August 4, 2025 • 44 mins
Watch Bloomberg Businessweek Daily LIVE every day on YouTube: http://bit.ly/3vTiACF.
A chorus of stock market prognosticators at some of Wall Street’s biggest firms is warning clients to prepare for a pullback as sky-high equity valuations slam into souring economic data.
On Monday, Morgan Stanley, Deutsche Bank AG and Evercore ISI all cautioned that the S&P 500 Index is due for a near-term drop in the weeks and months ahead. The predictions come after a furious rally from April’s lows that propelled the gauge to levels it has never seen before.
Morgan Stanley strategist Mike Wilson sees a correction of up to 10% this quarter as tariffs hit consumers and corporate balance sheets. Evercore’s Julian Emanuel is expecting a more substantial decline of as much as 15%. And a team at Deutsche Bank led by Parag Thatte notes that a small drawdown in equities is overdue considering they’ve been on a tear for over three months.
Today's show features:
- Bill Smead, Founder, Chairman and CIO of Smead Capital Management, on concentration risk in markets
- Joyce Mullen, President and CEO of Insight Enterprises, on recent earnings and customers putting off new projects and saving for future investments in AI
- Aaron Jagdfeld, Chairman, President and CEO of Generac, on earnings, the state of manufacturing in America, and US trade policy impact
- Kate Gulliver, Chief Financial Officer of Wayfair, on quarterly earnings and the health of the American consumer
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:08):
This is Bloomberg business Week Daily reporting from the magazine
that helps global leaders stay ahead with insight on the people, companies,
and trends shaping today's complex economy. Plus global business, finance
and tech news as it happens. The Bloomberg Business Weekdaily
Podcast with Carol Masser and Tim Steneveek on Bloomberg Radio.
Speaker 3 (00:32):
An update on the trade.
Speaker 4 (00:33):
We've got a bit of a rally underway, and we're
up about one point seven percent on the Nasdaq one
hundred again of just about one on one third percent
on the S and P five hundred. Curious to see
what Bill Smead has to say about all of it.
He's chairman and chief investment Officer of SMED Capital Management.
They've got roughly five point six billion in assets under management,
the SMEED Value Fund. It is down about three percent
(00:55):
year to date, but has returned on average about fourteen
percent annually in the past five years. And the International
Value Matt I don't know if you noticed, is up
about twenty one percent year to date, so beating about
two thirds of its peers. Take a five year perspective
and it's beat just about all of its peers, returning
on average twenty two percent annually.
Speaker 5 (01:14):
An international has been crushing it this year. Interesting because
I think of I talked to Bill Sun all the time.
Speaker 6 (01:22):
We do too, clock Cole. I'm chatting with him on.
Speaker 5 (01:24):
IB like every day, and we're always talking about America.
So it's interesting Abilly to hear that you guys are
doing well internationally. I gotta asked first though, about Portland.
You're in Portland right now. You guys are usually in Phoenix.
I just took a look, and Portland's got nice semi
cloudy day, like seventy two degrees. In Phoenix it's one
hundred and twelve. How much nicer is it in Portland.
Speaker 7 (01:48):
Well, we have a summer home up here, so we've
joined many Phoenicians by getting out of dodge for about
seventy days.
Speaker 6 (01:58):
Makes sense. One hundred and twelve degrees would be for me,
it would be rough.
Speaker 4 (02:02):
I have said family in Phoenix and they used to
come east for the summer months, or at least the
kids did.
Speaker 5 (02:07):
They always say, it's a dry heat, you know, but
it doesn't change how hot it is.
Speaker 3 (02:11):
It's hot, all right.
Speaker 5 (02:12):
So Bill, you guys have done well internationally. What's your
focus on over there and how do you gather your
intel for international investments?
Speaker 7 (02:22):
Well, there's there's a lot more spade work because in
the US Fund we deal a lot with things that
we know a lot about and have interacted a lot with.
And that's somewhat true on an international basis, but it's
a lot of the same themes.
Speaker 3 (02:39):
Uh.
Speaker 7 (02:39):
You know, we look for wonderful companies that are deeply
out of favor, and it just so happens that the
weakness in the dollar is causing the favor to come
to those international companies a little easier than it does
in the United States where where the dollar is strong.
Speaker 4 (02:59):
Do you think it's going to continue in terms of
the international returns or outperformance here?
Speaker 7 (03:04):
Oh, it would, it would seem obvious. The gap got
the largest.
Speaker 8 (03:08):
It's been, you know, almost in twenty five years.
Speaker 7 (03:13):
So the gap, you know, anybody that doesn't have the
magnificent seven in their index looks relatively poor. You know,
this is biggest undervaluation in the US of value versus growth.
It's the biggest spread of momentum to anything. And therefore
(03:34):
there was just lots of opportunity.
Speaker 8 (03:36):
There is lots of.
Speaker 7 (03:37):
Opportunity because these kind of things have a tendency to
last for quite a while, and the international on a
relative basis, is just getting going.
Speaker 5 (03:45):
Meanwhile, back here at home, you've drawn parallels to the
incredibly narrow leadership that we have right the mag seven
profits Goldman Sachs said today are going to grow twenty
six percent, whereas the rest to the S and P
the four ninety three are posting only four percent profit growth.
(04:05):
You've drawn parallels between the narrow leadership we have now
and nineteen eighty seven.
Speaker 6 (04:11):
That's a little bit spooky. How do you get there?
Speaker 7 (04:14):
Well, you know what happened was there was a huge
bowl market from eighty two to eighty seven, and it
got to where laid in it, it got narrow, and it
was kind of built around who Drexel Burnham was going
to help get bought out, right, the r J and
Nabisco and some of those kind of things. So what
(04:36):
we've got here is the biggest momentum trade of my
forty five years in the business. And you don't get
to know when it's going to end. But to be
successful over the next five to ten years, you're going
to need to be in things that don't get caught
in the outcropping of where this dies, and the signs
(04:58):
of it.
Speaker 8 (04:59):
Dying are over there.
Speaker 7 (05:01):
Cole wrote a piece the other day just talking about
how we loved these Magnificent seven companies because they didn't
have to put a lot of capex, they didn't have
to reinvest a lot of their profits in the business,
the Metas and the and the.
Speaker 8 (05:17):
Googles and people like that. But now they're in a
space race. They're in a race to see who can
outspend each other.
Speaker 7 (05:25):
And when I saw somebody was offering an employee two
hundred million dollars to go to work for them, I thought, Okay,
we're now at the kind of the goofy point.
Speaker 4 (05:34):
So okay, not so interesting.
Speaker 6 (05:36):
Silly season. I mean, it absolutely has to be silly season.
Speaker 4 (05:39):
Listen, and this is what we're trying to figure out, right,
But it does feel certainly lofty at this point.
Speaker 5 (05:44):
Facebook is going to spend twenty billion dollars just on
compensation that's not capex, which is ops, Well, does this make.
Speaker 4 (05:52):
You like something like Apple more so because they haven't,
you know, run into that AI spend. I mean, everybody's
criticizing them there that they're behind the game on that,
but they're not doing that big spend, at least not yet.
Speaker 7 (06:08):
Well this is not stockwise, but I don't like Apple
because they're stalking me, and I don't like to be stocked.
But anyway, that's a separate subject. The you know, Apple
is a consumer products thing, and whether they're enhanced or
(06:29):
invaded by AI, I don't know. But the bottom line
is you can't make superior returns over a ten year
timeframe from owning the best performing stocks of the prior
ten or twenty years. We've looked all through the decades.
RCA wasn't the place to be after nineteen twenty nine,
(06:51):
and Intel and Cisco have never made a new high
from their ninety nine two thousand peak. So Microsoft get
back to even after fifteen years. So the problem isn't well,
can these work for another year or two. Yes, it's
possible they can work for another year or two.
Speaker 8 (07:10):
But when it's over is when the problem starts.
Speaker 7 (07:14):
And we have got the biggest concentration of not only
in the S and P, but that means in everyone's portfolio.
Almost everyone in the United States has got their portfolio
built around the S and P, and the S and
P is built around them.
Speaker 8 (07:31):
So if the S and P does poorly.
Speaker 7 (07:33):
Those will get sold automatically, and if they do poorly,
the S and P will get sold automatically.
Speaker 8 (07:38):
In kind of a miserable, unvirtuous circle.
Speaker 4 (07:42):
Bils made thirty seconds here. We got to ask you
because everybody's like kind of looking at us, how is
Apple stalking you?
Speaker 9 (07:50):
Oh?
Speaker 7 (07:51):
I'll be talking to somebody about something and the next
thing I know, some kind of an advertisement will pop
up on my phone for that subject.
Speaker 6 (07:59):
Yeah, that happened to us too. I mean, I imagine
Carol happens to you.
Speaker 4 (08:02):
It happens across Yeah, it happens across everything.
Speaker 6 (08:05):
It helps me shop.
Speaker 4 (08:06):
We should point out that you also like Diamondback Energy.
I know they're reporting after the close today and d
R Horton we're running out of time. It just means Bill,
we're gonna have to get you back real real soon.
Bill Smeath, Chief investment Officer and so much more over
at Smeat Capital Management. Joining us from Portland, Oregon.
Speaker 2 (08:24):
You're listening to the Bloomberg Business Weekdaily Podcast. Catch us
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Speaker 4 (08:38):
We're going to stay with technology. Matt myself, the tech
solutions provider we're talking about. Inside Enterprises reported earnings last week.
Shares did come under pressure, down as much as eighteen
percent in traday, the largest of tra day drop since
two thousand and nine, after second quarter sales missed analyst estimates.
The stock is down more than twenty percent year to date.
We wanted to hear more about the business, the outlook,
(08:59):
and what is going on with it, spending more broadly
here with us as Insight Enterprises President and CEO Joycemullen
joining us from Chicago.
Speaker 6 (09:07):
Joyce, welcome to BusinessWeek Daily.
Speaker 4 (09:10):
Before we get into the results the outlook, just remind
our audience about what your company does specifically and who
your customer base is.
Speaker 9 (09:20):
Yeah. Sure, and thanks very much for having us today.
Thanks for having me. You know, Insight Enterprises has been
serving enterprise customers, small and medium business customers, public sector
customers for thirty five years or so, and we have
evolved many many different times. We announced a couple of
years ago that we were creating a new category in
our industry. We're calling it solutions integrator because we have
(09:44):
invested not only in our hardware, in our software capabilities
and skills with our partners from around the world, but
also our services expertise. And what we know is that
buying patterns are changing. Enterprises really are looking for results,
and the way you deliver these results with technology now
more than ever with AI, is by combining hardware, software
(10:05):
and services. So that's what we do and we're proud
to do it. And yeah, we delivered a pretty resilient
quarter in a Q two considering all the headwinds. We
met our expectations and expanded profit. But yep, the market
dropped for our stock drop for sure, and.
Speaker 6 (10:21):
We're proud of the quarter we delivered.
Speaker 9 (10:22):
We just got to keep doing it and it'll come back.
Speaker 6 (10:25):
So why do you think the stock dropped so drastically.
Speaker 1 (10:30):
Yeah, we're trying to figure that out.
