Speaker 1: This is Bloomberg Business Week. I'm Carole Masser and I'm
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Speaker 1: pm Eastern Time on Bloomberg Radio or watch us on
Speaker 1: YouTube search Bloomberg Global News. Well, you know, all this week,
Speaker 1: we've been talking a lot about the semiconductor area really
Speaker 1: for the last few weeks, some concerns about the outlook,
Speaker 1: and this story certainly plays into it. We got this
Speaker 1: last night at Bloomberg exclusive Intel shares. Uh, certainly, I
Speaker 1: think they were a little bit higher actually, Uh. And
Speaker 1: this is on the news that the chip giant is
Speaker 1: planning thousands of job cuts to cut costs and cope
Speaker 1: with a PC slow. We're talking some serious job cuts
Speaker 1: to this exclusive by her own Mark German and Debbie.
Speaker 1: We got Mark German on the line right now. He's
Speaker 1: techno Audrey Porter for Bloomberg News. He joins us from
Speaker 1: our Los Angeles bureau. If you're watching on YouTube, you'll
Speaker 1: be able to see him there as well. So Mark,
Speaker 1: give us the details here, because, as I mentioned, we're
Speaker 1: talking serious job cuts potentially affecting about twenty percent of staff.
Speaker 1: What's going on. Yeah, So if you are an Intel employee,
Speaker 1: this is bad news. If you are an Intel Intel
Speaker 1: shareholder slash investor, this is potentially good news. As Carol mentioned,
Speaker 1: the stock is up a little bit today, so there
Speaker 1: has been some you know, benefit from this news there.
Speaker 1: These are gonna be major cuts. I'm told this is
Speaker 1: likely to be the largest layoff to hit until since
Speaker 1: at that point they laid off under former CEO Brian
Speaker 1: Krazani about eleven percent of the company, or twelve thousand
Speaker 1: employees across the entire corporation globally. This is probably not
Speaker 1: going to be as big as that, but it is
Speaker 1: going to be something that requires some sort of major restructuring.
Speaker 1: I'm told the employee count is going to be in
Speaker 1: the thousands. Let's just face it, the PC market over
Speaker 1: the last couple of quarters has slowed dramatically. Some of
Speaker 1: the PC may or shipment totals have you know, dropped thirty.
Speaker 1: You look at the Novo, you look at HP, you
Speaker 1: look at some of the other PC makers that use
Speaker 1: Intel processors. You're seeing a drop off there. So clearly
Speaker 1: Intel's bread and butter that's slowing down. At the same time,
Speaker 1: their profits are also shrinking, right, So it's not a
Speaker 1: good situation for Intel. Right now. They're reporting earnings on
Speaker 1: October that's their third quarter earnings. We are anticipating about
Speaker 1: a year over year decline. Profit is down fifteen basis
Speaker 1: points right from their usual measures. So they have to
Speaker 1: do these layoffs to really try to up their profit,
Speaker 1: up their gross margins. And that's why you're seeing the
Speaker 1: positive reaction from the stock. But obviously we're talking about
Speaker 1: human beings here, we're talking about employees. This is not
Speaker 1: going to be a positive site. This is gonna be
Speaker 1: one of the bigger layoffs in the chip sector. Two
Speaker 1: companies that compete with Intel, Micron and in Video, recently
Speaker 1: said they wouldn't be doing layoffs. But arm Right, a
Speaker 1: key technology competitor to Intel, uh an Oracle who competes
Speaker 1: with Intel on the server side, of the data center side. Uh,
Speaker 1: they have seen some cuts recently. Mark awkward, as you
Speaker 1: point out in your story, Uh, this is an awkward
Speaker 1: moment for Intel because they lobbied so much for that
Speaker 1: fifty two billion dollar chip stimulus bill this year, and
Speaker 1: they talked about expanding chip manufacturing, semi manufacturing, uh here
Speaker 1: in the United States in particular. So not a good look,
Speaker 1: not a good book. But a lot of the damage
Speaker 1: is already done. Right. They need because they clearly have
Speaker 1: to cut their costs. They need to do something, and unfortunately,
Speaker 1: it looks a lot like that's going to come on
Speaker 1: the human side, right, with those thousands of cuts to employees.
Speaker 1: We're actually told that a lot of the cuts are
Speaker 1: going to come in their sales and marketing group, right,
Speaker 1: And that's typically where you see cuts happen, you know,
Speaker 1: initially in these types of circumstances, Right, Marketing and sales,
Speaker 1: that's one group. It's called SMG at Intel, it's one
Speaker 1: mixed part of the organization. We're told cuts there could
Speaker 1: come as high as twenty percent of that division, right,
Speaker 1: But in terms of the general cut company wide, that
Speaker 1: number will will be less than overall. But you know,
Speaker 1: sales and marketing. You're going to see a big hit there. Unfortunately, Hey, Mark,
Speaker 1: we got about a minute and a half left with you,
Speaker 1: and I wanted to touch on among your latest stories,
Speaker 1: this one about Apple. We talked Caroline, I talked about
Speaker 1: this solar earlier. The company's planning to withhold its latest
Speaker 1: employee perks from its unionized store. What can you tell
Speaker 1: us about what's happening there and and put it in
Speaker 1: the context of the types of benefits that Apple does
Speaker 1: provide its employees. So three new benefits. One tuition reimbursement
Speaker 1: is now going to be tuition pre pay for some colleges,
Speaker 1: so Apple will pay in advance so they don't have
Speaker 1: to reimburse you at the end of the semester course
Speaker 1: ERA normally fos a year for a subscriber online. That's
Speaker 1: going to be a free subscription now for Apple employees.
