1 00:00:02,720 --> 00:00:10,600 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the 2 00:00:10,600 --> 00:00:14,560 Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am 3 00:00:14,640 --> 00:00:18,560 Speaker 1: Eastern on Applecarplay and Android Auto with the Bloomberg Business App. 4 00:00:18,640 --> 00:00:21,880 Speaker 1: Listen on demand wherever you get your podcasts, or watch 5 00:00:21,960 --> 00:00:23,320 Speaker 1: us live on YouTube. 6 00:00:23,640 --> 00:00:25,560 Speaker 2: There's been a ton of earnings out. It's hard to 7 00:00:25,640 --> 00:00:27,280 Speaker 2: keep up with all of it. But one that has 8 00:00:27,280 --> 00:00:30,040 Speaker 2: been the talk of everywhere is Palied here right, And 9 00:00:30,080 --> 00:00:33,000 Speaker 2: one person who has been running around Bloomberg like crazy 10 00:00:33,120 --> 00:00:36,800 Speaker 2: is Man Deep saying he's Bloomberg Intelligence senior tech industry analysts. 11 00:00:37,440 --> 00:00:39,559 Speaker 2: Thanks for coming out, Man Deep, right in the studio. 12 00:00:40,280 --> 00:00:43,480 Speaker 2: The Stack price sarch more than five hundred percent over 13 00:00:43,479 --> 00:00:46,040 Speaker 2: the past year. I mean, this company is incredible. Is 14 00:00:46,120 --> 00:00:49,080 Speaker 2: it what the company CEO calls a dominant software company 15 00:00:49,120 --> 00:00:50,640 Speaker 2: of the future? Would would you say? 16 00:00:51,520 --> 00:00:55,200 Speaker 3: I mean, clearly there is a lot baked into the valuation, 17 00:00:55,440 --> 00:00:59,680 Speaker 3: but I want to focus on, you know, the net 18 00:00:59,720 --> 00:01:03,560 Speaker 3: new R, which is a metric that software companies are 19 00:01:03,600 --> 00:01:04,200 Speaker 3: measured on. 20 00:01:04,840 --> 00:01:08,280 Speaker 4: And when you compare Palenteers. 21 00:01:07,560 --> 00:01:12,360 Speaker 3: Commercial segment revenue, which everyone is excited about, their total 22 00:01:13,160 --> 00:01:16,240 Speaker 3: deal value that's remaining is around two point eight billion. 23 00:01:16,280 --> 00:01:21,160 Speaker 3: The new ar are increased by five hundred million. Contrast 24 00:01:21,280 --> 00:01:27,520 Speaker 3: that with a Microsoft or a Google Cloud. Microsoft added 25 00:01:27,520 --> 00:01:31,679 Speaker 3: almost nine billion in net new ARR this quarter, and 26 00:01:31,720 --> 00:01:35,040 Speaker 3: they talked about you know, AI being used across one 27 00:01:35,120 --> 00:01:40,360 Speaker 3: hundred million Microsoft Copilot users twenty million GitHub Copilot users. 28 00:01:40,600 --> 00:01:46,040 Speaker 3: So from that perspective, you know, balenteers increase in remaining 29 00:01:46,040 --> 00:01:49,000 Speaker 3: deal value of five hundred million looks pretty small. 30 00:01:49,720 --> 00:01:53,400 Speaker 4: I mean, Palenteers overall revenue rund rate is four billion. 31 00:01:53,600 --> 00:01:58,400 Speaker 3: Microsoft clearly is you know, a company that's almost one 32 00:01:58,480 --> 00:02:04,280 Speaker 3: hundred times or eighty times more bigger than Palenteer. 33 00:02:04,360 --> 00:02:07,000 Speaker 4: But it just goes to show that even on a 34 00:02:07,040 --> 00:02:08,400 Speaker 4: net new AIRR. 35 00:02:08,120 --> 00:02:12,600 Speaker 3: Basis, Microsoft is adding more revenue per quarter than a 36 00:02:12,680 --> 00:02:16,600 Speaker 3: Palenteer is. And still people are very excited about Palenteer's product, 37 00:02:17,160 --> 00:02:20,960 Speaker 3: you know, prospects, and to my mind, clearly, you know 38 00:02:21,160 --> 00:02:24,600 Speaker 3: they have a product that is appealing to a certain 39 00:02:24,680 --> 00:02:29,960 Speaker 3: section of enterprise users. But at this valuation, I mean, 40 00:02:30,240 --> 00:02:33,720 Speaker 3: they can't sustain that for the next thirty forty quarters, 41 00:02:33,960 --> 00:02:37,080 Speaker 3: which is what they need to show to grow into 42 00:02:37,120 --> 00:02:40,440 Speaker 3: the valuation. And I just don't see from a product 43 00:02:40,480 --> 00:02:44,160 Speaker 3: perspective they'll have the same kind of appeal as a 44 00:02:44,200 --> 00:02:47,360 Speaker 3: Microsoft Copilot or a Google Cloud or you know, any 45 00:02:47,400 --> 00:02:48,959 Speaker 3: of these large companies. 46 00:02:49,040 --> 00:02:51,639 Speaker 5: Some question today, how do you guys value this thing? 