Speaker 1: This is Bloomberg Intelligence with Alex Steinhl and Paul Sweeny.
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Speaker 1: Bloomberg Intelligence with Alex Steinhl and Paulsweenye on Bloomberg Radio.
Speaker 2: On Today's Bloomberg Intelligence Show, we dig inside the big
Speaker 2: business stories impacting Wall Street and the global markets.
Speaker 3: Each and every week, we're going to provide in depth
Speaker 3: research and data on some of the two thousand companies
Speaker 3: and one hundred and thirty industries are analysts cover worldwide.
Speaker 2: Today we'll talk Tesla and how the company remains the
Speaker 2: Wilson was a valuable automaker.
Speaker 3: Plus our conversation with Rockwell Automation CEO Blake Morritt. But first,
Speaker 3: another week of earnings and another dismal forecast, this time
Speaker 3: from the likes of US, the company posting disappointing fourth
Speaker 3: quarter earnings and providing twenty twenty four guidance that missed
Speaker 3: the mark.
Speaker 2: For more in this co host John Tucker and I
Speaker 2: spoke with Bloomberg Intelligence senior transport logistics and shipping analysts
Speaker 2: Lea Clascow. I first asked them about why the results
Speaker 2: were so disappointing.
Speaker 5: They're really just reeling from the impact from the labor
Speaker 5: negotiations they had last year. So running up ahead of
Speaker 5: those negotiations, a lot of shippers were like, you know something,
Speaker 5: I'm not going to use UPS because I might want
Speaker 5: to use one of their competitors like FedEx or even
Speaker 5: the postal service, because I don't know if my stuff
Speaker 5: is going to be able to get where it needs
Speaker 5: to go on time. So a lot of that diverted freight,
Speaker 5: you know, is kind of deleveraging effect on the network,
Speaker 5: which really weighs on margins. And then you know, they
Speaker 5: had the negotiations. They have a contract in place, which
Speaker 5: is fantastic for UPS and also for the teams stairs,
Speaker 5: you know, but a lot of the costs, the initial
Speaker 5: costs of that new contract are in year one, and
Speaker 5: so that's like a real big hit to margins. That
Speaker 5: coupled with the fact it's taking some time for them
Speaker 5: to win back some of that share. Management noted that
Speaker 5: they've won back about sixty percent of that share. It's
Speaker 5: going to take time for them to get that share
Speaker 5: back to where it needs to be. And again, these
Speaker 5: are networks, and when you're talking about freight transportation, it's
Speaker 5: all about building density because the more stuff you can
Speaker 5: deliver at the same time, you know, the better the
Speaker 5: margins are. And that's what they're really working through right now.
Speaker 5: And you know, and what I thought was kind of
Speaker 5: one of the more interesting little tidbits is that they
Speaker 5: think that this year that the small package volume from
Speaker 5: an industry standpoint, is only going to increase like one percent,
Speaker 5: which to me I thought was a little pessimistic. But
Speaker 5: you know, all in all, they're really dealing with tepid demand,
Speaker 5: they're dealing with rising costs, and you know, they're obviously
Speaker 5: taking those costs pretty seriously. As you know, they're laying
Speaker 5: off or planning the layoff or reduce heads however nicely
Speaker 5: you want to say it, twelve thousand people. And then
Speaker 5: also they're looking to get there. They're putting their brokerage business,
Speaker 5: which is called Coyote under a strategic review. Coyote is
Speaker 5: the third largest freight broker out there. So one of
Speaker 5: the largest publicly traded ones are C. H. Robinson. People
Speaker 5: might not know that, might may know that name. Also
Speaker 5: r XO is another pure play brokerage as Landstar. There's
Speaker 5: a couple private ones. A lot of large companies like
Speaker 5: JB Hunt have their own brokerage business in house.
Speaker 6: You get sorry for a series of stupid questions, but
Speaker 6: this is who you're talking to. What is a freight
Speaker 6: what's their role on what do they do a freight brokerage?
Speaker 5: So it's they're pretty much get together buyers and sellers
Speaker 5: of freight. So if you think about it, so if
Speaker 5: you're a shipper and you have a load that you
Speaker 5: need to get from point A to point B, you
Speaker 5: might use a broker to find a truck to carry
Speaker 5: that load, and the broker kind of makes a spread
Speaker 5: in between what their charge the shipper and what they're
Speaker 5: paying the trucking company. What's happened is, you know, it's
Speaker 5: a very cyclical business. Uh, there's there's there's great highs
Speaker 5: and kind of depressing loads and margins can be very
Speaker 5: volatile during this like, so.
Speaker 6: This this just a backup of this brokerage that they
Speaker 6: own that they're now getting rid of. That you could
Speaker 6: have gone to them and they could have picked a
Speaker 6: shipper other than you know, the company that owns them UPS.
