WEBVTT - Harley Davidson Shares Soar on Captive Deal 0:00:02.720 --> 0:00:10.600 Bloomberg Audio Studios, Podcasts, radio news. You're listening to the 0:00:10.600 --> 0:00:14.600 Bloomberg Intelligence podcast. Catch us live weekdays at ten am 0:00:14.640 --> 0:00:18.560 Eastern on Applecarplay and Android Auto with the Bloomberg Business app. 0:00:18.640 --> 0:00:21.880 Listen on demand wherever you get your podcasts, or watch 0:00:21.960 --> 0:00:23.120 us live on YouTube. 0:00:23.600 --> 0:00:27.400 It's called Harley Davidson. Now, John, you know I bought 0:00:27.920 --> 0:00:31.880 a ride recently. You did not buy a Hardy. Let's 0:00:31.960 --> 0:00:35.200 just make that clear. I bought a Vespa Piaggio scooter 0:00:35.600 --> 0:00:39.760 fifty ccs of raw power. So you know, when you're 0:00:39.840 --> 0:00:42.400 driving down the road and the guy and Holly Davison 0:00:42.400 --> 0:00:44.440 comes the other way, you know, I wave, They don't 0:00:44.440 --> 0:00:46.440 wave back. You know, I don't get the cool sign 0:00:46.600 --> 0:00:49.839 like he're a bark but you're not anyway. Joe Levington, 0:00:49.840 --> 0:00:52.239 he follows the all the credit stuff for a lot 0:00:52.280 --> 0:00:56.000 of these industrial and transportation companies. He's a director of 0:00:56.240 --> 0:01:00.640 credit research for Bloomberg Intelligence. Harley Davidson doc is up 0:01:00.800 --> 0:01:03.800 twenty percent. Here what happened? Paul? 0:01:03.880 --> 0:01:05.960 You're on the Vestila. I would think you'd be coming out. 0:01:06.080 --> 0:01:07.680 Are you coming out of your Ventley while you do that? 0:01:07.800 --> 0:01:10.280 Yeah, I'm vestment on a jersey Shore. You can find 0:01:10.319 --> 0:01:10.959 me any day. 0:01:11.120 --> 0:01:13.240 Got I believe that. I believe Yeah, you know. 0:01:13.319 --> 0:01:15.720 The key for Harley isn't really their earnings, which were 0:01:15.760 --> 0:01:18.920 really like not great, but the potential or not the potential, 0:01:18.920 --> 0:01:22.480 but a steak sale of their captive finance company which 0:01:22.520 --> 0:01:24.959 came in at a much higher price than people were expecting. 0:01:25.240 --> 0:01:27.160 That's going to be used or the proceeds are one 0:01:27.160 --> 0:01:29.520 point twenty five billion dollars, with the proceed used for 0:01:29.560 --> 0:01:32.760 a mix of share purchases, paying down debt, and also 0:01:32.800 --> 0:01:33.800 for capital investment. 0:01:34.080 --> 0:01:36.240 Okay, so when I go in to buy a Harley 0:01:36.360 --> 0:01:41.080 Davidson motorcycle at the dealership, I finance it through this 0:01:41.240 --> 0:01:44.240 part of Harley. That's exactly that's what they sold, or 0:01:44.280 --> 0:01:46.000 that's part of what they're selling. 0:01:46.240 --> 0:01:49.200 Who's buying it and why sure KKR. 0:01:48.760 --> 0:01:52.240 And Pimpco are the buyers, each taking a four point 0:01:52.320 --> 0:01:55.400 nine percent steak, and really they're buying it because that 0:01:55.440 --> 0:01:58.440 business has been a very profitable business for many, many years. 0:01:59.080 --> 0:02:01.320 It actually should be more than fifty percent of Harley's 0:02:01.320 --> 0:02:04.400 overall profits. They actually make more money from the financing 0:02:04.440 --> 0:02:07.440 side than they do from manufacturing vehicles right now, which 0:02:07.680 --> 0:02:09.800 goes to the you know, the trouble that they're having 0:02:09.800 --> 0:02:11.720 on the manufacturing side, or let's. 0:02:11.560 --> 0:02:17.000 Talk about the manufacturing side. What's the motorcycle market like 0:02:17.160 --> 0:02:17.800 these days? 0:02:18.080 --> 0:02:20.080 The motorcycle business isn't bad. 0:02:20.639 --> 0:02:23.200 I think the challenge with Harley is that it's kind 0:02:23.200 --> 0:02:25.600 of one of those melting ice cubes that sometimes you 0:02:25.639 --> 0:02:28.280 see in the media world that you would know well 0:02:28.280 --> 0:02:32.600 of if you go back ten years ago. The manufacturing side, 0:02:32.600 --> 0:02:36.320 its sales are down thirteen percent over ten years. But 0:02:36.360 --> 0:02:38.320 the real issue is that the margins have gone from 0:02:38.360 --> 0:02:40.680 twenty percent, so they're making twenty cents on the dollar, 0:02:41.639 --> 0:02:43.239 you know, ten years ago now they make. 0:02:43.080 --> 0:02:43.959 About five cents. 