May 2, 2025 • 37 mins
Watch Alix and Paul LIVE every day on YouTube: http://bit.ly/3vTiACF.
Hosts: Paul Sweeney and Alix Steel
On this podcast:
-Woo Jin Ho, Bloomberg Intelligence Senior Technology Analyst, discusses Super Micro Computer preliminary results.
- Lee Klaskow, Bloomberg Intelligence Senior Transport, Logistics and Shipping Analyst, discusses UPS earnings.
- Poonam Goyal, Senior U.S. E-Commerce and Retail Analyst at Bloomberg Intelligence and Elliot Stein, Bloomberg Intelligence Litigation Analyst, discuss BI’s new Tariff research.
- Jody Lurie, Bloomberg Intelligence Credit Analyst, discusses cruise-line earnings.
- Anurag Rana, Bloomberg Intelligence Technology Analyst, recaps Microsoft earnings.
- Michael Halen, Bloomberg Intelligence Senior Restaurant and Foodservice Analyst, discusses McDonalds earnings.
- Christopher Ciolino, Bloomberg Intelligence Senior US Machinery Analyst, discusses Caterpillar earnings.
Bloomberg Intelligence, the research arm of Bloomberg L.P., has more than 400 professionals who provide in-depth analysis on more than 2,000 companies and 135 industries while considering strategic, equity and credit perspectives. BI also provides interactive data from over 500 independent contributors. It is available exclusively for Bloomberg Terminal subscribers.
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Episode Transcript
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Speaker 1 (00:00):
Bloomberg Audio Studios, podcasts, radio news. This is Bloomberg Intelligence
with Alex Steel and Paul Sweeney.
Speaker 2 (00:13):
The real ap performance has been the US corporate high yields.
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Are the companies lean enough? Have they trimmed all the fats?
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The semiconductor business is a really cyclical.
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Business, breaking market headlines and corporate news from across the globe.
Speaker 3 (00:26):
Do investors like the M and A that we've seen?
Speaker 2 (00:28):
These are two big time blue chip companies.
Speaker 3 (00:32):
Window between the peak and cunt changing super fast.
Speaker 1 (00:35):
Bloomberg Intelligence with Alex Steele and Paul Sweeney on Bloomberg Radio.
Speaker 2 (00:42):
Today's Bloomberg Intelligence Show, we dig inside the big business
story is impacting Wall Street and the global markets.
Speaker 3 (00:47):
Each and every week we provide in depth research and
data on some of the two thousand companies and one
hundred and thirty industries our analysts cover worldwide.
Speaker 2 (00:54):
Today we'll look at companies exposure to US terriffs.
Speaker 3 (00:56):
So let's we'll discuss why one of the biggest producers
of heavy machinery expects a low we're sales this year.
Speaker 2 (01:01):
But first we begin with the tech space and the
IT company super micro Computer.
Speaker 3 (01:05):
This week, the company reported preliminary results for the fiscal
third quarter that fell short of analyst expectations.
Speaker 2 (01:10):
The company attributed the miss to customers delaying purchases, which
we pushed into the current quarter. Super Micro also cited
higher inventory reserves and expedetic costs for new products.
Speaker 3 (01:21):
For more, we are joined by Wougin Ho Bloomberg Intelligence,
and your Technology Analyst.
Speaker 2 (01:24):
We first asked Wougin to break down exactly what happened
in super Micro's preliminary announcement.
Speaker 4 (01:30):
It looks like, you know, when you go big whale
hunting and you miss those whales you want and missed results. Right,
They essentially missed sales by about one billion dollars versus
the midpoint of their guidance. And the fact of the
matter is these AI deals are monster deals. That's why
I'm saying it's big whale hunting. One hundred thousand GPU
(01:51):
cluster that XAI or open AI. Those are three point
five billion dollar deals. So if you miss on you know,
one or two of these, that accounts for easily a
billion dollars.
Speaker 2 (02:03):
So is this a super micro computer specific issue or
is this big tech spending kind of slung down here?
Speaker 4 (02:13):
Well, it's a product transition issue. Right, So if we
look at the Nvidia GPUs, they transitioned over from the
last generation, the Hopper series, to the next generation, the
Blackwell series, and given the greater capacity and the better
computational power, the customers were actually waiting for this for
(02:36):
quite some time now, and now they're clamoring for it.
So essentially what customers appear to be doing is canceling
their Hopper orders and moving over to Blackwell. Now, I
will tell you they weren't the only one that had
this issue. HPE a couple of months ago, they missed
their expectations primarily because of this product transition as well.
(02:56):
And it's biting a super micro now.
Speaker 3 (02:58):
So based on that, the chip cycles moving really fast
for AI. So what's next after Blackwall? This is just
going to keep happening and kind of rolling it downhill.
Speaker 4 (03:10):
Yeah, I mean, it's still probably a couple of years
before we start seeing the newer series of chips really
ramping up, So we probably have a two year product
cycle before we get to that. Alex, I mean, let's
see how the cloud Capex holds up in twenty six
and twenty seven. But for now, you know, right now,
(03:32):
we have a neartime product cycle issue for at least
super Micro and HPE.
Speaker 2 (03:36):
Which what are your companies, kind of the tech hardware companies,
what are they saying about this whole tariff climate. Is
it going to be an issue for them?
Speaker 4 (03:47):
Well, we published an update to our tariff note and
surprisingly they've actually done a good job navigating the tariff issue.
So far, I've had three companies report related that's hardware related.
There's a couple of things we need to take into consideration. One,
a lot of them are outside of China in terms
(04:07):
of the manufacturing scope, so the tariff impact is fairly minimal. Two,
there's a lot of manufacturing that comes out of Mexico.
So you know, because of the US Mexico and Canadian
trader agreem at U s m c A, they're exempt
for tariffs. So if you have anything that's built out
of Mexico or Canada, whatever it's assembled there, you're except
(04:29):
for tariffs. The companies that have reported uh, they're they're
using your U s m c A to their advantage
to win deals. And three and this is this was
somewhat interesting to me. I thought there would have been
some pull in deals because of tariff concerns in the
second quarter. Uh the guidance thus far. Uh Yeah, Western
(04:50):
Digital as well as Seagate, which manufacturers hard drives. They
don't see any pulling in deals. So the second half
of the year, which was a concern of mine, we
see actually smooth demand going into the second half, all.
Speaker 3 (05:02):
Right, Thanks to u Jinho, Bloomberg Intelligence Senior Technology analyst.
You move next to news from the logistics company UPS.
Speaker 2 (05:09):
This week, UPS said it expects to cut twenty thousand
jobs this year and close dozens of facilities due to
a reduction in shipments for Amazon dot Com. This isn't
an effort to cut expenses and improve profitability.
Speaker 3 (05:19):
UPS also did an update it's fullier outlook, citing macroeconomic uncertainty,
and this comes despite the company reporting first quarter earnings
that beat analyst estimates.
Speaker 2 (05:28):
For more on this and the state of the shipping industry,
we're joined by Lee Klascow, Bloomberg Intelligence Senior Transport, Logistics
and shipping analysts.
Speaker 3 (05:34):
We first asked Lee to give us his take on
what we heard from UPS.
Speaker 5 (05:38):
If I had to break it out, you know, I
would probably say ninety five percent of the I guess
somewhat disappointing two Q outlook is really being driven by
the macro and not UPS. I mean, UPS, in our
view is and has been doing the things to kind
of restructure its network to deal with the realities of
(06:00):
their business and how much it's changed over over the
last couple of years. And they're also focusing a lot
more on revenue quality, so that would mean trying to
win more share of small to mid size shippers. Also,
you know, you noted they're kind of gliding down, if
you will, their exposure to Amazon to some of their businesses,
(06:21):
that just doesn't make sense. I mean, they're still going
to do returns for Amazon, which is a good business
for UPS from a margin financial standpoint.
Speaker 2 (06:32):
Hayley, what kind of visibility does UPS have on their
revenue stream? Like how much is contractive which just how
much is this me walking up the store and you know,
shipping a package across the country.
Speaker 5 (06:43):
That's a great question, Paul. I think the reality is
that they have somewhat decent visibility into their business A
couple of weeks out. I think that's really about it.
That's just really because it's their their customers are really
driven by economic activity and it's really tough to kind
(07:04):
of really gauge that those volumes, especially in the current
environment giving the uncertainty driven by TARIS, which is you
know why earnings expectations for the second quarter will probably
start moving lower as sell sided analysts adjust their models.
Speaker 3 (07:20):
The Amazon stuff is a good thing for them long term, right,
even though there's near term pain, Like those are lower
margin packages that they don't want to do anymore. They're
going to focus on higher margin packages that could wind
up being much more stable and profitable, right.
Speaker 5 (07:34):
Yeah, to your point, they are really generating, they're really
focusing on revenue quality. You know, they mentioned on the
call that some of their business out of Amazon's fulfillment
centers just really wasn't profitable for them, so it obviously
doesn't make sense to take that business. And if they're
able to create capacity by getting rid of some of
this business and filling it with what they call SMB
(07:57):
small to mid sized businesses, you know, that's it's going
to be a good thing for US margins overall, and
it will allow them to generate the kind of returns
that they can reinvest in their network, because you know,
while they're doing a lot of investing in now in automation,
and they're closing some facilities just to be a little
more nimble than they were in the past. You know,
(08:17):
they're still going to continue to have to make those
investments because technology continues to change and those benefits, you know,
will need to be driven by those investments.
