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Speaker 2: Today's Bloomberg Intelligence Show, we dig inside the big business
Speaker 2: story is impacting Wall Street and the global markets.
Speaker 3: Each and every week we provide in depth research and
Speaker 3: data on some of the two thousand companies and one
Speaker 3: hundred and thirty industries our analysts cover worldwide.
Speaker 2: Today we'll look at companies exposure to US terriffs.
Speaker 3: So let's we'll discuss why one of the biggest producers
Speaker 3: of heavy machinery expects a low we're sales this year.
Speaker 2: But first we begin with the tech space and the
Speaker 2: IT company super micro Computer.
Speaker 3: This week, the company reported preliminary results for the fiscal
Speaker 3: third quarter that fell short of analyst expectations.
Speaker 2: The company attributed the miss to customers delaying purchases, which
Speaker 2: we pushed into the current quarter. Super Micro also cited
Speaker 2: higher inventory reserves and expedetic costs for new products.
Speaker 3: For more, we are joined by Wougin Ho Bloomberg Intelligence,
Speaker 3: and your Technology Analyst.
Speaker 2: We first asked Wougin to break down exactly what happened
Speaker 2: in super Micro's preliminary announcement.
Speaker 4: It looks like, you know, when you go big whale
Speaker 4: hunting and you miss those whales you want and missed results. Right,
Speaker 4: They essentially missed sales by about one billion dollars versus
Speaker 4: the midpoint of their guidance. And the fact of the
Speaker 4: matter is these AI deals are monster deals. That's why
Speaker 4: I'm saying it's big whale hunting. One hundred thousand GPU
Speaker 4: cluster that XAI or open AI. Those are three point
Speaker 4: five billion dollar deals. So if you miss on you know,
Speaker 4: one or two of these, that accounts for easily a
Speaker 4: billion dollars.
Speaker 2: So is this a super micro computer specific issue or
Speaker 2: is this big tech spending kind of slung down here?
Speaker 4: Well, it's a product transition issue. Right, So if we
Speaker 4: look at the Nvidia GPUs, they transitioned over from the
Speaker 4: last generation, the Hopper series, to the next generation, the
Speaker 4: Blackwell series, and given the greater capacity and the better
Speaker 4: computational power, the customers were actually waiting for this for
Speaker 4: quite some time now, and now they're clamoring for it.
Speaker 4: So essentially what customers appear to be doing is canceling
Speaker 4: their Hopper orders and moving over to Blackwell. Now, I
Speaker 4: will tell you they weren't the only one that had
Speaker 4: this issue. HPE a couple of months ago, they missed
Speaker 4: their expectations primarily because of this product transition as well.
Speaker 4: And it's biting a super micro now.
Speaker 3: So based on that, the chip cycles moving really fast
Speaker 3: for AI. So what's next after Blackwall? This is just
Speaker 3: going to keep happening and kind of rolling it downhill.
Speaker 4: Yeah, I mean, it's still probably a couple of years
Speaker 4: before we start seeing the newer series of chips really
Speaker 4: ramping up, So we probably have a two year product
Speaker 4: cycle before we get to that. Alex, I mean, let's
Speaker 4: see how the cloud Capex holds up in twenty six
Speaker 4: and twenty seven. But for now, you know, right now,
Speaker 4: we have a neartime product cycle issue for at least
Speaker 4: super Micro and HPE.
Speaker 2: Which what are your companies, kind of the tech hardware companies,
Speaker 2: what are they saying about this whole tariff climate. Is
Speaker 2: it going to be an issue for them?
Speaker 4: Well, we published an update to our tariff note and
Speaker 4: surprisingly they've actually done a good job navigating the tariff issue.
Speaker 4: So far, I've had three companies report related that's hardware related.
Speaker 4: There's a couple of things we need to take into consideration. One,
Speaker 4: a lot of them are outside of China in terms
Speaker 4: of the manufacturing scope, so the tariff impact is fairly minimal. Two,
Speaker 4: there's a lot of manufacturing that comes out of Mexico.
Speaker 4: So you know, because of the US Mexico and Canadian
Speaker 4: trader agreem at U s m c A, they're exempt
Speaker 4: for tariffs. So if you have anything that's built out
Speaker 4: of Mexico or Canada, whatever it's assembled there, you're except
Speaker 4: for tariffs. The companies that have reported uh, they're they're
Speaker 4: using your U s m c A to their advantage
Speaker 4: to win deals. And three and this is this was
Speaker 4: somewhat interesting to me. I thought there would have been
Speaker 4: some pull in deals because of tariff concerns in the
Speaker 4: second quarter. Uh the guidance thus far. Uh Yeah, Western
Speaker 4: Digital as well as Seagate, which manufacturers hard drives. They
Speaker 4: don't see any pulling in deals. So the second half
Speaker 4: of the year, which was a concern of mine, we
Speaker 4: see actually smooth demand going into the second half, all.
Speaker 3: Right, Thanks to u Jinho, Bloomberg Intelligence Senior Technology analyst.
Speaker 3: You move next to news from the logistics company UPS.
Speaker 2: This week, UPS said it expects to cut twenty thousand
Speaker 2: jobs this year and close dozens of facilities due to
Speaker 2: a reduction in shipments for Amazon dot Com. This isn't
Speaker 2: an effort to cut expenses and improve profitability.
