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Speaker 1: Bloomberg Intelligence with Scarletfoo and Paul Sweeney on Bloomberg Radio,
Speaker 1: YouTube and Bloomberg Originals.
Speaker 2: On today's Bloomberg Intelligence Show, we dig inside the big
Speaker 2: business stories impacting Wall Street and the global markets.
Speaker 3: Each and every week, we provide in depth research and
Speaker 3: data on some of the two thousand companies and one
Speaker 3: hundred and thirty industries that our analysts cover worldwide.
Speaker 2: Today it's another major earnings week, but we'll break down
Speaker 2: some big tech earnings from this week. Spoiler alert, the
Speaker 2: AI fuel spending search keeps racing.
Speaker 3: Ahead, plus that AI frenzy is now spilling over to
Speaker 3: heavy machinery and oil fracking. We look into how Caterpillar
Speaker 3: fared when they reported this past week.
Speaker 2: But first, Verizon, the US largest mobile service provider, reported
Speaker 2: a loss in wireless phone subscribers in the third quarter
Speaker 2: as a new chief executive officer laid out an aggressive
Speaker 2: growth strategy to reclaim market share.
Speaker 3: Dan Shulman, a former CEO of PayPal, was appointed just
Speaker 3: a few weeks ago to replace Hans Westbrook over at
Speaker 3: Verizon after two straight quarters of subscriber declines and a
Speaker 3: stock performance that has lagged the two main rivals.
Speaker 2: For more, we were joined by John Butler, Bloomberg Intelligence
Speaker 2: senior telecom analyst. I first asked John to break down
Speaker 2: Verizon's earnings.
Speaker 4: So this first of all, I'll tell you the dividend
Speaker 4: is safe, Paul. I mean, that's the good news for Verison.
Speaker 4: And it's safe because new CEO Dan Shulman, who recently
Speaker 4: replaced Hans Wesperg at the helm of Verizon, sort of
Speaker 4: laid out is his new plan for growth. I think
Speaker 4: the real watchword of the day here for Verizon is
Speaker 4: to pivot from a very technology or network oriented company
Speaker 4: to now Shulman is going to turn them into a
Speaker 4: very consumer focused company. I think he's really going to
Speaker 4: take a page out of T mobiles book, but in
Speaker 4: terms of promoting, I think, unlike T Mobile, he's going
Speaker 4: to do it in a more discipline manner.
Speaker 2: So I guess as I think about the wireless business,
Speaker 2: I mean, we all have a phone in our pocket,
Speaker 2: it just seems like the only way to grow revenue
Speaker 2: is either add subscribers, which can be expensive, or raise prices,
Speaker 2: which how long can you do that? How do you
Speaker 2: grow the business?
Speaker 4: I mean, that's one thing he talked about, was how
Speaker 4: to grow the business here. And what you're seeing with
Speaker 4: the telecoms is they're all pushing more heavily into broadband.
Speaker 4: They're doing a very good job there with Verizon, like
Speaker 4: AT and T, they've got two avenues of growth there.
Speaker 4: One is fiber broadband. Verizon is buying frontiers, so they're
Speaker 4: going to onboard about a new fiber subscribers in the
Speaker 4: new year. And the other is fixed wireless access, which
Speaker 4: is sort of that wireless link into the home. It's
Speaker 4: been very popular with people. So once you get those
Speaker 4: broadband subscribers, probably more than half of them don't have wireless,
Speaker 4: and so Verizon's game is to continue to build that
Speaker 4: broadband base and then cross sell wireless.
Speaker 5: Into that base.
Speaker 4: You've also got switching activity that goes on in any
Speaker 4: given quarter. No matter how hard the carriers try, you're
Speaker 4: always going to lose some subscribers and they're up for grabs,
Speaker 4: and I think for Verizon now was looking to get
Speaker 4: their fair share of those. And there's also modest, very
Speaker 4: modest organic growth in the business through population growth and
Speaker 4: some immigration, although immigration is down this year.
Speaker 5: YEP.
Speaker 2: I don't even know where we are, John, in terms
Speaker 2: of the five G, six G, four G. Are there
Speaker 2: technological changes coming to the wireless business or are we
Speaker 2: at kind of where we're at in terms of capacity
Speaker 2: and usage and so on.
Speaker 4: So capacity is on the rise. Spectrum is the lifeblood
Speaker 4: a wireless The more spectrum you have, the more network
Speaker 4: capacity you have. To put it in Layman's terms, for
Speaker 4: the average smartphone user, that means higher download speeds. And
Speaker 4: Verizon is currently activating what's called cband spectrum. It's very
Speaker 4: high capacity, and so you're going to see their average
Speaker 4: network speeds across the nation edge up over time as
Speaker 4: they activate that spectrum. In terms of the generational upgrades
Speaker 4: that you alluded to, the three G four G five G.
Speaker 4: We're mid cycle now. We launched five G about five
Speaker 4: years ago, and I think you'll see an upgrade to
Speaker 4: six G as we get towards twin thirty. But right
Speaker 4: now it's sort of status quo on that front.
