1 00:00:02,720 --> 00:00:10,559 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. You're listening to the 2 00:00:10,600 --> 00:00:14,560 Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am 3 00:00:14,600 --> 00:00:17,880 Speaker 1: Eastern on Apple Coarclay and Android Auto with the Bloomberg 4 00:00:17,920 --> 00:00:21,040 Speaker 1: Business App. Listen on demand wherever you get your podcasts, 5 00:00:21,360 --> 00:00:23,520 Speaker 1: or watch us live on YouTube. 6 00:00:24,000 --> 00:00:27,920 Speaker 2: So news from Meta Meta Platforms unveiled a version of 7 00:00:27,920 --> 00:00:31,639 Speaker 2: its AI model dubbed muse Spark one point one that 8 00:00:31,680 --> 00:00:34,960 Speaker 2: includes a new paid here for developers, marking the first 9 00:00:34,960 --> 00:00:38,000 Speaker 2: time Meta has charged businesses for access to its models. 10 00:00:38,080 --> 00:00:41,040 Speaker 2: Let's get the more details from Kurt Wagner, senior reporter 11 00:00:41,080 --> 00:00:43,760 Speaker 2: covering social media for Bloomberg News, who just sat down 12 00:00:44,200 --> 00:00:49,280 Speaker 2: with Mark Zuckerberg's Meta CEO and had a wine ranging interview. Kurt, 13 00:00:49,280 --> 00:00:50,920 Speaker 2: thanks so much for joining us here. Talk to us 14 00:00:50,920 --> 00:00:54,760 Speaker 2: about what you and mister Zuckerberg discuss regarding Meta's AI 15 00:00:54,960 --> 00:00:55,720 Speaker 2: strategy here. 16 00:00:57,800 --> 00:01:01,960 Speaker 3: Yeah, well, I mean the mode behind the interview was 17 00:01:02,040 --> 00:01:04,360 Speaker 3: this release that you just mentioned, the muse Spark one 18 00:01:04,360 --> 00:01:07,720 Speaker 3: point one, and we spend a good tunk of time 19 00:01:07,800 --> 00:01:11,600 Speaker 3: talking about where Meta stands in the AI race right now. 20 00:01:11,640 --> 00:01:14,480 Speaker 3: I think the prior models that the company has released 21 00:01:14,959 --> 00:01:17,880 Speaker 3: have really been seeing as sort of second tier behind 22 00:01:18,040 --> 00:01:20,920 Speaker 3: the open ais, the anthropics, and even the Googles of 23 00:01:20,920 --> 00:01:23,960 Speaker 3: the world. I think Mark Zuckerberg admitted to me in 24 00:01:24,040 --> 00:01:27,960 Speaker 3: our conversation that they're still trailing anthropic and open AI 25 00:01:28,040 --> 00:01:30,080 Speaker 3: in a lot of ways. But he was very proud 26 00:01:30,160 --> 00:01:34,240 Speaker 3: that this new model benchmarked better than the Google models, 27 00:01:34,280 --> 00:01:36,080 Speaker 3: and he said this was sort of a milestone for 28 00:01:36,120 --> 00:01:39,120 Speaker 3: them to, you know, in his words, kind of deliver 29 00:01:39,240 --> 00:01:41,800 Speaker 3: something that's a higher quality than what Google's doing. And 30 00:01:42,400 --> 00:01:46,200 Speaker 3: you know, they are racing to try and develop superintelligence. 31 00:01:46,200 --> 00:01:49,279 Speaker 3: They're racing to have the best model on the planet. 32 00:01:49,280 --> 00:01:52,320 Speaker 3: They have another one coming, it's called Watermelon. I don't 33 00:01:52,320 --> 00:01:54,040 Speaker 3: know exactly when that's going to be, but he talked 34 00:01:54,040 --> 00:01:56,280 Speaker 3: openly about how that is going to, in his mind, 35 00:01:56,320 --> 00:02:01,120 Speaker 3: push the frontier of AI development and progress. So, you know, 36 00:02:01,120 --> 00:02:03,320 Speaker 3: a big part of the conversation was muse spark one 37 00:02:03,360 --> 00:02:04,840 Speaker 3: point one and what that means for the business, But 38 00:02:04,840 --> 00:02:06,160 Speaker 3: a big part of it was just where do they 39 00:02:06,200 --> 00:02:07,680 Speaker 3: stand and does they feel like things are moving in 40 00:02:07,720 --> 00:02:10,320 Speaker 3: the right direction, And he feels very confident about where 41 00:02:10,360 --> 00:02:10,720 Speaker 3: they are. 42 00:02:11,080 --> 00:02:15,000 Speaker 4: Thank Kurt. Looking at metas stock, Meta's the ticker, it's 43 00:02:15,040 --> 00:02:18,000 Speaker 4: marginally higher now about four tenths of a percent, but 44 00:02:18,360 --> 00:02:20,960 Speaker 4: it had been lowered this morning on the back of 45 00:02:21,000 --> 00:02:22,880 Speaker 4: some of that news. Why do you think that is? 46 00:02:22,919 --> 00:02:25,680 Speaker 4: Obviously the stock is down this year, but of course 47 00:02:25,680 --> 00:02:27,919 Speaker 4: it was on such a tear in recent years after 48 00:02:27,919 --> 00:02:31,160 Speaker 4: a lot of those job tranches, and obviously it's moved 49 00:02:31,320 --> 00:02:33,960 Speaker 4: into AI and other vehicles there. What do you think 50 00:02:34,000 --> 00:02:36,680 Speaker 4: is going on as far as how shareholders are viewing this? 51 00:02:38,160 --> 00:02:41,079 Speaker 3: Well, the narrative around Meta's AI business for the last 52 00:02:41,160 --> 00:02:43,720 Speaker 3: six months or so has been that they're spending a 53 00:02:43,760 --> 00:02:47,720 Speaker 3: ton without a clear path for recovery, like where's all 54 00:02:47,720 --> 00:02:50,280 Speaker 3: this money going to