Speaker 1: Welcome to the Bloomberg Penl podcast. I'm Paul swing you.
Speaker 1: Along with my co host Lisa Brahmas. Each day we
Speaker 1: bring you the most noteworthy and useful interviews for you
Speaker 1: and your money, whether at the grocery store or the
Speaker 1: trading floor. Find a Bloomberg Penl podcast on Apple podcast
Speaker 1: or wherever you listen to podcasts, as well as at
Speaker 1: Bloomberg dot com. Let's switch gears, though, sticking with Wall
Speaker 1: Street and talk about broker commissions today. This morning there
Speaker 1: was news that Charles Schwab is eliminating commissions for stocks,
Speaker 1: ETFs and options listed on US or Canadian exchanges. The
Speaker 1: race to the bottom accelerates. David Ridder, Payments and specialty finance,
Speaker 1: analyst for a bloomersig Intelligence, joining us from Princeton, New Jersey. David,
Speaker 1: what do you make the news? Well, it's been something
Speaker 1: that's been a long time coming. I mean, obviously speed
Speaker 1: compression and brokerage and an asset management more broadly is
Speaker 1: nothing new. I mean, interactive brokers made their own move
Speaker 1: last week to cut commissions to zero for basic stock
Speaker 1: trades um So I think it's going to have a
Speaker 1: very different impact on the different players in the market.
Speaker 1: In Schwab's case, um, you know, they only earned about
Speaker 1: their net revenue from trading commissions versus um E Trade
Speaker 1: and TD merrit Trade, where it's more than thirty five.
Speaker 1: And I think you're seeing that reflected in the action
Speaker 1: this morning. But but Schwab is really more an asset
Speaker 1: gatherer than anything, and so I see this move for
Speaker 1: them is a recognition of the fact that, you know,
Speaker 1: we don't want to lose customers and assets in a
Speaker 1: long term to these new stock trading apps, whether it
Speaker 1: be robin Hood or whether it be JP Morgan's. You invest,
Speaker 1: because that's how they make money. They make money on
Speaker 1: new net new assets coming into the company. Uh. And
Speaker 1: then you know of their revenue is net interest incomes.
Speaker 1: So they're essentially a bank, right, so they're paying low
Speaker 1: interest and reinvesting that money and safe security. So that's
Speaker 1: the real driver, not trading missions. Insentially, look at the
Speaker 1: stocks you mentioned, Dave Schwapp down nine, TD America trade
Speaker 1: down about today in each trade down, so kind of
Speaker 1: right in line with what you were saying. And my
Speaker 1: question is kind of talk to us about some of
Speaker 1: these new technological competitors that you mentioned kind of robin
Speaker 1: Hood and things like that give us a sense of
Speaker 1: what they are and what kind of market share are
Speaker 1: they taking. Yeah, well, in the case of robin Hood,
Speaker 1: you know, very rapid growth company, several million customers already
Speaker 1: offering quote unquote free trades. I think what's under recognized though,
Speaker 1: is uh nothing's free, right in the case of all
Speaker 1: of these retail brokers that charge the customer of zero trading, See,
Speaker 1: they're sending those trades to market makers, so companies like
Speaker 1: Citadel and they're getting paid what's called payment for order
Speaker 1: flow for those transactions. So in their release last week,
Speaker 1: Interactive Brokers was very candid. They said, well, you know,
Speaker 1: this is how we get paid. And if you still
Speaker 1: want best, best execute ship, you can take our uh
Speaker 1: four feet product instead of our free products. So I
Speaker 1: just thought that was an interesting way to approach it.
Speaker 1: But uh, you know, certainly these things are having an impact,
Speaker 1: and for Schwab, they finally said to themselves, look, we
Speaker 1: we don't want to lose uh these customers because they're
Speaker 1: young people, right, so they're really the future drivers of
Speaker 1: their growth. Right now, I'm looking at Schwab shares down
Speaker 1: now more than nine so shareholders aren't buying it. Yeah.
