WEBVTT - Nike Sales Warning, U.S House Passes Spending Bill 0:00:00.600 --> 0:00:10.840 Bloomberg Audio Studios, podcasts, radio news. You're listening to the 0:00:10.840 --> 0:00:15.000 Bloomberg Intelligence podcast. Catch us live weekdays at ten am 0:00:15.040 --> 0:00:17.480 Eastern on Affo car Playing and broyd Otto with the 0:00:17.520 --> 0:00:21.320 Bloomberg Business app. Listen on demand wherever you get your podcasts, 0:00:21.640 --> 0:00:23.320 or watch us live on YouTube. 0:00:25.040 --> 0:00:28.360 Tough day to be a retailer here at Lululemon, Nike, 0:00:28.480 --> 0:00:31.200 some disappointing number of stocks taking a hit here today. 0:00:31.280 --> 0:00:34.160 Let's get the analysis and we can do that with Goyle. 0:00:34.360 --> 0:00:36.760 She's the senior research channels covering all things on the 0:00:36.840 --> 0:00:40.680 retail space for Bloomberg Intelligence. Joining us from Princeton via 0:00:40.760 --> 0:00:44.320 zoom here pun them. Let's start with Nike here, stock 0:00:44.360 --> 0:00:46.880 off about you know, eight percent here, I guess a 0:00:47.120 --> 0:00:50.800 tough first half outlook here in Bloomberg reportings, talking about 0:00:51.159 --> 0:00:55.200 some competition from upstarts on and Hoka talk to us 0:00:55.200 --> 0:00:56.720 about Nike. What did you take away today? 0:00:57.840 --> 0:01:00.760 Sure, the outlook is definitely much weaker than we would anticipated, 0:01:01.080 --> 0:01:04.000 but I think they're positioning themselves for longer term growth. 0:01:04.120 --> 0:01:06.880 So they talked a lot about innovation in the air 0:01:07.000 --> 0:01:11.600 franchise that they have and really expanding that to other sneakers, aloettes, 0:01:11.880 --> 0:01:14.520 and we think that will position them for longer term growth. 0:01:14.760 --> 0:01:17.440 But definitely there is a softer start to the year. 0:01:17.560 --> 0:01:20.920 The first half of fiscal twenty twenty five will be challenging. 0:01:21.360 --> 0:01:22.880 The light at the end of the tunnel is that 0:01:23.040 --> 0:01:25.560 two h twenty five will be better and will end 0:01:25.600 --> 0:01:28.480 the year on a positive note based on their expectations. 0:01:28.880 --> 0:01:30.959 And I think the real key here is to focus 0:01:31.040 --> 0:01:33.399 on the product innovation that they're going to bring forward 0:01:33.480 --> 0:01:36.160 over the coming twelve to eighteen months to really see 0:01:36.160 --> 0:01:39.959 if Nike can continue its journey to maintain its brand lead. 0:01:40.120 --> 0:01:43.120 It is a fifty billion dollar company owned Paul, So 0:01:43.200 --> 0:01:45.840 when you know, folks talk about on in Hoka, when 0:01:45.840 --> 0:01:47.960 you look at the size of the two versus what 0:01:48.080 --> 0:01:53.040 Nike has, they're still very very very small in comparison, you. 0:01:53.040 --> 0:01:55.600 Know, put them. I look at Nike and the one 0:01:55.640 --> 0:01:59.200 of the other stocks you're watching Lulu Lemon today really 0:01:59.440 --> 0:02:02.200 the big decliners in the S and P five hundred 0:02:02.960 --> 0:02:05.760 and I wonder if there's any sort of broader takeaway, 0:02:06.040 --> 0:02:08.560 sort of a macro takeaway to be had here about 0:02:08.720 --> 0:02:11.839 the health of the consumer, or is this very much 0:02:12.360 --> 0:02:15.839 you know, sort of just brand specific issues for these 0:02:15.880 --> 0:02:18.560 two or is there sort of a return to office 0:02:19.080 --> 0:02:21.520 story still at play with these two brands at all. 0:02:22.639 --> 0:02:25.120 I think it's a combination of a multitude of things. 