Speaker 6 (08:29):
Lie.
Speaker 2 (08:29):
A lot of companies are saying, you know, they're not
necessarily seeing the impacts of tariffs now, but they certainly
expect to in the coming weeks and months. You cover
everything in shipping, rails, trucks, the recen shippers, the air
freight guys. You cover it all. Are you seeing it now,
because I've actually seen some reporting that maybe fewer ships
are sailing from China to the US. Are you seeing
(08:51):
it anywhere in your space?
Speaker 5 (08:54):
Yeah, we are. In to your point, Bookings from China
to the US are down thirty to forty depending on
which press reports you read. You know, some of that
is obviously there where they pull forward effect in our
view before the tariffs were going into place, so people
were rushing to get stuff out, So we don't know
really where that's going to lie. You know, shippers are
(09:15):
going to either they're going to take the stance where
they're going to be like they're going to sit back
and wait to see what happens. Some are continue to
do business as usual and they're just going to try
to push off the costs associated with tariffs to customers,
which obviously will be inflationary or mix of the two.
So really, you know, it'll be interesting to see how
(09:37):
things progress.
Speaker 3 (09:38):
Yeah, but still, I mean you have to wonder though,
how fast then the shipping industry can rerate. Like if
there's like one ship hanging out the LA port all
of a sudden tariffs go away, what does that wind
up looking like?
Speaker 5 (09:50):
Yeah, Shipping companies can do a number of things to
manage their capacity during ups and downs time. They can
do blank sailings, which really just means they don't they
don't go to a port, they skip a port. They
can operate slower, which actually is good because they could
save them on fuel. And in a worst case scenario,
they can just take the ships out of the water
(10:11):
because that that is that it can be costly. And
also you know a lot of a lot of them
they lease their capacity uh from other companies, so you know,
once those leases come up, they can just return the ship, uh.
To the owner of that ship.
Speaker 2 (10:26):
Haley, I know you cover rail and truck companies that
do a lot of business across the Mexican border. What
do you what are you seeing there these days? What
are they telling you? Again?
Speaker 5 (10:37):
You know it, there's a lot of uncertainty. Uh they
saw a kind of a surge and demand ahead of
the tariffs. You know, there is a lot of exemptions
in tariffs between the US and Mexico and the US
and Canada. Uh So, you know, they are not as
punitive as they are with with China. Uh So, you
(10:59):
know it that might be more of an inflationary aspect
versus a stopping of flowing of freight. But the problem
is is that, you know, if some of the supply
chains get mucked up from the tariffs on China, that
could impact manufacturing in Mexico and manufacturing in Canada, which
we'll therefore you know, impact cross border volumes overall. So
(11:22):
there's a you know, kind of a latency approach here.
I know that's not what people want to hear. They
want certainty. But given the more protectionist policies out of Washington,
and you know how they can change on a dime,
it's really hard to get that certainty, so hopefully in
the coming weeks we'll get some better definitive outlook on
(11:45):
unworthyse tariffs are heading our thanks to.
Speaker 2 (11:47):
Lead classical Bloomberg Intelligence senior transport, logistics and shipping analysts.
Speaker 3 (11:51):
Coming up, we're going to break down how cruise demand
has been impacted in twenty twenty five.
Speaker 2 (11:56):
You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
depth research and data on two thousand companies in one
hundred and thirty industries. You can access Bloomberg Intelligence via
Big in the terminal.
Speaker 3 (12:05):
I'm Paul Sweeten and a Malex Steel and this is Bloomberg.
Speaker 1 (12:12):
You're listening to the Bloomberg Intelligence podcast. Catch us live
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Speaker 3 (12:27):
We move next to some new research from Bloomberg Intelligence
about it's bi Tariffs Matrix. It's a worst case scenario
tariff analysis tool. It helps identify companies exposure to US tariffs,
the potential impact on EBADAH and how much prices have
to rise to offset elevated costs for more.
Speaker 2 (12:43):
We were joined by Punham Goyle, senior US e Commerce
and retail analysts at Bloomberg Intelligence, and Elliot Stein, Bloomberg
Intelligence litigation analysts.
Speaker 3 (12:50):
We first asked Elliott how the BI tariff matrix works.
Speaker 7 (12:54):
So the BI Terriffs Matrix available on the Bloomberg terminal
at bispace Tariffs Go and like you said, BI analysts
for weeks have been putting numbers on what tariffs mean
for their companies and this is all distilled in the
BI Tariffs Matrix. You go to the matrix, it lists
two hundred companies and we're continuing to add more companies
(13:15):
across twenty different industries, and it shows you what their
blended teriff rate would be based on their exposure to
different countries where they're getting goods for their sales in
the US and what the tariff rates are on those countries.
And then from there, our analysts have calculated how much
the cost of goods will increase for all these companies'
sales into the US, how much their profit will take
(13:36):
a hit as a result, and how much they would
have to increase prices both in the US and globally.
To offset the impact of the tariffs.
Speaker 3 (13:45):
That's amazing, that's incredible. Honestly, this is why Bloomberg Intelligence
is so awesome. And we'll get to retail with punamindus
a second. But Elliott, when we're putting this together, from
all the different sectors, what stood out to you? What
did you learn the most?
Speaker 7 (13:57):
So you know, it's really interesting. So we also published
a note on this end. In that note there's a
piece from Honor Agrana and the tech team, And you know,
I like to filter by the blended teriff rate and
see which companies are paying more teriffs as a result.
And if you look at Apple, because they have such
a high exposure to China, their blended terifrate is still
(14:17):
twenty percent. But the company, like Dell, has a much
more diversified supply chain and so they're blended terrafrate is
much lower, roughly, I think maybe four or eight percent
of the exact number. And so as a result, the
you know, the amount that both these companies would have
to increase their prices to offset tariffs varies quite dramatically,
with Apple being close to nine percent and Dell being
(14:38):
close to two percent.
Speaker 2 (14:40):
So pun them on the retail side of the business.
How much more do you think consumers are going to
have to pay at the store for stuff?
Speaker 8 (14:48):
Sophy assume that the entire cost has passed to the consumer.
On average, across the thirty nine retailers we analyzed here
in the US, it's a low double digit increase. That said,
we do expect some mitigation efforts to take place, so
we do expect that to moderate to probably mid to
high single digits. Worst case scenario that sounds bad is
(15:10):
that bad? I mean, price increases are bad, right because
they influence demand, and that means that consumers could pull
back and where and how they choose to spend. So
ideally we would like to see no price increases, low
single digit at best, which we think is manageable. But
if it's beyond that, there could be a pullback in demand,
especially for discretionary items, right, things that you can kind
(15:33):
of hold off on, you can trade down for. So
it is negative if things worsen and if China attentions
don't come down from here?
Speaker 2 (15:43):
Are there certain product lines or certain categories put them
that are more risk? I just think, you know, I'd
remember seeing a story on sneakers and it seems like
all the sneakers come from China in that point.
Speaker 8 (15:54):
Well, they actually come mostly from Vietnam. So as long
as the Vietnam teriff rates stay at ten percent, which
we'll know in early July if that's the case or not,
I think that headwind is largely manageable. In fact, you know,
for the at leisure companies like Nike Adidas, we've estimated
that the tiff frate currently should only be around ten percent,
and that's because that's the current levee on the other
(16:15):
countries outside of China. These companies have diversified a lot
since the last round of tariffs, where they've actually moved
out of China into the neighboring countries, and as long
as the tariff is low there, we think it's manageable.
If tariffs do increase in early July from the ten percent,
it's a bigger risk to these at leisure companies. Paul,
(16:36):
you know you asked about where the impact is greater.
Is across the thirty nine companies that we've analyzed. I
think you have to look at the toymakers. You have
to look at the dollar stores and even some of
the specialty apparel stores where they are more heavily exposed
to China, in some cases largely exposed to China, and
they're the tariff rate is greater than fifty percent and
the exposure is much higher, so a much bigger impact.
Speaker 3 (17:00):
You search by us price hike and do you know
a top down like Mattel thirty one percent estimated price
increase five below thirty nine percent? Dollar Tree twenty seven percent.
Speaker 2 (17:11):
I don't think those people are gonna like, I mean,
that's we've shop.
Speaker 3 (17:13):
At dollar That's really rough. I mean I could do
this forever. H and m twenty percent Target? Where'd you
go Target looking at twenty percent? Elliott? Are we going
to see lawsuits legal issues in relation to.
Speaker 7 (17:26):
This, Yeah, we already are, and just going back to
the matrix for six so we didn't mention it. But
you can click below the matrix and to the left
of the matrix as well, because there are interactive catulators
for all these companies where you can play around with
some of the different assumptions, put in your own numbers,
and you know, and get the output as a result.
