Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
Speaker 1: my co host Matt Miller.
Speaker 2: Every business day, we bring you interviews from CEOs, market pros,
Speaker 2: and Bloomberg experts, along with essential market moving news.
Speaker 1: Find the Bloomberg Markets Podcast on Apple Podcasts or wherever
Speaker 1: you listen to podcasts, and at Bloomberg dot com slash podcast.
Speaker 1: Let's switch gears and go to our Federal Reserve. It
Speaker 1: is Tuesday. We like to talk to Ira Jersey. He's
Speaker 1: the chief US interst rate strategist for Bloomberg Intelligence. And
Speaker 1: I really got some economic data today. I mean ISM,
Speaker 1: manufacturing still in below fifty, still contracting, It's better than
Speaker 1: last month. So the economy is, you know, trying to
Speaker 1: keep kind of chugging along here. How do you think
Speaker 1: the Fed kind of us kind of the overall economy here?
Speaker 3: Yeah, I think the Federal Reserve is actually pretty happy
Speaker 3: with the economy.
Speaker 4: Their concern is still is inflation too high?
Speaker 3: And well the data today with manufacturing maybe not as
Speaker 3: bad as it has been in recent month, will that
Speaker 3: mean that prices are going to go up? And interestingly,
Speaker 3: in that ISM data that we got just a couple
Speaker 3: of minutes ago, Paul.
Speaker 4: Showed that prices paid was lower.
Speaker 3: So actually the inflation component of the ISM Manufacturing survey
Speaker 3: suggested goods prices.
Speaker 4: Might continue to come down.
Speaker 3: But this week, Paul, most importantly obviously it's payrolls, but
Speaker 3: second to that in my book and the way that
Speaker 3: I am analyzing the economy right now is going to
Speaker 3: be Thursday's ISM Services report, So looking at prices paid
Speaker 3: in there as well as new orders and what's going
Speaker 3: on with some of the forward looking components of those data.
Speaker 5: And IRA looking at treasuries pairing some of those losses
Speaker 5: on the ISM, but then also the Jolts jobs opening data,
Speaker 5: seeing that as far as those openings just dropping slightly
Speaker 5: in the quits rate ticking down in June. In that data,
Speaker 5: and looking over at what the ten years yielding close
Speaker 5: around four percent? What's your view on the direction of
Speaker 5: the tenure and where does Bloomberg Intelligence forecast to see it?
Speaker 5: At your end?
Speaker 3: Yeah, so we just revised our FOURK asked this morning, actually,
Speaker 3: and so we do think that ten year yields are
Speaker 3: going to be lower than where they are now. I
Speaker 3: think currently the market's in a range and there's a
Speaker 3: couple of technical things going on as well. So firstly
Speaker 3: we saw today's move, the move about five base points
Speaker 3: higher in ten year yields was driven largely by what's
Speaker 3: going on in Europe and the hawkish or hawker's expectations
Speaker 3: out of Europe and the Bank of England in particular.
Speaker 3: But importantly, tomorrow morning at eight thirty, we have the
Speaker 3: Treasury refunding announcement, and the Treasury Department will be increasing
Speaker 3: the size and the supply of treasuries coming to market.
Speaker 3: So I think some people are adjusting to that possibility
Speaker 3: and just thinking, hey, if there's more supply, maybe it'll
Speaker 3: be harder for market participants to digest the larger issuance sizes.
Speaker 4: And so I think the market's adjusting to that.
Speaker 3: But by the end of the year, you know, Anawog
Speaker 3: and Bloomberg Economics believes that they'll be at a recession.
Speaker 3: If there is a recession, you could expect ten year
Speaker 3: treasury yields to rally about seventy rasis points are so
Speaker 3: from current levels, and that's so our year on forecast
Speaker 3: is a three point three two percent if you want
Speaker 3: to be very.
Speaker 1: So I wrote, when the government comes to refund their debt,
Speaker 1: which I know they're going to do here. I guess
Speaker 1: you know, in the next several days. Here they got
Speaker 1: to raise a lot of money. Because the deficits keeps growing,
Speaker 1: interest rates are higher, so the refinance becomes even more expensive.
Speaker 1: I mean, do we run the risk of having not
Speaker 1: failed auctions, but just disappointing auctions, which really causes some
Speaker 1: concern in the marketplace?
Speaker 4: Yeah, I think we do.
Speaker 3: You know what happened in twenty twenty two, we had
Speaker 3: some very weak auctions, and even earlier this year, particularly
Speaker 3: when a lot of people thought maybe yields weren't high enough,
Speaker 3: the Federal Reserve was continuing to hike interest rates pretty aggressively.
Speaker 3: You know now that it looks like the Federal Reserve
Speaker 3: is nearing or at the end of their hiking cycle.
Speaker 3: Some of the auctions more recently in the last two
Speaker 3: months have actually been been reasonably well received. I'd say
Speaker 3: that the auctions are somewhat more mixed, But yeah, there
Speaker 3: is to your point, Paul, I think a real risk
Speaker 3: that if the government raises the size of some of
Speaker 3: these auctions too far, too fast, that it may be
Speaker 3: again difficult to digest. So some of the things you
Speaker 3: want to look at when we get to some of
Speaker 3: the auctions next week, is what's the bid to cover doing.
Speaker 4: So how many bids, how many.
Speaker 3: Offers are there to buy bonds are there compared to
Speaker 3: the amount on offer? And then secondly, you're indirect bidder,
Speaker 3: So these are investors, end users, central banks, pension funds,
Speaker 3: mutual funds who all bid through third parties, and if
Speaker 3: they come in strong, that means that end user demand
Speaker 3: is really good. Obviously the converse is true as well.
Speaker 3: If those are relatively low compared to recent history, then
Speaker 3: you could expect there to be you know, maybe yields
Speaker 3: go a little bit higher because of the lack of demand.
Speaker 5: IIRA explain to us what's going on when we're looking
Speaker 5: at how speculators were more bearish on treasury futures in
Speaker 5: this latest data that came obviously ahead of the FEDS
Speaker 5: just prior meeting that we just had, and what's happening
Speaker 5: as far as how they're boosting their net short exposure
Speaker 5: across this curve with the exception if you're looking at
Speaker 5: say five and ten year futures.
Speaker 3: Yeah, it's a little bit it's a little bit difficult
Speaker 3: to tell, you know, when a hedge fund or a
Speaker 3: levered investor, and that's a prim So there's speculators, right,
Speaker 3: so we had no speculators versus hedgers.
Speaker 4: That's one component.
Speaker 3: But then they also there's another breakdown that's levered investors
Speaker 3: versus versus asset managers versus dealers. And when you look,
Speaker 3: it's almost all levered funds that are short. So the
Speaker 3: question is are they short treasuries because on the other
Speaker 3: side they happen to be long corporates or long equities,
Speaker 3: like is that a hedge to other assets that they
Speaker 3: might be might have a position in, And so it's
Speaker 3: a little bit difficult to know that. I do suspect
Speaker 3: that there are people who just had taken advantage of
Speaker 3: the fact that we had rallied back to It wasn't
Speaker 3: that long ago that we were at three and a
Speaker 3: half percent in treasury, so now we've you know, sold
Speaker 3: off to four percent, So there could be some short
Speaker 3: covering that we see somewhere around the old yield highs
Speaker 3: around four.
Speaker 4: Point nine percent. Four point oh nine percent.
Speaker 3: That's a pretty important technical level at this point, and
Speaker 3: I suspect that as we get a little bit above
Speaker 3: four percent, you will see some short covering among those
Speaker 3: levered investors.
Speaker 6: Ieric talked to us about liquidity in the marketplace.
Speaker 1: If I'm a big mutual fund or hedge fund and
Speaker 1: that I want to dump a bunch of treasuries, I
Speaker 1: call it Morgan Stanley and Goldman Sachs, and I say, hey,
Speaker 1: bid me here, what kind of efficiency?
Speaker 6: What kind of execution am I going to get?
Speaker 3: Yeah, there's been these pockets of illiquidity that have cropped up,
Speaker 3: but liquidity over the last couple of weeks has actually
Speaker 3: been pretty decent. You've seen decent sizes in terms of
Speaker 3: on the screens.
Speaker 4: Of what you're able to sell.
Speaker 3: I think that the challenge for market participants is is
Speaker 3: everyone going the same way all at once, And we
Speaker 3: haven't seen that so much the last month or so.
Speaker 3: But you did see earlier this year when there were
Speaker 3: a lot of people rushing to buy securities. For example,
Speaker 3: in March during the SVB the banking inks that was
Speaker 3: going on. You know, you saw these pockets of illiquidity
Speaker 3: where no one wanted to sell their treasuries because everyone
Speaker 3: thought the price was going to be higher. So you
Speaker 3: saw these big jumps in price and much lower yields
Speaker 3: very quickly, So I call the liquidity at.
Speaker 4: This point as being fickle.
Speaker 3: So it's like liquidity is really good until it's not,
Speaker 3: and then when it's not, it's really not good.
Speaker 6: Right all right, Hira Jersey, thank you so much.
Speaker 1: We appreciate it as always getting our lowdown on what
Speaker 1: our federal reserve is going to do in the treasure market.
