9: The goal is to compound EPs in the teens. 689 00:35:42,880 --> 00:35:46,239 Speaker 2: So what about the what about the input side? Like 690 00:35:46,280 --> 00:35:48,799 Speaker 2: it sounds like you're trying to run pretty lean, but 691 00:35:48,880 --> 00:35:51,719 Speaker 2: we still definitely see inflation kind of all around. Any 692 00:35:51,760 --> 00:35:53,759 Speaker 2: kind of manufacturing is going to get hit by that. 693 00:35:53,800 --> 00:35:55,960 Speaker 2: And I appreciate that you're sort of on a different scale, 694 00:35:56,239 --> 00:35:57,080 Speaker 2: But what do you see. 695 00:35:57,360 --> 00:36:00,560 Speaker 9: So we've had inflation over the past several years, started 696 00:36:00,600 --> 00:36:05,560 Speaker 9: to stem big inflation, and logitition copper to stop a 697 00:36:05,560 --> 00:36:08,760 Speaker 9: little bit of both. So logistics have plateaued. They're starting 698 00:36:08,800 --> 00:36:10,160 Speaker 9: to come in a little bit. But with some of 699 00:36:10,160 --> 00:36:12,359 Speaker 9: the disruptions in global supply chains, we're starting to see 700 00:36:12,360 --> 00:36:15,759 Speaker 9: a bit of pressure there. Raw material price inflation has 701 00:36:15,960 --> 00:36:19,120 Speaker 9: slowed down. We're starting actually to see some deflation. As 702 00:36:19,160 --> 00:36:22,160 Speaker 9: a company we're able to take price from customers when 703 00:36:22,160 --> 00:36:26,640 Speaker 9: our costs increase and typically able to hold that and 704 00:36:26,680 --> 00:36:28,920 Speaker 9: so margins have gotten better in the back half of 705 00:36:28,960 --> 00:36:30,800 Speaker 9: twenty twenty three and we expect that to continue in 706 00:36:30,840 --> 00:36:31,520 Speaker 9: twenty twenty four. 707 00:36:32,400 --> 00:36:36,680 Speaker 5: So you recently acquired a company, a new science, a 708 00:36:36,719 --> 00:36:38,520 Speaker 5: new copper science company. 709 00:36:38,640 --> 00:36:39,160 Speaker 6: What is that? 710 00:36:39,560 --> 00:36:43,080 Speaker 9: So this is a really exciting opportunity. There aren't big 711 00:36:43,120 --> 00:36:46,799 Speaker 9: step change breakthroughs in material science in our markets. What 712 00:36:47,040 --> 00:36:50,640 Speaker 9: used to work typically works with small modifications. Okay, we 713 00:36:50,680 --> 00:36:53,040 Speaker 9: acquired a business called Couprion that has a product called 714 00:36:53,120 --> 00:36:56,880 Speaker 9: active copper, which is nano particular copper. That is a 715 00:36:57,000 --> 00:37:01,680 Speaker 9: new mechanism to enable next generation electronics. If you think 716 00:37:01,719 --> 00:37:04,839 Speaker 9: about your smartphone, it's computing power is getting greater through 717 00:37:04,880 --> 00:37:08,200 Speaker 9: smaller lines on the circuit board and smaller holes connecting 718 00:37:08,239 --> 00:37:11,120 Speaker 9: the layers of the circuit board, and conventional material science 719 00:37:11,120 --> 00:37:16,080 Speaker 9: struggles to deal with those technical challenges. Coupriyon is a 720 00:37:16,080 --> 00:37:19,600 Speaker 9: solution for that. So it's got huge potential. We've got 721 00:37:19,680 --> 00:37:23,200 Speaker 9: great customer engagement. It's a very very exciting story, not 722 00:37:23,280 --> 00:37:24,920 Speaker 9: just for our company, but for our customers. 723 00:37:25,680 --> 00:37:29,759 Speaker 2: In a broader sense. The smartphone trough like the electronics 724 00:37:29,760 --> 00:37:31,600 Speaker 2: trough you were mentioning, sort of we had a lot 725 00:37:31,600 --> 00:37:33,800 Speaker 2: of buying and then that came down during the pandemic. 726 00:37:33,840 --> 00:37:35,759 Speaker 2: Now and then we're sort of have we troughed? Are 727 00:37:35,760 --> 00:37:38,560 Speaker 2: we going to see a meaningful acceleration over the next say, 728 00:37:38,600 --> 00:37:41,640 Speaker 2: eighteen months? So yeah, cause it is Paul going to 729 00:37:41,640 --> 00:37:45,200 Speaker 2: buy a new phone. That's twelve physicists, I'm an eleven. Yeah, 730 00:37:45,719 --> 00:37:48,520 Speaker 2: it's fine, okay, so speak to me about. 