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Speaker 1: Bloomberg Intelligence with Alex Steinhl and Paul'sweenye on Bloomberg Radio.
Speaker 2: On Today's Bloomberg Intelligence Show, we dig inside the big
Speaker 2: business story some inm Pacnew Wall Street and the global markets.
Speaker 3: Each and every week we provide in depth research and
Speaker 3: data on some of the two thousand companies and one
Speaker 3: hundred and thirty industries our analysts cover worldwide.
Speaker 2: Today, we'll take a look at why there may be
Speaker 2: prolonged legal battle over whether TikTok will be banned.
Speaker 3: Plus we'll discuss how and why one company thinks most
Speaker 3: banker bonuses will rise in twenty twenty four.
Speaker 2: But first we dive into the world's largest media and
Speaker 2: entertainment company Walt Disney.
Speaker 3: The company reported second quarter earnings that surpassed analyst expectations,
Speaker 3: but this was overshadowed by the company giving a week
Speaker 3: outlook for streaming subscriber growth in the current quarter.
Speaker 2: For more, guest host Tim Stenovick and I were joined
Speaker 2: by Githa Ranganathan, Bloomberg Intelligence analysts on the US media space.
Speaker 2: We first asked Getha for some of her key takeaways
Speaker 2: from Disney's results.
Speaker 5: What the street didn't like was the outlook. The outlook
Speaker 5: for the fiscal third quarter, especially for the theme park business,
Speaker 5: was definitely weak and not something that the street was expecting.
Speaker 5: So consensus had a twelve percent growth in operating income
Speaker 5: for the park's business. What Disney said zero growth. Wow,
Speaker 5: And that kind of really spooked investors. And they talked
Speaker 5: about different aspects here. They said that they have, you know,
Speaker 5: three new cruise ships that are basically coming on board,
Speaker 5: and you know there are launch costs associated with that.
Speaker 5: They're also opening this new kind of private island along
Speaker 5: with their vacation club and cruise business. Of course that also,
Speaker 5: you know, is contributing to that. But I think what
Speaker 5: really has investors super nervous. Is that they spoke about
Speaker 5: a moderation in demand, and this has been a constant,
Speaker 5: constant question for Disney. You know, can that park's momentum
Speaker 5: sustain and how long can it sustain? And will they
Speaker 5: have pricing power? And I think people are not so
Speaker 5: confident anymore.
Speaker 6: Is the moderation of demand about Disney's lack of exciting
Speaker 6: things to draw in people to the parks, to draw
Speaker 6: people to the theaters, or is it about a story
Speaker 6: that has to do with the consumer and the way
Speaker 6: that the consumer feels strapped.
Speaker 5: I think it's a little bit of everything. Tim So,
Speaker 5: you know, definitely the consumer, the overall health of the
Speaker 5: economy and the consumer for certain and you know, tremendous
Speaker 5: inflationary pressures. But of course for Disney, you know, one
Speaker 5: thing that they've done over over the past few years
Speaker 5: is they've really raised prices in their parks pretty dramatically,
Speaker 5: and it's becoming increasingly increasingly expensive for you know, affect
Speaker 5: family vacations, so to the point of almost becoming prohibitive.
Speaker 5: And you know, that's where kind of that whole pricing
Speaker 5: power question comes in. I think they're going to have
Speaker 5: to do it much more cautiously and gently in the future.
Speaker 6: Paul talking to some neighbors the other day who recently
Speaker 6: took their kids to Disney. Yep, they were adding up
Speaker 6: how much it costs for just a couple of days
Speaker 6: down there. They were saying, probably about five grand is
Speaker 6: what they spent in Florida. Wow, two kids a few
Speaker 6: days down there.
Speaker 2: Wow, it's a lot of money. I just called I
Speaker 2: just called Githa. She makes a phone call and I'm
Speaker 2: like the front of the line every time. Eithan. The
Speaker 2: other part of this story, And for the longest time,
Speaker 2: you know, the last four or five years, has been
Speaker 2: their streaming business and when will that business term profitable?
Speaker 2: They had some pretty good news on that front, didn't they.
Speaker 7: They did, Paul.
Speaker 5: I mean, we're just on the cusp of a major,
Speaker 5: major earning inflection point here for the first time ever
Speaker 5: in the in the streaming business's history, they actually posted
Speaker 5: them all this profit now again, they said fiscal third quarter,
Speaker 5: which is the next quarter, is going to be a
Speaker 5: little bit choppy. But then what they've said all along
Speaker 5: is that expect some some really good results in the
Speaker 5: fiscal fourth quarter, and then they're really going to build
Speaker 5: on that starting in you know, fiscal twenty twenty five
Speaker 5: and beyond. They have a lot of initiatives in the works.
Speaker 5: You know, they're cracking down on password sharing a la Netflix,
Speaker 5: and remember that has been a huge growth story at Netflix.
Speaker 5: The Netflix aded almost thirty five million subscribers after they
Speaker 5: started cracking down on password sharing, So Disney can also
Speaker 5: hope to see quite a lot of success with that.
