WEBVTT - U.S Earnings, ISM Services Data 0:00:01.440 --> 0:00:05.320 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:00:05.400 --> 0:00:08.479 weekdays at ten am Eastern on EFFL car playing Android 0:00:08.520 --> 0:00:11.640 otto with the Bloomberg Business app. Listen on demand wherever 0:00:11.680 --> 0:00:16.000 you get your podcasts, or watch us live on YouTube. 0:00:16.600 --> 0:00:20.120 Michael halein, Bloomberg Intelligence Senior restaurant and food service analyst, 0:00:20.600 --> 0:00:24.000 joins us Now. Michael McDonald's down the most in twenty 0:00:24.079 --> 0:00:26.360 twenty two. What do you think of the quarter? What 0:00:26.520 --> 0:00:27.400 was the big takeaway? 0:00:29.400 --> 0:00:34.000 Yeah, it was a weaker quarter than most expected. For sure, 0:00:34.479 --> 0:00:36.600 sales growth was kind of weak. 0:00:38.080 --> 0:00:38.320 You know. 0:00:38.920 --> 0:00:41.879 They cited the impact from the Israel Hamas war, and 0:00:42.520 --> 0:00:45.040 obviously that hurt results in the Middle East, but also 0:00:45.200 --> 0:00:49.960 in Muslim countries like Malaysia and Indonesia, and then also 0:00:50.120 --> 0:00:55.320 countries like France that have a large Muslim population. It 0:00:55.440 --> 0:00:57.760 may have impacted sales here in the US a bit 0:00:57.800 --> 0:01:00.800 as well. There were some calls to boycott a brand 0:01:01.720 --> 0:01:04.440 right after the start of the Israel Hamas war. Those 0:01:04.520 --> 0:01:08.759 kind of went away in December. In January, however, so 0:01:09.040 --> 0:01:10.920 there could have been a mild impact in the United 0:01:10.959 --> 0:01:14.679 States as well. And then in terms of key takeaways 0:01:14.680 --> 0:01:18.880 from the call, you know, they don't expect their developmental 0:01:18.880 --> 0:01:21.679 markets where the Middle East is located to improve really 0:01:21.800 --> 0:01:26.480 until the war ends. And they cited some consumer weakness 0:01:26.480 --> 0:01:28.880 in the United States, which they have before, right, but 0:01:30.360 --> 0:01:32.440 it seems like it may be spreading in terms of 0:01:32.760 --> 0:01:36.319 you know, just low income consumer weakness. You know, it 0:01:36.400 --> 0:01:41.560 sounds like their customers right now are managing their guest checks. 0:01:42.080 --> 0:01:45.120 Hey, Mike, I'm just looking at the PGeo function on 0:01:45.120 --> 0:01:47.360 the Bloomberg turbine. I see that roughly sixty percent of 0:01:47.360 --> 0:01:50.760 the revenue comes from franchise operated stores in about forty 0:01:50.760 --> 0:01:53.880 percent from company operating stores. How did they make that 0:01:54.000 --> 0:01:56.120 decision about what when they go to a particular location, 0:01:56.160 --> 0:01:57.880 whether the franchise or own it. 0:01:59.440 --> 0:02:02.880 I think a big part of it is return on investment, right, 0:02:03.040 --> 0:02:05.560 So if the returns on the investment are very strong, 0:02:05.600 --> 0:02:08.840 they typically want to hold on to those stores or 0:02:08.919 --> 0:02:11.639 develop stores. You know, they'll they'll do some store development 0:02:11.639 --> 0:02:15.320 in the United States and in their more established markets, 0:02:16.120 --> 0:02:18.160 but it's going to be a small percentage of what 0:02:18.200 --> 0:02:21.040 they're doing going forward. You know, most of their growth 0:02:21.120 --> 0:02:23.040 is going to be you know, done by their strong 0:02:23.080 --> 0:02:28.320 franchise partners, particularly particularly in China and some of these 0:02:28.360 --> 0:02:30.840 other very fast growing markets talk. 0:02:30.720 --> 0:02:33.360 About the input part of the situation in terms of 0:02:33.400 --> 0:02:36.960 their costs, in terms of their labor and all that 0:02:37.040 --> 0:02:37.760 kind of good stuff. 0:02:39.240 --> 0:02:43.320 Yeah, so come on, you know, inflation is easing for 0:02:43.400 --> 0:02:48.520 them this year, but it's still probably higher than normal. 