1 00:00:00,600 --> 00:00:07,280 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:10,600 --> 00:00:14,360 Speaker 2: This is Bloomberg Intelligence with Alex Steinhl and Paul'sweeny. 3 00:00:14,520 --> 00:00:17,720 Speaker 3: The real ap performance has been in US corporate high yield. 4 00:00:17,880 --> 00:00:20,280 Speaker 4: Are the companies lean enough? Have they trimmed all the fats? 5 00:00:20,320 --> 00:00:23,480 Speaker 3: The semiconductor business is a really cyclical. 6 00:00:23,079 --> 00:00:27,200 Speaker 2: Business, breaking market headlines and corporate news from across the globe. 7 00:00:27,240 --> 00:00:29,880 Speaker 4: Do investors like the M and A that we've seen? 8 00:00:30,080 --> 00:00:31,000 Speaker 1: These are two. 9 00:00:31,040 --> 00:00:33,159 Speaker 3: Big time blue chip companies. 10 00:00:33,320 --> 00:00:36,920 Speaker 4: The window between the peak and cut changing super fast. 11 00:00:37,080 --> 00:00:41,720 Speaker 2: Bloomberg Intelligence with Alex Steinhl and Paul'sweenye on Bloomberg Radio. 12 00:00:42,800 --> 00:00:45,400 Speaker 3: On Today's Bloomberg Intelligence Show, we dig inside the big 13 00:00:45,520 --> 00:00:47,839 Speaker 3: business stories impacting Wall Street and the global markets. 14 00:00:47,920 --> 00:00:49,680 Speaker 4: Each and every week, we're going to provide in depth 15 00:00:49,680 --> 00:00:52,200 Speaker 4: research and data on some of the two thousand companies 16 00:00:52,240 --> 00:00:55,240 Speaker 4: and one hundred and thirty industries our analysts cover worldwide. 17 00:00:55,440 --> 00:00:57,639 Speaker 3: Today will take a look at Paramount Global and why 18 00:00:57,680 --> 00:01:00,000 Speaker 3: they're said to be cutting jobs despite hosting a record 19 00:01:00,200 --> 00:01:00,960 Speaker 3: breaking Super Bowl. 20 00:01:01,000 --> 00:01:03,320 Speaker 4: Plus, we'll discuss why food and beverage company craft Times 21 00:01:03,400 --> 00:01:04,760 Speaker 4: is experiencing weaker sales. 22 00:01:04,880 --> 00:01:06,960 Speaker 3: But first we dive into a major deal that could 23 00:01:07,000 --> 00:01:10,440 Speaker 3: redefine the US energy sector. Diamondback Energy has agreed to 24 00:01:10,440 --> 00:01:14,080 Speaker 3: buy fellow Permian base and driller Endeavor Energy Resources and 25 00:01:14,160 --> 00:01:15,360 Speaker 3: a twenty six billion dollar. 26 00:01:15,319 --> 00:01:17,920 Speaker 4: Deal Love Me Energy Deals. We're joined by Vince Piazza, 27 00:01:17,920 --> 00:01:21,000 Speaker 4: Bloomberg Intelligence senior energy research analyst, and we asked him 28 00:01:21,040 --> 00:01:22,280 Speaker 4: first what he thought of the deal. 29 00:01:22,600 --> 00:01:26,120 Speaker 5: I think the deal ticks all the boxes that we're 30 00:01:26,160 --> 00:01:29,399 Speaker 5: going to need to see in this MNA. 31 00:01:29,040 --> 00:01:30,319 Speaker 6: Wave in the Permian. 32 00:01:30,840 --> 00:01:36,560 Speaker 5: It grows Diamondbacks acreage, it grows locations, so inventory is 33 00:01:36,600 --> 00:01:37,720 Speaker 5: not going to be an issue. 34 00:01:38,280 --> 00:01:39,920 Speaker 6: In terms of the price that they paid. 35 00:01:40,000 --> 00:01:45,720 Speaker 5: Look, Diamondback, in my universe of coverage had the highest premium, 36 00:01:46,000 --> 00:01:49,440 Speaker 5: so they're using their multiple to get this deal done 37 00:01:49,640 --> 00:01:53,320 Speaker 5: and so elevated currency along with some. 38 00:01:53,720 --> 00:01:54,680 Speaker 6: Cash and debt. 39 00:01:55,000 --> 00:01:58,280 Speaker 5: They do have a fairly low leverage on their balance sheet, 40 00:01:58,400 --> 00:02:01,280 Speaker 5: so I think the picks all of the boxes. They'll 41 00:02:01,280 --> 00:02:04,720 Speaker 5: throw off significant free cash flow in twenty twenty four 42 00:02:04,720 --> 00:02:07,440 Speaker 5: and twenty twenty five, so in terms of paying off 43 00:02:07,480 --> 00:02:10,000 Speaker 5: whatever bank loans that they're going to take on for this, 44 00:02:10,280 --> 00:02:13,080 Speaker 5: but also works out for the founding family of Endeavor, 45 00:02:13,400 --> 00:02:16,200 Speaker 5: they get to monetize decades of hard work. 46 00:02:16,480 --> 00:02:18,160 Speaker 4: Vince is this a merger of equals? 47 00:02:18,840 --> 00:02:21,160 Speaker 6: Well, in this case, think about what Endeavor brings to 48 00:02:21,200 --> 00:02:21,680 Speaker 6: the table. 49 00:02:21,840 --> 00:02:28,040 Speaker 5: It almost doubles Diamondbacks Middlin acreage, and it brings sizeable 50 00:02:28,200 --> 00:02:32,480 Speaker 5: oil production for the broader Diamondback franchise. So I would 51 00:02:32,520 --> 00:02:35,280 Speaker 5: tell you that in terms of size, it is a 52 00:02:35,320 --> 00:02:39,080 Speaker 5: merger of equals. But the family will get roughly thirty 53 00:02:39,120 --> 00:02:45,160 Speaker 5: percent of Diamondback with selling off almost half the resource 54 00:02:45,240 --> 00:02:50,120 Speaker 5: to Diamondbacks, so it basically doubles Diamondbacks total size, and 55 00:02:50,320 --> 00:02:53,840 Speaker 5: the founding family gets about thirty percent of the new Diamondback. 56 00:02:53,919 --> 00:02:56,720 Speaker 3: Let's say, Vince, are there any regulatory issues here? A 57 00:02:56,800 --> 00:02:58,760 Speaker 3: lot of m and A going on in this space here. 58 00:02:59,760 --> 00:03:01,400 Speaker 6: Yeah, you know it's going to get looked at. 59 00:03:01,800 --> 00:03:06,760 Speaker 5: So Southwestern and Chesapeake getting together out in Apalachia, that's 60 00:03:06,800 --> 00:03:10,040 Speaker 5: a gas deal. But that will get a very very 61 00:03:10,080 --> 00:03:13,400 Speaker 5: clear look, a very very deep look by the regulators. 62 00:03:13,560 --> 00:03:14,560 Speaker 6: This will as well. 63 00:03:14,600 --> 00:03:17,440 Speaker 5: I don't see why it wouldn't because of the actual 64 00:03:17,600 --> 00:03:20,840 Speaker 5: size of this entity. It's going to be an enterprise 65 00:03:21,000 --> 00:03:23,240 Speaker 5: value of north with sixty billion. It will be the 66 00:03:23,400 --> 00:03:27,480 Speaker 5: largest Permian pure play, so it'll get looked at. 67 00:03:27,600 --> 00:03:29,400 Speaker 6: All these deals will get looked at and. 68 00:03:29,360 --> 00:03:33,440 Speaker 5: It'll take a deeper look, same as Southwestern and Chesapeake. 69 00:03:33,520 --> 00:03:35,800 Speaker 4: I was talking to jenre and she covers Antrust for 70 00:03:35,800 --> 00:03:39,400 Speaker 4: Bloomberg Intelligence, and she's like, yes, like all of these 71 00:03:39,440 --> 00:03:41,080 Speaker 4: are going to have to get looked at. They're particularly 72 00:03:41,080 --> 00:03:44,480 Speaker 4: interested in the Exon Permian Pioneer deal and that all 73 00:03:44,520 --> 00:03:46,720 Speaker 4: these deals are definite gonna have the FTC sort of 74 00:03:46,920 --> 00:03:49,960 Speaker 4: wide eyed looking at it. But you have to wonder though, 75 00:03:50,000 --> 00:03:52,840 Speaker 4: if they want more oil, they're going to have to 76 00:03:52,960 --> 00:03:55,080 Speaker 4: do it, right, Vince, I mean it's gonna I'm just 77 00:03:55,080 --> 00:03:57,080 Speaker 4: trying to think of like what the rationale will be 78 00:03:57,120 --> 00:03:59,840 Speaker 4: to block say this deal, but like let exce On 79 00:04:00,040 --> 00:04:01,760 Speaker 4: Pioneer and go through, Like you can't. 80 00:04:02,400 --> 00:04:05,960 Speaker 5: This deal is much more North America centric, much more 81 00:04:06,000 --> 00:04:07,240 Speaker 5: North America focused. 82 00:04:07,800 --> 00:04:09,200 Speaker 6: So when you think about you know. 83 00:04:09,200 --> 00:04:14,920 Speaker 7: Exon and Pioneer Pioneer fits within Exon's Permian portfolio, but 84 00:04:15,000 --> 00:04:19,680 Speaker 7: Exon is a large, integrated multinational franchise. 85 00:04:20,000 --> 00:04:24,599 Speaker 5: This is more US centric and Permian centric as well. 86 00:04:25,320 --> 00:04:27,960 Speaker 5: But look, they're all going to get looked at. It 87 00:04:28,040 --> 00:04:31,159 Speaker 5: is what it is. This is a very large transaction. 88 00:04:31,720 --> 00:04:34,520 Speaker 5: Like I said, Southwestern Chesapeake is getting looked at. This 89 00:04:34,560 --> 00:04:36,800 Speaker 5: will get looked at as well. It's an important resource. 90 00:04:36,960 --> 00:04:41,240 Speaker 5: What you have here, though, is you have resources now 91 00:04:41,320 --> 00:04:47,080 Speaker 5: in stronger hands. You have Exon Mobile, Chevron, you have Diamondback. 92 00:04:47,160 --> 00:04:52,240 Speaker 5: You have very large entities with big balance sheets and 93 00:04:52,279 --> 00:04:56,840 Speaker 5: the capability to take down even greater levels of capital 94 00:04:57,160 --> 00:05:02,799 Speaker 5: in order to move production from the delineation phase into 95 00:05:02,800 --> 00:05:03,800 Speaker 5: the production phase. 