0:02:44.120 --> 0:02:44.400 Wow. 0:02:44.440 --> 0:02:47.240 And so it's really the profitability and the erosion and 0:02:47.280 --> 0:02:49.360 not really playing to their strengths. 0:02:49.000 --> 0:02:51.639 Not because they can't raise prices or they're costing on them. 0:02:51.760 --> 0:02:53.800 Well, I think it's really they've kind of lost their 0:02:53.840 --> 0:02:54.480 way a little bit. 0:02:54.520 --> 0:02:54.680 You know. 0:02:54.680 --> 0:02:57.079 They were talking today about their six thousand dollars motorcycle 0:02:57.080 --> 0:02:59.720 that they're excited about, you know, and I know, like 0:02:59.760 --> 0:03:03.840 it's the premium brand, it's that iconic image of a Harley, 0:03:03.960 --> 0:03:08.160 it's that V eight engine playing to the electrician or 0:03:08.200 --> 0:03:11.760 the plumber, you know, the mechanic that has an eighty 0:03:11.800 --> 0:03:16.680 to one hundred thousand dollars income and owns a Mustang, Like, 0:03:16.880 --> 0:03:19.400 that's who they should be playing to in that forty 0:03:19.400 --> 0:03:21.840 to six year old age rings, Like that's their customer. 0:03:22.120 --> 0:03:24.639 But they've tried to move out into different segments of 0:03:24.680 --> 0:03:28.760 the marketplace and have really gotten hurt and eroded their image. 0:03:28.919 --> 0:03:32.120 I can't think of a more American made product anywhere 0:03:32.520 --> 0:03:36.280 than Harley Davidson. So are they immune from tariffs? Does 0:03:36.280 --> 0:03:39.120 that give them an advantage versus some of these Japanese brands. 0:03:39.480 --> 0:03:42.640 They're not immune from them, but they do have twenty 0:03:42.640 --> 0:03:46.120 five percent of their business in Europe and another twenty five. 0:03:46.000 --> 0:03:47.400 Percent in Asia. 0:03:47.520 --> 0:03:50.400 But really, like the US is where they is, where 0:03:50.400 --> 0:03:52.440 they're big, and where they dominate. They just haven't done 0:03:52.480 --> 0:03:55.200 a great job of marketing to that person and putting 0:03:55.240 --> 0:03:56.880 engineering into that customer. 0:03:57.120 --> 0:04:01.320 Should I be more excited about Harley Davidson an stock 0:04:01.720 --> 0:04:04.600 hog or Harley Davidson bonds? 0:04:05.480 --> 0:04:07.000 Well, I just look at the bonds and I'm not 0:04:07.040 --> 0:04:09.480 that excited about the bonds. But what I will say 0:04:09.480 --> 0:04:13.360 for them is that they're going to remain investment grade 0:04:13.360 --> 0:04:16.320 after the sale, and they trade very wide to their 0:04:16.400 --> 0:04:19.520 ratings and so like that is always an interesting combination 0:04:19.560 --> 0:04:20.240 that people look. 0:04:20.120 --> 0:04:21.120 At what does that yield? 0:04:21.240 --> 0:04:25.239 Or well they have a variety of issues, right, Yeah, 0:04:25.240 --> 0:04:27.880 but I would say that in general they trade about 0:04:28.200 --> 0:04:31.599 twenty to thirty basis points wide of where the ratings are. 0:04:32.000 --> 0:04:35.120 So what credit rader thinks, and usually bonds trade to 0:04:35.160 --> 0:04:36.200 what the raiders think. 0:04:36.800 --> 0:04:39.240 How about you also cover the auto sector. How's the 0:04:39.320 --> 0:04:41.920 credit of the auto industry out there? 0:04:41.920 --> 0:04:47.240 Because this whole tariff situation, the uncertainty associated with transition 0:04:47.320 --> 0:04:50.040 to evs, Like I just say to myself, every time 0:04:50.080 --> 0:04:52.440 I look at some of the stocks, I can't find 0:04:52.440 --> 0:04:53.120 a scenario to. 0:04:53.120 --> 0:04:54.040 Own any of the stocks. 