Speaker 2: I guess the issue for of a Verizon is now
Speaker 2: going more customer centric and as you mentioned, when I
Speaker 2: read that, it seemed just like what T Mobile's been
Speaker 2: doing for years and years and years. Gone back to
Speaker 2: John Ledger, Is this a strategy you think can be
Speaker 2: successful for Verizon?
Speaker 5: We'll see.
Speaker 4: I mean that's their big challenge, right I mean, T
Speaker 4: Mobile was always the branding king. They did a great
Speaker 4: job there, just as you said, starting with John Ledger,
Speaker 4: who made himself the face.
Speaker 5: Of the brand.
Speaker 4: They really did a terrific job there. They went out
Speaker 4: as a sort of a hip, counterculture, consumer friendly brand.
Speaker 4: Verizon was at the opposit opposite end of that spectrum,
Speaker 4: leaning into their great network coverage. They still have that.
Speaker 4: They have probably the best coverage in the industry, but
Speaker 4: in terms of network speed and performance, the other two
Speaker 4: AT and TS and T Mobile have really caught up.
Speaker 4: So the challenge for Verizon now is to nurture a
Speaker 4: more consumer friendly brand image. Dare I say I'm a
Speaker 4: fun brand image? I have to chuckle. That really isn't
Speaker 4: something we would associate with Verizon. But I think Shulman,
Speaker 4: given his background at other telcos and also in a
Speaker 4: reviving PayPal, has some experience there with branding, and I
Speaker 4: think it's going to be interesting to see he does
Speaker 4: with Verizon to improve that brand image.
Speaker 2: Our thanks to John Butler, Bloomberg Intelligence Senior Telecom Analyst.
Speaker 6: This week.
Speaker 2: Boeing on Wednesday announced a four point nine billion dollar
Speaker 2: accounting charge and delayed debut for Triple seven ex Jetliner,
Speaker 2: every reminder of the long covery ahead for the US planemaker,
Speaker 2: even as rising aircraft deliveries bolster its cash.
Speaker 3: The setback underscores the challenges ahead as CEO Kelly Orbrok
Speaker 3: works to stabilize Boeing even as the company benefits from
Speaker 3: surging air orders with support from the White House.
Speaker 2: For more, we were joined by George Ferguson, Bloomberg Intelligence
Speaker 2: Senior Aerospace, Defense and Airlines analyst. We first asked George
Speaker 2: for his key takeaways on Boeing's earnings.
Speaker 7: What I saw from earnings is that the commercial airplane
Speaker 7: business had about a four hundred thirty million dollar loss
Speaker 7: when you back out that about five billion dollar charge
Speaker 7: for Triple seven. I think that number was a bit
Speaker 7: better than consensus, a little bit better than what we
Speaker 7: were looking for. I think it's another sign that commercial
Speaker 7: airplane is getting closer to break even. And then in
Speaker 7: the cash flow statement, Boeing was cash flow positive at
Speaker 7: an operating level and free cash flow. It was about
Speaker 7: a billion dollars in the operating level and free cashflow
Speaker 7: a couple hundred million. I think that, you know, that's
Speaker 7: above where consensus expected it. We saw five billion dollars
Speaker 7: an inventory get unlocked during the quarter, meaning you know,
Speaker 7: Boeing has been sitting on something like ninety billion million
Speaker 7: dollars inventory that is like eighty seven I think was
Speaker 7: exact number, and that came down to eighty two billion
Speaker 7: because they've been buying from suppliers, putting things on shelves
Speaker 7: as they try to keep the supply base healthy while
Speaker 7: they've been going through some of their challenges here, and
Speaker 7: now they're starting to take that, you know, that inventory
Speaker 7: off the shelves, put it into airplanes. That's gonna that's
Speaker 7: going to hyper drive some of the cash generation of
Speaker 7: Boeing as they bring that inventory I think down to
Speaker 7: probably a sixty or fifty billion dollar level. So I
Speaker 7: think those are both big positives in the charge was
Speaker 7: largely non cash for an airplane that I think is
Speaker 7: still very competitive, just gets delayed a bit.
Speaker 2: All right, how about the deliveries of the seven thirty seven.
Speaker 2: What's the guidance there, George, because we know that's the
Speaker 2: big cash driver.
Speaker 7: I think, yeah, so they're you know, Boeing is kind
Speaker 7: of out of the game of giving guidance right now,
Speaker 7: but they've they said, you know, the FAAS allowed them
Speaker 7: to go to forty two a month build rate, which
Speaker 7: would which would be above what they've done in in
Speaker 7: the last quarter. I think we've got a modeled at
Speaker 7: about forty four or forty five per month for the
Speaker 7: next three months because there's still some inventory airplanes they'll
Speaker 7: deliver as as well as what they're building. Just heard
Speaker 7: Kelly Orpberg say on the call that he would anticipate
Speaker 7: sort of cranking up those build rates from forty two
Speaker 7: in increments of five every six months.
Speaker 5: No sooner, obviously.
Speaker 7: Won't break unless they feel like they've got things stabilized.
Speaker 7: So I think we've got a path here to hire
Speaker 7: build rates over, you know, to the end of the decade.
Speaker 7: So you know, I would expect that as they get
Speaker 7: a year down the road here will be probably break
Speaker 7: even in this business. You know, maybe a little bit longer,
Speaker 7: but I think we'll be break even in that business.