Speaker 5: Yeah, so you know, so UPS could potentially use its
Speaker 5: own in house brokerage to move a trailer load of
Speaker 5: freight between two of their sorting facilities. Or if you're
Speaker 5: Walmart and you know you have an extra load that
Speaker 5: you need to get from your DC to you know,
Speaker 5: your spring Lake Walmart. I don't think there's a spring
Speaker 5: Walmart and spring Lake Brick. You know, you might, you
Speaker 5: might use them because either the carriers that you're contracted
Speaker 5: with don't have the capacity, or you're trying to take
Speaker 5: advantage of cheap rates and spot market, and right now
Speaker 5: truckload rates are extremely cheap. They've been bouncing along the
Speaker 5: bottom for quite some time, and so shippers might like
Speaker 5: to leverage that. You know, intermodal is an example. So
Speaker 5: you know the intermodal space, which is railroads. You know
Speaker 5: that's when you see like two containers on top of
Speaker 5: a railroad. You know, they're facing increased competition because of
Speaker 5: the loose conditions that are on the spot market, and
Speaker 5: a lot of those shippers might use brokerage to try
Speaker 5: to find a carrier to carry their loads.
Speaker 2: Our Thanks to Bloomberg Intelligence senior Transport, Logistics and Shipping
Speaker 2: analysts Lea Clasico, let's turn.
Speaker 3: Out to Boeing posting fourth quarter earnings, cashul and revenue
Speaker 3: that surpassed analyst expectations, but the planemaker for gold guidance
Speaker 3: for twenty twenty four as it faces lapses in safety.
Speaker 2: To help recap the earnings, co host Emily Grafeo and
Speaker 2: I spoke with Bloomberg Intelligence Senior Aerospace, Defense and Airlines
Speaker 2: analysts George Ferguson. He began the conversation by discussing his
Speaker 2: key takeaways from fourth quarter earnings.
Speaker 7: I thought that the quarter's numbers looked pretty much in
Speaker 7: line with what we expected, maybe a little bit better.
Speaker 7: Commercial airplane. Some of the cash flow generation was a
Speaker 7: little bit better. A lot of it from deposits, you
Speaker 7: know that they're getting from airplanes as they move through production.
Speaker 7: So I wouldn't call that sort of I mean, it's
Speaker 7: good cash FLOWD what I wouldn't call it super high quality,
Speaker 7: right like when you're generating a lot of cash from
Speaker 7: your core operations. Their their global services business had some
Speaker 7: very nice margins, even better than we expected, and that's
Speaker 7: been a star performer.
Speaker 8: It's good to see that holding up.
Speaker 7: But yeah, I think the real story here is about
Speaker 7: going forward. How they, how they, you know, nip these
Speaker 7: quality problems in the bud. And so I do think
Speaker 7: that as I think about it more sort of pulling
Speaker 7: back guidance, I think that indicates that management is ready
Speaker 7: to do whatever it takes to get these.
Speaker 8: Quality problems in hand.
Speaker 7: And so, you know, my senses maybe they think, look,
Speaker 7: we we you know, we may not want to be
Speaker 7: whole to an exact number of airplanes in twenty twenty
Speaker 7: four as we dig through our manufacturing process and through
Speaker 7: the supply chain processes and make sure that we're getting
Speaker 7: a quality airplane out the door every single time.
Speaker 8: So if pulling guidance is all.
Speaker 7: About that and the efforts around that, at what it's
Speaker 7: going to take, and focusing again on quality over just
Speaker 7: management management metrics, I think that could be a very
Speaker 7: very good sign. You know, again the management team is
Speaker 7: crystal focused on this is what we have to do.
Speaker 9: How different is that than what the company has already
Speaker 9: been doing for the last few years. Were they not
Speaker 9: as focused on quality and safety beforehand? Like how much
Speaker 9: of this is truly a turnaround and a change for Boeing.
Speaker 7: So I think I think the business has just materially changed.
Speaker 7: I was at an aerospace defense conference last week, and
Speaker 7: you know, I didn't need the conference to tell me this,
Speaker 7: but I was prize that it was persistent and that
Speaker 7: and what I heard from people at the conference over
Speaker 7: and over again is that finding employees and employee turnover
Speaker 7: is still a problem.
Speaker 8: In this industry. It's still a problem now, you know.
Speaker 7: I think that the higher you up in the tiers,
Speaker 7: like a Boeing or an RTX or a GE, it's
Speaker 7: easier to retain employees because you provide great benefit packages.
Speaker 8: Everybody wants to be there. But even they have had
Speaker 8: a lot of turnover.
Speaker 7: And so I think pre pandemic, you could you could
Speaker 7: potentially fall back on the thought and in the manufacturing
Speaker 7: process of Boeing that you had very, very seasoned.
