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Speaker 1: Bloomberg Intelligence with Alex Steinhl and Paul'sweenye on Bloomberg Radio.
Speaker 2: Today's Bloomberg Intelligence Show, we dig inside the big business
Speaker 2: stories impacting Wall Street and the global markets.
Speaker 3: Each and every week we provide in depth research and
Speaker 3: data on some of the two thousand companies and one
Speaker 3: hundred and thirty industries our analysts cover worldwide.
Speaker 2: Today we'll look at how Japan is dealing with rising
Speaker 2: cases of a flesh eating bacteria X plus.
Speaker 3: World, Let's go how electric vehicle markets around the world
Speaker 3: are not all traveling in the same direction or at
Speaker 3: the same speed in twenty twenty four.
Speaker 2: But first we dive into the airline industry and Boeing.
Speaker 2: A Boeing quality inspector recently alleged that the plane maker
Speaker 2: mishandled and lost track of hundreds of faulty parts, some
Speaker 2: of which he said may have been installed on new
Speaker 2: seven three seven maxplanes.
Speaker 3: The claims were detailed in a complaint by Boeing inspector
Speaker 3: Sam Mohawk with the Occupational Safety and Health Administration, and
Speaker 3: they deepen the pressure that Boeing already faces from Washington.
Speaker 3: The company's under investigation by multiple federal agencies, including the
Speaker 3: Justice Department.
Speaker 2: For more on to all Things Boeing, we were joined
Speaker 2: by George Ferguson Bloomberg Intelligence, senior Aerospace, Defense and Airlines analysts.
Speaker 3: We first asked George about some of the challenges that
Speaker 3: Boeing is now facing with its outsourcing strategies.
Speaker 5: So in that same report, right, they talk about inspections
Speaker 5: at suppliers, they talk about monitoring quality suppliers better.
Speaker 4: Yeah, I just think.
Speaker 5: This is a it's a wholly different industry, right. I
Speaker 5: think there's a bunch of people that have come to
Speaker 5: the aerospace world from auto backgrounds and other mass production backgrounds, right,
Speaker 5: and in those worlds, safety isn't as important. Volume is
Speaker 5: a lot higher. You can get multiple suppliers to provide
Speaker 5: products to your production line, you can work cost on
Speaker 5: those suppliers, and I think that whole game plan is
Speaker 5: really really difficult to do in aviation. And I think
Speaker 5: this is part of what we're seeing, right. I think
Speaker 5: you can outsource, but I think if you outsource, you know,
Speaker 5: you know, to your supplier base, I think it's still
Speaker 5: got to be you know, a pretty strong relationship with them,
Speaker 5: not a combative relationship where it's always about price, because
Speaker 5: it really matters the quality you get to your line, right,
Speaker 5: safety is dependent upon it. And so I think what
Speaker 5: we're finding out as this sort of you know, whole
Speaker 5: Boeing saga unravels, is outsourcing and banging up your suppliers
Speaker 5: for price just isn't a winning strategy in aviation.
Speaker 3: Have they course corrected enough or can?
Speaker 1: Look?
Speaker 5: I think they can. Everything can be fixed. I think
Speaker 5: if you look at their competitors across the pond, Airbus,
Speaker 5: they're not having these problems. I think Airbus has been
Speaker 5: less combative with some of their suppliers. They're in the
Speaker 5: middle of this correction. We know they want to buy
Speaker 5: Spirit Aerosystems. We're still waiting to hear news on that.
Speaker 5: There's still, you know, the challenge of getting some of
Speaker 5: the other companies that Spirit supplies, to name the Airbus
Speaker 5: probably out of the portfolio so they can recover. It's
Speaker 5: gonna take some time and it's gonna take a lot
Speaker 5: of work with their suppliers.
Speaker 2: So, George, if I think about, you know, rethinking my
Speaker 2: strategy with my suppliers and maybe focusing less on price
Speaker 2: competitives maybe a little bit more on quality, does that
Speaker 2: imply that Boeing's profit margins will be under pressure going forward?
Speaker 5: I think for sure, right, I think you're you're not
Speaker 5: going to receive a return to the Boeing margins you
Speaker 5: saw at the end of last decade. I'm not gonna
Speaker 5: say in time, perhaps they could get back to that.
Speaker 5: It's going to take a bunch of work here near
Speaker 5: term to improve the quality, and that's going to cost money.
Speaker 5: Plus we already know that some of the business they
Speaker 5: put in the books, right, they had some challenges delivering
Speaker 5: into China. That was kind of the one two whammy
Speaker 5: after they had the grounding of the Max and the crashes.
Speaker 5: We know they probably sold a bunch of airplanes for
Speaker 5: some pretty good prices to really core customers like United,
Speaker 5: like Southwest. So I think that I think both, you know,
Speaker 5: both on the cost side again, given this correction to
Speaker 5: improve the supply base, improve production, get capacity rolling again,
Speaker 5: as well as some of the pricing they gave away
Speaker 5: on backfill for orders means you're not looking at a
Speaker 5: Boeing that's going to get those margins fore you through
Speaker 5: this decade.
Speaker 3: I think if I look at Boeing stock, then I
Speaker 3: mean it's down from December. Does that accurately reflect then
Speaker 3: this tighter profit margin world to sort of revamp and
Speaker 3: the course correct and that they have.
Speaker 5: To do so, you know, I think when you look
Speaker 5: at their valuations, you know, their historical valuations, One, they're
Speaker 5: really high right now, right because earnings are so low,
Speaker 5: you know. So I think that there is a little
Speaker 5: bit of investor look through at this point, you know,
Speaker 5: on the current problems they have. But whether or not
Speaker 5: they're properly positioned for the out years right now, I
Speaker 5: think it's all a function of if they can quickly
Speaker 5: improve the build rate so they can improve economies of
Speaker 5: scale and start to get more profitability back into this
Speaker 5: business and that you know, really remains to be seen.
Speaker 2: George, you mentioned China. Where is Boeing in terms of
Speaker 2: getting the seven three seven macs in the air and
Speaker 2: China kind of how's that business looking in terms of
Speaker 2: sales and deliveries.