Speaker 1: And then the healthcare plan through United Health that's gonna
Speaker 1: get some improvements waived co pays for select doctors in
Speaker 1: reasons like New York, New Jersey, Washington State, Connecticut, and
Speaker 1: a couple of other states. Uh, those perks not coming
Speaker 1: to Maryland right In terms of the taws in store Maryland.
Speaker 1: That's apples sole unionized store. Uh. So they're going to
Speaker 1: have to negotiate if they want to get those into
Speaker 1: their collective bargaining agreement. Uh. This is interesting timing. What's
Speaker 1: happening tomorrow. Well, voting will now begin for a second
Speaker 1: potential unionized store, this one in Oklahoma City. We'll see
Speaker 1: if this news has any impact there. Shortly. It's like
Speaker 1: another volley the back and forth with this issue. Mark
Speaker 1: German great reporting. As we mention that Intel story a
Speaker 1: Bloomberg exclusive by Mark. Mark is technology reporter at Bloomberg
Speaker 1: News joining us on the phone from our l A bureau.
Speaker 1: And just to remind everybody's Mark pointed out to that
Speaker 1: Intel shares up about one point six percent is, as
Speaker 1: he said, not good news for several a bunch in
Speaker 1: fact Intel workers, but investors certainly liking the news that
Speaker 1: they're kind so much to this story. What's happening in
Speaker 1: the PC market around the world, and then of course
Speaker 1: also the Chips act here in the US. You're listening
Speaker 1: to Bloomberg Business Week with Carol Messer and Bloomberg Quick
Speaker 1: Takes Tim Stinovic on Bloomberg Radio. The story that keeps
Speaker 1: on kiving and it isn't quite over yet. We're talking
Speaker 1: about Elon Musk's pursuit of Twitter and this week in
Speaker 1: the upcoming issue a Bloomberg Business Week magazine, the cover
Speaker 1: story is about Twitter and how it faces only bad
Speaker 1: outcomes if Elon's four billion dollar deal closes. That piece
Speaker 1: by Kurt Wagner. He's technology reporter for Bloomberg News. He
Speaker 1: joins us on the phone from San Francisco this afternoon.
Speaker 1: Also with us as Joel Webber, the editor of Bloomberg
Speaker 1: Business Week in the Bloomberg Interactive Broker Studio. You can
Speaker 1: follow Joel on Twitter at Joel Webber Show and Kurt
Speaker 1: Wagner at Kurt Wagner eight. Hey, Kurt, I want to
Speaker 1: send it over to you to start with this afternoon.
Speaker 1: So you can't want it's like you win. It's it's
Speaker 1: like there's no good outcome. Here is my big takeaway
Speaker 1: from your story because the company has been so beat
Speaker 1: up over the drama, and if it goes through, then
Speaker 1: what does that look like? Yeah? And and that's you
Speaker 1: know what we've been talking about for a couple months now,
Speaker 1: is that you know what is the end result here?
Speaker 1: And and and I think it became apparently abundantly clear.
Speaker 1: Excuse me that, Uh, no matter what happens, you know, Twitter,
Speaker 1: the company is in for a crazy ride. And you know,
Speaker 1: if Elon gets Twitter, as we are starting to expect,
Speaker 1: you know, that's going to lead the layoffs, cost cuts,
Speaker 1: UM going to rescind a lot of the rules around
Speaker 1: speech and and misinformation is the expectations. So you know,
Speaker 1: suddenly this service that's incredibly important is going to look
Speaker 1: and feel very different. Um and and the company is
Speaker 1: going to look until different. Now for some reason, that
Speaker 1: deal falls apart. Uh, Suddenly you still have a company
Speaker 1: that you know has spent the last six to nine
Speaker 1: months just in total chaos, and they have to kind
Speaker 1: of pick up and try and pretend like nothing ever happened.
Speaker 1: And I just don't think that that's realistic either. So
Speaker 1: you know, the story was meant to kind of give
Speaker 1: people a glimpse into what the Twitter employees are feeling
Speaker 1: right now, which is a lot of which is a
Speaker 1: lot of chaos. Tough place to be in. Joe Webb
Speaker 1: or the editor Blooberg Business Week magazine also with us.
Speaker 1: First of all, can I just say the cover and
Speaker 1: you made Ellen nice pecks there. Yeah, he's got some
Speaker 1: good biceps too. So we've been talking about this for
Speaker 1: for months. You know, it's obviously probably the one of
Speaker 1: the biggest business stories of the year, and and I'm curious.