0:02:25.440 --> 0:02:27.679 So I think the first is that, yes, there is 0:02:27.800 --> 0:02:31.240 a consumer pullback that's happening. We heard that from Adidas 0:02:31.280 --> 0:02:34.200 and Puma tou with their softer guidance, So that's not 0:02:34.400 --> 0:02:37.359 necessarily a big surprise of the consumers pulling back on 0:02:37.440 --> 0:02:40.240 discretionary spend, and we saw that with better numbers at 0:02:40.280 --> 0:02:43.239 Walmart and Amazon, where you kind of push for value 0:02:43.240 --> 0:02:45.799 a little more. On the other hand, you do have 0:02:45.960 --> 0:02:48.079 to worry about the product because the one thing that 0:02:48.160 --> 0:02:50.959 Little Lemon said that was interesting is yes, traffic was 0:02:51.040 --> 0:02:54.560 down at stores, but conversion was also weaker, and that 0:02:54.800 --> 0:02:57.400 means that there's something happening with the product. And they 0:02:57.480 --> 0:02:59.680 did talk about the need to really up their product 0:02:59.760 --> 0:03:03.160 cycle and replenished to have inventory in stock because they 0:03:03.240 --> 0:03:05.359 did see some weakness from that. So I think it's 0:03:05.400 --> 0:03:08.160 a culmination of a pullback in the consumer the product, 0:03:08.600 --> 0:03:11.320 and also that the app leisure market I think is 0:03:11.360 --> 0:03:14.400 still strong. I think there's still potential there Globally, I 0:03:14.520 --> 0:03:17.160 do think coming off from the pandemic that you will 0:03:17.240 --> 0:03:19.760 have some normalization of a wardrobe where it's going to 0:03:19.760 --> 0:03:22.360 be more balanced today than it was let's say two 0:03:22.480 --> 0:03:24.600 or three years ago. Oh, it was probably eighty percent 0:03:24.639 --> 0:03:27.680 at leisure, twenty percent work life. Today it's probably leaning 0:03:27.720 --> 0:03:28.680 back to fifty to fifty. 0:03:29.320 --> 0:03:31.359 So you'll be relieved to know that I am not 0:03:31.600 --> 0:03:35.360 a Lulu Lemon customer. But talk to me about like 0:03:36.560 --> 0:03:40.040 fashion is it? I mean, it's all a similar type 0:03:40.080 --> 0:03:43.280 of fabric and fit. So is it just colors and 0:03:43.360 --> 0:03:46.080 patterns and things like that? How do you change that up? 0:03:46.120 --> 0:03:48.880 Because I know getting the fashion right is so important, 0:03:49.120 --> 0:03:50.320 you know for the companies that. 0:03:50.360 --> 0:03:54.720 You follow, actually fall for Lululemon. Yes, it's about getting 0:03:54.720 --> 0:03:57.600 the color and fashion right, but it's also about the 0:03:57.720 --> 0:04:00.440 fit and the fabric. They're a ligne pan which are 0:04:00.440 --> 0:04:02.800 their best sellers, you know, the biggest sell on that 0:04:03.000 --> 0:04:04.680 is the way that they fit you. They make you 0:04:04.840 --> 0:04:08.040 look good, and every woman wants to look good. So 0:04:08.440 --> 0:04:11.520 that's the differentiator between a Lulu Lemon yoga pant and 0:04:11.600 --> 0:04:13.960 let's say, on Nike yoga pant. There is a difference 0:04:14.440 --> 0:04:16.360 in the quality of the pant that you're wearing and 0:04:16.480 --> 0:04:17.039 the fit. 0:04:17.000 --> 0:04:17.479 That it has. 0:04:17.920 --> 0:04:22.080 Don't kid anyone. Paul's wearing yoga pants right now. Actually 0:04:22.120 --> 0:04:24.239 their dress pants. They have some pretty good blue Lemonas 0:04:24.320 --> 0:04:25.320 Rice men's dress pants. 0:04:25.400 --> 0:04:27.039 Yeah, I've got a couple of pairs of those. 0:04:27.480 --> 0:04:31.160 Ye, put them back to Nike. One headline I saw 0:04:31.240 --> 0:04:35.039 that kind of shocked me is that Nike was able 0:04:35.160 --> 0:04:38.960 to get the sponsorship of the German national soccer team, 0:04:39.960 --> 0:04:41.760 taking it away from us from Audidos. 0:04:41.880 --> 0:04:45.919 Yeah, which which is pretty Yeah, it's pretty you. 0:04:45.960 --> 0:04:48.480 Know, shocking for a soccer fan. I mean, you grew 0:04:48.560 --> 0:04:52.320 up watching Audidos on the shirts of every basically every team. 0:04:52.360 --> 0:04:55.080 But how big of a deal is that as far 0:04:55.120 --> 0:04:58.960 as that global soccer market for Nike and sort of 0:04:59.000 --> 0:05:02.000 this rivalry with Adidas and that sponsorship. 