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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the

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Speaker 1: Bloomberg Intelligence podcast. Catch us live weekdays at ten am

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Speaker 1: Listen on demand wherever you get your podcasts, or watch

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Speaker 2: One of my companies I used to cover the Walt

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Speaker 2: Disney Company Mickey Mouse. They reported some numbers, better than

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Speaker 2: expected numbers, so of course stocks down two point nine percent.

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Speaker 2: So the Walt Disney Company reported better than expected third

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Speaker 2: quarter earnings, with continued growth at its parks and streaming

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Speaker 2: business overshadowing a tough climate for movies and traditional TV.

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Speaker 2: Let's break it down with Keitha Rungino that she covers

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Speaker 2: all the media stuff for Bloomberg Intelligence. Keitha, it seemed

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Speaker 2: to me like on the service, a pretty good quarter

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Speaker 2: for Disney. What's the street a little concerned about?

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Speaker 3: Yeah, really good quarter for Disney. Paul the beaten raise,

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Speaker 3: for sure, I think Elevator, you know, expectations might have been,

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Speaker 3: you know, slightly high, and the fact that they didn't

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Speaker 3: necessarily give us any specific guidance for fiscal twenty twenty six.

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Speaker 3: They did point to a raised guidance for EPs growth

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Speaker 3: for fiscal twenty twenty five eighteen percent now instead of

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Speaker 3: sixteen percent, But they didn't necessarily give us anything specific

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Speaker 3: for fiscal twenty twenty six. That could be a slight

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Speaker 3: source of disappointment. Other than that, the only other thing

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Speaker 3: that I think might be causing this reaction is that

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Speaker 3: they did say that they will stop disclosing Disney Plus

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Speaker 3: subscriber numbers. But again, this is not something totally unexpected.

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Speaker 3: I mean, Netflix has stopped doing this. We're seeing this

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Speaker 3: kind of move away from just subscriber numbers to a

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Speaker 3: greater focus and profitability.

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Speaker 4: I want to zero in on parks because I'm still

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Speaker 4: scarred by how expensive it was when I visited a

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Speaker 4: couple of years ago as an adult. But how sustainable

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Speaker 4: is their strong parks performance given the divergent domestic and

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Speaker 4: international performance.

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Speaker 3: Very sustainable, Isabell. So you know, we saw Domesta stick parks,

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Speaker 3: and I say that because you know domestic parks actually

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Speaker 3: coming into this year, Coming into this quarter, there were

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Speaker 3: a lot of worries, one of course, about the general

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Speaker 3: macroeconomic environment, but the bigger source of worry was really

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Speaker 3: the opening of Epic Universe, which is you know, Universal's

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Speaker 3: big Florida theme parke at traction. But the fact that

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Speaker 3: it had absolutely no impact at all, or very very

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Speaker 3: modest impact, if at all, is really amazing, and it

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Speaker 3: just kind of speaks to the resilience in Disney's business model.

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Speaker 3: They reported again very very strong per capita growth, you know,

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Speaker 3: in terms of food and beverages, in terms of concessions,

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Speaker 3: so all of that doing really well. And the reason

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Speaker 3: I'm so positive about this business going forward. First of all,

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Speaker 3: it contributes about fifty five to sixty percent of Disney profits.

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Speaker 3: Are really really important to their top line, to their

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Speaker 3: bottom line. Definitely, they have a lot of upcoming capacity,

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Speaker 3: So the biggest source of expansion over the next few

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Speaker 3: months is really going to be their cruise ships. They're

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Speaker 3: launching two new cruise ships, their biggest ever actually, which

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Speaker 3: is going to come on board in November, and this

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Speaker 3: one of them sets sail from Asia and that basically

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Speaker 3: takes the number of cruise ships to eight cruise ships,

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Speaker 3: effectively kind of doubling their capacity in a span of

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Speaker 3: just maybe two to three years. So that is going

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Speaker 3: to really buoy you know, both top line and bottom

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Speaker 3: line going into twenty twenty six, and then beyond that,

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Speaker 3: you really have this huge sixty billion capital expansion plan

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Speaker 3: that is really going to play out over the next

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Speaker 3: five to ten years. So we're going to see a

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Speaker 3: lot more attractions all over the world. We're going to

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Speaker 3: see that new Abu Dhabi park come out, So there

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Speaker 3: is really a lot of you know, a sustained momentum

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Speaker 3: that we can expect at the park's going forward.

