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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is Bloomberg Intelligence

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Speaker 1: with Alex Steel and Paul Sweeney.

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Speaker 2: The real ap performance has been the US corporate high yields.

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Speaker 3: Are the companies lean enough? Have they trimmed all the fats?

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Speaker 2: The semiconductor business is a really cyclical.

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Speaker 1: Business, breaking market headlines and corporate news from across the globe.

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Speaker 3: Do investors like the M and A that we've seen?

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Speaker 2: These are two big time blue chip companies.

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Speaker 3: Window between the peak and cunt changing super fast.

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Speaker 1: Bloomberg Intelligence with Alex Steele and Paul Sweeney on Bloomberg Radio.

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Speaker 2: Today's Bloomberg Intelligence Show, we dig inside the big business

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Speaker 2: story is impacting Wall Street and the global markets.

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Speaker 3: Each and every week we provide in depth research and

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Speaker 3: data on some of the two thousand companies and one

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Speaker 3: hundred and thirty industries our analysts cover worldwide.

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Speaker 2: Today we'll look at companies exposure to US terriffs.

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Speaker 3: So let's we'll discuss why one of the biggest producers

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Speaker 3: of heavy machinery expects a low we're sales this year.

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Speaker 2: But first we begin with the tech space and the

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Speaker 2: IT company super micro Computer.

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Speaker 3: This week, the company reported preliminary results for the fiscal

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Speaker 3: third quarter that fell short of analyst expectations.

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Speaker 2: The company attributed the miss to customers delaying purchases, which

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Speaker 2: we pushed into the current quarter. Super Micro also cited

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Speaker 2: higher inventory reserves and expedetic costs for new products.

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Speaker 3: For more, we are joined by Wougin Ho Bloomberg Intelligence,

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Speaker 3: and your Technology Analyst.

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Speaker 2: We first asked Wougin to break down exactly what happened

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Speaker 2: in super Micro's preliminary announcement.

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Speaker 4: It looks like, you know, when you go big whale

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Speaker 4: hunting and you miss those whales you want and missed results. Right,

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Speaker 4: They essentially missed sales by about one billion dollars versus

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Speaker 4: the midpoint of their guidance. And the fact of the

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Speaker 4: matter is these AI deals are monster deals. That's why

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Speaker 4: I'm saying it's big whale hunting. One hundred thousand GPU

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Speaker 4: cluster that XAI or open AI. Those are three point

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Speaker 4: five billion dollar deals. So if you miss on you know,

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Speaker 4: one or two of these, that accounts for easily a

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Speaker 4: billion dollars.

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Speaker 2: So is this a super micro computer specific issue or

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Speaker 2: is this big tech spending kind of slung down here?

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Speaker 4: Well, it's a product transition issue. Right, So if we

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Speaker 4: look at the Nvidia GPUs, they transitioned over from the

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Speaker 4: last generation, the Hopper series, to the next generation, the

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Speaker 4: Blackwell series, and given the greater capacity and the better

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Speaker 4: computational power, the customers were actually waiting for this for

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Speaker 4: quite some time now, and now they're clamoring for it.

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Speaker 4: So essentially what customers appear to be doing is canceling

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Speaker 4: their Hopper orders and moving over to Blackwell. Now, I

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Speaker 4: will tell you they weren't the only one that had

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Speaker 4: this issue. HPE a couple of months ago, they missed

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Speaker 4: their expectations primarily because of this product transition as well.

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Speaker 4: And it's biting a super micro now.

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Speaker 3: So based on that, the chip cycles moving really fast

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Speaker 3: for AI. So what's next after Blackwall? This is just

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Speaker 3: going to keep happening and kind of rolling it downhill.

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Speaker 4: Yeah, I mean, it's still probably a couple of years

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Speaker 4: before we start seeing the newer series of chips really

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Speaker 4: ramping up, So we probably have a two year product

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Speaker 4: cycle before we get to that. Alex, I mean, let's

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Speaker 4: see how the cloud Capex holds up in twenty six

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Speaker 4: and twenty seven. But for now, you know, right now,

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Speaker 4: we have a neartime product cycle issue for at least

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Speaker 4: super Micro and HPE.

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Speaker 2: Which what are your companies, kind of the tech hardware companies,

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Speaker 2: what are they saying about this whole tariff climate. Is

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Speaker 2: it going to be an issue for them?

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Speaker 4: Well, we published an update to our tariff note and

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Speaker 4: surprisingly they've actually done a good job navigating the tariff issue.

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Speaker 4: So far, I've had three companies report related that's hardware related.

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Speaker 4: There's a couple of things we need to take into consideration. One,

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Speaker 4: a lot of them are outside of China in terms

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Speaker 4: of the manufacturing scope, so the tariff impact is fairly minimal. Two,

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Speaker 4: there's a lot of manufacturing that comes out of Mexico.

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Speaker 4: So you know, because of the US Mexico and Canadian

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Speaker 4: trader agreem at U s m c A, they're exempt

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Speaker 4: for tariffs. So if you have anything that's built out

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Speaker 4: of Mexico or Canada, whatever it's assembled there, you're except

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Speaker 4: for tariffs. The companies that have reported uh, they're they're

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Speaker 4: using your U s m c A to their advantage

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Speaker 4: to win deals. And three and this is this was

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Speaker 4: somewhat interesting to me. I thought there would have been

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Speaker 4: some pull in deals because of tariff concerns in the

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Speaker 4: second quarter. Uh the guidance thus far. Uh Yeah, Western

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Speaker 4: Digital as well as Seagate, which manufacturers hard drives. They

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Speaker 4: don't see any pulling in deals. So the second half

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Speaker 4: of the year, which was a concern of mine, we

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Speaker 4: see actually smooth demand going into the second half, all.

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Speaker 3: Right, Thanks to u Jinho, Bloomberg Intelligence Senior Technology analyst.

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Speaker 3: You move next to news from the logistics company UPS.

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Speaker 2: This week, UPS said it expects to cut twenty thousand

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Speaker 2: jobs this year and close dozens of facilities due to

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Speaker 2: a reduction in shipments for Amazon dot Com. This isn't

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Speaker 2: an effort to cut expenses and improve profitability.

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Speaker 3: UPS also did an update it's fullier outlook, citing macroeconomic uncertainty,

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Speaker 3: and this comes despite the company reporting first quarter earnings

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Speaker 3: that beat analyst estimates.

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Speaker 2: For more on this and the state of the shipping industry,

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Speaker 2: we're joined by Lee Klascow, Bloomberg Intelligence Senior Transport, Logistics

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Speaker 2: and shipping analysts.

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Speaker 3: We first asked Lee to give us his take on

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Speaker 3: what we heard from UPS.

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Speaker 5: If I had to break it out, you know, I

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Speaker 5: would probably say ninety five percent of the I guess

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Speaker 5: somewhat disappointing two Q outlook is really being driven by

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Speaker 5: the macro and not UPS. I mean, UPS, in our

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Speaker 5: view is and has been doing the things to kind

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Speaker 5: of restructure its network to deal with the realities of

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Speaker 5: their business and how much it's changed over over the

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Speaker 5: last couple of years. And they're also focusing a lot

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Speaker 5: more on revenue quality, so that would mean trying to

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Speaker 5: win more share of small to mid size shippers. Also,

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Speaker 5: you know, you noted they're kind of gliding down, if

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Speaker 5: you will, their exposure to Amazon to some of their businesses,

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Speaker 5: that just doesn't make sense. I mean, they're still going

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Speaker 5: to do returns for Amazon, which is a good business

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Speaker 5: for UPS from a margin financial standpoint.

