Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.
Speaker 1: Along with my co host Lisa Bramowitz. Each day we
Speaker 1: bring you the most important, noteworthy, and useful interviews for
Speaker 1: you and your money, whether you're at the grocery store
Speaker 1: or the trading floor. Find the Bloomberg p m L
Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. We're
Speaker 1: very lucky right now to be joined by Eric Fine,
Speaker 1: portfolio manager and Emerging markets fixed income at Strategy at
Speaker 1: van Eck Global. He just returned from I MF meetings
Speaker 1: in Bali. He got back Sunday night. He's been going
Speaker 1: to these meetings for twenty years. This one, this one
Speaker 1: was different for you. How so um this Well, first,
Speaker 1: what's different is they're crowded, um, and there are a
Speaker 1: lot of people and it speaks to the amount of
Speaker 1: investment that's going into the e M and e M
Speaker 1: bonds and and that's a good thing. Um. But uh,
Speaker 1: I think the biggest thing is, uh, this is one
Speaker 1: of the most if not the most you know, uh
Speaker 1: worried meetings in the sense of, you know, I go
Speaker 1: to the meetings and then I spend time with the
Speaker 1: old timers afterwards and see you know you are you
Speaker 1: leaving here as more of a seller or more of
Speaker 1: a buyer because you have to have a bottom line
Speaker 1: on everything obviously, and uh um and and and and
Speaker 1: a seller, but uh much more concerned about China. That's
Speaker 1: really the thing China set up is. Though you could
Speaker 1: have said a lot of the things that are being
Speaker 1: said now a year ago, two years ago, five years ago,
Speaker 1: um um and uh and I think that's fair. The
Speaker 1: issue is when is it relevant? Wise it matter? And
Speaker 1: that's why I care. Is it now for reasons I
Speaker 1: can get into. But now it's elevated as a concern. Well,
Speaker 1: that's where I wanted to go. Is this matter of
Speaker 1: China's economy accelerating it slowdown? Or does this have to
Speaker 1: do with trade tensions with the US? Um? I think
Speaker 1: I think you can't disentangle the issues, um um, even
Speaker 1: though uh you know it's trade is a big jobs
Speaker 1: generator in uh in China and the current account uh
Speaker 1: surplus is declining and uh that's a that's an important
Speaker 1: uh as I said, poor generator jobs, which it's important
Speaker 1: generative confidence. Why do I say that the set up
Speaker 1: for China, I don't. I think China is a country
Speaker 1: that has for twenty years been disciplined by equity investors.
Speaker 1: What do equity investors want? Growth growth, growth, growth, growth growth.
Speaker 1: Bond investors are very different. They're happy with recessions, they
Speaker 1: welcome recessions. They worry about over leverage. Right, so they've
Speaker 1: gotten the growth. But with the growth, they've gotten the growth.
Speaker 1: With with with the growth came immense leverage. So the set up,
Speaker 1: the initial conditions are bad. They're not bad in the
Speaker 1: traditional sense of oh my gosh, they owe a lot
Speaker 1: of dollars and they don't have them. It's a very
Speaker 1: different setup, and that's why people have been calm, and
Speaker 1: that's also essentially why I think the market has been
Speaker 1: right to sort of say, you know, it's not really
Speaker 1: it's a problem, but not really a problem for today
Speaker 1: and not something here. The issue there is domestic claims.
Speaker 1: The most acute phase of EM crisis, in my experience,
Speaker 1: is when locals lose confidence and all the money M zero,
Speaker 1: the money in your pocket, M want a short term
Speaker 1: claim like a demand deposit or M two, something like
Speaker 1: include savings accounts UM. When that when people start closing
Speaker 1: that and saying I want the dollars. I want the reserves.
Speaker 1: And that ratio in China is basically the worst in
Speaker 1: the world. Um, the amount of domestic claims on dollars
Speaker 1: and you know what you're getting for a tenure bond
Speaker 1: in China and the local currency three and a half
Speaker 1: percent in a tenure Do I need to say anything else? Right?
