WEBVTT - Deep Dive: Coca Cola & General Motors Earnings

0:00:02.520 --> 0:00:08.840
<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news, The.

0:00:08.880 --> 0:00:13.160
<v Speaker 2>Stock Movers podcast, your roundup of companies making moves in

0:00:13.200 --> 0:00:17.400
<v Speaker 2>the stock market, harnessing the power of Bloomberg Data.

0:00:17.560 --> 0:00:20.040
<v Speaker 1>I'm Karl Masser along with Tim Stenovic. So let's get

0:00:20.120 --> 0:00:22.239
<v Speaker 1>to some stocks on the move. First up, we want

0:00:22.239 --> 0:00:24.600
<v Speaker 1>to talk about Coca Cola, which said it plans to

0:00:24.760 --> 0:00:27.600
<v Speaker 1>launch a new coke product for American consumers. Tim made

0:00:27.680 --> 0:00:28.560
<v Speaker 1>with US cane.

0:00:28.440 --> 0:00:31.040
<v Speaker 3>Sugar this fall. It's something the administration kind of wanted

0:00:31.080 --> 0:00:31.480
<v Speaker 3>them to do.

0:00:31.560 --> 0:00:34.960
<v Speaker 4>Bloomberg Intelligence Senior analysts for Consumer Products, Ken sche joins

0:00:35.040 --> 0:00:38.400
<v Speaker 4>us from New Jersey on Coca Cola. Can we spoke

0:00:38.440 --> 0:00:40.839
<v Speaker 4>to you last week July seventeenth, you joined us. You

0:00:40.880 --> 0:00:42.720
<v Speaker 4>also had a no doubt that said Coca Cola was

0:00:42.800 --> 0:00:46.840
<v Speaker 4>unlikely to move completely to cane sugar. I should say

0:00:46.840 --> 0:00:48.800
<v Speaker 4>you were absolutely right about that. They are not getting

0:00:48.880 --> 0:00:51.560
<v Speaker 4>rid of hypertoast corn syrup. It sounds like what they're

0:00:51.600 --> 0:00:54.600
<v Speaker 4>doing is coming out with a new cane sugar version

0:00:54.640 --> 0:00:56.400
<v Speaker 4>of Coca Cola. What can you tell us?

0:00:56.720 --> 0:01:00.240
<v Speaker 5>Yeah, Hi, Tim, Well, as we expected and fully with

0:01:00.280 --> 0:01:02.920
<v Speaker 5>what Coca Cola has been saying all along, and that

0:01:03.040 --> 0:01:05.600
<v Speaker 5>is it wants to be a full beverage company. So

0:01:05.720 --> 0:01:08.640
<v Speaker 5>if there's a demand for you know, a niche or

0:01:08.840 --> 0:01:11.039
<v Speaker 5>a segment of the market that it feels they can

0:01:11.160 --> 0:01:14.119
<v Speaker 5>play in their economically, it's going to do it. And

0:01:14.160 --> 0:01:18.960
<v Speaker 5>so the keen sugar product extension really of the brand

0:01:19.000 --> 0:01:22.400
<v Speaker 5>Coca Cola is no exception. We already know there's a

0:01:22.440 --> 0:01:24.959
<v Speaker 5>demand for it, you know, lots of consumers like the

0:01:25.080 --> 0:01:28.399
<v Speaker 5>Mexican coke they call it gets imported into the US

0:01:28.400 --> 0:01:31.760
<v Speaker 5>and some selected markets. There's actually some small competitors that

0:01:31.880 --> 0:01:35.199
<v Speaker 5>use it. Only small competitors because it's more expensive version

0:01:35.880 --> 0:01:38.480
<v Speaker 5>of a sugary drank. High fructose corns chaper is much

0:01:38.560 --> 0:01:42.000
<v Speaker 5>less expensive. But I think Coke is really smart in

0:01:42.000 --> 0:01:44.160
<v Speaker 5>bringing this out, not only because it appeas to the president,

0:01:44.480 --> 0:01:47.600
<v Speaker 5>but also because it is a niche product. COC likes

0:01:47.680 --> 0:01:49.960
<v Speaker 5>to play in different niches to see what, you know,

0:01:50.080 --> 0:01:52.120
<v Speaker 5>can work and what might not. But it's willing to

0:01:52.120 --> 0:01:54.880
<v Speaker 5>take a chance, and it's one of a few innovations

0:01:54.880 --> 0:01:56.520
<v Speaker 5>that has the store for the second half that I

0:01:56.560 --> 0:01:57.880
<v Speaker 5>think investors are embracing.