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Speaker 2: Hayley, what kind of visibility does UPS have on their

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Speaker 2: revenue stream? Like how much is contractive which just how

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Speaker 2: much is this me walking up the store and you know,

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Speaker 2: shipping a package across the country.

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Speaker 5: That's a great question, Paul. I think the reality is

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Speaker 5: that they have somewhat decent visibility into their business A

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Speaker 5: couple of weeks out. I think that's really about it.

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Speaker 5: That's just really because it's their their customers are really

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Speaker 5: driven by economic activity and it's really tough to kind

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Speaker 5: of really gauge that those volumes, especially in the current

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Speaker 5: environment giving the uncertainty driven by TARIS, which is you

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Speaker 5: know why earnings expectations for the second quarter will probably

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Speaker 5: start moving lower as sell sided analysts adjust their models.

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Speaker 3: The Amazon stuff is a good thing for them long term, right,

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Speaker 3: even though there's near term pain, Like those are lower

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Speaker 3: margin packages that they don't want to do anymore. They're

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Speaker 3: going to focus on higher margin packages that could wind

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Speaker 3: up being much more stable and profitable, right.

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Speaker 5: Yeah, to your point, they are really generating, they're really

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Speaker 5: focusing on revenue quality. You know, they mentioned on the

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Speaker 5: call that some of their business out of Amazon's fulfillment

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Speaker 5: centers just really wasn't profitable for them, so it obviously

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Speaker 5: doesn't make sense to take that business. And if they're

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Speaker 5: able to create capacity by getting rid of some of

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Speaker 5: this business and filling it with what they call SMB

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Speaker 5: small to mid sized businesses, you know, that's it's going

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Speaker 5: to be a good thing for US margins overall, and

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Speaker 5: it will allow them to generate the kind of returns

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Speaker 5: that they can reinvest in their network, because you know,

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Speaker 5: while they're doing a lot of investing in now in automation,

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Speaker 5: and they're closing some facilities just to be a little

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Speaker 5: more nimble than they were in the past. You know,

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Speaker 5: they're still going to continue to have to make those

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Speaker 5: investments because technology continues to change and those benefits, you know,

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Speaker 5: will need to be driven by those investments.

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Speaker 6: Lie.

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Speaker 2: A lot of companies are saying, you know, they're not

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Speaker 2: necessarily seeing the impacts of tariffs now, but they certainly

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Speaker 2: expect to in the coming weeks and months. You cover

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Speaker 2: everything in shipping, rails, trucks, the recen shippers, the air

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Speaker 2: freight guys. You cover it all. Are you seeing it now,

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Speaker 2: because I've actually seen some reporting that maybe fewer ships

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Speaker 2: are sailing from China to the US. Are you seeing

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Speaker 2: it anywhere in your space?

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Speaker 5: Yeah, we are. In to your point, Bookings from China

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Speaker 5: to the US are down thirty to forty depending on

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Speaker 5: which press reports you read. You know, some of that

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Speaker 5: is obviously there where they pull forward effect in our

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Speaker 5: view before the tariffs were going into place, so people

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Speaker 5: were rushing to get stuff out, So we don't know

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Speaker 5: really where that's going to lie. You know, shippers are

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Speaker 5: going to either they're going to take the stance where

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Speaker 5: they're going to be like they're going to sit back

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Speaker 5: and wait to see what happens. Some are continue to

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Speaker 5: do business as usual and they're just going to try

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Speaker 5: to push off the costs associated with tariffs to customers,

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Speaker 5: which obviously will be inflationary or mix of the two.

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Speaker 5: So really, you know, it'll be interesting to see how

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Speaker 5: things progress.

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Speaker 3: Yeah, but still, I mean you have to wonder though,

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Speaker 3: how fast then the shipping industry can rerate. Like if

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Speaker 3: there's like one ship hanging out the LA port all

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Speaker 3: of a sudden tariffs go away, what does that wind

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Speaker 3: up looking like?

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Speaker 5: Yeah, Shipping companies can do a number of things to

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Speaker 5: manage their capacity during ups and downs time. They can

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Speaker 5: do blank sailings, which really just means they don't they

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Speaker 5: don't go to a port, they skip a port. They

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Speaker 5: can operate slower, which actually is good because they could

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Speaker 5: save them on fuel. And in a worst case scenario,

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Speaker 5: they can just take the ships out of the water

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Speaker 5: because that that is that it can be costly. And

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Speaker 5: also you know a lot of a lot of them

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Speaker 5: they lease their capacity uh from other companies, so you know,

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Speaker 5: once those leases come up, they can just return the ship, uh.

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Speaker 5: To the owner of that ship.

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Speaker 2: Haley, I know you cover rail and truck companies that

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Speaker 2: do a lot of business across the Mexican border. What

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Speaker 2: do you what are you seeing there these days? What

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Speaker 2: are they telling you? Again?

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Speaker 5: You know it, there's a lot of uncertainty. Uh they

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Speaker 5: saw a kind of a surge and demand ahead of

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Speaker 5: the tariffs. You know, there is a lot of exemptions

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Speaker 5: in tariffs between the US and Mexico and the US

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Speaker 5: and Canada. Uh So, you know, they are not as

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Speaker 5: punitive as they are with with China. Uh So, you

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Speaker 5: know it that might be more of an inflationary aspect

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Speaker 5: versus a stopping of flowing of freight. But the problem

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Speaker 5: is is that, you know, if some of the supply

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Speaker 5: chains get mucked up from the tariffs on China, that

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Speaker 5: could impact manufacturing in Mexico and manufacturing in Canada, which

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Speaker 5: we'll therefore you know, impact cross border volumes overall. So

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Speaker 5: there's a you know, kind of a latency approach here.

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Speaker 5: I know that's not what people want to hear. They

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Speaker 5: want certainty. But given the more protectionist policies out of Washington,

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Speaker 5: and you know how they can change on a dime,

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Speaker 5: it's really hard to get that certainty, so hopefully in

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Speaker 5: the coming weeks we'll get some better definitive outlook on

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Speaker 5: unworthyse tariffs are heading our thanks to.

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Speaker 2: Lead classical Bloomberg Intelligence senior transport, logistics and shipping analysts.

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Speaker 3: Coming up, we're going to break down how cruise demand

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Speaker 3: has been impacted in twenty twenty five.

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Speaker 2: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in

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Speaker 2: depth research and data on two thousand companies in one

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Speaker 2: hundred and thirty industries. You can access Bloomberg Intelligence via

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Speaker 2: Big in the terminal.

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Speaker 3: I'm Paul Sweeten and a Malex Steel and this is Bloomberg.

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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, Cocklay and Android

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Speaker 1: Auto with the Bloomberg Business App. 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 3: We move next to some new research from Bloomberg Intelligence

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Speaker 3: about it's bi Tariffs Matrix. It's a worst case scenario

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Speaker 3: tariff analysis tool. It helps identify companies exposure to US tariffs,

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Speaker 3: the potential impact on EBADAH and how much prices have

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Speaker 3: to rise to offset elevated costs for more.

