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Speaker 1: Bloomberg Intelligence with Alex Steele and Paul Sweeney on Bloomberg Radio.
Speaker 2: On Today's Bloomberg Intelligence Show, we dig inside the big
Speaker 2: business stories impacting Wall Street and the global markets.
Speaker 4: Each and every week we provide in depth research and
Speaker 4: data on some of the two thousand companies and one
Speaker 4: hundred and thirty industries our analysts cover worldwide.
Speaker 2: Today, we'll look at how drug makers are being impacted
Speaker 2: by policy in Washington, DC.
Speaker 4: Plus, we'll discuss how one bank is abandoning its net
Speaker 4: zero financed emission goals.
Speaker 2: At first, we begin with the airlines industry. This week,
Speaker 2: Delta Airlines withdrew its full year financial guidance due to
Speaker 2: uncertainty surrounding global trade, and this comes despite the airline
Speaker 2: reporting better than expected first quarter profit.
Speaker 4: For more on this and the state of the airline industry,
Speaker 4: we were drawn by George ferguson Bloomberg Intelligence in your Aerospace,
Speaker 4: Defense and Airlines analyst.
Speaker 2: We first asked George to break down what happened during
Speaker 2: Delta's first quarter earnings call.
Speaker 5: The call wasn't as bad I think as a lot feared.
Speaker 5: You know, A lot of what we heard was the
Speaker 5: premium markets are still good. Europe is still good, but
Speaker 5: they're watching it very closely. Asia Pacific was a good
Speaker 5: market as well. Non premium back of the airplane travel
Speaker 5: in the domestic market is poor. And because of all that,
Speaker 5: you know, they're gonna cap You're gonna flatline capacity, no
Speaker 5: growth for the second half of the year. So it
Speaker 5: sounded like things are okay. Maybe they're okay, but we're
Speaker 5: watching things very close.
Speaker 2: But I remember that Delta and the other US carriers
Speaker 2: probably several weeks ago cut their guidance. This was before
Speaker 2: I think an investor conference, so they've already cut guidance once.
Speaker 2: Here agree, So where are we there? I mean, do
Speaker 2: you feel like street estimates need to come down.
Speaker 5: Here, agreed. Well, so when I looked at the preliminary
Speaker 5: guidance for two Q, it did seem like street estimates
Speaker 5: for two Q had to come down, right because Delta
Speaker 5: gave some pretty broad ranges. But it looks like capacity
Speaker 5: is going to rise five percent when I look at
Speaker 5: schedules for them in the second quarter, and they said
Speaker 5: revenue could be up to to down two and if
Speaker 5: I did my math right, that means that I think
Speaker 5: either way fares are softening again. It's we're definitely working
Speaker 5: off lower expectations after they cut earnings expectations after the
Speaker 5: JP Morgan conference. But so Caesar Trappie here, Georgia.
Speaker 2: I know every year you take a boondoggle over to Europe,
Speaker 2: either to London or Parish for these air shows, and
Speaker 2: this is where these big airlines make place big orders
Speaker 2: with the airplane suppliers bowing and airbus principally. Are we
Speaker 2: going to get to a period, George where if they
Speaker 2: even allow you to go to Paris of the French
Speaker 2: late let you in, will European carriers buy Boeing planes
Speaker 2: and vice versa. Will European carriers by or you know, Airbus.
Speaker 5: I think they will. I think they will because the
Speaker 5: queues for airplanes are so long you're not going to
Speaker 5: get out of the queue you're in and go to
Speaker 5: someone else's queue and wait longer. You'd have to wait
Speaker 5: seven eight years for an A three twenty out of Airbus.
Speaker 5: I think, as near as we could tell from the
Speaker 5: backlog their show. But what I will tell you about
Speaker 5: discussions with Ed Bastion about taking Airbus airplanes and who
Speaker 5: pays a tariff? And he said he's not going to
Speaker 5: pay a tariff, and he's not going to take any
Speaker 5: deliveries or sorry, very few deliveries this year. So it
Speaker 5: does sound like Delta has a tariff problem and isn't
Speaker 5: ready to take new airplanes. Now I know, you know
Speaker 5: their flatlining capacity for the back half of the year,
Speaker 5: so maybe they don't need them. But if the market
Speaker 5: was growing significantly right now, I think he'd have a problem.
Speaker 2: So you mentioned kind of the weakness Delta was calling
Speaker 2: out in the back of the plane, maybe some of
Speaker 2: the more economy prices and seats. So does that mean
Speaker 2: the discount airlines they're really going to face some trouble.
Speaker 6: Yeah.