Speaker 5: And then of course they also have the Hulu integration
Speaker 5: as well as you know, the ad tier, all of
Speaker 5: that kind of contributing. So streaming, I think is going
Speaker 5: to be a considerable source of earnings upside in the
Speaker 5: next few years.
Speaker 6: How's Bob Ayger doing?
Speaker 2: Does he have an ex successor?
Speaker 5: He spoke about that actually on the call that that
Speaker 5: came up, and he said that they're, you know, they're
Speaker 5: kind of actively considering. They have four internal candidates, the
Speaker 5: all of the division chiefs, the chiefs that are kind
Speaker 5: of up for consideration, and you know, he said that
Speaker 5: they're looking at them very carefully and the announcement will
Speaker 5: come when the time is right.
Speaker 6: Is this any replay of what happened a few years
Speaker 6: ago when Jpek took over? I mean It kind of
Speaker 6: sounds familiar. A number of internal candidates, the person gets picked,
Speaker 6: the other one's leave, and then Bob Ager comes back
Speaker 6: because it didn't work out.
Speaker 8: Yeah.
Speaker 5: I mean we've seen this movie play out so many
Speaker 5: times now at Disney. I hope and I think this
Speaker 5: time it really will be different. I mean, that was
Speaker 5: the whole bone of contention, you know, for the activist investors,
Speaker 5: including Nelson Pals and I think having this new succession
Speaker 5: planning committee suggests that this time they will do things
Speaker 5: probably a little bit differently.
Speaker 2: What did the companies say about their ability to potentially
Speaker 2: deal with maybe weaker demand. It's been a long time
Speaker 2: since we've seen them ever cut prices at the theme parks, promote,
Speaker 2: you know, at the theme parks, anything that would hurt profitability.
Speaker 2: It's been a long time since they've had to do that.
Speaker 5: Yeah, I mean, the theme park business has been such
Speaker 5: a consistent story for them, Paul, as you just pointed out,
Speaker 5: they have twenty five percent operating margin in that business,
Speaker 5: and they are really looking at this as a future
Speaker 5: earnings growth driver, which is why you know they're investing
Speaker 5: sixty billion dollars in the theme parks over the next
Speaker 5: ten years. Over half of that is basically just adding capacity,
Speaker 5: adding new attractions, and I think it's it's a really
Speaker 5: timely and a good strategic move. They're also bringing on
Speaker 5: those cruise ships that that's going to cost them about
Speaker 5: twelve to fifteen billion dollars, so you know, they're definitely
Speaker 5: adding capacity. So I think, you know, overall, definitely the
Speaker 5: business is in good shape, but in the near term, obviously,
Speaker 5: the sentiment has definitely soured.
Speaker 2: Our Thanks to Geitha rang Andath and Bloomberg Intelligence analysts
Speaker 2: on US.
Speaker 3: Media, we move next to the chip maker Intel. This week,
Speaker 3: the company said it now expect second quarter revenue to
Speaker 3: fall below the midpoint of previously issued projections.
Speaker 2: This comes as a result of the US revoking licenses
Speaker 2: allowing Huawei Technologies to buy semi conductors from Qualcomm and Intel.
Speaker 2: The move is aimed at preventing China from developing advanced
Speaker 2: artificial intelligence.
Speaker 3: For more on all of this, we were joined by
Speaker 3: Michael Sheppard, Bloomberg News senior editor. We asked him first
Speaker 3: to walk us through the revenue pain that Intel will
Speaker 3: see from this.
Speaker 9: For Intel, the company is under some pressure to produce
Speaker 9: on the turnaround that Pat Gelsinger has outlined to try
Speaker 9: to get the company back into the vanguard of manufacturing,
Speaker 9: but here in the US in particular, So analysts are
Speaker 9: out there looking for any sign of potential trouble for
Speaker 9: Intel as it tries to execute this plan. And here,
Speaker 9: even though we're not seeing a significant market for Intel
Speaker 9: with Huahwei, nonetheless any sign of trouble is something that
Speaker 9: they have to take into account.
Speaker 2: So, you know, for I guess the bigger picture here
Speaker 2: as you step back, it just feels like this technology
Speaker 2: cold war between China and the West, China and the US,
Speaker 2: it seems to we're just intensifying. Is that the feeling
Speaker 2: in Washington is that where Washington really wants to take this.
Speaker 9: But Paul, I'm glad you brought it up that way
Speaker 9: in those terms, because we really are seeing much more
Speaker 9: of a frost when it comes to technology. Settling in
Speaker 9: the US has been making clear. We heard Commerce Secretary
Speaker 9: Gina Raymunder just a few weeks ago say technological security
Speaker 9: is national security, and they are drawing a line when
Speaker 9: it comes to the more sophisticated and more advanced technology,
Speaker 9: especially when it comes to computer chips. The US is
Speaker 9: a leading innovator, if not a leading producer, of some
Speaker 9: of the most advanced and tiniest semiconductors that are out
Speaker 9: there powering technology everywhere. And one of the emerging fronts is,
Speaker 9: of course, artificial intelligence. And we spoke to House Foreign
Speaker 9: Affairs Committee Chairman Michael McCall, who's been pushing for these
Speaker 9: Quawei restrictions, and he said, the idea of the export
Speaker 9: controls that we reported on yesterday was to keep the
Speaker 9: most advanced AI tech out of China's hands.
