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

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

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Speaker 1: Eastern on Applecarplay and Android Auto with the Bloomberg Business App.

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

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Speaker 1: us live on YouTube.

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Speaker 2: FedEx reported some numbers. Le's get back to the corporate

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Speaker 2: earnings disappointing. They're saying tariffs are having an impact on

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Speaker 2: their core shipping business. Let's get the latest on that.

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Speaker 2: Lee Clascow, Bloomberg Intelligence Senior Transport Logistics and shipping analysts

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Speaker 2: and host Bloomberg Intelligence, Taking Transports podcast. If you like railroads,

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Speaker 2: trained trust, he is a big pot.

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Speaker 3: He's joining the cool kids now he is.

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Speaker 2: And if you're into all that logistics transportation stuff, this

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Speaker 2: Talking Transports podcast is the place for you to go.

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Speaker 2: Check it out, Lee, FedEx. What are they tell on

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Speaker 2: the street today?

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Speaker 4: So their last quarter was a decent quarter, but the

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Speaker 4: quarter uh looking forward to their first physical quarter is

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Speaker 4: not going to be a great quarter. And that's really

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Speaker 4: just given the uncertainty that is being driven by the tariffs.

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Speaker 4: So you know they're seeing weakness in their B to

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Speaker 4: B business they're seeing weakness in their industrial kind of

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Speaker 4: end markets, and they're obviously seeing some weakness for volumes

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Speaker 4: that are coming out of China into.

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Speaker 5: The United States.

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Speaker 4: So, you know, these are kind of the headwinds that

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Speaker 4: they're facing. You know, FedEx is doing what it can.

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Speaker 4: It has a couple of initiatives where it's trying to

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Speaker 4: take permanent cost out of its network. But at the

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Speaker 4: end of the day, the company is transitioning from one

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Speaker 4: that used to be B to B business to business

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Speaker 4: is now is.

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Speaker 5: Mostly you know, the growth really is B two C,

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Speaker 5: so that.

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Speaker 4: E commerce business, which is more expensive to deliver, so

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Speaker 4: that what they're trying to do is create a more

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Speaker 4: efficient network. And unfortunately for them, it doesn't happen overnight.

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Speaker 4: It takes a long time, and this is a kind

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Speaker 4: of a journey that they've been going through for the

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Speaker 4: last couple of years.

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Speaker 3: Here here's what was confusing to me is that UPS

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Speaker 3: did the same thing like in the last quarter, like

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Speaker 3: they didn't. They were like, it's uncertain, we don't know

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Speaker 3: what's gonna happen. FedEx said the same thing, but the

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Speaker 3: stock got really punished in afterwhere hours. And I appreciate

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Speaker 3: it's just down two percent now, But why wasn't this

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Speaker 3: already baked into the stock?

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Speaker 5: You know, that's that's a good question.

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Speaker 4: You know, I was thinking about got an uncertain tattoo

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Speaker 4: to my forehead because I'll.

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Speaker 3: Say it so much, but it don't do that.

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Speaker 6: That's gonna hurt.

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Speaker 5: Or probably spell it wrong too.

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Speaker 4: And you know what, you know, you know, what the

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Speaker 4: reality is is the stop and go and go and

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Speaker 4: stop with the tariffs are making it very difficult for

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Speaker 4: not only businesses to operate, but consumers. You know, you

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Speaker 4: saw the other day consumer confidence came in below expectations.

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Speaker 5: So the tariffs are.

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Speaker 4: Really having an impact on volumes. You know, once we

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Speaker 4: get more I think really what businesses really need to

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Speaker 4: know is kind of what are the rules of the road,

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Speaker 4: and then they can operate within those rules.

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Speaker 5: But the stop and go aspects.

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Speaker 4: Of the tariffs can be really confusing and disruptive to

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Speaker 4: supply chains, which is obviously you know FedEx and ups

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Speaker 4: their their core to to move that freight around the world.

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Speaker 2: What's there when you look at FedEx businesses, what's their

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Speaker 2: exposure to China? How are they exposed at China? Uh?

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Speaker 5: Well, they're exposed on there.

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Speaker 4: They're express businesses, so you know, they fly things from

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Speaker 4: all around Asia and Chrivzi China is the largest aspect

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Speaker 4: of that to the United States. You know, it's it

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Speaker 4: could be anything from commercial goods to consumer goods, so

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Speaker 4: you know, they do have a decent exposure.

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Speaker 5: You know.