Speaker 5: So their deliveries going into China, right and uh, it
Speaker 5: looks to us to largely be deliveries that were you know, built,
Speaker 5: you know, when the seven three seven was grounded, and
Speaker 5: they're started to get some of those back into the country.
Speaker 2: But China's also has this problem now with.
Speaker 5: The flight recorder that's been authorized by other jurisdictions, including
Speaker 5: the US. So I mean it feels to me like
Speaker 5: China's allowing deliveries, but you know, they're still not maybe
Speaker 5: keen on taking a lot of deliveries from Boeing. I
Speaker 5: haven't seen a bunch of orders come in from China,
Speaker 5: you know, for Boeing, And so I would say that
Speaker 5: relationship still, while it's maybe thawing a bit, is nowhere
Speaker 5: near where it was in the last decade. And they
Speaker 5: have their problems too.
Speaker 4: Right now.
Speaker 5: I think they don't need as many airplanes, their economy
Speaker 5: isn't growing as fast. Air travel isn't growing as fast.
Speaker 5: But I still think that relationship is not in the
Speaker 5: right place where it should be, where you'd like it
Speaker 5: to be. I think for Boeing before I let.
Speaker 3: You go, any word yet on the replacement for Dave Calhoun. Like,
Speaker 3: how's that going?
Speaker 4: He laughed?
Speaker 3: Answer is laughing.
Speaker 5: Yes, what I hear from news reports is picking up still.
Speaker 5: But gee, I mean, I don't know, it's been a while.
Speaker 5: There's a lot of conjecture. It's a hard job. There's
Speaker 5: probably a lot of people that just aren't willing to
Speaker 5: take it. I don't know, you know, they got to
Speaker 5: the end of the year, and so maybe they're going
Speaker 5: to use it all. I don't know.
Speaker 3: I mean, and anyone but Larry Culp that you keep
Speaker 3: hearing about, that's for real.
Speaker 5: So I don't really track the people that's you know,
Speaker 5: that's kind of hard for me. I do know, like
Speaker 5: it said, it's got to be a rock star manufacturing,
Speaker 5: you know, sort of CEO. I don't know that there's
Speaker 5: a lot of them left in America. I think we
Speaker 5: do a lot of outsourcing now, so maybe that makes
Speaker 5: it a taller order too.
Speaker 6: I don't know.
Speaker 2: Our thanks to George Ferguson, Bloomberg Intelligence Senior Aerospace, Defense
Speaker 2: and Airlines analyst.
Speaker 3: We move next to big tech and alphabet's Google. Google
Speaker 3: has faced immense pressure to keep pacing artificial intelligence with
Speaker 3: Open AI and other companies, and in April of twenty
Speaker 3: twenty three, the tech giant announced it would combine its
Speaker 3: two elite AI teams, Google Brain and deep Mind.
Speaker 2: Google would form what it described as an AI super
Speaker 2: unit called Google deep Mind. This is the subject of
Speaker 2: a Bloomberg BusinessWeek story this week entitled Google deep Mind
Speaker 2: shifts from research lab to AI product factory.
Speaker 3: For more. We were joined this week by one of
Speaker 3: the stories authors, Bloomberg Tech reporter Mark Bergan. We first
Speaker 3: asked Mark about Google's AI strategy.
Speaker 4: I think, you know, the good way to put their
Speaker 4: their strategy in some ways is they're trying to longer
Speaker 4: be in their back foot. But I think that with
Speaker 4: the past two years and that our story looks at
Speaker 4: how Google and deep Mind really set the infrastructure and
Speaker 4: then the base layer for this sort of AI boom
Speaker 4: that we've had, and then Chatgebt kind of took all
Speaker 4: the glory in some ways, and so in their playing
Speaker 4: ketchup in you'd say, not necessarily on the technical side,
Speaker 4: but there's certainly now you know, chat, scheebt and all
Speaker 4: iterations from the different companies building language models like anthropic
Speaker 4: and cohere, they're all sort of threatening Google Search in
Speaker 4: a way that really hasn't happened in almost two decades,
Speaker 4: and so their strategy is I would say defensive at
Speaker 4: this point.
Speaker 3: How does does it get on the offense? What does
Speaker 3: it need to do to sort of change that narrative?
Speaker 4: Yeah, I think you know the story. We looked at
Speaker 4: a lot about this mergers that they that Google put
Speaker 4: in place a year ago so they've had out here
Speaker 4: in London is Deep Mind, which is widely consider like
Speaker 4: the world's leading AI lab and has for the past
Speaker 4: decade effectively been the best funded university running in the world.
Speaker 4: They basically been a research lab. They put out some
Speaker 4: great breakthroughs like alpha go alpha fold around protein folding,
Speaker 4: but they've not been deeply integrated and connected with kind
Speaker 4: of Google's commercial and profit center, Google Brain, which was
Speaker 4: the competing AI lab or that they also had in
Speaker 4: California that was a little bit more tied to a
Speaker 4: lot of the popular Google services, and they've been all
Speaker 4: merged that for the past year under demosacibus here who
Speaker 4: runs all of Google AI. It's had kind of a
Speaker 4: bumby road so far, but I think their plan is
Speaker 4: to continue to ship things like Gemini their big foundational model,
Speaker 4: tweak that and start kind of integrating a lot of
Speaker 4: this research directly into commercial services.
Speaker 2: Mark what does Google say about that chat GPT and
Speaker 2: just as a fundamental threat to the core Google search business?
Speaker 2: How do they respond to that?
Speaker 4: Yeah, I mean, you know, Google publicly is great about
Speaker 4: never talking about their rivals by name. Anyways, they say nothing,
Speaker 4: And I think that something they've talked about for a
Speaker 4: long time is that sort of their their token phrase
Speaker 4: that soon they're but cha uses is that the search
Speaker 4: is the last kind of biggest moonshot for Google. I
Speaker 4: think they are thinking, and you know, they're thinking a
Speaker 4: lot about what that search interface looks like. You know,
Speaker 4: how they're going to adapt to if consumers move to
Speaker 4: things like Chat, schipt and Gemini. What does that mean
Speaker 4: for Google Search ads business, which is still the line's
Speaker 4: share of its revenue. They've had some some clear mishaps.