0:05:03.080 --> 0:05:05.560 Yeah, look, I think it's a big win for Nike 0:05:05.760 --> 0:05:09.040 because Adidas is a German brand and has held that 0:05:09.200 --> 0:05:12.560 sponsorship for I believe over seventy five years. So to 0:05:12.720 --> 0:05:15.440 lose that to Nike is a big deal and it 0:05:15.560 --> 0:05:19.440 puts Nike on a stronger foothold across the globe in 0:05:19.480 --> 0:05:22.080 the field of soccer. So we do think that this 0:05:22.240 --> 0:05:24.040 is a big win for them, But make no mistake 0:05:24.120 --> 0:05:27.000 They paid a premium for this, so it wasn't something 0:05:27.080 --> 0:05:30.000 that they took away at a steal. They definitely paid. 0:05:29.839 --> 0:05:30.200 Up for it. 0:05:30.920 --> 0:05:33.200 So I did just watch or recently watch it with 0:05:33.200 --> 0:05:35.240 the Jordan, you know, and kind of story about how 0:05:35.320 --> 0:05:38.360 he got and the relationship with Nike and kind of 0:05:38.360 --> 0:05:40.840 how that all plays out. But now the dollars are 0:05:40.880 --> 0:05:44.160 just so much bigger. So you know, so put me 0:05:44.440 --> 0:05:46.560 as you look across the Punams, I mean the Nikes 0:05:46.560 --> 0:05:48.520 of the world, and the Adidas and the Pumas and 0:05:48.560 --> 0:05:51.320 things things like that. Is that still a huge part 0:05:51.400 --> 0:05:55.000 of their marketing strategies is to align themselves with teams 0:05:55.120 --> 0:05:58.000 with individual players. Is that still as big as it 0:05:58.160 --> 0:05:58.800 always has been. 0:05:59.800 --> 0:06:02.240 It is as big as it's always been, But now 0:06:02.279 --> 0:06:04.920 it's harder to come up in that playing field with 0:06:05.200 --> 0:06:08.000 some of the major players unless you have deep pockets. 0:06:08.040 --> 0:06:11.039 So really only Nike and Adidas can afford to spend 0:06:11.080 --> 0:06:13.040 the money that they're spending to win these leagues and 0:06:13.120 --> 0:06:16.600 their players. These smaller companies like Puma you mentioned and 0:06:16.760 --> 0:06:19.840 under Armour they're making a bet on rookies. So you 0:06:19.920 --> 0:06:22.040 saw the success that under Armour has had with the 0:06:22.120 --> 0:06:25.560 Curry franchise, and that bet was made a long time ago. 0:06:25.960 --> 0:06:28.320 You're not going to see these smaller brands chase after 0:06:28.440 --> 0:06:30.920 the established, bigger players and the bigger teams because they 0:06:30.920 --> 0:06:33.360 don't have the pockets for it. And that's where Adidas 0:06:33.360 --> 0:06:36.160 and Nike win, and that's what makes them really keep 0:06:36.200 --> 0:06:38.599 their number one and number two positions in the global 0:06:38.640 --> 0:06:39.560 sportsware industry. 0:06:40.080 --> 0:06:42.680 Well put them. How about all the other sort of 0:06:42.800 --> 0:06:46.160 also plays out there. Is there any sign of the 0:06:46.279 --> 0:06:49.120 dominance of these two companies being threatened at all? You know, 0:06:49.320 --> 0:06:52.039 we see a lot of these sort of Instagram brands, 0:06:52.800 --> 0:06:55.280 you know, in Amazon brands. Is that a threat to 0:06:55.400 --> 0:06:57.680 these these major players in this industry? 0:06:57.760 --> 0:06:57.920 Yet? 0:06:59.279 --> 0:07:02.760 I'd say that the industry is broadening, right, So in 0:07:02.839 --> 0:07:05.960 the sports where world, traditionally it was all about performance 0:07:06.040 --> 0:07:09.159 and being on the field playing. Today it's about walking 0:07:09.240 --> 0:07:11.080 the roads and really wearing it in your day to 0:07:11.160 --> 0:07:14.600 day life. So competition is growing, and there is also 0:07:14.680 --> 0:07:17.840 competition growing on the perform in side with the Hokahs 0:07:17.880 --> 0:07:21.200 and the Odds, they're very popular shoes and they've actually 0:07:21.280 --> 0:07:24.280 taken share in the running category. So I do think 0:07:24.360 --> 0:07:26.880 that both Arida and Nike have to step up their 0:07:26.960 --> 0:07:30.440 game to really add more innovation, but they're still small, 0:07:30.520 --> 0:07:33.000 so I don't think you know Nike is at risk 0:07:33.120 --> 0:07:35.720 of losing its number one position just yet. They win 0:07:35.840 --> 0:07:38.240 by a wide margin. But it's something to keep an 0:07:38.240 --> 0:07:39.160 eye on over time. 0:07:39.760 --> 0:07:40.040 Put them. 0:07:40.120 --> 0:07:42.080 Let's step away from these two stories, share and look 0:07:42.080 --> 0:07:44.960 at your overall coverage. You follow a wide range of retail. 