Speaker 1: This is Bloomberg Intelligence with Alex Steel 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 4: These are two.
Speaker 2: Big time blue chip companies.
Speaker 3: Window between the peak and cut changing super fast Bloomberg.
Speaker 1: Intelligence with Alex Steel and Paul'sweeny on Bloomberg Radio.
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 our analysts cover worldwide.
Speaker 2: Today we'll look at why Ford Motor is recalibrating its
Speaker 2: electrification strategy yet again.
Speaker 3: Plus we're going to discuss the M and A space
Speaker 3: and the potential for what could be the biggest foreign
Speaker 3: takeover of a Japanese company.
Speaker 2: But first we dive into the biotech space. This week,
Speaker 2: a three year study showed that patients taken ELI Lilly's
Speaker 2: blockbuster weight loss shot were ninety four percent less likely
Speaker 2: to develop diabetes.
Speaker 3: ELI Lily said that this is the longest continuous study
Speaker 3: of a zep bound drug to date, and the company's
Speaker 3: shares rose to an all time high after the news.
Speaker 2: For more, Alex and I were joined by Sam Fazzelli,
Speaker 2: Bloomberg Intelligence Director of Research for Global Industries and senior
Speaker 2: pharmaceuticals analyst.
Speaker 3: We first asked Sam, what numbers we mean that literly
Speaker 3: study jumped out.
Speaker 4: Let me take you back a little bit where we
Speaker 4: not always told we went to the doctor and we
Speaker 4: started our glucose was going up. Not you guys, obviously
Speaker 4: you're a fascinatingly amazingly healthy and fit, but those who
Speaker 4: weren't and told you need to lose some weight to
Speaker 4: my friend, because you have risk of developing diabetes. So
Speaker 4: where is the shock? If you reduce weight and manage
Speaker 4: the obesity, you lose all these you know, I'll be
Speaker 4: suppeating this thing, sleep APNA, risk of developing diabetes, everything
Speaker 4: that we're talking about here. You eat less, you lose weight,
Speaker 4: let's could developing diabetes. So not exactly a shock. Nevertheless,
Speaker 4: it's great to see that it actually does what it
Speaker 4: says on the tin that by reducing weight you do
Speaker 4: manage all these side effects. But before we get too excited,
Speaker 4: I want to highlight one little wrinkle here. It's no
Speaker 4: wrinkle with the data if you read the press release,
Speaker 4: and I've got it right up here on my terminal
Speaker 4: eli Lei coming announced positive top line results from this
Speaker 4: amount one a three year study, one hundred and seventy
Speaker 4: six week treatment period. Find me somebody who stayed in
Speaker 4: the real world on this drug for one hundred and
Speaker 4: seventy six weeks, So we survey physicians. But if we
Speaker 4: find forty weeks, I'm sure it's going to go up.
Speaker 4: But that's very different settings. So how much of a
Speaker 4: real world will this actually translate into in terms of
Speaker 4: preventing diabetes. Time will tell.
Speaker 3: So you're not saying that the study was bogus. You're
Speaker 3: saying the study was real. But in reality, people don't
Speaker 3: stay that long on the drug. Therefore the result won't
Speaker 3: be as magical for them.
Speaker 4: Right in clinical trials, you get the best possible data
Speaker 4: basically because it's highly controlled. People are followed, you make
Speaker 4: sure that they stay on. There would probably have been
Speaker 4: people who have dropped off here, So maybe the actual
Speaker 4: average treatment period wasn't exactly one hundred and seventy six
Speaker 4: weeks for everybody, because people do drop off. And I'm
Speaker 4: assuming in this trial the data they're reporting to us
Speaker 4: is what's called intent to treat. I e. I've intended
Speaker 4: to treat that patience. Whatever happens to them, you still
Speaker 4: count them, even if they've fallen off the drug. Nevertheless,
Speaker 4: we need to see the detail. But in a trial
Speaker 4: setting things always look better than in real world. So
Speaker 4: here we have to remember average stay time, according to
Speaker 4: our surveys that Mark show my colleague runs every six months,
Speaker 4: is about forty weeks, similar to what we get for
Speaker 4: we go VI and people, and even the press release
Speaker 4: they say as soon as they came off, weight went
Speaker 4: back up and the risks started going up again of
Speaker 4: developing diabetes. So this is not something that you've cleaned.
Speaker 4: I can stop now at one hundred and seventy six
Speaker 4: and I'm done. It's the same story over again.
Speaker 2: Right exactly. So I look at the stock for Eli
Speaker 2: Lily Sam. How much of this stock performance is these glps?
Speaker 4: Oh gosh, if you know, if you look at the
Speaker 4: chart and look at the flow of information and news
Speaker 4: and the upgrades, et cetera that are coming to every
Speaker 4: quarter result, et cetera. Sales. I would say a meaningful
Speaker 4: chunk of this. I can't quantify it exactly because this
Speaker 4: is a company that's got other stuff going on. Alzheimer's disease, oncology,
Speaker 4: is skin diseases, et cetera. So this is not a
Speaker 4: one trick pony, but a large amount of this story.
Speaker 4: And you can tell by when somebody reports a positive
Speaker 4: results in a competitor setting, these stocks sell off four
Speaker 4: or five percent, right You remember the days with rash
Speaker 4: only three or four weeks ago, I think, right. So,
Speaker 4: and let's not forget in a few weeks time, we
Speaker 4: have the European Association for the Study of Diabetes rush's
Speaker 4: data is coming out. Somebody's going to be up three
Speaker 4: or four two percent that day, and somebody's going to
Speaker 4: be down three or four percent. Who it is, we'll
Speaker 4: see what the data says.