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Speaker 2: We were joined by Punham Goyle, senior US e Commerce

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Speaker 2: and retail analysts at Bloomberg Intelligence, and Elliot Stein, Bloomberg

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Speaker 2: Intelligence litigation analysts.

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Speaker 3: We first asked Elliott how the BI tariff matrix works.

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Speaker 7: So the BI Terriffs Matrix available on the Bloomberg terminal

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Speaker 7: at bispace Tariffs Go and like you said, BI analysts

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Speaker 7: for weeks have been putting numbers on what tariffs mean

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Speaker 7: for their companies and this is all distilled in the

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Speaker 7: BI Tariffs Matrix. You go to the matrix, it lists

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Speaker 7: two hundred companies and we're continuing to add more companies

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Speaker 7: across twenty different industries, and it shows you what their

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Speaker 7: blended teriff rate would be based on their exposure to

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Speaker 7: different countries where they're getting goods for their sales in

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Speaker 7: the US and what the tariff rates are on those countries.

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Speaker 7: And then from there, our analysts have calculated how much

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Speaker 7: the cost of goods will increase for all these companies'

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Speaker 7: sales into the US, how much their profit will take

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Speaker 7: a hit as a result, and how much they would

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Speaker 7: have to increase prices both in the US and globally.

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Speaker 7: To offset the impact of the tariffs.

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Speaker 3: That's amazing, that's incredible. Honestly, this is why Bloomberg Intelligence

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Speaker 3: is so awesome. And we'll get to retail with punamindus

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Speaker 3: a second. But Elliott, when we're putting this together, from

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Speaker 3: all the different sectors, what stood out to you? What

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Speaker 3: did you learn the most?

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Speaker 7: So you know, it's really interesting. So we also published

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Speaker 7: a note on this end. In that note there's a

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Speaker 7: piece from Honor Agrana and the tech team, And you know,

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Speaker 7: I like to filter by the blended teriff rate and

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Speaker 7: see which companies are paying more teriffs as a result.

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Speaker 7: And if you look at Apple, because they have such

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Speaker 7: a high exposure to China, their blended terifrate is still

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Speaker 7: twenty percent. But the company, like Dell, has a much

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Speaker 7: more diversified supply chain and so they're blended terrafrate is

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Speaker 7: much lower, roughly, I think maybe four or eight percent

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Speaker 7: of the exact number. And so as a result, the

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Speaker 7: you know, the amount that both these companies would have

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Speaker 7: to increase their prices to offset tariffs varies quite dramatically,

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Speaker 7: with Apple being close to nine percent and Dell being

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Speaker 7: close to two percent.

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Speaker 2: So pun them on the retail side of the business.

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Speaker 2: How much more do you think consumers are going to

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Speaker 2: have to pay at the store for stuff?

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Speaker 8: Sophy assume that the entire cost has passed to the consumer.

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Speaker 8: On average, across the thirty nine retailers we analyzed here

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Speaker 8: in the US, it's a low double digit increase. That said,

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Speaker 8: we do expect some mitigation efforts to take place, so

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Speaker 8: we do expect that to moderate to probably mid to

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Speaker 8: high single digits. Worst case scenario that sounds bad is

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Speaker 8: that bad? I mean, price increases are bad, right because

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Speaker 8: they influence demand, and that means that consumers could pull

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Speaker 8: back and where and how they choose to spend. So

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Speaker 8: ideally we would like to see no price increases, low

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Speaker 8: single digit at best, which we think is manageable. But

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Speaker 8: if it's beyond that, there could be a pullback in demand,

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Speaker 8: especially for discretionary items, right, things that you can kind

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Speaker 8: of hold off on, you can trade down for. So

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Speaker 8: it is negative if things worsen and if China attentions

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Speaker 8: don't come down from here?

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Speaker 2: Are there certain product lines or certain categories put them

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Speaker 2: that are more risk? I just think, you know, I'd

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Speaker 2: remember seeing a story on sneakers and it seems like

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Speaker 2: all the sneakers come from China in that point.

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Speaker 8: Well, they actually come mostly from Vietnam. So as long

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Speaker 8: as the Vietnam teriff rates stay at ten percent, which

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Speaker 8: we'll know in early July if that's the case or not,

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Speaker 8: I think that headwind is largely manageable. In fact, you know,

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Speaker 8: for the at leisure companies like Nike Adidas, we've estimated

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Speaker 8: that the tiff frate currently should only be around ten percent,

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Speaker 8: and that's because that's the current levee on the other

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Speaker 8: countries outside of China. These companies have diversified a lot

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Speaker 8: since the last round of tariffs, where they've actually moved

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Speaker 8: out of China into the neighboring countries, and as long

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Speaker 8: as the tariff is low there, we think it's manageable.

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Speaker 8: If tariffs do increase in early July from the ten percent,

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Speaker 8: it's a bigger risk to these at leisure companies. Paul,

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Speaker 8: you know you asked about where the impact is greater.

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Speaker 8: Is across the thirty nine companies that we've analyzed. I

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Speaker 8: think you have to look at the toymakers. You have

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Speaker 8: to look at the dollar stores and even some of

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Speaker 8: the specialty apparel stores where they are more heavily exposed

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Speaker 8: to China, in some cases largely exposed to China, and

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Speaker 8: they're the tariff rate is greater than fifty percent and

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Speaker 8: the exposure is much higher, so a much bigger impact.

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Speaker 3: You search by us price hike and do you know

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Speaker 3: a top down like Mattel thirty one percent estimated price

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Speaker 3: increase five below thirty nine percent? Dollar Tree twenty seven percent.

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Speaker 2: I don't think those people are gonna like, I mean,

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Speaker 2: that's we've shop.

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Speaker 3: At dollar That's really rough. I mean I could do

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Speaker 3: this forever. H and m twenty percent Target? Where'd you

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Speaker 3: go Target looking at twenty percent? Elliott? Are we going

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Speaker 3: to see lawsuits legal issues in relation to.

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Speaker 7: This, Yeah, we already are, and just going back to

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Speaker 7: the matrix for six so we didn't mention it. But

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Speaker 7: you can click below the matrix and to the left

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Speaker 7: of the matrix as well, because there are interactive catulators

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Speaker 7: for all these companies where you can play around with

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Speaker 7: some of the different assumptions, put in your own numbers,

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Speaker 7: and you know, and get the output as a result.

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Speaker 7: But in terms of lawsuits, yeah, we've seen multiple lawsuits

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Speaker 7: being filed. My colleague Holly Film covers them, but I've

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Speaker 7: been tracking them as well because they're interesting. We've seen

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Speaker 7: companies from lawsuits from importers as well as Blue states

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Speaker 7: like California and Oregon. They're filed in courts all around

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Speaker 7: the country, but they're probably all on their way to

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Speaker 7: being consolidated to a court here in New York called

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Speaker 7: the Court of International Trade, which deals with lawsuits over tariffs.

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Speaker 7: And there are two main claims in these cases. One

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Speaker 7: is that the government is exceeding its statutory authority under AEPA,

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Speaker 7: which is the statute it's using the Emergency Powers Act.

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Speaker 7: And then the second one is that even if it

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Speaker 7: does have the power under IEPA to implement these tariffs,

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Speaker 7: Congress delegated its authority to the president improperly. These are

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Speaker 7: issues of like first impression. You know, we've never seen

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Speaker 7: a president use IEPA for tariffs before, and at the

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Speaker 7: end of the day, we think it's a close call,

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Speaker 7: but we think the administration will win these lawsuits and

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Speaker 7: the tariffs will stick.

