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Speaker 2: You know, drive in early enough to work. You get
Speaker 2: to see their trucks on the roadway making deliveries to restaurants,
Speaker 2: A Performance Food Group and US Foods.
Speaker 3: Oh you see, No, I see all the time. I
Speaker 3: don't come as early as you I should probably.
Speaker 4: Anyways, three am, there's like.
Speaker 2: Talk about a possible deal takeover one by the other.
Speaker 2: Crystal C is our US deals reporter. Who's taking over? Who?
Speaker 2: Do we know?
Speaker 4: Or is this this rumor at this point?
Speaker 5: So we're reporting that US Foods has made and has
Speaker 5: shown interest in tie up. So the companies are actually
Speaker 5: pretty similar in size in terms of enterprise value. They
Speaker 5: have a lot of debt, both of them. So at
Speaker 5: this point it's early. We don't know who'shitting over who
Speaker 5: just yet. But what we know is if this deal
Speaker 5: does go through, or if this deal does go ahead,
Speaker 5: it will face a lot of regulatory scrutiny. And eventually
Speaker 5: the goal is to combine the company into a company
Speaker 5: that has one hundred billion dollars worth of revenue.
Speaker 3: Do we think it's more about scale, margins, distribution, overlap,
Speaker 3: or just really fending off Cisco.
Speaker 5: So Cisco is actually currently the number one, the top
Speaker 5: three four players.
Speaker 4: Actually that's Cisco with an S an S.
Speaker 5: That's right, and that actually I see those trucks more
Speaker 5: than I see the others, at least in the city.
Speaker 5: So Cisco US Foods performances. They all have their moment
Speaker 5: like in the past decade or so. Actually they have
Speaker 5: each like taken top spot and it's moved around. So
Speaker 5: there are moments where you know, they have had activists
Speaker 5: attack at various different points. So it's interesting that this
Speaker 5: is the moment where you see that US Food is
Speaker 5: performing better than Performance Food despite the name. So it's
Speaker 5: it's it's going to be a very challenging deal in
Speaker 5: twenty fifteen when Cisco and US try for a tie up.
Speaker 5: That that deal got struck by antitrust. So definitely is
Speaker 5: a market where scale matters, margin matters. You can combine regions,
Speaker 5: you can combine your fleets, so all of those things
Speaker 5: make it a very good synergetic.
Speaker 4: Margins right now, or like you said, the razor thin right.
Speaker 5: So it depends on the market that you surface, like
Speaker 5: depending on whether you're going after restaurants, is its cafes
Speaker 5: or is it like uh should back up school?
Speaker 2: What do these companies do? They prepare food, they bring
Speaker 2: explain that.
Speaker 5: So there are various different things that they do. They
Speaker 5: it comes from, they do produce, they do prepared food,
Speaker 5: and they supplied to places like restaurants, hospitals, schools, hotels.
Speaker 5: So depending on your end customers and what your products are,
Speaker 5: the margins slightly different also means your production would be
Speaker 5: different and it impacts costs. So I'm sure there is
Speaker 5: in these CEO's head the dream combination of you know,
Speaker 5: what the composition of each product or each geographic should be,
Speaker 5: and well, if so this in this case, US would
Speaker 5: clearly think that a tie up with performance would get
Speaker 5: them closer to that ideal business portfolio.
Speaker 3: And regarding the why, now, do you think it has
Speaker 3: something to do with software regulatory regulations with the TRAP
Speaker 3: administration as compared to the bidens.
Speaker 5: Yeah, that's definitely one big concern. It is a very
Speaker 5: consolidated industry. So my gut feeling is either way, under
Speaker 5: whatever administration, it will be looked at by d ANTI trust.
Speaker 5: That said, the M and A deal maker had been
Speaker 5: expecting twenty twenty five since Inauguration Day that this would
Speaker 5: be a much friendlier M and A market under President
Speaker 5: Trump and Liberation Day hit and that put a lot
Speaker 5: of things on pause. In the past month or so,
Speaker 5: we have seen people warming up to the idea of
Speaker 5: exploring deals or like you know, pulling triggers. So there
Speaker 5: isn't a there is an element of a friendlier regulatory environment.