Speaker 3: The point that you made that if people come off
Speaker 3: it and they gain the weight back, so in that sense,
Speaker 3: it's not like everlastingly magical. Will there be iterations though,
Speaker 3: where that won't be the case.
Speaker 4: And there's two ways of dealing with this. So you
Speaker 4: go on the drug, you come off the drug, you
Speaker 4: go back on the drug, you come off the drug,
Speaker 4: and you just do your cycling every few years after
Speaker 4: you've got to a point where you think, I don't
Speaker 4: know why people come off the drug necessarily on an
Speaker 4: average is it side effect tends to get a lot
Speaker 4: better over time, and maybe it's cost. Maybe it's because
Speaker 4: they're fed up taking an injection every week. So if
Speaker 4: you put all those things together, as they get cheaper
Speaker 4: and injections become once a month, maybe or they become
Speaker 4: oral for the maintenance phase of the dose, and that
Speaker 4: oral doesn't make you feel ill every time you take
Speaker 4: it in terms of gastric intestinal maybe that's the future.
Speaker 4: Maybe there are other modalities. Amilin is one that no
Speaker 4: One and Zealand Farm are developing as a target that
Speaker 4: seems to have less side effect issues. Maybe you can
Speaker 4: maintain your weight loss by those drugs which don't have
Speaker 4: the same side effect issue. So that has to be
Speaker 4: the way that you see it, But nobody ever complies
Speaker 4: with the drug forever our.
Speaker 2: Thanks to Sam Fazzelli, Bloomberg Intelligence, Director of Research for
Speaker 2: Global Industries and senior pharmaceuticals analysts.
Speaker 3: This week, the department store chain Macy's reported quarterly revenue
Speaker 3: that missed analyst expectations.
Speaker 2: Macy's also lowered its yearly outlook for sales. It's cited
Speaker 2: increase discounting by competitors and a more cautious consumer.
Speaker 3: On the other hand, you had TJX increasing its full
Speaker 3: year projections for comparable sales and profit. This show the
Speaker 3: company's brand choices and execution are working.
Speaker 2: For more on all of this, guest hosts Jessemett and
Speaker 2: I were joined by Mary Ross Gilbert Bloomberg Intelligence, senior
Speaker 2: equity analysts covering retail. We first asked Mary for key
Speaker 2: takeaways from Macy's most recent results.
Speaker 5: As with any turnaround, and here we are in another
Speaker 5: iteration of trying to get growth back for this. It's
Speaker 5: the largest department store Macy's. They did show traction in
Speaker 5: the first fifty stores. The comps were up one percent,
Speaker 5: and that was an improvement from the first quarter, which
Speaker 5: was up just less than one percent. But the fact
Speaker 5: is that the rest of the go forward stores were
Speaker 5: down three point seven percent. This is on a comparable basis,
Speaker 5: and it's owned plus license, so it includes license brands
Speaker 5: that they'll have you know, within the mix there. So
Speaker 5: they're showing traction in those little stores, but with the
Speaker 5: rest of the base, you know, being very weak and
Speaker 5: as they pointed out, they weren't really getting the conversion.
Speaker 5: What they're finding is you bring in sales people. Wow,
Speaker 5: that's really what if you think about department stores and
Speaker 5: where they came from, that's what they were known for
Speaker 5: in the past with service, but over the last couple
Speaker 5: of decades, the service and the salespeople have sort of
Speaker 5: left the stores. Now they're finding if they bring them
Speaker 5: back and they bring back the real brands, because one
Speaker 5: of the things that Tony Spring, CEO of the company,
Speaker 5: indicated is having newness and having the relevant brands that
Speaker 5: consumers care about. That's where you can get the impulse purchases.
Speaker 5: And so they're finding bringing in like a Carl Logger
Speaker 5: Field or a Veclove Fee, which is it's like a Parisian,
Speaker 5: a chic Parisian type brand. It's a US brand, but
Speaker 5: it has that Paris streetwear aesthetic and that's resonating really well,
Speaker 5: and they're getting very strong conversion. So bringing back service levels,
Speaker 5: bringing back the relevant brands is really making a difference
Speaker 5: in those fifty stores. So they're going to add another
Speaker 5: one hundred stores where they're going to bring in service
Speaker 5: and handbags. They did see some strong sales with handbags
Speaker 5: again in those stores with the Lauren Ralph Mourn brand.
Speaker 5: So that's where I think you're going to see some improvements.
Speaker 5: Is just really better signage, cleaner stores. We've been seeing
Speaker 5: those moments in the store that we frequent. They just
Speaker 5: need to take it across the rest of the base.
Speaker 6: And it seems like an about face because justin May,
Speaker 6: when we had heard from Macy's previously in their prior
Speaker 6: earnings report, they had beat estimates also raised the company's
Speaker 6: outlook for the remainder of the year. But as you know,
Speaker 6: this Ladist report comes on the heels of the company
Speaker 6: turning down that close to seven billion dollars buyout to
Speaker 6: offer from one of its shareholders, our Cows and of
Speaker 6: course it's partner Bridgegade Capital Management. Do we have any
Speaker 6: indication of whether or not that could be back on
Speaker 6: the table at some point.
Speaker 5: I don't know if that'll be back on the table.
Speaker 5: I really think that they weren't able to demonstrate financing.
Speaker 5: I think that was the problem with that, and I
Speaker 5: also think that the price was low because even though
Speaker 5: Macy's is showing very weak results right now and the
Speaker 5: market is showing investors don't really like what they're seeing
Speaker 5: in the quarter, it's one quarter and it's going to
Speaker 5: take time before we see real traction. So a year
Speaker 5: from now, the story could look very different if they're
Speaker 5: really able to execute on this plan closing the stores.
