August 4, 2025 • 20 mins
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Bloomberg Intelligence hosted by Paul Sweeney and Norah Mulinda
Steve Man, Bloomberg Intelligence Global Autos and Industrials Research Analyst, discusses Tesla approving an interim stock award worth about $30 billion for Chief Executive Officer Elon Musk to keep his attention on the automaker.
Matthew Palazola, Bloomberg Intelligence, Senior Analyst, P&C Insurance, recaps Berkshire Hathaway earnings. BI also says that Warren Buffett is unlikely to ignite a bidding war with Union Pacific over Norfolk Southern, but a successful deal between the two would create operational disadvantages for Berkshire Hathaway's BNSF rail unit.
George Ferguson, Bloomberg Intelligence Senior Aerospace, Defense, & Airlines Analyst, discusses workers at Boeing 's St. Louis-area defense factories striking after union members rejected the company's modified contract offer.
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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news. You're listening to the
Bloomberg Intelligence podcast. Catch us live weekdays at ten am
Eastern on Applecarclay and Android Auto with the Bloomberg Business App.
Listen on demand wherever you get your podcasts, or watch
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Speaker 2 (00:23):
Normal Linda Paul Swen, you live here in our Bloomberg
Nactive Brokers studio, streaming live on YouTube as well. How
about this Tesla proved at interim stock award worth about
thirty billion dollars for chief executive officer Elon Musk to
keep his attention on the automaker. I would think that
would do it. Steve Mann joins us. He covers all
the autos companies for Bloomberg Intelligence. He's down there in Princeton. Hey, Steve,
(00:45):
I mean I can't think of a company maybe since
maybe Ford Motor Company where there's a key man risk
like Tesla here and Elon Musk. What do you make
of this stock award here?
Speaker 3 (00:57):
Yeah, I think it's very positive news for for Tesla
because you know they are going through a pivot right now,
not not only an automaker, but they're very focused on AI.
But if you look at Elon Musk. You know, he's
Tesla is not his only business, right He's got x Ai,
his AI company, which owns the former Twitter, and he
(01:21):
also has uh, you know, Space x Neurallink. I think
they're all related in some ways to Ai. And I think,
you know, without Elon must and Tesla, I think, you know,
there's going to be a lot of risk to to
that vision for Tesla without him.
Speaker 4 (01:40):
There see, if you mentioned that, there are a lot
of different things that are vying for Musk's attention. Of course,
we do know that he was really politically involved in it.
We got kind of pulled back and then he mentioned
his intention for creating the America Party. So clearly he
still remains in these conversations here. But what are investors
looking for right now from him? And doesn't seem as
though he's a tension is devoted as much as it
(02:02):
should be to Tesla.
Speaker 3 (02:04):
Yeah, I think fortunately for now, his attention is very
much devoted to Tesla. He set that at the second
quarter earnings call. I think you know, his you know,
his his presence is important because you know, you know,
right now the company is going through a changeover in
terms of the direction the strategy right uh. You know,
(02:27):
cars has been very important continues to be important to
drive that AI theme. But without must there, I think
the company will have to you know, won't able to
find the next person really to drive the company to
the next step and expanding robo taxi, expanding their optimis
robot offering in the future.
Speaker 2 (02:49):
Do we care about how many cars they make and
whether they make any money in the old car business seed.
Speaker 3 (02:55):
We do. And you know a lot of people think that,
you know, it's a it's a full pivot towards AI,
But I think making cars and and UH and developing
that AI UH software is goes hand in hand. It's
almost like Apple and its ecosystem.
Speaker 5 (03:14):
UH.
Speaker 3 (03:14):
I mean, there are opportunities for Tesla to actually license
the f SD, the full self driving UH software out,
but I think in the meantime it's not it's not
something he's looking to do. I think he wants to
build out Robotaxi internally and actually drive revenue and profits.