Speaker 3: What about tech that's already in their hands that then
Speaker 3: China can adapt themselves. Wasn't there like a Huawei phone
Speaker 3: that really scratched everyone's head on like what kind of
Speaker 3: chips they actually used? I mean, how do you restrict
Speaker 3: that kind of stuff?
Speaker 9: Well, the US is actually investigating what happened with the
Speaker 9: May ninety. This device was unveiled as Gina Raimondo was
Speaker 9: visiting China and it was taken as a you know,
Speaker 9: something that was aimed directly at her during her visit
Speaker 9: to say that, look, you're trying to put these restrictions
Speaker 9: in place, we will show you.
Speaker 2: Now.
Speaker 9: The US has launched an investigation into how Huawei was
Speaker 9: able to develop it, and whether there are other companies
Speaker 9: that are forming this shadow network of suppliers to Huawei,
Speaker 9: in other words, creating proxies that allow the device maker
Speaker 9: to obtain the chips that it otherwise can't.
Speaker 2: So what's the response been from China? What can we
Speaker 2: It's just gonna be a tit for tat type of thing.
Speaker 2: So I'm Tim Cook, I'm paying attention here.
Speaker 9: Well, American technology executives should be watching this space. China responded,
Speaker 9: calling the moves economic coercion and a violation of what
Speaker 9: it sees as World Trade Organization rules, and they may
Speaker 9: very well decide to proceed with the case. At the
Speaker 9: same time, the US is trying to draw a line
Speaker 9: around the whole question of national security, and that is
Speaker 9: going to be something that we see as a tension
Speaker 9: point between the two countries. The US is made clear
Speaker 9: that it wants to do business with China, but just
Speaker 9: not that far. It is only willing to go so
Speaker 9: far when it comes to trade in more advanced technologies.
Speaker 9: It wants to preserve the American edge here at home.
Speaker 3: How hard is it for Intel to make up that
Speaker 3: revenue elsewhere?
Speaker 9: You know, it's a good question It's unclear exactly how
Speaker 9: much they would be losing here. It was only a
Speaker 9: slight drop. If you read between the lines on it.
Speaker 9: You know they're now seeing something more to the midpoint
Speaker 9: of their guidance, but it is still within the revenue
Speaker 9: that they projected between twelve and a half billion and
Speaker 9: thirteen and a half billion.
Speaker 2: You know, Michael, we've all grown up with Intel, and
Speaker 2: you know kind of I guess we now consider kind
Speaker 2: of the older generation of Silicon Valley of technology. It
Speaker 2: appears that they just have not been able to catch
Speaker 2: that AI wave, at least from investors perspective, in any way,
Speaker 2: shape or form. Is there any optimism that maybe they
Speaker 2: can infect pivot their company to go to where the
Speaker 2: puck is going, which is for AI.
Speaker 9: Well, Paul, we all remember the Intel inside jingle from
Speaker 9: those ads years ago, and that is something that Pat
Speaker 9: Gelsinger is really trying to recapture, and he is seizing
Speaker 9: upon the Biden Administration's Chips Act all those investments. We're
Speaker 9: seeing the company launch plants in Arizona and in Ohio.
Speaker 9: We just profiled the construction of this new facility in
Speaker 9: Ohio was really impressive. Look inside what they are trying
Speaker 9: to build there. It's ambitious, but it will take some
Speaker 9: time too. These plants can't be built overnight, and it
Speaker 9: is a race against the clock when it comes to AI.
Speaker 2: Our thanks to Michael Sheppard, Bloomberg News Senior editor.
Speaker 3: Coming up, we'll break down Apple's online launch event from
Speaker 3: this week's dubbed let Loose.
Speaker 2: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing indepth
Speaker 2: research and data on two thousand companies and one hundred
Speaker 2: and thirty industries. You can access Bloomberg Intelligence via b
Speaker 2: I go on the terminal.
Speaker 3: I'm Paul Sweetey an Alex Steele, and this is Bloomberg.
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Speaker 3: We moved now to big tech and Apple. Apple had
Speaker 3: its online launch event Tuesday dud let Loose, and the
Speaker 3: company unveiled a new artificial intelligence focused iPad pro and
Speaker 3: larger iPad Air.
Speaker 2: The goal is to reinvigorate a tablet lineup that has
Speaker 2: languished the past two years.
Speaker 10: For more.
Speaker 2: Guest host Tim Stenevick and I were joined by Man Deep,
Speaker 2: saying Bloomberg Intelligence senior technology analyst. We first asked man
Speaker 2: Deep about how important the new iPads are to Apple.
Speaker 4: iPad line is about a high single digit contributor to
Speaker 4: their overall revenue, so not as big as the iPhone,
Speaker 4: of course, but clearly you know they are trying to
Speaker 4: put their.
Speaker 10: Latest chip in the iPad.