Speaker 1: That's the issue. And oh if the argumacy, Oh they
Speaker 1: can hike interest rates, high interest rates, what is that
Speaker 1: going to do to growth? Right? And and if the
Speaker 1: growth gets hit, this is an economy that depends on
Speaker 1: significant investment, almost half of GDPs and investment. So those,
Speaker 1: I think are the issues that are coming to the fore.
Speaker 1: But they're coming. The trigger is, as you're suggesting, is trade. Um.
Speaker 1: But this broadening of this tense of the relationship with China,
Speaker 1: or the tense points on to beyond trade, I think
Speaker 1: is is settling it in people's minds. And there and
Speaker 1: and uh, it's a new big risk. When you talk
Speaker 1: about a new big risk. There is a headline in
Speaker 1: the South China Morning Post several weeks ago six trillion
Speaker 1: dollar debt bubble which Chinese local authorities have built up.
Speaker 1: Go ahead, you know everything unwind that without a lot
Speaker 1: of pain. Yeah. Look, I I and and today's announcement
Speaker 1: is more sort of new products, right, more and more
Speaker 1: and more leverage. And I was struck by how more
Speaker 1: leverage and stimulation is seems to be. My sense is
Speaker 1: that it's viewed as a legitimate policy option. More stimulation,
Speaker 1: stimulating and then having your currency weakend is not stimulating, right,
Speaker 1: that that's that's spinning your wheels, right, and trying to
Speaker 1: get out of something. Um. Every time we've looked at
Speaker 1: the Chinese financial system um um. And when we seem
Speaker 1: that we feel like we get a handle on it, um,
Speaker 1: some new balance sheet with leverage comes up, and so
Speaker 1: that's a real problem. The one thing that we've consistently said, though,
Speaker 1: and that is probably still the case, is the Chinese
Speaker 1: authorities are extremely impressive when you bring up these problems.
Speaker 1: If you brought up that problem, they are not denying it.
Speaker 1: That's the other thing that characterizes free crisis. They know
Speaker 1: these they have tools to do. They come up with
Speaker 1: tools to deal with it. Um. It's just that what
Speaker 1: they need to do might be bigger than what they've fought.
Speaker 1: So you know, you've got to give them the benefit
Speaker 1: of the doubt. But these issues are are are come
Speaker 1: up and they're real, and so far the government's had
Speaker 1: the credibility to say, look, don't worry about it, We're
Speaker 1: doing something. So I want to go back to those
Speaker 1: I m F meetings that you had with the old
Speaker 1: time ers, as you said, how much are they considering
Speaker 1: that a possible disruption in China? How much of an
Speaker 1: impact would that have on the rest of the emerging
Speaker 1: markets complex in which countries would get hit the hardest?
Speaker 1: And are they staying away from as a result of
Speaker 1: this uncertainty. Short answer, profound impact and all right, um now, yeah,
Speaker 1: but but I don't think that means run for the hills, right,
Speaker 1: Argentina has already been through a lot. Right, you can
Speaker 1: find short dated bonds with high yields where right or
Speaker 1: wrong in the world. If they mature and they pay
Speaker 1: their care, you're going to be fine. So kudos to you,
Speaker 1: because when you came in here you basically called the
Speaker 1: bottom of the Argentinian bonds sell offs to carry on.
Speaker 1: Thanks thanks, notice So, but there are there are a
Speaker 1: lot of countries that are being stressed out by tougher
Speaker 1: financial conditions and the trade trade conflict UM and UH UM.
Speaker 1: And so one one straightforward answer is there's you know,
Speaker 1: there's there's some cheap things to do in UH in
Speaker 1: in emerging markets, UM and and and those are those
Speaker 1: of them. But China has been opening for forty years. UM.