(03:35):
He does see huge profits from from the robotaxi and
from the FSD software. If you look at other software companies,
margins are high double digits UH on on the software
for for for for any software. But then you know
with with his f SD software that the car is
(03:56):
an integral, integrated component to it. It's it's, it's, it's
it's very important that he continues to make cars, not
only for cash, but for really marketing that software that he.
Speaker 4 (04:08):
Has steve a lot of pressuring Tesla over the last
few months. I mean, we're looking at a stock that's
down about twenty three percent so far this here, and
it's the worst performing stock within all the mag seven
stocks that there are right now. Explain to me right
now what the latest overhangs are right now for the company.
Speaker 3 (04:23):
Well, I think one big overhang that's removed this it
is his pay package. There is a lot of fear
in terms of him potentially being kicked out of the
kick Tesla. But I think the biggest overhang right now,
or where the investors are more focused on, is the
expansion of Robotaxi rights. He launched it back in June
(04:48):
in Austin. He's launching it in the San Francisco Bay area,
and he's also thinking about launching it in Nevada. And
it's from the looks of it, it's going quite well.
I Mean, there are some hiccups here and there with
this complex engineering system that he's putting in place for cars.
(05:09):
It's normal. It's normal. So but you know, safety is
still his priority, and you know he's gonna go on
at it at a measured pace. But it seems like
he's expanding it relatively fast. You know, the area of
coverage is much bigger than initially was back in Austin,
(05:31):
back in June, and we're seeing something similar in San Francisco.
So investors are really focused on when Robotaxi will start
contributing to the bottom line, and we think that's probably
more likely in twenty twenty seven.
Speaker 2 (05:45):
Steve, thanks so much for joining us. Always appreciate getting
comping it into your time. Steve Man, he covers all
the autos for Bloomberg Intelligence. He's safely scones down there
in Princeton, New Jersey.
Speaker 1 (05:56):
You're listening to the Bloomberg Intelligence podcast. Catch us live
days at ten am Eastern on Apple Coarclay and Android
Auto with the Bloomberg Business app. Listen on demand wherever
you get your podcasts, or watch us live on YouTube.
Speaker 2 (06:10):
All right, they had a little earnings from Berkshire Hathaway
over the weekend. Why did they do it over the
weekend when nobody else does it because it's warm Buffett
you can specials Matthew Palazola. That ruins his summer weekend.
He's a senior AOS covering all the insurance guys for
Bloomberg Intelligence.
Speaker 1 (06:26):
We'll get to the.
Speaker 2 (06:26):
Earnings, or maybe we won't, because all I want to
talk about is what is Burlington Northern Santa Fe which
Berkshire Hathaway controls. What are they going to do in
a world where it looks like we may have some
consolidation which and get cross bordered rail service. What's the
company saying about what they might do with being it?
Speaker 6 (06:45):
So they're saying characteristically nothing, but what we think and
what the market's thinking is I would say this Buffett
is I would put almost a zero probability of Buffet
getting involved in a bidding war over or Fork Southern,
Right that, yeah, so.
Speaker 2 (07:04):
Correctly.
Speaker 6 (07:05):
So I don't think he's going to try to outbid
up on that one, right, Like, that's just not what
Berkshire does. But then the speculation is CSX is the
is the other thing out there? And I'm not a
railroad analyst, but we just mark on it only on
the weekends. Our rail analyst thinks that Burns Northern will
(07:29):
be at a big disadvantage should this deal go through
with UP and that they would have to do something
that would leave CSX out there, which is the other
East Coast Railroad, and then Berkshire's got the West Coast Railroad,
so they could maybe merge those two the stock of
c I mean the market believes is too, because the
stock of CSX is up like twenty five percent since
(07:50):
this initial bid. Again, like my as a buffet watcher
and studier, I kind of feel like almost I feel
he would want to sit this one out. But I
you know, if I could exactly predict what he would do,
then I wouldn't be taking the Metro North into work.
Speaker 3 (08:05):
So you can tell me about it.
Speaker 4 (08:07):
So if this were to happen though, how big would
it be for Berkshire.