Speaker 1: I mean, I think for both of them. When I
Speaker 1: described a minute ago what percentage of revenue they get
Speaker 1: from trading commissions, um, I think the market is pricing
Speaker 1: in perhaps half of that revenue going away. It's interesting, though,
Speaker 1: because the last round of price cuts was a couple
Speaker 1: of years ago. Fidelity sort of kicked it off by
Speaker 1: going to four trade and Schwab matched them. What happened
Speaker 1: across the entire industry was fascinating is that the net
Speaker 1: inflows to the companies and the trading volumes increased, so
Speaker 1: it actually drew in more customers. And so again I
Speaker 1: think that Schwab's rationale here is we're trying to remove
Speaker 1: any impediment to folks either getting more active or becoming
Speaker 1: active in the markets for the very first time, and
Speaker 1: then going forward into the future. So I'm not sure
Speaker 1: we'll see exactly that again this time, but that's what
Speaker 1: we saw last time. David Riddard, thanks so much for
Speaker 1: joining us David's payments and specialty finance analysts for Bloomberg
Speaker 1: Intelligence and joining us from the Bloomberg headquarters in Princeton,
Speaker 1: New Jersey. I want to read a a tweet from
Speaker 1: President Trump. Quote, as I predicted, j PAL and the
Speaker 1: Federal Reserve have allowed the dollar to get so strong,
Speaker 1: especially relative to all other currencies that are manufacturers are
Speaker 1: being negatively affected, fed rate too high. They are their
Speaker 1: own worst enemies. They don't have a clue, pathetic clamation
Speaker 1: point end quote. So let's dig a little bit deeper
Speaker 1: with that asset background. Uh. Tim Fury, chairman of the
Speaker 1: Manufacturing Business Survey for the Institute of Supply Management, joins
Speaker 1: us on the phone from Florida. So, Tim, quite, the
Speaker 1: manufacturing data for the month of September much much lower
Speaker 1: than people were looking for. What's your takeaway, Yeah, Hi, Paul, Yes,
Speaker 1: So, so so it was a disappointment for sure, and it's
Speaker 1: been driven by demand. For the second straight month we
Speaker 1: had demand in the contraction mode. And more importantly this
Speaker 1: month compared to last month, is that the three sub
Speaker 1: indexes that support that demand number we're all in negative
Speaker 1: territory two, which is a concern. So let me let
Speaker 1: me just talk quickly about the new export order down
Speaker 1: to forty one, which is a pretty heavy contraction. We've
Speaker 1: had two prior months of contraction, but not to that level.
Speaker 1: And about eighteen percent manufacturing GDP is exported, So without
Speaker 1: that new export order coming up, I don't I would
Speaker 1: be very surprised if that new order number currently or
Speaker 1: forty seven point three gets above the fifty point. How
Speaker 1: much is the decline in exports due to the stronger dollar, Well,
Speaker 1: it's you know, it's hard to tell. I get comments
Speaker 1: about that. Percent of my comments are tariff and trade related. Uh,
Speaker 1: we're talking low single digits on the on the currency side.
Speaker 1: So there's no doubt that from a supply manager perspective,
Speaker 1: the trade issues are a much begger concern than our currency. So,
Speaker 1: but I can't really put it into specifics beyond that. So, Tim,
Speaker 1: the we have a you know, I guess my question
Speaker 1: is when do we have a trend here? We had
Speaker 1: August atteint one contraction and then coming in with this
Speaker 1: data at forty seven point eight even bigger contraction. When
Speaker 1: from your perspective at the Institute for Supply Management, do
Speaker 1: you start sensing a trend here? Well, last month I
Speaker 1: was asked several times about whether this was a blip,
Speaker 1: and especially to come above fifty. I was hopeful that
Speaker 1: the month of September would have a decently strong new
Speaker 1: order number, which would allow production to expand again and
Speaker 1: get us back about fifty. But I think, you know,
Speaker 1: given the week new order numbers about the same level
Speaker 1: as last month, nothing worse, nothing better, But you know,
Speaker 1: supporting that is really the backlog of order numbers forty
Speaker 1: five point one, which declined again this month. I was
Speaker 1: hoping that that would would jump back up, so but
Speaker 1: the backlog week, it means that you really don't have
Speaker 1: as much to work on next month as you did
Speaker 1: the prior month. Very concerning. And then you look at
Speaker 1: the inventory number at forty seven give or take, it
Speaker 1: says that supply managers are really watching their input materials
Speaker 1: so that they're not going to get stuck with something
Speaker 1: that they don't need. The two things that you look
Speaker 1: at from a general manager standpoint is how much materially
Speaker 1: you have taken in and the number one number two
Speaker 1: is what's your head count? And I think we're at
Speaker 1: that point where people are looking at that. We're when
Speaker 1: the planning season here, for most plans get kind of
Speaker 1: consummated by the end of November, and the employment count
Speaker 1: has to really be looked that closer here because there's
Speaker 1: no doubt we have a more production capacity that we
Speaker 1: need to meet the new order level. We've been burning
Speaker 1: into the back on now for fourth rate months. At
Speaker 1: some point you have to make a decision. Tim Furi,
Speaker 1: thank you so much, chairman of the Manufacturing Business Survey
Speaker 1: Institute for Supply Management, joining us the phone from Florida.