96 00:05:04,240 --> 00:05:06,800 Speaker 3: Give me a sense, Vincent, I'm putting my banker hat on. 97 00:05:07,320 --> 00:05:09,520 Speaker 3: Can I keep doing a bunch of deals here? I mean? 98 00:05:09,760 --> 00:05:11,360 Speaker 3: How many players are left? 99 00:05:12,440 --> 00:05:13,719 Speaker 6: Yeah, it's a very interesting question. 100 00:05:13,760 --> 00:05:17,680 Speaker 5: So we put out last year the top twenty privately 101 00:05:17,720 --> 00:05:21,800 Speaker 5: held PE sponsored names in the Permian. In this case 102 00:05:21,920 --> 00:05:26,880 Speaker 5: Endeavor being the second largest, Mewborn, which has mentioned that 103 00:05:26,960 --> 00:05:31,240 Speaker 5: it wishes to sell. That's the largest of the top 104 00:05:31,320 --> 00:05:34,800 Speaker 5: twenty that'll go out, we think, because it has been 105 00:05:34,839 --> 00:05:39,440 Speaker 5: mentioned as a takeover candidate. Similar situation Founding family looking 106 00:05:39,480 --> 00:05:43,119 Speaker 5: to move the assets. If you think about the top five, 107 00:05:43,560 --> 00:05:46,480 Speaker 5: three are now gone, so there is a great deal 108 00:05:46,520 --> 00:05:50,240 Speaker 5: of interest. There's interest by the private players as well, 109 00:05:50,360 --> 00:05:54,160 Speaker 5: especially the PE sponsored players. You're getting close to these 110 00:05:54,240 --> 00:05:57,680 Speaker 5: vintages that are aged and now this capital needs to 111 00:05:57,720 --> 00:06:00,960 Speaker 5: be recycled, so you will see more of that. You 112 00:06:01,000 --> 00:06:05,839 Speaker 5: will see public buying private. Public does have the currency. 113 00:06:06,160 --> 00:06:09,320 Speaker 5: In the case of Diamondback, they had a premium multiple 114 00:06:10,240 --> 00:06:13,799 Speaker 5: elevated currency that they were able to use to monetize 115 00:06:13,960 --> 00:06:17,760 Speaker 5: the founding families investment, and you'll see that as well, 116 00:06:17,960 --> 00:06:21,040 Speaker 5: especially in the permium where you do have this difference 117 00:06:21,160 --> 00:06:26,320 Speaker 5: of large cap premium valuations looking for assets and the 118 00:06:26,360 --> 00:06:30,800 Speaker 5: smaller cap names trading at a relative discount to peers, 119 00:06:31,120 --> 00:06:33,840 Speaker 5: but trading at a discount to the larger names as well. 120 00:06:33,920 --> 00:06:37,159 Speaker 3: Our thanks to Vincent Piazza Bloomberg Intelligence and Senior Energy 121 00:06:37,200 --> 00:06:38,320 Speaker 3: Research analysts, we go. 122 00:06:38,320 --> 00:06:40,799 Speaker 4: Next to earnings and focus on Hasbro, the toy maker, 123 00:06:40,800 --> 00:06:43,279 Speaker 4: reporting fourth quarter net revenue and adjuster earnings per share 124 00:06:43,320 --> 00:06:45,920 Speaker 4: the trailed analyst estimates, and this comes that the toy 125 00:06:45,960 --> 00:06:49,039 Speaker 4: industry continues to suffer from week consumer demand after that 126 00:06:49,120 --> 00:06:50,839 Speaker 4: boom in the early days of the pandemic. 127 00:06:51,200 --> 00:06:53,400 Speaker 3: For more on this, we talked with Lindsay Dutch Bloomberg 128 00:06:53,440 --> 00:06:57,159 Speaker 3: Intelligence Consumer Hardlines Senior Analysts. We first asked Lindsay what 129 00:06:57,360 --> 00:06:58,279 Speaker 3: she made of the quarter. 130 00:06:58,560 --> 00:07:02,520 Speaker 8: Osbro definitely disappointed on the quarter as top and bottom 131 00:07:02,560 --> 00:07:06,680 Speaker 8: line missing, but more importantly that outlook for twenty twenty 132 00:07:06,680 --> 00:07:10,360 Speaker 8: four looks pretty rough. They're definitely thinking about the toy 133 00:07:10,440 --> 00:07:13,600 Speaker 8: industry more bearish than some of their peers like Mattel. 134 00:07:14,440 --> 00:07:17,080 Speaker 8: And this is coming from a place where they've had 135 00:07:17,160 --> 00:07:21,240 Speaker 8: more challenges than Mattel. In twenty twenty three, and even 136 00:07:21,320 --> 00:07:24,320 Speaker 8: at the very end of twenty twenty two, there's some 137 00:07:24,480 --> 00:07:28,520 Speaker 8: concern about profitability improvement for this company. They've sort of 138 00:07:28,560 --> 00:07:31,880 Speaker 8: struggled to raise that operating margin over the past year, 139 00:07:32,560 --> 00:07:35,200 Speaker 8: and I think that's like a really big worry bead 140 00:07:35,400 --> 00:07:39,040 Speaker 8: thinking about twenty twenty four. They posted an operating margin 141 00:07:39,080 --> 00:07:41,680 Speaker 8: for twenty twenty three nine point five percent. It was 142 00:07:41,720 --> 00:07:45,040 Speaker 8: the lowest in at least twelve years, So there's real 143 00:07:45,080 --> 00:07:45,760 Speaker 8: concern there. 144 00:07:45,840 --> 00:07:48,239 Speaker 3: So let's start with the top line in the toy business. 145 00:07:48,320 --> 00:07:52,520 Speaker 3: Is this a GDP growth business? Less more, how does 146 00:07:52,560 --> 00:07:53,120 Speaker 3: this business grew? 147 00:07:53,200 --> 00:07:55,720 Speaker 8: Yeah, so typically, I mean the toy business. You know, 148 00:07:55,840 --> 00:07:59,280 Speaker 8: you think about growth two to three percent a year. 149 00:08:00,200 --> 00:08:04,320 Speaker 8: Toy business boomed with the pandemic, so we're still coming 150 00:08:04,360 --> 00:08:08,760 Speaker 8: off of those twenty twenty twenty twenty one highs, and 151 00:08:09,200 --> 00:08:12,239 Speaker 8: in twenty twenty three, the industry contracted about seven percent 152 00:08:12,400 --> 00:08:16,160 Speaker 8: per Circana data. Mattel was thinking that, you know, this 153 00:08:16,320 --> 00:08:19,080 Speaker 8: year twenty twenty four would be a little bit better 154 00:08:19,120 --> 00:08:23,160 Speaker 8: than that, but still contraction. Hasbro is saying down eight percent, 155 00:08:23,560 --> 00:08:26,400 Speaker 8: So definitely a more bearish view on the industry as 156 00:08:26,440 --> 00:08:30,760 Speaker 8: a whole. But this year definitely looks rough in terms 157 00:08:30,840 --> 00:08:33,200 Speaker 8: of toy demands, still coming off of those. 158 00:08:33,040 --> 00:08:37,320 Speaker 4: Highs, and they don't have Barbie. I mean, I asked 159 00:08:37,320 --> 00:08:39,280 Speaker 4: the CEO of Mattel this on TV. I was like, 160 00:08:39,320 --> 00:08:41,720 Speaker 4: you know, do you need a Barbie two? Like, what's 161 00:08:41,760 --> 00:08:45,480 Speaker 4: your next evolution here? I mean, I know the quarter 162 00:08:45,600 --> 00:08:48,120 Speaker 4: was better than Hasbro, but it still has problems. There's 163 00:08:48,120 --> 00:08:50,000 Speaker 4: still an activist investor that wants them to spin off 164 00:08:50,040 --> 00:08:52,560 Speaker 4: their American Girl and Fisher Price business, et cetera. It's like, 165 00:08:52,600 --> 00:08:54,840 Speaker 4: you have to sell more cars if you're not selling dolls. 166 00:08:55,280 --> 00:08:59,000 Speaker 4: And Hasbro doesn't have Barbie. Pow Reliant is a toy business. 167 00:08:59,000 --> 00:09:03,320 Speaker 8: On movies, yes, so content has been a big driver 168 00:09:03,480 --> 00:09:06,760 Speaker 8: over the past couple of years. Barbie is a great 169 00:09:06,800 --> 00:09:09,880 Speaker 8: example of that. I think we also know that you 170 00:09:09,960 --> 00:09:13,880 Speaker 8: can't have that blockbuster type movie every single year, but 171 00:09:13,960 --> 00:09:16,320 Speaker 8: a lot of the preschool brands, you know, you can 172 00:09:16,400 --> 00:09:19,520 Speaker 8: link to a series. So Hasbro does own Pepa pig. 173 00:09:19,960 --> 00:09:23,520 Speaker 8: So just getting like this the animated series there sometimes 174 00:09:23,559 --> 00:09:26,439 Speaker 8: can help with toy sales, but there's a major connection 175 00:09:26,480 --> 00:09:30,360 Speaker 8: with entertainment. Entertainment generally across the board, not just Hasbro 176 00:09:30,520 --> 00:09:33,880 Speaker 8: specific is going to be light in twenty twenty four, 177 00:09:34,040 --> 00:09:37,440 Speaker 8: so they do lose that driver. Hasbro is also different 178 00:09:37,440 --> 00:09:40,880 Speaker 8: than Mattel in the key categories that they play in, 179 00:09:40,960 --> 00:09:43,440 Speaker 8: so they own NERF So they're really big sort of 180 00:09:43,440 --> 00:09:47,720 Speaker 8: on that outdoor category, which again that's an outsize grower 181 00:09:47,800 --> 00:09:51,480 Speaker 8: during the pandemic. They play in arts and crafts with Plato. 182 00:09:51,880 --> 00:09:54,520 Speaker 8: Plato's like they've come out with some new products, but 183 00:09:54,559 --> 00:09:56,360 Speaker 8: it's kind of really hard to come up with new 184 00:09:56,360 --> 00:10:01,480 Speaker 8: innovative things in that category. Some of their outperformers were 185 00:10:01,520 --> 00:10:07,160 Speaker 8: like Transformers in the past year again and entertainment linked product, 186 00:10:07,480 --> 00:10:09,160 Speaker 8: you know that did well because of that. 187 00:10:09,679 --> 00:10:11,960 Speaker 3: All Right, So if I've got a business where the 188 00:10:12,000 --> 00:10:14,960 Speaker 3: demand is challenge, what do I do on the cost 189 00:10:15,000 --> 00:10:17,360 Speaker 3: side to try to preserve my margins here? 190 00:10:18,400 --> 00:10:18,640 Speaker 2: Right? 