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Speaker 2: Kitha talked to us about that deal they just made

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Speaker 2: with the NFL. It seems like a really positive development.

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Speaker 5: For the company.

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Speaker 3: Yeah, it's really good. I think from a Disney from

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Speaker 3: an ESPN standpoint, that they're so closely aligned now with

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Speaker 3: the NFL. I mean, the NFL is absolutely the premium property,

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Speaker 3: the gold standard, Paul. You know this well when it

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Speaker 3: comes to you know, sports properties in the US. And

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Speaker 3: the fact now that they're going to be able to

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Speaker 3: use all of this content for their upcoming esp and

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Speaker 3: streaming launch, I mean that itself just kind of gives

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Speaker 3: it a tremendous boost, I think even before you know

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Speaker 3: it comes on board. So it's great for the product.

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Speaker 3: It's also great from a strategic standpoint because the NFL

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Speaker 3: is obviously one of the most important sports properties, and

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Speaker 3: this really gives them access or it at least definitely

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Speaker 3: gives them a little bit of an advantageous position compared

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Speaker 3: to let's say, an Amazon or a Netflix or an

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Speaker 3: Apple if they want to ever outbid you know, the

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Speaker 3: current media partners. So definitely, I think a strategically, very

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Speaker 3: very sound move on the part of Disney.

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Speaker 4: So it seems like we had a good quarter. Runway

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Speaker 4: for growth is really just long and wide. What downside

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Speaker 4: risks remain then, especially around the macro uncertainty and Tiriff exposure.

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Speaker 3: Do you see, Yeah, maybe a little bit of execution risks.

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Speaker 3: So we still really don't know how this whole. I mean,

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Speaker 3: obviously everybody is very excited for the ESPN product launch,

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Speaker 3: but we still don't know how exactly that's going to

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Speaker 3: play out. Again, a huge source of upside it is

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Speaker 3: going to be the streaming business. Everybody's expecting huge cost

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Speaker 3: savings when it comes to the integration of Hulu and

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Speaker 3: Disney Plus. But again, execution is a little bit of

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Speaker 3: a risk. And then you pointed out you know macro factors.

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Speaker 3: Remember Disney still obviously has huge exposure because of its

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Speaker 3: parks business, and anytime we see kind of a slowdown

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Speaker 3: in the economy, we do feel that in the parks

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Speaker 3: as well. And of course advertising also, so you know,

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Speaker 3: they do have a substantial exposure to advertising because of

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Speaker 3: their TV networks business. So there again we can see

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Speaker 3: a little bit of an impact. But overall, as it

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Speaker 3: stands right now, the business seems to be in really

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Speaker 3: good shape all right here.

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Speaker 2: The problem childs though, are the broadcast networks and the

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Speaker 2: cable networks. What you know, just because of cort cutting

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Speaker 2: that they're just declining businesses. What's the company saying about

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Speaker 2: what they're going to do with those businesses.

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Speaker 3: They haven't said anything explicitly, Paul. So a few years ago,

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Speaker 3: you know, this idea was floated that maybe they kind

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Speaker 3: of spin off ABC, their broadcast network, maybe they spin

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Speaker 3: off their linear cable channels, all of that. You know,

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Speaker 3: noise is kind of quietened down, you know, bar Biger

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Speaker 3: basically said, no, no, no, we need these businesses. They're

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Speaker 3: all kind of integral to the whole Disney story. So

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Speaker 3: we haven't heard anything recently that being said. Just this

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Speaker 3: whole deal with the NFL, the NFL kind of taking

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Speaker 3: an equity stake. It almost seems like they are prepping

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Speaker 3: for ESPN to kind of ESPN and maybe ABC to

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Speaker 3: kind of coast solo. Remember, Bob Biger only has a

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Speaker 3: few more months left, so the end of twenty twenty

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Speaker 3: six he leaves Disney, or at least that's what he says. Yeah,

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Speaker 3: we think, and I really think he kind of wants

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Speaker 3: to get this deal done so to separate ESPN because

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Speaker 3: it's not really core to the rest of the Disney properties.