47 00:02:51,720 --> 00:02:53,520 Speaker 5: I mean I got it at like two three hundred 48 00:02:53,520 --> 00:02:55,000 Speaker 5: times earning. So that's not the way to go. 49 00:02:55,800 --> 00:02:58,600 Speaker 3: So we've seen that with you know, new IPOs. When 50 00:02:58,639 --> 00:03:01,520 Speaker 3: they come to the market, they get a premium multiple. 51 00:03:01,760 --> 00:03:04,800 Speaker 3: They get traded at you know, thirty forty time sales. 52 00:03:04,840 --> 00:03:08,880 Speaker 3: Snowflake which is a competitor to Palenteer, when it went public, 53 00:03:09,360 --> 00:03:13,320 Speaker 3: it traded at sixty seventy time sales. Look at where 54 00:03:13,360 --> 00:03:16,560 Speaker 3: the stock is now. It's flat since the IPO. Even 55 00:03:16,560 --> 00:03:20,160 Speaker 3: though the company has grown top line at thirty thirty 56 00:03:20,160 --> 00:03:23,919 Speaker 3: five percent Kegger, the stock is flat. So that's what 57 00:03:24,000 --> 00:03:27,440 Speaker 3: I mean by growing into the valuation, because there is 58 00:03:27,600 --> 00:03:31,200 Speaker 3: so much embedded in that upfront multiple that even growing 59 00:03:31,240 --> 00:03:34,520 Speaker 3: at thirty percent is not enough. Palenteer really needs to 60 00:03:34,560 --> 00:03:37,920 Speaker 3: grow at fifty percent to be able to show any 61 00:03:38,160 --> 00:03:39,760 Speaker 3: sort of stock return from. 62 00:03:39,560 --> 00:03:40,920 Speaker 4: This point on. Can it do that? 63 00:03:41,240 --> 00:03:41,320 Speaker 2: No? 64 00:03:41,560 --> 00:03:43,840 Speaker 4: I mean that's why I said I compare the product. 65 00:03:44,680 --> 00:03:49,440 Speaker 3: My initial comments were around comparing Palenteer's product versus other 66 00:03:49,640 --> 00:03:53,600 Speaker 3: large enterprise software makers, and even you know, you go 67 00:03:53,760 --> 00:03:57,920 Speaker 3: down the list, Salesforce service, now Adobe like, these are 68 00:03:58,000 --> 00:04:00,560 Speaker 3: much bigger companies and they have come I hounded at 69 00:04:00,600 --> 00:04:03,920 Speaker 3: twenty percent Keger over the years because they had a 70 00:04:03,920 --> 00:04:07,200 Speaker 3: seat base or a consumption based model. We don't even 71 00:04:07,360 --> 00:04:10,800 Speaker 3: know what kind of a business model Talenteer has. Yes, 72 00:04:10,840 --> 00:04:14,960 Speaker 3: it's winning government deals, Yes it's winning some enterprise deals. 73 00:04:15,080 --> 00:04:17,920 Speaker 3: But we don't know how they account for that revenue 74 00:04:17,960 --> 00:04:20,080 Speaker 3: every quarter. Is it a seat based model, is a 75 00:04:20,160 --> 00:04:23,359 Speaker 3: consumption base? We don't have that kind of visibility to 76 00:04:23,440 --> 00:04:24,279 Speaker 3: their business model. 77 00:04:25,040 --> 00:04:27,200 Speaker 4: All right, make it this red headline out of the way. 78 00:04:27,240 --> 00:04:28,400 Speaker 4: White House fires. 79 00:04:28,520 --> 00:04:32,320 Speaker 5: Most of Puerto Rico's oversight board members not really sure 80 00:04:32,360 --> 00:04:33,880 Speaker 5: what that is, but we're going to have more reporting 81 00:04:33,920 --> 00:04:35,680 Speaker 5: on that coming up. I want to get that headline 82 00:04:35,680 --> 00:04:41,120 Speaker 5: out there. So in a conter party, I can tell 83 00:04:41,200 --> 00:04:44,039 Speaker 5: you the Google story, I can tell you that Microsoft story. 84 00:04:45,000 --> 00:04:47,040 Speaker 5: I have no idea what the Palenteer story is. Can 85 00:04:47,080 --> 00:04:49,200 Speaker 5: you explain it to me like I'm a five year old? 86 00:04:49,520 --> 00:04:53,080 Speaker 3: Yeah, So their software out of the box will help 87 00:04:53,160 --> 00:04:56,760 Speaker 3: you make sense of your big data strategy. They really 88 00:04:56,920 --> 00:05:01,320 Speaker 3: curved out a name for themselves. Big data became the 89 00:05:01,480 --> 00:05:04,640 Speaker 3: thing when a company had a large amount of data, 90 00:05:04,720 --> 00:05:08,240 Speaker 3: whether it's log data or some other type of reporting data. 91 00:05:08,839 --> 00:05:11,440 Speaker 3: They would help you make sense of it because they 92 00:05:11,480 --> 00:05:15,040 Speaker 3: have something proprietary that no one else has in terms 93 00:05:15,080 --> 00:05:18,479 Speaker 3: of organizing that data and making it usable. 94 00:05:18,680 --> 00:05:20,480 Speaker 4: So that's their value proposition. 