Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg Intelligence
Speaker 1: with Alex Steinhl and Paul'sweeny.
Speaker 2: The real app performance has been the US corporate high yield.
Speaker 3: Are the companies lean enough? Have they trimmed all the fats?
Speaker 2: The semiconductor business is a really cyclical business.
Speaker 1: Breaking market headlines and corporate news from across the globe.
Speaker 3: Do investors like the M and A that we've seen?
Speaker 2: These are two big time blue chip companies.
Speaker 4: The window between the peak and cut changing super fast.
Speaker 1: Bloomberg Intelligence with Alex Steinel and Paul's Wheenye on Bloomberg Radio.
Speaker 5: Well.
Speaker 2: Today's Bloomberg Intelligence Show, we dig inside the big business
Speaker 2: stories impacting Wall Street and the global markets.
Speaker 4: Each and every week, we provide research and data on
Speaker 4: some of the two thousand companies in one hundred and
Speaker 4: thirty industries our analysts cover worldwide.
Speaker 2: Today, we'll look at why Tesla Stiff are said to
Speaker 2: be bracing for potential job.
Speaker 4: Cuts, discuss why warre in the Middle East is hurting
Speaker 4: McDonald's sales.
Speaker 2: For first, we dive into Walt Disney. Earlier in the week,
Speaker 2: the company reported better than expected earnings for its fiscal
Speaker 2: first quarter and issued an upbeat profit outlook for the year.
Speaker 4: For more on all of this, we were joined by Githerang,
Speaker 4: Na than Bloomberg intelligence analyst on US media, and we
Speaker 4: asked her why there is reason for optimism at the company.
Speaker 6: Disney is definitely back back with the bank. One of
Speaker 6: the big pain points with Disney has really been the
Speaker 6: lack of streaming profitability. But now there seems to be
Speaker 6: a clear path to the streaming business kind of getting
Speaker 6: to that profitability metric. So we saw the losses come
Speaker 6: in way below expectations. It was sixty five percent below
Speaker 6: what people were projecting. They're still kind of guiding to,
Speaker 6: you know, hitting profitability by the September quarter, but most people,
Speaker 6: I think on the street expected to happen much much sooner.
Speaker 6: And then Hugh Johnston, who was the new CFO and
Speaker 6: this was his first call with Disney, basically said that
Speaker 6: look to or expect double digit operating margins in the
Speaker 6: streaming business. And I think that was something that was
Speaker 6: really really powerful because we know that, you know, the
Speaker 6: number that we're all chasing is that twenty percent operating
Speaker 6: margin where you know, Netflix has been I think the
Speaker 6: one area that we kind of still need clarity is
Speaker 6: how all of this the streaming bundles are going to work.
Speaker 6: So it's really good to see them kind of be
Speaker 6: proactive and go out with their own solution. So they
Speaker 6: have that sports super app that's coming out a little
Speaker 6: bit later this year in conjunction with Fox and Warner Brothers.
Speaker 6: They have their own ESPN Plus standalone app. Again a
Speaker 6: little bit of you know, we're not really sure whether
Speaker 6: those are necessarily going to cannibalize each other. I don't
Speaker 6: think so. I think really Disney what they're trying to
Speaker 6: do here is kind of create this this super bundle
Speaker 6: because they know that, you know, content bundling works and
Speaker 6: everybody's kind of looking aggregation is the holy grail, and
Speaker 6: I think Disney wants to be at the forefront of it.
Speaker 6: But definitely we need a little bit more kind of
Speaker 6: clarity at least around like what the financial value creation
Speaker 6: is going to be.
Speaker 2: How about the theme park business that seems to continue
Speaker 2: to be a really solid business for them, and I
Speaker 2: know they you know, they announce several months ago that
Speaker 2: they're really stepping up their investment in their theme parks
Speaker 2: and their cruises and all that kind of stuff. How
Speaker 2: did that business do very very well.
Speaker 6: So again, operating income was for the quarter was well
Speaker 6: above three billion dollars. That was again above what the
Speaker 6: street was expecting. And really what we're seeing is a
Speaker 6: lot of momentum at the International parks. So they opened,
Speaker 6: you know, they've opened so many new attractions in their
Speaker 6: overseas properties. You have a new Frozen Land in Hong Kong,
Speaker 6: you have the new Zootopia attraction in in Shanghai, and
Speaker 6: both of those are doing really really well for the company,
Speaker 6: and that has really enabled them to take, you know,
Speaker 6: implement all of these price increases. So International parks really
Speaker 6: kind of doing extremely well. Domestically. There's a little bit
Speaker 6: of pressure from wage inflation, there's a little bit of
Speaker 6: pressure from you know, tough comms from like the Walt
Speaker 6: Disney World fifty that anniversary celebration, But again, just transient
Speaker 6: parks are really set up very very well. And you
Speaker 6: mentioned the sixty billion dollar investment. Now seventy percent of
Speaker 6: that capex is going to be towards new attractions, So
Speaker 6: this is really going to be a major major profit
Speaker 6: driver for them going forward.
Speaker 4: Gito, there was a journal article that I just felt
Speaker 4: like helped someone like me who's not seeped in Disney,
Speaker 4: Like you guys understand how they're just seeping in to
Speaker 4: all the Americana.
Speaker 3: That's out there. They said, Taylor, Swift, football and Fortnite.
Speaker 4: But like anywhere that you will want to be or
Speaker 4: listen to or watch, Disney will be there. What did
Speaker 4: you make of the Fortnite investment?