Speaker 7: And again that's I think all part of the turnaround
Speaker 7: is getting seven three seven to perform. That's that's going
Speaker 7: to be the financial driver.
Speaker 3: So Kelly Orpberg has now been CEO for just over
Speaker 3: a year. He started in August of twenty twenty four.
Speaker 3: I can't believe it's been that long already. I know,
Speaker 3: I know, and a lot has happened, clearly. And what
Speaker 3: I didn't realize is that Boeing is still facing some
Speaker 3: labor issues. Saint Louis Aria machinists still strike. They've been
Speaker 3: striking for more than three months. What does this say
Speaker 3: about Kelly Orberg's leadership and what kind of grade would
Speaker 3: you give him, George for his leadership so far?
Speaker 7: Yeah, I mean I'd give him a very high grade.
Speaker 7: Right again, I think that, you know, the biggest thing
Speaker 7: he needed to do was like improve morale, improve quality,
Speaker 7: and it appears to you know, to be the case.
Speaker 7: I think, you know, the proof is again build rates
Speaker 7: the FA, returning some you know, giving Boeing the ability
Speaker 7: to go to forty two, and returning some of their
Speaker 7: ability to certify some of the airplanes. So I think
Speaker 7: i'd give it all high in Saint Louis right now,
Speaker 7: Saint Louis is where the defense business is centered. Out
Speaker 7: of right now, the defense business not performing great, but
Speaker 7: getting better, you know. I think there's definitely more to
Speaker 7: come in the defense business as they start building the
Speaker 7: F forty seven, which is the sixth generation fighter that
Speaker 7: they won, but that's still some preliminary work. My guess
Speaker 7: is that the sides are still a little bit a
Speaker 7: part on, you know, where they want to be for
Speaker 7: an agreement, and it's not as critical to get those
Speaker 7: folks back to the production lines as it was to
Speaker 7: get a commercial seven thirty seven machinists back to production lines.
Speaker 7: So he's probably doing the right thing for the business here,
Speaker 7: and you know, making sure he can get an agreement
Speaker 7: he can live with, especially in defense where it's harder
Speaker 7: to bear increased costs. And again i'd give I'd give
Speaker 7: him high grades. I think the company's at a turnaround
Speaker 7: right now and doing well.
Speaker 2: George about the thirty seconds left. Just we don't talk
Speaker 2: about the Triple seven much. How does that kind of
Speaker 2: figure into their portfolio, into the economics of Boeing.
Speaker 7: Yeah, when it finally gets certified, it'll be the biggest
Speaker 7: airplane in production, So it kind of replaces seven four
Speaker 7: seven and A three eighty as the queen of the skies.
Speaker 7: A three fifty dash one thousand's the closest competitor. Can
Speaker 7: it can't be as densified, It can't have as many
Speaker 7: seats inside it, So I think you'll find a seat
Speaker 7: cost advantage in the Triple seven. It's got core customers
Speaker 7: in those you know, in those Middle East carriers, those
Speaker 7: Asian carriers that are the big sort of East West connectors,
Speaker 7: And I think it'll be fine. I think the delay
Speaker 7: won't won't hurt its ability to be sold. And it's
Speaker 7: already got five hundred in the backlog all right.
Speaker 2: Thanks to George Ferguson, Bloomberg Intelligence senior Aerospace, Defense and
Speaker 2: Airlines analyst, coming up.
Speaker 3: AI demand is going so fast that the cloud giants
Speaker 3: are racing to catch up. How did that fare for
Speaker 3: some big tech earnings this week. That's next.
Speaker 2: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing end
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Speaker 3: I'm Scarlett Foo and.
Speaker 2: I'm Paul Sweeney, and this is Bloomberg.
Speaker 1: This is Bloomberg Intelligence with Scarlett Foo and Paul Sweeney
Speaker 1: on Bloomberg Radio.
Speaker 2: Demand for AI keeps growing so fast that the cloud
Speaker 2: giants are racing to catch up. At least that was
Speaker 2: the message this week from tech giants Alphabet, Meta and Microsoft.
Speaker 3: And the company they're looking to catch in Vidio. This week,
Speaker 3: the tech giant became the first company ever to have
Speaker 3: a market cap of over five trillion dollars.
Speaker 2: The AI spent is not slowing down for more. We
Speaker 2: spoke with Ana rog Rana, Bloomberg Intelligence technology analyst.
Speaker 6: See I think the common theme is that capital expenditures
Speaker 6: are going up, which means there to spend a lot
Speaker 6: more money to expand their data center footwork and need
Speaker 6: more chip capacity to take care of the AI demand
Speaker 6: that they are saying. So, I think that's the common
Speaker 6: message for all of them. When you look at Microsoft,
Speaker 6: I think their CAPEX numbers nobody was expecting would go
Speaker 6: up this much. I mean, we were expecting them to rise,
Speaker 6: but they basically came out and said, you know, we
Speaker 6: thought we'll be fine by now. But they're still capacity constrained.
Speaker 6: The demand is coming through. They talked a lot about
Speaker 6: their open AI agreement, the revised one. You know, I
Speaker 6: still think they're probably in one of the better places
Speaker 6: than they have been in the past several years.
Speaker 2: All right, let's just compare and contrast Meta and Google.