191 00:10:18,800 --> 00:10:22,240 Speaker 8: So you know, Hasbro laid out a plan in October 192 00:10:22,280 --> 00:10:25,880 Speaker 8: of twenty twenty two cutting costs. They kind of realized 193 00:10:25,920 --> 00:10:28,960 Speaker 8: over time that wasn't quite enough, but they were planning, 194 00:10:29,000 --> 00:10:31,200 Speaker 8: so they wint of double that goal, a lot of 195 00:10:31,200 --> 00:10:35,600 Speaker 8: it coming out of SG and A. They're also offloading 196 00:10:35,679 --> 00:10:39,200 Speaker 8: some of their brands and basically licensing out to other 197 00:10:39,679 --> 00:10:43,679 Speaker 8: manufacturers to actually make the products, and that is going 198 00:10:43,720 --> 00:10:46,320 Speaker 8: to be a key part of you know, their outlook 199 00:10:46,400 --> 00:10:49,400 Speaker 8: for a stronger operating margin in that toy segment in 200 00:10:49,480 --> 00:10:52,680 Speaker 8: twenty twenty four, and by that, they're expecting a four 201 00:10:52,720 --> 00:10:56,440 Speaker 8: to six percent operating margin this year, whereas last year 202 00:10:56,440 --> 00:10:59,000 Speaker 8: it was an operating loss. It's still a pretty low 203 00:10:59,120 --> 00:11:03,400 Speaker 8: number below they're targeting twenty percent over the long term, 204 00:11:03,600 --> 00:11:05,079 Speaker 8: so there's a lot of work to. 205 00:11:05,080 --> 00:11:08,280 Speaker 4: Be done there. What's the Wizards of the Coast segment? 206 00:11:08,880 --> 00:11:11,199 Speaker 4: Does that really hurt? What is that? 207 00:11:11,200 --> 00:11:14,840 Speaker 8: That includes their magic of the gathering at tabletop gaming 208 00:11:15,080 --> 00:11:19,319 Speaker 8: digital gaming brands, So that has been a top grower 209 00:11:19,400 --> 00:11:22,760 Speaker 8: for this company over the past couple of years. They're 210 00:11:22,840 --> 00:11:26,480 Speaker 8: again lapping difficult comparisons, only expecting three to five percent 211 00:11:26,600 --> 00:11:30,720 Speaker 8: growth in twenty twenty four. But that business is a 212 00:11:30,800 --> 00:11:34,240 Speaker 8: high margin business for them, So you're talking about thirty 213 00:11:34,280 --> 00:11:38,960 Speaker 8: eight forty percent margins, but the problem is it's it's 214 00:11:39,000 --> 00:11:42,720 Speaker 8: closer to thirty percent of their overall business. So as 215 00:11:43,559 --> 00:11:47,160 Speaker 8: continued growth there is great, the margin is great, but 216 00:11:47,240 --> 00:11:49,560 Speaker 8: it's still a smaller part of their mix, so it 217 00:11:49,600 --> 00:11:54,080 Speaker 8: can't quite offset this weakness that they feel sort of 218 00:11:54,120 --> 00:11:55,720 Speaker 8: in the traditional toy business. 219 00:11:56,160 --> 00:11:59,400 Speaker 3: Thanks to Lindsey Dutch Bloomberg Intelligence Consumer Hardline Secret Analyst. 220 00:11:59,600 --> 00:12:01,440 Speaker 4: Coming up, we're going to break down what Paramount Global 221 00:12:01,520 --> 00:12:02,560 Speaker 4: said be cutting jobs. 222 00:12:02,880 --> 00:12:05,559 Speaker 3: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in 223 00:12:05,600 --> 00:12:07,760 Speaker 3: there with research and data on two thousand companies and 224 00:12:07,760 --> 00:12:10,760 Speaker 3: one hundred and thirty industries. You can access Bloomberg Intelligence 225 00:12:10,840 --> 00:12:12,280 Speaker 3: via b I go on the terminal. 226 00:12:12,360 --> 00:12:14,880 Speaker 4: I'm Paul Sweeney and am Malling Steel and this is Bloomberg. 227 00:12:21,800 --> 00:12:25,679 Speaker 2: You're listening to the Bloomberg Intelligence podcast. Catch us live 228 00:12:25,760 --> 00:12:29,120 Speaker 2: weekdays at ten am Eastern on Afocarplay and Android Auto 229 00:12:29,160 --> 00:12:32,080 Speaker 2: with the Bloomberg Business App. Listen on demand wherever you 230 00:12:32,160 --> 00:12:35,839 Speaker 2: get your podcasts, or watch us live on YouTube. 231 00:12:37,040 --> 00:12:39,880 Speaker 4: Let's turn out to the media and entertainment industry. Earlier 232 00:12:39,880 --> 00:12:41,640 Speaker 4: in the week, we heard the Paramount Global is cutting 233 00:12:41,679 --> 00:12:44,360 Speaker 4: roughly eight hundred jobs, or three percent of its workforce. 234 00:12:44,559 --> 00:12:46,720 Speaker 3: We're told the cuts of our response to the continued 235 00:12:46,760 --> 00:12:49,680 Speaker 3: loss of cable and satellite TV subscribers to streaming services 236 00:12:49,920 --> 00:12:53,360 Speaker 3: like Netflix, and this comes despite Paramount hosting a record 237 00:12:53,400 --> 00:12:54,840 Speaker 3: breaking Super Bowl TV audience. 238 00:12:55,000 --> 00:12:57,760 Speaker 4: So for more, we're joined by either Maganathan Bloomberg intelligence 239 00:12:57,800 --> 00:12:59,840 Speaker 4: analyst on US Media, and we ask Ether for her 240 00:13:00,040 --> 00:13:01,160 Speaker 4: take on this week's news. 241 00:13:01,400 --> 00:13:03,640 Speaker 9: This is really more of course, they did have a 242 00:13:03,679 --> 00:13:06,880 Speaker 9: great Super Bowl, but I think this is really more 243 00:13:06,920 --> 00:13:09,240 Speaker 9: about the future outlook for the company, and that is 244 00:13:09,320 --> 00:13:12,640 Speaker 9: super super bleak. Yes, it was a great night for 245 00:13:12,720 --> 00:13:16,840 Speaker 9: TV advertising. We think they gotten seven hundred million dollars 246 00:13:16,920 --> 00:13:20,520 Speaker 9: in roughly about four hours. But then it's throughout twenty 247 00:13:20,559 --> 00:13:25,199 Speaker 9: twenty three we've seen TV advertising decline by low double digits. 248 00:13:25,240 --> 00:13:28,080 Speaker 9: It was down almost thirteen percent in the latest quarter 249 00:13:28,120 --> 00:13:29,840 Speaker 9: that they reported, and it's not going to get too 250 00:13:29,920 --> 00:13:32,480 Speaker 9: much better. And it's not just the challenges on the 251 00:13:32,520 --> 00:13:35,080 Speaker 9: TV side of the equation for them. It's also about 252 00:13:35,120 --> 00:13:38,000 Speaker 9: their streaming business and they've made good strides absolutely in 253 00:13:38,080 --> 00:13:41,440 Speaker 9: terms of you know, streaming subscribers, and again I anticipate 254 00:13:41,480 --> 00:13:43,400 Speaker 9: that they're going to have some good streaming numbers to 255 00:13:43,440 --> 00:13:46,480 Speaker 9: report thanks to the Super Bowl, but it is burning 256 00:13:46,559 --> 00:13:50,079 Speaker 9: a lot of money, almost one point seven billion dollars 257 00:13:50,200 --> 00:13:53,440 Speaker 9: is what they will report in losses for twenty twenty three, 258 00:13:53,480 --> 00:13:55,760 Speaker 9: and before that they lost about one point eight billion. 259 00:13:55,840 --> 00:13:58,679 Speaker 10: So it's just been a continuous drain on the company. 260 00:13:59,200 --> 00:14:01,000 Speaker 3: And I know they're there's a lot of talk around 261 00:14:01,320 --> 00:14:05,920 Speaker 3: perhaps the controlling shareholder, Sherry Redstone, will consider selling all 262 00:14:05,960 --> 00:14:08,200 Speaker 3: a part of the company. What's the latest on that? 263 00:14:09,720 --> 00:14:11,839 Speaker 9: So the latest actually in that saga, and this has 264 00:14:11,880 --> 00:14:15,120 Speaker 9: now been an ongoing drama for many months now, Paul, 265 00:14:15,559 --> 00:14:18,679 Speaker 9: The latest is that Byron Allen actually came up with 266 00:14:19,000 --> 00:14:21,320 Speaker 9: a bid for all of the company, not just for 267 00:14:21,400 --> 00:14:24,000 Speaker 9: the controlling stake held through National Amusements. 268 00:14:24,280 --> 00:14:26,600 Speaker 10: And he actually put up a pretty good bid. 269 00:14:26,880 --> 00:14:30,200 Speaker 9: You know, it was fourteen billion dollars in terms of equity, 270 00:14:30,280 --> 00:14:33,560 Speaker 9: so thirty billion dollars enterprise value. We think it was 271 00:14:33,600 --> 00:14:36,720 Speaker 9: a pretty fair bid. The problem is, you know, Byron Allen, 272 00:14:36,800 --> 00:14:39,320 Speaker 9: I don't think anybody is taking him too seriously. He's 273 00:14:39,400 --> 00:14:42,200 Speaker 9: you know, had this track record of kind of coming 274 00:14:42,280 --> 00:14:46,000 Speaker 9: up with these empty bids. So while it is a number, again, 275 00:14:46,280 --> 00:14:48,720 Speaker 9: we've not really seen a whole lot of action that 276 00:14:48,800 --> 00:14:50,160 Speaker 9: we would have expected. 277 00:14:50,640 --> 00:14:54,000 Speaker 4: So this is a totally unfair question to Paul. Let's 278 00:14:54,000 --> 00:14:56,960 Speaker 4: pretend you're still an M and a banker here, investment banker. 279 00:14:57,120 --> 00:14:59,160 Speaker 4: What would you be talking to Paaramount about. 