Speaker 1: For the last forty maybe the thirty plus years, you've
Speaker 1: had declining inflation and inflation expectations and rising trade. UM,
Speaker 1: they've been related, right. I mean, it's, you know, the
Speaker 1: the economic logic of globalization, optimizing global outcomes and reducing
Speaker 1: inflation and is correct. UM doesn't mean it's right, but
Speaker 1: it's it's certainly correct UM and UM. I think that's
Speaker 1: at risk this thirty year trend. Thanks very much for
Speaker 1: being with us, and we look forward to having you
Speaker 1: in the future. Eric Fine lots to talk about portfolio
Speaker 1: manager emerging markets fixed income strategy for van eck Loobal.
Speaker 1: For much of this week, the news in Washington, d
Speaker 1: C was dominated by Saudi Arabia and US relations and
Speaker 1: what would happen now that there was a disappearance that
Speaker 1: resulted in the most likely death of a journalist who
Speaker 1: worked for the Washington Post. But is that the big
Speaker 1: takeaway from this week? Marty Schanker joins US now chief
Speaker 1: content officer for Bloomberg News. Definitely, Uh, the news out
Speaker 1: of Washington, d C. Is moving so quickly that you
Speaker 1: blink you miss it. How much lasting power will the
Speaker 1: Saudi Arabia US story have going forward or will people
Speaker 1: just sort of forget about this doesn't have legs. It
Speaker 1: definitely does have legs, and uh, you know, it continues
Speaker 1: even today. There's somewhat of a lull. It's a it's
Speaker 1: the Sabbath in the region, in the Mid East, so
Speaker 1: there isn't a lot of news. But in the the
Speaker 1: issue as it relates to Donald Trump's response is still
Speaker 1: very top of mind. Um in the politics of Washington.
Speaker 1: Whether or not at actually resonates into the mid term
Speaker 1: elections is another question. Why because I think that mid
Speaker 1: term Why Why is it resonating so strongly politically? Because
Speaker 1: it in some ways, and I think the news channels
Speaker 1: reflect this. It speaks to Donald Trump's unconventional way of
Speaker 1: conducting foreign policy and the transactional nature of his presidency.
Speaker 1: You know, immediately people have gone to the whole issue
Speaker 1: of what kind of business relationship does Donald Trump have?
Speaker 1: Why isn't there a sense of complete outrage. Why aren't
Speaker 1: we taking very concrete steps to sever our close relationship
Speaker 1: with Saudi Arabia? And in Donald Trump's defense, it is
Speaker 1: a much It is a very complicated issue. And many
Speaker 1: people have commented on the fact that, uh, because o
Speaker 1: Ji's death, will try magic hundreds of thousands of people
Speaker 1: being killed in Yemen, and no one says a word
Speaker 1: about that. Indeed, And just to kind of add a
Speaker 1: little bit more to the story, there was a report
Speaker 1: that Secretary of State Mike Pompeo initially did hear the
Speaker 1: audio that the Turkish government claims they have, when in fact,
Speaker 1: a State Department spokeswoman came out yesterday and said noe
Speaker 1: had neither heard the audio nor the transcript. So my
Speaker 1: question then is what do you think Secretary of State
Speaker 1: Mike Pompeo was doing in Saudi Arabia and is there
Speaker 1: a potential for conversations about succession planning in Saudi Arabia. Well,
Speaker 1: I can't speculate about what mom Mike Pompeo was thinking,
Speaker 1: but clearly all the participants in this controversy are trying
Speaker 1: to figure a way out um that includes Donald Trump,
Speaker 1: that includes this the Saudi government UM in a way
Speaker 1: that provides some accountability for what happened in the in
Speaker 1: the Saudi embassy and Anchora, while still having repercussions. And
Speaker 1: Donald Trump did hint at that that there would be
Speaker 1: severe consequences if it was determined that there was a
Speaker 1: murder uh in some way connected to the Saudi government.