Speaker 1: Ira Jersey, Chief US Interest rate Strategists for Bloomberg Intelligence.
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Speaker 8: We welcome now our Bloomberg Television audience and radio listeners.
Speaker 8: I'm Shanali Bassett standing alongside PJT partner CEO Paul Taubman,
Speaker 8: who joins me now for an exclusive interview.
Speaker 4: Thank you for being here.
Speaker 8: It's pretty rare for you to join us for television.
Speaker 8: It's also remarkable that eight years ago you started PJT,
Speaker 8: took it public, and now you've tripled your headcount. You're
Speaker 8: much bigger than you were and are having a record
Speaker 8: half year at a time where most investment banks are
Speaker 8: facing a prolonged slump in revenue.
Speaker 4: So can you keep it up?
Speaker 9: Well, I don't know if we can keep it up.
Speaker 9: We're going to certainly try to. But first of all,
Speaker 9: thank you for having me on this morning, Shanali. It's
Speaker 9: great to be here. It's almost eight years as you
Speaker 9: point out, and we have a plan and we're just
Speaker 9: moving forward with the plan. But if you look at
Speaker 9: our first six months, it was driven by we have
Speaker 9: a leading restructuring practice and we're increasingly taking share from others,
Speaker 9: and we're trying to get at the forefront of liability management,
Speaker 9: trying to work with companies to reaquitize and restructure their
Speaker 9: balance sheets and deal with the fact that interest rates
Speaker 9: continue to grind higher. And we're growing out a leading
Speaker 9: strategic advisory business that's still in the early innings. So
Speaker 9: even though we're dealing with a lot of the same
Speaker 9: macro headwinds that others are, we're able to gain share
Speaker 9: and continue to move forward and continue to advance our position.
Speaker 8: You know, we'll talk more about that restructuring wave because seriously,
Speaker 8: these idea of higher interest rates are going to have
Speaker 8: some impacts over a long period of time. But also
Speaker 8: remarkable is that you're hiring. You are hiring at a
Speaker 8: pretty rapid clip at a time when most investment banks
Speaker 8: are letting people go by the tens of thousands. How
Speaker 8: significant are your hiring plans this year?
Speaker 9: Oh, they're quite significant. So if you take a step back,
Speaker 9: we have tripled our headcount in eight years, we've tripled
Speaker 9: the revenues, share prices up nearly four times. And if
Speaker 9: you look at the size we are today, we're still
Speaker 9: a half to a third the size of many of
Speaker 9: our direct competitors, and where a fraction the size of
Speaker 9: the large banks. So we see tremendous art opportunity to grow.
Speaker 9: This is an incredibly conducive environment to grow. You need
Speaker 9: to see M and a slow down in order to
Speaker 9: hire the best M and A bankers. And that's the
Speaker 9: ultimate paradox. And the reason for that, Shinali is because
Speaker 9: the switching costs are much lower when you're dealing with
Speaker 9: a low velocity environment trying to get a best in
Speaker 9: class M and A banker to leave in the midst
Speaker 9: of an M and a bull run when they're loaded
Speaker 9: up with a whole host of mandates the switching costs
Speaker 9: to extract themselves, they end up leaving their clients in
Speaker 9: the lurch. So we're taking advantage of the fact that
Speaker 9: even though the environment is quite challenging in the near term,
Speaker 9: we know it's going to inflect. We know it's going
Speaker 9: to come back, and we want to continue to press
Speaker 9: forward and continue to grow the franchise.
Speaker 8: Is this going to be a record hiring year and
Speaker 8: can some of this momentum continue even into next year?
Speaker 9: Well, it's certainly going to be a record and we
Speaker 9: intend to continue to press forward. Now, how many individuals
Speaker 9: we attract to the platform, really we don't control fully
Speaker 9: because at the end of the day, we have a
Speaker 9: very clear sens as to who.
Speaker 10: Would work well on the platform.
Speaker 9: Who's best in breed, who's best in class, who shares
Speaker 9: our vision, shares our values, And you cannot end up
Speaker 9: turning this into a quota as to how many you
Speaker 9: hire each year. But there's no doubt that we're still
Speaker 9: relatively small compared to the opportunity set. So if you
Speaker 9: ask me, are we going to be much larger three
Speaker 9: five years from now, the answer is absolutely.
Speaker 8: Bring us under the hood, because it's a pretty fascinating dynamic.
Speaker 8: You have such high profile bankers leaving Goldman, Sachs, and
Speaker 8: Credit Suez, all for different reasons, and so what are
Speaker 8: bankers telling you as you're having these conversations.
Speaker 9: Well, if you step way back, there are a few
Speaker 9: trends which have been in evidence for the last decade.
Speaker 9: The first is that increasingly clients want to work with
Speaker 9: smaller firms, and we started to see that coming out
Speaker 9: of the global financial crisis. That's only picked up speed
Speaker 9: over time. So that's the first point is you need
Speaker 9: to have buy in from your client base. I think
Speaker 9: the second, which is a corollary trend that most individuals
Speaker 9: didn't really pick up on, is if the most sophisticated,
Speaker 9: consequential companies around the globe are going to work with
Speaker 9: smaller firms, they're going to expect the sophistication of a
Speaker 9: larger firm. So that means you need to continue to
Speaker 9: build out the breadth of services, the caliber of individual
Speaker 9: You need to make sure that you can follow your
Speaker 9: clients anywhere around the globe. So those two things have
Speaker 9: continued to prove out, and as bankers at bullsh bracket
Speaker 9: firms increasingly see that their clients would be highly supportive of.
Speaker 4: A move to a smaller firm.
Speaker 9: The question becomes, what's the catalyst, what's going to get
Speaker 9: you out of a comfortable position to take a jump,
Speaker 9: take a leap, do something different. And I like to
Speaker 9: say that we're in that exquisite sweet spot, which is
Speaker 9: we're big enough so that no one's going to miss
Speaker 9: a beat. They're going to have access to working with
Speaker 9: some of the most sophisticated colleagues around the globe, but
Speaker 9: we have so much white space that they can get
Speaker 9: in early, not be jocking for position, and do what
Speaker 9: they love to do, which is be bankers, not managers.
Speaker 8: Speaking of being a banker, bankers have been writing a
Speaker 8: lot on Wall Street, always, always, always, about everything. But
Speaker 8: you know, when you think about what they're actually talking
Speaker 8: about now it's returned to work. How often do they
Speaker 8: have to be in the building and how flexible do
Speaker 8: you have to be to keep them around?
Speaker 9: Well, that's a great question. I made a commitment in
Speaker 9: the depths of COVID of two things. One was we
Speaker 9: were learning so much from how to work remotely that
Speaker 9: we were never going back precisely to how we did
Speaker 9: work pre COVID. On the other hand, if you're not
Speaker 9: in the office most of the time, and if you're
Speaker 9: not creating those personal connections, and if you're not learning
Speaker 9: through an apprenticeship model, you're not doing it the right way.
Speaker 9: We've been continuing to evolve to is a model which
Speaker 9: starts with being in the office, because that's where you learn,
Speaker 9: that's the best way to support the clients, that's the
Speaker 9: best way to train and develop individuals, and there's no
Speaker 9: latitude for people not being back in the office. Having
Speaker 9: said that, you can't allow technology to continue to invade
Speaker 9: your personal space. Be on call seven days a week,
Speaker 9: be expected to get on a zoom call on a
Speaker 9: moment's notice, and not have some release valve. So what
Speaker 9: we did about a year ago was we turned fridays
Speaker 9: in office to be optional. You could work from home
Speaker 9: on Fridays, but work from home starts with work. You
Speaker 9: may be home, but you're working, and in the dog
Speaker 9: days of summer, which is after the summer interns leave
Speaker 9: until Labor Day, we also have a work from home option.
Speaker 9: And I think by acknowledging that we can use technology
Speaker 9: to be more productive, but making the centrality of being
Speaker 9: in the office, can try and find that that sweet spot.
Speaker 8: It's about to get busier slowly after a big deal slump.
Speaker 8: How fast do you actually expect murders and acquisitions to
Speaker 8: start coming back to the market.
Speaker 9: The pace of activity and dialogue is clearly picking up.
Speaker 9: We're looking at levels today that we haven't seen in
Speaker 9: more than a decade. So M and A volumes today
Speaker 9: are not much greater than they were coming out of
Speaker 9: the global financial crisis. If you benchmarket relative to GDP
Speaker 9: or market capitalizations, it's at low's we haven't seen I
Speaker 9: think ever, So I'm not really going out on a
Speaker 9: limb by saying it's going to get better from where
Speaker 9: we are today. There's no doubt about that. It can't
Speaker 9: get worse. There's an old saying you can't get hurt
Speaker 9: jumping out of a basement. I don't think you know.
Speaker 9: We are in danger of going lower than where we
Speaker 9: are today. The question is how quickly does it inflect.
Speaker 9: And one of the things about M and A iss
Speaker 9: a pro cyclical business transaction activity begets more transaction activity.