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Speaker 2: Our thanks to Elliot Stein Bloomberg Intelligence litigation analysts and

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Speaker 2: put them Goyle, Senior US e Commerce and retail analysts

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Speaker 2: at Bloomberg Intelligence. This week we got a tale of

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Speaker 2: two different earnings pictures from the Royal Caribbean and Norwegian Cruise.

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Speaker 3: Royal Caribbean raise its profit outlook for the year, saying

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Speaker 3: that bookings for twenty twenty five or man on track

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Speaker 3: Norwegian Cruise Line more than the cruise demand is weakening,

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Speaker 3: citing softening in his twelve month forward bookings.

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Speaker 2: For more on this and a State of Travel, we

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Speaker 2: were joined by Jody Lourie, Bloomberg Intelligence credit analyst.

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Speaker 3: We first asked Jody for her broad take on Royal

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Speaker 3: Caribbean versus Norwegian Cruise Line earnings.

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Speaker 9: I think that the interesting thing that we're noticing this

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Speaker 9: quarter is the change in tone, and it's not necessarily

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Speaker 9: that the companies are so pessimistic. It's that they're hedging

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Speaker 9: their bets a little bit. They're reminding investors that they

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Speaker 9: have a longer tail when it comes to bookings. The

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Speaker 9: reminding investors that even if the consumer starts pulling back

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Speaker 9: on travel, which Hilton commented on some of that, that

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Speaker 9: they are at least well positioned for twenty five. And

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Speaker 9: so Norwegian was trying to back out of comments around

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Speaker 9: Europe being a little bit weaker by saying Hey, rest

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Speaker 9: of the world is doing well. Fribbean was sounding upbeat, optimistic,

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Speaker 9: but I do suspect that there's an element of concern

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Speaker 9: for all these companies.

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Speaker 2: So what's the best way for you as an analyst,

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Speaker 2: Jo did to get a sense of how demand is

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Speaker 2: going in the future. I know some of these bookings,

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Speaker 2: as you mentioned, are far in advance, but how do

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Speaker 2: you guys think about that?

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Speaker 9: So there's two things we do, Paul. So the first

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Speaker 9: is we actually do a note every quarter or so

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Speaker 9: around bookings related to Bloomberg Second Measure data. And by

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Speaker 9: that I mean is that Bloomberg Second Measure data isn't

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Speaker 9: necessarily one for one on bookings, but you'll see that,

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Speaker 9: particularly going into wave season, that you can get a

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Speaker 9: sense of what bookings are doing based on what sales

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Speaker 9: is and volume is for these companies. We have intel

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Speaker 9: into a little bit more into the brand depth being

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Speaker 9: at Bloomberg, but beyond that, I mean, clients can look

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Speaker 9: at a lot of that data as well, and it's

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Speaker 9: really helpful. I mean, we wrote a note back in

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Speaker 9: the fall that talked to twenty twenty five still being

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Speaker 9: strong for these companies, but aired a little bit of

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Speaker 9: caution to the twenty twenty sixth season and that being

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Speaker 9: a function of what we were seeing on second measure, do.

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Speaker 3: You get the sentence that if we see sort of

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Speaker 3: stalling out in consumer demand or just a little hold back,

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Speaker 3: but it's deferred demand or disappearing demand.

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Speaker 9: So for the cruise lines, I mean you have to

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Speaker 9: think about it in buckets. So you have those dedicated

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Speaker 9: cruisers that are going to cruise heck or high water.

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Speaker 9: Those are the people who are going to jump in

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Speaker 9: right after COVID. But I mean, I think for the

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Speaker 9: new to cruisers, it's more of a question of if

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Speaker 9: they're going to consider booking this far in advance if

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Speaker 9: they don't know what their wallet is going to look like.

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Speaker 9: There is a function of people being able to back

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Speaker 9: out coming into a cruise, But I'd argue that a

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Speaker 9: lot of the time when people are making that decision,

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Speaker 9: especially for an advance, they're not necessarily going to use

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Speaker 9: that as the lever to pull when they need to

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Speaker 9: free up additional cash, right, are going to find other

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Speaker 9: ways to access cash or capital. I'm talking individuals, I'm

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Speaker 9: talking to consumers, right, And so when we book our vacations,

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Speaker 9: we're saying okay, we're going Now, it's the bigger question.

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Speaker 9: And this is what we're seeing with the hotel is

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Speaker 9: for the people who haven't necessarily booked, they might be

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Speaker 9: rethinking when they're going to book what their vacation is

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Speaker 9: going to look like? When are they going to book

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Speaker 9: their airline?

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Speaker 2: Right?

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Speaker 9: And I think that's key is the fact that you

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Speaker 9: have this long tail booking versus the shorter tail booking.

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Speaker 2: So, Jody, if I'm a cruse ship operator and I

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Speaker 2: sense that my bookings are going to a week and

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Speaker 2: going forward, what do I do? I mean, because my

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Speaker 2: boat's like a foating piece of I don't know fixed

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Speaker 2: costs there? What can I do?

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Speaker 9: You can just get the ship filled as much as possible.

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Speaker 7: Right.

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Speaker 9: So, something we learned from covid in for a lot

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Speaker 9: of these companies is that really in order to be

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Speaker 9: break even EVEDA, they need somewhere between thirty to fifty

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00:22:59,560 --> 00:23:03,359
Speaker 9: percent capacity for the cruising, right. And that's what a

438
00:23:03,359 --> 00:23:05,160
Speaker 9: lot of the companies said when they were getting back

439
00:23:05,240 --> 00:23:07,480
Speaker 9: up to speed, they said, you know, we need thirty

440
00:23:07,520 --> 00:23:10,439
Speaker 9: to fifty percent of capacity and then we break even EBDA.

441
00:23:11,040 --> 00:23:14,440
Speaker 9: And I think that the key also is that these

442
00:23:14,480 --> 00:23:16,880
Speaker 9: companies have really pushed the onboard spending.

443
00:23:17,000 --> 00:23:17,160
Speaker 5: Right.

444
00:23:17,440 --> 00:23:21,600
Speaker 9: The ticket covers, you know, ticket covers a certain amount

445
00:23:21,640 --> 00:23:24,720
Speaker 9: of the cost of sailing, but if they are going

446
00:23:24,760 --> 00:23:26,280
Speaker 9: to be sailing either way, they want to fill the

447
00:23:26,320 --> 00:23:29,040
Speaker 9: ship because if you fill the ship, then you have

448
00:23:29,119 --> 00:23:32,320
Speaker 9: more potential for additional spending on board. Even just from

449
00:23:32,359 --> 00:23:35,000
Speaker 9: the basics of I forgot a toothbrush, I got to

450
00:23:35,040 --> 00:23:37,680
Speaker 9: go use the corner store on the ship because it's

451
00:23:37,680 --> 00:23:42,280
Speaker 9: a captive market. But even beyond that, people once they're there,

452
00:23:42,440 --> 00:23:44,040
Speaker 9: they say, well, I'm already here, I med as well

453
00:23:44,080 --> 00:23:47,480
Speaker 9: partake in the drink package. I might as well do

454
00:23:47,560 --> 00:23:49,920
Speaker 9: an excursion, right, I don't know the next time I'm

455
00:23:49,960 --> 00:23:52,560
Speaker 9: going to be out, So I think the key will be,

456
00:23:53,000 --> 00:23:55,200
Speaker 9: you know, getting them on the ship. Something that Norwegian

457
00:23:55,240 --> 00:23:57,720
Speaker 9: talked about, which is different than the other cruise lines

458
00:23:58,040 --> 00:23:59,760
Speaker 9: and speaks to some of the strategies that they did

459
00:23:59,800 --> 00:24:02,840
Speaker 9: put with COVID is not necessarily negotiating our price.