Speaker 3: UPS also did an update it's fullier outlook, citing macroeconomic uncertainty,
Speaker 3: and this comes despite the company reporting first quarter earnings
Speaker 3: that beat analyst estimates.
Speaker 2: For more on this and the state of the shipping industry,
Speaker 2: we're joined by Lee Klascow, Bloomberg Intelligence Senior Transport, Logistics
Speaker 2: and shipping analysts.
Speaker 3: We first asked Lee to give us his take on
Speaker 3: what we heard from UPS.
Speaker 5: If I had to break it out, you know, I
Speaker 5: would probably say ninety five percent of the I guess
Speaker 5: somewhat disappointing two Q outlook is really being driven by
Speaker 5: the macro and not UPS. I mean, UPS, in our
Speaker 5: view is and has been doing the things to kind
Speaker 5: of restructure its network to deal with the realities of
Speaker 5: their business and how much it's changed over over the
Speaker 5: last couple of years. And they're also focusing a lot
Speaker 5: more on revenue quality, so that would mean trying to
Speaker 5: win more share of small to mid size shippers. Also,
Speaker 5: you know, you noted they're kind of gliding down, if
Speaker 5: you will, their exposure to Amazon to some of their businesses,
Speaker 5: that just doesn't make sense. I mean, they're still going
Speaker 5: to do returns for Amazon, which is a good business
Speaker 5: for UPS from a margin financial standpoint.
Speaker 2: Hayley, what kind of visibility does UPS have on their
Speaker 2: revenue stream? Like how much is contractive which just how
Speaker 2: much is this me walking up the store and you know,
Speaker 2: shipping a package across the country.
Speaker 5: That's a great question, Paul. I think the reality is
Speaker 5: that they have somewhat decent visibility into their business A
Speaker 5: couple of weeks out. I think that's really about it.
Speaker 5: That's just really because it's their their customers are really
Speaker 5: driven by economic activity and it's really tough to kind
Speaker 5: of really gauge that those volumes, especially in the current
Speaker 5: environment giving the uncertainty driven by TARIS, which is you
Speaker 5: know why earnings expectations for the second quarter will probably
Speaker 5: start moving lower as sell sided analysts adjust their models.
Speaker 3: The Amazon stuff is a good thing for them long term, right,
Speaker 3: even though there's near term pain, Like those are lower
Speaker 3: margin packages that they don't want to do anymore. They're
Speaker 3: going to focus on higher margin packages that could wind
Speaker 3: up being much more stable and profitable, right.
Speaker 5: Yeah, to your point, they are really generating, they're really
Speaker 5: focusing on revenue quality. You know, they mentioned on the
Speaker 5: call that some of their business out of Amazon's fulfillment
Speaker 5: centers just really wasn't profitable for them, so it obviously
Speaker 5: doesn't make sense to take that business. And if they're
Speaker 5: able to create capacity by getting rid of some of
Speaker 5: this business and filling it with what they call SMB
Speaker 5: small to mid sized businesses, you know, that's it's going
Speaker 5: to be a good thing for US margins overall, and
Speaker 5: it will allow them to generate the kind of returns
Speaker 5: that they can reinvest in their network, because you know,
Speaker 5: while they're doing a lot of investing in now in automation,
Speaker 5: and they're closing some facilities just to be a little
Speaker 5: more nimble than they were in the past. You know,
Speaker 5: they're still going to continue to have to make those
Speaker 5: investments because technology continues to change and those benefits, you know,
Speaker 5: will need to be driven by those investments.
Speaker 6: Lie.
Speaker 2: A lot of companies are saying, you know, they're not
Speaker 2: necessarily seeing the impacts of tariffs now, but they certainly
Speaker 2: expect to in the coming weeks and months. You cover
Speaker 2: everything in shipping, rails, trucks, the recen shippers, the air
Speaker 2: freight guys. You cover it all. Are you seeing it now,
Speaker 2: because I've actually seen some reporting that maybe fewer ships
Speaker 2: are sailing from China to the US. Are you seeing
Speaker 2: it anywhere in your space?
Speaker 5: Yeah, we are. In to your point, Bookings from China
Speaker 5: to the US are down thirty to forty depending on
Speaker 5: which press reports you read. You know, some of that
Speaker 5: is obviously there where they pull forward effect in our
Speaker 5: view before the tariffs were going into place, so people
Speaker 5: were rushing to get stuff out, So we don't know
Speaker 5: really where that's going to lie. You know, shippers are
Speaker 5: going to either they're going to take the stance where
Speaker 5: they're going to be like they're going to sit back
Speaker 5: and wait to see what happens. Some are continue to
Speaker 5: do business as usual and they're just going to try
Speaker 5: to push off the costs associated with tariffs to customers,
Speaker 5: which obviously will be inflationary or mix of the two.
Speaker 5: So really, you know, it'll be interesting to see how
Speaker 5: things progress.
Speaker 3: Yeah, but still, I mean you have to wonder though,
Speaker 3: how fast then the shipping industry can rerate. Like if
Speaker 3: there's like one ship hanging out the LA port all
Speaker 3: of a sudden tariffs go away, what does that wind
Speaker 3: up looking like?