Speaker 4: I've looked pretty ugly snaffoos, and since the launch of
Speaker 4: Gemini or this year, right, like there was that kind
Speaker 4: of famous incidents where they were some of the responses
Speaker 4: were encouraging people to put glue on pizza, right, there
Speaker 4: were these They've described this as sort of like this
Speaker 4: is kind of early stage in this technology and some
Speaker 4: stumbles that they've had, but you know, they are the
Speaker 4: world's leaders in search and this is something where you
Speaker 4: know they have a lot of deep responsibility to get
Speaker 4: this right, not just for their business but for people's
Speaker 4: trust in using Google.
Speaker 3: Well that's what's so difficult, right, It's like all the
Speaker 3: technology is changing so fast, but you still need to
Speaker 3: like do it. So it's it's you're like we're watching
Speaker 3: it in real time. Paul and I were just talking
Speaker 3: about a Washington Post article and then talked about how
Speaker 3: all the AI models cannot answer who won the presidential
Speaker 3: election in the US in twenty twenty. And I'm just wondering,
Speaker 3: like how these advanced technologies solve for problems that they're
Speaker 3: using these large language models, which is basically like, you know,
Speaker 3: me and Paul talking are regular people talking, does that
Speaker 3: also mess them up?
Speaker 4: It reminds me a little bit of it's a slightly
Speaker 4: different technology obviously, but you know they're In twenty sixteen,
Speaker 4: Google had this big mess where if there was a
Speaker 4: popular or there's a blog or this kind of fringe
Speaker 4: blog that said that if I remember this correctly, it's
Speaker 4: been a long time, it was that Hiller Clinton won
Speaker 4: the election in twenty sixteen, right, and that was a
Speaker 4: top of for briefly and momentarily top of Google News results.
Speaker 4: And they've dealt with this sort of problem around misinformation,
Speaker 4: around totally not credible sources being at the top of
Speaker 4: Google Search. You're seeing problems that are now dealing with.
Speaker 4: I saw a story about Google images and like consensual porn.
Speaker 4: I mean, these problems I think are being multiplied because
Speaker 4: with these tools of that generative AI do, which Google
Speaker 4: talks a lot of as being revolutionary, it also just
Speaker 4: makes content production so much easier. And so there's this
Speaker 4: multitude of content now and Google has been this sort
Speaker 4: of their primary services to organize this, and that has
Speaker 4: a lot of messy problems, especially what OpenAI has kind
Speaker 4: of forced and Microsoft as forced Google is to move
Speaker 4: a lot faster than they have been in years past,
Speaker 4: and we've seen some clear stumbles from that.
Speaker 2: Our thanks to Mark Bergan, Bloomberg Technology Reporter.
Speaker 3: Coming up, We're going to break down my recent guidance
Speaker 3: from the home old Leonard disappointed investors.
Speaker 2: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
Speaker 2: depth and data on two thousand companies one hundred and
Speaker 2: thirty industries. You can access Bloomberg Intelligence be a B I,
Speaker 2: go on the terminal.
Speaker 3: I'm Paul Sweeney and amlex Deal and this is Bloomberg.
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Speaker 3: We move next to the home builder Lenar. This week.
Speaker 3: The company reported better than expected orders in the second quarter,
Speaker 3: but it's forecast for deals in the current quarter missed
Speaker 3: analyst expectations, and Lenar shares fell.
Speaker 2: After the report, Lenar said that affordability continued to be
Speaker 2: tested by interest rate movements and simultaneously challenged consumer sentiment.
Speaker 2: For more on this and the latest in the home
Speaker 2: building space, we were joined by Drew reading Bloomberg Intelligence
Speaker 2: US Homebuilding analysts.
Speaker 3: We first asked Drew for his key takeaways and why
Speaker 3: investors were so unhappy after Lenar reported its results.
Speaker 6: It's so much about what's happened with the volumes they
Speaker 6: deliver good orders. They're up nineteen percent. They maintain their
Speaker 6: full year guidance for eighty thousand home closings. It has
Speaker 6: to do with their outlook for gross margin. They guided
Speaker 6: to about one hundred basis points below what the street
Speaker 6: was looking for, and as you mentioned, that would require
Speaker 6: a ramp in the fourth quarter to about twenty five percent. So,
Speaker 6: like you said, there's definitely some skepticism in their ability
Speaker 6: to meet their full year outlook. The reason for that
Speaker 6: is because we saw rates move up as high as
Speaker 6: seven and a half percent during the quarter. You know,
Speaker 6: they've come back in a little bit, but we're seeing
Speaker 6: their need to incentivize buyers remain elevated, and that's what's
Speaker 6: impacting profitability.
Speaker 2: So where are we in that activity there? If I'm
Speaker 2: looking at of seven percent mortgage, what are they going to.
Speaker 1: Do for me?
Speaker 6: Yeah, So typically what we're seeing is that the builders
Speaker 6: will maintain a spread versus the headline rate. So if
Speaker 6: you're seeing seven and a half percent in the market.
Speaker 6: Typically you're going to get six percent from a builder.
Speaker 6: You know, there are some other builders, and depending on
Speaker 6: the market, depending on how strong the market is, what
Speaker 6: the man looks like, they could get you into the fives.
Speaker 6: But obviously that's going to cost them on the gross
Speaker 6: margin line. So the incentives they're using are certainly working.
Speaker 6: It's just what's the cost so.
Speaker 3: That one percent the hundred basis point missed, but then
Speaker 3: keeping their guidance for gross margin for the year, that
Speaker 3: must imply that they're looking for rake cuts.