0:04:54.040 --> 0:04:56.320 How about the bonds, Yeah, well, you know it's interesting 0:04:56.360 --> 0:04:58.440 because the bonds are a different world. 0:04:58.560 --> 0:04:58.720 Right. 0:04:58.800 --> 0:05:02.080 All of the issues that you see in autos apply 0:05:02.200 --> 0:05:05.920 to pretty much everybody except Ferrari, Right, whether it's tariffs 0:05:06.040 --> 0:05:09.160 or the EV transition being slower or maybe not actually 0:05:09.160 --> 0:05:12.600 happening in the US, all of these challenges still exist. 0:05:12.760 --> 0:05:15.480 But the difference between an equity investor and a bond 0:05:15.520 --> 0:05:19.200 investor is that your typical mind is three years of maturity, right, 0:05:19.240 --> 0:05:21.960 because it's largely tied to the captive finance company, right, 0:05:22.000 --> 0:05:24.520 the financing of the loans and leases behind an auto, 0:05:24.880 --> 0:05:27.599 And so it's a much shorter term way of thinking. 0:05:27.640 --> 0:05:29.400 You know, can I get my money back in three 0:05:29.480 --> 0:05:33.320 years supported by a vehicle which will have a residual 0:05:33.440 --> 0:05:35.680 value to it. It's a little different than saying, like, hey, 0:05:35.800 --> 0:05:38.359 ten fifteen years out, what's my discounted cash flow? So 0:05:38.680 --> 0:05:42.000 it's a very investible side from the from the credit side, 0:05:42.120 --> 0:05:44.120 maybe not as much on the equity side. 0:05:44.200 --> 0:05:46.640 Will they tell us more about the future. Can it 0:05:46.760 --> 0:05:49.000 serve as kind of a canary in the coal mine 0:05:49.000 --> 0:05:52.080 for a company looking at that end of it. 0:05:52.640 --> 0:05:53.480 At the captive side. 0:05:53.600 --> 0:05:56.840 Yeah, yeah, Well it's very short term sighted, right, so 0:05:57.360 --> 0:06:00.320 you have to you know, for all the treasures and 0:06:00.400 --> 0:06:03.080 CFOs that are out there, and as CEOs, they're thinking 0:06:03.120 --> 0:06:05.560 long term and where can I take my company? How 0:06:05.560 --> 0:06:08.000 can I grow it into something bigger and more meaningful? 0:06:08.279 --> 0:06:09.320 A bondholder just wants to. 0:06:09.279 --> 0:06:10.480 Get paid back, that's right. 0:06:11.279 --> 0:06:13.000 See, this is where I learned different outlook. 0:06:13.080 --> 0:06:16.520 Equity is soft, debt is hard. You can always tell 0:06:16.560 --> 0:06:18.440 me to go, you know, go some way. 0:06:18.440 --> 0:06:19.760 We call this smart money. 0:06:19.839 --> 0:06:22.080 It is so smart money. The actually and they're tending 0:06:22.080 --> 0:06:24.800 to be pessimists in general. Where's the equity? People were 0:06:24.800 --> 0:06:27.760 always class half full? This is what could go right 0:06:28.040 --> 0:06:30.080 for these guys. The whole world is what could go wrong. 0:06:30.200 --> 0:06:32.760 So anyway, Joe Levington one of the best global director 0:06:32.800 --> 0:06:37.320 research Bloomberg in Intelligence, covering all that autos, industrial transportation, 0:06:37.360 --> 0:06:38.960 all that kind of stuff from the credit perspective. 0:06:40.720 --> 0:06:44.400 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:06:44.480 --> 0:06:47.599 weekdays at ten am Eastern on Apple Coarcklay and Android 0:06:47.600 --> 0:06:50.880 Auto with the Bloomberg Business App. Listen on demand wherever 0:06:50.960 --> 0:06:54.039 you get your podcasts, or watch us live on YouTube. 0:06:54.400 --> 0:06:56.200 John Tucker Pauls when you live here in our Bloomberg 0:06:56.240 --> 0:06:59.760 Interactive Broker Studio streaming live on YouTube. John, you know, 0:06:59.800 --> 0:07:01.680 with all this inflation over the last several years, I 0:07:01.760 --> 0:07:05.240 found myself at the shopping at the supermarket, buying more 0:07:05.320 --> 0:07:07.479 store branded products. 