Speaker 1: Bloomberg Audio Studios, podcasts, radio news, The.
Speaker 2: Stock Movers podcast, your roundup of companies making moves in
Speaker 2: the stock market, harnessing the power of Bloomberg Data.
Speaker 1: I'm Karl Masser along with Tim Stenovic. So let's get
Speaker 1: to some stocks on the move. First up, we want
Speaker 1: to talk about Coca Cola, which said it plans to
Speaker 1: launch a new coke product for American consumers. Tim made
Speaker 1: with US cane.
Speaker 3: Sugar this fall. It's something the administration kind of wanted
Speaker 3: them to do.
Speaker 4: Bloomberg Intelligence Senior analysts for Consumer Products, Ken sche joins
Speaker 4: us from New Jersey on Coca Cola. Can we spoke
Speaker 4: to you last week July seventeenth, you joined us. You
Speaker 4: also had a no doubt that said Coca Cola was
Speaker 4: unlikely to move completely to cane sugar. I should say
Speaker 4: you were absolutely right about that. They are not getting
Speaker 4: rid of hypertoast corn syrup. It sounds like what they're
Speaker 4: doing is coming out with a new cane sugar version
Speaker 4: of Coca Cola. What can you tell us?
Speaker 5: Yeah, Hi, Tim, Well, as we expected and fully with
Speaker 5: what Coca Cola has been saying all along, and that
Speaker 5: is it wants to be a full beverage company. So
Speaker 5: if there's a demand for you know, a niche or
Speaker 5: a segment of the market that it feels they can
Speaker 5: play in their economically, it's going to do it. And
Speaker 5: so the keen sugar product extension really of the brand
Speaker 5: Coca Cola is no exception. We already know there's a
Speaker 5: demand for it, you know, lots of consumers like the
Speaker 5: Mexican coke they call it gets imported into the US
Speaker 5: and some selected markets. There's actually some small competitors that
Speaker 5: use it. Only small competitors because it's more expensive version
Speaker 5: of a sugary drank. High fructose corns chaper is much
Speaker 5: less expensive. But I think Coke is really smart in
Speaker 5: bringing this out, not only because it appeas to the president,
Speaker 5: but also because it is a niche product. COC likes
Speaker 5: to play in different niches to see what, you know,
Speaker 5: can work and what might not. But it's willing to
Speaker 5: take a chance, and it's one of a few innovations
Speaker 5: that has the store for the second half that I
Speaker 5: think investors are embracing.
Speaker 3: Here.
Speaker 1: Wait forget me, this is an innovation just switching the sugar,
Speaker 1: and it already makes it as I know it's something
Speaker 1: Tim likes and my husband loves because he'll order it
Speaker 1: like the Mexican.
Speaker 3: Coke comes in glass too, which is aweso exactly.
Speaker 4: That's why it tastes good.
Speaker 1: Help me understand, because innovation to me is something new
Speaker 1: and different.
Speaker 5: Okay, so maybe it is not a full blown innovation,
Speaker 5: but it's certainly a product that isn't mainstreamly put it
Speaker 5: that way. In the US, you know, high fructose corn
Speaker 5: syrup versions of sugar free drinks Coca Cola have been
Speaker 5: really the mainstay, primary version since the nineteen eighties, just
Speaker 5: because it's less expensive. Most consumers don't know the difference.
Speaker 5: Some affects cionados or soft drinks certainly do. And so
Speaker 5: it's I think it's going to be more of a
Speaker 5: niche product, maybe not an innovation. Maybe that's itt'll stretch,
Speaker 5: but we'll see how they brand it in terms of
Speaker 5: it's certainly going to be a premium priced product for
Speaker 5: an other reason to cover the cost. But I think
Speaker 5: it's going to be sold you know, in some markets
Speaker 5: at like I said, at a premium price, not not
Speaker 5: all their channels, most of the channels, though.
Speaker 4: How much more expensive is cane sugar from the US
Speaker 4: versus high for toast corn syrup.
Speaker 5: I want to submit about twice the cost on a
Speaker 5: per unit basis. That's a rough rule of thumb, but
Speaker 5: that's generally generally the way analysts look at it. And
Speaker 5: so you know, like I said, they've shied away from it.
