WEBVTT - BI Weekend: UPS, McDonalds, Microsoft Earnings 0:00:00.240 --> 0:00:11.160 Bloomberg Audio Studios, podcasts, radio news. This is Bloomberg Intelligence 0:00:11.240 --> 0:00:13.360 with Alex Steel and Paul Sweeney. 0:00:13.480 --> 0:00:16.720 The real ap performance has been the US corporate high yields. 0:00:16.840 --> 0:00:19.160 Are the companies lean enough? Have they trimmed all the fats? 0:00:19.280 --> 0:00:22.440 The semiconductor business is a really cyclical. 0:00:22.040 --> 0:00:26.239 Business, breaking market headlines and corporate news from across the globe. 0:00:26.280 --> 0:00:28.720 Do investors like the M and A that we've seen? 0:00:28.920 --> 0:00:31.880 These are two big time blue chip companies. 0:00:32.159 --> 0:00:35.959 Window between the peak and cunt changing super fast. 0:00:35.800 --> 0:00:40.840 Bloomberg Intelligence with Alex Steele and Paul Sweeney on Bloomberg Radio. 0:00:42.400 --> 0:00:45.120 Today's Bloomberg Intelligence Show, we dig inside the big business 0:00:45.120 --> 0:00:47.280 story is impacting Wall Street and the global markets. 0:00:47.479 --> 0:00:49.479 Each and every week we provide in depth research and 0:00:49.560 --> 0:00:51.320 data on some of the two thousand companies and one 0:00:51.360 --> 0:00:54.040 hundred and thirty industries our analysts cover worldwide. 0:00:54.120 --> 0:00:56.680 Today we'll look at companies exposure to US terriffs. 0:00:56.680 --> 0:00:58.600 So let's we'll discuss why one of the biggest producers 0:00:58.600 --> 0:01:01.040 of heavy machinery expects a low we're sales this year. 0:01:01.520 --> 0:01:03.320 But first we begin with the tech space and the 0:01:03.360 --> 0:01:05.560 IT company super micro Computer. 0:01:05.800 --> 0:01:08.280 This week, the company reported preliminary results for the fiscal 0:01:08.319 --> 0:01:10.720 third quarter that fell short of analyst expectations. 0:01:10.840 --> 0:01:14.360 The company attributed the miss to customers delaying purchases, which 0:01:14.360 --> 0:01:17.400 we pushed into the current quarter. Super Micro also cited 0:01:17.480 --> 0:01:20.920 higher inventory reserves and expedetic costs for new products. 0:01:21.000 --> 0:01:23.440 For more, we are joined by Wougin Ho Bloomberg Intelligence, 0:01:23.480 --> 0:01:24.640 and your Technology Analyst. 0:01:24.840 --> 0:01:28.279 We first asked Wougin to break down exactly what happened 0:01:28.319 --> 0:01:30.160 in super Micro's preliminary announcement. 0:01:30.480 --> 0:01:33.000 It looks like, you know, when you go big whale 0:01:33.040 --> 0:01:36.760 hunting and you miss those whales you want and missed results. Right, 0:01:36.800 --> 0:01:41.520 They essentially missed sales by about one billion dollars versus 0:01:41.760 --> 0:01:44.560 the midpoint of their guidance. And the fact of the 0:01:44.600 --> 0:01:47.640 matter is these AI deals are monster deals. That's why 0:01:47.640 --> 0:01:51.120 I'm saying it's big whale hunting. One hundred thousand GPU 0:01:51.200 --> 0:01:55.960 cluster that XAI or open AI. Those are three point 0:01:56.040 --> 0:01:58.920 five billion dollar deals. So if you miss on you know, 0:01:59.000 --> 0:02:01.960 one or two of these, that accounts for easily a 0:02:02.000 --> 0:02:02.720 billion dollars. 0:02:03.320 --> 0:02:08.240 So is this a super micro computer specific issue or 0:02:08.320 --> 0:02:12.120 is this big tech spending kind of slung down here? 0:02:13.560 --> 0:02:17.960 Well, it's a product transition issue. Right, So if we 0:02:17.960 --> 0:02:22.640 look at the Nvidia GPUs, they transitioned over from the 0:02:22.720 --> 0:02:27.560 last generation, the Hopper series, to the next generation, the 0:02:28.440 --> 0:02:33.120 Blackwell series, and given the greater capacity and the better 0:02:33.160 --> 0:02:36.080 computational power, the customers were actually waiting for this for 0:02:36.160 --> 0:02:38.360 quite some time now, and now they're clamoring for it. 0:02:38.600 --> 0:02:42.440 So essentially what customers appear to be doing is canceling 0:02:42.480 --> 0:02:45.960 their Hopper orders and moving over to Blackwell. Now, I 0:02:46.000 --> 0:02:48.280 will tell you they weren't the only one that had 0:02:48.320 --> 0:02:52.280 this issue. HPE a couple of months ago, they missed 0:02:52.280 --> 0:02:56.280 their expectations primarily because of this product transition as well. 0:02:56.600 --> 0:02:58.320 And it's biting a super micro now. 0:02:58.960 --> 0:03:03.720 So based on that, the chip cycles moving really fast 0:03:03.800 --> 0:03:07.560 for AI. So what's next after Blackwall? This is just 0:03:07.600 --> 0:03:09.720 going to keep happening and kind of rolling it downhill. 