0:07:45.000 --> 0:07:48.160 You've done that for decades. One of the top retail 0:07:48.160 --> 0:07:50.760 analysts on the street, What are some of the stories 0:07:50.800 --> 0:07:52.160 that you think are interesting? Now? What are you talking 0:07:52.160 --> 0:07:53.280 to your clients about these days? 0:07:54.200 --> 0:07:56.360 I think we're talking about the consumer a lot, right. 0:07:56.400 --> 0:07:58.640 The consumer is clearly pulled back and what does that 0:07:58.800 --> 0:08:01.560 mean in an election year? So we think the consumer 0:08:01.720 --> 0:08:04.920 is going to remain soft this year. But we think 0:08:04.960 --> 0:08:07.960 the consumer is stretching their dollars so they're looking for value. 0:08:08.040 --> 0:08:10.600 So value will remain top of mind. But that's that 0:08:10.840 --> 0:08:13.440 they're traveling. So it's not that we're going into a 0:08:13.520 --> 0:08:15.520 recession by any means. They're not going to fall off 0:08:15.520 --> 0:08:18.240 a cliff, but they're spending money where they feel that 0:08:18.280 --> 0:08:20.720 they're getting the most bang for it, and we think 0:08:20.720 --> 0:08:22.440 there'll be a trend that we continue. 0:08:22.080 --> 0:08:24.360 To see as a er on I mean, is that 0:08:24.440 --> 0:08:26.880 a Walmart slash target story or does that steer me 0:08:26.960 --> 0:08:28.560 to the maybe the dollar stores. 0:08:30.480 --> 0:08:32.920 I'd say, you know, the winners here would probably be 0:08:33.080 --> 0:08:35.320 and what we've seen in the past in the fourth 0:08:35.400 --> 0:08:38.320 quarter is the Walmarts. Right, the Walmart's where you find 0:08:38.440 --> 0:08:40.959 value and you find a broad range of assortment and 0:08:41.000 --> 0:08:44.160 where you have a customer that's more broad based versus 0:08:44.280 --> 0:08:46.760 the customer of a Dollar General, where there are more 0:08:46.840 --> 0:08:49.719 low income and they are too pressured. Walmart attracts a 0:08:49.760 --> 0:08:52.120 broader market and they offer the value that you get. 0:08:53.200 --> 0:08:55.920 All right, put them excellent stuff, as always put them. Boil, 0:08:56.120 --> 0:08:59.640 senior analyst. She covers all the retail space for Bloomberg Intelligence. 0:09:00.000 --> 0:09:04.199 We were talking about Nike and Lulu Lemons some disappointing numbers. 0:09:04.440 --> 0:09:07.480 Nike off about eight percent, but as Michael's reporting earlier, 0:09:07.559 --> 0:09:10.439 Lululemon off about almost eighteen percent years so a big 0:09:10.559 --> 0:09:14.200 pullback here for those two retail names. And the question 0:09:14.240 --> 0:09:15.719 I think a lot of people might a lot of 0:09:15.760 --> 0:09:18.079 investors when they look at their earnings from a Nike 0:09:18.120 --> 0:09:19.959 er Lulu Lemma, what does it tell you about the consumer? 0:09:20.240 --> 0:09:22.640 That's yeah, And it was interesting to hear put them 0:09:22.760 --> 0:09:25.679 talk about that how they you know, it's not just execution, 0:09:26.040 --> 0:09:28.720 it's not just market share. Story here, it does seem 0:09:29.000 --> 0:09:31.199 like on top of everything else, there is a little 0:09:31.240 --> 0:09:35.280 bit of some either spending pullback or at least bargaining hunt. 0:09:35.520 --> 0:09:36.959 And then you compare that to what you hear from 0:09:37.040 --> 0:09:40.400 like the cruise lines. They're still backing them. Yeah, I mean, 0:09:40.480 --> 0:09:42.360 so people are spending money, They're just spending a little 0:09:42.360 --> 0:09:44.400 bit differently than maybe a pre pandemic. I don't know, 0:09:45.000 --> 0:09:48.280 still on that experiential track, I guess if you will, 0:09:48.800 --> 0:09:51.000 because again you think about some of these the theme 0:09:51.040 --> 0:09:54.280 park operators, the cruise directors of the hotels, the casinos 0:09:54.520 --> 0:09:56.520 still sing really good traffic. 