Speaker 2: We had talking about big CAPEX increases. Is that just
Speaker 2: the market saying, hey, we trust you Google with this
Speaker 2: increased spending. Maybe not so much over there at Meta.
Speaker 6: You know, if you're looking at between both of them,
Speaker 6: Google is showcasing that they are seeing the benefit of
Speaker 6: AI in actual revenue generation from their cloud business. Cloud
Speaker 6: business accelerated, It accelerated last quarter as well. We're really
Speaker 6: seeing tangible benefits. Then you have Nthropic signing up with
Speaker 6: Google Cloud to use their TPUs. They have the chip business. Also,
Speaker 6: the big question for everybody is, well, Meta, you're spending
Speaker 6: all this money, how are you going to monetize it,
Speaker 6: and they talk about, you know, they're going to monetize
Speaker 6: it internally through better ads and serving ads. Well they're
Speaker 6: still so me at some mean all the time. Anyway,
Speaker 6: the question is where is all this money going and
Speaker 6: how do you get it back? I think that's where
Speaker 6: the dichotomy is between these two vendors. And Google has
Speaker 6: i think, done a phenomenal job of explaining to the
Speaker 6: market what their AI strategy is and why is it
Speaker 6: working so well.
Speaker 3: So it's a matter of meta not telling a story
Speaker 3: to investors, a narrative that resonates with investors or that
Speaker 3: convinces investors the way that alphabet is.
Speaker 6: See, when you think about it, spending five ten billion
Speaker 6: would be okay, But when you talk about spending you
Speaker 6: know sixty seventy eighty billion dollars of AI related you know,
Speaker 6: research going into your products. Well, where is the benefit
Speaker 6: of that?
Speaker 3: How is not a new story that they're telling. They
Speaker 3: told this story last quarter, in the quarter before, and
Speaker 3: investors seem to like it.
Speaker 6: Fair point. But when you look at now, Google is
Speaker 6: showcasing that we actually see the benefits and actual numbers
Speaker 6: that we are reporting. So between the two vendors. It's
Speaker 6: very clear what I can see on the Google side,
Speaker 6: it's not so much not so much clear on the
Speaker 6: Meta side.
Speaker 2: And I think also another part of it is having
Speaker 2: used to follow that the stock is one of the
Speaker 2: reasons Meta was working so well over the last several years.
Speaker 2: It was a cost cutting story. After the metaverse debacle.
Speaker 2: You know, people were concerned about all the spending on
Speaker 2: the Meta rate, right, Yeah, it seemed like zeer. Yeah,
Speaker 2: they got that, they saw the light and they started
Speaker 2: cutting costs in the stock work O Thanks to Anna
Speaker 2: rod Rana, Bloomberg Intelligence Technology Analyst. Next, we look at
Speaker 2: earnings from one of the world's biggest producers of heavy machinery, Caterpillar.
Speaker 3: This week, Cat reported third quarter earnings and revenue that
Speaker 3: beat analyst estimates. The company stated their boost and earnings
Speaker 3: was driven by their power generators and turbines that keep
Speaker 3: AI data centers running.
Speaker 2: For more on this, we were joined by Chris Chiolino,
Speaker 2: Bloomberg Intelligence Senior US machinery analyst.
Speaker 9: It was a great quarter. You know, despite pretty elevated
Speaker 9: expectations coming into the print a bigger tariff headwind, CAT
Speaker 9: really delivered very solid three key results. It was really
Speaker 9: driven by higher volumes across all three of their core businesses,
Speaker 9: with particular strength and energy and transportation. Again, but I think,
Speaker 9: you know, one of the more encouraging signs that we
Speaker 9: took away from the results were that orders accelerated here
Speaker 9: in the quarter, and we also saw a backlog improved
Speaker 9: sequentially to a record forty billion dollars. So we think
Speaker 9: we see you know, above average production and earnings visibility
Speaker 9: as we begin to think about next year.
Speaker 3: Did the company say a lot about the power producing
Speaker 3: equipment including turbines and generators that have investors excited about
Speaker 3: it being kind of a derivative play to the AI story.
Speaker 9: Absolutely, so, you know, we continue to hear more and
Speaker 9: more about AI and data centers and Cat's exposure there.
Speaker 9: Power gens probably you know, roughly thirty percent of the
Speaker 9: energy and transportation business, roughly you know, fifteen percent of
Speaker 9: the overall enterprise, but it continues to be the fastest
Speaker 9: growing part of the portfolio. They're bringing on a lot
Speaker 9: of capacity here over these next three years. I think
Speaker 9: you really begin to see a step change as we
Speaker 9: move into twenty twenty seven, particularly on the large engines.
Speaker 5: So there is.
Speaker 9: More of a focus and investment on the energy and
Speaker 9: transportation business and it has become, you know, the biggest
Speaker 9: part of their portfolio.
Speaker 2: Wow, are there other companies or let me put it
Speaker 2: this way, who does cat compete with in that segment
Speaker 2: of the business.
Speaker 9: Yeah, so there's a number of different competitors, and it
Speaker 9: really breaks down on relative by size on some of
Speaker 9: the gen sets. Cummins is a is a big one,
Speaker 9: Siemens Energy, and then you also have a few other
Speaker 9: European and Asian players. But you know, this is certainly
Speaker 9: a market that's growing, you know, pretty exponentially.