Speaker 6 (08:11):
Yeah, so the enterprise value of CSX is about eighty
five billion dollars, so that would assume no takeout premium.
Right now, Berkshire has three hundred and forty four billion
dollars of cash, so they could theoretically do it in
cash if they wanted to. It would take a big
chunk out of their cash. Buffett's got only a few
(08:33):
months left as CEO. He will step down at the
end of the year, and he still remains as chairman,
So I can't imagine that he would be, you know,
completely uninvolved. But you know, I would assume Air apparent
Greg Abil would have a lot to say about any
potential deal.
Speaker 2 (08:49):
All right, I'm speaking as a former railroad Annolds, which
my tenure there covering industry ended in nineteen eighty nine
when I went to business school.
Speaker 3 (08:58):
Have to do the deal, he has to do it.
Speaker 6 (09:01):
The CSX Yeah, I mean, I mean they have the money.
I mean they buy it in cash. I was just
running the back of the envelope. It's going to be
a creative to you know, earnings versus just holding it.
And if interest rates are going down, that makes it
probably perhaps more attractive for them to do something. You know,
it'll be interesting. He wants that one last elephant and
(09:22):
that this would certainly be it.
Speaker 3 (09:23):
Boy.
Speaker 2 (09:24):
And now, to me, the whole thing is the most
important person in this whole discussion is Jennifer Ree at
Bloomberg Intelligence. He does an antitrust ruling it. I don't
know how this stuff gets improved other than Trump says
I want it done, and then the Surface Transportation Board
just follows.
Speaker 6 (09:41):
And I think they have some game theory there, right,
because you know, I talk to Lee Are, a railroad
analysts BI and he was saying it seems like an
uphill battle. He's not the Andy Trust trust like Jennifer.
But you know, does Berkshire sit back and say, well,
maybe this just doesn't even get approved, So why are
we going to launch a bid for CSX It might
also not get approved.
Speaker 2 (10:01):
I don't know.
Speaker 6 (10:01):
I mean they have a lot to think about in Omaha.
Speaker 4 (10:04):
I mean, who's left in the landscape? Right, You've got Berkshire.
I mean we've got these other names. Who are the
major players outside of that?
Speaker 6 (10:10):
Are we talking about for railroads? Not exactly my expertise,
but I don't think there's anyone else without.
Speaker 2 (10:17):
All right, let's get to the earnings. Any takeaway here? Hey,
what's the cash position and what are the earnings trends
for this company?
Speaker 6 (10:27):
So the cash position three forty four billion. It was
down a couple of billion from last quarter. So they
took a write down on their Craft Hynes investment. It's
getting a lot of press people are I think, attributing
the stock decline in the quarter to that. I mean,
the net after tax right down is zero point six
(10:48):
percent of Berkshire shareholder's equity, so the stock's down three
percent on that, it doesn't really make a ton of sense.
They account for the craft Hins investment and the equity
method which they were holding it for much more than
the stock was worth. Because of those rules, they have
to write it down eventually, so I'm not shocked. I
don't necessarily think this is a vote of no confidence
(11:11):
in the stockholding. It's kind of the accounting. The earnings
were like eleven billion, which is that's stripping out a
lot of the noise. That's pretty much exactly what we
thought they were going to be, but there were some
moving parts. Insurance was weaker than I thought, the railroads
were better, and even retailing was better.
Speaker 2 (11:29):
All right, all right, you stay close to the phone
because I want to talk to you about this railroad
thing here, and we'll get Lee Clasico on, We'll get
Jennifer Rion because you can argue transc on a railroad,
why don't we have one in this country?
Speaker 4 (11:41):
I mean, come on, it's twenty twenty five exactly.
Speaker 2 (11:45):
I'll come out of retirement and get this deal done
if we need be. Matthew Polozola, Senior analyst Property Casualty
Insurance for Bloomberg Intelligence, joining us live here in a
Bloomberg an Active Brokers studio.
