1 00:00:02,720 --> 00:00:10,559 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the 2 00:00:10,600 --> 00:00:14,560 Speaker 1: Bloomberg Intelligence podcast. Catch us live weekdays at ten am 3 00:00:14,600 --> 00:00:17,880 Speaker 1: Eastern on Apple Coarcklay and Android Auto with the Bloomberg 4 00:00:17,920 --> 00:00:21,040 Speaker 1: Business App. Listen on demand wherever you get your podcasts, 5 00:00:21,360 --> 00:00:23,080 Speaker 1: or watch us live on YouTube. 6 00:00:23,880 --> 00:00:25,560 Speaker 2: I'm not sure if the last twenty four to forty 7 00:00:25,560 --> 00:00:27,240 Speaker 2: eight hours has been a good. 8 00:00:26,960 --> 00:00:29,760 Speaker 3: Time for the defense contractors or bad time. 9 00:00:29,800 --> 00:00:32,880 Speaker 2: On one hand, he got President Trump saying he wants 10 00:00:32,920 --> 00:00:35,160 Speaker 2: to ramp up defense spending big time. On the other hand, 11 00:00:35,159 --> 00:00:37,360 Speaker 2: he says, we want you to do better, do faster, 12 00:00:37,880 --> 00:00:40,400 Speaker 2: stop paying out dividends and buybacks. I don't know what's 13 00:00:40,400 --> 00:00:42,400 Speaker 2: going on there. So George Ferguson, it's his job to 14 00:00:42,400 --> 00:00:44,839 Speaker 2: know what's going on. He's a senior aerospace, defense and 15 00:00:44,840 --> 00:00:49,680 Speaker 2: airlines analysts for Bloomberg Intelligence. George, what it twenty four 16 00:00:49,680 --> 00:00:52,080 Speaker 2: to forty eight hours has been for the defense contractors? 17 00:00:52,080 --> 00:00:52,800 Speaker 2: My head is spinning. 18 00:00:52,880 --> 00:00:53,520 Speaker 3: What's your take? 19 00:00:55,080 --> 00:00:58,960 Speaker 4: So my take is that one and a half trillion 20 00:00:59,120 --> 00:01:01,200 Speaker 4: sounds like a great defense budget. It sounds like, you know, 21 00:01:01,200 --> 00:01:03,920 Speaker 4: if you're a defense contractor, it'll be hard to execute 22 00:01:03,920 --> 00:01:06,160 Speaker 4: on that, right. It's that's basically increasing the budget by 23 00:01:06,200 --> 00:01:09,040 Speaker 4: fifty percent, So I'm not sure how much they'll really 24 00:01:09,040 --> 00:01:12,800 Speaker 4: be able to benefit from that big increase. We still 25 00:01:12,800 --> 00:01:14,959 Speaker 4: got to see Congress also approve something like that too, 26 00:01:15,000 --> 00:01:18,959 Speaker 4: so I don't get too excited yet about that one 27 00:01:19,000 --> 00:01:20,920 Speaker 4: and a half tillion dollar number. Like a lot of 28 00:01:20,920 --> 00:01:24,040 Speaker 4: things in Washington, the barrel being the details and see 29 00:01:24,040 --> 00:01:27,920 Speaker 4: what they bring forward. I'm a little more concerned about 30 00:01:27,959 --> 00:01:34,600 Speaker 4: the you know, the buyback divid end limit on compensation 31 00:01:35,120 --> 00:01:40,000 Speaker 4: restrictions or at least uh push to push to limit, right, 32 00:01:40,080 --> 00:01:43,080 Speaker 4: because you know, we're kind of looking at this, you know, 33 00:01:43,319 --> 00:01:46,360 Speaker 4: overnight thinking about this a bit, right. So you know, 34 00:01:46,400 --> 00:01:48,800 Speaker 4: these are defense stocks, right. Defense stacks are not you 35 00:01:48,840 --> 00:01:51,200 Speaker 4: don't wake up in the morning and find out some 36 00:01:51,280 --> 00:01:54,080 Speaker 4: defense company has the killer I don't know, you know, 37 00:01:54,920 --> 00:01:59,280 Speaker 4: killer app, killer device, and all of a sudden, everybody's 38 00:01:59,280 --> 00:02:01,800 Speaker 4: got to own it. Venues are rising by seventy percent, 39 00:02:02,360 --> 00:02:05,760 Speaker 4: you know, it's it's a huge profit maker. Profits are 40 00:02:06,000 --> 00:02:09,520 Speaker 4: just ballooning out and the stocks are rising. These are 41 00:02:09,600 --> 00:02:12,600 Speaker 4: you know, these are sort of slow, methodical growing companies. 42 00:02:13,040 --> 00:02:15,320 Speaker 4: They help the country build somebody the equipment we need 43 00:02:15,400 --> 00:02:20,880 Speaker 4: to defend ourselves. They get margins. You know, ten eleven, twelve, 44 00:02:21,240 --> 00:02:23,720 Speaker 4: that's a good margin. It's not you know, for the 45 00:02:23,760 --> 00:02:26,520 Speaker 4: rest of the industry, the rest of industrials, that's not 46 00:02:26,720 --> 00:02:31,480 Speaker 4: super great. And so you support your stock through dividends 47 00:02:31,960 --> 00:02:34,920 Speaker 4: and share buybacks as you need them, right, and so 48 00:02:35,960 --> 00:02:38,560 Speaker 4: there's a class of investor in here looking for that dividend. 