Speaker 5: They haven't closed the stores yet. They're going to close
Speaker 5: the first fifty five it was going to be fifty.
Speaker 5: They up to another five stores are going to close
Speaker 5: at the end of the year. They always wait until
Speaker 5: after the holidays because that's when they generate the most cash.
Speaker 5: And then of course they're going to close another one
Speaker 5: hundred stores over the next couple of years. But again,
Speaker 5: they might accelerate that, so it's going to take time
Speaker 5: to show traction. So we'll see how the third quarter
Speaker 5: and fourth quorder go, especially with some of the changes
Speaker 5: that they're making to these incremental stores. But nonetheless you
Speaker 5: can see who's gaining in. It's on the off price side.
Speaker 2: Let's go to TJX owner of TJ max stocks, hit
Speaker 2: An All time high today, what's TJX? What are they
Speaker 2: getting right?
Speaker 5: What they're getting right is they have all those brands.
Speaker 5: They have the Treasure Hunt. There's fresh merchandise in those
Speaker 5: stores every week, and the brands range from the very
Speaker 5: high end, so they'll have Gucci and Chloe handbags, and
Speaker 5: then they'll also have like Anklin. So they're sort of
Speaker 5: covering all of the demographics with their assortments and they're
Speaker 5: making it relevant by store. They have the winning formula.
Speaker 5: This is an expertise that they have built up for
Speaker 5: years and they're the largest out there. It's a fifty
Speaker 5: six billion dollars in sales company. And so in their quarter,
Speaker 5: of course they beat with a four percent comp sales
Speaker 5: and the consensus with two point seven and guidance two
Speaker 5: point you know, sort of in that one to two
Speaker 5: percent or low single digit range, and of course they
Speaker 5: raise their guidance. They're now expecting comp sales to be
Speaker 5: sort of in that three to four percent range, and
Speaker 5: they raised their EPs by about six cents.
Speaker 2: Our thanks to Mary Ross, Gilbert Bloomberg Intelligence senior ECOD
Speaker 2: analyst covering retail.
Speaker 3: Coming up, we're going to break down how the retailer
Speaker 3: Target ended a string of quarterly sales declines.
Speaker 2: You're listening to Bloomberg Intelligence on Bloomberg Radio and providing
Speaker 2: INDP research and data on two thousand companies and one
Speaker 2: hundred and thirty injtries. You can access Bloomberg Intelligence via
Speaker 2: b I go on the terminal on Paul Sweeney.
Speaker 3: And I'm Alex Steel and this is Bloomberg.
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Speaker 1: This is Bloomberg Intelligence with Alex Steele and Paul Sweeney
Speaker 1: on Bloomberg Radio.
Speaker 3: We move now to earnings from the retailer Target.
Speaker 2: This week, Target reported second quarter comparable sales that rose
Speaker 2: for the first time in more than a year.
Speaker 3: This comes as the company has been focusing on cut
Speaker 3: prices on essential goods to win over inflation hit consumers.
Speaker 2: For more, guest hosts Jessman and I were joined by
Speaker 2: Jennifer Bartash's Bloomberg Intelligence senior analysts retail stables and packaged food.
Speaker 2: We first asked Jen to tell us what Target is
Speaker 2: doing right.
Speaker 8: With Target, what we're really seeing is that they sort
Speaker 8: of reaffirmed their strategy around creating newness, reducing prices, and
Speaker 8: enhancing the value perception they have with customers, and this
Speaker 8: second quarter results, we really see that that is starting
Speaker 8: to resonate, especially because they're seeing traffic going back into
Speaker 8: stores as well as online. So really positive early signs
Speaker 8: from Target that this momentum might be able to continue.
Speaker 6: What about when it comes to consumer package good companies,
Speaker 6: Because you and I have talked in the past, and
Speaker 6: we know that Richmond FED President Tom Barkin watches a
Speaker 6: price to mix very closely, and that's a lot of
Speaker 6: the data that you crunch over at Bloomberg Intelligence as
Speaker 6: far as what that means for inflation and also the
Speaker 6: direction potentially for FED policy. What are you seeing on
Speaker 6: there as we begin to get more consumer package good
Speaker 6: companies reporting as well.
Speaker 8: What we're seeing is obviously there's political pressure with a
Speaker 8: lot of rhetoric going on right now about the need
Speaker 8: to lower prices. We're seeing retailers like Walmart, like Target,
Speaker 8: like Krger, like Albertson's pushing back on package food companies
Speaker 8: who are you know, in some instances still looking to
Speaker 8: push through some selective price increases. So there is that
Speaker 8: tension that's happening kind of behind the scenes. But overall,
Speaker 8: we are seeing prices on the shelf starting to come down,
Speaker 8: and that spells relief for consumers. It's just a matter
Speaker 8: of how long it takes for them to actually recognize
Speaker 8: it and appreciate it and reward it with higher volumes
Speaker 8: that they're buying.
Speaker 2: What's Target saying about the consumer? What are the other
Speaker 2: retailers that you talk to, Jenny, you follow, what are
Speaker 2: they saying about the consumer today? Because I'm I think
Speaker 2: as investors we kind of feel like we're getting mixed
Speaker 2: messages about the consumer.