Speaker 5: Yeah, Shipping companies can do a number of things to
Speaker 5: manage their capacity during ups and downs time. They can
Speaker 5: do blank sailings, which really just means they don't they
Speaker 5: don't go to a port, they skip a port. They
Speaker 5: can operate slower, which actually is good because they could
Speaker 5: save them on fuel. And in a worst case scenario,
Speaker 5: they can just take the ships out of the water
Speaker 5: because that that is that it can be costly. And
Speaker 5: also you know a lot of a lot of them
Speaker 5: they lease their capacity uh from other companies, so you know,
Speaker 5: once those leases come up, they can just return the ship, uh.
Speaker 5: To the owner of that ship.
Speaker 2: Haley, I know you cover rail and truck companies that
Speaker 2: do a lot of business across the Mexican border. What
Speaker 2: do you what are you seeing there these days? What
Speaker 2: are they telling you? Again?
Speaker 5: You know it, there's a lot of uncertainty. Uh they
Speaker 5: saw a kind of a surge and demand ahead of
Speaker 5: the tariffs. You know, there is a lot of exemptions
Speaker 5: in tariffs between the US and Mexico and the US
Speaker 5: and Canada. Uh So, you know, they are not as
Speaker 5: punitive as they are with with China. Uh So, you
Speaker 5: know it that might be more of an inflationary aspect
Speaker 5: versus a stopping of flowing of freight. But the problem
Speaker 5: is is that, you know, if some of the supply
Speaker 5: chains get mucked up from the tariffs on China, that
Speaker 5: could impact manufacturing in Mexico and manufacturing in Canada, which
Speaker 5: we'll therefore you know, impact cross border volumes overall. So
Speaker 5: there's a you know, kind of a latency approach here.
Speaker 5: I know that's not what people want to hear. They
Speaker 5: want certainty. But given the more protectionist policies out of Washington,
Speaker 5: and you know how they can change on a dime,
Speaker 5: it's really hard to get that certainty, so hopefully in
Speaker 5: the coming weeks we'll get some better definitive outlook on
Speaker 5: unworthyse tariffs are heading our thanks to.
Speaker 2: Lead classical Bloomberg Intelligence senior transport, logistics and shipping analysts.
Speaker 3: Coming up, we're going to break down how cruise demand
Speaker 3: has been impacted in twenty twenty five.
Speaker 2: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
Speaker 2: depth research and data on two thousand companies in one
Speaker 2: hundred and thirty industries. You can access Bloomberg Intelligence via
Speaker 2: Big in the terminal.
Speaker 3: I'm Paul Sweeten 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 3: We move next to some new research from Bloomberg Intelligence
Speaker 3: about it's bi Tariffs Matrix. It's a worst case scenario
Speaker 3: tariff analysis tool. It helps identify companies exposure to US tariffs,
Speaker 3: the potential impact on EBADAH and how much prices have
Speaker 3: to rise to offset elevated costs for more.
Speaker 2: We were joined by Punham Goyle, senior US e Commerce
Speaker 2: and retail analysts at Bloomberg Intelligence, and Elliot Stein, Bloomberg
Speaker 2: Intelligence litigation analysts.
Speaker 3: We first asked Elliott how the BI tariff matrix works.
Speaker 7: So the BI Terriffs Matrix available on the Bloomberg terminal
Speaker 7: at bispace Tariffs Go and like you said, BI analysts
Speaker 7: for weeks have been putting numbers on what tariffs mean
Speaker 7: for their companies and this is all distilled in the
Speaker 7: BI Tariffs Matrix. You go to the matrix, it lists
Speaker 7: two hundred companies and we're continuing to add more companies
Speaker 7: across twenty different industries, and it shows you what their
Speaker 7: blended teriff rate would be based on their exposure to
Speaker 7: different countries where they're getting goods for their sales in
Speaker 7: the US and what the tariff rates are on those countries.
Speaker 7: And then from there, our analysts have calculated how much
Speaker 7: the cost of goods will increase for all these companies'
Speaker 7: sales into the US, how much their profit will take
Speaker 7: a hit as a result, and how much they would
Speaker 7: have to increase prices both in the US and globally.
Speaker 7: To offset the impact of the tariffs.
Speaker 3: That's amazing, that's incredible. Honestly, this is why Bloomberg Intelligence
Speaker 3: is so awesome. And we'll get to retail with punamindus
Speaker 3: a second. But Elliott, when we're putting this together, from
Speaker 3: all the different sectors, what stood out to you? What
Speaker 3: did you learn the most?
Speaker 7: So you know, it's really interesting. So we also published
Speaker 7: a note on this end. In that note there's a
Speaker 7: piece from Honor Agrana and the tech team, And you know,
Speaker 7: I like to filter by the blended teriff rate and
Speaker 7: see which companies are paying more teriffs as a result.
Speaker 7: And if you look at Apple, because they have such
Speaker 7: a high exposure to China, their blended terifrate is still
Speaker 7: twenty percent. But the company, like Dell, has a much
Speaker 7: more diversified supply chain and so they're blended terrafrate is
Speaker 7: much lower, roughly, I think maybe four or eight percent
Speaker 7: of the exact number. And so as a result, the
Speaker 7: you know, the amount that both these companies would have
Speaker 7: to increase their prices to offset tariffs varies quite dramatically,
Speaker 7: with Apple being close to nine percent and Dell being
Speaker 7: close to two percent.
Speaker 2: So pun them on the retail side of the business.