Speaker 1: What we've been talking about nineteen is being the year
Speaker 1: where we get a lot of big, high profile unicorn
Speaker 1: IPOs coming out of Silicon Valley, and I think a
Speaker 1: little bit of a hindsight here, it's been kind of
Speaker 1: a mixed bag. We've had some mixed performance, some real duds.
Speaker 1: We've actually had some deals pulled. Most notably we work
Speaker 1: um and um Endeavor was also pulled. To get a
Speaker 1: sense of what's going on in the US I p
Speaker 1: O market, we welcome Jackie Kelly, Jackie's America's I p
Speaker 1: O leader for Ernst and Young joins us here in
Speaker 1: our Bloomberg Interactive Broker studio. So Jackie, thanks so much
Speaker 1: for joining us. You know again, we there's so much
Speaker 1: anticipation for some of these big high profile deals coming public,
Speaker 1: Uber Lift and all those types of things. It's been
Speaker 1: kind of a mixed bag. What do you think the
Speaker 1: I p O market is telling us these days? Well, um,
Speaker 1: you know, the markets are actually the sentiments really positive.
Speaker 1: Behind the scenes, Let's just say that we have a
Speaker 1: few of the higher profile I p O s that
Speaker 1: have been working through some market issues and other things.
Speaker 1: But really this is a long term game. At the
Speaker 1: end of the day. Uh, we're very excited that the
Speaker 1: pipeline is very robust and UH, despite some of the
Speaker 1: turbulence in the markets. Uh, the we still have a
Speaker 1: number of companies lined up right now in the healthcare
Speaker 1: sector that are looking to price over the next week
Speaker 1: or two. And we have a number of companies also
Speaker 1: in technology and other sectors that are getting on file
Speaker 1: and interested in going public over the next let's say
Speaker 1: six months plus. How much disappointment are you hearing from
Speaker 1: your clients at this point and fear as they look
Speaker 1: at the pipeline getting ready and then they look at
Speaker 1: the wee work and the endeavor I p O s
Speaker 1: that were both pulled or iced. Are you having trouble
Speaker 1: convincing your clients? No, it's still good. It's very interesting. So, UM,
Speaker 1: I think there's a lot of resilience to some of
Speaker 1: these the turbulence in the markets and some of the pricings.
Speaker 1: Companies are really focused, which is great, on getting themselves ready.
Speaker 1: I think they recognize and this has been a few
Speaker 1: years now that we've been in this sort of market
Speaker 1: where things can shift on a dime with you. You
Speaker 1: can be thinking you're going to price in a great
Speaker 1: market and then you know, something changes and then the
Speaker 1: market is not great. So companies are really focused on
Speaker 1: getting themselves ready. They are focused on getting into the
Speaker 1: filing process which is now available as confidential for everyone,
Speaker 1: so everybody can get into the confidential filing process, get
Speaker 1: themselves ready, and be ready to take advantage of a
Speaker 1: market window win that market window opens. What do you
Speaker 1: think some of them? What do you think the market
Speaker 1: has been telling us with some of these high profile misfires.