731 00:37:48,600 --> 00:37:53,200 Speaker 9: Yeah, there's so the smartphone mark we call the bottom 732 00:37:53,239 --> 00:37:56,200 Speaker 9: in broader electronics in the second quarter, and we saw 733 00:37:56,320 --> 00:37:59,480 Speaker 9: recovery in the back half. The slope of that recovery 734 00:37:59,520 --> 00:38:04,240 Speaker 9: is uncertain, but the long term legs of increased technical 735 00:38:04,239 --> 00:38:08,400 Speaker 9: requirements for electronics are very very long running, and the 736 00:38:08,400 --> 00:38:12,120 Speaker 9: smartphone replacement cycle has extended, and smartphone saturation of the 737 00:38:12,160 --> 00:38:15,960 Speaker 9: market is getting there. We troth from a unit's perspective, 738 00:38:16,000 --> 00:38:17,839 Speaker 9: in twenty twenty three, we'll see unit growth in twenty 739 00:38:17,840 --> 00:38:20,319 Speaker 9: twenty four, we expect that, but we're starting to gear 740 00:38:20,400 --> 00:38:20,640 Speaker 9: up for. 741 00:38:20,600 --> 00:38:21,040 Speaker 6: The next thing. 742 00:38:21,080 --> 00:38:24,160 Speaker 9: The next thing is enabled by AI, right, so more 743 00:38:24,160 --> 00:38:27,279 Speaker 9: computing power proliferating around the edge of the network has 744 00:38:27,560 --> 00:38:33,360 Speaker 9: very very high technical demands and We're not capacitated by 745 00:38:33,520 --> 00:38:36,520 Speaker 9: the number of people on Earth when it comes to AI, right, 746 00:38:36,560 --> 00:38:38,360 Speaker 9: the number of smartphones is kind of driven by the 747 00:38:38,440 --> 00:38:42,320 Speaker 9: number of people walking around AI. You know, Industrial automation 748 00:38:42,480 --> 00:38:45,799 Speaker 9: is not capped by that, and as we get autonomous 749 00:38:45,840 --> 00:38:49,560 Speaker 9: factories and autonomous cars, there's just more and more application 750 00:38:49,760 --> 00:38:52,840 Speaker 9: space for high performance electronics, which is great for our company. 751 00:38:53,200 --> 00:38:54,520 Speaker 6: Thirty seconds, who you compete with? 752 00:38:55,200 --> 00:39:00,960 Speaker 9: We've got great competitors, but diverse competitors. We're the only 753 00:39:01,000 --> 00:39:03,400 Speaker 9: company in our market that can speak to the breadth 754 00:39:03,480 --> 00:39:07,120 Speaker 9: of electronics applications that that we have in our portfolio. 755 00:39:07,280 --> 00:39:09,160 Speaker 9: So we compete a bit with DuPont. We compete with 756 00:39:09,160 --> 00:39:11,839 Speaker 9: a company called at Tech that's part of MKAS Group. 757 00:39:12,040 --> 00:39:14,760 Speaker 9: We've got local competitors and markets like Japan and China. 758 00:39:15,760 --> 00:39:19,200 Speaker 9: It's a competitive market, but our ability to provide value 759 00:39:19,239 --> 00:39:23,759 Speaker 9: to customers through materials compatibility and a broad product offering 760 00:39:23,840 --> 00:39:24,520 Speaker 9: is unrivaled. 761 00:39:24,680 --> 00:39:26,399 Speaker 6: See I was trying to figure out how he got 762 00:39:26,400 --> 00:39:29,560 Speaker 6: to where he is now. I figured it out and 763 00:39:29,880 --> 00:39:32,239 Speaker 6: investment banking to private equity. Then he says, screw this, 764 00:39:32,280 --> 00:39:33,759 Speaker 6: I'm going to go and do it myself. 765 00:39:34,040 --> 00:39:36,040 Speaker 5: And he went to like a real industry and get 766 00:39:36,040 --> 00:39:37,600 Speaker 5: a real job that makes stuff. 767 00:39:37,640 --> 00:39:39,959 Speaker 6: I've seen that route before. A lot of success. 768 00:39:39,840 --> 00:39:41,319 Speaker 2: Industry is really fun. 769 00:39:41,400 --> 00:39:43,239 Speaker 6: Yeah, really like I'm not just going to bank these people. 770 00:39:43,280 --> 00:39:44,080 Speaker 6: I'm gonna go do it. 771 00:39:44,239 --> 00:39:48,200 Speaker 5: Ben Glicklich, CEO of Element Solutions, appreciate you coming in 772 00:39:48,239 --> 00:39:51,120 Speaker 5: here into our studio. It's a fascinating company. Never would 773 00:39:51,160 --> 00:39:53,880 Speaker 5: have thought about it. I learned something new today Element Solutions. 774 00:39:53,880 --> 00:39:55,640 Speaker 5: You need all the chemical stuff for the tech and 775 00:39:55,640 --> 00:39:56,600 Speaker 5: the chips and all that kind. 776 00:39:56,520 --> 00:39:58,640 Speaker 6: Of stuff, and there are people that do that for 777 00:39:58,680 --> 00:39:59,879 Speaker 6: a living. That's good. 778 00:40:00,120 --> 00:40:00,279 Speaker 4: Up. 779 00:40:00,719 --> 00:40:05,239 Speaker 1: This is the Bloomberg Intelligence Podcast, available on Apples, Spotify, 780 00:40:05,440 --> 00:40:08,640 Speaker 1: and anywhere else you get your podcasts. Listen live each 781 00:40:08,680 --> 00:40:12,080 Speaker 1: weekday ten am to noon Eastern on Bloomberg dot com, 782 00:40:12,160 --> 00:40:15,560 Speaker 1: the iHeartRadio app, tune In, and the Bloomberg Business app. 783 00:40:15,680 --> 00:40:18,640 Speaker 1: You can also watch us live every weekday on YouTube 784 00:40:18,880 --> 00:40:20,760 Speaker 1: and always on the Bloomberg terminal.