Speaker 5: I mean the funny thing is again when sort of Delta,
Speaker 5: United and American Ad justin earnings a month ago. The
Speaker 5: low cost carriers did a little bit, but the moves
Speaker 5: weren't as great, and the low cost carriers had already
Speaker 5: been cutting capacity, right if you think about it. Spirit
Speaker 5: Airlines went bankrupt. They cut forty percent out of their schedule,
Speaker 5: or something like thirty percent of their schedule. Southwest significantly
Speaker 5: slowed growth, they went close to zero. Jet Blue has
Speaker 5: been cutting and now Delta came in today and said, look,
Speaker 5: we're going to cut the back half of the year
Speaker 5: to flat. So I feel like the full service have
Speaker 5: to make up ground here because they had been growing
Speaker 5: a little bit too fast. We had seen that at
Speaker 5: the beginning of the year, we're going to see an
Speaker 5: earning season. Whether or not maybe low cost got ahead
Speaker 5: of the curve here. I still can't believe that Delta
Speaker 5: can deliver a seat as cheap as a low cost carrier.
Speaker 5: So I personally think the low cost carriers still have
Speaker 5: a valid business here and they'll fill airplanes and do okay.
Speaker 5: But when you get into times of trouble in this industry,
Speaker 5: Trouble is big in this industry. Right, there's a lot
Speaker 5: of operating leverage and so we're going to see, right, we're.
Speaker 4: Gonna jetfield prices are coming down. I mean they are,
Speaker 4: That's the thing. Thirty seconds top airline and to manage
Speaker 4: all of this right now, what do you think.
Speaker 5: I'd go with? Balance sheets?
Speaker 6: Right?
Speaker 5: And that's going to be companies like Southwest and Delta
Speaker 5: that have strong balance sheets and weather storms.
Speaker 2: Our Thanks to George Ferguson, Bloomberg Intelligence Senior Aerospace, Defense
Speaker 2: and Airlines Analyst.
Speaker 4: We move next to the consumer goods industry. This week,
Speaker 4: Constellation Brands issued downbeat guidance for the year as new
Speaker 4: US tariffs im muted demand. Way on the beer, wine,
Speaker 4: and spirits maker.
Speaker 2: For more, We were joined by Ken Sha, Bloomberg Intelligence
Speaker 2: Senior Consumer Products Analyst.
Speaker 4: We first asked Ken for his take on Constellation's most
Speaker 4: recent guidance.
Speaker 7: There's so many moving parts to the Constellation storyline here.
Speaker 7: It's really a challenge of analysts to put it all together.
Speaker 7: But you touch on the right points, and that is
Speaker 7: the near term challenge is facing a Constellation and other
Speaker 7: brewers for that matter, is weak demand. A lot of
Speaker 7: it is economic. Constellation would also point to their key
Speaker 7: demographic is the Hispanic demographic, and they're having a little
Speaker 7: tougher time with the employment situation and slow down, but
Speaker 7: they have some longer term threats also. I mean, you
Speaker 7: have more substitute products. You have legal cannabis. You have
Speaker 7: the hemp based CBD THHC products that are now down
Speaker 7: main street. You don't have to go to a dispensary
Speaker 7: to buy THC anymore, you just go to the local
Speaker 7: liquor store. You have the GLP one drugs where people
Speaker 7: are Our studies show that are consuming less alcohol because
Speaker 7: they're on those drugs. All those things are weighing on
Speaker 7: the near term and perhaps longer term sales growth potential
Speaker 7: for beer. And that's what the anamals are trying to
Speaker 7: wrap our heads around right now.
Speaker 2: What is the price elasticity on alcohol? Can these companies
Speaker 2: pass along price increases?
Speaker 7: Well, it depends on the product pole. The good news
Speaker 7: among that other otherwise onerous outlook is that Constellation's Corona
Speaker 7: and Medello brands lead the market in terms of growth.
Speaker 7: Those products continue to command reamium prices. They're growing faster
Speaker 7: than the market, so they're they're generating best in class
Speaker 7: operating margins on those products, but you know, they're not
Speaker 7: immune to the slowdown, and clearly they lowered their guidance.
Speaker 7: Well the fourth their fiscal fourth quarter came in a
Speaker 7: little better than expected. Some of the concerns out there
Speaker 7: is they lowered their longer term sales growth projections. Used
Speaker 7: to be, you know, a high single digit kind of
Speaker 7: sales growing segment for many years. They came out and said,
Speaker 7: you know, over the next few years, you're going to
Speaker 7: see yeah, we're like low single digit. And the analysts
Speaker 7: were a little taken aback by that. And to Alex's
Speaker 7: question before, how much is that near term you know,
Speaker 7: cyclical economic issues and how much is longer term demographic
Speaker 7: things weighing on this category? So no one really knows.
Speaker 7: So we'll find out.
Speaker 4: Nobody knows, right, So then what does Constellation do about that? Like,
Speaker 4: do they go build a beer plant in the US,
Speaker 4: Do they look for some M and A, do they
Speaker 4: pair back?
Speaker 6: Like?
Speaker 3: What do they do?
Speaker 6: Well?
Speaker 7: They're innovating. I would argue that Constellation is one of
Speaker 7: the more innovative beer companies. So they're taking that that
Speaker 7: base of a real good brand family of Corona and Medelo,
Speaker 7: and they have Pacific go but they also are extending
Speaker 7: into chiladas, which are very flavorful malt based products. They're
Speaker 7: getting into the malt based seltzer markets a little bit.