95 00:05:21,160 --> 00:05:24,680 Speaker 3: But with the AI wave and llms, they were able 96 00:05:24,760 --> 00:05:29,920 Speaker 3: to integrate LLM calls within their offering to develop a 97 00:05:29,960 --> 00:05:32,520 Speaker 3: customer service or a supply chain use case that you 98 00:05:32,560 --> 00:05:36,760 Speaker 3: can apply AI on top of their ontology, which is 99 00:05:36,800 --> 00:05:39,600 Speaker 3: their core product, and a lot of other companies are 100 00:05:39,600 --> 00:05:41,839 Speaker 3: doing the same. To my mind, Microsoft is doing the 101 00:05:41,880 --> 00:05:45,880 Speaker 3: same for their customers. They're trying to embed open AI 102 00:05:46,080 --> 00:05:49,360 Speaker 3: with their core offerings, with their CRM system and help 103 00:05:49,400 --> 00:05:53,480 Speaker 3: them deploy a customer service use case. So the differentiation 104 00:05:53,640 --> 00:05:57,120 Speaker 3: of Balanteer versus Microsoft, to my mind is not that 105 00:05:57,279 --> 00:06:00,960 Speaker 3: big as the valuation reflects. And that's where I'm They're 106 00:06:01,040 --> 00:06:04,800 Speaker 3: not going to grow fifty percent for the next twelve 107 00:06:04,920 --> 00:06:07,920 Speaker 3: to twenty quarters, which is what the valuation is implying. 108 00:06:07,960 --> 00:06:09,880 Speaker 2: Now, how would you compare what they do as far 109 00:06:09,920 --> 00:06:13,119 Speaker 2: as a government contractor versus the commercial side, like which 110 00:06:13,240 --> 00:06:14,560 Speaker 2: is doing better for them? 111 00:06:14,640 --> 00:06:17,880 Speaker 3: Yeah, so they have a much higher exposure to government side. 112 00:06:17,960 --> 00:06:20,279 Speaker 3: I mean government side is still more than fifty percent 113 00:06:20,320 --> 00:06:24,240 Speaker 3: of their revenue. And all these large enterprise software companies 114 00:06:24,440 --> 00:06:28,120 Speaker 3: they have ten to fifteen percent government exposure. So Paleteer's 115 00:06:28,200 --> 00:06:33,520 Speaker 3: government exposure is way too large compared to other software makers. 116 00:06:33,640 --> 00:06:37,200 Speaker 3: And on top of that, their international sales seem to 117 00:06:37,240 --> 00:06:41,320 Speaker 3: be declining at least, you know, on the commercial side, 118 00:06:41,360 --> 00:06:44,480 Speaker 3: because of the polarizing views of the management. 119 00:06:44,600 --> 00:06:45,720 Speaker 4: So if they. 120 00:06:45,640 --> 00:06:49,080 Speaker 3: Were more balanced, probably they would win more international business. 121 00:06:49,120 --> 00:06:52,320 Speaker 3: But right now this is a US centric story, and 122 00:06:52,480 --> 00:06:55,160 Speaker 3: that's where I think it sort of puts a dent 123 00:06:55,279 --> 00:06:58,240 Speaker 3: to the growth rate down the line once they run 124 00:06:58,240 --> 00:07:00,680 Speaker 3: out of the deals that they currently you have signed. 125 00:07:01,320 --> 00:07:02,800 Speaker 5: What's the next thing we need to pay attention to. 126 00:07:02,920 --> 00:07:04,720 Speaker 5: Is there anything earnings wise coming up this week? 127 00:07:04,880 --> 00:07:06,640 Speaker 4: You guys AMD tonight? 128 00:07:07,600 --> 00:07:12,680 Speaker 3: Clearly a lot of that Capex if it is flowing 129 00:07:12,680 --> 00:07:16,800 Speaker 3: to AMD, should show up tonight. And our view is 130 00:07:17,320 --> 00:07:20,640 Speaker 3: clearly the market is shifting from training to infrincing when 131 00:07:20,680 --> 00:07:24,080 Speaker 3: it comes to Capex, and AMD could be one of 132 00:07:24,120 --> 00:07:26,720 Speaker 3: the beneficiaries of that infrincing Capex. 133 00:07:27,000 --> 00:07:29,640 Speaker 5: AMD is the ticker. It's got a market cap of 134 00:07:29,680 --> 00:07:31,600 Speaker 5: two hundred and eighty billion dollars. The stock is up 135 00:07:31,640 --> 00:07:34,800 Speaker 5: forty two percent year to date. So another one of 136 00:07:34,840 --> 00:07:36,960 Speaker 5: men deep stocks is up like huge. I mean, this 137 00:07:37,160 --> 00:07:38,880 Speaker 5: kid was born on third base. Thought he had a 138 00:07:38,920 --> 00:07:42,080 Speaker 5: triple Dude. Everything you touched just be goes, just rips 139 00:07:42,120 --> 00:07:45,120 Speaker 5: to the sky. It's unbelievable. Man Deep Sing, He's one 140 00:07:45,120 --> 00:07:47,960 Speaker 5: of the good ones, folks. Senior tech industranals for Bloomberg Intelligence. 141 00:07:48,000 --> 00:07:50,280 Speaker 5: In fact, that ian on Agran and they manage our 142 00:07:50,320 --> 00:07:53,239 Speaker 5: whole tech coverage area. And it is a global business 143 00:07:53,240 --> 00:07:56,760 Speaker 5: and we we have analysts in Europe, Asia and North America. 