Speaker 1: But it is true that the Saudi the Saudis are
Speaker 1: critically important to the strategic interests of the United States,
Speaker 1: and you have to balance that against you know, this
Speaker 1: obviously outrageous action, UM, and they're all trying to figure
Speaker 1: a way out. So let's talk about the political fallout.
Speaker 1: There definitely has been vocal criticism from fellow Republicans in
Speaker 1: the Senate and elsewhere. There are reports that Nicki Haley
Speaker 1: may have resigned from the u N Post as a
Speaker 1: result of this. Is there any truth to that? Well,
Speaker 1: we're you know, that is the big question. No one,
Speaker 1: as far as I can tell, have definitively said why
Speaker 1: Nikki Halley decided to resign and why she decided to
Speaker 1: resign now, UM. None other than Steve Bannon, who's not
Speaker 1: should not be underestimated in terms political acumen, said that
Speaker 1: this was a horrible thing to do, terrible timing, you know,
Speaker 1: like less than a month before mid terms. She was
Speaker 1: at the Al Smith dinner last night and actually joked
Speaker 1: a little bit about it. Um, but it could have
Speaker 1: been a factor. But then there are you know, multiple
Speaker 1: things that could also. There was also a report that
Speaker 1: it was Kavanaugh, which she denied. Anyway, she has her
Speaker 1: reasons and maybe ultimately we'll find them out. So let's
Speaker 1: shift gears a little bit because we are heading into
Speaker 1: the midterm elections and I'm just wondering how important it
Speaker 1: is to sort of watch what comes out of President
Speaker 1: Trump's Twitter feed to figure out his agenda over the
Speaker 1: next couple of months or next couple of weeks ahead
Speaker 1: of the midterm elections. Right, and we've already got a
Speaker 1: lot of discussion about UH, immigration and the and the margin.
Speaker 1: What should we pay attention to him? Well, I think
Speaker 1: if you looked at his uh, if you listen to
Speaker 1: his rally speech last night, he sort of outlined what
Speaker 1: his strategy is for the mid terms, it's you know
Speaker 1: that the economy is great, We're going for safe boarders.
Speaker 1: I think he used the slogan that the Democrats are
Speaker 1: mobs and the Republicans are about jobs, and that's pretty
Speaker 1: effective argument whether it and there are there is polling
Speaker 1: that shows that, you know, there is a narrowing of
Speaker 1: this race, that the blue tide is actually could be
Speaker 1: questioned um, and that the poll numbers are moving in
Speaker 1: the GOP's direction. So that kind of messaging may quite
Speaker 1: maybe quite effective. As we run down to the final
Speaker 1: days of the Smith term campaign, just a little bit
Speaker 1: more on Saudi Arabia, Marty is it uh? Is it
Speaker 1: a situation where business interests are colliding with strategic interests? Actually,
Speaker 1: I would say that they're similar their blind uh and
Speaker 1: we and others have written stories while the headline people
Speaker 1: like Jamie Diamond about out of the investor conference next week,
Speaker 1: a lot of the underlings are going to be in
Speaker 1: the region and attending that conference because there are such
Speaker 1: financial there is such financial importance to the Saudi Arabia
Speaker 1: UM wealth that no one can afford to kind of ostracized.
Speaker 1: So there are deep historical financial connections that will underpin
Speaker 1: that relationship, just as there are deep political uh strategic
Speaker 1: relationships on the government side that will continue that relationship.
Speaker 1: Thanks very much for being with us, Always a pleasure
Speaker 1: Marty Schenker. He is our chief content officer here at
Speaker 1: the Bloomberg News. Much appreciated talking about Saudi Arabia and
Speaker 1: US relations in light of the disappearance and alleged murder
Speaker 1: of the Jamal Kashogi, a contributing journalist to The Washington Post.
Speaker 1: It's time to talk about Brazil and Brazil's largest airline group.