Speaker 9 (10:31):
But you know, I think what we got to do
is stay focused on delivering really strong results, expanding our
margins like we've been doing, and then also making sure
we take really good care of our customers and our
clients today are really focused on how do I put
technology to work? To deliver results fast, pragmatically and simply,
and this is what we've been focused on for a
(10:52):
long time. We're pretty proud of the margin expansion that
we saw on the quarter. We're really excited that Gartner
named us as a an emerging visionary in terms all
in all things AI. It's really the first time they've
published that particular grid, and we're pretty excited about that designation.
But we got to do it over and over again,
(11:14):
and you know, we're ready to do that.
Speaker 6 (11:16):
I mean, you have joice the execution down.
Speaker 5 (11:20):
You have amazing experience at sales and supply chain orgs,
massive businesses with Dell and with Commons before that.
Speaker 6 (11:30):
But you've got to be able to deal with the.
Speaker 5 (11:34):
Capital side of the business too, right, So you need
to know what shareholders are thinking and what they want
or is that not?
Speaker 6 (11:42):
Do you think it just comes if you continue to do.
Speaker 9 (11:45):
Your work, No, of course, I mean, I mean we
are working really really hard to build out our capabilities
organically and inorganically as this market changes, you know. I mean,
I think AI presents enormous opportunities and frankly challenges.
Speaker 1 (11:59):
I think the.
Speaker 9 (12:00):
Traditional channel model doesn't survive an AI world. Where there's
automated procurement and automated selling and all sorts of agents
doing all kinds of work, and we are ready for that.
We have been investing heavily in our own internal AI
because if we're client zero for a bunch of our
solutions that we've developed internally, we can also help our
(12:20):
clients get those same results when we take them to them.
And we've our number of AI assessments has quadrupled more
than quadrupled in Q two from Q one, So we
think this is a This is really the catalyst that
we've been excited about and preparing for for many years,
and now I think we're in a great position to
deliver against those opportunities. But you know, you got to
(12:44):
demonstrate results every single quarter, and I think that's that's
what we're prepared to do.
Speaker 4 (12:48):
How much of it, though, is you know that customers
and I think this came out in the reporting following
your results, that customers are just putting off new projects
and they're saving for what they think they might need
an AI. How much of what you think how much
of that is going on I guess and impacting your business?
Speaker 9 (13:05):
Yeah, we have definitely seen that specifically, Carol in our
enterprise infrastructure business, So our infrastructure business around enterprise largest
our largest customers, and there's you know, there's a lot
of excitement around AI, there's also a whole lot of
uncertainty about how to proceed. So I think our customers
are looking for those no regrets moves that they can make.
(13:28):
How do they shore up their infrastructure but maybe don't
do the data migration work quite yet because they're not
sure which workloads go wear. We're definitely seeing that type
of hesitancy, and that's a reflection of I don't think
we're an outlier on this, but that's a reflection a
little bit of just changing spending patterns in those enterprise
IT budgets and making sure that people are prepared and
(13:49):
ready to spend on the things that are going to
matter most in terms of their own AI implementations.
Speaker 4 (13:54):
Is it because there's news, Yeah? Oh no, please finish please?
Speaker 1 (13:57):
Of course.
Speaker 3 (13:58):
I was just going to say.
Speaker 9 (13:58):
The good news is whether they decide they need a
much more robust network or they decide they want to
run a whole bunch of these large language models and
smaller language models at the edge, we can help them
or their multi cloud we can help them and that's
the idea. How do we turn their concerns into shorter term,
pragmatic projects, deliver results fast, and earn the right to
(14:21):
do more.
Speaker 4 (14:21):
How much of this, I wanted to ask you, Joyce,
is because they're smaller businesses or medium sized business and
so I know that there's been this expectation that when
it comes to AI of having on premise facilities versus
you know, processing when it comes to AI up in
the cloud. So how much of it is it that
those smaller medium sized businesses maybe want to have it
on premise, but they want to hold off.
Speaker 9 (14:43):
You know, our commercial business has grown five years in
a row, so that's that small and medium business space.
We are really pleased with those results. And normally after
we come out of a downturn, the commercial business grows first,
and then we see that follow in the rest of
the segments. And that follow on work is just starting
to take hold in our corporate segment, but the enterprise
(15:05):
large enterprises are usually the last to grow as we
come out of a downcycle. I do feel like there's
a lot more discussion about which workloads should run on
prem which workloads should run in public clouds, and we're
ready for those discussions. And we help our clients optimize
multi cloud implementations every single day, So that's a huge
(15:26):
opportunity for US.
Speaker 5 (15:28):
I just noticed the statement that the enterprise tech buying
model is broken, and I wonder how you think the
new model looks?
Speaker 9 (15:42):
Well, you know, I think the new model is really
around those pragmatic projects that are simplified and deliver results fast.
Is sort of the norm. That's how we buy. We
don't want a big engagement that spans seven years. We
don't want one hundred million dollar contracts around our technology
services and solutions. We want smaller, bite sized chunks. So
(16:06):
we understand what the ROI is and then we use
the returns on that investment to pay for the next one,
and the next one and the next one. And that's
how our customers are buying today. That is a different
That is this pretty significant departure from kind of how
customers bought technology support and services maybe five years ago.
Speaker 4 (16:24):
All right, can I just ask you ten fifteen seconds
the pullback and spending. Was it across industries or certain industries?
Speaker 8 (16:29):
Just quickly? Yeah?
Speaker 9 (16:31):
Really, I would say it was more pronounced for large
enterprise customers, more pronounced in those customers who serve consumers.
Speaker 6 (16:38):
All right, can leave it there.
Speaker 4 (16:39):
Good to check in with you, Joyce Malla and she's
inside Enterprises, present and CEO.
Speaker 2 (16:44):
This is the Bloomberg Business Week Daily Podcast. Listen live
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Speaker 3 (17:03):
Really looking forward to this.
Speaker 6 (17:04):
Next guest, Jennerak.
Speaker 4 (17:06):
I don't know if you noticed. Matt was the top
performing stock of the SMP last week.
Speaker 2 (17:09):
It was apt.
Speaker 5 (17:11):
And it makes a product because I think a lot
of homeowners, if you don't have one already, you want
your own generator.
Speaker 6 (17:20):
And I guess with these.
Speaker 5 (17:23):
Climate issues that we have, more and more people are
pushed to buy one. Let's bring in the chairman, President
and CEO of Generic, Aaron Yachtfeld. He joins us after
second quarter earnings, and I guess you know, power gen
has never been as exciting. You must be the most
popular person at a cocktail party now because it's not
(17:43):
just a generator that people want at home. But because
of the data centers and AI, everyone is talking about
generating power. How's it working on your company?
Speaker 1 (17:55):
Yeah, thanks for having me on today, guys.
Speaker 10 (17:57):
Yeah, it's like you said, it's it's never a dull
moment when you talk about backup power. You know, every
time I travel, I get on a plane, you sit
down next to somebody, you do the Okay, what do
you do?
Speaker 1 (18:07):
What are you? You know, what's your job? Where do
you work?
Speaker 10 (18:09):
I talk about generak and all of a sudden, you know,
people are like, well, that's a product we have to have.
You know, I think what we've come to find just
as Americans, you know, we struggle with power quality in
the in this country and we have.
Speaker 1 (18:20):
For many decades. This is not a new issue.
Speaker 10 (18:23):
I think, you know, what's worrisome is just the the
number of outages that are happening and how long they're lasting.
And this is a growing problem both for homeowners.
Speaker 1 (18:32):
As well as businesses.
Speaker 5 (18:33):
Yeah, so how much air and of your business is
you know, you know, me and Carol out in the suburbs,
and how much of it is a company you know,
mid size or even larger looking to back up its data.
Speaker 10 (18:48):
Yeah, about sixty percent of what we do is in
the residential market, so that would be you know, out
in the suburbs, you know, for homeowners who are looking
for a solution for their family, for their property, protect
those things. Businesses, you know, this a business decision, right
With homeowners, it's a little bit different. It's a little
bit more emotional, right, just the loss of power and
what can happen in your home. Certainly there's things that
can go wrong, there's damage that can happen to your house,
(19:09):
but largely, you know, that's an emotional decision.
Speaker 1 (19:12):
Whereas a business, the loss of revenue.
Speaker 10 (19:14):
Spoilage of inventory, you know, some kind of interruption of
a critical process, especially as things get more critical with
in business, with power, the need for that. We see
about forty percent of our business leaning that way. But
that is a very large opportunity for us, and in
particular in some of the bigger applications where we play
up in the data center market, it's you know, an
(19:36):
incredibly hot space.
Speaker 4 (19:38):
We'll dig into that for us, Aaron, like, how much
growth are you seeing in that space? How many calls
are you getting about that? Give us an idea of
some of the demand and what that kind of gives
you an indication of how much more that market could
be for you guys.
Speaker 10 (19:51):
Yeah, the market for data centers. I mean, obviously you
guys cover this, you know, very broadly. Yeah, it's massive, right,
Like I mean, the capital spending that is going into
these facilities and all the equipment that goes alongside of
them is enormous, and of course the power needs themselves
are enormous. You can imagine the backup power, right these
are critical installations. If the facilities go down, we don't
(20:12):
have access to the cloud, we don't have access to
some of these critical things that are happening in data centers.
So every single data center that goes in has emergency
backup power. And so we're a relatively new entrant to
this market. Our product lines have been smaller. We've served
small business and smaller data centers for many many years
the telecommunications space and an example, we provide backup power
(20:34):
to a lot of the major wireless carriers out there.
Speaker 1 (20:37):
So this is a bit of a new space for us.
We just entered it in April.
Speaker 10 (20:40):
We opened up our order book and we've already bood
one hundred and fifty million dollars worth of new business.
We talked about that last week on our call. I
think that was part of the reaction that you saw
in the stock. But we're seeing just an incredible amount
of demand for these types of products.
Speaker 5 (20:55):
I'm always interested in where you're building these things, and
I guess you have a new facility in beaver Dam,
Wisconsin that's supposed to open up space to build those
big diesel generators, more of the big diesel generators in Oshkosh.
Tell us about your manufacturing footprint because tariffs are obviously
a huge issue these days.
Speaker 10 (21:14):
Absolutely, and you know we've been long standing US manufacturer.
We just opened our sixth facility in the state of Wisconsin.
We have seven here state. Side those six facilities in Wisconsin,
a good chunk of those facilities are focused on these
larger units and on the commercial and industrial products, so
those products for backing up businesses. But we're also a
global company. We have facilities worldwide. We have a facility
(21:37):
in China, facility in India, Brazil, we have three facilities
in Europe, to in Italy, one in Spain, have another
facility down in Mexico.
Speaker 1 (21:45):
So you know, we're a global company.
Speaker 10 (21:47):
But we see the demand for backup power growing really
across the.
Speaker 1 (21:52):
Globe, but we see what's going on here in the US.
Speaker 10 (21:54):
The addition of the Beaver Damp facility was a critical
part of expanding additional capacity for these systems because the
growth is just it's enormous right now.
Speaker 5 (22:03):
How much so I look at cars all the time.
Ford builds more cars in America for sale in America
than any other producer. You'd think that would help them
avoid tariffs, but in the end they get absolutely crushed
with tariffs on steel, tariffs on aluminum, tariffs on form
made parts, tariff's on magnets out of China, and it
really makes up then more of a tariff hit than
(22:25):
somebody building a car in Japan or somebody building a
car in South Korea for export.