Speaker 1 (11:56):
You're listening to the Bloomberg Intelligence Podcast. Catch us five
weekdays at ten am Eastern on Applecarcklay and Android Auto
with the Bloomberg Business App. Listen on demand wherever you
get your podcasts, or watch us live on YouTube.
Speaker 2 (12:10):
All right, Workers at Boeing Saint Louis area defense factories
are striking after union members rejected the company's modified contract offer.
When I first read that, I was like, didn't we
already do this? I know, but that is a further reading.
I found out that was the commercial. It's different union
out in Seattle or whatever. These are the defense people.
Speaker 3 (12:30):
Okay.
Speaker 2 (12:31):
So just when you think you know, Boeing's kind of
clean out of the woods, cleaned up at everything, and
stocks up twenty five percent year to date, and then
this comes along. So I don't know how to make it.
George Ferguson, this is his job, Senior Aerospace, Defense and
Airlines sentels for Bloomberg Intelligence, George, how important, How big
of an issue? How big of a headwind is this
for Boeing?
Speaker 5 (12:49):
Yeah, not much, So you're right, we did this before
the Lion's share of the machinists. There's some thirty thousand
that represented up in Washington instruct their deal last year.
We calculate, you know, this is about six thousand machinists
again compared to thirty thousand up in Washington state. We
calculate that if this six thousand machinists get a similar
(13:12):
deal as the machinists did in Seattle, which I don't
see why not, it's probably cost Boeing all in when
it's when it's all done in four years, when when
the members get forty three ish percent increase cost them
an extra two hundred million dollars for Boeing. Look, everybody
(13:32):
wants to preserve two hundred million dollars, but for Boeing,
I think not that not that material.
Speaker 3 (13:39):
Plus.
Speaker 5 (13:39):
It's in the defense business. Some forty ish percent forty
two percent of that business is cost plus, so there's
likely the ability to you know, to defray some of
those costs through those cost plus contracts. So not that
big of an issue, I think, George.
Speaker 4 (13:56):
It seems like Boeing is always in the headlines. Nonetheless, though,
whether it's internally what's going on with employees or what's
happening with their planes here. Have things seem to have
gotten any better at least internally? Is this a more
you know, a newer strike if that makes sense, or
have there been a lot more claims being made?
Speaker 5 (14:17):
So I think you've broke up a little bit on me.
But I think you're asking if things are any better.
But I think they are right. I think we saw
two Q numbers for the company and they're delivering airplanes.
They're at thirty eight build rate going to forty two.
The defense business has got some problems right with the
fixed cost contracts. They still eked out a bit of
(14:40):
a profit this year. They've might have made about two
hundred million operating profit so far this year. So that's
about the increase in the cost here to the machine.
It's not looked, you know, the things should get continued
to get better. At that defense business. They have that
big fixed price legacy programs. There's some very important programs
(15:00):
inside that legacy fixed costs program business that they'll be
happy they have over the years. One of them is
the Sting Ray. It's a it's an autonomous refueler that
works off Navy aircraft carriers. I think in the future
that'd be pretty important. The case forty six is the
tanker they build, that'd be very important as well. So
(15:22):
I do think, you know, this is no sign that
things aren't you know, haven't turned around. This is just
one of the last stubs of the of their labor
that you know, once there increases after the pandemic to
cover that increased inflation. I think it's again, it's going
to be a blip.
Speaker 4 (15:38):
I think, George, you mentioned that there are still some
things to iron now as it pertains to Boeing's defense
business in particular. But how are they stacking up? How
is their defense unit stacking up against a lot of
the other different defense primes like a Lockheed for instance.
Speaker 5 (15:52):
I mean, like Lockey just had a bunch of at
least one major charge in their last earnings and just
got roiled by that. But I would say that first financially,
they're just not performing very well compared to their peers,
which I think, you know, on the on the glass
half full kind of side. You could say that they
(16:13):
ought to have a lot of capacity to improve performance
at that business, you know, and they've got some, like
I said, some pretty good programs. I just talked it through,
you know, that refueler, the two refuelers actually, but they
they won the F forty seven contract where they're going
to help develop the next sixth generation fighter. That's going
(16:35):
to be some twenty billion dollars we think over the
next four years that's going to be largely cost plus.