come back into the business, And 55 00:02:50,520 --> 00:02:53,680 Speaker 3: in the last couple months, they've tried to answer that 56 00:02:53,720 --> 00:02:56,840 Speaker 3: in several ways. They have a consumer chatbot subscription that 57 00:02:56,840 --> 00:02:59,320 Speaker 3: they announced they're going to be selling access to AI 58 00:02:59,480 --> 00:03:04,679 Speaker 3: agent for businesses. Of course, there's today's news where they're 59 00:03:04,680 --> 00:03:09,240 Speaker 3: going to be selling their model to developers via this API. 60 00:03:09,720 --> 00:03:11,760 Speaker 3: And then we had a great story last week on 61 00:03:11,800 --> 00:03:14,880 Speaker 3: Bloomberg about the fact that they're also exploring a cloud business, 62 00:03:14,919 --> 00:03:17,600 Speaker 3: taking some of that compute capacity that they've acquired and 63 00:03:17,919 --> 00:03:21,040 Speaker 3: maybe reselling it or using it in other ways that 64 00:03:21,040 --> 00:03:23,440 Speaker 3: aren't just for its own products, and so I really 65 00:03:23,480 --> 00:03:26,040 Speaker 3: think we've started to see a potential business shape up 66 00:03:26,120 --> 00:03:28,080 Speaker 3: for them on the AI front in the last two 67 00:03:28,160 --> 00:03:30,799 Speaker 3: three months that didn't exist before. And I think you're 68 00:03:30,800 --> 00:03:33,520 Speaker 3: starting to see the stocks slowly, you know, reflect that 69 00:03:33,520 --> 00:03:36,000 Speaker 3: that people are saying, Okay, they're spending a ton, but 70 00:03:36,120 --> 00:03:37,839 Speaker 3: now we have a better sense of how they're trying 71 00:03:37,840 --> 00:03:39,720 Speaker 3: to make money from this that we didn't necessarily know 72 00:03:39,760 --> 00:03:40,440 Speaker 3: a few months ago. 73 00:03:41,320 --> 00:03:44,160 Speaker 2: So is there this seems to be this whole AI 74 00:03:44,920 --> 00:03:48,280 Speaker 2: chase if you will buy the technology space in general, 75 00:03:48,760 --> 00:03:53,720 Speaker 2: it's just iteration after iteration after iteration. Where does mister 76 00:03:53,800 --> 00:03:57,000 Speaker 2: Zuckerberg think a meta isn't in that game? Here? Is 77 00:03:57,040 --> 00:03:59,760 Speaker 2: this something that they can continue to invest in, continue 78 00:03:59,760 --> 00:04:00,400 Speaker 2: to proven. 79 00:04:02,760 --> 00:04:04,400 Speaker 3: One of the things that I asked him about was 80 00:04:04,960 --> 00:04:08,120 Speaker 3: why do this right? Like, there's so many companies, There 81 00:04:08,120 --> 00:04:10,240 Speaker 3: are several companies that are kind of racing for this 82 00:04:10,400 --> 00:04:13,080 Speaker 3: what you would call frontier AI model, This this tip 83 00:04:13,080 --> 00:04:15,880 Speaker 3: of the Iceberg, tip of the spear, And I'm like, 84 00:04:15,960 --> 00:04:19,119 Speaker 3: why spend all this money when you know you could 85 00:04:19,200 --> 00:04:22,320 Speaker 3: essentially license some of this technology from someone else who 86 00:04:22,320 --> 00:04:24,760 Speaker 3: spends all the money right, maybe make it cheaper. And 87 00:04:24,839 --> 00:04:27,640 Speaker 3: his answer was, look, if we don't control the technology, 88 00:04:28,279 --> 00:04:32,359 Speaker 3: we're at a disadvantage because their goal. Meta's goal is 89 00:04:32,400 --> 00:04:35,159 Speaker 3: to build personalized assistance for everyone in the world. So 90 00:04:35,160 --> 00:04:36,800 Speaker 3: they want every single person to be able to open 91 00:04:36,839 --> 00:04:39,080 Speaker 3: their phone or turn put on their smart glasses and 92 00:04:39,160 --> 00:04:42,960 Speaker 3: have that personal AI assistant there. And if you know 93 00:04:43,000 --> 00:04:46,280 Speaker 3: they're relying on open a ice technology or anthropics technology, 94 00:04:46,720 --> 00:04:50,080 Speaker 3: they just can't control what the priorities are. Mark Zuckerberg 95 00:04:50,160 --> 00:04:52,040 Speaker 3: is big on that. He's big on making sure that 96 00:04:52,080 --> 00:04:55,039 Speaker 3: no other companies have leverage over Meta, and so I 97 00:04:55,080 --> 00:04:58,240 Speaker 3: think for him, he's saying, it's worth the spend because 98 00:04:58,279 --> 00:05:01,000 Speaker 3: we can then, you know, bid the model that's going 99 00:05:01,040 --> 00:05:02,839 Speaker 3: to do exactly what we want. We don't have to 100 00:05:02,920 --> 00:05:05,440 Speaker 3: hope that someone else does it for us. And so 101 00:05:06,040 --> 00:05:08,720 Speaker 3: for him, it's worth throwing all this money at that problem, 102 00:05:08,760 --> 00:05:11,039 Speaker 3: even if there are going to be several competing models, 103 00:05:11,279 --> 00:05:13,720 Speaker 3: simply because he wants that control. Moving forward. 