Speaker 6 (22:30):
Do you get hit with those kind of nickel and
dime tariffs too?
Speaker 1 (22:33):
We do.
Speaker 10 (22:34):
We use a lot of steel, we use a lot
of aluminum, We use a lot of copper in every
single gen set. So in fact, you know, it's interesting
you brought up the emotive automotive industry, Matt, because it's
a real good proxy for you know, a lot of
our input costs. You know, in terms of the components,
in terms of the commodities, the things that we're exposed to.
Speaker 1 (22:51):
So you know, we have a lot of those similar exposures.
Speaker 10 (22:53):
And I think just like Ford and others, you know,
we're trying to do what we can to minimize the
impacts of tariffs.
Speaker 1 (22:59):
But it's difficult. I mean, we've all developed over.
Speaker 10 (23:01):
The last you know, forty fifty sixty years, global supply chains, right,
I mean there are there are areas of the world
where you know, certain components, certain commodities are only available,
right you just they're just not widely available in other
parts of the world. So it's going to take time
to recalibrate those supply chains and to try and create
a more domestic manufacturing base.
Speaker 1 (23:20):
And I get it.
Speaker 10 (23:21):
I understand the need to do that, in particular around
things that are you know, associated with defense, maybe pharmaceuticals,
things that are truly critical.
Speaker 1 (23:29):
I'm not sure, you know, when you look at the
broader base of things that.
Speaker 10 (23:32):
We're putting tariffs on that, you know, like tennis shoes
and Barbie dolls, if that's you know, maybe the right
place to do it. You know, I think we've got
to be selective and we've got to be strategic in
how we use tariffs. But I know the administrations, you know,
working through all that, with all these different trade partners.
Speaker 5 (23:45):
Some things, I mean, like magnets are rare earths out
of China.
Speaker 6 (23:49):
We're never producing those here. It's like not an option,
not in decades, so challenging, and you you must use those.
Are you getting enough?
Speaker 1 (23:58):
We are?
Speaker 10 (23:59):
You know, we're that we have some we have the
ability to kind of substitute for some of those super
rarer the elements that I think are really critical in
aerospace and defense, not as not as critical maybe in
the automotive, and you know, in smaller quantities they are,
but we have access to them today. But of course
that's a concern because as you noted, you know, there
are only a few areas of the world where you
(24:20):
can get those types of materials and those types of components.
So it presents a really I mean, it's a it's
a very complicated situation, very complicated conversation.
Speaker 1 (24:29):
I understand what we're trying.
Speaker 10 (24:30):
To do, but again, I think we've got to be
we've got to be super strategic about how we implement
these these trade agreements and these tariffs.
Speaker 4 (24:38):
We are talking with Aaron Yuchtfeld. He is chairman, president
and CEO of GENERAK.
Speaker 6 (24:42):
Hey, a couple of things that.
Speaker 4 (24:43):
You said, and I want to follow up on. You
are mostly selling here in the United States, but you
did talk about what you guys are doing around the world. Aaron,
does it make sense to pivot even more so international
with the energy storage solutions to places like Europe and China,
given that the US policy are now less friendly to
something like solar.
Speaker 10 (25:03):
Well, those are big markets to begin with, right So
you know, obviously we want to be successful with our
energy products, you know, the storage products in particular battery products.
Speaker 1 (25:11):
You know, Europe is a very well established market. The
US is a good market as well.
Speaker 10 (25:16):
But obviously the policy changes that you know we've now
codified here recently are going to have an impact on
the US market for solar and for storage now. A
lot of the things we're looking at, though, even with
the loss of those incentives and the loss of support
here in the US. You know, the economics of putting
a solar system on your rooftop depending on where you live,
and the cost of energy continues to rise. This is
(25:38):
one of the things we've talked about when we started
up talking.
Speaker 1 (25:40):
Today about the quality of power. The cost of power.
Speaker 10 (25:43):
Is another element here that needs to be talked about
because as power costs go up and the cost of
these technologies are on solar and storage continue to come down.
The economics, the payback, the raw economics of investing in
your own power production on your rooftop or a geothera
loop or however you want to produce your.
Speaker 1 (26:01):
Own power and store some of that power.
Speaker 10 (26:03):
Continue to improve, and the loss of support, you know,
it may impact the industry for a year or two,
but it will get back on track because again, power
prices are going up.
Speaker 4 (26:12):
Yeah, it does feel like we're headed towards the power war,
certainly here in the United States, considering the amount of
power needed to really support all the AI that's going on.
Having said that, you talk about these loss of these
residential tax credits. You've got some new home stand by generators,
my understanding is coming to market. Is that going to
help offset those some of the loss that you are
seeing from those residential tax credits, especially when it comes
(26:34):
to your storage business.
Speaker 1 (26:36):
Yeah, absolutely so.
Speaker 10 (26:37):
On the energy storage side, the loss of the credits
that's going to impact that business here short term, our
home stand by business. That business doesn't it's never benefited
from tax credits to begin with. So you know, it's
the kind of thing that you again, if you and
Matt out in the suburbs, you've got you want one
of these products to back up your home so that
you know, you protect your property, protect your family. There are, unfortunately,
were no tax credits available, even though the administration, when
(27:02):
President Trump was on the campaign trail, you know, he
had mentioned maybe perhaps offering a generator tax credit. We're
still waiting on that. We think that'd be smart policy,
but we haven't seen it yet. It certainly wasn't in
the One Big Beautiful Bill. But those products don't have
tax credits. We do have a new product line coming
out which has got some great features and benefits packed
in it. But those are the kinds of products that
(27:22):
you know, again you're really buying and investing in those
products to protect your home, to protect your family, to
protect your business from a power outage.
Speaker 4 (27:30):
Now, and what I really meant is those news products
kind of offsetting anything you're losing from the energy storage
business because of the loss of the tax credits. One
other thing I want to ask you about data centers.
What about the imminent launch that you guys are expecting
of large diesel generations for data centers. What can you
tell us about capacity? How much do you guys have
for that? I know, are you investing to boost that capacity?
(27:51):
And what is the pipeline of new orders looking like?
Speaker 1 (27:54):
Yeah, so the pipeline's very strong.
Speaker 10 (27:56):
You know, again, about one hundred and fifty million already
booked in backlog a capacity just raw capacity here you know,
kind of globally about about a five hundred million dollar
capacity number for twenty twenty six. So if we get
the orders we think we can, you know, we can
have a really great year next year as a way
to increase our commercial and industrial business. But we're already
thinking about twenty twenty seven beyond. You know, this is
(28:18):
a market that again you kind of have to go
back to, what do you see in terms of CAPEX
spending for data centers?
Speaker 1 (28:23):
Is this going to be a truly a bubble.
Speaker 10 (28:25):
You know, something that in the next year or two
you're going to see a retrenchment or a retlacement of
all the that spending or is this secular, right? Is
this going to go on for the next decade, and
we we definitely, like others, believe that this is this
is certainly a longer term trend and one worth leaning into.
So we're already starting to think about adding capacity so
that we can take that five hundred million dollar number
(28:46):
to something much higher.
Speaker 1 (28:47):
Than the years ahead.
Speaker 6 (28:48):
For me, it's the residential products because this is like
Matt just wants a diesel generator.
Speaker 8 (28:56):
Well, if you're you know, what we do here is.
Speaker 6 (28:58):
Just what Matten to buy. And that's what it's not
not even me.
Speaker 5 (29:02):
But if you're like a hedge fund guy and you
just made your first you know, a couple of million,
and you're putting up a place and you know, Mill Brooks,
you can be next to me, show Mik you want
to have a sweet diesel generator out back.
Speaker 1 (29:14):
Well, well, i'll tell you.
Speaker 10 (29:15):
You know what people don't think about, right, Like if
you if you think about your home today and right,
so you talk about that the hedge fund manager or
or you know, anybody else who's who's got a home,
the amount of technology that's entered your own home, right,
think about it, like like from security cameras to just
the you know, it's from control of all of your
you know, a lot of your audio visual equipment you're lighting,
(29:37):
but a lot of the you know, the safety equipment
that goes in your homes, your security systems. These systems
are non operational when the powers out. We get notes
from people who are like, you know, look, I didn't
even realize that my garage door wouldn't open. You know,
I've got a garage door opener. The powers out, I
can't even back my car out of the garage. You know,
everybody if you if your power's out and you want
to open the garage or you got to reach up
(29:58):
and grab that red handle. Right, nobody wants to do
that ever in your garage because you don't know what's
going to happen next.
Speaker 1 (30:02):
Right, So people are like, I just I didn't think
about it.
Speaker 10 (30:05):
I didn't think my some pumps when you're some pump.
Speaker 4 (30:08):
My husband keeps doing all these systems, like our lights
I have to turn on with like these technical systems
and everything nothing switches or anything anymore, and it's like
I fear for when the lights go out. I don't
live in suburbia. I live just outside New York City,
but we talk about it generator so much.
Speaker 5 (30:22):
We talked about just even the food in your refrigerator,
but the deer in the freezer downstairs, you know, and
what happens if you can't heat the pool and the fall.
Speaker 6 (30:31):
You know, you need to have what is the hottest product, Aaron?
Speaker 5 (30:35):
What is the thing that you know the dude at
the end of the call to sack absolutely has to have.
Speaker 6 (30:41):
What are you selling out of?
Speaker 10 (30:42):
Well, I'll tell you it's our twenty six kilo loot
homestand By generator, which can cover your entire house, a
good sized home for everything you needs.
Speaker 1 (30:50):
Basically, if the utility goes.
Speaker 10 (30:51):
Down, you don't even notice that that that the utility
is not present, right, I mean you see a momentary,
uh loss of power, and then the generator starts up
and you can you can basically run in definitely on
a natural gas pipeline or if you have propane at
your home, you know you're going to be able to
last a long time on a generator. And I think
one of the things the other thing that we're seeing
huge trend right is people who have home medical equipment.
Speaker 1 (31:14):
GLP one trugs.
Speaker 10 (31:15):
GLP one drugs have to be refrigerated, so if you
lose refrigeration with medications, certain kinds of medications spoil very quickly.
And so you know this these trends, these overarching trends.
For again, you know, a lot of the medical infrastructure
is starting to move.
Speaker 1 (31:29):
Into the home. We see Americans who are trying to
stay independent and stay in their.
Speaker 10 (31:33):
Homes much much longer. But a power outage when you know,
when you get older, in your sixties or seventies and
you lose power, it's a very different situation than if
you're a younger American thirties and forties.
Speaker 1 (31:43):
You know, it's the indoor camping.
Speaker 10 (31:44):
You get out the monopoly, you know, and everybody has
fun and it's great until you know, everybody gets sick
of that after.
Speaker 1 (31:49):
About an hour.
Speaker 10 (31:50):
But if you're older, I mean the danger that comes
from not being able to regulate temperature, the loss of
some of the function of some of these medical devices,
just not having the lights operate as you mentioned, I mean,
those are very serious situations for older Americans, and that
is a huge part of our demographic for homestand by generators.