Speaker 8: Yeah, I think when you're talking about the staple space,
Speaker 8: which is you know, where these companies that I follow fall,
Speaker 8: it's that the consumer is not getting worse, They're not
Speaker 8: necessarily getting better, but they're sort of holding study. And
Speaker 8: you know, part of that is that we've had some
Speaker 8: consumers you kind of trade down into those middle tier
Speaker 8: stores or even to some of the discount stores in
Speaker 8: order to save a little bit of money. So the
Speaker 8: companies in this space are pretty well positioned because they
Speaker 8: do well no matter what the economic circumstances are. And
Speaker 8: I think that's showing through with the results. But they're saying,
Speaker 8: you know, consumers are spending, but it's still very thoughtfully
Speaker 8: and so the things that will attract them to spending
Speaker 8: is your merchandise mix, your newness, your convenience, the quality
Speaker 8: things that will then tempt them into into spending the
Speaker 8: dollars that they're managing very carefully.
Speaker 6: You've talked a lot about how you're expecting more consumer
Speaker 6: package good companies to roll out promotions in the second
Speaker 6: half of the year, like buy one, get one free,
Speaker 6: buy one, get one fifty percent off. What are you
Speaker 6: seeing so far with that as far as what companies
Speaker 6: are saying on these earnings calls.
Speaker 8: Yeah, promotions have definitely accelerated and we are back at
Speaker 8: sort of the levels that we were at before the pandemic.
Speaker 8: What's interesting is most of these companies say that they're
Speaker 8: able to be more percone, so that it's not just
Speaker 8: a blanket offer like you used to see on the
Speaker 8: front of an insert or a mailer. But they're sort
Speaker 8: of targeting promotions to customers based on what they buy,
Speaker 8: so they're able to preserve a little bit of profitability
Speaker 8: and still offer higher discounts. And so I think that's
Speaker 8: that's a pattern that we're expecting to continue through the
Speaker 8: second half and probably into twenty twenty five as well.
Speaker 3: All right, thanks to Jennifer Bartasha's Bloomberg Intelligence Senior analyst.
Speaker 3: Retail stables and packaged food.
Speaker 2: Move next to the automotive industry.
Speaker 3: This week, Ford Motors that it is canceling plans for
Speaker 3: a fully electric sport utility vehicle. It is a shift
Speaker 3: that may cost the car maker around one point nine
Speaker 3: billion dollars.
Speaker 2: For more of this, guest host Jess Mett and I
Speaker 2: were joined by Steve Man, Bloomberg Intelligence Global Autos and
Speaker 2: Industrials research analysts. We first asked Steve, what's going on
Speaker 2: with legacy auto companies and their transition to evs.
Speaker 9: Yeah, it's a huge kind of one eighty.
Speaker 4: Turn for Ford.
Speaker 9: Remember you know, they were probably one of the first
Speaker 9: Western automakers to actually introduce evs, your the must Machy,
Speaker 9: the fort one F Lightning, and you know, they're still
Speaker 9: selling well, but I think it's they're actually bleeding quite
Speaker 9: a bit of money in the last twelve months. They've
Speaker 9: lost five billion on evs, So you know, I think,
Speaker 9: you know, they need to revisit and see instead of
Speaker 9: a market leader in evs, they probably needs to know,
Speaker 9: step back and maybe become a follower until the market recovers.
Speaker 2: All right, Steve, This kind of goes to the heart
Speaker 2: of the matter. I think for me and probably a
Speaker 2: lot of investors in this auto industry is what really
Speaker 2: at the end of the day is consumer demand for evs?
Speaker 2: Is it fair to say it's not as much today
Speaker 2: as maybe the industry thought two three years ago.
Speaker 9: Yeah, I think the estimates out there in the past
Speaker 9: were probably a little bit frothy, Like we're actually expecting,
Speaker 9: you know, penetration to be around twenty five maybe thirty
Speaker 9: percent by twenty thirty, but other estimates out there, we're
Speaker 9: like fifty seventy five percent penetration rate by twenty thirty.
Speaker 9: It's a little bit too aggressive. I think we're just
Speaker 9: coming back through reality from the hype we have. But
Speaker 9: the other thing is there's a lot of competition out there, right.
Speaker 9: The Chinese are really looking to compete with the legacy
Speaker 9: auto makers on cost, on technology, and you know that
Speaker 9: brings up another question that I think investors have in
Speaker 9: their mind is, you know, is this the right strategy
Speaker 9: for Ford really to step back at this moment? Should
Speaker 9: they be doubling down right, investing more and really compete
Speaker 9: on a global level.
Speaker 6: And you've written about too when it comes to Ford
Speaker 6: and the rising inventories as well as the increasing price competition.
Speaker 6: When it comes to a profitability headwind here, what as
Speaker 6: we know as far as what the rest of the
Speaker 6: year could look like when it comes to those earnings
Speaker 6: calls that executives have talked about.
Speaker 9: Oh, there's a lot of risk in the second half.
Speaker 9: I think we're heading back to pre COVID levels, you know,
Speaker 9: with the supply chains booth out, they're ramping up production
Speaker 9: and at the same time, interest rate is still high. Right,
Speaker 9: there are talks about cutting interest rates to help out
Speaker 9: the consumers, but you know, we haven't seen that yet,
Speaker 9: and you know we you know it probably needs more
Speaker 9: than a couple of cuts before we get to a
Speaker 9: point where consumer gets more excited about buying. You know,
Speaker 9: a much more expensive vehicle today than it was three
Speaker 9: years ago. You know, average price for vehicles fifty thousand
Speaker 9: dollars now is not thirty five, it's not forty, it's
Speaker 9: fifty thousand. So you know, monthly cost is a lot
Speaker 9: higher for consumer. The cost of acquisition, the cost of
Speaker 9: ownership is much higher today than before our.
Speaker 3: Thanks to Steve Mann Bloomberg Intelligence Global Auto is an
Speaker 3: industrial's research analyst.