0:07:07.040 --> 0:07:08.279 The white label stuff. 0:07:08.720 --> 0:07:12.560 But I'll tell you what I haven't is ketchup. I'm 0:07:12.600 --> 0:07:15.120 sticking with Heines, no matter what I mean that case 0:07:15.200 --> 0:07:18.120 ketchup to me cats Up Ketchup. However you play it, 0:07:18.520 --> 0:07:19.000 how does. 0:07:18.960 --> 0:07:19.840 Jim say it? 0:07:20.000 --> 0:07:22.400 I don't know. Jen Bartash, she does this stuff for 0:07:22.520 --> 0:07:25.040 a living. She covers all the staples companies that package 0:07:25.080 --> 0:07:28.080 foods company. She also covers all the supermarkets too, So 0:07:28.120 --> 0:07:30.960 if you want to talk inflation on the stuff we 0:07:31.040 --> 0:07:33.760 buy at the store, Jen Bartashes is the person to 0:07:33.760 --> 0:07:36.000 talk to. She joins us from Princeton here, So Jen 0:07:36.200 --> 0:07:39.040 Craft hines, they put out some numbers that show they 0:07:39.080 --> 0:07:41.400 still have some price power out there in the marketplace, 0:07:41.400 --> 0:07:41.760 don't they? 0:07:42.640 --> 0:07:45.760 They do, Paul, and it was all by By all 0:07:45.800 --> 0:07:48.720 things considered, it was a pretty decent quarter for craft Tigns. 0:07:49.560 --> 0:07:52.920 But they're still in progress of trying to really turn 0:07:52.960 --> 0:07:56.160 around and accelerate parts of their business. And although Ketchup 0:07:56.200 --> 0:07:57.880 is a brand where a lot of people have a 0:07:57.880 --> 0:07:59.880 lot of loyalty, there are a lot of other parts 0:08:00.040 --> 0:08:03.040 their portfolio where they're still really trying to invest to 0:08:03.200 --> 0:08:05.360 regain consumer uptake of their products. 0:08:05.640 --> 0:08:09.640 What's like a growth area for this business, like AI 0:08:09.800 --> 0:08:11.040 powered mustard or. 0:08:12.680 --> 0:08:15.920 Yeah. As funny as it sounds, one of the really 0:08:15.960 --> 0:08:19.280 interesting things about AI with regards to food companies is 0:08:19.320 --> 0:08:22.760 that it's really allowing and unlocking in an acceleration of innovation. 0:08:23.800 --> 0:08:26.239 And so although it's a little bit tongue in cheek 0:08:26.800 --> 0:08:29.840 For Kraft Tignes, one of the big areas of focus 0:08:29.880 --> 0:08:32.400 for them is the flavors, and that's the sauces. Because 0:08:32.920 --> 0:08:37.080 right now, consumers like things, they like different taste experiences, 0:08:37.120 --> 0:08:39.520 and sauce is a very easy and economical way to 0:08:39.559 --> 0:08:42.400 do that. So they've been really pushing the accelerator in 0:08:42.440 --> 0:08:42.920 that area. 0:08:43.160 --> 0:08:46.319 All Right, you go to any restaurant diner, USA, it's 0:08:46.400 --> 0:08:51.199 kind of at your booth would be ketchup mustard. Maybe 0:08:51.440 --> 0:08:55.200 that's basically it. Now, what's there what's as staple as 0:08:55.280 --> 0:08:58.280 much as ketchup is is hot sauces. Really Yeah, the 0:08:58.360 --> 0:09:00.640 kids you're doing hot sauces don't get it. I mean 0:09:00.640 --> 0:09:03.360 they put it on everything, and they got it at 0:09:03.360 --> 0:09:06.480 their desks at work. What is this? Jen? Talk to 0:09:06.480 --> 0:09:09.000 those about this hot sauce thing? Where did that come from? 0:09:09.440 --> 0:09:12.280 Well, you know, there's a real generational shift in terms 0:09:12.280 --> 0:09:15.120 of flavor profiles that consumers like. And what we see 0:09:15.160 --> 0:09:19.760 is that in younger generations, spicy, the balancing of sweet 0:09:19.800 --> 0:09:23.240 and spicy, or salty and sweet, those kind of inner 0:09:23.480 --> 0:09:28.160 those those kind of dual type taste flavors are things 0:09:28.160 --> 0:09:31.719 that younger generation really are into and they're showing they're 0:09:31.760 --> 0:09:34.240 backing that up with why they're buying, whether it's how 0:09:34.240 --> 0:09:36.520 they're consuming it