0:03:10.600 --> 0:03:13.560 Yeah, I mean, it's still probably a couple of years 0:03:13.600 --> 0:03:17.519 before we start seeing the newer series of chips really 0:03:17.600 --> 0:03:20.560 ramping up, So we probably have a two year product 0:03:20.560 --> 0:03:23.440 cycle before we get to that. Alex, I mean, let's 0:03:23.440 --> 0:03:28.040 see how the cloud Capex holds up in twenty six 0:03:28.080 --> 0:03:32.440 and twenty seven. But for now, you know, right now, 0:03:32.520 --> 0:03:34.839 we have a neartime product cycle issue for at least 0:03:34.840 --> 0:03:36.000 super Micro and HPE. 0:03:36.280 --> 0:03:40.240 Which what are your companies, kind of the tech hardware companies, 0:03:40.240 --> 0:03:45.080 what are they saying about this whole tariff climate. Is 0:03:45.080 --> 0:03:46.880 it going to be an issue for them? 0:03:47.560 --> 0:03:50.480 Well, we published an update to our tariff note and 0:03:50.560 --> 0:03:55.840 surprisingly they've actually done a good job navigating the tariff issue. 0:03:55.920 --> 0:04:02.040 So far, I've had three companies report related that's hardware related. 0:04:02.840 --> 0:04:05.400 There's a couple of things we need to take into consideration. One, 0:04:05.480 --> 0:04:07.880 a lot of them are outside of China in terms 0:04:07.880 --> 0:04:12.800 of the manufacturing scope, so the tariff impact is fairly minimal. Two, 0:04:12.880 --> 0:04:15.320 there's a lot of manufacturing that comes out of Mexico. 0:04:15.840 --> 0:04:20.400 So you know, because of the US Mexico and Canadian 0:04:20.440 --> 0:04:23.120 trader agreem at U s m c A, they're exempt 0:04:23.120 --> 0:04:25.280 for tariffs. So if you have anything that's built out 0:04:25.320 --> 0:04:29.200 of Mexico or Canada, whatever it's assembled there, you're except 0:04:29.240 --> 0:04:32.560 for tariffs. The companies that have reported uh, they're they're 0:04:32.640 --> 0:04:34.760 using your U s m c A to their advantage 0:04:35.000 --> 0:04:38.279 to win deals. And three and this is this was 0:04:38.360 --> 0:04:41.360 somewhat interesting to me. I thought there would have been 0:04:41.360 --> 0:04:44.080 some pull in deals because of tariff concerns in the 0:04:44.120 --> 0:04:50.480 second quarter. Uh the guidance thus far. Uh Yeah, Western 0:04:50.520 --> 0:04:54.720 Digital as well as Seagate, which manufacturers hard drives. They 0:04:54.720 --> 0:04:57.400 don't see any pulling in deals. So the second half 0:04:57.400 --> 0:04:59.359 of the year, which was a concern of mine, we 0:04:59.440 --> 0:05:02.760 see actually smooth demand going into the second half, all. 0:05:02.680 --> 0:05:05.960 Right, Thanks to u Jinho, Bloomberg Intelligence Senior Technology analyst. 0:05:06.120 --> 0:05:08.920 You move next to news from the logistics company UPS. 0:05:09.240 --> 0:05:11.520 This week, UPS said it expects to cut twenty thousand 0:05:11.600 --> 0:05:14.160 jobs this year and close dozens of facilities due to 0:05:14.200 --> 0:05:17.360 a reduction in shipments for Amazon dot Com. This isn't 0:05:17.360 --> 0:05:19.680 an effort to cut expenses and improve profitability. 0:05:19.880 --> 0:05:23.880 UPS also did an update it's fullier outlook, citing macroeconomic uncertainty, 0:05:24.040 --> 0:05:26.840 and this comes despite the company reporting first quarter earnings 0:05:26.839 --> 0:05:28.120 that beat analyst estimates. 