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Speaker 3: But again it's a little bit of a wait and watch,

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Speaker 3: but nothing explicitly, you know, stated from Disney management about

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Speaker 3: what they want to do with the linear piece of

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Speaker 3: the business.

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Speaker 4: So ESPN is getting a fresh spin with an August

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Speaker 4: twenty one launch. It will be thirty dollars a month

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Speaker 4: for the new streaming app. What do you make of

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Speaker 4: that price? You think people will pay up for it

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Speaker 4: or is that steep?

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Speaker 3: It's a high price point, there's no doubt about it.

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Speaker 3: I think most people were kind of expecting somewhere in

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Speaker 3: the twenty three to twenty five dollars range. That said,

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Speaker 3: what we just ran a survey actually at Bloomberg Intelligence,

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Speaker 3: and what we found is that there's actually a lot

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Speaker 3: of interest in this product, so we think that the

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Speaker 3: updake will be fairly strong, and the Updake not so

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Speaker 3: much as a standalone product, but when you bundle it

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Speaker 3: with Disney Plus and Hulu, so they are running a

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Speaker 3: pretty attractive promotion. So for the first year, you can

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Speaker 3: get Disney Plus, Hulu and ESPN at a thirty to

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Speaker 3: thirty dollars price point, which which seems like really good value.

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Speaker 3: So I think we're going to see a lot of

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Speaker 3: people come in initially through the bundles at least.

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Speaker 2: All right, great stuff as always, Keith I, thank you

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Speaker 2: so much for chatting with this.

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Speaker 5: Keitha ranganof and she's the media Analyst.

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Speaker 2: The media anamals the Bloomberg Intelligence covering all those fun

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Speaker 2: companies in the media space.

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Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live

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Speaker 1: days at ten am Eastern on applecar Play and Android

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Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever

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Speaker 1: you get your podcasts, or watch us live on YouTube.

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Speaker 5: It's about Lee Paul Sweeney.

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Speaker 2: We're live here in our Bloomberg Getter Active Broker Studio,

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Speaker 2: streaming live on YouTube and Ween've been reporting all morning

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Speaker 2: on the McDonald's print. Here, I look at something called

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Speaker 2: which the analysts look at, something called like same store sales,

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Speaker 2: sales sales at stores you have owned for you know,

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Speaker 2: like like like a year or so. That takes out

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Speaker 2: the fluctuations of buying and selling and opening and closing stores.

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Speaker 5: So global sales at restaurants open at.

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Speaker 2: Least thirteen months rose three point eight percent in the

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Speaker 2: second quarter, according to the company. And that's kind of

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Speaker 2: one of the headlines there. Michael Halen, he looks at

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Speaker 2: that stuff. He's a senior restaurant analyst at Bloomberg Intelligence.

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Speaker 2: Michael talk to us about McDonald's. It seems like if

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Speaker 2: whenever I see this company give me some positive same

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Speaker 2: store sales, it feels like it feels like a win.

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Speaker 6: Yeah, it's definitely a win for you know, overall industry

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Speaker 6: same store sales. Because it's such a monster. It also

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Speaker 6: could be bad news for some of their competitors. With

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Speaker 6: fourteen thousand stores in the United States. Listen, man, they

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Speaker 6: know how to run run good restaurants right right now

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Speaker 6: in the US, they're starting to lap some easier comparisons,

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Speaker 6: and you know that's showing up in the you know,

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Speaker 6: that's helping their results. They're also you know, doing a

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Speaker 6: good job with you know the menu, right, they're bringing

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Speaker 6: back snack wraps, they're bringing back the mccrispy strip. They

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Speaker 6: just they debuted a daily double. They've been pressing on

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Speaker 6: value all year. That was a big thing since the

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Speaker 6: first quarter. And so you know, McDonald's has the scale

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Speaker 6: that they can you know, offer products a little bit

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Speaker 6: cheaper than their peers and still enfranchisees can still make

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Speaker 6: a little bit of money off of it. Right, So

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Speaker 6: you know, they they seem to really be hitting their

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Speaker 6: stride and they're lapping easy comps in the second half

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Speaker 6: of the year. So you know, we're looking at a

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Speaker 6: pretty good second half of McDonald's.