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Speaker 4: One of the other things that FedEx does is they're

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Speaker 4: in the less than truckload business, which also came in

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Speaker 4: a little below expectations, and that's been a tough business

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Speaker 4: that's really kind of geared towards that that industrial economy.

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Speaker 4: So when you see the ism being in contraction territory

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Speaker 4: for twenty nine in the last thirty one months, that's

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Speaker 4: really weighing on that business. And FedEx does plan on

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Speaker 4: spending out that business sometime, you know, next year.

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Speaker 3: So what's the right question then to be asking for

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Speaker 3: a FedEx and a UPS at this point because you know,

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Speaker 3: the as you point out rightly, the uncertainty trade for

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Speaker 3: transports is definitely front and center, like no one's going

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Speaker 3: to have a firm outlook, So what's the next question.

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Speaker 4: I guess the next question is how are you restructuring

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Speaker 4: your networks to be able to handle the more expensive

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Speaker 4: home deliveries that we're all accustomed to. So, you know,

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Speaker 4: we're all accustomed to free shipping. You know, when you

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Speaker 4: order something online, how are they going to facilitate that

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Speaker 4: at They're at the lowest cost they possibly can because

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Speaker 4: they're you know, they face competition to FedEx and the

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Speaker 4: UPS is the world. They fed face competition from local players,

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Speaker 4: from gig economies, from the US Postal Service, and so

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Speaker 4: they they need to know bend that cost curve lower

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Speaker 4: to be able to drive better margins.

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Speaker 5: And you know, UPS N FedEx have been again.

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Speaker 4: Trying to restructure their networks. And I guess the real

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Speaker 4: question is when is it going to end and when

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Speaker 4: can we see margins start improving. But I don't think

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Speaker 4: that's going to be a twenty twenty five calendar year story.

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Speaker 4: I think that might be more of a twenty twenty

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Speaker 4: sixth story. And you know, as things normalize and buying

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Speaker 4: begins to grow again, I think that should really generate

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Speaker 4: pretty good margins in these types of businesses.

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Speaker 2: And Lee, let's pivot just here at the end. Here

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Speaker 2: you also cover the big ocean shipping companies. What are

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Speaker 2: they seeing in terms of freight and cargo and all

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Speaker 2: that kind of stuff again in a world where we're

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Speaker 2: operating with some uncertain terrorf levels.

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Speaker 4: Yeah, well they're they're enjoying the disruptions that are created,

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Speaker 4: the geopolitical disruptions because those are pushing rates higher than

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Speaker 4: they probably need to be.

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Speaker 5: So that's for them and that positive.

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Speaker 4: Then that negative, to your point, is on the volume side,

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Speaker 4: we are seeing a surge of freight that's going to

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Speaker 4: be heading to southern California in the weeks to come,

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Speaker 4: and so that's that is an incremental positive. But the

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Speaker 4: problem is that these surges in freight demand could create

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Speaker 4: air pockets and much tougher to second half comparisons when

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Speaker 4: it comes to volumes, So you could have strong volumes

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Speaker 4: near term, but kind of weaker volumes with the months

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Speaker 4: heading months further out.

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Speaker 3: All right, Ley, it's a pleasure. Thank you so much

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Speaker 3: to Klasical. He joins us from Bloomberg Intelligence. He covers

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Speaker 3: all the transports. There a senior transport logistics and shipping analysts.

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Speaker 3: He's doing the podcast train there's a Bloomberg Intelligence talking

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Speaker 3: transports podcast. I thought we were the only BI podcast.

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Speaker 2: No, he's look at that.

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Speaker 3: A lot of them out there, all right, all right,

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Speaker 3: you know.

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

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Speaker 1: weekdays at ten am Eastern on Apple Corplay and Android

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Speaker 1: Auto with the Bloomberg This Up. Listen on demand wherever

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

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Speaker 2: Alex Steal Paul Sweeney live here in our Bloomberg INTERACTI

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Speaker 2: broker studio, streaming live on YouTube as well. All right,

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Speaker 2: up at the pantry on the sixth floor here, I

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Speaker 2: start every morning around six am with the bowl of

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Speaker 2: honey nut cheerios, and that is a General Mills product.

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Speaker 2: They had some numbers that weren't very good. The company

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Speaker 2: expects adjusted earnings per share to decline as much as

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Speaker 2: fifteen percent a constant currency basis this year. That's tough.