(17:47):
But in terms of lawsuits, yeah, we've seen multiple lawsuits
being filed. My colleague Holly Film covers them, but I've
been tracking them as well because they're interesting. We've seen
companies from lawsuits from importers as well as Blue states
like California and Oregon. They're filed in courts all around
the country, but they're probably all on their way to
being consolidated to a court here in New York called
(18:09):
the Court of International Trade, which deals with lawsuits over tariffs.
And there are two main claims in these cases. One
is that the government is exceeding its statutory authority under AEPA,
which is the statute it's using the Emergency Powers Act.
And then the second one is that even if it
does have the power under IEPA to implement these tariffs,
(18:30):
Congress delegated its authority to the president improperly. These are
issues of like first impression. You know, we've never seen
a president use IEPA for tariffs before, and at the
end of the day, we think it's a close call,
but we think the administration will win these lawsuits and
the tariffs will stick.
Speaker 2 (18:48):
Our thanks to Elliot Stein Bloomberg Intelligence litigation analysts and
put them Goyle, Senior US e Commerce and retail analysts
at Bloomberg Intelligence. This week we got a tale of
two different earnings pictures from the Royal Caribbean and Norwegian Cruise.
Speaker 3 (19:00):
Royal Caribbean raise its profit outlook for the year, saying
that bookings for twenty twenty five or man on track
Norwegian Cruise Line more than the cruise demand is weakening,
citing softening in his twelve month forward bookings.
Speaker 2 (19:10):
For more on this and a State of Travel, we
were joined by Jody Lourie, Bloomberg Intelligence credit analyst.
Speaker 3 (19:15):
We first asked Jody for her broad take on Royal
Caribbean versus Norwegian Cruise Line earnings.
Speaker 9 (19:20):
I think that the interesting thing that we're noticing this
quarter is the change in tone, and it's not necessarily
that the companies are so pessimistic. It's that they're hedging
their bets a little bit. They're reminding investors that they
have a longer tail when it comes to bookings. The
reminding investors that even if the consumer starts pulling back
(19:43):
on travel, which Hilton commented on some of that, that
they are at least well positioned for twenty five. And
so Norwegian was trying to back out of comments around
Europe being a little bit weaker by saying Hey, rest
of the world is doing well. Fribbean was sounding upbeat, optimistic,
(20:03):
but I do suspect that there's an element of concern
for all these companies.
Speaker 2 (20:07):
So what's the best way for you as an analyst,
Jo did to get a sense of how demand is
going in the future. I know some of these bookings,
as you mentioned, are far in advance, but how do
you guys think about that?
Speaker 9 (20:21):
So there's two things we do, Paul. So the first
is we actually do a note every quarter or so
around bookings related to Bloomberg Second Measure data. And by
that I mean is that Bloomberg Second Measure data isn't
necessarily one for one on bookings, but you'll see that,
particularly going into wave season, that you can get a
(20:42):
sense of what bookings are doing based on what sales
is and volume is for these companies. We have intel
into a little bit more into the brand depth being
at Bloomberg, but beyond that, I mean, clients can look
at a lot of that data as well, and it's
really helpful. I mean, we wrote a note back in
the fall that talked to twenty twenty five still being
(21:03):
strong for these companies, but aired a little bit of
caution to the twenty twenty sixth season and that being
a function of what we were seeing on second measure, do.
Speaker 3 (21:14):
You get the sentence that if we see sort of
stalling out in consumer demand or just a little hold back,
but it's deferred demand or disappearing demand.
Speaker 9 (21:24):
So for the cruise lines, I mean you have to
think about it in buckets. So you have those dedicated
cruisers that are going to cruise heck or high water.
Those are the people who are going to jump in
right after COVID. But I mean, I think for the
new to cruisers, it's more of a question of if
they're going to consider booking this far in advance if
they don't know what their wallet is going to look like.
(21:46):
There is a function of people being able to back
out coming into a cruise, But I'd argue that a
lot of the time when people are making that decision,
especially for an advance, they're not necessarily going to use
that as the lever to pull when they need to
free up additional cash, right, are going to find other
ways to access cash or capital. I'm talking individuals, I'm
talking to consumers, right, And so when we book our vacations,
(22:09):
we're saying okay, we're going Now, it's the bigger question.
And this is what we're seeing with the hotel is
for the people who haven't necessarily booked, they might be
rethinking when they're going to book what their vacation is
going to look like? When are they going to book
their airline?
Speaker 2 (22:25):
Right?
Speaker 9 (22:25):
And I think that's key is the fact that you
have this long tail booking versus the shorter tail booking.
Speaker 2 (22:32):
So, Jody, if I'm a cruse ship operator and I
sense that my bookings are going to a week and
going forward, what do I do? I mean, because my
boat's like a foating piece of I don't know fixed
costs there? What can I do?
Speaker 9 (22:45):
You can just get the ship filled as much as possible.
Speaker 7 (22:50):
Right.
Speaker 9 (22:50):
So, something we learned from covid in for a lot
of these companies is that really in order to be
break even EVEDA, they need somewhere between thirty to fifty
percent capacity for the cruising, right. And that's what a
lot of the companies said when they were getting back
up to speed, they said, you know, we need thirty
to fifty percent of capacity and then we break even EBDA.
(23:11):
And I think that the key also is that these
companies have really pushed the onboard spending.
Speaker 5 (23:17):
Right.
Speaker 9 (23:17):
The ticket covers, you know, ticket covers a certain amount
of the cost of sailing, but if they are going
to be sailing either way, they want to fill the
ship because if you fill the ship, then you have
more potential for additional spending on board. Even just from
the basics of I forgot a toothbrush, I got to
go use the corner store on the ship because it's
(23:37):
a captive market. But even beyond that, people once they're there,
they say, well, I'm already here, I med as well
partake in the drink package. I might as well do
an excursion, right, I don't know the next time I'm
going to be out, So I think the key will be,
you know, getting them on the ship. Something that Norwegian
talked about, which is different than the other cruise lines
(23:58):
and speaks to some of the strategies that they did
put with COVID is not necessarily negotiating our price.
Speaker 2 (24:03):
Thanks to Jerdi Lourie Bloomberg Intelligence credit.
Speaker 3 (24:05):
Analysts coming up on the program, We're going to break
down by McDonald sales fell sharply last quarter.
Speaker 2 (24:09):
You're listening to Bloomberg Intelligence on Bloomberg Radio, providing indepth
research and data on two thousand companies and one hundred
and thirty industries. You can access Bloomberg Intelligence via Big
on the terminal.
Speaker 3 (24:18):
I'm Paul Sweeney and I'm Alex Steele. This is Bloomberg.
Speaker 1 (24:27):
You're listening to the Bloomberg Intelligence Podcast. Catch the program
live weekdays at ten am Eastern on Apple Corplay and
Android Auto with the Bloomberg Business app. You can also
listen live on Amazon Alexa from our flagship New York station.
Just say Alexa Play Bloomberg eleven thirty.
Speaker 2 (24:45):
We begin with big Tech and earnings from the world's
largest software maker Microsoft.
Speaker 3 (24:49):
This week, the company reported stronger than expected quarterly sales
and profit, and this suggests the customer demand for cloud
services has held steady despite a wave of new tariffs
and economic turbulence.
Speaker 2 (24:59):
For more and by anaag Rana, Bloomberg Intelligence Technology Analysts.
Speaker 3 (25:03):
We first asked Anorog for his take on those third
quarter results.
Speaker 6 (25:06):
I think it's a cloud plus AI. I think that's
the that's the big gain over here. And as you said,
I mean this is a company that is probably one
third of the entire software industry, and it beat by
a massive margin. I mean it was, I mean really
in terms of when you're walking into the quarter, you're
looking at, you know, constant gulency growth rate of twelve percent,
(25:27):
they beat it by three hundred basis points about fifteen percent.
Growing as your growth rate which was thirty one percent consensus,
they beat by thirty five percent. They're going to do
another thirty four to thirty five next quartered. So really,
you know, everything is going well for them, and that's
partially because of their relationship with Open Eye and all
the workloads that they are getting from that. I think
(25:48):
that's really what's driving a lot of it. They came
in talked about the caapics still fine. They're not shutting
any data centers down, and I think this is probably
the cleanest story in tech right now.
Speaker 2 (25:58):
Is there a narrative yet coming from the software industry
about a world of higher tariffs on a rag or
or are the software companies, like most everybody else out there,
kind of wait and see.
Speaker 6 (26:10):
No, you are looking at you know, the non AIIT
spending being cut down or pulled back. But that's the
second derivative impact. When it comes to direct impact from China.
Most of them don't have any about other than buying
boxes from China for you know, expanding their data center work.
But that's the kind of cost that perhaps even sometimes
even absorb given the scale of the larger companies. The
(26:31):
smaller ones will have some problems. But the tariff impact
we are seeing in new bookings numbers, new guidance for
the full year. People are cautious about it. But that's
what I would call is a second second degree impact.
Speaker 3 (26:43):
What did you make of Microsoft lowering their capax just
in terms of their expenditures and then Meta increasing them?
What am I learning from their CAPAX numbers?
