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Speaker 2: On the Face Bloomberg Intelligence Show, we dig inside the
Speaker 2: big business stories impacting Wall Street and the global markets.
Speaker 2: Each and every week, we provide in depth research and
Speaker 2: data on some of the two thousand companies in one
Speaker 2: hundred and thirty industries our analysts cover worldwide. Today, we'll
Speaker 2: look at why Volunteer Technologies reported its biggest ever quarterly
Speaker 2: sales growth since the company went public.
Speaker 4: Plus, we'll look at how the fast food Jay McDonald's
Speaker 4: returned to sales growth last quarter.
Speaker 2: But first we begin with earnings from the median entertainment
Speaker 2: giant Walt Disney.
Speaker 4: This week, Disney shares fell after the company gave a
Speaker 4: mixed earnings report in the third quarter. The results, well,
Speaker 4: they showed strength in Disney streaming and parks business, but
Speaker 4: the company gave a lukewarm outlook for profit this year.
Speaker 2: For more guest hosts, Isabelle Lee and I rejoined by
Speaker 2: Keitha Rong Onathan Bloomberg Intelligence Analysts on US media. We
Speaker 2: first asked Etha what exactly concerns investors about Disney.
Speaker 5: You know, expectations might have been, you know, slightly high,
Speaker 5: and the fact that they didn't necessarily give us any
Speaker 5: specific guidance for fiscal twenty twenty six. They did point
Speaker 5: to a raised guidance for EPs growth for fiscal twenty
Speaker 5: twenty five eighteen percent now and sort of sixteen percent,
Speaker 5: but they didn't necessarily give us anything specific for fiscal
Speaker 5: twenty twenty six. That could be a slight source of disappointment.
Speaker 5: They did say that they will stop disclosing Disney plusses
Speaker 5: criber numbers, but again this is not something totally unexpected.
Speaker 5: I mean, Netflix has stopped doing this. We're seeing this
Speaker 5: kind of move away from just subscriber numbers to a
Speaker 5: greater focus and profitability.
Speaker 6: I want to zero in on parks because I'm still
Speaker 6: scarred by how expensive it was when I visited a
Speaker 6: couple of years ago as an adult. But how sustainable
Speaker 6: is there strong parks performance given the divergent domestic and
Speaker 6: international performance.
Speaker 5: Very sustainable isabell. So, you know, we saw domestic parks,
Speaker 5: and I say that because you know, domestic parks actually
Speaker 5: coming into this year, coming into this quarter, there were
Speaker 5: a lot of worries, one of course, about the general
Speaker 5: macroeconomic environment, but the bigger source of worry was really
Speaker 5: the opening of Epic Universe, which is you know, Universal's
Speaker 5: big Florida theme parket traction. But the fact that it
Speaker 5: had absolutely no impact at all, or very very modest impact,
Speaker 5: if at all, is really amazing, and it just kind
Speaker 5: of speaks to the resilience in Disney's business model. They
Speaker 5: reported again very very strong per capita growth, you know,
Speaker 5: in terms of food beverages, in terms of concessions. So
Speaker 5: all of that doing really well, and the reason I'm
Speaker 5: so positive about this business going forward. First of all
Speaker 5: it contributes about fifty five to sixty percent of Disney profits.
Speaker 5: Are really really important to their top line, to their
Speaker 5: bottom line. Definitely. They have a lot of upcoming capacity,
Speaker 5: So the biggest source of expansion over the next few
Speaker 5: months is really going to be their cruise ships. They're
Speaker 5: launching two new cruise ships, their biggest ever actually, which
Speaker 5: is going to come on board in November and December.
Speaker 5: One of them sets sail from Asia and that basically
Speaker 5: takes the number of cruise ships to eight cruise ships,
Speaker 5: effectively kind of doubling their capacity in a span of
Speaker 5: just maybe two to three years. So that is going
Speaker 5: to really buoy both top line and bottom line going
Speaker 5: into twenty twenty six. And then beyond that, you really
Speaker 5: have this huge sixty billion capital expansion plan that is
Speaker 5: really going to play out over the next five to
Speaker 5: ten years. So we're going to see a lot more
Speaker 5: attractions all over the world. We're going to see that
Speaker 5: new Abu Dhabi park come out. So there is really
Speaker 5: a lot of you know, sustained momentum that we can
Speaker 5: expect at the parks going forward.
Speaker 2: Keith It talk to us about that deal they just
Speaker 2: made with the NFL it seems like a really positive
Speaker 2: development for the company.
Speaker 5: Yeah, it's really good. I think from a Disney from
Speaker 5: an ESPN standpoint, that they're so closely aligned now with
Speaker 5: the NFL. I mean, the NFL is absolutely the premium property,
Speaker 5: the gold standard, Paul, you know this well when it
Speaker 5: comes to you know, sports properties in the US. And
Speaker 5: the fact now that they're going to be able to
Speaker 5: use all of this content for their upcoming ESPN streaming launch,
Speaker 5: I mean that that itself just kind of gives it
Speaker 5: a tremendous boost, I think even before you know it
Speaker 5: comes on board. So it's great for the product. It's
Speaker 5: also great from a strategic standpoint because the NFL is
Speaker 5: obviously one of the most important sports properties, and this
Speaker 5: really gives them access or it at least definitely gives
Speaker 5: them a little bit of an advantageous position compared to
Speaker 5: let's say, an Amazon or a Netflix or an Apple
Speaker 5: if they want to ever outbid you know, the current
Speaker 5: media partners. So definitely, I think strategically, very very sound
Speaker 5: move on the part of Disney.