144 00:07:56,760 --> 00:07:58,080 Speaker 4: And that's how we do that. 145 00:08:00,240 --> 00:08:03,920 Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live 146 00:08:04,000 --> 00:08:07,080 Speaker 1: weekdays at ten am Eastern on Apple Corplay and Android 147 00:08:07,080 --> 00:08:10,400 Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever 148 00:08:10,440 --> 00:08:13,600 Speaker 1: you get your podcasts, or watch us live on YouTube. 149 00:08:14,040 --> 00:08:16,200 Speaker 2: We're nearing kind of like the Friday mark where the 150 00:08:16,240 --> 00:08:20,080 Speaker 2: tgif right, Molsen Core's happy hour, let's go for it. 151 00:08:21,040 --> 00:08:22,840 Speaker 2: They had their earnings come out, so we want to 152 00:08:22,880 --> 00:08:24,360 Speaker 2: do is break it all down for you. Kennon say, 153 00:08:24,400 --> 00:08:28,120 Speaker 2: Bloomberg Intelligence senior consumer product analysts, thanks for coming right 154 00:08:28,120 --> 00:08:31,800 Speaker 2: here in the studio. Rising costs tied to aluminum tariffs. 155 00:08:31,840 --> 00:08:34,480 Speaker 2: This was a big point for them. How much of 156 00:08:34,480 --> 00:08:36,040 Speaker 2: an impact is that having on the company? 157 00:08:36,840 --> 00:08:40,880 Speaker 6: Yeah, Hi, Lisa, it's material. You know, they describe it 158 00:08:40,880 --> 00:08:43,920 Speaker 6: as an indirect cost, but it really spiked up there 159 00:08:44,800 --> 00:08:47,840 Speaker 6: in the quarter, you know, encroaching on their margin. 160 00:08:48,200 --> 00:08:48,600 Speaker 4: I think though. 161 00:08:48,600 --> 00:08:52,240 Speaker 6: The bigger picture though here is the continued week sales, 162 00:08:52,600 --> 00:08:55,120 Speaker 6: the lackluster sales are seeing in the US beer market 163 00:08:55,320 --> 00:08:58,240 Speaker 6: and alcoholic beverages in general. You know, this is their 164 00:08:58,280 --> 00:09:00,880 Speaker 6: peak summer selling season. This is and you know, these 165 00:09:00,920 --> 00:09:04,440 Speaker 6: companies should be thriving, and it looks like the summer 166 00:09:04,480 --> 00:09:07,319 Speaker 6: selling season in the US for alcoholic beverages is going 167 00:09:07,360 --> 00:09:12,320 Speaker 6: to be a dud. It's a cautious consumer, it's a 168 00:09:12,320 --> 00:09:17,040 Speaker 6: particular pressures on the Hispanic demographic. It's it was a 169 00:09:17,080 --> 00:09:19,720 Speaker 6: lousy June in terms of the weather and key markets, 170 00:09:20,320 --> 00:09:24,760 Speaker 6: and basically all the big brewers are setting up for 171 00:09:25,440 --> 00:09:28,000 Speaker 6: a tough second half. As you know, if these trends continue, 172 00:09:28,600 --> 00:09:31,880 Speaker 6: you know, I expect continued sluggish performance in the second 173 00:09:31,920 --> 00:09:32,520 Speaker 6: half as well. 174 00:09:33,000 --> 00:09:35,920 Speaker 5: So is this beer thing? Is it the kind of 175 00:09:35,920 --> 00:09:37,640 Speaker 5: a global thing? I mean, I know, you guys at 176 00:09:37,720 --> 00:09:40,800 Speaker 5: Bloomberg Intelligence, you get the data that choose consumption of 177 00:09:40,840 --> 00:09:41,640 Speaker 5: everything out there. 178 00:09:42,800 --> 00:09:45,360 Speaker 6: In the case of most in course, Paul, Yeah, they 179 00:09:45,600 --> 00:09:49,480 Speaker 6: have a big operation in Europe, Eastern Europe, many parts 180 00:09:49,520 --> 00:09:52,360 Speaker 6: of Western Europe, and that that had they had lower 181 00:09:52,440 --> 00:09:55,360 Speaker 6: volumes as well. It was saved by higher prices to 182 00:09:55,440 --> 00:09:58,160 Speaker 6: a degree. But you know, again, the big picture is 183 00:09:58,240 --> 00:10:01,400 Speaker 6: that consumers are just not going out to the bars 184 00:10:01,440 --> 00:10:04,280 Speaker 6: as much. On premise sales, we're particularly weak. That could 185 00:10:04,280 --> 00:10:08,400 Speaker 6: be weather related, I mean, it's just another example, but 186 00:10:08,520 --> 00:10:11,400 Speaker 6: also I think it could be, you know, the culmination 187 00:10:11,679 --> 00:10:14,679 Speaker 6: of a lot of price increases over the last few years. 188 00:10:14,720 --> 00:10:17,040 Speaker 6: Maybe we've hit a point where there's some sticker shot 189 00:10:17,080 --> 00:10:17,720 Speaker 6: going on here. 190 00:10:18,360 --> 00:10:20,400 Speaker 2: And what about people drinking You said not going to 191 00:10:20,400 --> 00:10:23,880 Speaker 2: the bar, but what about just drinking less alcohol in general. 