Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. This is Bloomberg Intelligence
Speaker 1: with Alex Steel and Paul Sweeney.
Speaker 2: The real app performance has been in US corporate high yield.
Speaker 3: Are the companies lean enough? Have they trimmed all the fats?
Speaker 2: The semiconductor business is a really cyclical business.
Speaker 1: Breaking market headlines and corporate news from across the globe.
Speaker 3: Do investors like the M and A that we've seen?
Speaker 2: These are two big time blue chip companies.
Speaker 3: Window between the peak and count changing super fast.
Speaker 1: Bloomberg Intelligence with Alex Steel and Paul Sweeney on Bloomberg Radio.
Speaker 2: On Today's Bloomerg Intelligence Show, we dig inside the big
Speaker 2: business stories impacting Wall Street and the global markets.
Speaker 3: Each and every week we provide in depth research and
Speaker 3: data on some of the two thousand companies and one
Speaker 3: hundred and thirty industries our analysts cover worldwide.
Speaker 2: Today, we'll look at why Apple is investing five hundred
Speaker 2: billion dollars in the US over the next four years.
Speaker 3: Plus, we'll discuss how the global reach tell giant Walmart
Speaker 3: is navigating a second Donald Trump presidency.
Speaker 2: First, we begin with big tech and the chip giant
Speaker 2: and video This week and Vidia reported good but not
Speaker 2: great earnings.
Speaker 3: The company also warn the gross profit margins would be
Speaker 3: tighter than anticipated as it rushes to roll out a
Speaker 3: new chip design called Blackwell.
Speaker 2: For more on this, we were joined by Gene Munster,
Speaker 2: managing partner at deep Water Asset Management.
Speaker 3: We first asked Gene for his take on Vidia earnings.
Speaker 4: Well, the results were good but not great, And specifically
Speaker 4: is the margin guidance at seventy one percent versus the
Speaker 4: three to seventy two and there weren't a whispers that
Speaker 4: they were going to lower margins. I think that really
Speaker 4: stood out to me. The upside on revenue a billion
Speaker 4: compares to the expectations of like a billion and a
Speaker 4: half to two billion, and so I think that these
Speaker 4: were good in the sense they did raise on revenue,
Speaker 4: but not great effectively. What they're doing is pushing the
Speaker 4: ramp to the back half of the year, especially on margins.
Speaker 4: That's when the margins they said to kind of go
Speaker 4: to seventy five percent. And I would add one other
Speaker 4: piece to this is going into the print. I believe
Speaker 4: that the most important point was related to commentary about
Speaker 4: how sold out they were on Blackwell. This is a
Speaker 4: metric that they typically give and last quarter they said
Speaker 4: they were sold out. For basically three quarters of this year,
Speaker 4: they were radio silent on the topic. They surprisingly didn't
Speaker 4: get asked a question on it. But I think that
Speaker 4: Jensen's comments about the need for compute being one hundred
Speaker 4: to one million I double checked that on the transcript.
Speaker 4: One hundred to one million times more compute needed for
Speaker 4: reasoning and physical AI and robotics AI. That increase in compute,
Speaker 4: I think gave investors some optimism that, well, this year
Speaker 4: might not be the year that twenty twenty six is
Speaker 4: going to grow faster than what people think. And so
Speaker 4: set a different way is that the results and guidance
Speaker 4: don't give a ton of optimism. But if you look
Speaker 4: at where this ultimately could go, if you take what
Speaker 4: Jensen is saying right to buy ten, that means they're
Speaker 4: still going to comfortably beat the numbers next year.
Speaker 3: Okay, there's a lot of unpack with that. So let's
Speaker 3: go back to gross margins for a second. Based on
Speaker 3: their call that gross margins will hit seventy five percent
Speaker 3: in the back half of the year, when do we
Speaker 3: think they're going to bottom?
Speaker 4: So they got answered the guess that question on the call,
Speaker 4: and they kind of sidestep it, but if you read
Speaker 4: between the lines, they probably go lower again in the
Speaker 4: July quarter. So there's an April quarter that we're in
Speaker 4: right now than they go to the July quarter. My
Speaker 4: guess is they probably bottom then at around seventy percent,
Speaker 4: So effectively going from seventy to seventy five over six months,
Speaker 4: it's a pretty big jump. At the time of the call,
Speaker 4: the stock was up two percent in after hours when
Speaker 4: they came to the last question on the call, which
Speaker 4: was related to that ramp in margins and how realistic
Speaker 4: is that if we have more export controls and the
Speaker 4: answer was, we don't know how export controls are going
Speaker 4: to impact our business, And immediately the stock went from
Speaker 4: up call it two percent to down a half a percent.
Speaker 4: We saw basically two percent move in it, and so
Speaker 4: I think that speaks to investors saying like that's that's
Speaker 4: a risk here is like are we really going to
Speaker 4: get to that margin ramp we talked about the seventy
Speaker 4: three percent margins for a tech company, for a hardware company.
Speaker 4: I think at the end of the day, they're still remarkable.
Speaker 4: But for these stocks to keep working, you need to
Speaker 4: have margins at a minimum stable and growing. And I
Speaker 4: just want to put one final thought on this Alex
Speaker 4: is that ultimately I think margins will get back to
Speaker 4: that seventy five percent. I don't know if it's going
Speaker 4: to be in Q four early next year, but if
Speaker 4: the ramp is what I think it's going to be
Speaker 4: for next year, I think we're going to get back
Speaker 4: to some go go days and video.
Speaker 2: Geene, the driver for this stock tremendous performance over the
Speaker 2: past two years has been beaten and raised by a
Speaker 2: certain order of magnitude. If for no other reason than
Speaker 2: the law of large numbers, that order of magnitude likely
Speaker 2: will be lower. Can this stock continue to work with
Speaker 2: the law of large numbers not giving in that two
Speaker 2: three four billion dollar beat and raise every quarter?