Speaker 1: Well in English, it's called Goal Intelligent Airlines. It carries
Speaker 1: more than thirty three million passengers each year on more
Speaker 1: than seven daily flights more than sixty destinations. The chief
Speaker 1: financial officer is Richard Larkin. He joins us here in
Speaker 1: our Bloomberg Interactive Broker's studios. Richard Lark, thank you very
Speaker 1: much for being here. Thank you a good morning. Start
Speaker 1: by just describing for people that may not be familiar
Speaker 1: with your airline how it came to be and how
Speaker 1: it has come to really be the premier airline in Brazil. Yeah,
Speaker 1: we started in two thousand one, which is about one
Speaker 1: year after we had uh deregulation in Brazil UH. And
Speaker 1: we started with a traditional low cost carrier based on
Speaker 1: a single fleet type, which for US was the Boing
Speaker 1: seven thirty seven high operating efficiency, high utilization, and we
Speaker 1: started with four aircraft in two thousand one, and a
Speaker 1: combination of the cost advantage of the company plus the
Speaker 1: fair dynamic allowed us to over a ten year period,
Speaker 1: UH become the largest airline in Brazil. That was also
Speaker 1: helped by two acquisitions that we did. And over the
Speaker 1: last couple of years we've we've been investing heavily in
Speaker 1: our product, UH technology and the onboard customer experience, which
Speaker 1: has allowed us today to become the number one business
Speaker 1: airline in Brazil. All right, so let's fast forward to now.
Speaker 1: We have a situation where the Brazilian economy has been
Speaker 1: mired in a deep recession, the worse in its history. UH.
Speaker 1: Things are starting to look up a little bit, at
Speaker 1: least when you look at bond and stock markets, possibly
Speaker 1: because of the candidate Bosonaro that looks like the front
Speaker 1: runner who has a much more conservative view towards cutting
Speaker 1: the deficit and rearranging some of the pension the pensions.
Speaker 1: I'm just wondering, from your perspective, how much will this
Speaker 1: give a boost to your company should this go through
Speaker 1: and there is some measure of reform that gets enacted
Speaker 1: on the governmental level. Yeah, Obviously we can't predict the
Speaker 1: outcome of the elections, but assuming UH we see that, UH,
Speaker 1: you know, we see well adjust to the outcome. UH,
Speaker 1: you know, we see UM. A lot of components in
Speaker 1: bolson Oars platform are very clear in terms of the
Speaker 1: impact that they're going to have on our sectors, such as,
Speaker 1: in addition to the reforms you mentioned, you know, pension
Speaker 1: tax reform, we're also UH in his platform seeing some
Speaker 1: things will be positive for the airline sectors, such as
Speaker 1: increasing airport privalizations. We have a dire need for improvement
Speaker 1: and infrastructure and airports and airspace in Brazil, and a
Speaker 1: general liberalization of a lot of the other regulations that
Speaker 1: affect our sectors, such as bilateral agreements UH on international
Speaker 1: travel for on capital rules UM and UH. We also
Speaker 1: think that UM the policies are gonna have a positive
Speaker 1: impact on demand, particularly in the corporate space and within
Speaker 1: that particularly the agro UH, the agro sector in Brazil,
Speaker 1: which is a big portion of our air travel base. Also,
Speaker 1: just to get specific on goal for a moment, ratings upgrade,
Speaker 1: when it comes to your credit tender offers, redemptions, improved
Speaker 1: cash liquidity. This is all giving you greater financial flexibility,
Speaker 1: any idea what you're gonna do with the money. Well,
Speaker 1: in the short term, we're continuing deleveraging over the next
Speaker 1: two years. UH. We expected delever by another two billion eyes,
Speaker 1: which is uh, you know, call it five six million dollars. UH,
Speaker 1: and that that's the main focus of this this additional
Speaker 1: cash flower generating. In the short term is continued deleveraging. UH.