104 00:05:13,960 --> 00:05:16,160 Speaker 4: Of course, to your point, critics have questioned whether or 105 00:05:16,200 --> 00:05:18,080 Speaker 4: not the pivot will end up paying off. What did 106 00:05:18,080 --> 00:05:20,040 Speaker 4: he tell you as to why he thinks it will. 107 00:05:22,760 --> 00:05:25,040 Speaker 3: Well, he thinks that this is the most exciting technology 108 00:05:25,080 --> 00:05:27,960 Speaker 3: that has ever showed up in his lifetime, and so 109 00:05:28,440 --> 00:05:30,599 Speaker 3: he imagines this world. You know, what they did with 110 00:05:30,680 --> 00:05:33,640 Speaker 3: social media in some ways is a similar strategy. They 111 00:05:33,680 --> 00:05:37,520 Speaker 3: made it free, right, Facebook and Instagram and WhatsApp, those 112 00:05:37,520 --> 00:05:40,599 Speaker 3: are free tools. Obviously there's advertising you do sort of 113 00:05:40,600 --> 00:05:43,600 Speaker 3: pay if you will by giving meta access to your 114 00:05:43,600 --> 00:05:46,960 Speaker 3: attention and time with your data. But ultimately he's saying, hey, 115 00:05:47,000 --> 00:05:48,480 Speaker 3: we're trying to make a tool free, give it to 116 00:05:48,480 --> 00:05:50,240 Speaker 3: as many people as possible, and figure out how to 117 00:05:50,279 --> 00:05:52,560 Speaker 3: make money from it later. And I think that's sort 118 00:05:52,600 --> 00:05:54,679 Speaker 3: of what he sees here is he goes, hey, everyone's 119 00:05:54,720 --> 00:05:56,880 Speaker 3: going to everyone's life will benefit from me. I this 120 00:05:56,960 --> 00:05:59,840 Speaker 3: is his perspective, of course, and you know, let's make 121 00:05:59,880 --> 00:06:02,400 Speaker 3: this as cheap and widely accessible as possible and we'll 122 00:06:02,480 --> 00:06:04,440 Speaker 3: kind of figure out some of the business a little 123 00:06:04,440 --> 00:06:07,040 Speaker 3: bit down the road. And so for him, I think 124 00:06:07,120 --> 00:06:10,000 Speaker 3: that's the motivation is you want his product in as 125 00:06:10,040 --> 00:06:12,160 Speaker 3: many hands as possible, and so that's why he's willing 126 00:06:12,160 --> 00:06:15,120 Speaker 3: to sort of undercut on price with a lot of 127 00:06:15,160 --> 00:06:16,159 Speaker 3: the stuff they've announced. 128 00:06:17,120 --> 00:06:20,040 Speaker 5: Stay with us more from Bloomberg Intelligence coming up after this. 129 00:06:23,839 --> 00:06:27,520 Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us Live 130 00:06:27,600 --> 00:06:30,719 Speaker 1: weekdays at ten Am Eastern on Apple Cocklay and Android 131 00:06:30,720 --> 00:06:34,000 Speaker 1: Auto with the Bloomberg Business App. Listen on demand wherever 132 00:06:34,080 --> 00:06:37,200 Speaker 1: you get your podcasts, or watch us live on YouTube. 133 00:06:37,839 --> 00:06:42,440 Speaker 2: Pepska reported some earnings today. The company said consumers pulled 134 00:06:42,480 --> 00:06:45,680 Speaker 2: back into second quarter, slowing its efforts to revitalize it's 135 00:06:45,760 --> 00:06:49,600 Speaker 2: North American snack business. Stocks down four percent today, It's 136 00:06:49,680 --> 00:06:52,400 Speaker 2: off almost five percent year today. Let's break it down 137 00:06:52,520 --> 00:06:54,000 Speaker 2: some of those results. We can do that with Ken 138 00:06:54,000 --> 00:06:58,880 Speaker 2: Shay analysts there at Bloomberg Intelligence. Ken, what you learned 139 00:06:58,920 --> 00:06:59,839 Speaker 2: from Pepsi? 140 00:07:00,960 --> 00:07:05,839 Speaker 6: Yeah, Hi, Paul, Well. PepsiCo today pretty much gave a 141 00:07:05,960 --> 00:07:08,720 Speaker 6: report that was widely expected. Quite frankly. I mean, the 142 00:07:08,800 --> 00:07:12,200 Speaker 6: hit their numbers, maybe a little bit above top and 143 00:07:12,240 --> 00:07:15,720 Speaker 6: bottom line numbers. But what they said was that their 144 00:07:16,440 --> 00:07:20,080 Speaker 6: game plan that they set out earlier this year to 145 00:07:20,120 --> 00:07:23,240 Speaker 6: revitalize their businesses from the top line and a margin 146 00:07:23,520 --> 00:07:26,480 Speaker 6: point of view, are still in place, even though they 147 00:07:26,520 --> 00:07:28,880 Speaker 6: hit a speed bump in the second quarter, and that 148 00:07:29,000 --> 00:07:32,080 Speaker 6: speedbump is higher gas prices. No shocker there. People kind 149 00:07:32,120 --> 00:07:33,960 Speaker 6: of knew, you know, it was going to be a 150 00:07:34,000 --> 00:07:36,520 Speaker 6: tough quarter for them to make, you know, a really 151 00:07:36,520 --> 00:07:42,160 Speaker 6: good progress. They're big businesses Pepsi Food. That's about a 152 00:07:42,160 --> 00:07:44,960 Speaker 6: further sales, about forty percent of the profits. It's it's 153 00:07:44,960 --> 00:07:49,560 Speaker 6: the big enterprise to have there. It basically was a 154 00:07:49,560 --> 00:07:52,560 Speaker 6: little short of expectations, you know, consumers pulled back a 155 00:07:52,600 --> 00:07:56,320 Speaker 6: little bit, as you mentioned, despite the company's innovation efforts, 156 00:07:56,680 --> 00:07:58,840 Speaker 6: and the company basically have to make up some of 157 00:07:58,880 --> 00:08:02,400 Speaker 6: this lost ground, they said in the second half, particularly 158 00:08:02,400 --> 00:08:05,000 Speaker 6: the fourth quarter, to hit their numbers, which they reiterated. 