Speaker 1: Is our corporate culture becoming bigger part of kind of
Speaker 1: what investors are looking for? I'm thinking in Uber, I'm
Speaker 1: thinking we work you know where there's definitely been some
Speaker 1: issues with some of the insiders or maybe some of
Speaker 1: the corporate governance and think things like that. Yeahs, As
Speaker 1: we're working with companies today, we focus on a number
Speaker 1: of things and it really is about getting the whole
Speaker 1: company ready to be a public company, and a critical
Speaker 1: part of that is governance and an organization. There's sort
Speaker 1: of the traditional sort of corporate governance and a lot
Speaker 1: of us think about board governance, et cetera. But there's
Speaker 1: also just sort of the governance and oversight from the
Speaker 1: tone at the top of how you run your business.
Speaker 1: And I think a lot of times, um, you know,
Speaker 1: as companies are growing so quickly, UH, companies have to
Speaker 1: start putting in infrastructure policies, a lot of things that
Speaker 1: very mature companies are already well familiar with. But these
Speaker 1: are rapid growth companies. They're going through that process as
Speaker 1: they continue to grow. That really is it never ends,
Speaker 1: but governance as top of the agenda. I think all
Speaker 1: the companies are working on it. It is a process.
Speaker 1: It's not something to turn on overnight, but they work
Speaker 1: on it and they all have goals of having that
Speaker 1: strong governance function in place. So our own Schnelly Boss
Speaker 1: wrote a story about how a number of venture capitalists
Speaker 1: are getting together in Silicon Valley, UH, and they do
Speaker 1: not invite Wall Street because they are displeased with Wall
Speaker 1: Street's role in some of the recent I p O s.
Speaker 1: Do you think it's Wall streets fault that we saw
Speaker 1: some less than optimal performances from some of the I
Speaker 1: p O s. I think that, you know, performance is
Speaker 1: very complex. UM. One of the most important things as
Speaker 1: companies are looking to go to the public markets that
Speaker 1: they really need to get right is predictability in their business.
Speaker 1: And being a predictable business is a very challenging thing
Speaker 1: to do for some of these high growth, disruptive companies.
Speaker 1: I think what's been great is that many of these
Speaker 1: companies have been able to grow in the private markets
Speaker 1: and get funding in the private markets. We have robust
Speaker 1: private markets that has allowed them to extend and and
Speaker 1: and grow and scale without that visibility. But once you're
Speaker 1: in the public markets, a lot of things are visible
Speaker 1: and so UM, you know, I don't know that you
Speaker 1: know ultimately, UM companies own uh their decision on timing.
Speaker 1: They need to think seriously about am I ready to
Speaker 1: be a public company? Am I running a predictable business?
Speaker 1: Do I have that governance and controls and those things
Speaker 1: in place that help make sure that I can meet
Speaker 1: and beat expectations and things like that. Jackie Kelly, thank
Speaker 1: you so much. For being with us. Jackie Kelly is
Speaker 1: American's I p O, America's I p O leader for
Speaker 1: Ernst and Young, joining us here in our bloomg inter
Speaker 1: Active Broker studios. It's almost lunch here on Wall Street.
Speaker 1: I think it's time to take a look at some pizza,
Speaker 1: in particular Papa John's ticker p z Z a uh.
Speaker 1: And we are so lucky to have Rob Lynch here
Speaker 1: in our Bloomgard Active broker studios. He's CEO of Papa
Speaker 1: John's International. He's been CEO for a hot month and
Speaker 1: after coming in after a tumultuous period of time. Shares
Speaker 1: of Papa John's up this year, but that follows at
Speaker 1: nearly declined last year. What was the biggest challenge for you,
Speaker 1: Rob when you came into the company, given uh, the
Speaker 1: sort of unceremonious exit of the previous leader. Now, I
Speaker 1: think the biggest challenge has been um making sure that
Speaker 1: everyone is focused on the future. You know, we need
Speaker 1: to move beyond um those tumultuous times. And you know,
Speaker 1: I've been surprised that the resiliency of this of this company,
Speaker 1: our franchisees are employees are all ready to do great
Speaker 1: things and so that makes it a lot easier for
Speaker 1: me to come in and drive change and get us
Speaker 1: going on in the right direction. I'm a big pizza eater,
Speaker 1: huge pizza eater, that's my you know, desert island food. So, um,
Speaker 1: talk to us about the pizza business in the US
Speaker 1: is a growing how's the market share shifting around between
Speaker 1: chains like yourselves and you know, the mom and pops
Speaker 1: and so on and so forth. Sure, you know, um,
Speaker 1: the pizza business is a pretty stable business. Um, you know,
Speaker 1: I've think the the interesting thing about the pizza industry
Speaker 1: is all the technological disruption that's going on in the industry.
