Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the
Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am
Speaker 1: Eastern on Applecarplay and Android Auto with the Bloomberg Business App.
Speaker 1: Listen on demand wherever you get your podcasts, or watch
Speaker 1: us live on YouTube.
Speaker 2: There's been a ton of earnings out. It's hard to
Speaker 2: keep up with all of it. But one that has
Speaker 2: been the talk of everywhere is Palied here right, And
Speaker 2: one person who has been running around Bloomberg like crazy
Speaker 2: is Man Deep saying he's Bloomberg Intelligence senior tech industry analysts.
Speaker 2: Thanks for coming out, Man Deep, right in the studio.
Speaker 2: The Stack price sarch more than five hundred percent over
Speaker 2: the past year. I mean, this company is incredible. Is
Speaker 2: it what the company CEO calls a dominant software company
Speaker 2: of the future? Would would you say?
Speaker 3: I mean, clearly there is a lot baked into the valuation,
Speaker 3: but I want to focus on, you know, the net
Speaker 3: new R, which is a metric that software companies are
Speaker 3: measured on.
Speaker 4: And when you compare Palenteers.
Speaker 3: Commercial segment revenue, which everyone is excited about, their total
Speaker 3: deal value that's remaining is around two point eight billion.
Speaker 3: The new ar are increased by five hundred million. Contrast
Speaker 3: that with a Microsoft or a Google Cloud. Microsoft added
Speaker 3: almost nine billion in net new ARR this quarter, and
Speaker 3: they talked about you know, AI being used across one
Speaker 3: hundred million Microsoft Copilot users twenty million GitHub Copilot users.
Speaker 3: So from that perspective, you know, balenteers increase in remaining
Speaker 3: deal value of five hundred million looks pretty small.
Speaker 4: I mean, Palenteers overall revenue rund rate is four billion.
Speaker 3: Microsoft clearly is you know, a company that's almost one
Speaker 3: hundred times or eighty times more bigger than Palenteer.
Speaker 4: But it just goes to show that even on a
Speaker 4: net new AIRR.
Speaker 3: Basis, Microsoft is adding more revenue per quarter than a
Speaker 3: Palenteer is. And still people are very excited about Palenteer's product,
Speaker 3: you know, prospects, and to my mind, clearly, you know
Speaker 3: they have a product that is appealing to a certain
Speaker 3: section of enterprise users. But at this valuation, I mean,
Speaker 3: they can't sustain that for the next thirty forty quarters,
Speaker 3: which is what they need to show to grow into
Speaker 3: the valuation. And I just don't see from a product
Speaker 3: perspective they'll have the same kind of appeal as a
Speaker 3: Microsoft Copilot or a Google Cloud or you know, any
Speaker 3: of these large companies.
Speaker 5: Some question today, how do you guys value this thing?
Speaker 5: I mean I got it at like two three hundred
Speaker 5: times earning. So that's not the way to go.
Speaker 3: So we've seen that with you know, new IPOs. When
Speaker 3: they come to the market, they get a premium multiple.
Speaker 3: They get traded at you know, thirty forty time sales.
Speaker 3: Snowflake which is a competitor to Palenteer, when it went public,
Speaker 3: it traded at sixty seventy time sales. Look at where
Speaker 3: the stock is now. It's flat since the IPO. Even
Speaker 3: though the company has grown top line at thirty thirty
Speaker 3: five percent Kegger, the stock is flat. So that's what
Speaker 3: I mean by growing into the valuation, because there is
Speaker 3: so much embedded in that upfront multiple that even growing
Speaker 3: at thirty percent is not enough. Palenteer really needs to
Speaker 3: grow at fifty percent to be able to show any
Speaker 3: sort of stock return from.
Speaker 4: This point on. Can it do that?
Speaker 2: No?
Speaker 4: I mean that's why I said I compare the product.
Speaker 3: My initial comments were around comparing Palenteer's product versus other
Speaker 3: large enterprise software makers, and even you know, you go
Speaker 3: down the list, Salesforce service, now Adobe like, these are
Speaker 3: much bigger companies and they have come I hounded at
Speaker 3: twenty percent Keger over the years because they had a
Speaker 3: seat base or a consumption based model. We don't even
Speaker 3: know what kind of a business model Talenteer has. Yes,
Speaker 3: it's winning government deals, Yes it's winning some enterprise deals.
Speaker 3: But we don't know how they account for that revenue
Speaker 3: every quarter. Is it a seat based model, is a
Speaker 3: consumption base? We don't have that kind of visibility to
Speaker 3: their business model.
Speaker 4: All right, make it this red headline out of the way.