0:02:49.760 --> 0:02:52.519 They're looking at cows, man cows. 0:02:52.600 --> 0:02:55.440 That's part of it, for sure. Beef and dairy costs 0:02:55.639 --> 0:02:58.600 are expected to be higher this year. So but they're 0:02:58.639 --> 0:03:01.320 looking at a you know, low single digit commodity inflation 0:03:01.400 --> 0:03:04.480 in the United States and abroad. Abroad had you know, 0:03:04.520 --> 0:03:07.640 Europe had very high inflation last year, and that that's 0:03:07.680 --> 0:03:11.480 gonna settle down a bit. Labor inflation is going to 0:03:11.560 --> 0:03:16.200 be continue to be, you know higher, and a big 0:03:16.320 --> 0:03:19.200 chunk of a big part of that here is you know, uh, 0:03:19.320 --> 0:03:23.880 in the US, you know, their California April first puts 0:03:23.880 --> 0:03:26.360 in the twenty dollars minimum wage for fast food workers, 0:03:26.360 --> 0:03:28.880 and so that's going to impact some of their stores, 0:03:28.919 --> 0:03:33.320 primarily their franchisees. However, so so they're still seeing you know, 0:03:34.080 --> 0:03:37.960 higher inflation than you know, we had in the twenty 0:03:38.000 --> 0:03:38.880 teens for sure. 0:03:39.480 --> 0:03:41.200 Hey, Mike, I look at the stock and you know 0:03:41.400 --> 0:03:43.520 I need to pay a twenty two twenty three times 0:03:43.840 --> 0:03:46.840 earnings for this stock. What am I really getting? Is 0:03:46.840 --> 0:03:49.640 it something more than GDP top line growth? What's really 0:03:49.720 --> 0:03:52.720 the call behind this kind of stock? 0:03:53.800 --> 0:03:56.360 Yeah, Well, with their global growth, they should They're gonna 0:03:56.440 --> 0:04:01.440 probably grow higher quicker than GDP. Know, what you're buying 0:04:01.480 --> 0:04:06.440 with a franchise business is you know, pretty pretty stable 0:04:06.480 --> 0:04:11.880 and predictable earnings growth, free cash flow growth. There's not 0:04:11.960 --> 0:04:14.120 a lot of operating leverage in the model, and so 0:04:15.080 --> 0:04:17.520 they're asset light and so they can lever the business 0:04:17.600 --> 0:04:21.880 up and return cash to shareholders pretty aggressively. So it's 0:04:21.920 --> 0:04:25.279 definitely an attractive model, especially one with the strong top 0:04:25.320 --> 0:04:29.720 line growth like McDonald's has. And they they're also you know, 0:04:29.839 --> 0:04:33.760 most investors can consider them slightly insulated against a recession 0:04:33.760 --> 0:04:35.920 in slower economic times, and a big part of that 0:04:36.080 --> 0:04:39.360 is that the is the value that they offer. During 0:04:39.360 --> 0:04:44.039 the Great Recession, they outperformed the quick service industry pretty significantly, 0:04:44.120 --> 0:04:47.080 acquired a lot of market share during that time, and 0:04:47.120 --> 0:04:51.440 so investors feel there's some safety investing in McDonald's versus 0:04:51.480 --> 0:04:53.000 some of the other restaurant chains out there. 0:04:53.000 --> 0:04:54.960 But Mike, that confuses me with what you said about 0:04:55.360 --> 0:04:59.360 customers watching their checks and their items and what they're buying, 0:04:59.360 --> 0:05:01.640 because you would think if things are hard and people 0:05:01.680 --> 0:05:03.880 are struggling, that you would get more value and people 0:05:03.880 --> 0:05:06.200 would go to McDonald's. But you were mentioning how in 0:05:06.279 --> 0:05:09.240 general people are watching their money more so they're not 0:05:09.400 --> 0:05:10.600 How does that kind of square? 0:05:11.560 --> 0:05:13.960 Yeah, So what we've seen is a lot of traffic 0:05:14.120 --> 0:05:17.040 deterioration over the last couple of years because price increases 0:05:17.080 --> 0:05:21.359 have been so aggressive and people's spending is being pinched. 0:05:21.520 --> 0:05:21.760 Right. 