Speaker 4: I think it can. And just to put in perspective,
Speaker 4: we've gone from a twenty billion dollar business a few
Speaker 4: years ago. It's going to be about a two hundred
Speaker 4: billion dollar business this year. But there's still our companies
Speaker 4: apples a four hundred billion dollar business. I mean, you
Speaker 4: can still continue to grow from that, and it doesn't
Speaker 4: need to have that breathtaking growth. And I would come
Speaker 4: back to the central question here. It's not about twenty
Speaker 4: twenty five, it's the twenty three percent growth in calendar
Speaker 4: twenty six, and do you think that the number is
Speaker 4: going to be higher or lower than that? And ultimately
Speaker 4: I think the number is going to be higher. I
Speaker 4: think we're going to get back to a point where we,
Speaker 4: despite the law of large numbers, we get to some
Speaker 4: of those improving, those improving upsize and beats, and it
Speaker 4: just comes down to what I think is a large
Speaker 4: tam and what I still believe is a competitive advantage
Speaker 4: that GPUs have over custom silicon, and we'll see how
Speaker 4: that plays out. But that's essentially the debate that's going
Speaker 4: on right now is just how much compute you need
Speaker 4: and how defensible is Vidia. I think there's a boatload
Speaker 4: of compute, much more than we realize it's going to
Speaker 4: be needed, and I think in Videa's in a great
Speaker 4: position related to that. We're going to have to wait
Speaker 4: to get to those results, but I think anticipation of
Speaker 4: that is going to be positive for the stock at
Speaker 4: some point this year.
Speaker 2: Our thanks to Gene Mounster, managing partner at deep Water
Speaker 2: Asset Management.
Speaker 3: We moved next to the Energy sector. This week, we
Speaker 3: looked at the energy technologies company American Superconductor Corp. It's
Speaker 3: NASDAK ticker is AMSC.
Speaker 2: The firm specializes in using superconductors for the development of
Speaker 2: diverse power systems, and the hope is to meet the
Speaker 2: world's demand for smarter, cleaner, and better energy.
Speaker 3: AMSC also recently reported third quarter earnings and said it's
Speaker 3: revenue grew fifty five percent from a year ago.
Speaker 2: For more on AMSC, we were joined by its CEO,
Speaker 2: Daniel McGahn.
Speaker 3: We first asked Daniel to describe what is company actually
Speaker 3: does with regard to power.
Speaker 5: We don't really make the power move the power, but
Speaker 5: we make sure that the power is where it is
Speaker 5: when it's needed.
Speaker 3: So what does that wind up meaning so you can
Speaker 3: tuck to the electricity basically.
Speaker 5: Yeah, So if it's an industrial site in the manufacturer
Speaker 5: that needs power at a certain level, certain frequency, we
Speaker 5: modulate that and make it the right way for that factory.
Speaker 5: Same thing if you're trying to deal with bringing generation
Speaker 5: onto the grid or even different spots within the grid itself,
Speaker 5: to bolster and make sure that the power can go
Speaker 5: where it's needed.
Speaker 2: All right, that sounds critical sounds important, but it doesn't
Speaker 2: sound sexy. Are you guys getting caught up in that
Speaker 2: AI and the need for energy?
Speaker 5: And I don't. Yeah, I think we're getting caught up
Speaker 5: in the need for energy. I think there's a lot
Speaker 5: of drivers that are changing our need for power. If
Speaker 5: you think about everything you do in your day now
Speaker 5: requires electricity, and that can be from healthcare to data
Speaker 5: to semiconductor manufacturing and everything in between. So power it
Speaker 5: becomes more and more critical. We're becoming more dependent upon it.
Speaker 5: And the grid really wasn't built for the modern era
Speaker 5: of electricity.
Speaker 3: And from that perspective, I mean just for a super
Speaker 3: nerdy moment. You guys also make the conductors, right, like
Speaker 3: the thing that so if you have a wind farm
Speaker 3: and you need attached to a grid, there's like a
Speaker 3: piece of equipment that you need to attach it. You
Speaker 3: make those and those are in super super soon tight
Speaker 3: demand like tons of demand, not on a supply, doesn't
Speaker 3: matter what kind of power source that is. Am I accurate?
Speaker 5: Yeah, And many of the suppliers are from overseas as well,
Speaker 5: So we're kind of unique also being in an American
Speaker 5: company making product in America with Americans and I think
Speaker 5: that fits very well in today's climate where we're trying
Speaker 5: to push the country.
Speaker 2: What are the drivers for your company right here, right now?
Speaker 2: I know you've recently reported earnings of what did you
Speaker 2: identify as the drivers for your business?
Speaker 5: A lot of it is this further in the need
Speaker 5: for demand. A lot of it we're seeing our business
Speaker 5: start to really with the reshoring of manufacturing capacity and
Speaker 5: capability in America. All those operations need power, so we
Speaker 5: see expansion in manufacturing that's starting to happen critically in
Speaker 5: these critical elements if you want to deal with cars
Speaker 5: and chips and AI and all those things. We sit
Speaker 5: kind of secondarily that we help enable the power to
Speaker 5: be there. But more and more operations are becoming more
Speaker 5: dependent upon electricity.
Speaker 3: So from that perspective, does it matter to you where
Speaker 3: the electricity comes from? In that is the policy from
Speaker 3: a Biden administration and transition to a Trump administration on
Speaker 3: say energy and climate, does that matter?
Speaker 5: Well, I'll say something that may not be popular, but
Speaker 5: I'll still say that I think that the end result
Speaker 5: and desire from both are the same. We want to
Speaker 5: make sure that we're building an economy in America for Americans.
