Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the
Speaker 1: Bloomberg Intelligence podcast. Catch us live weekdays at ten am
Speaker 1: Eastern on Apple car Playing and broud Otto with the
Speaker 1: Bloomberg Business app. Listen on demand wherever you get your podcasts,
Speaker 1: or watch us live on YouTube.
Speaker 2: Apple China iPhone sales dive nineteen percent in the worst
Speaker 2: quarter since twenty twenty. And this is a big issue
Speaker 2: because we know that China represents approximately twenty percent of
Speaker 2: the sales for Apple. It's obviously critical to their supply chain.
Speaker 2: So if there's one company that at least in my
Speaker 2: mind that has quote unquote China risk associated with it,
Speaker 2: it's it's Apple. Man Deep Singh joins us here. He's
Speaker 2: a senior technolog channels for Bloomberg Intelligence. He joins us
Speaker 2: here in our New York City studio. So mandeb Apple
Speaker 2: China iPhone sales dive nineteen percent in the first quarter,
Speaker 2: the worst twenty what's your takeaway there?
Speaker 3: I mean, it's not new news, so we knew this
Speaker 3: was coming. There was some counterpoint data I think last
Speaker 3: month that their March sales were pretty bad, so expected,
Speaker 3: but it kind of solid Desfies the point that you know,
Speaker 3: the China weakness is playing out much worse than what
Speaker 3: people expected, and the China revenue probably is gonna be
Speaker 3: like this for the foreseeable future unless something changes at
Speaker 3: the geopolitical level, or Apple launches a new device that
Speaker 3: everyone wants, that latest iPhone that everyone would want. But
Speaker 3: for now, Huawei and the domestic competitors seemed to be
Speaker 3: catching up in terms of features, and that's enough to
Speaker 3: take the share in the domestic market.
Speaker 4: So this is a story then of consumer shifting to competitors,
Speaker 4: or is it just that demand for phones is down
Speaker 4: because there's some macro weakness in the Chinese consumer.
Speaker 3: Think There is a policy element to it as well,
Speaker 3: so obviously a lot is kind of driven by what
Speaker 3: is done at the government level. First they banned the
Speaker 3: use of iPhones, and now they're making sure that the
Speaker 3: domestic vendors have a good chance of taking share. And
Speaker 3: because the phone is comparable in features, then I guess
Speaker 3: the Apple lock in that everyone thought was so strong
Speaker 3: that you just can't get out of your iOS isn't
Speaker 3: really helping or like in this case, and they are
Speaker 3: able to kind of move out of the iOS ecosystem
Speaker 3: and you start using this new phone.
Speaker 2: What's Apple say about their position in China? What they
Speaker 2: may need to do to regain momentum. Do they have
Speaker 2: any strategy they've articulated.
Speaker 3: I mean, look, they are having an event on May
Speaker 3: seventh where they're launching a new iPad lineup. There will
Speaker 3: be something very similar for the iPhone. They will launch
Speaker 3: a new device with AI capabilities. So their play is,
Speaker 3: we will launch a new phone, a new tablet with
Speaker 3: AI capabilities that everyone is looking for, and hopefully that
Speaker 3: drives the refreshed cycle.
Speaker 4: And how does the slumping demand in China compare to
Speaker 4: the US demand? Because I have to admit a lot
Speaker 4: of people feel very pure pressure to stay with an
Speaker 4: iPhone versus a different device, simply because if you're in
Speaker 4: a group chat and you have blue text messages like
Speaker 4: it seems like that's actually a really strong feature that
Speaker 4: can ramp up demand, at least in the US. So
Speaker 4: how does that compare it and how are you so?
Speaker 3: I will say, I think Apple is still gaining share
Speaker 3: in other markets US, India, other pockets as well outside
Speaker 3: of China, but that China revenue is almost twenty percent
Speaker 3: of their sales. And if it's going to be zero
Speaker 3: a couple of years from now. Then you have to
Speaker 3: ask yourself what makes for that revenue shortfall and for
Speaker 3: a variety of reasons, as we talked about, you know,
Speaker 3: related to China, But even if they are doing well
Speaker 3: in other regions, it's just pressure in terms of unit
Speaker 3: sales and what do you do. Do you keep raising
Speaker 3: the prices of the phone, which they may have to
Speaker 3: because they have to relocate the supply chains out of China.
Speaker 3: That's the other aspect of the cost pressures when it
Speaker 3: comes to making this phone. They will have a lot
Speaker 3: of that because they have to relocate those supply chains
Speaker 3: and it's not easy.
Speaker 2: I'm surprised they haven't take any more aggressive approach in India,
Speaker 2: like maybe a lower cost model to appeal to that marketplace.
Speaker 2: What's their India strategy?
Speaker 3: I mean, so far, I think they are catering to
Speaker 3: that premium segment and they have had success, you know,
Speaker 3: in terms of that one percent or two percent penetration
Speaker 3: that they have had, you know, in terms of the region.
Speaker 3: But a low cost phone it's hard in India simply
Speaker 3: because how low can you go? And Apple has tried
Speaker 3: that with different skews in the past, they haven't had
Speaker 3: a ton of success with low CON's phones because again,
Speaker 3: the competitors are quite fierce when it comes to you know,
Speaker 3: the feature said and the quality of the phones that
Speaker 3: they offer, and so it will be an interesting strategy
Speaker 3: if they decide to pursue that. But for now, I
Speaker 3: don't think anything can make up for that China revenue
Speaker 3: shortfall because it's declining at a very rapid pace.