Speaker 4 (32:07):
Yeah, moose from being a disinctionary to a staple to mention,
the wine cellar Matt Stop, Aaron, He's now googling what
you just suggested, and so you know there might be
a purchase coming something in Matt's future. Erin, thank you
so much, Aeron Yechfeld. He is chairman, president, CEO of Generak.
Delighted to have him here on Bloomberg Business Week Daily.
Speaker 2 (32:27):
You're listening to the Bloomberg Business Week Daily podcast. Catch
us live weekday afternoons from two to five pm Eastern.
Listen on Apple CarPlay and Android Auto with the Bloomberg
Business app, or watch us live on YouTube.
Speaker 4 (32:42):
Hey, one name that is definitely outperforming in a big
way in today's session. That is Wayfair stock is up
about twelve point eight percent as we speak, so pretty
much hovering near its highs of this session. This after
the company came out and reported second quarter results that
were much stronger than expected. Our Bloomberg Intelligence put in
Goyle putting out a research note saying Wayfair second quarter.
(33:04):
He looks to stay hot in the third quarter.
Speaker 6 (33:07):
So let's get to it. Let's hear about the business.
Speaker 1 (33:09):
Kate Gulliver is back with us.
Speaker 4 (33:11):
She's chief financial officer of Wayfair, and she joins us
once again from Boston. Kate, how are you fine.
Speaker 3 (33:17):
Thanks, We're thrilled with the quarter, so happy to be here.
Speaker 4 (33:20):
Well, talk to us, I mean investors are thrilled as well.
Talk to us about the quarter and what you guys
saw and where the growth was.
Speaker 11 (33:28):
Yeah, I think you really saw two key things happening.
So first, on the top line, our share gains continued
to manifest and really accelerate, and that led to that
five percent top line six percent, you know, adjusting for
the German business comp So that's pretty exciting for us.
And then what you saw is a really nice flow
(33:49):
through of that revenue to adjusted EBIT, you know, crossing
that two hundred mark two five of adjusted EBIT. And
I think that really shows the strength of the model
and efficiency of the cost takeouts over the last several years.
So to have the nice revenue momentum the share gains
paired with that cost efficiency. You know, for many quarters
we said you should see that really significant flow through
(34:09):
when that happens, and indeed that manifested in the second quarter.
Speaker 1 (34:13):
Kate.
Speaker 5 (34:13):
Whenever I ask someone about the stock price and it
doesn't look great, they always say, well, we're focused on
doing business here and we don't care about the shares,
but you got to care about them on some level,
especially as a CFO. So you know they've You've had
an incredible year. Year to date, you're up like sixty
six percent, but if I bring the chart out to
(34:35):
you know, the COVID highs, you still have a long
way to get back there. I think you're down seventy
some percent from your twenty twenty one highs. Is that
gonna happen you think at wayfair or was that just
you know, like la la land levels in the pandemic.
Speaker 3 (34:53):
Well, now we're focused on operating the business.
Speaker 11 (34:55):
But you know, Lelly, let me come back it a
little bit for you, because you know, the reason you
probably hear that answer is at the end of the day,
we do believe that, you know, the valuation and sort
of where investors see the business should over the long
run follow the performance that we drive here at the company,
and so our focus actually really is on how do
(35:16):
we continue to take share and how do we continue
to flow through that revenue into adjusted EBITTA dollars, into
free cash flow growth and into you know metric that
we look at where we call owners' earnings, which is
that EBITA less our capex expense less our stock based compensation,
and we do want to continue to build on that
over time, and we think we can and as we
(35:38):
continue to grow the top line, as we continue to
grow those adjusted EBITA dollars, you know, I firmly believe
that the valuation will follow.
Speaker 6 (35:44):
Yeah, revenue just go ahead.
Speaker 5 (35:47):
Can it get back to that or was that just
like everybody locked in at home and.
Speaker 6 (35:52):
The government throwing money at American citizens?
Speaker 5 (35:54):
Is that why revenue climbed so high during the pandemic
or can you get back to that level?
Speaker 11 (36:01):
Yeah, So if you think about the category itself, obviously
the category itself had a very you know, unique period
during the pandemic where growth accelerate in the category in
twenty twenty and into twenty twenty one. The categories had
significant pullback since then in twenty two, twenty three, twenty four,
and even still a bit in twenty five.
Speaker 3 (36:22):
We would say we think the.
Speaker 11 (36:23):
Category is sort of flat to slightly down, you know,
low single digits in the past quarter. So the category
is still under quite a bit of pressure. Can the
category return to a normalized level of growth? Of course, right,
the category and a normalized period grows you know, sort
of three to four percent the overall home goods category,
and we do believe that we can return to double
digit growth over time, you know, where we significantly outpace
(36:46):
the category. That's what we did for the majority of
our history, you know, significantly preceding the pandemic, and it's
what we expect to do, you know, as the category
returns to normalization. So, you know, can we ever get
to the revenue that we had during the pandemic. Absolutely,
we're quite confident in our ability to do that.
Speaker 4 (37:01):
You mentioned earlier about cost efficiencies of the model, what specifically.
Speaker 11 (37:08):
Yeah, So over the last few years, we've been quite
focused on a few things. One has been improving our
overall sort of total overhead cost structure that manifests and
that SOTG and a line in the P and L,
and I would think about that as really our fixed
cost basis. The majority of that line is labor, and
so we have had a number of restructurings where we've
(37:28):
reduced labor cost and that has shown up in that line.
And we've said that where that line is right now,
you know, at that three sixty to three hundred and
seventy million dollar point, it should be able to hold
there for some time, even as we continue to grow
the top line, we get ongoing efficiency from labor and
as we you know, sort of continue to see the
benefits of some of the growth investments that we've made.
(37:49):
So that's one big area of cost management. We also
have been improving our sort of structural gross margin. So
we took out you know, cost and our supply chain,
and that's really helped our gross margin. And we've added
some supplier services, like supplier advertising, which have helped improve
that gross margin as well.
Speaker 3 (38:06):
We've reinvested you.
Speaker 11 (38:07):
Know, a significant portion of that back in the customer
experience and the form of price and the form of
delivery experience. And so we've held that gross margin at
thirty to thirty one, but structurally've been able to drive
it higher and instead give it back to the consumer
and then float that through and ultimately you know, cover
off on that fixed cost basis.
Speaker 5 (38:26):
I wonder how you deal with tariffs because you have
so many suppliers. But you know, furniture making in the
United States of America has is far from its from
its peak these days, So.
Speaker 6 (38:41):
Do you get suppliers to.
Speaker 5 (38:42):
Kind of eat that are you taking some of it
into your margin, and how much are you passing on
to the consumer.
Speaker 11 (38:49):
Yeah, you know, we talked about actually, you know in
May when Carol and I spoke before, was that we
thought the benefits of our marketplace model would help us
manage the terriftfts. And that's because we are able you know,
as you point out, Matt, we source from over twenty
thousand suppliers, right, so we are able to have a
very wide range of goods with suppliers from all over
(39:10):
the world, including some from the US, and we're able
to then position within a given class or category, say
like this chair that I'm sitting on now, We're able
to position the products that we believe are best for
the consumer, so most price competitive can get to her quickly,
you know, are high quality. We're able to position that
first in the sort order among many very similar products.
(39:31):
So if a product gets relatively more expensive, other products
will then move up within the sort order, so the
consumer is able to see the product that is most
price competitive.
Speaker 3 (39:41):
And that means there's a tension within.
Speaker 11 (39:43):
The marketplace where suppliers actually want to maintain their price competitiveness.
They do not want to lose that volume, particularly in
a category as we spoke about earlier, that's you know,
been under pressure for some time and you're seeing that
pan out. So what we set on the call this
morning was on a like for like basis for the
products that are on those first few pages of the
(40:04):
sword order when you search for, you know, sort of
lounge chair, you're going to continue to see and you
are seeing prices relatively stable on those first few pages.
And that means that the products that the consumers are buying,
they're not yet seeing you know, pricing changes flow through.
And I do think that's due to the breadth of
suppliers that we work with and the competitive nature of
(40:27):
the marketplace.
Speaker 4 (40:28):
We are talking with Kate Gulliver. She's the chief financial
officer of Wayfair, joining us from Boston. Hey, Kate, so
what do you know about the type of shopping that
consumers are doing, you know, when they're buying or they're
buying more items or are they buying fewer items? Are they
give us some idea in terms of some of the
trends that you're seeing in terms of the actual shopping
(40:48):
going on.
Speaker 3 (40:49):
Yeah, it's a great question.
Speaker 11 (40:51):
So when we think about our average order value or AOV,
that's really comprised of three different pieces. One is like
for like pricing we just spoke about. One is items
per order to the question you just asked, and then
last piece is mix. And we actually are seeing a
little bit movement on items for order and mix. So
an items for order, we're seeing a little bit of increase,
(41:11):
nothing you know, major, but sort of moderate.
Speaker 3 (41:14):
But where we're really.
Speaker 11 (41:15):
Seeing momentum is on mix. And what we mean there
is that you know, we're seeing mixing in brands of
ours that are actually sort of higher values, So Paragold,
which is our highest end, our luxury brand. We're seeing
ongoing really nice momentum there. Our specialty retail brands, so
all modern shows in Maine, Birch Lane. Again, these are
(41:38):
operating a little bit above that mass segment that the
Wayfare dot com business operates at. Those are also seeing
nice momentum. And then our B to B business, where
we sell you know, to professionals and the trade, we're
seeing nice momentum there. All of these are much higher
ticket values than the sort of core wayfare dot com business.
The other thing I'd add is, you know, we're we're
(41:58):
obviously newer to the physical retail game. We have our
first sort of large format waste store opened a little
over a year ago, and we're seeing nice momentum in
categories like storage and ORG and small kitchen accessories in
the physical space as well.
Speaker 4 (42:11):
Do you want to keep continuing to add in terms
of the physical stores. I know you guys have some
more expansion going on.
Speaker 3 (42:19):
Yeah, no, great question.
Speaker 11 (42:21):
We're thrilled with the performance of that Chicago store. Really
two key things that we see there. One is the
halo effects, so the sales that we get in the
surrounding region from having the store there. And then two
within the store, you know, we're seeing nice momentum categories
that you'll maybe sort of underpunch a little bit online,
like storage and ORG, kitchen accessory, small applients, is that
kind of thing, and so as we look at it,
(42:43):
we see significant opportunity from a growth perspective in expanding stores.
We've actually announced three additional leases. Two will open in
twenty twenty six, one in Atlanta and one in Denver.
That's our first store in sort of the Mountain West region,
so we're very excited about that. And then early twenty
seven we have a store opening.
Speaker 3 (43:01):
In Yonkers, New York.
Speaker 11 (43:03):
So you can see it's starting to build some of
the momentum here. I will be a little close to
for you guys.
Speaker 5 (43:08):
Yeah, hey, okay, I wonder about your view on rates,
because you know, maybe if you're buying just one chair
or a side table, you can afford that. But I'm
sure a lot of Americans are putting stuff on a
plan or borrowing money, and today the ten years pretty low.
But the idea I think is that rates tend to
(43:29):
go are going to tend.
Speaker 6 (43:30):
To go up from here. What's your view?