Speaker 1: You know, one of the things that um uh, that
Speaker 1: you had in here was even some new stuff about
Speaker 1: you know, what the employees really felt about their potential
Speaker 1: new boss. So so take us, take us there and
Speaker 1: sort of the these uh, these slacks that you were
Speaker 1: able to get. Well, there's there's two scenes that are
Speaker 1: in the book. The first one is from early Elon
Speaker 1: showed up at a Twitter off site with the entire
Speaker 1: company and he complained about bots, and um you know,
Speaker 1: at that point, everyone kind of just sort of shrugged
Speaker 1: it off, like here's just a popular user who has
Speaker 1: an issue. Fast forward two and a half years and
Speaker 1: suddenly Ellen is still complaining about bots. But now, you know,
Speaker 1: when he addresses employees and in all hands in June,
Speaker 1: the vibe is very different, right. It's it's no longer
Speaker 1: here's this outside kind of tech celebrity showing up to
Speaker 1: give us advice. It's here's the new boss starting to
Speaker 1: you know, lay down the future of the company. And
Speaker 1: employees were not happy. You know, he alluded to layoffs,
Speaker 1: he alluded to other cost cuts, maybe getting rid of
Speaker 1: remote work, which a lot of people on Twitter have
Speaker 1: really come to enjoy, and so on slack. They're basically
Speaker 1: mocking that they're soon to be boss as he's speaking
Speaker 1: to them. You know, there's things like, hey, is it
Speaker 1: too early to get a drink? Like this guy doesn't
Speaker 1: know what he's talking about, and you know that just
Speaker 1: gives you a sense of like how unhappy a lot
Speaker 1: of Twitter employees are with this right that they would
Speaker 1: openly mock kind of the new boss um during the
Speaker 1: opening Q and A with with staff. And I just
Speaker 1: think this is only going to get worse from here,
Speaker 1: because there's a lot that's happened in the last couple
Speaker 1: of months to make him even less attractive to a
Speaker 1: lot of Twitter employees. Okay, so what you he ends up?
Speaker 1: Let's say he has to cut this check forty four
Speaker 1: billion dollars, right, like, don't bounce that check? That that
Speaker 1: would be unfortunate. Uh he's uh, he becomes you know,
Speaker 1: owner of Twitter after all of this. What what chess
Speaker 1: moves go down from there? Do you do? Do we
Speaker 1: think Yeah, I think there's a few things. Um, First
Speaker 1: and foremost, I imagine he's gonna put in or probably
Speaker 1: put in his own executive team. He's he's been pretty
Speaker 1: open that he has, you know, no faith in the
Speaker 1: current leadership at Twitter. We expect that CEO Prague Agawal
Speaker 1: will probably be out. Um. Also the top lawyer, Vigid Gotti,
Speaker 1: will probably be out. So you know, there's gonna be
Speaker 1: new new people at the top of this company. And
Speaker 1: then I think the other thing is, you know, he's
Speaker 1: talked a lot about wanting to bring quote free speech
Speaker 1: back to Twitter, right, And what does that mean. Well,
Speaker 1: for starters, that means reversing permanent bands. So we might
Speaker 1: see President Trump back on Twitter quite soon. We might
Speaker 1: see other people who have been banned back on Twitter.
Speaker 1: But I also think he's you know, it sounds like
Speaker 1: he plans to get rid of a lot of the
Speaker 1: rules around harassments and hate speech and misinformation that Twitter
Speaker 1: has been building over the last couple of years. That's
Speaker 1: going to have a huge impact on just the vibe
Speaker 1: of of what it feels like the scroll through your
Speaker 1: Twitter timeline, right. And I don't know exactly how quickly
Speaker 1: all that stuff can be unraveled. But I imagine, um,
Speaker 1: you know, it might feel very different to people in
Speaker 1: the next couple of months. That's a really interesting point card.
Speaker 1: And that's when I really wanted to hit on because
Speaker 1: there is a you know, there's got to be a
Speaker 1: portion of people who think that this is a good thing.
Speaker 1: I've seen it play out on Twitter and you see
Speaker 1: a lot of people say, wait a second, this is
Speaker 1: a good thing for Twitter because you know, this is
Speaker 1: going to be more about quote unquote free speech. So
Speaker 1: what else does it look like on the other side
Speaker 1: of this if this does go through, does it actually
Speaker 1: attract more people, doesn't become a more attractive platform? Or
Speaker 1: do those protections that must potentially takes away or could
Speaker 1: take away? Does that hinders people, hinder people's experience on it? Well,
Speaker 1: you know what's funny is, um, there was a time,
Speaker 1: probably three or four years ago when Twitter was still
Speaker 1: very much struggling with all of this hate speech and
Speaker 1: harafsment stuff, and there were people leaving right like, hey,
Speaker 1: I don't want to be on this health site. I
Speaker 1: don't wanna you know, there's a there a lot of
Speaker 1: mean things said about Twitter, and people were saying that
Speaker 1: they were leaving, right, and then Donald Trump got this
Speaker 1: band and people said, well, now everyone's gonna lead Twitter
Speaker 1: because they banned President Trump. And in both cases, the
Speaker 1: numbers didn't really reflect either of those things. Right, Like
Speaker 1: it was, it was mostly people complaining about this, but
Speaker 1: the majority of user stuck around. Now in this case,
Speaker 1: I think that's probably the same thing that's going to happen. Right.