Speaker 1: We were upgraded back to a single B, but our
Speaker 1: our target is to get back to double B minus
Speaker 1: entity within the next two years. I'm curious about the
Speaker 1: mix of your travelers. How much is domestic versus international
Speaker 1: and how has that shifted. Yeah, today we're about eighty
Speaker 1: five percent domestic international. We have been globalizing our business
Speaker 1: constantly over the over the years, pretty much since our founding.
Speaker 1: Today we have over ninety code shares and interlines. You know,
Speaker 1: we sell tickets in over a hundred forty countries around
Speaker 1: the world. And in fact, one of the reasons that
Speaker 1: we're up in New York today is we're UH talking
Speaker 1: about our our direct service that we're adding to Miami
Speaker 1: and Orlando. In two weeks we launch uh service, and
Speaker 1: that's gonna allow us to expand our non Brazilian o
Speaker 1: in these non Brazilian revenues from the current fifteen to
Speaker 1: around over the next three or five years. So how
Speaker 1: does the backdrop of increased trade tensions and tariffs, etcetera
Speaker 1: affect your business if at all, especially as you try
Speaker 1: to globalize. Well, we we have a platform that has
Speaker 1: been developed over a period of time based on a
Speaker 1: lot of global partnerships. Uh. You know, Uh, we have
Speaker 1: a very strong relationship with Delta Airlines, with Air France KLM,
Speaker 1: and UH what really drives these flows is the demand. Uh.
Speaker 1: On the Brazilian side of the equation. For example, we
Speaker 1: take our what we're adding service to to South Florida.
Speaker 1: Part of it is leisure, but there's a very large
Speaker 1: uh small business uh component in South Florida. A lot
Speaker 1: of Brazilians have small businesses there, and we don't see
Speaker 1: that very much affected by anything on the trade side. Obviously,
Speaker 1: it is affected by on the currency side, which affects
Speaker 1: purchasing power, which affects our business. Uh, but we're expecting
Speaker 1: improvements on that. Well, that's where I was gonna go.
Speaker 1: Was the idea that if you have a devaluing currency,
Speaker 1: that makes it just that much more challenging to buy
Speaker 1: the twenty Boeing seven three seven Max aircraft. Tell us
Speaker 1: about why you decided on the seven three seven Max
Speaker 1: and how that's going to change the operating efficiency of
Speaker 1: the company. Yeah, the main reason is the fuel economy.
Speaker 1: The seven thirty seven Max eight, which is the model
Speaker 1: war operating we are have already have three operating in
Speaker 1: the fleet. UH is already achieving for us a fifteen
Speaker 1: percent fuel economy and about a third of our costs
Speaker 1: are our jet fuel. That hasn't a significant impact on
Speaker 1: our margins. So that's been the main driver UH to
Speaker 1: have that absolute cost reduction. Secondarily, you know, Brazil is
Speaker 1: a very dynamic competitive market and our competitors are also
Speaker 1: investing in in proved aircraft on the airbow side of
Speaker 1: the equation. We're the only Boeing operator in Brazil. But
Speaker 1: the second reason is the larger, slightly larger configuration of
Speaker 1: the Max. UH will be configured with a hundred and
Speaker 1: eighties six seats as opposed to our current hundred seventy seven.
Speaker 1: That gives us a greater revenue productivity. But the final reason,
Speaker 1: which is important, which is facilitating these flights that were
Speaker 1: launching in two weeks to mamor Orlando. Is the additional
Speaker 1: range of about uh kilometers on the max that allows
Speaker 1: us to do direct flights to Miami Orlando. Richard Lark,
Speaker 1: thank you so much for being with us. Thank you,
Speaker 1: Richard Larcas, chief financial officer of Goal Airlines based in
Speaker 1: South Howlo, Brazil, but joining us here in our eleven
Speaker 1: three oh studios. Among all stocks, Procter and Gamble really
Speaker 1: stands out posting a game today that is the biggest
Speaker 1: since October two thousand and eight, more than eight percent climb. Well,
Speaker 1: they beat earnings, they posted great expectations. Joining us now
Speaker 1: to talk about this, Sarah how Zach Bloomberg Opinion, consumer calumnists, Sarah,
Speaker 1: come on in here. Is this just that we like
Speaker 1: to buy really expensive creams and we just keep on
Speaker 1: buying them and Procter and Gamble cashed in on that.