Speaker 4: So their earnings aren't until May second. They have that
Speaker 4: launch event on May seventh, but we do have some
Speaker 4: other big tech earnings coming this week. Can you talk
Speaker 4: about that?
Speaker 3: Yeah, I mean, look, Meta, I think it's a company
Speaker 3: that has had a great turnaround story, and we know
Speaker 3: turnarounds are tough intech, but Meta has shown that, you know,
Speaker 3: it's a remarkable story when it comes to laying off
Speaker 3: twenty five percent people and then growing revenue twenty five
Speaker 3: percent in subsequent quarters. I mean, it just speaks for
Speaker 3: how well they have executed and now they are at
Speaker 3: the top of the game and it comes to having
Speaker 3: their own large a model, So that could make a
Speaker 3: difference in terms of, you know, the new revenue stream
Speaker 3: that everyone wants to see with meta and probably the
Speaker 3: metaverse may become a side show. I think another company
Speaker 3: that I feel is not very well understood and probably
Speaker 3: everyone thinks they're going to get disrupted is Google Alphabet,
Speaker 3: and that's where it would be interesting to see what
Speaker 3: they do around search because all the survey work that
Speaker 3: we have done, it shows that, you know, the new
Speaker 3: companies chat GPT, Perplexity, they have taken some share when
Speaker 3: it comes to the search queries. Now. Still, the counter
Speaker 3: argument is everyone still needs to go to Google Maps
Speaker 3: or Google Search to look at what chat GPT is
Speaker 3: generating because they're not sourcing the links. So in the end,
Speaker 3: Google is still getting the traffic, but obviously the search
Speaker 3: is starting somewhere else, and that's the key risk that
Speaker 3: they have to address.
Speaker 2: All right, so does does Google have an AI play
Speaker 2: per se?
Speaker 3: Yeah? So their Gemini large anglid model. I mean, we
Speaker 3: all know it wasn't a success initially, but now they
Speaker 3: have caught up in terms of features and look, Google
Speaker 3: doesn't want to integrate Gemini everywhere because that's going to
Speaker 3: hurt their ad revenue. So they're very careful with how
Speaker 3: they roll out and how they make those UI changes
Speaker 3: because it's going to be disruptive to their incumbent position.
Speaker 3: When it comes to digital.
Speaker 2: Ads market, do you use Gemini?
Speaker 3: I do, and I think for certain tasks like generating
Speaker 3: summaries and you know, video editing, that kind of stuff,
Speaker 3: image editing, it's great. But I don't use it for
Speaker 3: my search yet because when it comes to the traditional
Speaker 3: Google search, it's still the go to place. When I
Speaker 3: think about you know certain things to do, and that's
Speaker 3: the behavior I think.
Speaker 2: All right, you're a guy, Men Deep sing Senior techounts
Speaker 2: when you go. When you start using something, I'll start
Speaker 2: using it when men and when Anna Rock tells me
Speaker 2: to upgrade my phone, all upgrade my phone. That's how
Speaker 2: I roll Men Deep Seeing Senior Tech outs or Bloomberg Intelligence.
Speaker 2: Join us live here in our Bloomberg Interactive Brokers Studio
Speaker 2: iPhone China Apple. It's a big, big challenge for them,
Speaker 2: as many you've said, almost twenty percent of the revenue
Speaker 2: comes out of China. They need to figure that out.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
Speaker 1: weekdays at ten am Eastern on applecar Play and Android
Speaker 1: Auto with the Bloomberg Business app. You can also listen
Speaker 1: live on Amazon Alexa from our flagship New York station.
Speaker 1: Just say Alexa play Bloomberg eleven thirty.
Speaker 2: Emily Grafao, Paul Swen, you're live here in the Bloomberg
Speaker 2: INTERACTI Broker Studio or streaming live on YouTube as well.
Speaker 2: Emily Grafao a proud graduate of the University of Richmond.
Speaker 2: I'm sorry University of Virginia. Sorry slip slip. As is
Speaker 2: our next guest, Garrett Nelson, Vice president and Senior equity
Speaker 2: analyst at cfr A Research. Garrett, my notes here, say
Speaker 2: you're in Richmond, Virginia. How'd you work that scam?
Speaker 5: That's right, only only an hour from Charlottesville. So as
Speaker 5: a as a proud who, very happy living so close
Speaker 5: to the album.
Speaker 2: Marler, all right, very good. I'm surrounded by UVA folks. Hey,
Speaker 2: Garrett Elon Musk, let's talk Tesla. You're the auto dude
Speaker 2: at CFRA. What does he have to do on the
Speaker 2: conference call today? It seems like he's got to pull
Speaker 2: a rabbit out of some kind of hat here to
Speaker 2: reverse the bad mojo around the stock.
Speaker 1: Yeah.
Speaker 5: Look, there's no question the stakes are extremely high heading
Speaker 5: into this earnings release. The stock is down more than
Speaker 5: forty year to date, coming off a year in which
Speaker 5: shares more than doubled. Tesla's earnings execution also hasn't been great.
Speaker 5: They've missed on the bottom line each of the last
Speaker 5: two quarters, you know, but we think the challenges they
Speaker 5: face at this point are well understood by investors. They're
Speaker 5: having issues with the ramp up of production of the
Speaker 5: cyber truck. The TV market overall is oversaturated and growth
Speaker 5: rates have slowed tremendously. And you know, there's some uncertainty
Speaker 5: regarding the future product pipeline when they might bring to
Speaker 5: market the mass market ev or ROBOTAXI. You know, that's
Speaker 5: not really clear right now. So certainly a lot to
Speaker 5: look for. There's always a lot on the line. Tesla
Speaker 5: is one of the most anticipated earnings releases every quarter,
Speaker 5: but even more so this quarter.