Speaker 6 (26:53):
So Microsoft did not pay I mean Microsoft basically said
they're going to be spending on short term kind of projects,
which is more leases, rather than building it on their own,
which to us is fine because let's say there is
some issue with demand over the next two years, you
know they can counter that in a much more rapid
progression than the others. Now Meta is talking about more CAPEX,
(27:13):
but I have no idea how they're going to capitalize
on it, and then you know that's that's an area
of question mark for them. For Microsoft, it comes through
Azure Cloud computing for AWUS, it's the same thing, but
how are they going to capitalize it? You know, he says,
a big question for Meta.
Speaker 3 (27:28):
All right, Thanks to Anaagrana, Bloomberg Intelligence Senior Technology analyst,
we move now to earnings from the fast food giant McDonald's.
Speaker 2 (27:35):
This week, McDonald's reported that it's US sales fell sharply
in the first quarter, and.
Speaker 3 (27:40):
This reflects a deterioration and consumer sentiment that's making it
harder for restaurants to lure in diners.
Speaker 2 (27:45):
For more, we were joined by Michael hallan Bloomberg Intelligence
senior restaurant and food service analysts.
Speaker 3 (27:50):
We first asked Michael for his take on McDonald's earnings results.
Speaker 6 (27:53):
In the US.
Speaker 10 (27:54):
You know, it was a messy quarter. You know, it
was definitely an underwhelming report, but there was a lot
of noise. I mean, the weather was difficult for the
restaurant chains in the first quarter. It was very cold
in January, snowy in February. It was a bad flu season.
They lost that leap year day, so that was hit
(28:14):
comps by about one percent, right, So it was kind
of messy, and I would say the value menu relaunch
maybe didn't go as well as some might have expected.
There's some things to get excited about, you know. This
month it was the Minecraft movie promotion. Next month is
going to be the launch of mccrispy strips, and then
(28:35):
in the second half we're going to see the return
of the Msnack Mix snack Rap. Yeah, and you know,
I think investors are looking forward to all those things,
and easier comps and same star shells should improve a
good amount here through the year end.
Speaker 2 (28:50):
All right, So Alex and we had a remote broadcast
a couple of weeks ago with the Nji Anything. I
went to the McDonald's at the Newark train station and
got the number two with a coke, which has been
my go to order since I was like twelve.
Speaker 3 (29:04):
Awesome, awesome stuff.
Speaker 2 (29:05):
Awesome. I mean, they just they deliver every time. I
don't know, I'm not taking it. I'm not anybody who
speak a bed word about McDonald's. Hey, Michael, what are
your restaurant companies. What are they saying about a world
of terriffs? How does it impact their business? How much
did they expect to take out of their margin versus
maybe passing along to customers. What were you hear in
(29:26):
these days.
Speaker 10 (29:27):
Yeah, So what we're hearing on these earnings calls is
just uncertainty. And I think and most of our companies
are taking this as an opportunity to kind of lower
their guidance their same star sales top line guidance for
twenty twenty five. Here whether or not their business has
been impacted by a consumer slowdown due to TARERFF concerns
(29:48):
and anything like that. In terms of margins, we're fine.
I mean, you know, there's very limited exposure to imports
in the restaurant industry. Companies, you know, restaurant chains we cover,
they're all sourcing a large majority of their goods domestically, right,
and so margins aren't really an issue. I mean, Shakeshock
(30:09):
actually increased their guidance for twenty twenty five restaurant margins.
Speaker 3 (30:14):
That's interesting. So would this be a relatively then defensive sector?
Dare I say in a tariff environment?
Speaker 10 (30:23):
Well, I mean, right now, the market trading as if
you know, a recession is on the table, and in
that case, consumer spending is going to pull back. I
would say restaurants are probably better seated than maybe retailers, right,
because they have less tariff exposure. And the restaurant industry
suffered a recession last year, and so we have easier
comps to lap right, and so for those reasons, it
(30:46):
may be more attractive. But you know, if we do
see a recession, you don't want to be owning consumer
discretionary names historically.
Speaker 2 (30:53):
So, Mike, I think I'm a pretty good restaurant feedback
person because I'll go to the McDonald's and Newark trains,
but I'll go to the top end steakhouse as well.
I'll go anywhere in between. Where did the different segments
of the restaurant business? How do you think they're they're
going to fare in an economy that is perhaps slowing
down and perhaps even thinking about a recession.
Speaker 10 (31:13):
It's really interesting this go round. And you know, we've
been saying, and we continue to think that casual dining
is going to outperform this year.
Speaker 2 (31:22):
What's an example of casual dining.
Speaker 10 (31:25):
Yeah, so casual dining, think Cheesecake Factory reported a solid report.
A name we really like is Cracker.
Speaker 3 (31:31):
Barrel speaking his language right now in company?
Speaker 10 (31:36):
I know I am. So those chains they're coming off
of really really weak results last year, and you have
some turnarounds in the industry that are kind of boosting.
Speaker 2 (31:48):
Results.
Speaker 6 (31:49):
Right.
Speaker 10 (31:49):
We've seen absolutely phenomenal results out of Chili's. You know,
we think the turnaround at Cracker Barrel is going to
gain steam. And they have exposure to low income consumers,
but much less so than quick service. So quick service
is lapping better comps from last year, tougher comps from
(32:09):
last year, and they also have the highest exposure to
low and middle income consumers. And you know, for that reason,
we're a little bit more bearish on those names.
Speaker 5 (32:19):
M hm.
Speaker 3 (32:20):
Well, yeah, exactly. Any of the qs are right, the
quick service restaurants which would be in McDonald's. Where did
Chipotle is a QSR?
Speaker 10 (32:27):
Right, Well, it's a quick service they like, you know,
we have a whole new segment, well not that new,
but kind of new segment called fast casual.
Speaker 9 (32:35):
Yes, that's right.
Speaker 10 (32:36):
Price points a little higher than quick service, a little
bit lower than casual dining, the foods better than quick service,
and in some cases actually better than casual dining as well.
So yes, Chipotle, Shake Shack, Dutch Bros, Cava, they kind
of all all are in that boat, and we're seeing
(32:58):
different results, you know, across that space. I think it
was pretty you know, fast casual did pretty good last year,
but we're seeing some headwinds. You know, Chipotle didn't have
a great quarter. There's been a massive slowdown in same
source sales at Wingstop, and so, you know, yeah, but
(33:18):
uh so you're seeing you know, kind of a case
by case basis in terms of the fast casual industry our.
Speaker 2 (33:24):
Thanks to Michael Halein Bloomberg Intelligence Senior Restaurant and food
service analyst, we.
Speaker 3 (33:28):
Look next at earnings from one of the world's biggest
producers of heavy machinery, Caterpillar.
Speaker 2 (33:33):
This week, the company reported first quarter earnings that fell
short of analysts expectations.
Speaker 3 (33:37):
Caterpillar also said it expects slightly lower sales this year
if the Trump administration tariffs remained in place and the
economy dips into a recession the second half of the year.
Speaker 2 (33:45):
For more on this, we were joined by Chris Ciolino,
Bloomberg Intelligence Senior US machinery analysts. We first asked Chris
how he currently is looking at the company after reporting earnings.
Speaker 11 (33:54):
I think the release really isn't as bad as initially feared,
and there's actually a number of positive takeaways here. The
quarter was weak, and we knew that going in volumes
were going to be down, pricing was gonna be under pressure.
But the outlook is actually better than I think many
had anticipated. Their two Q sales guide was actually above
the street. We saw backlog improved to a record thirty
(34:15):
five billion dollars. Orders were up double digits both year
over year and sequentially. And really, if you look at
their outlook X tariffs, it was really better than what
they had expected prior so, and the tariff impact as
of now at least appears manageable. So I think the release,
you know, should at least help delay some of those
concerns over a more pronounced slowdown this year.
Speaker 2 (34:36):
Christa's Kindipillar build their equipment in the US. Is that
where the manufacturing is? How did they do that?
Speaker 11 (34:43):
Short answer, they build everywhere. They are a net exporter
out of the US. But you have to remember this
is a large global manufacturer. They have manufacturing footprint and
and supply base that really spans the globe. But if
we're thinking about net exports, yes, they export more out
of the US than they do import. From a revenue perspective,
(35:04):
you know, the US is you know, almost half their
revenue today.
Speaker 3 (35:08):
What about for its peers. What does this mean for
some of its peers and the trading environment that they
were previously in.
Speaker 11 (35:14):
Yeah, so, at least for some of the domestic US
based manufacturers, I think this is maybe a little bit
of a sigh of relief. By no means or we
have the woods yet, but it certainly seems that the tariffs,
as of least how they stand right now, are somewhat manageable.
You know, CATS expecting a net cost headwind of about
two hundred and fifty is three hundred and fifty million
(35:36):
dollars next quarter. If you kind of extrapolate that out
over the balance of the year, you're talking, you know,
maybe somewhere in the one hundred and hundred and fifty
basis point headwind of margins. But that may even prove,
you know, overly pessimistic, because you know, Cats still evaluating
and implementing some of these mitigation actions, so we could
even see that come down from here.
Speaker 2 (35:58):
I was kind of surprised, I guess positively, Chris, that
their backlog looks pretty darn good. It's not like their
customers are saying are canceling orders or anything.
