WEBVTT - Amazon Earnings, Musk in China, Intel in Ohio 0:00:02.920 --> 0:00:07.280 Bloomberg Audio Studios, podcasts, radio news. 0:00:10.560 --> 0:00:14.400 This is Bloomberg Intelligence with Alex Steinhl and Paul'sweenye. 0:00:14.520 --> 0:00:17.720 The real app performance has been in US corporate high yield. 0:00:17.880 --> 0:00:20.240 Are the companies lean enough? Have they trimmed all the fats? 0:00:20.320 --> 0:00:24.119 The semiconductor business is a really cyclical business. 0:00:23.600 --> 0:00:27.200 Breaking market headlines and corporate news from across the globe. 0:00:27.240 --> 0:00:29.880 Do investors like the M and A that we've seen? 0:00:30.080 --> 0:00:33.120 These are two big time blue chip companies. 0:00:33.320 --> 0:00:36.920 The window between the peak and cut changing super fast. 0:00:37.080 --> 0:00:41.680 Bloomberg Intelligence with Alex Steinhl and Paul'sweenye on Bloomberg Radio. 0:00:43.280 --> 0:00:45.559 On Today's Bloomberg Intelligence Show, we dig inside the big 0:00:45.600 --> 0:00:47.839 business stories impacting Wall Street and the global markets. 0:00:47.960 --> 0:00:49.880 Each and every week we provide in depth research and 0:00:49.960 --> 0:00:51.760 data on some of the two thousand companies and one 0:00:51.800 --> 0:00:54.480 hundred and thirty industries our analysts cover worldwide. 0:00:54.600 --> 0:00:56.760 Today, well look at why New York Community Bank posted 0:00:56.800 --> 0:00:58.640 earnings that were better than analyst feared. 0:00:58.720 --> 0:01:01.360 Plus we'll discuss how McDonald sales are being impacted by 0:01:01.400 --> 0:01:02.400 war in the Middle East. 0:01:02.520 --> 0:01:05.640 But first we dive into big tech and Amazon. Amazon's 0:01:05.680 --> 0:01:08.160 cloud unit posted the strongest sales growth in a year. 0:01:08.319 --> 0:01:10.720 It's really a sign that the retailer's most profitable unit 0:01:10.760 --> 0:01:13.720 is recovering from a slump as businesses resume spending on 0:01:13.800 --> 0:01:16.360 technology products, including AI services. 0:01:16.720 --> 0:01:19.640 Despite this, Amazon sales forecast for the current quarter fell 0:01:19.680 --> 0:01:23.040 short of analyst expectations, reflecting concern about the main e 0:01:23.080 --> 0:01:23.880 commerce business. 0:01:23.920 --> 0:01:25.560 From where We're doing Now by Anna ag Ran on 0:01:25.600 --> 0:01:28.480 Bloomberg Intelligence Technology Analysts. We first asked him for his 0:01:28.560 --> 0:01:29.320 big takeaway. 0:01:29.760 --> 0:01:32.399 I think the big spike in AWS profit is something 0:01:32.400 --> 0:01:35.039 that really alarmed us because you know, that was a 0:01:35.120 --> 0:01:38.040 number we weren't expecting for I honestly a few years. 0:01:38.319 --> 0:01:41.679 So if you look at it, AWS margins, operating margins 0:01:41.720 --> 0:01:44.679 came close to thirty seven thirty eight percent, little over 0:01:44.760 --> 0:01:47.720 thirty seven, and that was like eight points or eight 0:01:47.720 --> 0:01:50.880 percentage points higher than what Street was looking for and 0:01:51.000 --> 0:01:55.160 fourteen percentage points over last year. Absolutely phenomenal. I think 0:01:55.200 --> 0:01:58.360 that's really what I am hoping that you know, investors 0:01:58.400 --> 0:02:00.440 are focused on rather than all the other things. 0:02:00.680 --> 0:02:02.600 All right, and give us a sense if we just 0:02:02.640 --> 0:02:05.120 step back, give us kind of the market share layout. 0:02:05.160 --> 0:02:07.160 How does this market look between some of these big 0:02:07.160 --> 0:02:09.440 players like Microsoft, Google and Amazon. 0:02:10.440 --> 0:02:13.200 So Amazon only plays on the infrastructure layer, which is 0:02:13.480 --> 0:02:16.320 trying to give people raw material to build their applications. 