Speaker 8: Folks on the line that have been well.
Speaker 7: Trained, seen years in and years out of the business
Speaker 7: and we're always going to get it done right. But
Speaker 7: I think with the amount of turnover they've had. They
Speaker 7: really need to go back and rethink, you know, how
Speaker 7: they supervise the line, how they train the employees, and
Speaker 7: they have to they have to create more stability by
Speaker 7: investing in those people. And so I think this business
Speaker 7: has been to rely changed since the pandemic. I will
Speaker 7: also say that, you know, Bowling has been sort of
Speaker 7: pushing this outsourcing of the business again. They were doing
Speaker 7: this pre pandemic, and this is all about, you know,
Speaker 7: they want to sort of turn it into the auto industry,
Speaker 7: where you outsource subcomponents, you bring it together and rent
Speaker 7: and you put together an airplane. And that's turned the
Speaker 7: supply chain into a much bigger, you know, portion of
Speaker 7: of what you're doing. And it's global as well, right
Speaker 7: You're making some of these doors in Malaysia. Things are
Speaker 7: coming from all over the world into renting to turn
Speaker 7: into an airplane. And I think that's making it more
Speaker 7: difficult to keep track of the supply chain and the
Speaker 7: quality and the supply chain and what folks are doing
Speaker 7: down at those factories. And so I think it's terially changed.
Speaker 2: That's the problem, So George, and that sounds like a
Speaker 2: problem to me. That was probably decades in the making,
Speaker 2: i e. You know, going more to subcontractors and and
Speaker 2: you know, as part of globalization. Perhaps is there a
Speaker 2: sense that this is a really a long term fix
Speaker 2: that investors should not expect anything months. Maybe it's gonna
Speaker 2: take years here.
Speaker 7: Well, so I mean, I don't think they're going to
Speaker 7: stop production. I do think they're going to dig through
Speaker 7: the supply chain, you know, sort of hopefully methodically, and
Speaker 7: figure out where there could be sources of problem. But
Speaker 7: I think what it means is that you're just not
Speaker 7: going to see potentially the margin and the cash flow
Speaker 7: out of this business that you saw a pre pandemic
Speaker 7: for years. While they spend more money and more time
Speaker 7: and invest in people and go down and make sure
Speaker 7: that everything works. Some stuff may need to be reconsolidated
Speaker 7: back at sub tier suppliers or even at Boeing if
Speaker 7: they can't get comfortable that they're going to get the
Speaker 7: quality out of it. I think it drags. Like I
Speaker 7: said in Earnings, Cash Generation two years from now.
Speaker 2: At the same time, what I hear from you and
Speaker 2: from others in the airline businesses, there's a big demand
Speaker 2: for new aircraft out there. So how do they balance
Speaker 2: maybe slowing down the line a little bit with the
Speaker 2: fact that they're customers need more and more of their product.
Speaker 7: So I think it I think it hurts. I think
Speaker 7: you'd like to be breaking to higher build rates. Now
Speaker 7: air Bus will and air Bus will get market share,
Speaker 7: but I think in the long term if you don't,
Speaker 7: if you don't fix the quality problem here, you'll lose
Speaker 7: long term share and competitiveness and that and that would
Speaker 7: be really really bad.
Speaker 9: What does this mean for Boeing stock price? Because compare
Speaker 9: it to air Bus, it's underperforming on a year basis
Speaker 9: Boeing versus Airbus. So is this enough to bring investors
Speaker 9: new money into Boeing or is Airbus still going to
Speaker 9: be the outperformer here?
Speaker 7: So I mean, I think you know, Boeing investors are
Speaker 7: going to have to take the long view here, right
Speaker 7: because again I don't see any quick fix, you know,
Speaker 7: quick leaping to much higher build rates, much better cash generation,
Speaker 7: because I think they need to invest back in their business.
Speaker 7: Airbus apparent doesn't apparently have this problem. I think more
Speaker 7: of the supply chain is bill in house at Airbus
Speaker 7: or at least better controlled, And so I think you're
Speaker 7: going to see that Airbus is going to perform fundamentally better.
Speaker 2: Here thanks to Bloomberg Intelligence. Senior Aerospace, Defense and Airlines
Speaker 2: analyst George ferguson.
Speaker 3: Coming up why Tesla's profit margin may deserve more appreciation
Speaker 3: than it's actually getting.
Speaker 2: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
Speaker 2: depth research and data on two thousand companies and one
Speaker 2: hundred and thirty industries. You can access Bloomberg Intelligence via
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Speaker 3: I'm Paul Sweeney, Ana Malex Steel, and this is Bloomberg.