in restaurants or what they're buying when 0:09:36.559 --> 0:09:40.000 they are purchasing and things to make it home. And 0:09:40.040 --> 0:09:42.800 that's why you see other companies like McCormick really doubling 0:09:42.840 --> 0:09:46.839 down on spice and flavor, and the hot sauces are 0:09:46.880 --> 0:09:48.160 doing really well for them as well. 0:09:48.679 --> 0:09:51.800 And in terms of moderating rate of inflation, well, I 0:09:51.840 --> 0:09:55.199 haven't seen it. At the food town. I'm paying more 0:09:55.240 --> 0:09:59.160 for everything, including seems Heinz products. Am I right? 0:10:00.720 --> 0:10:04.240 You are right in with regards to certain categories. I 0:10:04.280 --> 0:10:07.200 will say retailers are pretty good about trying to bring 0:10:07.280 --> 0:10:10.240 down prices where they can as quickly as they can, 0:10:10.320 --> 0:10:14.000 because they really are trying to get consumers to value 0:10:14.040 --> 0:10:16.560 them in terms of being a loyal you know, to 0:10:16.600 --> 0:10:20.880 be loyal to their retail operations. But inflation has been persistent, 0:10:21.040 --> 0:10:25.080 and commodity costs are down from previous highs, but they're 0:10:25.080 --> 0:10:28.319 still elevated relative to historic levels. That means that these 0:10:28.360 --> 0:10:31.160 companies have absorbed a lot and don't have a lot 0:10:31.200 --> 0:10:33.520 of room to absorb more, so there is still some 0:10:33.559 --> 0:10:37.600 selective price increases that are going through. You know, tomatoes 0:10:37.640 --> 0:10:41.080 are a unique category because we're looking at prices going 0:10:41.120 --> 0:10:44.040 up for tomatoes through the end of the year because 0:10:44.040 --> 0:10:46.000 of some trade agreement changes that have happened. 0:10:46.480 --> 0:10:48.400 Oh well, if you're in New Jersey, you kind of 0:10:48.400 --> 0:10:48.920 grow your own. 0:10:48.960 --> 0:10:51.040 We got a Jersey tomato. 0:10:51.080 --> 0:10:51.280 Sure. 0:10:51.520 --> 0:10:54.240 Hey, Jen, I mean you are the expert when someone 0:10:54.320 --> 0:10:57.600 says someone asked me, like, hey, who bears the brunt 0:10:57.640 --> 0:11:01.160 of these terrors? Is it the order? Is it the 0:11:01.960 --> 0:11:04.640 you know, the package goods company is at the supermarket? 0:11:05.000 --> 0:11:07.480 You cover pretty much all of that, Jen, how do 0:11:07.520 --> 0:11:09.880 you explain it to people? Like where are those cost 0:11:09.920 --> 0:11:10.800 increases get born? 0:11:11.920 --> 0:11:13.880 So, I think there's a little bit of a distribution 0:11:13.960 --> 0:11:16.800 across the whole supply chain, and so everybody's taking a 0:11:16.880 --> 0:11:20.200 little bite of it, But that also includes consumers at 0:11:20.200 --> 0:11:23.440 the end of that chain. The problem with that and 0:11:23.520 --> 0:11:28.200 so you know, if a retailer is negotiating, they're negotiating 0:11:28.240 --> 0:11:31.719 with their package food counterparts, they're you know, absorbing a 0:11:31.720 --> 0:11:34.560 little bit of cost, but ultimately the consumer has to 0:11:34.600 --> 0:11:37.760 pay a little bit more as well. Because there's been 0:11:37.760 --> 0:11:39.960 so much inflation over the last couple of years that 0:11:40.000 --> 0:11:42.600 there's just no more bandwidth to absorb it and to 0:11:42.640 --> 0:11:46.080 protect and shield consumers from it. So it is inevitable 0:11:46.120 --> 0:11:48.400 that price increases and inflation is going to hit that 0:11:48.480 --> 0:11:52.000 end consumer. We just haven't really seen the full brunt 0:11:52.040 --> 0:11:54.640 of the tariff impact yet because of all of the 0:11:54.640 --> 0:11:57.360 delays and the implementation and things like that. We're really 0:11:57.400 --> 0:11:59.400 expecting to see that tick up in the second half. 0:12:00.000 --> 0:12:02.480 Company like craft PNEs. Is there some sort of dividing 0:12:02.559 --> 