That's a great contract that will improve their fighter business.
They build F fifteens and F eighteen's. Those are sort
of sunsetting but they're very, very capable fighter jets. You know,
we've seen countries around the world order them and use
them very effectively. So the defense business has again those
(16:59):
glimmers of hope because there's there's a strong product portfolio there.
It's just been eclipsed again by some of these fixed
price contracts that they've really you know, sort of messed
up under Muhlenberg and now need to sort of get reordered,
get some of them off of the books and and
get going. But it's a good business.
Speaker 2 (17:18):
Hey, Jeff, how was I mean, George, how is the
global defense prime business change just in the last six months,
with President Trump getting agreements or from a lot of
big European countries to up their defense budget. Presumably, if
the Germans are spending more, of the French are spending more,
they're probably coming to the US defense primes. How has
(17:41):
the world changed, if at all?
Speaker 3 (17:43):
So?
Speaker 5 (17:44):
We think so so, you know, I think right now
the debate is can Europe really provide all the defense
products they need to be, you know, to create a
credible deterrent, or do they need to go outside the
block in order to buy capability. We think they need
to go outside the block to get capability, especially especially
sort of the most important capability you know currently and
(18:08):
I think that some of that most important capability is
air defense. And US defense companies do very very well.
They've got sort of you know, very advanced products that
they've built through a number of generations of those products
that have shown their ability over in the Middle East,
and those are going to be like RTX raytheon very
(18:30):
strong and interceptors radars. Lockheed as well as is in
that business and is going to do well. And we've
seen the orders come from Europe for that. I think
some of the things that Europe needs they'll probably get
largely at home, things like armored vehicles, tanks. The Europeans
built some very capable of products there. I think they'll
(18:52):
buy them at home. Fighter jets are a little bit different,
right Europe doesn't build a stealth fighter yet. They have
two programs in the continent that they want to build.
They'll take a decade to build. In the interim, they'll
buy the Eurofighter out of air Bus Leonardo Bae Systems.
A consortium builds that. But they're also buying Lockheed F
thirty five's because they don't have any stealth technology in
(19:14):
Europe right now. They need that Lockheed stealth technology, so
they'll buy some of those in the interim. So I
think that's exactly what you're going to see out of
Europe as a mixed buy. But I think it's going
to be a big improvement for the US primes because
Europe was spending nothing on defense and now they'll spend
eight hundred billion. Right, They'll go from three hundred to
eight hundred billion over a short number of years. And
(19:36):
think it'll give the US primes a lot of a
lot of opportunity and European primes off the ramp up
pretty quickly.
Speaker 2 (19:42):
I think that means we have to send George over
to Europe even more frequently to go to some of
these spots there. George Ferguson Senior Aerospace, Defense and Airlines analyst.
He covers it all, folks, and he's a Bloomberg Intelligence
one of the best on the street. You appreciate getting
some of his times.
Speaker 1 (19:58):
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Listen on demand wherever you get your podcasts, or watch
us live on YouTube.
Speaker 2 (00:23):
Normal Linda Paul Swen, you live here in our Bloomberg
Nactive Brokers studio, streaming live on YouTube as well. How
about this Tesla proved at interim stock award worth about
thirty billion dollars for chief executive officer Elon Musk to
keep his attention on the automaker. I would think that
would do it. Steve Mann joins us. He covers all
the autos companies for Bloomberg Intelligence. He's down there in Princeton. Hey, Steve,
(00:45):
I mean I can't think of a company maybe since
maybe Ford Motor Company where there's a key man risk
like Tesla here and Elon Musk. What do you make
of this stock award here?