280 00:14:59,200 --> 00:15:01,560 Speaker 3: I would I would say, I think the best buyer 281 00:15:01,560 --> 00:15:04,880 Speaker 3: here there's a strategic buyer, maybe Warner Brothers, the Discovery, 282 00:15:04,880 --> 00:15:07,240 Speaker 3: But both of those companies, as keitha Wall and those 283 00:15:07,360 --> 00:15:09,680 Speaker 3: bound sheets are not great. I think I would be 284 00:15:09,720 --> 00:15:13,160 Speaker 3: shopping into a private equity because they're still good for 285 00:15:13,480 --> 00:15:15,600 Speaker 3: free cash flows here and let them deal with it. 286 00:15:15,920 --> 00:15:19,400 Speaker 3: So Githay, what is the sense here as to I 287 00:15:19,440 --> 00:15:23,080 Speaker 3: think about Paramount, I think about Warner Brothers, Discovery, what 288 00:15:23,280 --> 00:15:25,520 Speaker 3: happens to these companies because it just feels like against 289 00:15:25,520 --> 00:15:28,360 Speaker 3: some of the big tech companies, they're just not big 290 00:15:28,440 --> 00:15:31,160 Speaker 3: enough here, against Netflix, are just not big enough. What 291 00:15:31,200 --> 00:15:31,640 Speaker 3: did they do? 292 00:15:33,040 --> 00:15:33,120 Speaker 11: So? 293 00:15:33,160 --> 00:15:36,400 Speaker 9: I think Warner Brothers Discovery actually had a pretty interesting 294 00:15:36,440 --> 00:15:40,600 Speaker 9: move last week Pall, which was they banded together with ESPN, 295 00:15:40,760 --> 00:15:44,680 Speaker 9: Disney and Fox to kind of create this sports super 296 00:15:44,720 --> 00:15:47,280 Speaker 9: app which will launch in the fall. And that's one 297 00:15:47,320 --> 00:15:49,880 Speaker 9: way for them to kind of protect at least some 298 00:15:50,080 --> 00:15:52,240 Speaker 9: part of their linear revenue stream, because I mean they've 299 00:15:52,320 --> 00:15:53,920 Speaker 9: kind of everybody's seeing the writing. 300 00:15:53,680 --> 00:15:54,600 Speaker 10: On the wall here. 301 00:15:54,320 --> 00:15:57,880 Speaker 9: We're seeing cord cutting, we're seeing about ten percent of 302 00:15:58,000 --> 00:16:02,040 Speaker 9: the subscriber base get eroded ear after ear We've already 303 00:16:02,040 --> 00:16:05,400 Speaker 9: lost thirty million subscribers. So that's one good way for them, 304 00:16:05,400 --> 00:16:08,240 Speaker 9: I think, to kind of control their destiny a little 305 00:16:08,280 --> 00:16:12,240 Speaker 9: bit in terms of distribution. Again, remember Paramount is not 306 00:16:12,520 --> 00:16:15,480 Speaker 9: part of that bundle, so that again is a little 307 00:16:15,520 --> 00:16:18,520 Speaker 9: bit of you know, a strike against them. But you know, 308 00:16:18,560 --> 00:16:19,920 Speaker 9: you bring up a good point. I think at the 309 00:16:20,000 --> 00:16:21,520 Speaker 9: end of the day, we are going to have to 310 00:16:21,560 --> 00:16:23,920 Speaker 9: see consolidation. Of course, as you just pointed out, there 311 00:16:23,920 --> 00:16:27,240 Speaker 9: were rumors of actually Warner Brothers Discovery being interested in Paramount, 312 00:16:27,240 --> 00:16:30,240 Speaker 9: but that would be about more than you know, sixty 313 00:16:30,280 --> 00:16:33,240 Speaker 9: billion dollars I think in debt for those combined companies. 314 00:16:33,600 --> 00:16:35,640 Speaker 9: So yeah, it is it is definitely going to be challenging, 315 00:16:35,640 --> 00:16:38,160 Speaker 9: but I think consolidation is definitely on the cards. 316 00:16:38,200 --> 00:16:40,000 Speaker 4: Okay, So then how does that happen? Because if like, 317 00:16:40,080 --> 00:16:41,920 Speaker 4: three wrongs don't make a right, and you're not going 318 00:16:42,000 --> 00:16:43,720 Speaker 4: to put all the media companies together because it's going 319 00:16:43,760 --> 00:16:46,800 Speaker 4: to create more problems. So is it private equity like 320 00:16:47,280 --> 00:16:49,960 Speaker 4: to split up different areas of media within the company. 321 00:16:50,480 --> 00:16:52,160 Speaker 9: Yeah, I think Paramount I think one of the things 322 00:16:52,160 --> 00:16:53,720 Speaker 9: has been you know, to sell it for parts. Right, 323 00:16:53,760 --> 00:16:57,080 Speaker 9: there are some parts of the company, the TV networks 324 00:16:57,080 --> 00:16:59,840 Speaker 9: that could be very, very attractive to private equity, as 325 00:16:59,840 --> 00:17:01,720 Speaker 9: you just pointed out, because of the cash flows. Right, 326 00:17:01,720 --> 00:17:04,120 Speaker 9: it's still a business. It used to throw out about 327 00:17:04,160 --> 00:17:06,480 Speaker 9: six billion dollars in ebit dah, but it will still 328 00:17:06,480 --> 00:17:08,440 Speaker 9: throw out about four and a half to almost close 329 00:17:08,480 --> 00:17:10,639 Speaker 9: to four point eight billion dollars in ebit DAH. So 330 00:17:11,000 --> 00:17:14,320 Speaker 9: again cash highly cash generative. Of course, the future you 331 00:17:14,359 --> 00:17:16,840 Speaker 9: know flows don't look so great. But then there has 332 00:17:16,920 --> 00:17:18,800 Speaker 9: been a lot of interest in the studio part of 333 00:17:18,800 --> 00:17:21,040 Speaker 9: the business, right, whether that's you know, David Ellison with 334 00:17:21,080 --> 00:17:22,879 Speaker 9: his guy Dance Media, maybe. 335 00:17:22,600 --> 00:17:24,040 Speaker 10: Somebody else, maybe even an Apple. 336 00:17:24,320 --> 00:17:27,639 Speaker 9: We haven't necessarily seen any of those you know, bids 337 00:17:27,720 --> 00:17:30,119 Speaker 9: kind of come to fruition, but there definitely will be 338 00:17:30,119 --> 00:17:31,760 Speaker 9: a lot of interest. But I think the one thing 339 00:17:31,800 --> 00:17:33,240 Speaker 9: that we kind of have to wait to get some 340 00:17:33,280 --> 00:17:36,400 Speaker 9: clarity on is definitely the regulatory environment. We've seen big 341 00:17:36,480 --> 00:17:40,280 Speaker 9: tech kind of really shy away from anything too splashy, 342 00:17:40,680 --> 00:17:43,080 Speaker 9: but who knows, maybe when the government changes, all of 343 00:17:43,080 --> 00:17:44,119 Speaker 9: that will change as well. 344 00:17:44,520 --> 00:17:48,280 Speaker 3: You know, Githa, When these networks bid and pay billions 345 00:17:48,280 --> 00:17:50,960 Speaker 3: of dollars for sports rights. And even if you you know, 346 00:17:50,960 --> 00:17:52,680 Speaker 3: you put up that seven hundred million dollars of bad 347 00:17:52,720 --> 00:17:55,640 Speaker 3: revenue that you reference, you know, it's tough to make 348 00:17:55,680 --> 00:17:58,960 Speaker 3: a profit on that kind of business. So what the 349 00:17:59,000 --> 00:18:02,520 Speaker 3: networks have always said is, yes, but we promote other 350 00:18:02,760 --> 00:18:07,119 Speaker 3: shows on our networks, and that value is really worth 351 00:18:07,119 --> 00:18:10,000 Speaker 3: paying these big rights fees. But if you're promoting all 352 00:18:10,000 --> 00:18:12,400 Speaker 3: these shows on the CBS network that nobody's watching because 353 00:18:12,400 --> 00:18:15,919 Speaker 3: of chord cutting, how valuable is that? I mean, I 354 00:18:16,000 --> 00:18:18,800 Speaker 3: thought about that they were promoting all their shows that 355 00:18:19,520 --> 00:18:22,040 Speaker 3: I don't think anybody's watching because they've already cut the cord. 356 00:18:22,600 --> 00:18:24,320 Speaker 10: Yeah, you're absolutely right for them. Though. 357 00:18:24,760 --> 00:18:27,440 Speaker 9: The one thing that Paramount has done really kind of well, 358 00:18:27,440 --> 00:18:28,840 Speaker 9: and I don't know whether this is a plus or 359 00:18:28,880 --> 00:18:29,800 Speaker 9: a minus. 360 00:18:29,440 --> 00:18:31,639 Speaker 10: But it definitely helps them at least shore up. 361 00:18:31,640 --> 00:18:33,400 Speaker 9: I think the total value of their assets is they've 362 00:18:33,440 --> 00:18:37,120 Speaker 9: actually all of their sports properties, including the NFL, they've 363 00:18:37,119 --> 00:18:39,119 Speaker 9: actually kind of leaked it outside the bundle, so they 364 00:18:39,160 --> 00:18:41,800 Speaker 9: were showing it on Paramount Plus Day one, and they 365 00:18:41,800 --> 00:18:44,040 Speaker 9: did the same thing with the Super Bowl as well. 366 00:18:44,080 --> 00:18:45,719 Speaker 9: So I think even if they're you know, even if 367 00:18:45,760 --> 00:18:48,600 Speaker 9: you have cord cutters. They could make the argument that yes, 368 00:18:48,720 --> 00:18:51,400 Speaker 9: you know, people can potentially sign up for that service. 369 00:18:51,600 --> 00:18:54,160 Speaker 9: We saw, of course Peacock do that with that wildcard 370 00:18:54,320 --> 00:18:57,920 Speaker 9: NFL game. Again, what they know that they're losing subscribers 371 00:18:57,960 --> 00:19:00,800 Speaker 9: on the PATV bundle, so they're trying to they're trying 372 00:19:00,840 --> 00:19:02,720 Speaker 9: their best, I don't know how successfully to kind of 373 00:19:02,720 --> 00:19:05,080 Speaker 9: make it up on the streaming side, but you're right, 374 00:19:05,119 --> 00:19:06,560 Speaker 9: I mean it is kind of a lose. 375 00:19:06,359 --> 00:19:08,560 Speaker 4: Lose, Keitha. So what's next? Like, what are you watching? 