Speaker 9: There's the ultimate fomo fear of missing out, which is
Speaker 9: if your competitor is transacting, if they're growing, if they're investing,
Speaker 9: if another private equity firm in the alternative space is
Speaker 9: committing capital, it tends to lead to more activity. I
Speaker 9: think we have the conditions that are nearly ripe for that,
Speaker 9: and it wouldn't surprise me if sometime between now and
Speaker 9: the end of the year you see a very sharp inflection.
Speaker 8: There is one place things could get worse. That is
Speaker 8: with restructuring, higher interest rates, a whole bunch of forces
Speaker 8: that are pushing companies to either restructure or go bankrupt.
Speaker 8: How significant is this wave of distress going to be?
Speaker 9: What does it look like? Well, I think we're in
Speaker 9: for an extended wave of elevated restructuring relative to where
Speaker 9: we are today. But where we are today is at
Speaker 9: historic lows in terms of default rates and the like.
Speaker 9: We're still feasting off of the easy money environment, relatively
Speaker 9: low interest rates. But there's a day of reckoning and
Speaker 9: we're going to see a meaningful uptick in restructuring activity.
Speaker 9: But again, to put it in perspective, that's relative to
Speaker 9: historic lows. And I often get asked the question, can
Speaker 9: an upswing in M and A coexist with an upswing
Speaker 9: in restructuring? And my answer is pretty simple, is right
Speaker 9: now they're both at historic lows. We're seeing historically low
Speaker 9: default rates and we're seeing historically low M and A volumes,
Speaker 9: And I think both of them can sort of snap
Speaker 9: back more to traditional long term levels and both start
Speaker 9: to be engines for our firm.
Speaker 8: Now, Paul, before you left and started PJT, you were
Speaker 8: a very senior at Morgan Stanley. You were seen as
Speaker 8: a CEO candidate. Now fast forward more than eight years
Speaker 8: and you have Morgan Stanley going through its own CEO transition.
Speaker 8: What do you think the future of Morgan Stanley looks like?
Speaker 9: Look, I think James has done a terrific job. I
Speaker 9: think the firm is firing on all cylinders, notwithstanding the
Speaker 9: difficult macro backdrop, and I have no doubt that they'll
Speaker 9: continue to thrive going forward. I think the question for
Speaker 9: our firm is what do we do do we thrive
Speaker 9: going forward? And I'm confident that we have so much
Speaker 9: open running space ahead of us that.
Speaker 10: That's what I'm focused on.
Speaker 9: That's where my attention is.
Speaker 8: How are you thinking about number two already?
Speaker 9: I'm always thinking about a succession. I'm always thinking about,
Speaker 9: you know, who's going to succeed me? Because We're building
Speaker 9: this firm to last, to be durable, to be sustainable,
Speaker 9: and that means that you need to be able to
Speaker 9: train develop a next generation. Most of our growth has
Speaker 9: come from external candidates, but that's reflective of the fact
Speaker 9: that we're only eight years old. But the goal is
Speaker 9: over the next eight years as more and more of
Speaker 9: those individuals who join at the most entry level positions,
Speaker 9: they get to grow up in our firm, their train
Speaker 9: they're developed to be the world class banker and they
Speaker 9: have only one home and that's PJAT.
Speaker 10: So that's what I'm.
Speaker 8: Focused speaking of. This is the last week for the interns.
Speaker 8: The interns are starting to, you know, leave Manhattan now
Speaker 8: and all the cities they're in. Do you have any
Speaker 8: advice for them because there is a lot of anxiety
Speaker 8: about what jobs they can get coming out of these cycles.
Speaker 9: Well, it's crazy. We have our firm nearly one hundred
Speaker 9: summer interns around the globe, and that's about one percent
Speaker 9: of the resumes that we get. We get close to
Speaker 9: ten thousand applications every year and about one hundred show
Speaker 9: up at our firm for the summer. And one of
Speaker 9: the things that we've initiated which I think is terrific,
Speaker 9: is that at the end of the program, every one
Speaker 9: of our interns is obligated to then spend time doing
Speaker 9: community service in a project of their choice. And to me,
Speaker 9: that's one of the things that I would tell everyone
Speaker 9: on Wall Street to take away, which is you can
Speaker 9: go at it really hard, be very focused on your career,
Speaker 9: but there's a bigger world out there. You're part of
Speaker 9: a broader community, and find a way to do something
Speaker 9: to give back to your community.
Speaker 8: Anchors are people too, Yanks. Absolutely, Paul, thank you so
Speaker 8: much for your time. It was great to sit with
Speaker 8: you in such a very interview with you at a
Speaker 8: really historic time for your company.
Speaker 4: So thank you.
Speaker 8: That is Paul Tauman. He is the CEO and founder
Speaker 8: and chairman of PJT Partners.
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Speaker 1: Thirty Caterpillar our good friends. They reported some good numbers
Speaker 1: last night, stock up over seven percent. Caterpillar based in Irving, Texas,
Speaker 1: joining us Chris Chilino. He follows the stock on all
Speaker 1: that construction industry stuff for Bloomberg Intelligence.
Speaker 6: Hey, Chris, talk to us about Caterpillar. What did this
Speaker 6: street like here?
Speaker 10: A lot?
Speaker 11: It was a really impressive quarter with pretty significant top
Speaker 11: and bottom line beats, really driven by strong pricing and
Speaker 11: better than expected volume growth doing part to some dealer
Speaker 11: inventory restocking, and really just continued strong execution as a
Speaker 11: supply chain continues to normalize. We actually saw enterprise margins
Speaker 11: strengthen sequentially in the period, which is kind of counter
Speaker 11: to normal seasonality. But I think kind of beyond the
Speaker 11: stronger operating performance, both orders and backlog improved in the quarter,
Speaker 11: which was a little bit of a surprise to us,
Speaker 11: and retail sales accelerated, So I think that alleviates some
Speaker 11: of the concerns investors have around the cycle peaking here.
Speaker 6: Yeah, that's kind of where I wanted to go.
Speaker 1: I'm looking at the stock hitting an all time high.
Speaker 6: So that's good for shareholders.
Speaker 1: Then I look at the A n R function Analyst
Speaker 1: recommendations twelve buys fourteen holes in three cells. Half the
Speaker 1: analysts on the street missed this run here, this all
Speaker 1: time run up to an all time high. What's the
Speaker 1: concern if the business is so strong.
Speaker 11: Yeah, the concern is really how sustainable are these results?
Speaker 10: Right?
Speaker 11: Is this as good as it gets? We're posting margins
Speaker 11: now above twenty percent, which they haven't done before. Margins
Speaker 11: are going to be at the high end of their
Speaker 11: long term framework. We have a record backlog. Pricing is
Speaker 11: phenomenally strong, but that will moderate in the back half
Speaker 11: of the year. Dealers will will start to de stock
Speaker 11: in the back half too, So I think the concern
Speaker 11: is this sustainable. I think this quarter was kind of
Speaker 11: a step in the right directions, and I think we're
Speaker 11: looking at probably a structurally higher return business cycle over cycle.
Speaker 11: But the concern is if we're not at peak, we're
Speaker 11: probably pretty close.
Speaker 5: And whenever I think of Caterpillar, obviously I think of
Speaker 5: those yellow bulldozers, but also the world's biggest producer when
Speaker 5: you are thinking of heavy machinery, can you really have
Speaker 5: a global recession with the way Caterpillar is performing at
Speaker 5: this point?
Speaker 11: Yeah, So there certainly puts in takes that if you
Speaker 11: think globally. I mean, you know, North America continues to
Speaker 11: be very strong. Europe has hung in there, although it
Speaker 11: was a little bit weaker in the period. China, which
Speaker 11: is the largest construction equipment market globally, continues to deteriorate,
Speaker 11: took another leg down in the quarter, which really wasn't
Speaker 11: a surprise. We kind of expect that to bounce back
Speaker 11: next year. So there's a lot of moving pieces geographically speaking.
Speaker 5: So I'm sorry, I'm just going to follow up on
Speaker 5: that because the CEO of Caterpillar actually said during the
Speaker 5: earnings call that the company does anticipate for the weakness
Speaker 5: and sales of the machines used specifically in Chinese construction projects.
Speaker 5: So I would imagine when you're hearing something like that,
Speaker 5: what kind of indicators are you honing in on to
Speaker 5: see what that could mean for the company and obviously
Speaker 5: how that could potentially translate to its peers as well
Speaker 5: as what that means for the economy.
Speaker 11: Yeah, so we've seen a lot of the macro indoses
Speaker 11: deteriorate over there. We've actually had a number of machinery
Speaker 11: companies globally reports, so we kind of had an inkling
Speaker 11: that China was weakening throughout the quarter. But in the
Speaker 11: big scheme of things. Remember, you know, China historically in
Speaker 11: a normal years five to ten percent of consolidated revenue.
Speaker 11: We're looking at a second year down with pretty significant decline.
Speaker 11: So it's going to be less than five percent of
Speaker 11: their total business this year.
Speaker 1: All right, So, Chris, I hear my president talking about
Speaker 1: infrastructure here, members of Congress talking about infrastructure spending. I
Speaker 1: mean it sounds to me like, at least in North America,
Speaker 1: there's several years of growth a head for this industry
Speaker 1: and for CAT.