Speaker 6: So it seems like we had a good quarter. Runway
Speaker 6: for growth is really just long and wide. What downside
Speaker 6: risks remain then, especially around the macro uncertainty and tiriff exposure.
Speaker 5: Do you see, Yeah, maybe a little bit of execution risks.
Speaker 5: So we still really don't know how this hole. I mean,
Speaker 5: obviously everybody's very excited for the ESPN product launch, but
Speaker 5: we still don't know how exactly that's going to play out. Again,
Speaker 5: a huge source of upside is going to be the
Speaker 5: streaming business. Everybody is expecting huge cost savings when it
Speaker 5: comes to the integration of Hulu and Disney Plus. But
Speaker 5: again execution is a little bit of a risk. And
Speaker 5: then you pointed out, you know, macro factors. Remember, Disney
Speaker 5: still obviously has huge exposure because of its parks business,
Speaker 5: and anytime we see kind of a slowdown in the economy,
Speaker 5: we do feel that in the parks as well. And
Speaker 5: of course advertising also, so you know, they do have
Speaker 5: a substantial exposure to advertising because of their TV networks business.
Speaker 5: So there again we can see a little bit of
Speaker 5: an impact. But overall, as it stands right now, the
Speaker 5: business seems to be in really good shape all right here.
Speaker 2: The problem childs though, are the podcast networks in the
Speaker 2: cable networks. What you know, just because of cord cutting,
Speaker 2: that they're just declining businesses. What's the company saying that
Speaker 2: what we're going to do with those businesses.
Speaker 5: They haven't said anything explicitly, Paul. So a few years ago,
Speaker 5: you know, this idea was floated that maybe they kind
Speaker 5: of spin off ABC their broadcast network, maybe they spin
Speaker 5: off their linear cable channels, all of that. You know,
Speaker 5: noise has kind of quietened down. You know, Bob Biger
Speaker 5: basically said, no, no, no, we need these businesses. They're
Speaker 5: all kind of integral to the whole Disney story. So
Speaker 5: we haven't heard anything recently that being said. Just this
Speaker 5: whole deal with the NFL, the NFL kind of taking
Speaker 5: an equity stake, it almost seems like they are prepping
Speaker 5: for ESPN to kind of ESPN and maybe ABC to
Speaker 5: kind of coast solo. Remember, Bob Biger only has a
Speaker 5: few more months left, so the end of twenty twenty
Speaker 5: six he leaves Disney, or at least that's what he says. Yeah,
Speaker 5: we think, and I really think he kind of wants
Speaker 5: to get this deal done so to separate es because
Speaker 5: it's not really core to the rest of the Disney properties.
Speaker 5: But again, it's a little bit of a weight and watch,
Speaker 5: but nothing explicitly stated from Disney management about what they
Speaker 5: want to do with the linear piece of the business.
Speaker 6: So ESPN is getting a fresh spin. Within August twenty
Speaker 6: one launch, it will be thirty dollars a month for
Speaker 6: the new streaming app. What do you make of that price?
Speaker 6: You think people will pay up for it or is
Speaker 6: that steep?
Speaker 5: It's a high price point, There's no doubt about it.
Speaker 5: I think most people were kind of expecting somewhere in
Speaker 5: the twenty three to twenty five dollars range. That said,
Speaker 5: what you know, we just ran a survey actually at
Speaker 5: Bloomberg Intelligence, and what we found is that there's actually
Speaker 5: a lot of interest in this product. So we think
Speaker 5: that the updake will be fairly strong. And the updake
Speaker 5: not so much as a standalone product, but when you
Speaker 5: bundle it with Disney Plus and Hulu, so they are
Speaker 5: running a pretty attractive promotion. So for the first year,
Speaker 5: you can get Disney Plus, Hulu and ESPN at a
Speaker 5: thirty to thirty dollars price point, which which seems like
Speaker 5: really good value. So I think we're going to see
Speaker 5: a lot of people come in initially through the bund
Speaker 5: at least.
Speaker 4: Our thanks to Githa Ranganath and Bloomberg Intelligence analyst on
Speaker 4: US media.
Speaker 2: We move next to recent news from the beverage company
Speaker 2: Molson Cores.
Speaker 4: This week, the company lowered its full year guidance for
Speaker 4: the second quarter in a row. It cited continued pressure
Speaker 4: from a week consumer, falling US market share, and rising
Speaker 4: costs tied to aluminum tariffs.
Speaker 2: For more, Lisa and I were joined by Ken Shay,
Speaker 2: Bloomberg Intelligence senior consumer products analysts. We first asked Ken
Speaker 2: just how much aluminum tariffs have been impacting Molson.