460
00:24:03,280 --> 00:24:05,679
Speaker 2: Thanks to Jerdi Lourie Bloomberg Intelligence credit.

461
00:24:05,359 --> 00:24:07,360
Speaker 3: Analysts coming up on the program, We're going to break

462
00:24:07,400 --> 00:24:09,600
Speaker 3: down by McDonald sales fell sharply last quarter.

463
00:24:09,720 --> 00:24:12,600
Speaker 2: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing indepth

464
00:24:12,640 --> 00:24:14,960
Speaker 2: research and data on two thousand companies and one hundred

465
00:24:14,960 --> 00:24:17,840
Speaker 2: and thirty industries. You can access Bloomberg Intelligence via Big

466
00:24:17,960 --> 00:24:18,520
Speaker 2: on the terminal.

467
00:24:18,560 --> 00:24:21,440
Speaker 3: I'm Paul Sweeney and I'm Alex Steele. This is Bloomberg.

468
00:24:27,600 --> 00:24:31,480
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch the program

469
00:24:31,560 --> 00:24:34,600
Speaker 1: live weekdays at ten am Eastern on Apple Corplay and

470
00:24:34,600 --> 00:24:37,600
Speaker 1: Android Auto with the Bloomberg Business app. You can also

471
00:24:37,720 --> 00:24:41,359
Speaker 1: listen live on Amazon Alexa from our flagship New York station.

472
00:24:41,920 --> 00:24:44,560
Speaker 1: Just say Alexa Play Bloomberg eleven thirty.

473
00:24:45,040 --> 00:24:47,399
Speaker 2: We begin with big Tech and earnings from the world's

474
00:24:47,520 --> 00:24:49,200
Speaker 2: largest software maker Microsoft.

475
00:24:49,280 --> 00:24:52,080
Speaker 3: This week, the company reported stronger than expected quarterly sales

476
00:24:52,080 --> 00:24:54,679
Speaker 3: and profit, and this suggests the customer demand for cloud

477
00:24:54,720 --> 00:24:57,760
Speaker 3: services has held steady despite a wave of new tariffs

478
00:24:57,800 --> 00:24:58,960
Speaker 3: and economic turbulence.

479
00:24:59,240 --> 00:25:03,000
Speaker 2: For more and by anaag Rana, Bloomberg Intelligence Technology Analysts.

480
00:25:03,000 --> 00:25:05,160
Speaker 3: We first asked Anorog for his take on those third

481
00:25:05,200 --> 00:25:05,920
Speaker 3: quarter results.

482
00:25:06,480 --> 00:25:09,280
Speaker 6: I think it's a cloud plus AI. I think that's

483
00:25:09,320 --> 00:25:12,520
Speaker 6: the that's the big gain over here. And as you said,

484
00:25:12,560 --> 00:25:14,720
Speaker 6: I mean this is a company that is probably one

485
00:25:14,760 --> 00:25:17,520
Speaker 6: third of the entire software industry, and it beat by

486
00:25:17,520 --> 00:25:20,880
Speaker 6: a massive margin. I mean it was, I mean really

487
00:25:21,520 --> 00:25:23,640
Speaker 6: in terms of when you're walking into the quarter, you're

488
00:25:23,640 --> 00:25:26,840
Speaker 6: looking at, you know, constant gulency growth rate of twelve percent,

489
00:25:27,240 --> 00:25:30,639
Speaker 6: they beat it by three hundred basis points about fifteen percent.

490
00:25:30,680 --> 00:25:34,640
Speaker 6: Growing as your growth rate which was thirty one percent consensus,

491
00:25:34,840 --> 00:25:36,800
Speaker 6: they beat by thirty five percent. They're going to do

492
00:25:36,840 --> 00:25:39,800
Speaker 6: another thirty four to thirty five next quartered. So really,

493
00:25:39,880 --> 00:25:42,880
Speaker 6: you know, everything is going well for them, and that's

494
00:25:43,040 --> 00:25:46,200
Speaker 6: partially because of their relationship with Open Eye and all

495
00:25:46,240 --> 00:25:48,480
Speaker 6: the workloads that they are getting from that. I think

496
00:25:48,520 --> 00:25:50,840
Speaker 6: that's really what's driving a lot of it. They came

497
00:25:50,880 --> 00:25:53,320
Speaker 6: in talked about the caapics still fine. They're not shutting

498
00:25:53,320 --> 00:25:56,520
Speaker 6: any data centers down, and I think this is probably

499
00:25:56,560 --> 00:25:58,359
Speaker 6: the cleanest story in tech right now.

500
00:25:58,600 --> 00:26:00,959
Speaker 2: Is there a narrative yet coming from the software industry

501
00:26:01,040 --> 00:26:03,960
Speaker 2: about a world of higher tariffs on a rag or

502
00:26:04,200 --> 00:26:07,520
Speaker 2: or are the software companies, like most everybody else out there,

503
00:26:08,080 --> 00:26:09,040
Speaker 2: kind of wait and see.

504
00:26:10,200 --> 00:26:13,440
Speaker 6: No, you are looking at you know, the non AIIT

505
00:26:13,600 --> 00:26:16,240
Speaker 6: spending being cut down or pulled back. But that's the

506
00:26:16,240 --> 00:26:19,560
Speaker 6: second derivative impact. When it comes to direct impact from China.

507
00:26:19,600 --> 00:26:21,600
Speaker 6: Most of them don't have any about other than buying

508
00:26:21,640 --> 00:26:25,520
Speaker 6: boxes from China for you know, expanding their data center work.

509
00:26:25,760 --> 00:26:28,480
Speaker 6: But that's the kind of cost that perhaps even sometimes

510
00:26:28,480 --> 00:26:31,199
Speaker 6: even absorb given the scale of the larger companies. The

511
00:26:31,240 --> 00:26:34,600
Speaker 6: smaller ones will have some problems. But the tariff impact

512
00:26:34,640 --> 00:26:38,040
Speaker 6: we are seeing in new bookings numbers, new guidance for

513
00:26:38,080 --> 00:26:40,640
Speaker 6: the full year. People are cautious about it. But that's

514
00:26:40,720 --> 00:26:43,440
Speaker 6: what I would call is a second second degree impact.

515
00:26:43,760 --> 00:26:46,879
Speaker 3: What did you make of Microsoft lowering their capax just

516
00:26:46,920 --> 00:26:50,520
Speaker 3: in terms of their expenditures and then Meta increasing them?

517
00:26:50,840 --> 00:26:53,240
Speaker 3: What am I learning from their CAPAX numbers?