Speaker 4: They showcase a new keyboard for the iPad and there
Speaker 4: were other battery announcements new all at display. So all
Speaker 4: these are cool, but fundamentally you have to ask yourself,
Speaker 4: is it, you know, worth to upgrade to a new
Speaker 4: iPad with all these incremental features as I would like
Speaker 4: to call And that's where I think the market is
Speaker 4: anticipating more along the lines of what can you show
Speaker 4: me in terms of AI and the wow factor around LMS?
Speaker 10: And I think that's what was messing at the event.
Speaker 6: Well what could they show? I mean, when we talk
Speaker 6: about AI and Apple, what are we thinking about? Because
Speaker 6: Mark German says that this is an AI focused pro model,
Speaker 6: So I'm wondering, apart from the chip, what about it
Speaker 6: is AI.
Speaker 4: It's at the app level, so that's why that operating
Speaker 4: system upgrade.
Speaker 10: And they did talk about the iOS eighteen.
Speaker 4: Look right now, the current version of my iPad, which
Speaker 4: is five generations behind what they launch, can run the
Speaker 4: latest version of the iOS operating system. So why do
Speaker 4: I need to upgrade? They have to give me a
Speaker 4: reason to upgrade to the latest iPad because my current
Speaker 4: version can't run the operating system and it's got some
Speaker 4: cool apps.
Speaker 10: That is what was missing, Like what.
Speaker 4: Functionality can you show me around Siri, around image editing,
Speaker 4: around summaries, like all the cool stuff that we talk
Speaker 4: about from Nvidia at the data center level. That's what
Speaker 4: a small kind of version of it is what you
Speaker 4: want to run on device instead of going to the cloud.
Speaker 10: And that's what they got a showcase in terms of
Speaker 10: why you need to upgrade to the latest hardware.
Speaker 6: Okay, so Paul, this is not our first rodeo. You
Speaker 6: and I have anchored before, and one thing that's different
Speaker 6: than versus a few years ago. When I would walk
Speaker 6: in here, you would have an iPad next to you.
Speaker 1: Yep.
Speaker 6: And the iPad you told me was like a really
Speaker 6: big part of how you prepared for the show, use
Speaker 6: the Boomberg terminal on the iPad. You also have the
Speaker 6: two screens for the terminal. You have no iPad anymore? Nope,
Speaker 6: why not?
Speaker 2: I still have the iPad, although it's probably the original version,
Speaker 2: but now everything's on the phone.
Speaker 6: So your phone has replaced your iPad absolutely.
Speaker 2: And I have a very long train ride every day,
Speaker 2: which I need a very engaging device, and your.
Speaker 6: Phone is that it's not the iPad. So, man, deep,
Speaker 6: how big of a problem is that for Apple?
Speaker 4: I mean, look in their case some of their newer
Speaker 4: products to cannibalize. You know, if the eye pad is
Speaker 4: very good, it's going to cannibalize the Mac sales. And
Speaker 4: if the iPhone is very good, it's going to cannibalize
Speaker 4: the iPad sales.
Speaker 10: So that's always been the case.
Speaker 4: But it's still a very sticky operating system, and you know,
Speaker 4: just ecosystem overall. The only problem that I think people
Speaker 4: are trying to grapple with here is what is the
Speaker 4: refresh cycle? Because right now, the refresh cycle continues to
Speaker 4: get longer and longer.
Speaker 10: It's not as if, you know, people.
Speaker 4: Are moving out of the ecosystem, but they're not gaining
Speaker 4: more Android users because they don't have the best looking
Speaker 4: phones or the best features that Android phones can offer,
Speaker 4: and so that is the part that is hurting their
Speaker 4: refresh rate and also the share gain from Android users.
Speaker 2: Is there a chance in your June developer meeting that
Speaker 2: they're going to come out with something that's going to
Speaker 2: blow the street away or expectations low?
Speaker 4: I mean, I'm expecting more emphasis on the software side
Speaker 4: in that developer meeting, and clearly they need to showcase
Speaker 4: what they are doing around the LM's trap, whether an
Speaker 4: LL and large anguid model will be part of their OS,
Speaker 4: and then how it influences the overall app ecosystem because
Speaker 4: that those are the features. If you look at the
Speaker 4: latest Pixel phone, they offer you a lot of those
Speaker 4: features already on Android, and that's what the Android ecosystem
Speaker 4: is looking to leverage more and more. Off look at
Speaker 4: the latest Samsung phones, they are targeting a lot of
Speaker 4: those JNAI features and Apple is really playing catch up
Speaker 4: over there, and they need to showcase that at.
Speaker 10: The WWDC when they have all the developers over there.
Speaker 6: Meande, this is something you think about a lot. So
Speaker 6: lay out the ultimate vision for us. What does Apple
Speaker 6: want its devices to be able to do for us
Speaker 6: from an AI perspective, like how is it going to
Speaker 6: interact with me using AI?
Speaker 4: I mean, the biggest kind of UI upgrade they can
Speaker 4: offer is around this sery. You know the fact that
Speaker 4: Siri is so underutilized right now as a voice assistant.