Speaker 5: I think that was consistent with the last administration. It's
Speaker 5: definitely consistent with the current administration. The question is the
Speaker 5: policy and how how do we help enable it. Are
Speaker 5: we trying to create a market that people want to
Speaker 5: companies want to invest in, or is the government trying
Speaker 5: to help foster that through money and through policy that
Speaker 5: is more economic. At the end of the day, for us,
Speaker 5: it doesn't quite matter. The problem is still the problem.
Speaker 5: The grid needs to be improved. Utilities are working on that,
Speaker 5: but as more manufacturing capacity comes online, there's need for
Speaker 5: higher quality power and that's where we come in and
Speaker 5: help solve those problems. Who do you compete against? A
Speaker 5: lot of the big guys from your and what we
Speaker 5: found is that be like Semens, It could be Semans
Speaker 5: or ABB locally here in the US a small company
Speaker 5: called General Electric. But what we've found is over the
Speaker 5: past several years, our largest competitors have become very good customers.
Speaker 5: And what we found is what we offer, the uniqueness
Speaker 5: of what we do and the service that we provide,
Speaker 5: it complements their offering and I think they're starting to
Speaker 5: understand that we're not really a threat per se to
Speaker 5: their business. We're a helpful solution to.
Speaker 6: The end customer.
Speaker 3: What inputs do you need for your business? So? What
Speaker 3: things are tight for you? What things do you want
Speaker 3: to help change?
Speaker 5: When you say inputs, I think supply chaining.
Speaker 3: That's what I'm and that's what I'm trying to get at.
Speaker 3: So is it like the raw materials that you need
Speaker 3: to build stuff in the US to themselves?
Speaker 5: Yeah, almost everything that we make in the US, so
Speaker 5: probably eighty five percent of our businesses here home in
Speaker 5: the US manufactured here. Almost all of our supply chain,
Speaker 5: probably more than ninety five ninety six percent is sourced
Speaker 5: in the US. So the current applimate really puts us
Speaker 5: in a unique opportunity that we may have unique opportunities
Speaker 5: presented to us because we are American, American, made by Americans,
Speaker 5: supplied mostly by American suppliers. When people talk about tariffs
Speaker 5: and these kind of external policies, they don't have a
Speaker 5: great impact on what we do now. They may. I
Speaker 5: don't know how things are going to sort out. There's
Speaker 5: a lot of rhetoric and then we'll see how reality
Speaker 5: translates from that reetarc and really what gets put in place.
Speaker 5: But a lot of this is trying to push the
Speaker 5: country in a certain direction, and I think that general
Speaker 5: direction is good for us.
Speaker 2: So are you having conversations with your customers now? They
Speaker 2: may be calling you them saying, hey, Dan, we're a
Speaker 2: little nervous about what might be happening over the next three, six,
Speaker 2: twelve months in terms of tariffs. Are they Are you
Speaker 2: seeing that in your order flow or are you seeing
Speaker 2: that maybe just in conversations you're having.
Speaker 5: We're seeing that from companies in Canada, Mexico, We're seeing
Speaker 5: that to some extent, some companies on the continent of Europe,
Speaker 5: but certainly in the US they're comforted by the fact
Speaker 5: of where we make it and how we make it
Speaker 5: and where we source broughduct from.
Speaker 3: Some of the headlines over the last couple of days
Speaker 3: have evolved around tariffs on things like aluminum. Copper was
Speaker 3: thrown into the mix yesterday. If that winds up denting
Speaker 3: demand as and we're not going to build as much
Speaker 3: manufacturing or industrial sites because it's just really expensive, how
Speaker 3: does that trickle to you?
Speaker 5: Well, I think the opposite's going to happen. The need
Speaker 5: is going to persist. The question is can it absorb
Speaker 5: the cost and there's going to have to be a
Speaker 5: way to figure that out and find that out. But
Speaker 5: I think all of the things that go into the
Speaker 5: electric grid use all those materials, so they're going to
Speaker 5: have to get sources. And if it makes American sourced
Speaker 5: product more competitive, then so be it. From my standpoint,
Speaker 5: it doesn't directly affect us because we're already sourcing most
Speaker 5: of our principal equipment from the US.
Speaker 2: Our thanks to amsc CEO Daniel mcgahann.
Speaker 3: All right, coming up, we're going to break down why
Speaker 3: the coffee giant Starbucks is cutting jobs across it's corporate ranks.
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Speaker 3: We moved next to news from the coffee giant Starbucks.
Speaker 2: This week, the company announced that it's eliminating eleven hundred
Speaker 2: corporate jobs.
Speaker 3: The move by Starbucks has aimed at increasing efficiency and
Speaker 3: revitalizing the company for more.
Speaker 2: We were joined by Michael Halen Bloomberg Intelligence senior Restaurant
Speaker 2: and food service Anaallygics.
Speaker 3: We first asked Michael what he thinks of this week's news.
Speaker 7: Well, you know, every situation is a little different. You know,
Speaker 7: I did a lot of TV and radio last year
Speaker 7: when Brian Nichol was hired, and you know, I said
Speaker 7: he's going to instill a culture of transparency and accountability
Speaker 7: and if you're not adding value, you know, you're probably
Speaker 7: going to be shown the door. So this is really
Speaker 7: not a surprise to us. It's not a surprise to
Speaker 7: the street. It was communicated back in January. And you know,
Speaker 7: we've seen a lot of senior management changes as well.
Speaker 7: You know, this was a company that was performing pretty
Speaker 7: poorly under the previous management team. I'm sure there was
Speaker 7: plenty of deadweight in that large company, So not really
Speaker 7: a surprise here.