Speaker 1: There will be people who are happy to see some
Speaker 1: of these rules rescinded, some people will be very sad,
Speaker 1: but for the most part, I imagine most people will
Speaker 1: probably stick around, at least in the near term. Hey, Kurt,
Speaker 1: one thing I'm curious about too, though, is you know
Speaker 1: Elon Musk has a lot on his plate. Well the
Speaker 1: ultimately how you know, have a deputy really you know
Speaker 1: running things that Twitter. How do how do we anticipate
Speaker 1: in my play out? Yeah, this is this is still
Speaker 1: an unknown. Um. You know, I mentioned that I think
Speaker 1: the current executive team is probably going to be out
Speaker 1: the door, But who does he bring in to run
Speaker 1: the day to day It doesn't seem really feasible for
Speaker 1: him to do that considering his responsibilities that SpaceX and
Speaker 1: Tesla as well, um, But one thing he did tell
Speaker 1: employees in June and that we mentioned the story, is
Speaker 1: he said he doesn't really care much about ales like
Speaker 1: you see the CEO is he something else? But he
Speaker 1: wants to make the decisions. He wants people to listen
Speaker 1: to him. You know. So I do think he's going
Speaker 1: to be pretty involved, at least in the direction of
Speaker 1: where this company is going now. He is he the
Speaker 1: one who's going to be, you know, answering emails UM
Speaker 1: all day about product tweaks. I don't know. It seems unlikely,
Speaker 1: but he does claim he wants to be heavily involved here.
Speaker 1: I love the last line of your story. Bad. I
Speaker 1: guess what what title or role Musk will be and
Speaker 1: he says, I don't really care what the title is,
Speaker 1: but obviously people do need to listen to me. Right,
Speaker 1: Who's in charge of the new guy? Alright? Great story.
Speaker 1: It is the cover story of the new issue of
Speaker 1: Bloomberg Business Week, which will be out on newstands tomorrow
Speaker 1: online already at Bloomberg dot com slash business weekn on
Speaker 1: the Bloomberg terminal. What what's the over under on whether
Speaker 1: or not that title has the letter X in it?
Speaker 1: Something that he's just totally obsessed with, you know, X
Speaker 1: it's a whole new dimension for where where Ellen could
Speaker 1: go here and like, you know, you thought Mars was
Speaker 1: the last one, so oh my gosh, and it ain't
Speaker 1: over yet. Where are the final friends? All right? Oh?
Speaker 1: Thanks to Kurt Wagner, Bloomberg News Technology reportn of course,
Speaker 1: till webber a Business Week. This is Bloomberg Business Week
Speaker 1: with Carol Messer and Bloomberg Quick Takes Tim Stinovic on
Speaker 1: Bloomberg Radio. We just talked about airline or I did
Speaker 1: airline stocks release? Amount performance today? The rally and American
Speaker 1: Airlines alone up again and up around five percent in
Speaker 1: the past two trading days. The US carrier yesterday lifting uh.
Speaker 1: It's forecasting its guidance above prior guidance. American officially reports
Speaker 1: next week, so does United. Meantime, we've got Delta reporting tomorrow.
Speaker 1: All right. For a roundup of what to expect from
Speaker 1: airlines and already what we've heard, we turned to Colin Scarola,
Speaker 1: equity analyst at cfre A Research. Collin joins us this
Speaker 1: afternoon on the phone from New York City. So Colin
Speaker 1: is Carol mentioned we've already heard from a pre announcement
Speaker 1: from American Airlines. Um, what does that tell us what
Speaker 1: we learned from American yesterday, what does that tell us
Speaker 1: about what to expect across the wider industry? Well, thank
Speaker 1: you for having me first of all. Uh, specifically as
Speaker 1: it relates to Delta's earnings released tomorrow. I think what
Speaker 1: the American numbers tell us is that pricing across the industry,
Speaker 1: ticket pricing, it's held up really strong. We haven't seen
Speaker 1: that anyone who's trying to book a flight anywhere realizes that, right.
Speaker 1: I mean it's like we're trying to decide if we
Speaker 1: drive for Thanksgiving or or fly because it's so expensive calling, right.
Speaker 1: And I think what what a lot of sort of
Speaker 1: industry watchers were expecting was that that big springway of
Speaker 1: booking would drive up the prices, but then they would
Speaker 1: start trailing down a bit over the summer. But it's
Speaker 1: been you know, from American standpoint, and I expected to
Speaker 1: be the same for Delta tomorrow. It's been great for
Speaker 1: them to see that the pricing really isn't coming down,
Speaker 1: because maybe they're seeing a little bit of trailing down
Speaker 1: in domestic but as they bring those international flights back.
Speaker 1: You see the brand new that first big booking way
Speaker 1: bidding the international markets, and that's keeping I think overall
Speaker 1: pricing very strong. I feel like everybody, Colin, right now
Speaker 1: is going overseas. I mean, I hear everybody talking about
Speaker 1: we talked about Kati Griffield cheese overseas right now. Everybody
Speaker 1: seems to be probably listening right now because she just
Speaker 1: can't take the break she's getting about. But Colin, what
Speaker 1: I'm wondering is, so, what are the big macro dynamics.
Speaker 1: Is this just a case of people who were stuck
Speaker 1: in their homes during the pandemic buying stuff they probably
Speaker 1: didn't need, and now they're going out just kind of
Speaker 1: enjoying life and being back to normal and experiencing things.