0:05:28.240 --> 0:05:30.320 For more on this and the state of the shipping industry, 0:05:30.440 --> 0:05:33.919 we're joined by Lee Klascow, Bloomberg Intelligence Senior Transport, Logistics 0:05:33.920 --> 0:05:34.760 and shipping analysts. 0:05:34.800 --> 0:05:36.640 We first asked Lee to give us his take on 0:05:36.720 --> 0:05:37.880 what we heard from UPS. 0:05:38.240 --> 0:05:39.800 If I had to break it out, you know, I 0:05:39.800 --> 0:05:44.240 would probably say ninety five percent of the I guess 0:05:44.240 --> 0:05:47.520 somewhat disappointing two Q outlook is really being driven by 0:05:47.520 --> 0:05:51.200 the macro and not UPS. I mean, UPS, in our 0:05:51.320 --> 0:05:55.720 view is and has been doing the things to kind 0:05:55.760 --> 0:06:00.159 of restructure its network to deal with the realities of 0:06:00.200 --> 0:06:03.400 their business and how much it's changed over over the 0:06:03.480 --> 0:06:06.200 last couple of years. And they're also focusing a lot 0:06:06.240 --> 0:06:09.200 more on revenue quality, so that would mean trying to 0:06:09.320 --> 0:06:13.960 win more share of small to mid size shippers. Also, 0:06:14.320 --> 0:06:17.800 you know, you noted they're kind of gliding down, if 0:06:17.839 --> 0:06:21.440 you will, their exposure to Amazon to some of their businesses, 0:06:21.880 --> 0:06:23.800 that just doesn't make sense. I mean, they're still going 0:06:23.880 --> 0:06:28.400 to do returns for Amazon, which is a good business 0:06:28.760 --> 0:06:32.000 for UPS from a margin financial standpoint. 0:06:32.320 --> 0:06:35.800 Hayley, what kind of visibility does UPS have on their 0:06:35.839 --> 0:06:38.200 revenue stream? Like how much is contractive which just how 0:06:38.240 --> 0:06:40.640 much is this me walking up the store and you know, 0:06:40.960 --> 0:06:42.440 shipping a package across the country. 0:06:43.440 --> 0:06:46.760 That's a great question, Paul. I think the reality is 0:06:46.800 --> 0:06:52.120 that they have somewhat decent visibility into their business A 0:06:52.120 --> 0:06:55.159 couple of weeks out. I think that's really about it. 0:06:56.279 --> 0:06:59.480 That's just really because it's their their customers are really 0:06:59.560 --> 0:07:04.720 driven by economic activity and it's really tough to kind 0:07:04.720 --> 0:07:08.480 of really gauge that those volumes, especially in the current 0:07:08.560 --> 0:07:12.560 environment giving the uncertainty driven by TARIS, which is you 0:07:12.560 --> 0:07:16.680 know why earnings expectations for the second quarter will probably 0:07:16.720 --> 0:07:19.880 start moving lower as sell sided analysts adjust their models. 0:07:20.200 --> 0:07:22.560 The Amazon stuff is a good thing for them long term, right, 0:07:22.600 --> 0:07:24.600 even though there's near term pain, Like those are lower 0:07:24.600 --> 0:07:26.960 margin packages that they don't want to do anymore. They're 0:07:26.960 --> 0:07:31.080 going to focus on higher margin packages that could wind 0:07:31.160 --> 0:07:34.200 up being much more stable and profitable, right. 0:07:34.520 --> 0:07:37.160 Yeah, to your point, they are really generating, they're really 0:07:37.200 --> 0:07:40.640 focusing on revenue quality. You know, they mentioned on the 0:07:40.640 --> 0:07:44.320 call that some of their business out of Amazon's fulfillment 0:07:44.400 --> 0:07:47.520 centers just really wasn't profitable for them, so it obviously 0:07:47.600 --> 0:07:50.680 doesn't make sense to take that business. And if they're 0:07:50.720 --> 0:07:53.520 able to create capacity by getting rid of some of 0:07:53.560 --> 0:07:56.920 this business and filling it with what they call SMB 0:07:57.000 --> 0:08:00.360 small to mid sized businesses, you know, that's it's going 0:08:00.400 --> 0:08:03.040 to be a good thing for US margins overall, and 0:08:03.040 --> 0:08:05.200 it will allow them to generate the kind of returns 0:08:05.200 --> 0:08:08.240 that they can reinvest in their network, because you know, 0:08:08.240 --> 0:08:10.680 while they're doing a lot of investing in now in automation, 0:08:11.000 --> 0:08:15.679 and they're closing some facilities just to be a little 0:08:15.680 --> 0:08:17.840 more nimble than they were in the past. You know, 0:08:17.840 --> 0:08:20.080 they're still going to continue to have to make those 0:08:20.120 --> 0:08:25.920 investments because technology continues to change and those benefits, you know, 0:08:26.160 --> 0:08:28.800 will need to be driven by those investments. 