Speaker 6: Super smart move by them, right, It's so strategic, it's
Speaker 6: so smart, and it's still a kind of not a
Speaker 6: huge investment. One point five billion gives them some steak,
Speaker 6: gives them some skin in the game, and there's a
Speaker 6: lot of upside, not too much downside. So I think
Speaker 6: a really good way for them. And remember, Alex, they've
Speaker 6: had this kind of really checkered past when it comes
Speaker 6: to video games. It's not that they haven't been there.
Speaker 6: They were in the publishing business. Didn't really work out
Speaker 6: for them. They exited that business in twenty sixteen started
Speaker 6: licensing out a lot of their content. But you know, licensing,
Speaker 6: you're still kind of this passive participant. They really need
Speaker 6: to be there. They need to be an active participant
Speaker 6: in the video gaming industry. There's so much overlap between
Speaker 6: all of the audiences that go to the you know,
Speaker 6: the Disney parks and the people who are gaming, right,
Speaker 6: it's all these youngsters and they really want to be
Speaker 6: there and this is a great way for them to
Speaker 6: do it.
Speaker 2: What are they saying about the theatrical business, You.
Speaker 6: Know, the content the studio has not really been the
Speaker 6: blockbuster that it was. We've had a whole string of
Speaker 6: misfires over the past few months. But I think what
Speaker 6: bar Baker was saying is they are in the process
Speaker 6: of rebuilding. The whole content pipeline is refilling. They're having
Speaker 6: this really smart move here with this new Taylor Swift
Speaker 6: movie coming out on March fifteenth, and then they spoke about,
Speaker 6: you know, having this new Moana movie. This was originally
Speaker 6: going to be a series on Disney, plus it's now
Speaker 6: going to be a theatrical, full blown theatrical release. And again,
Speaker 6: we're prepping for twenty twenty six, really, which is going
Speaker 6: to be the biggest year for the box office ever
Speaker 6: since the pandemic, and a lot of that will be
Speaker 6: Disney kind of driving the slate right with. You have
Speaker 6: the whole Star Wars coming back with Mandalorian and Grogu.
Speaker 6: You have a whole set of Marvel releases, so it's
Speaker 6: going to be really interesting as we kind of build that.
Speaker 6: So again, nothing really major in twenty twenty four, maybe
Speaker 6: other than you know, kind of the Deadpool movie, but
Speaker 6: we're kind of building to what's a much stronger slate
Speaker 6: I'm in twenty five twenty.
Speaker 4: Nothing big coming except for the Deadpool. Excuse me, I've
Speaker 4: been waiting for this movie for years. Deadpool three.
Speaker 2: You're a big fan of the franchise.
Speaker 4: Definitely not my audience that I'm talking to right now.
Speaker 4: This is the third one having Wolverine make a little cameo.
Speaker 3: Whatever. Anyway, it's gonna be awesome.
Speaker 5: Paul.
Speaker 4: What do you make of like how fast Disney was
Speaker 4: able to move, Well, a lot.
Speaker 2: Of people tell you they didn't move fast enough. But
Speaker 2: it's I think when i Biger came in, I mean, yeah, yeah,
Speaker 2: and it's but the stock's been kind of dead money
Speaker 2: for a while and Githa well knows here. It's just
Speaker 2: a question of when can we get a sense of
Speaker 2: when the streaming losses are going to be in the
Speaker 2: rear view mirror, and you know, bob Byger's surprises. You know,
Speaker 2: I guess a year or so ago when he said
Speaker 2: some of these assets might be for sale, like the
Speaker 2: ABC networks, some of the cable networks. Any update on that.
Speaker 6: Yes, we did have him kind of say everything's up
Speaker 6: for sale, and then he kind of walked back all
Speaker 6: of that. It's kind of starting to make sense because
Speaker 6: they're obviously taking all that content, they're putting it now
Speaker 6: on the super app, So it makes sense for them
Speaker 6: to still kind of hold on to their linear TV
Speaker 6: assets because they still do have very valuable sports rights
Speaker 6: on there. So I think they're kind of aiming for
Speaker 6: this bigger, kind of grander strategy. I don't necessarily think
Speaker 6: that they're looking to sell any of their linear TV
Speaker 6: networks right now.
Speaker 2: Our thanks to KEITHA. Rong Andathan Bloomberg, intelligence analysts on
Speaker 2: US Media.
Speaker 4: We turn now to the financial services sector. This week,
Speaker 4: UBS reported a fourth quarter net law, citing higher expenses.
Speaker 4: The bank also announced it will buy back up to
Speaker 4: one billion dollars in shares this year, and this comes
Speaker 4: as UBS seeks to keep investors focused on the upside
Speaker 4: of its complex integration of credits.
Speaker 2: Weeeze for more on this. We were joined by Alison
Speaker 2: Williams Bloomberg Intelligence senior analysts Global banks and asset Managers.
Speaker 2: I asked her what her key takeaways were from this
Speaker 2: week's earnings.
Speaker 7: Investor's got as much as they could. They may have
Speaker 7: wanted a bit more. The one negative thing for the
Speaker 7: outlook is that twenty twenty four estimates are likely going
Speaker 7: to come down a little bit because you know, the
Speaker 7: returns are going to be lower. But that's because I
Speaker 7: think UBS is trying to be aggressive in you know,
Speaker 7: pulling forward those costs. So they did upsize the costs
Speaker 7: on a growth basis, but they're going to invest those
Speaker 7: so not falling to the bottom line, so perhaps some
Speaker 7: disappointment there. They did reiterate their sort of three year target.