Speaker 1: Is it that? But is it also reduced capacity, reduced workers?
Speaker 1: And so it's just kind of supply demand dynamics at
Speaker 1: work in the airline industry. Yeah, it's a little bit
Speaker 1: of both. So you get you get unusually high demand
Speaker 1: with unusually low supply, and that's where this sort of
Speaker 1: increase in pricing comes from. Relative to and just a
Speaker 1: few anecdotes, I think we have a record number of
Speaker 1: weddings happening in the US this year and next year.
Speaker 1: You know that that's the type of thing that's driving
Speaker 1: that leisure travel demand, plus the vacation demand getting to
Speaker 1: Europe wherever it might be that people used to love
Speaker 1: to go. And then what was good to see for
Speaker 1: the industry is we saw we saw the consumer and
Speaker 1: the households have that huge pent up demand streak this
Speaker 1: spring and summer, and I think now we're starting to
Speaker 1: see it from businesses as well. Um, you look at
Speaker 1: a lot of the accounting and consulting firms who used
Speaker 1: to have people out on the road working at client
Speaker 1: sites four days every week. You know that sort of
Speaker 1: Monday morning Thursday night travel routine that seems to be
Speaker 1: coming back in a pretty big way now this falling
Speaker 1: into this winter. So what started with the pent up
Speaker 1: demand on the consumer and leisure side that you know,
Speaker 1: it's still strong, it hasn't on its course, It's still
Speaker 1: very strong, but it's it's certainly not growth anymore, I
Speaker 1: don't think. But now international and business are starting to
Speaker 1: see that same sort of big pent up demand waves.
Speaker 1: So overall, very good things for the airlines, and they
Speaker 1: look like extremely cheap stocks to me, generally, that's interest
Speaker 1: how strong demand is Colin? Do we ever do we
Speaker 1: ever see business travel resumed levels? And I asked because
Speaker 1: friend of mine is an event planner for for company.
Speaker 1: She plans conferences, and she was saying, it is so
Speaker 1: much more economic economical to do these virtual conferences. The
Speaker 1: lead generation that we get per cost is just so
Speaker 1: much better, it's so much lower. And she's like, I
Speaker 1: don't see us ever going back to, you know, what
Speaker 1: we were doing before the pandemic because it was just
Speaker 1: too expensive. Yeah, it's tough to make a call on that.
Speaker 1: I hear. I hear piece of information like you just relayed,
Speaker 1: But then I also hear from a lot of surveys
Speaker 1: on businesses that you just can't replace face to face interaction.
Speaker 1: And I think my my view tends to lead towards
Speaker 1: that it will come back bigger than it was. Um
Speaker 1: American Airlines specifically, they reported on small and medium business
Speaker 1: revenues they were actually up in the past Q two.
Speaker 1: So already small and medium businesses seem to be putting
Speaker 1: in greater demand for air travel than they were before
Speaker 1: the pandemic. And uh, it's not a given that corporates.
Speaker 1: You know, the larger corporates will follow that same track.
Speaker 1: But I certainly think that's the most likely outcome, just
Speaker 1: because I think people want to get back to seeing
Speaker 1: their clients and seeing their coworkers. Hey, hey, Colin, not
Speaker 1: to be a Debbie downer, and just got about thirty seconds.
Speaker 1: I just want to squeeze in if we go though
Speaker 1: to a downturn, or maybe we're already in it, but
Speaker 1: if something protracted happened certainly into next year, are the
Speaker 1: airlines in good shape to weather it? And again, just
Speaker 1: got about thirty seconds. Yeah, I think a recession would
Speaker 1: not get the airlines as acutely as it as it
Speaker 1: has historically because of the pent up demand factor. So
Speaker 1: the recession, in my view, it's it's hitting goods producing industries,
Speaker 1: whereas services like air travel mold up pretty well because
Speaker 1: there's that natural offset from the pent up demand. All right, Well,
Speaker 1: good to know, hey, Colin, Thank you so much. Colin Scarolla,
Speaker 1: equity analyst over at CFR A research on the phone
Speaker 1: in New York City. Don't forget American United next week
Speaker 1: in delta reporting tomorrow, I believe in the morning. And
Speaker 1: uh yeah, I gotta get those tickets for Thanksgiving cotting close.
Speaker 1: We're gonna be driving. This is Bloomberg. You're listening to
Speaker 1: Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes
Speaker 1: Tim Stinovic on Bloomberg Radio. Shares of PepsiCo they are
Speaker 1: rallying today and that is on the back of what
Speaker 1: we got from the company lifting its outlook, drink snacks sales,
Speaker 1: bucking inflation meeting, the company still able to hike prices
Speaker 1: to battle inflation. So, uh, it was a strong quarter.
Speaker 1: It was, um and to help us understand what specifically
Speaker 1: was strong about it and how we can read into
Speaker 1: Petser's results for other companies, We've got Gerald Pascarelli joining us,
Speaker 1: Senior vice president of equity research at Webbush Securities. Jail
Speaker 1: joining us on the phone from New York City. Good
Speaker 1: to have you with us this afternoon, Jail. Really appreciate
Speaker 1: you taking the time. Um, what do we what did
Speaker 1: we find out from Pepsi about the strength of the
Speaker 1: consumer because they were able to raise prices and people paid. Thanks,
Speaker 1: first of all, thanks thanks very much for having me,
Speaker 1: uh send me on the show, and um, yeah, it
Speaker 1: was it was it was a great earnings from Pepsi UM.