376 00:19:09,119 --> 00:19:10,200 Speaker 4: Preparea amount now? 377 00:19:10,840 --> 00:19:13,080 Speaker 10: For Paramount, It's definitely it is an M and a place. 378 00:19:13,200 --> 00:19:17,360 Speaker 10: Something has to happen. It has to happen fast. Bob Backish, 379 00:19:17,359 --> 00:19:19,879 Speaker 10: the CEO, has pretty much said it. You know, he 380 00:19:19,960 --> 00:19:20,520 Speaker 10: said he's. 381 00:19:20,359 --> 00:19:25,240 Speaker 9: Evaluating Bayern Allen's proposal again, not sure whether that will 382 00:19:25,280 --> 00:19:27,600 Speaker 9: necessarily pan out, but somebody has to come up with 383 00:19:28,000 --> 00:19:29,320 Speaker 9: something and it has. 384 00:19:29,200 --> 00:19:29,959 Speaker 10: To happen quickly. 385 00:19:30,160 --> 00:19:33,680 Speaker 3: Our thanks to Keitha Ranganathan Bloomberg intelligence analyst on US 386 00:19:33,720 --> 00:19:34,320 Speaker 3: Media fall. 387 00:19:34,440 --> 00:19:37,000 Speaker 4: Let's turn out of Cisco So the largest maker of 388 00:19:37,000 --> 00:19:40,840 Speaker 4: computer networking equipment, Cisco announcing plans to cut thousands of jobs, 389 00:19:41,040 --> 00:19:44,040 Speaker 4: saying the cuts will affect roughly five percent of its workforce. 390 00:19:44,280 --> 00:19:46,320 Speaker 3: This all comes after a slow down and corporate tech 391 00:19:46,359 --> 00:19:49,639 Speaker 3: spending wiped out Cisco's sales growth last quarter. For more 392 00:19:49,680 --> 00:19:51,840 Speaker 3: on all of this, we spoke with Woojin Hoo, Bloomberg 393 00:19:51,880 --> 00:19:55,359 Speaker 3: Intelligence senior technology analysts. We first asked him if anything 394 00:19:55,400 --> 00:19:57,280 Speaker 3: stood out from Cisco's quarterly results. 395 00:19:57,680 --> 00:19:59,960 Speaker 1: I think after the job cuts league from last quarter, 396 00:20:00,040 --> 00:20:02,480 Speaker 1: I think there were expectations that there were going to 397 00:20:02,520 --> 00:20:05,159 Speaker 1: be cut the estimates. Quite frankly, the big standout for 398 00:20:05,200 --> 00:20:07,399 Speaker 1: me was that the cuts were big enough. You know, 399 00:20:07,480 --> 00:20:10,080 Speaker 1: five percent op X cuts. That's part of the course 400 00:20:10,160 --> 00:20:12,639 Speaker 1: for what Cisco typically does. But at the end of 401 00:20:12,680 --> 00:20:15,000 Speaker 1: the day, I mean, based on reports, it looks like 402 00:20:15,280 --> 00:20:16,520 Speaker 1: a lot of this was expected. 403 00:20:17,400 --> 00:20:20,600 Speaker 3: You know which I've followed the Cisco name for decades. 404 00:20:20,640 --> 00:20:23,480 Speaker 3: I mean it's one of the founding Silicon Valley tech 405 00:20:23,560 --> 00:20:26,199 Speaker 3: names based in San joseric smack in the middle, you know, 406 00:20:26,240 --> 00:20:29,480 Speaker 3: Silicon Valley. What are they not getting right here? This 407 00:20:29,560 --> 00:20:31,359 Speaker 3: SoC hasn't worked for a long time, and it just 408 00:20:32,160 --> 00:20:34,280 Speaker 3: what from your perspective, what are they just missing here? 409 00:20:35,400 --> 00:20:38,480 Speaker 1: Well, let's talk about large cap stocks in general, right, 410 00:20:38,520 --> 00:20:41,760 Speaker 1: If we if we think about the big bangs let's 411 00:20:41,760 --> 00:20:46,320 Speaker 1: say Microsoft, the old tech guard of the Microsoft Google, Right, 412 00:20:46,440 --> 00:20:50,800 Speaker 1: they all really led on a cloud software transition. If 413 00:20:50,800 --> 00:20:54,560 Speaker 1: we think about it, from the hardware old guard Cisco, Dell, 414 00:20:54,880 --> 00:20:59,600 Speaker 1: HPE or the old HP, there's still relatively a hardware business. 415 00:21:00,240 --> 00:21:03,080 Speaker 1: So you're not going to get the fast, sexy growth 416 00:21:03,200 --> 00:21:05,280 Speaker 1: from the hardware business. I mean, if you look at Cisco, 417 00:21:05,800 --> 00:21:08,280 Speaker 1: you know, after the estimate cuts fifty two billion for 418 00:21:08,480 --> 00:21:11,520 Speaker 1: fiscal twenty four, that brings them back to twenty twenty 419 00:21:11,520 --> 00:21:14,840 Speaker 1: four levels, right, So you're not getting the growth that 420 00:21:14,880 --> 00:21:17,800 Speaker 1: people want, and also you're not getting the margin profiles 421 00:21:17,920 --> 00:21:20,960 Speaker 1: that you want as well. So that's why the multiples 422 00:21:20,960 --> 00:21:22,840 Speaker 1: are lower and the growth of shallower. 423 00:21:23,119 --> 00:21:25,159 Speaker 3: So over the last five years, this stock has compounded 424 00:21:25,480 --> 00:21:28,440 Speaker 3: three percent per year, Cisco S and P five and 425 00:21:28,480 --> 00:21:30,720 Speaker 3: fourteen and a half percent, the S and P information 426 00:21:30,800 --> 00:21:34,840 Speaker 3: technology sector twenty six percent. So it's really really underperformed 427 00:21:35,000 --> 00:21:37,840 Speaker 3: going forward, which I guess over the next several quarters. 428 00:21:37,880 --> 00:21:42,600 Speaker 3: What Cisco's saying about their customers and inventory and cutting 429 00:21:42,600 --> 00:21:45,000 Speaker 3: this forecast suggests that they don't have a lot of 430 00:21:45,000 --> 00:21:45,920 Speaker 3: great visibility here. 431 00:21:46,560 --> 00:21:50,560 Speaker 1: If you remember the server and storage cycle from a 432 00:21:50,640 --> 00:21:53,680 Speaker 1: year ago, Cisco is going through that right now. Part 433 00:21:53,680 --> 00:21:57,000 Speaker 1: of it is because of the supply chain glut all 434 00:21:57,000 --> 00:22:00,760 Speaker 1: of a sudden, Their customers got their equipment two quarters 435 00:22:00,800 --> 00:22:05,160 Speaker 1: ago and they're taking their time implementing it. So typical 436 00:22:05,240 --> 00:22:09,480 Speaker 1: cycles are roughly five to six quarters. I was running 437 00:22:09,480 --> 00:22:12,119 Speaker 1: through the numbers and when we're talking about anywhere between 438 00:22:12,119 --> 00:22:15,040 Speaker 1: twenty seven to thirty percent declines for the next two 439 00:22:15,040 --> 00:22:18,240 Speaker 1: to three quarters for Cisco for the networking business, not sales. 440 00:22:18,560 --> 00:22:20,480 Speaker 1: But they won't get out of this decline until the 441 00:22:20,480 --> 00:22:22,360 Speaker 1: second half of fiscal year, which is about a year 442 00:22:22,359 --> 00:22:26,280 Speaker 1: from now. Right again, the model's going to be reworked, 443 00:22:26,560 --> 00:22:30,359 Speaker 1: primarily because of this Plunk deal. The hope is is 444 00:22:30,359 --> 00:22:33,560 Speaker 1: that they're going to have more recurring revenues to boost 445 00:22:33,640 --> 00:22:35,439 Speaker 1: up the multiples going forward. 446 00:22:36,080 --> 00:22:38,280 Speaker 4: Where's the AI component for Cisco. 447 00:22:39,000 --> 00:22:42,080 Speaker 1: I will tell you they're making a lot of good progress. 448 00:22:42,480 --> 00:22:45,880 Speaker 1: They had a billion dollars in bookings in black black 449 00:22:45,960 --> 00:22:49,399 Speaker 1: orders with Cloud customers, and the issue is is that 450 00:22:49,400 --> 00:22:52,719 Speaker 1: that only represents two percent of total orders, right so 451 00:22:52,920 --> 00:22:55,719 Speaker 1: it's still relatively small. It is going to be growing, 452 00:22:55,800 --> 00:22:59,199 Speaker 1: and they're probably going to bang the drum louder on 453 00:22:59,240 --> 00:23:02,119 Speaker 1: the AI the over the next couple of quarters As 454 00:23:02,160 --> 00:23:06,240 Speaker 1: these deals really start to balloon. The one thing is, again, 455 00:23:06,320 --> 00:23:10,399 Speaker 1: it's still a corporate IT name. If I were to 456 00:23:10,440 --> 00:23:14,080 Speaker 1: pick one AI name on the networking side, it's probably 457 00:23:14,119 --> 00:23:16,080 Speaker 1: going to be more Arista than Cisco for now. 458 00:23:16,880 --> 00:23:19,919 Speaker 3: So again, is there a way WOODS is broadly defined 459 00:23:20,080 --> 00:23:23,080 Speaker 3: On the hardware side, Have investors embraced any of the 460 00:23:23,080 --> 00:23:25,439 Speaker 3: hardware's names as AI plays? 461 00:23:25,560 --> 00:23:26,040 Speaker 5: Is it? 462 00:23:26,160 --> 00:23:28,040 Speaker 3: Because it just doesn't feel like it. It feels like what 463 00:23:28,119 --> 00:23:30,440 Speaker 3: I'm hearing from a lot of your folks on the 464 00:23:30,480 --> 00:23:33,520 Speaker 3: tech team of Bloomberg Intelligence. It's kind of software applications, 465 00:23:33,520 --> 00:23:34,200 Speaker 3: that kind of thing. 