Speaker 6: Yeah, I think a lot of it has to do
Speaker 6: with what they're doing on the cost side. One of
Speaker 6: you know, Lenar's emphasis for their business over the last
Speaker 6: several years has really been running a more efficient manufacturing
Speaker 6: based business where they're not necessarily just chasing volume, but
Speaker 6: they're doing it the right way. They're fine tuning their
Speaker 6: floor plans, they're pushing back on their suppliers. You have
Speaker 6: to remember they're one of the second largest builder in
Speaker 6: the country, but they're one of the only builders who
Speaker 6: has scale at the national level, so they're able to
Speaker 6: leverage that and kind of push back a little bit.
Speaker 6: So certainly some of the benefit that they expect in
Speaker 6: foro Q, I would assume is going to come from
Speaker 6: what they're doing on the costs side, as well as
Speaker 6: fixed leverage from higher deliveries. But nonetheless that's still going
Speaker 6: to be the focal point for investors is how do
Speaker 6: they get there?
Speaker 4: How much?
Speaker 2: I mean, I remember this back in the beginning of
Speaker 2: the pandemic, lumber went crazy, Where are we in lumber?
Speaker 2: And how is that a part of their gross margin?
Speaker 6: Sure so numbers about ten percent of the cogs for
Speaker 6: a builders, so it's certainly the most important input costs.
Speaker 6: As you would expect, you know, lumber prices have come
Speaker 6: back down a lot, so builders have been benefiting on
Speaker 6: the margin side. I think we've seen more stabilization of late,
Speaker 6: perhaps a little rise to the upside, but really lumbers
Speaker 6: not impacting the business in as significant a way as
Speaker 6: it was over the last couple of years.
Speaker 2: What the companies tell you about their expectations for interest rates,
Speaker 2: mortgage rates, what are they think is going to happen?
Speaker 6: So I think the expectation broadly is that mortgage rates
Speaker 6: will start to come in a little bit as we
Speaker 6: get through the end of the year. I don't think
Speaker 6: they're managing their business for any you know, significant and
Speaker 6: dropping rates back to you know, where we were previously.
Speaker 6: But I think as a builder from a demand perspective,
Speaker 6: if we get rates coming back to the six and
Speaker 6: a half percent range, you know, that's that's pretty much
Speaker 6: a sweet spot for them. You know, we've heard that
Speaker 6: as you get to five and a half percent, that's
Speaker 6: really when demand in the market starts to move. So
Speaker 6: the fact that if we could get to six and
Speaker 6: a half they're buying down rates one hundred basis points,
Speaker 6: I think they'll continue to do well. And you know
Speaker 6: what's interesting is the public builders are kind of at
Speaker 6: the top of the food chain as it comes to housing.
Speaker 6: You have to realize they're generating about fifty percent market
Speaker 6: share compared to call it thirty eight percent prior to
Speaker 6: the pandemic. Really, so they've really leveraged that lack of
Speaker 6: inventory in the resale market and the struggles among some
Speaker 6: of the smaller private piers, and they've capitalized on it.
Speaker 3: So when you say we have to the five and
Speaker 3: a half percent is kind of a nice sweet spot.
Speaker 3: So that implies the Fed funds rate a six and
Speaker 3: a half percent and the home builders still give that
Speaker 3: hundred basis point discount. When the Fed funds rate gets
Speaker 3: to five and a half percent, do the builders still
Speaker 3: offer that one hundred basis point discount.
Speaker 6: I think it's going to depend on what the broader
Speaker 6: macro economic situation looks like. If we get a pool
Speaker 6: back in rates, you know, a modest pullback, and we
Speaker 6: are still dealing with a pretty solid labor market, I
Speaker 6: think that you know, builders will be able to definitely
Speaker 6: pull back on their use of incentives. I don't know
Speaker 6: that they'll go away altogether, because at this point that's
Speaker 6: something that buyers are looking to and it certainly made
Speaker 6: their product more attractive. If we get a significant pullback
Speaker 6: in rates and it's because you know, the economic situation
Speaker 6: has deteriorated further, that's obviously more of a concern and
Speaker 6: we would see them probably pushing centives even harder.
Speaker 2: Our thanks to Drew Redding Bloomberg Intelligence at US home
Speaker 2: building analyst.
Speaker 3: Moving to Japan, we hear the country is now dealing
Speaker 3: with rising cases of a disease caused by a rare
Speaker 3: flesh eating bacteria that can kill people within forty eight hours.
Speaker 2: Health authorities have reported over one thousand cases of strip
Speaker 2: to cockle toxic shock syndrome in the first six months
Speaker 2: of twenty twenty four. At the current rate of infection,
Speaker 2: experts fear the number of cases in Japan could reach
Speaker 2: twenty five hundred this year.
Speaker 3: For more on all this, we turned to one of
Speaker 3: the experts, Amshidalgia, Senior Scholar at the Center for Health
Speaker 3: Security at John Hopkins Bloomberg School of Public Health. He's
Speaker 3: also an infectious disease physician.
Speaker 2: We first asked Amash to tell us more about the
Speaker 2: bacterial infection in Japan.
Speaker 7: Streptococcus is a bacteria that all of us have dealt with.
Speaker 7: It's the same bacteria that causes strep throat. What can
Speaker 7: happen though in certain individuals is it can be a
Speaker 7: much more severe infection where it can cause what we
Speaker 7: call necrotizing or flesh eating type of skin infections and
Speaker 7: then also spread systemically and caused multiple different organ systems
Speaker 7: to shut down. So that's when we use the kind
Speaker 7: of term toxic shocks, and there would say that bacteria
Speaker 7: basically disseminates toxins throughout your whole body and it's a
Speaker 7: very serious illness with high levels of morbidity, immortality.
Speaker 3: Doctor, is this new or has this always been the case.
Speaker 7: It's always been the case. What's new is that in
Speaker 7: Japan post pandemic, they've reported at least two years where
Speaker 7: they've had higher than normal cases and trying to unravel
Speaker 7: the mystery of why that change in epidemiology occurred is
Speaker 7: what's getting headlines right now. But streptococcle toxic shock syndrome
Speaker 7: has been around forever. It's just this increase in Japan
Speaker 7: that people are interested in.
Speaker 2: How do the medical professionals, how are they treating this?