Speaker 4: Yeah. Can you talk a little bit about Tesla's efforts
Speaker 4: to cut prices on their vehicles and how that is
Speaker 4: going to play into the earnings. I see a lot
Speaker 4: of headlines about cutting costs. They recently slashed prices I
Speaker 4: think two weeks ago on most of their models. Is
Speaker 4: that something that investors should be watching for? Even more
Speaker 4: today in the earnings.
Speaker 1: Yeah.
Speaker 5: So Tesla's been cutting prices steadily for over a year now.
Speaker 5: Remember just after the New year twenty twenty three, they
Speaker 5: announced a price cut, a series of price cuts, and
Speaker 5: there have been, you know, several price cut announcements since then.
Speaker 5: So it's going to impact both the top line and
Speaker 5: the bottom line. You're really going to see it in
Speaker 5: the gross margins that they report. So but you know,
Speaker 5: also Tesla's at a point where they opened two new
Speaker 5: factories just a couple of years ago, in Austin and
Speaker 5: in Berlin, and they're still in the process of ramping
Speaker 5: those plants up to full capacity. So you know, if
Speaker 5: they can do that cut prices and drive sales higher,
Speaker 5: they can drive down their unit costs by doing so.
Speaker 5: Auto manufacturing is a very high fixed cost business, so
Speaker 5: ultimately they want to run those plants at the highest
Speaker 5: possible capacity utilization rate without surrendering too much margin.
Speaker 2: So I guess to me, thank you blue Button, to me, Garrett,
Speaker 2: I think the most fundamental issue here, and I'm not
Speaker 2: sure Elon Musk can really address it, is what is
Speaker 2: the overall fundamental long term demand for EV's. You know,
Speaker 2: there's a lot of folks out there that are saying
Speaker 2: it's it's it's not great, it's not what maybe the
Speaker 2: industry once thought. What's your view on that.
Speaker 5: Yeah, I think that's a big reason behind the sell
Speaker 5: off in Tesla and other EV manufacturers. I mean, look
Speaker 5: at the stock price of Ribby and Lucid Fisker. Is
Speaker 5: that the growth rates have disappointed, you know, compared to
Speaker 5: what investors thought growth would look like just two or
Speaker 5: three years ago. So you know, it's been a disappointment.
Speaker 5: And one thing you can point to is that governments
Speaker 5: around the world are putting EV mandates in place, and so,
Speaker 5: you know, we think that's a big positive for Tesla.
Speaker 5: Obviously as an EV peer play. You're also seeing a
Speaker 5: number of traditional auto manufacturers really pull back on their
Speaker 5: planned EV investment. So over the longer term, there should
Speaker 5: be a lot less competition in the EV market for Tesla,
Speaker 5: which really opens up the market opportunity.
Speaker 4: What else makes Tesla different than other pure play EV manufacturers.
Speaker 4: If you read the Walter Isaacson biography of Elon Musk's,
Speaker 4: you kind of get a sense that Musk never wanted
Speaker 4: Tesla to just be an EV company, but thinks of
Speaker 4: it more as an AI company, a battery company. How
Speaker 4: much does that matter to investors right now when the
Speaker 4: stock is down, you know, forty percent year to date.
Speaker 5: We argue it should matter. I mean, look, they have
Speaker 5: an energy business, energy storage that if you look last year,
Speaker 5: it's been growing faster than the auto business. They hardly
Speaker 5: get any credit for that business, and so you know,
Speaker 5: we think it should matter. But really, the big distinguishing
Speaker 5: factor when you look at Tesla relative to to other
Speaker 5: competitors is its balance sheet. You know, this, this isn't
Speaker 5: the Tesla of three or four years ago that was
Speaker 5: just barely getting by. Tesla had today has an investment
Speaker 5: grade balance sheet. They're sitting on over twenty nine billion
Speaker 5: dollars of cash, They have some of the highest gross
Speaker 5: margins in the industry, and we think they have an
Speaker 5: attractive development pipeline. So you know, that's really you've seen
Speaker 5: a bifurcation in the market where you know, some of
Speaker 5: the smaller, newer ed players like the ones I mentioned,
Speaker 5: you know, some of them have either declared bankruptcy or
Speaker 5: are flirting with bankruptcy. So you know, Tesla is really
Speaker 5: in a much different position than those companies, and in fact,
Speaker 5: a lot of traditional automnifact and manufacturers don't even have
Speaker 5: investment grade balance sheets, so you know, they're in a
Speaker 5: better position than those companies in our opinion.
Speaker 2: Garrett has, do you have the confidence that Tesla can
Speaker 2: profitably make an EV at a thirty thirty five thousand
Speaker 2: dollars price point?
Speaker 5: Going to be difficult. So you know, when Elon Musk
Speaker 5: first started talking about this mass market EV years ago,
Speaker 5: it you know, it was a twenty five thousand dollars
Speaker 5: EV and that just isn't you know, with inflation that
Speaker 5: we've experienced since then and the economy continues to experience,
Speaker 5: we think, you know, if this happens, it's it's more
Speaker 5: likely to have a price point somewhere north of thirty thousand,
Speaker 5: maybe thirty or thirty five thousand, And that's really a
Speaker 5: price point that they're that they're going to need to
Speaker 5: produce it profitably in this environment.