0:09:58.040 --> 0:10:01.920 You're listening to the Bloomberg and Podcast. Catch us live 0:10:02.040 --> 0:10:05.520 weekdays at ten am Eastern on applecar Play and Androyight 0:10:05.559 --> 0:10:08.680 Auto with a Bloomberg business. You can also listen live 0:10:08.840 --> 0:10:11.959 on Amazon Alexa from our flagship New York station Just 0:10:12.080 --> 0:10:14.679 say Alexa playing Bloomberg eleven thirty. 0:10:17.400 --> 0:10:20.000 Let's get right to it. Lee Glasgow in the house, 0:10:20.120 --> 0:10:22.880 darkening the door. Whenever we see them walking around, we 0:10:23.000 --> 0:10:25.040 just grab them, you know, because it's a long walk 0:10:25.040 --> 0:10:28.120 for me down to Princeton. So anyway, Lee, you've been 0:10:28.160 --> 0:10:31.240 covering FedEx forever. You've been covering all these logistic companies, 0:10:31.280 --> 0:10:33.679 the rails, the trucks, all the shippers, you know, this 0:10:33.720 --> 0:10:36.959 stuff end to end. FedEx seems to me to be 0:10:37.040 --> 0:10:41.600 a core core story within that global logistics. What went 0:10:41.720 --> 0:10:43.959 wrong and then what have they been doing to fix it? 0:10:44.240 --> 0:10:47.240 Yeah, so FedEx is a is a great story, and 0:10:47.360 --> 0:10:50.640 it's an improving story. And the reality is that over 0:10:50.720 --> 0:10:53.599 the years it got too big for itself and it 0:10:53.720 --> 0:10:58.880 got too fat, and there was a lot of hesitation 0:10:59.200 --> 0:11:01.679 to combine its network. So as an air network and 0:11:01.720 --> 0:11:05.319 a ground network. Its ground network is mostly independent contractors 0:11:05.360 --> 0:11:08.199 and its air network are employees, so they're you know, 0:11:08.320 --> 0:11:11.760 there's it's not easy to integrate those networks, and a 0:11:11.840 --> 0:11:14.000 lot of analysts have always said we should integrate them, 0:11:14.000 --> 0:11:16.160 we should integrate them, and management say, you guys don't 0:11:16.240 --> 0:11:19.360 understand our business. We can't do that. Well, fast forward, 0:11:19.640 --> 0:11:23.960 they're doing it. And that's their Tricolor strategy where they're 0:11:24.800 --> 0:11:29.080 you know, which is re re redesigning their air freight 0:11:29.160 --> 0:11:32.599 network and they're also combining their express and ground and 0:11:32.720 --> 0:11:34.480 services business into one. 0:11:35.800 --> 0:11:36.160 Segment. 0:11:36.200 --> 0:11:38.520 If you will. It's pretty much everything. But they're less 0:11:38.559 --> 0:11:41.320 than truckload business, so they're doing a lot on. 0:11:42.040 --> 0:11:44.280 This sounds like a good old fashion we got to 0:11:44.320 --> 0:11:45.240 restructure our business. 0:11:45.640 --> 0:11:47.600 Yeah, and they're gonna they're gonna emerge is a lot 0:11:47.640 --> 0:11:50.520 more efficient. They're gonna emerge is a lot more profitable, 0:11:50.559 --> 0:11:53.680 and that's the hope. You know, their express network has 0:11:54.200 --> 0:11:57.800 really poor margins. I mean, their margins were two point 0:11:57.840 --> 0:12:01.520 three percent in the quarter, and that was a real 0:12:01.679 --> 0:12:04.640 good outperformance and what the street was expecting by one 0:12:04.679 --> 0:12:05.839 hundred and ten basis points. 