0:01:57.920 --> 0:01:58.200
<v Speaker 3>Here.

0:01:58.440 --> 0:02:04.120
<v Speaker 1>Wait forget me, this is an innovation just switching the sugar,

0:02:04.800 --> 0:02:07.720
<v Speaker 1>and it already makes it as I know it's something

0:02:07.840 --> 0:02:11.040
<v Speaker 1>Tim likes and my husband loves because he'll order it

0:02:11.080 --> 0:02:12.400
<v Speaker 1>like the Mexican.

0:02:11.960 --> 0:02:14.160
<v Speaker 3>Coke comes in glass too, which is aweso exactly.

0:02:14.639 --> 0:02:15.519
<v Speaker 4>That's why it tastes good.

0:02:15.639 --> 0:02:18.640
<v Speaker 1>Help me understand, because innovation to me is something new

0:02:18.800 --> 0:02:19.360
<v Speaker 1>and different.

0:02:20.280 --> 0:02:23.440
<v Speaker 5>Okay, so maybe it is not a full blown innovation,

0:02:23.560 --> 0:02:26.280
<v Speaker 5>but it's certainly a product that isn't mainstreamly put it

0:02:26.280 --> 0:02:29.239
<v Speaker 5>that way. In the US, you know, high fructose corn

0:02:29.320 --> 0:02:33.160
<v Speaker 5>syrup versions of sugar free drinks Coca Cola have been

0:02:33.200 --> 0:02:38.160
<v Speaker 5>really the mainstay, primary version since the nineteen eighties, just

0:02:38.160 --> 0:02:41.000
<v Speaker 5>because it's less expensive. Most consumers don't know the difference.

0:02:41.400 --> 0:02:44.480
<v Speaker 5>Some affects cionados or soft drinks certainly do. And so

0:02:45.040 --> 0:02:46.480
<v Speaker 5>it's I think it's going to be more of a

0:02:46.560 --> 0:02:49.160
<v Speaker 5>niche product, maybe not an innovation. Maybe that's itt'll stretch,

0:02:49.400 --> 0:02:52.680
<v Speaker 5>but we'll see how they brand it in terms of

0:02:52.800 --> 0:02:55.200
<v Speaker 5>it's certainly going to be a premium priced product for

0:02:55.200 --> 0:02:58.600
<v Speaker 5>an other reason to cover the cost. But I think

0:02:58.639 --> 0:03:01.200
<v Speaker 5>it's going to be sold you know, in some markets

0:03:01.240 --> 0:03:03.240
<v Speaker 5>at like I said, at a premium price, not not

0:03:03.320 --> 0:03:05.680
<v Speaker 5>all their channels, most of the channels, though.

0:03:05.720 --> 0:03:08.760
<v Speaker 4>How much more expensive is cane sugar from the US

0:03:08.880 --> 0:03:10.280
<v Speaker 4>versus high for toast corn syrup.

0:03:10.639 --> 0:03:13.560
<v Speaker 5>I want to submit about twice the cost on a

0:03:13.639 --> 0:03:17.240
<v Speaker 5>per unit basis. That's a rough rule of thumb, but

0:03:17.600 --> 0:03:21.600
<v Speaker 5>that's generally generally the way analysts look at it. And

0:03:21.680 --> 0:03:24.760
<v Speaker 5>so you know, like I said, they've shied away from it.

0:03:25.919 --> 0:03:28.400
<v Speaker 5>There hasn't been a high clamoring for it until recently.

0:03:29.080 --> 0:03:31.160
<v Speaker 5>And so look and have some fun with it too.