518
00:26:53,640 --> 00:26:56,440
Speaker 6: So Microsoft did not pay I mean Microsoft basically said

519
00:26:56,440 --> 00:26:59,040
Speaker 6: they're going to be spending on short term kind of projects,

520
00:26:59,080 --> 00:27:02,600
Speaker 6: which is more leases, rather than building it on their own,

521
00:27:02,800 --> 00:27:05,399
Speaker 6: which to us is fine because let's say there is

522
00:27:05,480 --> 00:27:07,919
Speaker 6: some issue with demand over the next two years, you

523
00:27:07,920 --> 00:27:10,200
Speaker 6: know they can counter that in a much more rapid

524
00:27:10,520 --> 00:27:13,920
Speaker 6: progression than the others. Now Meta is talking about more CAPEX,

525
00:27:13,960 --> 00:27:15,879
Speaker 6: but I have no idea how they're going to capitalize

526
00:27:15,880 --> 00:27:17,680
Speaker 6: on it, and then you know that's that's an area

527
00:27:17,720 --> 00:27:20,600
Speaker 6: of question mark for them. For Microsoft, it comes through

528
00:27:20,680 --> 00:27:24,359
Speaker 6: Azure Cloud computing for AWUS, it's the same thing, but

529
00:27:24,640 --> 00:27:27,120
Speaker 6: how are they going to capitalize it? You know, he says,

530
00:27:27,160 --> 00:27:28,320
Speaker 6: a big question for Meta.

531
00:27:28,359 --> 00:27:31,920
Speaker 3: All right, Thanks to Anaagrana, Bloomberg Intelligence Senior Technology analyst,

532
00:27:32,400 --> 00:27:35,480
Speaker 3: we move now to earnings from the fast food giant McDonald's.

533
00:27:35,640 --> 00:27:39,160
Speaker 2: This week, McDonald's reported that it's US sales fell sharply

534
00:27:39,160 --> 00:27:40,200
Speaker 2: in the first quarter, and.

535
00:27:40,080 --> 00:27:43,000
Speaker 3: This reflects a deterioration and consumer sentiment that's making it

536
00:27:43,040 --> 00:27:45,320
Speaker 3: harder for restaurants to lure in diners.

537
00:27:45,600 --> 00:27:48,119
Speaker 2: For more, we were joined by Michael hallan Bloomberg Intelligence

538
00:27:48,119 --> 00:27:50,000
Speaker 2: senior restaurant and food service analysts.

539
00:27:50,080 --> 00:27:53,360
Speaker 3: We first asked Michael for his take on McDonald's earnings results.

540
00:27:53,480 --> 00:27:54,359
Speaker 6: In the US.

541
00:27:54,440 --> 00:27:57,320
Speaker 10: You know, it was a messy quarter. You know, it

542
00:27:57,359 --> 00:28:00,600
Speaker 10: was definitely an underwhelming report, but there was a lot

543
00:28:00,640 --> 00:28:03,080
Speaker 10: of noise. I mean, the weather was difficult for the

544
00:28:03,119 --> 00:28:06,520
Speaker 10: restaurant chains in the first quarter. It was very cold

545
00:28:06,520 --> 00:28:10,600
Speaker 10: in January, snowy in February. It was a bad flu season.

546
00:28:11,000 --> 00:28:14,520
Speaker 10: They lost that leap year day, so that was hit

547
00:28:14,640 --> 00:28:17,720
Speaker 10: comps by about one percent, right, So it was kind

548
00:28:17,760 --> 00:28:21,240
Speaker 10: of messy, and I would say the value menu relaunch

549
00:28:21,480 --> 00:28:24,520
Speaker 10: maybe didn't go as well as some might have expected.

550
00:28:24,680 --> 00:28:27,880
Speaker 10: There's some things to get excited about, you know. This

551
00:28:27,960 --> 00:28:31,920
Speaker 10: month it was the Minecraft movie promotion. Next month is

552
00:28:31,960 --> 00:28:35,479
Speaker 10: going to be the launch of mccrispy strips, and then

553
00:28:35,520 --> 00:28:38,520
Speaker 10: in the second half we're going to see the return

554
00:28:38,600 --> 00:28:42,840
Speaker 10: of the Msnack Mix snack Rap. Yeah, and you know,

555
00:28:43,080 --> 00:28:45,240
Speaker 10: I think investors are looking forward to all those things,

556
00:28:45,280 --> 00:28:48,520
Speaker 10: and easier comps and same star shells should improve a

557
00:28:48,520 --> 00:28:50,040
Speaker 10: good amount here through the year end.

558
00:28:50,440 --> 00:28:53,440
Speaker 2: All right, So Alex and we had a remote broadcast

559
00:28:53,440 --> 00:28:56,480
Speaker 2: a couple of weeks ago with the Nji Anything. I

560
00:28:56,560 --> 00:28:59,720
Speaker 2: went to the McDonald's at the Newark train station and

561
00:29:00,440 --> 00:29:02,040
Speaker 2: got the number two with a coke, which has been

562
00:29:02,040 --> 00:29:03,760
Speaker 2: my go to order since I was like twelve.

563
00:29:04,400 --> 00:29:05,640
Speaker 3: Awesome, awesome stuff.

564
00:29:05,720 --> 00:29:08,120
Speaker 2: Awesome. I mean, they just they deliver every time. I

565
00:29:08,160 --> 00:29:09,880
Speaker 2: don't know, I'm not taking it. I'm not anybody who

566
00:29:09,880 --> 00:29:12,959
Speaker 2: speak a bed word about McDonald's. Hey, Michael, what are

567
00:29:13,000 --> 00:29:17,040
Speaker 2: your restaurant companies. What are they saying about a world

568
00:29:17,040 --> 00:29:19,720
Speaker 2: of terriffs? How does it impact their business? How much

569
00:29:19,720 --> 00:29:23,000
Speaker 2: did they expect to take out of their margin versus

570
00:29:23,080 --> 00:29:26,000
Speaker 2: maybe passing along to customers. What were you hear in

571
00:29:26,000 --> 00:29:26,440
Speaker 2: these days.

572
00:29:27,000 --> 00:29:29,440
Speaker 10: Yeah, So what we're hearing on these earnings calls is

573
00:29:29,520 --> 00:29:31,800
Speaker 10: just uncertainty. And I think and most of our companies

574
00:29:31,800 --> 00:29:34,360
Speaker 10: are taking this as an opportunity to kind of lower

575
00:29:34,400 --> 00:29:38,560
Speaker 10: their guidance their same star sales top line guidance for

576
00:29:39,120 --> 00:29:42,240
Speaker 10: twenty twenty five. Here whether or not their business has

577
00:29:42,280 --> 00:29:47,640
Speaker 10: been impacted by a consumer slowdown due to TARERFF concerns

578
00:29:48,560 --> 00:29:51,719
Speaker 10: and anything like that. In terms of margins, we're fine.

579
00:29:51,960 --> 00:29:57,600
Speaker 10: I mean, you know, there's very limited exposure to imports

580
00:29:57,600 --> 00:30:01,520
Speaker 10: in the restaurant industry. Companies, you know, restaurant chains we cover,

581
00:30:01,600 --> 00:30:06,720
Speaker 10: they're all sourcing a large majority of their goods domestically, right,

582
00:30:06,720 --> 00:30:09,480
Speaker 10: and so margins aren't really an issue. I mean, Shakeshock

583
00:30:09,560 --> 00:30:13,640
Speaker 10: actually increased their guidance for twenty twenty five restaurant margins.

584
00:30:14,240 --> 00:30:19,200
Speaker 3: That's interesting. So would this be a relatively then defensive sector?

585
00:30:19,520 --> 00:30:21,360
Speaker 3: Dare I say in a tariff environment?