Speaker 4: White House fires.
Speaker 5: Most of Puerto Rico's oversight board members not really sure
Speaker 5: what that is, but we're going to have more reporting
Speaker 5: on that coming up. I want to get that headline
Speaker 5: out there. So in a conter party, I can tell
Speaker 5: you the Google story, I can tell you that Microsoft story.
Speaker 5: I have no idea what the Palenteer story is. Can
Speaker 5: you explain it to me like I'm a five year old?
Speaker 3: Yeah, So their software out of the box will help
Speaker 3: you make sense of your big data strategy. They really
Speaker 3: curved out a name for themselves. Big data became the
Speaker 3: thing when a company had a large amount of data,
Speaker 3: whether it's log data or some other type of reporting data.
Speaker 3: They would help you make sense of it because they
Speaker 3: have something proprietary that no one else has in terms
Speaker 3: of organizing that data and making it usable.
Speaker 4: So that's their value proposition.
Speaker 3: But with the AI wave and llms, they were able
Speaker 3: to integrate LLM calls within their offering to develop a
Speaker 3: customer service or a supply chain use case that you
Speaker 3: can apply AI on top of their ontology, which is
Speaker 3: their core product, and a lot of other companies are
Speaker 3: doing the same. To my mind, Microsoft is doing the
Speaker 3: same for their customers. They're trying to embed open AI
Speaker 3: with their core offerings, with their CRM system and help
Speaker 3: them deploy a customer service use case. So the differentiation
Speaker 3: of Balanteer versus Microsoft, to my mind is not that
Speaker 3: big as the valuation reflects. And that's where I'm They're
Speaker 3: not going to grow fifty percent for the next twelve
Speaker 3: to twenty quarters, which is what the valuation is implying.
Speaker 2: Now, how would you compare what they do as far
Speaker 2: as a government contractor versus the commercial side, like which
Speaker 2: is doing better for them?
Speaker 3: Yeah, so they have a much higher exposure to government side.
Speaker 3: I mean government side is still more than fifty percent
Speaker 3: of their revenue. And all these large enterprise software companies
Speaker 3: they have ten to fifteen percent government exposure. So Paleteer's
Speaker 3: government exposure is way too large compared to other software makers.
Speaker 3: And on top of that, their international sales seem to
Speaker 3: be declining at least, you know, on the commercial side,
Speaker 3: because of the polarizing views of the management.
Speaker 4: So if they.
Speaker 3: Were more balanced, probably they would win more international business.
Speaker 3: But right now this is a US centric story, and
Speaker 3: that's where I think it sort of puts a dent
Speaker 3: to the growth rate down the line once they run
Speaker 3: out of the deals that they currently you have signed.
Speaker 5: What's the next thing we need to pay attention to.
Speaker 5: Is there anything earnings wise coming up this week?
Speaker 4: You guys AMD tonight?
Speaker 3: Clearly a lot of that Capex if it is flowing
Speaker 3: to AMD, should show up tonight. And our view is
Speaker 3: clearly the market is shifting from training to infrincing when
Speaker 3: it comes to Capex, and AMD could be one of
Speaker 3: the beneficiaries of that infrincing Capex.
Speaker 5: AMD is the ticker. It's got a market cap of
Speaker 5: two hundred and eighty billion dollars. The stock is up
Speaker 5: forty two percent year to date. So another one of
Speaker 5: men deep stocks is up like huge. I mean, this
Speaker 5: kid was born on third base. Thought he had a
Speaker 5: triple Dude. Everything you touched just be goes, just rips
Speaker 5: to the sky. It's unbelievable. Man Deep Sing, He's one
Speaker 5: of the good ones, folks. Senior tech industranals for Bloomberg Intelligence.
Speaker 5: In fact, that ian on Agran and they manage our
Speaker 5: whole tech coverage area. And it is a global business
Speaker 5: and we we have analysts in Europe, Asia and North America.
Speaker 4: And that's how we do that.
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
Speaker 1: weekdays at ten am Eastern on Apple Corplay and Android
Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever
Speaker 1: you get your podcasts, or watch us live on YouTube.
Speaker 2: We're nearing kind of like the Friday mark where the
Speaker 2: tgif right, Molsen Core's happy hour, let's go for it.
Speaker 2: They had their earnings come out, so we want to
Speaker 2: do is break it all down for you. Kennon say,
Speaker 2: Bloomberg Intelligence senior consumer product analysts, thanks for coming right
Speaker 2: here in the studio. Rising costs tied to aluminum tariffs.
Speaker 2: This was a big point for them. How much of
Speaker 2: an impact is that having on the company?