Speaker 6: What does a company say about that?
Speaker 11: Yeah, so they are starting to see over the past
Speaker 11: few quarters some of that infrastructure funds flow. And you're right,
Speaker 11: I mean, we have an immense amount of fiscal stimulus
Speaker 11: coming through the pipe here, So I think you're probably
Speaker 11: looking at a more resilient CAT through the next downturn.
Speaker 11: Just given this year vast amount of money that's going
Speaker 11: to be coming through, You're really not seeing customers in
Speaker 11: any kind of financial distress. They're in healthier positions compared
Speaker 11: to other prior downturns. The services business continues to grow,
Speaker 11: so I think this helps, you know, helps offset some
Speaker 11: of maybe the cyclical weakness that we'll probably start to
Speaker 11: creep in into the business next year.
Speaker 5: Talk to us about the cost cutting efforts the company
Speaker 5: has gone through and how does that translate to its
Speaker 5: margins and potentially its stock price as well.
Speaker 11: Yeah, so, if you think about in the prior downturn,
Speaker 11: KAT did a phenomenal job of taking a lot of
Speaker 11: structural costs out of the business. They run at extremely
Speaker 11: lean levels compared to a lot of their peers, which
Speaker 11: is why they're able to put up best in class margins.
Speaker 11: We're looking at probably margins, you know, pushing up close
Speaker 11: to operating margins close to twenty percent this year, which
Speaker 11: would be a record for them.
Speaker 1: Who has got to pull really compete against on a
Speaker 1: global basis.
Speaker 11: If you think about it, it's a very solidated market.
Speaker 11: Kamatsu is probably their their biggest competitor both on the
Speaker 11: construction and the mining side. Mining is essentially duopoly with
Speaker 11: Kamatsu and KAT. When it comes to construction, there's other peers.
Speaker 11: Deers as a growing presence in the construction market. They
Speaker 11: made an acquisition of work in a number of years
Speaker 11: back to kind of expand their global breadth. CNH Industrial
Speaker 11: a much smaller competitor on the construction side, Volvo, and
Speaker 11: then you have another number of regional competitors over in Asia.
Speaker 1: All right, great stuff as always nice getting an update
Speaker 1: on one of our favorite companies, Caterpillar Irving, Texas construction equipment.
Speaker 6: Chris Chieling a break in it all down for us.
Speaker 6: He covers all.
Speaker 1: Those industrial things for Bloomberg Intelligence. Joining us from Princeton,
Speaker 1: New Jersey, the Global HQ, if you will, a Bloomberg Intelligence.
Speaker 1: That's what we founded this thing down in Princeton, New Jersey.
Speaker 1: Nobody's bothered as nobodyknew we.
Speaker 6: Were there, and now we're four hundred strong all around
Speaker 6: the world.
Speaker 7: You're listening to the Team Kenjerl program Bloomberg Markets weekdays
Speaker 7: at ten am Eastern on Bloomberg dot Com, the iHeartRadio app,
Speaker 7: and the Bloomberg Business App, or listen on demand wherever
Speaker 7: you get your podcasts.
Speaker 6: Timber, thanks so much for joining us here.
Speaker 1: Boy twenty twenty three has been so much better than
Speaker 1: twenty twenty two, where you couldn't hide anywhere last year.
Speaker 1: How are you guys positioned coming into this year and
Speaker 1: maybe how has that changed since Boy markets have had
Speaker 1: such a good first seven months of the year.
Speaker 12: Yeah, no, thank you for having me, and thank you,
Speaker 12: Paul for that question. Yeah, twenty twenty three has been
Speaker 12: a surprise to everyone coming into the year. You know,
Speaker 12: there's been widely expected calls of a recession economic slowdown,
Speaker 12: which is still missing in action. The economy is pretty resilient.
Speaker 12: As we came into the year, we have been very
Speaker 12: concerned about the long term outlook. And the reason we
Speaker 12: say that is there are a number of trends that
Speaker 12: are coming together, Paul, which in the over the medium
Speaker 12: to long term we think means higher volatility and higher
Speaker 12: uncertainty in the markets. And let me just take a
Speaker 12: step back into why we say that. It's a convergence
Speaker 12: of number of mega trends that have been in making
Speaker 12: for a long time.
Speaker 13: You know.
Speaker 12: The number one thing that we see is there's an
Speaker 12: end to the cycle of almost like a decade of
Speaker 12: easy money, zero interest rates. All of a sudden, we
Speaker 12: have to we are contending with higher interest rates, tighter
Speaker 12: credit conditions. But then you overlay that with some of
Speaker 12: the longer term problems, such as all the things that
Speaker 12: we're seeing related to the ecological changes. I mean, you
Speaker 12: have heard we've experienced it ourselves, extreme weather, extreme heat, floods, droughts.
Speaker 12: All that means is that we just don't know where
Speaker 12: the next shock is going to come from, all kinds
Speaker 12: of bottlenecks that we have to contend with. And then
Speaker 12: you know, there's increased social polarization and increased political polarization,
Speaker 12: all of that, and now we're at this very special
Speaker 12: inflection point for the artificial intelligence technology and how that's
Speaker 12: being disseminated and rolled out, and is that going to
Speaker 12: just widen the divisions that we have in our society.
Speaker 12: All those things when we combine them, Yes, the economy
Speaker 12: is way more resilient than anybody expected in twenty twenty three.
Speaker 12: But longer term, that just tells us that we really
Speaker 12: need to be laser focused on managing risks for our
Speaker 12: client portfolios.
Speaker 14: NIM.
Speaker 5: With that type of backdrop in the economy, how are
Speaker 5: you positioning, what are you buying, what are you selling?
Speaker 5: When it comes to being a portfolio manager managing that
Speaker 5: money for your clients.
Speaker 12: Yeah, absolutely so. For the equity portion of the portfolio,
Speaker 12: the best way we can manage risk for the client
Speaker 12: portfolios is to focus on high quality stocks. High quality
Speaker 12: stocks which are trying to to solve long term secular
Speaker 12: problems related to water and resource efficiency, related to aging demographics.
Speaker 12: You know, those are the things that we're really focused on. Well,
Speaker 12: high quality companies run by very strong managements that are
Speaker 12: good stewards of capital and labor, and our adept at
Speaker 12: responded swiftly to any kind of changing trends that happen,
Speaker 12: be supply change, chain bottlenecks or anything else that might
Speaker 12: come up.
Speaker 5: Right, what particular industries or sectors can you get into
Speaker 5: that to be more specific?
Speaker 12: Yeah, absolutely so. Some of the companies that we really
Speaker 12: like a lot are the ones that are actually solving
Speaker 12: these problems related to water and energy efficiency. Some that
Speaker 12: come to mind right away are like a Schneider Electric.
Speaker 12: It's an European company based in France, one of the
Speaker 12: largest electrical products companies, and Schneider makes everything from switch gears,
Speaker 12: circuit breakers, automation. They're providing products and solutions that are
Speaker 12: helping save energy, energy usage for companies, for buildings, for
Speaker 12: industrial processes. So that's a stock that we like very much. Similarly,
Speaker 12: there's Eton PLC. Eton actually provided the results today this morning,
Speaker 12: again double digit growth in revenues, record margins, very strong
Speaker 12: backlock again very much driven by the same secular trends
Speaker 12: in decarbonization and increasing use of energy efficiency products because
Speaker 12: we're having this huge transition to a sustainable infrastructure, more
Speaker 12: demand for renewable transition to renewable energy sources and so forth.
Speaker 12: And lastly, I will give you another small stock. Actually
Speaker 12: it's a company based in Milwaukee, Wisconsin, and it's Badger
Speaker 12: Meter and they make water meters, fluid meters, and their
Speaker 12: customers are utilities, moots of other type of businesses that
Speaker 12: are very focused on conserving water and providing high quality
Speaker 12: and pure water for customers. So again they're seeing record
Speaker 12: demand for their products and solutions as the demand for
Speaker 12: these types of products continues to grow.
Speaker 1: So Nim, when you look at your across your portfolio,
Speaker 1: are you, guys, what's what's your waiting equity versus fixed
Speaker 1: income today and maybe and maybe other assets versus maybe
Speaker 1: more normalized time. Are you overweight equities underweight equities? How
Speaker 1: do you think about that now?
Speaker 13: Yeah?
Speaker 12: Absolutely so. One of the first things I'll say, Paul,
Speaker 12: we're the first to admit on the fertility of the
Speaker 12: short term macro forecast right. So we have a strategic
Speaker 12: asset allocation for equities and fixed income, and even though
Speaker 12: we have been coming into this year we were slightly
Speaker 12: underweight equities versus our strategic allocation target. One of the
Speaker 12: things that the equity portfolio has done quite well because
Speaker 12: of the types of companies that we own. But looking forward,
Speaker 12: I think for us, we really don't want to get
Speaker 12: too worried about the tactical calls on equities versus fixed income.