Speaker 4: If it has the right set of JENNYI features, clearly
Speaker 4: that will have a big influence and how we interact
Speaker 4: with the next version offer of the phones they make.
Speaker 4: And also you know some of the utility inside the app,
Speaker 4: like you don't have to you know, kind of touch
Speaker 4: everything or do everything manually in terms of giving instructions.
Speaker 4: There is this concept of AI agents that has to
Speaker 4: be front and center in the next version of software
Speaker 4: that Apple offers within their operating system, so that AI
Speaker 4: agent can automate a lot of the tasks, not fully,
Speaker 4: but pieces of it. And you want to see Apple
Speaker 4: making progress.
Speaker 2: On that front thanks to Man Deep Seeing Bloomberg Intelligence
Speaker 2: Senior Technology Analyst.
Speaker 3: You move now to social media and there may be
Speaker 3: a prolonged legal battle now on the horizon involving the
Speaker 3: popular video sharing app TikTok.
Speaker 2: TikTok is owned by China based Byte Dance, this week,
Speaker 2: the company filed a legal challenge to a measure signed
Speaker 2: by President Biden last month. That measure with ban TikTok
Speaker 2: in the US, if ByteDance hasn't divested from the app
Speaker 2: by January nineteenth.
Speaker 3: The potential ban is meant to address national security concerns
Speaker 3: that the Chinese government could access user data or influence
Speaker 3: what's scene on the TikTok platform.
Speaker 2: For more, we were joined by Matthew Schuttenhelm, Bloomberg Intelligence
Speaker 2: media litigation analysts. We first asked for his take on
Speaker 2: this week's news.
Speaker 11: This is the first Amendment lawsuit that we expected TikTok
Speaker 11: to bring, basically saying that Congress's action violates its First
Speaker 11: Amendment rights, that it, like any other platform, think about
Speaker 11: the New York Times or any other media outlet. If
Speaker 11: Congress were to effectively ban it, that it violates the
Speaker 11: First Amendment to do so unless Congress can pass a
Speaker 11: pretty tough test. And so I think this is a
Speaker 11: pretty substantial First Amendment case because we've rarely seen Congress
Speaker 11: take such drastic action with respect to such a major
Speaker 11: media platform.
Speaker 2: We hired Matt He was just a kid's got gray hair.
Speaker 2: I know, I don't know what happened exactly as a
Speaker 2: grizzled veteran there, Matt, I know it's important which court
Speaker 2: these things go to. So tell us where you think
Speaker 2: this case will be litigated initially and kind of how
Speaker 2: that might play.
Speaker 11: Yeah, So this one's pretty easy to figure that out
Speaker 11: because Congress limited where the companies can sue, and they
Speaker 11: said any suit can only be filed at the DC
Speaker 11: Circuit here here in Washington, which is sometimes referred to
Speaker 11: as the second most important court in the United States,
Speaker 11: below the US Supreme Court. This is a court that
Speaker 11: takes most of its cases actually involved challenges to US
Speaker 11: government action, usually agencies the alphabet soup of agencies.
Speaker 2: The FCC, the FAA, the E p A.
Speaker 11: But here it's Congress actually taking the action. So this
Speaker 11: is a pretty experienced court. This won't allow a single
Speaker 11: judge to go out and sort of make a name
Speaker 11: for himself with an opinion. This will be a three
Speaker 11: judge panel of very experienced judges, and then the only
Speaker 11: appeal option would be to the Supreme Court after that.
Speaker 3: Does it violate the First Amendment free speech rights?
Speaker 11: So I think it's it's a strong argument that TikTok presents.
Speaker 11: This is not an easy case on either side. What
Speaker 11: the court is going to look at is whether there
Speaker 11: is an important interest that Congress was trying to serve
Speaker 11: and whether it tried to address that interest in an
Speaker 11: appropriate and narrow way. Did it burden more speech than
Speaker 11: is necessary to go after the interest? And one of
Speaker 11: the things that the government has going for it here
Speaker 11: is that this is a national security question. I think
Speaker 11: if this were just an agency trying to do this,
Speaker 11: I think that the DC Circuit would would have issues
Speaker 11: with the state of the record here and require it
Speaker 11: to do There's very little evidence in the legislative record
Speaker 11: about what exactly is the risk and what exactly why
Speaker 11: Congress needed to pursue this avenue versus another avenue. If
Speaker 11: an agency did this, a court would would have issues
Speaker 11: with it. But this is Congress. This is our biggest
Speaker 11: policymaking body, and it's on national security, something these judges
Speaker 11: really know nothing about, and they're going to be be
Speaker 11: very careful about interfering. So at the end of the day,
Speaker 11: it's a close call, but I give the United States
Speaker 11: a slight edge because of that deference on national security
Speaker 11: questions where judges just aren't expert.
Speaker 2: So let's just assume that maybe this DC District rules
Speaker 2: in favor of Congress. TikTok presumably would then take it
Speaker 2: to the Supreme Court. Do you think the Supreme Court
Speaker 2: would hear such a case?