Speaker 7: They used to do it, but I'm going to come
Speaker 7: back with a better product. Now they have a no
Speaker 7: alcohol version Corona, So it's innovation. I think that they
Speaker 7: believe can continue to drive sales growth. But there's no
Speaker 7: silver bullet. I mean, there's no big acquisition out there.
Speaker 7: I don't believe that they're going to make to enhance
Speaker 7: their growth. I think they have a good brand and
Speaker 7: a good asset to grow. But again, you're not going
Speaker 7: to escape the long term headwinds facing alcoholic products, alcoholic
Speaker 7: beverage products in general as a matter of fact.
Speaker 2: So can you follow the beverages, the tobacco and the
Speaker 2: cannabis companies? Is there a place to hide in your
Speaker 2: sector here in a world where where you're going to
Speaker 2: see potentially slower growth from some of these trade policies.
Speaker 7: Well, of the ones you mentioned, Paul, I mean the tobacco,
Speaker 7: particularly cigarette company lit cigarettes are some ninety percent of
Speaker 7: that business. Still they are pretty much immune to the
Speaker 7: tariff situation. It's pretty much a domestic business. Yes, there's
Speaker 7: some tobacco leaf imports that come in and so on,
Speaker 7: but by and large that's a domestic business. So if
Speaker 7: if you're worried about tariffs, perhaps that's a place where
Speaker 7: can can go in terms of, you know, beyond tariff threats.
Speaker 7: Really the soft drink side of beverages is a good
Speaker 7: place to be. I would argue that even the you know,
Speaker 7: tried and true carbonated beverage sodas, you know, the diet sodas,
Speaker 7: are still performing pretty well. They're innovating well. Cure Doctor
Speaker 7: Pepper continues to come out with new innovation that's moving
Speaker 7: that category. They're kind of leading that category's growth right now,
Speaker 7: but they're doing a pretty good job doing it. So
Speaker 7: that's a good place to go in terms of the
Speaker 7: universe that I cover. Cannabis is tough. Cannabis. You know,
Speaker 7: the regulation on cannabis is not easing. The Trump administration
Speaker 7: is not being kind to the acadamist industry, and we're
Speaker 7: not expecting much on the way of legalization liberalization near term,
Speaker 7: with the exception of some states. Some states will probably
Speaker 7: continue to legalize, but from a federal point of view,
Speaker 7: I would wait for the next Administration.
Speaker 2: Our thanks to Ken Shay, Bloomberg Intelligence senior consumer products analysts.
Speaker 4: Coming up a conversation with Workday's chief technology officer on
Speaker 4: artificial intelligence.
Speaker 2: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
Speaker 2: depth research and data on two thousand companies and one
Speaker 2: hundred and thirty industries. You can access Bloomberg Intelligence via
Speaker 2: bi go on the terminal.
Speaker 4: I'm Paul Sweeney and a Malex Steel, and this is Bloomberg.
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
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Speaker 4: We look at research from Bloomberg n EF previously known
Speaker 4: as New Energy Finance. They're the team at Bloomberg that
Speaker 4: tracks and analyzes the energy transition from commodities to power, transport, industries, buildings,
Speaker 4: and the agricultural sectors.
Speaker 2: We recently looked at the effect of President Donald Trump's
Speaker 2: policies on clean energy markets. This week, President Trump announced
Speaker 2: he's raising tariffs on Chinese goods.
Speaker 4: Many critical minerals and energy products come from China and
Speaker 4: are subject to these tariffs, and that could have a
Speaker 4: big impact on clean energy moving forward.
Speaker 2: Separately, a Trump administration executive order said it's exempting forty
Speaker 2: seven coal fired power plants from stringent air pollution mandates
Speaker 2: and the goal is to revitalize the coal industry.
Speaker 4: For more on all of this, we are joined by
Speaker 4: Derek flackl b any F, lead US policy analysts.
Speaker 2: We first asked Derek what he makes of the executive
Speaker 2: order on coal.
Speaker 8: Well, the executive order is interesting because this is sort
Speaker 8: of a replay of what Trump tried to do in
Speaker 8: his first term.
Speaker 6: Right.
Speaker 8: He had previously talked about increasing payments to or using
Speaker 8: emergency powers for preserving existing coal plants, maybe bringing old
Speaker 8: ones back online, and as we can see from the
Speaker 8: power generation data, that didn't really work out. Coal is
Speaker 8: now fifteen percent of generation in the US per year,
Speaker 8: down from considerably higher levels before. So there's a lot
Speaker 8: of different moving parts to this. You might see more
Speaker 8: say coal exports, more long term gathering of coal leases,
Speaker 8: which have been sort of moving back and forth from
Speaker 8: Obama to Trump one, to Biden and now to Trump two.
Speaker 8: But in general it's hard to say that this will
Speaker 8: be a huge boon to coal build out or restoration,
Speaker 8: especially when you have tariffs weighing on any kind of
Speaker 8: big capital project.
Speaker 2: All right, so talk about, you know, the energy ecosystem.
Speaker 2: Where do we get stuff for the energy ecosystem, whether
Speaker 2: it's fossil fuels, clean energy, where do we get the
Speaker 2: equipment and is that something that's going to be impacted
Speaker 2: by these tariffs?