Speaker 1: I think that when you look at UM the leading
Speaker 1: trends heading into earnings, which are typically going to come
Speaker 1: from from Scanner Data, Nielsen or I R I, what
Speaker 1: you saw UM was just a continued strengthening of growth
Speaker 1: across really cold beverages as well as snacks UM with
Speaker 1: three lay in for Pepsi that accounts for over their
Speaker 1: total company profits and UM. The salty snacks data has
Speaker 1: has just been fantastic UM. They're they're back to gaining
Speaker 1: market share and they're actually in Scanner Data doing over
Speaker 1: twenty points of price UM and so we we thought
Speaker 1: it was going to be a good print. They delivered
Speaker 1: a good print. And what you really saw was was
Speaker 1: price led revenue growth across most of these segments UM,
Speaker 1: which is really not only driving a strong top line,
Speaker 1: but it's helping to protect against these outsized levels of
Speaker 1: commodity implation UM. And it was really strong across the
Speaker 1: board when you look at all of their segments. I
Speaker 1: just to make sure I heard right, Freedo Lay and PepsiCo.
Speaker 1: You said the profits you talking about PepsiCo, that brand
Speaker 1: and then it's Friedo Lay brand. So Freedo LAY is
Speaker 1: a segment, is a segment with that that Pepsi reports on,
Speaker 1: and that's that segment. In particular, Freedo LAY North America
Speaker 1: is of total company profits, so it's meaningful. Um, it's
Speaker 1: it's the biggest profit driver. And when you're getting twenty
Speaker 1: points of price mix um, and they actually reported twenty
Speaker 1: points of price mix um, which is which is kind
Speaker 1: of in line with what we've been seeing in scanner,
Speaker 1: you're gonna have good profitability. Okay, so so far, so
Speaker 1: good in terms of raising being having the ability to
Speaker 1: raise prices, prices as you know, the macro conversation we
Speaker 1: often talk about, you know, the FED continuing to raise rates,
Speaker 1: the prospect of recession, what kind of recession it would be,
Speaker 1: How how much more can PepsiCo do something like this? Yeah,
Speaker 1: I think that as of right now, UM pricing remains
Speaker 1: robust and the volume elastic the demand elasticity, so the
Speaker 1: volume impact has been relatively muted, which is which is encouraging.
Speaker 1: I don't think anyone's expecting this strong double digit pricing
Speaker 1: to persist. And if you kind of look at where
Speaker 1: UM consensus estimates were for heading into the quarter, they're
Speaker 1: expecting the normalization UM to the mid single digit range,
Speaker 1: and so I think, UM, you know, as as you
Speaker 1: get more through the fourth quarter and then into three,
Speaker 1: you'll you'll likely see a normalization in this pricing, which
Speaker 1: in turn should result in some better volume throughput as
Speaker 1: part of the revenue algorithm. UM. But as of right now, UM,
Speaker 1: you know, these are essentially lower price needs based products UM,
Speaker 1: which is which is one of the benefits in the
Speaker 1: current environment is that UM consumers need these products UM,
Speaker 1: and they're relatively low pricing. You can generate UM pretty
Speaker 1: meaningful price mix. Hey, Jared, what about when it comes
Speaker 1: to Coca Cola and what this means for Coca Cola,
Speaker 1: Because there's no Freedo lay equivalent at Coca Cola, there's
Speaker 1: there's not UM. But encouragingly, I did mention Friedo as
Speaker 1: as as as a segment that was delivering strong pricing.
Speaker 1: But there perhaps he's getting strong pricing in in cold
Speaker 1: beverages as well. And when you look at some of
Speaker 1: the transferred for Coke, UM, Coke's actually getting the best
Speaker 1: price mix because they are the market leader within carbonated
Speaker 1: soft drinks, which is the most important category for them.