0:12:05.920 --> 0:12:08.600 Oh function, Yeah, I'm just seeing that very good. Okay, 0:12:08.760 --> 0:12:11.960 the numbers are the numbers are good. Yeah, okay, all right, 0:12:12.040 --> 0:12:13.240 So what's next steps for them? 0:12:14.000 --> 0:12:17.040 So, as you heard earlier, they announced a five billion 0:12:17.120 --> 0:12:20.520 dollar stock buy back plan. I think that gives people 0:12:20.720 --> 0:12:24.760 confidence in management's ability to execute execution. Risk is really 0:12:24.800 --> 0:12:26.880 the number one concern I think the street might have. 0:12:27.280 --> 0:12:29.559 As you probably saw in the Bloomberg terminal today, everyone's 0:12:29.640 --> 0:12:32.840 raising their price targets and their estimates for physical twenty 0:12:33.000 --> 0:12:36.520 twenty five and beyond, and that's really driven by you know, 0:12:36.600 --> 0:12:38.800 they're they're cutting about one point eight billion and cost 0:12:38.920 --> 0:12:41.439 this physical year, and they're going to do about two 0:12:41.440 --> 0:12:43.839 point two billion next And if you think about it, 0:12:43.920 --> 0:12:47.079 one point eight billion is about five dollars and fifty 0:12:47.200 --> 0:12:49.599 five dollars and seventy five cents per share. And this 0:12:49.760 --> 0:12:52.600 is a stock that you know was generating fifteen dollars 0:12:52.640 --> 0:12:56.720 in EPs. So these are sizable increases in the overall 0:12:56.760 --> 0:13:01.400 profitability company. You know, management, they've stumbled here and there, 0:13:01.520 --> 0:13:04.760 but it really seems this last quarter that they're executing 0:13:04.880 --> 0:13:08.480 and they're focused, uh, and they're building confidence and sentiment 0:13:08.559 --> 0:13:11.600 is so important when it comes to FedEx, which has 0:13:11.640 --> 0:13:13.360 struggled in the past. 0:13:14.000 --> 0:13:17.640 You know, Lee, when you talk about saving cutting costs 0:13:17.679 --> 0:13:20.120 by that degree, I mean, I assume that's that's mostly 0:13:20.240 --> 0:13:25.280 headcount to some degree. Where are they cutting jobs? Is 0:13:25.360 --> 0:13:29.640 it just redundancy between the separate units now that they're combined, 0:13:29.800 --> 0:13:30.480 you know, a. 0:13:30.559 --> 0:13:31.559 Coupany like fed X. 0:13:32.600 --> 0:13:35.040 It seems like it'd be tough to cut those union jobs, 0:13:35.120 --> 0:13:37.440 the drivers and that sort of thing. Is it middle 0:13:37.520 --> 0:13:39.320 managers that are that are getting. 0:13:39.120 --> 0:13:42.640 The FedEx is a non union show except for its pilots. 0:13:43.720 --> 0:13:46.240 Their drivers are not UNI drivers. Most of their drivers 0:13:46.480 --> 0:13:48.719 that come to your house or actually they don't work 0:13:48.760 --> 0:13:51.600 for FedEx in the US drivers are union right correct 0:13:51.640 --> 0:13:54.920 with the team stairs. So where they where are they 0:13:55.400 --> 0:13:58.520 cutting heads? Well, it's they're not really cutting that deep. 0:13:58.840 --> 0:14:01.080 What they're doing is they're getting rid of middle management. 0:14:01.160 --> 0:14:03.240 Like I said in the beginning, they've gotten a little fat, 0:14:03.400 --> 0:14:05.720 so they're getting rid of some middle management. A lot 0:14:05.800 --> 0:14:08.079 of that is through attrition, some natural attrition. 0:14:08.600 --> 0:14:08.720 Uh. 0:14:08.920 --> 0:14:10.920 It's it's not like what was the guy's named Jack, 0:14:11.000 --> 0:14:15.440 the chainsaw guy coming in with, you know, destroying companies. 0:14:15.720 --> 0:14:17.839 I think it's going to be more of a gradual shift. 0:14:18.040 --> 0:14:20.680 And as they combine networks, they're going to figure out 0:14:20.760 --> 0:14:23.600 what where the redundancies lie. Uh, and they're going to 0:14:23.640 --> 0:14:27.400 benefit from, you know, reducing those redundancies. And that's through 0:14:27.440 --> 0:14:29.840 their their drive initiative and their network two point zero 0:14:29.840 --> 0:14:31.200 initiatives that they have out. 0:14:31.080 --> 0:14:35.200 There as FedEx or UPS or any other global shippers 0:14:35.240 --> 0:14:39.440 that they talked about problems getting planes like from because 0:14:39.480 --> 0:14:41.360 we Bowing's in the news every day. Unfortunately, we have 0:14:41.400 --> 0:14:43.800 to talk to George Ferguson every day because Bowing's always 0:14:43.840 --> 0:14:46.440 in the news. As any of these companies have