Speaker 9: Oh, very heavily.
Speaker 8: Even for fossil fuels, which are often a very domestically
Speaker 8: extracted resource, there's reliance on steel, luminum, specialized equipment that's imported,
Speaker 8: which is why you saw the Dallas Fed register such
Speaker 8: negative opinions about the tariffs coming in generally, more broadly
Speaker 8: in terms of say solar equipment that mostly comes from
Speaker 8: Southeast Asia, because we've had batteries, we've had tariffs in
Speaker 8: China for a long time. Batteries themselves tend to come
Speaker 8: from China. Electric vehicles are imported from a variety of places,
Speaker 8: but especially you know, it's very domestic, with the fair
Speaker 8: amount of Canada and Mexico in there. And lastly, if
Speaker 8: you're thinking about say offshore wind, that's pretty dependent on Europe.
Speaker 8: The only thing that's really effectively on shore and minimally
Speaker 8: dependent on trade is onshore wind in the US.
Speaker 4: What is the future of offshore wind in the US?
Speaker 4: I mean, if we're talking about ramping up coal and
Speaker 4: sort of there's zero love from the administration on offshore wind.
Speaker 4: Have we seen sort of I don't know, leases or
Speaker 4: any contracts be broken or do you feel like companies
Speaker 4: that are still are still committed to the longer term
Speaker 4: world of offshore wind.
Speaker 8: Well, I mean what the offshore win companies will tell you.
Speaker 8: This is a multi year, long term process of building
Speaker 8: that's beyond any one administration. We have seen one lease
Speaker 8: be canceled by the federal government for an ongoing project,
Speaker 8: but generally speaking, we haven't seen a lot more movement
Speaker 8: for things that have already been permitted and leased. Now
Speaker 8: that's important because the federal government has a lot of
Speaker 8: leverage over that process. We're not seeing a lot more
Speaker 8: being added to the pipeline. But the real issue is
Speaker 8: going to come in the form of costs, inflation, and
Speaker 8: also potentially interest rates. We saw a major slowan an
Speaker 8: offshore win under Biden, which is a very supportive administration,
Speaker 8: simply because the cost of inputs went up and as
Speaker 8: inflation went up. The FED height rates and wind is
Speaker 8: a very large capital intensive project category and especially sensitive
Speaker 8: to those kinds of things. So if the terrorists lead
Speaker 8: to those broader impacts, we might see some fairly negative
Speaker 8: results for even the offshore win projects that are already
Speaker 8: allowed to go forward.
Speaker 2: Derek, I think even folks that are you know that
Speaker 2: question the value of the economic value of tariff in general,
Speaker 2: they kind of recognize that some of this strategically important
Speaker 2: stuff maybe that we ourn was strategically important from the
Speaker 2: pandemic when they trade the cycles were all disrupted, the
Speaker 2: trade routes were disrupted. That makes some sense. Is a
Speaker 2: clean energy did they have a focus on bringing this
Speaker 2: stuff on shore as much as possible.
Speaker 8: There's been a lot of discussion of that across multiple administrations.
Speaker 8: The Bide administration was in favor of that. The Trump
Speaker 8: administration is in favor of on shory manufacturing generally and
Speaker 8: of energy security independence, even dominance, as they like to
Speaker 8: say generally, but that's a hard thing to achieve with
Speaker 8: tariffs alone. Ultimately, a lot of the solar factories, battery factories,
Speaker 8: ev factories that are coming up in the US are
Speaker 8: dependent on imports, whether those are imports of upstream components
Speaker 8: or of the manufacturing equipment needed to make the final
Speaker 8: products solar panels and batteries themselves. And right now we're
Speaker 8: seeing costs go up on those across the board. Unless
Speaker 8: you have more reliable revenue streams like tax credits, for example,
Speaker 8: it's kind of hard to imagine new decisions to build
Speaker 8: that stuff out. Even things that are already being built
Speaker 8: are facing uncertainty not only from the Trump tariffs, from
Speaker 8: other investigations into tariffs being run at the Department of
Speaker 8: Commerce and US Trade Representative, but also on the fate
Speaker 8: of those tax credits, which is going to help guarantee
Speaker 8: their revenues in the long term.
Speaker 4: Yeah, there's a great point which leads us to the IRA,
Speaker 4: the Inflation Reduction Act, which I mean, clearly President Trump
Speaker 4: hates that thing, but there are is a lot of
Speaker 4: value in it through the tax credits and subsidies for
Speaker 4: companies that supposedly he is a fan of, like the
Speaker 4: oil industry for example. When do you think we're going
Speaker 4: to know the fate of the IRA and those tax credits.