Speaker 3: What about them cutting all the drinks, like all the
Speaker 3: stuff my daughter likes to order and I was thinking,
Speaker 3: I joke, but really like, she's not gonna want anything
Speaker 3: from Starbucks now, and they're no longer training her as
Speaker 3: a ten year old to then come into Starbucks as
Speaker 3: they get older.
Speaker 7: Is that a bad thing?
Speaker 3: Not for me, but I'm guessing for Starbucks maybe.
Speaker 7: Well, you know, I think what they're trying to get
Speaker 7: back to is what made Starbucks great. How did Starbucks
Speaker 7: get to be you know, tens of thousands of stores
Speaker 7: globally it was it was really by through the espresso, drinks,
Speaker 7: through a great in store experience where the barista knew
Speaker 7: your name right, and and so they're trying to get
Speaker 7: back to a lot of those things. You know, they're
Speaker 7: they're looking for that that core. Guess that's that's coming
Speaker 7: in there multiple times a day and providing them a
Speaker 7: great experience. I think that's a that's a smart path forward.
Speaker 5: Mike.
Speaker 2: You cover the whole restaurant space here. You see the
Speaker 2: different price points. What are you seeing out there? How's
Speaker 2: the consumer doing? From maybe just the data you see
Speaker 2: about restaurant activity.
Speaker 7: Yeah, so last year was a restaurant recession. You know,
Speaker 7: we think things will be a little bit better here
Speaker 7: in twenty twenty five, but it's been choppy kind of
Speaker 7: to start the year. And a big problem has been
Speaker 7: this cold weather. January was the coldest, you know, the
Speaker 7: oldest January in like fourteen years, I think in the
Speaker 7: United States. There was a significant amount of snow throughout
Speaker 7: the United States in January and February. So there's been
Speaker 7: a lot of closed restaurant days, and so it's been
Speaker 7: a choppy start to the year for the restaurant space.
Speaker 7: You know, we think it's going to be better than
Speaker 7: twenty twenty four, but you know, we don't expect the
Speaker 7: gang Busters year, mainly because of inflation still continuing to
Speaker 7: crimp low income consumer spending.
Speaker 3: Yeah, and also you know, for example, coffee prices are
Speaker 3: really high. Egg price is still really high. Like those
Speaker 3: things are pretty sticky. Going back to Starbucks for a second,
Speaker 3: So the CEO, Brian Nicol, took over in September as
Speaker 3: sales were declining. Obviously he's formerly of Chipotle. Do we
Speaker 3: have this playbook from Chipotle and then how it's being implemented,
Speaker 3: say into Starbucks, and if so, kind of where are
Speaker 3: we in that.
Speaker 7: Yeah, it's it's a little bit different but similar, right,
Speaker 7: it's it's going to be number one. It's going to
Speaker 7: be about nailing the operations, and they've worked hard to
Speaker 7: make the jobs easier for the barises. You know, part
Speaker 7: of the reason why they're not offering your daughter's favorite
Speaker 7: drink is because they were difficult to make, right, and
Speaker 7: it's because the barisas really didn't personally want to make them.
Speaker 7: They added labor hours into the into the cafes to
Speaker 7: help boost operations, right, and then from there it's it's
Speaker 7: been spending more on marketing. This company has on invested
Speaker 7: for a very long time on marketing, and now you
Speaker 7: know they've been able to do that. They sell an
Speaker 7: item that's pretty addictive, caffeine, right, but they've under invested
Speaker 7: in marketing for a long time. And Starbucks is starting
Speaker 7: to push the gas pedal on that. And it's they're saying,
Speaker 7: it's they're starting to see better transaction data in the
Speaker 7: US and we're starting to lap some really weak results
Speaker 7: from last year, and so you know, I think they're
Speaker 7: going to start to see some momentum on the top
Speaker 7: line here before Starbucks, especially in the United States.
Speaker 3: All Right, Thanks to Michael Hale and Bloomberg Intelligence Senior
Speaker 3: restaurant and food service analyst.
Speaker 2: We moved next to the news from the tech giant Apple.
Speaker 2: This week, Apple said it we'll hire twenty thousand new
Speaker 2: workers and invest five hundred billion dollars in the US
Speaker 2: over the next four years.
Speaker 3: This comes as Apple seeks relief from President Donald Trump's
Speaker 3: tear off some goods imported from China.
Speaker 2: For more, we were joined by Mark Derman, Bloomberg Chief
Speaker 2: correspondent on Global Technology.
Speaker 3: We first asked Mark how this news came about from Apple.
Speaker 8: During the first Trump administration, Tim Cook other companies were
Speaker 8: obviously very worried about tariffs, right, and so their strategy was,
Speaker 8: we can try to make a deal here. What does
Speaker 8: Trump want? Trump wants his supporters to know or see
Speaker 8: that he's bringing jobs back to the US, bringing money
Speaker 8: back to the US, bringing manufacturing back to the US.
Speaker 8: Apple doesn't want tariffs on the phone, and it wants
Speaker 8: to keep as much phone manufacturing in China as possible.
Speaker 8: We don't have to get into the reasons why there's
Speaker 8: a ton of them. Okay, So you have these two sides, right,
Speaker 8: there is a universe in which both parties can get
Speaker 8: exactly what they want. It's like a trade right, and
Speaker 8: so you saw that strategy in full form Trump for months, obviously,
Speaker 8: the secondministration has been talking again about bringing back jobs,
Speaker 8: has been talking again about moving things to the US,
Speaker 8: has been talking again about extra tariffs some goods from China.
Speaker 8: Aple comes out with the press release We're investing five
Speaker 8: hundred billion dollars in the US over the next four years, which,
Speaker 8: by the way, that's.