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Speaker 2: Let's go to Diana Recital Pain. Yes, she's a consumer

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Speaker 2: staples analyst Bloomberg Intelligence, joining us live here in our

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Speaker 2: Bloomberg Interactive Broker Studio. So Diana General Mills week earnings

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Speaker 2: outlook talk to us about what's going on in their business.

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Speaker 7: So it's pretty much what is happening across the package

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Speaker 7: food industry. Volumes are not coming in and they're going

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Speaker 7: to have to invest more in pricing, some cutting prices

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Speaker 7: as well as weak volume. It is basically flat. It's

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Speaker 7: to negative organic growth and that is obviously with a

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Speaker 7: negative product mix, is probably going to go down the

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Speaker 7: P and L.

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Speaker 3: But why, Like, we still got to eat so and

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Speaker 3: these are staples, right, So what's the problem.

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Speaker 7: Well, basically there's a greater private label penetration. People are

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Speaker 7: being more strategic with their spending and they're not.

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Speaker 3: So private labels like three sixty five from Whole Foods

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Speaker 3: or something.

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Speaker 7: Right, Za's exactly. And in the past few years, retailers

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Speaker 7: have invested a lot on private label brands. So the

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Speaker 7: competition has become more fears and it seems that the equity,

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Speaker 7: the brand equity that these companies used to.

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Speaker 2: Have is not hidden anymore.

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Speaker 7: Like people are just not buying their products.

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Speaker 2: I'm one of them. I mean, before the pandemic and

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Speaker 2: the inflation, I don't think I've bought one private label

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Speaker 2: thing ever. In fact, you know, I felt strongly about brands,

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Speaker 2: but now I'm like, screw it, And so we buy

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Speaker 2: so many private label products now versus and I don't.

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Speaker 7: Know, and you're not the only one we're seeing, like

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Speaker 7: across all age groups, particularly for gen zs, they're less

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Speaker 7: dedicated to brands that the older generations.

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Speaker 2: What do you do about that?

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Speaker 3: Yeah, then we have to make your own private Well,

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Speaker 3: you know.

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Speaker 7: Some of these companies do have some private label, but

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Speaker 7: it doesn't it obviously, they don't break it down and

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Speaker 7: they're trying to make it not as evident. And obviously

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Speaker 7: they want to invest, they want to increase marketing. They're

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Speaker 7: gonna probably cut prices, which is which is why you

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Speaker 7: see adjusted operating income probably gonna decline in fifteen percent

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Speaker 7: over the next fiscal year.

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Speaker 3: Can they invest in their own private label brand or

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Speaker 3: is that market so saturated? No, it's not necessarily like

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Speaker 3: in the marketing side.

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Speaker 7: That will fall on the retailer side to invest in

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Speaker 7: their private label. But I'm meaning more unlike this Cereal,

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Speaker 7: the brand Cereal branded Cereal.

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Speaker 2: All right, I'm asking for a friend who may or

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Speaker 2: may not be getting his first pet ever in his

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Speaker 2: lifetime on July sixteenth, a dog, Australian labradoodle. Not just

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Speaker 2: about the pet food business. What's that like?

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Speaker 7: So they have been it seems that that part of

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Speaker 7: their business stabilizing a little bit. They are now and

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Speaker 7: you probably will see Fresh Pet declining I believe four

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Speaker 7: to five percent today because they're start they're extending the

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Speaker 7: Blue Buffalo brand into fresh Pets.

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Speaker 2: Who's doing what well?

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Speaker 7: So General Mills is expanding Blue Buffalo into fresh food

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Speaker 7: fresh pet food, but Fresh Pet has like ninety percent

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Speaker 7: of the market share, so obviously you know that intrusion

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Speaker 7: is probably hitting them. We're not necessarily that convinced. They

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Speaker 7: weren't very forthcoming in terms of like the type of distribution. Obviously,

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Speaker 7: this is more refrigerated food that needs a little bit

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Speaker 7: different than like the boxes of cereal that they are

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Speaker 7: used to. So we're we're still you know, taking a

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Speaker 7: look how they're going to distribute that and how they

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Speaker 7: they're gonna kind of get share from Fresh Pet, which

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Speaker 7: has like their own fridges and stuff.

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Speaker 3: What consumer staple brand is doing everything right?

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Speaker 7: Uh? I would say, uh wow, that is from what

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Speaker 7: I'm seeing probably, I mean, like yogurt, like you're thinking

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Speaker 7: about Chiavani, like those guys seem to be so.

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Speaker 3: Like a specialty Hell yes, sort of staple eat place exactly.