Speaker 3: Course, it's material, you know, they describe it as an
Speaker 3: indirect cost, but it really spiked up there in the quarter,
Speaker 3: you know, encroaching on their margin. I think though the
Speaker 3: bigger picture though here is the continued week sales, the
Speaker 3: lackluster sales were seeing in the US beer market and
Speaker 3: alcoholic beverages in general. You know, this is their peak
Speaker 3: summer selling season. This is when you know these companies
Speaker 3: should be thriving, and it looks like the summer selling
Speaker 3: season in the US for alcoholic beverages is going to
Speaker 3: be a dud. It's a cautious consumer, it's a particular
Speaker 3: pressures on the Hispanic demographic. It's it was a lousy
Speaker 3: June in terms of the weather and key markets, and
Speaker 3: basically all the big brewers are setting up for a
Speaker 3: tough second half as you know, these trends continue. You know,
Speaker 3: I expect continued sluggish performance in the second half as well.
Speaker 2: So is this beer thing? Is it the kind of
Speaker 2: a global thing? I mean, I know, you guys at
Speaker 2: Bloomberg Intelligence, you get the data that choose consumption of
Speaker 2: everything out there.
Speaker 3: In the case of most in course, Paul, yeah, they
Speaker 3: have a big operation in Europe, Eastern Europe, many parts
Speaker 3: of Western Europe, and that they had lower volumes as well.
Speaker 3: It was saved by higher prices to a degree. But
Speaker 3: you know, again the big picture is that consumers are
Speaker 3: just not going out to the bars as much. On
Speaker 3: premise sales, we're particularly weak. That could be weather related,
Speaker 3: I mean, that's just another example, but also I think
Speaker 3: it could be, you know, the culmination of a lot
Speaker 3: of price increases over the last few years. Maybe we've
Speaker 3: hit a point where there's some sticker shot going on here.
Speaker 4: And what about people drinking he said, not going to
Speaker 4: the bar, But what about just drinking less alcohol in general.
Speaker 3: Well, that's a great point, least, I think longer term,
Speaker 3: you have some secular headwinds as well, things you've talked
Speaker 3: about in the past. You know, the spread of legal cannabis,
Speaker 3: particularly here in the US. In the US, you also
Speaker 3: have these intoxicating hemp drinks which are all the rage
Speaker 3: now in many markets. You have the GLP one users
Speaker 3: are cutting back. Gen Z doesn't seem to embrace alcohol
Speaker 3: as much as their parents did. All those things are
Speaker 3: weighing on it longer term, but that, combined with some
Speaker 3: near term pressures, is really weighing on these companies.
Speaker 2: It's a disappointing discussion here. I mean, not that we're
Speaker 2: gonna have fun here. I'll tell you here's the problem
Speaker 2: with all this white claw and sea breeze and I
Speaker 2: don't know what you know, the iced tea and vodka,
Speaker 2: what's that all about?
Speaker 5: Is that a fad?
Speaker 3: It seems to have some legs there, you know, the
Speaker 3: pre mixed cocktails. Well, let me put it this way.
Speaker 3: With some of the things that did l in the
Speaker 3: quarter are things like bush light apple, you know, some flavor.
Speaker 3: You know, some of the hard teas are doing well.
Speaker 3: The premixes continue to do well, So I think the
Speaker 3: way you could take away is maybe the consumer, while
Speaker 3: you know economizing, is also looking for a flavor and
Speaker 3: different variety. And also the non alcoholic and low alcoholic
Speaker 3: segment continues to do well from a low base. So
Speaker 3: I think in the second half I would expect a
Speaker 3: higher level of promotion and innovation along those themes low
Speaker 3: alcohol and no alcohol flavor innovation that's going to be
Speaker 3: really popular. I think in the second half the super volume.
Speaker 4: Hey, before you go, can you break down some of
Speaker 4: those macro economic headwinds that the company's facing.
Speaker 3: Sure, well, they The primary one is just you know,
Speaker 3: consumer confidence. Consumers just feel you know, they're reading the
Speaker 3: papers all these you know, tire fund certainties, and you
Speaker 3: know the pressure on the Hispanics in particular, what's going
Speaker 3: on there. Those are the big things, you know, And
Speaker 3: I don't think it's anything major, but it's it's just
Speaker 3: enough on the margin that these are purchases that can
Speaker 3: be deferred and consumers by and large r.
Speaker 4: A our thanks to Kenhey Bloomberg Intelligence senior consumer products analysts.
Speaker 4: Coming up, we'll look at earnings from one of the
Speaker 4: world's biggest producers of heavy machinery Caterpillar.
Speaker 2: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
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Speaker 2: I'm Lise Matteo and I'm Paul Sweeney. This is Bloomberg.
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Speaker 4: I'm Paul Sweeney and I'm Lice Matteo. Filling in on
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Speaker 2: Move now to earning from the software company Palaneer Technologies.
Speaker 4: This week, palente reported its biggest ever quarterly sales growth
Speaker 4: since the company went public, and Palenteer cited astonishing impact
Speaker 4: of artificial intelligence technology on its business.
Speaker 2: For more, Lisa and I were joined by Mandeep saying
Speaker 2: Bloomberg Intelligence, senior tech industry analyst. We first asked man
Speaker 2: Deep if Palenteer should be considered a dominant software company
Speaker 2: of the future.