0:05:22.800 --> 0:05:25.440 But the thing about quick service, you know, they're in 0:05:25.480 --> 0:05:28.599 the lower end of the market, right, and so they'll 0:05:28.640 --> 0:05:32.200 see during an economic slowdown, they'll see higher and middle 0:05:32.200 --> 0:05:35.000 income consumers kind of fall into their bucket. They'll try 0:05:35.040 --> 0:05:39.560 they'll spend less at higher cost full service occasions, and 0:05:39.640 --> 0:05:43.080 they'll visit McDonald's more often, whereas a lot of the 0:05:43.120 --> 0:05:45.320 low income consumers will kind of fall out of that 0:05:45.440 --> 0:05:49.560 bucket and decide to opt for the grocery store more often. So, uh, 0:05:49.760 --> 0:05:52.279 they'll lose some traffic on the low end, but they'll 0:05:52.320 --> 0:05:54.960 they'll probably gain some with some of the middle and 0:05:55.600 --> 0:05:56.719 upper income consumers. 0:05:56.880 --> 0:06:00.480 So, like, who's really their competition these When I was 0:06:00.520 --> 0:06:02.240 a kid, it was Burger King and Wendy's, but now 0:06:02.279 --> 0:06:04.359 there's so much more out there. 0:06:04.760 --> 0:06:06.240 How do you kind of slice it? 0:06:07.160 --> 0:06:10.760 Yeah, it's the restaurant business, man. It's it's so fragmented. 0:06:10.800 --> 0:06:14.000 There's there's competition every may everywhere, man, you know, to 0:06:14.080 --> 0:06:18.920 your point, convenience stores, grocery stores, food trucks, you know, 0:06:19.040 --> 0:06:22.839 you name it. Still, primarily their biggest competition are the 0:06:22.839 --> 0:06:26.880 fast food restaurants that are located closer closest to them. 0:06:26.960 --> 0:06:30.320 So it depends on the market. You know, California, Jack 0:06:30.360 --> 0:06:33.320 in the Box is number two, you know, on the 0:06:33.360 --> 0:06:36.440 East Coast, Yeah, you know, Burger King is number two, 0:06:36.520 --> 0:06:38.840 and in most markets, i'd say in the United States, 0:06:38.839 --> 0:06:41.400 Wendy's obviously is a big competitor of theirs, but also 0:06:41.800 --> 0:06:44.919 you know, places like Chipotle and shake Shack, you know, 0:06:46.040 --> 0:06:50.400 are also all competing for restaurant dollars with McDonald's. But 0:06:50.760 --> 0:06:53.039 you know, we don't look too closely at market share 0:06:53.240 --> 0:06:57.919 in this business because it is so fragmented. And you know, 0:06:58.200 --> 0:07:01.160 I don't really like total addressable more getting restaurants because 0:07:01.200 --> 0:07:03.800 nobody's gonna eat at McDonald's three times a day, seven 0:07:03.880 --> 0:07:05.080 days a week, you know, so. 0:07:05.960 --> 0:07:07.960 That who's there documentary that doing that? 0:07:08.720 --> 0:07:11.840 There was Yeah, yes there, we gotta. 0:07:11.680 --> 0:07:13.440 Leave it there. Mike, thanks a lot. Mike Calin, Bloomberg 0:07:13.480 --> 0:07:16.600 Intelligence senior restaurant and food service analysts, joining us. 0:07:17.960 --> 0:07:21.840 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:07:21.920 --> 0:07:25.000 weekdays at ten am Eastern on Apple Car playing Android 0:07:25.040 --> 0:07:28.120 Auto with the Bloomberg Business App. Listen on demand wherever 0:07:28.200 --> 0:07:31.320 you get your podcasts, or watch us live on YouTube. 0:07:33.200 --> 0:07:33.960 Es Day Lauder. 0:07:34.400 --> 0:07:37.360 The stocks of thirteen percent today, that's the short term 0:07:37.400 --> 0:07:39.080 pop well, and I guess some cost cuts. We'll get 0:07:39.120 --> 0:07:41.560 to that with our next guest. Down forty two percent 0:07:41.640 --> 0:07:43.720 on a trailing twelve month basis. That's the longer term 0:07:43.760 --> 0:07:45.520 story I want to dig into as well, and we 0:07:45.560 --> 0:07:48.960 can do it all with one Deborah Aichin. She is 0:07:49.000 --> 0:07:53.560 the senior Luxury analyst for Bloomberg Intelligence. She joins us 0:07:54.040 --> 0:07:58.480 from London via zoom You want to talk luxury, you 0:07:58.480 --> 0:08:00.880 want to talk high street shopping, talk to Debacon. 0:08:01.120 --> 0:08:01.920 So deb let's. 0:08:01.760 --> 0:08:04.680 Start with s day Lauder today. Good day for the company. 