Speaker 7: They gave a longer term target that was in line
Speaker 7: with the high end before credits we so I think
Speaker 7: those were all positive. The buybacks also a little bit
Speaker 7: better than expected. The big positive news was twenty seven
Speaker 7: percent increase in dividend. Also fourth quarter, you know, not
Speaker 7: so much great things going on there, so that the
Speaker 7: miss was on costs. Their adjusted costs fell, Their integration
Speaker 7: costs or the restructing costs were much bigger than expected.
Speaker 7: The wealth flows moderated a little bit, and the investment
Speaker 7: buying lost money.
Speaker 2: Allison, what is the new UBS here post Credit Swiss
Speaker 2: and full disclosure on a client of UBS used to
Speaker 2: work at Credit Swiss. So I'm all over the Swiss
Speaker 2: stuff here. But what's where does UBS want to be
Speaker 2: now that they've acquired Credits Swiss? What are their ambitions
Speaker 2: visa a global financial institution?
Speaker 7: So I don't think that the big picture strategy has
Speaker 7: changed much for them, right, So they their focuses on wealth,
Speaker 7: you know, they're the premier global wealth manager. They added
Speaker 7: some assets, they added some relationships with Credit Suite in
Speaker 7: the investment bank. Again, they're still focused on equities. So
Speaker 7: even though profit disappointed, revenue came in about in line.
Speaker 7: So that's that's a positive thing. On the equities trading
Speaker 7: side of things. They did add, you know, some incremental ads.
Speaker 7: There were some numbers around the traders. The Bloomberg News reported,
Speaker 7: We obviously look at the top line of revenue. They
Speaker 7: kept the M and A and the research areas were
Speaker 7: the areas that they added to and those areas did
Speaker 7: pretty well.
Speaker 8: On the corner.
Speaker 4: So what else do you need to hear to get
Speaker 4: more confidence in all of this mean just like a
Speaker 4: kind of holding wait for two more years.
Speaker 7: Basically, I think it is like a show me right,
Speaker 7: So I think it's going to be a step by
Speaker 7: step So Armandi, as you know, said that you know,
Speaker 7: they might sacrifice a little bit of revenue because they
Speaker 7: are focused on profitability. They're focused on doing things right.
Speaker 7: So again like those are the types of things that
Speaker 7: you have to have confidence. He has done a big
Speaker 7: turnaround at UBS before. But I think that it is
Speaker 7: the kind of thing where it's like quartered by quarter.
Speaker 7: Investors have to start to see, you know, some support
Speaker 7: for these estimates. Another target they put out was one
Speaker 7: hundred billion per year for the next two years in
Speaker 7: net new wealth asset. So I think that's a pretty
Speaker 7: good target. But again we saw some slowing in the
Speaker 7: fourth quarter. Some of that was mandates leaving with credit sweee,
Speaker 7: relationship managers still pretty stable. But I think investors will
Speaker 7: want to see you know more so you know, over
Speaker 7: the next few quarters, UBS delivering on its plans.
Speaker 2: So Elison, just, I mean you cover everything the all
Speaker 2: the global big investment banks, commercial banks. Here is the
Speaker 2: global bank is that just left to the Morgan Stanley's
Speaker 2: the Goldman Sachs is or what it doesn't seem like
Speaker 2: anybody in Asia, anybody in Europe can compete against the
Speaker 2: JP Morgans of the world.
Speaker 7: So Paul, it's I mean, it's really been over the
Speaker 7: last decade, you know, ever since you left the business,
Speaker 7: but it was it was last decade, you know, the
Speaker 7: US bank just follow you know, really making those market
Speaker 7: share games. Credit SUITEE was is sort of the latest
Speaker 7: to provide some games to those US players, if you
Speaker 7: will keep in mind that that sale from UBS follows
Speaker 7: them exiting prime brokerage. Before Credit Suite, we had Deutsche Bank,
Speaker 7: who also accident in prime brokerage. They shed parts of
Speaker 7: their fixed income business. If we went back to several
Speaker 7: years prior, there was a lot of the European players
Speaker 7: getting out of fix and you know, keep in mind,
Speaker 7: it is a scale business and I think where banks
Speaker 7: like JP, if you Morgan have been winning at In fact,
Speaker 7: Goldman Sachs has gained the most market share over the
Speaker 7: last several years. Or that they are investing in technology
Speaker 7: that helps them get better revenue, that helps them have
Speaker 7: more money to invest. And so it's really that virtuous
Speaker 7: cycle that some of those big US banks have been enjoying.
Speaker 2: Thanks to Alison Williams, Bloomberg Intelligence, senior analysts for global banks.
Speaker 4: Coming up, we're going to break down earnings from Caterpillar,
Speaker 4: one of the world's largest manufacturers of heavy machinery.
Speaker 2: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing up
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Speaker 2: go on the terminal, I'll Paul Sweet.
Speaker 3: And am Alex Steel and this is Bloomberg.
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Speaker 3: Let's turn out a Tesla.
Speaker 4: So Tesla staff are said to be racing for potential
Speaker 4: job cuts, and we're told managers were asked whether each
Speaker 4: of their employees' positions is critical.
Speaker 2: We would join this week by Steve Man Bloomberg Intelligence,
Speaker 2: Global Autos and Industry Research Channels. You're first asked for
Speaker 2: his take on the potential job cuts.
Speaker 5: Job cuts are never good for the employees. But I
Speaker 5: think the investors will probably look at it positively because
Speaker 5: the stock's been down like twelve percent since their last
Speaker 5: earnings call, in thirty percent year to day, and that's
Speaker 5: all because you know, slowing EV sales, price cuts. So
Speaker 5: the company needs to do something to address them of
Speaker 5: the short term challenges they're facing.