Speaker 6: Yeah, Hi, Lisa, it's material. You know, they describe it
Speaker 6: as an indirect cost, but it really spiked up there
Speaker 6: in the quarter, you know, encroaching on their margin.
Speaker 4: I think though.
Speaker 6: The bigger picture though here is the continued week sales,
Speaker 6: the lackluster sales are seeing in the US beer market
Speaker 6: and alcoholic beverages in general. You know, this is their
Speaker 6: peak summer selling season. This is and you know, these
Speaker 6: companies should be thriving, and it looks like the summer
Speaker 6: selling season in the US for alcoholic beverages is going
Speaker 6: to be a dud. It's a cautious consumer, it's a
Speaker 6: particular pressures on the Hispanic demographic. It's it was a
Speaker 6: lousy June in terms of the weather and key markets,
Speaker 6: and basically all the big brewers are setting up for
Speaker 6: a tough second half. As you know, if these trends continue,
Speaker 6: you know, I expect continued sluggish performance in the second
Speaker 6: half as well.
Speaker 5: So is this beer thing? Is it the kind of
Speaker 5: a global thing? I mean, I know, you guys at
Speaker 5: Bloomberg Intelligence, you get the data that choose consumption of
Speaker 5: everything out there.
Speaker 6: In the case of most in course, Paul, Yeah, they
Speaker 6: have a big operation in Europe, Eastern Europe, many parts
Speaker 6: of Western Europe, and that that had they had lower
Speaker 6: volumes as well. It was saved by higher prices to
Speaker 6: a degree. But you know, again, the big picture is
Speaker 6: that consumers are just not going out to the bars
Speaker 6: as much. On premise sales, we're particularly weak. That could
Speaker 6: be weather related, I mean, it's just another example, but
Speaker 6: also I think it could be, you know, the culmination
Speaker 6: of a lot of price increases over the last few years.
Speaker 6: Maybe we've hit a point where there's some sticker shot
Speaker 6: going on here.
Speaker 2: And what about people drinking You said not going to
Speaker 2: the bar, but what about just drinking less alcohol in general.
Speaker 6: Well, that's a great point least, I think. Longer term,
Speaker 6: you have some secular headwinds as well. Things you've talked
Speaker 6: about in the past. You know, the spread of legal cannabis,
Speaker 6: particularly here in the US. In the US, you also
Speaker 6: have these intoxicating hemp drinks which are all the rage
Speaker 6: now in many markets. You have the GLP one users
Speaker 6: are cutting back. Gen Z doesn't seem to embrace alcohol
Speaker 6: as much as their parents did. All those things are
Speaker 6: weighing on it longer term, but that combined with some
Speaker 6: near term pressures, is really weighing on these you know,
Speaker 6: these companies.
Speaker 5: It's a disappointing discussion here. I mean, not that we're
Speaker 5: gonna have fun here. I'll tell you here's the problem
Speaker 5: with all this White.
Speaker 4: Claw and sea Breeze and I don't know what.
Speaker 5: You know, the iced tea in vodka, what's that all about?
Speaker 2: Is that a fad?
Speaker 6: It seems to have some legs there, you know, the
Speaker 6: pre mixed cocktails. Let me put it this way. Some
Speaker 6: of the things that did well in the quarter are
Speaker 6: things like bush light apple. You know, some flavor, some
Speaker 6: flavor out there is coming back apple. You know. Some
Speaker 6: of the hard teas are doing well. The pre mixes
Speaker 6: continue to do well. So I think the way you
Speaker 6: could take away is maybe the consumer, while you know, economizing,
Speaker 6: is also looking for a flavor and different variety and so.
Speaker 6: And also the non alcoholic and low alcoholic segment continues
Speaker 6: to do well from a low base. So I think
Speaker 6: in the second half I would expect a higher level
Speaker 6: of promotion and innovation along those themes low alcohol and
Speaker 6: no alcohol flavor innovation that's going to be really popular,
Speaker 6: I think in the second half the spur volume.
Speaker 2: Hey, before you go, can you break down some of
Speaker 2: those macro economic headwinds that the company's facing.
Speaker 6: Sure, well, the primary one is just you know, consumer confidence.
Speaker 6: Consumers just feel you know, they're reading the papers all
Speaker 6: these you know, tier fund certainties, and you know the
Speaker 6: pressure on the Hispanics in particular, what's going on there.
Speaker 6: Those are the big things, you know, And I don't
Speaker 6: think it's anything major, but it's it's just enough on
Speaker 6: the margin that these are these are purchases that can
Speaker 6: be deferred. H and consumers buy and large are.