Speaker 1: So that's certainly a part of it. Beauty was a
Speaker 1: particularly strong division with seven percent organic sales growth in
Speaker 1: the quarter, and they definitely have been having success with
Speaker 1: their premium lines within Beauty, so s K two, which
Speaker 1: has very high price tags, has been leading the growth
Speaker 1: in that division for some time now. But that said,
Speaker 1: that's not the whole picture. They really had strength in
Speaker 1: their uh they grew sales and their grooming division, their
Speaker 1: healthcare division, their fabric divisions. So um a broad based
Speaker 1: series of categories fueling this gain this quarter. Sara, this
Speaker 1: has to do also with organic sales growth, correct, it does.
Speaker 1: So organic sales growth, what they mean with that number
Speaker 1: is sort of excluding M and A activity and currency fluctuations,
Speaker 1: and so that's a closely watched metric for the particular
Speaker 1: company given its global reach. But if you're talking about organics, UM,
Speaker 1: that is definitely an area that they're focused on in
Speaker 1: naturals um, understanding that the consumer is kind of moving
Speaker 1: in this direction and considering that more of a priority. So,
Speaker 1: for example, in the diaper's division, they now have this
Speaker 1: Pampers natural lines that's supposed to be made in a
Speaker 1: more sustainable way, and that helps drive growth in the quarter.
Speaker 1: I love this sort of organic growth versus organics. And
Speaker 1: then I have to wonder, what is organic face cream?
Speaker 1: I mean, how is that organic? I don't I just
Speaker 1: boggles of mind. I do want to ask you, though, Sarah.
Speaker 1: They also said that they were gaining market share at
Speaker 1: a number of different divisions. Who's the loser here? Who
Speaker 1: are they grabbing market share from? Yeah, it's it's not.
Speaker 1: I think it varies widely across the globe. So for example,
Speaker 1: I think one interesting place to look is in their
Speaker 1: loves diaper division. That's a place where they had been
Speaker 1: getting smacked by the private label diapers makers because they
Speaker 1: had so underpriced. So you can assume that's from the
Speaker 1: likes of Walmart, from Target, from Amazon who have strong
Speaker 1: private label offerings. There. They slash prices in the Love's
Speaker 1: division this quarter to try to get some of that
Speaker 1: market share back, and so presumably that's sort of where
Speaker 1: that push and pole is taking place. Have they been
Speaker 1: able to raise prices or is that still a challenge.
Speaker 1: That's a really good question. So they have announced they're
Speaker 1: going to be raising prices on some key brands like Bounty, Sharman,
Speaker 1: and Pops because of commodity costs, right, pulp costs, paper
Speaker 1: costs are increasing, and so they're going to be taking
Speaker 1: those price increases starting October thirties one. We don't know
Speaker 1: yet how consumers are going to respond to that, and
Speaker 1: I think that's a really important thing when you look
Speaker 1: at how sustainable as this growth that they deliver this quarter. Uh,
Speaker 1: that's a real X factor. Executives were cautioning on the
Speaker 1: conference call today that trying to take these price increases
Speaker 1: could result in some volatility because they don't know how
Speaker 1: much Kimberly Clark or Colgate pal Mama is going to
Speaker 1: move in the same direction, and they could end up
Speaker 1: losing shoppers when they take that that action. I am
Speaker 1: the strange person that actually pays attention to the price
Speaker 1: of my toilet paper or my paper towels. Do you
Speaker 1: phim No to you, Sarah, I I pay attention to that.