0:02:16.720 --> 0:02:19.480 And when that they have a commanding market share over 0:02:19.520 --> 0:02:22.480 forty percent of the market, and in fact that they 0:02:22.520 --> 0:02:24.200 have maintained that for a while, I mean, which is 0:02:24.200 --> 0:02:27.560 surprising because Microsoft has been gaining share on it, you know, 0:02:27.639 --> 0:02:30.760 for a very long period of time, but from smaller players. 0:02:30.760 --> 0:02:33.840 And also the market's growing very much. So Amazon's currently 0:02:33.880 --> 0:02:36.400 at you know, revenue off over one hundred billion dollars 0:02:36.440 --> 0:02:38.359 in this market, but over. 0:02:38.240 --> 0:02:39.959 To all tech spending is you know, north. 0:02:39.720 --> 0:02:42.560 Of two trillion, frankly, so there's a lot of room 0:02:42.600 --> 0:02:46.360 to grow for everybody, not just Amazon, but Amazon, Microsoft, Google, 0:02:47.080 --> 0:02:49.040 you know, even Oracle, I mean, all of them will 0:02:49.080 --> 0:02:49.960 grow in this market. 0:02:50.560 --> 0:02:52.600 So if we take a look at the different layers 0:02:52.800 --> 0:02:57.359 of how AI kind of plays into cloud, the one 0:02:57.400 --> 0:03:00.639 area where Amazon maybe isn't getting as monch market share 0:03:00.680 --> 0:03:04.040 and maybe they're still developing that is the consumer facing side. 0:03:04.720 --> 0:03:07.720 What can they do there? What is their growth opportunity there? 0:03:08.040 --> 0:03:09.960 Yeah, I mean they have a lot of you know, 0:03:09.960 --> 0:03:12.080 I would say some apps that are working on it, 0:03:12.120 --> 0:03:15.160 but really the reason why Microsoft is ahead right now 0:03:15.200 --> 0:03:17.760 in that game is because of open Ai. They have 0:03:17.800 --> 0:03:20.440 a partnership with open Ai, and they run open AI's 0:03:20.480 --> 0:03:22.519 back end, which is when you do a search and 0:03:22.600 --> 0:03:25.720 chat GPT, Microsoft is running those searchers in the background 0:03:26.440 --> 0:03:28.880 or you know, the application runs on it, which is 0:03:28.880 --> 0:03:32.040 why Microsoft is getting the benefit of it. For AWS, 0:03:32.080 --> 0:03:34.520 the big benefit is going to come from companies or 0:03:34.560 --> 0:03:37.880 big corporations when they go out and build their AI applications. 0:03:38.120 --> 0:03:40.080 There's a high likelihood they're going to choose. 0:03:39.920 --> 0:03:43.160 AWS as much as they're going to choose Microsoft or Google. 0:03:43.440 --> 0:03:45.240 And that's really what Amazon's betting on. 0:03:45.680 --> 0:03:49.800 So you mentioned the margins, high margins at AWS. Can 0:03:49.800 --> 0:03:52.520 they maintain those margins? What are the risks for those margins? 0:03:53.160 --> 0:03:55.120 Yeah, I don't think they can maintain them, only because 0:03:55.160 --> 0:03:57.080 they have to spend a fair amount of money in 0:03:57.160 --> 0:04:01.360 order to you know, fulfill the demand expanding in data centers, 0:04:01.400 --> 0:04:04.680 buying new hardware, buying chips. So I'd be very surprised 0:04:04.680 --> 0:04:06.600 if you see that number again for a very long 0:04:06.640 --> 0:04:07.280 period of time. 0:04:07.520 --> 0:04:07.720 You know. 0:04:07.840 --> 0:04:10.440 Frankly speaking, I'll be happy with the thirty percent margin 0:04:10.520 --> 0:04:12.800 for the next several years while they make sure that 0:04:12.840 --> 0:04:16.320 they're doing the right investments to drive double digit growth 0:04:16.440 --> 0:04:17.480 rate on their top line. 0:04:17.600 --> 0:04:19.560 Let's talk about those investments. So they said they're going 0:04:19.600 --> 0:04:23.080 to quote meaningfully step up their capex to pay for 0:04:23.160 --> 0:04:25.640 all this AI infrastructure. But there was no like number 0:04:25.640 --> 0:04:29.040 given when Meta said that market didn't like it. What 0:04:29.120 --> 0:04:31.440 was the pass here that Amazon got? 0:04:32.279 --> 0:04:35.360 Yeah, but you know, Amazon's basically showcasing