0:08:04.760 --> 0:08:07.960 Stocks up thirteen percent today. What's driving the stock today? 0:08:08.960 --> 0:08:15.400 Absolutely, it's all about well, let's let's say having really 0:08:16.240 --> 0:08:21.520 impacted negatively with several earnings with earnings down grades and 0:08:21.560 --> 0:08:26.040 misses over the last six seven quarters, the company positively 0:08:26.360 --> 0:08:31.000 positively surprised. It met its organic sales decline of eight percent, 0:08:31.240 --> 0:08:35.319 not a growth, and its EPs came in slightly better, 0:08:35.440 --> 0:08:40.040 so down twenty percent. But the big thing is the 0:08:40.080 --> 0:08:43.240 restructure program. So it already has a restructure program in 0:08:43.280 --> 0:08:47.160 play that didn't seem to be deep enough, wide enough, 0:08:47.160 --> 0:08:50.400 and have enough detail to it. And now they've raised 0:08:50.720 --> 0:08:53.160 five hundred to seven hundred million of cost on a 0:08:53.200 --> 0:08:57.800 deeper restructure program to bring up to one point four 0:08:57.800 --> 0:09:01.640 billion through twenty five and twenty six, mostly twenty five 0:09:02.000 --> 0:09:07.160 or majority twenty five weighted, so with the expectation. So 0:09:07.240 --> 0:09:09.760 that's kind of like four hundred million extra on what 0:09:09.760 --> 0:09:13.440 they were expecting before in terms of operating profitability. 0:09:13.800 --> 0:09:15.719 What was the problem that they had to fix by 0:09:15.760 --> 0:09:17.600 doing that? Like, why is it so hard to be 0:09:17.679 --> 0:09:19.760 s day Ladder? I thought everyone would pay a million 0:09:19.800 --> 0:09:22.520 dollars for perfect skin, not talking my book or anything. 0:09:23.520 --> 0:09:23.720 Right. 0:09:23.760 --> 0:09:25.760 The big thing over the last couple of years that 0:09:25.800 --> 0:09:29.280 we've seen We've always known that Estill order a very 0:09:29.320 --> 0:09:32.040 premium product, and it did so well for so many years, 0:09:32.080 --> 0:09:34.800 but it had very high exposure in Asia. So we 0:09:34.920 --> 0:09:39.360 ended up a couple of years ago with a stuffed retail, 0:09:39.440 --> 0:09:44.160 duty free travel retail area across China and some parts 0:09:44.160 --> 0:09:47.160 of Asia, which were exacerbated by South Korea also in 0:09:47.240 --> 0:09:50.120 the issues there with the Dae Goose shopper and what 0:09:50.240 --> 0:09:52.640 we found, and we'd always been saying, you know, there's 0:09:52.800 --> 0:09:56.080 supply side, the way that they organized themselves, the logistics. 0:09:56.320 --> 0:09:58.560 They didn't have the hubs in place in Asia to 0:09:58.600 --> 0:10:00.600 do as much as they were doing, so they were 0:10:00.600 --> 0:10:03.520 caught short or caught overstuffed, so they had far too 0:10:03.600 --> 0:10:06.720 much in trade and that has taken a long long 0:10:06.800 --> 0:10:09.680 time to temper down and start to normalize. And we 0:10:09.679 --> 0:10:13.040 should return overall to growth this next quarter. 0:10:13.360 --> 0:10:15.080 And dead let's stay with the China stories. 0:10:15.160 --> 0:10:16.720 I know from talking to you over the years and 0:10:16.760 --> 0:10:21.480 reading your research, the China consumer is just critical for 0:10:21.720 --> 0:10:23.040 luxury shopping. 0:10:23.080 --> 0:10:24.479 Can you give us a sense because. 0:10:24.280 --> 0:10:26.920 I don't want to walk down Madison Avenue or Fifth Avenue. 0:10:27.360 --> 0:10:29.920 I see all the European tourists back, they're back in, 0:10:30.360 --> 0:10:33.720 you know, in size, not so much with the Chinese. 0:10:34.040 --> 0:10:34.880 What's going on there? 