Speaker 7: So the mainstay is going to be antibiotics, but because
Speaker 7: it's this systemic toxin disease, we often give other drugs
Speaker 7: to modulate the immune system, and if there are elements
Speaker 7: of flesh eating disease going on, they basically have to
Speaker 7: do extensive surgery to kind of cut ahead of the infection.
Speaker 3: Oh my god, this sounds terrible. How quickly does this happen?
Speaker 3: I mean, you know, strap can come on really quickly
Speaker 3: and it might take you a couple of days to
Speaker 3: realize that you have it. Like, what's the cycle for this?
Speaker 7: Well, when you get into that toxic shock syndrome, spiral
Speaker 7: it's very fast. They can be dramatic, you know, even
Speaker 7: in an hour can be a major difference in a patient.
Speaker 7: But it's important remember that not everybody that gets a
Speaker 7: strep infection is going to get it's still rare. Most
Speaker 7: people who have a strep infection of their throat or
Speaker 7: of their skin going to turn out to be kind
Speaker 7: of a garden variety infection. But it is important for
Speaker 7: clinicians to keep in mind that if people are getting worse,
Speaker 7: if they're not getting better, if they're more concerning systemic
Speaker 7: symptoms occurring, that they think about this. And it's also
Speaker 7: important for patients to know that as well, that if
Speaker 7: they're not getting better in the expected time, or they're
Speaker 7: taking a turn for the worst when they're already on antibiotics,
Speaker 7: that this is something where they need to seek care immediately.
Speaker 2: Is there any reason why it would be I guess
Speaker 2: localized in Japan here, anything that is unique to that part.
Speaker 7: Of the world, not particularly, I mean, we've seen increases
Speaker 7: in streptococal infections, not necessarily toxic shock causing ones all
Speaker 7: over the different countries. For example, the UK had a
Speaker 7: major issue with this a couple of years ago, and
Speaker 7: it may be having to do with kind of idiosyncrasies
Speaker 7: in the immunity in the population in Japan. Remember, we
Speaker 7: all came through a pandemic where there was a lot
Speaker 7: of social distancing and many of the ordinary infections that
Speaker 7: people get every year were kind of disrupted. And there
Speaker 7: may have been different disruptions in different parts of the
Speaker 7: world and different lens of these infections, and now they're
Speaker 7: kind of coming back to their prior levels and there's
Speaker 7: some catching up to do. There are people who might
Speaker 7: not have had as much immunity because they weren't exposed
Speaker 7: at a low level over the last couple of years,
Speaker 7: or they just might not have been infected. And there's
Speaker 7: a certain number that are going to be expected every
Speaker 7: year in Japan, and because you had a two year lull,
Speaker 7: now it's coming back to baseline levels and that's what
Speaker 7: they're noticing. So this is kind of one of the
Speaker 7: leading hypothesis. But we don't know quite everything for sure
Speaker 7: what's going on in Japan, but that's what I think
Speaker 7: is at play.
Speaker 3: What are the signs you mentioned that if you're on
Speaker 3: antibiotics for strap and you don't get better, but you
Speaker 3: get worse. What are some other signs that people should
Speaker 3: be looking out for.
Speaker 7: Well, so severe a spreading rash that's getting severe, severe pain,
Speaker 7: if there's a rash where the infection might have been,
Speaker 7: anything involving low blood pressure, extreme fatigue, not being clear mentally,
Speaker 7: difficulty breathing, all of those kind of signs that the
Speaker 7: infection is not localized.
Speaker 2: Nic doctor. I remember we should talk to you all
Speaker 2: the time during the pandemic. You're very kind to share
Speaker 2: your time and you know, kind of educate a lot
Speaker 2: of folks on what this virus was, how doctors and
Speaker 2: health professionals were treating it, and then ultimately the vaccine
Speaker 2: and the efficacy of the vaccine. So we again appreciate
Speaker 2: all that time you gave us. Now that we've got
Speaker 2: that in the rear view mirror here, I know one
Speaker 2: of the themes that came out of that was just
Speaker 2: the stress on the healthcare system and the people of
Speaker 2: the healthcare system that doctors and nurses and everybody of
Speaker 2: the work they had to be in the front lines
Speaker 2: during those early months and that year. How are the folks,
Speaker 2: the good folks at Johns Hopkins that you deal with
Speaker 2: in the facilities, how are they doing? Several years on now, well,
Speaker 2: I think.
Speaker 7: That most healthcare systems around the country have kind of
Speaker 7: come to a new normal where there's kind of chronic burnout,
Speaker 7: there are chronic staffing issues where people quite haven't recovered
Speaker 7: from the way that the pandemic altered hospital operations. And
Speaker 7: this is going to be one of the long tails
Speaker 7: of the pandemic. It's not something that you can just
Speaker 7: bounce back from. There wasn't a lot of resiliency built
Speaker 7: into the system, There wasn't a lot of kind of
Speaker 7: slack in it, and the pandemic ate up all that slack,
Speaker 7: and I just think that we're in a situation where
Speaker 7: a lot of people still are carrying those scars around
Speaker 7: of that time when they were overworked, where there were
Speaker 7: concerns about personal protective equipment, where hospitals were crashing, and
Speaker 7: even when you look at the economics of hospitals, we're
Speaker 7: seeing hospitals closed world hospitals really looking at their financial viability,
Speaker 7: hospital bankruptcies. So this was something that took a major
Speaker 7: toll on the healthcare system, just like we expected and
Speaker 7: predicted it would, And this is why it's so important
Speaker 7: to incorporate healthcare preparedness healthcare resiliency into planning for the
Speaker 7: next infectious disease emergency, whatever it might be. This can't
Speaker 7: just be something that we think about when there's a crisis,
Speaker 7: when it's in the headlines. This is something that needs
Speaker 7: to be done kind of with a long term eye
Speaker 7: to the future to make a sustainable way to operate
Speaker 7: hospitals and make emergency prepared and as part of their
Speaker 7: core function.
Speaker 3: How are we doing with COVID? I mean, COVID loves me.