0:03:31.280 --> 0:03:33.320
<v Speaker 5>You know, they're gonna come out with this and they're

0:03:33.320 --> 0:03:35.800
<v Speaker 5>going to see where it takes them. It's one of

0:03:35.960 --> 0:03:39.920
<v Speaker 5>a few innovations though maybe not an innovation, but a trend,

0:03:39.920 --> 0:03:42.080
<v Speaker 5>I should say of the protein drinks, again, not a

0:03:42.280 --> 0:03:45.920
<v Speaker 5>new innovation, but it's certainly taken off because of consumers

0:03:45.920 --> 0:03:48.640
<v Speaker 5>are recognizing that it's a it's a great way to

0:03:48.920 --> 0:03:52.120
<v Speaker 5>have a post recovery for the GLP one drug users.

0:03:52.120 --> 0:03:55.640
<v Speaker 5>It's a great way to replenish maybe lost protein with

0:03:55.680 --> 0:04:01.560
<v Speaker 5>the way it loss. There's been a recovery and sports drinks.

0:04:02.320 --> 0:04:04.800
<v Speaker 5>So these are all areas where Coke's going to invest

0:04:04.840 --> 0:04:06.920
<v Speaker 5>heavily in the second half to try to keep the

0:04:06.920 --> 0:04:09.360
<v Speaker 5>growth engine going the business.

0:04:09.440 --> 0:04:12.920
<v Speaker 1>Just to tie it up here, the business that Coke doing,

0:04:13.040 --> 0:04:15.400
<v Speaker 1>I mean they're massive still, right, they are a big

0:04:15.440 --> 0:04:17.080
<v Speaker 1>player in the global beverage market.

0:04:17.160 --> 0:04:19.200
<v Speaker 3>But their business overall, how would you describe it.

0:04:19.680 --> 0:04:22.680
<v Speaker 5>I would say today reinforced. It's right on track. You know,

0:04:22.680 --> 0:04:26.440
<v Speaker 5>they pretty much reiterated their growth expectations for the year.

0:04:26.600 --> 0:04:29.640
<v Speaker 5>Their long term growth algorithm, as they call it, is

0:04:29.680 --> 0:04:32.920
<v Speaker 5>for four to six percent organic revenue growth annually, and

0:04:33.480 --> 0:04:36.160
<v Speaker 5>they still see five to six for the year. So

0:04:36.200 --> 0:04:39.080
<v Speaker 5>it's right on track. With that and a little earnings leverage,

0:04:39.120 --> 0:04:41.080
<v Speaker 5>they can try to get to big to high single

0:04:41.120 --> 0:04:44.240
<v Speaker 5>digit EPs growth over the longer term. I think investors

0:04:44.279 --> 0:04:48.800
<v Speaker 5>are pretty much ashured, reassured. I would say solid result, yes, all.

0:04:48.720 --> 0:04:49.839
<v Speaker 3>Right, really appreciate it.

0:04:49.839 --> 0:04:51.560
<v Speaker 1>And shares of Coca collar we should point out they're

0:04:51.640 --> 0:04:53.039
<v Speaker 1>up around twelve percent year to date.

0:04:53.279 --> 0:04:54.320
<v Speaker 3>Hey, Ken, thank you so much.

0:04:54.400 --> 0:04:57.960
<v Speaker 1>Ken. Shay Bloomberg Intelligence senior analyst for consumer products joining.

0:04:57.800 --> 0:04:58.600
<v Speaker 3>Us in New Jersey.

0:04:58.680 --> 0:04:59.760
<v Speaker 4>Does it actually taste better?

0:05:00.040 --> 0:05:02.960
<v Speaker 3>I'm not a soda drinker except for ginger ale.

0:05:02.960 --> 0:05:06.320
<v Speaker 4>When only good figure it out blind taste tests, we'll

0:05:06.320 --> 0:05:06.520
<v Speaker 4>do it.

0:05:06.600 --> 0:05:07.039
<v Speaker 3>Let's do it.