Speaker 4: I have two questions. One quick question we talked about
Speaker 4: the balance sheet. Does Tesla still have bitcoin on their
Speaker 4: balance sheet? Remember when that news came out like two
Speaker 4: years ago?
Speaker 5: They do, And you know, that was a drag on
Speaker 5: on Tesla for a while. When bitcoin was falling. With
Speaker 5: bitcoin having rebounded, you know, they've divested some of the bitcoin,
Speaker 5: but they do have some amount on the balance sheet.
Speaker 5: I would have to check the ten K for the
Speaker 5: exact amount, but they do. They do still have some bitcoin.
Speaker 4: The other question I had was just when the earnings
Speaker 4: come out, you know, what are you looking for? Best
Speaker 4: case scenario? You know, what kind of headline would you
Speaker 4: have to see to you know, start buying more Tesla
Speaker 4: after the earnings.
Speaker 5: Really the biggest thing is we're looking for some certainty
Speaker 5: regarding the cyber truck. From as far as we can tell,
Speaker 5: from the time they made first deliveries of that vehicle
Speaker 5: in November, you know, through the end of March, they've
Speaker 5: only produced maybe a few thousand units of the cyber truck.
Speaker 5: Now the reservation count for that model is somewhere north
Speaker 5: of two million, So you have two million customers out
Speaker 5: there who are waiting delivery of their cyber truck. They're
Speaker 5: having difficulty ramping up production. There was a recall just announced,
Speaker 5: and so you know, we're looking for some certainty regarding
Speaker 5: when they might hit certain production milestones for the cyber truck,
Speaker 5: which is going to have an impact on their full
Speaker 5: year deliveries obviously, and then looking ahead into twenty twenty five.
Speaker 5: But you know, if you look across the street, Earning's
Speaker 5: estimates have come down massively for twenty twenty four, and
Speaker 5: so we think they're at a level which are much
Speaker 5: more achievable here, and so the really the story becomes
Speaker 5: more of a twenty twenty five and beyond story, which
Speaker 5: is what investors are looking for, you know, taking the
Speaker 5: longer view, but also they want to see better execution
Speaker 5: in the near term.
Speaker 2: All right, Garet, thanks so much for joining us. Really
Speaker 2: appreciate it. Garrett Nelson, Vice president's Senior Equity analytcfr A Research,
Speaker 2: A proud Wahoo from the University of Virginia, somehow working
Speaker 2: his scam from Richmond, Virginia, one of my favorite towns
Speaker 2: anywhere my twins are born. There a great city, great
Speaker 2: place to live. Garrett's got it figured out there doing
Speaker 2: the Wall Street thing from Richmond, Regina. Good for him,
Speaker 2: Tesla after the close, that's going to be big.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
Speaker 1: weekdays at ten am Eastern on Apple Car, playing Android
Speaker 1: otto with the Bloomberg Business app listen on demand wherever
Speaker 1: you get your podcasts, or watch us live on YouTube.
Speaker 2: One of the big names reporting today is UPS, big
Speaker 2: brown profit higher than analysts estimates, talking about headcount management,
Speaker 2: restructuring of its delivery rats are beginning to bear some fruit.
Speaker 2: Let's check in with the expert on all things transport
Speaker 2: and that would be one lead classical. He's a senior
Speaker 2: transportation's logistics analyst at Bloomberg Intelligence. He's safely a sconce
Speaker 2: down in our Princeton office and he joins us there
Speaker 2: via zoom. So, Lee, it looks like this UPS put
Speaker 2: us some good numbers. What are really the drivers here?
Speaker 6: Yeah, hey Paul, thanks for having me on.
Speaker 1: Yeah.
Speaker 6: I think it's really about what they're doing on the
Speaker 6: cost side. I think that's really the driver of the
Speaker 6: outperformance in EPs, because revenue did come in slightly lower
Speaker 6: than expectations on lower volumes. You know, they're dealing with
Speaker 6: lower volumes from last share last year when they you know,
Speaker 6: were negotiating their labor contract and a lot of shippers
Speaker 6: kind of try to find other alternatives in case there
Speaker 6: was an issue with their network, you know, from a strike.
Speaker 6: But obviously that didn't happen now they're being pretty busy
Speaker 6: trying to win back that share, so, you know, I
Speaker 6: think what they're all in all, it was a good quarter.
Speaker 6: I think if UPS is you know, meeting or beating expectations,
Speaker 6: that's a good thing. Because they've had a rough year,
Speaker 6: driven a lot by that labor negotiation, which increased costs
Speaker 6: considerably and resulted in a lost amount of volume, which
Speaker 6: you know, for a company like UPS, the deleveraging effect
Speaker 6: on margins is quite substantial. But there are definitely some
Speaker 6: good news in the report today that you know, we
Speaker 6: remain optimistic that they might be even looking to possibly increase,
Speaker 6: you know, their full year guidance for twenty twenty four,
Speaker 6: especially as the US postal service contract which they recently
Speaker 6: won from FedEx starts hitting their.
Speaker 1: P and L.
Speaker 4: When you talk about average daily package volume down, your
Speaker 4: over year revenue down year over year, how much of
Speaker 4: the softer demand for UPS is related to macro economic
Speaker 4: factors and maybe coming out of the pandemic consumers shipping less.
Speaker 4: Is that a factor here?