Speaker 7: I mean, clearly there is a lot baked into the valuation,
Speaker 7: But I want to focus on, you know, the net
Speaker 7: new ERR, which is a metric that software companies are
Speaker 7: measured on. And when you compare Palenteers commercial segment revenue,
Speaker 7: which everyone is excited about, their total deal value that's
Speaker 7: remaining is around two point eight billion, the new ARR
Speaker 7: increased by five hundred million. Contrast that with a Microsoft
Speaker 7: or a Google Cloud. Microsoft added almost nine billion in
Speaker 7: net new ARR this quarter, and they talked about, you know,
Speaker 7: being used across one hundred million Microsoft Copilot users twenty
Speaker 7: million GitHub Copilot users. So from that perspective, you know,
Speaker 7: Balenteers increase in remaining deal value of five hundred million
Speaker 7: looks pretty small. I mean, Palenteers overall revenue rund rate
Speaker 7: is four billion. Microsoft clearly is you know, a company
Speaker 7: that's almost one hundred times or eighty times more bigger
Speaker 7: than Palenteer. But it just goes to show that even
Speaker 7: on a net new AIRR basis, Microsoft is adding more
Speaker 7: revenue per quarter than a Palenteer is. And still people
Speaker 7: are very excited about Palenteers prospects. And to my mind, clearly,
Speaker 7: you know, they have a product that is appealing to
Speaker 7: a certain section of enterprise users. But at this valuation,
Speaker 7: I mean, they can't sustain that for the next thirty
Speaker 7: forty quarters, which is what they need to show to
Speaker 7: grow into the evaluation. And I just don't see from
Speaker 7: a product perspective they'll have the same kind of appeal
Speaker 7: as a Microsoft Copilot or a Google Cloud or you know,
Speaker 7: any of these large companies.
Speaker 2: Some question today, how do you guys value this thing?
Speaker 2: I mean, I got it at like two three hundred
Speaker 2: times earning, So that's not the way to go.
Speaker 7: So we've seen that with you know, new IPOs. When
Speaker 7: they come to the market, they get a premium multiple.
Speaker 7: They get traded at you know, thirty forty time sales.
Speaker 7: Snowflake which is a competitor to Palenteer, when it went public,
Speaker 7: it traded at sixty seventy time sales. Look at where
Speaker 7: the stock is now. It's flat since the IPO. Even
Speaker 7: though the company has grown top line at thirty thirty
Speaker 7: five percent Kegger, the stock is flat. So that's what
Speaker 7: I mean by growing into the valuation, because there is
Speaker 7: so much embedded in that upfront multiple that even growing
Speaker 7: at thirty percent is not enough. Palenteer really needs to
Speaker 7: grow at fifty percent to be able to show any
Speaker 7: sort of stock return from this point on, Can I
Speaker 7: do that? No? I mean that's why I said I
Speaker 7: compare the product. My initial comments were around comparing Palenteers
Speaker 7: product versus other large enterprise software makers and even you know,
Speaker 7: you go down the list Salesforce Service, now Adobe like,
Speaker 7: these are much bigger companies and they have compounded at
Speaker 7: twenty percent Keger over the years because they had a
Speaker 7: seat base or a consumption based model. We don't even
Speaker 7: know what kind of a business model Palenteer has. Yes,
Speaker 7: it's winning government deals, Yes it's winning some enterprise deals,
Speaker 7: but we don't know how they account for that revenue
Speaker 7: every quarter. Is it a seat based model, is a
Speaker 7: consumption base? We don't have that kind of visibility to
Speaker 7: their business model.
Speaker 2: In a Concter party, I can tell you the Google story,
Speaker 2: I can tell you that Microsoft story. I have no
Speaker 2: idea what the Palenteer story is. Can you explain it
Speaker 2: to me like I'm a five year old?
Speaker 7: Yeah, so their software out of the box will help
Speaker 7: you make sense of your big data strategy. They really
Speaker 7: curved out a name for themselves when big data became
Speaker 7: the thing. When a company had a large amount of data,
Speaker 7: whether it's log data or some other type of reporting data,
Speaker 7: they would help you make sense of it because they
Speaker 7: have something proprietary that no one else has in terms
Speaker 7: of organizing that data and making it usable. So that's
Speaker 7: their value proposition. But with the AI wave and llms,
Speaker 7: they were able to integrate LLM calls within their offering
Speaker 7: to develop a customer service or a supply chain use
Speaker 7: case that you can apply AI on top of their ontology,
Speaker 7: which is their core product. And a lot of other
Speaker 7: companies are doing the same. To my mind, Microsoft is
Speaker 7: doing the same for their customers. They're trying to embed
Speaker 7: open AI with their core offerings with their CRM system
Speaker 7: and help them deploy customer service use case. So the
Speaker 7: differentiation of Balenteer versus Microsoft, to my mind is not
Speaker 7: that big as the valuation reflects. And that's where I'm
Speaker 7: betting they're not going to grow fifty percent for the
Speaker 7: next twelve to twenty quarters, which is what the valuation
Speaker 7: is implying.
Speaker 4: Now, how would you compare what they do as far
Speaker 4: as a government contractor versus the commercial side, like which
Speaker 4: is doing better for them?
Speaker 7: Yeah, so they have a much higher exposure to government side.
Speaker 7: I mean, government side is still more than fifty percent
Speaker 7: of their revenue, and all these large enterprise software companies
Speaker 7: they have ten to fifteen percent government exposure. So Palenteer's
Speaker 7: government exposure is way too large compared to other software makers.