Speaker 11: Yeah, so every Supreme Court case is discretionary. They could
Speaker 11: say no. You know, I think more likely if the
Speaker 11: scenario were flipped, I think think the Supreme Court would
Speaker 11: take it that. If the d C Circuit rules initially
Speaker 11: in TikTok's favor, I think the United States would almost
Speaker 11: certainly get a second chance at the Supreme Court. And
Speaker 11: that's one of the reasons why I like the United
Speaker 11: States chances here is that I see even if it
Speaker 11: doesn't go well for the United States at the d
Speaker 11: C Circuit, I think it might go better at the
Speaker 11: Supreme Court. It gets two.
Speaker 2: Shots at it.
Speaker 11: If the d C Circuit rules for the United States,
Speaker 11: I could see the Supreme Court saying, you know what,
Speaker 11: the d C Circuit got it right, we don't need
Speaker 11: to take it up and say the same thing. So
Speaker 11: it's definitely going to be on the Supreme Court's radar,
Speaker 11: assuming the timing fits, that's going to be the first
Speaker 11: question is how do you squeeze all this in on
Speaker 11: Congress's timeline by January nineteenth, we're supposed to have a divestiture.
Speaker 11: The courts usually take much longer than that.
Speaker 2: Who argues this case on benf of the US government?
Speaker 11: I would think it's pretty high level attorneys in the
Speaker 11: Attorney's General Office, potentially the Solicitor General of the United
Speaker 11: States if this goes to the US Supreme Court. This
Speaker 11: suit named Merrick Garland, the Attorney General, as the defendant,
Speaker 11: so I would think he would name one of his
Speaker 11: top attorneys to represent him and the United States in
Speaker 11: this case.
Speaker 2: Our thanks to Matthew Shuttenhelm, Bloomberg Intelligence media litigation analyst.
Speaker 3: Coming up in the program, we'll look at how and
Speaker 3: why one company thinks most banker bonuses will rise in
Speaker 3: twenty twenty four.
Speaker 2: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing into
Speaker 2: research and data on two thousand companies and one hundred
Speaker 2: and thirty industries. You can access Bloomberg Intelligence via b
Speaker 2: I go on the terminal. I'm Paul Sweeney and.
Speaker 3: Am Alex Steele, and this is Bloomberg.
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Speaker 1: Say Alexa playing Bloomberg eleven thirty.
Speaker 3: We move now to banks and this week the financial
Speaker 3: services compensation from Johnson Associates predicted the bonuses on Wall
Speaker 3: Street would rebound this year, and the company said this
Speaker 3: applies mostly to desks that help companies tap markets or
Speaker 3: trade their bonds.
Speaker 2: For more on all of this, I was joined by
Speaker 2: Alison Williams, Bloomberg Intelligence senior analysts Global banks and asset managers.
Speaker 2: I first asked, Allison, isn't May too early to be
Speaker 2: talking about bonuses?
Speaker 8: I think so, Although the appetite for any incremental knowledge
Speaker 8: about compensation is insatiable, we just, you know, we've really
Speaker 8: just gotten sort of the look back at last year.
Speaker 8: We've had the first quarter of results. But you know,
Speaker 8: to your point, you know, it's a long way out.
Speaker 8: And I would say if you look at some of
Speaker 8: the estimates, I mean, some things seem sort of reasonable, right,
Speaker 8: So wealth and asset management, you know, the global markets
Speaker 8: are close to record highs. Certain markets are you know,
Speaker 8: hitting highs and obvious, so their strength all around.
Speaker 2: But we are in early.
Speaker 8: May, but we look at some numbers, so the story
Speaker 8: I think, as you said, most bullish seemingly on bond
Speaker 8: trading revenues, and it's tough for us to see. You know,
Speaker 8: certainly it's possible to get a huge increase in fixed
Speaker 8: income trading, but fixed income trading has been doing well
Speaker 8: the last few years, and we do think that business
Speaker 8: is resilient. But when we say resilient, we say, you know,
Speaker 8: about in the range of last year. Similarly, equities again
Speaker 8: about in the range. I mean where we think things
Speaker 8: are going to be much better than last year is that,
Speaker 8: you know, debt underwriting, equity underwriting. I mean, those are
Speaker 8: the businesses really strong in this quarter. But keep in
Speaker 8: mind they're coming off of a very low base. So
Speaker 8: you know, twenty twenty one was just an incredibly strong year.
Speaker 8: We've had really two really bad years, and compensation has
Speaker 8: not really gone down to reflect that. It's gone down,
Speaker 8: but not as much as you would think, just because
Speaker 8: there was such a scramble in twenty twenty one for
Speaker 8: talent of the banks that we talked to you know,
Speaker 8: are cognizant of that, and they don't want to they
Speaker 8: don't want to go back to that. And we did
Speaker 8: hear a lot of encouraging things about the pipelines. As
Speaker 8: I said, one Q strength, so you know, out of
Speaker 8: all the numbers, maybe that is the most optimistic. But
Speaker 8: we are early in the year.
Speaker 2: Hey Elison, on a typical bond desk or equity desk,
Speaker 2: how much principal risk of any do they take? Do
Speaker 2: their traders get to take positions or is most of
Speaker 2: the commissions that they report just kind of you know,
Speaker 2: agency trading on behalf of their clients.