159 00:08:06,320 --> 00:08:08,800 Speaker 4: He can talk to us about shrinkflation, because that's something 160 00:08:08,800 --> 00:08:11,720 Speaker 4: that PepsiCo got knocked on a few years ago when 161 00:08:11,760 --> 00:08:13,800 Speaker 4: they were having to boost some of the volumes in 162 00:08:14,040 --> 00:08:16,520 Speaker 4: some of their chips, because of course it produces the 163 00:08:16,560 --> 00:08:19,960 Speaker 4: world's most popular chips through its subsidiary Freedom Lay. But 164 00:08:20,040 --> 00:08:21,640 Speaker 4: what are you seeing with that and how does that 165 00:08:21,680 --> 00:08:23,320 Speaker 4: translate to margins? 166 00:08:24,040 --> 00:08:27,360 Speaker 6: Yeah, hi, Jess, Well, yeah, I agree, you know. Earlier 167 00:08:27,360 --> 00:08:30,040 Speaker 6: in the year, and actually, let me take a step back. 168 00:08:30,240 --> 00:08:35,400 Speaker 6: Since the pandemic, PepsiCo and many other big consumer companies had, 169 00:08:35,920 --> 00:08:38,839 Speaker 6: because of supply chain disruptions and cost inflation in general 170 00:08:38,880 --> 00:08:41,319 Speaker 6: and so on, had been pretty aggressive on the price 171 00:08:41,440 --> 00:08:45,080 Speaker 6: increase of unit pricing was up really really sharply over 172 00:08:45,080 --> 00:08:48,280 Speaker 6: the over the last few years. So earlier this year, 173 00:08:48,400 --> 00:08:50,880 Speaker 6: with the help of an activist, they said, look, we 174 00:08:50,920 --> 00:08:54,040 Speaker 6: need a better balance between volume and unit pricing, and 175 00:08:54,040 --> 00:08:55,679 Speaker 6: so we're going is going to roll back pricing a 176 00:08:55,720 --> 00:09:00,480 Speaker 6: little bit and try to get volumes back in, you know, 177 00:09:00,840 --> 00:09:02,719 Speaker 6: and by doing that, not only is it a better 178 00:09:02,800 --> 00:09:06,160 Speaker 6: balance and easier to manage quite frankly, but you're helping 179 00:09:06,200 --> 00:09:10,240 Speaker 6: operating efficiencies. You know, you need to have volumes moving 180 00:09:10,280 --> 00:09:13,080 Speaker 6: along in a positive way to get the you know 181 00:09:13,120 --> 00:09:17,000 Speaker 6: that fixed costs absorption kind of equation or work. So 182 00:09:17,120 --> 00:09:19,520 Speaker 6: what they're doing now basically is the getting back to 183 00:09:19,720 --> 00:09:23,199 Speaker 6: a more balanced approach. At the same time, though, when 184 00:09:23,240 --> 00:09:26,600 Speaker 6: they set that plan, that was before gas prices shot up. 185 00:09:27,120 --> 00:09:28,760 Speaker 6: So the challenge they're going to have in the second 186 00:09:28,840 --> 00:09:31,400 Speaker 6: half is they want to stick to the game plan 187 00:09:32,000 --> 00:09:35,080 Speaker 6: of being more balanced with vuyuing and pricing. But you know, 188 00:09:35,320 --> 00:09:38,319 Speaker 6: but they're going to be challenged by having an environment 189 00:09:38,400 --> 00:09:40,640 Speaker 6: where costs are back up again. You see the news 190 00:09:40,679 --> 00:09:43,520 Speaker 6: today and gas prices you're backed up. You know, the 191 00:09:43,520 --> 00:09:46,040 Speaker 6: company is going to have some cost issues. How they 192 00:09:46,160 --> 00:09:48,760 Speaker 6: reconcile that, it's a good question. We're gonna have to 193 00:09:48,760 --> 00:09:49,839 Speaker 6: wait and see. 194 00:09:50,080 --> 00:09:53,040 Speaker 2: Ken what does PEPSI say about its portfolio of brands. 195 00:09:53,080 --> 00:09:55,320 Speaker 2: Are they comfortable where they are? Are they linking to 196 00:09:55,400 --> 00:09:58,439 Speaker 2: add brands, are looking to pair back on some of 197 00:09:58,480 --> 00:10:00,000 Speaker 2: their brands? How are they fixed? 198 00:10:01,240 --> 00:10:03,200 Speaker 6: Well? I think PepsiCo was pretty comfortable. I mean, they 199 00:10:03,280 --> 00:10:06,680 Speaker 6: made some acquisitions in recent years, you know, Skeet Day Chips, 200 00:10:06,840 --> 00:10:11,040 Speaker 6: they had the Poppy probiotic SODA's last year. They spent 201 00:10:11,160 --> 00:10:13,280 Speaker 6: quite a bit of money on them. So I think 202 00:10:13,320 --> 00:10:15,280 Speaker 6: their game plan really is three prong pull to answer 203 00:10:15,320 --> 00:10:17,840 Speaker 6: your question. First, they set are setting out to have 204 00:10:17,920 --> 00:10:20,680 Speaker 6: their products be more affordable, and that was the prior question. 205 00:10:20,760 --> 00:10:23,040 Speaker 6: That is, you know, pull back a little bit on 206 00:10:23,360 --> 00:10:28,640 Speaker 6: either pricing smaller packaging sizes, maybe nture inflation, but also 207 00:10:28,920 --> 00:10:31,360 Speaker 6: on the list price side as well. Second, let's be 208 00:10:31,440 --> 00:10:34,720 Speaker 6: more in tune with where the consumers going in terms 209 00:10:34,760 --> 00:10:38,960 Speaker 6: of their diets, and so they're making bigger bets on protein, fiber, 210 00:10:39,280 --> 00:10:43,360 Speaker 6: what they call an enhanced fight, enhanced hydration, and they're 211 00:10:43,400 --> 00:10:46,680 Speaker 6: doing that with a lot of new products featuring all three. 