Speaker 7: And on top of that, their international sales seem to
Speaker 7: be declining at least, you know, on the commercial side
Speaker 7: because of the polarizing views of the management. So if
Speaker 7: they were more balanced, probably they would win more international business.
Speaker 7: But right now this is a US centric story, and
Speaker 7: that's where I think it sort of puts a dent
Speaker 7: to the growth rate down the line once they run
Speaker 7: out of the deals that they currently have signed.
Speaker 4: Our thanks to Man Deep, saying Bloomberg Intelligence senior tech
Speaker 4: industry analyst.
Speaker 2: We look next at earnings from one of the world's
Speaker 2: biggest producers of heavy machinery, Caterpillar. This week, the company
Speaker 2: posted qually earnings that missed analyst expectations.
Speaker 4: Caterpillar also said it now expects full year adjusted operating
Speaker 4: profit to fall in the bottom of its annual target range,
Speaker 4: even with higher annual sales and the companies that it
Speaker 4: expects to face net incremental tariffs on one point three
Speaker 4: to one point five billion dollars this year.
Speaker 2: For more, Lisa and I were joined by Chris Gielino,
Speaker 2: Bloomberg Intelligence senior US machinery analyst. We first asked Chris
Speaker 2: to discuss his takeaways from Caterpillar's earnings.
Speaker 8: The print was a little weak. It came in a
Speaker 8: little below expectations. The big takeaway here is that underlying
Speaker 8: demand is still pretty darn resilient. You had backlog ubsequentially
Speaker 8: again this quarter, which set another record. You had improving
Speaker 8: order trad across all three of their main businesses. Dealer
Speaker 8: inventories still remain quite low, and the company actually raise
Speaker 8: their sales guidance for the year. So you know, that
Speaker 8: seems to suggest us that underlying demand is still intact
Speaker 8: despite all these these tariff headwinds.
Speaker 4: And now, how do their results kind of match up
Speaker 4: to some of their their peers. They believe there's Terex Lindsay,
Speaker 4: who already opened their books. How does Caterpillar match up?
Speaker 8: Yeah, I characterized the overall earning season for for US
Speaker 8: machinery is kind of mixed if you think about really
Speaker 8: construction peers, which which is kind of more Caterpillars sweet spot.
Speaker 8: That's a market that's you know, kind of bouncing along
Speaker 8: the bottom.
Speaker 7: Here.
Speaker 8: We do have you know, infrastructure projects and these large
Speaker 8: meggat projects which are helping to offset some of the
Speaker 8: weakness that you're seeing on the private, non residential side,
Speaker 8: things that are more interest rate sensitive. But you know,
Speaker 8: you're starting to see some positive indicators that would you know,
Speaker 8: lead us to believe that you're going to start to
Speaker 8: see a cycle clover emerge in twenty twenty six. There's
Speaker 8: a number of you know, leading indicators out there that
Speaker 8: would support that. And I think really Caterpillars results here
Speaker 8: with orders being up in the construction business, with the
Speaker 8: backlog being up, really kind of reinforced that view.
Speaker 2: Where does Caterpillar make their big trucks and stuff like
Speaker 2: that everywhere?
Speaker 8: Right, They're they're a global company. They've got a large
Speaker 8: footprint that spans you know, every continent in you know,
Speaker 8: most countries. But if you think about it, at the
Speaker 8: end of the day, it's North America, right, it's more
Speaker 8: than half of their revenues. Europe is called it, you know,
Speaker 8: twenty percent, ish Asia Pacific a little bit below that,
Speaker 8: and then you know Latin America is kind of closer
Speaker 8: to ten percent. They are a net exporter out of
Speaker 8: the US, but as we saw, Tariff's probably going to
Speaker 8: be a little bit more of a head wind they
Speaker 8: than they had initially anticipated. They're looking for, you know,
Speaker 8: somewhere between a one point three to one point five
Speaker 8: billion dollar hit for this year.
Speaker 4: So, Chris, you kind of touched upon this sales lie
Speaker 4: in construction resource industries, but energy and transportation unit that
Speaker 4: had some higher sales. What is that that driving force
Speaker 4: behind the growth in engines and transportation?
Speaker 8: So this continues to be one of really the big
Speaker 8: highlights for Caterpillar, you know, despite some of the cyclical
Speaker 8: softness that they're seeing, is the energy and transportation business,
Speaker 8: particularly in power generation. So think you know, data centers
Speaker 8: that are becoming an increasingly larger part of the portfolio.
Speaker 8: Power gen continues to drive outsize growth within the energy
Speaker 8: and transportation business. There's you know, a multi year backlog there,
Speaker 8: so we have, you know, veryly tremendous visibility, and what
Speaker 8: Caterpillar is doing now is really expanding capacity to help
Speaker 8: you know, meet this growing demand for data centers and
Speaker 8: power generation. So there's a long secular tailwind at play.
Speaker 8: Here and really, you know, we think we have a
Speaker 8: pretty good visibility here over the back half of the decade.
Speaker 2: Is Caterpillar and companies like Caterpillar, are they benefit or
Speaker 2: do you expect them to benefit from maybe on shoring
Speaker 2: even more manufacturing in this country if to the extend
Speaker 2: that President Trump you know, wants to do that and
Speaker 2: he's been talking about that a lot. Is that something
Speaker 2: where kat would will see it?