Speaker 2: So when I see news like this, it really makes
Speaker 2: me think, Steve, that maybe they see something fundamental in
Speaker 2: their business such that they have to look at a
Speaker 2: big fixed cost like people. What's the company saying these
Speaker 2: days about where they see.
Speaker 5: Well, Man, well, that's a good question. I think you
Speaker 5: got two questions there. First of all, fundamentally, you know,
Speaker 5: they've done a lot of price cutting, you know, in
Speaker 5: their operations, in the administrative side of things, in their manufacturing.
Speaker 5: They plucked out all the low hanging fruits. There's not
Speaker 5: much to cut anymore other than looking at their human resources,
Speaker 5: and that's what they're doing at this time.
Speaker 9: Now.
Speaker 5: Obviously, you know you don't want to cut, but I
Speaker 5: think they have to. If you look at Forge Earning's call,
Speaker 5: the market is really brutal. They've the margins was down,
Speaker 5: like was at negative ninety eight percent for Ford's EV
Speaker 5: business that's worse than their third quarter. So from that
Speaker 5: you can see the whole entire EV market is still
Speaker 5: facing you know, price cuts, slower demand, and that's you know,
Speaker 5: I think that's what Testa is trying to dress for
Speaker 5: twenty twenty four he Steve.
Speaker 4: Do we have an idea of when the trough might
Speaker 4: happen for evs? When is it just going to take
Speaker 4: cheaper ones or is it going to be actually more
Speaker 4: hybrid and that trough be really pushed out.
Speaker 5: I think hybrid is a good kind of fill in
Speaker 5: between now and when EV's can take off. Our view
Speaker 5: is actually, you know, around twenty twenty six, because I
Speaker 5: think that's when prices, cost of manufacturing evs will come
Speaker 5: down with localization of battery production, more EV models out there,
Speaker 5: and everyone, every automaker right now is talking about the
Speaker 5: second generation of EV vehicles, the third generation of EV vehicles.
Speaker 5: They're actually designed on a very different platform than the
Speaker 5: ICE vehicles, the internal combustion engine vehicles that is supposed
Speaker 5: to streamline production, cut parts, cut the number of parts,
Speaker 5: and hopefully drive costs down to make it more affordable
Speaker 5: for the consumers.
Speaker 2: So it's a twenty six story. Will the charging infrastructure
Speaker 2: also be a twenty six story?
Speaker 5: Well, no, there are some spending at the moment to
Speaker 5: increase charging infrastructure. I mean, that's another bottleneck that the
Speaker 5: industry is facing. I think you know, out in the
Speaker 5: West coast, out in the East coast, charging infrastructure are
Speaker 5: not of a big concern, but Central America is. So
Speaker 5: that's where the focus is, I think in the next
Speaker 5: couple of years to really built up the charging infrastructure
Speaker 5: in that part of the country.
Speaker 2: How many charging units do you have at the Princeton
Speaker 2: campus at Bloomberg right now?
Speaker 9: Oh, it's it's interesting.
Speaker 5: If you go out to the parking lot here, you
Speaker 5: think it's a Tesla dealership out here, there's probably you know, fifty.
Speaker 4: Fifty the cars, Like, are the Teslas actually being plugged
Speaker 4: in or ev.
Speaker 9: Oh yeah, oh yeah, oh yeah. You'll see mostly Tesla.
Speaker 5: You'll see a couple of Volkswagen, a couple of Volvols.
Speaker 9: But because I that's why.
Speaker 2: When I was at the Princeton campus, Steve, you know,
Speaker 2: I guess I haven't been there since before the pandemic.
Speaker 2: It's called it five years. Five years are gonna be
Speaker 2: ad two? Now you're telling me, we have fifty. That
Speaker 2: is a good barometer. I think Bloomberg is usually on
Speaker 2: the cutting edge of this stuff. But still interesting.
Speaker 4: Yeah, and I wonder like, did you get the idea
Speaker 4: that the charging was there, therefore you brought the EV's
Speaker 4: or it's just a clientele that has the EV's unfair question,
Speaker 4: But like, what do.
Speaker 5: You think that's a good question. It's all about the
Speaker 5: cost of ownership.
Speaker 9: You're right, Alex.
Speaker 5: Having the charging stations here make it convenient for people
Speaker 5: to charge and really cut their monthly costs. Right, there's
Speaker 5: no fuel costs anymore with the evs our.
Speaker 2: Thanks to Steve Man, Bloomberg Intelligence Global Auto Analyst.
Speaker 4: Now we look at Caterpillar, one of my faves, one
Speaker 4: of the world's largest manufacturers of.
Speaker 3: Heavy machinery, and then early in.
Speaker 4: The week the company reported higher fourth quarter sales and
Speaker 4: his energy and transportation business.
Speaker 2: For more, we spoke with Chris Chilino, Bloomberg Intelligence Senior
Speaker 2: US machinery analyst. We first asked Chris for his key
Speaker 2: tape ways from the earnings results.
Speaker 10: It was a real solid print despite the fact that
Speaker 10: we continued to see these really cautionary signs out there
Speaker 10: of slowing demand. Four key results you know, broadly exceeded
Speaker 10: not only our expectations, but I think Kat's internal expectations
Speaker 10: as well. Pricing continues to surprise to the upside. The
Speaker 10: margin performance was quite good, particularly in their energy and
Speaker 10: transportation business. Retail sales to end users continued to hold
Speaker 10: up reasonably well, orders came in better than we anticipated,
Speaker 10: and the cash generation of the business, you know, remains
Speaker 10: very strong. So there's a lot of positives to take
Speaker 10: away from the report, and I think this probably dispelled
Speaker 10: some of those, you know, concerns over a more pronounced
Speaker 10: or near term cyclical downturn, at least for the time being.