Speaker 5: Trump's term, right.
Speaker 8: He just started, Okay, twenty thousand new jobs, AI server manufacturing,
Speaker 8: Fox con in Houston, doubling our manufacturing fund from five
Speaker 8: billion to ten billion, setting up a manufacturing academy like
Speaker 8: a school in Detroit. So you ask yourself, what's really
Speaker 8: going on here. They want Trump to know that they're
Speaker 8: investing heavily in the US, and since we're doing that,
Speaker 8: we don't want tariffs. And so the spin to Trump
Speaker 8: is that we're doing this because of you. The reality
Speaker 8: is somewhere in the middle. The reality is that Apple
Speaker 8: has been investing as part of its business operations in
Speaker 8: the US from the very beginning. The reality is in
Speaker 8: twenty twenty one, Apple announced the four hundred and thirty
Speaker 8: billion dollar investment in the US. The reality is that
Speaker 8: Apple hires four thousand R and D employees year in
Speaker 8: the US anyways, So what's actually new here? To be
Speaker 8: fair to both Trump and Apple, there is a bit
Speaker 8: of an acceleration. So their typical spend on the twenty
Speaker 8: twenty one US Investment Plan eighty six billion dollars annually. Okay,
Speaker 8: the new plan one hundred and twenty five billion dollars
Speaker 8: a year annually. So you're getting a forty billion dollar
Speaker 8: Trump under Trump, and you're moving from four thousand people
Speaker 8: on the R and D side hired annually to five
Speaker 8: thousand people. So incremental, sure, but definitely an acceleration.
Speaker 5: Okay, one minute, is there a quid pro quote here?
Speaker 2: Do you think Apple actually already has a deal with
Speaker 2: President Trump that they will be exempt from tariffs?
Speaker 3: No?
Speaker 8: Okay, But Tim Cook went to Donald Trump's office last
Speaker 8: week and presented this to him, said, we're going to
Speaker 8: do this because of you man. Oh and by the way,
Speaker 8: we don't want to pay tariffs. And Trump knows that
Speaker 8: Trump doesn't care about giving Apple or a prieve on tariffs.
Speaker 8: He's happy to do it, and he's happy to do
Speaker 8: it and tell people that he did it because Tim
Speaker 8: Cook is investing half a trillion dollars during his presidency.
Speaker 8: He can go back to his supporters, his base, he
Speaker 8: can go back to Congress. He can go back to
Speaker 8: the world and tell them that the world's biggest technology company,
Speaker 8: the most famous company in the world, is investing half
Speaker 8: a trillion dollars. It's biggest investment commitment ever, right because
Speaker 8: of me and for Trump, that's awesome.
Speaker 5: Yep.
Speaker 8: And for Tim Cook not having to pay tariffs is awesome.
Speaker 8: And I think that's good enough to get some sort
Speaker 8: of tariff for Prieve. And by the way, let's say
Speaker 8: Trump doesn't give them a tariff for Prieve. Who cares? Right,
Speaker 8: I was doing this anyways if I'm Tim Cook.
Speaker 2: Thanks to Mark Derman, Blueberg Chief correspondent on global technology.
Speaker 3: We move next to earnings from the home improvement retailer
Speaker 3: home Depot.
Speaker 2: Home Depot said it expects a key sales metric to
Speaker 2: return to growth this year, and this comes despite the
Speaker 2: company cautioning that housing the man won't change significantly in
Speaker 2: the near term.
Speaker 3: For more, we were joined by Drew Redding, Bloomberg Intelligence
Speaker 3: US home building analysts. We first asked Drew for his
Speaker 3: take on earnings.
Speaker 9: It was a good quarter for them. Comp sales were
Speaker 9: positive for the first time in eight quarters, so I
Speaker 9: think that's something a lot of people are latching onto
Speaker 9: on a positive indicator moving forward. You know, we came
Speaker 9: into the quarter thinking that they could do a little
Speaker 9: bit better than consensus on the comp line, really because
Speaker 9: of some of the positive data we've been seeing coming
Speaker 9: through in retail sales, along with the expectation that some
Speaker 9: of the recent hurricane activity would benefit them, and that's
Speaker 9: something they called out. They had about a two hundred
Speaker 9: million dollar benefit from hurricanes, which is about a sixty
Speaker 9: five basis point lift to comp sales. The guidance was
Speaker 9: pretty positive. They're looking for about one percent growth next year,
Speaker 9: which we think is appropriately conservative, and it's pretty much
Speaker 9: in line with what we've heard from some other players
Speaker 9: in the home improvement space who are looking for the
Speaker 9: market to be flat to modestly hire next year. There's
Speaker 9: really no incentive for them to come out be overly
Speaker 9: optimistic for next year, given you know, the struggles we're
Speaker 9: still seeing with housing.
Speaker 3: I was struck by the fact they said they are
Speaker 3: seeing more refis does that mean that people are going
Speaker 3: to refly to then spruce up their house.
Speaker 9: Yeah, I mean in order for this industry to see
Speaker 9: more normalized growth going forward, that's something you're certainly going
Speaker 9: to need to see, is people tapping that home equity
Speaker 9: undertaking larger scale renovations. It's still one of the areas
Speaker 9: that's kind of holding back growth. They cite it, you know,
Speaker 9: kitchens and baths as a particular area of weakness, and
Speaker 9: the reason is because those projects are typically financed. So
Speaker 9: while they did mention that they saw a little bit
Speaker 9: of improvement, it's still nowhere near you know, what the
Speaker 9: industry would need to see in order to get more
Speaker 9: robust growth going forward.
Speaker 2: Hey, Drew, it may shock you to learn that I
Speaker 2: spend very little time in either Home Depot or a Lows.