Speaker 12: Fixed income is a very viable alternative for our clients now,
Speaker 12: much more viable than it has been for years, so
Speaker 12: with a higher yield. So that's definitely close to our
Speaker 12: strategic weight on the fixed income there and for our equities,
Speaker 12: even though we don't see a major dislocation where we
Speaker 12: need to be overweight or even at benchmark, we want
Speaker 12: to have that drive powder available in cash, especially with
Speaker 12: the money market yields where you see them today, we
Speaker 12: want to have that small cushion available so that if
Speaker 12: there is a dislocation, we can continuously add that exposure.
Speaker 5: Do you said money market funds? Something Paul and I
Speaker 5: discuss often, is it just as simply what you can
Speaker 5: yield in that space, and if so what's the catalyst
Speaker 5: for you to move that money toward equities?
Speaker 12: Yeah, you know, Jess, it really comes down to you know,
Speaker 12: constantly we're evaluating the risk reward, right, so when we
Speaker 12: talk about being very risk aware, we're really focused on
Speaker 12: making sure that you know, what's the better alternative. So
Speaker 12: for the money markets, as a cash alternative has been
Speaker 12: yielding four and a half percent higher than that. That's
Speaker 12: a pretty nice yield. So you know, if the catalyst
Speaker 12: to move that into fixed income would be if we
Speaker 12: start to see if we can long lock in higher
Speaker 12: yields than that over longer periods of time, that's always
Speaker 12: a catalyst. And then on equities if we see a
Speaker 12: major dislocation. So just to give you an example, some
Speaker 12: of our technology stocks. You know, as you know, the
Speaker 12: rally in the s P five hundred and and the
Speaker 12: major indices has been primarily driven by the Magnificent seven
Speaker 12: so far. So and we've owned several of these stocks
Speaker 12: into this year. We will continue to own them because
Speaker 12: of the long term growth outlook, but we are rebalancing.
Speaker 12: We are taking profits on those stocks and putting them
Speaker 12: into some of the laggards for the year. So we
Speaker 12: will continue to take those opportunities, but we need to
Speaker 12: see a major dislocation inequities to start moving the yash.
Speaker 1: All right, Hey Niamer, thanks so much for joining us.
Speaker 1: Neri kang Cio, Senior portfolio manager, north Star Asset Management,
Speaker 1: getting her call on this market that came in a
Speaker 1: little bit underweight this year.
Speaker 7: You're listening to the tape can's our live program Bloomberg
Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, the
Speaker 7: tune in app, Bloomberg dot Com, and.
Speaker 10: The Bloomberg Business App.
Speaker 7: You can also listen live on Amazon Alexa from our
Speaker 7: flagship New York station, Just say Alexa, play Bloomberg eleven thirty.
Speaker 5: Jasmin Good Paul Sweeney here in the Bloomberg Interactive Brokers studio,
Speaker 5: and we're gonna switch things up and do our c
Speaker 5: suite conversation of taking a look at what's happening with
Speaker 5: the first watch. This is Tickerson Paul FWRG. If you're
Speaker 5: looking at this stock up about two percent today after
Speaker 5: the earnings for the latest quarter. The profit in sales
Speaker 5: did beat, but they also did see some higher expenses there.
Speaker 5: But looking at this stock here date up more than
Speaker 5: forty percent. So who better to chat with us about
Speaker 5: when it comes to this latest earnings report for the
Speaker 5: company as well as the outlook for the restaurant industry
Speaker 5: than Chris Tomasso, CEO at this breakfast and restaurant lunch
Speaker 5: chain here for first watch. Chris, thank you so much
Speaker 5: for joining us on zoom to chat with Paul and myself.
Speaker 5: I'll start off with talk to us and walk us
Speaker 5: through this latest earnings report. And what you're seeing us
Speaker 5: for is when it comes to the consumer and spending,
Speaker 5: what it means for the economy.
Speaker 15: Yeah, we had a great quarter. Overall. Top line performance
Speaker 15: was great. We were able to take a lot to
Speaker 15: the bottom line thanks to some relief from commodity inflation
Speaker 15: that we'd seen in previous quarters.
Speaker 13: Our consumer has been extremely resilient.
Speaker 15: You know, the restaurant industry has been challenged lately, but
Speaker 15: we haven't seen that. We've seen, you know, tremendous visitation
Speaker 15: and the consumer opting for the full experience when they
Speaker 15: come in our restaurants. They're ordering the beverages, they're ordering
Speaker 15: the add on. So, like I said, a great quarter
Speaker 15: by our team top to bottom.
Speaker 4: All right, talk to.
Speaker 1: Us about kind of where you guys are in your
Speaker 1: development here, how many restaurants you have owned versus franchisees
Speaker 1: and kind of what what's the growth plan.
Speaker 15: Yeah, we have just over four hundred and thirty restaurants
Speaker 15: in twenty nine states. We're predominantly company owned. We're about
Speaker 15: ninety percent company owned. We have excuse me, eighty percent
Speaker 15: company owned. But we also announced with this earnings that
Speaker 15: we've acquired some franchise groups and converted those two company
Speaker 15: owned restaurants. So that's that's part of our overall value
Speaker 15: creation strategy as well.
Speaker 5: We're exactly if you're looking more the demographics through the US,
Speaker 5: where are you based in what states?
Speaker 15: So we're we're again we're in twenty nine states, but
Speaker 15: we're all the way from Florida up the East coast
Speaker 15: to New Jersey, over to you know, Illinois, Chicago, Milwaukee,
Speaker 15: and all the way out west to Denver, Colorado. But
Speaker 15: our big markets are Texas, Colorado, Arizona.
Speaker 13: And Florida.
Speaker 15: But we have a you know, a big presence in
Speaker 15: the Midwest as well.
Speaker 1: So talk to us about I guess one of the
Speaker 1: issues just kind of inflation. How do you see it
Speaker 1: in your business model to what degree have you been
Speaker 1: able to pass along to your consumers?
Speaker 6: How do you guys dealt with that?
Speaker 15: Yeah, you know this this pass quarter, thankfully, we saw
Speaker 15: a lot of relief. We were in a unique situation
Speaker 15: last year where we because we're a breakfast and brunch restaurant,
Speaker 15: we obviously are heavily relyant on eggs and avian fluid
Speaker 15: was a issue for us last year. So we saw
Speaker 15: outsized commodity inflation last year and we're starting to see
Speaker 15: that that temper. I will say that, you know, we
Speaker 15: were I would call us a laggard as it related
Speaker 15: to price increases compared to others in our industry, and
Speaker 15: in fact, in twenty twenty one, we didn't take any
Speaker 15: pricing at all, and our focus there really was on
Speaker 15: getting the consumer back in our restaurants, getting them back
Speaker 15: into a normal cadence of visiting us, and we didn't
Speaker 15: want price to be a factor that kept them from
Speaker 15: doing that. So as we got out of COVID as
Speaker 15: a concept, we wanted to make sure that we came
Speaker 15: back strong, and so we've been very conservative in our
Speaker 15: pricing and we think that's what's led to our traffic
Speaker 15: increases over the past couple of years.
Speaker 5: What are you seeing with labor costs in wages?
Speaker 15: Labor costs continue to increase, We plan for that. We
Speaker 15: know what our labor and inflation is expected to be.
Speaker 15: Most of it comes from statutory minimum wage increases, specifically
Speaker 15: in three of those markets that I just mentioned to
Speaker 15: you that are big for us, which is Arizona, Colorado,
Speaker 15: and Florida. So we know what those increases are, those
Speaker 15: planned increases, and we know when they're going to hit,
Speaker 15: so we're able to plan appropriately.
Speaker 1: On the competitive front, what is your or who was
Speaker 1: your kind of some of your main competition is like
Speaker 1: a Starbucks who's trying to brand you know, start of
Speaker 1: Coffee now offers so much more. Who would it really
Speaker 1: your competitors.
Speaker 15: One of the most exciting things about our category, frankly,
Speaker 15: is that most of the meal occasions that at breakfast
Speaker 15: are still eating at home.
Speaker 13: So that's our that's our main competition.
Speaker 15: But if you think about it, you know anybody who's
Speaker 15: who's uh attracting a consumer in the morning hours as
Speaker 15: a competitor to ours, we really feel like we're differentiated.
Speaker 15: We have the speeding convenience of a of a quick server,
Speaker 15: a fast casual but in a in a full service
Speaker 15: environment using high quality ingredients. So we we offer a
Speaker 15: different occasion and a and a different opportunity for the consumer,
Speaker 15: and we think that's what's helped differentiate us for the
Speaker 15: forty years that we've been around.
Speaker 5: How do you view the direction of the economy whenever
Speaker 5: customers are coming in spending.
Speaker 13: So a typical bell weather for you know, seares of
Speaker 13: a consumer.
Speaker 15: Pulled back, typically in the restaurant industry come from things
Speaker 15: like managing their check so maybe not ordering a beverage
Speaker 15: and having water and things like that. We've seen our
Speaker 15: dining room traffic actually increase over the last quarter, and
Speaker 15: also we're not seeing any check management whatsoever in the
Speaker 15: dining rooms. Where we've seen some pressure has been in
Speaker 15: the third party off premise channel, which exploded during COVID
Speaker 15: and post COVID. In fact, we went from an off
Speaker 15: prem business that was about five percent of our overall
Speaker 15: sales to at one point upwards of twenty percent, and
Speaker 15: it's settled down now around eighteen. But you are starting
Speaker 15: to see not just with us, but in the industry
Speaker 15: in general, that third party delivery occasion, which is the
Speaker 15: most expensive way to use a restaurant starting to soften
Speaker 15: and we're seeing that as well.