that they actually 0:04:35.400 --> 0:04:38.360 have been doing this successfully in terms of expanding data 0:04:38.360 --> 0:04:41.880 centers based on the capacity, so you know, before going in, 0:04:42.360 --> 0:04:45.360 you know, they had close to fifteen billion dollars yesterday 0:04:45.960 --> 0:04:48.719 in the first quarter in terms of capex, and it's 0:04:48.760 --> 0:04:51.760 going to go up over the next quarter. So we 0:04:51.880 --> 0:04:53.839 think it's going to be north of sixty five billion 0:04:53.880 --> 0:04:56.599 at this point for all of Amazon, with most of 0:04:56.640 --> 0:04:58.000 it going to AWS. 0:04:58.320 --> 0:04:59.479 But there's a reason for it. 0:04:59.520 --> 0:05:03.440 They are in contracts to fulfill cloud demand or you know, 0:05:03.480 --> 0:05:06.200 they need to be able to expand that to fulfill 0:05:06.240 --> 0:05:07.360 that massive cloud demand. 0:05:07.640 --> 0:05:08.120 An rug. 0:05:08.279 --> 0:05:10.320 You know what I did not see an Amazon's report 0:05:10.440 --> 0:05:11.120 a dividend. 0:05:11.320 --> 0:05:11.800 Why is that? 0:05:12.480 --> 0:05:12.720 Yeah? 0:05:12.760 --> 0:05:14.480 I mean I I you know, again, they're going to 0:05:14.560 --> 0:05:17.679 spend that sixty five billion dollars next year on capex also, 0:05:18.040 --> 0:05:20.479 so I'm I'm okay with not having a dividend for 0:05:20.480 --> 0:05:22.400 a while. I would rather you're a tech animals. 0:05:22.520 --> 0:05:25.040 You guys think that if you if you put out 0:05:25.040 --> 0:05:27.240 a dividend, it's signals that you're no longer a growth story. 0:05:27.760 --> 0:05:30.200 Yeah, it's a kiss of death. I'm not a big fan. 0:05:30.400 --> 0:05:33.160 Not Microsoft, Google. They disagree with you. 0:05:35.040 --> 0:05:37.680 Yeahb IBM kind of agrees with me at this point 0:05:37.720 --> 0:05:40.640 of that. So look at IBM. I mean, they have 0:05:40.680 --> 0:05:43.480 a massive dividend yield. I would rather they you know, 0:05:43.520 --> 0:05:45.680 they take that money and buy a bunch of new 0:05:45.720 --> 0:05:48.360 Hashi corpse kind of companies that are growing at fifteen 0:05:48.360 --> 0:05:50.920 to twenty percent. That will change the face of the company, 0:05:50.960 --> 0:05:52.920 make them, you know, even more relevant in the tech 0:05:52.960 --> 0:05:53.560 space than. 0:05:53.400 --> 0:05:54.239 They are right now. 0:05:54.440 --> 0:05:57.000 So I'm always in that camp that when you are 0:05:57.040 --> 0:06:00.599 a tech company, you got to constantly reinvent yourself otherwise 0:06:00.600 --> 0:06:01.880 somebody will come and eat your lunch. 0:06:01.880 --> 0:06:04.120 I mean, on Rock and I we just fundamentally disagree 0:06:04.120 --> 0:06:05.840 on this. We agree to disagree. We go to our 0:06:05.880 --> 0:06:06.520 separate corners. 0:06:06.560 --> 0:06:08.159 Can I ask a dumb question for the two of you, 0:06:08.200 --> 0:06:09.840 then is there room for both of you to be right? 0:06:10.000 --> 0:06:10.080 Like? 0:06:10.320 --> 0:06:12.560 Can these tech companies throw off enough cash they can 0:06:12.600 --> 0:06:15.000 reinvest in a healthy way and also pay a dividend. 0:06:15.240 --> 0:06:18.919 Yes on our own Yes, yes, absolutely, Alex, I completely 0:06:18.960 --> 0:06:21.200 agree with that because what happens is if you give 0:06:21.240 --> 0:06:24.800 a very small token dividend, it opens the doors to 0:06:24.880 --> 0:06:28.080 a lot of institutional investors that are bound by their 0:06:28.520 --> 0:06:31.120 charter to only invest in companies that pay are dividend. 0:06:31.279 --> 0:06:33.440 So there is a logical reason to do it. But 0:06:33.720 --> 0:06:35.480 I'm okay with Amazon. It's going to take a year 0:06:35.600 --> 0:06:36.520 or two years to get to. 0:06:36.520 --> 0:06:37.800 That path, all right. 0:06:37.839 --> 0:06:38.640 So there's a whorl where you. 0:06:38.640 --> 0:06:39.160 Can both be ready. 