192 00:10:24,960 --> 00:10:27,120 Speaker 6: Well, that's a great point least, I think. Longer term, 193 00:10:27,200 --> 00:10:29,920 Speaker 6: you have some secular headwinds as well. Things you've talked 194 00:10:29,960 --> 00:10:32,600 Speaker 6: about in the past. You know, the spread of legal cannabis, 195 00:10:32,600 --> 00:10:35,559 Speaker 6: particularly here in the US. In the US, you also 196 00:10:35,600 --> 00:10:38,920 Speaker 6: have these intoxicating hemp drinks which are all the rage 197 00:10:38,960 --> 00:10:42,320 Speaker 6: now in many markets. You have the GLP one users 198 00:10:42,360 --> 00:10:47,000 Speaker 6: are cutting back. Gen Z doesn't seem to embrace alcohol 199 00:10:47,040 --> 00:10:49,080 Speaker 6: as much as their parents did. All those things are 200 00:10:49,080 --> 00:10:51,840 Speaker 6: weighing on it longer term, but that combined with some 201 00:10:51,920 --> 00:10:54,680 Speaker 6: near term pressures, is really weighing on these you know, 202 00:10:54,720 --> 00:10:55,400 Speaker 6: these companies. 203 00:10:55,800 --> 00:10:58,800 Speaker 5: It's a disappointing discussion here. I mean, not that we're 204 00:10:58,800 --> 00:11:01,480 Speaker 5: gonna have fun here. I'll tell you here's the problem 205 00:11:01,480 --> 00:11:02,920 Speaker 5: with all this White. 206 00:11:02,760 --> 00:11:04,800 Speaker 4: Claw and sea Breeze and I don't know what. 207 00:11:04,840 --> 00:11:06,920 Speaker 5: You know, the iced tea in vodka, what's that all about? 208 00:11:07,200 --> 00:11:07,800 Speaker 2: Is that a fad? 209 00:11:09,400 --> 00:11:11,800 Speaker 6: It seems to have some legs there, you know, the 210 00:11:11,800 --> 00:11:14,320 Speaker 6: pre mixed cocktails. Let me put it this way. Some 211 00:11:14,360 --> 00:11:17,280 Speaker 6: of the things that did well in the quarter are 212 00:11:17,320 --> 00:11:23,480 Speaker 6: things like bush light apple. You know, some flavor, some 213 00:11:23,520 --> 00:11:27,920 Speaker 6: flavor out there is coming back apple. You know. Some 214 00:11:27,960 --> 00:11:30,760 Speaker 6: of the hard teas are doing well. The pre mixes 215 00:11:30,840 --> 00:11:32,959 Speaker 6: continue to do well. So I think the way you 216 00:11:33,000 --> 00:11:36,559 Speaker 6: could take away is maybe the consumer, while you know, economizing, 217 00:11:36,679 --> 00:11:39,760 Speaker 6: is also looking for a flavor and different variety and so. 218 00:11:40,720 --> 00:11:44,480 Speaker 6: And also the non alcoholic and low alcoholic segment continues 219 00:11:44,520 --> 00:11:46,680 Speaker 6: to do well from a low base. So I think 220 00:11:46,720 --> 00:11:49,720 Speaker 6: in the second half I would expect a higher level 221 00:11:49,760 --> 00:11:55,439 Speaker 6: of promotion and innovation along those themes low alcohol and 222 00:11:55,520 --> 00:11:59,160 Speaker 6: no alcohol flavor innovation that's going to be really popular, 223 00:11:59,160 --> 00:12:01,200 Speaker 6: I think in the second half the spur volume. 224 00:12:01,600 --> 00:12:03,480 Speaker 2: Hey, before you go, can you break down some of 225 00:12:03,520 --> 00:12:06,280 Speaker 2: those macro economic headwinds that the company's facing. 226 00:12:07,880 --> 00:12:12,520 Speaker 6: Sure, well, the primary one is just you know, consumer confidence. 227 00:12:13,080 --> 00:12:15,640 Speaker 6: Consumers just feel you know, they're reading the papers all 228 00:12:15,679 --> 00:12:19,400 Speaker 6: these you know, tier fund certainties, and you know the 229 00:12:19,760 --> 00:12:22,760 Speaker 6: pressure on the Hispanics in particular, what's going on there. 230 00:12:24,080 --> 00:12:25,600 Speaker 6: Those are the big things, you know, And I don't 231 00:12:25,600 --> 00:12:27,679 Speaker 6: think it's anything major, but it's it's just enough on 232 00:12:27,720 --> 00:12:30,000 Speaker 6: the margin that these are these are purchases that can 233 00:12:30,040 --> 00:12:33,880 Speaker 6: be deferred. H and consumers buy and large are. 234 00:12:34,160 --> 00:12:37,720 Speaker 5: All right, It's not It wasn't very Funkenshey, senior consumer 235 00:12:37,760 --> 00:12:42,679 Speaker 5: products analyst, Bloomberg Intelligence, joining us from a print in. 236 00:12:43,480 --> 00:12:47,199 Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live 237 00:12:47,280 --> 00:12:50,320 Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android 238 00:12:50,360 --> 00:12:53,679 Speaker 1: Auto with the Bloomberg Business App. Listen on demand wherever 239 00:12:53,720 --> 00:12:56,840 Speaker 1: you get your podcasts, or watch us live on YouTube. 