49 00:02:39,120 --> 00:02:41,040 Speaker 4: I think I think it's a it's it's a fair 50 00:02:41,080 --> 00:02:43,280 Speaker 4: return for them, meaning it's fair for them to look 51 00:02:43,320 --> 00:02:45,919 Speaker 4: for that as a shareholder. So I think that if 52 00:02:45,919 --> 00:02:48,200 Speaker 4: they can't have a dividend, they're gonna have to go 53 00:02:48,240 --> 00:02:51,600 Speaker 4: find some other shareholders. You know, I'm a little concerned 54 00:02:51,639 --> 00:02:54,440 Speaker 4: about how they how they do that, honestly, how they 55 00:02:55,200 --> 00:02:57,120 Speaker 4: manage that change how much. 56 00:02:57,200 --> 00:02:59,359 Speaker 2: I mean, we know the President Trump signed an executive 57 00:02:59,480 --> 00:03:04,720 Speaker 2: order regarding this buybacks and dividends and capping executive pay, 58 00:03:04,760 --> 00:03:08,600 Speaker 2: but in reality, I don't know what kind of I 59 00:03:08,600 --> 00:03:11,120 Speaker 2: guess authority he really has. Now, I guess there's a 60 00:03:11,240 --> 00:03:14,280 Speaker 2: tremendous amount of leverage the federal government has because they're 61 00:03:14,400 --> 00:03:18,040 Speaker 2: obviously the biggest customer of these defense contractors. Have you 62 00:03:18,080 --> 00:03:20,440 Speaker 2: heard anything from the companies about how they might deal 63 00:03:20,480 --> 00:03:23,200 Speaker 2: with you know, a tougher stance with the government. 64 00:03:24,080 --> 00:03:25,960 Speaker 4: Not here from the companies yet, right, it's been about 65 00:03:25,960 --> 00:03:28,840 Speaker 4: twelve hours. I'm sure they're busy huddling and trying to 66 00:03:28,840 --> 00:03:31,280 Speaker 4: figure out what to do next. Yeah, but I agree 67 00:03:31,320 --> 00:03:34,480 Speaker 4: with you. So look at feels like the President and 68 00:03:34,560 --> 00:03:39,000 Speaker 4: obviously the Defense Department could hold back contracts as a 69 00:03:39,000 --> 00:03:41,800 Speaker 4: way to try to influence the defense companies. But I 70 00:03:41,840 --> 00:03:43,640 Speaker 4: don't think it's quite as easy as that, right, Like 71 00:03:43,640 --> 00:03:45,920 Speaker 4: you're going to You're not going to pull the Joint 72 00:03:45,920 --> 00:03:48,760 Speaker 4: Strike Fighter out of Lockheed and put it somewhere else, right, 73 00:03:49,240 --> 00:03:51,560 Speaker 4: you can't. It takes you a decade to do that. 74 00:03:51,600 --> 00:03:53,960 Speaker 4: I think at least half a decade, and Trump will 75 00:03:53,960 --> 00:03:56,800 Speaker 4: be out of office by then. You know, Raytheon makes 76 00:03:56,880 --> 00:04:01,080 Speaker 4: really great radars air defense systems. You know, that's one 77 00:04:01,120 --> 00:04:03,040 Speaker 4: of their core competencies. You're not going to pull it 78 00:04:03,080 --> 00:04:06,840 Speaker 4: out of there, you know, right away? And so to me, 79 00:04:06,920 --> 00:04:09,320 Speaker 4: I think, you know, that sort of the contract leverage 80 00:04:09,920 --> 00:04:11,920 Speaker 4: is challenging for sure. I think they can make it 81 00:04:12,000 --> 00:04:15,000 Speaker 4: a bit more painful than the executive teams would like. 82 00:04:15,120 --> 00:04:17,440 Speaker 4: And one of the other things we keep thinking about too, 83 00:04:17,520 --> 00:04:20,800 Speaker 4: is so you know, Raytheon is part of a bigger 84 00:04:21,040 --> 00:04:26,280 Speaker 4: company called RTX. Two thirds of that company is commercial, right, 85 00:04:26,360 --> 00:04:30,840 Speaker 4: So if you're RTX management, maybe you'd want to separate, 86 00:04:30,920 --> 00:04:32,960 Speaker 4: right because you all of a sudden you can't feed 87 00:04:33,000 --> 00:04:36,360 Speaker 4: your shareholders on the commercial side the way you could 88 00:04:36,480 --> 00:04:38,120 Speaker 4: be the same as you could feed them on the 89 00:04:38,120 --> 00:04:40,520 Speaker 4: defense side. Maybe you'd say, Okay, why don't we pull 90 00:04:40,600 --> 00:04:43,760 Speaker 4: raytheon out of here. I don't think the federal government 91 00:04:43,800 --> 00:04:47,680 Speaker 4: wants that either, right, because they're synergies inside and RTX. 92 00:04:47,680 --> 00:04:50,360 Speaker 4: Where they make jet engines for the Joint Strike Fighter, 93 00:04:50,680 --> 00:04:53,000 Speaker 4: they make jet engines for the commercial aircraft fleet, the 94 00:04:53,000 --> 00:04:56,799 Speaker 4: global commercial aircraft fleet. You want those synergies inside the company. 95 00:04:57,080 --> 00:04:59,960 Speaker 4: So I'm not I'm not sure how this fully plays. 96 00:05:00,279 --> 00:05:02,320 Speaker 4: My guess is that right now you don't need a 97 00:05:02,320 --> 00:05:05,919 Speaker 4: lot of support from a buybacked perspective because defense stocks 98 00:05:05,960 --> 00:05:08,280 Speaker 4: are generally hot, right, so a lot of them I've 99 00:05:08,320 --> 00:05:10,760 Speaker 4: seen sort of wind down some of those buybacks. The 100 00:05:10,800 --> 00:05:13,880 Speaker 4: dividends a different story. Maybe they go in and try 101 00:05:13,880 --> 00:05:15,960 Speaker 4: to discuss with the administration a bit about how they 102 00:05:16,320 --> 00:05:18,920 Speaker 4: keep the dividend, and the CEOs have to worry about 103 00:05:18,920 --> 00:05:20,640 Speaker 4: how to fix the five million dollar cap on their 104 00:05:20,920 --> 00:05:21,440 Speaker 4: on their pay. 105 00:05:23,560 --> 00:05:26,599 Speaker 3: Stay with us. More from Bloomberg Intelligence coming up after this. 106 00:05:30,240 --> 00:05:33,920 Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live 107 00:05:34,040 --> 00:05:37,120 Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android 108 00:05:37,120 --> 00:05:40,440 Speaker 1: Auto with the Bloomberg Business App. Listen on demand wherever 109 00:05:40,480 --> 00:05:43,800 Speaker 1: you get your podcasts, or watch us live on YouTube. 