0:06:39.200 --> 0:06:41.320 We can there's a place where we can meet in them. 0:06:41.680 --> 0:06:44.520 Is there a capex number that you wouldn't like from Amazon? 0:06:44.680 --> 0:06:45.440 They didn't give a. 0:06:45.440 --> 0:06:48.599 Number now, not at this point. The only reason is 0:06:48.640 --> 0:06:51.440 because we see forward contracts. As of this morning, when 0:06:51.480 --> 0:06:53.839 they filed their ten Q, we saw cloud commitments go 0:06:53.960 --> 0:06:55.040 up twenty nine percent. 0:06:55.279 --> 0:06:56.640 I mean that's a very big number. 0:06:56.720 --> 0:07:00.440 And frankly, when on the enterprise side, we haven't seen 0:07:00.600 --> 0:07:03.560 orders coming for AI at this point. AI orders are 0:07:03.560 --> 0:07:07.400 only coming in from consumer applications like CHACKGBT, people running 0:07:07.400 --> 0:07:09.680 that at this point, over the next few years, we 0:07:09.720 --> 0:07:12.960 should see a massive spike in you know, people creating 0:07:13.000 --> 0:07:17.040 new applications or companies creating new applications, and that's going 0:07:17.080 --> 0:07:20.560 to only drive more growth for AWS, Microsoft and Google. 0:07:20.800 --> 0:07:24.720 Our thanks to Anaagrana, Bloomberg Intelligence technology analyst. 0:07:24.160 --> 0:07:27.040 We move next to the EV space in Tesla CEO 0:07:27.080 --> 0:07:29.680 Elon Musk recently paid a quick visit to China and 0:07:29.680 --> 0:07:32.040 it paid immediate dividends for the ev giant. 0:07:32.320 --> 0:07:35.840 Tesla received an in principle approval from government officials to 0:07:35.880 --> 0:07:39.760 deploy its driver assistance system in China. Also reached the 0:07:39.840 --> 0:07:43.000 mapping navigation deal with Chinese tech giant Bydo, and met 0:07:43.000 --> 0:07:46.320 requirements for how it handles data security and privacy issues. 0:07:46.040 --> 0:07:47.480 From more on all of this, we were joined by 0:07:47.520 --> 0:07:50.760 Craig Drudell, Bloomberg Global Autos Editor. Craig began by telling 0:07:50.840 --> 0:07:52.920 us that his tentative China deal has been in the 0:07:52.920 --> 0:07:53.760 works for some time. 0:07:54.160 --> 0:07:56.560 It wasn't necessarily the case that this was, you know, 0:07:56.640 --> 0:07:59.320 kind of an overnight saying, actually, the last time that 0:07:59.440 --> 0:08:02.520 Musk was in China, this was something that we reported 0:08:02.560 --> 0:08:04.960 at the time was on the agenda. It's been something 0:08:05.000 --> 0:08:08.040 that Tesla has been after for quite some time, and 0:08:08.080 --> 0:08:11.720 it's increasingly a way that you know carmakers are competing 0:08:11.760 --> 0:08:15.080 in China is you know, how advanced is your driver 0:08:15.160 --> 0:08:17.960 assistant system. You know that that keeps you from crashing, 0:08:18.040 --> 0:08:20.760 that keeps you in your lane, that allows you in 0:08:20.800 --> 0:08:23.280 some cases to take your hands off the wheel. But 0:08:23.560 --> 0:08:27.520 in all cases, you know you absolutely are responsible for 0:08:27.520 --> 0:08:31.080 for you know, the car, and you know no companies 0:08:31.240 --> 0:08:35.520 are are taking responsibility legal responsibility if if you get 0:08:35.559 --> 0:08:38.559 into a craft, you know, with the exception of of 0:08:38.679 --> 0:08:41.160 some you know, very small sort of limited fleets and 0:08:41.600 --> 0:08:45.520 contained areas, and you know there are quirks as you 0:08:45.600 --> 0:08:49.120 might imagine, you know, by market for what is required 0:08:49.160 --> 0:08:51.679 to be able to offer these systems that really need 0:08:51.760 --> 0:08:54.400 to be safe and also need to have, you know, 0:08:54.480 --> 0:08:58.520 controls for data collection and and you know, the cameras 0:08:58.640 --> 0:09:02.880 used to navigate the surroundings that these cars are going 0:09:02.960 --> 0:09:05.920 to need to to pilot around. And that's been a 0:09:05.960 --> 0:09:09.800 hang up for Tesla and other international companies that you know, 0:09:09.840 --> 0:09:13.400 they need to in all cases work with local Chinese 0:09:13.400 --> 0:09:17.559 companies for things like mapping and navigation. So one of 0:09:17.640 --> 0:09:19.880 the key sort of you know, takeaways from this trip 0:09:20.320 --> 0:09:26.400 was Tesla agreeing to do that with bayd in China. 