Speaker 10: As it appears, you know, twenty four is really shaping
Speaker 10: up to be a little bit maybe more resilient than
Speaker 10: we had anticipated going into the print. That being said,
Speaker 10: you know, we still think there remains risk and it's
Speaker 10: mostly to the downside moving forward here, and we're really
Speaker 10: kind of cautious on the sustainability of this performance, especially
Speaker 10: as the macro backdrop begins to soften.
Speaker 2: So what's the company saying about their outlook? And I
Speaker 2: guess my question A what's the company saying and B
Speaker 2: what's their lead time on they can how far out
Speaker 2: can they see in terms of their orders and things
Speaker 2: like that.
Speaker 10: Yeah, so they're looking at twenty twenty four's kind of
Speaker 10: being more of a flatish type top line environment. Caterpillars
Speaker 10: notorious for not giving much on the guidance, but they're
Speaker 10: kind of suggesting that the top line will be relatively flatish.
Speaker 10: Volumes will be down next year, So this is going
Speaker 10: to be more of a pricing story, and particularly in
Speaker 10: the first half of the year, as we get some
Speaker 10: of those carryover pricing benefits. So I suspect margins will
Speaker 10: come under some pressure and we could see some modest
Speaker 10: contraction on the earnings line as well. In terms of
Speaker 10: the backlog and the visibility, it's above average. The backlog
Speaker 10: continues to be, you know, remarkably strong. You have rough
Speaker 10: twenty seven and a half billion dollars in the backlog.
Speaker 10: I think one of the surprises of this report to
Speaker 10: US was orders orders implied orders only came down about
Speaker 10: four percent, so we saw the decline and the order
Speaker 10: rate moderate. So I think that's another positive sign that,
Speaker 10: you know, we're not looking at this type of draconian
Speaker 10: type scenario for twenty twenty four So.
Speaker 3: Explain this one to me. What about the China factor?
Speaker 4: Because air products, their chemicals business in China did terribly
Speaker 4: and that's why the stock is down so much. I
Speaker 4: appreciate their different industries, but still CAT is very lover
Speaker 4: to China. Also, what did we learn about that?
Speaker 10: Nothing incremental?
Speaker 9: Right?
Speaker 10: So, Caterpillar China. For Caterpillars, historically it's been kind of
Speaker 10: in that five to ten percent of revenues. Twenty twenty three.
Speaker 10: This past year we were below five percent. They're telling
Speaker 10: us that they don't anticipate much change in twenty twenty four.
Speaker 10: But if you, if you're a CAT bull, I think
Speaker 10: that's one of the catalysts that you could potentially look at,
Speaker 10: is that if for when we do get this China recovery,
Speaker 10: that would certainly bode well for Cat.
Speaker 2: Hey, Chris, I know investors in these types of stocks,
Speaker 2: these industrial stocks, they're used to cycles and they're probably saying,
Speaker 2: but God, we have to have a downcycle coming up here.
Speaker 2: But there's a lot of infrastructure work out there, stimulus
Speaker 2: coming out of the US government out of the pandemic.
Speaker 2: Isn't this going to make this cycle different? Like it's
Speaker 2: going to be longer up for these companies.
Speaker 10: Yeah, I mean, we hear that this cycle is different
Speaker 10: almost all the time. Right, I'm a little bit more
Speaker 10: in the skeptic camp. Listen, North America was tremendous this
Speaker 10: past quarter. In this year, I think it was the
Speaker 10: only region with positive growth on the top line. We
Speaker 10: saw eleven percent growth here in North America. A lot
Speaker 10: of that is largely driven by non residential and infrastructure
Speaker 10: related spending. So it's certainly been a tailwind, and I
Speaker 10: do suspect that still has some longevity to it here
Speaker 10: over the next few years. But there's a number of
Speaker 10: cyclical factors to your point at play here, and historically
Speaker 10: this stock when the backlock starts to come down, when
Speaker 10: orders inflect, that's not an encouraging sign for future performance.
Speaker 3: But we also have.
Speaker 4: Lots of stuff like the IRA, we have the Semiconductor Bill,
Speaker 4: we have the Industrial Act, sort of reshoring all that stuff.
Speaker 4: We have learned from industrials that booking those getting benefits
Speaker 4: from those pieces of legislation takes a lot longer than
Speaker 4: the market was expecting, like just in the Chips Act.
Speaker 4: Maybe we're seeing some stuff happening, and even that's getting
Speaker 4: pushed out like we saw with Intel. What is Catapillar
Speaker 4: saying about that visibility?
Speaker 10: Yeah, so I think longer term there is certainly an opportunity,
Speaker 10: particularly what they've kind of deemed this energy transition to
Speaker 10: alternative fuels or electrification, there is going to be demand
Speaker 10: for mind commodities, and they anticipate that this shift will
Speaker 10: increase their addressable market. So, no doubt, we do think
Speaker 10: there is a longer term opportunity here. We think it's
Speaker 10: probably still many years out before we start seeing you know,
Speaker 10: more tangible financial impact from some of these infrastructure bill
Speaker 10: is the is the more near term impact that we've
Speaker 10: seen and the results this far, So we think that's
Speaker 10: probably still a little bit longer down the road and
Speaker 10: you know, somewhat difficult to quantify at this juncture.