586
00:30:23,880 --> 00:30:26,320
Speaker 10: Well, I mean, right now, the market trading as if

587
00:30:26,440 --> 00:30:28,880
Speaker 10: you know, a recession is on the table, and in

588
00:30:28,920 --> 00:30:31,520
Speaker 10: that case, consumer spending is going to pull back. I

589
00:30:31,560 --> 00:30:37,360
Speaker 10: would say restaurants are probably better seated than maybe retailers, right,

590
00:30:37,400 --> 00:30:40,360
Speaker 10: because they have less tariff exposure. And the restaurant industry

591
00:30:40,400 --> 00:30:42,840
Speaker 10: suffered a recession last year, and so we have easier

592
00:30:42,840 --> 00:30:46,440
Speaker 10: comps to lap right, and so for those reasons, it

593
00:30:46,480 --> 00:30:48,920
Speaker 10: may be more attractive. But you know, if we do

594
00:30:48,960 --> 00:30:51,240
Speaker 10: see a recession, you don't want to be owning consumer

595
00:30:51,280 --> 00:30:52,920
Speaker 10: discretionary names historically.

596
00:30:53,880 --> 00:30:57,280
Speaker 2: So, Mike, I think I'm a pretty good restaurant feedback

597
00:30:57,280 --> 00:31:00,280
Speaker 2: person because I'll go to the McDonald's and Newark trains,

598
00:31:00,320 --> 00:31:02,080
Speaker 2: but I'll go to the top end steakhouse as well.

599
00:31:02,080 --> 00:31:06,240
Speaker 2: I'll go anywhere in between. Where did the different segments

600
00:31:06,240 --> 00:31:08,080
Speaker 2: of the restaurant business? How do you think they're they're

601
00:31:08,080 --> 00:31:10,800
Speaker 2: going to fare in an economy that is perhaps slowing

602
00:31:10,840 --> 00:31:12,840
Speaker 2: down and perhaps even thinking about a recession.

603
00:31:13,200 --> 00:31:17,200
Speaker 10: It's really interesting this go round. And you know, we've

604
00:31:17,240 --> 00:31:20,440
Speaker 10: been saying, and we continue to think that casual dining

605
00:31:20,600 --> 00:31:22,600
Speaker 10: is going to outperform this year.

606
00:31:22,720 --> 00:31:24,360
Speaker 2: What's an example of casual dining.

607
00:31:25,040 --> 00:31:29,960
Speaker 10: Yeah, so casual dining, think Cheesecake Factory reported a solid report.

608
00:31:30,240 --> 00:31:32,200
Speaker 10: A name we really like is Cracker.

609
00:31:31,880 --> 00:31:35,520
Speaker 3: Barrel speaking his language right now in company?

610
00:31:36,320 --> 00:31:39,840
Speaker 10: I know I am. So those chains they're coming off

611
00:31:39,880 --> 00:31:42,800
Speaker 10: of really really weak results last year, and you have

612
00:31:42,880 --> 00:31:47,479
Speaker 10: some turnarounds in the industry that are kind of boosting.

613
00:31:48,520 --> 00:31:49,040
Speaker 2: Results.

614
00:31:49,120 --> 00:31:49,280
Speaker 6: Right.

615
00:31:49,320 --> 00:31:54,320
Speaker 10: We've seen absolutely phenomenal results out of Chili's. You know,

616
00:31:54,360 --> 00:31:56,720
Speaker 10: we think the turnaround at Cracker Barrel is going to

617
00:31:56,760 --> 00:32:01,920
Speaker 10: gain steam. And they have exposure to low income consumers,

618
00:32:01,960 --> 00:32:05,120
Speaker 10: but much less so than quick service. So quick service

619
00:32:05,160 --> 00:32:09,760
Speaker 10: is lapping better comps from last year, tougher comps from

620
00:32:09,840 --> 00:32:12,360
Speaker 10: last year, and they also have the highest exposure to

621
00:32:12,440 --> 00:32:16,720
Speaker 10: low and middle income consumers. And you know, for that reason,

622
00:32:17,040 --> 00:32:19,360
Speaker 10: we're a little bit more bearish on those names.

623
00:32:19,520 --> 00:32:19,840
Speaker 5: M hm.

624
00:32:20,320 --> 00:32:22,480
Speaker 3: Well, yeah, exactly. Any of the qs are right, the

625
00:32:22,560 --> 00:32:25,520
Speaker 3: quick service restaurants which would be in McDonald's. Where did

626
00:32:25,720 --> 00:32:26,880
Speaker 3: Chipotle is a QSR?

627
00:32:27,000 --> 00:32:30,440
Speaker 10: Right, Well, it's a quick service they like, you know,

628
00:32:30,480 --> 00:32:32,680
Speaker 10: we have a whole new segment, well not that new,

629
00:32:32,720 --> 00:32:35,320
Speaker 10: but kind of new segment called fast casual.

630
00:32:35,840 --> 00:32:36,400
Speaker 9: Yes, that's right.

631
00:32:36,760 --> 00:32:39,640
Speaker 10: Price points a little higher than quick service, a little

632
00:32:39,640 --> 00:32:44,040
Speaker 10: bit lower than casual dining, the foods better than quick service,

633
00:32:44,040 --> 00:32:47,640
Speaker 10: and in some cases actually better than casual dining as well.

634
00:32:47,680 --> 00:32:52,560
Speaker 10: So yes, Chipotle, Shake Shack, Dutch Bros, Cava, they kind

635
00:32:52,560 --> 00:32:58,120
Speaker 10: of all all are in that boat, and we're seeing

636
00:32:58,200 --> 00:33:02,920
Speaker 10: different results, you know, across that space. I think it

637
00:33:03,000 --> 00:33:07,000
Speaker 10: was pretty you know, fast casual did pretty good last year,

638
00:33:07,120 --> 00:33:10,080
Speaker 10: but we're seeing some headwinds. You know, Chipotle didn't have

639
00:33:10,160 --> 00:33:12,880
Speaker 10: a great quarter. There's been a massive slowdown in same

640
00:33:12,920 --> 00:33:18,479
Speaker 10: source sales at Wingstop, and so, you know, yeah, but

641
00:33:18,640 --> 00:33:22,200
Speaker 10: uh so you're seeing you know, kind of a case

642
00:33:22,200 --> 00:33:24,880
Speaker 10: by case basis in terms of the fast casual industry our.

643
00:33:24,960 --> 00:33:27,760
Speaker 2: Thanks to Michael Halein Bloomberg Intelligence Senior Restaurant and food

644
00:33:27,760 --> 00:33:28,760
Speaker 2: service analyst, we.

645
00:33:28,760 --> 00:33:30,760
Speaker 3: Look next at earnings from one of the world's biggest

646
00:33:30,760 --> 00:33:32,760
Speaker 3: producers of heavy machinery, Caterpillar.

647
00:33:33,040 --> 00:33:35,640
Speaker 2: This week, the company reported first quarter earnings that fell

648
00:33:35,680 --> 00:33:37,240
Speaker 2: short of analysts expectations.

649
00:33:37,320 --> 00:33:40,280
Speaker 3: Caterpillar also said it expects slightly lower sales this year

650
00:33:40,280 --> 00:33:42,840
Speaker 3: if the Trump administration tariffs remained in place and the

651
00:33:42,880 --> 00:33:45,480
Speaker 3: economy dips into a recession the second half of the year.