Speaker 1: So I think that this is definitely a positive read
Speaker 1: on Coca Cola. UM, even though they don't have a
Speaker 1: snack segment, we would expect this strong pricing that we've
Speaker 1: seen for Pepsi to to persist with cokes as well
Speaker 1: as carried dr Pepper UM. One thing to note about Coke,
Speaker 1: the shares have definitely sold off. UM. I know there
Speaker 1: was you know, broad market pressure over the course of
Speaker 1: the month September, but these shares did sell off more
Speaker 1: so than some of the other non alcoholic beverage peers,
Speaker 1: and that's largely due to currency um and some concern
Speaker 1: around the European consumer. Um. I'll just right the audience said,
Speaker 1: you know, Coca Cola is six international. Now it's yeah,
Speaker 1: we have to think about the global component, the currency
Speaker 1: component when it comes as something like Coca Cola, which
Speaker 1: is up by the one on the back of that
Speaker 1: PepsiCo news. Joe Pascarelli of Wedbush, thank you journal. Yeah,
Speaker 1: but you let me drive? Oh no, no, no, home honey, please,
Speaker 1: I'll do vels. I want to drive. Good question. This
Speaker 1: is the Drive to the Clothes on Bloomberg Radio. I
Speaker 1: gotta love on this at f O m C minutes day,
Speaker 1: we're watching markets bounce around and getting ready for inflation
Speaker 1: print and you know what we're talking about, Natie Murphy. Yeah,
Speaker 1: you know, a little blast from the past. But we're
Speaker 1: really pleased this afternoon because we've got Victoria Green. She's
Speaker 1: chief investment officer at she Squared Private. Well, she's with
Speaker 1: us right now in the Bloomberg Interactor Broker Studio. Interviewed
Speaker 1: you like a dozen times, never met you in person, Victoria,
Speaker 1: So welcome back to New York. It's good to have
Speaker 1: you here. What brings you to the city. Uh, some
Speaker 1: of it was just to do a little bit of
Speaker 1: work and have a couple of meetings, and then obviously
Speaker 1: I hadn't met a lot of them, my Bloomberg friends
Speaker 1: in person, so I want to come say hi and
Speaker 1: and meet everybody. So it's been great. By the way,
Speaker 1: you're free snacks, amazing goods here. They're really really good.
Speaker 1: But we have to work now, unfortunately, but you're almost done.
Speaker 1: You're almost dead. Um, give us some clarity. We got
Speaker 1: fed minutes today. A reminder, no pivot, They're gonna keep
Speaker 1: raising rates. Um. We did see some bounce off the
Speaker 1: lows in terms of equities, but we're really little change
Speaker 1: ahead of the inflation print tomorrow. So how do you
Speaker 1: look at this market? What's a constructive conversation to have
Speaker 1: right now? I think it's too early. I still see
Speaker 1: some downside risk. I think the print too early for
Speaker 1: a pivot, too early for a pivot. I actually have
Speaker 1: been saying the pivot is dead. So everybody that's hopeful
Speaker 1: for a pivot, it's like wishing for like that sold
Speaker 1: out toy on Christmas, I really don't think you're gonna
Speaker 1: get it. Like, I'm sorry, I wish I had better news,
Speaker 1: but I don't think it's coming. At some point, they're
Speaker 1: gonna pivot. It's sometimes they're good. It's some pot. They're
Speaker 1: gonna stop raising rates, rights they cover somehore in the
Speaker 1: Dallas Cowboys are probably gonna want the Super Bowl again.
Speaker 1: Are you saying you never expect the fedot? Like, actually,
Speaker 1: it's a good question. It's also a good question. I
Speaker 1: think for people who are thinking about buying a home
Speaker 1: right now, they say, Okay, well I get locked into
Speaker 1: thirty year mortgage. Interest rates are going to be high forever,
Speaker 1: so maybe I could refin in five years. But is
Speaker 1: this the new normal? No? I do think so. If
Speaker 1: you look at what the FED funds features are pricing
Speaker 1: in it's it's comes down rather rapidly in twenty four
Speaker 1: So I think though nothing this year. You know, they
Speaker 1: talked about we we did, we rather do too much
Speaker 1: than too little. I think very shortly they're going to
Speaker 1: have to switch from we need to do too little
Speaker 1: not too much because this delayed reaction of the FED,
Speaker 1: which is I feel like the momentum was there. I
Speaker 1: think that was in the FMC minutes today that they're
Speaker 1: more concerned about doing too little rather than too much. Yeah,
Speaker 1: and at some point they're gonna be much more concerned about, hey,
Speaker 1: we did too much, we need to back off. I
Speaker 1: don't think we're there yre, That's that's my thesis. We've
Speaker 1: got a little bit more downside. The Fed's not bailing
Speaker 1: us out, you know at some point, and that it
Speaker 1: was a little Machi Valley and how we rallied on
Speaker 1: the UK problems that we had because everybody said, oh
Speaker 1: it's gonna get so bad. It's good. We're just not
Speaker 1: there yet. We have the data points from labor markets
Speaker 1: still too tight. PEPSI came out with great earnings like
Speaker 1: they're stress, but there's not. Inter came out and said
Speaker 1: it's cutting thousands. They are, And the text sector is
Speaker 1: one of those that we say avoid right now. Like
Speaker 1: look at the chip market. You know for months now,
Speaker 1: Oh it's attractive, but then you did keep getting bad
Speaker 1: news on bad news on PC sales and uh, you
Speaker 1: know in that that sector, like just because of stocks
Speaker 1: down doesn't mean it can't go down another thirty And
Speaker 1: you've got so many macro headwinds. Okay, So what's an
Speaker 1: investor to do in this environment? If if you're saying
Speaker 1: the pivot is dead, it's too early for a pivot
Speaker 1: at this point. Um, when do we see a bottom here?