Speaker 12 (43:32):
Just got about thirty seconds, Kate, Yeah, you know, I
would actually say in our business, actually the average order
size is only around three hundred dollars, so well, you know,
rates have an impact on the consumer overall, in terms
of the housing market, in terms of our purchasing.
Speaker 3 (43:47):
With us, it's largely not financed.
Speaker 4 (43:49):
All right, Can I leave it? They're always fun to
check in with you and get a really great view
of what's going on with the consumer. Katep Well Kick Gulliver.
She's the chief financial officer of Wayfair.
Speaker 2 (43:59):
This is the Bloomberg Business Week Daily podcast, available on Apple,
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Speaker 2 (00:08):
This is Bloomberg business Week Daily reporting from the magazine
that helps global leaders stay ahead with insight on the people, companies,
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Podcast with Carol Masser and Tim Steneveek on Bloomberg Radio.
Speaker 3 (00:32):
An update on the trade.
Speaker 4 (00:33):
We've got a bit of a rally underway, and we're
up about one point seven percent on the Nasdaq one
hundred again of just about one on one third percent
on the S and P five hundred. Curious to see
what Bill Smead has to say about all of it.
He's chairman and chief investment Officer of SMED Capital Management.
They've got roughly five point six billion in assets under management,
the SMEED Value Fund. It is down about three percent
(00:55):
year to date, but has returned on average about fourteen
percent annually in the past five years. And the International
Value Matt I don't know if you noticed, is up
about twenty one percent year to date, so beating about
two thirds of its peers. Take a five year perspective
and it's beat just about all of its peers, returning
on average twenty two percent annually.
Speaker 5 (01:14):
An international has been crushing it this year. Interesting because
I think of I talked to Bill Sun all the time.
Speaker 6 (01:22):
We do too, clock Cole. I'm chatting with him on.
Speaker 5 (01:24):
IB like every day, and we're always talking about America.
So it's interesting Abilly to hear that you guys are
doing well internationally. I gotta asked first though, about Portland.
You're in Portland right now. You guys are usually in Phoenix.
I just took a look, and Portland's got nice semi
cloudy day, like seventy two degrees. In Phoenix it's one
hundred and twelve. How much nicer is it in Portland.
Speaker 7 (01:48):
Well, we have a summer home up here, so we've
joined many Phoenicians by getting out of dodge for about
seventy days.
Speaker 6 (01:58):
Makes sense. One hundred and twelve degrees would be for me,
it would be rough.
Speaker 4 (02:02):
I have said family in Phoenix and they used to
come east for the summer months, or at least the
kids did.
Speaker 5 (02:07):
They always say, it's a dry heat, you know, but
it doesn't change how hot it is.
Speaker 3 (02:11):
It's hot, all right.
Speaker 5 (02:12):
So Bill, you guys have done well internationally. What's your
focus on over there and how do you gather your
intel for international investments?
Speaker 7 (02:22):
Well, there's there's a lot more spade work because in
the US Fund we deal a lot with things that
we know a lot about and have interacted a lot with.
And that's somewhat true on an international basis, but it's
a lot of the same themes.
Speaker 3 (02:39):
Uh.
Speaker 7 (02:39):
You know, we look for wonderful companies that are deeply
out of favor, and it just so happens that the
weakness in the dollar is causing the favor to come
to those international companies a little easier than it does
in the United States where where the dollar is strong.
Speaker 4 (02:59):
Do you think it's going to continue in terms of
the international returns or outperformance here?
Speaker 7 (03:04):
Oh, it would, it would seem obvious. The gap got
the largest.
Speaker 8 (03:08):
It's been, you know, almost in twenty five years.
Speaker 7 (03:13):
So the gap, you know, anybody that doesn't have the
magnificent seven in their index looks relatively poor. You know,
this is biggest undervaluation in the US of value versus growth.
It's the biggest spread of momentum to anything. And therefore
(03:34):
there was just lots of opportunity.
Speaker 8 (03:36):
There is lots of.
Speaker 7 (03:37):
Opportunity because these kind of things have a tendency to
last for quite a while, and the international on a
relative basis, is just getting going.
Speaker 5 (03:45):
Meanwhile, back here at home, you've drawn parallels to the
incredibly narrow leadership that we have right the mag seven
profits Goldman Sachs said today are going to grow twenty
six percent, whereas the rest to the S and P
the four ninety three are posting only four percent profit growth.
(04:05):
You've drawn parallels between the narrow leadership we have now
and nineteen eighty seven.
Speaker 6 (04:11):
That's a little bit spooky. How do you get there?
Speaker 7 (04:14):
Well, you know what happened was there was a huge
bowl market from eighty two to eighty seven, and it
got to where laid in it, it got narrow, and it
was kind of built around who Drexel Burnham was going
to help get bought out, right, the r J and
Nabisco and some of those kind of things. So what
(04:36):
we've got here is the biggest momentum trade of my
forty five years in the business. And you don't get
to know when it's going to end. But to be
successful over the next five to ten years, you're going
to need to be in things that don't get caught
in the outcropping of where this dies, and the signs
(04:58):
of it.
Speaker 8 (04:59):
Dying are over there.
Speaker 7 (05:01):
Cole wrote a piece the other day just talking about
how we loved these Magnificent seven companies because they didn't
have to put a lot of capex, they didn't have
to reinvest a lot of their profits in the business,
the Metas and the and the.
Speaker 8 (05:17):
Googles and people like that. But now they're in a
space race. They're in a race to see who can
outspend each other.
Speaker 7 (05:25):
And when I saw somebody was offering an employee two
hundred million dollars to go to work for them, I thought, Okay,
we're now at the kind of the goofy point.
Speaker 4 (05:34):
So okay, not so interesting.
Speaker 6 (05:36):
Silly season. I mean, it absolutely has to be silly season.
Speaker 4 (05:39):
Listen, and this is what we're trying to figure out, right,
But it does feel certainly lofty at this point.
Speaker 5 (05:44):
Facebook is going to spend twenty billion dollars just on
compensation that's not capex, which is ops, Well, does this make.
Speaker 4 (05:52):
You like something like Apple more so because they haven't,
you know, run into that AI spend. I mean, everybody's
criticizing them there that they're behind the game on that,
but they're not doing that big spend, at least not yet.
Speaker 7 (06:08):
Well this is not stockwise, but I don't like Apple
because they're stalking me, and I don't like to be stocked.
But anyway, that's a separate subject. The you know, Apple
is a consumer products thing, and whether they're enhanced or
(06:29):
invaded by AI, I don't know. But the bottom line
is you can't make superior returns over a ten year
timeframe from owning the best performing stocks of the prior
ten or twenty years. We've looked all through the decades.
RCA wasn't the place to be after nineteen twenty nine,
(06:51):
and Intel and Cisco have never made a new high
from their ninety nine two thousand peak. So Microsoft get
back to even after fifteen years. So the problem isn't well,
can these work for another year or two. Yes, it's
possible they can work for another year or two.
Speaker 8 (07:10):
But when it's over is when the problem starts.
Speaker 7 (07:14):
And we have got the biggest concentration of not only
in the S and P, but that means in everyone's portfolio.
Almost everyone in the United States has got their portfolio
built around the S and P, and the S and
P is built around them.
Speaker 8 (07:31):
So if the S and P does poorly.
Speaker 7 (07:33):
Those will get sold automatically, and if they do poorly,
the S and P will get sold automatically.
Speaker 8 (07:38):
In kind of a miserable, unvirtuous circle.
Speaker 4 (07:42):
Bils made thirty seconds here. We got to ask you
because everybody's like kind of looking at us, how is
Apple stalking you?
Speaker 9 (07:50):
Oh?
Speaker 7 (07:51):
I'll be talking to somebody about something and the next
thing I know, some kind of an advertisement will pop
up on my phone for that subject.
Speaker 6 (07:59):
Yeah, that happened to us too. I mean, I imagine
Carol happens to you.
Speaker 4 (08:02):
It happens across Yeah, it happens across everything.
Speaker 6 (08:05):
It helps me shop.
Speaker 4 (08:06):
We should point out that you also like Diamondback Energy.
I know they're reporting after the close today and d
R Horton we're running out of time. It just means Bill,
we're gonna have to get you back real real soon.
Bill Smeath, Chief investment Officer and so much more over
at Smeat Capital Management. Joining us from Portland, Oregon.
Speaker 2 (08:24):
You're listening to the Bloomberg Business Weekdaily Podcast. Catch us
live weekday afternoons from two to five pm Eastern listen
on Apple CarPlay and Android Auto with the Bloomberg Business app,
or watch us live on YouTube.
Speaker 4 (08:38):
We're going to stay with technology. Matt myself, the tech
solutions provider we're talking about. Inside Enterprises reported earnings last week.
Shares did come under pressure, down as much as eighteen
percent in traday, the largest of tra day drop since
two thousand and nine, after second quarter sales missed analyst estimates.
The stock is down more than twenty percent year to date.
We wanted to hear more about the business, the outlook,
(08:59):
and what is going on with it, spending more broadly
here with us as Insight Enterprises President and CEO Joycemullen
joining us from Chicago.
Speaker 6 (09:07):
Joyce, welcome to BusinessWeek Daily.
Speaker 4 (09:10):
Before we get into the results the outlook, just remind
our audience about what your company does specifically and who
your customer base is.
Speaker 9 (09:20):
Yeah. Sure, and thanks very much for having us today.
Thanks for having me. You know, Insight Enterprises has been
serving enterprise customers, small and medium business customers, public sector
customers for thirty five years or so, and we have
evolved many many different times. We announced a couple of
years ago that we were creating a new category in
our industry. We're calling it solutions integrator because we have
(09:44):
invested not only in our hardware, in our software capabilities
and skills with our partners from around the world, but
also our services expertise. And what we know is that
buying patterns are changing. Enterprises really are looking for results,
and the way you deliver these results with technology now
more than ever with AI, is by combining hardware, software
(10:05):
and services. So that's what we do and we're proud
to do it. And yeah, we delivered a pretty resilient
quarter in a Q two considering all the headwinds. We
met our expectations and expanded profit. But yep, the market
dropped for our stock drop for sure, and.
Speaker 6 (10:21):
We're proud of the quarter we delivered.
Speaker 9 (10:22):
We just got to keep doing it and it'll come back.
Speaker 6 (10:25):
So why do you think the stock dropped so drastically.
Speaker 1 (10:30):
Yeah, we're trying to figure that out.
Speaker 9 (10:31):
But you know, I think what we got to do
is stay focused on delivering really strong results, expanding our
margins like we've been doing, and then also making sure
we take really good care of our customers and our
clients today are really focused on how do I put
technology to work? To deliver results fast, pragmatically and simply,
and this is what we've been focused on for a
(10:52):
long time. We're pretty proud of the margin expansion that
we saw on the quarter. We're really excited that Gartner
named us as a an emerging visionary in terms all
in all things AI. It's really the first time they've
published that particular grid, and we're pretty excited about that designation.
But we got to do it over and over again,
(11:14):
and you know, we're ready to do that.
Speaker 6 (11:16):
I mean, you have joice the execution down.
Speaker 5 (11:20):
You have amazing experience at sales and supply chain orgs,
massive businesses with Dell and with Commons before that.