652
00:33:45,880 --> 00:33:47,720
Speaker 2: For more on this, we were joined by Chris Ciolino,

653
00:33:47,760 --> 00:33:51,400
Speaker 2: Bloomberg Intelligence Senior US machinery analysts. We first asked Chris

654
00:33:51,400 --> 00:33:54,360
Speaker 2: how he currently is looking at the company after reporting earnings.

655
00:33:54,760 --> 00:33:57,600
Speaker 11: I think the release really isn't as bad as initially feared,

656
00:33:57,600 --> 00:34:00,880
Speaker 11: and there's actually a number of positive takeaways here. The

657
00:34:00,960 --> 00:34:03,360
Speaker 11: quarter was weak, and we knew that going in volumes

658
00:34:03,360 --> 00:34:05,400
Speaker 11: were going to be down, pricing was gonna be under pressure.

659
00:34:06,120 --> 00:34:08,399
Speaker 11: But the outlook is actually better than I think many

660
00:34:08,440 --> 00:34:12,080
Speaker 11: had anticipated. Their two Q sales guide was actually above

661
00:34:12,120 --> 00:34:15,400
Speaker 11: the street. We saw backlog improved to a record thirty

662
00:34:15,400 --> 00:34:18,759
Speaker 11: five billion dollars. Orders were up double digits both year

663
00:34:18,800 --> 00:34:21,440
Speaker 11: over year and sequentially. And really, if you look at

664
00:34:21,480 --> 00:34:24,040
Speaker 11: their outlook X tariffs, it was really better than what

665
00:34:24,040 --> 00:34:28,399
Speaker 11: they had expected prior so, and the tariff impact as

666
00:34:28,400 --> 00:34:31,040
Speaker 11: of now at least appears manageable. So I think the release,

667
00:34:31,120 --> 00:34:33,160
Speaker 11: you know, should at least help delay some of those

668
00:34:33,160 --> 00:34:35,799
Speaker 11: concerns over a more pronounced slowdown this year.

669
00:34:36,640 --> 00:34:41,239
Speaker 2: Christa's Kindipillar build their equipment in the US. Is that

670
00:34:41,239 --> 00:34:43,000
Speaker 2: where the manufacturing is? How did they do that?

671
00:34:43,680 --> 00:34:48,160
Speaker 11: Short answer, they build everywhere. They are a net exporter

672
00:34:48,239 --> 00:34:50,160
Speaker 11: out of the US. But you have to remember this

673
00:34:50,280 --> 00:34:54,759
Speaker 11: is a large global manufacturer. They have manufacturing footprint and

674
00:34:54,760 --> 00:34:57,960
Speaker 11: and supply base that really spans the globe. But if

675
00:34:57,960 --> 00:35:01,120
Speaker 11: we're thinking about net exports, yes, they export more out

676
00:35:01,120 --> 00:35:04,799
Speaker 11: of the US than they do import. From a revenue perspective,

677
00:35:04,920 --> 00:35:07,000
Speaker 11: you know, the US is you know, almost half their

678
00:35:07,000 --> 00:35:07,880
Speaker 11: revenue today.

679
00:35:08,600 --> 00:35:10,520
Speaker 3: What about for its peers. What does this mean for

680
00:35:10,560 --> 00:35:12,960
Speaker 3: some of its peers and the trading environment that they

681
00:35:12,960 --> 00:35:13,920
Speaker 3: were previously in.

682
00:35:14,400 --> 00:35:17,919
Speaker 11: Yeah, so, at least for some of the domestic US

683
00:35:18,040 --> 00:35:21,080
Speaker 11: based manufacturers, I think this is maybe a little bit

684
00:35:21,120 --> 00:35:23,120
Speaker 11: of a sigh of relief. By no means or we

685
00:35:23,160 --> 00:35:26,800
Speaker 11: have the woods yet, but it certainly seems that the tariffs,

686
00:35:26,960 --> 00:35:30,920
Speaker 11: as of least how they stand right now, are somewhat manageable.

687
00:35:31,560 --> 00:35:34,319
Speaker 11: You know, CATS expecting a net cost headwind of about

688
00:35:34,320 --> 00:35:36,680
Speaker 11: two hundred and fifty is three hundred and fifty million

689
00:35:36,760 --> 00:35:40,120
Speaker 11: dollars next quarter. If you kind of extrapolate that out

690
00:35:40,160 --> 00:35:42,239
Speaker 11: over the balance of the year, you're talking, you know,

691
00:35:42,440 --> 00:35:44,439
Speaker 11: maybe somewhere in the one hundred and hundred and fifty

692
00:35:44,440 --> 00:35:48,040
Speaker 11: basis point headwind of margins. But that may even prove,

693
00:35:48,080 --> 00:35:51,600
Speaker 11: you know, overly pessimistic, because you know, Cats still evaluating

694
00:35:51,640 --> 00:35:55,719
Speaker 11: and implementing some of these mitigation actions, so we could

695
00:35:55,760 --> 00:35:57,520
Speaker 11: even see that come down from here.

696
00:35:58,040 --> 00:36:00,359
Speaker 2: I was kind of surprised, I guess positively, Chris, that

697
00:36:00,480 --> 00:36:04,480
Speaker 2: their backlog looks pretty darn good. It's not like their

698
00:36:04,520 --> 00:36:07,000
Speaker 2: customers are saying are canceling orders or anything.

699
00:36:07,760 --> 00:36:10,319
Speaker 11: No, and it's it's a record backlog, right, so you

700
00:36:10,360 --> 00:36:13,000
Speaker 11: know we have coverage. You know, if you look at

701
00:36:13,080 --> 00:36:16,640
Speaker 11: consensus revenue, you know, whether we call it flatter down

702
00:36:16,680 --> 00:36:19,800
Speaker 11: slightly this year, they've got coverage for you know, nearly

703
00:36:19,840 --> 00:36:22,520
Speaker 11: seventy percent of the year already, So I think that

704
00:36:22,560 --> 00:36:25,040
Speaker 11: does help provide some kind of buffer. You know, there

705
00:36:25,080 --> 00:36:27,640
Speaker 11: was a concern out there that do we see this

706
00:36:27,880 --> 00:36:31,200
Speaker 11: pre buy you know, ahead of some of the tariff implementation,

707
00:36:31,600 --> 00:36:34,600
Speaker 11: and Kat really kind of downplayed that in conversations they're

708
00:36:34,600 --> 00:36:37,239
Speaker 11: having with their dealers and with their customers, they're really

709
00:36:37,320 --> 00:36:40,640
Speaker 11: not seeing any evidence of that. So yeah, these do

710
00:36:40,840 --> 00:36:43,799
Speaker 11: seem like, you know, true orders and really a really

711
00:36:43,920 --> 00:36:47,080
Speaker 11: healthy backlog, which you know, I think helps support you know,

712
00:36:47,160 --> 00:36:51,279
Speaker 11: that flatish type revenue outlook that they're putting out there.

713
00:36:51,680 --> 00:36:51,960
Speaker 9: All right.

714
00:36:51,960 --> 00:36:55,320
Speaker 3: Thanks to Chris Ciolino, Bloomberg Intelligence Senior US Machinery Analyst.

715
00:36:55,880 --> 00:37:00,600
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716
00:37:00,760 --> 00:37:04,239
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717
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718
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719
00:37:12,080 --> 00:37:15,040
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