0:10:36.720 --> 0:10:40.280 The big thing. We very late in getting visas through 0:10:40.320 --> 0:10:44.840 the reopening of you as we thought from the beginning 0:10:44.880 --> 0:10:48.120 of last year reopening of travel, but the viewers that 0:10:48.240 --> 0:10:52.040 travel internationally won't come back until the second half the year. 0:10:52.320 --> 0:10:54.360 And we are starting to hear some of those luxury 0:10:54.360 --> 0:10:58.720 companies sane. We're seeing more Chinese, more Asian customers in 0:10:58.760 --> 0:11:02.640 our stores back home. There's a lot more spent in 0:11:02.800 --> 0:11:06.080 flights are fuller. The surveys that we're doing are saying 0:11:06.120 --> 0:11:07.880 that they will travel, but a lot of that travel 0:11:07.960 --> 0:11:09.560 so far has been across Asia. 0:11:10.400 --> 0:11:13.520 But what's interesting is that not all are created equal. 0:11:13.559 --> 0:11:15.640 I feel like you can Jerry pick a couple of 0:11:15.760 --> 0:11:19.440 luxury stocks that have been somewhat immune and I'm just 0:11:19.480 --> 0:11:23.000 wondering what those are. And I still and in the 0:11:23.000 --> 0:11:26.960 skincare world too, like what is that immune skincare high 0:11:27.080 --> 0:11:29.600 end product? That doesn't matter, We're all buying it anyway. 0:11:31.480 --> 0:11:33.880 I think that you know there are there's some huge 0:11:34.559 --> 0:11:37.360 numbers in terms of some of the brands within the 0:11:38.040 --> 0:11:41.360 portfolio doing extremely well, lots of the brands of double 0:11:41.400 --> 0:11:44.280 digit but it's that trade that draws down. When you 0:11:44.280 --> 0:11:48.240 look at the Europe number for Estill order that's where 0:11:48.280 --> 0:11:50.520 they stock travel retail, that's where it sits in its 0:11:50.559 --> 0:11:53.280 P and L, and it's down minus fourteen. But actually 0:11:53.280 --> 0:11:55.760 Europe underline is flat and it's the same for the 0:11:55.800 --> 0:11:58.720 North American market. Within that there are brands like the 0:11:58.840 --> 0:12:03.120 Ordinary and and several of the higher end brands doing 0:12:03.320 --> 0:12:05.920 very very well up double digit. And it's the same 0:12:05.960 --> 0:12:09.640 across if I think about the way that actually luxury 0:12:09.800 --> 0:12:13.199 and you know Lorel aside Loreal is doing phenomenally well 0:12:13.280 --> 0:12:15.920 with a high base of its product in what a 0:12:15.960 --> 0:12:18.120 classes as Lorel looks. But let's go to some of 0:12:18.120 --> 0:12:21.199 the luxury companies and the way that LVMH and others 0:12:21.240 --> 0:12:26.599 are building sizeable scale in perfume and cosmetics. That's for 0:12:26.800 --> 0:12:29.280 growth of six to eight percent per year and very 0:12:29.280 --> 0:12:31.920 strong margin. So there are a lot of brands out 0:12:31.920 --> 0:12:35.959 there doing very very well. But in particular what has 0:12:36.000 --> 0:12:40.920 happened is and stockpicking, cherry picking. It's about the brands 0:12:40.920 --> 0:12:44.560 who've had the portfolio that hasn't had so much Asia 0:12:44.600 --> 0:12:47.400 travel retail or where it's really been able to manage that. 0:12:47.440 --> 0:12:50.840 Because even if I think about LVMH within its selective 0:12:50.880 --> 0:12:54.880 retail and it hous dfs due to free stores and Sophora, 0:12:55.000 --> 0:12:57.079 and at one point last year they were both down 0:12:57.480 --> 0:12:59.800 and they've now fully recovered. We're starting to see if 0:12:59.800 --> 0:13:02.959 the US some robust numbers coming through even from that 0:13:03.080 --> 0:13:06.920 aspirational end across the luxury across brands. It's getting a 0:13:06.920 --> 0:13:09.199 little better, but it's going to take time. 0:13:09.640 --> 0:13:11.440 And that's John Talker with the aspirational spend. 0:13:11.559 --> 0:13:12.880 Do you invest in your face. 0:13:13.640 --> 0:13:19.280 Other than maximum No? No, I invest in my face 0:13:19.400 --> 0:13:20.319 maximum strength. 0:13:20.440 --> 0:13:22.600 You know, sunblock is basically the only thing for this 0:13:22.640 --> 0:13:23.280 Irish American. 