Speaker 2: So, Chris, you follow all these big industrial companies in
Speaker 2: addition to cat I mean, you know Oshkosh, come Ins,
Speaker 2: you know, Volvo pack Are What are those big companies
Speaker 2: that are so skewed and so exposed kind of the
Speaker 2: industrial side of the economy. What are they kind of
Speaker 2: telling you these days?
Speaker 10: Yeah, so if you think about all the machinery verticals,
Speaker 10: we were essentially at peak cycle in twenty twenty three.
Speaker 10: Almost all those markets we expect volumes to be down
Speaker 10: in twenty four, some holding up better than others. But
Speaker 10: I think one of the things that we continue to
Speaker 10: hear is that this downturn looks a little bit more
Speaker 10: modest and short lived than what we have seen historically.
Speaker 10: I might say the one caveat to that being on
Speaker 10: the ag side, as we continue to see crop prices
Speaker 10: and farmer incomes under pressure. But at least at this point,
Speaker 10: you know, we see on the commercial vehicle side being
Speaker 10: a little bit more modest, and even on construction equipment
Speaker 10: there's a number of offsets to the more traditional cyclical headwinds.
Speaker 10: So again not looking at this as some kind of
Speaker 10: a steep or severe downturn. It just seems to be
Speaker 10: much more modest than what we've become accustomed to.
Speaker 2: Our Thanks to Chris Ciolino, Bloomberg Intelligence, Senior US machinery analyst.
Speaker 4: All right, coming up on the program, we're going to
Speaker 4: discuss why warre in the Middle East is hurting McDonald sales.
Speaker 2: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
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Speaker 1: Just Say Alexa, playing Bloomberg eleven.
Speaker 4: We turned out to the fast food industry. McDonald sales
Speaker 4: missed investor expectations in the fourth quarter as growth accelerated.
Speaker 2: To help REKIP, we were joined by Michael Halen, Bloomberg
Speaker 2: Intelligence senior Restaurant and food service analyst. Were first to
Speaker 2: ask Michael for his big takeaway from McDonald's earnings results.
Speaker 11: Yeah, it was a weaker quarter than most expected.
Speaker 9: For sure, sales growth was kind of weak. You know.
Speaker 11: They cited the impact from the Israel Hamas war and
Speaker 11: obviously that hurt results in the Middle East, but also
Speaker 11: in a Muslim countries like Malaysia and also countries like
Speaker 11: France that have a large Muslim population.
Speaker 9: It may have impacted sales here in the US a
Speaker 9: bit as well.
Speaker 11: There were some calls to boycott the brand right after
Speaker 11: the start of the Israel Hamas war. Those kind of
Speaker 11: went away in December in January, however, so there could
Speaker 11: have been.
Speaker 9: A mild impact in the United States as well.
Speaker 11: And then in terms of key takeaways from the call,
Speaker 11: you know, they don't like inspect their developmental markets where
Speaker 11: the Middle East is located, to improve really until the
Speaker 11: war ends. And they cited some consumer weakness in the
Speaker 11: United States, which they have before, right, but seems like
Speaker 11: it may be spreading in terms of you know, just
Speaker 11: low income consumer weakness. You know, it sounds like their
Speaker 11: customers right now are managing their guest checks.
Speaker 2: Hey, Mike, I'm just looking at the PGeo function on
Speaker 2: the Bloomberg turbine. I see that roughly sixty percent of
Speaker 2: the revenue comes from franchise operated stores, in about forty
Speaker 2: percent from company operating stores. How did they make that
Speaker 2: decision about what when they go to a particular location,
Speaker 2: whether the franchise or own it.
Speaker 11: I think a big part of it is return on investment, right,
Speaker 11: So if the returns on the investment are very strong,
Speaker 11: they typically want to hold on.
Speaker 9: To those stores or develop stores.
Speaker 11: You know, they'll they'll do some store development in the
Speaker 11: United States and in their more established markets, but it's
Speaker 11: going to be a small percentage of what they're doing
Speaker 11: going forward. You know, most of their growth is going
Speaker 11: to be you know, done by their strong franchise partners,
Speaker 11: particularly in China and some of these other very fast
Speaker 11: growing markets.
Speaker 4: Talk about the input part of the situation in terms
Speaker 4: of their costs, in terms of their labor and all
Speaker 4: that kind of good stuff.
Speaker 11: Inflation is easing for them this year, but it's still
Speaker 11: probably higher than normals.
Speaker 3: They're looking at cowsman cows.
Speaker 11: That's part of it, for sure. Beef and dairy costs
Speaker 11: are expected to be higher this year. So but they're
Speaker 11: looking at you know, low single digit commodity inflation in
Speaker 11: the United.
Speaker 9: States and abroad.
Speaker 11: Abroad had you know, Europe had very high inflation last year,
Speaker 11: and that that's going to settle down a bit. Labor
Speaker 11: inflation is going to continue to be higher. And a
Speaker 11: big chunk of a big part of that here is
Speaker 11: you know, in the US, you know, their California April
Speaker 11: first puts in the twenty dollars minimum wage for fast
Speaker 11: food workers, and so that's going to impact some of
Speaker 11: their stores, primarily their franchisees. However, so they're still seeing
Speaker 11: you know, higher inflation than you know, we had in
Speaker 11: the twenty teens for sure.
Speaker 2: Hey, Mike, I look at the stock, and you know,
Speaker 2: I need to pay a twenty two to twenty three
Speaker 2: times earnings for this stock. What am I really getting?
Speaker 2: Is it something more than GDP top line growth? What's
Speaker 2: really the call behind this kind of stock?