Speaker 11 (36:07):
No, and it's it's a record backlog, right, so you
know we have coverage. You know, if you look at
consensus revenue, you know, whether we call it flatter down
slightly this year, they've got coverage for you know, nearly
seventy percent of the year already, So I think that
does help provide some kind of buffer. You know, there
was a concern out there that do we see this
(36:27):
pre buy you know, ahead of some of the tariff implementation,
and Kat really kind of downplayed that in conversations they're
having with their dealers and with their customers, they're really
not seeing any evidence of that. So yeah, these do
seem like, you know, true orders and really a really
healthy backlog, which you know, I think helps support you know,
that flatish type revenue outlook that they're putting out there.
Speaker 9 (36:51):
All right.
Speaker 3 (36:51):
Thanks to Chris Ciolino, Bloomberg Intelligence Senior US Machinery Analyst.
Speaker 1 (36:55):
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Bloomberg Audio Studios, podcasts, radio news. This is Bloomberg Intelligence
with Alex Steel and Paul Sweeney.
Speaker 2 (00:13):
The real ap performance has been the US corporate high yields.
Speaker 3 (00:16):
Are the companies lean enough? Have they trimmed all the fats?
Speaker 2 (00:19):
The semiconductor business is a really cyclical.
Speaker 1 (00:22):
Business, breaking market headlines and corporate news from across the globe.
Speaker 3 (00:26):
Do investors like the M and A that we've seen?
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These are two big time blue chip companies.
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Window between the peak and cunt changing super fast.
Speaker 1 (00:35):
Bloomberg Intelligence with Alex Steele and Paul Sweeney on Bloomberg Radio.
Speaker 2 (00:42):
Today's Bloomberg Intelligence Show, we dig inside the big business
story is impacting Wall Street and the global markets.
Speaker 3 (00:47):
Each and every week we provide in depth research and
data on some of the two thousand companies and one
hundred and thirty industries our analysts cover worldwide.
Speaker 2 (00:54):
Today we'll look at companies exposure to US terriffs.
Speaker 3 (00:56):
So let's we'll discuss why one of the biggest producers
of heavy machinery expects a low we're sales this year.
Speaker 2 (01:01):
But first we begin with the tech space and the
IT company super micro Computer.
Speaker 3 (01:05):
This week, the company reported preliminary results for the fiscal
third quarter that fell short of analyst expectations.
Speaker 2 (01:10):
The company attributed the miss to customers delaying purchases, which
we pushed into the current quarter. Super Micro also cited
higher inventory reserves and expedetic costs for new products.
Speaker 3 (01:21):
For more, we are joined by Wougin Ho Bloomberg Intelligence,
and your Technology Analyst.
Speaker 2 (01:24):
We first asked Wougin to break down exactly what happened
in super Micro's preliminary announcement.
Speaker 4 (01:30):
It looks like, you know, when you go big whale
hunting and you miss those whales you want and missed results. Right,
They essentially missed sales by about one billion dollars versus
the midpoint of their guidance. And the fact of the
matter is these AI deals are monster deals. That's why
I'm saying it's big whale hunting. One hundred thousand GPU
(01:51):
cluster that XAI or open AI. Those are three point
five billion dollar deals. So if you miss on you know,
one or two of these, that accounts for easily a
billion dollars.
Speaker 2 (02:03):
So is this a super micro computer specific issue or
is this big tech spending kind of slung down here?
Speaker 4 (02:13):
Well, it's a product transition issue. Right, So if we
look at the Nvidia GPUs, they transitioned over from the
last generation, the Hopper series, to the next generation, the
Blackwell series, and given the greater capacity and the better
computational power, the customers were actually waiting for this for
(02:36):
quite some time now, and now they're clamoring for it.
So essentially what customers appear to be doing is canceling
their Hopper orders and moving over to Blackwell. Now, I
will tell you they weren't the only one that had
this issue. HPE a couple of months ago, they missed
their expectations primarily because of this product transition as well.
(02:56):
And it's biting a super micro now.
Speaker 3 (02:58):
So based on that, the chip cycles moving really fast
for AI. So what's next after Blackwall? This is just
going to keep happening and kind of rolling it downhill.
Speaker 4 (03:10):
Yeah, I mean, it's still probably a couple of years
before we start seeing the newer series of chips really
ramping up, So we probably have a two year product
cycle before we get to that. Alex, I mean, let's
see how the cloud Capex holds up in twenty six
and twenty seven. But for now, you know, right now,
(03:32):
we have a neartime product cycle issue for at least
super Micro and HPE.
Speaker 2 (03:36):
Which what are your companies, kind of the tech hardware companies,
what are they saying about this whole tariff climate. Is
it going to be an issue for them?
Speaker 4 (03:47):
Well, we published an update to our tariff note and
surprisingly they've actually done a good job navigating the tariff issue.
So far, I've had three companies report related that's hardware related.
There's a couple of things we need to take into consideration. One,
a lot of them are outside of China in terms
(04:07):
of the manufacturing scope, so the tariff impact is fairly minimal. Two,
there's a lot of manufacturing that comes out of Mexico.
So you know, because of the US Mexico and Canadian
trader agreem at U s m c A, they're exempt
for tariffs. So if you have anything that's built out
of Mexico or Canada, whatever it's assembled there, you're except
(04:29):
for tariffs. The companies that have reported uh, they're they're
using your U s m c A to their advantage
to win deals. And three and this is this was
somewhat interesting to me. I thought there would have been
some pull in deals because of tariff concerns in the
second quarter. Uh the guidance thus far. Uh Yeah, Western
(04:50):
Digital as well as Seagate, which manufacturers hard drives. They
don't see any pulling in deals. So the second half
of the year, which was a concern of mine, we
see actually smooth demand going into the second half, all.
Speaker 3 (05:02):
Right, Thanks to u Jinho, Bloomberg Intelligence Senior Technology analyst.
You move next to news from the logistics company UPS.
Speaker 2 (05:09):
This week, UPS said it expects to cut twenty thousand
jobs this year and close dozens of facilities due to
a reduction in shipments for Amazon dot Com. This isn't
an effort to cut expenses and improve profitability.
Speaker 3 (05:19):
UPS also did an update it's fullier outlook, citing macroeconomic uncertainty,
and this comes despite the company reporting first quarter earnings
that beat analyst estimates.
Speaker 2 (05:28):
For more on this and the state of the shipping industry,
we're joined by Lee Klascow, Bloomberg Intelligence Senior Transport, Logistics
and shipping analysts.
Speaker 3 (05:34):
We first asked Lee to give us his take on
what we heard from UPS.
Speaker 5 (05:38):
If I had to break it out, you know, I
would probably say ninety five percent of the I guess
somewhat disappointing two Q outlook is really being driven by
the macro and not UPS. I mean, UPS, in our
view is and has been doing the things to kind
of restructure its network to deal with the realities of
(06:00):
their business and how much it's changed over over the
last couple of years. And they're also focusing a lot
more on revenue quality, so that would mean trying to
win more share of small to mid size shippers. Also,
you know, you noted they're kind of gliding down, if
you will, their exposure to Amazon to some of their businesses,
(06:21):
that just doesn't make sense. I mean, they're still going
to do returns for Amazon, which is a good business
for UPS from a margin financial standpoint.
Speaker 2 (06:32):
Hayley, what kind of visibility does UPS have on their
revenue stream? Like how much is contractive which just how
much is this me walking up the store and you know,
shipping a package across the country.
Speaker 5 (06:43):
That's a great question, Paul. I think the reality is
that they have somewhat decent visibility into their business A
couple of weeks out. I think that's really about it.
That's just really because it's their their customers are really
driven by economic activity and it's really tough to kind
(07:04):
of really gauge that those volumes, especially in the current
environment giving the uncertainty driven by TARIS, which is you
know why earnings expectations for the second quarter will probably
start moving lower as sell sided analysts adjust their models.
Speaker 3 (07:20):
The Amazon stuff is a good thing for them long term, right,
even though there's near term pain, Like those are lower
margin packages that they don't want to do anymore. They're
going to focus on higher margin packages that could wind
up being much more stable and profitable, right.
Speaker 5 (07:34):
Yeah, to your point, they are really generating, they're really
focusing on revenue quality. You know, they mentioned on the
call that some of their business out of Amazon's fulfillment
centers just really wasn't profitable for them, so it obviously
doesn't make sense to take that business. And if they're
able to create capacity by getting rid of some of
this business and filling it with what they call SMB
(07:57):
small to mid sized businesses, you know, that's it's going
to be a good thing for US margins overall, and
it will allow them to generate the kind of returns
that they can reinvest in their network, because you know,
while they're doing a lot of investing in now in automation,
and they're closing some facilities just to be a little
more nimble than they were in the past. You know,
(08:17):
they're still going to continue to have to make those
investments because technology continues to change and those benefits, you know,
will need to be driven by those investments.
Speaker 6 (08:29):
Lie.
Speaker 2 (08:29):
A lot of companies are saying, you know, they're not
necessarily seeing the impacts of tariffs now, but they certainly
expect to in the coming weeks and months. You cover
everything in shipping, rails, trucks, the recen shippers, the air
freight guys. You cover it all. Are you seeing it now,
because I've actually seen some reporting that maybe fewer ships
are sailing from China to the US. Are you seeing
(08:51):
it anywhere in your space?