Speaker 8: That's a great question, and I've been wondering at myself. Obviously,
Speaker 8: we're seeing a lot of wrangling between the House and
Speaker 8: Senate about the top lights on their big budget bill
Speaker 8: they're going to try and pass by the end of
Speaker 8: the year. Obviously, the end of the year is when
Speaker 8: individual tax rates go up, and so that's one of
Speaker 8: the big forcing functions. You also are seeing the x
Speaker 8: state the debt ceiling occurring somewhere between July and maybe September,
Speaker 8: and that's going to be a point where there's going
Speaker 8: to be a lot of pressure to pass a big
Speaker 8: budget package, raise the debt ceiling, and probably also get
Speaker 8: some of this tax material done. But we've seen a
Speaker 8: lot of debt lines blown already for when we were
Speaker 8: allegedly going to get top line packages, which are a
Speaker 8: preconditioned to figure out what's going to happen what tax
Speaker 8: credit and we don't even know that yet at this point.
Speaker 8: We don't even know if they're going to use this
Speaker 8: particular budget commit called current Policy, which would really reduce
Speaker 8: the pressures to cut more. And as they're trying to
Speaker 8: use that, we're seeing a lot of blowback from physical
Speaker 8: conservatives in both the Senate but especially in the House,
Speaker 8: and so we'll see.
Speaker 4: Thank you so much to Derek flackl bn EF lead
Speaker 4: US policy analyst. BLOOMERIG Intelligence recently hosted its fourth Generative
Speaker 4: Artificial Intelligence conference and there were some great lineups in
Speaker 4: terms of how you apply and make AI for more.
Speaker 2: Alex and I were joined by Jim Stratton Workday, chief
Speaker 2: technology officer the AI platform. Workday trades under the NASDAK
Speaker 2: ticker wday.
Speaker 4: We first asked Jim where workday sits in the AI space.
Speaker 9: Workday builds and deploys and serves enterprise finance and HR
Speaker 9: for major corporations, for state higher ed for large institutions,
Speaker 9: and AI really is built directly into the products that
Speaker 9: we build. So if you think about the different types
Speaker 9: of workflows around running a business, around running a major business,
Speaker 9: all of that is right to be infused with AI
Speaker 9: for automation, for ease of use, and that's really what
Speaker 9: we're building into.
Speaker 2: Pointing now, so to what extent, I guess a lot
Speaker 2: of US lay people we're trying to get a sense
Speaker 2: of this is just the next step in the evolution
Speaker 2: of tech or is AI elite a step function? How
Speaker 2: do you think about the technology of AI, the compute
Speaker 2: that it and the applications coming from that.
Speaker 9: It is the next step really the next evolution and technology.
Speaker 9: But I think the leverage that we can get out
Speaker 9: of AI, it really is a leap in terms of
Speaker 9: it's in exponential growth, in terms of productivity, in terms
Speaker 9: of enhancing humans and the capabilities of what we have
Speaker 9: in the workplace. It really is an exponential leap for
Speaker 9: us in the technology space.
Speaker 4: So give me a use case. So some of your
Speaker 4: client like GE or Visa, right, I come to you
Speaker 4: and say, hey, Jim, what are you going to do
Speaker 4: for me? And how does it help me and make
Speaker 4: me more productive or something along those lines. What does
Speaker 4: that use case look like?
Speaker 9: So if you think about across I'll give you a
Speaker 9: couple examples across HR and finance. So think about the
Speaker 9: recruiting space a talent acquisition. You have in many cases
Speaker 9: thousands of jobs, hundreds of thousands of jobs that are
Speaker 9: open across even just the US. Here within a particular
Speaker 9: company you may be sourcing for you know, ten fifty
Speaker 9: one hundred jobs or literally thousands of jobs across a
Speaker 9: large enterprise, and you're getting in some cases hundreds of thousands,
Speaker 9: millions of resumes into those jobs. Literally that many resumes,
Speaker 9: it's really hard to go through and source that. AI
Speaker 9: is a terrific space, and actually we have a recruiting
Speaker 9: agent out in the market now that helps significantly with
Speaker 9: that sourcing problem in terms of weeding through who are
Speaker 9: the best candidates, what are the best skills, depths of skills,
Speaker 9: even some of those skills are hidden. AI is actually
Speaker 9: really good at map that into a job requisition and saying,
Speaker 9: you know what, these are probably your top ten candidates,
Speaker 9: and then handing that off to a recruiter to then
Speaker 9: go do the human engagement interacting with those candidates and
Speaker 9: finding the best, the best one, the best fit that's
Speaker 9: already out in the market. And we're seeing incredible improvements
Speaker 9: in terms of talent acquisition efficiency, what the recruiters are
Speaker 9: able to source, how quickly they can fill roles. On
Speaker 9: the on the finance side, I'll give you a quick
Speaker 9: example there as well. Our finance teams and every finance
Speaker 9: team at every every major company out there spend tons
Speaker 9: of time pouring over contracts to understand the details in
Speaker 9: those contracts and how that maps directly into their into
Speaker 9: their books, into their financials. AI is fantastic at not
Speaker 9: only extracting information off of contracts, but summarizing that and
Speaker 9: actually directly mapping that back into the gl of a
Speaker 9: company that's also out in the market for us UH
Speaker 9: and and we're seeing great gains in that in terms
Speaker 9: of efficiency of what the legal and finance teams can do.