212 00:10:47,200 --> 00:10:50,160 Speaker 6: And then finally, they're very well known to be in 213 00:10:50,160 --> 00:10:53,280 Speaker 6: the consumer in the grocery aisle and the convenience store, 214 00:10:53,320 --> 00:10:56,680 Speaker 6: and they want to be better known as an ingredient 215 00:10:56,880 --> 00:11:01,840 Speaker 6: in home preparation. So they want to bring Doritos into 216 00:11:01,880 --> 00:11:05,199 Speaker 6: the kitchen. Somebody's making tacos at home, Well, what about Dorito's. 217 00:11:05,720 --> 00:11:08,280 Speaker 6: That's only going to help. They've come out with something 218 00:11:08,320 --> 00:11:10,560 Speaker 6: called the walking Taco. When you take a bag of 219 00:11:10,640 --> 00:11:14,520 Speaker 6: Dorito's and you can make your you know, you know, 220 00:11:14,640 --> 00:11:17,480 Speaker 6: ground beef and put in your tomatoes and other cheese 221 00:11:17,480 --> 00:11:19,720 Speaker 6: and ingredients and you can you have a taco which 222 00:11:19,720 --> 00:11:23,480 Speaker 6: you can walk around with that's a portable one. You know, 223 00:11:23,520 --> 00:11:25,440 Speaker 6: it sounds kind of gimmicky, but it's doing well. They 224 00:11:25,520 --> 00:11:29,280 Speaker 6: promoting it, and you know, it's getting consumers to recognize 225 00:11:29,320 --> 00:11:32,880 Speaker 6: these brands to be more than just something they picked 226 00:11:32,960 --> 00:11:34,920 Speaker 6: up at the convenience store and grocery store. 227 00:11:35,320 --> 00:11:38,280 Speaker 4: So, Kain, are Americans buying back goods in large volumes? 228 00:11:38,320 --> 00:11:40,600 Speaker 4: To your point, how does that translate when it comes 229 00:11:40,640 --> 00:11:43,040 Speaker 4: to a lot of these consumer package good companies and 230 00:11:43,080 --> 00:11:45,480 Speaker 4: their ability to raise prices. 231 00:11:45,559 --> 00:11:47,760 Speaker 6: Well, they're gonna be They're going to be challenged to 232 00:11:47,800 --> 00:11:50,240 Speaker 6: hold prices. Like I said, in the second half, I mean, 233 00:11:50,720 --> 00:11:53,880 Speaker 6: Tisago did say, you know, we're seeing cost inflation picking up, 234 00:11:54,080 --> 00:11:57,360 Speaker 6: you know, in the second half, and didn't say whatthing 235 00:11:57,360 --> 00:12:01,080 Speaker 6: can do about it, but I would suspect you're going 236 00:12:01,120 --> 00:12:03,600 Speaker 6: to see some more price increases in the second half. 237 00:12:04,240 --> 00:12:04,480 Speaker 5: Now. 238 00:12:04,679 --> 00:12:07,360 Speaker 6: Having said that, one of the one of the silver 239 00:12:07,400 --> 00:12:09,720 Speaker 6: linings to the story for a lot of these consumer companies, 240 00:12:09,720 --> 00:12:13,559 Speaker 6: including Petsico, is that they're getting refunds from the tariffs. 241 00:12:13,800 --> 00:12:17,000 Speaker 6: You got to remember back in April they were deemed 242 00:12:17,000 --> 00:12:19,480 Speaker 6: to be illegal, and these companies are getting nice refunds. 243 00:12:19,520 --> 00:12:22,040 Speaker 6: What Pettico is doing about it if they're going to 244 00:12:22,080 --> 00:12:26,640 Speaker 6: apply a lot of these proceeds to help them reduce costs, 245 00:12:26,720 --> 00:12:30,880 Speaker 6: and you know, it may help them reduce the incentive 246 00:12:31,040 --> 00:12:32,360 Speaker 6: to take price increases. 247 00:12:33,320 --> 00:12:36,120 Speaker 5: Stay with us. More from Bloomberg Intelligence coming up after this. 248 00:12:40,040 --> 00:12:43,680 Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live 249 00:12:43,760 --> 00:12:46,840 Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android 250 00:12:46,840 --> 00:12:50,120 Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever 251 00:12:50,160 --> 00:12:53,240 Speaker 1: you get your podcasts, or watch us live on YouTube. 252 00:12:54,160 --> 00:12:58,120 Speaker 2: Let's get back that Levi Strauss. They reported some earnings here. 253 00:12:58,360 --> 00:13:00,680 Speaker 2: Mary Ross, Gilbert je'sus senior Anol's covering all the retail 254 00:13:00,720 --> 00:13:04,679 Speaker 2: stuff from for Bloomberg Intelligence joins us. Talk to us 255 00:13:04,679 --> 00:13:07,480 Speaker 2: about Levi's what did they disclose on their earnings release. 256 00:13:09,160 --> 00:13:13,640 Speaker 7: So yesterday they had great numbers. Right, their organic growth 257 00:13:14,120 --> 00:13:17,520 Speaker 7: was up six percent. That was about two hundred basis 258 00:13:17,520 --> 00:13:20,120 Speaker 7: points better than what analysts were looking for. They were 259 00:13:20,120 --> 00:13:23,320 Speaker 7: looking for four percent. And their guidance they raise their 260 00:13:23,360 --> 00:13:26,439 Speaker 7: guidance and it's really due to the first half performance. 261 00:13:26,480 --> 00:13:29,120 Speaker 7: So their guidance now for organic growth is five and 262 00:13:29,160 --> 00:13:31,440 Speaker 7: a half to six percent. It was previously four and 263 00:13:31,440 --> 00:13:33,760 Speaker 7: a half to five and a half percent. They are 264 00:13:33,840 --> 00:13:38,200 Speaker 7: seeing strength across women's. Women's was up eleven percent in 265 00:13:38,240 --> 00:13:42,640 Speaker 7: the quarter. Beyond Yoga, which is their small brand but 266 00:13:42,760 --> 00:13:47,880 Speaker 7: growing fast was up sixteen percent, Asia up twelve percent. 