Speaker 2: How much more do you think consumers are going to
Speaker 2: have to pay at the store for stuff?
Speaker 8: Sophy assume that the entire cost has passed to the consumer.
Speaker 8: On average, across the thirty nine retailers we analyzed here
Speaker 8: in the US, it's a low double digit increase. That said,
Speaker 8: we do expect some mitigation efforts to take place, so
Speaker 8: we do expect that to moderate to probably mid to
Speaker 8: high single digits. Worst case scenario that sounds bad is
Speaker 8: that bad? I mean, price increases are bad, right because
Speaker 8: they influence demand, and that means that consumers could pull
Speaker 8: back and where and how they choose to spend. So
Speaker 8: ideally we would like to see no price increases, low
Speaker 8: single digit at best, which we think is manageable. But
Speaker 8: if it's beyond that, there could be a pullback in demand,
Speaker 8: especially for discretionary items, right, things that you can kind
Speaker 8: of hold off on, you can trade down for. So
Speaker 8: it is negative if things worsen and if China attentions
Speaker 8: don't come down from here?
Speaker 2: Are there certain product lines or certain categories put them
Speaker 2: that are more risk? I just think, you know, I'd
Speaker 2: remember seeing a story on sneakers and it seems like
Speaker 2: all the sneakers come from China in that point.
Speaker 8: Well, they actually come mostly from Vietnam. So as long
Speaker 8: as the Vietnam teriff rates stay at ten percent, which
Speaker 8: we'll know in early July if that's the case or not,
Speaker 8: I think that headwind is largely manageable. In fact, you know,
Speaker 8: for the at leisure companies like Nike Adidas, we've estimated
Speaker 8: that the tiff frate currently should only be around ten percent,
Speaker 8: and that's because that's the current levee on the other
Speaker 8: countries outside of China. These companies have diversified a lot
Speaker 8: since the last round of tariffs, where they've actually moved
Speaker 8: out of China into the neighboring countries, and as long
Speaker 8: as the tariff is low there, we think it's manageable.
Speaker 8: If tariffs do increase in early July from the ten percent,
Speaker 8: it's a bigger risk to these at leisure companies. Paul,
Speaker 8: you know you asked about where the impact is greater.
Speaker 8: Is across the thirty nine companies that we've analyzed. I
Speaker 8: think you have to look at the toymakers. You have
Speaker 8: to look at the dollar stores and even some of
Speaker 8: the specialty apparel stores where they are more heavily exposed
Speaker 8: to China, in some cases largely exposed to China, and
Speaker 8: they're the tariff rate is greater than fifty percent and
Speaker 8: the exposure is much higher, so a much bigger impact.
Speaker 3: You search by us price hike and do you know
Speaker 3: a top down like Mattel thirty one percent estimated price
Speaker 3: increase five below thirty nine percent? Dollar Tree twenty seven percent.
Speaker 2: I don't think those people are gonna like, I mean,
Speaker 2: that's we've shop.
Speaker 3: At dollar That's really rough. I mean I could do
Speaker 3: this forever. H and m twenty percent Target? Where'd you
Speaker 3: go Target looking at twenty percent? Elliott? Are we going
Speaker 3: to see lawsuits legal issues in relation to.
Speaker 7: This, Yeah, we already are, and just going back to
Speaker 7: the matrix for six so we didn't mention it. But
Speaker 7: you can click below the matrix and to the left
Speaker 7: of the matrix as well, because there are interactive catulators
Speaker 7: for all these companies where you can play around with
Speaker 7: some of the different assumptions, put in your own numbers,
Speaker 7: and you know, and get the output as a result.
Speaker 7: But in terms of lawsuits, yeah, we've seen multiple lawsuits
Speaker 7: being filed. My colleague Holly Film covers them, but I've
Speaker 7: been tracking them as well because they're interesting. We've seen
Speaker 7: companies from lawsuits from importers as well as Blue states
Speaker 7: like California and Oregon. They're filed in courts all around
Speaker 7: the country, but they're probably all on their way to
Speaker 7: being consolidated to a court here in New York called
Speaker 7: the Court of International Trade, which deals with lawsuits over tariffs.
Speaker 7: And there are two main claims in these cases. One
Speaker 7: is that the government is exceeding its statutory authority under AEPA,
Speaker 7: which is the statute it's using the Emergency Powers Act.
Speaker 7: And then the second one is that even if it
Speaker 7: does have the power under IEPA to implement these tariffs,
Speaker 7: Congress delegated its authority to the president improperly. These are
Speaker 7: issues of like first impression. You know, we've never seen
Speaker 7: a president use IEPA for tariffs before, and at the
Speaker 7: end of the day, we think it's a close call,
Speaker 7: but we think the administration will win these lawsuits and
Speaker 7: the tariffs will stick.
Speaker 2: Our thanks to Elliot Stein Bloomberg Intelligence litigation analysts and
Speaker 2: put them Goyle, Senior US e Commerce and retail analysts
Speaker 2: at Bloomberg Intelligence. This week we got a tale of
Speaker 2: two different earnings pictures from the Royal Caribbean and Norwegian Cruise.
Speaker 3: Royal Caribbean raise its profit outlook for the year, saying
Speaker 3: that bookings for twenty twenty five or man on track
Speaker 3: Norwegian Cruise Line more than the cruise demand is weakening,
Speaker 3: citing softening in his twelve month forward bookings.