Speaker 1: You know, pizza has owned delivery for a long time.
Speaker 1: When you wanted something delivered, it was either pizza or
Speaker 1: you know, Chinese food, right, And today you can get
Speaker 1: anything through the third party aggregators. And so I think
Speaker 1: the challenge for us is figuring out how we continue
Speaker 1: to grow and frankly thrive in these new times. And
Speaker 1: disruption creates opportunity, and so you know, we are focused
Speaker 1: on and working with these new um companies with these
Speaker 1: new capabilities to to create a symbiotic relationship where we
Speaker 1: can both do great things. Over the next few years.
Speaker 1: So can you give us an example of some innovation
Speaker 1: I mean other than say an algorithm to better match
Speaker 1: people and and sort of the delivery individuals, etcetera. Are
Speaker 1: there any other advancements that you're looking at from a
Speaker 1: technology standpoint? Yeah, I mean I think that you know,
Speaker 1: our mobile application ordering is up about sixty sent year
Speaker 1: on year, right, so people are definitely moving into the
Speaker 1: application channel versus the phones and even the web ordering
Speaker 1: that we used to that used to be so prevalent.
Speaker 1: So you know, for us, that's a huge opportunity because
Speaker 1: we take that that customer and you know data and
Speaker 1: leverage that their purchase data to understand what their needs
Speaker 1: are and target them more effectively with offers that are
Speaker 1: most relevant for them. So we're not sending them a
Speaker 1: bunch of spam or a bunch of you know, offers
Speaker 1: that they don't care about. So um analytics and back
Speaker 1: in artificial intelligence are allowing us to serve our customers better.
Speaker 1: So what percentage of your businesses franchise e versus own stores?
Speaker 1: And how do you think about that? Because I know
Speaker 1: every you know, restaurant company has a kind of a
Speaker 1: different view on that. Yeah, you know, I I love
Speaker 1: it that we have a flexible balance sheet. We own
Speaker 1: about of the system domestically and franchise is on about
Speaker 1: and so that allows us to two seed markets with
Speaker 1: our restaurants and bring in new franchise e s or
Speaker 1: if and help some of our other French our current
Speaker 1: franchisees grow and and and really maximize the opportunity in
Speaker 1: those markets. You know, we new restaurant development as a
Speaker 1: key indicator of a healthy system. Internationally, we're all franchise
Speaker 1: We have two thousand restaurants internationally, we're number three globally
Speaker 1: and pizza delivery UM and so you know that model
Speaker 1: obviously is a franchise only model, and that allows us
Speaker 1: to find partners in the geographies that we want to
Speaker 1: move into who who know that marketplace, know the real estate,
Speaker 1: know how to do business there. So we we are
Speaker 1: definitely UM a blended company. There's a lot of talk
Speaker 1: about the tight labor market. Do you find that it's
Speaker 1: difficult to hire and retain people? Are more difficult than
Speaker 1: it than it has been previously? And you were, uh,
Speaker 1: the CEO of RBS previously, so this isn't new for
Speaker 1: you in terms of running a food services company. Yeah,
Speaker 1: it's it's definitely not a Papa John's problem. It is
Speaker 1: is an industry challenge, right, I mean record low levels
Speaker 1: of unemployment. I mean a lot of great things for
Speaker 1: our country. It makes it a little bit tougher for
Speaker 1: for companies like US and and so um. It just
Speaker 1: makes it that much more important to foster UM a
Speaker 1: culture that people want to be a part of, right
Speaker 1: and to be the kind of the employer of choice
Speaker 1: in the choice in the markets in which we compete.