Speaker 2: All right, Crystal appreciated. Crystal sed the US deals reporter
Speaker 2: from Bloomberg News talking about Performance Group attracting a takeover
Speaker 2: interest from US Food. Again, this is a potentially could
Speaker 2: create a distribution company with combined sales of something on
Speaker 2: the order of like one hundred billion dollars.
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Speaker 2: Did you know the use remnants from the manufacture of
Speaker 2: denim in the US currency.
Speaker 3: No.
Speaker 2: Really, Well, if you hold up a bill you'll see
Speaker 2: like little shreds. It looks like, you.
Speaker 3: Know, is that only in the US or does that
Speaker 3: happen all?
Speaker 4: I don't know.
Speaker 2: I know that's definitely the case with US currency. And
Speaker 2: that brings us to a discussion about Levi Strauss with
Speaker 2: their herrings. Mary Ross Gilbert is senior equity analyst covering
Speaker 2: retail for Bloomberg.
Speaker 4: Did you know that?
Speaker 6: I did not.
Speaker 7: I mean, I know what you're talking about, those little threads, and.
Speaker 2: Yes, no, that's from that's from the byproduct of manufacturing Denham.
Speaker 2: They use it at the Treasury. Mary was Mary Ross
Speaker 2: Gilbert yesterday? Was she was wearing?
Speaker 4: Where were you wearing yesterday?
Speaker 5: Uh?
Speaker 2: Ralph Lauren? And today the Brooks brothers No gap, Okay.
Speaker 7: Very nice, but it's a it's a it's a malbond
Speaker 7: gap collab so sold out.
Speaker 2: It looked like the Brooks Brothers thing. But anyway, so
Speaker 2: Levi what did we learn from Levi Strauss and their earnings?
Speaker 7: So I think what we learned in the earnings report
Speaker 7: first of all, you know, very optimistic view. But if
Speaker 7: you really dissect it, for example, the guidance that they
Speaker 7: raised on the revenue line. They now expect full your
Speaker 7: revenue to be up one to two versus down one
Speaker 7: to two. Most of it looked like a change a
Speaker 7: shift in their view on the currency headwind, and then
Speaker 7: the other piece was because they had a strong second quarter.
Speaker 7: So the way we look at it is there's probably
Speaker 7: upside above their guidance and consensus view, which is in
Speaker 7: that range. So you know, we think that the way
Speaker 7: the business has been reset, look, Dockers is out of
Speaker 7: the picture now.
Speaker 6: They got rid of some underperforming lines.
Speaker 7: They really honed in their skew count, their stock keeping
Speaker 7: u an account, and really honed on profitable merchandise, and
Speaker 7: they've really taken their tops business. They've infused more fashion
Speaker 7: and style and it's a growing category for them, as
Speaker 7: is non den and bottoms, and of course their core
Speaker 7: denim business jeans business, which.
Speaker 6: They are at the leading edge of the latest trends.
Speaker 7: And you know, even slim and straight are still a thing,
Speaker 7: but the biggest growth is really coming from loose and
Speaker 7: baggy and that actually translated with shorts too for summer,
Speaker 7: and that kind of explains why they also had a
Speaker 7: strong second quarter and they saw it globally, so you know,
Speaker 7: very very good and across wholesale too, So that was
Speaker 7: nice to see that. But DTC directed consumer really led
Speaker 7: and that was up double digits.
Speaker 3: Have you heard John skin and jeans are out and
Speaker 3: baggy is in. If you look at all the young
Speaker 3: folks like gen Z, they do wear baggy.
Speaker 2: I've got these stretch fabrics. Okay, good's disappointed, which I
Speaker 2: find myself.
Speaker 3: Okay, that's good. Levi's welcomes all styles. Okay, so more
Speaker 3: than half of Levi's merchandise merchandise needs for the rest
Speaker 3: of the year according to the company, they've already been imported.
Speaker 3: But what will happen when that runs out? Have they
Speaker 3: released any plans when that happens? And with tariffs set
Speaker 3: in place by then?
Speaker 7: Assuming yeah, Isabelle, So you brought up a key point
Speaker 7: and that is what is the impact of terriffs? So
Speaker 7: just to give you a little perspective, Levi's is very
Speaker 7: well diversified. They only source about one percent from China,
Speaker 7: so very little exposure there. Vietnam is probably five to
Speaker 7: nine percent. Of course, we have news that that tariff
Speaker 7: freight Trump has set, but it's not carved in stone
Speaker 7: and there's no effective date yet.