240 00:12:57,440 --> 00:13:00,719 Speaker 2: Tariffs having a bigger impact on Caterpillar margins shares all over, 241 00:13:00,760 --> 00:13:02,520 Speaker 2: they're down about two tens of percent. So here to 242 00:13:02,520 --> 00:13:05,959 Speaker 2: break down. It's earnings ward Christopher Jillino, Bloomberg Intelligence Senior 243 00:13:06,080 --> 00:13:09,640 Speaker 2: US machinery analyst, Christopher, thanks for joining us this morning. 244 00:13:09,920 --> 00:13:12,800 Speaker 2: All that said, the CEO, Joe Creed, the new CEOs, 245 00:13:12,800 --> 00:13:14,640 Speaker 2: said the company is going to be able to offset 246 00:13:14,720 --> 00:13:17,520 Speaker 2: the impact of tariffs. Did he get into how they're 247 00:13:17,520 --> 00:13:18,000 Speaker 2: going to do that. 248 00:13:19,400 --> 00:13:21,560 Speaker 7: Yeah, The focus initially now was really going to be 249 00:13:21,679 --> 00:13:24,160 Speaker 7: on the cost side of the equation and really some 250 00:13:24,280 --> 00:13:28,559 Speaker 7: you know, internal initiatives and productivity to help mitigate the tariffs. 251 00:13:29,559 --> 00:13:31,840 Speaker 7: They are going to have to raise prices eventually, but 252 00:13:32,040 --> 00:13:34,040 Speaker 7: you know, I think that's probably more of a twenty 253 00:13:34,080 --> 00:13:37,360 Speaker 7: sixth story right now. They're doing their best to kind of, 254 00:13:37,400 --> 00:13:38,960 Speaker 7: you know, mitigate this internally. 255 00:13:40,440 --> 00:13:43,360 Speaker 5: So talk to us about underlying demand out there for 256 00:13:43,640 --> 00:13:46,640 Speaker 5: Caterpillar tractors. What's the company saying? 257 00:13:47,840 --> 00:13:50,200 Speaker 7: Yeah, So I think this is really the big takeaway 258 00:13:50,200 --> 00:13:52,880 Speaker 7: from the quarter. You know, the print was a little weak, 259 00:13:53,040 --> 00:13:56,160 Speaker 7: it came in a little below expectations, But I think 260 00:13:56,200 --> 00:13:59,000 Speaker 7: the big takeaway here is that underlying demand is still 261 00:13:59,080 --> 00:14:03,360 Speaker 7: pretty darn reszils. You had backlog ubsequentially again this quarter, 262 00:14:03,360 --> 00:14:07,000 Speaker 7: which set another record. You had improving order trends across 263 00:14:07,040 --> 00:14:10,800 Speaker 7: all three of their main businesses. Dealer inventories still remain 264 00:14:10,920 --> 00:14:14,080 Speaker 7: quite low, and the company actually raised their sales guidance 265 00:14:14,120 --> 00:14:16,520 Speaker 7: for the year. So you know, that seems to suggest 266 00:14:16,679 --> 00:14:19,960 Speaker 7: us that underlying demand is still intact despite all these 267 00:14:20,040 --> 00:14:21,120 Speaker 7: these tariff headwinds. 268 00:14:21,680 --> 00:14:23,800 Speaker 2: And now, how did their results kind of match up 269 00:14:23,840 --> 00:14:26,080 Speaker 2: to some of their their peers if they believe there's 270 00:14:26,320 --> 00:14:28,960 Speaker 2: Terrex Lindsay who already opened their books, how did the 271 00:14:29,000 --> 00:14:30,120 Speaker 2: how does Caterpillar match up? 272 00:14:31,200 --> 00:14:34,600 Speaker 7: Yeah, I characterized the overall earning season for for US 273 00:14:34,640 --> 00:14:38,200 Speaker 7: machinery is kind of mixed. If you think about really 274 00:14:38,280 --> 00:14:43,720 Speaker 7: construction peers, which which is kind of more Caterpillars sweet spot. 275 00:14:44,600 --> 00:14:46,920 Speaker 7: That's a market that's you know, kind of bouncing along 276 00:14:46,960 --> 00:14:51,560 Speaker 7: the bottom. Here. We do have you know, infrastructure projects 277 00:14:51,720 --> 00:14:54,680 Speaker 7: and these large megat projects which are helping to offset 278 00:14:54,960 --> 00:14:57,320 Speaker 7: some of the weakness that you're seeing on the private, 279 00:14:57,400 --> 00:15:00,440 Speaker 7: non residential side, things that are more interest rates inive. 280 00:15:01,160 --> 00:15:03,560 Speaker 7: But you know, you're starting to see some positive indicators 281 00:15:03,560 --> 00:15:05,680 Speaker 7: that would you know, lead us to believe that you're 282 00:15:05,680 --> 00:15:08,040 Speaker 7: going to start to see a cyclicl of recovery emerge 283 00:15:08,320 --> 00:15:10,480 Speaker 7: in twenty twenty six. There's a number of you know, 284 00:15:10,560 --> 00:15:12,800 Speaker 7: leading indicators out there that would support that, And I 285 00:15:12,800 --> 00:15:16,680 Speaker 7: think really Caterpillars results here with orders being up in 286 00:15:16,720 --> 00:15:19,480 Speaker 7: the construction business, with the backlog being up, really kind 287 00:15:19,480 --> 00:15:20,680 Speaker 7: of reinforced that view. 288 00:15:22,160 --> 00:15:26,520 Speaker 5: Where does Caterpillar make their big trucks and stuff like 289 00:15:26,560 --> 00:15:28,680 Speaker 5: that everywhere? 