Speaker 3: It doesn't love Paul, but it loves me. How are
Speaker 3: we doing with COVID? What are the cases like? Are
Speaker 3: we going to get vaccinations in the fall for flu
Speaker 3: en covid? What do you think?
Speaker 7: Well, COVID is something that's increased over time in the
Speaker 7: last several weeks or so. But we've seen is this
Speaker 7: virus is endemic, but it continues to mutate and spin
Speaker 7: off new variants that are able to infect us. So
Speaker 7: right now, all across the country, COVID cases are up,
Speaker 7: emergency department visits are up, but its ability to cause
Speaker 7: severe disease, its ability to crush the hospital severely constrained
Speaker 7: because of the immunity and the other tools that we have.
Speaker 7: We will have new vaccines in the fall that are
Speaker 7: better targeted to what's circulating, and that will likely be
Speaker 7: something that's recommended to high risk individuals that they get
Speaker 7: right alongside their flu vaccine.
Speaker 2: Thanks to Ama Schadalgia, senior scholar at the Center for
Speaker 2: Health Security at Johns Hopkins's Bloomberg School of Public Health.
Speaker 3: Coming up on the program versation with Weatherford International CEO
Speaker 3: about the company's turnaround post bankruptcy.
Speaker 2: We're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
Speaker 2: research and data on two thousand companies in one hundred
Speaker 2: and thirty industries. You can access Bloomberg Intelligence via Bigo
Speaker 2: on the terminal, I'll Paul Sweeney.
Speaker 3: And Amlex Steel and this is Bloomberg.
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
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Speaker 3: We take a look now at the company Weatherford International
Speaker 3: ticker WFRD. Weatherford is an oil services company that also
Speaker 3: has a leg into the energy transition.
Speaker 2: What makes them interesting is that the company went bankrupt
Speaker 2: in twenty nineteen, and in twenty twenty, Weatherford announced several
Speaker 2: changes to its executive leadership team, and its stock has
Speaker 2: since rebounded.
Speaker 3: Weather Firs stock part increase ninety two percent in the
Speaker 3: full year of twenty twenty three, outpacing its peers. So
Speaker 3: for more on the company, we were joined by its
Speaker 3: president and CEO, Garesh Salgram.
Speaker 2: We first asked Garesh where the company is in its turnaround.
Speaker 8: Look, it's been a terrific four years. The team's done
Speaker 8: an incredible job. I think very few people could have
Speaker 8: dreamt where it would be today and what was possible.
Speaker 8: You Know, the way I think about it is, the
Speaker 8: turnaround's mostly done. You know, we've gotten the company out
Speaker 8: of the ditch. We have stabilized everything, We've fixed the
Speaker 8: balance sheet. So the journey so far has been from
Speaker 8: broken to good. The next phase of the journey is
Speaker 8: really the good to great journey. And that's what I'm
Speaker 8: actually very excited about, because if we've been able to
Speaker 8: do all of the things that we've done over the
Speaker 8: past four years with a lot of constraints, a lot
Speaker 8: of shackles. You know, the exciting part is what we
Speaker 8: can do without that.
Speaker 3: So when you go from good to great, does that
Speaker 3: mean like a lot of buybacks and dividends?
Speaker 4: Does that mean? Yeah?
Speaker 9: What is that?
Speaker 8: Look, it's a lot of different things, but ultimately it
Speaker 8: is creation of value, and it's creation of value for
Speaker 8: our customers, for our employees, and most of all for
Speaker 8: our shareholders. But it's doing that with continued focus on
Speaker 8: greater cash generation, which comes from better margins, better improvement
Speaker 8: in the way we manage our networking capital, but also
Speaker 8: ultimately better investments. So our real goal is to make
Speaker 8: sure that we've got world classes that are done on
Speaker 8: invested capital.
Speaker 2: Now that you've I see as an outsider to the
Speaker 2: energy industry, I see a lot of m and a
Speaker 2: activity there, and being a former banker myself, that's what
Speaker 2: hits my radar screen. How do you guys think about
Speaker 2: MNA for your business now that you are on maybe
Speaker 2: firmer footing correct?
Speaker 8: You know, for the first three years, MNA was a
Speaker 8: bad word. You know, Weatherford actually built up on a
Speaker 8: series of acquisitions and a lot of issues with that,
Speaker 8: especially around the lack of integration. So the first three
Speaker 8: years that I've been in the role, we really focused
Speaker 8: on the organic capabilities of the company, building out the portfolio,
Speaker 8: making sure we fix the operating intensity and the rigor
Speaker 8: around the company. But we have now gotten to a
Speaker 8: point where MNA has become a very important salient topic.
Speaker 8: We actually just exercise that muscle for the first time.
Speaker 8: We announced three small acquisitions back in February, so two
Speaker 8: in the wireline technology space, one in a very exciting space,
Speaker 8: and Intervention, which really gives us capability in slaught recovery
Speaker 8: and plug an abandonment, which is a very key part
Speaker 8: of that energy transition. So we've started to do that,
Speaker 8: and I think there will be more to come because
Speaker 8: we've now got a balance sheet that allows us to
Speaker 8: do that, and more importantly, a team that understands the
Speaker 8: importance of integration and is learning how to build that
Speaker 8: into the opening cadence of the company.
Speaker 3: How do your services differ than say one of your competitors,
Speaker 3: and how do you sort of invest for the life
Speaker 3: cycle of a welfare customer.
Speaker 8: Sure so in oilfield services, there's a lot of companies
Speaker 8: that do a lot of things similarly. So we've got
Speaker 8: what differentiates us. We've got a portfolio that provides core
Speaker 8: ofs services, so everything from brilling services to wireline, etc.
Speaker 8: But we're also able to complement that with what we
Speaker 8: call specialty services, things like managed pressure drilling, tubular running services,
Speaker 8: intervention services, etc. That very few, if anyone, has, So
Speaker 8: that combination of broad based services that allow us to
Speaker 8: go toe to toe with the larger peers in the
Speaker 8: sector as well as then these specialty products and specialty
Speaker 8: services give us that differentiation and also allow us to
Speaker 8: have higher margins.