Speaker 6 (11:30):
But you've got to be able to deal with the.
Speaker 5 (11:34):
Capital side of the business too, right, So you need
to know what shareholders are thinking and what they want
or is that not?
Speaker 6 (11:42):
Do you think it just comes if you continue to do.
Speaker 9 (11:45):
Your work, No, of course, I mean, I mean we
are working really really hard to build out our capabilities
organically and inorganically as this market changes, you know. I mean,
I think AI presents enormous opportunities and frankly challenges.
Speaker 1 (11:59):
I think the.
Speaker 9 (12:00):
Traditional channel model doesn't survive an AI world. Where there's
automated procurement and automated selling and all sorts of agents
doing all kinds of work, and we are ready for that.
We have been investing heavily in our own internal AI
because if we're client zero for a bunch of our
solutions that we've developed internally, we can also help our
(12:20):
clients get those same results when we take them to them.
And we've our number of AI assessments has quadrupled more
than quadrupled in Q two from Q one, So we
think this is a This is really the catalyst that
we've been excited about and preparing for for many years,
and now I think we're in a great position to
deliver against those opportunities. But you know, you got to
(12:44):
demonstrate results every single quarter, and I think that's that's
what we're prepared to do.
Speaker 4 (12:48):
How much of it, though, is you know that customers
and I think this came out in the reporting following
your results, that customers are just putting off new projects
and they're saving for what they think they might need
an AI. How much of what you think how much
of that is going on I guess and impacting your business?
Speaker 9 (13:05):
Yeah, we have definitely seen that specifically, Carol in our
enterprise infrastructure business, So our infrastructure business around enterprise largest
our largest customers, and there's you know, there's a lot
of excitement around AI, there's also a whole lot of
uncertainty about how to proceed. So I think our customers
are looking for those no regrets moves that they can make.
(13:28):
How do they shore up their infrastructure but maybe don't
do the data migration work quite yet because they're not
sure which workloads go wear. We're definitely seeing that type
of hesitancy, and that's a reflection of I don't think
we're an outlier on this, but that's a reflection a
little bit of just changing spending patterns in those enterprise
IT budgets and making sure that people are prepared and
(13:49):
ready to spend on the things that are going to
matter most in terms of their own AI implementations.
Speaker 4 (13:54):
Is it because there's news, Yeah? Oh no, please finish please?
Speaker 1 (13:57):
Of course.
Speaker 3 (13:58):
I was just going to say.
Speaker 9 (13:58):
The good news is whether they decide they need a
much more robust network or they decide they want to
run a whole bunch of these large language models and
smaller language models at the edge, we can help them
or their multi cloud we can help them and that's
the idea. How do we turn their concerns into shorter term,
pragmatic projects, deliver results fast, and earn the right to
(14:21):
do more.
Speaker 4 (14:21):
How much of this, I wanted to ask you, Joyce,
is because they're smaller businesses or medium sized business and
so I know that there's been this expectation that when
it comes to AI of having on premise facilities versus
you know, processing when it comes to AI up in
the cloud. So how much of it is it that
those smaller medium sized businesses maybe want to have it
on premise, but they want to hold off.
Speaker 9 (14:43):
You know, our commercial business has grown five years in
a row, so that's that small and medium business space.
We are really pleased with those results. And normally after
we come out of a downturn, the commercial business grows first,
and then we see that follow in the rest of
the segments. And that follow on work is just starting
to take hold in our corporate segment, but the enterprise
(15:05):
large enterprises are usually the last to grow as we
come out of a downcycle. I do feel like there's
a lot more discussion about which workloads should run on
prem which workloads should run in public clouds, and we're
ready for those discussions. And we help our clients optimize
multi cloud implementations every single day, So that's a huge
(15:26):
opportunity for US.
Speaker 5 (15:28):
I just noticed the statement that the enterprise tech buying
model is broken, and I wonder how you think the
new model looks?
Speaker 9 (15:42):
Well, you know, I think the new model is really
around those pragmatic projects that are simplified and deliver results fast.
Is sort of the norm. That's how we buy. We
don't want a big engagement that spans seven years. We
don't want one hundred million dollar contracts around our technology
services and solutions. We want smaller, bite sized chunks. So
(16:06):
we understand what the ROI is and then we use
the returns on that investment to pay for the next one,
and the next one and the next one. And that's
how our customers are buying today. That is a different
That is this pretty significant departure from kind of how
customers bought technology support and services maybe five years ago.
Speaker 4 (16:24):
All right, can I just ask you ten fifteen seconds
the pullback and spending. Was it across industries or certain industries?
Speaker 8 (16:29):
Just quickly? Yeah?
Speaker 9 (16:31):
Really, I would say it was more pronounced for large
enterprise customers, more pronounced in those customers who serve consumers.
Speaker 6 (16:38):
All right, can leave it there.
Speaker 4 (16:39):
Good to check in with you, Joyce Malla and she's
inside Enterprises, present and CEO.
Speaker 2 (16:44):
This is the Bloomberg Business Week Daily Podcast. Listen live
each weekday starting at two pm Eastern on Apple car
Play and the Android Auto with the Bloomberg Business App.
You can also listen live on Amazon Alexa from our
flagship New York station, Just say Alexa, Bloomberg eleven thirty.
Speaker 3 (17:03):
Really looking forward to this.
Speaker 6 (17:04):
Next guest, Jennerak.
Speaker 4 (17:06):
I don't know if you noticed. Matt was the top
performing stock of the SMP last week.
Speaker 2 (17:09):
It was apt.
Speaker 5 (17:11):
And it makes a product because I think a lot
of homeowners, if you don't have one already, you want
your own generator.
Speaker 6 (17:20):
And I guess with these.
Speaker 5 (17:23):
Climate issues that we have, more and more people are
pushed to buy one. Let's bring in the chairman, President
and CEO of Generic, Aaron Yachtfeld. He joins us after
second quarter earnings, and I guess you know, power gen
has never been as exciting. You must be the most
popular person at a cocktail party now because it's not
(17:43):
just a generator that people want at home. But because
of the data centers and AI, everyone is talking about
generating power. How's it working on your company?
Speaker 1 (17:55):
Yeah, thanks for having me on today, guys.
Speaker 10 (17:57):
Yeah, it's like you said, it's it's never a dull
moment when you talk about backup power. You know, every
time I travel, I get on a plane, you sit
down next to somebody, you do the Okay, what do
you do?
Speaker 1 (18:07):
What are you? You know, what's your job? Where do
you work?
Speaker 10 (18:09):
I talk about generak and all of a sudden, you know,
people are like, well, that's a product we have to have.
You know, I think what we've come to find just
as Americans, you know, we struggle with power quality in
the in this country and we have.
Speaker 1 (18:20):
For many decades. This is not a new issue.
Speaker 10 (18:23):
I think, you know, what's worrisome is just the the
number of outages that are happening and how long they're lasting.
And this is a growing problem both for homeowners.
Speaker 1 (18:32):
As well as businesses.
Speaker 5 (18:33):
Yeah, so how much air and of your business is
you know, you know, me and Carol out in the suburbs,
and how much of it is a company you know,
mid size or even larger looking to back up its data.
Speaker 10 (18:48):
Yeah, about sixty percent of what we do is in
the residential market, so that would be you know, out
in the suburbs, you know, for homeowners who are looking
for a solution for their family, for their property, protect
those things. Businesses, you know, this a business decision, right
With homeowners, it's a little bit different. It's a little
bit more emotional, right, just the loss of power and
what can happen in your home. Certainly there's things that
can go wrong, there's damage that can happen to your house,
(19:09):
but largely, you know, that's an emotional decision.
Speaker 1 (19:12):
Whereas a business, the loss of revenue.
Speaker 10 (19:14):
Spoilage of inventory, you know, some kind of interruption of
a critical process, especially as things get more critical with
in business, with power, the need for that. We see
about forty percent of our business leaning that way. But
that is a very large opportunity for us, and in
particular in some of the bigger applications where we play
up in the data center market, it's you know, an
(19:36):
incredibly hot space.
Speaker 4 (19:38):
We'll dig into that for us, Aaron, like, how much
growth are you seeing in that space? How many calls
are you getting about that? Give us an idea of
some of the demand and what that kind of gives
you an indication of how much more that market could
be for you guys.
Speaker 10 (19:51):
Yeah, the market for data centers. I mean, obviously you
guys cover this, you know, very broadly. Yeah, it's massive, right,
Like I mean, the capital spending that is going into
these facilities and all the equipment that goes alongside of
them is enormous, and of course the power needs themselves
are enormous. You can imagine the backup power, right these
are critical installations. If the facilities go down, we don't
(20:12):
have access to the cloud, we don't have access to
some of these critical things that are happening in data centers.
So every single data center that goes in has emergency
backup power. And so we're a relatively new entrant to
this market. Our product lines have been smaller. We've served
small business and smaller data centers for many many years
the telecommunications space and an example, we provide backup power
(20:34):
to a lot of the major wireless carriers out there.
Speaker 1 (20:37):
So this is a bit of a new space for us.
We just entered it in April.
Speaker 10 (20:40):
We opened up our order book and we've already bood
one hundred and fifty million dollars worth of new business.
We talked about that last week on our call. I
think that was part of the reaction that you saw
in the stock. But we're seeing just an incredible amount
of demand for these types of products.
Speaker 5 (20:55):
I'm always interested in where you're building these things, and
I guess you have a new facility in beaver Dam,
Wisconsin that's supposed to open up space to build those
big diesel generators, more of the big diesel generators in Oshkosh.
Tell us about your manufacturing footprint because tariffs are obviously
a huge issue these days.
Speaker 10 (21:14):
Absolutely, and you know we've been long standing US manufacturer.
We just opened our sixth facility in the state of Wisconsin.
We have seven here state. Side those six facilities in Wisconsin,
a good chunk of those facilities are focused on these
larger units and on the commercial and industrial products, so
those products for backing up businesses. But we're also a
global company. We have facilities worldwide. We have a facility
(21:37):
in China, facility in India, Brazil, we have three facilities
in Europe, to in Italy, one in Spain, have another
facility down in Mexico.
Speaker 1 (21:45):
So you know, we're a global company.
Speaker 10 (21:47):
But we see the demand for backup power growing really
across the.
Speaker 1 (21:52):
Globe, but we see what's going on here in the US.
Speaker 10 (21:54):
The addition of the Beaver Damp facility was a critical
part of expanding additional capacity for these systems because the
growth is just it's enormous right now.
Speaker 5 (22:03):
How much so I look at cars all the time.
Ford builds more cars in America for sale in America
than any other producer. You'd think that would help them
avoid tariffs, but in the end they get absolutely crushed
with tariffs on steel, tariffs on aluminum, tariffs on form
made parts, tariff's on magnets out of China, and it
really makes up then more of a tariff hit than
(22:25):
somebody building a car in Japan or somebody building a
car in South Korea for export.
Speaker 6 (22:30):
Do you get hit with those kind of nickel and
dime tariffs too?
Speaker 1 (22:33):
We do.
Speaker 10 (22:34):
We use a lot of steel, we use a lot
of aluminum, We use a lot of copper in every
single gen set. So in fact, you know, it's interesting
you brought up the emotive automotive industry, Matt, because it's
a real good proxy for you know, a lot of
our input costs. You know, in terms of the components,
in terms of the commodities, the things that we're exposed to.