Speaker 6: Here.
Speaker 9: Backlogs extend several years, so we think we have pretty
Speaker 9: good visibility at least through you know, the next three years.
Speaker 3: Does this part of the business mean that Caterpillar will
Speaker 3: need to rely more on domestic market opportunities as opposed
Speaker 3: to global market opportunities.
Speaker 9: So their footprint is the largest, the energy and transportation
Speaker 9: footprint is the largest in North America, But you know,
Speaker 9: I think the opportunity is global. They are a large
Speaker 9: global producer that they serve you know, essentially almost all
Speaker 9: markets around the world. I think, even particularly with an
Speaker 9: energy and transportation it's like something like one hundred different countries.
Speaker 9: So while I think the immediate near term excitement is
Speaker 9: more focused here in North America, I do think longer
Speaker 9: term there's an opportunity international as well.
Speaker 2: What's the company saying about impact, if any, on tariffs
Speaker 2: on their business now going forward?
Speaker 9: Yeah, So tariffs were actually a much bigger headwind than
Speaker 9: we anticipated in the quarter, and even KAT I think
Speaker 9: it kind of shook out somewhere around a six hundred
Speaker 9: million dollar headwind in three Q. But margins, margins were
Speaker 9: better than expected, really pretty remarkably resilient despite these price
Speaker 9: costs headwinds. Four Q will actually see a step up
Speaker 9: in the tariff costs, and then as we think about
Speaker 9: next year, you know, Kat's really been kind of hesitant
Speaker 9: to pull the pricing level on a lot of tariffs
Speaker 9: thus far. We think that's you know, more of an
Speaker 9: opportunity for them here in the near term to gain
Speaker 9: some market share. So as we think about twenty twenty six,
Speaker 9: it'll be interesting to see, you know, do they continue
Speaker 9: to offset through more costs and productivity efficiencies or do
Speaker 9: they lean into pricing a little bit more. But tariffs
Speaker 9: will step up here in the near term and then
Speaker 9: you know, twenty twenty six, it still remains to be seen,
Speaker 9: but i'd expect a demand backdrop to improve. So they
Speaker 9: certainly should have the opportunity to push pricing a little
Speaker 9: bit more aggressively next year.
Speaker 2: Our thanks to Chris Chile, you know, Bloomberg Intelligence senior
Speaker 2: US machinery analyst.
Speaker 3: We move next to news from the logistics company UPS.
Speaker 3: This week, UPS said it expects to cut thirty four
Speaker 3: thousand jobs this year in an effort to cut expenses
Speaker 3: and improve profitability.
Speaker 2: This comes despite the companies reporting third quarter earnings that
Speaker 2: beat analyst expectations. For more on this guest host Lisa
Speaker 2: Matteo and I were joined by Lee Glasgow, Bloomberg Intelligence
Speaker 2: Senior Transport, Logistics and Shipping analysts.
Speaker 10: So it's going on to the EPs is they are making
Speaker 10: progress and they're executing on their plan. And their plan
Speaker 10: really is to create a network that can not only handle,
Speaker 10: but thrive.
Speaker 5: In an ever changing environment.
Speaker 10: And that change is being driven by e commerce, it's
Speaker 10: being driven by the uncertainty around tariffs. And what they've
Speaker 10: been able to do is increase productivity through technology, whether
Speaker 10: it's automation or AI. And that also they were stepping
Speaker 10: away from business from Amazon. You know, they noted another
Speaker 10: morning call that there are three quarters into a six
Speaker 10: quarter glide down of Amazon business. And the reason why
Speaker 10: they want to move away from Amazon business that tends.
Speaker 5: To be lower margin, lower yielding packages.
Speaker 10: But that's not to say that they don't want to
Speaker 10: totally walk away from Amazon, because their return business is
Speaker 10: a good business for them, and we're seeing you know,
Speaker 10: the success in the numbers, and you know, going into
Speaker 10: the quarter, I think investors were cautious or had low
Speaker 10: expectations and management kind of exceeded those with the results.
Speaker 10: And their outlook really shows us that, you know, expectations
Speaker 10: for the fourth quarter in twenty twenty six, at least
Speaker 10: as it relates to you know, sell side analyst consensus
Speaker 10: is probably a bit low and it needs to move higher.
Speaker 4: Lee, can you get more into the cuts that we
Speaker 4: were talking about, thirty four thousand job cuts, where were
Speaker 4: they seen and what kind of let's say, year over
Speaker 4: year cost savings does it expect in twenty twenty five
Speaker 4: from all of this.
Speaker 10: Yeah, so you know what they're trying to do their
Speaker 10: overall cost savings, which includes you know, the head count reductions,
Speaker 10: you know, they're looking to get three point five billion
Speaker 10: dollars in cost savings this year. They've done around two
Speaker 10: point two billion of that so far, and some of
Speaker 10: the reductions are driven by you know, they offered early.
Speaker 5: Retirement for some of their drivers.