Speaker 2: We now take a deep dive into one of our
Speaker 2: favorite Bloomberg Big Take stories of the week from Bloomberg News.
Speaker 3: It is titled A two trillion dollar Reckoning Looms at
Speaker 3: Ports Become Pawns and Geopolitics Now. The piece discusses how
Speaker 3: the world's biggest ports are vital ponds in a new
Speaker 3: area of geopolitics. They're spending billions to keep up with
Speaker 3: demand for more.
Speaker 2: Guest host j Just Mett and I were joined by
Speaker 2: Brendan Murray, Bloomberg Global Trade Editor. We first asked Brendan
Speaker 2: talk to us about the importance of ports around the world,
Speaker 2: as it seems there's an arms race.
Speaker 4: Yeah, exactly.
Speaker 10: So maritime ports have been kind of the forgotten cogs
Speaker 10: of the global economy. They allow countries to export what
Speaker 10: they produce, and they allow usually developed economies to import
Speaker 10: lots of you know, cheap goods ideally like the US
Speaker 10: does from China. But in a world where we're dealing
Speaker 10: with a lot of trades commerces going on around the world,
Speaker 10: that ports have become almost national security assets, where governments
Speaker 10: and the companies that do business around ports are investing
Speaker 10: a lot in making sure that they're efficient, that they're
Speaker 10: running smoothly, and that they're not victims of things like
Speaker 10: cyber attacks, which can really paralyze an economy. We've seen
Speaker 10: ports over the past couple of years go through this
Speaker 10: transformation from you know, kind of hum drum places where goods,
Speaker 10: you know, kind of go through turnstiles for trade to
Speaker 10: become real important assets for economic security.
Speaker 6: And I'm glad you brought that up, because economic security
Speaker 6: also when it comes to the economy. So, Paul, if
Speaker 6: you remember back during the peak and the height of
Speaker 6: COVID and everything that it did on unprecedented impacts when
Speaker 6: it comes to global supply chains, ports and shipping so
Speaker 6: I'm curious, Brendan, when it comes to sort of the
Speaker 6: economic outlook as we've pulled out, obviously coming a couple
Speaker 6: of years out of what happened with COVID here, what
Speaker 6: does this tell us about the direction when it comes
Speaker 6: to the US and compared to its counterparts globally.
Speaker 10: Yeah, well this is it's interesting. Just this week, Lloyd's
Speaker 10: List published its top one hundred list of ports and
Speaker 10: of the top ten, seven were in China. And guess
Speaker 10: how many were in Europe and the US none? So wow,
Speaker 10: exactly so. And now you would think that a big
Speaker 10: economy like the European Union or the US would would
Speaker 10: would have, you know, have couple in the top ten,
Speaker 10: and you know, but but places like Los Angeles Long
Speaker 10: Beach have have just steadily fallen down the list. Rotterdam
Speaker 10: fell out of the top ten for the first time
Speaker 10: in records going back, you know, a couple of decades.
Speaker 10: So it's China has been playing this game for a while.
Speaker 10: And when you know, they are part of the global
Speaker 10: economy as a playing by the rules and there are
Speaker 10: no trade wars going on, that's just fine. But if
Speaker 10: China becomes you know, a strategic rival and geoeconomic rival
Speaker 10: of the West. Then you're looking at the scales tilted
Speaker 10: heavily in their favor.
Speaker 2: I's so many cool parts of the story. And the folks,
Speaker 2: if you're sitting on the beach, go read the story.
Speaker 2: If you're got a long commute today, go read this story.
Speaker 2: It is unbelievable. What really shocked me as a part
Speaker 2: of the story talking about in China, how they had
Speaker 2: the by D, which is electric car maker. They have
Speaker 2: a plant there. They produce a gajillion of these cars
Speaker 2: and they export them around the world. So what do
Speaker 2: they do. They build a port rate there and then
Speaker 2: they have their own like they develop their own car
Speaker 2: shipping fascinating vessel, and they crank out, you know, just
Speaker 2: tens of thousands of these cars and they export them
Speaker 2: around the world. Is this a concern for the US
Speaker 2: government Brendan that perhaps, you know, we're falling behind in
Speaker 2: global shipping and global trade.
Speaker 4: This is the thing that you know, China over the past.
Speaker 10: You know, a couple of decades, would have would have
Speaker 10: been the leader in kind of a low cost manufacturing.
Speaker 10: So you know, and the's stuff that you know that
Speaker 10: that American companies don't really want to make anymore. You know,
Speaker 10: they've moved up the value chain. But now China is
Speaker 10: moving up the value chain itself and like you said,
Speaker 10: making things like cars and solar panels and you know,
Speaker 10: a lot less labor intensive, more technology driven products. So
Speaker 10: you know that's the stuff that that you know, American
Speaker 10: companies want to compete on. And so if you've got
Speaker 10: a flood of Chinese electric vehicles, say like you mentioned
Speaker 10: the vi id facility kind of linking up with that
Speaker 10: large port, you know, that's a real threat to American
Speaker 10: and European car makers. So it's it's something that is
Speaker 10: not a direct rivalry to something that that is now
Speaker 10: you know, in direct competition with Americas and European car companies.
Speaker 6: Beyond China, talk to us about India specifically and how
Speaker 6: it's aiming for a slice of this export pie.
Speaker 10: Yeah, exactly. So, so India has a very old, not
Speaker 10: very well developed port system. A lot of a lot
Speaker 10: of the big ships can't even pull into India's ports,
Speaker 10: So they pull into place like Singapore or somewhere else nearby,
Speaker 10: put it on a smaller ship so they can get
Speaker 10: into India.