Speaker 6: Yeah, I think it's a you know, probably a trieffective things.
Speaker 6: It's probably a softer great outlook all together that coupled
Speaker 6: with tougher comparisons, and the fact that they are you know,
Speaker 6: are still trying to win back the share that they
Speaker 6: lost from their labor contract negotiation. So I think think
Speaker 6: those three things are kind of weighing on their their volumes,
Speaker 6: probably more than maybe their competitors like a FedEx or
Speaker 6: a DHL Hayley.
Speaker 2: I know, labor is a big deal with UPS and
Speaker 2: these companies here. I know UPS they had a new
Speaker 2: labor contract that really pushed up wages and benefits starting
Speaker 2: I guess this year. But then on the other side,
Speaker 2: they also cut twelve hundred or twelve thousand white collar jobs.
Speaker 2: That's like fourteen percent of the workforce here. So talk
Speaker 2: to us about the labor and component they're in the
Speaker 2: cost structure.
Speaker 6: Yeah, I mean that they're they're doing the right things.
Speaker 6: You know, the contract might have a you know, with
Speaker 6: the team serves, might have had a negative impact to margins,
Speaker 6: but you know, we are going to anniversary those in
Speaker 6: the second half of the year, so those comparisons won't
Speaker 6: be as bad. And also, you know, does provide them
Speaker 6: with a steady labor force, because you know, if your
Speaker 6: labor is happy, you're gonna have less turnover. You have
Speaker 6: less turnover, you probably have better service and better safety,
Speaker 6: and that usually yields better profits. So I think, like
Speaker 6: when you if you look longer term, beyond the initial
Speaker 6: shock of that new contract, which is very front loaded,
Speaker 6: you know, the increases aren't as bad. As we get
Speaker 6: to year two, it's not going to be as bad.
Speaker 6: And listen, you know UPS and FedEx and a lot of
Speaker 6: these companies, you know they did get a little on
Speaker 6: the fat side, if you will, on their corporate ranks,
Speaker 6: and I think they're both doing the right things and
Speaker 6: terming in terms of trimming it for the new normal
Speaker 6: of what their operating environment is today.
Speaker 4: How should investors be thinking about UPS? The stock is
Speaker 4: up one point five percent right now, but it's down
Speaker 4: about six percent year to date, underperforming the broader market.
Speaker 6: Yeah, and if you even look even further over the
Speaker 6: last twelve months, you know it's down almost twenty five percent,
Speaker 6: underperforming not only the broader market, but you know it's
Speaker 6: closest peer fed X, which is up around eighteen percent
Speaker 6: over the last twelve months. So you know, I think
Speaker 6: what they need to do is they need to execute.
Speaker 6: They do not only to execute on their twenty twenty
Speaker 6: four plans, but their twenty twenty six plans, and I
Speaker 6: do as I said earlier, I think there is some
Speaker 6: opportunity for some upside surprise. Given their US postal service contract.
Speaker 6: It wasn't didn't really make that much money for FedEx.
Speaker 6: But I think UPS's network is very different than fedexits.
Speaker 6: It's more integrated, it's not a hub and spoke network,
Speaker 6: and that will provide them with some profitability. And management
Speaker 6: is pretty confident, at least it peers confident that this
Speaker 6: business is going to be not only creative to earnings,
Speaker 6: but a creative to margins. And that's kind of what
Speaker 6: you know, we as we look at the company, really
Speaker 6: want to see. We really want to see those domestic
Speaker 6: margins start to improve.
Speaker 2: Haylee, what are the companies saying about kind of normalized
Speaker 2: growth rates in terms of I guess, unit volume. Where's
Speaker 2: this US economy in terms of just packages? Is it
Speaker 2: a GDP kind of number? Is that kind of the story.
Speaker 6: Yeah, it's a GDP kind of number. But you know,
Speaker 6: UPS wants to grow beyond GDP and and how they're
Speaker 6: going to do that is they've made some pretty significant
Speaker 6: uh not in size necessarily, but in terms of you know,
Speaker 6: capabilities acquisitions. You know, they bought a company Roady, which
Speaker 6: you know it's not a drink on the road, well,
Speaker 6: but it's it's it is. What they do is they
Speaker 6: deliver heavy stuff to people's doors, So think furniture, think
Speaker 6: uh uh, workout equipment, fitness equipment, and that is done
Speaker 6: through more or less an asset light model where you know,
Speaker 6: they're arranging the delivery. So that's that's a very good business.
Speaker 6: They're also invested or acquired a company that does returns
Speaker 6: without box, without having it to box it, so it's
Speaker 6: a lot easier for consumers to you know, either go
Speaker 6: to a UPS store or one of the other drop
Speaker 6: points that UPS provides, uh to to to return something.
Speaker 6: And that's good for UPS because that stuff goes into
Speaker 6: their system and it becomes a B two b uh
Speaker 6: deliver where when we say B to B business business
Speaker 6: and meaning that there's more density, so it's you know,
Speaker 6: they're they're shipping, you know, they're consolidating and shipping twenty
Speaker 6: boxes versus just one envelope, and that tends to be
Speaker 6: more profitable. Uh. And then their investments in the healthcare space,
Speaker 6: you know their goal is to be the largest healthcare
Speaker 6: logistics provider. Healthcare has above average margins for transportation companies
Speaker 6: given the high level of service that's involved there. I
Speaker 6: think temperature control, think you know, uh, the fact that
Speaker 6: it has to get get get somewhere at a very
Speaker 6: specific time. So you know, those are higher, higher margin
Speaker 6: business So you know, I think that those growth areas
Speaker 6: I just mentioned will help them grow their overall volumes
Speaker 6: beyond you know, just GDP numbers.