Speaker 8: Yeah, I mean I would say we haven't really heard
Speaker 8: of you know, I would say concrete or tangible evidence
Speaker 8: of that happening yet, And it's really difficult to you know,
Speaker 8: get a lens on that on a quarter to quarter
Speaker 8: I think, you know, if we look back maybe over
Speaker 8: a five year window, maybe we'll have a better picture
Speaker 8: of that. But yet, no doubt Caterpillar is a big
Speaker 8: beneficiary of any kind of construction activity here domestically. And
Speaker 8: then not only on top of you know, not only
Speaker 8: just moving the dirt and building the facilities, they're also,
Speaker 8: like I mentioned, having have a bigger piece of the
Speaker 8: data center and power generation needs within our within our
Speaker 8: country as well. So it's really kind of twofold. Not
Speaker 8: only you know, with the moving the dirt and the facilities,
Speaker 8: but also you know, longer term, we think the secular
Speaker 8: tailwinds around power generation. Are you pretty favorable?
Speaker 4: Hey, Chris, before you go, we have like about a
Speaker 4: minute or so left. People usually say this is like
Speaker 4: the Bell weather for a look at the economy. Is
Speaker 4: this company going to continue to be that spot and
Speaker 4: to hold that title?
Speaker 8: I don't see anything changing in the near term here.
Speaker 8: They are the largest global manufacturer of heavy machinery. They
Speaker 8: have the scale, the dealer network, and really there's not
Speaker 8: too many competitors that are that close to them. So
Speaker 8: they are the leading indicator for the heavy machinery markets
Speaker 8: and construction activity, and I don't foresee that changing anytime soon.
Speaker 4: Our thanks to Christopher Chiolio, Bloomberg Intelligence senior US machinery analyst.
Speaker 4: Coming up, well, look at why the ev giant Tesla
Speaker 4: approved a thirty billion dollar stock award for its CEO,
Speaker 4: Elon Musk listening.
Speaker 2: To Bloomberg Intelligence on Bloomberg Radio providing in the research
Speaker 2: and data on two thousand companies in one hundred and
Speaker 2: thirty industries.
Speaker 4: You can access Bloomberg Intelligence via bi go on the terminal.
Speaker 4: I'm Lice Matteo and.
Speaker 2: I'm Paul Sweeney.
Speaker 7: This is Bloomberg.
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
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Speaker 4: I'm Paul Sweeney and I'm Lace Matteo filling out on
Speaker 4: Bloomberg Intelligence. We move now to second quarter earnings from
Speaker 4: the fast food giant McDonald's.
Speaker 2: This week, McDonald's reported their global sales at restaurants open
Speaker 2: at least thirteen months rose three point eight percent last quarter.
Speaker 4: This suggests that pop culture focused collaborations and budget meals
Speaker 4: are helping to offset diners' economic anxiety.
Speaker 2: More guest hosts Isabelle Lee and I were joined by
Speaker 2: Michael Halen, Bloomberg Intelligence senior restaurant and food service analysts.
Speaker 2: Your first ask, Mike, if returning to sales growth feels
Speaker 2: like a waiting for McDonald's.
Speaker 9: It's definitely a win for you know, overall industry, saam
Speaker 9: source sales because it's such a monster. It also could
Speaker 9: be bad news for some of their competitors. With fourteen
Speaker 9: thousand stores in the United States. Listen, man, they know
Speaker 9: how to run run good restaurants right right now in
Speaker 9: the US, they're starting to lap some easier comparisons and
Speaker 9: you know that's showing up and the you know, that's
Speaker 9: helping their results. They're also you know, doing a good
Speaker 9: job with you know, the menu, right, They're bringing back
Speaker 9: snack wraps, they're bringing back the mccrispy strip. They just
Speaker 9: debuted a daily double. They've been pressing on value all year.
Speaker 9: That was a big thing since the first quarter. And
Speaker 9: so you know, McDonald's has the scale that they can
Speaker 9: you know, offer products a little bit cheaper than their
Speaker 9: peers and still in the franchisees can still make a
Speaker 9: little bit of money off of it, right, So you know,
Speaker 9: they they seem to really be hitting their stride and
Speaker 9: their lap easy comps in the second half of the year.
Speaker 9: So you know, we're looking at a pretty good second
Speaker 9: half for McDonald's.
Speaker 6: And international markets led the company's growth. What regions of
Speaker 6: the world did they really pushed aggressively towards.
Speaker 9: Yeah, they mentioned some really good strength in Germany. They
Speaker 9: talked about some improvement in some markets that had been struggling,
Speaker 9: like France and Australia and so you know, what they're
Speaker 9: doing overseas is similar to the US playbook, right, but
Speaker 9: they're probably ahead of the game, ahead of the US
Speaker 9: in terms of providing everyday value. Their value messaging has
Speaker 9: been on point and it's really helped them grow internationally
Speaker 9: and that's why we've seen international grow faster than the
Speaker 9: US for the last year or so. They also cited
Speaker 9: the fact that there's less competition overseas, so they're really,
Speaker 9: you know, a pricing leader overseas. You know, they can
Speaker 9: the same type of thing in the US where they
Speaker 9: can offer price points that competitors just can't match. And
Speaker 9: then they're also in improving the operations, improving the quality
Speaker 9: of the product, which has been an ongoing theme here.