466 00:23:34,760 --> 00:23:40,359 Speaker 1: I can name for Arista Networks, Wow, super Micro and Dell. 467 00:23:40,600 --> 00:23:42,840 Speaker 1: And they reported in a couple of weeks there's a 468 00:23:42,920 --> 00:23:47,480 Speaker 1: growing AI story there and one name that's been underappreciated 469 00:23:47,560 --> 00:23:51,280 Speaker 1: is probably Hpe. They have a high performance computing business, 470 00:23:51,600 --> 00:23:53,359 Speaker 1: but the story is a little muddled because of a 471 00:23:53,480 --> 00:23:56,920 Speaker 1: pending Juniper deal. And then there's you know, my colleague 472 00:23:56,920 --> 00:24:00,440 Speaker 1: Steve saying he covers the white box vendors, and there's 473 00:24:00,480 --> 00:24:03,840 Speaker 1: some white box vendors that may potentially benefit because they 474 00:24:03,880 --> 00:24:06,720 Speaker 1: sell server equipment to the cloud guys. 475 00:24:06,560 --> 00:24:09,600 Speaker 3: Our thanks to Wu Jinho, Bloomberg Intelligence senior technology analysts. 476 00:24:09,840 --> 00:24:11,720 Speaker 4: Coming up on the program, we'll discuss why food and 477 00:24:11,760 --> 00:24:14,399 Speaker 4: beverage company Craft Tines is experienced in weaker sales. 478 00:24:14,520 --> 00:24:17,359 Speaker 3: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in 479 00:24:17,400 --> 00:24:20,199 Speaker 3: depth research and data on two thousand companies in one 480 00:24:20,280 --> 00:24:22,959 Speaker 3: hundred and thirty industries. You can access Bloomberg Intelligence via 481 00:24:23,040 --> 00:24:25,399 Speaker 3: Bigo on the terminal on Paul Sweeney. 482 00:24:25,040 --> 00:24:27,240 Speaker 4: Anda, Alex Deeal and this is Bloomberg. 483 00:24:39,760 --> 00:24:43,680 Speaker 2: You're listening to the Bloomberg Intelligence podcast. Catch us live 484 00:24:43,760 --> 00:24:47,280 Speaker 2: weekdays at ten am Eastern on applecar Play and Android 485 00:24:47,280 --> 00:24:50,080 Speaker 2: Auto with the Bloomberg Business app. You can also listen 486 00:24:50,200 --> 00:24:53,280 Speaker 2: live on Amazon Alexa from our flagship New York station 487 00:24:53,640 --> 00:24:57,399 Speaker 2: Just say Alexa playing Bloomberg eleven thirty. 488 00:24:57,960 --> 00:25:00,159 Speaker 4: We move next to the food and beverage industry. So 489 00:25:00,240 --> 00:25:03,160 Speaker 4: earlier in the week, Craft Times reported first consolidated organic 490 00:25:03,240 --> 00:25:05,800 Speaker 4: sales declined since the second quarter of twenty twenty one. 491 00:25:06,040 --> 00:25:09,240 Speaker 3: We heard from Jennifer Bartashi's Bloomberg Intelligence senior analysts retail, 492 00:25:09,240 --> 00:25:11,639 Speaker 3: staples and packaged food. We first asked Jennifer for her 493 00:25:11,680 --> 00:25:13,440 Speaker 3: key takeaways from Craft's earnings results. 494 00:25:13,680 --> 00:25:16,720 Speaker 12: The big surprise for Craft was that volume was down, 495 00:25:16,800 --> 00:25:19,400 Speaker 12: which was not a surprise, but it was down more 496 00:25:19,480 --> 00:25:22,879 Speaker 12: than prices rows and that really put pressure on the 497 00:25:22,920 --> 00:25:27,040 Speaker 12: ability to generate sales growth. And so organic sales were 498 00:25:27,160 --> 00:25:31,040 Speaker 12: negative for the first time since twenty twenty. And although 499 00:25:31,040 --> 00:25:33,960 Speaker 12: there's some momentum in the business, it's got people concerned. 500 00:25:34,480 --> 00:25:36,840 Speaker 3: So, jenn as I understand the package food business from 501 00:25:36,920 --> 00:25:39,520 Speaker 3: reading your research and talking to you, you know, I 502 00:25:39,520 --> 00:25:42,000 Speaker 3: guess post pandemic volumes were down, but they've been able 503 00:25:42,040 --> 00:25:45,159 Speaker 3: to make up for it by raising prices. More so, 504 00:25:45,280 --> 00:25:46,640 Speaker 3: is that game kind of played out now? 505 00:25:47,440 --> 00:25:50,680 Speaker 12: Yeah. Basically a lot of these companies have run out 506 00:25:50,680 --> 00:25:53,399 Speaker 12: of their pricing power. And what that means is, you know, 507 00:25:53,520 --> 00:25:55,880 Speaker 12: they were able to raise prices because their input costs 508 00:25:55,920 --> 00:25:59,400 Speaker 12: were hire, whether it was ingredients or transportation or packaging. 509 00:25:59,640 --> 00:26:03,240 Speaker 12: But as inflation is coming down, they're losing the ability 510 00:26:03,240 --> 00:26:06,720 Speaker 12: to pass through additional price increases, which means that if 511 00:26:06,760 --> 00:26:10,240 Speaker 12: you want to have top line growth or organic sales growth, 512 00:26:10,560 --> 00:26:14,119 Speaker 12: you have to have positive volume growth because you're not 513 00:26:14,200 --> 00:26:17,359 Speaker 12: getting it from just higher price anymore. And the problem 514 00:26:17,440 --> 00:26:20,240 Speaker 12: for craft tind size right now is that volume is 515 00:26:20,280 --> 00:26:24,320 Speaker 12: still down, price is lower than it's been and they're 516 00:26:24,359 --> 00:26:27,040 Speaker 12: not seeing that bounce back in volume that typically lower 517 00:26:27,119 --> 00:26:28,280 Speaker 12: pricing would encourage. 518 00:26:28,359 --> 00:26:30,760 Speaker 4: Okay, so a couple things to focus on. Let's go 519 00:26:30,800 --> 00:26:32,440 Speaker 4: to the product side then, because you mentioned that a 520 00:26:32,440 --> 00:26:35,199 Speaker 4: few times so volumes are down, it doesn't seem like 521 00:26:35,240 --> 00:26:37,320 Speaker 4: that's just a pricing power thing. Do they not have 522 00:26:37,400 --> 00:26:38,680 Speaker 4: the right products right now? 523 00:26:39,640 --> 00:26:42,120 Speaker 12: Well, I think their portfolio is actually pretty good. It's 524 00:26:42,160 --> 00:26:45,160 Speaker 12: just that the consumer is not buying as much as 525 00:26:45,200 --> 00:26:48,119 Speaker 12: they were before. So if you think back to pre pandemic, 526 00:26:48,200 --> 00:26:51,199 Speaker 12: people had huge pantries and everything was stocked. They had 527 00:26:51,240 --> 00:26:54,040 Speaker 12: lots of boxed goods in there. And now people are 528 00:26:54,080 --> 00:26:56,119 Speaker 12: still a little bit more conservative and buying more on 529 00:26:56,160 --> 00:26:59,600 Speaker 12: a need basis rather than a stockpiling basis. And so 530 00:27:00,520 --> 00:27:03,600 Speaker 12: until people start to bulk up those pantries again, it's 531 00:27:03,640 --> 00:27:05,800 Speaker 12: hard to entice them to buy more than what they 532 00:27:05,920 --> 00:27:06,879 Speaker 12: just need for this week. 533 00:27:07,240 --> 00:27:09,879 Speaker 3: So as I look at the analyst forecast, jen, I 534 00:27:10,000 --> 00:27:12,000 Speaker 3: kind of see the one and a half to two 535 00:27:12,040 --> 00:27:13,919 Speaker 3: to two and a half percent revenue growth in the 536 00:27:13,920 --> 00:27:18,000 Speaker 3: next several years. That really is the story for most 537 00:27:18,040 --> 00:27:21,080 Speaker 3: of these consumer package goods companies, isn't it. 538 00:27:21,080 --> 00:27:24,159 Speaker 12: It really is, especially for companies where the bulk of 539 00:27:24,160 --> 00:27:26,639 Speaker 12: their portfolio are what you would call center of the 540 00:27:26,680 --> 00:27:30,720 Speaker 12: store items, so that's the candle items, the boxed items. 541 00:27:31,119 --> 00:27:34,240 Speaker 12: That type of outlook for top line growth is pretty 542 00:27:34,280 --> 00:27:36,680 Speaker 12: much in line with where you would expect normal inflation 543 00:27:36,920 --> 00:27:39,879 Speaker 12: rates to be, and so that in and of itself 544 00:27:40,160 --> 00:27:43,479 Speaker 12: is probably a reasonable expectation for where these companies can 545 00:27:43,480 --> 00:27:44,600 Speaker 12: go over the next few years. 546 00:27:44,880 --> 00:27:48,240 Speaker 4: Do you think that prices then will come down or 547 00:27:48,280 --> 00:27:49,640 Speaker 4: do you think that they stay sticky? 548 00:27:50,280 --> 00:27:54,160 Speaker 12: Prices will slowly come down. Retailers are looking to pass 549 00:27:54,200 --> 00:27:56,840 Speaker 12: through cost savings to their customers, so there will be 550 00:27:57,000 --> 00:28:01,040 Speaker 12: higher pressure on package food companies to low prices as well. 551 00:28:01,440 --> 00:28:04,720 Speaker 12: And as their input costs and packaging costs come down, 552 00:28:04,840 --> 00:28:07,720 Speaker 12: it's harder for them to justify holding prices at a 553 00:28:07,800 --> 00:28:10,760 Speaker 12: higher level and not passing through some of those savings. 554 00:28:11,040 --> 00:28:13,400 Speaker 12: So while prices may never come back down to where 555 00:28:13,400 --> 00:28:16,000 Speaker 12: they were pre pandemic, they should come down a little 556 00:28:16,040 --> 00:28:18,119 Speaker 12: bit from where they were in terms of peak pricing 557 00:28:18,160 --> 00:28:19,160 Speaker 12: in the last eighteen months. 