0:13:23.360 --> 0:13:25.439 Okay, but that's a really good thing. I mean, you're 0:13:25.440 --> 0:13:28.319 doing something, you know. I was just thinking that the 0:13:28.360 --> 0:13:30.560 only thing that I will not buy on sale is 0:13:30.600 --> 0:13:33.640 my skincare. Skincare because you just it never goes on sale. 0:13:33.920 --> 0:13:36.240 If you find something that works for you, you're sick 0:13:36.280 --> 0:13:39.839 with a certain aged woman who does media and on TV, 0:13:40.160 --> 0:13:42.800 like I will pay for it. Then that's I mean, 0:13:42.880 --> 0:13:43.880 I'm not wrong, deb right. 0:13:45.000 --> 0:13:47.520 The other thing that you do is you actually, without realizing, 0:13:47.559 --> 0:13:50.400 you trade up and right right now at the moment, 0:13:50.520 --> 0:13:52.720 there are some youngsters who are under twenty who were 0:13:52.760 --> 0:13:55.800 already moving into antih and the market is trying to 0:13:55.840 --> 0:13:58.640 stop that so as you get older, you're trading up. 0:13:59.040 --> 0:14:01.360 My story, which I think car relate to Paula Wellbach, 0:14:01.559 --> 0:14:05.640 was late in the autumn. I was in England and 0:14:05.760 --> 0:14:09.720 Cambridge and there were three Chinese consumers who couldn't get 0:14:09.880 --> 0:14:13.439 product from La Prairie very high end skincare product which 0:14:13.520 --> 0:14:16.880 is under the House of Biased Off. It's bigcause brand 0:14:16.880 --> 0:14:20.240 b Niveia, and they were there spending over three thousand 0:14:20.320 --> 0:14:23.680 pounds on a little gift pack. Each of La Prairie 0:14:24.040 --> 0:14:27.360 very high end eye product was way up of my 0:14:27.480 --> 0:14:28.160 price range. 0:14:28.200 --> 0:14:31.520 And these names, these real companies, What is this? 0:14:31.840 --> 0:14:34.280 I just used Irish spring and a wash cloth. 0:14:35.920 --> 0:14:39.960 Kind of the lebable hurts my soul, invest in your face? 0:14:40.000 --> 0:14:41.720 This is this is a strong takeaway from that. 0:14:42.560 --> 0:14:44.280 How are the luxury stock? What's what's kind of the 0:14:44.320 --> 0:14:46.760 luxury call here? I look at the FA function for 0:14:46.920 --> 0:14:48.840 es Day latter and it looks like for your the 0:14:48.880 --> 0:14:51.640 fiscal twenty twenty five, the June of twenty five year, 0:14:51.960 --> 0:14:54.280 the street's looking for a big pickup in revenue and 0:14:54.400 --> 0:14:55.720 profitability for Esday latter. 0:14:55.960 --> 0:14:57.920 What's behind that? 0:14:57.920 --> 0:15:01.240 That's that's all about that inventory. The to put that 0:15:01.400 --> 0:15:05.440 inventory in Asia into context, it's dragged down skincare in 0:15:05.480 --> 0:15:09.840 this quarter organic cells minus ten percent. It's dragged down 0:15:09.880 --> 0:15:13.360 Europe to minus fourteen, where underlying Europe was flat because 0:15:13.400 --> 0:15:17.440 it stores that travel retail. So it's about that inventory normalizing, 0:15:17.480 --> 0:15:19.720 and they're saying that that has happened right now at 0:15:19.720 --> 0:15:22.080 the end of two Q, so we head into three 0:15:22.240 --> 0:15:25.320 Q with normalized level and so therefore if that is 0:15:25.360 --> 0:15:27.840 the case, then it's better manage. We should start to 0:15:27.840 --> 0:15:31.040 see double digit growth coming from there. And if we 0:15:31.040 --> 0:15:34.680 were looking underlying without that area, then we saw mid 0:15:34.680 --> 0:15:37.400 single digit growth. So that's what that's about. And then 0:15:37.440 --> 0:15:40.560 also on top of this new restructuring program and with 0:15:40.680 --> 0:15:42.840 some of those benefits to come through twenty five, we've 0:15:42.840 --> 0:15:45.880 been playing around on MODL on the calculator and what 0:15:45.920 --> 0:15:48.680 we see there is around an expectation of twelve to 0:15:48.720 --> 0:15:52.760 thirteen percent uplift to that twenty twenty five operating profit 0:15:52.840 --> 0:15:54.920 to hopefully come through one consensus. 