Speaker 10: They said they've had pretty good pickup with that, and
Speaker 10: that payoff should be about a year from what it
Speaker 10: costs cost something one hundred and seventy five one hundred
Speaker 10: and eighty million dollars, and they mentioned on the call
Speaker 10: that it will take about a year to get to
Speaker 10: make those costs back up, so you know, it really
Speaker 10: should be paying for itself.
Speaker 5: And they're closing a lot of facilities.
Speaker 10: So they've they've closed you know, something like ninety ninety
Speaker 10: five facilities so far, and that's being driven by they
Speaker 10: don't need the network they had when they were you know,
Speaker 10: really handling a lot of Amazon business and now that
Speaker 10: you know, like I mentioned earlier, they're walking away from
Speaker 10: that business, they're kind of reconfiguring their network. And they're
Speaker 10: also you know, as I mentioned, they're increasing overall automation.
Speaker 10: You know, they know, they're on their call that they've
Speaker 10: added automations around thirty five more facilities and about sixty
Speaker 10: six percent of their packages touch these automated facilities, which
Speaker 10: is around three hundred basis points more than was last year,
Speaker 10: and that that numbers is going to continue as management
Speaker 10: makes more inroads at modernizing their facilities.
Speaker 4: Lee, what is UPS?
Speaker 2: So maybe feed FedEx for that matter. How are they
Speaker 2: kind of talking to you guys about tariffs and how
Speaker 2: it might be impacting their business just as a big,
Speaker 2: big part of supply chain.
Speaker 5: Yeah, you know, it's interesting.
Speaker 10: So for like a UPS, you know, there's good in
Speaker 10: bad when it comes to the tariffs and the more
Speaker 10: protectionist policies in the US. You know, we've ended the
Speaker 10: Dominimus exemptions, which you know stated that if a shipment
Speaker 10: came into the United States and it was worth eight
Speaker 10: hundred dollars or less, it didn't have to pay a
Speaker 10: duty or a tariff. You know, the Biden administration was
Speaker 10: working towards getting rid of that. That Trump brought that
Speaker 10: Trump administration brought that to the finish line. You know,
Speaker 10: first it was it was just packages that were coming
Speaker 10: in from China and Hong Kong, and now that's been
Speaker 10: you know, all packages coming to the United States and
Speaker 10: that's hurting volumes they noted their US or they're China
Speaker 10: to US volumes were down around twenty percent, and that's
Speaker 10: having a negative impact. Now you look at their forward business,
Speaker 10: you know, because of all these packages are now if
Speaker 10: they're are going to be coming in lower value packages
Speaker 10: have to pay duty, they need to lean more heavily.
Speaker 5: On their customs business.
Speaker 10: So you've seen their supply chain business outperform this quarter,
Speaker 10: and I suspect a lot of that had to do
Speaker 10: with the additional fees that they generate from helping shippers
Speaker 10: clear packages through customs.
Speaker 2: Our thanks to Lee Clasgow Bloomberg Intelligence senior Transport, Logistics
Speaker 2: and shipping analysts.
Speaker 3: Coming up, we focus in on the European earning season.
Speaker 2: So far, you're listening to Bloomberg Intelligence on Bloomberg Radio,
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Speaker 2: and one hundred and thirty industries.
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Speaker 1: This is Bloomberg Intelligence with Scarlet Foo and Paul Sweeney
Speaker 1: on Bloomberg Radio.
Speaker 2: We've been covering plenty of earnings from US companies this
Speaker 2: past month, but European earnings are also resoundingly beating expectations,
Speaker 2: namely in the European tech.
Speaker 3: Space, especially as growing investment in artificial intelligence lifts demand
Speaker 3: and counters trade headwinds on that in the overall European market.
Speaker 3: We were joined by Tim craighead Bloomberg Intelligence Global Chief
Speaker 3: Content Officer.
Speaker 8: So far, so good. I wouldn't say it's as dramatic
Speaker 8: as what you're finding over here. We don't have the
Speaker 8: big tech you know to the same degree by any measure.
Speaker 8: But if you look so far earnings twenty I'm sorry,
Speaker 8: fifty three percent beat versus high twenty percent miss Europe
Speaker 8: doesn't play the game like the US, where every company
Speaker 8: is trying to manage estimates and you know, down to
Speaker 8: the tenth degree. This is a good reporting period for
Speaker 8: Europe so far, and there's Yeah.
Speaker 3: What are some of the big themes that are driving
Speaker 3: earnings growth when there is growth?
Speaker 8: Yeah, it's an interesting thing. I'm going to put this
Speaker 8: into a little bit of different perspective to answer your question.
Speaker 8: If you look over the course of the past three years,
Speaker 8: where we've seen US earnings ratchet up, European earnings have
Speaker 8: been minus one percent. Wow, I mean, it's a shocking
Speaker 8: dis Yeah. A big part of that is technology over here,
Speaker 8: but a big part of that over there is that
Speaker 8: there's been some really big drags au Those and energy
Speaker 8: and basic materials, sink, metals, money, and chemicals were about
Speaker 8: twenty seven percent, not to be overly precise of the
Speaker 8: earnings pie in twenty twenty two. That group has fallen
Speaker 8: two thirds in earnings since then to where it's now
Speaker 8: down to ten percent of earnings, and it's just been
Speaker 8: a massive drag. The good thing looking forward is that
Speaker 8: those three are a smaller and all of them seem
Speaker 8: to be settling and there's reasons to think they can
Speaker 8: move forward, which gives a window for other businesses like
Speaker 8: industrials or technology financials, which have been huge with earnings growth,
Speaker 8: to start to shine through in next year.