Speaker 5 (08:54):
Yeah, we are. In to your point, Bookings from China
to the US are down thirty to forty depending on
which press reports you read. You know, some of that
is obviously there where they pull forward effect in our
view before the tariffs were going into place, so people
were rushing to get stuff out, So we don't know
really where that's going to lie. You know, shippers are
(09:15):
going to either they're going to take the stance where
they're going to be like they're going to sit back
and wait to see what happens. Some are continue to
do business as usual and they're just going to try
to push off the costs associated with tariffs to customers,
which obviously will be inflationary or mix of the two.
So really, you know, it'll be interesting to see how
(09:37):
things progress.
Speaker 3 (09:38):
Yeah, but still, I mean you have to wonder though,
how fast then the shipping industry can rerate. Like if
there's like one ship hanging out the LA port all
of a sudden tariffs go away, what does that wind
up looking like?
Speaker 5 (09:50):
Yeah, Shipping companies can do a number of things to
manage their capacity during ups and downs time. They can
do blank sailings, which really just means they don't they
don't go to a port, they skip a port. They
can operate slower, which actually is good because they could
save them on fuel. And in a worst case scenario,
they can just take the ships out of the water
(10:11):
because that that is that it can be costly. And
also you know a lot of a lot of them
they lease their capacity uh from other companies, so you know,
once those leases come up, they can just return the ship, uh.
To the owner of that ship.
Speaker 2 (10:26):
Haley, I know you cover rail and truck companies that
do a lot of business across the Mexican border. What
do you what are you seeing there these days? What
are they telling you? Again?
Speaker 5 (10:37):
You know it, there's a lot of uncertainty. Uh they
saw a kind of a surge and demand ahead of
the tariffs. You know, there is a lot of exemptions
in tariffs between the US and Mexico and the US
and Canada. Uh So, you know, they are not as
punitive as they are with with China. Uh So, you
(10:59):
know it that might be more of an inflationary aspect
versus a stopping of flowing of freight. But the problem
is is that, you know, if some of the supply
chains get mucked up from the tariffs on China, that
could impact manufacturing in Mexico and manufacturing in Canada, which
we'll therefore you know, impact cross border volumes overall. So
(11:22):
there's a you know, kind of a latency approach here.
I know that's not what people want to hear. They
want certainty. But given the more protectionist policies out of Washington,
and you know how they can change on a dime,
it's really hard to get that certainty, so hopefully in
the coming weeks we'll get some better definitive outlook on
(11:45):
unworthyse tariffs are heading our thanks to.
Speaker 2 (11:47):
Lead classical Bloomberg Intelligence senior transport, logistics and shipping analysts.
Speaker 3 (11:51):
Coming up, we're going to break down how cruise demand
has been impacted in twenty twenty five.
Speaker 2 (11:56):
You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
depth research and data on two thousand companies in one
hundred and thirty industries. You can access Bloomberg Intelligence via
Big in the terminal.
Speaker 3 (12:05):
I'm Paul Sweeten and a Malex Steel and this is Bloomberg.
Speaker 1 (12:12):
You're listening to the Bloomberg Intelligence podcast. Catch us live
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Auto with the Bloomberg Business App. Listen on demand wherever
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Speaker 3 (12:27):
We move next to some new research from Bloomberg Intelligence
about it's bi Tariffs Matrix. It's a worst case scenario
tariff analysis tool. It helps identify companies exposure to US tariffs,
the potential impact on EBADAH and how much prices have
to rise to offset elevated costs for more.
Speaker 2 (12:43):
We were joined by Punham Goyle, senior US e Commerce
and retail analysts at Bloomberg Intelligence, and Elliot Stein, Bloomberg
Intelligence litigation analysts.
Speaker 3 (12:50):
We first asked Elliott how the BI tariff matrix works.
Speaker 7 (12:54):
So the BI Terriffs Matrix available on the Bloomberg terminal
at bispace Tariffs Go and like you said, BI analysts
for weeks have been putting numbers on what tariffs mean
for their companies and this is all distilled in the
BI Tariffs Matrix. You go to the matrix, it lists
two hundred companies and we're continuing to add more companies
(13:15):
across twenty different industries, and it shows you what their
blended teriff rate would be based on their exposure to
different countries where they're getting goods for their sales in
the US and what the tariff rates are on those countries.
And then from there, our analysts have calculated how much
the cost of goods will increase for all these companies'
sales into the US, how much their profit will take
(13:36):
a hit as a result, and how much they would
have to increase prices both in the US and globally.
To offset the impact of the tariffs.
Speaker 3 (13:45):
That's amazing, that's incredible. Honestly, this is why Bloomberg Intelligence
is so awesome. And we'll get to retail with punamindus
a second. But Elliott, when we're putting this together, from
all the different sectors, what stood out to you? What
did you learn the most?
Speaker 7 (13:57):
So you know, it's really interesting. So we also published
a note on this end. In that note there's a
piece from Honor Agrana and the tech team, And you know,
I like to filter by the blended teriff rate and
see which companies are paying more teriffs as a result.
And if you look at Apple, because they have such
a high exposure to China, their blended terifrate is still
(14:17):
twenty percent. But the company, like Dell, has a much
more diversified supply chain and so they're blended terrafrate is
much lower, roughly, I think maybe four or eight percent
of the exact number. And so as a result, the
you know, the amount that both these companies would have
to increase their prices to offset tariffs varies quite dramatically,
with Apple being close to nine percent and Dell being
(14:38):
close to two percent.
Speaker 2 (14:40):
So pun them on the retail side of the business.
How much more do you think consumers are going to
have to pay at the store for stuff?
Speaker 8 (14:48):
Sophy assume that the entire cost has passed to the consumer.
On average, across the thirty nine retailers we analyzed here
in the US, it's a low double digit increase. That said,
we do expect some mitigation efforts to take place, so
we do expect that to moderate to probably mid to
high single digits. Worst case scenario that sounds bad is
(15:10):
that bad? I mean, price increases are bad, right because
they influence demand, and that means that consumers could pull
back and where and how they choose to spend. So
ideally we would like to see no price increases, low
single digit at best, which we think is manageable. But
if it's beyond that, there could be a pullback in demand,
especially for discretionary items, right, things that you can kind
(15:33):
of hold off on, you can trade down for. So
it is negative if things worsen and if China attentions
don't come down from here?
Speaker 2 (15:43):
Are there certain product lines or certain categories put them
that are more risk? I just think, you know, I'd
remember seeing a story on sneakers and it seems like
all the sneakers come from China in that point.
Speaker 8 (15:54):
Well, they actually come mostly from Vietnam. So as long
as the Vietnam teriff rates stay at ten percent, which
we'll know in early July if that's the case or not,
I think that headwind is largely manageable. In fact, you know,
for the at leisure companies like Nike Adidas, we've estimated
that the tiff frate currently should only be around ten percent,
and that's because that's the current levee on the other
(16:15):
countries outside of China. These companies have diversified a lot
since the last round of tariffs, where they've actually moved
out of China into the neighboring countries, and as long
as the tariff is low there, we think it's manageable.
If tariffs do increase in early July from the ten percent,
it's a bigger risk to these at leisure companies. Paul,
(16:36):
you know you asked about where the impact is greater.
Is across the thirty nine companies that we've analyzed. I
think you have to look at the toymakers. You have
to look at the dollar stores and even some of
the specialty apparel stores where they are more heavily exposed
to China, in some cases largely exposed to China, and
they're the tariff rate is greater than fifty percent and
the exposure is much higher, so a much bigger impact.
Speaker 3 (17:00):
You search by us price hike and do you know
a top down like Mattel thirty one percent estimated price
increase five below thirty nine percent? Dollar Tree twenty seven percent.
Speaker 2 (17:11):
I don't think those people are gonna like, I mean,
that's we've shop.
Speaker 3 (17:13):
At dollar That's really rough. I mean I could do
this forever. H and m twenty percent Target? Where'd you
go Target looking at twenty percent? Elliott? Are we going
to see lawsuits legal issues in relation to.
Speaker 7 (17:26):
This, Yeah, we already are, and just going back to
the matrix for six so we didn't mention it. But
you can click below the matrix and to the left
of the matrix as well, because there are interactive catulators
for all these companies where you can play around with
some of the different assumptions, put in your own numbers,
and you know, and get the output as a result.
(17:47):
But in terms of lawsuits, yeah, we've seen multiple lawsuits
being filed. My colleague Holly Film covers them, but I've
been tracking them as well because they're interesting. We've seen
companies from lawsuits from importers as well as Blue states
like California and Oregon. They're filed in courts all around
the country, but they're probably all on their way to
being consolidated to a court here in New York called
(18:09):
the Court of International Trade, which deals with lawsuits over tariffs.
And there are two main claims in these cases. One
is that the government is exceeding its statutory authority under AEPA,
which is the statute it's using the Emergency Powers Act.
And then the second one is that even if it
does have the power under IEPA to implement these tariffs,
(18:30):
Congress delegated its authority to the president improperly. These are
issues of like first impression. You know, we've never seen
a president use IEPA for tariffs before, and at the
end of the day, we think it's a close call,
but we think the administration will win these lawsuits and
the tariffs will stick.