Speaker 1: So your company went public September thirty at twenty twenty
Speaker 1: one by our data here, talk to us about just
Speaker 1: discuss what was the IPO discussion for you guys. How
Speaker 1: did you decide upon an IPO and why did you
Speaker 1: do it with then and kind of what was the
Speaker 1: rationale for going public.
Speaker 15: Yeah, So we've been the fastest growing full service restaurant
Speaker 15: company in America for the last three years, and I
Speaker 15: expect we'll get that title again this year with the
Speaker 15: growth that we have teed up.
Speaker 13: We also have forty years of experience.
Speaker 15: So we had been with three private equity partners and
Speaker 15: had just determined that it was the right time for
Speaker 15: us to go public as a way to you know,
Speaker 15: capitalize the business. And we had to wait for the
Speaker 15: right time with the market to be ready to accept
Speaker 15: the restaurant company IPO. And we feel like we kind
Speaker 15: of opened the door back to restaurant IPOs, which you've
Speaker 15: seen a number since then.
Speaker 6: Hey, Chris, just about thirty seconds left.
Speaker 1: But my restaurant analyst here Bloomberg just emailed in and
Speaker 1: said the one shift model is great for labor retention. Employees'
Speaker 1: work normal hours and love it. Talk to us about
Speaker 1: that real quick.
Speaker 15: Well, your analyst is smart because it's it's definitely a
Speaker 15: key differentiator for us. Our folks work one shift to day,
Speaker 15: Our hours are only seven am to two thirds. They
Speaker 15: get to be home with their families at night, make
Speaker 15: a great living, and still have a work life balance
Speaker 15: and a quality of life that's really unrivaled in our industry.
Speaker 1: Oh interesting, all right, Chris, thanks for joining us. Really
Speaker 1: appreciate you taking the time. Chris Tomasso, CEO First Watch
Speaker 1: Restaurant company. I was not aware of it. Now there's
Speaker 1: another one. I've got to go to.
Speaker 6: Mars in New Jersey.
Speaker 5: There are I looked at.
Speaker 6: U did Sweet Green, yes yesterday. I'll do First Watch
Speaker 6: this weekend, and.
Speaker 5: Then at some point Cava Cava. That's another on the list.
Speaker 10: All right.
Speaker 1: First Watch FWRG is a ticker stocks at a fifty
Speaker 1: two weeks high. They just reported some some good numbers,
Speaker 1: So everything's good there at First Watch based down.
Speaker 6: In Florida, stock up over forty today. Yep, not too bad,
Speaker 6: happy shareholders.
Speaker 7: You're listening to the tape Cat's Are Live program Bloomberg
Speaker 7: markets weekdays at ten am Eastern on Bloomberg Radio, the
Speaker 7: tune in app, Bloomberg dot Com, and the Bloomberg Business App.
Speaker 7: You can also listen live on Amazon Alexa from our
Speaker 7: flagship New York station, Just say Alexa, play Bloomberg eleven thirty.
Speaker 1: Just men, Paul Sweeney here in our Bloomberg Interactive Brokers Studio,
Speaker 1: and of course we are live streaming this thing on YouTube.
Speaker 1: To just head over to YouTube and search Bloomberg Global
Speaker 1: News and that'll get you there. In our c suite
Speaker 1: discussion today, we'll talk reet. We do that with Jim Taylor,
Speaker 1: CEO Brixmore. Brickxmoor is a New York Stock Exchange traded
Speaker 1: company b RX as your symbol, about six point seven
Speaker 1: billion dollars in market cap. I look at the comp
Speaker 1: function compel on the Bloomberg and it shows me over
Speaker 1: to the last five years, Bricksmoor has had a compound
Speaker 1: and on your return of about ten point four percent,
Speaker 1: and that compares very well with the Bloomberg Reat Index
Speaker 1: about three point six percent.
Speaker 6: A good performance there.
Speaker 5: The landlord behind retailer's TJ Max, Kroger, Dollar Tree Publics.
Speaker 6: And also Jim thanks for joining us here in our studio.
Speaker 6: Thank you for having me.
Speaker 1: Also, bed Bath and Beyond what I'm from the New
Speaker 1: Jersey so this is a this is a Jersey company.
Speaker 6: They're gone.
Speaker 1: How much exposure did you have the bed bath and
Speaker 1: beyond and what do you do with that space?
Speaker 6: And what's the rent upside? Maybe I don't know, you know, the.
Speaker 16: Rent upside is actually very significant. We're in a period
Speaker 16: of time where there's a supply demand balance that's very
Speaker 16: much in favor of landlords because there's been basically no
Speaker 16: new supply built over the last ten to fifteen years.
Speaker 16: So when we have tenant disruption, which you always have
Speaker 16: in this industry where a retail landlord, we're not a retailer,
Speaker 16: those tenants, when you get that space back, oftentimes present
Speaker 16: a significant opportunity for upside for us. So we bring
Speaker 16: in better tenants, as I like to say, at better rents, specialty, grocer, value, apparel, fitness, health, wellness.
Speaker 16: These are the kind of uses that when you bring
Speaker 16: into what was a failing retailer, not only do you
Speaker 16: make a great return, but you help the balance of
Speaker 16: the shopping center and you drive docupency and rate on
Speaker 16: the small shops as you bring in a more relevant use,
Speaker 16: So I expect we'll continue to see some disruption. I
Speaker 16: think the real question, and we've demonstrated it. Thank you
Speaker 16: for highlighting our returns is how you were on to
Speaker 16: it and is it an opportunity to create value for
Speaker 16: your stakeholders, which we see there it clearly is.
Speaker 6: I didn't know this, he's a uva guy.
Speaker 5: Oh there you go. What ships that have been crucial
Speaker 5: to your company have you seen over the past year?
Speaker 5: In what direction do you think this leaves the reed
Speaker 5: space moving forward over the next year.
Speaker 16: Well, I think open air retail has been stronger for
Speaker 16: longer than people appreciate. I think it got caught up
Speaker 16: in the bricks and mortar retail is dead narrative for
Speaker 16: the last several years, which we weren't seeing. You know,
Speaker 16: our grocers were doing well, as you know, through the pandemic,
Speaker 16: they not only saw a bump, but after the pandemic
Speaker 16: they've retained it.
Speaker 6: It's also a very profitable.
Speaker 16: Channel for retailers wishing to connect with the customer. So
Speaker 16: as we move forward, you know, what's exciting for us
Speaker 16: is that we're seeing the funnel of potential uses to
Speaker 16: come in a shopping center as broad as it's ever been,
Speaker 16: so not only traditional uses like grocery and health and wellness,
Speaker 16: but all native retailers looking to come out of the mall,
Speaker 16: looking for lower costs of documancy, looking for more immediacy
Speaker 16: with the customer. So as I look forward, I'm pretty
Speaker 16: bullish on the ability to continue to drive growth in
Speaker 16: returns given that basic supply demand picture.
Speaker 6: What's a typical property for you? Guys like, what do
Speaker 6: you like to target?
Speaker 16: So about seventy five percent or so of our properties
Speaker 16: are actually grocery anchored. What we like are larger open
Speaker 16: air centers, typically over one hundred and fifty thousand square feet,
Speaker 16: where you have a mix of anchors, junior anchors, and
Speaker 16: small shops. And the reason that mix is important is
Speaker 16: you see demand fluctuating in those categories over time. Also
Speaker 16: with small shops, you're able to bring in vibrant small
Speaker 16: businesses and achieve better returns because you're able to grow
Speaker 16: rents and you see a little bit more turn than
Speaker 16: you see in the larger anchors. So that's why some
Speaker 16: of this anchor disruption is actually an exciting opportunity for
Speaker 16: us because it allows us to recapture that anchor space
Speaker 16: and put in a more relevant use.
Speaker 5: It's interesting too that you're working also in the read
Speaker 5: space when it comes to these grocers like Albertson's that
Speaker 5: obviously has struggled a lot with rising costs, especially in
Speaker 5: recent years. What are you seeing in that space when
Speaker 5: you look at that particular company versus say, Publics and
Speaker 5: then Kroger.
Speaker 16: You know, it's always been an intensely competitive space with
Speaker 16: very tight margins, and you're seeing a lot of innovation. Nonetheless,
Speaker 16: So you see the mainline grocers like Kroger and Albertson's
Speaker 16: and Publics doing well, capturing a lot of that pandemic
Speaker 16: bump and keeping it. But you're also seeing specialty grocers
Speaker 16: that offer a different value proposition. Sometimes it's more organic
Speaker 16: or higher ends. Sometimes it's just more value for the money.
Speaker 16: So you're seeing folks like Sprouts, Whole Foods continue to grow,
Speaker 16: Aldi and others. In addition to you do have food
Speaker 16: being offered by some of the dollars stores as well.
Speaker 16: So an intensely competitive space in one that you know
Speaker 16: we've capitalized very well on.
Speaker 5: All.