0:08:29.400 --> 0:08:29.560 Lie. 0:08:29.640 --> 0:08:31.480 A lot of companies are saying, you know, they're not 0:08:31.560 --> 0:08:34.240 necessarily seeing the impacts of tariffs now, but they certainly 0:08:34.240 --> 0:08:38.520 expect to in the coming weeks and months. You cover 0:08:38.960 --> 0:08:41.720 everything in shipping, rails, trucks, the recen shippers, the air 0:08:41.760 --> 0:08:44.400 freight guys. You cover it all. Are you seeing it now, 0:08:44.440 --> 0:08:47.880 because I've actually seen some reporting that maybe fewer ships 0:08:47.880 --> 0:08:51.160 are sailing from China to the US. Are you seeing 0:08:51.200 --> 0:08:52.680 it anywhere in your space? 0:08:54.120 --> 0:08:57.640 Yeah, we are. In to your point, Bookings from China 0:08:57.720 --> 0:09:01.080 to the US are down thirty to forty depending on 0:09:01.240 --> 0:09:04.400 which press reports you read. You know, some of that 0:09:04.640 --> 0:09:07.560 is obviously there where they pull forward effect in our 0:09:07.640 --> 0:09:10.120 view before the tariffs were going into place, so people 0:09:10.120 --> 0:09:12.800 were rushing to get stuff out, So we don't know 0:09:12.840 --> 0:09:15.360 really where that's going to lie. You know, shippers are 0:09:15.360 --> 0:09:18.559 going to either they're going to take the stance where 0:09:18.600 --> 0:09:20.120 they're going to be like they're going to sit back 0:09:20.160 --> 0:09:23.200 and wait to see what happens. Some are continue to 0:09:23.240 --> 0:09:25.199 do business as usual and they're just going to try 0:09:25.240 --> 0:09:30.160 to push off the costs associated with tariffs to customers, 0:09:30.200 --> 0:09:34.040 which obviously will be inflationary or mix of the two. 0:09:34.320 --> 0:09:37.160 So really, you know, it'll be interesting to see how 0:09:37.200 --> 0:09:37.920 things progress. 0:09:38.200 --> 0:09:41.280 Yeah, but still, I mean you have to wonder though, 0:09:41.360 --> 0:09:44.720 how fast then the shipping industry can rerate. Like if 0:09:44.760 --> 0:09:47.000 there's like one ship hanging out the LA port all 0:09:47.000 --> 0:09:49.400 of a sudden tariffs go away, what does that wind 0:09:49.440 --> 0:09:50.040 up looking like? 0:09:50.960 --> 0:09:53.080 Yeah, Shipping companies can do a number of things to 0:09:53.160 --> 0:09:57.120 manage their capacity during ups and downs time. They can 0:09:57.400 --> 0:09:59.720 do blank sailings, which really just means they don't they 0:09:59.760 --> 0:10:02.679 don't go to a port, they skip a port. They 0:10:02.679 --> 0:10:06.280 can operate slower, which actually is good because they could 0:10:06.320 --> 0:10:09.600 save them on fuel. And in a worst case scenario, 0:10:09.679 --> 0:10:11.200 they can just take the ships out of the water 0:10:11.720 --> 0:10:14.440 because that that is that it can be costly. And 0:10:14.480 --> 0:10:16.040 also you know a lot of a lot of them 0:10:16.080 --> 0:10:20.120 they lease their capacity uh from other companies, so you know, 0:10:20.160 --> 0:10:23.760 once those leases come up, they can just return the ship, uh. 0:10:23.840 --> 0:10:25.120 To the owner of that ship. 0:10:26.480 --> 0:10:29.120 Haley, I know you cover rail and truck companies that 0:10:29.160 --> 0:10:32.240 do a lot of business across the Mexican border. What 0:10:32.280 --> 0:10:33.640 do you what are you seeing there these days? What 0:10:33.720 --> 0:10:37.560 are they telling you? Again? 