Speaker 6: And as we got news today.
Speaker 7: That Vietnam is saying, hey, we don't want a twenty
Speaker 7: percent tariff.
Speaker 6: We wanted to be ten to fifteen.
Speaker 7: Nonetheless, with Vietnam being five to nine percent, and then
Speaker 7: Mexico's probably that is under their Canada agreement, so chances
Speaker 7: are they're not affected, and then everywhere else they're assuming
Speaker 7: ten percent. So the unmitigated impact is only about fifty
Speaker 7: basis points for the year, but with mitigation mitigation measures
Speaker 7: already taken effect, that's going to reduce it down to
Speaker 7: just twenty basis points. So they are one of the
Speaker 7: companies if I look at my universe of apparel branded
Speaker 7: retailers that are sort of the least impacted by tariffs.
Speaker 7: LUs things change, but we still think that the impact
Speaker 7: will will still not be as significant as it might
Speaker 7: be for others.
Speaker 2: I mean, is a company like this willing to take
Speaker 2: a hit to margins before raising prices for consumers? Is
Speaker 2: it like thirty seconds?
Speaker 7: Yeah, John, you know, they're actually strategically raising prices on
Speaker 7: some of their new innovation, and that's where they're able
Speaker 7: to sort of build it in with that product.
Speaker 6: And I think that's working effectively.
Speaker 2: All right, Mary, boy, he's a pleasure. I can't wait
Speaker 2: to see what you're wearing next week. Mary Ross Gilbert,
Speaker 2: a senior equity analyst covering that sounded kind of creepy, sorry,
Speaker 2: covering retail for us here at Bloomberg Intelligence.
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
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Speaker 2: You know what time of the year it is. It's
Speaker 2: time for the mid year assessments for the global communications
Speaker 2: and network equipment specifically. Who better to do that than
Speaker 2: Wujin Ho. He's the senior technology analyst from Bloomberg Intelligence
Speaker 2: and joining us on this Friday morning from our campus
Speaker 2: in Princeton, New Jersey. All right, midyear updates. So what's
Speaker 2: the update, Wou Jin.
Speaker 8: Well, I will tell you. Look, the fundamentals are actually
Speaker 8: fairly positive. You have AI drivers driving certain names like
Speaker 8: Arista Networks and Celestica, and also the enterprise campus switching
Speaker 8: and the data center searching have upgrade drivers as well.
Speaker 8: That's going to benefit someone like a Cisco and an HPE.
Speaker 8: Now the issue is, and your prior guest was talking
Speaker 8: about tariffs and export restrictions. Tariffs actually really spooked me out.
Speaker 8: And does that throw a monkey ranch and enterprise IT
Speaker 8: spending into the second half of the year and temper
Speaker 8: the growth and earnings expectations.
Speaker 3: So how much could tariff's and economic uncertainty really trip
Speaker 3: up the global networking sector sales in the latter half
Speaker 3: of the year. Do we have a number in mind, Yeah.
Speaker 8: Don't have a number in mind. There's a couple of things.
Speaker 8: The networking sector has actually done a very very good
Speaker 8: job in managing and navigating tariffs. Right from a sales perspective,
Speaker 8: we really haven't seen estimate cuts as a result of it.
Speaker 8: From a gross margin perspective, we're thinking about one hundred
Speaker 8: and two hundred basis points, and that's already reflected into
Speaker 8: consensus expectations. What I don't know right, but there are
Speaker 8: a lot of enterprise IT spending surveys that are out
Speaker 8: there saying that they are going to start ciphoning, potentially
Speaker 8: siphoning off some of their spending plans. One of the
Speaker 8: things that I will say is that enterprise enterprise networking
Speaker 8: tends to be a more mature and commoditized market. So
Speaker 8: if there's going to be a couple of areas of
Speaker 8: spending that could be curtailed, PCs obviously, but also networking
Speaker 8: would be second in line.
Speaker 2: Hey, Wujin, we've been making a big deal about well,
Speaker 2: it is a big deal that in Vidia across the
Speaker 2: ford trillion dollar market cap. Can that be sustained given
Speaker 2: what you just said, Let's let's talk about the multiple expansions.