Speaker 2: Broadbly speaking, rising trade tensions can't be good for Europe.
Speaker 2: What are the companies saying.
Speaker 5: Yeah, it's.
Speaker 8: It's interesting in that it's another element to this earning story.
Speaker 8: You know, there's not many of the sectors that have
Speaker 8: actually had positive earnings growth this year. If you look
Speaker 8: at earnings revision trends across sectors, and you have to
Speaker 8: think part of it is the uncertainty. It could be
Speaker 8: a direct impact where you're having to pay levees, it
Speaker 8: could be uncertainty from buyers. It's definitely a majority of
Speaker 8: companies over the first half of the year and even
Speaker 8: this reporting period have talked about those two elements supplier
Speaker 8: uncertainty or direct impact that are an issue for earnings.
Speaker 8: There's been a third or more that have said, yes,
Speaker 8: we can mitigate this, that and the other, but it
Speaker 8: is an issue. And to the degree that things are
Speaker 8: starting to settle out a little bit, it's another one
Speaker 8: of those things where we could see some positivity as
Speaker 8: we look into next year.
Speaker 3: What's the relationship between European companies earnings and AI. You
Speaker 3: don't have the big chip makers we do in video
Speaker 3: that obviously benefit from the demand for AI and data centers,
Speaker 3: but you do have ASML, which is a chip manufacturing
Speaker 3: equipment maker, so it's tied there. But most of these companies,
Speaker 3: I would imagine are using AI to create efficiencies and
Speaker 3: create productivity.
Speaker 8: It's you hit the nail on the head from the
Speaker 8: standpoint of ASML is the proximate company there, and clearly
Speaker 8: you wouldn't have AI to the same degree within Vidia
Speaker 8: at AL if you didn't have AI. But it's only
Speaker 8: one component. SAP is a play if you wanted to
Speaker 8: be a second derivative, which again is a big component
Speaker 8: of European tech, But it is much more of what
Speaker 8: are companies doing to drive their business and you'll be
Speaker 8: hearing more and more on this. We're doing some pretty
Speaker 8: in depth work with our year head outlooks, through corporate
Speaker 8: surveys and otherwise on what are the impacts of the
Speaker 8: AI and we are seeing we are seeing companies focus
Speaker 8: on customer service, better data efficiencies. It's not that much
Speaker 8: of a headcount issue, even though you certainly see some
Speaker 8: headlines on that here as well as over there, so
Speaker 8: it's interesting.
Speaker 3: And then I got to ask you about the one
Speaker 3: theme that has been driving European stocks, which is European
Speaker 3: defense companies. This is like where we're going to see
Speaker 3: a lot of the numbers, maybe because certainly there's a
Speaker 3: lot of enthusiasm for this group.
Speaker 5: YEP.
Speaker 8: Valuations have ratcheted up, sales and earnings have ratcheted up.
Speaker 8: The European defense imperative is a critical theme. Everybody's talking
Speaker 8: about it, from regulators to corporates to investors. Those stocks
Speaker 8: have gone haywire. The evaluations are far higher than the
Speaker 8: US comparables. Even if we go to three and a
Speaker 8: half percent of GDP, which is now targeted across the
Speaker 8: NATO countries for spending, it's a question of how much
Speaker 8: of that can actually be spent in Europe. It's a
Speaker 8: narrow window in terms of who are the European defense contractors.
Speaker 8: Ryan Mattell is a big deal. There's a huge push
Speaker 8: from an industrial capacity perspective to make that a broader base.
Speaker 2: Right Thanks to Tim craigk Ed Bloomberg Intelligence Global Content Officer.
Speaker 2: This week we were joined by AI expert Peter Werner.
Speaker 2: He is co chair of Cooley's Global Emerging Companies and
Speaker 2: Vice chairman of Cooley's Business Department. They represent and guide
Speaker 2: many of the industries that are most prominent in the
Speaker 2: startup ecosystems, such as AI, space tech, and digital health.
Speaker 3: Peter joined a program to discuss the future of the
Speaker 3: workforce and how AI is affecting various industries.
Speaker 12: It's such an interesting conundrum. I think about it in
Speaker 12: two ways. One for us, for our large law firm
Speaker 12: for professional services organizations generally, and then for our clients
Speaker 12: largely technology focused clients, small ones disrupting industries and large ones.
Speaker 13: There's a real combination.
Speaker 12: And you alluded to it with the investment bankers and
Speaker 12: open a Open a Eyes statement recently about trying to
Speaker 12: train LLM to take to simulate the jobs that currently
Speaker 12: invest in bankers, entry level investment bankers do for hundreds
Speaker 12: and hundreds of hours a month per per banker. Lots
Speaker 12: of short term, medium term optimism, right, reduction of drudgery.
Speaker 12: People people getting to go home earlier and get more
Speaker 12: sleep because they don't have to format one hundred page
Speaker 12: presentations or create tables Comparing the last version of a
Speaker 12: one hundred page merger agreement with the next version and
Speaker 12: things like that. That all seem amazing, but then you
Speaker 12: start to think longer term, what does that mean?