0:10:37.720 --> 0:10:41.920 You know it, there's a lot of uncertainty. Uh they 0:10:42.040 --> 0:10:44.720 saw a kind of a surge and demand ahead of 0:10:44.800 --> 0:10:48.640 the tariffs. You know, there is a lot of exemptions 0:10:48.640 --> 0:10:52.880 in tariffs between the US and Mexico and the US 0:10:52.920 --> 0:10:56.120 and Canada. Uh So, you know, they are not as 0:10:56.160 --> 0:10:59.680 punitive as they are with with China. Uh So, you 0:10:59.679 --> 0:11:03.240 know it that might be more of an inflationary aspect 0:11:03.400 --> 0:11:07.560 versus a stopping of flowing of freight. But the problem 0:11:07.679 --> 0:11:11.520 is is that, you know, if some of the supply 0:11:11.640 --> 0:11:14.520 chains get mucked up from the tariffs on China, that 0:11:14.559 --> 0:11:18.440 could impact manufacturing in Mexico and manufacturing in Canada, which 0:11:18.480 --> 0:11:22.480 we'll therefore you know, impact cross border volumes overall. So 0:11:22.960 --> 0:11:26.480 there's a you know, kind of a latency approach here. 0:11:27.040 --> 0:11:28.839 I know that's not what people want to hear. They 0:11:28.840 --> 0:11:34.480 want certainty. But given the more protectionist policies out of Washington, 0:11:35.360 --> 0:11:37.600 and you know how they can change on a dime, 0:11:38.200 --> 0:11:40.360 it's really hard to get that certainty, so hopefully in 0:11:40.400 --> 0:11:45.520 the coming weeks we'll get some better definitive outlook on 0:11:45.640 --> 0:11:47.840 unworthyse tariffs are heading our thanks to. 0:11:47.880 --> 0:11:51.640 Lead classical Bloomberg Intelligence senior transport, logistics and shipping analysts. 0:11:51.679 --> 0:11:53.840 Coming up, we're going to break down how cruise demand 0:11:53.920 --> 0:11:55.840 has been impacted in twenty twenty five. 0:11:56.120 --> 0:11:58.960 You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in 0:11:59.000 --> 0:12:01.200 depth research and data on two thousand companies in one 0:12:01.280 --> 0:12:04.280 hundred and thirty industries. You can access Bloomberg Intelligence via 0:12:04.320 --> 0:12:05.240 Big in the terminal. 0:12:05.280 --> 0:12:08.040 I'm Paul Sweeten and a Malex Steel and this is Bloomberg. 0:12:12.960 --> 0:12:16.679 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:12:16.760 --> 0:12:19.840 weekdays at ten am Eastern on Apple, Cocklay and Android 0:12:19.880 --> 0:12:23.160 Auto with the Bloomberg Business App. Listen on demand wherever 0:12:23.240 --> 0:12:26.760 you get your podcasts, or watch us live on YouTube. 0:12:27.160 --> 0:12:29.760 We move next to some new research from Bloomberg Intelligence 0:12:29.760 --> 0:12:33.280 about it's bi Tariffs Matrix. It's a worst case scenario 0:12:33.320 --> 0:12:37.160 tariff analysis tool. It helps identify companies exposure to US tariffs, 0:12:37.160 --> 0:12:40.160 the potential impact on EBADAH and how much prices have 0:12:40.200 --> 0:12:43.120 to rise to offset elevated costs for more. 0:12:43.160 --> 0:12:45.720 We were joined by Punham Goyle, senior US e Commerce 0:12:45.720 --> 0:12:48.640 and retail analysts at Bloomberg Intelligence, and Elliot Stein, Bloomberg 0:12:48.640 --> 0:12:50.400 Intelligence litigation analysts. 0:12:50.440 --> 0:12:53.960 We first asked Elliott how the BI tariff matrix works. 0:12:54.400 --> 0:12:57.720 So the BI Terriffs Matrix available on the Bloomberg terminal 0:12:57.800 --> 0:13:02.920 at bispace Tariffs Go and like you said, BI analysts 0:13:02.960 --> 0:13:06.319 for weeks have been putting numbers on what tariffs mean 0:13:06.640 --> 0:13:09.520 for their companies and this is all distilled in the 0:13:09.520 --> 0:13:12.520 BI Tariffs Matrix. You go to the matrix, it lists 0:13:12.559 --> 0:13:15.520 two hundred companies and we're continuing to add more companies 0:13:15.880 --> 0:13:18.559 across twenty different industries, and it shows you what their 0:13:18.600 --> 0:13:21.520 blended teriff rate would be based on their exposure to 0:13:21.559 --> 0:13:24.680 different countries where they're getting goods for their sales in 0:13:24.720 --> 0:13:27.720 the US and what the tariff rates are on those countries. 0:13:27.960 --> 0:13:31.199 And then from there, our analysts have calculated how much 0:13:31.240 --> 0:13:34.080 the cost of goods will increase for all these companies' 0:13:34.240 --> 0:13:36.880 sales into the US, how much their profit will take 0:13:36.920 --> 0:13:39.120 a hit as a result, and how much they would 0:13:39.120 --> 0:13:42.079 have to increase prices both in the US and globally. 