0:09:25.760 --> 0:09:28.000 So who owns the stuff it. 0:09:27.960 --> 0:09:31.480 Is importantly you know, it's a matter of ownership and 0:09:31.640 --> 0:09:34.160 where it's kept. And so you know, this has come 0:09:34.240 --> 0:09:37.920 up years ago. Actually, Tesla had a bit of a 0:09:37.960 --> 0:09:40.800 hang up where their cars were banned from you know, 0:09:40.880 --> 0:09:44.560 being in the area of military compounds and other sort 0:09:44.600 --> 0:09:47.560 of sensitive parts of kind of out of concerns about 0:09:47.600 --> 0:09:51.440 you know, any information that cars were gathering, and you know, 0:09:51.480 --> 0:09:54.480 there were concerns about whether any data was going from 0:09:54.600 --> 0:09:58.680 Tesla's China operations back to the US, and so Tesla 0:09:58.800 --> 0:10:02.040 needed to sort of rea kinda that you know, any 0:10:02.160 --> 0:10:05.640 data collected in China will stay in China, and so 0:10:05.720 --> 0:10:08.160 that has been you know, something that they've had this 0:10:08.280 --> 0:10:11.360 sort of acquiesce to as of you know, several years ago. 0:10:12.040 --> 0:10:14.960 But they needed to still sort of you know, clear 0:10:15.240 --> 0:10:18.160 you know, approval for you know, making sure that their 0:10:18.280 --> 0:10:20.559 teas were crossed and eyes were dotted in that respect, 0:10:20.800 --> 0:10:23.319 and they needed this deal with BAYD. It does seem 0:10:23.360 --> 0:10:24.920 to be the case that they need to meet other 0:10:25.080 --> 0:10:29.800 conditions in order for FSD to be offered in China. 0:10:29.840 --> 0:10:33.120 It's still not a done deal, but what you know, 0:10:33.400 --> 0:10:35.439 sort of hoops they still have to jump through are 0:10:35.559 --> 0:10:36.800 a bit unclear at this point. 0:10:36.960 --> 0:10:40.240 So how does this change, if at all, kind of 0:10:40.280 --> 0:10:43.080 the competitive landscape for Tesla in China. I know, you 0:10:43.080 --> 0:10:44.880 guys have been reporting a lot of how some of 0:10:44.880 --> 0:10:49.000 the local ev makers have really become very good and 0:10:49.120 --> 0:10:49.840 very competitive. 0:10:50.360 --> 0:10:54.120 Yeah, I think it absolutely is something that's been missing 0:10:54.160 --> 0:10:57.720 for Tesla that, assuming all goes well here, it will 0:10:57.760 --> 0:11:00.679 no longer be a sort of strike against them among 0:11:00.760 --> 0:11:04.319 consumers who really, you know, want the most cutting edge technology. 0:11:04.840 --> 0:11:07.040 It remains to be seen how big a deal it 0:11:07.040 --> 0:11:09.920 will be for Tesla from a revenue standpoint, because we 0:11:09.960 --> 0:11:12.160 don't know at this point how much Tesla will be 0:11:12.160 --> 0:11:15.080 looking to charge for it. We don't know, you know, 0:11:15.120 --> 0:11:17.320 to what extent they may have to share some revenue 0:11:17.320 --> 0:11:19.439 with some of their partners. It's not clear whether by 0:11:19.440 --> 0:11:21.640 do maybe gets a cut. You know, in the US, 0:11:22.240 --> 0:11:25.559 Tesla and you know throughout the world, Tesla has made 0:11:25.600 --> 0:11:27.560 a point to really be you know, want to be 0:11:27.679 --> 0:11:31.480 vertically integrated, and that's you know, fancy talk for in 0:11:31.520 --> 0:11:34.400 control of its own destiny. Uh, they were willing to 0:11:34.559 --> 0:11:37.560 sort of acquiesce in this case, I think because they 0:11:37.880 --> 