Speaker 1: It's thirty four to thirty two. I don't think we're
Speaker 1: that far off, but mostly because the multiple earnings have
Speaker 1: remained rather robust. I don't think too forty is kind
Speaker 1: of the average street for next year. I think that's
Speaker 1: still a little bit too high. But even if we're
Speaker 1: flat at gets you fifteen sixteen handle, that's not a
Speaker 1: bad place to be looking. But stay defensive. The biggest
Speaker 1: thing an investor can do is don't panic or don't
Speaker 1: need jerk on data. We've seen wild moves off of
Speaker 1: some of these data releases or FED moves and and
Speaker 1: a lot of times it's a one or two day
Speaker 1: move and comes back to trent. So I would say,
Speaker 1: like one day, one week does not a market make
Speaker 1: like be a little bit patient. Uh. And then if
Speaker 1: you've got equities now unless you're worry you have a
Speaker 1: zombie or something that's going to completely blow up, um
Speaker 1: it really just hold onto it. And we talked to
Speaker 1: a little bit. Cash and liquidity dividends are great right
Speaker 1: now you've got tara versa tino because you are have
Speaker 1: all so you wouldn't be living in aggressively into cash
Speaker 1: at this point. No, No, I think you gotta you know,
Speaker 1: no one to hold them, no one to fold them.
Speaker 1: At this point. You got to hold unless you have
Speaker 1: something that's a credit risk or blow up risk. What's
Speaker 1: a credit risk right now? I mean talk about the
Speaker 1: Wrestle three thousand and some of the zombie companies in there,
Speaker 1: or I would say, not not to pick on Cathy Wood,
Speaker 1: but some of the art fun like the innovative stuff,
Speaker 1: the cool stuff that did so well so long right now,
Speaker 1: Typically smaller companies, higher leverage, no real earnings, and they're
Speaker 1: keeping raising capital. That's that's not a good place to
Speaker 1: beat during times of stress. You want quality, you want
Speaker 1: cash flow, You want to balance sheet that can resorb
Speaker 1: some problems, which is why you like Costco. And you
Speaker 1: you several times have come on and you say you
Speaker 1: like Costco And I was just looking up it like
Speaker 1: down seventeen percent this year, but I think it's had
Speaker 1: a nice little bounce from it's recently low, up about
Speaker 1: thirteen or so. So the big reason, sorry, I was
Speaker 1: just gonna say the correct. So I like them. One
Speaker 1: they make about seventy their revenues from the US, and
Speaker 1: then they're there. They are international, but the remaining like
Speaker 1: most doority in Canada, which the problem a little bit
Speaker 1: dollar problems to all of this inventory problem that Nike
Speaker 1: and Amazon and everybody have benefits a story like Costco
Speaker 1: because they're happy to buy things cheaply from Nike and
Speaker 1: resell it at Costco. They're not beholden to any brand
Speaker 1: other than the Kirkland brand, which is amazing. Um, but
Speaker 1: but you know, so they have this purchasing power that
Speaker 1: other companies don't have. So Nike has to sell, Nankie
Speaker 1: has to get their things off and so you have
Speaker 1: a company like Costco that can buy some of the
Speaker 1: inventory pretty cheap and then resell to their members. They
Speaker 1: have such a loyal member base they do, and then
Speaker 1: when you're looking to stretch your dollar, buyer secia economic
Speaker 1: to higher like in terms of their consumer I gotta
Speaker 1: tell you this is not like Texas, Victoria. We don't
Speaker 1: have room for like, you know, two d rolls of
Speaker 1: toilet paper in our apartments in New York City. So
Speaker 1: we're not the Costco shoppers. I figured you guys learn
Speaker 1: earned from the pandemic, Like you would have a toilet paper.
Speaker 1: He's got a basement of toilet paper. So if you
Speaker 1: ever run out, I did have a solution. That's a
Speaker 1: different show. Hey, let's move on to United Healthcare before
Speaker 1: this gets too crazy. Why are you on United Healthcare?
Speaker 1: First off, they have some great pricing power. I mean,
Speaker 1: anybody who's about to re up their insurance premiums next year,
Speaker 1: you know, they have this ability to say we made
Speaker 1: record profits, but but no, they do. They got pricing
Speaker 1: power there there. You know. Again, they have a lot
Speaker 1: more in the US. I also think technology was with
Speaker 1: some of the acquisitions they've done, they are looking at
Speaker 1: other parts of the market getting into the pharmacy and
Speaker 1: the telehealth and um, you know that's a little bit
Speaker 1: like Teledoc used to be the darling, but then you
Speaker 1: have the big boys getting into it and they're developing
Speaker 1: their own program. I love that you still love energy.
Speaker 1: I mean it's hard not to if you look at
Speaker 1: the super mega uber out performance of energy this year,
Speaker 1: and it just kind of continues. Shanira is one name.
Speaker 1: Just got about twenty seconds. Why that name up sixties
Speaker 1: six percent so far this year. Sorry, Shinny oh sneers
Speaker 1: great so l G exporting. We're gonna win what Russia loses.
Speaker 1: So they're about they have the biggest ports while round company.
Speaker 1: Uh and they have the ability to expand, so as
Speaker 1: Russia box out Europe looking for natural gas, they're they're
Speaker 1: are the best position. They're also very very well run
Speaker 1: company and they have the biggest sports and terminals to
Speaker 1: get it up there. Great stuff. So fun to have
Speaker 1: you in town. Come back soon, say travel's home. I'm
Speaker 1: just gonna go back to Texas. Victoria Green, chief investment
Speaker 1: Officer G Squared Private Wealth, here in our interactive broker studio.
Speaker 1: Thanks for listening to Bloomberg Business Week. Download the podcast
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