Speaker 3 (00:57):
Yeah, I think it's very positive news for for Tesla
because you know they are going through a pivot right now,
not not only an automaker, but they're very focused on AI.
But if you look at Elon Musk. You know, he's
Tesla is not his only business, right He's got x Ai,
his AI company, which owns the former Twitter, and he
(01:21):
also has uh, you know, Space x Neurallink. I think
they're all related in some ways to Ai. And I think,
you know, without Elon must and Tesla, I think, you know,
there's going to be a lot of risk to to
that vision for Tesla without him.
Speaker 4 (01:40):
There see, if you mentioned that, there are a lot
of different things that are vying for Musk's attention. Of course,
we do know that he was really politically involved in it.
We got kind of pulled back and then he mentioned
his intention for creating the America Party. So clearly he
still remains in these conversations here. But what are investors
looking for right now from him? And doesn't seem as
though he's a tension is devoted as much as it
(02:02):
should be to Tesla.
Speaker 3 (02:04):
Yeah, I think fortunately for now, his attention is very
much devoted to Tesla. He set that at the second
quarter earnings call. I think you know, his you know,
his his presence is important because you know, you know,
right now the company is going through a changeover in
terms of the direction the strategy right uh. You know,
(02:27):
cars has been very important continues to be important to
drive that AI theme. But without must there, I think
the company will have to you know, won't able to
find the next person really to drive the company to
the next step and expanding robo taxi, expanding their optimis
robot offering in the future.
Speaker 2 (02:49):
Do we care about how many cars they make and
whether they make any money in the old car business seed.
Speaker 3 (02:55):
We do. And you know a lot of people think that,
you know, it's a it's a full pivot towards AI,
But I think making cars and and UH and developing
that AI UH software is goes hand in hand. It's
almost like Apple and its ecosystem.
Speaker 5 (03:14):
UH.
Speaker 3 (03:14):
I mean, there are opportunities for Tesla to actually license
the f SD, the full self driving UH software out,
but I think in the meantime it's not it's not
something he's looking to do. I think he wants to
build out Robotaxi internally and actually drive revenue and profits.
(03:35):
He does see huge profits from from the robotaxi and
from the FSD software. If you look at other software companies,
margins are high double digits UH on on the software
for for for for any software. But then you know
with with his f SD software that the car is
(03:56):
an integral, integrated component to it. It's it's, it's, it's
it's very important that he continues to make cars, not
only for cash, but for really marketing that software that he.
Speaker 4 (04:08):
Has steve a lot of pressuring Tesla over the last
few months. I mean, we're looking at a stock that's
down about twenty three percent so far this here, and
it's the worst performing stock within all the mag seven
stocks that there are right now. Explain to me right
now what the latest overhangs are right now for the company.
Speaker 3 (04:23):
Well, I think one big overhang that's removed this it
is his pay package. There is a lot of fear
in terms of him potentially being kicked out of the
kick Tesla. But I think the biggest overhang right now,
or where the investors are more focused on, is the
expansion of Robotaxi rights. He launched it back in June
(04:48):
in Austin. He's launching it in the San Francisco Bay area,
and he's also thinking about launching it in Nevada. And
it's from the looks of it, it's going quite well.
I Mean, there are some hiccups here and there with
this complex engineering system that he's putting in place for cars.
(05:09):
It's normal. It's normal. So but you know, safety is
still his priority, and you know he's gonna go on
at it at a measured pace. But it seems like
he's expanding it relatively fast. You know, the area of
coverage is much bigger than initially was back in Austin,
(05:31):
back in June, and we're seeing something similar in San Francisco.
So investors are really focused on when Robotaxi will start
contributing to the bottom line, and we think that's probably
more likely in twenty twenty seven.
Speaker 2 (05:45):
Steve, thanks so much for joining us. Always appreciate getting
comping it into your time. Steve Man, he covers all
the autos for Bloomberg Intelligence. He's safely scones down there
in Princeton, New Jersey.