Speaker 5: There hasn't been a high clamoring for it until recently.
Speaker 5: And so look and have some fun with it too.
Speaker 5: You know, they're gonna come out with this and they're
Speaker 5: going to see where it takes them. It's one of
Speaker 5: a few innovations though maybe not an innovation, but a trend,
Speaker 5: I should say of the protein drinks, again, not a
Speaker 5: new innovation, but it's certainly taken off because of consumers
Speaker 5: are recognizing that it's a it's a great way to
Speaker 5: have a post recovery for the GLP one drug users.
Speaker 5: It's a great way to replenish maybe lost protein with
Speaker 5: the way it loss. There's been a recovery and sports drinks.
Speaker 5: So these are all areas where Coke's going to invest
Speaker 5: heavily in the second half to try to keep the
Speaker 5: growth engine going the business.
Speaker 1: Just to tie it up here, the business that Coke doing,
Speaker 1: I mean they're massive still, right, they are a big
Speaker 1: player in the global beverage market.
Speaker 3: But their business overall, how would you describe it.
Speaker 5: I would say today reinforced. It's right on track. You know,
Speaker 5: they pretty much reiterated their growth expectations for the year.
Speaker 5: Their long term growth algorithm, as they call it, is
Speaker 5: for four to six percent organic revenue growth annually, and
Speaker 5: they still see five to six for the year. So
Speaker 5: it's right on track. With that and a little earnings leverage,
Speaker 5: they can try to get to big to high single
Speaker 5: digit EPs growth over the longer term. I think investors
Speaker 5: are pretty much ashured, reassured. I would say solid result, yes, all.
Speaker 3: Right, really appreciate it.
Speaker 1: And shares of Coca collar we should point out they're
Speaker 1: up around twelve percent year to date.
Speaker 3: Hey, Ken, thank you so much.
Speaker 1: Ken. Shay Bloomberg Intelligence senior analyst for consumer products joining.
Speaker 3: Us in New Jersey.
Speaker 4: Does it actually taste better?
Speaker 3: I'm not a soda drinker except for ginger ale.
Speaker 4: When only good figure it out blind taste tests, we'll
Speaker 4: do it.
Speaker 3: Let's do it.
Speaker 1: Yeah, all right, So let's go from one iconic brand
Speaker 1: to another.
Speaker 4: Yeah, let's talk a little bit about what happened with
Speaker 4: a General Motors profit fell as. The company said had
Speaker 4: suffered one point one billion dollar profit hit from President
Speaker 4: Trump's tariffs. It revealed no plan for a near term
Speaker 4: fix to return to pre tariff profit levels. David Welsh
Speaker 4: is in our Detroit News bureau. He joins US from Detroit.
Speaker 4: He's been covering this company for years. So headline we're
Speaker 4: all talking about is that one point one billion dollar hit.
Speaker 4: Break it down for us, How exactly did this end
Speaker 4: up hitting GM so hard.
Speaker 6: They have a lot of exposure because close to half
Speaker 6: of the vehicles that they sell in the US are important,
Speaker 6: so they're paying a lot in tariffs. There are things
Speaker 6: that they're going to do to try to mitigate those costs,
Speaker 6: but they're in the early days of doing that, so
Speaker 6: you didn't see the impact of that stuff in the
Speaker 6: second quarter. And even if all of it had come
Speaker 6: to fruition in the current quarter or in the previous quarter,
Speaker 6: it would only off set a third of that. So
Speaker 6: there's a long walk to get to the pre tax
Speaker 6: profitability that the company had, and to do that, they're
Speaker 6: going to have to relocate production of some vehicles some
Speaker 6: parts in the US. They announced a four billion dollar
Speaker 6: investment which will do some of that, particularly vehicles in Mexico,
Speaker 6: but they still import vehicles from Korea. They're waiting on
Speaker 6: a trade deal there. It's one of their top sellers,
Speaker 6: the Chevy Tracks, they sell two hundred thousand of them
Speaker 6: a year, and it's getting hit with a big tariff
Speaker 6: on South Korea. So you know, these are not easy
Speaker 6: things to deal with. There is no quick fix for it.