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Speaker 3: Let's turn out a Tesla, who stock has tumbled so
Speaker 3: far this year, the auto industry warns a plunging ed demand,
Speaker 3: and Wall Street analyst scale back on expectations.
Speaker 2: Co host Emliker Feel joined me as we spoke with
Speaker 2: Bloomberg News Editor in chief Emeritus Matt Winkler on this
Speaker 2: He discussed why Tesla's profit margin deserves more appreciation than
Speaker 2: it's getting.
Speaker 10: After losing fifty percent of shareholder worth since November twenty
Speaker 10: twenty one, Tesla still is, surprise, surprise, the tenth most
Speaker 10: valuable company, and it has the greatest market capitalization of
Speaker 10: any maker of cars and trucks in the world. And
Speaker 10: there's a reason for that why that is so today,
Speaker 10: and it's because Tesla's margins of profit profit margins are
Speaker 10: superior to any automaker, including by the way, you could
Speaker 10: say its most interesting competitor, BYD from China, which if
Speaker 10: you look at the last quarter, became the global sales
Speaker 10: leader for zero mission vehicles, which of course it's the
Speaker 10: Tesla space, which it has owned. And with all of that,
Speaker 10: with all of that, if you like bad news, Tesla
Speaker 10: still is holding its value. And I will say this
Speaker 10: that if you looked at bid over the past six months,
Speaker 10: it's actually trading it it's low. It's declined significantly since August.
Speaker 10: So if there was if you like a reevaluation in
Speaker 10: the market, if anything, Tesla is more than holding its
Speaker 10: own and if anything, BYD is depreciating, and the rest
Speaker 10: of the auto industry, of course doesn't have anything close
Speaker 10: to the profit margins of Tesla. So that's the story.
Speaker 10: I kind of like it, only because after last week,
Speaker 10: everybody seemed to be going in one direction if you
Speaker 10: read the narrative. The prevailing narrative was, you know, Tesla's
Speaker 10: days are numbered not so fast.
Speaker 9: So why are people overlooking? And is the fact that
Speaker 9: Tesla is down more than fifty percent from its all
Speaker 9: time high? Does that mean to you that this profitability
Speaker 9: is actually not priced in yet?
Speaker 10: Tesla has been a volatile stock, and remember we're talking
Speaker 10: about an adolescent here when public in twenty ten, and
Speaker 10: it's had many periods like this one where it has
Speaker 10: retreated significantly, only to rebound with greater fervor. You've seen
Speaker 10: that time and again. You know we're likely to see
Speaker 10: it again. But here's an example. If you were to
Speaker 10: go right now to the say Fortune magazine most admired Companies,
Speaker 10: Tesla isn't there. Now, Think about that for a second.
Speaker 10: This is a company that has completely transformed the auto
Speaker 10: industry as we know it. It has essentially convinced people
Speaker 10: that zero omission vehicles or the future, and even the
Speaker 10: very traditional auto giants that competes against have conceded that
Speaker 10: they have to make evs, and you would have thought
Speaker 10: that would be in and of itself significant enough to
Speaker 10: be admired, But no, it's not there. So there's a
Speaker 10: lot of, if you will, noise that's associated with Tesla
Speaker 10: because of its co founder, Elon Musk, and often the
Speaker 10: noise obscures the signal, which is the vehicle itself.
Speaker 2: Hey, Matt, I know you've been a long time owner
Speaker 2: of the Tesla automobile, so you follow this industry probably
Speaker 2: as close as anyone, just because I suspect it's always
Speaker 2: been of interest to you. I think the issue now
Speaker 2: for investors, not just for Tesla investors, is what is
Speaker 2: the ultimate demand for evs out there? And now there's
Speaker 2: a question. We saw Ford pull back the production of
Speaker 2: the Ford F one fifty Lightning, which I've test driven.
Speaker 2: It is an awesome vehicle at ninety four thousand dollars,
Speaker 2: or better be, what is your sense as to the
Speaker 2: man picture for electric vehicles in this country?
Speaker 10: Okay, so you're quite right. I do own a Tesla models.
Speaker 10: I never owned the shares for obvious reasons, because it
Speaker 10: would be a conflict of interest. In Bloomberg. Being Bloomberg,
Speaker 10: we're very careful about such things. But I am at
Speaker 10: the one hundred thousand threshold on my Tesla and there's
Speaker 10: no sign of any kind of deterioration. And I would
Speaker 10: say that many people who write about Tesla probably don't
Speaker 10: have the experience of the people who own Tesla's and
Speaker 10: if you ask people who own Tesla's pretty much the
Speaker 10: satisfaction there is right near the top. And actually Consumer
Speaker 10: Report spares that out. So I would say that the
Speaker 10: demand for evs is only going to increase. There was
Speaker 10: recently a story on Bloomberg about more competition in California,
Speaker 10: which has been the same that has led.