Speaker 4: Sure.
Speaker 8: So I'm not the Invidia analyst, I can talk from
Speaker 8: a high level in terms of what's going on in
Speaker 8: Nvidia as well as some of the drivers to earnings growth.
Speaker 8: If we look at some of the AI initiatives that
Speaker 8: are going on, whether it's by the hyperscale cloud guys
Speaker 8: or some of the sovereigns and these neo clouds like
Speaker 8: core Waves, they're building out these one hundred thousand GPU
Speaker 8: type of installments. This is the lasting based on my
Speaker 8: work and my colleagues works, this is lasting over the
Speaker 8: next couple of years. The only gaming time town for
Speaker 8: high end GPUs to train AI models is in Vidia.
Speaker 8: So is there a sales momentum as well as earnings
Speaker 8: momentum to support it. Yes, there is for Nvidia as
Speaker 8: well as the rest of the supply chain.
Speaker 3: In the note you mentioned or it was mentioned that
Speaker 3: we aren't seeing any trade overhang risks when it comes
Speaker 3: to demand in the latter half of the year, and
Speaker 3: they aren't really reflected in consensus and invaluations. Why do
Speaker 3: you think that's the case?
Speaker 8: Yeah, I don't know, right. I think what happened was
Speaker 8: in the after following the first quarter results. You know,
Speaker 8: the companies have not yet really fully reflected the tariff
Speaker 8: impacts into their expectations and consensus have carried that through
Speaker 8: through the through the rest of the year. There has
Speaker 8: been very little indication after following first quarter results with
Speaker 8: regards to a pullback in demand or more importantly, a
Speaker 8: pull forward in demand that's going to affect the second half. So,
Speaker 8: you know, my guess is is that I'm waiting for
Speaker 8: what the second quarter results according to tell Us in
Speaker 8: terms of the second half.
Speaker 4: We thanks, so I appreciate it.
Speaker 2: Woljin the hold the senior technology and it's from Bloomberg
Speaker 2: Intelligence joining us there from our Princeton, New Jersey canvas.
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Speaker 4: Do you have a pet?
Speaker 9: I used to growing up?
Speaker 3: Now I live alone in and I used to growing up,
Speaker 3: but now it's hard in New York City. You have
Speaker 3: to take them out in the morning, at noon, after work,
Speaker 3: and for some even before bed. Do you have a pet.
Speaker 4: Used to to? You know?
Speaker 2: I was so upset when we lost her that I
Speaker 2: just I can't bring myself to heartbreak replacer.
Speaker 4: Well, it's a bummer.
Speaker 2: Janna Rosario Pena is our consumer staples analysts, and she's
Speaker 2: here to tell us about just how much we spend
Speaker 2: on pets.
Speaker 4: It's like a staggering figure, isn't it.
Speaker 9: Yes, yes, and it's going to keep growing up over
Speaker 9: the next five years. We expect globally that the market
Speaker 9: my reach about five hundred billion dollars by twenty.
Speaker 4: Only five hundred billion, that's it.
Speaker 2: What God's name of people's I mean, yeah, it's obvious
Speaker 2: dog food and stuff like that, But is there anything
Speaker 2: like else I need to know about, like dressing? Their
Speaker 2: pets up in little crazy costumes and stuff like that
Speaker 2: and little boots. Yes, so there's been a couple of things.
Speaker 9: Food remains the biggest expense for pet ownership. It's about
Speaker 9: thirty forty percent of the expenditure. But there are other
Speaker 9: things that come with owning a pet. Now people are
Speaker 9: more willing to get into discretionary like you know, vests
Speaker 9: and shoes for their dogs and creates and the things
Speaker 9: like that.
Speaker 3: Also, healthcare is a big thing.
Speaker 9: People are more willing to spend more on the healthcare
Speaker 9: of their pet than they used to.
Speaker 3: Why is that Is it because more dogs are getting sick?
Speaker 3: Or is it more because of the insurance company? Like
Speaker 3: why does trend? Well, it's a couple of things. First
Speaker 3: of all, the humanization of pets.
Speaker 9: Now people consider them as family, so they're willing to
Speaker 9: spend a little bit more to you know, keep their
Speaker 9: family member around. So there's a greater acceptance of that
Speaker 9: kind of attitude.