0:12:05.360 line or are they just kind of experimenting in terms 0:12:05.400 --> 0:12:09.080 of like eating the costs the impact on the margins 0:12:09.120 --> 0:12:12.080 and raising prices for consumers. How does that work? 0:12:13.000 --> 0:12:15.160 They're really looking at it in a very targeted way, 0:12:15.200 --> 0:12:18.440 so it's more like category by category or even sometimes 0:12:18.480 --> 0:12:22.240 product by product areas where you want to make sure 0:12:22.240 --> 0:12:24.640 that you have at least part of your product portfolio 0:12:25.040 --> 0:12:28.320 that preserves value for consumers. So that means not changing 0:12:28.320 --> 0:12:31.040 the pack size, that means not changing the price, but 0:12:31.120 --> 0:12:35.080 being selective and maybe increasing the price somewhere else in 0:12:35.120 --> 0:12:37.360 your portfolio to sort of offset that. So it's a 0:12:37.400 --> 0:12:40.600 big balancing act. One of the really great things that's 0:12:40.640 --> 0:12:42.360 come out in the last couple of years is that 0:12:42.440 --> 0:12:46.200 through AI and through big data, these companies have gotten 0:12:46.320 --> 0:12:49.800 much more sophisticated in how to maintain that balance, and 0:12:49.880 --> 0:12:52.000 so that's actually really helped in why we've seen some 0:12:52.040 --> 0:12:54.240 of the margin expansion that we've seen at least the 0:12:54.280 --> 0:12:56.400 gross margin line for some of these companies in the 0:12:56.480 --> 0:13:00.000 last couple of years. 0:13:00.000 --> 0:13:01.880 Thirty seconds left here are they going to split this 0:13:01.920 --> 0:13:03.440 company up? Didn't I when are we talking to you 0:13:03.440 --> 0:13:04.480 about this a week or two ago? 0:13:05.120 --> 0:13:09.640 Yeah, there's you know, they they're exploring strategic strategic options, 0:13:09.880 --> 0:13:11.840 and I think one of the big obstacles is that, 0:13:11.960 --> 0:13:13.720 you know, what was rumored out there and the press 0:13:13.760 --> 0:13:15.240 was that they were going to spin the bulk of 0:13:15.240 --> 0:13:18.240 their grocery business into some of the entity. The problem 0:13:18.320 --> 0:13:19.880 is they've tried to sell a bunch of these brands 0:13:19.880 --> 0:13:23.000 already and have been unsuccessful in doing so. So the 0:13:23.080 --> 0:13:24.960 question is can they do this in a way that 0:13:25.040 --> 0:13:27.959 bundles it, creates value for shareholders, and still gives them 0:13:27.960 --> 0:13:30.439 the returns that they think they deserve for the brands 0:13:30.440 --> 0:13:31.360 that they're looking to sell. 0:13:31.480 --> 0:13:33.959 All right? I looked at the comp function coNP for 0:13:34.040 --> 0:13:37.640 craft Tigns last five years. Compounded annual return for the 0:13:37.679 --> 0:13:41.760 stock wait for it, one percent per year that's it. 0:13:42.240 --> 0:13:44.920 But on the flip side, they do pay a dividend 0:13:45.000 --> 0:13:47.240 yield of five and a half percent, so you can 0:13:47.320 --> 0:13:49.520 all in about six and a half percent. That's basically 0:13:49.559 --> 0:13:52.200 it for that part of the world. I don't know. 0:13:52.280 --> 0:13:54.640 And you pay, you pay a pe of you know, 0:13:54.720 --> 0:13:56.840 ten times earnings. That's kind of the story for a 0:13:56.840 --> 0:13:58.760 lot of that stuff in the consumer stable space. 0:14:00.559 --> 0:14:04.240 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:14:04.360 --> 0:14:07.439 weekdays at ten am Eastern on Apple, Cocklay and Android 0:14:07.440 --> 0:14:10.760 Auto with the Bloomberg Business app. Listen on demand wherever 0:14:10.800 --> 0:14:13.920 you get your podcasts, or watch us live on YouTube. 0:14:14.559 --> 0:14:17.320 Let's get back to the restaurant business. I know the 0:14:17.360 --> 0:14:19.240 restaurant business. I mean, I'm not sure about this whole 0:14:19.880 --> 0:14:22.520 go to restaurants, restaurant almost every single day here, so 0:14:22.560 --> 0:14:24.120 I know what's going on at there. Michael Hale and 0:14:24.200 --> 0:14:26.920 he really knows what's going on with the restaurant business. 