Speaker 2: All right, just real quickly, Lea, I'm looking at the stock,
Speaker 2: my god, Over the last five years, UPS and FedEx
Speaker 2: both grew at a compounded annuer rate of eight point
Speaker 2: eight percent, spot on below the S and P five
Speaker 2: hundred and thirteen percent. But why do investors own these stock?
Speaker 2: What's the call to own a fed X or UPS?
Speaker 6: Well, Paul, as you know, we don't do a recommendation
Speaker 6: to your bi but you know, it's a really it's
Speaker 6: a play on e commerce. It's a play on the
Speaker 6: global economy. And you know, it's more, it's more and
Speaker 6: more becoming a play on near shoring. You know, the
Speaker 6: ups is and the Fedexes and the dhls of the world,
Speaker 6: even the freight forwarders like a kuninaugl You know, they're
Speaker 6: all going to benefit from the changes and supply chains.
Speaker 6: At supply chains, you know, change and shifts and get
Speaker 6: more complicated. These companies really prove their worth during these times.
Speaker 6: And you know, I think that if if you believe
Speaker 6: in near shoring, if you believe in you know the
Speaker 6: fact that we're going to be buying more online, not less. Uh,
Speaker 6: these are places where you want to be. And it's
Speaker 6: really about the management teams that are in place, whether
Speaker 6: it's UPS or FedEx, can they change their organizations to
Speaker 6: the new normal. It's and it looks like they're both
Speaker 6: doing it. It's not going to be an overnight change.
Speaker 6: It's going to take time because these are very you know,
Speaker 6: huge networks and they and they're not as easy to
Speaker 6: change as it would, you know, changing a menu at
Speaker 6: a restaurant.
Speaker 2: Right right, All right, A league, thanks as always for
Speaker 2: joining us. Lee Lascal, senior transportation analysts of Bloomberg Intelligence,
Speaker 2: joining us from the Princeton offices of Bloomberg.
Speaker 1: Here you're listening to the Bloomberg Intelligence Podcast. Catch us
Speaker 1: live weekdays at ten am Eastern on applecar Play and
Speaker 1: Android Auto with the Bloomberg Business app. You can also
Speaker 1: listen live on Amazon Alexa from our flagship New York station,
Speaker 1: just say Alexa playing Bloomberg eleven thirty PM.
Speaker 2: My data came out here from SMP generally below consensus.
Speaker 2: I guess the composite came into fifty spot nine versus
Speaker 2: fifty two. That was a consensus of fifty two point
Speaker 2: one was for the last period as well. Chris Willimson
Speaker 2: joins us. He's a chief business economist at SMP Global
Speaker 2: Market Intelligence. Chris walk us through kind of what we
Speaker 2: saw here with the pmis for the month of April.
Speaker 7: Yeah, so there's two surveys really, one of manufacturing, one
Speaker 7: of services. So the latter is private sector services. So
Speaker 7: these are this ranges from consumer based services to business services.
Speaker 7: It excludes retail importantly, and it excludes government. Now, both
Speaker 7: of those surveys lost some momentum. Collectively over the first quarter,
Speaker 7: they'd signal fairly decent growth around two percent annualized, with
Speaker 7: that upturn becoming increasingly broad based services led, but manufacturing
Speaker 7: also starting to pick up some momentum. But in April
Speaker 7: we've seen both of those surveys lose some output. Growth pace.
Speaker 7: It's still in expansion territory as far as output's concerned,
Speaker 7: but with growth sort of slipping below the two percent
Speaker 7: annualized GDP rate, that's the signal from it. So looks
Speaker 7: like the second quarter could disappoint compared to the first
Speaker 7: quarter based on these these survey data, as your previous
Speaker 7: interview was referring to these these survey data have been
Speaker 7: a bit softer than recent GDP numbers, so you know
Speaker 7: that needs to be born in mind.
Speaker 2: So any sense of what's driving there, Like, I'm not
Speaker 2: sure how to think about this on a month a
Speaker 2: month basis. Is it just kind of noise month a
Speaker 2: month and I really want to look at it on
Speaker 2: a longer trend or does the slowdown in April does
Speaker 2: that kind of suggest something might be a foot?
Speaker 7: Yeah, it does look like there's been some adjustment to demand,
Speaker 7: so new order inflows, the amount of work flowing into
Speaker 7: manufacturers and service providers that fell for the first time
Speaker 7: in six months in April only. Just it is a
Speaker 7: small decline, but this contrasts with growth of demand that
Speaker 7: we've seen over prior periods, and it looks like you're
Speaker 7: getting some adjust meant here to the financial conditions that
Speaker 7: businesses are facing. So previously we've seen, you know, companies
Speaker 7: look forward to rate cuts and that stimulating demand those
Speaker 7: loosening of financial conditions out and over the course of
Speaker 7: the last few weeks, we've seen further signs that you're
Speaker 7: not going to get all those rate cuts that you hope,
Speaker 7: and indeed market starting to price in now more possibility
Speaker 7: of a rate hike. That's feeding through to markets. It's
Speaker 7: increasing borrowing costs and it looks like that's feeding through
Speaker 7: to the business environment. We've seen. We've seen this creep
Speaker 7: in before in terms of how those financial conditions really
Speaker 7: do seem to quickly affect the demand environment, and it
Speaker 7: looks like that's what we've got here in April, a
Speaker 7: bit of a sort of reality check. Whether this persists
Speaker 7: in coming months is going to be the key thing
Speaker 7: to look out for, but it does look like that,
Speaker 7: certainly going into the second quarter, you're seeing the demand
Speaker 7: environment soften compared to what we've seen previously.