Speaker 2: You know, I keep jogging to alex with oil at
Speaker 2: eighty dollars a barrel. I'm going to drive down to
Speaker 2: Texas and start drilling some holes. I mean, isn't the
Speaker 2: cost like forty bucks in eighty dollars? I can make
Speaker 2: some money there, but I don't see a whole lot
Speaker 2: of drilling activity. What's going to take it for the
Speaker 2: industry to take advantage of these prices here?
Speaker 8: Look, I think the industry has really really embraced this
Speaker 8: concept of delivering returns for shareholders, and so I think
Speaker 8: there's a lot of discipline, especially around managing capital within
Speaker 8: the industry that's further exacerbated by the wave of M
Speaker 8: and A that's happening, which again goes back to driving
Speaker 8: higher returns. So I don't think in the US there's
Speaker 8: going to be necessarily a sea change. You know, at
Speaker 8: the range of oil prices that we are seeing right now,
Speaker 8: which I think in the long term is actually good
Speaker 8: for our especially it creates a balance versus the seesaw
Speaker 8: effect that you see in the cyclicality that we've seen
Speaker 8: in the past. We also have a very robust international market.
Speaker 8: So for Weatherford, less than twenty percent of our revenues
Speaker 8: come from North America. The bulk of it is really
Speaker 8: an international orientation, international leverage, so we see a very
Speaker 8: healthy market. Now the US is still the largest market
Speaker 8: in the world. We see a lot of activity, but
Speaker 8: it is something that is driven by capital discipline by
Speaker 8: our customers, which is a good thing.
Speaker 3: And we have M and A too. Does that eventually
Speaker 3: lead into less business for oral services companies because in theory,
Speaker 3: maybe an Exxon pioneer going to drill ten wells rather
Speaker 3: than twenty.
Speaker 8: Yeah, I think, Look, we are seeing a lot of
Speaker 8: drilling efficiencies, we are seeing the recount go down, But
Speaker 8: I think it all comes down to differentiation. As long
Speaker 8: as companies can differentiate and deliver value to allow our
Speaker 8: customers to make greater headway on their efficiencies to generate
Speaker 8: higher returns. I think they'll always be business again. It
Speaker 8: is the largest market still.
Speaker 2: I mean I'm looking at your income savent, I mean
Speaker 2: roughly half your revenue Eastern Hemisphere, half Western HEMISAE fear
Speaker 2: it gives the economics of both of those, your domestic
Speaker 2: markets versus your international.
Speaker 8: Yeah, you know, Historically North America was a very profitably
Speaker 8: challenged market for us on a profitability basis. Yeah, right,
Speaker 8: So our team's done a fabulous job over the past
Speaker 8: few years really changing the way we run the North
Speaker 8: America business. So today the profitability across all of our geographies,
Speaker 8: all of our regions is pretty much imbalance. So and
Speaker 8: I think, you know, I've always said the litmus test
Speaker 8: of our turnaround has been what's happened in the North
Speaker 8: America market over the past year. We've seen revenues decline
Speaker 8: in North America, but the profitability has actually gone up.
Speaker 8: So that's a real testament to what we've been able
Speaker 8: to do at Weatherford and the opening rigor the opening
Speaker 8: intensity that the team has put in.
Speaker 2: Our thanks to Gresh Saligram, President and CEO at Weatherford International.
Speaker 3: We have something here at Bloomberg called Bloomberg New Energy Finance.
Speaker 3: The idea behind it is to provide data on commodities, power, transport, industries,
Speaker 3: buildings and agriculture plus new technology.
Speaker 2: This week we look at BNF's globe long term forecast
Speaker 2: for electric vehicles for more. We were joined by Corey
Speaker 2: Cantor Bloomberg bn EF lead US electric vehicle analysts.
Speaker 3: We first asked Corey for his key takeaways from bnef's
Speaker 3: recent EV research.
Speaker 9: I think the big takeaway is that EV sales growth
Speaker 9: is happening on evenly across different regions in the world.
Speaker 9: Maybe not a surprising finding if you're following EV's on
Speaker 9: a day to day basis, but moving forward, we expect
Speaker 9: that to be a bit of the same. To give
Speaker 9: you a sense of where we see things going, we
Speaker 9: basically have both the near termout look and a long
Speaker 9: term out look. The near turnout look ends in twenty
Speaker 9: twenty seven, and so what we expect is by twenty
Speaker 9: twenty seven, global passenger EV sales will be about thirty
Speaker 9: million in our base case called the economic transition scenario,
Speaker 9: and a probably a better metric of that is thinking
Speaker 9: about EV share of passenger vehicle sale. So we'll move
Speaker 9: from a world where one in five cars sold is
Speaker 9: electric to a world where one in three is about
Speaker 9: thirty three percent, up from eighteen percent last year. By
Speaker 9: twenty forty, we expect that about seventy three percent of
Speaker 9: all new car sales will be electric, but there's a
Speaker 9: long way to go. And then on the US question,
Speaker 9: always good to compare it, I think to China and Europe.
Speaker 9: US passenger EV's shareff sale last year was around ten percent.
Speaker 9: We expect the next two years to see a bit
Speaker 9: of a slower growth. So only about twelve percent of
Speaker 9: new car sales should be electric this year, rising to
Speaker 9: about twenty nine percent by twenty twenty seven. Seems pretty good,
Speaker 9: but if you look at Europe in China, it's going
Speaker 9: to be much higher there. So by twenty twenty seven
Speaker 9: we expect about sixty percent of new car sales to
Speaker 9: be electric in China and forty one percent in Europe.
Speaker 9: And when we talk about passenger evs at B and
Speaker 9: EF that's both battery electric and plug and hybrid electric vehicles.
Speaker 2: Talked us about this plug in hybrid it feels like
Speaker 2: a lot of folks are suggesting that might be a
Speaker 2: very vible interim step for at least in the US
Speaker 2: in terms of the transition. Ev Is that how you
Speaker 2: think about it, Paul?