290 00:15:28,760 --> 00:15:28,960 Speaker 1: Right? 291 00:15:29,000 --> 00:15:32,880 Speaker 7: They're they're a global company. They've got a large footprint 292 00:15:33,320 --> 00:15:37,400 Speaker 7: that spans you know, every continent in you know, most countries. 293 00:15:38,040 --> 00:15:38,720 Speaker 4: But if you think. 294 00:15:38,560 --> 00:15:41,200 Speaker 7: About it, at the end of the day, it's North America, right, 295 00:15:41,320 --> 00:15:44,600 Speaker 7: It's more than half of their revenues. Europe is called it, 296 00:15:44,680 --> 00:15:48,320 Speaker 7: you know, twenty percent, ish Asia Pacific a little bit 297 00:15:48,360 --> 00:15:50,640 Speaker 7: below that, and then you know Latin America is kind 298 00:15:50,640 --> 00:15:53,840 Speaker 7: of closer to ten percent. They are a net exporter 299 00:15:53,920 --> 00:15:56,760 Speaker 7: out of the US. But as we saw today, you know, 300 00:15:56,800 --> 00:15:58,480 Speaker 7: Tariff's probably going to be a little bit more of 301 00:15:58,680 --> 00:16:02,040 Speaker 7: ahead wind they than they had an initially anticipated. They're 302 00:16:02,080 --> 00:16:04,320 Speaker 7: looking for, you know, somewhere between a one point three 303 00:16:04,400 --> 00:16:07,320 Speaker 7: to a one point five billion dollar hit for this year. 304 00:16:07,840 --> 00:16:10,120 Speaker 2: So, Chris, you kind of touched upon this. Sales slipped 305 00:16:10,120 --> 00:16:14,040 Speaker 2: in construction resource industries, but energy and transportation unit that 306 00:16:14,080 --> 00:16:17,520 Speaker 2: had some higher sales. What is that that driving force 307 00:16:17,680 --> 00:16:19,800 Speaker 2: behind the growth in engines and transportation. 308 00:16:21,080 --> 00:16:23,480 Speaker 7: So this continues to be one of really the big 309 00:16:23,560 --> 00:16:26,560 Speaker 7: highlights for Caterpillar, you know, despite some of the cyclical 310 00:16:27,000 --> 00:16:31,320 Speaker 7: softness that they're seeing, is the energy and transportation business, 311 00:16:31,760 --> 00:16:35,800 Speaker 7: particularly in power generation. So think you know, data centers 312 00:16:35,800 --> 00:16:39,680 Speaker 7: that are becoming an increasingly big larger part of the portfolio. 313 00:16:40,440 --> 00:16:43,560 Speaker 7: Power gen continues to drive outsize growth within the energy 314 00:16:43,560 --> 00:16:48,000 Speaker 7: and transportation business. There's you know, a multi year backlog there, 315 00:16:48,000 --> 00:16:51,480 Speaker 7: so we have, you know, veryly tremendous visibility. And what 316 00:16:51,520 --> 00:16:55,160 Speaker 7: Caterpillar is doing now is really expanding capacity to help, 317 00:16:55,240 --> 00:16:58,360 Speaker 7: you know, meet this growing demand for data centers and 318 00:16:58,480 --> 00:17:03,880 Speaker 7: power generation. So there's a long secular tailwind at play 319 00:17:03,920 --> 00:17:05,560 Speaker 7: here and really, you know, we think we have a 320 00:17:05,600 --> 00:17:08,840 Speaker 7: pretty good visibility here over the back half of the decade. 321 00:17:09,200 --> 00:17:13,280 Speaker 5: So is Caterpillar and companies like Caterpillar, are they benefiting 322 00:17:13,400 --> 00:17:16,359 Speaker 5: or do you expect them to benefit from maybe on 323 00:17:16,600 --> 00:17:20,240 Speaker 5: shoring even more manufacturing in this country if to the 324 00:17:20,280 --> 00:17:22,840 Speaker 5: extend that President Trump you know, wants to do that 325 00:17:22,920 --> 00:17:24,520 Speaker 5: and he's been talking about that a lot. Is that 326 00:17:24,640 --> 00:17:28,600 Speaker 5: something where kat would will see it? 327 00:17:28,880 --> 00:17:32,640 Speaker 7: Yeah, I mean I would say we haven't really heard 328 00:17:32,640 --> 00:17:36,160 Speaker 7: of you know, I would say concrete or tangible evidence 329 00:17:36,200 --> 00:17:39,199 Speaker 7: of that happening yet, and it's really difficult to you know, 330 00:17:40,119 --> 00:17:42,520 Speaker 7: get a lens on that on a quarter to quarter 331 00:17:42,640 --> 00:17:44,280 Speaker 7: I think, you know, if we look back, maybe over 332 00:17:45,000 --> 00:17:47,640 