Speaker 1: Right, If this next question sounds smart, it's because It
Speaker 1: came from Lindsay Dutch. She's a Bloomberg Intelligence ret an
Speaker 1: also covers your company, and she writes in and says,
Speaker 1: you came into the company at twenty sixteen, you transform
Speaker 1: the portfolio by updating centers, buying better ones.
Speaker 6: And selling old ones.
Speaker 1: So the question is how much is left to go
Speaker 1: in that transformation and how has the shutdown in the
Speaker 1: transaction market impact your plans to continue updating the portfolio.
Speaker 16: Great question, Lindsay. So, we have about four hundred million
Speaker 16: of reinvestment underway today that's going to deliver at verioccreative yields,
Speaker 16: and as we've told the market, we have about another
Speaker 16: billion dollars of reinvestment opportunity behind that. Importantly, Paul, that's
Speaker 16: in what we own and control. We're starting to see
Speaker 16: the transaction market move our way in terms of valuations
Speaker 16: of assets that we might look to acquire. Not anything yet,
Speaker 16: but I'm certainly optimistic that with the credit markets constrained,
Speaker 16: with asset level financing not as available as it once was,
Speaker 16: we may have an opportunity to continue to consolidate in
Speaker 16: a space that's actually owned about ninety percent in private hands,
Speaker 16: so the public companies collectively only own about ten percent
Speaker 16: of the shopping centers. So I'm hopeful and optimistic that
Speaker 16: we'll see some exciting external growth. But importantly, we have
Speaker 16: a lot in what we own and control today.
Speaker 5: Are there any red flags that are bubbling up at
Speaker 5: this point?
Speaker 16: Well, I think you're seeing ongoing tenant disruption, but you know,
Speaker 16: that's an ongoing part of our business. And as I
Speaker 16: alluded to earlier, we're a retail landlord, not retailer, and
Speaker 16: it's important to appreciate that because we can see the
Speaker 16: retailer disruption coming from some time, and he gives us
Speaker 16: a chance to reposition put the company in a position
Speaker 16: to benefit from that disruption. But really, you know, the
Speaker 16: supply demand fundamentals are so healthy for retail landlords today.
Speaker 16: I don't think that's as fully understood as it should be.
Speaker 16: I think people sort of cast retail real estate with
Speaker 16: the broad brush and sort of failed to see that
Speaker 16: there's been no new supply for the last ten to
Speaker 16: fifteen years.
Speaker 1: Capital markets talked us about what it's like for your
Speaker 1: type of business.
Speaker 16: You know, the capital markets remain open for us. We
Speaker 16: have access to the unsecured market, you know, don't like
Speaker 16: where our equities priced today, so not really thinking about that.
Speaker 16: But importantly, and it's a great point, we have access
Speaker 16: to capital and we have liquidity. We have over a
Speaker 16: billion three of undrawn capacity. We continue to reduce our leverage,
Speaker 16: We continue to harvest non core assets and have continued
Speaker 16: to park dry powder on the balance sheet.
Speaker 5: Do you expect leasing activity to continue increasing?
Speaker 16: It has in it? Well, you know, we have a
Speaker 16: forward leasing pipeline. This is robust, it's has ever been.
Speaker 16: We also have an additional fifty seven million of signed
Speaker 16: but not commenced rent, So these are commitments from retailers
Speaker 16: to open stores within our portfolio. That rent is coming
Speaker 16: onto our income statement over the next several quarters. So
Speaker 16: it gives us tremendous visibility on near term growth. And
Speaker 16: then behind that, as I mentioned, we have a very
Speaker 16: robust shadow pipeline.
Speaker 6: Hey, Jim Bett, thirty seconds left. Oh, just gives a
Speaker 6: sense of kind.
Speaker 1: Of what your geographical footprint looks like and maybe where
Speaker 1: the areas are for growth.
Speaker 16: You know, we're a national company. We have large presence
Speaker 16: in the northeast down the coast into Florida. We also
Speaker 16: are significant in Texas southern California and the Upper Midwest.
Speaker 16: Our investment strategy has been to cluster our investments and markets.
Speaker 4: Where we already are.
Speaker 16: So if you look at our acquisitions that we have made,
Speaker 16: they're in markets like Florida, Southern California, Texas where we
Speaker 16: see opportunities for growth. But we've also seen pretty robust
Speaker 16: demand characteristics in the Upper Midwest as well. So expect
Speaker 16: us to not go into new markets, but the focus
Speaker 16: on those where we already have a presence.
Speaker 1: All right, good overview, appreciate it. Jim Taylor, CEO of Brismore,
Speaker 1: New York Stock Exchange listed stock b r X is
Speaker 1: a ticker to load into your Bloomberg terminal and learn
Speaker 1: about the.
Speaker 5: Retail landlord, not a retailer, but looking at how especially
Speaker 5: when you are the when it comes to Kroger, Albertson's,
Speaker 5: all these companies that it works with, it's really interesting
Speaker 5: to see how that space and the outlook is moving forward.
Speaker 6: This is pretty good anchors to have in the marketplace.
Speaker 7: You're listening to the tape catcher are live program Bloomberg
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Speaker 14: Thirty Joining us now, The CEO of Uba, Dara Koshashahi
Speaker 14: and Blambagg's Emily chang with me on set in San Francisco.
Speaker 17: Emily, thank you, and Dara, thank you so much for
Speaker 17: joining us. It's good to have you back. Look, I
Speaker 17: think investors are reacting to a bit of a revenue miss,
Speaker 17: but your first gap profit reported ever. Talk to us
Speaker 17: a little bit about the discipline here and what kind
Speaker 17: of choices you had to make to make this happen
Speaker 17: in this macro environment.
Speaker 10: Yeah.
Speaker 18: Absolutely, we're very excited about this.
Speaker 19: It's a seminal moment for Uber to deliver gap operating
Speaker 19: profit free cash row of over a billion dollars just
Speaker 19: in the quarter, along with a really strong, strong top line.
Speaker 19: You look at a gross booking strow out that was
Speaker 19: thirty three point six billion dollars, up eighteen percent on
Speaker 19: a constant currency basis. So I think the results both
Speaker 19: in terms of the top line and the bottom line
Speaker 19: have been second to none and certainly leading in our industry,
Speaker 19: and it has taken a lot of cost discipline in
Speaker 19: terms of really looking at making that perfect match between
Speaker 19: a rider and a driver, or an eater and a
Speaker 19: courier and a restaurant, and making sure everything in that
Speaker 19: transaction happens perfectly with no errors, no mistakes, no cancelations,
Speaker 19: et cetera. And at the same time it takes a
Speaker 19: lot of cost discipline. In terms of overheads. Our headcount
Speaker 19: has been flat, and if you look at our headcount
Speaker 19: compared to twenty nineteen pre pandemic, our total cat count
Speaker 19: is up ten percent during those years, and our growth
Speaker 19: bookings in the core business has been up eighty percent
Speaker 19: versus headcount growth of ten percent. So it absolutely has
Speaker 19: taken that discipline. But at the same time, the company
Speaker 19: continues to innovate and gain category position, which is what
Speaker 19: it's all about.
Speaker 17: Now you've formally announced that CFO Nelson Chai will be
Speaker 17: leaving the company, which Bloomberg reportart a few weeks ago.
Speaker 17: What is the interim plan and what are you looking for?
Speaker 17: Will this be an internal hire and external hire?
Speaker 19: Yeah, so Nelson is going to be staying with us
Speaker 19: really through the balance of the year up until early
Speaker 19: January to make sure that we have a smooth succession plan.
Speaker 19: The next CFO is in seat and can be coached
Speaker 19: by Nelson as well. And really what I'm looking for
Speaker 19: is another partner like Nelson. You know, Nelson came in
Speaker 19: in a very difficult time and teamed up with myself
Speaker 19: and the rest of the team, taking us through an
Speaker 19: environment of deep operating losses, taking us through the IPO,
Speaker 19: getting us a really strong balance sheet so that we
Speaker 19: could come out of the IPO and could deal with
Speaker 19: issues like the pandemic to where we are now, which
Speaker 19: is a leading company. The next five years of her
Speaker 19: journey are about scaling and becoming that true global platform
Speaker 19: that can grow top line in a twenty percent range,
Speaker 19: can continue to innovate and continue to drive the kinds
Speaker 19: of margins and the incremental margin growth that we've been driving. Historically,
Speaker 19: we told investors that incremental margins as a percentage of
Speaker 19: growth bookings growth will be seven plus percent, and consistently
Speaker 19: we've come in above that because we've been innovating but
Speaker 19: at the same time been disciplined at the bottom line.
Speaker 19: I'm looking for a partner who can deliver kind of
Speaker 19: the next chapter of our growth, just like Nelson did.
Speaker 18: Ubertotot also to speak.
Speaker 17: So let's talk about the executives wit, the broader executives.
Speaker 17: Weit in that next chapter. Your CTO left back in
Speaker 17: twenty twenty one was not replaced. How are you thinking
Speaker 17: about that role? Is there anyone particular in mind?
Speaker 19: We actually our tech team is led by three different leaders.