Speaker 2: For more on this and a State of Travel, we
Speaker 2: were joined by Jody Lourie, Bloomberg Intelligence credit analyst.
Speaker 3: We first asked Jody for her broad take on Royal
Speaker 3: Caribbean versus Norwegian Cruise Line earnings.
Speaker 9: I think that the interesting thing that we're noticing this
Speaker 9: quarter is the change in tone, and it's not necessarily
Speaker 9: that the companies are so pessimistic. It's that they're hedging
Speaker 9: their bets a little bit. They're reminding investors that they
Speaker 9: have a longer tail when it comes to bookings. The
Speaker 9: reminding investors that even if the consumer starts pulling back
Speaker 9: on travel, which Hilton commented on some of that, that
Speaker 9: they are at least well positioned for twenty five. And
Speaker 9: so Norwegian was trying to back out of comments around
Speaker 9: Europe being a little bit weaker by saying Hey, rest
Speaker 9: of the world is doing well. Fribbean was sounding upbeat, optimistic,
Speaker 9: but I do suspect that there's an element of concern
Speaker 9: for all these companies.
Speaker 2: So what's the best way for you as an analyst,
Speaker 2: Jo did to get a sense of how demand is
Speaker 2: going in the future. I know some of these bookings,
Speaker 2: as you mentioned, are far in advance, but how do
Speaker 2: you guys think about that?
Speaker 9: So there's two things we do, Paul. So the first
Speaker 9: is we actually do a note every quarter or so
Speaker 9: around bookings related to Bloomberg Second Measure data. And by
Speaker 9: that I mean is that Bloomberg Second Measure data isn't
Speaker 9: necessarily one for one on bookings, but you'll see that,
Speaker 9: particularly going into wave season, that you can get a
Speaker 9: sense of what bookings are doing based on what sales
Speaker 9: is and volume is for these companies. We have intel
Speaker 9: into a little bit more into the brand depth being
Speaker 9: at Bloomberg, but beyond that, I mean, clients can look
Speaker 9: at a lot of that data as well, and it's
Speaker 9: really helpful. I mean, we wrote a note back in
Speaker 9: the fall that talked to twenty twenty five still being
Speaker 9: strong for these companies, but aired a little bit of
Speaker 9: caution to the twenty twenty sixth season and that being
Speaker 9: a function of what we were seeing on second measure, do.
Speaker 3: You get the sentence that if we see sort of
Speaker 3: stalling out in consumer demand or just a little hold back,
Speaker 3: but it's deferred demand or disappearing demand.
Speaker 9: So for the cruise lines, I mean you have to
Speaker 9: think about it in buckets. So you have those dedicated
Speaker 9: cruisers that are going to cruise heck or high water.
Speaker 9: Those are the people who are going to jump in
Speaker 9: right after COVID. But I mean, I think for the
Speaker 9: new to cruisers, it's more of a question of if
Speaker 9: they're going to consider booking this far in advance if
Speaker 9: they don't know what their wallet is going to look like.
Speaker 9: There is a function of people being able to back
Speaker 9: out coming into a cruise, But I'd argue that a
Speaker 9: lot of the time when people are making that decision,
Speaker 9: especially for an advance, they're not necessarily going to use
Speaker 9: that as the lever to pull when they need to
Speaker 9: free up additional cash, right, are going to find other
Speaker 9: ways to access cash or capital. I'm talking individuals, I'm
Speaker 9: talking to consumers, right, And so when we book our vacations,
Speaker 9: we're saying okay, we're going Now, it's the bigger question.
Speaker 9: And this is what we're seeing with the hotel is
Speaker 9: for the people who haven't necessarily booked, they might be
Speaker 9: rethinking when they're going to book what their vacation is
Speaker 9: going to look like? When are they going to book
Speaker 9: their airline?
Speaker 2: Right?
Speaker 9: And I think that's key is the fact that you
Speaker 9: have this long tail booking versus the shorter tail booking.
Speaker 2: So, Jody, if I'm a cruse ship operator and I
Speaker 2: sense that my bookings are going to a week and
Speaker 2: going forward, what do I do? I mean, because my
Speaker 2: boat's like a foating piece of I don't know fixed
Speaker 2: costs there? What can I do?
Speaker 9: You can just get the ship filled as much as possible.
Speaker 7: Right.
Speaker 9: So, something we learned from covid in for a lot
Speaker 9: of these companies is that really in order to be
Speaker 9: break even EVEDA, they need somewhere between thirty to fifty
Speaker 9: percent capacity for the cruising, right. And that's what a
Speaker 9: lot of the companies said when they were getting back
Speaker 9: up to speed, they said, you know, we need thirty
Speaker 9: to fifty percent of capacity and then we break even EBDA.
Speaker 9: And I think that the key also is that these
Speaker 9: companies have really pushed the onboard spending.
Speaker 5: Right.