Speaker 9: They're improving the quality of the beef, better burgers, the
Speaker 9: way they cook the burgers their day being the big
Speaker 9: Arch which is a big, bigger sized burger in their lineup.
Speaker 9: They're also expanding chicken overseas. So this company's humming along
Speaker 9: right now.
Speaker 2: What does a company say, Like when I think about McDonald's,
Speaker 2: I think a lot of folks probably feel like the
Speaker 2: low end, low income consumers probably it's bread and butter
Speaker 2: there and maybe that consumers more at risk in this
Speaker 2: economic environment. What's the company saying about low income patrons.
Speaker 9: Yeah, you know what I like about this call call
Speaker 9: is that you know, they're talking about what they can control.
Speaker 9: You know, they cited the fact that low income consumer
Speaker 9: traffic is down double digits, right, versus a small gain
Speaker 9: for middle income consumers and steady consistent gains with high
Speaker 9: income consumers. So they are seeing, you know, weakness with
Speaker 9: low income consumers like everyone else. That's why they push
Speaker 9: so hard on value. That's why they have these you know,
Speaker 9: five dollars meals and buy one, get one for a dollar,
Speaker 9: and why they put marketing dollars behind that. That's part
Speaker 9: of the you know, the beauty of the snack wraps.
Speaker 9: They're coming back at a two ninety nine price point.
Speaker 9: We think that's going to bring some low income consumers
Speaker 9: back into the fold, right, So they understand that that
Speaker 9: people are very priced sensitive right now, and you know,
Speaker 9: they're addressing it with the price points. But they're also
Speaker 9: trying to give people better quality and better service. At
Speaker 9: the same time.
Speaker 6: They also plan to taste new beverages and this includes
Speaker 6: cold coffees and crafted sodas at more than five hundred
Speaker 6: US locations. How much of a pull are beverages when
Speaker 6: it comes to McDonald's offerings or is food really still king?
Speaker 9: Food is still king? But listen, beverages are hot. Beverages
Speaker 9: are hot everywhere right during highlges, energy and very high margin, right.
Speaker 9: And so we think this is a very good opportunity
Speaker 9: for McDonald's. I think this is kind of a problem
Speaker 9: for Sonic, which has long done a really good job
Speaker 9: with their drink offering. But yeah, we think this is
Speaker 9: something that can help drive sales at McDonald's. Taco Bell
Speaker 9: is something Taco Bell's expanding as well, But we think
Speaker 9: this is going to be more of a twenty twenty
Speaker 9: six story for McDonald's.
Speaker 2: For McDonald's, my percentage of the revenue comes from owned
Speaker 2: and operated stores versus franchise stores.
Speaker 9: Oh, they're ninety eight percent franchised. So there, Yeah, they're
Speaker 9: heavily franchised. And you know, it's a beautiful model, man.
Speaker 9: There's not a lot of operating leverage in the model.
Speaker 9: They generate a ton of cash that they return to shareholders.
Speaker 2: It really is a buy What's so, what's the royalty
Speaker 2: rate on there's a franchise e paid McDonald's based upon revenue,
Speaker 2: based upon net income, based upon how many Big Max
Speaker 2: say sale. How does that work?
Speaker 9: Yeah, yeah, yeah. McDonald's is a little bit unique. They
Speaker 9: have a five ish percent royalty eight plus they own
Speaker 9: a lot of the real estate. So a lot of
Speaker 9: franchises in the United States are paying a rent, which
Speaker 9: is typically you know, a ten inch percent of sales,
Speaker 9: we'll say, and then they'll pay another three and a
Speaker 9: half to four percent into the ad fun.
Speaker 2: I didn't know that until I saw the movie and
Speaker 2: then that famous scene. Yeah, you're not in the hamburger business,
Speaker 2: you're in the real estate business. And that was such
Speaker 2: a great scene. I learned a lot there. All Right,
Speaker 2: I can't let you go without Crackerbrowl and I need
Speaker 2: my daily update Country Boy Breakfast. How's that company doing? Listen.
Speaker 9: We're we're big fans of new CEO Julie Messino. That
Speaker 9: stock's been a bit of a rollercoaster, not a surprise
Speaker 9: since it's a small cap. It rows more than one
Speaker 9: hundred percent off its April lows. Now it's in the
Speaker 9: midst of a pretty aggressive downturn.
Speaker 5: But you know, we like it.
Speaker 9: We like Julie's plans to improve the operations, to spend
Speaker 9: more and be more efficient with their marketing spend. We
Speaker 9: think this is a chain that hadn't been taken care of,
Speaker 9: It hadn't been run really well for the last decade,
Speaker 9: and so we see a lot of low hanging fruit
Speaker 9: for the current management team to turn things around and
Speaker 9: really drive strong seam source sales through year end twenty
Speaker 9: twenty five and well into twenty twenty six.
Speaker 4: All right, thanks to Michael Hale and Bloomberg Intelligence senior
Speaker 4: restaurant and food service analyst. We move next to news
Speaker 4: at the ev giant Tesla.