0:13:42.400 --> 0:13:44.720 To offset the impact of the tariffs. 0:13:45.000 --> 0:13:48.440 That's amazing, that's incredible. Honestly, this is why Bloomberg Intelligence 0:13:48.520 --> 0:13:50.439 is so awesome. And we'll get to retail with punamindus 0:13:50.440 --> 0:13:52.960 a second. But Elliott, when we're putting this together, from 0:13:53.000 --> 0:13:55.120 all the different sectors, what stood out to you? What 0:13:55.360 --> 0:13:56.320 did you learn the most? 0:13:57.000 --> 0:13:59.280 So you know, it's really interesting. So we also published 0:13:59.280 --> 0:14:02.080 a note on this end. In that note there's a 0:14:02.160 --> 0:14:06.000 piece from Honor Agrana and the tech team, And you know, 0:14:06.280 --> 0:14:08.960 I like to filter by the blended teriff rate and 0:14:09.000 --> 0:14:12.160 see which companies are paying more teriffs as a result. 0:14:12.200 --> 0:14:13.880 And if you look at Apple, because they have such 0:14:13.960 --> 0:14:17.360 a high exposure to China, their blended terifrate is still 0:14:17.360 --> 0:14:20.480 twenty percent. But the company, like Dell, has a much 0:14:20.520 --> 0:14:24.800 more diversified supply chain and so they're blended terrafrate is 0:14:24.880 --> 0:14:27.200 much lower, roughly, I think maybe four or eight percent 0:14:27.240 --> 0:14:29.840 of the exact number. And so as a result, the 0:14:30.040 --> 0:14:32.320 you know, the amount that both these companies would have 0:14:32.320 --> 0:14:35.760 to increase their prices to offset tariffs varies quite dramatically, 0:14:36.160 --> 0:14:38.800 with Apple being close to nine percent and Dell being 0:14:38.800 --> 0:14:39.680 close to two percent. 0:14:40.000 --> 0:14:42.160 So pun them on the retail side of the business. 0:14:42.160 --> 0:14:44.160 How much more do you think consumers are going to 0:14:44.240 --> 0:14:46.960 have to pay at the store for stuff? 0:14:48.040 --> 0:14:52.320 Sophy assume that the entire cost has passed to the consumer. 0:14:52.440 --> 0:14:56.080 On average, across the thirty nine retailers we analyzed here 0:14:56.120 --> 0:14:59.520 in the US, it's a low double digit increase. That said, 0:15:00.040 --> 0:15:02.360 we do expect some mitigation efforts to take place, so 0:15:02.400 --> 0:15:05.720 we do expect that to moderate to probably mid to 0:15:05.800 --> 0:15:10.920 high single digits. Worst case scenario that sounds bad is 0:15:10.920 --> 0:15:14.520 that bad? I mean, price increases are bad, right because 0:15:14.560 --> 0:15:17.440 they influence demand, and that means that consumers could pull 0:15:17.520 --> 0:15:20.320 back and where and how they choose to spend. So 0:15:20.840 --> 0:15:23.760 ideally we would like to see no price increases, low 0:15:23.800 --> 0:15:26.480 single digit at best, which we think is manageable. But 0:15:26.560 --> 0:15:30.200 if it's beyond that, there could be a pullback in demand, 0:15:30.280 --> 0:15:33.080 especially for discretionary items, right, things that you can kind 0:15:33.120 --> 0:15:36.080 of hold off on, you can trade down for. So 0:15:36.280 --> 0:15:40.680 it is negative if things worsen and if China attentions 0:15:40.760 --> 0:15:42.840 don't come down from here? 0:15:43.440 --> 0:15:46.720 Are there certain product lines or certain categories put them 0:15:46.720 --> 0:15:48.120 that are more risk? I just think, you know, I'd 0:15:48.120 --> 0:15:50.880 remember seeing a story on sneakers and it seems like 0:15:50.880 --> 0:15:54.480 all the sneakers come from China in that point. 