Speaker 1 (22:51):
So you know, we have a lot of those similar exposures.
Speaker 10 (22:53):
And I think just like Ford and others, you know,
we're trying to do what we can to minimize the
impacts of tariffs.
Speaker 1 (22:59):
But it's difficult. I mean, we've all developed over.
Speaker 10 (23:01):
The last you know, forty fifty sixty years, global supply chains, right,
I mean there are there are areas of the world
where you know, certain components, certain commodities are only available,
right you just they're just not widely available in other
parts of the world. So it's going to take time
to recalibrate those supply chains and to try and create
a more domestic manufacturing base.
Speaker 1 (23:20):
And I get it.
Speaker 10 (23:21):
I understand the need to do that, in particular around
things that are you know, associated with defense, maybe pharmaceuticals,
things that are truly critical.
Speaker 1 (23:29):
I'm not sure, you know, when you look at the
broader base of things that.
Speaker 10 (23:32):
We're putting tariffs on that, you know, like tennis shoes
and Barbie dolls, if that's you know, maybe the right
place to do it. You know, I think we've got
to be selective and we've got to be strategic in
how we use tariffs. But I know the administrations, you know,
working through all that, with all these different trade partners.
Speaker 5 (23:45):
Some things, I mean, like magnets are rare earths out
of China.
Speaker 6 (23:49):
We're never producing those here. It's like not an option,
not in decades, so challenging, and you you must use those.
Are you getting enough?
Speaker 1 (23:58):
We are?
Speaker 10 (23:59):
You know, we're that we have some we have the
ability to kind of substitute for some of those super
rarer the elements that I think are really critical in
aerospace and defense, not as not as critical maybe in
the automotive, and you know, in smaller quantities they are,
but we have access to them today. But of course
that's a concern because as you noted, you know, there
are only a few areas of the world where you
(24:20):
can get those types of materials and those types of components.
So it presents a really I mean, it's a it's
a very complicated situation, very complicated conversation.
Speaker 1 (24:29):
I understand what we're trying.
Speaker 10 (24:30):
To do, but again, I think we've got to be
we've got to be super strategic about how we implement
these these trade agreements and these tariffs.
Speaker 4 (24:38):
We are talking with Aaron Yuchtfeld. He is chairman, president
and CEO of GENERAK.
Speaker 6 (24:42):
Hey, a couple of things that.
Speaker 4 (24:43):
You said, and I want to follow up on. You
are mostly selling here in the United States, but you
did talk about what you guys are doing around the world. Aaron,
does it make sense to pivot even more so international
with the energy storage solutions to places like Europe and China,
given that the US policy are now less friendly to
something like solar.
Speaker 10 (25:03):
Well, those are big markets to begin with, right So
you know, obviously we want to be successful with our
energy products, you know, the storage products in particular battery products.
Speaker 1 (25:11):
You know, Europe is a very well established market. The
US is a good market as well.
Speaker 10 (25:16):
But obviously the policy changes that you know we've now
codified here recently are going to have an impact on
the US market for solar and for storage now. A
lot of the things we're looking at, though, even with
the loss of those incentives and the loss of support
here in the US. You know, the economics of putting
a solar system on your rooftop depending on where you live,
and the cost of energy continues to rise. This is
(25:38):
one of the things we've talked about when we started
up talking.
Speaker 1 (25:40):
Today about the quality of power. The cost of power.
Speaker 10 (25:43):
Is another element here that needs to be talked about
because as power costs go up and the cost of
these technologies are on solar and storage continue to come down.
The economics, the payback, the raw economics of investing in
your own power production on your rooftop or a geothera
loop or however you want to produce your.
Speaker 1 (26:01):
Own power and store some of that power.
Speaker 10 (26:03):
Continue to improve, and the loss of support, you know,
it may impact the industry for a year or two,
but it will get back on track because again, power
prices are going up.
Speaker 4 (26:12):
Yeah, it does feel like we're headed towards the power war,
certainly here in the United States, considering the amount of
power needed to really support all the AI that's going on.
Having said that, you talk about these loss of these
residential tax credits. You've got some new home stand by generators,
my understanding is coming to market. Is that going to
help offset those some of the loss that you are
seeing from those residential tax credits, especially when it comes
(26:34):
to your storage business.
Speaker 1 (26:36):
Yeah, absolutely so.
Speaker 10 (26:37):
On the energy storage side, the loss of the credits
that's going to impact that business here short term, our
home stand by business. That business doesn't it's never benefited
from tax credits to begin with. So you know, it's
the kind of thing that you again, if you and
Matt out in the suburbs, you've got you want one
of these products to back up your home so that
you know, you protect your property, protect your family. There are, unfortunately,
were no tax credits available, even though the administration, when
(27:02):
President Trump was on the campaign trail, you know, he
had mentioned maybe perhaps offering a generator tax credit. We're
still waiting on that. We think that'd be smart policy,
but we haven't seen it yet. It certainly wasn't in
the One Big Beautiful Bill. But those products don't have
tax credits. We do have a new product line coming
out which has got some great features and benefits packed
in it. But those are the kinds of products that
(27:22):
you know, again you're really buying and investing in those
products to protect your home, to protect your family, to
protect your business from a power outage.
Speaker 4 (27:30):
Now, and what I really meant is those news products
kind of offsetting anything you're losing from the energy storage
business because of the loss of the tax credits. One
other thing I want to ask you about data centers.
What about the imminent launch that you guys are expecting
of large diesel generations for data centers. What can you
tell us about capacity? How much do you guys have
for that? I know, are you investing to boost that capacity?
(27:51):
And what is the pipeline of new orders looking like?
Speaker 1 (27:54):
Yeah, so the pipeline's very strong.
Speaker 10 (27:56):
You know, again, about one hundred and fifty million already
booked in backlog a capacity just raw capacity here you know,
kind of globally about about a five hundred million dollar
capacity number for twenty twenty six. So if we get
the orders we think we can, you know, we can
have a really great year next year as a way
to increase our commercial and industrial business. But we're already
thinking about twenty twenty seven beyond. You know, this is
(28:18):
a market that again you kind of have to go
back to, what do you see in terms of CAPEX
spending for data centers?
Speaker 1 (28:23):
Is this going to be a truly a bubble.
Speaker 10 (28:25):
You know, something that in the next year or two
you're going to see a retrenchment or a retlacement of
all the that spending or is this secular, right? Is
this going to go on for the next decade, and
we we definitely, like others, believe that this is this
is certainly a longer term trend and one worth leaning into.
So we're already starting to think about adding capacity so
that we can take that five hundred million dollar number
(28:46):
to something much higher.
Speaker 1 (28:47):
Than the years ahead.
Speaker 6 (28:48):
For me, it's the residential products because this is like
Matt just wants a diesel generator.
Speaker 8 (28:56):
Well, if you're you know, what we do here is.
Speaker 6 (28:58):
Just what Matten to buy. And that's what it's not
not even me.
Speaker 5 (29:02):
But if you're like a hedge fund guy and you
just made your first you know, a couple of million,
and you're putting up a place and you know, Mill Brooks,
you can be next to me, show Mik you want
to have a sweet diesel generator out back.
Speaker 1 (29:14):
Well, well, i'll tell you.
Speaker 10 (29:15):
You know what people don't think about, right, Like if
you if you think about your home today and right,
so you talk about that the hedge fund manager or
or you know, anybody else who's who's got a home,
the amount of technology that's entered your own home, right,
think about it, like like from security cameras to just
the you know, it's from control of all of your
you know, a lot of your audio visual equipment you're lighting,
(29:37):
but a lot of the you know, the safety equipment
that goes in your homes, your security systems. These systems
are non operational when the powers out. We get notes
from people who are like, you know, look, I didn't
even realize that my garage door wouldn't open. You know,
I've got a garage door opener. The powers out, I
can't even back my car out of the garage. You know,
everybody if you if your power's out and you want
to open the garage or you got to reach up
(29:58):
and grab that red handle. Right, nobody wants to do
that ever in your garage because you don't know what's
going to happen next.
Speaker 1 (30:02):
Right, So people are like, I just I didn't think
about it.
Speaker 10 (30:05):
I didn't think my some pumps when you're some pump.
Speaker 4 (30:08):
My husband keeps doing all these systems, like our lights
I have to turn on with like these technical systems
and everything nothing switches or anything anymore, and it's like
I fear for when the lights go out. I don't
live in suburbia. I live just outside New York City,
but we talk about it generator so much.
Speaker 5 (30:22):
We talked about just even the food in your refrigerator,
but the deer in the freezer downstairs, you know, and
what happens if you can't heat the pool and the fall.
Speaker 6 (30:31):
You know, you need to have what is the hottest product, Aaron?
Speaker 5 (30:35):
What is the thing that you know the dude at
the end of the call to sack absolutely has to have.
Speaker 6 (30:41):
What are you selling out of?
Speaker 10 (30:42):
Well, I'll tell you it's our twenty six kilo loot
homestand By generator, which can cover your entire house, a
good sized home for everything you needs.
Speaker 1 (30:50):
Basically, if the utility goes.
Speaker 10 (30:51):
Down, you don't even notice that that that the utility
is not present, right, I mean you see a momentary,
uh loss of power, and then the generator starts up
and you can you can basically run in definitely on
a natural gas pipeline or if you have propane at
your home, you know you're going to be able to
last a long time on a generator. And I think
one of the things the other thing that we're seeing
huge trend right is people who have home medical equipment.
Speaker 1 (31:14):
GLP one trugs.
Speaker 10 (31:15):
GLP one drugs have to be refrigerated, so if you
lose refrigeration with medications, certain kinds of medications spoil very quickly.
And so you know this these trends, these overarching trends.
For again, you know, a lot of the medical infrastructure
is starting to move.
Speaker 1 (31:29):
Into the home. We see Americans who are trying to
stay independent and stay in their.
Speaker 10 (31:33):
Homes much much longer. But a power outage when you know,
when you get older, in your sixties or seventies and
you lose power, it's a very different situation than if
you're a younger American thirties and forties.
Speaker 1 (31:43):
You know, it's the indoor camping.
Speaker 10 (31:44):
You get out the monopoly, you know, and everybody has
fun and it's great until you know, everybody gets sick
of that after.
Speaker 1 (31:49):
About an hour.
Speaker 10 (31:50):
But if you're older, I mean the danger that comes
from not being able to regulate temperature, the loss of
some of the function of some of these medical devices,
just not having the lights operate as you mentioned, I mean,
those are very serious situations for older Americans, and that
is a huge part of our demographic for homestand by generators.
Speaker 4 (32:07):
Yeah, moose from being a disinctionary to a staple to mention,
the wine cellar Matt Stop, Aaron, He's now googling what
you just suggested, and so you know there might be
a purchase coming something in Matt's future. Erin, thank you
so much, Aeron Yechfeld. He is chairman, president, CEO of Generak.
Delighted to have him here on Bloomberg Business Week Daily.
Speaker 2 (32:27):
You're listening to the Bloomberg Business Week Daily podcast. Catch
us live weekday afternoons from two to five pm Eastern.