Speaker 1: I mean the differential can be dollars, like entire dollars
Speaker 1: in one package. I don't. I'm definitely a person who's
Speaker 1: just on autopilot. You know, I'm revealing too much about myself.
Speaker 1: I want to get your sense on how much Procter
Speaker 1: and Gamble is just doing things right itself, and how
Speaker 1: much it's indicative of the strong consumer the people have
Speaker 1: really been rejecting so far this year. I mean, Procter
Speaker 1: Gamble shares are still down nearly two percent year to date,
Speaker 1: so you know, is the consumer a lot stronger than
Speaker 1: people think, and does this give wind to other consumer
Speaker 1: product companies. I do think this is an indicator of
Speaker 1: the fact that the consumer environment is strong, and we
Speaker 1: see this in so many different ways. We've got this
Speaker 1: in strong quarters from major retailers into two and I
Speaker 1: think this is an additional reflection of that. That said,
Speaker 1: I do think that the consumer has been strong for
Speaker 1: a while now, right, so the fact that PNG is
Speaker 1: seeing this inflection point speak to some of the things
Speaker 1: they're doing right. I think, particularly in the grooming category,
Speaker 1: that is a business where they were just assaulted by
Speaker 1: these newcomers like Dollar Shave Club and Harry's UM. They
Speaker 1: were offering these sort of disruptive subscription models and they
Speaker 1: finally returned to growth there this quarter, and so that
Speaker 1: suggests that, you know, they on the one hand, did
Speaker 1: some smart things in terms of adjusting their price structure
Speaker 1: to be more competitive with those guys UM, and also
Speaker 1: just got their mix of products in the right places
Speaker 1: in front of the right shoppers. I got to imagine though,
Speaker 1: that whatever happens in China is also important to Proctor
Speaker 1: and Gamble. They cited double digit growth in some of
Speaker 1: their skin care lines in China, yes, and and China
Speaker 1: isn't very so China is very important to their future.
Speaker 1: Right now, it's actually only nine percent of their total
Speaker 1: annual sales, but certainly that that will change over time
Speaker 1: as the middle class grows there. But China is definitely
Speaker 1: a real success story for PNG. It was only two
Speaker 1: years ago that they were posting declining sales in that
Speaker 1: market overall, and they've just been doing a lot of
Speaker 1: consumer product one oh one type work there. I think
Speaker 1: the l A brand is a great example of that.
Speaker 1: So in China, they really wanted to make that brand stronger,
Speaker 1: so they change the packaging of their ol A face product. Um.
Speaker 1: That's a place where in the Chinese market you might
Speaker 1: have an actual like over the counter service with a
Speaker 1: customer representative there. So they sort of change the training
Speaker 1: and the approach to that kind of service. It's really worked,
Speaker 1: not as pim. She doesn't say change the cream, it's
Speaker 1: changed the packaging. Change the way people talk about where
Speaker 1: most of the marketing, it really is the one that
Speaker 1: grabs most of the money. We're so gullible. It's true
Speaker 1: when something is more expensive and packaged in a prettier
Speaker 1: package can be as gross margins they could be over.
Speaker 1: Thanks very much, Sarah hall Zack, an expert in all
Speaker 1: things retail our Bloomberg Opinion consumer columnist, telling us about
Speaker 1: Procter and Gamble. Thanks for listening to the Bloomberg P
Speaker 1: and L podcast. You can subscribe and listen to interviews
Speaker 1: that app, podcasts, SoundCloud, or whatever podcast platform you prefer.
Speaker 1: I'm pim Fox. I'm on Twitter at pim Fox. I'm
Speaker 1: on Twitter at Lisa Abramo wits one. Before the podcast,
Speaker 1: you can always catch us worldwide on Bloomberg Radio