0:15:54.400 --> 0:15:57.040 Well, they actually come mostly from Vietnam. So as long 0:15:57.080 --> 0:16:00.240 as the Vietnam teriff rates stay at ten percent, which 0:16:00.280 --> 0:16:02.960 we'll know in early July if that's the case or not, 0:16:03.600 --> 0:16:06.960 I think that headwind is largely manageable. In fact, you know, 0:16:06.960 --> 0:16:10.320 for the at leisure companies like Nike Adidas, we've estimated 0:16:10.320 --> 0:16:12.880 that the tiff frate currently should only be around ten percent, 0:16:13.320 --> 0:16:15.520 and that's because that's the current levee on the other 0:16:15.560 --> 0:16:19.760 countries outside of China. These companies have diversified a lot 0:16:20.120 --> 0:16:23.240 since the last round of tariffs, where they've actually moved 0:16:23.280 --> 0:16:26.440 out of China into the neighboring countries, and as long 0:16:26.440 --> 0:16:29.000 as the tariff is low there, we think it's manageable. 0:16:29.600 --> 0:16:33.400 If tariffs do increase in early July from the ten percent, 0:16:33.720 --> 0:16:36.640 it's a bigger risk to these at leisure companies. Paul, 0:16:36.640 --> 0:16:39.480 you know you asked about where the impact is greater. 0:16:39.600 --> 0:16:42.080 Is across the thirty nine companies that we've analyzed. I 0:16:42.120 --> 0:16:43.680 think you have to look at the toymakers. You have 0:16:43.720 --> 0:16:45.960 to look at the dollar stores and even some of 0:16:46.000 --> 0:16:49.560 the specialty apparel stores where they are more heavily exposed 0:16:49.640 --> 0:16:53.160 to China, in some cases largely exposed to China, and 0:16:53.280 --> 0:16:56.440 they're the tariff rate is greater than fifty percent and 0:16:56.520 --> 0:16:59.640 the exposure is much higher, so a much bigger impact. 0:17:00.080 --> 0:17:02.120 You search by us price hike and do you know 0:17:02.320 --> 0:17:06.000 a top down like Mattel thirty one percent estimated price 0:17:06.080 --> 0:17:10.879 increase five below thirty nine percent? Dollar Tree twenty seven percent. 0:17:11.000 --> 0:17:12.679 I don't think those people are gonna like, I mean, 0:17:12.720 --> 0:17:13.520 that's we've shop. 0:17:13.359 --> 0:17:16.679 At dollar That's really rough. I mean I could do 0:17:16.680 --> 0:17:20.159 this forever. H and m twenty percent Target? Where'd you 0:17:20.200 --> 0:17:23.520 go Target looking at twenty percent? Elliott? Are we going 0:17:23.560 --> 0:17:26.520 to see lawsuits legal issues in relation to. 0:17:26.480 --> 0:17:28.280 This, Yeah, we already are, and just going back to 0:17:28.320 --> 0:17:32.000 the matrix for six so we didn't mention it. But 0:17:33.000 --> 0:17:36.160 you can click below the matrix and to the left 0:17:36.160 --> 0:17:39.119 of the matrix as well, because there are interactive catulators 0:17:39.560 --> 0:17:41.800 for all these companies where you can play around with 0:17:41.880 --> 0:17:44.360 some of the different assumptions, put in your own numbers, 0:17:44.640 --> 0:17:46.800 and you know, and get the output as a result. 0:17:47.440 --> 0:17:50.480 But in terms of lawsuits, yeah, we've seen multiple lawsuits 0:17:50.520 --> 0:17:53.800 being filed. My colleague Holly Film covers them, but I've 0:17:53.800 --> 0:17:57.200 been tracking them as well because they're interesting. We've seen 0:17:57.200 --> 0:18:00.600 companies from lawsuits from importers as well as Blue states 0:18:00.640 --> 0:18:04.520 like California and Oregon. They're filed in courts all around 0:18:04.520 --> 0:18:06.879 the country, but they're probably all on their way to 0:18:06.880 --> 0:18:09.520 being consolidated to a court here in New York called 0:18:09.520 --> 0:18:13.040 the Court of International Trade, which deals with lawsuits over tariffs. 0:18:14.160 --> 0:18:17.920 And there are two main claims in these cases. One 0:18:18.080 --> 0:18:21.640 is that the government is exceeding its statutory authority under AEPA, 0:18:21.880 --> 0:18:24.520 which is the statute it's using the Emergency Powers Act. 0:18:25.880 --> 0:18:27.560 And then the second one is that even if it 0:18:27.560 --> 0:18:30.360 does have the power under IEPA to implement these tariffs, 0:18:30.359 --> 0:18:38.120 Congress delegated its authority to the president improperly. These are 0:18:38.240 --> 0:18:40.720 issues of like first impression. You know, we've never seen 0:18:40.760 --> 0:18:42.920 a president use IEPA for tariffs before, and at the 0:18:43.000 --> 0:18:44.320 end of the day, we think it's a close call, 0:18:44.359 --> 0:18:47.399 but we think the administration will win these lawsuits and 0:18:47.440 --> 0:18:48.399 the tariffs will stick. 