Speaker 4: Sports.
Speaker 10: But India about a couple hours north of Mumbai is
Speaker 10: building a nine billion dollars deep water container port that
Speaker 10: is going to help fix some of those issues. And
Speaker 10: in the eight in India, you know program under the
Speaker 10: Modi government will will get a big lift from a
Speaker 10: port like that. So there are you know, new ports
Speaker 10: in this story that we talk about, and there are
Speaker 10: old ones that are being overhauled, but this one in
Speaker 10: India in particular was an interesting case study to focus on.
Speaker 2: Our thanks to Brendan Murray, Bloomberg Global Trade Editor.
Speaker 3: Coming up on the program, We're going to take a
Speaker 3: look at how China's impacting sales the cosmetics giant Esta Lauder.
Speaker 2: We're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
Speaker 2: research and data on two thousand companies in one hundred
Speaker 2: and thirty industries. You can access Bloomberg Intelligence via b
Speaker 2: I go on the terminal.
Speaker 3: I'm Paul Sweeney and I'm Alex Steele, and this is Bloomberg.
Speaker 1: You're listening to Bloomberg Intelligence with Alex Steele and Paul
Speaker 1: Sweeney on Bloomberg Radio.
Speaker 3: We move now to the M and A space.
Speaker 2: The Canadian Circle K operator Cooch Tard made a proposal
Speaker 2: to take over Japanese rival and seven eleven owner seven
Speaker 2: and I Holdings.
Speaker 3: With seven and I is market value exceeding thirty eight
Speaker 3: billion dollars, it would be the biggest foreign takeover of
Speaker 3: a Japanese company, and merger would create the world's top
Speaker 3: operator of roughly one hundred thousand convenience stores.
Speaker 2: For more. At guest host, Matt Miller and I were
Speaker 2: joined by Diana rossetto pena Bloomberg Intelligence consumer staples analyst.
Speaker 2: We first asked Diana to tell us more about couch
Speaker 2: Tart and why they're making this purchase.
Speaker 11: Kushtard is the second largest convenience store in the United States.
Speaker 11: They manage Circle K.
Speaker 12: Yes, okay, but they're Canadian and that's why they have
Speaker 12: a French name that sounds funny to American years.
Speaker 11: Yes, it took me actually a while to be able
Speaker 11: to pronounce their name.
Speaker 13: But yeah, So they're very inquisitive.
Speaker 11: We're not that surprise that they are, you know, their stocks,
Speaker 11: that they want to buy something. But seven eleven is
Speaker 11: actually a big name. There's valuations going from like fifty
Speaker 11: billion dollars to as much as like eighty five billion dollars.
Speaker 11: So for them to be able to do that, it's
Speaker 11: it's quite impressive.
Speaker 13: If they are able to.
Speaker 12: It's always surprising, I think to people who aren't in
Speaker 12: the know that seven to eleven is owned by a
Speaker 12: Japanese holding company, and I think they own Speedway as well.
Speaker 12: These seem like such American brands, So does Circle k
Speaker 12: and it's owned by a Canadian company. Is there going
Speaker 12: to be anti trust issues here?
Speaker 11: Well, for sure, d FDC. I mean, ask Kroger. They
Speaker 11: have been trying to purchase Albertson's for a couple of
Speaker 11: years now, So if they actually come up with the
Speaker 11: numbers and their's acceptance, I'm sure the FDC will have
Speaker 11: something to say. Seven eleven has like about fourteen percent
Speaker 11: of market share in the United States, whereas Pushtar with
Speaker 11: their Circle K brand, they have about five percent.
Speaker 2: So it definitely will be you know, up for again,
Speaker 2: I'm a wah wah guy, but you know I can
Speaker 2: see is.
Speaker 12: Wah wah just like a New Jersey No.
Speaker 11: No, but it what is It's in the Northeast. There's
Speaker 11: mostly in the Northeast. So but yeah, there's.
Speaker 2: Explained to me this convenience store business. What's the economics
Speaker 2: of a convenience store. I just see people going in
Speaker 2: and out all the time.
Speaker 11: What's the economics, Well, basically, they want you to go
Speaker 11: in for your gas. They're very competitive in gas prices.
Speaker 11: Fuel margins have been improven in the past few years.
Speaker 11: Kushtar actually has about forty cents per gallon in terms
Speaker 11: of fuel margins. But what they're making money on is
Speaker 11: when you go into the store, particularly if you buy
Speaker 11: their sand, which is the margins for that is like
Speaker 11: fifty percent.
Speaker 13: It's true.
Speaker 12: I was, by the way, I was filling up on
Speaker 12: the way there and back for more than four dollars
Speaker 12: and fifty cents a gallon.
Speaker 2: O because you're putting in the super duper high I go.
Speaker 12: With ninety three. And then I go in and I
Speaker 12: pick up a Snickers bar for my kid brother, and
Speaker 12: I got i don't know, like a TwixT. Each of
Speaker 12: those candy bars was more than two dollars and fifty
Speaker 12: cent margin there, And I'm starting to feel like a
Speaker 12: really old man, you know, because when I was a kid,
Speaker 12: fifty cents is what you paid for these things.
Speaker 2: So are these good businesses?
Speaker 11: I mean, oh yeah, if they're buying I'm sure you know,
Speaker 11: they think that there's some good business. I mean Kushtart
Speaker 11: has Usually they they do big acquisitions. The last acquisition
Speaker 11: that they did was for eleven billion dollars for the
Speaker 11: total energy is in Europe, but they usually in the
Speaker 11: US they usually buy smaller operators. They announced that they
Speaker 11: bought Get Go from Giant Eagle. So that's another convenience
Speaker 11: store which is in the.