Speaker 2: But that's California. It's like a different country.
Speaker 8: Let's be honest.
Speaker 10: It's a case of yeah, there are more people buying evs,
Speaker 10: and they're not buying as just Tesla as anymore. Tesla
Speaker 10: had a seventy percent market share and now it's down
Speaker 10: to sixty something percent. But Tesla's still growing. And that's
Speaker 10: the whole point, is that the pie is getting bigger,
Speaker 10: and Tesla's piece of the pie is going to get biggers.
Speaker 2: From people say I want to buy a Tesla, I
Speaker 2: don't want to buy an ev you know, it's like
Speaker 2: I want to buy a Tesla because a teslacas it's
Speaker 2: such a cool car core brand, But I'm not buying
Speaker 2: it because per se, because it's an EV.
Speaker 8: Yeah.
Speaker 10: And look, here's the thing. Tesla makes only zero mission vehicles.
Speaker 10: It's competing against companies outside of BYD and a handful
Speaker 10: of others that make all these other fossil fuel machines.
Speaker 10: That's a very complicated equation, which is why the profitability
Speaker 10: in the auto industry is inferior compared to Tesla. Tesla
Speaker 10: only has to focus on one thing, and so far,
Speaker 10: if you look at it, it's done very well. You know,
Speaker 10: first there was the models, and then there was the
Speaker 10: Model X, and then there's the Model Why you know,
Speaker 10: the Model three. All of these vehicles actually have made
Speaker 10: Tesla a very formidable company, and there's more to come.
Speaker 10: I mean, the reason why the stock fell as much
Speaker 10: as it did is because Elon Musk actually said we're
Speaker 10: going to take a pause, so to speak, to get
Speaker 10: an even cheaper EV model in front of people in
Speaker 10: the years to come.
Speaker 2: What do you think that China's situation is for Elon
Speaker 2: must from a competitive standpoints, selling those Teslas into China,
Speaker 2: visav byd and some of the other Chinese manufacturers.
Speaker 10: The vehicle speaks for itself, and to the extent that
Speaker 10: consumers make that choice, it's a good thing for Tesla
Speaker 10: to be in China.
Speaker 2: Our thanks to Bloomberg News Editor in Chief Emeritus Matt Winkler.
Speaker 3: Amazon dot Com abandoning its plan one point four billion
Speaker 3: dollar acquisition of rumba maker I Robana. This comes after
Speaker 3: a clash with European Union regulators who had threatened to
Speaker 3: block that.
Speaker 2: Co host Molly Smith and I spoke about this and
Speaker 2: the latest and anti trust enforcement with Bloomberg Intelligence senior
Speaker 2: litigation antitrust analyst Jennifer ree I first asked Jennifer if
Speaker 2: she was surprised the deal between Amazon and I Robot
Speaker 2: fell apart.
Speaker 11: It wasn't at all, because back in July, the EU
Speaker 11: said we have concerns about this deal. I mean they're
Speaker 11: concerned about competition in the market for robot vacuums. I
Speaker 11: think there's this idea that anti trust is only interested
Speaker 11: in really big deals. But at the end of the day,
Speaker 11: no matter how small the business is or how few
Speaker 11: consumers it might impact, if there's an anti trust problem,
Speaker 11: they still have concerns and it's still an illegal deal
Speaker 11: in the eyes of regulators. So here they said in
Speaker 11: a couple different countries in Europe that Amazon was a
Speaker 11: particularly important distributor for robot vacuums and they could foreclose competitors.
Speaker 12: I mean, but Amazon's in the market for everything obviously,
Speaker 12: not just you know, the robo vacuum market. So and
Speaker 12: surely there must be other real competitors out there that
Speaker 12: have a more narrowed focus on the robo vacuum space
Speaker 12: than Amazon.
Speaker 11: Well likely, and that's probably what they argued. But the
Speaker 11: thing is, the European Commission said, but this is a
Speaker 11: particularly important channel because you won't only own the vacuum,
Speaker 11: but you're going to own distribution. An important distribution is
Speaker 11: like a vertical acquisition, right. It's an integration that they
Speaker 11: had a problem with because that would give them the
Speaker 11: ability to foreclose some of these other smaller makers of
Speaker 11: these vacuums that need to sell on Amazon. And apparently
Speaker 11: in some countries there wasn't enough other competition, so they
Speaker 11: had some concerns. There could have been a remedy offered,
Speaker 11: but the company decided not to do that. So it
Speaker 11: was kind of a stalemate and honestly they were going
Speaker 11: to get sued in the US, right, That's what I think.