Speaker 2: So with what love of confidence can you say that
Speaker 2: all this money that's being spent on AI is generating
Speaker 2: a positive return or will generate a positive return in
Speaker 2: a reasonable time.
Speaker 9: Actually, it's a great question. There's a huge amount of
Speaker 9: money that's being spent just on the pure advancement of
Speaker 9: frontier models of really research AI, and we are seeing
Speaker 9: incredible gains in terms of those moving to what we
Speaker 9: call reasoning models, so the ability to actually think through
Speaker 9: a problem in multiple steps and then actually go action
Speaker 9: against that. I think that's going to have really broad
Speaker 9: application across lots of things, not just enterprise software, but
Speaker 9: just how we interact with everything in the world. But
Speaker 9: directly within the enterprise world. We're now very much focused
Speaker 9: and I spent a lot of my time talking with
Speaker 9: CIOs out in the community, and they're thinking about this
Speaker 9: exactly the same way. It is, how do we we've
Speaker 9: already spent a bunch of money trying to trying things out,
Speaker 9: playing around. Now we need to show direct ROI back
Speaker 9: in those investments. And that's the part where we are
Speaker 9: now is the products that are being built. The problems
Speaker 9: that people like Workday, Companies like work Day are focused
Speaker 9: on solving are direct ROI. How do we get efficiency
Speaker 9: back into the business. How do we reduce risk in
Speaker 9: the business. Those are the primary areas where we're going now.
Speaker 2: Thanks to Jim Stratton, Workday's chief technology officer.
Speaker 4: Coming up on the program, We're going to break down
Speaker 4: how drug makers are being impacted by policy in Washington, DC.
Speaker 2: You're listening to the Bloomberg Intelligence on Bloomberg Radio, providing
Speaker 2: in depth research and data on two thousand companies and
Speaker 2: one hundred and thirty industries. You can access Bloomberg Intelligence
Speaker 2: via Bigo on the terminal.
Speaker 4: I'm Paul Sweeney and am Alex Steele, and this is Bloomberg.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch the program
Speaker 1: live weekdays at ten am Eastern on Applecarplay and Android
Speaker 1: Auto with the Bloomberg Business app. You can also listen
Speaker 1: live on Amazon Alexa from our flagship New York station
Speaker 1: Just say Alexa play Bloomberg, eleven thirty.
Speaker 4: We move next to the drug and pharmaceutical space.
Speaker 2: The Trump administration recently rejected a plan to pay for
Speaker 2: OBCD drugs for Medicare.
Speaker 4: Patients may now need to rely on Congress to expand
Speaker 4: OBC drug coverage, with a potential scale down expansion possibly
Speaker 4: emerging in a future Republican bill.
Speaker 2: For more on this and the latest news in the
Speaker 2: obesity drug space, we were joined by Sam Fazzelli, Bloomberg Intelligence,
Speaker 2: Director of Research for Global Industries and senior pharmaceuticals analysts.
Speaker 4: We first asked Sam how President Trump projecting obesity coverage
Speaker 4: impacts that market.
Speaker 10: Of course, what happened is that this has been something
Speaker 10: that was put together in the Biden era in terms
Speaker 10: of trying to get Medicare coverage for these obesity drugs. Remember,
Speaker 10: medicare are folks that are over sixty five years old
Speaker 10: and more likely to be overweight.
Speaker 6: Not necessarily right.
Speaker 10: But more likely to be overweight and more likely to
Speaker 10: have issues to do with overweight.
Speaker 6: So it's a.
Speaker 10: Very important group of individuals to have this products available for.
Speaker 10: But I think there is a general sense and I
Speaker 10: think we had expected this, So this is not an
Speaker 10: unexpected outcome that the Secretary of the HHS Human Health
Speaker 10: Services in the US is not necessarily a fan of
Speaker 10: obesity drugs. However, there's a little aspect here that's important.
Speaker 10: These drugs are also covered by Medicare for those who
Speaker 10: suffer from sleep apnea and cardiovascular morbidities, those indications, and
Speaker 10: that usage has not been withdrawn. It's just the use
Speaker 10: for obesity that's been withdrawn or at least is not
Speaker 10: being proposed anymore.
Speaker 4: So what I mean, can that be real? That doesn't
Speaker 4: make any sense to me, And like, the whole point
Speaker 4: of these drugs is to help obesity. How are they
Speaker 4: going to keep that distinction?
Speaker 10: Yeah, but Alex, not that I'd like to necessarily agree
Speaker 10: with the kind of decisions that are being made or
Speaker 10: disagree with them. If you think about it, if everybody
Speaker 10: who has a comorbidity, for example, cardiovascular disease, kidney disease,
Speaker 10: sleep apnea, and the only people who are not going
Speaker 10: to be able to get it other people who just
Speaker 10: overweight nothing else, that's a little bit easier to swallow
Speaker 10: than if they were they said, Okay, we're just going
Speaker 10: to ban it. Because those elements of protecting patients that
Speaker 10: is important for health. Now, if these other obius people
Speaker 10: ended up the ones who are now not being included,
Speaker 10: just obs and no comobidities having one of these issues,
Speaker 10: they would be included.