Speaker 1 (05:56):
You're listening to the Bloomberg Intelligence podcast. Catch us live
days at ten am Eastern on Apple Coarclay and Android
Auto with the Bloomberg Business app. Listen on demand wherever
you get your podcasts, or watch us live on YouTube.
Speaker 2 (06:10):
All right, they had a little earnings from Berkshire Hathaway
over the weekend. Why did they do it over the
weekend when nobody else does it because it's warm Buffett
you can specials Matthew Palazola. That ruins his summer weekend.
He's a senior AOS covering all the insurance guys for
Bloomberg Intelligence.
Speaker 1 (06:26):
We'll get to the.
Speaker 2 (06:26):
Earnings, or maybe we won't, because all I want to
talk about is what is Burlington Northern Santa Fe which
Berkshire Hathaway controls. What are they going to do in
a world where it looks like we may have some
consolidation which and get cross bordered rail service. What's the
company saying about what they might do with being it?
Speaker 6 (06:45):
So they're saying characteristically nothing, but what we think and
what the market's thinking is I would say this Buffett
is I would put almost a zero probability of Buffet
getting involved in a bidding war over or Fork Southern,
Right that, yeah, so.
Speaker 2 (07:04):
Correctly.
Speaker 6 (07:05):
So I don't think he's going to try to outbid
up on that one, right, Like, that's just not what
Berkshire does. But then the speculation is CSX is the
is the other thing out there? And I'm not a
railroad analyst, but we just mark on it only on
the weekends. Our rail analyst thinks that Burns Northern will
(07:29):
be at a big disadvantage should this deal go through
with UP and that they would have to do something
that would leave CSX out there, which is the other
East Coast Railroad, and then Berkshire's got the West Coast Railroad,
so they could maybe merge those two the stock of
c I mean the market believes is too, because the
stock of CSX is up like twenty five percent since
(07:50):
this initial bid. Again, like my as a buffet watcher
and studier, I kind of feel like almost I feel
he would want to sit this one out. But I
you know, if I could exactly predict what he would do,
then I wouldn't be taking the Metro North into work.
Speaker 3 (08:05):
So you can tell me about it.
Speaker 4 (08:07):
So if this were to happen though, how big would
it be for Berkshire.
Speaker 6 (08:11):
Yeah, so the enterprise value of CSX is about eighty
five billion dollars, so that would assume no takeout premium.
Right now, Berkshire has three hundred and forty four billion
dollars of cash, so they could theoretically do it in
cash if they wanted to. It would take a big
chunk out of their cash. Buffett's got only a few
(08:33):
months left as CEO. He will step down at the
end of the year, and he still remains as chairman,
So I can't imagine that he would be, you know,
completely uninvolved. But you know, I would assume Air apparent
Greg Abil would have a lot to say about any
potential deal.
Speaker 2 (08:49):
All right, I'm speaking as a former railroad Annolds, which
my tenure there covering industry ended in nineteen eighty nine
when I went to business school.
Speaker 3 (08:58):
Have to do the deal, he has to do it.
Speaker 6 (09:01):
The CSX Yeah, I mean, I mean they have the money.
I mean they buy it in cash. I was just
running the back of the envelope. It's going to be
a creative to you know, earnings versus just holding it.
And if interest rates are going down, that makes it
probably perhaps more attractive for them to do something. You know,
it'll be interesting. He wants that one last elephant and
(09:22):
that this would certainly be it.
Speaker 3 (09:23):
Boy.
Speaker 2 (09:24):
And now, to me, the whole thing is the most
important person in this whole discussion is Jennifer Ree at
Bloomberg Intelligence. He does an antitrust ruling it. I don't
know how this stuff gets improved other than Trump says
I want it done, and then the Surface Transportation Board
just follows.
Speaker 6 (09:41):
And I think they have some game theory there, right,
because you know, I talk to Lee Are, a railroad
analysts BI and he was saying it seems like an
uphill battle. He's not the Andy Trust trust like Jennifer.