Speaker 8: So it's it's always a big mystery from the outside
Speaker 8: in terms of, you know, the types of risks and
Speaker 8: traders and banks will say since the global financial crisis
Speaker 8: that it's really hard to define and separate. I would
Speaker 8: say that certainly the proprietary trading that really fueled a
Speaker 8: lot of the banks around the time of the global
Speaker 8: financial crisis as certainly something that the regulators have attempted
Speaker 8: to scale back, and you can see in different business
Speaker 8: models those that really do focus on the flows. I
Speaker 8: would also note that there are certain businesses that are
Speaker 8: really much more geared towards flows. So if we look
Speaker 8: at something like currency trading, very high turnover, high flow
Speaker 8: business versus something like asset back trading where it is
Speaker 8: much more specialized and you are using the balad sheet.
Speaker 2: So for a typical trader out there these days, do
Speaker 2: we have a sense of what percentage of their compensation
Speaker 2: is really variable kind of year end bonus versus fixed salary.
Speaker 2: Like when I was on the street many years, in
Speaker 2: my total compensation, ninety percent of that would be bonus.
Speaker 2: And I understand it's changed a little bit as they've
Speaker 2: kind of try to increase the percentage of base salary,
Speaker 2: so it has changed.
Speaker 8: I mean, that was sort of one of the interesting
Speaker 8: developments and perhaps unintended consequences that as we moved out
Speaker 8: of the financial crisis, regulators really wanted to limit that
Speaker 8: portion that was a bonus, and what ended up happening
Speaker 8: was salaries ended up going up. So to your point,
Speaker 8: back in the day before the global financial crisis, you know,
Speaker 8: you could see salaries roughly equivalent across the board, but
Speaker 8: for someone on the lower end, their bonus was, you know,
Speaker 8: a fraction of their salary, whereas for someone on the
Speaker 8: higher end, their salary was a fraction of their total
Speaker 8: comp and so actually what that did for investment banks
Speaker 8: was really increased the volatility of the headcount, especially towards
Speaker 8: your end, because if it was a bad year, investment banks,
Speaker 8: you know, could cut people, and since the majority of
Speaker 8: the payout was the bonus, it really kept that sort
Speaker 8: of higher correlation costs with revenues. But since then, because
Speaker 8: banks have tried to even that at a little bit,
Speaker 8: and certainly it is still a sizeable portion I think
Speaker 8: for the higher end, as I said, not as skewed
Speaker 8: as in the past, but certainly still can be skewed.
Speaker 8: And I think I sort of grown into that over time,
Speaker 8: just because as I said, it can be so variable
Speaker 8: and so at least you know, if it is a
Speaker 8: bad year, there is some kind of floor that people
Speaker 8: can count on. But as we discussed, people reading these
Speaker 8: stories still thinking about the year and comp it really
Speaker 8: is something that is variable with the revenue. So to
Speaker 8: the extent that bonuses are looking good, the underlying thought
Speaker 8: would be that you are pretty bullish on the revenue
Speaker 8: for these banks.
Speaker 3: Thanks to Alison Williams, Boombrig Intelligence senior analysts for global
Speaker 3: banks and asset managers.
Speaker 2: We turned out to the largest US meat supplier, Tyson Foods.
Speaker 3: This week, the company reported second quarter results that beat
Speaker 3: analyst expectations. Tyson also raised its adjusted operating profit outlook,
Speaker 3: citing improved performance of its chicken business, but this was
Speaker 3: way overshadowed by the company's CEO, Donnie King, saying that
Speaker 3: Tyson is quote not immune to the macro environment.
Speaker 2: For more guestos, Tim Stenovic and I were joined by
Speaker 2: Jennifer Bartasha's Bloomberg Intelligence senior analyst Retail, staples and packaged Foods.
Speaker 2: We first asked Jennifer for her key takeaways from the
Speaker 2: company's earnings.
Speaker 7: By all accounts, they had a pretty decent quarter. They
Speaker 7: did raise their full year outlook for adjusted operating income
Speaker 7: off of strengthen the chicken segment, which has been long awaited.
Speaker 7: But they may see third quarter be weaker than fourth quarter,
Speaker 7: which would buck historical trends. And so a little bit
Speaker 7: of a mixed report coming out of Tyson's. But generally
Speaker 7: a pretty solid quarter.
Speaker 6: Is the current quarter usually strong because we're getting into summer.
Speaker 6: We got Memorial Day coming up. We buy the meat
Speaker 6: for the barbecue. I mean why is it typically stronger?
Speaker 7: So only stronger for meats like you like your chicken,
Speaker 7: or you're in historically for beef specifically because a grilling season.
Speaker 7: But that does translate into a weakness for prepared foods
Speaker 7: and for the pork segment generally. And so they're saying
Speaker 7: that the weakness in prepared foods and pork may outweigh
Speaker 7: the strength coming for the grilling season for chicken and
Speaker 7: for beef.