110 00:05:44,720 --> 00:05:46,159 Speaker 5: Let's take a look at one of the stocks that 111 00:05:46,279 --> 00:05:49,640 Speaker 5: was hard hit last year. Constellation Brands fell thirty six 112 00:05:49,680 --> 00:05:53,640 Speaker 5: percent in twenty twenty five, and heading into this earnings report, 113 00:05:53,839 --> 00:05:55,840 Speaker 5: I think it's safe to say that expectations were not 114 00:05:55,880 --> 00:05:59,400 Speaker 5: necessarily high because, you know, a whole generation of kids 115 00:05:59,400 --> 00:06:03,560 Speaker 5: seem to have turned away from alcohol and turned to scandule. Yeah, 116 00:06:03,800 --> 00:06:08,000 Speaker 5: alternative sources of you know, aneviation. In any case, Kenneth's 117 00:06:08,040 --> 00:06:11,080 Speaker 5: Jay is Bloomberg Intelligence is senior consumer products analysts joining 118 00:06:11,120 --> 00:06:15,960 Speaker 5: us now to talk about Constellation Brands and Kenneth Constellation Brands. 119 00:06:16,080 --> 00:06:18,039 Speaker 5: The stock at least is up four percent today. Was 120 00:06:18,040 --> 00:06:20,719 Speaker 5: it a case of expectations were really low and it 121 00:06:20,800 --> 00:06:21,800 Speaker 5: be a lowered bar? 122 00:06:23,080 --> 00:06:25,720 Speaker 6: H Scarlett, Yeah, that's the way I'm looking at it. Clearly, 123 00:06:25,760 --> 00:06:29,719 Speaker 6: when a company lowered guidance last quarter, it was really 124 00:06:29,720 --> 00:06:32,520 Speaker 6: set the bar low, and they exceeded that bar last 125 00:06:32,600 --> 00:06:37,400 Speaker 6: night you know. Having said that, though they remained cautious, 126 00:06:37,640 --> 00:06:39,960 Speaker 6: and I think it's for good reason. And that's because 127 00:06:39,960 --> 00:06:44,279 Speaker 6: the fundamental drivers that are pressuring the company's you know, outlook, 128 00:06:44,480 --> 00:06:47,920 Speaker 6: remain in place, and the companies spelled them out predominantly. 129 00:06:48,080 --> 00:06:52,160 Speaker 6: It's the impact of the cumultive raises of prices over 130 00:06:52,200 --> 00:06:55,760 Speaker 6: the last few years on beer's some degree consumers have 131 00:06:55,839 --> 00:06:59,640 Speaker 6: sticker shock they go buy beer. Also, half the company's 132 00:06:59,640 --> 00:07:03,280 Speaker 6: customer base, according to the company, or from the Hispanic community, 133 00:07:03,520 --> 00:07:07,720 Speaker 6: which understandably is under pressure with the US immigration policy. 134 00:07:08,200 --> 00:07:11,000 Speaker 6: Those two factors are unlikely to change in the near term, 135 00:07:11,120 --> 00:07:13,960 Speaker 6: and hence the company remains cautious going forward. 136 00:07:15,200 --> 00:07:18,600 Speaker 2: So if the Hispanic population is important for them, how 137 00:07:18,640 --> 00:07:20,360 Speaker 2: are they dealing with this? Is or any marketing they 138 00:07:20,400 --> 00:07:23,880 Speaker 2: can do? Is it just that seems like almost out 139 00:07:23,880 --> 00:07:26,360 Speaker 2: of their control to something. 140 00:07:26,160 --> 00:07:29,160 Speaker 6: Agree it is? Paul having said that, I mean, the 141 00:07:29,200 --> 00:07:32,840 Speaker 6: company has you know, to deserve deserves credit for doing 142 00:07:32,880 --> 00:07:34,480 Speaker 6: all it can do. It's coming out with a no 143 00:07:34,600 --> 00:07:42,880 Speaker 6: alcoholic version of Corona for those seeking that well a 144 00:07:42,880 --> 00:07:46,680 Speaker 6: lot of consumers. And another pressure John is that there's 145 00:07:46,680 --> 00:07:49,520 Speaker 6: an alcohol moderation going on. Scarlett alluded that a minute 146 00:07:49,520 --> 00:07:53,760 Speaker 6: ago that hasn't changed. Alcohol moderation is not only you know, 147 00:07:53,800 --> 00:07:58,560 Speaker 6: the young demographic out there chooses other forms of nebriation 148 00:07:58,800 --> 00:08:03,440 Speaker 6: like cannabis, but also they're more conscientious I believe of 149 00:08:03,520 --> 00:08:07,200 Speaker 6: health risk associated with alcohol as maybe their parents and 150 00:08:07,240 --> 00:08:10,400 Speaker 6: grandparents you know did. Yeah, and then you have GLP 151 00:08:10,520 --> 00:08:13,520 Speaker 6: one drugs. You know, our own survey at Bloomberg Intelligence 152 00:08:13,600 --> 00:08:18,840 Speaker 6: showed that thirty percent of GLP one users significantly reduce 153 00:08:18,920 --> 00:08:23,440 Speaker 6: alcohol in their diets. So all these factors combined suggest 154 00:08:23,720 --> 00:08:26,840 Speaker 6: you know, you know, increased caution is needed. 155 00:08:26,600 --> 00:08:29,480 Speaker 5: Here, increased caution and of course that's something This is 156 00:08:29,520 --> 00:08:33,120 Speaker 5: a structural headwind for a company like Constellation Brands. It's 157 00:08:33,400 --> 00:08:35,360 Speaker 5: not just beer either. I know, beer is like the 158 00:08:35,440 --> 00:08:38,160 Speaker 5: dominant part of their business. But spirits and wines. How 159 00:08:38,200 --> 00:08:39,960 Speaker 5: does that look for Constellation Brands. 