Speaker 5: All right, It's not It wasn't very Funkenshey, senior consumer
Speaker 5: products analyst, Bloomberg Intelligence, joining us from a print in.
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android
Speaker 1: Auto with the Bloomberg Business App. Listen on demand wherever
Speaker 1: you get your podcasts, or watch us live on YouTube.
Speaker 2: Tariffs having a bigger impact on Caterpillar margins shares all over,
Speaker 2: they're down about two tens of percent. So here to
Speaker 2: break down. It's earnings ward Christopher Jillino, Bloomberg Intelligence Senior
Speaker 2: US machinery analyst, Christopher, thanks for joining us this morning.
Speaker 2: All that said, the CEO, Joe Creed, the new CEOs,
Speaker 2: said the company is going to be able to offset
Speaker 2: the impact of tariffs. Did he get into how they're
Speaker 2: going to do that.
Speaker 7: Yeah, The focus initially now was really going to be
Speaker 7: on the cost side of the equation and really some
Speaker 7: you know, internal initiatives and productivity to help mitigate the tariffs.
Speaker 7: They are going to have to raise prices eventually, but
Speaker 7: you know, I think that's probably more of a twenty
Speaker 7: sixth story right now. They're doing their best to kind of,
Speaker 7: you know, mitigate this internally.
Speaker 5: So talk to us about underlying demand out there for
Speaker 5: Caterpillar tractors. What's the company saying?
Speaker 7: Yeah, So I think this is really the big takeaway
Speaker 7: from the quarter. You know, the print was a little weak,
Speaker 7: it came in a little below expectations, But I think
Speaker 7: the big takeaway here is that underlying demand is still
Speaker 7: pretty darn reszils. You had backlog ubsequentially again this quarter,
Speaker 7: which set another record. You had improving order trends across
Speaker 7: all three of their main businesses. Dealer inventories still remain
Speaker 7: quite low, and the company actually raised their sales guidance
Speaker 7: for the year. So you know, that seems to suggest
Speaker 7: us that underlying demand is still intact despite all these
Speaker 7: these tariff headwinds.
Speaker 2: And now, how did their results kind of match up
Speaker 2: to some of their their peers if they believe there's
Speaker 2: Terrex Lindsay who already opened their books, how did the
Speaker 2: how does Caterpillar match up?
Speaker 7: Yeah, I characterized the overall earning season for for US
Speaker 7: machinery is kind of mixed. If you think about really
Speaker 7: construction peers, which which is kind of more Caterpillars sweet spot.
Speaker 7: That's a market that's you know, kind of bouncing along
Speaker 7: the bottom. Here. We do have you know, infrastructure projects
Speaker 7: and these large megat projects which are helping to offset
Speaker 7: some of the weakness that you're seeing on the private,
Speaker 7: non residential side, things that are more interest rates inive.
Speaker 7: But you know, you're starting to see some positive indicators
Speaker 7: that would you know, lead us to believe that you're
Speaker 7: going to start to see a cyclicl of recovery emerge
Speaker 7: in twenty twenty six. There's a number of you know,
Speaker 7: leading indicators out there that would support that, And I
Speaker 7: think really Caterpillars results here with orders being up in
Speaker 7: the construction business, with the backlog being up, really kind
Speaker 7: of reinforced that view.
Speaker 5: Where does Caterpillar make their big trucks and stuff like
Speaker 5: that everywhere?
Speaker 1: Right?
Speaker 7: They're they're a global company. They've got a large footprint
Speaker 7: that spans you know, every continent in you know, most countries.
Speaker 4: But if you think.
Speaker 7: About it, at the end of the day, it's North America, right,
Speaker 7: It's more than half of their revenues. Europe is called it,
Speaker 7: you know, twenty percent, ish Asia Pacific a little bit
Speaker 7: below that, and then you know Latin America is kind
Speaker 7: of closer to ten percent. They are a net exporter
Speaker 7: out of the US. But as we saw today, you know,
Speaker 7: Tariff's probably going to be a little bit more of
Speaker 7: ahead wind they than they had an initially anticipated. They're
Speaker 7: looking for, you know, somewhere between a one point three
Speaker 7: to a one point five billion dollar hit for this year.
Speaker 2: So, Chris, you kind of touched upon this. Sales slipped
Speaker 2: in construction resource industries, but energy and transportation unit that
Speaker 2: had some higher sales. What is that that driving force
Speaker 2: behind the growth in engines and transportation.