0:05:07.120 --> 0:05:09.880
<v Speaker 1>Yeah, all right, So let's go from one iconic brand

0:05:09.880 --> 0:05:10.360
<v Speaker 1>to another.

0:05:10.520 --> 0:05:12.400
<v Speaker 4>Yeah, let's talk a little bit about what happened with

0:05:12.480 --> 0:05:15.680
<v Speaker 4>a General Motors profit fell as. The company said had

0:05:15.680 --> 0:05:18.520
<v Speaker 4>suffered one point one billion dollar profit hit from President

0:05:18.520 --> 0:05:21.800
<v Speaker 4>Trump's tariffs. It revealed no plan for a near term

0:05:21.839 --> 0:05:25.039
<v Speaker 4>fix to return to pre tariff profit levels. David Welsh

0:05:25.360 --> 0:05:28.839
<v Speaker 4>is in our Detroit News bureau. He joins US from Detroit.

0:05:28.839 --> 0:05:31.440
<v Speaker 4>He's been covering this company for years. So headline we're

0:05:31.440 --> 0:05:33.560
<v Speaker 4>all talking about is that one point one billion dollar hit.

0:05:33.600 --> 0:05:36.440
<v Speaker 4>Break it down for us, How exactly did this end

0:05:36.520 --> 0:05:37.600
<v Speaker 4>up hitting GM so hard.

0:05:38.520 --> 0:05:40.560
<v Speaker 6>They have a lot of exposure because close to half

0:05:40.560 --> 0:05:43.000
<v Speaker 6>of the vehicles that they sell in the US are important,

0:05:43.000 --> 0:05:45.120
<v Speaker 6>so they're paying a lot in tariffs. There are things

0:05:45.120 --> 0:05:47.719
<v Speaker 6>that they're going to do to try to mitigate those costs,

0:05:47.800 --> 0:05:49.680
<v Speaker 6>but they're in the early days of doing that, so

0:05:49.760 --> 0:05:51.599
<v Speaker 6>you didn't see the impact of that stuff in the

0:05:51.640 --> 0:05:54.120
<v Speaker 6>second quarter. And even if all of it had come

0:05:54.120 --> 0:05:57.000
<v Speaker 6>to fruition in the current quarter or in the previous quarter,

0:05:57.600 --> 0:05:59.279
<v Speaker 6>it would only off set a third of that. So

0:05:59.440 --> 0:06:01.760
<v Speaker 6>there's a long walk to get to the pre tax

0:06:01.800 --> 0:06:05.360
<v Speaker 6>profitability that the company had, and to do that, they're

0:06:05.360 --> 0:06:07.599
<v Speaker 6>going to have to relocate production of some vehicles some

0:06:07.680 --> 0:06:10.160
<v Speaker 6>parts in the US. They announced a four billion dollar

0:06:10.200 --> 0:06:13.640
<v Speaker 6>investment which will do some of that, particularly vehicles in Mexico,

0:06:13.920 --> 0:06:16.279
<v Speaker 6>but they still import vehicles from Korea. They're waiting on

0:06:16.320 --> 0:06:19.160
<v Speaker 6>a trade deal there. It's one of their top sellers,

0:06:19.160 --> 0:06:21.360
<v Speaker 6>the Chevy Tracks, they sell two hundred thousand of them

0:06:21.360 --> 0:06:23.000
<v Speaker 6>a year, and it's getting hit with a big tariff

0:06:23.040 --> 0:06:25.360
<v Speaker 6>on South Korea. So you know, these are not easy

0:06:25.400 --> 0:06:28.800
<v Speaker 6>things to deal with. There is no quick fix for it.

0:06:28.960 --> 0:06:31.560
<v Speaker 6>You can't just pass the cost on to consumers because

0:06:31.560 --> 0:06:34.560
<v Speaker 6>they're already paying very high monthly payments because car prices

0:06:34.560 --> 0:06:37.279
<v Speaker 6>are very high and so our interest rates. So there's

0:06:37.600 --> 0:06:39.400
<v Speaker 6>no real way out of that. And they had some

0:06:39.440 --> 0:06:41.800
<v Speaker 6>other operational issues that had nothing to do with tariffs

0:06:41.800 --> 0:06:44.960
<v Speaker 6>that also hurt their profits in the quarter. So you know,

0:06:45.160 --> 0:06:47.600
<v Speaker 6>all in it was like it was a terrible quarter

0:06:47.640 --> 0:06:51.040
<v Speaker 6>without the tariffs, but it wasn't a great one either,

0:06:51.080 --> 0:06:52.919
<v Speaker 6>And there's no easy way around that.