558 00:28:19,160 --> 00:28:19,640 Speaker 4: A little bit. 559 00:28:20,080 --> 00:28:21,640 Speaker 3: I don't know if we like a little bit, No, 560 00:28:21,680 --> 00:28:24,080 Speaker 3: we don't, And that's and that's what the problem. That's 561 00:28:24,080 --> 00:28:26,159 Speaker 3: a problem for a lot of people and it's a 562 00:28:26,160 --> 00:28:28,840 Speaker 3: problem for the politicians who are saying inflation is still 563 00:28:28,880 --> 00:28:31,199 Speaker 3: a bad story here. So all right, So Jen, with 564 00:28:31,240 --> 00:28:34,240 Speaker 3: these names like Craft Hids and General Mills and Kellogg's, 565 00:28:34,440 --> 00:28:36,560 Speaker 3: I got a you know, low single digit revenue growth. 566 00:28:36,960 --> 00:28:40,400 Speaker 3: I'm looking. I got dividend yields for Craft Highs about 567 00:28:40,440 --> 00:28:42,880 Speaker 3: four point seven percent. I mean, what am I owning 568 00:28:42,920 --> 00:28:45,320 Speaker 3: this thing for? Am I owning it for single digit 569 00:28:45,480 --> 00:28:48,520 Speaker 3: kind of maybe stock price return plus some dividend yield 570 00:28:48,600 --> 00:28:49,560 Speaker 3: And that's my game. 571 00:28:50,160 --> 00:28:52,560 Speaker 12: That's probably the value play at the moment, right, Meaning 572 00:28:52,800 --> 00:28:55,280 Speaker 12: you've got steady kind of slow and steady growth, you've 573 00:28:55,280 --> 00:28:59,360 Speaker 12: got a reasonable dividend. They do do share buybacks, you know, 574 00:28:59,400 --> 00:29:02,480 Speaker 12: so there's some some shareholder benefit there, and you know, 575 00:29:02,640 --> 00:29:05,520 Speaker 12: as consumers start to pick up their spending, then we 576 00:29:05,600 --> 00:29:07,760 Speaker 12: may see a better outlook for these companies as well. 577 00:29:07,960 --> 00:29:10,920 Speaker 4: Who does Craft compete with, like the cokem PEPSI I 578 00:29:10,960 --> 00:29:12,680 Speaker 4: know that PEPs was all like snack snack snacks, but 579 00:29:12,680 --> 00:29:15,080 Speaker 4: they have the soft dam business. Who's like a straight 580 00:29:15,160 --> 00:29:16,200 Speaker 4: up Craft competitor. 581 00:29:16,560 --> 00:29:20,160 Speaker 12: Someone like Canagra would be, you know, or Campbell Soup. 582 00:29:20,320 --> 00:29:22,360 Speaker 12: You know, those would be kind of those center type 583 00:29:22,400 --> 00:29:26,480 Speaker 12: store companies. That would compete most directly with the Craft Times. 584 00:29:26,720 --> 00:29:28,960 Speaker 3: Hey, Jen, I look at the at the holder's list 585 00:29:29,000 --> 00:29:31,840 Speaker 3: here and I forgot about this. Berkshire Hathway Warren Buffett 586 00:29:32,040 --> 00:29:35,320 Speaker 3: by far the biggest shareholder of this company with about 587 00:29:35,320 --> 00:29:38,520 Speaker 3: twenty six twenty seven percent ownership. What is Berkshire Hathway 588 00:29:38,520 --> 00:29:40,960 Speaker 3: publicly said about this investment? How long have they owned it? 589 00:29:41,000 --> 00:29:42,880 Speaker 3: What do they say about their stake here? 590 00:29:43,800 --> 00:29:46,480 Speaker 12: They've been involved for a very very long time. Haven't 591 00:29:46,520 --> 00:29:50,680 Speaker 12: made a lot of public comments lately. But when Kraft 592 00:29:50,720 --> 00:29:53,720 Speaker 12: Times began its transformation plan, which was now a little 593 00:29:53,760 --> 00:29:57,040 Speaker 12: over three years ago, Berkshire Hathway was very positive on 594 00:29:57,080 --> 00:30:00,520 Speaker 12: that transformation story. And to be fair, Kraft Times has 595 00:30:00,560 --> 00:30:04,280 Speaker 12: executed on that transformation plan and generally ahead of schedule 596 00:30:04,440 --> 00:30:08,680 Speaker 12: when it comes to cost savings initiatives, streamlining things, rebalancing 597 00:30:08,680 --> 00:30:11,400 Speaker 12: their portfolio. So they really have been sticking to that 598 00:30:11,440 --> 00:30:14,120 Speaker 12: plan and delivering ahead of schedule. It's just that it's 599 00:30:14,120 --> 00:30:15,800 Speaker 12: a multi year process. Jen. 600 00:30:15,920 --> 00:30:18,560 Speaker 3: In your coverage area, you know you got to Staples, 601 00:30:18,600 --> 00:30:21,600 Speaker 3: the package food companies. What's the kind of the best idea. 602 00:30:21,600 --> 00:30:23,880 Speaker 3: What do you talk to clients about most often? 603 00:30:24,320 --> 00:30:27,080 Speaker 12: Well, right now, we're talking to people about you know, 604 00:30:27,200 --> 00:30:30,000 Speaker 12: who is it that has taken the least amount of 605 00:30:30,040 --> 00:30:33,280 Speaker 12: price increases over the last say, eighteen months, and where 606 00:30:33,320 --> 00:30:36,960 Speaker 12: are volumes holding up? Because to be successful over twenty 607 00:30:37,040 --> 00:30:39,800 Speaker 12: twenty four and into twenty twenty five, it really is 608 00:30:39,840 --> 00:30:42,680 Speaker 12: that question of how are you going to actually drive 609 00:30:43,320 --> 00:30:46,880 Speaker 12: overall growth and profitability? And so the companies that have 610 00:30:47,080 --> 00:30:51,000 Speaker 12: been more conservative and been more prudent in that approach 611 00:30:51,560 --> 00:30:53,720 Speaker 12: are the ones who are positioned right now to maybe 612 00:30:53,800 --> 00:30:54,520 Speaker 12: benefit from that. 613 00:30:54,640 --> 00:30:57,320 Speaker 3: So you haven't benefit from those Actually, what's a representative 614 00:30:57,400 --> 00:30:57,800 Speaker 3: name there? 615 00:30:58,880 --> 00:31:01,959 Speaker 12: So a good example there would be Mandolies where they 616 00:31:01,960 --> 00:31:05,840 Speaker 12: took a lot less price than and actually the spinoff 617 00:31:05,880 --> 00:31:10,720 Speaker 12: from Craft Times. Yeah, they've been a little bit more 618 00:31:10,720 --> 00:31:13,520 Speaker 12: prudent in terms of their price increases, and what we've 619 00:31:13,520 --> 00:31:15,640 Speaker 12: also seen is that their volume has held up better. 620 00:31:16,000 --> 00:31:19,240 Speaker 4: Hey, Jen, what's something you really don't like right now? 621 00:31:19,320 --> 00:31:22,000 Speaker 4: Like what sort of a negative trend? Because I'm also 622 00:31:22,000 --> 00:31:24,960 Speaker 4: trying to understand for some of these names and normalization 623 00:31:25,240 --> 00:31:27,960 Speaker 4: that we've seen sort of backtrack the last four years 624 00:31:28,520 --> 00:31:30,480 Speaker 4: and erase that, and that's where we have to kind 625 00:31:30,480 --> 00:31:31,560 Speaker 4: of pick up and go from there. 626 00:31:32,320 --> 00:31:34,400 Speaker 12: I think one of the things that is an issue 627 00:31:34,400 --> 00:31:37,080 Speaker 12: for the industry is that everyone still believes that they 628 00:31:37,120 --> 00:31:39,800 Speaker 12: can optimize their portfolio and that they're going to find 629 00:31:39,800 --> 00:31:42,320 Speaker 12: a buyer for the products and the product lines that 630 00:31:42,360 --> 00:31:45,239 Speaker 12: they don't want at a good multiple. At the end 631 00:31:45,280 --> 00:31:47,120 Speaker 12: of the day, there aren't a lot of buyers out 632 00:31:47,160 --> 00:31:51,280 Speaker 12: there for you know, categories that are slow growth or declining, 633 00:31:52,080 --> 00:31:54,200 Speaker 12: and so there's maybe a little bit of a mismatch 634 00:31:54,200 --> 00:31:57,680 Speaker 12: in terms of the belief that they can streamline their portfolio, 635 00:31:57,920 --> 00:31:59,560 Speaker 12: get up you know, all the value that they think 636 00:31:59,600 --> 00:32:02,320 Speaker 12: they deserve out of it, and yet I don't see 637 00:32:02,360 --> 00:32:05,400 Speaker 12: a whole, you know, a whole suite of buyers lining 638 00:32:05,480 --> 00:32:06,959 Speaker 12: up to look at those products. 639 00:32:07,240 --> 00:32:12,320 Speaker 3: Hershey, this company went public in nineteen twenty seven. Oh boy, 640 00:32:12,480 --> 00:32:15,080 Speaker 3: they did one follow on offering m HM, and then 641 00:32:15,320 --> 00:32:19,360 Speaker 3: for about a period about twelve months in nineteen ninety 642 00:32:19,400 --> 00:32:22,720 Speaker 3: three or four, we pitched them hard on doing another 643 00:32:22,720 --> 00:32:24,760 Speaker 3: follow on. We actually had a good analyst on the 644 00:32:24,840 --> 00:32:27,160 Speaker 3: name in the company. Like this, We went to Hershey 645 00:32:27,200 --> 00:32:29,360 Speaker 3: probably six or seven times in a space of a year, 646 00:32:29,600 --> 00:32:33,160 Speaker 3: pitching a following off, pitching a nothing, didn't get paid, 647 00:32:33,160 --> 00:32:35,040 Speaker 3: but got the Hershey and got a lot of Hershey 648 00:32:35,120 --> 00:32:39,200 Speaker 3: chocolate there's that, So, Jen, what does a company like 649 00:32:39,240 --> 00:32:41,200 Speaker 3: Hershey do. It's one of those things. I know they've 650 00:32:41,240 --> 00:32:44,480 Speaker 3: gotten bigger through some acquisitions, but there's still relatively a 651 00:32:44,520 --> 00:32:46,560 Speaker 3: small player relative to some of the other big names. 