160 00:08:41,000 --> 00:08:42,840 Speaker 6: Well, they've done a good job pruning some of the 161 00:08:42,960 --> 00:08:46,520 Speaker 6: underachieving brands over the last few years. It's predominantly a 162 00:08:46,559 --> 00:08:51,520 Speaker 6: wine portfolio, and consumers tend to be pretty loyal to 163 00:08:51,600 --> 00:08:55,960 Speaker 6: brands and don't really evate much towards beer and spirits 164 00:08:55,960 --> 00:08:59,160 Speaker 6: say thing like wine and they you know, a pretty 165 00:08:59,160 --> 00:09:02,640 Speaker 6: stable category. Having said that, there's been a lot of 166 00:09:02,720 --> 00:09:07,040 Speaker 6: low priced competition in recent years and that's really hurt 167 00:09:07,080 --> 00:09:11,160 Speaker 6: the margin structure of that business. So it's likely to 168 00:09:11,200 --> 00:09:14,079 Speaker 6: remain somewhat under pressure by many of the same factors 169 00:09:14,080 --> 00:09:16,720 Speaker 6: that I mentioned before. But it is a higher margin 170 00:09:18,160 --> 00:09:21,239 Speaker 6: you know, portfolio than it was a year or two ago, 171 00:09:21,400 --> 00:09:24,319 Speaker 6: and the company has some pretty good brands in that category. 172 00:09:24,840 --> 00:09:26,640 Speaker 2: I'm not sure I want to know the answer to this, Ken, 173 00:09:26,679 --> 00:09:29,080 Speaker 2: but can you tell me what the US ready to 174 00:09:29,160 --> 00:09:30,600 Speaker 2: drink protein market is? 175 00:09:31,840 --> 00:09:35,280 Speaker 6: Sure, Paul, Well, you know it's it's to only eight 176 00:09:35,280 --> 00:09:37,600 Speaker 6: billion dollar market as a seguey to beer, which is 177 00:09:37,600 --> 00:09:40,480 Speaker 6: one hundred and ten billion. It's a small market, but 178 00:09:40,840 --> 00:09:44,080 Speaker 6: it's growing fast. Again. It's been around a while. But 179 00:09:44,559 --> 00:09:48,480 Speaker 6: unlike those days where the consumers you know, drank it 180 00:09:48,520 --> 00:09:53,000 Speaker 6: as a supplemental to their diet overall diet, now they're 181 00:09:53,160 --> 00:09:57,560 Speaker 6: responding to again GLP one. The it's one of the 182 00:09:57,559 --> 00:10:00,920 Speaker 6: beneficiaries of the GILB one trend. And also the Dietary 183 00:10:00,920 --> 00:10:03,680 Speaker 6: Guidelines came out today and said where protein is needed, 184 00:10:04,400 --> 00:10:06,520 Speaker 6: this is a real easy way for consumer to get 185 00:10:06,520 --> 00:10:10,240 Speaker 6: the protein. It's inexpensive in lots of different slavers. It's 186 00:10:10,280 --> 00:10:14,000 Speaker 6: convenient to you know, it's portable and so basically it's 187 00:10:14,000 --> 00:10:17,360 Speaker 6: a high protein. High protein drink can give you as 188 00:10:17,400 --> 00:10:20,560 Speaker 6: much as half of your daily intake of protein according 189 00:10:20,559 --> 00:10:22,800 Speaker 6: to the FDA, So it's an easy way to you know, 190 00:10:22,920 --> 00:10:27,080 Speaker 6: meet or exceed your you know, requirements are protein. 191 00:10:28,280 --> 00:10:30,760 Speaker 5: Is this the kind of narrative that consolation brands wants 192 00:10:30,800 --> 00:10:34,240 Speaker 5: to be pushing to investors to get them excited or 193 00:10:34,280 --> 00:10:36,600 Speaker 5: to kind of signal that this is where they see 194 00:10:37,200 --> 00:10:40,520 Speaker 5: opportunities constellation. 195 00:10:41,440 --> 00:10:44,719 Speaker 6: Well, you know, I think the communication they're giving investors 196 00:10:44,920 --> 00:10:47,920 Speaker 6: is we're doing all we can do, you know, to 197 00:10:48,040 --> 00:10:52,319 Speaker 6: ride out this turbulence in alcoholic beverages. And obviously be 198 00:10:52,480 --> 00:10:56,640 Speaker 6: or beers ninety percent of their portfolio. At the end 199 00:10:56,640 --> 00:10:59,240 Speaker 6: of the day, though the company gets really high margins. 200 00:11:00,120 --> 00:11:02,560 Speaker 6: Is the best margine structure of all the beverage companies 201 00:11:02,559 --> 00:11:04,400 Speaker 6: I cover. You know, they have an operating margin in 202 00:11:04,720 --> 00:11:07,480 Speaker 6: the high thirties. That's that's really high. It's almost twice 203 00:11:07,520 --> 00:11:12,280 Speaker 6: out of of the average beer US beverage company, and 204 00:11:12,400 --> 00:11:15,040 Speaker 6: as such, it generates a lot of free cash flow. 205 00:11:15,080 --> 00:11:17,560 Speaker 6: And I think that explains why Berkshire Hathaway has been 206 00:11:17,600 --> 00:11:20,439 Speaker 6: nibbling away and increasing its stake in this company, it's 207 00:11:20,480 --> 00:11:24,400 Speaker 6: all about free cash flow. With one of its big 208 00:11:25,400 --> 00:11:30,160 Speaker 6: brewers down in Mexico, in Veracruz, almost completed. We would 209 00:11:30,200 --> 00:11:32,200 Speaker 6: expect free cash flow to grow at a strong double 210 00:11:32,240 --> 00:11:35,400 Speaker 6: digit rate over the next couple of years, even amid 211 00:11:35,440 --> 00:11:38,720 Speaker 6: all these pressures on alcohol and ken. 212 00:11:38,720 --> 00:11:40,360 Speaker 2: Whenever we talk to you about your companies, we need 213 00:11:40,360 --> 00:11:42,640 Speaker 2: to talk about a dividend and dividend policy. I see 214 00:11:42,640 --> 00:11:45,400 Speaker 2: they have a dividend yield here about two point eight percent. A. 215 00:11:45,640 --> 00:11:49,080 Speaker 2: Is that a competitive dividend yield? And B maybe is 216 00:11:49,280 --> 00:11:50,400 Speaker 2: you expected to go higher? 