Speaker 2: How does the street different shape between you too? Because
Speaker 2: I'm look at the stocks over the last five years
Speaker 2: they both up, you know, eleven, twelve, thirteen percent on
Speaker 2: a compound of basis to this, I'm sureholders are on HD.
Speaker 2: Do they own Lows as well?
Speaker 5: How do you differentiate?
Speaker 9: Yeah, So the main point of differentiation between the two
Speaker 9: is really their customer exposure. You remember, home depot is
Speaker 9: about fifty percent DIY fifty percent professional contractor, whereas Lows
Speaker 9: is about seventy percent DIY thirty percent pro customer. You know,
Speaker 9: as we look forward, we think that the primary engine
Speaker 9: of growth for the industry is going to be from
Speaker 9: professional contractors. As you start to look out ahead and
Speaker 9: you do see people tap that home equity, we think
Speaker 9: that's where a lot of the growth is going to
Speaker 9: come from. You know, for Lows, as I mentioned, they've
Speaker 9: really been focused on DIY, but over the last couple
Speaker 9: of years, they're starting to transform their business to cater
Speaker 9: more towards that professional contractor because I think they realize
Speaker 9: that's where the growth opportunity is now for for home
Speaker 9: depots specifically. You know, their strategy is to go after
Speaker 9: an untapped two hundred billion dollar market for more complex pros,
Speaker 9: which are those looking at you know, larger scale remodeling
Speaker 9: projects that span a lot of product categories, and they
Speaker 9: want to con and solidate those contractor vendor relationships so
Speaker 9: they could become the one stop shop.
Speaker 2: So if lumber is such a big part of these businesses,
Speaker 2: what are they saying about tariffs? If I would guess
Speaker 2: they get a lot of their lumber from I don't know, Canada.
Speaker 9: Yeah, surprisingly, it wasn't really an emphasis of the call
Speaker 9: home depot and Lows are among the largest importers of
Speaker 9: goods as you would expect, but over the last several years,
Speaker 9: I mean, the point is really that since the last
Speaker 9: time this administration put larger tariffs into place, they've really
Speaker 9: diversified their supply chains out of some of the markets
Speaker 9: that are most in dependent, like a China. Now a
Speaker 9: majority of their products, the costs of good is still
Speaker 9: sourced domestically, but they certainly do have exposure to China
Speaker 9: and some other markets, and we would expect to see
Speaker 9: somewhat of a margin impact, you know, as these tariffs
Speaker 9: continue to go through.
Speaker 2: Our Thanks did you're writing Bloomberg Intelligence US homebolding analyst
Speaker 2: coming up on.
Speaker 3: The program and look at how Walmart CEO Doug McMillan
Speaker 3: is navigating a second Donald Trum presidency.
Speaker 2: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
Speaker 2: depth research and data on two thousand companies and one
Speaker 2: hundred and thirty industries. You can access Bloomberg Intelligence via
Speaker 2: b I go on the terminal.
Speaker 3: I'm Paul Sweeney and a'm alex Deal and this is Bloomberg.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch the program
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Speaker 1: Just say Alexa Play Bloomberg eleven thirty.
Speaker 3: We move now to investor Warren Buffett's multinational conglomerate Berkshire Hathaway.
Speaker 2: The company recently said it's fourth quarter earnings were about
Speaker 2: fourteen billion dollars, higher than analysts expected. Berkshire also said
Speaker 2: that it has more than three hundred and thirty four
Speaker 2: billion dollars in cash, a record high.
Speaker 3: For more. We were joined by Matthew Palazoa, Bloomberg Intelligence
Speaker 3: Senior analyst for P and C Insurance.
Speaker 2: We first asked Matthew what some of the highlights were
Speaker 2: from Berkshire's earnings report.
Speaker 10: Big earnings jump from the year ago due to their
Speaker 10: most exciting and best business in my view, the insurance business.
Speaker 6: There.
Speaker 10: We've been probably talking a while about auto insurance prices
Speaker 10: going up, and that is really showing through in the
Speaker 10: results of auto insurance companies like all Stay, Progressive and
Speaker 10: Geico at Berkshire. So that was one of the big drivers.
Speaker 10: Another one was their investment income. So they've been selling
Speaker 10: a lot of stock, as you said, their cash pile
Speaker 10: which is three hundred and thirty four billion dollars going
Speaker 10: up and up, and the investment income on that has
Speaker 10: rose dramatically as well.
Speaker 3: So how much cash does he have now?
Speaker 10: So three hundred and thirty four billion in cash, that's
Speaker 10: just cash.
Speaker 3: It's my tiny little brain.
Speaker 10: Yeah, good problem to have, right, you're going up? Yeah,
Speaker 10: I mean, and what has.
Speaker 3: Happened is O can you imagine? Put that in a mark?
Speaker 3: Is fun? What you're throwing off?
Speaker 10: Sure, they're getting about eleven billion dollars in investment income
Speaker 10: a year just on their fixed investments, and that's incredibly
Speaker 10: short term you know T bills.
Speaker 3: Right.
Speaker 2: The reality is the problem, if there is a problem,
Speaker 2: is and it's been this way for years, and there's
Speaker 2: just nowhere to put that money. I mean, to find
Speaker 2: something of that scale is almost impossible.
Speaker 10: Yeah, he talks a lot about that that there's not
Speaker 10: much they can do to move the needle on results.