Speaker 19: Sin Jeep Jaine, who's our chief product officer, really think
Speaker 19: about the rider app, driver app.
Speaker 18: Eater app, etc.
Speaker 19: Gus who's thinking about the core services, customer service, safety, insurance.
Speaker 18: Et cetera.
Speaker 19: And then Albert Greenberg, who runs the infrastructure. You know,
Speaker 19: we are at a core a technology company, and instead
Speaker 19: of having one tech leader, we have three tech leaders,
Speaker 19: and that team has come together to drive outsize innovation.
Speaker 19: When you look at driver upfront fares, when you look
Speaker 19: at our Uber teens product, when you look at taxi hailables,
Speaker 19: low cost, our entry into new verticals, there's no company
Speaker 19: in the industry that's innovating at our speed or scale.
Speaker 19: And it's thanks thanks to the tech leaders that we
Speaker 19: have in house.
Speaker 18: At this point.
Speaker 14: To our global radio and television audience, you're listening to
Speaker 14: our conversation with the CEO, Dara Koshushahi following that earning sprint.
Speaker 14: You know, Dara, A look at the court of gone,
Speaker 14: number of trips, gross brookings, active drivers, demand and supply
Speaker 14: side all at records, strong gross booking forecast. Why isn't
Speaker 14: that enough to kind of raise expectations for adjusted a
Speaker 14: bit DON next year? You'd said in February, I believe
Speaker 14: it'd be around five billion.
Speaker 19: Well, I'm not a stock analyst. I can focus on
Speaker 19: running the company. And we guided for Q three adjusted
Speaker 19: EBITDAL well above street estimates. We got her for nine
Speaker 19: hundred and seventy five million to a billion twenty five,
Speaker 19: which was a substantial increase versus expectations out there.
Speaker 18: And consistently, if you look.
Speaker 19: At our track record, we've put out targets, we've consistently
Speaker 19: beaten those targets, you know, by anywhere five ten plus percent.
Speaker 19: And we intend to beat that five billion dollar target,
Speaker 19: just as we've beaten every single target that we put
Speaker 19: in front of our investor. So we think continued discipline, execution,
Speaker 19: strong top line growth, increased margins and more of the
Speaker 19: same along with innovation is going to get us well
Speaker 19: beyond the five BILLI million dollars.
Speaker 14: The innovation piece really interesting. I liked Emily's question about
Speaker 14: the tech leadership. M's been all around San Francisco and
Speaker 14: a cruise. I've been all around San Francisco in a Weyman,
Speaker 14: and I appreciate for our audience around the world. Jumping
Speaker 14: in a robotaxi with no driver is not yet a reality,
Speaker 14: but for lots of people that I asked on thread's
Speaker 14: Twitter LinkedIn, that's their question for you, Dara, when is
Speaker 14: Uber going to take that fleet of autonomous vehicles as
Speaker 14: more of a priority.
Speaker 19: Well, we are very bullish on autonomous It's taking time.
Speaker 19: We have to make sure that the technology is saved
Speaker 19: and we're partnering amongst all of the significant verticals that
Speaker 19: we have. What are the unique aspects of Uber is
Speaker 19: not only are we global, not only are we the
Speaker 19: largest platform with the biggest audience one hundred and thirty
Speaker 19: seven million consumers coming to us every single month, but
Speaker 19: we operate in every significant vertical for autonomous passenger vehicles
Speaker 19: with Uber delivery, food and grocery delivery, delivery with eats,
Speaker 19: and then freight as well. Autonomous trucks are absolutely going
Speaker 19: to be a big part of our future. And if
Speaker 19: you look at each one of those verticals, we're partnering
Speaker 19: with leading companies Waymo for example in passenger vehicles, neuro
Speaker 19: and Serve, amongst others in delivery, and then in trucking
Speaker 19: of course Aurora, with which we have a strategic investment
Speaker 19: as well. So we absolutely believe that autonomous is going
Speaker 19: to be part of the future and we are working
Speaker 19: to expose our leading marketplace to autonomous technology as it
Speaker 19: develops in a safe, efficient manner.
Speaker 17: Well, speaking of another kind of technology, artificial intelligence instacarts
Speaker 17: now out with the chatbot door dash as well. Is
Speaker 17: there an Uber bought in the works.
Speaker 19: There's definitely going to be an Uber bought in the works.
Speaker 19: But I tell you that we have been working with
Speaker 19: machine learnings, artificial intelligence systems deep learning systems for.
Speaker 18: Years and years and years.
Speaker 19: Every time you get matched up with a car or
Speaker 19: get matched up with a courier, there are mL algorithms
Speaker 19: that are making that match. The pricing that happens time
Speaker 19: and day and distance. All of that is driven by
Speaker 19: machine learning algorithms. So that has been going on. Those
Speaker 19: algorithms only get better. In the data sets that we
Speaker 19: work with are the largest data sets globally, and the
Speaker 19: more data we have, the smarter we get, the more
Speaker 19: personal we can get. We are now focused more on
Speaker 19: productivity applications, so for example, introducing GitHub copilot for our developers,
Speaker 19: or helping summarize situations for customer service agents so that
Speaker 19: they already know context of what's going on with a
Speaker 19: particular customer and how they can help. We will absolutely
Speaker 19: put our AI agents out there to help the consumer,
Speaker 19: but also don't forget about the driver drivers who are
Speaker 19: driving on our marketplace. They also want help. Where should
Speaker 19: I go, what rod should I accept, et cetera. So
Speaker 19: we're also working on AI to power drivers and couriers
Speaker 19: so that they can make smarter decisions every day, to
Speaker 19: be able to earn flexibly, but to maximize their earnings
Speaker 19: based on their time.
Speaker 17: So hang on, just to double down, there is an
Speaker 17: uber chat bought something that you're working on right now.
Speaker 19: We're working on it right now, absolutely, but it's a
Speaker 19: very very small part of the AI ecosystem and.
Speaker 14: Ver our global radio and television audience is listening to Uber.
Speaker 4: CEO Dara Kushashahi.
Speaker 14: Dara Uber is as close as anything the US and
Speaker 14: Europe has to an everything app, something akin to what
Speaker 14: you might see in Southeast Asia. So I'm curious how
Speaker 14: closely you're paying attention to your cross town neighbor, mister
Speaker 14: Musk and what X is doing within everything app.
Speaker 19: Well, it's difficult to take your eyes off of what
Speaker 19: Musk is doing or read about what Elon is doing,
Speaker 19: and we do so because we want to learn and listen.
Speaker 19: It's pretty fun, but we are leading in terms of
Speaker 19: building out a super app. Remember to then in Southeast Asia,
Speaker 19: we have a very significant strategic investment in grab. Grab
Speaker 19: has has mobility delivery payments on their app, Kareem in
Speaker 19: which we have a big investment in middally same thing
Speaker 19: mobility delivery payments payments as well. So we're very very
Speaker 19: familiar with a super app concept and in the West,
Speaker 19: I do think Uber is the closest to achieving that
Speaker 19: super app. We want to be that operating system for
Speaker 19: your everyday life. Wherever you're going, whatever you want to
Speaker 19: get delivered, Uber is going to be there for you.
Speaker 19: And I think that we are steadily moving along the
Speaker 19: super at path, which is why we're gaining category or
Speaker 19: position against the competitors, both in mobility and delivery while
Speaker 19: delivering margins and being profitable as well.
Speaker 17: Curious if freight is part of that super app plan, Dara.
Speaker 17: I mean even you pointed out today that that is
Speaker 17: the weakness in the business. It does seem to be
Speaker 17: a drag on the business. What's the plan there to
Speaker 17: sell it, to spin it off?
Speaker 19: Well, the plan is to build at this point. So
Speaker 19: fred is absolutely suffering from the same kinds of trends
Speaker 19: that you see in terms of delivery of things in
Speaker 19: retail generally is a bit weaker than spend on services.
Speaker 19: You saw Yellow for example, big trucking firm go out
Speaker 19: of business yesterday. There's a lot of difficulty in terms
Speaker 19: of freight, in terms of freight raids, and freight is
Speaker 19: fighting its way through that. But we continue to innovate.
Speaker 19: Even today. The way that shippers connect to trucker is
Speaker 19: incredibly outmotive. There's a lot of paper, there is so
Speaker 19: much data. The pricing, the routing, etc. Is based on
Speaker 19: technology that was built twenty twenty five years ago. As
Speaker 19: we continue to innovate and as we continue to focus
Speaker 19: on algorithmic pricing making that perfect match between a shipper
Speaker 19: and a trucker, we think over per the time we
Speaker 19: can build an asset of great value. So at this
Speaker 19: point it's heads down. The team is executing in a
Speaker 19: tough environment. Our losses are decreasing. We think the second
Speaker 19: half on a bottom line basis, is going to be
Speaker 19: significantly better than the first half, and next year we're
Speaker 19: going to get back to growth.
Speaker 14: Thanks to Bloomberg's Emily Chang in that conversation with Uber
Speaker 14: CEO Dara koshra Shahi.
Speaker 2: Thanks for listening to the Bloomberg Markets podcast. You can
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Speaker 1: An on Fall Sweeney I'm on Twitter at Ptsweeney. Before
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