217 00:11:51,920 --> 00:11:54,880 Speaker 6: In terms of competitive it's about the same as its 218 00:11:54,960 --> 00:11:57,679 Speaker 6: closest US beverage piers around, you know, two and a 219 00:11:57,679 --> 00:11:59,560 Speaker 6: half to three and a half percent or so. So 220 00:11:59,600 --> 00:12:01,920 Speaker 6: that's on are it's even at pay a ratio at 221 00:12:01,920 --> 00:12:05,880 Speaker 6: about thirty percent is comfortable enough that future increase, as 222 00:12:05,920 --> 00:12:10,080 Speaker 6: we think, are very achievable. And I think the company 223 00:12:10,080 --> 00:12:14,240 Speaker 6: has committed to rewarding shareholders through you know, a regular 224 00:12:14,240 --> 00:12:17,960 Speaker 6: dividend increase and also periodic share buybacks, which we would 225 00:12:18,000 --> 00:12:20,280 Speaker 6: expect to pick up, you know, as I mentioned, as 226 00:12:20,280 --> 00:12:22,600 Speaker 6: a free cashlow picks up over the next couple of years. 227 00:12:23,320 --> 00:12:26,440 Speaker 3: Stay with us. More from Bloomberg Intelligence coming up after this. 228 00:12:30,320 --> 00:12:34,040 Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us Live 229 00:12:34,120 --> 00:12:37,480 Speaker 1: weekdays at ten am Eastern on Applecarplay and Android Auto 230 00:12:37,600 --> 00:12:40,679 Speaker 1: with the Bloomberg Business app. Listen on demand wherever you 231 00:12:40,720 --> 00:12:43,680 Speaker 1: get your podcasts, or watch us live on YouTube. 232 00:12:44,240 --> 00:12:47,520 Speaker 2: Let's switch gears to the real estate business, because that's 233 00:12:47,679 --> 00:12:52,120 Speaker 2: also in the crosshairs of President Trump calling out some 234 00:12:52,280 --> 00:12:57,000 Speaker 2: issues more, you know, basically saying Trump target's institutional purchases 235 00:12:57,000 --> 00:12:58,480 Speaker 2: of single family homes. 236 00:12:58,760 --> 00:12:59,320 Speaker 3: We want to bring in. 237 00:12:59,360 --> 00:13:01,640 Speaker 2: Jeff lane Bound covers all the roots for us at 238 00:13:01,640 --> 00:13:06,000 Speaker 2: Bloomberg Intelligence. Jeff, what's the president targeting here? And is 239 00:13:06,040 --> 00:13:09,240 Speaker 2: it really an issue in the residential real estate market. 240 00:13:09,880 --> 00:13:12,400 Speaker 7: It really isn't. It's it's one of those things that's 241 00:13:12,480 --> 00:13:16,679 Speaker 7: been a target for politicians for some time because it's 242 00:13:16,679 --> 00:13:20,720 Speaker 7: a very easy political message to sell. You're going after 243 00:13:20,800 --> 00:13:23,840 Speaker 7: the big institutions that are crowding out the individual home 244 00:13:23,840 --> 00:13:26,719 Speaker 7: buyers making prices too expensive. But at the end of 245 00:13:26,760 --> 00:13:29,559 Speaker 7: the day, you know, these are these are well run 246 00:13:29,600 --> 00:13:34,920 Speaker 7: institutional landlords of rental homes, not unlike you know, apartment homes. 247 00:13:34,960 --> 00:13:37,880 Speaker 7: And you know, I think that at the end of 248 00:13:37,880 --> 00:13:40,440 Speaker 7: the day of what he is suggesting he wants to 249 00:13:40,520 --> 00:13:43,960 Speaker 7: do gets done in some capacity. You know, the net 250 00:13:43,960 --> 00:13:50,120 Speaker 7: result probably winds up being less home inventory, which probably 251 00:13:50,200 --> 00:13:54,800 Speaker 7: ends up making offsetting any positive impact on pricing that 252 00:13:54,840 --> 00:13:57,440 Speaker 7: he would be looking to accomplish. 253 00:13:57,480 --> 00:14:00,000 Speaker 2: Well, the only I don't know much about this business, 254 00:14:00,320 --> 00:14:03,800 Speaker 2: but are they How big is institutional ownership of residential 255 00:14:03,840 --> 00:14:04,400 Speaker 2: real estate. 256 00:14:04,200 --> 00:14:05,040 Speaker 3: In the US these days? 257 00:14:05,679 --> 00:14:11,240 Speaker 7: It's it's tiny, you know, it's it's I've seen numbers. 258 00:14:11,000 --> 00:14:15,400 Speaker 7: It's it's only a couple percent of the overall housing stock, 259 00:14:16,120 --> 00:14:19,360 Speaker 7: maybe a little bit more of the overall rental housing stock, 260 00:14:20,240 --> 00:14:21,920 Speaker 7: but at the end of the day, it's you know, 261 00:14:22,040 --> 00:14:26,160 Speaker 7: a majority of what is owned single family homes that 262 00:14:26,240 --> 00:14:28,680 Speaker 7: are are rented are owned by mom and pop small 263 00:14:28,720 --> 00:14:32,600 Speaker 7: investors rather than the large institutions. But clearly the large 264 00:14:32,600 --> 00:14:35,600 Speaker 7: institutions have the buying power, and that's what's being targeted here. 265 00:14:36,200 --> 00:14:40,160 Speaker 2: What I mean, I guess in some fashion the President 266 00:14:40,200 --> 00:14:43,080 Speaker 2: and his administration going after the high cost of housing, 267 00:14:43,200 --> 00:14:45,720 Speaker 2: the affordable or the lack of affordability of housing in 268 00:14:45,760 --> 00:14:49,360 Speaker 2: this country. From your reak perspective, what's going on there? 