Speaker 2: All right, Chris, thanks so much for joining us. Chris Williamson,
Speaker 2: chief Business Economists at SMP Global Markets, joining us from
Speaker 2: London via zoom and again the SMP Global manufacturing PMI
Speaker 2: for the month of April comme in at forty nine
Speaker 2: point nine. Consensus was fifty two. On the services side,
Speaker 2: it came in at fifty point nine, still expansionary, but
Speaker 2: below the consensus of fifty two, and both of those
Speaker 2: were down from last month, which we're both close to
Speaker 2: fifty two, so again at deceleration there. So when you
Speaker 2: put them all together, the services and manufacturing on a
Speaker 2: composite basis came into fifty point nine versus fifty two.
Speaker 2: So we'll keep an eye on out a slowdown in
Speaker 2: the SMP. It's a survey of manufacturing and service activity
Speaker 2: out there in economy. Economists kind of take a look
Speaker 2: at that to see about the outlook for services and
Speaker 2: for manufacturing.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
Speaker 1: weekdays at ten am Eastern on Applecarplay and Android Auto
Speaker 1: with the Bloomberg Business app. You can also listen live
Speaker 1: on Amazon Alexa from our flagship New York station Just
Speaker 1: Say Alexa playing Bloomberg eleven.
Speaker 2: Emily Rafe is sitting in for Alex Steele and Paul Sweeney.
Speaker 2: We're live here in our Bloomberg Interactive Broker studio. We're
Speaker 2: also streaming live on YouTube dot com, so head over
Speaker 2: there and search Bloomberg Podcast. I'm in the process thanks
Speaker 2: to Emily's tip. I'm in the process of logging into
Speaker 2: and loading clear Space onto my phone the app, and
Speaker 2: that is to limit self, limit my use of certain
Speaker 2: social media things that I feel like are wasting my time.
Speaker 4: Yes, it blocks your access to the apps, and it
Speaker 4: actually makes you do a breathing.
Speaker 7: Exercise, of course, and.
Speaker 4: It gives you a quote and an inspirational quote before
Speaker 4: you log on. So you really have to question, do
Speaker 4: I really want to open social media right now?
Speaker 1: Good? This is like the lock on the liquor cabinet.
Speaker 2: Yes, yes, that's the analogy that from our generation that
Speaker 2: brings us to TikTok, because that's a lot of what
Speaker 2: people are concerned about in TikTok. You know, it looks
Speaker 2: like they might be banned here or forced of a divesture.
Speaker 2: I don't know what's going on, since I'm not a TikToker,
Speaker 2: but I know it's huge because most people are on TikTok.
Speaker 2: Matt Schuttenhelm, I don't know if he's on TikTok. I'm
Speaker 2: gonna guess no, but I don't know. He's a media
Speaker 2: litigation analyst to Bloomberg Intelligence. Yeah, he's a lawyer, but
Speaker 2: we talked to him anyway because he's really really smart. Matt,
Speaker 2: can you tell us what's going on with our good
Speaker 2: friends at TikTok is what is Congress looking to do?
Speaker 8: Yeah, so this bill is really advancing in Congress faster
Speaker 8: than I think many of us expected.
Speaker 1: That.
Speaker 8: The aim of this bill is that to force a
Speaker 8: divestiture of TikTok from byte Edance, which is based in
Speaker 8: China and is the parent company here. And basically the
Speaker 8: bill operates by saying, if that divestiture doesn't happen within
Speaker 8: two hundred and seventy days or maybe there's a potential
Speaker 8: ninety day extension of that, if that divestiture doesn't happen,
Speaker 8: and then TikTok can't be hosted in app stores, or
Speaker 8: it can't be there can be no web hosting of
Speaker 8: the app. So it's effectively a ban if that divestiture
Speaker 8: doesn't happen. And so this has cleared the House of
Speaker 8: Representatives on Saturday. That was their second vote by an
Speaker 8: overwhelming bipartisan majority. Today it's tied up in the Senate,
Speaker 8: and this is tied to the Ukraine Foreign aid package,
Speaker 8: and so it's going to be very unlikely for the
Speaker 8: Senate to resist it, so very likely that this becomes law.
Speaker 8: President Biden has said he'll sign it, and so I
Speaker 8: think we're you know, we're off to the courts now
Speaker 8: on this question.
Speaker 4: What is Congress most concerned about when it comes to TikTok?
Speaker 4: Why have they introduced this legislation?
Speaker 8: Yeah, I think it's it's really motivated by by two concerns. One,
Speaker 8: it's a concern about access to all of this data.
Speaker 8: We have one hundred and fifty one hundred and seventy
Speaker 8: million Americans on this TikTok is collecting all of their
Speaker 8: data about what they're clicking on, and potentially China has
Speaker 8: access to that since byte Dance is located UH with
Speaker 8: within within China. And the other concern is a propaganda concern.
Speaker 8: How much can can China play a role in in
Speaker 8: in dictating the messages that that that TikTok prioritizes and
Speaker 8: and what the messages that it's that it's UH declaring
Speaker 8: to our youth you know that are that are using
Speaker 8: this so so often, so it's sort of those dual
Speaker 8: concerns that that have really driven this.