Speaker 7: a five year window, maybe we'll have a better picture 333 00:17:47,640 --> 00:17:49,680 Speaker 7: of that. But yet, no doubt, Caterpillar is a big 334 00:17:49,680 --> 00:17:55,800 Speaker 7: beneficiary of any kind of construction activity here domestically. And 335 00:17:55,800 --> 00:17:57,800 Speaker 7: then not only on top of you know, not only 336 00:17:57,880 --> 00:18:02,480 Speaker 7: just moving the dirt and building the the facilities, they 337 00:18:02,520 --> 00:18:05,080 Speaker 7: are also, like I mentioned, having a have a bigger 338 00:18:05,119 --> 00:18:09,720 Speaker 7: piece of the data center and power generation needs within 339 00:18:09,800 --> 00:18:13,040 Speaker 7: our within our country as well. So it's really kind 340 00:18:13,080 --> 00:18:16,320 Speaker 7: of twofold, not only you know, with the moving the 341 00:18:16,400 --> 00:18:19,680 Speaker 7: dirt and the facilities, but also you know, longer term, 342 00:18:19,680 --> 00:18:23,800 Speaker 7: we think the secular tailwinds around power generation are you know, 343 00:18:23,960 --> 00:18:24,800 Speaker 7: pretty favorable. 344 00:18:25,160 --> 00:18:26,920 Speaker 2: Hey, Chris, before you go, we have like about a 345 00:18:26,960 --> 00:18:29,679 Speaker 2: minute or so left. People usually say this is like 346 00:18:29,680 --> 00:18:31,919 Speaker 2: the Bell Weather for a look at the economy. Is 347 00:18:31,920 --> 00:18:35,280 Speaker 2: this company can going to continue to be that spot 348 00:18:35,280 --> 00:18:36,240 Speaker 2: and to hold that title. 349 00:18:37,600 --> 00:18:40,680 Speaker 7: I don't see anything changing in the near term here. 350 00:18:40,800 --> 00:18:46,080 Speaker 7: They are the largest global manufacturer of heavy machinery. They 351 00:18:46,119 --> 00:18:50,520 Speaker 7: have the scale, the dealer network, and really there's not 352 00:18:50,600 --> 00:18:53,400 Speaker 7: too many competitors that are are that close to them. 353 00:18:53,440 --> 00:18:58,400 Speaker 7: So they are the leading indicator for the heavy machinery 354 00:18:58,480 --> 00:19:01,520 Speaker 7: markets and construction activity. And I don't foresee that changing 355 00:19:01,560 --> 00:19:02,240 Speaker 7: anytime soon. 356 00:19:02,600 --> 00:19:04,080 Speaker 5: All right, Chris Chilian, I thank you so much. We 357 00:19:04,119 --> 00:19:07,960 Speaker 5: appreciated that. Chris Chilian covers all the big equipment manufacturing 358 00:19:08,040 --> 00:19:10,880 Speaker 5: companies for Bloomberg Intelligence. Just leaving a Caterpillar here based 359 00:19:10,880 --> 00:19:15,360 Speaker 5: in Irving, Texas, one hundred and thirteen thousand employees. It's 360 00:19:15,359 --> 00:19:20,399 Speaker 5: got a market cap of two hundred billion dollars, stocks 361 00:19:20,480 --> 00:19:22,840 Speaker 5: up like twenty percent this year. It's Chris was saying, 362 00:19:23,119 --> 00:19:27,919 Speaker 5: one of the plays on this data data center construction plays. 363 00:19:27,960 --> 00:19:32,280 Speaker 5: I mean, there's so many peripheral derivative plays off of AI. 364 00:19:33,000 --> 00:19:36,480 Speaker 5: It even gets to Caterpillar, who's going to be you know, 365 00:19:36,520 --> 00:19:38,520 Speaker 5: their equipment's can be used to build all these data 366 00:19:38,520 --> 00:19:41,800 Speaker 5: centers that are going to be used for AI. It's just, 367 00:19:42,000 --> 00:19:43,360 Speaker 5: you know, it's everywhere. 368 00:19:43,440 --> 00:19:45,640 Speaker 2: Have you ever been on one of these machineries. They 369 00:19:45,720 --> 00:19:49,400 Speaker 2: are massive. Some of the I know, like the bulldozers. 370 00:19:48,680 --> 00:19:52,240 Speaker 5: And that you know Karen Ubelheart who's covered these names 371 00:19:52,240 --> 00:19:54,600 Speaker 5: for decades. She's got some amazing pictures of her up 372 00:19:54,640 --> 00:19:57,280 Speaker 5: on these most big farms, on these huge tractors, and. 373 00:19:57,920 --> 00:19:59,919 Speaker 2: What it takes behind it to make these is is 374 00:20:00,000 --> 00:20:00,560 Speaker 2: It's incredible. 375 00:20:00,600 --> 00:20:02,479 Speaker 5: I'd love to see a manufacturing facility to see how 376 00:20:02,520 --> 00:20:05,120 Speaker 5: you make one of those huge tractors. 377 00:20:05,960 --> 00:20:10,639 Speaker 1: This is the Bloomberg Intelligence Podcast, available on Apple, Spotify, 378 00:20:10,840 --> 00:20:14,800 Speaker 1: and anywhere else you get your podcasts. 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