0:11:40.920 really could use this boost in China at a time 0:11:40.960 --> 0:11:43.440 when their lineup is getting a bit tired and they're 0:11:43.480 --> 0:11:46.959 losing a lot of market share to companies like byd Well. 0:11:47.000 --> 0:11:48.920 This also raises the question too, it doesn't take a 0:11:48.960 --> 0:11:52.400 lot of news to get Tesla stock moving, not that 0:11:52.480 --> 0:11:54.280 a trip to China wasn't a big deal, but like 0:11:54.320 --> 0:11:56.440 you said, there's so many questions as to the actual 0:11:56.480 --> 0:11:58.800 revenue driver and what it's going to mean. 0:11:58.920 --> 0:12:00.480 I mean, you have to wonder is. 0:12:00.440 --> 0:12:02.160 Not going to take a lot for any kind of 0:12:02.200 --> 0:12:03.640 shorts Craig to cover. 0:12:04.040 --> 0:12:06.720 I think that's right. And this is also a name 0:12:06.760 --> 0:12:11.240 that you know, options traders absolutely love. It's it's sort 0:12:11.240 --> 0:12:13.400 of like the meme stock that has lasted as a 0:12:13.440 --> 0:12:16.640 meme stock as that craze has sort of faded away. 0:12:17.120 --> 0:12:20.640 And so you know, anytime to your point, you know, 0:12:20.800 --> 0:12:23.800 Musk is able to sort of get the momentum with 0:12:23.920 --> 0:12:27.480 you know, the narrative, it tends to lead to big swings. 0:12:27.520 --> 0:12:29.720 So you know, early this year, I think he lost 0:12:29.920 --> 0:12:33.080 control of that narrative. And it's not at all a 0:12:33.120 --> 0:12:35.160 mystery as to why that is, you know, looking at 0:12:35.240 --> 0:12:38.000 last week's earnings, but I think he was really able 0:12:38.000 --> 0:12:40.880 to sort of change what people were talking about last week. 0:12:41.080 --> 0:12:43.640 We'll see whether or not, you know, this is mostly 0:12:43.720 --> 0:12:46.920 talk as opposed to you know, going to lead to real, 0:12:47.000 --> 0:12:50.839 sort of meaningful change in Tesla's earnings trajectory, which has 0:12:50.920 --> 0:12:52.320 not been trending in the right direction. 0:12:52.760 --> 0:12:55.559 Our thanks to Craig Trudell, Bloomberg Global Autos Editor. 0:12:55.760 --> 0:12:57.160 All right, coming up, we're going to break down why 0:12:57.240 --> 0:12:59.760 McDonald's is now looking to focus on affordable prices in 0:12:59.760 --> 0:13:00.000 the US. 0:13:00.440 --> 0:13:03.280 You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in 0:13:03.320 --> 0:13:05.760 depth research and data on two thousand companies from one 0:13:05.840 --> 0:13:08.760 hundred and thirty industries. You can access Bloomberg Intelligence via 0:13:08.840 --> 0:13:10.160 b I go on the terminal. 0:13:10.280 --> 0:13:13.240 I'm Paul Sweeney, a Mlex Steel, and this is Bloomberg. 0:13:17.720 --> 0:13:22.160 This is Bloomberg Intelligence with Alex Steel and Paul Sweeney 0:13:22.440 --> 0:13:23.679 on Bloomberg Radio. 0:13:24.720 --> 0:13:27.200 We look next at the food service industry. At McDonald's, 0:13:27.200 --> 0:13:29.640 the fast food chain's quarterly sales fell short of analysts 0:13:29.640 --> 0:13:32.360 expectations in the first quarter, and results were hurt by 0:13:32.360 --> 0:13:34.920 slow and growth in the US and Boycott's related to 0:13:34.920 --> 0:13:36.000 the Israel Hamas war. 0:13:36.360 --> 0:13:39.320 The restaurant chain now looks to focus on affordable prices 0:13:39.320 --> 0:13:41.160 in the US for more and all this, we were 0:13:41.200 --> 0:13:44.800 joined by Michael Halen, Bloomberg Intelligence Senior restaurant and food 0:13:44.840 --> 0:13:47.720 service analyst. We first asked Michael for his reaction to 0:13:47.800 --> 0:13:49.400 McDonald's quarterly it results. 