Speaker 2: And Matt, what have we heard from Bite Dance, if anything,
Speaker 2: what do they intend to do if Congress passes this?
Speaker 8: Yeah, I think I think they've signaled pretty clearly that
Speaker 8: there will be a lawsuit to challenge this, and so
Speaker 8: I think that's going to be the next stage. So
Speaker 8: we saw this when President Trump, before he was against
Speaker 8: a band hetally tried to ban TikTok in twenty twenty,
Speaker 8: and there was litigation about this, brought both by TikTok
Speaker 8: and by TikTok's users. And here the bill itself tells
Speaker 8: us what court that's going to go to. It's the
Speaker 8: d C Circuit here here in Washington. And so I
Speaker 8: think Byte Dance and TikTok are very likely to very
Speaker 8: soon bring this lawsuit challenging Congress's action.
Speaker 4: I think everyone who's on TikTok wants to know, is
Speaker 4: TikTok going to be banned? What is the likelihood right
Speaker 4: now that in a couple months people in the US
Speaker 4: won't be able to use.
Speaker 1: The app YEP.
Speaker 8: So right now there's three moving pieces here. So one
Speaker 8: will Congress pass this, and I think there. The answer
Speaker 8: is very likely yes, and that's likely to happen today
Speaker 8: or tomorrow. President Biden will sign it. Then there are
Speaker 8: two other moving parts. One can TikTok win in the
Speaker 8: courts and stop this with the First Amendment challenge. I
Speaker 8: don't give them very good odds to do that. I
Speaker 8: give them only about a thirty percent chance to succeed
Speaker 8: with the court challenge. Then the last moving pieces can
Speaker 8: there be a divestiture of the app. And that one's
Speaker 8: sort of the big wild card, because what we don't
Speaker 8: know is whether China will permit a divestiture or not.
Speaker 8: It has signaled that it won't approve something like that.
Speaker 8: So even if you put that at a toss up
Speaker 8: fifty percent and you say it's you know, TikTok has
Speaker 8: a thirty percent chance in the courts, you know, there's
Speaker 8: a fairly good chance that the app does disappear in
Speaker 8: the next year.
Speaker 3: How do you ban an app?
Speaker 8: How do you ban technically? Yeah, so, technically the approach
Speaker 8: here is to prevent it from being carried in app stores.
Speaker 8: It can't be updated and made accessible to users in
Speaker 8: the United States, both in the app stores, and then
Speaker 8: it can't be hosted. So this app has to sit
Speaker 8: on a server somewhere that in a way that makes
Speaker 8: it accessible. And the the approach in this legislation is
Speaker 8: that if any company makes it accessible through web hosting
Speaker 8: or through app store access, that they are subject to
Speaker 8: significant penalties and fines in a case brought by the FTC.
Speaker 8: So that's the enforcement mechanism here. It's not directly against
Speaker 8: bytenance or TikTok, it's against those that would would make
Speaker 8: the app available.
Speaker 2: Well, can I just have some server in China or
Speaker 2: somewhere else, you know, overseas do it?
Speaker 8: That might be the workaround. Maybe they'll they'll try to
Speaker 8: do something like that, and then then you have a
Speaker 8: question of how how how well the US could it
Speaker 8: could enforce enforce that. But I guess that that would
Speaker 8: be maybe the next move if if everything else is
Speaker 8: failing for TikTok.
Speaker 2: All right, So, but the bottom line is for you
Speaker 2: lawyer types, you think this is going to go to
Speaker 2: the Supreme Court.
Speaker 8: Well, the d C Circuit gets it first, and I
Speaker 8: think there's a decent chance that the DC Circuit is
Speaker 8: the final word. I think if the d C Circuit
Speaker 8: were to rule for TikTok. And to say that there
Speaker 8: is a First Amendment challenge that's really going to interest
Speaker 8: the Supreme Court. I think that would motivate the Supreme
Speaker 8: Court to take take a look at it. If the
Speaker 8: d C Circuit issues a definitive ruling upholding Congress's law here,
Speaker 8: maybe the Supreme Court says, you know, look, the d
Speaker 8: C Circuit got it right, we don't need to take
Speaker 8: that up.
Speaker 2: Okay, all right, good stuff. That's what we like talking
Speaker 2: to you. We get it straight, the straight poop and
Speaker 2: all the legal stuff. He gives you, like percentages of
Speaker 2: what can actually happen.
Speaker 6: We love.
Speaker 2: That's why we love talking to Matt schelling Helme. He's
Speaker 2: one of those people that doesn't carry cash. That's the big,
Speaker 2: big mark against met schell helm Otherwise he's a great
Speaker 2: attorney and a great litigation analyst for Bloomberg Intelligence. But
Speaker 2: he's like the kids, they don't carry cash.
Speaker 4: You know, we don't need How do you buy how
Speaker 4: do you buy a truck outside the office. They took
Speaker 4: Apple pay.
Speaker 2: They took applepay.
Speaker 1: All right, there you go. This is the Bloomberg Intelligence podcast,
Speaker 1: available on Apple, Spotify, and anywhere else you'll get your podcasts.
Speaker 1: Listen live each weekday, ten am to noon Eastern on
Speaker 1: Bloomberg dot com, the iHeartRadio app, tune In, and the
Speaker 1: Bloomberg Business app. You can also watch us live every
Speaker 1: weekday on YouTube and always on the Bloomberg Terminal