Speaker 13: What does that mean?
Speaker 12: For philis A referenced the junior bankers getting getting training
Speaker 12: by virtue of those reps.
Speaker 13: How are we.
Speaker 12: Replacing those reps so that ten years from now we
Speaker 12: know who the senior.
Speaker 13: Bankers are going to be? How do we get from
Speaker 13: here to there?
Speaker 12: Really interesting and really complicated as it relates to big tech.
Speaker 12: We've got earnings coming up this week for a lot
Speaker 12: of them, and you've got a ton of companies that
Speaker 12: work we work with that sell into big enterprises that
Speaker 12: are ready to get acquired.
Speaker 13: By big tech. Yeah, like they are selling into enterprises.
Speaker 12: That don't really know what the futures of their platforms
Speaker 12: are going to be in terms of how they're going
Speaker 12: to use labors.
Speaker 13: So lots of uncertainty there.
Speaker 3: Lots of uncertainty, and you raise some really good points here.
Speaker 3: Do you see companies management starting to address how to
Speaker 3: answer some of those questions, like, you know, where are
Speaker 3: we going to get that senior talent from if they're
Speaker 3: not going to be in the trenches in the early
Speaker 3: parts of their career because the early part of your
Speaker 3: career just doesn't exist anymore.
Speaker 13: Yeah, I can speak most.
Speaker 12: Passionately about that from the standpoint of my law firm,
Speaker 12: which is really a proxy for professional services organizations all over.
Speaker 12: We are in the middle of trying to figure out, Okay,
Speaker 12: we have first year so we have one hundred first
Speaker 12: year associates coming to join us on Thursday across the firm,
Speaker 12: and maybe they'll be fine, But what about the ones
Speaker 12: that we're courting right now, the first year lawyers who
Speaker 12: are coming here in three years, if they're not going
Speaker 12: to get to do one hundred venture capital financings a
Speaker 12: year form one hundred companies a year because robots are
Speaker 12: doing it, Like what we need is do we just
Speaker 12: need to have a virtual reality simulation of that and
Speaker 12: we don't build them out to clients, but we put
Speaker 12: them through their paces virtually so that they gain experientially.
Speaker 12: Still or is there a whole new way of training
Speaker 12: those people?
Speaker 13: Of course there.
Speaker 12: Are also because there were we as a as an
Speaker 12: ecosystem here in California, Like people understand that, and so
Speaker 12: of course there are now startups that are saying, Okay,
Speaker 12: we are going to be your simulation platform to simulate
Speaker 12: the reps that professional services organizations and other knowledge workers
Speaker 12: wouldn't otherwise get. So hire us to train your junior
Speaker 12: people so that in ten years you can make partners
Speaker 12: or you can make managing directors.
Speaker 2: Are your clients to what extent are they receptive to
Speaker 2: integrating AI to their business? To maybe a little bit
Speaker 2: reticent here, they're just not quite sure.
Speaker 12: Well, you've got, I mean, tale of two kinds of companies.
Speaker 12: You've got these amazing AI native companies disrupting older industries
Speaker 12: where they are all about it and they're talking in
Speaker 12: their board meetings about the ratio of headcount to revenue
Speaker 12: and trying to be really focused on efficiency and optimizing technologies,
Speaker 12: building everything in a labor light way. And then you've
Speaker 12: got incumbents who are trying to like lift up this big,
Speaker 12: heavy organization and insert like AI technology layer underneath it,
Speaker 12: change the way they've all been doing things forever and start,
Speaker 12: you know, laying off people, but laying off the right people,
Speaker 12: retraining other people. I mean that's a complicated task across
Speaker 12: all industries.
Speaker 3: So, Peter, are what jobs are AI proof meeting. AI
Speaker 3: can help you, but it's not going to take your job.
Speaker 3: Are there any industries, Are there any specific roles?
Speaker 13: I mean, I'd love to know the answer to that.
Speaker 12: My instinct is that the most senior, most experienced, people
Speaker 12: with the highest EQ and the ability to read rooms
Speaker 12: think laterally, be strategic and creative, like in the white
Speaker 12: color world, those.
Speaker 13: Are the last ones to go.
Speaker 3: But that's not everyone.
Speaker 13: Maybe they never go. Who knows right.
Speaker 12: But then and then beyond that, I would say there
Speaker 12: is a correlation between like more manual work, et cetera,
Speaker 12: and like it's going to take longer to replace those jobs.
Speaker 12: But you still think about the on shoring of like
Speaker 12: American manufacturing now where we have we have dark factories
Speaker 12: that we're building in the US that have no humans
Speaker 12: working in them. So this is not about all blue
Speaker 12: collar labor or like physical labor is insulated permanently.
Speaker 13: I'm not sure.
Speaker 3: I don't know our Thanks to Peter Werner CHERF Cooley's
Speaker 3: Business Department.
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 and.
Speaker 3: Remember you can access Bloomberg Intelligence via bio on the terminal.
Speaker 3: I'm Scarlet Foo and.
Speaker 2: I'm Paul Sweeney. Stay with us. Today's stop stories and
Speaker 2: global business headlines are coming up right now.