ever said, 0:14:46.880 --> 0:14:48.920 we're not getting the planes we need to far flow. 0:14:49.000 --> 0:14:51.240 No, that's that's not a problem because what they're doing 0:14:51.400 --> 0:14:54.000 is they're actually, you know, FedEx is trying to downsize 0:14:54.040 --> 0:14:58.720 its fleet because with with this whole redesign of their 0:14:58.760 --> 0:15:02.960 air fleet, they're going to need probably less planes over time, 0:15:04.320 --> 0:15:06.800 and those planes that they're going to be operating are 0:15:06.840 --> 0:15:09.880 going to be operating much more efficient. They're going to 0:15:09.920 --> 0:15:12.920 have a more density. When you talk about freight and 0:15:12.960 --> 0:15:15.920 transportation networks, it's all about density. How much stuff do 0:15:15.960 --> 0:15:18.520 you have in whether your truck or your train or 0:15:18.600 --> 0:15:21.000 your plane. Uh, And so that's going to be key 0:15:21.080 --> 0:15:23.640 for them to drive those margins higher in the express business. 0:15:25.280 --> 0:15:27.560 You know, Leah, I've read that there's a lot of 0:15:28.000 --> 0:15:31.040 sort of R and D looking at the automation of 0:15:31.360 --> 0:15:32.200 package delivery. 0:15:32.280 --> 0:15:34.040 You know, is there a. 0:15:34.160 --> 0:15:36.880 Chance in our lifetime that we'll see you know, sort 0:15:36.920 --> 0:15:40.280 of driverless vehicles dropping our packages off that sort of thing. 0:15:40.480 --> 0:15:43.800 I'm a a whole huge bull on like autonomous trucks 0:15:43.960 --> 0:15:46.920 or delivery. But you know what they will be doing 0:15:47.000 --> 0:15:50.320 is we'll be leveraging technology and AI to make sure 0:15:51.040 --> 0:15:53.960 a package gets into the right network and gets and 0:15:54.280 --> 0:15:57.400 it has that delivery promise that they have whether it's 0:15:57.440 --> 0:16:00.200 overnight or deferred. You know, what they're really and do 0:16:00.320 --> 0:16:04.360 be doing is using technology to make sure that package 0:16:04.400 --> 0:16:05.480 gets into the right network. 0:16:05.600 --> 0:16:07.720 Yeah, but you don't think the technology is going to 0:16:07.760 --> 0:16:10.040 be there to actually have a driverless type of. 0:16:10.080 --> 0:16:11.480 Do not not anytime soon. 0:16:11.640 --> 0:16:14.840 Maybe you know, little little niche markets they might have 0:16:15.000 --> 0:16:17.800 and kind of just highlighting you know, those little robots 0:16:17.840 --> 0:16:21.240 that grows that go around towns and you see pictures 0:16:21.240 --> 0:16:25.200 of people beating up the poor little robots, right knocking 0:16:25.240 --> 0:16:27.000 them over exactly. 0:16:27.120 --> 0:16:31.120 So during the pandemic, Lee became, for better or worse, 0:16:31.200 --> 0:16:33.840 kind of our supply chain grew, discovers all the companies, 0:16:33.920 --> 0:16:35.960 like the shipping companies that get this stuff to our shore, 0:16:36.440 --> 0:16:38.480 then the rails that take them into like you know, 0:16:38.560 --> 0:16:40.920 Middle of America, and then the trucking companies that deliver 0:16:41.000 --> 0:16:43.080 them to everywhere and all the all that kind of stuff. 0:16:43.400 --> 0:16:46.120 So let's start with the rails here. I'm looking at 0:16:46.160 --> 0:16:48.960 the trailing twelve months, these stocks have done pretty well. 0:16:49.240 --> 0:16:51.080 I mean, you know, they're all up mid thirties percent 0:16:51.120 --> 0:16:55.120 in NORFK, Southern CSX, Union Pacific, pretty good performance. What's 0:16:55.120 --> 0:16:55.840 the story for the rails? 0:16:55.880 --> 0:16:57.960 These stations Yeah, there's really not a homogeneous story with 0:16:58.040 --> 0:17:01.840 the rails. Interestingly enough, it's really company specific. Norfolk Southern. 