0:06:53.600 --> 0:06:55.680
<v Speaker 3>A billion dollars on its own sounds like a lot.

0:06:56.320 --> 0:06:58.559
<v Speaker 3>A billion dollar hit. It's not something a company wants.

0:06:58.720 --> 0:07:01.760
<v Speaker 1>Is it big in the the grand scheme of General Motors?

0:07:02.560 --> 0:07:03.000
<v Speaker 5>No, it is.

0:07:03.080 --> 0:07:05.960
<v Speaker 6>I mean they're going to see exposure this year from

0:07:06.000 --> 0:07:09.600
<v Speaker 6>tariffs at forty four to five billion dollars, and like

0:07:09.640 --> 0:07:12.240
<v Speaker 6>I said, they'll offset some of that, but that's a

0:07:12.280 --> 0:07:15.880
<v Speaker 6>lot here, and so put it in perspective, you know,

0:07:15.920 --> 0:07:19.280
<v Speaker 6>they're EBIT. The operating profit for the North American Business

0:07:19.320 --> 0:07:21.800
<v Speaker 6>loan was four point four billion last year two point

0:07:21.800 --> 0:07:26.000
<v Speaker 6>four billion this year. So and that's their big profit generator,

0:07:26.040 --> 0:07:29.280
<v Speaker 6>is that North American business. So half of that hit

0:07:29.400 --> 0:07:31.880
<v Speaker 6>was tariffs, and there were other things like warranty costs,

0:07:31.920 --> 0:07:35.040
<v Speaker 6>like building up inventory for electric vehicles, which they're selling

0:07:35.040 --> 0:07:37.720
<v Speaker 6>more of and trying to really grow as a business,

0:07:38.160 --> 0:07:41.239
<v Speaker 6>but those vehicles lose money. That's another area that actually

0:07:41.320 --> 0:07:44.800
<v Speaker 6>hurt profits for them. But that took their EBIT down

0:07:44.840 --> 0:07:47.760
<v Speaker 6>by twenty five percent in the quarter alone, the teriff hit.

0:07:47.920 --> 0:07:50.640
<v Speaker 6>So it is a very big deal and it's it's

0:07:50.680 --> 0:07:52.760
<v Speaker 6>something that they just can't easily rectify.

0:07:52.960 --> 0:07:56.840
<v Speaker 4>Well on the rectifying this, David, somebody from the Trump administration,

0:07:57.160 --> 0:07:59.560
<v Speaker 4>if they were sitting here, might push back and say,

0:07:59.560 --> 0:08:02.000
<v Speaker 4>this is ex exactly why we have this policy and

0:08:02.040 --> 0:08:04.720
<v Speaker 4>effect so the work that is done outside of the

0:08:04.840 --> 0:08:08.160
<v Speaker 4>US by workers who are not American will be moved

0:08:08.160 --> 0:08:10.200
<v Speaker 4>to the United States and will then in turn be

0:08:10.320 --> 0:08:13.120
<v Speaker 4>done by American workers. Is that realistic.

0:08:13.800 --> 0:08:16.080
<v Speaker 6>Well, they are going to get some of it back

0:08:16.120 --> 0:08:18.440
<v Speaker 6>with GM announced a big investment in the US and

0:08:18.480 --> 0:08:21.840
<v Speaker 6>it's worth three or four thousand jobs making pickup trucks

0:08:21.880 --> 0:08:25.760
<v Speaker 6>and small Chevy Equinox SUVs that are made in Mexico.