Speaker 12: Yes, OK, I kind of feel like this sets like
Speaker 12: a bit of a tone maybe for I would think
Speaker 12: there's got to be other similar consumer electronics companies the
Speaker 12: where Amazon is a big competitor. That's like, I mean,
Speaker 12: does this set some kind of a standard maybe that
Speaker 12: this could be an issue going forward in the antitrust world.
Speaker 11: Well, I think what it tells you in terms of mergers,
Speaker 11: I think it'll tell you that anytime these big tech platforms,
Speaker 11: particularly Amazon, try to continue to expand their businesses this
Speaker 11: way through mergers, they're going to have trouble. They're going
Speaker 11: to face hurdles in the EU, UK, US, The UK
Speaker 11: didn't have too many problems with this one. But I
Speaker 11: think it does tell us something about the FTC's lawsuit.
Speaker 11: You know, they have now this ongoing lawsuit against Amazon,
Speaker 11: and they're looking at all these different businesses where that
Speaker 11: compete with Amazon but also sell on the marketplace and
Speaker 11: have some concerns about it. So you know, some of
Speaker 11: the concept that went into the concerns here will be
Speaker 11: part of that lawsuit in the US. We're a long
Speaker 11: way away from an outcome there. That's pretty new, but
Speaker 11: it's pending.
Speaker 2: Chen when you talk to some of your friends in
Speaker 2: the business, the M and A attorneys out there is
Speaker 2: the feeling like almost it really is different out there.
Speaker 2: It is really appreciably harder to get anything approved these days.
Speaker 11: Oh, Paul, Absolutely, it is so much harder. There's so
Speaker 11: much more scrutiny, it takes longer, and that we're seeing
Speaker 11: that in the merger agreements. They are different than they
Speaker 11: were five years ago. There are much bigger breakup fees
Speaker 11: for sellers because they're concerned about the investigation, which can
Speaker 11: take a year. They're concerned about a lawsuit. You have
Speaker 11: much longer end dates. I mean, it used to be
Speaker 11: the end date of a year seem like a really
Speaker 11: long end date. Now we're looking at like two years
Speaker 11: in some of these agreements because they know they might
Speaker 11: have to go to litigation.
Speaker 2: So, yeah, there's a big.
Speaker 11: Difference right now.
Speaker 2: And is that a sense that this it's a short
Speaker 2: term reflection of who's in the White House, or is
Speaker 2: that just a sense that I don't know, Congress or
Speaker 2: society is anti big deal, or.
Speaker 11: It's more about who's in the White House, because it's
Speaker 11: about the appointments at the FTC and DJ making these
Speaker 11: anti trust decisions. Right, So it just happens that we
Speaker 11: have two people making decisions that the DOJ and FTC
Speaker 11: that are particularly activists, particularly progressive in this area, believe
Speaker 11: anti trust enforcement has been way too lax for years
Speaker 11: and they're trying to change things.
Speaker 12: Are these people's jobs potentially at risk if if Biden
Speaker 12: doesn't win re election, Absolutely, and what would the potential
Speaker 12: other candidates view on antitrust be.
Speaker 11: So the interesting thing is that it really depends on
Speaker 11: who's appointed. So let's just say the next president is Republican, right,
Speaker 11: Trump or somebody else? Right Now, the Republicans are kind
Speaker 11: of a mixed bag. I mean, it used to be
Speaker 11: you could always think they're going to be way more
Speaker 11: business friendly, they're going to appreciate the efficiencies that come
Speaker 11: from consolidation, right, But now you kind of have this
Speaker 11: populous side of the Republican Party, and some of the
Speaker 11: people in that group also believe we need to crack
Speaker 11: down on andy trust, like sort of the Josh Hollies
Speaker 11: of the world. So I think if you get a
Speaker 11: Republican it's going to depend exactly on who they put
Speaker 11: as the chief of Anti Trust at DOJ and who
Speaker 11: the commissioners are that get appointed at the.
Speaker 2: FTC our Thanks to Bloomberg Intelligence, senior litigation analyst Jennifer Ree.
Speaker 3: Coming up on the program, We're going to get the
Speaker 3: latest on earnings from Rockwell Automation directly from the company.
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Speaker 3: Rockwell Automation posting first quarter propit that missed analyst expectations.
Speaker 3: So for more, Paul and I spoke with Rockwell CEO
Speaker 3: Blake Morett. We discussed the state of American manufacturing and
Speaker 3: the use of automation and technology. I first asked him
Speaker 3: why the street was so disappointed in his numbers.
Speaker 13: Well, I think they did hear the message of continued
Speaker 13: underlying demand remaining strong. But we had a shipment miss
Speaker 13: in the quarter. A lot of that was execution, and
Speaker 13: we look at that as timing for shipments that will
Speaker 13: come back in the year. You know, we had a
Speaker 13: very strong growth last year of seventeen percent top line
Speaker 13: twenty eight percent adjust to EPs. This is a bit
Speaker 13: of a reset year as we get done shipping off
Speaker 13: that older backlog that piled up as a result of
Speaker 13: supply chain shortages and go back to booking and billing
Speaker 13: incoming new orders. And so we're seeing lower growth in
Speaker 13: the year with some growing pains, but the underlying demand
Speaker 13: remains pretty strong.