Speaker 2: Who benefits the most from all this what particular companies.
Speaker 2: I think when we used to feed our dog.
Speaker 3: The human food, actually when I was younger, No, you
Speaker 3: don't feed them human Yeah, maybe that's why my dog
Speaker 3: wasn't the healthiest.
Speaker 9: Well human grade food, I will guess. So it really
Speaker 9: depends if you're looking at food. The big food companies Nestley, Colgate, Mars,
Speaker 9: General Males, they have you know, food offerings in different
Speaker 9: price points. But on the more premium side you have
Speaker 9: things like fresh pet that they have the fresh frozen
Speaker 9: which is really like human great food that you just
Speaker 9: you know, take it out of the.
Speaker 3: Fridge and you give it to your dog. We know that,
Speaker 3: I exadly, I shouldn't have said that, So we know
Speaker 3: that Americans love their pets, and everyone knows that. To
Speaker 3: your point, people are delaying having children because they have
Speaker 3: pets are in part because they have pets and because
Speaker 3: the economy is tough. Where does the US that.
Speaker 9: Globally, Yes, so we're still about forty percent of the market.
Speaker 9: You know, we're probably going to grow about thirty five
Speaker 9: percent compared to like the thirty eight percent that we
Speaker 9: expect over the next five years. So we're still going
Speaker 9: to be the biggest, the most mature part of the industry.
Speaker 9: There's others that might grow faster than that. There's other
Speaker 9: regions outside of Europe and the United States. However, that
Speaker 9: size of the pie is smaller.
Speaker 4: Obviously, you know, it's not just dogs.
Speaker 2: There was a fascinating Bloomberg profile of a guy I
Speaker 2: think it must have been Florida who sells designer geckos,
Speaker 2: and some of them fetch a fortune, like five grand
Speaker 2: for a little get go.
Speaker 4: What's the most popular pet? Is it the dog?
Speaker 9: It's steel dogs and cats, you know, And that is
Speaker 9: like mainly, you know, where we focused on. Of course,
Speaker 9: there's like others like hamsters and cobras and things like that,
Speaker 9: but that doesn't by.
Speaker 4: The way, just.
Speaker 2: Parenthetically, don't put the hamster near the cobra.
Speaker 3: Oh my fish is also I don't want to imagine that,
Speaker 3: she seem Obviously, fish is also fun. I think it's
Speaker 3: good training for young kids. You know, they just feed
Speaker 3: it once today. The cleaning of the aquarium is always tough, though,
Speaker 3: don't you smell them responsibility for sure. Okay, so we
Speaker 3: know that e commerce sales. You wrote in your note
Speaker 3: that in the US it might reach twenty seven percent
Speaker 3: of the total from twenty percent in twenty twenty. So
Speaker 3: we have that, we have the pharma market, we have
Speaker 3: the food market really just growing. What could be what
Speaker 3: could be the hindrance here. What headwinds are you seeing
Speaker 3: in this space.
Speaker 9: Well, we actually see certain pockets of the market being
Speaker 9: a little bit more conflicted, particularly in the past year
Speaker 9: discretionary spending. You know, we did make fun of the
Speaker 9: vests and even you know, popular fashion brands are expanding
Speaker 9: their their you know, their names into pets. But that
Speaker 9: part of the spending has been a little bit subdued,
Speaker 9: I want to say. And part of it is because
Speaker 9: the population, the pet population has been you know, not
Speaker 9: growing as much as they used to, like back in
Speaker 9: at the beginning of the pandemic. But another thing is
Speaker 9: obviously economic, uh, you know, the economic situation. People are
Speaker 9: curbing their spending, so that is like one of the
Speaker 9: first few things. In terms of premium we still think
Speaker 9: it's gonna premium food. We still continue to think that
Speaker 9: it's probably going to get to fifty seven sixty percent
Speaker 9: of the food in the US, like the overall food,
Speaker 9: but the cadence is probably going to be more like
Speaker 9: twenty seven on rather than shorter term. We think people
Speaker 9: are going to probably get with kibbles rather than you know,
Speaker 9: the fresh frozen part.
Speaker 2: Diana, thank you, Diana, Rosaria Penya. The consumer staples analyst,
Speaker 2: how the world is going to spend five hundred billion
Speaker 2: dollars other pets.
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