652 00:32:47,000 --> 00:32:49,320 Speaker 3: But is there a brand so good that they can 653 00:32:49,440 --> 00:32:51,400 Speaker 3: kind of remain independent? 654 00:32:52,480 --> 00:32:55,400 Speaker 12: Yeah, I believe that the Hershey brand is really iconic, 655 00:32:55,440 --> 00:32:58,840 Speaker 12: and if you think about some of their biggest chocolate lines, 656 00:32:58,920 --> 00:33:03,720 Speaker 12: there really aren't a lot of mass targeted competitors out there. 657 00:33:03,880 --> 00:33:05,960 Speaker 12: When it comes to kind of that mass market. It's 658 00:33:05,960 --> 00:33:08,640 Speaker 12: hard for an external brand to come in and get 659 00:33:08,640 --> 00:33:11,400 Speaker 12: the kind of penetration that her She has. And in addition, 660 00:33:11,480 --> 00:33:14,200 Speaker 12: Hershey has really done a good job of diversifying into 661 00:33:14,320 --> 00:33:17,040 Speaker 12: the broader snacking. So they own you know, they own 662 00:33:17,080 --> 00:33:20,320 Speaker 12: popcorn brand, they own you know, pretzel brand. They've done 663 00:33:20,360 --> 00:33:22,720 Speaker 12: a good job of diversifying and that'll help them with 664 00:33:22,720 --> 00:33:23,920 Speaker 12: their long term growth as well. 665 00:33:24,040 --> 00:33:26,920 Speaker 3: Our thanks to Jennifer Bartash is Bloomberg Intelligence Senior Animals. 666 00:33:27,000 --> 00:33:28,760 Speaker 3: She covers retail, stables and packaged food. 667 00:33:28,960 --> 00:33:30,960 Speaker 4: We turn out to earnings from deer so the world's 668 00:33:31,040 --> 00:33:34,000 Speaker 4: biggest farm machinery producer trimmed its profit outlook for this 669 00:33:34,120 --> 00:33:36,680 Speaker 4: year and this comes as crop prices are giving farmers 670 00:33:36,800 --> 00:33:40,080 Speaker 4: less money to use on those equipment purchases to help recap. 671 00:33:40,280 --> 00:33:43,160 Speaker 3: We were joined by Christopher Cilino, Bloomberg Intelligence Senior US 672 00:33:43,200 --> 00:33:47,080 Speaker 3: machinery analyst. We first asked Chris his take on Deer's earnings. 673 00:33:47,120 --> 00:33:50,080 Speaker 11: The quarter was great, really much better than we anticipated 674 00:33:50,160 --> 00:33:53,080 Speaker 11: across the board, beats both top line and margins for 675 00:33:53,160 --> 00:33:56,360 Speaker 11: most of the businesses, but the outlook was the disappointment 676 00:33:56,400 --> 00:33:58,760 Speaker 11: of the quarter. They cut knit income guidance by about 677 00:33:58,840 --> 00:34:02,880 Speaker 11: five percent, and that's largely reflective of incremental weakness in 678 00:34:02,920 --> 00:34:07,000 Speaker 11: the ag business, specifically the largejag business. And there's really 679 00:34:07,000 --> 00:34:10,239 Speaker 11: two components to that. One Europe Year now plans to 680 00:34:10,400 --> 00:34:13,400 Speaker 11: underproduce retail demand due to some weakness in Central and 681 00:34:13,440 --> 00:34:16,279 Speaker 11: Eastern Europe given the conflict there, so they're going to 682 00:34:16,360 --> 00:34:18,840 Speaker 11: try to bring down inventories. They're already under producing in 683 00:34:18,840 --> 00:34:21,400 Speaker 11: Brazil as well. And then the second component of the 684 00:34:21,440 --> 00:34:25,600 Speaker 11: cut was really some additional softness beginning to transpire here 685 00:34:25,640 --> 00:34:28,719 Speaker 11: in North America. We saw some of the order velocity 686 00:34:28,800 --> 00:34:31,600 Speaker 11: start to moderate, so demand seems to kind of be 687 00:34:31,640 --> 00:34:34,279 Speaker 11: trending towards the low end of their down ten to 688 00:34:34,280 --> 00:34:37,840 Speaker 11: fifteen percent. Industry outlook when it comes to LARGEAG equipment. 689 00:34:37,920 --> 00:34:40,000 Speaker 4: Yeah, let's get through some of these here. Production precision 690 00:34:40,000 --> 00:34:43,600 Speaker 4: AGNET sales for their yearly forecast, they're looking down twenty 691 00:34:43,640 --> 00:34:46,759 Speaker 4: percent worse. An estimated construction and forestry net sales down 692 00:34:46,760 --> 00:34:49,320 Speaker 4: five to ten percent, small EG and turf net sales 693 00:34:49,360 --> 00:34:53,480 Speaker 4: down ten to fifteen percent. Yiki, is this a early cycle, 694 00:34:53,560 --> 00:34:55,800 Speaker 4: mid cycle or late cycle read on the economy. 695 00:34:56,000 --> 00:34:58,920 Speaker 11: We're early in an AG downturn. Last year was a 696 00:34:59,000 --> 00:35:03,080 Speaker 11: peak production level. You know, historically you don't have one 697 00:35:03,120 --> 00:35:05,560 Speaker 11: year downturn, so I would suspect this is kind of 698 00:35:05,600 --> 00:35:08,520 Speaker 11: the beginning of a multi year downturn. And some of 699 00:35:08,560 --> 00:35:10,799 Speaker 11: the numbers that you're seeing that your reference on their 700 00:35:10,840 --> 00:35:16,200 Speaker 11: guidance are well below you know, market retail demand expectations, 701 00:35:16,239 --> 00:35:18,600 Speaker 11: suggesting that you know, they have some more work to 702 00:35:18,600 --> 00:35:22,239 Speaker 11: do on bringing down inventory levels. Values continue to kind 703 00:35:22,280 --> 00:35:24,680 Speaker 11: of come down here over the last twelve months, and 704 00:35:24,760 --> 00:35:28,359 Speaker 11: I suspect you'll see further pressure on the use side. 705 00:35:29,400 --> 00:35:31,840 Speaker 11: New equipment pricing, you know, deers kind of guiding to 706 00:35:32,760 --> 00:35:34,880 Speaker 11: one and a half percent, which is kind of below 707 00:35:35,080 --> 00:35:37,960 Speaker 11: historical averages. And remember we're coming off of you know, 708 00:35:38,080 --> 00:35:42,359 Speaker 11: three years of really strong phenomenal pricing, So returning to 709 00:35:42,719 --> 00:35:45,520 Speaker 11: I would say below normal historical trend, which will also 710 00:35:45,600 --> 00:35:46,720 Speaker 11: be a drag on margins. 711 00:35:47,480 --> 00:35:49,760 Speaker 4: Caterpillar had a different kind of read, and I appreciate 712 00:35:49,800 --> 00:35:51,520 Speaker 4: they also do metals and mining and stuff. So is 713 00:35:51,560 --> 00:35:53,960 Speaker 4: it going to be the diversified players that are going 714 00:35:54,000 --> 00:35:54,680 Speaker 4: to really win on this? 715 00:35:55,520 --> 00:35:55,759 Speaker 2: Yeah? 716 00:35:55,800 --> 00:35:59,759 Speaker 11: So, I you know, constructions holding up certainly better than 717 00:36:00,200 --> 00:36:03,040 Speaker 11: the farmer and then the ag economy A couple of 718 00:36:03,080 --> 00:36:05,279 Speaker 11: different moving pieces there. I mean, you still have a 719 00:36:05,320 --> 00:36:09,279 Speaker 11: tremendous amount of infrastructure related funds and government stimulus coming 720 00:36:09,280 --> 00:36:12,080 Speaker 11: through the system that will not only be kind of 721 00:36:12,080 --> 00:36:14,640 Speaker 11: a tail wind here in twenty four, but even twenty 722 00:36:14,640 --> 00:36:17,800 Speaker 11: five and twenty six. So I think that certainly helps 723 00:36:17,840 --> 00:36:21,760 Speaker 11: offset some of the cyclical headwinds facing both the rezie 724 00:36:21,800 --> 00:36:24,719 Speaker 11: or non residential markets. But if you look at the 725 00:36:24,719 --> 00:36:27,960 Speaker 11: farm economy almost kind of a completely different story. You 726 00:36:28,000 --> 00:36:30,719 Speaker 11: look at crop prices, which are ultimately the biggest driver 727 00:36:30,840 --> 00:36:34,719 Speaker 11: of farm income and equipment purchases, corn, soy, wheat down 728 00:36:34,760 --> 00:36:37,520 Speaker 11: you know, twenty five thirty five percent plus, So that's 729 00:36:37,560 --> 00:36:40,359 Speaker 11: beginning to trickle through to farm incomes. Farmer incomes are 730 00:36:40,360 --> 00:36:43,040 Speaker 11: going to be down twenty six percent this year, and 731 00:36:43,080 --> 00:36:45,520 Speaker 11: I suspect will be under further pressure as we exit 732 00:36:45,560 --> 00:36:46,000 Speaker 11: the year. 733 00:36:45,880 --> 00:36:49,239 Speaker 4: Too our thanks to Chris Gillino, a Bloomberg Intelligence Senior 734 00:36:49,360 --> 00:36:50,560 Speaker 4: US Machinery analyst. 735 00:36:50,960 --> 00:36:55,480 Speaker 2: This is the Bloomberg Intelligence Podcast, available on Apples, Spotify, 736 00:36:55,680 --> 00:36:58,600 Speaker 2: and anywhere else you will get your podcasts. Listen live 737 00:36:58,680 --> 00:37:02,320 Speaker 2: each weekday, ten am to noon Eastern on Bloomberg dot com, 738 00:37:02,400 --> 00:37:05,800 Speaker 2: the iHeartRadio app tune In, and the Bloomberg Business app. 739 00:37:05,920 --> 00:37:08,880 Speaker 2: You can also watch us live every weekday on YouTube 740 00:37:09,120 --> 00:37:11,000 Speaker 2: and always on the Bloomberg terminal