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Speaker 5: You have.

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Speaker 7: You know, high protein, like all the good attributes that

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Speaker 7: people are looking for. I think those are like the

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Speaker 7: ones that will probably benefit from from this, and.

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Speaker 2: I'll sell what I but I still buy the brand

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Speaker 2: Campbell soup. Maybe that's just a kid thing.

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Speaker 3: That's like, that's definitely a kid think, but I feel

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Speaker 3: that way about like generics. We talked about this at

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Speaker 3: drug stores, like you got to get the real band aids.

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Speaker 3: Like if you don't get the real band aids, they

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Speaker 3: just fall off.

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Speaker 2: It's just terrific.

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Speaker 3: It's very upsetting, all right, Dana, Thanks very much. Dianna

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Speaker 3: as their opinion. Bloomberg Intelligence consumer staples analysts. Joining us there.

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

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Speaker 3: Happy Wednesday, everybody. Alex Steal here alongside Paul Sweeney. This

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Speaker 3: is Bloomberg Intelligence Radio. We cover all the tap news

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Speaker 3: and business economics and finance through our lens of our

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Speaker 3: Bloomberg Intelligence folks take over two thousand companies and one

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Speaker 3: hundred and thirty industries all around the world. We talked

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Speaker 3: earlier about General mills and sort of the issues there

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Speaker 3: with the private label brands and store brands. Let's take

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Speaker 3: another look at consumer products, but look at it at

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Speaker 3: the lens of restaurants and restaurant valuations.

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Speaker 2: Kind of the haves and have nots.

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Speaker 3: Michael Hale and Bloomberg Intelligence senior restaurant and food service

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Speaker 3: analyst joins us now fresh at up a recent report.

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Speaker 3: So I asked Diana this, like, who's the winner in

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Speaker 3: the consumer staples? And she was like ooh, and it

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Speaker 3: like took her a while to get there because it's

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Speaker 3: really rough. Same question to you, who are the winners

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Speaker 3: in the restaurant is uh?

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Speaker 8: You know, the two of the names that we really

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Speaker 8: like this year are Cracker Barrel and Shake Shack.

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Speaker 6: They Cracker Bail.

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Speaker 3: I still got to go many the goals.

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Speaker 6: They hired new CEOs last year.

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Speaker 8: Uh, they're really focusing on improving the operations first and

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Speaker 8: then the marketing.

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Speaker 6: Uh there and so we're really excited about.

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Speaker 8: Some of the changes and some of the early results.

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Speaker 8: You know, both of them we expect to outperform pretty

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Speaker 8: significantly on the on the top line this year.

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Speaker 2: Well, the Cracker Barrel, I mean I know my way

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Speaker 2: around at Cracker bar. I know where every little nud

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Speaker 2: nick is in every store. Every store is the same.

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Speaker 2: And then of course the same order the Country Boy breakfast.

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Speaker 3: But what'sn't that again, it's not like.

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Speaker 2: The Country Boy breakfast with the country ham okay, and

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Speaker 2: you get biscuits and gravy.

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Speaker 5: It's a whole thing.

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Speaker 3: It's a whole thing.

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Speaker 2: It's a whole thing. Unbuttoned yourself and sit right down. Yeah,

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Speaker 2: what did they changing here?

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Speaker 5: What is it?

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Speaker 2: Because that's kind of what they are. It seems like

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Speaker 2: their DNA is kind of that type of stuff.

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Speaker 6: Yeah.

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Speaker 8: So so one of the first things they did was

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Speaker 8: focus their menu right. There was a lot of items

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Speaker 8: on there that were not selling very good and also

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Speaker 8: bogging down the kitchen. That has made the experience better

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Speaker 8: for the employees. Employee turnover has plummeted. It was down,

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Speaker 8: you know, high.

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Speaker 6: Teens year over year in the last quarter.

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Speaker 8: So that saves them a lot of money on training

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Speaker 8: and things of that nature provide, you know, as the

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Speaker 8: longer your employees stay, obviously, the better experience your customers

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Speaker 8: get and then people come back.

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Speaker 6: They're also touching up the stores.

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Speaker 8: They're going to remodel the stores, lighting and paint are

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Speaker 8: some are some of the things that they're going to

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Speaker 8: do across all the stores. Some of the stores need

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Speaker 8: more work. They'll do the floors as well. That's something

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Speaker 8: they're starting to do. And then they're ramping up the marketing.