Speaker 6: So I think the.
Speaker 10: Issue here is some folks believe that all of these
Speaker 10: things should be solved by eating better. Of course, we
Speaker 10: all want to do that and not eating too.
Speaker 6: Much, et cetera, et cetera.
Speaker 10: However, society shows us that that's clearly not possible for
Speaker 10: a lot of people, and they end up in a
Speaker 10: situation where they gain weight and they put in more
Speaker 10: energy and then they spend That's where the problems arise.
Speaker 10: But so I don't think it's really as bad as
Speaker 10: it sounds when you first look at it.
Speaker 2: Novo Nordisk is down. Is that just the obesity play
Speaker 2: unwinding for this name.
Speaker 10: Well, you would think to yourself, but why would it
Speaker 10: for this name and not for Eeli living right. We've
Speaker 10: always believed that Lily obviously has a lot more going on,
Speaker 10: but we all know that Lily is particularly driven with
Speaker 10: the obesity aspect.
Speaker 6: We also know that the obesity.
Speaker 10: Drug from Lily, zip Bound, has outperformed NOVAL noticsts Bigov.
Speaker 10: We also know that Novo Nordics is based in Denmark,
Speaker 10: and there's this fight going on between or at least
Speaker 10: a heated conversations going on between the US administration and
Speaker 10: the and the Denmark Danish authorities. So I think you
Speaker 10: can pilo these things up on top of each other
Speaker 10: and worry about NOVO more than you would about.
Speaker 4: All right, fair enough, what about the rest of the sector.
Speaker 3: What are what are some.
Speaker 4: Themes that are on your mind?
Speaker 10: Yeah, so vaccines continue to be a theme on our mind, which,
Speaker 10: of course there there's there's always words that get that
Speaker 10: are spoken or statements that are written that seem to suggest.
Speaker 6: That vaccines are a good thing.
Speaker 10: MMR is a good way of stopping measles, But they
Speaker 10: don't say you got to go out there.
Speaker 6: And get it. That's what's missing.
Speaker 10: On the other hand, we also have an issue with
Speaker 10: regards to what I feel like is a I don't
Speaker 10: want to call it an attack, but an undermining of
Speaker 10: research in areas which are infectious diseases, which I just
Speaker 10: do not understand why a tuber closest expert would lose
Speaker 10: their funding. These are not diseases that no virus has
Speaker 10: been annihilated. Maybe smallpox, but I think if you think
Speaker 10: about it, measles, we didn't have any debts.
Speaker 6: We have them now.
Speaker 10: As soon as you let your guard down a little bit,
Speaker 10: it all explodes. So that is I am worried about
Speaker 10: that because I love the United States, I love coming there,
Speaker 10: and that is something that clearly is a worrisome aspect
Speaker 10: for me.
Speaker 2: Is it shared to any extent in Europe?
Speaker 6: Sam Oh?
Speaker 10: I mean, of course vaccine hesitancy isn't a specific US issue.
Speaker 10: The thing is that what you don't want is that
Speaker 10: hesitancy to be fed from top healthcare efficients.
Speaker 6: Over Here we have that hesitancy.
Speaker 10: Don't forget the person who put together the MMR study
Speaker 10: for and the discredited MMR study and Autism Link is
Speaker 10: a UK individual but that's been discredited. But the UK
Speaker 10: government and health services have continued to push that this
Speaker 10: is the best way to get folks protected.
Speaker 6: So it's not. Hesitancy is not just a US issue,
Speaker 6: it's everywhere. What you need is health officials to be pushing.
Speaker 2: It our Thanks to Sam Fazelli, Bloomberg Intelligence, Director of
Speaker 2: Research for Global Industries and senior pharmaceuticals analyst.
Speaker 4: We move next to the banking sector.
Speaker 2: Wells Fargo recently became the first bank to abandon its
Speaker 2: climate goals as political sentiment in Washington, DC shifts.
Speaker 4: The firm's abandonment of net zero finance and mission goals
Speaker 4: puts around five times of one percent of its market
Speaker 4: value held by ESG and climate funds at risk should
Speaker 4: investors choose to divest.
Speaker 2: And for more, we were joined by Shaheen Contract of
Speaker 2: Bloomberg Intelligence. Senior ESG strategist refers to ask Shaheen for
Speaker 2: more context on what Wells Fargo did.
Speaker 11: So, wes Fargo abandoned its climate financing goal in particular,
Speaker 11: So that's the emissions from its loan book. Typically it's
Speaker 11: a much bigger emissions chunk than it's sort of operations.
Speaker 11: So just to give you a sense of scale, it's
Speaker 11: about let'ld say ninety five percent of its total emissions.
Speaker 11: So that's what well Fago did. Other banks like HSBC
Speaker 11: have delayed their operational emissions. Again that's about five percent,
Speaker 11: So that's a much smaller piece.
Speaker 4: So how do we distinguish between, you know, headlines where
Speaker 4: it's like forgetting climate goals and just sort of changing
Speaker 4: climate goals for some of these things.