0:08:25.760 --> 0:08:27.440
<v Speaker 6>They'll still make some there, but they're going to make

0:08:28.200 --> 0:08:29.560
<v Speaker 6>a lot of them here in the US too, and

0:08:29.640 --> 0:08:32.360
<v Speaker 6>also probably will take some production away from a pickup

0:08:32.400 --> 0:08:34.880
<v Speaker 6>truck plant in Canada as well. So it is bringing

0:08:34.960 --> 0:08:37.240
<v Speaker 6>jobs back. And the other argument that Trump administration would

0:08:37.240 --> 0:08:41.120
<v Speaker 6>probably make is GM's not raising prices because it's not

0:08:41.160 --> 0:08:43.000
<v Speaker 6>really clear that they can get a lot of pricing

0:08:43.000 --> 0:08:47.720
<v Speaker 6>out of consumers. So really the Trump administration is taxing GM,

0:08:48.160 --> 0:08:52.360
<v Speaker 6>not taxpayers, not consumers with these tariffs. So they would say, hey,

0:08:52.480 --> 0:08:55.319
<v Speaker 6>it's not been going to be this inflation everything that

0:08:55.360 --> 0:08:58.160
<v Speaker 6>the critics said, and it's going to raise money for

0:08:58.240 --> 0:09:01.480
<v Speaker 6>the federal government, and it's going to hurt somebody's profits

0:09:01.920 --> 0:09:06.520
<v Speaker 6>and disappoint some Wall Street analysts and investors. So that's

0:09:06.559 --> 0:09:10.320
<v Speaker 6>the other side of this, and I think that's going

0:09:10.360 --> 0:09:12.319
<v Speaker 6>to be the case with all the automakers going forward

0:09:12.320 --> 0:09:13.319
<v Speaker 6>for the next couple of years.

0:09:13.800 --> 0:09:15.959
<v Speaker 1>Hey, listen to anything on the call, or any questions

0:09:15.960 --> 0:09:18.240
<v Speaker 1>that are still you feel like not completely answered in

0:09:18.320 --> 0:09:20.120
<v Speaker 1>your mind or in the minds of investors.

0:09:20.720 --> 0:09:22.360
<v Speaker 3>As you reported this story out.

0:09:23.040 --> 0:09:26.640
<v Speaker 6>There is an open question about raising prices on vehicles.

0:09:26.679 --> 0:09:28.600
<v Speaker 6>There's no way they could recoup all of the tariffs

0:09:28.600 --> 0:09:31.160
<v Speaker 6>by passing those costs on to consumers. It's just too

0:09:31.200 --> 0:09:34.160
<v Speaker 6>much money. But we have seen other car companies sneak

0:09:34.200 --> 0:09:36.880
<v Speaker 6>in the little price hikes here and there. Does GM

0:09:36.960 --> 0:09:39.240
<v Speaker 6>start to do that at some point? Right now they're

0:09:39.240 --> 0:09:40.960
<v Speaker 6>saying they're holding the line and they're not going to

0:09:40.960 --> 0:09:44.200
<v Speaker 6>do it. But that is what we're really watching with

0:09:44.320 --> 0:09:48.800
<v Speaker 6>GM and all its competitors in the next six months

0:09:49.040 --> 0:09:51.280
<v Speaker 6>is what happens as we get trade deals, there will

0:09:51.320 --> 0:09:54.000
<v Speaker 6>still be higher tariffs. What happens with pricing going forward?

0:09:55.280 --> 0:09:59.400
<v Speaker 2>The Stock Movers podcast from Bloomberg Radio. Check back with

0:09:59.480 --> 0:10:02.280
<v Speaker 2>us throughout the day for the latest roundup of companies

0:10:02.320 --> 0:10:05.360
<v Speaker 2>making news on Wall Street and for the latest market

0:10:05.400 --> 0:10:09.720
<v Speaker 2>moving headlines. Listen to Bloomberg Radio Live, catch us on YouTube,

0:10:09.800 --> 0:10:13.040
<v Speaker 2>Bloomberg dot com, and on Applecarplay and Android Auto with

0:10:13.120 --> 0:10:14.560
<v Speaker 2>the Bloomberg Business app.