Speaker 11: Yeah, Well, with their global growth, they're going to probably
Speaker 11: grow quicker than GDP. You know, what you're buying with
Speaker 11: a franchise business is you know, pretty stable and predictable
Speaker 11: earnings growth, free cash flow growth. There's not a lot
Speaker 11: of operating leverage in the model, and so they're asset
Speaker 11: light and so they can lever the business up and return.
Speaker 9: Cash to shareholders pretty aggressively.
Speaker 11: So it's definitely an attractive model, especially one with the
Speaker 11: strong top line growth like McDonald's has. And they they're
Speaker 11: also most investors can consider them slightly insulated against a
Speaker 11: recession in slower economic times, and a big part.
Speaker 9: Of that is that the is the value that they.
Speaker 11: Offer during the Great Recession, they outperformed the quick service
Speaker 11: industry pretty significantly, acquired a lot of market share during
Speaker 11: that time, and so investors feel some safety investing in
Speaker 11: McDonald's versus some of the other restaurant chains out there.
Speaker 4: But that confuses me with what you said about customers
Speaker 4: watching their checks and their items and what they're buying,
Speaker 4: because you would think if things are hard and people
Speaker 4: are struggling, that you would get more value and people
Speaker 4: would go to McDonald's. But you were mentioning how in
Speaker 4: general people are watching their money more so they're not
Speaker 4: How does that kind of.
Speaker 11: Square Yeah, so what we've seen is a lot of
Speaker 11: traffic deterioration over the last couple of years because price
Speaker 11: increases have been so aggressive and people's spending is being pinched.
Speaker 9: Right.
Speaker 11: But the thing about quick service, you know, they're in
Speaker 11: the lower end of the market, right, and so they'll
Speaker 11: see during an economic slowdown, they'll see higher and middle
Speaker 11: income consumers kind of fall into their bucket. They'll spend
Speaker 11: less at higher cost full service occasions and they'll visit
Speaker 11: McDonald's more often, whereas a lot of the low income
Speaker 11: can uomers will kind of fall out of that bucket.
Speaker 11: And decide to opt for the grocery store more often.
Speaker 11: So they'll lose some traffic on the low end, but
Speaker 11: they'll they'll probably gain some with some of the middle
Speaker 11: and upper income consumers.
Speaker 2: So, my, who's really their competition these days? When I
Speaker 2: was a kid, it was Burger King and Wendy's. But
Speaker 2: now there's so much more out there. How do you
Speaker 2: kind of slice it?
Speaker 11: Yeah, it's the restaurant business man. It's so fragment that
Speaker 11: there's competition everywhere, man, you know, to your point, convenience stores,
Speaker 11: grocery stores, food trucks, you name it. Still, primarily their
Speaker 11: biggest competition are the fast food restaurants that are located
Speaker 11: closest to them. So it depends on the market. You know, California,
Speaker 11: Jack in the Box is number two, you know, on
Speaker 11: the East Coast, Yeah, you know, Burger King is number two,
Speaker 11: and in most markets, i'd say in the United States,
Speaker 11: Wendy's obviously is a big competitor of theirs. But also
Speaker 11: you know, places like Chipotle and shake Shack are all
Speaker 11: competing for restaurant dollars with McDonald's. But you know, we
Speaker 11: don't look too closely at market share in this business
Speaker 11: because it is so fragmented, and I don't really like
Speaker 11: total addressable market and restaurants because nobody's going to eat
Speaker 11: at McDonald's three times a day, seven days a week.
Speaker 2: Thanks to Michael Halen, Bloomberg Intelligence senior restaurant and food
Speaker 2: service analysts.
Speaker 3: All right, let's go next to the luxury industry. Earlier
Speaker 3: in the week.
Speaker 4: Esday Latter is that it's cutting as many as three
Speaker 4: thousand job positions as part of a broad restructuring plan.
Speaker 4: A plan is aimed at making the cosmetic giant a
Speaker 4: more profitable company.
Speaker 2: And this comes as plumbing sales in Asia have dragged
Speaker 2: down revenue and profit at Esday Lauder in the past year.
Speaker 2: For more on all of this, we're joined by Deb
Speaker 2: Aich and Bloomberg Intelligence senior analyst. It covers global luxury goods, home, beauty,
Speaker 2: and personal care. I first asked her for context of
Speaker 2: the restructuring plan already in play.
Speaker 8: They've raised five hundred to seven hundred million of cost
Speaker 8: on a deeper restructure program to bring up to one
Speaker 8: point four billion through twenty five and twenty six, mostly
Speaker 8: twenty five or majority twenty five weighted, So the expectation
Speaker 8: so that's kind of like four hundred million extra on
Speaker 8: what they were expecting before in terms of operating profitability.
Speaker 3: What was the problem that they had to fix by
Speaker 3: doing that? Like why is it so hard to be
Speaker 3: es Da lader?
Speaker 4: I thought everyone would pay a million dollars for perfect skin.
Speaker 3: Not talking my book or anything, right.
Speaker 8: The big thing over the last couple of years that
Speaker 8: we've seen, We've always known that estill Order a very
Speaker 8: premium product, and it did so well for so many years,
Speaker 8: but it had very high exposure in Asia. So we
Speaker 8: ended up a couple of years ago with a stuffed retail,
Speaker 8: duty free travel retail area across China and some parts
Speaker 8: of Asia, which were exacerbated by South Korea also in
Speaker 8: the issues there with the de Goose shopper and what
Speaker 8: we found. And we'd always been saying, you know, there's
Speaker 8: supply side. The way that they organized themselves, the logistics,
Speaker 8: They didn't have the hubs in place in Asia to
Speaker 8: do as much as they were doing, so they were
Speaker 8: caught short or caught overstuffed, so they had far too
Speaker 8: much in trade, and that has taken a long long
Speaker 8: time to temper down and start to normalize, and we
Speaker 8: should return overall to growth this next quarter.