Speaker 1: And so that's been a big part of of what
Speaker 1: I focused on coming in as the new CEO. How
Speaker 1: do we make sure that we move kind of past
Speaker 1: where we've been focused on the future and build, you know,
Speaker 1: a culture where people feel like they have a future
Speaker 1: that's bright. So looking forward, what's the kind of the
Speaker 1: market I know it's a competitive marketplace. What's kind of
Speaker 1: the marketing strategy that you guys like to employ to
Speaker 1: kind of establish your brand in the marketplace, maybe differentiate
Speaker 1: your brand in the marketplace? Do you use traditional media,
Speaker 1: new media? What's what's working best for you guys? Pizza pizza,
Speaker 1: Pizza pizza. That's our competitors. That's a competitor. We're better ingredients,
Speaker 1: better pizza, and I like ours a lot better. Um,
Speaker 1: but that's okay. Sorry to call you out. Please call
Speaker 1: me out every time. I love it. Uh. Now you
Speaker 1: know we we we want to communicate with our customers
Speaker 1: and the most engaging and compelling way. I mean, we
Speaker 1: still leverage television obviously is a big advertising channel. Um,
Speaker 1: but the media industry is changing almost as rapidly as
Speaker 1: the delivery industry, and so UM, we are focused on
Speaker 1: making sure that that we've made the right investments in
Speaker 1: technology and then the channels that our customers are moving towards.
Speaker 1: I already mentioned the mobile applications. So UM, we're focused
Speaker 1: on connecting with our customers across all the channels. You
Speaker 1: came in here and said that your first job was
Speaker 1: making pizzas. Is that correct? Um? And here you are
Speaker 1: running a pizza chain franchise operator. I'm just wondering what
Speaker 1: is your favorite pizza? First of all, my favorite pizza.
Speaker 1: That's an easy one. Papa John's mushroom pizza. Mushroom pizza.
Speaker 1: I don't know if you know this, most people don't,
Speaker 1: but we actually use Baby Portobellows mushrooms on our pizza
Speaker 1: Like that's a testament to the kind of quality, right,
Speaker 1: and we chop them fresh in our restaurants every day. Okay,
Speaker 1: do you ever make pizza. I've made probably about a
Speaker 1: hundred and fifty thousand pizzas in my life, I know,
Speaker 1: but yeah, Ceo. So, I have spent the last three
Speaker 1: or four weeks going around this country meeting with my
Speaker 1: franchise ease and every time I get there, you know,
Speaker 1: they're expecting me to be kind of afraid of the
Speaker 1: back of house, right, And I walk in and you know,
Speaker 1: I've got my my shirt and my I roll up
Speaker 1: my sleeves and I'm like, okay, let's sling some dough
Speaker 1: and I started making pizza. I love it. I absolutely
Speaker 1: love it. I got, you know, I got Like yesterday,
Speaker 1: I was here in New York. I was up on
Speaker 1: Fourth Street at one of our great franchisees restaurants, and
Speaker 1: you know, I walk in and I've got my suit on,
Speaker 1: I take the jacket off, but I walk, you know,
Speaker 1: back back of house, make a pizza. Finish up. I've
Speaker 1: got flower all over my slacks and shoes. Yeah, I'm like,
Speaker 1: if you know, if you're not gonna to have flower
Speaker 1: on your shoes. You're not a pizza maker. So yeah,
Speaker 1: that's it. That's the story. That's a takeaway. Love it.
Speaker 1: You don't have flower on your shoes, you got some
Speaker 1: other business. Robert Lynch, chief executive Officer Papa John's International,
Speaker 1: joining us here on our Bloomberg Interactor Broker Studio giving
Speaker 1: us the up to date on Papa John's International. P
Speaker 1: z z A is the symbol. Thanks for listening to
Speaker 1: the Bloomberg pen L podcast. You can subscribe and listen
Speaker 1: to interviews at Apple Podcasts or whatever podcast platform you prefer.
Speaker 1: I'm Paul Sweeney. I'm on Twitter at p T Sweeney.
Speaker 1: I'm Lisa abram Woyit's I'm on Twitter at Lisa abram
Speaker 1: wits one Before the podcast, you can always catch us worldwide.
Speaker 1: I'm Bloomberg Radio