Speaker 2: This week, we heard that Tesla proved an interim stock
Speaker 2: award worth about thirty billion dollars for chief executive officer
Speaker 2: Elon Musk to keep his attention on the automaker.
Speaker 4: The award includes ninety six million shares of the automaker
Speaker 4: that will vest if Musk continues to serve in the
Speaker 4: top post for another two years.
Speaker 2: For more, guest host Norma, Linda and I were joined
Speaker 2: by Steve Man Bloomberg Intelligence, Global Autos and Industrials Research Channels. First,
Speaker 2: ask Steve what he makes of this stock award.
Speaker 10: I think it's very positive news for Tesla because you know,
Speaker 10: they are going through a pivot right now, not only
Speaker 10: an automaker, but they're very focused on AI. But if
Speaker 10: you look at Elon Musk, you know he's Tesla is
Speaker 10: not his only business, right He's got x Ai, his
Speaker 10: AI company, which owns the former Twitter, and he also
Speaker 10: Hash you know, space x Neurlink. I think they're all
Speaker 10: related in some ways to AI. And I think, you know,
Speaker 10: without you know, must and Tesla, I think you know,
Speaker 10: there's going to be a lot of risk to that
Speaker 10: vision for Tesla without him there.
Speaker 11: See, if you mentioned that there are a lot of
Speaker 11: different things that are vying for Musk's attention. Of course,
Speaker 11: we do know that he was really politically involved and
Speaker 11: then we thought kind of pulled back, and then he
Speaker 11: mentioned his intention for creating the America Party. So clearly
Speaker 11: he still remains in these conversations here. But what are
Speaker 11: investors looking for right now from him? And doesn't seem
Speaker 11: as though his attention is devoted as much as it
Speaker 11: should be to Tesla.
Speaker 10: Yeah, I think fortunately for now, his attention is very
Speaker 10: much devoted to Tesla. He set that at the second
Speaker 10: quarter earnings call. I think, you know, his presence is
Speaker 10: important because you know, you know, right now the company
Speaker 10: is going through a changeover in terms of the direction
Speaker 10: the strategy right uh. You know, cars has been very
Speaker 10: important continues to be important to drive that AI theme.
Speaker 10: But without must there, I think the company will have
Speaker 10: to you know, won't able to find the next person
Speaker 10: really to drive the company to the next step and
Speaker 10: expanding robo taxi, expanding their optimness robot offering in the future.
Speaker 2: Do we care about how many cars they make and
Speaker 2: whether they make any money in the old car business?
Speaker 5: Seed we do.
Speaker 10: And you know a lot of people think that, you know,
Speaker 10: it's a it's a full pivot towards AI, But I
Speaker 10: think making cars and UH and developing that AI UH
Speaker 10: software it goes hand in hand. It's almost like Apple
Speaker 10: and its ecosystem.
Speaker 5: UH.
Speaker 10: I mean, there are opportunities for Tesla to actually license
Speaker 10: the FSD, the full self driving software out, but I
Speaker 10: think in the meantime it's not it's not something he's
Speaker 10: looking to do. I think he wants to build out
Speaker 10: Robotaxi internally and actually drive revenue and profits. He's does
Speaker 10: see huge profits from from the Robotaxi and from the
Speaker 10: FSD software. If you look at other software companies, margins
Speaker 10: are high double digits on the software for any software.
Speaker 10: But then you know with with his FSD software, the
Speaker 10: car isn't an integrated component to it. It's it's it's
Speaker 10: it's very important that he continues to make cars, not
Speaker 10: only for the for cash, but for for really marketing
Speaker 10: that software.
Speaker 9: That he has.
Speaker 11: You have a lot of pressuring Tesla over the last
Speaker 11: few months. I mean we're looking at a stock. It's
Speaker 11: the worst performing stock within all the mag seven stocks
Speaker 11: that there are right now. Explain to me right now
Speaker 11: what the latest overhangs are right now for the company.
Speaker 10: Well, I think one big overhang that's to remove this
Speaker 10: it is his pay package. There is a lot of
Speaker 10: fear in terms of him potentially being kicked out of Tesla.
Speaker 10: But I think the biggest overhang right now, or where
Speaker 10: the investors are more focused on, is the expansion of Robotaxi.
Speaker 10: Right He's he launched it back in June in Austin.
Speaker 10: He's launching it in the San Francisco Bay area, and
Speaker 10: he's also thinking about launching it in Nevada. And it's
Speaker 10: from the looks of it, it's going quite well. I mean,
Speaker 10: there are some hiccups here and there with this complex
Speaker 10: engineering system that he's putting in place for cars. It's
Speaker 10: it's normal, it's normal. So but you know, safety is
Speaker 10: still his priority, and you know he's gonna going at
Speaker 10: it at a measured pace, but it seems like he's
Speaker 10: expanding it relatively fast. You know, his the the area
Speaker 10: of coverage is is much bigger than initially was back
Speaker 10: in Austin back in June, and we're seeing something similar
Speaker 10: in San Francisco. So investors are really focused on when
Speaker 10: Robotaxi will start contributing to the bottom line, and we
Speaker 10: think that you're probably more likely in twenty twenty seven.
Speaker 4: Our thanks to Steve Man, Bloomberg Intelligence, Global Autos and
Speaker 4: Industrials Research analyst.
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