269 00:14:49,400 --> 00:14:51,600 Speaker 2: How do we get ourselves here? And maybe how do 270 00:14:51,640 --> 00:14:52,760 Speaker 2: we fix the situation. 271 00:14:53,480 --> 00:14:56,520 Speaker 7: Well, I mean the reason that there's a housing affordability 272 00:14:56,520 --> 00:14:58,680 Speaker 7: issue is because there hasn't been enough built for an 273 00:14:58,680 --> 00:15:01,160 Speaker 7: extended period of time and we were under supplied. 274 00:15:01,800 --> 00:15:03,920 Speaker 3: And the way to get out of that. 275 00:15:04,040 --> 00:15:08,120 Speaker 7: Is to increase supply. And anything that you do from 276 00:15:08,200 --> 00:15:12,840 Speaker 7: an administrative or regulatory perspective that you know, caps incentive 277 00:15:13,000 --> 00:15:17,320 Speaker 7: to build new supply is the real problem here. For pricing. 278 00:15:17,640 --> 00:15:19,840 Speaker 7: Right now, rentals are more affordable than buying a home. 279 00:15:19,880 --> 00:15:23,400 Speaker 7: I think that's pretty well understood across the board. And 280 00:15:23,880 --> 00:15:28,280 Speaker 7: there's just there's not enough incentive for builders of either 281 00:15:28,280 --> 00:15:33,560 Speaker 7: single family or multifamily right now to increase the housing supply, 282 00:15:33,960 --> 00:15:37,080 Speaker 7: which really is needed to increase affordable to improve affordability. 283 00:15:37,200 --> 00:15:40,120 Speaker 2: So what do the developers, what are they arguing for, 284 00:15:40,400 --> 00:15:43,000 Speaker 2: like other specific remedies are looking for in terms of 285 00:15:43,200 --> 00:15:46,680 Speaker 2: permitting just regulatory hurdles to build. 286 00:15:47,720 --> 00:15:51,640 Speaker 7: Yeah, I mean basically that's that's the key is improved 287 00:15:52,120 --> 00:15:53,000 Speaker 7: ease of permitting. 288 00:15:54,240 --> 00:15:55,400 Speaker 3: You know, maybe some. 289 00:15:55,400 --> 00:15:59,720 Speaker 7: Private public private partnerships where there's some government input in 290 00:16:00,080 --> 00:16:02,120 Speaker 7: in you know, tax incentives or things of that nature. 291 00:16:02,400 --> 00:16:05,280 Speaker 7: Obviously in markets like New York here, you know, the 292 00:16:05,360 --> 00:16:11,920 Speaker 7: ability to more easily convert old office buildings into rental housing. 293 00:16:12,880 --> 00:16:15,120 Speaker 7: But you know, on the single family side, which is 294 00:16:15,160 --> 00:16:17,320 Speaker 7: what this is really targeting. You know, one of the 295 00:16:17,320 --> 00:16:19,360 Speaker 7: things that the builders are doing right now is selling 296 00:16:19,360 --> 00:16:22,840 Speaker 7: their inventory to institutions who will own it and rent it, 297 00:16:23,160 --> 00:16:25,560 Speaker 7: and that's being targeted. And if you take away that buyer, 298 00:16:26,120 --> 00:16:28,280 Speaker 7: then you know, it makes it harder for them to 299 00:16:28,320 --> 00:16:31,480 Speaker 7: build if they don't necessarily feel confident that they're going 300 00:16:31,520 --> 00:16:32,880 Speaker 7: to be able to sell their inventory. 301 00:16:32,920 --> 00:16:35,080 Speaker 2: At the end of the day, is are building restrictions? 302 00:16:35,120 --> 00:16:39,200 Speaker 2: They're local, right, They're not federal? Are they correct? 303 00:16:39,400 --> 00:16:39,600 Speaker 3: That? 304 00:16:39,680 --> 00:16:40,200 Speaker 6: You know, the. 305 00:16:41,840 --> 00:16:47,160 Speaker 7: Permitting process and the regulations on housing are at the 306 00:16:47,320 --> 00:16:48,000 Speaker 7: local level. 307 00:16:48,280 --> 00:16:50,680 Speaker 2: So I mean is this something I mean, are certain states, 308 00:16:50,680 --> 00:16:54,320 Speaker 2: certain areas, is it easier to build harder to build out? 309 00:16:54,320 --> 00:16:56,160 Speaker 3: I think in New York City be terribly hard to 310 00:16:56,160 --> 00:16:56,760 Speaker 3: build something. 311 00:16:57,120 --> 00:16:59,320 Speaker 7: Yeah, I mean, you know, you can look you can 312 00:16:59,360 --> 00:17:02,040 Speaker 7: look broad all geographic strokes. I mean, areas in the 313 00:17:02,040 --> 00:17:04,440 Speaker 7: Sun Belt are you know, historically much easier to build. 314 00:17:04,480 --> 00:17:07,080 Speaker 7: Obviously there's a much more land, but also the regulatory 315 00:17:07,119 --> 00:17:10,720 Speaker 7: environment is easier, and so that's you know, where there's 316 00:17:10,840 --> 00:17:15,560 Speaker 7: historically been significant more construction and the demand has followed 317 00:17:15,600 --> 00:17:18,720 Speaker 7: and so it you know, typically supply and demand work 318 00:17:18,720 --> 00:17:22,960 Speaker 7: on their own, and you know, the government stays out 319 00:17:22,960 --> 00:17:24,720 Speaker 7: of it, The federal government stays out of it, and 320 00:17:25,200 --> 00:17:26,520 Speaker 7: so you know, at the end of the day, I'm 321 00:17:26,560 --> 00:17:28,480 Speaker 7: not really sure exactly what's going to be able to 322 00:17:28,480 --> 00:17:33,240 Speaker 7: be done here. It feels like banning specific owners of 323 00:17:33,320 --> 00:17:37,000 Speaker 7: properties from playing in a in a private market transaction 324 00:17:37,200 --> 00:17:41,320 Speaker 7: is interesting and we'll see what we'll you know, but 325 00:17:41,680 --> 00:17:43,760 Speaker 7: clearly he's making life difficult for these companies. 