Speaker 6: You can't just pass the cost on to consumers because
Speaker 6: they're already paying very high monthly payments because car prices
Speaker 6: are very high and so our interest rates. So there's
Speaker 6: no real way out of that. And they had some
Speaker 6: other operational issues that had nothing to do with tariffs
Speaker 6: that also hurt their profits in the quarter. So you know,
Speaker 6: all in it was like it was a terrible quarter
Speaker 6: without the tariffs, but it wasn't a great one either,
Speaker 6: And there's no easy way around that.
Speaker 3: A billion dollars on its own sounds like a lot.
Speaker 3: A billion dollar hit. It's not something a company wants.
Speaker 1: Is it big in the the grand scheme of General Motors?
Speaker 5: No, it is.
Speaker 6: I mean they're going to see exposure this year from
Speaker 6: tariffs at forty four to five billion dollars, and like
Speaker 6: I said, they'll offset some of that, but that's a
Speaker 6: lot here, and so put it in perspective, you know,
Speaker 6: they're EBIT. The operating profit for the North American Business
Speaker 6: loan was four point four billion last year two point
Speaker 6: four billion this year. So and that's their big profit generator,
Speaker 6: is that North American business. So half of that hit
Speaker 6: was tariffs, and there were other things like warranty costs,
Speaker 6: like building up inventory for electric vehicles, which they're selling
Speaker 6: more of and trying to really grow as a business,
Speaker 6: but those vehicles lose money. That's another area that actually
Speaker 6: hurt profits for them. But that took their EBIT down
Speaker 6: by twenty five percent in the quarter alone, the teriff hit.
Speaker 6: So it is a very big deal and it's it's
Speaker 6: something that they just can't easily rectify.
Speaker 4: Well on the rectifying this, David, somebody from the Trump administration,
Speaker 4: if they were sitting here, might push back and say,
Speaker 4: this is ex exactly why we have this policy and
Speaker 4: effect so the work that is done outside of the
Speaker 4: US by workers who are not American will be moved
Speaker 4: to the United States and will then in turn be
Speaker 4: done by American workers. Is that realistic.
Speaker 6: Well, they are going to get some of it back
Speaker 6: with GM announced a big investment in the US and
Speaker 6: it's worth three or four thousand jobs making pickup trucks
Speaker 6: and small Chevy Equinox SUVs that are made in Mexico.
Speaker 6: They'll still make some there, but they're going to make
Speaker 6: a lot of them here in the US too, and
Speaker 6: also probably will take some production away from a pickup
Speaker 6: truck plant in Canada as well. So it is bringing
Speaker 6: jobs back. And the other argument that Trump administration would
Speaker 6: probably make is GM's not raising prices because it's not
Speaker 6: really clear that they can get a lot of pricing
Speaker 6: out of consumers. So really the Trump administration is taxing GM,
Speaker 6: not taxpayers, not consumers with these tariffs. So they would say, hey,
Speaker 6: it's not been going to be this inflation everything that
Speaker 6: the critics said, and it's going to raise money for
Speaker 6: the federal government, and it's going to hurt somebody's profits
Speaker 6: and disappoint some Wall Street analysts and investors. So that's
Speaker 6: the other side of this, and I think that's going
Speaker 6: to be the case with all the automakers going forward
Speaker 6: for the next couple of years.
Speaker 1: Hey, listen to anything on the call, or any questions
Speaker 1: that are still you feel like not completely answered in
Speaker 1: your mind or in the minds of investors.
Speaker 3: As you reported this story out.
Speaker 6: There is an open question about raising prices on vehicles.
Speaker 6: There's no way they could recoup all of the tariffs
Speaker 6: by passing those costs on to consumers. It's just too
Speaker 6: much money. But we have seen other car companies sneak
Speaker 6: in the little price hikes here and there. Does GM
Speaker 6: start to do that at some point? Right now they're
Speaker 6: saying they're holding the line and they're not going to
Speaker 6: do it. But that is what we're really watching with
Speaker 6: GM and all its competitors in the next six months
Speaker 6: is what happens as we get trade deals, there will
Speaker 6: still be higher tariffs. What happens with pricing going forward?
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