0:13:49.679 --> 0:13:52.360 I'd say the biggest takeaway was, you know, the fact 0:13:52.400 --> 0:13:55.640 that April's flat so far in the United States. That's 0:13:55.840 --> 0:13:59.000 trailing the industry level, you know the industry data that 0:13:59.040 --> 0:14:02.720 we get so and also you know, Burger King showed 0:14:02.760 --> 0:14:05.720 an acceleration in the US and their US numbers, so 0:14:06.080 --> 0:14:08.120 I would say that was the biggest surprise. You know, 0:14:08.480 --> 0:14:12.599 McDonald's still on a five year trend, is vastly outperforming 0:14:12.640 --> 0:14:15.480 Burger King almost the other quick service names, but there 0:14:15.520 --> 0:14:17.959 seems to be some slowing if I was to guess 0:14:18.000 --> 0:14:21.280 some of that bad press around the eighteen dollars big 0:14:21.320 --> 0:14:23.920 mac meal in some markets, you know, could be hurting 0:14:23.960 --> 0:14:27.600 because we are seeing US consumers really push back against 0:14:27.600 --> 0:14:30.720 price increases right now, and they're being more picky about 0:14:30.720 --> 0:14:31.760 where they spend their money. 0:14:32.280 --> 0:14:35.200 Mike, I see just in the Bloomberg reporting here. Executives 0:14:35.480 --> 0:14:38.040 have also said that low income consumers in the US, 0:14:38.120 --> 0:14:40.040 which is an important part of the company's customer base 0:14:40.320 --> 0:14:42.480 are pulling back. That does that mean we're going to 0:14:42.520 --> 0:14:45.400 see more promotions which might put pressure on the margins. 0:14:45.840 --> 0:14:48.120 Yeah, McDonald's has come out and said they're going to 0:14:48.160 --> 0:14:50.520 focus more on their value menu. They're going to continue 0:14:50.560 --> 0:14:52.400 to offer promotions, a lot of them. 0:14:52.200 --> 0:14:53.040 Through the apps. 0:14:53.440 --> 0:14:56.600 So it looks like a full on value war is here. 0:14:56.720 --> 0:14:59.320 I mean, Burger King Borg Kings could be a little 0:14:59.360 --> 0:15:03.040 bit more careful with their discounting because in the last 0:15:03.040 --> 0:15:05.560 five years or so they've gotten too aggressive and it 0:15:05.720 --> 0:15:09.560 hurt franchising margins. So they kind of hoopooed that a 0:15:09.560 --> 0:15:11.920 little bit. But we think a full blown value war 0:15:12.160 --> 0:15:14.360 is here and it's on the table for twenty twenty four. 0:15:14.520 --> 0:15:17.080 So does the value war take into account a bigger burger? 0:15:17.320 --> 0:15:17.920 Is that the deal? 0:15:18.360 --> 0:15:19.160 Well? Value? 0:15:19.440 --> 0:15:21.520 You know, it's measured in a couple of ways. It's 0:15:21.560 --> 0:15:23.760 not just the price, but it's what you get for 0:15:23.800 --> 0:15:27.680 the price, right, And so I'm sure McDonald's has done 0:15:27.680 --> 0:15:31.600 their legwork and they have some customer feedback that says 0:15:31.760 --> 0:15:34.440 that they want some Bigger burgers on their menu, and 0:15:34.480 --> 0:15:36.840 so that's going to be interesting. They said they're going 0:15:36.920 --> 0:15:39.080 to start testing it in the second half of this year, 0:15:39.200 --> 0:15:42.440 so it may not hit the United States for quite 0:15:42.440 --> 0:15:44.720 some time. But yeah, there's a couple of ways to 0:15:45.080 --> 0:15:46.000 measure value. 0:15:46.200 --> 0:15:48.600 Hey, Mike, what are the McDonald's of the world, and 0:15:48.640 --> 0:15:50.360 you know, the other restaurant companies you talked to, what 0:15:50.400 --> 0:15:54.040 are they saying about these GLP one drugs? Are they 0:15:54.240 --> 0:15:56.320 really going to impact their business? 