0:15:55.280 --> 0:15:57.680 Hey, deb really appreciate it. Thank you so so much. 0:15:57.760 --> 0:16:00.880 Debora Aig and Bloomberg Intelligence. I've seen industry analyst so 0:16:00.960 --> 0:16:02.400 just releases the question at the end of the day 0:16:02.640 --> 0:16:04.480 when it's trying to wind up coming back and traveling 0:16:04.560 --> 0:16:06.720 and like that we're back to that trade, which was 0:16:06.800 --> 0:16:09.400 the trade last last year at this exact same time. 0:16:09.440 --> 0:16:11.040 And do we buy it this time? Do you think 0:16:11.040 --> 0:16:11.720 it's really. 0:16:12.080 --> 0:16:14.080 Boy, I don't know. I think so now they're back 0:16:14.080 --> 0:16:17.000 to that. We heard from the mccow and Singapore gaming companies. 0:16:17.040 --> 0:16:18.920 The Chinese travelers are there. 0:16:19.200 --> 0:16:20.000 Okay, let's go. 0:16:19.960 --> 0:16:21.360 A little bit further now so they can get the 0:16:21.440 --> 0:16:25.200 visas and the flights, uh to come to Europe and 0:16:25.280 --> 0:16:28.280 to come to the US. Because again Fifth Avenue talked 0:16:28.280 --> 0:16:30.440 to merchants on Fifth Avenue and Madison Avenue. 0:16:30.160 --> 0:16:31.440 And they're just they're waiting for that. 0:16:31.520 --> 0:16:33.280 They thought it would be a twenty yeah, you know 0:16:33.360 --> 0:16:35.920 this year. I mean at twenty three event was not so, 0:16:36.400 --> 0:16:37.240 but they're I'm. 0:16:37.080 --> 0:16:39.120 Going to see Paul like strolling down Fifth Avenue, like 0:16:39.160 --> 0:16:40.400 going into stores. 0:16:40.080 --> 0:16:43.840 Like like I was into my Mega store getting some 0:16:43.920 --> 0:16:45.840 work on my watch, and I did ask that question, 0:16:45.960 --> 0:16:48.520 and I typed a deb acon right away, say here's 0:16:48.520 --> 0:16:52.080 some feedback from the store on fith Avenue coming starting 0:16:52.080 --> 0:16:53.880 to come back a little bit, starting to come back 0:16:53.880 --> 0:16:56.080 a little bit over the last three or four months. 0:16:56.160 --> 0:16:58.520 So but you know, they're just not taking over the 0:16:58.560 --> 0:17:01.120 city in the same time. Yeah, yeah, traffic they. 0:17:01.000 --> 0:17:02.880 Did in some of these luxury shopping areas. 0:17:04.400 --> 0:17:08.280 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:17:08.320 --> 0:17:11.840 weekdays at ten am Eastern on applecar Play and Android 0:17:11.880 --> 0:17:14.680 Auto with the Bloomberg Business app. You can also listen 0:17:14.800 --> 0:17:17.880 live on Amazon Alexa from our flagship New York station 0:17:18.240 --> 0:17:21.760 just say Alexa playing Bloomberg eleven thirty. 0:17:22.880 --> 0:17:25.040 So Alex and I were talking earlier this morning at 0:17:25.080 --> 0:17:27.960 you know, around ten am Wall Street time. ISM released 0:17:28.040 --> 0:17:30.160 us some really good services data, So let's get right 0:17:30.200 --> 0:17:32.639 to that with Anthony Nieves. He's the chair of the 0:17:32.680 --> 0:17:36.640 ISM Services Business Committee. He joins us at via zoom. 0:17:36.680 --> 0:17:39.920 So Anthony again, the ISM Services Index came in at 0:17:40.119 --> 0:17:43.200 fifty three point four. That's the headline. Consensus was fifty 0:17:43.200 --> 0:17:46.240 two in the last period. Is fifty point six. Big 0:17:46.359 --> 0:17:48.000 jump there? Can you walk us through that? 0:17:50.680 --> 0:17:53.920 Certainly when you look at the composite index, it was 0:17:54.040 --> 0:17:58.000 driven by new orders increasing two point two percentage points 0:17:58.040 --> 0:18:01.040 from the fifty two point eight to fifty five point zero, 0:18:01.560 --> 0:18:06.639 and employment rebounded nicely. We contracted last month in December 0:18:07.080 --> 0:18:10.800 was attributed to the pullback. The pullback was attributed to 0:18:10.840 --> 0:18:13.679 the fact that the cycle time of hiring with the 0:18:13.720 --> 0:18:17.359 holidays and vacations and whatnot, and that rebounded nicely to 0:18:17.400 --> 0:18:21.480 fifty point five, up significantly six point seven percentage points. 