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Speaker 8: So now that the operations are running well, they're doing

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Speaker 8: more social media marketing talk, they're they they just had

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Speaker 8: their first NASCAR race and the Cracker Bar of four

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Speaker 8: hundred down in Tennessee, right Crystal, And they're advertising on

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Speaker 8: live sports as well as Bravo. There's a huge overlap

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Speaker 8: between casual dining fans and Bravo watchers, and so yes,

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Speaker 8: do not see that coming.

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Speaker 3: So on the other hand, what are some of the

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Speaker 3: companies that aren't doing so well?

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Speaker 8: Oh yeah, so you know some of the legacy casual

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Speaker 8: dining brands. Casual dining in general is having somewhat of

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Speaker 8: a renaissance. This year's casual Chili's is the one they've

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Speaker 8: Chili's is rocking it absolutely, and Applebee's is not. So

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Speaker 8: you got you got your preferences confused right now?

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Speaker 6: Backwards, I'd say so, yeah.

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Speaker 8: Dine Brands, which owns Applebee's and Ihop, they're having a

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Speaker 8: real real hard time resonating with younger consumers and and

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Speaker 8: haven't been able to bring those consumers into the brand.

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Speaker 8: They also have a large number of low income consumers

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Speaker 8: that visit those brands, and so that's really hurting their

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Speaker 8: hurting their results. And then blooming brands out Back Steakhouses

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Speaker 8: their biggest chain, they've same type of situation. They've struggled

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Speaker 8: to bring in younger consumers into the brands, and their pricing.

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Speaker 6: Got way ahead of itself.

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Speaker 8: So if you compare them to Texas Roadhouse, it's a

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Speaker 8: way more expensive experience and yet maybe not a better product,

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Speaker 8: not a better experience for the consumer, definitely not better service.

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Speaker 2: Your coverage is a great reflection of the consumer. What

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Speaker 2: are your takeaways? How is the consumer out there? What

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Speaker 2: are the restaurants telling you?

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Speaker 8: They're doing all right? They're doing alright. Last year was

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Speaker 8: a restaurant session. This year results are better, and we

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Speaker 8: expect them to get better in the second half. You know,

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Speaker 8: first quarter there was some consternation, but it was a

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Speaker 8: lot of bad weather. There was a bad flu season.

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Speaker 8: There was some pullback by low and middle income consumers

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Speaker 8: in March, but they seem to have rebound results have

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Speaker 8: been pretty strong thus far, and we and the economic

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Speaker 8: indicators that we watch are starting to get a little

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Speaker 8: bit better.

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Speaker 3: So unvalued appropriately for the conditions right now.

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Speaker 8: Well, you know me personally, I don't look at historical

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Speaker 8: valuations because the market cycles change so much.

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Speaker 6: I'm looking at it on a relative basis, right, and

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Speaker 6: relative to the peer group. Okay, yeah, and so I see.

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Speaker 8: And so it depends on the name, right, It definitely

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Speaker 8: depends on the name. But you know, I think restaurants

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Speaker 8: are set up for a nice strong second half. We

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Speaker 8: also have we are going to have that tailwind of

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Speaker 8: tax cuts, and so I think just getting that, having

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Speaker 8: that and be the narrative versus tariffs and war and

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Speaker 8: whatever else, I think it's going to help shift consumer

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Speaker 8: sentiment and spending.

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Speaker 2: Just the quick service restaurants, which otherwise is fast food.

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Speaker 2: How are they doing?

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Speaker 8: Fast food is struggling. Number one, they're lapping harder comparisons

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Speaker 8: from last year. Number two, they have more exposure to

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Speaker 8: income consumers, which continue to be hurt by the inflation

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Speaker 8: that we've.

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Speaker 6: Seen, right.

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Speaker 8: And number three, they've overbuilt so since the since the pandemic,

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Speaker 8: full service chains, casual dying chains, kind of pulled back

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Speaker 8: on their development.

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Speaker 6: They closed stores. Fast Food has.

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Speaker 8: Just been full steam ahead of opening stores, so supplying

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Speaker 8: de Man has gotten out.

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Speaker 3: Of whack, all right, Michael, thanks a lot, Really appreciate it,

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Speaker 3: really good stuff.

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Speaker 2: I still going to make it.

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Speaker 6: To crack a barrel.

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Speaker 3: Michael hallin the Brig Intelligence senior restaurant and food service analysts,

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Speaker 3: joining us on the winters and losers of a restaurant valuations.

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