326 00:17:44,640 --> 00:17:47,800 Speaker 3: Stay with us. More from Bloomberg Intelligence coming up after this. 327 00:17:51,680 --> 00:17:55,359 Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live 328 00:17:55,480 --> 00:17:58,159 Speaker 1: weekdays at ten a m. Eastern on Apple Coarcklay and 329 00:17:58,160 --> 00:18:01,880 Speaker 1: Android Auto with the Bloomberg Up Listen on demand wherever 330 00:18:01,920 --> 00:18:05,639 Speaker 1: you get your podcasts, or watch us live on YouTube. 331 00:18:05,960 --> 00:18:09,120 Speaker 2: Well, hundreds of companies are lined up to recoup their 332 00:18:09,200 --> 00:18:11,680 Speaker 2: share of the billions of dollars in duties paid so far. 333 00:18:11,760 --> 00:18:15,160 Speaker 2: As US Supreme Court is poised to decide the fate 334 00:18:15,240 --> 00:18:18,480 Speaker 2: of most of President Donald Trump's tariffs, that ruling could 335 00:18:18,520 --> 00:18:21,159 Speaker 2: come as soon as tomorrow, and that is the subject 336 00:18:21,240 --> 00:18:23,159 Speaker 2: of the Big Take story on the Bloomberg Terminal in 337 00:18:23,359 --> 00:18:26,520 Speaker 2: Bloomberg dot Com. Slash, big take. More than one thousand 338 00:18:26,520 --> 00:18:29,520 Speaker 2: companies are suing Trump over terriffs, is the title of 339 00:18:29,560 --> 00:18:32,160 Speaker 2: that article. One of the reporters, Zoey Tilman, joins us here. 340 00:18:32,680 --> 00:18:33,160 Speaker 3: Zoey Tilman. 341 00:18:33,200 --> 00:18:36,640 Speaker 2: She is Bloomberg News senior reporter covering law and politics. Zoe, 342 00:18:36,760 --> 00:18:39,160 Speaker 2: what can you tell us about these suits here by 343 00:18:39,160 --> 00:18:39,880 Speaker 2: these companies? 344 00:18:41,040 --> 00:18:41,320 Speaker 6: Right? 345 00:18:41,359 --> 00:18:47,119 Speaker 8: So, back in April, when the President announced his reciprocal tariffs, 346 00:18:47,160 --> 00:18:50,679 Speaker 8: the so called Liberation Day tariffs, a handful of small 347 00:18:50,720 --> 00:18:54,280 Speaker 8: businesses and a coalition of states filed suit, and for 348 00:18:54,320 --> 00:18:56,560 Speaker 8: the most part, that was it. For most of the year, 349 00:18:56,720 --> 00:19:00,240 Speaker 8: much of the business world did not get involved. Date 350 00:19:00,280 --> 00:19:03,000 Speaker 8: on the sidelines, you know, talking with trade lawyers, what 351 00:19:03,000 --> 00:19:05,240 Speaker 8: they told us was there was a fear of blowback 352 00:19:05,800 --> 00:19:09,280 Speaker 8: for stepping out against the administration. A number of companies 353 00:19:09,320 --> 00:19:11,680 Speaker 8: wanted to wait and see what happened, you know, before 354 00:19:11,720 --> 00:19:14,399 Speaker 8: sticking their necks out. But as the year drew to 355 00:19:14,480 --> 00:19:18,199 Speaker 8: a close the Supreme Court heard arguments, you know, there 356 00:19:18,280 --> 00:19:20,959 Speaker 8: was some sense that perhaps key members of the conservative 357 00:19:20,960 --> 00:19:24,280 Speaker 8: wing were skeptical and the tariffs might fall. We are 358 00:19:24,359 --> 00:19:28,480 Speaker 8: suddenly seeing a flood of businesses going into court wanting 359 00:19:28,520 --> 00:19:31,359 Speaker 8: to make sure that they've done everything they can to 360 00:19:31,359 --> 00:19:34,199 Speaker 8: try to get refunds if the court rules against the 361 00:19:34,200 --> 00:19:38,800 Speaker 8: tariffs in the coming days or weeks. These cases are 362 00:19:38,840 --> 00:19:42,080 Speaker 8: building off of those original lawsuits. They're not raising new claims. 363 00:19:42,400 --> 00:19:46,119 Speaker 8: What they're saying is, we agree that the tariffs are unlawful, 364 00:19:46,440 --> 00:19:48,600 Speaker 8: and if they fall, we think we should get our 365 00:19:48,640 --> 00:19:52,960 Speaker 8: money back. So it's really a preemptive approach that these 366 00:19:52,960 --> 00:19:54,440 Speaker 8: companies are taking at this point. 367 00:19:54,880 --> 00:19:57,399 Speaker 2: So more than one hundred corporate entities are now involved 368 00:19:57,440 --> 00:20:00,200 Speaker 2: in the legal fight, including some big household company many 369 00:20:00,240 --> 00:20:04,000 Speaker 2: names like Costco, Goodyear, Tire, and Rubbert Company. What's the 370 00:20:04,080 --> 00:20:07,640 Speaker 2: feeling in legal circles here about how this Supreme Court 371 00:20:07,680 --> 00:20:10,639 Speaker 2: case might go and what it might mean. 372 00:20:10,480 --> 00:20:11,880 Speaker 3: For some of these people that would like to get 373 00:20:11,880 --> 00:20:12,640 Speaker 3: some of their money back. 374 00:20:13,760 --> 00:20:16,280 Speaker 8: Right, And I should say the vast majority of companies 375 00:20:16,280 --> 00:20:19,240 Speaker 8: that have sued so far are small businesses that perhaps 376 00:20:19,320 --> 00:20:22,040 Speaker 8: most conservatives consumers have never heard of. But we talked 377 00:20:22,040 --> 00:20:24,840 Speaker 8: with owners who told us that, you know, the amounts 378 00:20:24,840 --> 00:20:28,000 Speaker 8: that they're paying several thousand dollars, tens of thousands of 379 00:20:28,080 --> 00:20:31,040 Speaker 8: dollars have been a huge hit to their bottom line 380 00:20:31,119 --> 00:20:34,920 Speaker 8: and their ability to staff, stock goods and so on 381 00:20:35,680 --> 00:20:39,120 Speaker 8: that said, you know, the arguments on November fifth, we 382 00:20:39,280 --> 00:20:43,360 Speaker 8: saw key members of the court asking very skeptical questions 383 00:20:43,400 --> 00:20:46,800 Speaker 8: about the lawfulness of the president's use of this nineteen 384 00:20:46,880 --> 00:20:51,440 Speaker 8: seventy seven economic emergency powers law to impose the tariffs. 