Speaker 2: You know with a delicious cold pork sandwich by the way.
Speaker 13: Oh well, I actually haven't tried it.
Speaker 4: Yeah, I had one to go this weekend.
Speaker 2: Yeah, where's get Go?
Speaker 12: I had them in Pennsylvania.
Speaker 13: Yeah, it's regional.
Speaker 2: Yeah, okay, all right, it's the Midwest. It's part of
Speaker 2: the world I don't go to.
Speaker 12: I skipped the what's the one you like? The cracker barrel?
Speaker 12: Cracker Barrel, I declined.
Speaker 2: But you probably drove through past like one hundred of
Speaker 2: them month, Yes, yes, a lot of it.
Speaker 12: And I used to always stop because you get a
Speaker 12: books books on tape at one and then you'd return
Speaker 12: it at the next but you know.
Speaker 2: Longer, what else are we seeing in your space? And
Speaker 2: then in a retail space, what are some of the
Speaker 2: key things people are looking at? Cause you cover a
Speaker 2: lot of retail.
Speaker 11: Yeah, I mean, obviously this is like the biggest thing
Speaker 11: that has happened, one of.
Speaker 12: The biggest deals of the year, right, well, yeah, even
Speaker 12: Dollars puts it like number two.
Speaker 11: Yeah, I mean, obviously the Kruger Albertson's acquisition. It's also
Speaker 11: the talk of the town. There's like likelihood that it
Speaker 11: might not happen. The FDC might object.
Speaker 2: So what are we going to hear about that deal?
Speaker 2: Because we've been talking about Kruger's and Albertson's for a
Speaker 2: long time.
Speaker 11: Yeah, honestly, like it really depends on, you know, what
Speaker 11: happens with the election and how you know, M and
Speaker 11: A friendly the FDC will be afterwards, all.
Speaker 2: Right, Well, seven to eleven by the numbers, and this
Speaker 2: is according to Bloomberger reporting eighty five thousand stores. That's huge,
Speaker 2: and they've got one hundred and fifty seven thousand employees,
Speaker 2: so that's a big business. Yeah, you know, and cus charges,
Speaker 2: I mean, it's Cure Short's got a bigger valuation, fifty
Speaker 2: eight billion dollars valuation versus thirty eight for the seven
Speaker 2: and eleven, so much higher valuation using that stock in cash,
Speaker 2: I guess to get bigger.
Speaker 11: Yeah, I think, you know, definitely, I mean obviously I
Speaker 11: see this as an ASHA play, to be honest.
Speaker 12: With you, which we've seen more and more and more of, right,
Speaker 12: I mean, if you look at activists investors involved in
Speaker 12: Japanese stocks, for example, it goes from fifteen and twenty
Speaker 12: twenty two to twenty five last year to twenty eight
Speaker 12: so far this year.
Speaker 2: And we're only in the first half.
Speaker 11: Yeah, I mean seven eleven has like thirty one percent
Speaker 11: of the Asia Pacific market share.
Speaker 13: So yeah, now we're talking. Now, we're talking, all right.
Speaker 3: Thanks to Diana Rosea Penya, Bloomberg Intelligence consumer staples analyst.
Speaker 2: We turned down to the cosmetics company es Day Lauder
Speaker 2: this week. The company said that it sees annual revenue
Speaker 2: growth below analyst expectations.
Speaker 3: The cosmetics giant sited continued declines in prestige beauty sales
Speaker 3: in China, and separately, Esda Lauder said it's longtime CEO
Speaker 3: for Breeze Zeofrida will retire at the end of June
Speaker 3: twenty twenty five.
Speaker 2: For more, guest hosts Michael Reagan and I were joined
Speaker 2: by Red Brown, a Bloomberg News Earnings reporter. We first
Speaker 2: they asked Red for his take on this week's news.
Speaker 14: This is a clean slate, I think for this company.
Speaker 14: We saw obviously CEO stepping away at the end of
Speaker 14: this year. CFO is also leaving around the same time,
Speaker 14: so you know, a new management team. And also, if
Speaker 14: we look at the guidance that they gave out for
Speaker 14: their fiscal twenty twenty five, it came in much lower
Speaker 14: than what and else we're expecting and else we're expecting
Speaker 14: to see constant currency growth. They were expecting to see
Speaker 14: earnings about the whole dollar higher than what the company
Speaker 14: guided for. So again just kind of setting a low
Speaker 14: bar for this company going forward, clean slate, let's go
Speaker 14: from here, I think is kind of the message that
Speaker 14: they're going to be trying to change the narrative to
Speaker 14: going forward.
Speaker 15: Red, how big of a deal is China to Estay Lauder.
Speaker 15: I know they have a pretty decent sized business. There
Speaker 15: was that part of the sort of disappointing results this quarter.
Speaker 14: Yeah, I mean, I think that is the main culprit
Speaker 14: of the issues that they're going through. I mean, we've
Speaker 14: seen throughout this earning season, a lot of these companies,
Speaker 14: especially in the uxury space that have tied their fortunes
Speaker 14: to China are paying the price of that at the moment.
Speaker 14: So China came in really soft again this quarter and
Speaker 14: als we're expecting for around three or four percent growth
Speaker 14: in the Asia region, which is dominated by China obviously,
Speaker 14: and what they saw was a four percent contraction in
Speaker 14: that market. So yeah, again paying the price for the
Speaker 14: investment in that region as China, China sales demand for
Speaker 14: these luxury products, whether it's LVMH's goods or you know, fashion,
Speaker 14: anything like that. And then also skincare, fragrance, things like
Speaker 14: that are also weak as the demand waivers there.