0:15:56.800 --> 0:15:59.360 You know, I don't think there's too much worry about 0:15:59.360 --> 0:16:01.680 that anymore. I know that was a big thing last 0:16:01.760 --> 0:16:04.680 summer and into the fall, and it really impacted the 0:16:05.000 --> 0:16:07.520 prices of some of these quick service restaurant chain stocks, 0:16:07.600 --> 0:16:11.280 especially McDonald's. But I've seen a lot of different reports 0:16:11.320 --> 0:16:14.040 out there, and you know, the amount of people on 0:16:14.160 --> 0:16:17.720 these drugs ranges from you know, seven to twelve or 0:16:17.840 --> 0:16:20.960 maybe fifteen percent best case if once they get to 0:16:21.040 --> 0:16:23.760 like maybe a pill form instead of a shot, you know, 0:16:24.080 --> 0:16:27.080 and we don't know about long term side effects from 0:16:27.120 --> 0:16:29.960 some of these drugs, So I think initially there was 0:16:30.000 --> 0:16:33.760 some concern, but over time McDonald's and these other chains, 0:16:33.800 --> 0:16:36.120 they're going to figure out how to make a seven 0:16:36.200 --> 0:16:39.880 to twelve percent smaller cheeseburger. Right They're getting smaller anyway, 0:16:39.920 --> 0:16:43.080 because there's a historical situation in the cattle market right now, 0:16:43.120 --> 0:16:45.800 and so beef prices are going to continue to stay 0:16:45.840 --> 0:16:48.000 elevated in here for a couple of years, and so 0:16:48.560 --> 0:16:52.280 chains are already starting to try to, you know, solve 0:16:52.320 --> 0:16:56.120 for some of these problems, you know, ahead of broader adoption. 0:16:56.440 --> 0:16:58.160 Yeah, I mean you have to think that translation is 0:16:58.160 --> 0:17:00.280 going to hit in many different ways. But before we 0:17:00.360 --> 0:17:02.560 let you go, we have about a minute left. So 0:17:02.840 --> 0:17:04.960 who wins the value war right now? Based on what 0:17:05.000 --> 0:17:05.440 you've seen. 0:17:05.760 --> 0:17:09.479 It's interesting because you know McDonald's historically has and so 0:17:09.520 --> 0:17:14.040 that's what's most interesting about them underperforming in April. Burger 0:17:14.119 --> 0:17:18.439 King is an interesting one because you know, they have 0:17:18.560 --> 0:17:22.760 easier comps. They struggled coming out of the pandemic for 0:17:22.800 --> 0:17:25.560 a few years, right, and so they have easier comparisons 0:17:25.600 --> 0:17:28.240 to lap lower average unit volumes at the store level, 0:17:28.280 --> 0:17:32.720 and so there's room for some upside there. Chipotle absolutely 0:17:32.720 --> 0:17:36.000 continues to knock the cover off the ball, and you 0:17:36.040 --> 0:17:38.960 know McDonald's has scale, right, and so when they really 0:17:38.960 --> 0:17:42.159 start pushing on value, everyone else is going to feel it. 0:17:42.200 --> 0:17:46.200 So so you know, I'm confident that McDonald's can kind 0:17:46.240 --> 0:17:48.280 of turn the tide here a little bit because they 0:17:48.280 --> 0:17:50.800 can just offer burgers and other items at prices their 0:17:50.800 --> 0:17:52.080 computers just can't match. 0:17:52.720 --> 0:17:55.880 Thanks to Michael Halen, Bloomberg Intelligence Senior restaurant and food 0:17:55.880 --> 0:17:57.000 service analysts, we. 0:17:57.040 --> 0:17:59.520 Move now to regional banks. New York Community Bank posted 0:17:59.600 --> 0:18:01.960 quarterly results that were better than analysts had feared, and 0:18:01.960 --> 0:18:04.320 the lender also outlined a plan for reshaping it into 0:18:04.359 --> 0:18:06.280 a more diversified and profitable bank. 0:18:06.600 --> 0:18:09.280 For more, we were joined by Herman Chin, Bloomberg Intelligence 0:18:09.359 --> 0:18:12.600 Senior analyst for US regional banks. We first asked Herman 0:18:12.720 --> 0:18:14.960 for his key takeaways from the bank's earnings. 0:18:15.280 --> 0:18:18.720 We learned a lot. So they gave a path forward 0:18:18.880 --> 0:18:20.879 remains to be seeing if everything's going to go and 0:18:20.960 --> 0:18:25.399 lockstep to their expectations. But they basically said they're moving 0:18:25.560 --> 0:18:29.600 to a three year plan with a transition to be 0:18:29.680 --> 0:18:34.320 more of a commercial bank and expecting any sort of 0:18:34.359 --> 0:18:37.919 credit issues to be mostly cleaned up this year with 0:18:38.000 --> 0:18:41.000 an earnings loss for the year. But it was a 0:18:41.040 --> 0:18:42.880