267 00:13:48,200 --> 00:13:53,000 Speaker 7: In Europe, DTC up seven percent. But wholesale is the 268 00:13:53,000 --> 00:13:55,040 Speaker 7: biggest part of the business and so you have to 269 00:13:55,080 --> 00:13:56,840 Speaker 7: really look at the first half because you will have 270 00:13:56,920 --> 00:14:00,560 Speaker 7: fluctuations in the quarter based on shipping that was up 271 00:14:00,679 --> 00:14:03,440 Speaker 7: nine percent in the first half. So with all the 272 00:14:03,480 --> 00:14:07,520 Speaker 7: strength that they're seeing raising guidance, they're still upside to 273 00:14:07,559 --> 00:14:11,040 Speaker 7: their guidance because it's really based on the first half performance. 274 00:14:11,480 --> 00:14:14,680 Speaker 7: So what they're guiding into the second half is really 275 00:14:14,720 --> 00:14:17,559 Speaker 7: conservative and that's their objective they really want to be. 276 00:14:18,040 --> 00:14:21,400 Speaker 7: But what this says, is that the brand is relevant 277 00:14:21,520 --> 00:14:26,760 Speaker 7: around the globe across income groups. So for example, they 278 00:14:26,760 --> 00:14:32,600 Speaker 7: have the Levi's Levi's signature brand label which is in Walmart, 279 00:14:33,120 --> 00:14:35,640 Speaker 7: and that was up in the first half of high 280 00:14:35,640 --> 00:14:38,720 Speaker 7: single digits right right around you know, eight to nine percent, 281 00:14:39,240 --> 00:14:43,080 Speaker 7: and they're seeing that, you know, being high single digits 282 00:14:43,200 --> 00:14:47,160 Speaker 7: to low double digits in the second half. So again 283 00:14:47,920 --> 00:14:51,360 Speaker 7: no weakness anywhere with the consumer, even having you know, 284 00:14:51,400 --> 00:14:53,320 Speaker 7: at the low end and then at the high end 285 00:14:53,360 --> 00:14:56,920 Speaker 7: they're blue tab premium denim doing very very well, but 286 00:14:57,040 --> 00:15:00,920 Speaker 7: also non denim, they're non denim bottoms, which really allows 287 00:15:00,960 --> 00:15:05,160 Speaker 7: them to increase their addressable market was also up strong 288 00:15:05,400 --> 00:15:09,960 Speaker 7: in the quarter, so they're really gaining traction and there's 289 00:15:10,200 --> 00:15:12,760 Speaker 7: just more to go well. 290 00:15:12,760 --> 00:15:15,640 Speaker 4: Looking at its stock, LVI the ticker up about two 291 00:15:15,800 --> 00:15:18,920 Speaker 4: percent to date. Even on a year to date basis, 292 00:15:18,920 --> 00:15:21,560 Speaker 4: that stock is of about twenty percent if you pull 293 00:15:21,600 --> 00:15:24,960 Speaker 4: it back the last five years down about ten percent, 294 00:15:25,040 --> 00:15:28,800 Speaker 4: so obviously trailing broader benchmarks in that span of time. 295 00:15:29,040 --> 00:15:31,520 Speaker 4: What do you think moving forward is the biggest thing 296 00:15:31,800 --> 00:15:34,800 Speaker 4: that obviously shareholders want to hear from them as far 297 00:15:34,840 --> 00:15:36,880 Speaker 4: as improving When it comes to the outlook, for that 298 00:15:36,960 --> 00:15:38,160 Speaker 4: kind of growth in their margins. 299 00:15:39,800 --> 00:15:41,720 Speaker 7: Yeah, so it's a good question. I mean, first of all, 300 00:15:41,720 --> 00:15:44,880 Speaker 7: when you look at the margin expansion that they're looking 301 00:15:44,920 --> 00:15:48,360 Speaker 7: for for the full year, they did raise estimates a 302 00:15:48,400 --> 00:15:51,760 Speaker 7: tad bit, but it was actually below what consensus is 303 00:15:51,800 --> 00:15:55,400 Speaker 7: looking for on the margin side, so that could sort 304 00:15:55,440 --> 00:15:57,680 Speaker 7: of explain there was a little bit of volatility after 305 00:15:57,720 --> 00:16:00,960 Speaker 7: their earnings. Other than that, once again, you know, if 306 00:16:00,960 --> 00:16:03,800 Speaker 7: you look at the margin expansion they're experiencing in Europe, 307 00:16:04,080 --> 00:16:10,120 Speaker 7: they have a global Enterprise Resource program that they're expanding 308 00:16:10,200 --> 00:16:12,280 Speaker 7: throughout the globe that they're going to complete that in 309 00:16:12,320 --> 00:16:15,120 Speaker 7: twenty twenty seven, So in Europe where they sort of 310 00:16:15,160 --> 00:16:19,600 Speaker 7: started it, it's complete, and we saw their operating margin 311 00:16:19,680 --> 00:16:22,280 Speaker 7: expand four hundred basis points. That was partly due to 312 00:16:22,320 --> 00:16:26,520 Speaker 7: lower distribution center costs too, So I think that you're 313 00:16:26,520 --> 00:16:32,400 Speaker 7: really going to see margin expansion grow and again fast, 314 00:16:32,640 --> 00:16:36,760 Speaker 7: potentially faster than the top line. So I think there's 315 00:16:36,840 --> 00:16:39,800 Speaker 7: really a lot of traction here because women's is still 316 00:16:39,800 --> 00:16:43,240 Speaker 7: a smaller part