Speaker 9: The ticket covers, you know, ticket covers a certain amount
Speaker 9: of the cost of sailing, but if they are going
Speaker 9: to be sailing either way, they want to fill the
Speaker 9: ship because if you fill the ship, then you have
Speaker 9: more potential for additional spending on board. Even just from
Speaker 9: the basics of I forgot a toothbrush, I got to
Speaker 9: go use the corner store on the ship because it's
Speaker 9: a captive market. But even beyond that, people once they're there,
Speaker 9: they say, well, I'm already here, I med as well
Speaker 9: partake in the drink package. I might as well do
Speaker 9: an excursion, right, I don't know the next time I'm
Speaker 9: going to be out, So I think the key will be,
Speaker 9: you know, getting them on the ship. Something that Norwegian
Speaker 9: talked about, which is different than the other cruise lines
Speaker 9: and speaks to some of the strategies that they did
Speaker 9: put with COVID is not necessarily negotiating our price.
Speaker 2: Thanks to Jerdi Lourie Bloomberg Intelligence credit.
Speaker 3: Analysts coming up on the program, We're going to break
Speaker 3: down by McDonald sales fell sharply last quarter.
Speaker 2: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing indepth
Speaker 2: research and data on two thousand companies and one hundred
Speaker 2: and thirty industries. You can access Bloomberg Intelligence via Big
Speaker 2: on the terminal.
Speaker 3: I'm Paul Sweeney and I'm Alex Steele. This is Bloomberg.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch the program
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Speaker 2: We begin with big Tech and earnings from the world's
Speaker 2: largest software maker Microsoft.
Speaker 3: This week, the company reported stronger than expected quarterly sales
Speaker 3: and profit, and this suggests the customer demand for cloud
Speaker 3: services has held steady despite a wave of new tariffs
Speaker 3: and economic turbulence.
Speaker 2: For more and by anaag Rana, Bloomberg Intelligence Technology Analysts.
Speaker 3: We first asked Anorog for his take on those third
Speaker 3: quarter results.
Speaker 6: I think it's a cloud plus AI. I think that's
Speaker 6: the that's the big gain over here. And as you said,
Speaker 6: I mean this is a company that is probably one
Speaker 6: third of the entire software industry, and it beat by
Speaker 6: a massive margin. I mean it was, I mean really
Speaker 6: in terms of when you're walking into the quarter, you're
Speaker 6: looking at, you know, constant gulency growth rate of twelve percent,
Speaker 6: they beat it by three hundred basis points about fifteen percent.
Speaker 6: Growing as your growth rate which was thirty one percent consensus,
Speaker 6: they beat by thirty five percent. They're going to do
Speaker 6: another thirty four to thirty five next quartered. So really,
Speaker 6: you know, everything is going well for them, and that's
Speaker 6: partially because of their relationship with Open Eye and all
Speaker 6: the workloads that they are getting from that. I think
Speaker 6: that's really what's driving a lot of it. They came
Speaker 6: in talked about the caapics still fine. They're not shutting
Speaker 6: any data centers down, and I think this is probably
Speaker 6: the cleanest story in tech right now.
Speaker 2: Is there a narrative yet coming from the software industry
Speaker 2: about a world of higher tariffs on a rag or
Speaker 2: or are the software companies, like most everybody else out there,
Speaker 2: kind of wait and see.
Speaker 6: No, you are looking at you know, the non AIIT
Speaker 6: spending being cut down or pulled back. But that's the
Speaker 6: second derivative impact. When it comes to direct impact from China.
Speaker 6: Most of them don't have any about other than buying
Speaker 6: boxes from China for you know, expanding their data center work.
Speaker 6: But that's the kind of cost that perhaps even sometimes
Speaker 6: even absorb given the scale of the larger companies. The
Speaker 6: smaller ones will have some problems. But the tariff impact
Speaker 6: we are seeing in new bookings numbers, new guidance for
Speaker 6: the full year. People are cautious about it. But that's
Speaker 6: what I would call is a second second degree impact.
Speaker 3: What did you make of Microsoft lowering their capax just
Speaker 3: in terms of their expenditures and then Meta increasing them?
Speaker 3: What am I learning from their CAPAX numbers?
Speaker 6: So Microsoft did not pay I mean Microsoft basically said
Speaker 6: they're going to be spending on short term kind of projects,
Speaker 6: which is more leases, rather than building it on their own,
Speaker 6: which to us is fine because let's say there is
Speaker 6: some issue with demand over the next two years, you
Speaker 6: know they can counter that in a much more rapid
Speaker 6: progression than the others. Now Meta is talking about more CAPEX,
Speaker 6: but I have no idea how they're going to capitalize
Speaker 6: on it, and then you know that's that's an area
Speaker 6: of question mark for them. For Microsoft, it comes through
Speaker 6: Azure Cloud computing for AWUS, it's the same thing, but
Speaker 6: how are they going to capitalize it? You know, he says,
Speaker 6: a big question for Meta.
Speaker 3: All right, Thanks to Anaagrana, Bloomberg Intelligence Senior Technology analyst,
Speaker 3: we move now to earnings from the fast food giant McDonald's.
Speaker 2: This week, McDonald's reported that it's US sales fell sharply
Speaker 2: in the first quarter, and.
Speaker 3: This reflects a deterioration and consumer sentiment that's making it
Speaker 3: harder for restaurants to lure in diners.
Speaker 2: For more, we were joined by Michael hallan Bloomberg Intelligence
Speaker 2: senior restaurant and food service analysts.
Speaker 3: We first asked Michael for his take on McDonald's earnings results.
Speaker 6: In the US.