Speaker 7: So this continues to be one of really the big
Speaker 7: highlights for Caterpillar, you know, despite some of the cyclical
Speaker 7: softness that they're seeing, is the energy and transportation business,
Speaker 7: particularly in power generation. So think you know, data centers
Speaker 7: that are becoming an increasingly big larger part of the portfolio.
Speaker 7: Power gen continues to drive outsize growth within the energy
Speaker 7: and transportation business. There's you know, a multi year backlog there,
Speaker 7: so we have, you know, veryly tremendous visibility. And what
Speaker 7: Caterpillar is doing now is really expanding capacity to help,
Speaker 7: you know, meet this growing demand for data centers and
Speaker 7: power generation. So there's a long secular tailwind at play
Speaker 7: here and really, you know, we think we have a
Speaker 7: pretty good visibility here over the back half of the decade.
Speaker 5: So is Caterpillar and companies like Caterpillar, are they benefiting
Speaker 5: or do you expect them to benefit from maybe on
Speaker 5: shoring even more manufacturing in this country if to the
Speaker 5: extend that President Trump you know, wants to do that
Speaker 5: and he's been talking about that a lot. Is that
Speaker 5: something where kat would will see it?
Speaker 7: Yeah, I mean I would say we haven't really heard
Speaker 7: of you know, I would say concrete or tangible evidence
Speaker 7: of that happening yet, and it's really difficult to you know,
Speaker 7: get a lens on that on a quarter to quarter
Speaker 7: I think, you know, if we look back, maybe over
Speaker 7: a five year window, maybe we'll have a better picture
Speaker 7: of that. But yet, no doubt, Caterpillar is a big
Speaker 7: beneficiary of any kind of construction activity here domestically. And
Speaker 7: then not only on top of you know, not only
Speaker 7: just moving the dirt and building the the facilities, they
Speaker 7: are also, like I mentioned, having a have a bigger
Speaker 7: piece of the data center and power generation needs within
Speaker 7: our within our country as well. So it's really kind
Speaker 7: of twofold, not only you know, with the moving the
Speaker 7: dirt and the facilities, but also you know, longer term,
Speaker 7: we think the secular tailwinds around power generation are you know,
Speaker 7: pretty favorable.
Speaker 2: Hey, Chris, before you go, we have like about a
Speaker 2: minute or so left. People usually say this is like
Speaker 2: the Bell Weather for a look at the economy. Is
Speaker 2: this company can going to continue to be that spot
Speaker 2: and to hold that title.
Speaker 7: I don't see anything changing in the near term here.
Speaker 7: They are the largest global manufacturer of heavy machinery. They
Speaker 7: have the scale, the dealer network, and really there's not
Speaker 7: too many competitors that are are that close to them.
Speaker 7: So they are the leading indicator for the heavy machinery
Speaker 7: markets and construction activity. And I don't foresee that changing
Speaker 7: anytime soon.
Speaker 5: All right, Chris Chilian, I thank you so much. We
Speaker 5: appreciated that. Chris Chilian covers all the big equipment manufacturing
Speaker 5: companies for Bloomberg Intelligence. Just leaving a Caterpillar here based
Speaker 5: in Irving, Texas, one hundred and thirteen thousand employees. It's
Speaker 5: got a market cap of two hundred billion dollars, stocks
Speaker 5: up like twenty percent this year. It's Chris was saying,
Speaker 5: one of the plays on this data data center construction plays.
Speaker 5: I mean, there's so many peripheral derivative plays off of AI.
Speaker 5: It even gets to Caterpillar, who's going to be you know,
Speaker 5: their equipment's can be used to build all these data
Speaker 5: centers that are going to be used for AI. It's just,
Speaker 5: you know, it's everywhere.
Speaker 2: Have you ever been on one of these machineries. They
Speaker 2: are massive. Some of the I know, like the bulldozers.
Speaker 5: And that you know Karen Ubelheart who's covered these names
Speaker 5: for decades. She's got some amazing pictures of her up
Speaker 5: on these most big farms, on these huge tractors, and.
Speaker 2: What it takes behind it to make these is is
Speaker 2: It's incredible.
Speaker 5: I'd love to see a manufacturing facility to see how
Speaker 5: you make one of those huge tractors.
Speaker 1: This is the Bloomberg Intelligence Podcast, available on Apple, Spotify,
Speaker 1: and anywhere else you get your podcasts. Listen live each weekday,
Speaker 1: ten am to noon Eastern on Bloomberg dot com, the
Speaker 1: iHeartRadio app, tune In, and the Bloomberg Business app. You
Speaker 1: can also watch us live every weekday on YouTube and
Speaker 1: always on the Bloomberg terminal