0:17:01.840 --> 0:17:07.280 It's all about activists investors. You know, they're dealing with Anquora, 0:17:07.359 --> 0:17:09.280 which is trying to kick out management and put their 0:17:09.320 --> 0:17:13.000 own precision scheduling railroad management team in. Norfolk Southern has 0:17:13.080 --> 0:17:15.320 come back and said, we have our own guy that 0:17:15.400 --> 0:17:18.480 we want to put in from PSR. Some investors might be, well, 0:17:18.520 --> 0:17:19.800 it's a little too late. You should have done that 0:17:19.840 --> 0:17:22.680 a couple of years ago. So no matter who wins 0:17:22.800 --> 0:17:26.040 the battle, Norfolk Southern will emerge as a much more 0:17:26.080 --> 0:17:29.479 profitable company. And then Union Pacific another story. They had 0:17:29.520 --> 0:17:33.720 a change in CEO Jim Venna as a PSR Persition 0:17:33.800 --> 0:17:36.800 Scheduling railroad and guy. And for those out there, PSR 0:17:36.920 --> 0:17:39.200 is really just six stigma for the railroads. It's just 0:17:39.320 --> 0:17:43.359 operating really efficient networks, sweating assets, that sort of stuff. 0:17:43.840 --> 0:17:46.040 And he's coming in and he's got, you know, his 0:17:46.200 --> 0:17:49.960 own vision of how that railroad should operate. And then 0:17:50.200 --> 0:17:55.720 the littlest one, even after a merger Canadian Pacific Kansas City, 0:17:56.640 --> 0:17:58.800 you know, they have their own growth story because now 0:17:58.880 --> 0:18:02.360 they are the only road that goes from Canada into Mexico. 0:18:02.400 --> 0:18:03.080 It's a great story. 0:18:03.440 --> 0:18:06.200 And so they are the only railroad that is probably 0:18:06.280 --> 0:18:09.640 going to grow earnings in the in this last quarter, 0:18:09.760 --> 0:18:10.359 the first quarter. 0:18:11.800 --> 0:18:15.360 How about the truckers. I'm looking and I put up JBHT. 0:18:15.560 --> 0:18:18.560 That's the ticker I always remember. You hit the BEQ function. 0:18:18.640 --> 0:18:20.920 It gives you the relative valuation relative to the what's peers? 0:18:21.880 --> 0:18:25.199 Truckers not doing as well. I'm looking at JBHD over 0:18:25.240 --> 0:18:27.639 the trailing twelve months, it's up eighteen percent, but some 0:18:27.680 --> 0:18:29.480 of the others are down. What's the word on the 0:18:29.760 --> 0:18:30.320 trucking biz? 0:18:30.600 --> 0:18:33.440 So, trucking has been not great, and that's really there's 0:18:33.600 --> 0:18:37.119 just too much supply out there, and that excess supply 0:18:37.280 --> 0:18:40.320 is killing the truckloads spot market, which is down, you know, 0:18:40.680 --> 0:18:44.119 mid teens from last year, and that is weighing on 0:18:44.240 --> 0:18:47.800 contractual rates and that's where most publicly traded trucking companies play. 0:18:48.600 --> 0:18:51.600 Some peer play truckload carriers are like Heartland expressed. Night 0:18:51.680 --> 0:18:55.119 Swift is a major truckload carrier, so as Werner, But 0:18:55.280 --> 0:18:56.960 you know a lot of them don't play in that 0:18:57.119 --> 0:19:01.360 really volatile spot market business. But it does impact their 0:19:01.520 --> 0:19:05.520 overall earnings ability, and a lot of them have been 0:19:05.560 --> 0:19:10.440 diversifying into less volatile Businesses Warner, for instance, it's a 0:19:10.440 --> 0:19:13.680 big dedicated carrier, so it's more like we're going to 0:19:14.200 --> 0:19:16.159 they'll go to Walmart and say we're going to haul 0:19:16.240 --> 0:19:19.159 stuff for you between Chicago and New York. We'll do 0:19:19.280 --> 0:19:23.119 ten trucks a week or between dcs and retail stores. 0:19:23.160 --> 0:19:25.439 And they even sometimes even you know, load the shelves 0:19:25.480 --> 0:19:29.960 at CBS. Them dedicated services. So that's one area. Freight brokerage, 0:19:29.960 --> 0:19:34.240 which is obviously non asset and higher ROIC, which is 0:19:34.400 --> 0:19:36.360 attractive to a lot of them. And you know when 0:19:36.359 --> 0:19:39.920 you started with JB Hunt, JBI Hunt, their trucking company 0:19:40.040 --> 0:19:42.560 is one of the the trucking company business is probably 0:19:42.600 --> 0:19:45.200 one of their smallest segments. It's really an intermodal provider 0:19:45.760 --> 0:19:48.800