Speaker 10: You know, it was a messy quarter. You know, it
Speaker 10: was definitely an underwhelming report, but there was a lot
Speaker 10: of noise. I mean, the weather was difficult for the
Speaker 10: restaurant chains in the first quarter. It was very cold
Speaker 10: in January, snowy in February. It was a bad flu season.
Speaker 10: They lost that leap year day, so that was hit
Speaker 10: comps by about one percent, right, So it was kind
Speaker 10: of messy, and I would say the value menu relaunch
Speaker 10: maybe didn't go as well as some might have expected.
Speaker 10: There's some things to get excited about, you know. This
Speaker 10: month it was the Minecraft movie promotion. Next month is
Speaker 10: going to be the launch of mccrispy strips, and then
Speaker 10: in the second half we're going to see the return
Speaker 10: of the Msnack Mix snack Rap. Yeah, and you know,
Speaker 10: I think investors are looking forward to all those things,
Speaker 10: and easier comps and same star shells should improve a
Speaker 10: good amount here through the year end.
Speaker 2: All right, So Alex and we had a remote broadcast
Speaker 2: a couple of weeks ago with the Nji Anything. I
Speaker 2: went to the McDonald's at the Newark train station and
Speaker 2: got the number two with a coke, which has been
Speaker 2: my go to order since I was like twelve.
Speaker 3: Awesome, awesome stuff.
Speaker 2: Awesome. I mean, they just they deliver every time. I
Speaker 2: don't know, I'm not taking it. I'm not anybody who
Speaker 2: speak a bed word about McDonald's. Hey, Michael, what are
Speaker 2: your restaurant companies. What are they saying about a world
Speaker 2: of terriffs? How does it impact their business? How much
Speaker 2: did they expect to take out of their margin versus
Speaker 2: maybe passing along to customers. What were you hear in
Speaker 2: these days.
Speaker 10: Yeah, So what we're hearing on these earnings calls is
Speaker 10: just uncertainty. And I think and most of our companies
Speaker 10: are taking this as an opportunity to kind of lower
Speaker 10: their guidance their same star sales top line guidance for
Speaker 10: twenty twenty five. Here whether or not their business has
Speaker 10: been impacted by a consumer slowdown due to TARERFF concerns
Speaker 10: and anything like that. In terms of margins, we're fine.
Speaker 10: I mean, you know, there's very limited exposure to imports
Speaker 10: in the restaurant industry. Companies, you know, restaurant chains we cover,
Speaker 10: they're all sourcing a large majority of their goods domestically, right,
Speaker 10: and so margins aren't really an issue. I mean, Shakeshock
Speaker 10: actually increased their guidance for twenty twenty five restaurant margins.
Speaker 3: That's interesting. So would this be a relatively then defensive sector?
Speaker 3: Dare I say in a tariff environment?
Speaker 10: Well, I mean, right now, the market trading as if
Speaker 10: you know, a recession is on the table, and in
Speaker 10: that case, consumer spending is going to pull back. I
Speaker 10: would say restaurants are probably better seated than maybe retailers, right,
Speaker 10: because they have less tariff exposure. And the restaurant industry
Speaker 10: suffered a recession last year, and so we have easier
Speaker 10: comps to lap right, and so for those reasons, it
Speaker 10: may be more attractive. But you know, if we do
Speaker 10: see a recession, you don't want to be owning consumer
Speaker 10: discretionary names historically.
Speaker 2: So, Mike, I think I'm a pretty good restaurant feedback
Speaker 2: person because I'll go to the McDonald's and Newark trains,
Speaker 2: but I'll go to the top end steakhouse as well.
Speaker 2: I'll go anywhere in between. Where did the different segments
Speaker 2: of the restaurant business? How do you think they're they're
Speaker 2: going to fare in an economy that is perhaps slowing
Speaker 2: down and perhaps even thinking about a recession.
Speaker 10: It's really interesting this go round. And you know, we've
Speaker 10: been saying, and we continue to think that casual dining
Speaker 10: is going to outperform this year.
Speaker 2: What's an example of casual dining.
Speaker 10: Yeah, so casual dining, think Cheesecake Factory reported a solid report.
Speaker 10: A name we really like is Cracker.
Speaker 3: Barrel speaking his language right now in company?
Speaker 10: I know I am. So those chains they're coming off
Speaker 10: of really really weak results last year, and you have
Speaker 10: some turnarounds in the industry that are kind of boosting.
Speaker 2: Results.
Speaker 6: Right.
Speaker 10: We've seen absolutely phenomenal results out of Chili's. You know,
Speaker 10: we think the turnaround at Cracker Barrel is going to
Speaker 10: gain steam. And they have exposure to low income consumers,
Speaker 10: but much less so than quick service. So quick service
Speaker 10: is lapping better comps from last year, tougher comps from
Speaker 10: last year, and they also have the highest exposure to
Speaker 10: low and middle income consumers. And you know, for that reason,
Speaker 10: we're a little bit more bearish on those names.
Speaker 5: M hm.
Speaker 3: Well, yeah, exactly. Any of the qs are right, the
Speaker 3: quick service restaurants which would be in McDonald's. Where did
Speaker 3: Chipotle is a QSR?
Speaker 10: Right, Well, it's a quick service they like, you know,
Speaker 10: we have a whole new segment, well not that new,
Speaker 10: but kind of new segment called fast casual.