0:18:21.760 --> 0:18:24.440 Hey Anthony, great to see you. We love this data. 0:18:24.480 --> 0:18:27.480 I love the ins and analysis from it. It wasn't 0:18:27.520 --> 0:18:29.880 like all sunshine and rainbows though. Walk us through sort 0:18:29.880 --> 0:18:32.320 of what areas of services did well, what area of 0:18:32.320 --> 0:18:33.840 services may be still contracting. 0:18:36.560 --> 0:18:38.920 That's a great question. And you look at the composite 0:18:38.920 --> 0:18:44.320 index and also prices were increasing seven point three percentage 0:18:44.359 --> 0:18:48.280 points fifty six point seven up to sixty four. Food 0:18:48.320 --> 0:18:53.520 prices still remain very strong. That I feel has impacted 0:18:53.600 --> 0:18:57.919 the FED. Looking at interest rate cuts, our respondents are 0:18:57.960 --> 0:19:01.040 telling us that they'd love to see continued cuts in 0:19:01.080 --> 0:19:04.480 the interest rates. But the bright side of that, there's 0:19:04.600 --> 0:19:08.400 capital spending, new projects of being released. When you look 0:19:08.440 --> 0:19:12.720 at the top five industries that contribute to GDP, overall, 0:19:13.200 --> 0:19:18.560 real estate rental and leasing is still contracting. The increases 0:19:18.640 --> 0:19:22.640 coming from professional, scientific, technical services as well as healthcare 0:19:22.760 --> 0:19:24.680 social assistance very strong this month. 0:19:25.760 --> 0:19:30.359 So I mean the services is seventy percent of our economy. 0:19:30.480 --> 0:19:31.680 I mean I can't. 0:19:31.480 --> 0:19:35.320 See a GDP contraction scenario coming out of you know, 0:19:35.359 --> 0:19:36.320 we get data like this. 0:19:36.560 --> 0:19:38.600 I mean, are you guys at ism or what's your 0:19:38.640 --> 0:19:39.520 economic call here? 0:19:41.880 --> 0:19:45.280 When we look at this monthly report coupled with the 0:19:45.320 --> 0:19:48.399 semi annual forecast, what our respondents indicated to us that 0:19:48.560 --> 0:19:51.760 the first half, especially in services wasn't going to be 0:19:51.880 --> 0:19:54.520 that robust, but the second half was going to be better. 0:19:54.800 --> 0:19:57.399 I feel we're slightly ahead of the trend. And to 0:19:57.440 --> 0:20:01.560 your point about GDP growth, think what was it three 0:20:01.600 --> 0:20:04.480 point three percent last year? When we look at the 0:20:04.560 --> 0:20:08.040 composite index this month annualized, it's at one point five. 0:20:08.560 --> 0:20:11.400 And if we see the second half as they indicated 0:20:11.400 --> 0:20:16.080 to us, being stronger, we'll have this incremental growth continue. 0:20:16.400 --> 0:20:19.040 It'll be a good story for the services sector. 0:20:19.280 --> 0:20:21.240 So when we jump to the prices paid, though, I 0:20:21.280 --> 0:20:24.440 mean it's pretty staggering, jumped the most since twenty twelve. 0:20:24.960 --> 0:20:28.280 Was this a supply story or a demand story because 0:20:28.320 --> 0:20:30.440 we have seen a lot of supply chain snarls, et cetera. 0:20:32.440 --> 0:20:37.040 Well, we definitely see that it's a demand issue, especially 0:20:37.040 --> 0:20:39.359 with new orders. Even though it looks like, you know, 0:20:39.359 --> 0:20:43.520 it's fifty five, it's middling as far as the growth 0:20:43.600 --> 0:20:45.719 two point two percentage points up in the fifty two 0:20:45.760 --> 0:20:50.800 point eight, but definitely it has some constraint on transportation, 0:20:51.280 --> 0:20:53.800 and that was indicated to us by our respondents. They 0:20:53.840 --> 0:20:57.520 said that there's challenges with the Suez Canal with the 0:20:57.560 --> 0:21:00.199 conflict over in the Red Sea, as well as the 0:21:00.200 --> 0:21:04.800 Panama Canal. We're seeing the capacity has reduced to less 0:21:04.840 --> 0:21:07.720 than half of what it was based on the issues 0:21:07.800 --> 0:21:09.919 with being able to fill up the locks with the 0:21:09.960 --> 0:21:11.520 water shortage over there. 0:21:12.200 --> 0:21:14.920