Speaker 2: All right, I'm looking at the PGeo function for Tyson
Speaker 2: Food TSN. Is the ticker percentage of revenue thirty seven
Speaker 2: percent beef, thirty three percent chicken, nineteen percent prepared foods
Speaker 2: and nine percent pork. Which business do you like? Which
Speaker 2: business does the street like? Is one better than the other?
Speaker 2: Better margins, better growth? How do we think about that?
Speaker 7: So, historically speaking, prepared foods is a much higher margin
Speaker 7: business within the company, and there were intents from Tyson
Speaker 7: to grow that considerably. That has great long term potential,
Speaker 7: but they are going through a little bit of short
Speaker 7: term turbulence with regards to additional startup costs associated with
Speaker 7: new plant lines and things like that. The chicken segment,
Speaker 7: which is a big part of the company's business has
Speaker 7: been underperforming for years, and so what's encouraging coming out
Speaker 7: of earnings is that the chicken segment is finally showing improvement.
Speaker 7: Margins are up, they're doing better with efficiencies, and even
Speaker 7: though overall volume is down, it's a much healthier margin
Speaker 7: that they're achieving out of that chicken business. Now, remember
Speaker 7: they've closed a bunch of plants recently, they've been resizing
Speaker 7: their processing footprint, so all the things that they need
Speaker 7: to do seem to be underway to help make that
Speaker 7: a much more profitable and bigger contributor to the overall company.
Speaker 6: We had kind of an interesting conversation about Tyson Foods
Speaker 6: and we all were all talking, well, we don't necessarily
Speaker 6: know necessarily the brand of whatever we're buying when we're
Speaker 6: in the store, and Tyson has much more than just
Speaker 6: Tyson Foods. Is this at its core a commodity company?
Speaker 6: Or do the brands Sarah le ballpark hillshar Arm, Jimmy Dean, Tyson,
Speaker 6: Bossco's Gallo Salami do these matter to consumers?
Speaker 7: The brands do matter, and it depends on which consumer
Speaker 7: demographic you're talking about. But Tyson has intentionally over the
Speaker 7: past several years, moved away from being a strictly commodity
Speaker 7: driven company. That has helped smooth out earnings volatility. That
Speaker 7: helps make it a much healthier margin profile overall, and
Speaker 7: so that progress I think is going to continue. So
Speaker 7: those brands are very central to that long term plan.
Speaker 7: That side. You're right, there is a lot of Tyson
Speaker 7: meat out there that you eat and you don't even
Speaker 7: realize it's Tyson. They you know, obviously will supply retailers
Speaker 7: that then have that as their private label brand. There
Speaker 7: are things like that that happen. But overall, what we're
Speaker 7: seeing is with the consumer, especially lower income households, have
Speaker 7: been trading more into private label and that has left
Speaker 7: these brands a little bit lower in terms of overall
Speaker 7: volumes that's being sold. So that's where we're seeing a
Speaker 7: little bit a little bit of that brand volatile in
Speaker 7: the last few quarters.
Speaker 2: Jen, you need to talk to investors in this company.
Speaker 2: What's the call here? I mean, are they do they
Speaker 2: own it for the dividend? Did they own it because
Speaker 2: they're bullush on chicken? I mean, what's the investment call
Speaker 2: for owning a food company like this?
Speaker 7: Well, the dividend has been something that's been of appeal
Speaker 7: in recent years. The good news is that Tyson is
Speaker 7: back to where their free cash flower generation will cover
Speaker 7: the dividend. That also appeases some concern that the dividend
Speaker 7: might be cut. So generally it's been along those lines.
Speaker 7: There is also long term growth. Tyson has been slowly
Speaker 7: expanding international operations. When they get the formula right, meaning
Speaker 7: they get the right productivity in the plants that they've
Speaker 7: opened up overseas, there's a long runway for potential growth
Speaker 7: for Tyson outside the United States as well as within
Speaker 7: the United States. So that's a little bit of the
Speaker 7: appeal as well if you're a longer term perspective investor.
Speaker 6: Anything that investors have to keep their eyes on when
Speaker 6: it comes to supply issues out there, any bird flu
Speaker 6: avian flu type stuff that's getting into their production line
Speaker 6: that we've seen hit other types of companies.
Speaker 7: Yeah, so the bird flu or avian flu is certainly
Speaker 7: something that's in the headlines lately. You know, we've seen
Speaker 7: outbreaks in very specific areas. Thus far hasn't really had
Speaker 7: a major impact on Tyson this year, but we are
Speaker 7: watching that very carefully. One of the longer term issues
Speaker 7: Tyson's going to face is just the beef cattle cycle.
Speaker 7: We're at the bottom of a cycle. There's very limited
Speaker 7: animal availability, and once that starts to rebuild, things are
Speaker 7: going to get a little bit worse before they get
Speaker 7: better with regards to supply. That means that the profitability
Speaker 7: of the cattle, of the beef segment within Tyson is
Speaker 7: going to remain pressured well into twenty twenty five.
Speaker 3: Our thanks to Jen Bartash's Bloomberg Intelligence Senior Analyst, retail
Speaker 3: stables and packaged.
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