Speaker 2: And dead let's stay with the China stories. I know
Speaker 2: from talking to you over the years and reading your research,
Speaker 2: the China consumer is just critical for luxury shopping. Can
Speaker 2: you give us a sense because I don't. When I
Speaker 2: walk down Madison Avenue or Fifth Avenue, I see all
Speaker 2: the European tourists back. They're back in, you know, in size,
Speaker 2: not so much with the Chinese. What's going on there?
Speaker 9: The big thing.
Speaker 8: We very late in getting visas through the reopening of
Speaker 8: you as we thought from the beginning of last year,
Speaker 8: reopening of travel, but the viewers that travel internationally won't
Speaker 8: come back until the second half the year. And we
Speaker 8: are starting to hear some of those luxury companies sane.
Speaker 8: We're seeing more Chinese, more Asian customers in our stores
Speaker 8: back home. There's a lot more spending, flights are fuller.
Speaker 8: The surveys that we're doing us that they will travel.
Speaker 8: But a lot of that travel so far has been
Speaker 8: across Asia.
Speaker 4: But what's interesting is that not all are created equal.
Speaker 4: I feel like you can Jerry pick a couple of
Speaker 4: luxury stocks that have been somewhat immune and I'm just
Speaker 4: wondering what those are. And I still and in the
Speaker 4: skincare world too, like what is that immune skincare high
Speaker 4: end product? That doesn't matter, We're all buying it anyway.
Speaker 8: I think that you know, there are there's some huge
Speaker 8: numbers in terms of some of the brands within the
Speaker 8: portfolio doing extremely well, lots of the brands of double digit.
Speaker 8: But it's that trade that draws down when you look
Speaker 8: at the Europe number for Estill order that's where they
Speaker 8: stock travel retail, that's where it sits in its P
Speaker 8: and L and it's still minus fourteen. But actually Europe
Speaker 8: underline is flat, and it's the same for the North
Speaker 8: American market. Within that there are brands like The Ordinary
Speaker 8: and La Mayor and several of the higher end brands
Speaker 8: doing very very well of double digit. And it's the
Speaker 8: same across if I think about the way actually luxury
Speaker 8: and you know Lorrel aside Loreal is doing phenomenally well
Speaker 8: with a high base of its product in moder classes
Speaker 8: as Lorel looks. But let's go to some of the
Speaker 8: luxury companies and the way that LVMH and others are
Speaker 8: building sizeable scale in perfume and cosmetics that's for growth
Speaker 8: of six to eight percent per year and very strong margin.
Speaker 8: So there are a lot of brands out there doing
Speaker 8: very very well. But in particular what has happened is
Speaker 8: and stockpicking, cherry picking. It's about the brands who've had
Speaker 8: the portfolio that hasn't had so much Asia travel retail
Speaker 8: or where it's really been able to manage that. Because
Speaker 8: even if I think about LVMH within its selective retail,
Speaker 8: and it housed dfs due to free stores and Sophora,
Speaker 8: and at one point last year they were both down
Speaker 8: and they've now fully recovered. We're starting to see if
Speaker 8: the US some robust numbers coming through even from that
Speaker 8: aspirational end. Across the luxury across brands, it's getting a
Speaker 8: little better, but it's going to take time.
Speaker 2: How are the luxury stocks? What's kind of the luxury
Speaker 2: call here? I look at the FA function for Sday
Speaker 2: latter it looks like for your the fiscal twenty twenty five,
Speaker 2: the June of twenty five year, the street's looking for
Speaker 2: a big pickup in revenue and profitability for Esday Latterer.
Speaker 8: What's behind that's that's all about that inventory. To put
Speaker 8: that inventory in Asia into context. It's dragged down skincare
Speaker 8: in this quarter organic cells minus ten percent. It's dragged
Speaker 8: down Europe to minus fourteen, where underlying Europe was flat
Speaker 8: because it stores that travel retail. So it's about that
Speaker 8: inventory normalizing, and they're saying that that has happened right
Speaker 8: now at the end of two Q, so we head
Speaker 8: into three Q with normalized level and so therefore if
Speaker 8: that is the case, then it's better manage. We should
Speaker 8: start to see double digit growth coming from there. And
Speaker 8: if we were looking underlying without that area, then we
Speaker 8: saw mid single digit growth. So that's what that's about.
Speaker 8: And then also on top of this new restructuring program
Speaker 8: and with some of those benefits to come through twenty five,
Speaker 8: we've been playing around on MDL on the calculator and
Speaker 8: what we see there is around an expectation of twelve
Speaker 8: to thirteen percent uplift to that twenty twenty five operating
Speaker 8: profit to hopefully come through.
Speaker 4: One consensus our thanks to Debra Agin, Bloomberg Intelligence, Senior Analyst,
Speaker 4: Global Luxury Goods, Home, Beauty, and Personal Care.
Speaker 2: That's this week's edition of Bloomberg Intelligence on Bloomberg Radio,
Speaker 2: providing in depth research and data on two thousand companies
Speaker 2: and one hundred and thirty industries.
Speaker 4: And remember you can access Bloomberg Intelligence the movie I
Speaker 4: Go on the Terminal.
Speaker 3: I'm Alex Steele, Paul Sweeney.
Speaker 2: Stay with us. Today's top stories and global business headlines
Speaker 2: are coming up right now.
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