Speaker 9: Really good question. I also co wrote the plug and
Speaker 9: hybrid section of the report. We do a kind of
Speaker 9: deep dive which we do with a few different deep
Speaker 9: dives every year, and what we call thematic highlights. I
Speaker 9: think around p Has the question really is.
Speaker 2: Pheaps, yeah, pheat. Pluggin hybrids okay, plug in hybrids okay?
Speaker 9: Is how good are they going to be? If you
Speaker 9: look at the plug and hybrids in China, they're all
Speaker 9: electric mode, meaning they're kind of electric. Mileage they get
Speaker 9: before they have to turn on that gas engine is
Speaker 9: about twice as high in China currently as it is
Speaker 9: in the US. So quite simply, China is making not
Speaker 9: only better fully electric vehicles, but better plug and hybrids.
Speaker 9: We still think that there is some role for pehabs
Speaker 9: to play this decade in markets like the US in Japan.
Speaker 9: But what I've been big on pushing on is the
Speaker 9: product that we're getting today is not necessarily as good
Speaker 9: as it should be. So when you hear automakers say oh, well,
Speaker 9: maybe we'll do more hybrids or do more plug and
Speaker 9: hybrids instead of fully electric vehicles. I think a fair
Speaker 9: response would be to say, well, in Europe and China
Speaker 9: they're getting far more all electric mileage than here, so
Speaker 9: can you deliver some of that more high quality product. Ultimately,
Speaker 9: we do a bunch of different scenario analysis in the
Speaker 9: full report, and one downside of plug in hybrids is
Speaker 9: that if you go down that route and people are
Speaker 9: aren't charging them enough, which is harder to do because
Speaker 9: of the lower all electric range, you could end up
Speaker 9: in a scenario where you're having a lot higher oil
Speaker 9: demand use than if you just switch to fully electric vehicles,
Speaker 9: and that would not be good for your climate targets.
Speaker 3: When do you think the tipping point is when EV's
Speaker 3: become more of mass adoption here in the US.
Speaker 9: So what we've pointed that historically is this idea of
Speaker 9: upfront price parody. We're seeing total cost of ownership parody,
Speaker 9: including fueling already being hit in many different regions in
Speaker 9: terms of upfront costs. It really depends if you're comparing
Speaker 9: apples to apples, right, you see a lot more evs
Speaker 9: in that kind of low forty thousand dollars price range
Speaker 9: now high thirties. I think once you get to the
Speaker 9: low thirty thousand dollars price point. Really, according to our analysis,
Speaker 9: when we're looking at kind of a generic BEV versus
Speaker 9: a generic ice vehicle, we see it happening in the
Speaker 9: US over let's say the next three to four years,
Speaker 9: really twenty twenty six to twenty twenty eight. But really,
Speaker 9: if you're comparing a Tesla Model Y towards a lot
Speaker 9: of its competitor vehicles or Model three, you're getting pretty close.
Speaker 9: But that's where you start to see I think higher
Speaker 9: adoption where you won't have to necessarily have a premium
Speaker 9: and price. You also get a lot of good leasing
Speaker 9: deals today on EV's but it's a bit messier to
Speaker 9: kind of figure that out because you've got dealer markups,
Speaker 9: you've got different rates. But big picture, that upfront price parity.
Speaker 2: How about the charging infrastructure in the United States? To
Speaker 2: what extent is that been holding back the adoption of
Speaker 2: evs here and kind of how do we expect that
Speaker 2: to evolve?
Speaker 9: Yeah, I think that's the biggest difference between Europe and China.
Speaker 9: Our EVY outlook for folks who aren't familiar, has whole
Speaker 9: sections on charging infrastructure, how much investment is going to
Speaker 9: be needed moving forward, but really just taking a base
Speaker 9: level stat TESLA remains the number one provider of charging
Speaker 9: infrastructure here in the US in terms of reliability, in
Speaker 9: terms of number of fast charging stations, and then there
Speaker 9: isn't really a clear cut number two, three, four, five.
Speaker 9: My colleague Ryan Fisher does a bunch of great presentations
Speaker 9: on this, and one of actually the most impressive findings
Speaker 9: is US and Europe actually have a similar amount of
Speaker 9: chargers between the top six kind of charging infrastructure operators,
Speaker 9: but Europe has an addition five hundred operators after that
Speaker 9: that really supply the bulk of the market. So again,
Speaker 9: we want to see more of that infrastructure built out.
Speaker 9: There's been a lot of reporting around the federal funds
Speaker 9: rolling out really slowly because they've had to go through
Speaker 9: state RFPs. But yeah, that's the number one issue holding
Speaker 9: back probably the US market, maybe even moving past the
Speaker 9: upfront cost issue.
Speaker 3: At least with my IC car, right, I can trade
Speaker 3: it in and I can get value for it. Do
Speaker 3: we know how this market evolves for evs?
Speaker 1: Yeah?
Speaker 9: I mean I did a residual value note with the
Speaker 9: team at BADF maybe about two years ago, and the
Speaker 9: market looks so different than that's when Tesla prices were
Speaker 9: going ten to fifteen percent above their kind of selling price.
Speaker 9: And so now you've seen because Tesla brought its prices
Speaker 9: down that residuals for a lot of evs have crashed.
Speaker 9: I think it's going to be something that continues to develop.
Speaker 9: We need to find out how long batteries are going
Speaker 9: to last.
Speaker 3: I don't know that yet.
Speaker 1: It varies.
Speaker 9: I mean, we don't have I think any research here
Speaker 9: where we've said that this is what we find amongst
Speaker 9: all the kind of evs in the market. But right,
Speaker 9: if your battery holds up longer than people expect, you'd
Speaker 9: expect to see me even more residual value. If not,
Speaker 9: you know, you could see more of an issue. But yeah,
Speaker 9: it's an outstanding question, like so much of the space.
Speaker 9: But to your point, Alex, that's why you want to
Speaker 9: see more, you know, look into battery life over time.
Speaker 4: All right?
Speaker 3: Thanks to Corey Kanter Bloomberg, an EF lead US Electric
Speaker 3: Vehicle analyst.
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