Speaker 10: They bought Allegheny a couple of years ago. That was
Speaker 10: thirteen billion dollars they've put I don't know the exact number,
Speaker 10: but several billion into these Japanese trading house investments, so
Speaker 10: they've been putting money to work. But none of those
Speaker 10: really moved the needle. And they sold a ton of
Speaker 10: Apple stock they sold in the fourth quarter, particularly, they
Speaker 10: sold a bunch of Bank of America stock, which we
Speaker 10: knew was going to happen, So there weren't really any
Speaker 10: other surprises as far as stock moves. They bought Constellation Brands,
Speaker 10: which you know makes beverages. I don't know all that
Speaker 10: much about them. They put about a billion and a
Speaker 10: half to work at that, so we So what.
Speaker 3: Does Warren Buffett say about the market being overvalued or not?
Speaker 3: And what does he say about say AI trade?
Speaker 10: Probably not much. He didn't say, you know, nothing that
Speaker 10: I've heard, you know, Warren Buffett and interviews or anything.
Speaker 10: We've got the annual meeting coming up in May, so
Speaker 10: he probably I would be shocked if he doesn't get
Speaker 10: one question on AI at least at this point. You know,
Speaker 10: they're not huge investors in tech names, obviously Apple notwithstanding
Speaker 10: the investment managers might be more interested in stuff like that,
Speaker 10: and he does. He had said in his annual letter,
Speaker 10: it won't be long before greg Abel's the CEO, so
Speaker 10: he kind of always acknowledges that and kind of more
Speaker 10: building towards the future.
Speaker 2: So if I'm buying BRK today, Berkshire Hathaway, what's my
Speaker 2: investment theme.
Speaker 10: It's tough because in the earnings I didn't see a
Speaker 10: lot of things that were, you know, telling me, oh,
Speaker 10: this is these are positive signals for the future earnings
Speaker 10: of Berkshire. Necessarily, Berks's got a huge retail ownership, so
Speaker 10: there's kind of some of that moves it. The fact
Speaker 10: that the earnings beat by a lot didn't impress me.
Speaker 10: You know, we knew about Geico improving. They also had
Speaker 10: a lot of insurance favorable loss reserve development, which means
Speaker 10: they sell the business, their claims come out later, so
Speaker 10: they don't know the claims what happened as their claims
Speaker 10: turned out to be a lot better. But in the
Speaker 10: third quarter they had adverse development. So the things that
Speaker 10: pushed their earnings were not too impressive. The operating businesses
Speaker 10: like the railroad had a one time comp expense in it.
Speaker 10: It seems to me like earnings probably will not grow
Speaker 10: in twenty five just because of these items and insurance
Speaker 10: and even the other underlying businesses, it'll be modest, if
Speaker 10: much growth at all.
Speaker 3: So because I'm me, I'm really into a warm Buffett's
Speaker 3: steak and Oxy. So it's an oil company, but they're
Speaker 3: also doing a lot of director capture and which basically
Speaker 3: you get carbon out of the air and you put
Speaker 3: it in the ground. But the reason why he has
Speaker 3: a stake that he continues to build. But originally it
Speaker 3: was when Oxy was buying in a darko and they
Speaker 3: needed some funding and they needed it fast, and so
Speaker 3: we got a sweetheart deal. The rumor always is that, oh,
Speaker 3: he's going to buy the company.
Speaker 10: So he flat out said, I'm not looking to buy
Speaker 10: the whole company. I think it was at the last
Speaker 10: annual meeting and I was writing the day before, maybe
Speaker 10: they'll Buyoxy so and then he came out and literally
Speaker 10: threw cold water on it. They did buy more stock
Speaker 10: in the fourth quarter and the first quarter, and like
Speaker 10: you said, Alex, he made a very typical Buffet deal,
Speaker 10: like this is a company that desperately needs cash, We're
Speaker 10: going to get a great deal from them. But he
Speaker 10: has repeatedly talked about the management of the company and
Speaker 10: how he likes how the positions, so I don't think
Speaker 10: it was you know, it wasn't just taking that sweetheart deal.
Speaker 10: He does like the forward look of the company. Also,
Speaker 10: Greg Abel, the future CEO, is an energy guy, so
Speaker 10: I assume he played, you know, a big role in
Speaker 10: that whole deal.
Speaker 2: What about this Able guy?
Speaker 5: Do we like him?
Speaker 2: We've not had a few years to get the nome ring.
Speaker 10: I think we like him. We don't know a ton honestly,
Speaker 10: Like Buffett has him with him in interviews, he has
Speaker 10: in the annual meetings. He will be there again, I
Speaker 10: think from they'd said it in the report, he'll be
Speaker 10: there for I believe most of the time with Buffett.
Speaker 10: Mostly what I'm going on is how Buffett talks about him.
Speaker 10: Talks about him in terms of capital allocation, you know,
Speaker 10: and he always praises his managers. One thing I think
Speaker 10: you could point to is that Able has taken over
Speaker 10: a lot of the day to day So a lot
Speaker 10: of the managers of the company's Berkshire owns call Buffett
Speaker 10: and he's kind of nicely gently passed them on to Able.
Speaker 10: So you know, if things are going well, they're probably
Speaker 10: going well due to greg ables effort all.
Speaker 3: Right, thanks to Matthew Palizola, Bloomberg Intelligence, Senior Analyst for
Speaker 3: P ANDC Insurance.
Speaker 2: This week we focused on a Bloomberg Big Take story
Speaker 2: entitled Walmart Wants to be Something for Everyone in a
Speaker 2: Divided America. You can find it on Bloomberg dot Com
Speaker 2: and The Terminal.
Speaker 3: The story looks at how Walmart's CEO Doug McMillan is
Speaker 3: navigating a second Donald Trump presidency while going after Amazon's
Speaker 3: e commerce crown.
Speaker 2: For more, we were joined by one of the stories authors,
Speaker 2: Devin Leonard, Bloomberg BusinessWeek's senior Global Business writer. First asked
Speaker 2: Devin about how Walmart is trying to position itself today.