of the business UNI versus men's, so 317 00:16:43,280 --> 00:16:46,200 Speaker 7: that's why you're seeing double digit growth there, but also 318 00:16:46,280 --> 00:16:51,360 Speaker 7: across categories and tops and wovens and outerwear, and then 319 00:16:51,400 --> 00:16:54,480 Speaker 7: with the campaigns that they have going with the World 320 00:16:54,520 --> 00:16:58,480 Speaker 7: Cup and the logo that they had to cover up 321 00:16:58,640 --> 00:17:02,520 Speaker 7: at Levi Stadium in San Francisco. That gave them a 322 00:17:02,560 --> 00:17:08,960 Speaker 7: great opportunity from a media campaign that actually drew over 323 00:17:09,040 --> 00:17:12,879 Speaker 7: a billion of impressions. So all of that is really 324 00:17:12,920 --> 00:17:18,719 Speaker 7: resonating with consumers and I really see upside and I 325 00:17:18,760 --> 00:17:23,560 Speaker 7: think that could really shift the performance and the shares 326 00:17:23,600 --> 00:17:24,119 Speaker 7: over time. 327 00:17:25,080 --> 00:17:27,919 Speaker 5: Stay with us. More from Bloomberg Intelligence coming up after this. 328 00:17:32,200 --> 00:17:35,880 Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live 329 00:17:35,960 --> 00:17:39,040 Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android 330 00:17:39,080 --> 00:17:42,400 Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever 331 00:17:42,440 --> 00:17:45,560 Speaker 1: you get your podcasts, or watch us live on YouTube. 332 00:17:46,440 --> 00:17:49,200 Speaker 2: Interesting story on the Bloomberg terminal today, more good friends 333 00:17:49,200 --> 00:17:53,000 Speaker 2: at Starbucks. Starbucks is developing in house tools with the 334 00:17:53,000 --> 00:17:57,359 Speaker 2: help of artificial intelligence that could replace some software applications 335 00:17:57,480 --> 00:17:59,919 Speaker 2: and now buy some companies such as Microsoft and International 336 00:18:00,119 --> 00:18:03,320 Speaker 2: Business machines. Let's get some details here at Daniellis ort 337 00:18:03,400 --> 00:18:06,520 Speaker 2: Tory Joints is here. A restaurant reporter for Bloomberg News 338 00:18:06,560 --> 00:18:09,800 Speaker 2: based in Chicago. Danielle talk to us about Starbucks and 339 00:18:09,880 --> 00:18:12,200 Speaker 2: kind of what they're trying to do from a software 340 00:18:12,240 --> 00:18:13,320 Speaker 2: and AI perspective. 341 00:18:14,600 --> 00:18:18,720 Speaker 8: Sure, so really what they're doing is instead of reflexibly 342 00:18:18,800 --> 00:18:21,280 Speaker 8: by now you know, going out and buying software, now 343 00:18:21,280 --> 00:18:23,720 Speaker 8: what they're trying to do is look at, okay, does 344 00:18:23,760 --> 00:18:25,679 Speaker 8: it make sense for us to actually build some of 345 00:18:25,680 --> 00:18:29,159 Speaker 8: these applications in the house. You know, they customize a 346 00:18:29,200 --> 00:18:32,080 Speaker 8: lot of this software anyway. Just imagine what it takes 347 00:18:32,160 --> 00:18:35,320 Speaker 8: to really you know, personalize or order at Starbucks. Well, 348 00:18:35,359 --> 00:18:38,360 Speaker 8: for example, the pos the point of sales system has 349 00:18:38,359 --> 00:18:41,800 Speaker 8: to be able to reflect that, so barisis can actually 350 00:18:41,840 --> 00:18:43,919 Speaker 8: ring up your order. And so they're like, okay, we're 351 00:18:43,960 --> 00:18:45,920 Speaker 8: going to customize the software anyway, does it make sense 352 00:18:45,960 --> 00:18:48,159 Speaker 8: to build it? And we're in an age which you 353 00:18:48,160 --> 00:18:51,720 Speaker 8: know with artificial intelligence, it's just that conversation just gets 354 00:18:51,720 --> 00:18:53,840 Speaker 8: a little easier because AI can help. 355 00:18:55,880 --> 00:18:58,440 Speaker 4: I wanted to point out to you because software stocks 356 00:18:58,480 --> 00:19:01,199 Speaker 4: are actually lower on the back of this announcements. If 357 00:19:01,200 --> 00:19:03,960 Speaker 4: you're looking at IBM, that's down about two percent. The 358 00:19:03,960 --> 00:19:07,280 Speaker 4: ticker symbols IBM, of course, and then service now is 359 00:19:07,400 --> 00:19:11,480 Speaker 4: flat but marginally lower, and then salesforce down about two percent. 360 00:19:11,640 --> 00:19:14,400 Speaker 4: CRM is the ticker on that. So why the dynamic 361 00:19:14,440 --> 00:19:17,359 Speaker 4: there obviously is it more just because of the competitive landscape. 362 00:19:18,640 --> 00:19:22,560 Speaker 8: So this moved by Starbucks feeds into this broader conversation 363 00:19:22,720 --> 00:19:28,080 Speaker 8: and technology space about whether with AI, customers or maybe 364 00:19:28,280 --> 00:19:31,840 Speaker 8: startups can just you know, build tools that can replace 365 00:19:32,320 --> 00:19:34,439 Speaker 8: some of the software that are that is now sold 366 00:19:34,520 --> 00:19:38,320 Speaker 8: by some companies like IBM and Microsoft. So basically, I 367 00:19:38,320 --> 00:19:40,520 Speaker 8: think with Starbucks, what we're looking at is at a 368 00:19:40,560 --> 00:19:43,480 Speaker 8: case study of this actually happening inside a company. So 369 00:19:43,520 --> 00:19:46,600 Speaker 8: it's really fueling sort of this ongoing conversation in this space, 370 00:19:46,640 --> 00:19:47,400 Speaker 8: if that makes sense. 