Speaker 2: Just reading some of the reporting on this here company
Speaker 2: in the midst of a turnaround, I'm not sure necessarily
Speaker 2: what it has to be turned around. So when you
Speaker 2: get it, presumably a new management team coming in. Did
Speaker 2: they want somebody from inside or maybe some fresh set
Speaker 2: of eyes coming from the outside. What's the thinking there.
Speaker 14: I think both the CEO CFO have been there for
Speaker 14: over a decade now, so I mean it's always good
Speaker 14: to have somebody within the company knows the company, but
Speaker 14: it might be time for some fresh eyes. The company
Speaker 14: has missed guidance or cut guidance several times over the
Speaker 14: last few years. Analysts start to get When that happens,
Speaker 14: analysts starts to feel they start to lose confidence in
Speaker 14: that management group's ability to understand or grapple with the
Speaker 14: business dynamics at the moment. So I think there could
Speaker 14: be some calls for an outside look. The company says
Speaker 14: they're already undertaking the next CEO search. Obviously they are
Speaker 14: going to say they're considering internal and external candidates. But yeah,
Speaker 14: definitely might be time for a for a fresh look.
Speaker 15: I'm smirking here a little bit looking back on a
Speaker 15: story we had out in February on Stay Lauder where
Speaker 15: CEO Fabrizio Freda said, I'm not going anywhere so op president,
Speaker 15: but Red, you know, I don't know how much of
Speaker 15: an expert you are on the beauty care market and skincare,
Speaker 15: But you know, are they an outlier here as far
Speaker 15: as you know, you go through a million earnings reports
Speaker 15: every quarter a year. Are they Are they an outlier
Speaker 15: as far as that you consumer discretionary space or are
Speaker 15: we seeing similar stories from other, you know, companies that
Speaker 15: depend on I don't know whether it's beauty care or
Speaker 15: you know, high fashion, you know is is is there
Speaker 15: a theme here?
Speaker 14: I don't know what gave it away that I'm not
Speaker 14: an ex space but you have good skin. No, I
Speaker 14: don't think they're an outlier. Look, I think it's you
Speaker 14: see something for me. The similar trend that I'm picking
Speaker 14: up across all of the retail, even you know, something
Speaker 14: as far away as home Depot is that people are
Speaker 14: focused on needs, not once and this luxury space skincare
Speaker 14: especially is a want, it's not a need. A fragrance
Speaker 14: is a want, not a need. So consumers are cutting
Speaker 14: back where they can, whether it's you know, fixing your
Speaker 14: house up or yeah, making yourself appear a little bit better,
Speaker 14: it doesn't matter. That's that's kind of the The macro
Speaker 14: pressure is gonna win out in this this this scenario.
Speaker 2: But as our good friend Samantha writes in Alex Steele
Speaker 2: has always told us that you have to invest in
Speaker 2: your face, which she does and Michael and I do not.
Speaker 15: So I mean, clearly my face is a value stock,
Speaker 15: yes right now.
Speaker 2: But all I know is during the lockdown across the
Speaker 2: street to the four stores packed, Yeah, I mean, no
Speaker 2: matter what, people need to get that stuff.
Speaker 15: Yeah, I mean, I guess it's in the pandemic, people
Speaker 15: had a few extra bucks. They weren't spending on concerts
Speaker 15: and movies.
Speaker 2: It was just it shocked me how strong that category is.
Speaker 14: Yeah, and then right after the pandemic as well, they
Speaker 14: did really well because people were like, I'm emerging from
Speaker 14: the world, I want to make sure I haven't shaved
Speaker 14: my face in six months. I might as well get
Speaker 14: moisturized or something. But yeah, it's there's there's trends have
Speaker 14: just fallen off now and they haven't really returned to
Speaker 14: like pre pandemic levels of growth.
Speaker 6: You know.
Speaker 14: Excuse me. Este later was a was a company that
Speaker 14: was like really you know, flying into the pandemic and
Speaker 14: through the pandemic, and then yeah, just the the fall
Speaker 14: off of China and then the United States as well
Speaker 14: is kind of not getting a lot of attention at
Speaker 14: the moment. But like US sales contracted as well this quarter.
Speaker 14: It's maybe hidden because there's been so much emphasis on China. Yeah,
Speaker 14: but those are the two biggest markets and both are
Speaker 14: are underperforming I think at the moment.
Speaker 15: So it still seems like China's consumer economy is a
Speaker 15: bit of a black Box to analyst, do you find
Speaker 15: a lot of surprises either upside or downside on companies
Speaker 15: as far as their their business in China goes.
Speaker 14: Yeah, it's hard to get a read because if you think,
Speaker 14: like there was so much worry and again jumping around here,
Speaker 14: but I just connecting all the different kind of earnings threads,
Speaker 14: Like there was so much worry going into Apple's report
Speaker 14: of like where's the Chinese consumer? Are they buying iPhones?
Speaker 4: Things like that.
Speaker 14: You know, it's the same dollar that's going towards these things.
Speaker 14: But yeah, it's really hard to get a read because
Speaker 14: Apple well performs as they Lauder underperforms. Yeah, it is
Speaker 14: just a kind of you know, most of the analysts,
Speaker 14: they said here in New York, they're just looking at
Speaker 14: data points.
Speaker 3: So it is kind of a tough read, all right.
Speaker 3: Thanks to Red Brown, Bloomberg News Earnings Reporter.
Speaker 2: That's this week's edition of Bloomberg Intelligence on Bloomberg Radio,
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Speaker 2: and one hundred and thirty industries.
Speaker 3: And remember you can access Bloomberg Intelligence through b I
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