Speaker 2: That's kind of where I want to go. Blake, tell
Speaker 2: us who your customers are and what are your customers
Speaker 2: telling you these days, we may.
Speaker 13: Be the most pervasive technology in American manufacturing, so everything
Speaker 13: from automotive and battery manufacturing to warehouse automation, food and beverage,
Speaker 13: life sciences, energy, both traditional fossil fuel as well as
Speaker 13: renewables across that whole spectrum our technology, our hardware, and
Speaker 13: our software and our services are pretty prevalent.
Speaker 3: So when do you know, Blake, if it's still the
Speaker 3: supply chain issues that you're still working through versus just
Speaker 3: weaker demand, Like do you even know when that moment shifts?
Speaker 13: Well, So we had an encouraging quarter in the demand
Speaker 13: side in that in Q one, so the quarter ended
Speaker 13: in December. We did see double digit sequential growth and
Speaker 13: orders off of the trough in our fiscal year, our
Speaker 13: fiscal Q four last year, and those orders increases have
Speaker 13: continued into January, so that's a very positive sign. Now,
Speaker 13: a lot of our distributors, and most of our business
Speaker 13: does go through electrical distributors, they had higher inventory than
Speaker 13: they wanted and we expect in the coming couple of
Speaker 13: months that that inventory gets to more of a normal
Speaker 13: level so that their orders to us reflect the strong
Speaker 13: underlying demand from machine builders and end users.
Speaker 2: Blake, how much lead time do you have in your business?
Speaker 2: What's your order book and kind of how much how
Speaker 2: much lead tien do you really have?
Speaker 13: So the product business, which is the majority of our business,
Speaker 13: those lead times are typically days and weeks in a
Speaker 13: normal period, and part of our challenge in Q one
Speaker 13: was returning all of our products to those fast lead times.
Speaker 13: But in a normal, you know, environment, we get an
Speaker 13: order and it either gets shipped that day off our
Speaker 13: distributors shelf, or we're able to make it and ship
Speaker 13: it within days or a few weeks for those products.
Speaker 3: So are you an early cycle economic read? Is that
Speaker 3: fair to say?
Speaker 13: You know, we certainly have exposure early in the cycle,
Speaker 13: but the so called late cycle is also an important
Speaker 13: part of our business. Whether you're talking about the traditional
Speaker 13: process industries or life sciences, we've got pretty broad exposure early,
Speaker 13: mid and late cycle. Although I have to say with
Speaker 13: the supply chain backlog that we had in twenty twenty
Speaker 13: two and twenty three, with the distributor overstock that we're
Speaker 13: working through now, it's hard to pin a particular point
Speaker 13: in the traditional cycle on this time.
Speaker 3: Well, also because you're exposed to sort of all the
Speaker 3: structural changes too, like infrastructure act A, chips ACT, the IRA,
Speaker 3: So that's a structural shift even though you're still cyclical.
Speaker 3: I can imagine that being quite confusing. So based on
Speaker 3: where you are and all the different cycles, how are
Speaker 3: we doing, Like how's the global economy doing, you know.
Speaker 13: Particularly in our home market in the US, where we
Speaker 13: have the largest market share, we see continued strong underlying demand.
Speaker 13: So we're expecting our orders to be up, you know,
Speaker 13: low single digits, and we've guided to one point up
Speaker 13: in terms of organic shipments. Underlining demand I think remained
Speaker 13: strong and one of the key indicators for me is
Speaker 13: continued low unemployment rates in our most important markets.
Speaker 2: So, Blake, I'm looking at the PGeo function on the
Speaker 2: Bloomberg termol and I could see just by geography looking
Speaker 2: at your revenue again, sixty percent roughly of your revenue
Speaker 2: as North America. So give us a sense of kind
Speaker 2: of North America versus rest of the world. What do
Speaker 2: you guys seeing North America is.
Speaker 13: The strongest market. China has significant problems right now, and
Speaker 13: Europe still dealing with some of their structural issues. A
Speaker 13: lot of the business we get in Europe is actually
Speaker 13: for export back to North America from the machine builders
Speaker 13: over there. But we expect for this year North America
Speaker 13: is going to be the strongest market and that's good
Speaker 13: for us because we've got home field advantage.
Speaker 3: It feels like a US exceptionalism conversation right. Like yet again,
Speaker 3: so if we just go macro them for a minute,
Speaker 3: if the FED cuts rates in May, what does that do,
Speaker 3: Like if you're already seeing us hold up pretty well,
Speaker 3: does that accelerate the economy from where you stound?