0:18:48.800 --> 0:18:51.920 Our thanks to Elliot Stein Bloomberg Intelligence litigation analysts and 0:18:52.000 --> 0:18:54.639 put them Goyle, Senior US e Commerce and retail analysts 0:18:54.640 --> 0:18:56.879 at Bloomberg Intelligence. This week we got a tale of 0:18:56.880 --> 0:19:00.000 two different earnings pictures from the Royal Caribbean and Norwegian Cruise. 0:19:00.600 --> 0:19:02.840 Royal Caribbean raise its profit outlook for the year, saying 0:19:02.840 --> 0:19:04.920 that bookings for twenty twenty five or man on track 0:19:05.160 --> 0:19:07.720 Norwegian Cruise Line more than the cruise demand is weakening, 0:19:07.800 --> 0:19:10.400 citing softening in his twelve month forward bookings. 0:19:10.640 --> 0:19:12.240 For more on this and a State of Travel, we 0:19:12.240 --> 0:19:15.160 were joined by Jody Lourie, Bloomberg Intelligence credit analyst. 0:19:15.359 --> 0:19:17.440 We first asked Jody for her broad take on Royal 0:19:17.480 --> 0:19:19.560 Caribbean versus Norwegian Cruise Line earnings. 0:19:20.080 --> 0:19:24.199 I think that the interesting thing that we're noticing this 0:19:24.280 --> 0:19:28.360 quarter is the change in tone, and it's not necessarily 0:19:28.520 --> 0:19:32.879 that the companies are so pessimistic. It's that they're hedging 0:19:32.880 --> 0:19:35.960 their bets a little bit. They're reminding investors that they 0:19:35.960 --> 0:19:38.680 have a longer tail when it comes to bookings. The 0:19:38.800 --> 0:19:43.000 reminding investors that even if the consumer starts pulling back 0:19:43.040 --> 0:19:46.640 on travel, which Hilton commented on some of that, that 0:19:46.840 --> 0:19:50.040 they are at least well positioned for twenty five. And 0:19:50.119 --> 0:19:53.920 so Norwegian was trying to back out of comments around 0:19:55.040 --> 0:19:57.880 Europe being a little bit weaker by saying Hey, rest 0:19:57.880 --> 0:20:03.200 of the world is doing well. Fribbean was sounding upbeat, optimistic, 0:20:03.280 --> 0:20:05.760 but I do suspect that there's an element of concern 0:20:05.840 --> 0:20:07.040 for all these companies. 0:20:07.800 --> 0:20:10.920 So what's the best way for you as an analyst, 0:20:11.000 --> 0:20:14.280 Jo did to get a sense of how demand is 0:20:14.359 --> 0:20:16.560 going in the future. I know some of these bookings, 0:20:16.560 --> 0:20:19.480 as you mentioned, are far in advance, but how do 0:20:19.480 --> 0:20:20.400 you guys think about that? 0:20:21.680 --> 0:20:24.280 So there's two things we do, Paul. So the first 0:20:24.560 --> 0:20:27.879 is we actually do a note every quarter or so 0:20:28.400 --> 0:20:33.040 around bookings related to Bloomberg Second Measure data. And by 0:20:33.080 --> 0:20:35.920 that I mean is that Bloomberg Second Measure data isn't 0:20:35.960 --> 0:20:38.960 necessarily one for one on bookings, but you'll see that, 0:20:39.119 --> 0:20:42.320 particularly going into wave season, that you can get a 0:20:42.400 --> 0:20:46.240 sense of what bookings are doing based on what sales 0:20:46.359 --> 0:20:50.000 is and volume is for these companies. We have intel 0:20:50.119 --> 0:20:53.160 into a little bit more into the brand depth being 0:20:53.359 --> 0:20:56.080 at Bloomberg, but beyond that, I mean, clients can look 0:20:56.119 --> 0:20:57.720 at a lot of that data as well, and it's 0:20:57.720 --> 0:21:00.840 really helpful. I mean, we wrote a note back in 0:21:00.880 --> 0:21:03.360 the fall that talked to twenty twenty five still being 0:21:03.359 --> 0:21:07.240 strong for these companies, but aired a little bit of 0:21:07.280 --> 0:21:12.359 caution to the twenty twenty sixth season and that being 0:21:12.400 --> 0:21:14.760 a function of what we were seeing on second measure, do. 0:21:14.760 --> 0:21:17.600 You get the sentence that if we see sort of 0:21:17.640 --> 0:21:20.400 stalling out in consumer demand or just a little hold back, 0:21:20.440 --> 0:21:24.360