371 00:19:48,320 --> 00:19:51,320 Speaker 2: Yeah, this is this is what the market's been concerned about. 372 00:19:51,359 --> 00:19:53,680 Speaker 2: And we've seen sell off in some of these software 373 00:19:53,760 --> 00:19:56,760 Speaker 2: names and software service names because people are saying, boys, 374 00:19:56,840 --> 00:19:59,439 Speaker 2: some of these things can be kind of done with 375 00:19:59,560 --> 00:20:02,240 Speaker 2: AI and maybe cheaper and you know, and that's kind 376 00:20:02,240 --> 00:20:04,080 Speaker 2: of what we're seeing in the story. So, I mean, 377 00:20:04,280 --> 00:20:07,240 Speaker 2: in your story, Danielle, we see that Starbucks is spending 378 00:20:07,640 --> 00:20:09,359 Speaker 2: they spend about four hundred million dollars a year on 379 00:20:09,400 --> 00:20:12,600 Speaker 2: software alone. Are they thinking they can maturely reduce that? 380 00:20:13,880 --> 00:20:17,600 Speaker 8: They can? I mean, their chief technology officer has outright said, 381 00:20:18,359 --> 00:20:21,320 Speaker 8: as we reported that there are opportunities to cut spending 382 00:20:21,359 --> 00:20:25,640 Speaker 8: in software. This one part of Starbucks technology organization called 383 00:20:25,760 --> 00:20:29,160 Speaker 8: Enterprise Technology, is looking to cut their spending by about 384 00:20:29,200 --> 00:20:31,960 Speaker 8: ten million dollars by the end of this fiscal year, 385 00:20:31,960 --> 00:20:36,560 Speaker 8: which for Starbucks ends in September. So they're definitely basically okay, 386 00:20:36,600 --> 00:20:38,760 Speaker 8: taking a step back and saying, all right, first of all, 387 00:20:39,160 --> 00:20:42,000 Speaker 8: let's review every contract on service, make sure that we 388 00:20:42,040 --> 00:20:44,600 Speaker 8: have the best price there and are there places in 389 00:20:44,640 --> 00:20:46,680 Speaker 8: which it actually makes sense for us to be able 390 00:20:46,840 --> 00:20:50,400 Speaker 8: to build our own product with the help of artificial intelligence. 391 00:20:50,600 --> 00:20:53,680 Speaker 8: So it's definitely something that they're taking a second look at. Obviously, 392 00:20:53,680 --> 00:20:56,640 Speaker 8: this is also part of something broader that Starbucks is doing, 393 00:20:56,640 --> 00:20:59,600 Speaker 8: which is they are going through a turnaround and they 394 00:20:59,640 --> 00:21:02,720 Speaker 8: are looking to costs, so this review is also part 395 00:21:02,760 --> 00:21:05,159 Speaker 8: of that, and then we have AI helping make that 396 00:21:05,240 --> 00:21:06,120 Speaker 8: a little bit easier. 397 00:21:06,600 --> 00:21:08,960 Speaker 4: Of course, as you know the turnaround with Starbucks, this 398 00:21:08,960 --> 00:21:12,439 Speaker 4: has been ongoing for the last few years. Now, what 399 00:21:12,560 --> 00:21:15,800 Speaker 4: kind of timetable have they laid out to shareholders. 400 00:21:16,280 --> 00:21:20,959 Speaker 8: In terms of the turnaround itself? So they did an 401 00:21:21,200 --> 00:21:24,840 Speaker 8: issue for the first time some financial goals for twenty 402 00:21:24,880 --> 00:21:27,600 Speaker 8: twenty seven twenty twenty eight. You know, if we recall 403 00:21:27,960 --> 00:21:30,399 Speaker 8: when a Brian Nicol came in as CEO in twenty 404 00:21:30,400 --> 00:21:34,360 Speaker 8: twenty four, he actually pulled guidance basically just like totally reset. 405 00:21:34,760 --> 00:21:36,639 Speaker 8: And we actually have seen that the plan that he 406 00:21:36,640 --> 00:21:40,400 Speaker 8: has implemented, generally speaking, has started to yield results. Their 407 00:21:40,440 --> 00:21:42,760 Speaker 8: sales growth has picked back up, and he has really 408 00:21:42,800 --> 00:21:47,280 Speaker 8: focused on things like customer service, on just having products 409 00:21:47,280 --> 00:21:49,800 Speaker 8: that people really want to buy, and they also started 410 00:21:49,840 --> 00:21:53,000 Speaker 8: to remodel stores. So basically, the tech is sort of 411 00:21:53,040 --> 00:21:55,280 Speaker 8: the backdrop to all of this, right, Like a lot 412 00:21:55,280 --> 00:21:58,080 Speaker 8: of the tools they use are just things that are 413 00:21:58,080 --> 00:22:00,680 Speaker 8: behind the scenes to help them manage the business. 414 00:22:01,800 --> 00:22:06,480 Speaker 1: This is the Bloomberg Intelligence podcast, available on Apple, Spotify, 415 00:22:06,680 --> 00:22:10,160 Speaker 1: and anywhere else you get your podcasts. Listen live each 416 00:22:10,160 --> 00:22:13,920 Speaker 1: weekday ten am to noon Eastern on Bloomberg dot com, 417 00:22:14,040 --> 00:22:17,560 Speaker 1: the iHeartRadio app, tune In, and the Bloomberg Business app. 418 00:22:18,000 --> 00:22:20,920 Speaker 1: You can also watch us live every weekday on YouTube 419 00:22:21,320 --> 00:22:23,560 Speaker 1: and always on the Bloomberg terminal.