0:14:26.920 --> 0:14:29.160 He covers all the restaurants and the food services companies 0:14:29.160 --> 0:14:35.360 for Bloomberg Intelligence. Starbucks big turnaround story, Mike, is it working? 0:14:37.640 --> 0:14:40.840 You know, there was some positive points that Brian Nickel 0:14:40.920 --> 0:14:44.560 hit on last night. You know the fact that their 0:14:44.600 --> 0:14:47.200 value perception scores are the best they've been in two years, 0:14:47.880 --> 0:14:50.680 and hourly turnovers down to forty nine percent, which is 0:14:50.720 --> 0:14:55.200 actually phenomenal in the restaurant industry. Service times are improving, 0:14:55.320 --> 0:15:00.200 customer satisfactions up, customer complaints are down. So with a 0:15:00.240 --> 0:15:04.520 small beat on the US same store sales, you know, 0:15:05.000 --> 0:15:05.600 and some. 0:15:05.480 --> 0:15:08.000 Of these these positives. 0:15:07.440 --> 0:15:12.040 He's pointing to, it's given bulls, you know, some confidence 0:15:12.080 --> 0:15:15.560 that that a turnaround in its biggest market is near. 0:15:16.040 --> 0:15:21.560 What counts as innovation when you're basically selling coffee. 0:15:22.280 --> 0:15:25.640 Well, yeah, restaurants tend to get some shade by calling 0:15:25.680 --> 0:15:29.600 you know, new menu items innovation. I'd say have One 0:15:29.600 --> 0:15:31.960 of the more innovative products they're going to have is 0:15:32.360 --> 0:15:35.600 protein cold foam. Cold foam sales are up twenty three 0:15:35.640 --> 0:15:37.920 percent in the quarter, So they're going to launch new 0:15:37.960 --> 0:15:41.000 protein cold foam and that's part of a broader initiative 0:15:41.040 --> 0:15:43.320 to sell healthier items. 0:15:42.840 --> 0:15:45.240 Protein, web pham, cold phone. 0:15:45.320 --> 0:15:47.400 Hey do they have macha? Isn't that what the kids 0:15:47.440 --> 0:15:47.880 are drinking? 0:15:48.080 --> 0:15:49.440 Is it Ai generated? 0:15:50.040 --> 0:15:50.360 Is it A? 0:15:52.880 --> 0:15:54.920 So they do have much I know they're they're going 0:15:55.000 --> 0:16:00.000 to try to implement some debut some healthier food items 0:16:00.120 --> 0:16:04.320 as well, because typically their offerings are pretty unhealthy generally. 0:16:05.880 --> 0:16:09.680 You know, they made an effort to remove dies and 0:16:10.360 --> 0:16:13.040 high fruit toast, corn syrup and stuff like that, and 0:16:13.080 --> 0:16:15.960 so they're going to continue to move towards you know, 0:16:16.000 --> 0:16:16.920 healthier options. 0:16:17.120 --> 0:16:19.960 Hey, Mike, let me ask you one question here on tariffs. 0:16:20.000 --> 0:16:22.840 How do your companies, how are they exposed and how 0:16:22.840 --> 0:16:24.280 are they dealing with it? What are you hearing from 0:16:24.280 --> 0:16:24.840 your companies? 0:16:26.440 --> 0:16:29.080 You know, we're not hearing much because most of them 0:16:29.120 --> 0:16:32.160 don't have much exposure. You know, Starbucks is one we're 0:16:32.200 --> 0:16:36.320 probably we're watching most closely because of because of coffee, right, 0:16:36.320 --> 0:16:38.800 and the impacts that taps can have on coffee prices. 0:16:38.840 --> 0:16:43.440 But Starbucks and all the other coffee chains that we 0:16:43.600 --> 0:16:46.200 follow are sourcing from many different countries. 0:16:46.240 --> 0:16:47.280 But you know, the. 0:16:47.240 --> 0:16:50.960 Restaurant business, most of the companies, all of the companies 0:16:51.000 --> 0:16:54.640 are primarily sourcing their product in the countries that they're 0:16:54.680 --> 0:16:59.240 operating in, right, And so most companies, you know, ninety 0:16:59.520 --> 0:17:03.120 percent plus of the of the items that they're sourcing 0:17:03.400 --> 0:17:04.640 are coming domestically. 