Speaker 11: Well, you have to dig in. I think it's the
Speaker 11: difference is again that operation versus financed. It's not as
Speaker 11: how do I say this as binary? Binary as like
Speaker 11: diversity where they can dilute the language a little bit.
Speaker 11: Carbon goales are either there or not there.
Speaker 3: It is actually binary.
Speaker 2: Are they walking away? Are they saying, we're not going
Speaker 2: to restrict our lending to companies that have to fossil
Speaker 2: fuel companies. We're not going to do that anyway.
Speaker 11: Correct, So that's in a way what they're saying, because
Speaker 11: what a finance goal would mean is we're going to
Speaker 11: reduce the emissions small loone book from X to Z,
Speaker 11: and that would probably come with reducing to these sectors.
Speaker 2: Okay, now, what's JP Morgan, whatis City? What's Bank of America?
Speaker 6: Said?
Speaker 11: Nothing yet so far, so they have exited the nets
Speaker 11: zero Alliance. That being said, they've still been on track
Speaker 11: with their goals. They've still reduced to missions that is
Speaker 11: in line with their targets. What's also interesting is West
Speaker 11: Fago has also done that, but it's still abandoned its goals.
Speaker 11: So what's to come We'll see.
Speaker 4: What's interesting talking about abandoning goals like Airbus was just
Speaker 4: saying that they still want to get to that net
Speaker 4: zero by twenty fifty, but they're constrained by like infrastructure
Speaker 4: and technology, et cetera. How much of that is wrapped
Speaker 4: into the conversation, how much of that is aploaded not them?
Speaker 11: So west Fago and his statement actually said that they
Speaker 11: attribute this to changing custom behavior, to politics, to a
Speaker 11: number of things. However, given that they're quite on track
Speaker 11: to achieving this goal, which is also an analysis we've done,
Speaker 11: we've attributed it to politics.
Speaker 2: So the politics in the US are different from the
Speaker 2: politics obviously in Europe for example. So are we seeing
Speaker 2: any of the big European companies or sectors of companies
Speaker 2: walk back some of the ESG goals so in a.
Speaker 11: Much smaller way, yes, So again HSBC and UBS have
Speaker 11: delayed their operational missions goal. Again, that's I would call
Speaker 11: that almost insignificant for a bank. So they have the
Speaker 11: bigger pieces of financed mission goals, which we'll see.
Speaker 2: So if I'm a shareholder, if I'm an ESG fund
Speaker 2: and I own Wells fargar, do I just sell my
Speaker 2: position here?
Speaker 11: So it could be at risk. Yes, I mean climate
Speaker 11: is quite high up in ESG funds agenda, and we've
Speaker 11: done the analysis. So for Wells Fargo, about zero point
Speaker 11: five percent of its market value is held in these
Speaker 11: ESG and climate funds. Honestly quite small, right, So the
Speaker 11: risk lies in other more expost peers.
Speaker 2: So just give me a sense once again. I know
Speaker 2: we've gone over this number million times how much money
Speaker 2: is in ESG funds roughly.
Speaker 11: So if we look at ETFs, which is the analysis
Speaker 11: I've done, it's about I would say, close to six
Speaker 11: hundred billion.
Speaker 6: Ok.
Speaker 11: Now, let me go back. So I did this analysis
Speaker 11: two years back. At that point, all ESG label funds
Speaker 11: was about two point three trillion. So that's to give
Speaker 11: you a sense of scale.
Speaker 2: Now that's really fine in funds funds flowing out of ESG.
Speaker 11: No, sorry, So I go back to the two point
Speaker 11: three trillion number, which is all ESG funds. The atfs
Speaker 11: are much smaller share, So I would say that we've
Speaker 11: not done that analysis more recently, but it is two
Speaker 11: point three trillion is quite large substantial share.
Speaker 6: Yep.
Speaker 4: When you talk about the amount of assets that are
Speaker 4: in broader funds, not just ETFs, which is broader funds.
Speaker 3: What the numbers that we're talking about here, So that.
Speaker 11: Will be the two point three trillion that I mentioned.
Speaker 11: So this is all funds with words, yes, she climate,
Speaker 11: et cetera.
Speaker 3: Yeah.
Speaker 11: I would say a lot of those funds are changing names, so.
Speaker 4: Okay, so we don't know if they're going to be
Speaker 4: labeled that later on down the road.
Speaker 3: Okay, okay, what's your biggest call for this industry for
Speaker 3: this year?
Speaker 4: Like, what do you think the biggest change is going
Speaker 4: to be?
Speaker 11: I think, given the recent headlines, I think a lot
Speaker 11: of it is divestment tists, which I don't think people realize.
Speaker 11: I don't think people realize ESG investor base that is
Speaker 11: in a company. So if a company is like State Street,
Speaker 11: for example.
Speaker 6: They've.
Speaker 11: Acts the diversity policyes the example, and three percent, well
Speaker 11: up to three percent of their investor base is actually
Speaker 11: in ESG funds. So I would say that's quite an exposure.
Speaker 4: Our Thanks to Shieting contractor, Bloomberg Intelligence senior ESG strategist.
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