Speaker 13: I think that could help some of the largest CAPEX projects,
Speaker 13: which you know we get some business from. But we're
Speaker 13: not as much of a capex play as you know
Speaker 13: some other names, and that we're pretty balanced between CAPEX
Speaker 13: as well as op X in terms of improvements additional
Speaker 13: efficiency in existing facilities as well. So I don't know
Speaker 13: that interest rates are our biggest indicator. As I said,
Speaker 13: for the economy, I look at unemployment, and you know,
Speaker 13: I look at the amount of automation investment, both for
Speaker 13: new green fields as well as adding efficiency and resilience
Speaker 13: in existing facilities.
Speaker 2: Like just explain to us kind of what your competitive
Speaker 2: marketplace looks like. Where are you guys versus your competitors?
Speaker 2: Who do you compete against? And how's that changing?
Speaker 13: So our big competitors are mostly the European conglomerates. Really,
Speaker 13: it's Semen, Schneider abb in certain narrow parts in the market,
Speaker 13: Honeywell and Emerson here in the US where really, you know,
Speaker 13: we distinguished ourselves by having a very balanced exposure from
Speaker 13: discrete applications like automotive, to hybrid applications like food and
Speaker 13: beverage and life sciences, to continuous process applications like energy
Speaker 13: and mining and so on.
Speaker 3: Hey Blake. To that point, Seemens Energy, part of Semen
Speaker 3: had just been really hurt by offshore wind here in
Speaker 3: the US, I should say, not owned by Semens, but
Speaker 3: Semens owns a stake in Semens Energy. How what's your
Speaker 3: view on the energy green transition build out right now?
Speaker 3: Are you losing money? You making money? What is your
Speaker 3: order book look like?
Speaker 13: It's still early innings, but we're seeing good business as
Speaker 13: a result of energy transition. And I would bucket it
Speaker 13: in three different ways. I'd look at first, the decarbonization
Speaker 13: of the traditional oil and gas companies, so carbon capture projects.
Speaker 13: We've talked about the work we're doing with Occidental in
Speaker 13: their director capture projects, the one point five initiative, it's renewables,
Speaker 13: and again we've talked publicly about what we're doing with
Speaker 13: companies like First Solar in creating you know, PV panels.
Speaker 13: And then it's the thing that we've been doing for
Speaker 13: our entire history, and that's driving efficiency across all manufacturing,
Speaker 13: and those are all good applications for us. You know,
Speaker 13: there's some relatively nascent areas like hydrogen that are sources
Speaker 13: of optimism, but you know, I would put them in
Speaker 13: those three main areas.
Speaker 2: Hey, Blake, I'm looking at the A and R function
Speaker 2: on the Bloomberg terminal. It shows me that there are
Speaker 2: eleven Wall Street analysts buys on your stock, twelve holds
Speaker 2: and five cells, so pretty mixed across the board. What's
Speaker 2: the message that you bring to your investors into the marketplace.
Speaker 13: That the underlying demand remained strong, that we really have
Speaker 13: a unique position among all of those competitors and among
Speaker 13: the niche competitors. I like the hand we have, and
Speaker 13: as you know, manufacturing picks up and resets from the
Speaker 13: period of supply chain shortages. We're in a great spot
Speaker 13: to accelerate our profitable growth before.
Speaker 9: We end here.
Speaker 3: I don't know ninety seconds left. You mentioned jobs quite
Speaker 3: a few times. What is your assessment of the labor market?
Speaker 3: Hard to get you're going to keep labor paying more?
Speaker 9: What do you see?
Speaker 13: You know, I think in manufacturing workforce there's still a
Speaker 13: lot of unfilled jobs, and we think that, you know,
Speaker 13: having a skill workforce is absolutely essential for manufacturers to compete,
Speaker 13: but it's augmented with the kind of technology that we offer.
Speaker 13: So it's really that winning hand of having an enabled
Speaker 13: and engaged workforce, and we do a lot to help
Speaker 13: with workforce development, and it's also given them so called
Speaker 13: superpowers with the technology that we offer.
Speaker 9: Superpowers.
Speaker 2: Can you find people for your type of work?
Speaker 13: You know, certain jobs, it takes longer than in others.
Speaker 13: We're actually helping with workforce development programs that we offer
Speaker 13: in house and then provide labor, particularly focused towards technician
Speaker 13: level jobs for manufacturers in America through our Academy of
Speaker 13: Advanced Manufacturing.
Speaker 3: Thanks very much to Rockwell Automation CEO Blake Morrett.
Speaker 2: That's this week's edition of Bloomberg Intelligence on Bloomberg Radio,
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