Speaker 6: Well, I mean, it's it's a really interesting time to
Speaker 6: be doing a story about Walmart because it's Doug McMillan's
Speaker 6: I guess it's just a little past his first decade,
Speaker 6: and he he took the company through through this transformation.
Speaker 6: Just I mean, you know, when he came in twenty fourteen,
Speaker 6: they were just you know, considered it in that clueless.
Speaker 6: They were behind not just Amazon but eBay and Apple,
Speaker 6: and you know he sort of turned them into you know,
Speaker 6: an actual you know Amazon rival, you know, at least
Speaker 6: they had a future. So now he's trying to do
Speaker 6: you know, you know, trying to turn it into into
Speaker 6: sort of more of a real tech company with its big,
Speaker 6: expensive campus and also you know all of these you know,
Speaker 6: not just Walmart dot com, but you know, a marketplace
Speaker 6: for a third place sellers, you know, you know, you know,
Speaker 6: online advertising and all those things. And of course, as
Speaker 6: you pointed out, he's trying to do it, you know,
Speaker 6: all at a time when when Donald Trump's come back,
Speaker 6: you know, you know, to you know, to Washington and
Speaker 6: you know, you know, you know, very aggressively pursuing you know,
Speaker 6: the second term term agenda. So so, but you know,
Speaker 6: they're trying to hold on to their to their you know,
Speaker 6: I don't want to say downscale customers, but their core customers,
Speaker 6: while you know, reaching out to you know, up upscale customers,
Speaker 6: you know, primarily online and also navigating you know, tariffs,
Speaker 6: you know and all that stuff, but also and also
Speaker 6: kind of moderating his his sort of political positions or
Speaker 6: you know, positions on socialations as CEO. As we've seen
Speaker 6: in the last couple of months, rolling back DEI basically
Speaker 6: not being as critical as Trump, you know, as he
Speaker 6: was during Trump's first administration. So you know, it's a
Speaker 6: it's a difficult kind of balancing act, but that's what
Speaker 6: he's trying to do well.
Speaker 3: Also in the piece, you guys talk about their opening
Speaker 3: of the three hundred and fifty AC or Walmart campus.
Speaker 3: The pictures are amazing. It's not yet done, but they
Speaker 3: have like a fitness center, they have meditation rooms, they
Speaker 3: got pickleball cords, shops, restaurants and brewery like.
Speaker 6: What now, Well, that's I mean, it was it was
Speaker 6: pretty It was pretty fun, you know, I mean, just
Speaker 6: the whole town and has changed a lot thought. I mean,
Speaker 6: you know, Jay One had actually been there a couple
Speaker 6: of times, when more recently because she covers walmartel all
Speaker 6: the time. The last time I was down there was
Speaker 6: two thousand and five when I wrote a cover story
Speaker 6: for one of our competitors about Fortune. But sorry about Fortune.
Speaker 6: Fortune was the magazine, Uh it was. It was a
Speaker 6: piece about Walmart. But but but we spent you know,
Speaker 6: four days down there. The last day we're really really
Speaker 6: on campus and everything. But I mean, you know, both
Speaker 6: both you know, McMillan and Walmart and the Walton family
Speaker 6: who control you know, forty percent of you know the company.
Speaker 6: You know, they're trying to both turn the company and
Speaker 6: Bentonville into a place that will attract you know that
Speaker 6: you know, top town people, you know who from Silicon
Speaker 6: Valley who might not have come to Walmart and Bettonville
Speaker 6: other otherwise. So it's all part of a big push
Speaker 6: to do that and to retain people you know, you
Speaker 6: know as they as they become this company that's for
Speaker 6: the top ranks. It's not a bunch of lifers anymore.
Speaker 6: It's people from PayPal, people from Amazon, you know, people
Speaker 6: from Instacart and a lot of stuff. So that's really
Speaker 6: what that's all about.
Speaker 2: And I guess the makeover of Walmart into a really
Speaker 2: extraordinarily competitive digital player in digital retail and digital e commerce,
Speaker 2: competing very well against Amazon. That's not cheap and it
Speaker 2: impacts their margins. I guess they've got a board that
Speaker 2: is supportive of this.
Speaker 6: This fellow, well, that was a really interesting thing because
Speaker 6: we were down there. I guess this was on January seventeenth,
Speaker 6: and there was a press conference where you know McMillan
Speaker 6: and also the you know, the governor of Arkansas, Sarah
Speaker 6: Huckabee Sanders and others gave a whole presentation all you know,
Speaker 6: but the company in the new campus. But meanwhile, Millan
Speaker 6: had given a speech earlier in the day. It was
Speaker 6: just an employee only event. Well we I should actually
Speaker 6: say Jay one jay one did this, but but she
Speaker 6: was able to get you know, you know, recording, you know,
Speaker 6: the earlier speech, and in that uh, you know, you know, McMillan,
Speaker 6: who's very very almost zen like and sort of sort
Speaker 6: of you know, you know, unflappable, gave a more sort
Speaker 6: of spirited speech and you know, and he's basically saying, like,
Speaker 6: you know, we made this transformation, but there's you know,
Speaker 6: was there's so much more we have to do and
Speaker 6: it's really expensive. And he pointed to this chart behind
Speaker 6: him showing how they're you know, operating margins just just
Speaker 6: dropping and they're starting to go up, go up a
Speaker 6: little bit. But but it really was that was pretty incredible,
Speaker 6: he said, you know, he said, I want to thank
Speaker 6: the board for not firing me, because but it was
Speaker 6: it was real. It was really revealing and a great
Speaker 6: thing to have. And you know, kudus to my co.
Speaker 3: Writer thanks to Devin Leonard, Bloomberg BusinessWeek Senior Global Business Writer.
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