0:17:04.800 --> 0:17:08.560 All right, let's go wings Baby. Wingstop stocks up twenty 0:17:08.560 --> 0:17:10.399 four percent. John Tucker and I have never been to 0:17:10.440 --> 0:17:12.640 wingstock We're going to the one on West fifty fifth 0:17:12.640 --> 0:17:17.040 Street after the show. Here, what's going on to Wingstop? Yeah? 0:17:17.040 --> 0:17:21.119 So Wingstop had a phenomenal year last year, and the 0:17:21.160 --> 0:17:24.080 stock is you know, had a pump bumpy time over 0:17:24.160 --> 0:17:27.160 the last you know, we'll call it eight nine, ten months, 0:17:28.280 --> 0:17:30.240 because investors knew that there was going to be a 0:17:30.280 --> 0:17:33.679 top ham bottom line slowing this year. You know what 0:17:33.800 --> 0:17:37.760 happened today. The top line slowing was a lot less 0:17:37.760 --> 0:17:41.160 than expected. That unic growth was better than expected. I mean, 0:17:41.200 --> 0:17:44.000 these stores are generating seventy percent cash on cash re 0:17:44.080 --> 0:17:47.560 terms for their franchisees. People are lining up to open 0:17:47.640 --> 0:17:50.280 new stores. And the same sort of sales decline was 0:17:50.320 --> 0:17:54.160 a lot less than expected, just about a percent, lapping 0:17:54.200 --> 0:17:56.200 a plus twenty four from last year. 0:17:56.320 --> 0:18:01.240 So less bad, less bad. 0:18:01.040 --> 0:18:06.080 Equals, you know, a lot of optimism around Winkstop, you know, 0:18:06.160 --> 0:18:10.040 especially around the smart kitchen roll out. They cited, yes, 0:18:10.119 --> 0:18:11.080 smart kitchen roll out. 0:18:11.200 --> 0:18:13.919 Go that AI team again there we go. 0:18:14.080 --> 0:18:17.400 Yeah, and so those those kitchens are you know, are 0:18:17.760 --> 0:18:22.040 improving the service time significantly, making the jobs easier for 0:18:22.119 --> 0:18:26.520 the employees, and it's actually driving better traffic and sales. 0:18:26.920 --> 0:18:29.040 Four months after implementation, all right the. 0:18:28.960 --> 0:18:32.160 West fifty fifth Street, Manhattan Story Better get Ready, John 0:18:32.200 --> 0:18:34.639 Tucker and Air coming over. Michael Halean, thanks so much 0:18:34.640 --> 0:18:36.560 for joining us. Michael Handy covers all the restaurants for 0:18:36.760 --> 0:18:37.800 Bloomberg Intelligence. 0:18:39.680 --> 0:18:43.399 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:18:43.480 --> 0:18:46.840 weekdays at ten am Eastern on Applecarplay and Android Auto 0:18:46.960 --> 0:18:50.040 with the Bloomberg Business App. Listen on demand wherever you 0:18:50.080 --> 0:18:53.040 get your podcasts, or watch us live on YouTube. 0:18:53.520 --> 0:18:55.119 John Tucker and Paul Sweeney, we're live here in our 0:18:55.119 --> 0:18:58.280 Bloomerg Interactive Broker Studio. We're streaming live on YouTube as well. 0:18:58.280 --> 0:19:00.480 Head over there and search Bloomberg Live Deal and that's 0:19:00.480 --> 0:19:03.160 where you'll find is here. Tesla in the news yet again, 0:19:03.200 --> 0:19:05.720 but this is for just a more mundane kind of 0:19:06.400 --> 0:19:10.600 business piece of news. Tesla's agreed to buy go into 0:19:10.680 --> 0:19:13.919 a battery supply pack with a company called LG Energy 0:19:13.960 --> 0:19:17.040 four point three billion dollars worth of batteries or I 0:19:17.040 --> 0:19:18.720 want to see what that means for Tesla, what it 0:19:18.760 --> 0:19:23.120 means for just kind of this continuing transition to electric vehicles. 0:19:23.160 --> 0:19:26.239 We need batteries, they need we need charging stations, all 0:19:26.280 --> 0:19:28.480 that kind of stuff. Steve Mann joins his global Autos 0:19:28.520 --> 0:19:31.680 and Industrials research channels for Bloomberg Intelligence. Steve talk to 0:19:31.760 --> 0:19:35.480 us about this deal between Tesla and LG Energy. What 0:19:35.600 --> 0:19:37.600