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Speaker 4: And international markets led to companies growth. What regions of

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Speaker 4: the world did they really push aggressively towards.

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Speaker 6: Yeah, they mentioned some really good strength in Germany. They

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Speaker 6: talked about some improvement in some markets that had been struggling,

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Speaker 6: like France and Australia, and so, you know, what they're

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Speaker 6: doing overseas is similar to the US playbook, right, but

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Speaker 6: they're probably ahead of the game, ahead of the US

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Speaker 6: in terms of providing everyday value their value messaging has

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Speaker 6: been on point, and it's really helped them grow internationally,

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Speaker 6: and that's why we've seen international grow faster than the US.

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Speaker 5: For the last year or so.

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Speaker 6: They also cited the fact that there's less competition overseas,

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Speaker 6: so they're really, you know, a pricing leader overseas. You know,

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Speaker 6: they can the same type of thing in the US

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Speaker 6: where they can offer price points that competitors just can't match.

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Speaker 6: And then they're also improving the operations, improving the quality

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Speaker 6: of the product, which has been an ongoing theme here,

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Speaker 6: proving the quality of the beef, better burgers, the way

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Speaker 6: they cook the burgers, their debuting the Big Arch, which

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Speaker 6: is a big, bigger sized burger in their lineup. They're

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Speaker 6: also expanding chicken overseas. So this company's humming along right now.

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Speaker 2: What does the company say, Like when I think about McDonald's,

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Speaker 2: I think a lot of folks probably feel like the

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Speaker 2: low end, low income consumers, probably it's bread and butter there,

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Speaker 2: and maybe that consumer is more at risk in this

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Speaker 2: economic environment. What's the company saying about some of those

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Speaker 2: low end, low income patrons.

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Speaker 6: Yeah, you know what I like about this call all

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Speaker 6: is that you know, they're talking about what they can control.

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Speaker 6: You know, they cited the fact that low income consumer

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Speaker 6: traffic is down double digits, right, versus a small gain

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Speaker 6: for middle income consumers and steady consistent gains with high

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Speaker 6: income consumers.

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Speaker 5: So they are.

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Speaker 6: Seeing, you know, weakness with low income consumers like everyone else.

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Speaker 6: That's why they push so hard on value. That's why

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Speaker 6: they have these you know, five dollars meals and buy one,

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Speaker 6: get one for a dollar, and why they put marketing

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Speaker 6: dollars behind that. That's part of the you know, the

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Speaker 6: beauty of the snack wraps. They're coming back at a

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Speaker 6: two ninety nine price point. We think that's going to

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Speaker 6: bring some low income consumers back into the fold, right,

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Speaker 6: So they understand that that people are very priced sensitive

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Speaker 6: right now, and you know, they're addressing it with the

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Speaker 6: price points. But they're also trying to give people better

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Speaker 6: quality and better service. At the same time.

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Speaker 4: They also plan to taste new beverages and this includes

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Speaker 4: cold coffees and crafted sodas at more than five hundred

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Speaker 4: US locations. How much of a pull are beverages when

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Speaker 4: it comes to McDonald's offerings or is food really still king?

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Speaker 5: Food? Is still king?

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Speaker 6: But listen, beverages are hot. Beverages are hot everywhere, right,

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Speaker 6: dirty slages, energy and very high margin, right. And so

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Speaker 6: we think this is a very good opportunity for McDonald's.

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Speaker 6: I think this is kind of a problem for Sonic,

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Speaker 6: which has long done a really good job with their

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Speaker 6: drink offering. But yeah, we think this is something that

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Speaker 6: can help drive sales at McDonald's.

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Speaker 5: Taco Bell.

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Speaker 6: This is something Taco Bell's expanding as well. But we

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Speaker 6: think this is going to be more of a twenty

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Speaker 6: twenty six story for McDonald's.

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Speaker 2: For McDonald's, Mike, what percentage of the revenue comes from

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Speaker 2: owned and operated stores versus franchise stores?

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Speaker 6: Oh, they're ninety eight percent franchised. So there. Yeah, they're

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Speaker 6: heavily franchised. And you know, it's a beautiful model, man.

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Speaker 6: There's not a lot of operating leverage in the model.

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Speaker 6: They generate a ton of cash that they return to shareholders.