Speaker 9: Yes, that's right.
Speaker 10: Price points a little higher than quick service, a little
Speaker 10: bit lower than casual dining, the foods better than quick service,
Speaker 10: and in some cases actually better than casual dining as well.
Speaker 10: So yes, Chipotle, Shake Shack, Dutch Bros, Cava, they kind
Speaker 10: of all all are in that boat, and we're seeing
Speaker 10: different results, you know, across that space. I think it
Speaker 10: was pretty you know, fast casual did pretty good last year,
Speaker 10: but we're seeing some headwinds. You know, Chipotle didn't have
Speaker 10: a great quarter. There's been a massive slowdown in same
Speaker 10: source sales at Wingstop, and so, you know, yeah, but
Speaker 10: uh so you're seeing you know, kind of a case
Speaker 10: by case basis in terms of the fast casual industry our.
Speaker 2: Thanks to Michael Halein Bloomberg Intelligence Senior Restaurant and food
Speaker 2: service analyst, we.
Speaker 3: Look next at earnings from one of the world's biggest
Speaker 3: producers of heavy machinery, Caterpillar.
Speaker 2: This week, the company reported first quarter earnings that fell
Speaker 2: short of analysts expectations.
Speaker 3: Caterpillar also said it expects slightly lower sales this year
Speaker 3: if the Trump administration tariffs remained in place and the
Speaker 3: economy dips into a recession the second half of the year.
Speaker 2: For more on this, we were joined by Chris Ciolino,
Speaker 2: Bloomberg Intelligence Senior US machinery analysts. We first asked Chris
Speaker 2: how he currently is looking at the company after reporting earnings.
Speaker 11: I think the release really isn't as bad as initially feared,
Speaker 11: and there's actually a number of positive takeaways here. The
Speaker 11: quarter was weak, and we knew that going in volumes
Speaker 11: were going to be down, pricing was gonna be under pressure.
Speaker 11: But the outlook is actually better than I think many
Speaker 11: had anticipated. Their two Q sales guide was actually above
Speaker 11: the street. We saw backlog improved to a record thirty
Speaker 11: five billion dollars. Orders were up double digits both year
Speaker 11: over year and sequentially. And really, if you look at
Speaker 11: their outlook X tariffs, it was really better than what
Speaker 11: they had expected prior so, and the tariff impact as
Speaker 11: of now at least appears manageable. So I think the release,
Speaker 11: you know, should at least help delay some of those
Speaker 11: concerns over a more pronounced slowdown this year.
Speaker 2: Christa's Kindipillar build their equipment in the US. Is that
Speaker 2: where the manufacturing is? How did they do that?
Speaker 11: Short answer, they build everywhere. They are a net exporter
Speaker 11: out of the US. But you have to remember this
Speaker 11: is a large global manufacturer. They have manufacturing footprint and
Speaker 11: and supply base that really spans the globe. But if
Speaker 11: we're thinking about net exports, yes, they export more out
Speaker 11: of the US than they do import. From a revenue perspective,
Speaker 11: you know, the US is you know, almost half their
Speaker 11: revenue today.
Speaker 3: What about for its peers. What does this mean for
Speaker 3: some of its peers and the trading environment that they
Speaker 3: were previously in.
Speaker 11: Yeah, so, at least for some of the domestic US
Speaker 11: based manufacturers, I think this is maybe a little bit
Speaker 11: of a sigh of relief. By no means or we
Speaker 11: have the woods yet, but it certainly seems that the tariffs,
Speaker 11: as of least how they stand right now, are somewhat manageable.
Speaker 11: You know, CATS expecting a net cost headwind of about
Speaker 11: two hundred and fifty is three hundred and fifty million
Speaker 11: dollars next quarter. If you kind of extrapolate that out
Speaker 11: over the balance of the year, you're talking, you know,
Speaker 11: maybe somewhere in the one hundred and hundred and fifty
Speaker 11: basis point headwind of margins. But that may even prove,
Speaker 11: you know, overly pessimistic, because you know, Cats still evaluating
Speaker 11: and implementing some of these mitigation actions, so we could
Speaker 11: even see that come down from here.
Speaker 2: I was kind of surprised, I guess positively, Chris, that
Speaker 2: their backlog looks pretty darn good. It's not like their
Speaker 2: customers are saying are canceling orders or anything.
Speaker 11: No, and it's it's a record backlog, right, so you
Speaker 11: know we have coverage. You know, if you look at
Speaker 11: consensus revenue, you know, whether we call it flatter down
Speaker 11: slightly this year, they've got coverage for you know, nearly
Speaker 11: seventy percent of the year already, So I think that
Speaker 11: does help provide some kind of buffer. You know, there
Speaker 11: was a concern out there that do we see this
Speaker 11: pre buy you know, ahead of some of the tariff implementation,
Speaker 11: and Kat really kind of downplayed that in conversations they're
Speaker 11: having with their dealers and with their customers, they're really
Speaker 11: not seeing any evidence of that. So yeah, these do
Speaker 11: seem like, you know, true orders and really a really
Speaker 11: healthy backlog, which you know, I think helps support you know,
Speaker 11: that flatish type revenue outlook that they're putting out there.
Speaker 9: All right.
Speaker 3: Thanks to Chris Ciolino, Bloomberg Intelligence Senior US Machinery Analyst.
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