Listen on Apple CarPlay and Android Auto with the Bloomberg
Business app, or watch us live on YouTube.
Speaker 4 (32:42):
Hey, one name that is definitely outperforming in a big
way in today's session. That is Wayfair stock is up
about twelve point eight percent as we speak, so pretty
much hovering near its highs of this session. This after
the company came out and reported second quarter results that
were much stronger than expected. Our Bloomberg Intelligence put in
Goyle putting out a research note saying Wayfair second quarter.
(33:04):
He looks to stay hot in the third quarter.
Speaker 6 (33:07):
So let's get to it. Let's hear about the business.
Speaker 1 (33:09):
Kate Gulliver is back with us.
Speaker 4 (33:11):
She's chief financial officer of Wayfair, and she joins us
once again from Boston. Kate, how are you fine.
Speaker 3 (33:17):
Thanks, We're thrilled with the quarter, so happy to be here.
Speaker 4 (33:20):
Well, talk to us, I mean investors are thrilled as well.
Talk to us about the quarter and what you guys
saw and where the growth was.
Speaker 11 (33:28):
Yeah, I think you really saw two key things happening.
So first, on the top line, our share gains continued
to manifest and really accelerate, and that led to that
five percent top line six percent, you know, adjusting for
the German business comp So that's pretty exciting for us.
And then what you saw is a really nice flow
(33:49):
through of that revenue to adjusted EBIT, you know, crossing
that two hundred mark two five of adjusted EBIT. And
I think that really shows the strength of the model
and efficiency of the cost takeouts over the last several years.
So to have the nice revenue momentum the share gains
paired with that cost efficiency. You know, for many quarters
we said you should see that really significant flow through
(34:09):
when that happens, and indeed that manifested in the second quarter.
Speaker 1 (34:13):
Kate.
Speaker 5 (34:13):
Whenever I ask someone about the stock price and it
doesn't look great, they always say, well, we're focused on
doing business here and we don't care about the shares,
but you got to care about them on some level,
especially as a CFO. So you know they've You've had
an incredible year. Year to date, you're up like sixty
six percent, but if I bring the chart out to
(34:35):
you know, the COVID highs, you still have a long
way to get back there. I think you're down seventy
some percent from your twenty twenty one highs. Is that
gonna happen you think at wayfair or was that just
you know, like la la land levels in the pandemic.
Speaker 3 (34:53):
Well, now we're focused on operating the business.
Speaker 11 (34:55):
But you know, Lelly, let me come back it a
little bit for you, because you know, the reason you
probably hear that answer is at the end of the day,
we do believe that, you know, the valuation and sort
of where investors see the business should over the long
run follow the performance that we drive here at the company,
and so our focus actually really is on how do
(35:16):
we continue to take share and how do we continue
to flow through that revenue into adjusted EBITTA dollars, into
free cash flow growth and into you know metric that
we look at where we call owners' earnings, which is
that EBITA less our capex expense less our stock based compensation,
and we do want to continue to build on that
over time, and we think we can and as we
(35:38):
continue to grow the top line, as we continue to
grow those adjusted EBITA dollars, you know, I firmly believe
that the valuation will follow.
Speaker 6 (35:44):
Yeah, revenue just go ahead.
Speaker 5 (35:47):
Can it get back to that or was that just
like everybody locked in at home and.
Speaker 6 (35:52):
The government throwing money at American citizens?
Speaker 5 (35:54):
Is that why revenue climbed so high during the pandemic
or can you get back to that level?
Speaker 11 (36:01):
Yeah, So if you think about the category itself, obviously
the category itself had a very you know, unique period
during the pandemic where growth accelerate in the category in
twenty twenty and into twenty twenty one. The categories had
significant pullback since then in twenty two, twenty three, twenty four,
and even still a bit in twenty five.
Speaker 3 (36:22):
We would say we think the.
Speaker 11 (36:23):
Category is sort of flat to slightly down, you know,
low single digits in the past quarter. So the category
is still under quite a bit of pressure. Can the
category return to a normalized level of growth? Of course, right,
the category and a normalized period grows you know, sort
of three to four percent the overall home goods category,
and we do believe that we can return to double
digit growth over time, you know, where we significantly outpace
(36:46):
the category. That's what we did for the majority of
our history, you know, significantly preceding the pandemic, and it's
what we expect to do, you know, as the category
returns to normalization. So, you know, can we ever get
to the revenue that we had during the pandemic. Absolutely,
we're quite confident in our ability to do that.
Speaker 4 (37:01):
You mentioned earlier about cost efficiencies of the model, what specifically.
Speaker 11 (37:08):
Yeah, So over the last few years, we've been quite
focused on a few things. One has been improving our
overall sort of total overhead cost structure that manifests and
that SOTG and a line in the P and L,
and I would think about that as really our fixed
cost basis. The majority of that line is labor, and
so we have had a number of restructurings where we've
(37:28):
reduced labor cost and that has shown up in that line.
And we've said that where that line is right now,
you know, at that three sixty to three hundred and
seventy million dollar point, it should be able to hold
there for some time, even as we continue to grow
the top line, we get ongoing efficiency from labor and
as we you know, sort of continue to see the
benefits of some of the growth investments that we've made.
(37:49):
So that's one big area of cost management. We also
have been improving our sort of structural gross margin. So
we took out you know, cost and our supply chain,
and that's really helped our gross margin. And we've added
some supplier services, like supplier advertising, which have helped improve
that gross margin as well.
Speaker 3 (38:06):
We've reinvested you.
Speaker 11 (38:07):
Know, a significant portion of that back in the customer
experience and the form of price and the form of
delivery experience. And so we've held that gross margin at
thirty to thirty one, but structurally've been able to drive
it higher and instead give it back to the consumer
and then float that through and ultimately you know, cover
off on that fixed cost basis.
Speaker 5 (38:26):
I wonder how you deal with tariffs because you have
so many suppliers. But you know, furniture making in the
United States of America has is far from its from
its peak these days, So.
Speaker 6 (38:41):
Do you get suppliers to.
Speaker 5 (38:42):
Kind of eat that are you taking some of it
into your margin, and how much are you passing on
to the consumer.
Speaker 11 (38:49):
Yeah, you know, we talked about actually, you know in
May when Carol and I spoke before, was that we
thought the benefits of our marketplace model would help us
manage the terriftfts. And that's because we are able you know,
as you point out, Matt, we source from over twenty
thousand suppliers, right, so we are able to have a
very wide range of goods with suppliers from all over
(39:10):
the world, including some from the US, and we're able
to then position within a given class or category, say
like this chair that I'm sitting on now, We're able
to position the products that we believe are best for
the consumer, so most price competitive can get to her quickly,
you know, are high quality. We're able to position that
first in the sort order among many very similar products.
(39:31):
So if a product gets relatively more expensive, other products
will then move up within the sort order, so the
consumer is able to see the product that is most
price competitive.
Speaker 3 (39:41):
And that means there's a tension within.
Speaker 11 (39:43):
The marketplace where suppliers actually want to maintain their price competitiveness.
They do not want to lose that volume, particularly in
a category as we spoke about earlier, that's you know,
been under pressure for some time and you're seeing that
pan out. So what we set on the call this
morning was on a like for like basis for the
products that are on those first few pages of the
(40:04):
sword order when you search for, you know, sort of
lounge chair, you're going to continue to see and you
are seeing prices relatively stable on those first few pages.
And that means that the products that the consumers are buying,
they're not yet seeing you know, pricing changes flow through.
And I do think that's due to the breadth of
suppliers that we work with and the competitive nature of
(40:27):
the marketplace.
Speaker 4 (40:28):
We are talking with Kate Gulliver. She's the chief financial
officer of Wayfair, joining us from Boston. Hey, Kate, so
what do you know about the type of shopping that
consumers are doing, you know, when they're buying or they're
buying more items or are they buying fewer items? Are they
give us some idea in terms of some of the
trends that you're seeing in terms of the actual shopping
(40:48):
going on.
Speaker 3 (40:49):
Yeah, it's a great question.
Speaker 11 (40:51):
So when we think about our average order value or AOV,
that's really comprised of three different pieces. One is like
for like pricing we just spoke about. One is items
per order to the question you just asked, and then
last piece is mix. And we actually are seeing a
little bit movement on items for order and mix. So
an items for order, we're seeing a little bit of increase,
(41:11):
nothing you know, major, but sort of moderate.
Speaker 3 (41:14):
But where we're really.
Speaker 11 (41:15):
Seeing momentum is on mix. And what we mean there
is that you know, we're seeing mixing in brands of
ours that are actually sort of higher values, So Paragold,
which is our highest end, our luxury brand. We're seeing
ongoing really nice momentum there. Our specialty retail brands, so
all modern shows in Maine, Birch Lane. Again, these are
(41:38):
operating a little bit above that mass segment that the
Wayfare dot com business operates at. Those are also seeing
nice momentum. And then our B to B business, where
we sell you know, to professionals and the trade, we're
seeing nice momentum there. All of these are much higher
ticket values than the sort of core wayfare dot com business.
The other thing I'd add is, you know, we're we're
(41:58):
obviously newer to the physical retail game. We have our
first sort of large format waste store opened a little
over a year ago, and we're seeing nice momentum in
categories like storage and ORG and small kitchen accessories in
the physical space as well.
Speaker 4 (42:11):
Do you want to keep continuing to add in terms
of the physical stores. I know you guys have some
more expansion going on.
Speaker 3 (42:19):
Yeah, no, great question.
Speaker 11 (42:21):
We're thrilled with the performance of that Chicago store. Really
two key things that we see there. One is the
halo effects, so the sales that we get in the
surrounding region from having the store there. And then two
within the store, you know, we're seeing nice momentum categories
that you'll maybe sort of underpunch a little bit online,
like storage and ORG, kitchen accessory, small applients, is that
kind of thing, and so as we look at it,
(42:43):
we see significant opportunity from a growth perspective in expanding stores.
We've actually announced three additional leases. Two will open in
twenty twenty six, one in Atlanta and one in Denver.
That's our first store in sort of the Mountain West region,
so we're very excited about that. And then early twenty
seven we have a store opening.
Speaker 3 (43:01):
In Yonkers, New York.
Speaker 11 (43:03):
So you can see it's starting to build some of
the momentum here. I will be a little close to
for you guys.
Speaker 5 (43:08):
Yeah, hey, okay, I wonder about your view on rates,
because you know, maybe if you're buying just one chair
or a side table, you can afford that. But I'm
sure a lot of Americans are putting stuff on a
plan or borrowing money, and today the ten years pretty low.
But the idea I think is that rates tend to
(43:29):
go are going to tend.
Speaker 6 (43:30):
To go up from here. What's your view?
Speaker 12 (43:32):
Just got about thirty seconds, Kate, Yeah, you know, I
would actually say in our business, actually the average order
size is only around three hundred dollars, so well, you know,
rates have an impact on the consumer overall, in terms
of the housing market, in terms of our purchasing.
Speaker 3 (43:47):
With us, it's largely not financed.
Speaker 4 (43:49):
All right, Can I leave it? They're always fun to
check in with you and get a really great view
of what's going on with the consumer. Katep Well Kick Gulliver.
She's the chief financial officer of Wayfair.
Speaker 2 (43:59):
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