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Speaker 6: It really is a bu what's thing?

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Speaker 5: So what's the royalty rate on?

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Speaker 2: There's a franchise e paid McDonald's based upon revenue, based

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Speaker 2: upon net income, based upon how many Big Max say sale.

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Speaker 5: How does that work? Yeah?

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Speaker 6: Yeah, yeah, McDonald's is a little bit unique. They have

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Speaker 6: a five ish percent royalty rate, plus they own a

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Speaker 6: lot of the real estate, So a lot of franchises

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Speaker 6: in the United States are paying a rent, which is

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Speaker 6: typically you know, a ten inch percent of sales, we'll say,

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Speaker 6: and then they'll pay another three and a half to

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Speaker 6: four percent into the ad fun.

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Speaker 2: I didn't know that until I saw the movie and

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Speaker 2: then that famous scene. Yeah, you're not in the hamburger.

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Speaker 5: Business, you're in the real estate business. And that was

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Speaker 5: such a great scene. I learned a lot there.

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Speaker 2: All Right, I can't let you go without crackerbrol and

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Speaker 2: I need my daily update, Country Boy Breakfast.

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Speaker 5: How's that company doing?

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Speaker 6: Listen, We're we're big fans of new CEO Julie Messino.

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Speaker 6: That stock's been a bit of a rollercoaster, not a

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Speaker 6: surprise since it's a small cap. It rows more than

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Speaker 6: one hundred percent off its April lows. Now it's in

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Speaker 6: the midst of a pretty aggressive downturn. It's probably lost

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Speaker 6: about a twenty five percent of its value in the

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Speaker 6: last couple weeks.

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Speaker 5: But you know, we like it.

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Speaker 6: We like Julie's plans to improve the operations, to spend

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Speaker 6: more and more efficient with their marketing spend. We think

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Speaker 6: this is a chain that had been you know, not

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Speaker 6: had been hadn't been taken care of, it hadn't been

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Speaker 6: run really well for the last decade, and so we

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Speaker 6: see a lot of low hanging fruit for the current

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Speaker 6: management team to turn things around and really drive strong

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Speaker 6: seam source sales through year end twenty twenty five and

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Speaker 6: well into twenty twenty six.

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Speaker 5: All right, Mike, thanks so much for joining us.

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Speaker 2: Michael Heylen, Senior restaurants food service Analysts for Bloomberg Intelligence.

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Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live

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Speaker 1: weekdays at ten am Eastern on Applecarclay, and Android Auto

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Speaker 1: get your podcasts, or watch us live on YouTube.

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Speaker 2: Well here's another tech company that I totally missed. Had

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Speaker 2: no idea it even existed until it had already skyrocket.

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Speaker 5: It's super micro Computer. I don't know. They make some

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Speaker 5: hardware stuff for chips on. You know, it's a tech thing.

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Speaker 5: Got the AI bug, it ripped.

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Speaker 2: It's reported the company reported some numbers stocks down twenty

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Speaker 2: one percent, and I wonder if this is a time

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Speaker 2: for all the people that missed it to maybe take

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Speaker 2: a look. Here, I'll tell you who did not miss

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Speaker 2: it was Woojino Senior Technology, aannels for Bloomberg Intelligence. Wooge

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Speaker 2: just for our audience, just really quickly tell everybody what

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Speaker 2: super micro computer is and what happened with their quarter.

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Speaker 7: Sure, hey, thanks, Paul. Super Micro is a leading AI

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Speaker 7: server manufacturer. They've been one of the beneficiaries from.

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Speaker 1: This AI boom.

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Speaker 7: Companies like x ai Core we've used or purchased AI

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Speaker 7: servers from them. And what has happened from the AI

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Speaker 7: boom is that they've seen the revenues go from three

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Speaker 7: billion three to four years back and they're on track

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Speaker 7: for about thirty three billion in fiscal twenty six. So

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Speaker 7: in terms of the quarter there, it's a sloppy explanation

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Speaker 7: in terms of they missed the guidance for the results

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Speaker 7: and their outlook came in a little bit light. Even

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Speaker 7: though the thirty three billion dollars sales guidance for physical

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Speaker 7: twenty six was ahead of consensus by by about ten percent.