385 00:20:51,960 --> 00:20:55,639 Speaker 8: And once that happened, there were at least some companies 386 00:20:55,880 --> 00:20:58,040 Speaker 8: that said, you know, the odds seem. 387 00:20:57,880 --> 00:20:59,480 Speaker 3: At least good enough. 388 00:21:00,119 --> 00:21:03,240 Speaker 8: We're willing to now take steps to publicly come out 389 00:21:03,280 --> 00:21:05,800 Speaker 8: against this policy. It's certainly not. 390 00:21:05,760 --> 00:21:06,520 Speaker 3: The case for all. 391 00:21:06,640 --> 00:21:07,879 Speaker 4: We talked to lawyers who. 392 00:21:07,760 --> 00:21:10,399 Speaker 8: Said, you know, some didn't fear the blowback. They just 393 00:21:10,800 --> 00:21:15,440 Speaker 8: didn't see a need to do this until recently some. 394 00:21:15,359 --> 00:21:19,879 Speaker 2: Red headlines crossing the Bloomberg terminal here. Venezuela Assembly President 395 00:21:20,040 --> 00:21:24,240 Speaker 2: Rodriguez on state television says that Venezuela to release important 396 00:21:24,480 --> 00:21:29,440 Speaker 2: number of prisoners. That's according to Venezuela Assembly President Rodriguez. 397 00:21:29,440 --> 00:21:31,399 Speaker 3: So a'll lot more recording on that going forward. 398 00:21:31,680 --> 00:21:36,400 Speaker 2: Zoe, is there a mechanism for I don't know, the government, 399 00:21:36,440 --> 00:21:40,720 Speaker 2: I guess to return some of these tariff back to 400 00:21:41,000 --> 00:21:42,840 Speaker 2: companies that paid them. 401 00:21:43,359 --> 00:21:45,919 Speaker 8: So there is precedent for this, just not on the 402 00:21:46,000 --> 00:21:48,760 Speaker 8: scale that we would expect to see if the Supreme 403 00:21:48,800 --> 00:21:52,680 Speaker 8: Court strikes down these tariffs. Number of years ago, there 404 00:21:52,760 --> 00:21:56,080 Speaker 8: was a harbor maintenance tax that the Supreme Court struck down, 405 00:21:56,520 --> 00:22:01,320 Speaker 8: and that resulted in roughly four thousand companies going to 406 00:22:01,359 --> 00:22:04,159 Speaker 8: a US Trade court to get refunds for the money 407 00:22:04,200 --> 00:22:07,800 Speaker 8: that they had paid to the government, according to a 408 00:22:07,840 --> 00:22:12,360 Speaker 8: court filing in December, looking at roughly three hundred thousand 409 00:22:12,400 --> 00:22:16,320 Speaker 8: importers so far that have paid these contested tariffs on 410 00:22:16,400 --> 00:22:20,480 Speaker 8: something like thirty plus million entries of goods into the 411 00:22:20,600 --> 00:22:23,800 Speaker 8: United States. So there is a process that the Trade 412 00:22:23,880 --> 00:22:26,960 Speaker 8: Court has used before to handle sort of a mass 413 00:22:27,040 --> 00:22:30,320 Speaker 8: refund process, and there's been some expectation in some of 414 00:22:30,359 --> 00:22:33,719 Speaker 8: the filings that we've seen that everyone expects that to 415 00:22:33,760 --> 00:22:37,240 Speaker 8: be the way this unfolds if the tariffs are struck down. 416 00:22:37,560 --> 00:22:42,000 Speaker 8: That said, you know, the administration could certainly say, you know, 417 00:22:42,040 --> 00:22:44,560 Speaker 8: maybe there's an administrative process that we want to use 418 00:22:44,560 --> 00:22:47,320 Speaker 8: that doesn't go through the courts. They haven't proposed anything 419 00:22:47,400 --> 00:22:51,120 Speaker 8: like that and have mostly discussed this as if they 420 00:22:51,160 --> 00:22:54,280 Speaker 8: too anticipate needing to go through courts. But the scale 421 00:22:54,480 --> 00:22:58,440 Speaker 8: and scope of this is unlike what the Trade Court 422 00:22:58,480 --> 00:23:00,640 Speaker 8: has had to handle in the past. So it would 423 00:23:00,680 --> 00:23:02,840 Speaker 8: be you know, the thousand companies that we've seen so 424 00:23:02,920 --> 00:23:06,639 Speaker 8: far is really a tiny fraction of the importers who 425 00:23:06,760 --> 00:23:10,360 Speaker 8: might be eligible to at least pursue acclaim with the government. 426 00:23:11,320 --> 00:23:16,000 Speaker 1: This is the Bloomberg Intelligence Podcast, available on Apple, Spotify, 427 00:23:16,200 --> 00:23:19,680 Speaker 1: and anywhere else you get your podcasts. Listen live each 428 00:23:19,720 --> 00:23:23,440 Speaker 1: weekday ten am to noon Eastern on Bloomberg dot com, 429 00:23:23,560 --> 00:23:27,119 Speaker 1: the iHeartRadio app tune In, and the Bloomberg Business app. 430 00:23:27,520 --> 00:23:30,480 Speaker 1: You can also watch us live every weekday on YouTube 431 00:23:30,840 --> 00:23:33,080 Speaker 1: and always on the Bloomberg terminal