Speaker 2 (18:48):
Our thanks to Elliot Stein Bloomberg Intelligence litigation analysts and
put them Goyle, Senior US e Commerce and retail analysts
at Bloomberg Intelligence. This week we got a tale of
two different earnings pictures from the Royal Caribbean and Norwegian Cruise.
Speaker 3 (19:00):
Royal Caribbean raise its profit outlook for the year, saying
that bookings for twenty twenty five or man on track
Norwegian Cruise Line more than the cruise demand is weakening,
citing softening in his twelve month forward bookings.
Speaker 2 (19:10):
For more on this and a State of Travel, we
were joined by Jody Lourie, Bloomberg Intelligence credit analyst.
Speaker 3 (19:15):
We first asked Jody for her broad take on Royal
Caribbean versus Norwegian Cruise Line earnings.
Speaker 9 (19:20):
I think that the interesting thing that we're noticing this
quarter is the change in tone, and it's not necessarily
that the companies are so pessimistic. It's that they're hedging
their bets a little bit. They're reminding investors that they
have a longer tail when it comes to bookings. The
reminding investors that even if the consumer starts pulling back
(19:43):
on travel, which Hilton commented on some of that, that
they are at least well positioned for twenty five. And
so Norwegian was trying to back out of comments around
Europe being a little bit weaker by saying Hey, rest
of the world is doing well. Fribbean was sounding upbeat, optimistic,
(20:03):
but I do suspect that there's an element of concern
for all these companies.
Speaker 2 (20:07):
So what's the best way for you as an analyst,
Jo did to get a sense of how demand is
going in the future. I know some of these bookings,
as you mentioned, are far in advance, but how do
you guys think about that?
Speaker 9 (20:21):
So there's two things we do, Paul. So the first
is we actually do a note every quarter or so
around bookings related to Bloomberg Second Measure data. And by
that I mean is that Bloomberg Second Measure data isn't
necessarily one for one on bookings, but you'll see that,
particularly going into wave season, that you can get a
(20:42):
sense of what bookings are doing based on what sales
is and volume is for these companies. We have intel
into a little bit more into the brand depth being
at Bloomberg, but beyond that, I mean, clients can look
at a lot of that data as well, and it's
really helpful. I mean, we wrote a note back in
the fall that talked to twenty twenty five still being
(21:03):
strong for these companies, but aired a little bit of
caution to the twenty twenty sixth season and that being
a function of what we were seeing on second measure, do.
Speaker 3 (21:14):
You get the sentence that if we see sort of
stalling out in consumer demand or just a little hold back,
but it's deferred demand or disappearing demand.
Speaker 9 (21:24):
So for the cruise lines, I mean you have to
think about it in buckets. So you have those dedicated
cruisers that are going to cruise heck or high water.
Those are the people who are going to jump in
right after COVID. But I mean, I think for the
new to cruisers, it's more of a question of if
they're going to consider booking this far in advance if
they don't know what their wallet is going to look like.
(21:46):
There is a function of people being able to back
out coming into a cruise, But I'd argue that a
lot of the time when people are making that decision,
especially for an advance, they're not necessarily going to use
that as the lever to pull when they need to
free up additional cash, right, are going to find other
ways to access cash or capital. I'm talking individuals, I'm
talking to consumers, right, And so when we book our vacations,
(22:09):
we're saying okay, we're going Now, it's the bigger question.
And this is what we're seeing with the hotel is
for the people who haven't necessarily booked, they might be
rethinking when they're going to book what their vacation is
going to look like? When are they going to book
their airline?
Speaker 2 (22:25):
Right?
Speaker 9 (22:25):
And I think that's key is the fact that you
have this long tail booking versus the shorter tail booking.
Speaker 2 (22:32):
So, Jody, if I'm a cruse ship operator and I
sense that my bookings are going to a week and
going forward, what do I do? I mean, because my
boat's like a foating piece of I don't know fixed
costs there? What can I do?
Speaker 9 (22:45):
You can just get the ship filled as much as possible.
Speaker 7 (22:50):
Right.
Speaker 9 (22:50):
So, something we learned from covid in for a lot
of these companies is that really in order to be
break even EVEDA, they need somewhere between thirty to fifty
percent capacity for the cruising, right. And that's what a
lot of the companies said when they were getting back
up to speed, they said, you know, we need thirty
to fifty percent of capacity and then we break even EBDA.
(23:11):
And I think that the key also is that these
companies have really pushed the onboard spending.
Speaker 5 (23:17):
Right.
Speaker 9 (23:17):
The ticket covers, you know, ticket covers a certain amount
of the cost of sailing, but if they are going
to be sailing either way, they want to fill the
ship because if you fill the ship, then you have
more potential for additional spending on board. Even just from
the basics of I forgot a toothbrush, I got to
go use the corner store on the ship because it's
(23:37):
a captive market. But even beyond that, people once they're there,
they say, well, I'm already here, I med as well
partake in the drink package. I might as well do
an excursion, right, I don't know the next time I'm
going to be out, So I think the key will be,
you know, getting them on the ship. Something that Norwegian
talked about, which is different than the other cruise lines
(23:58):
and speaks to some of the strategies that they did
put with COVID is not necessarily negotiating our price.
Speaker 2 (24:03):
Thanks to Jerdi Lourie Bloomberg Intelligence credit.
Speaker 3 (24:05):
Analysts coming up on the program, We're going to break
down by McDonald sales fell sharply last quarter.
Speaker 2 (24:09):
You're listening to Bloomberg Intelligence on Bloomberg Radio, providing indepth
research and data on two thousand companies and one hundred
and thirty industries. You can access Bloomberg Intelligence via Big
on the terminal.
Speaker 3 (24:18):
I'm Paul Sweeney and I'm Alex Steele. This is Bloomberg.
Speaker 1 (24:27):
You're listening to the Bloomberg Intelligence Podcast. Catch the program
live weekdays at ten am Eastern on Apple Corplay and
Android Auto with the Bloomberg Business app. You can also
listen live on Amazon Alexa from our flagship New York station.
Just say Alexa Play Bloomberg eleven thirty.
Speaker 2 (24:45):
We begin with big Tech and earnings from the world's
largest software maker Microsoft.
Speaker 3 (24:49):
This week, the company reported stronger than expected quarterly sales
and profit, and this suggests the customer demand for cloud
services has held steady despite a wave of new tariffs
and economic turbulence.
Speaker 2 (24:59):
For more and by anaag Rana, Bloomberg Intelligence Technology Analysts.
Speaker 3 (25:03):
We first asked Anorog for his take on those third
quarter results.
Speaker 6 (25:06):
I think it's a cloud plus AI. I think that's
the that's the big gain over here. And as you said,
I mean this is a company that is probably one
third of the entire software industry, and it beat by
a massive margin. I mean it was, I mean really
in terms of when you're walking into the quarter, you're
looking at, you know, constant gulency growth rate of twelve percent,
(25:27):
they beat it by three hundred basis points about fifteen percent.
Growing as your growth rate which was thirty one percent consensus,
they beat by thirty five percent. They're going to do
another thirty four to thirty five next quartered. So really,
you know, everything is going well for them, and that's
partially because of their relationship with Open Eye and all
the workloads that they are getting from that. I think
(25:48):
that's really what's driving a lot of it. They came
in talked about the caapics still fine. They're not shutting
any data centers down, and I think this is probably
the cleanest story in tech right now.
Speaker 2 (25:58):
Is there a narrative yet coming from the software industry
about a world of higher tariffs on a rag or
or are the software companies, like most everybody else out there,
kind of wait and see.
Speaker 6 (26:10):
No, you are looking at you know, the non AIIT
spending being cut down or pulled back. But that's the
second derivative impact. When it comes to direct impact from China.
Most of them don't have any about other than buying
boxes from China for you know, expanding their data center work.
But that's the kind of cost that perhaps even sometimes
even absorb given the scale of the larger companies. The
(26:31):
smaller ones will have some problems. But the tariff impact
we are seeing in new bookings numbers, new guidance for
the full year. People are cautious about it. But that's
what I would call is a second second degree impact.
Speaker 3 (26:43):
What did you make of Microsoft lowering their capax just
in terms of their expenditures and then Meta increasing them?
What am I learning from their CAPAX numbers?
Speaker 6 (26:53):
So Microsoft did not pay I mean Microsoft basically said
they're going to be spending on short term kind of projects,
which is more leases, rather than building it on their own,
which to us is fine because let's say there is
some issue with demand over the next two years, you
know they can counter that in a much more rapid
progression than the others. Now Meta is talking about more CAPEX,
(27:13):
but I have no idea how they're going to capitalize
on it, and then you know that's that's an area
of question mark for them. For Microsoft, it comes through
Azure Cloud computing for AWUS, it's the same thing, but
how are they going to capitalize it? You know, he says,
a big question for Meta.
Speaker 3 (27:28):
All right, Thanks to Anaagrana, Bloomberg Intelligence Senior Technology analyst,
we move now to earnings from the fast food giant McDonald's.
Speaker 2 (27:35):
This week, McDonald's reported that it's US sales fell sharply
in the first quarter, and.
Speaker 3 (27:40):
This reflects a deterioration and consumer sentiment that's making it
harder for restaurants to lure in diners.