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Speaker 7: One of the things is is that they had a

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Speaker 7: forty billion dollar view back in February that they pulled

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Speaker 7: off the table last quarter because of the trade wars,

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Speaker 7: and that thirty three billion dollars fell short of that

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Speaker 7: forty billion dollar view back in February, so, you know,

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Speaker 7: missed heightened expectations heading into the print.

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Speaker 4: What about the lowered revenue outlook? Does that really signal

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Speaker 4: a deeper execution challenge and just really optimism when pessimism

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Speaker 4: when it comes to meeting AI server demand or is

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Speaker 4: it really more margin compression driven by price pressures?

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Speaker 7: Yeah, you know, that's that's a good question. Like in

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Speaker 7: terms of the thirty three billion dollars, if we think

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Speaker 7: of it one way, right, fifty percent revenue growth on

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Speaker 7: really tough comps is still fairly impressive, right, and they

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Speaker 7: still have to close a lot of big deals. The

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Speaker 7: issue is is that they they raise a bi bar

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Speaker 7: so high that you know, meeting that would have been very,

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Speaker 7: very impressive. And that's what I think growth the stock

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Speaker 7: run up. Now. The margin compression question is very interesting.

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Speaker 7: I will tell you Consentus has them add about seven

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Speaker 7: percent margins for fiscal twenty For fiscal twenty six. Heading

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Speaker 7: into the print, they're guiding too about five to six

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Speaker 7: percent margins. I don't know if they'll get to seven

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Speaker 7: percent for the year. I mean, they'll lead to scale

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Speaker 7: up more. But the competition, the creditive landscape is pretty

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Speaker 7: pretty fierce right now, and I have a tough time

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Speaker 7: getting to seven percent. And you know, EPs on lower

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Speaker 7: revenues and lower margins doesn't get me above three dollars

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Speaker 7: per share.

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Speaker 2: So Wiich talk to you mentioned competition here, who does

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Speaker 2: s SMCI Who do they really compete against here?

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Speaker 7: Dell? Right, that's a yeah, Dell has really been breathing

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Speaker 7: down super Micro's neck. If you think about the big

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Speaker 7: deals that Tesla and Xai and Core we've you know

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Speaker 7: that super Micro has been in. Dell has actually won

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Speaker 7: their fair share. Look, they're going to report in a

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Speaker 7: couple of quarters from now. They booked about fourteen billion

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Speaker 7: dollars in orders last quarter, seven billion of it that

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Speaker 7: should be closed in this upcoming quarter. So they're winning

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Speaker 7: monster deals at low margins. And then they're going to

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Speaker 7: continue to be competitive in these deals.

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Speaker 4: And given it to reliance on Nvidia chips, how exposed

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Speaker 4: to supermcro to bottlenecks or maybe just you know, prioritization

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Speaker 4: towards d video when it comes to their own chips.

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Speaker 7: Yeah, I mean well, super Micro doesn't make their own chips.

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Speaker 7: They are going to be reliant on end video chips.

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Speaker 7: There is a pecking order in terms of who get

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Speaker 7: those GPUs. The hyper scale guys are going to be

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Speaker 7: the first ones to get those gp use and for

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Speaker 7: large parts, super Micro and Deell do not have that

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Speaker 7: exposure to the hyperscale customers. So the second order of

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Speaker 7: magnitude are going to be the tier two neo clouds

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Speaker 7: like Xai, Open Ai and the core weaves of the world.

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Speaker 7: And you know, it's all about execution in those sales.

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Speaker 7: I don't think I don't think it's going to be

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Speaker 7: an allocation issue. But if you win those deals, Jensen

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Speaker 7: will have the GPU ready for you. So let's see.

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Speaker 7: And it all comes down to a pricing war at

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Speaker 7: the end of the day, which affects gross margins.

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Speaker 2: All right, Weich, thanks so much for joining us. Always

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Speaker 2: appreciate getting an update from you. Wujinhoe Senior Technology Channels

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Speaker 2: Bloomberg Intelligence from our Princeton, New Jersey campus down there,

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Speaker 2: like a lot of bi folks down there, and which

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Speaker 2: is part of that global technology research team that we

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Speaker 2: have at Bloomberg Intelligence, and we cover this industry from

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Speaker 2: a global perspective, so anyway, we'll see how it goes.

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