Speaker 2 (27:45):
For more, we were joined by Michael hallan Bloomberg Intelligence
senior restaurant and food service analysts.
Speaker 3 (27:50):
We first asked Michael for his take on McDonald's earnings results.
Speaker 6 (27:53):
In the US.
Speaker 10 (27:54):
You know, it was a messy quarter. You know, it
was definitely an underwhelming report, but there was a lot
of noise. I mean, the weather was difficult for the
restaurant chains in the first quarter. It was very cold
in January, snowy in February. It was a bad flu season.
They lost that leap year day, so that was hit
(28:14):
comps by about one percent, right, So it was kind
of messy, and I would say the value menu relaunch
maybe didn't go as well as some might have expected.
There's some things to get excited about, you know. This
month it was the Minecraft movie promotion. Next month is
going to be the launch of mccrispy strips, and then
(28:35):
in the second half we're going to see the return
of the Msnack Mix snack Rap. Yeah, and you know,
I think investors are looking forward to all those things,
and easier comps and same star shells should improve a
good amount here through the year end.
Speaker 2 (28:50):
All right, So Alex and we had a remote broadcast
a couple of weeks ago with the Nji Anything. I
went to the McDonald's at the Newark train station and
got the number two with a coke, which has been
my go to order since I was like twelve.
Speaker 3 (29:04):
Awesome, awesome stuff.
Speaker 2 (29:05):
Awesome. I mean, they just they deliver every time. I
don't know, I'm not taking it. I'm not anybody who
speak a bed word about McDonald's. Hey, Michael, what are
your restaurant companies. What are they saying about a world
of terriffs? How does it impact their business? How much
did they expect to take out of their margin versus
maybe passing along to customers. What were you hear in
(29:26):
these days.
Speaker 10 (29:27):
Yeah, So what we're hearing on these earnings calls is
just uncertainty. And I think and most of our companies
are taking this as an opportunity to kind of lower
their guidance their same star sales top line guidance for
twenty twenty five. Here whether or not their business has
been impacted by a consumer slowdown due to TARERFF concerns
(29:48):
and anything like that. In terms of margins, we're fine.
I mean, you know, there's very limited exposure to imports
in the restaurant industry. Companies, you know, restaurant chains we cover,
they're all sourcing a large majority of their goods domestically, right,
and so margins aren't really an issue. I mean, Shakeshock
(30:09):
actually increased their guidance for twenty twenty five restaurant margins.
Speaker 3 (30:14):
That's interesting. So would this be a relatively then defensive sector?
Dare I say in a tariff environment?
Speaker 10 (30:23):
Well, I mean, right now, the market trading as if
you know, a recession is on the table, and in
that case, consumer spending is going to pull back. I
would say restaurants are probably better seated than maybe retailers, right,
because they have less tariff exposure. And the restaurant industry
suffered a recession last year, and so we have easier
comps to lap right, and so for those reasons, it
(30:46):
may be more attractive. But you know, if we do
see a recession, you don't want to be owning consumer
discretionary names historically.
Speaker 2 (30:53):
So, Mike, I think I'm a pretty good restaurant feedback
person because I'll go to the McDonald's and Newark trains,
but I'll go to the top end steakhouse as well.
I'll go anywhere in between. Where did the different segments
of the restaurant business? How do you think they're they're
going to fare in an economy that is perhaps slowing
down and perhaps even thinking about a recession.
Speaker 10 (31:13):
It's really interesting this go round. And you know, we've
been saying, and we continue to think that casual dining
is going to outperform this year.
Speaker 2 (31:22):
What's an example of casual dining.
Speaker 10 (31:25):
Yeah, so casual dining, think Cheesecake Factory reported a solid report.
A name we really like is Cracker.
Speaker 3 (31:31):
Barrel speaking his language right now in company?
Speaker 10 (31:36):
I know I am. So those chains they're coming off
of really really weak results last year, and you have
some turnarounds in the industry that are kind of boosting.
Speaker 2 (31:48):
Results.
Speaker 6 (31:49):
Right.
Speaker 10 (31:49):
We've seen absolutely phenomenal results out of Chili's. You know,
we think the turnaround at Cracker Barrel is going to
gain steam. And they have exposure to low income consumers,
but much less so than quick service. So quick service
is lapping better comps from last year, tougher comps from
(32:09):
last year, and they also have the highest exposure to
low and middle income consumers. And you know, for that reason,
we're a little bit more bearish on those names.
Speaker 5 (32:19):
M hm.
Speaker 3 (32:20):
Well, yeah, exactly. Any of the qs are right, the
quick service restaurants which would be in McDonald's. Where did
Chipotle is a QSR?
Speaker 10 (32:27):
Right, Well, it's a quick service they like, you know,
we have a whole new segment, well not that new,
but kind of new segment called fast casual.
Speaker 9 (32:35):
Yes, that's right.
Speaker 10 (32:36):
Price points a little higher than quick service, a little
bit lower than casual dining, the foods better than quick service,
and in some cases actually better than casual dining as well.
So yes, Chipotle, Shake Shack, Dutch Bros, Cava, they kind
of all all are in that boat, and we're seeing
(32:58):
different results, you know, across that space. I think it
was pretty you know, fast casual did pretty good last year,
but we're seeing some headwinds. You know, Chipotle didn't have
a great quarter. There's been a massive slowdown in same
source sales at Wingstop, and so, you know, yeah, but
(33:18):
uh so you're seeing you know, kind of a case
by case basis in terms of the fast casual industry our.
Speaker 2 (33:24):
Thanks to Michael Halein Bloomberg Intelligence Senior Restaurant and food
service analyst, we.
Speaker 3 (33:28):
Look next at earnings from one of the world's biggest
producers of heavy machinery, Caterpillar.
Speaker 2 (33:33):
This week, the company reported first quarter earnings that fell
short of analysts expectations.
Speaker 3 (33:37):
Caterpillar also said it expects slightly lower sales this year
if the Trump administration tariffs remained in place and the
economy dips into a recession the second half of the year.
Speaker 2 (33:45):
For more on this, we were joined by Chris Ciolino,
Bloomberg Intelligence Senior US machinery analysts. We first asked Chris
how he currently is looking at the company after reporting earnings.
Speaker 11 (33:54):
I think the release really isn't as bad as initially feared,
and there's actually a number of positive takeaways here. The
quarter was weak, and we knew that going in volumes
were going to be down, pricing was gonna be under pressure.
But the outlook is actually better than I think many
had anticipated. Their two Q sales guide was actually above
the street. We saw backlog improved to a record thirty
(34:15):
five billion dollars. Orders were up double digits both year
over year and sequentially. And really, if you look at
their outlook X tariffs, it was really better than what
they had expected prior so, and the tariff impact as
of now at least appears manageable. So I think the release,
you know, should at least help delay some of those
concerns over a more pronounced slowdown this year.
Speaker 2 (34:36):
Christa's Kindipillar build their equipment in the US. Is that
where the manufacturing is? How did they do that?
Speaker 11 (34:43):
Short answer, they build everywhere. They are a net exporter
out of the US. But you have to remember this
is a large global manufacturer. They have manufacturing footprint and
and supply base that really spans the globe. But if
we're thinking about net exports, yes, they export more out
of the US than they do import. From a revenue perspective,
(35:04):
you know, the US is you know, almost half their
revenue today.
Speaker 3 (35:08):
What about for its peers. What does this mean for
some of its peers and the trading environment that they
were previously in.
Speaker 11 (35:14):
Yeah, so, at least for some of the domestic US
based manufacturers, I think this is maybe a little bit
of a sigh of relief. By no means or we
have the woods yet, but it certainly seems that the tariffs,
as of least how they stand right now, are somewhat manageable.
You know, CATS expecting a net cost headwind of about
two hundred and fifty is three hundred and fifty million
(35:36):
dollars next quarter. If you kind of extrapolate that out
over the balance of the year, you're talking, you know,
maybe somewhere in the one hundred and hundred and fifty
basis point headwind of margins. But that may even prove,
you know, overly pessimistic, because you know, Cats still evaluating
and implementing some of these mitigation actions, so we could
even see that come down from here.
Speaker 2 (35:58):
I was kind of surprised, I guess positively, Chris, that
their backlog looks pretty darn good. It's not like their
customers are saying are canceling orders or anything.
Speaker 11 (36:07):
No, and it's it's a record backlog, right, so you
know we have coverage. You know, if you look at
consensus revenue, you know, whether we call it flatter down
slightly this year, they've got coverage for you know, nearly
seventy percent of the year already, So I think that
does help provide some kind of buffer. You know, there
was a concern out there that do we see this
(36:27):
pre buy you know, ahead of some of the tariff implementation,
and Kat really kind of downplayed that in conversations they're
having with their dealers and with their customers, they're really
not seeing any evidence of that. So yeah, these do
seem like, you know, true orders and really a really
healthy backlog, which you know, I think helps support you know,
that flatish type revenue outlook that they're putting out there.
Speaker 9 (36:51):
All right.
Speaker 3 (36:51):
Thanks to Chris Ciolino, Bloomberg Intelligence Senior US Machinery Analyst.
Speaker 1 (36:55):
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