But you know, does Berkshire sit back and say, well,
maybe this just doesn't even get approved, So why are
we going to launch a bid for CSX It might
also not get approved.
Speaker 2 (10:01):
I don't know.
Speaker 6 (10:01):
I mean they have a lot to think about in Omaha.
Speaker 4 (10:04):
I mean, who's left in the landscape? Right, You've got Berkshire.
I mean we've got these other names. Who are the
major players outside of that?
Speaker 6 (10:10):
Are we talking about for railroads? Not exactly my expertise,
but I don't think there's anyone else without.
Speaker 2 (10:17):
All right, let's get to the earnings. Any takeaway here? Hey,
what's the cash position and what are the earnings trends
for this company?
Speaker 6 (10:27):
So the cash position three forty four billion. It was
down a couple of billion from last quarter. So they
took a write down on their Craft Hynes investment. It's
getting a lot of press people are I think, attributing
the stock decline in the quarter to that. I mean,
the net after tax right down is zero point six
(10:48):
percent of Berkshire shareholder's equity, so the stock's down three
percent on that, it doesn't really make a ton of sense.
They account for the craft Hins investment and the equity
method which they were holding it for much more than
the stock was worth. Because of those rules, they have
to write it down eventually, so I'm not shocked. I
don't necessarily think this is a vote of no confidence
(11:11):
in the stockholding. It's kind of the accounting. The earnings
were like eleven billion, which is that's stripping out a
lot of the noise. That's pretty much exactly what we
thought they were going to be, but there were some
moving parts. Insurance was weaker than I thought, the railroads
were better, and even retailing was better.
Speaker 2 (11:29):
All right, all right, you stay close to the phone
because I want to talk to you about this railroad
thing here, and we'll get Lee Clasico on, We'll get
Jennifer Rion because you can argue transc on a railroad,
why don't we have one in this country?
Speaker 4 (11:41):
I mean, come on, it's twenty twenty five exactly.
Speaker 2 (11:45):
I'll come out of retirement and get this deal done
if we need be. Matthew Polozola, Senior analyst Property Casualty
Insurance for Bloomberg Intelligence, joining us live here in a
Bloomberg an Active Brokers studio.
Speaker 1 (11:56):
You're listening to the Bloomberg Intelligence Podcast. Catch us five
weekdays at ten am Eastern on Applecarcklay and Android Auto
with the Bloomberg Business App. Listen on demand wherever you
get your podcasts, or watch us live on YouTube.
Speaker 2 (12:10):
All right, Workers at Boeing Saint Louis area defense factories
are striking after union members rejected the company's modified contract offer.
When I first read that, I was like, didn't we
already do this? I know, but that is a further reading.
I found out that was the commercial. It's different union
out in Seattle or whatever. These are the defense people.
Speaker 3 (12:30):
Okay.
Speaker 2 (12:31):
So just when you think you know, Boeing's kind of
clean out of the woods, cleaned up at everything, and
stocks up twenty five percent year to date, and then
this comes along. So I don't know how to make it.
George Ferguson, this is his job, Senior Aerospace, Defense and
Airlines sentels for Bloomberg Intelligence, George, how important, How big
of an issue? How big of a headwind is this
for Boeing?
Speaker 5 (12:49):
Yeah, not much, So you're right, we did this before
the Lion's share of the machinists. There's some thirty thousand
that represented up in Washington instruct their deal last year.
We calculate, you know, this is about six thousand machinists
again compared to thirty thousand up in Washington state. We
calculate that if this six thousand machinists get a similar
(13:12):
deal as the machinists did in Seattle, which I don't
see why not, it's probably cost Boeing all in when
it's when it's all done in four years, when when
the members get forty three ish percent increase cost them
an extra two hundred million dollars for Boeing. Look, everybody
(13:32):
wants to preserve two hundred million dollars, but for Boeing,
I think not that not that material.
Speaker 3 (13:39):
Plus.
Speaker 5 (13:39):
It's in the defense business. Some forty ish percent forty
two percent of that business is cost plus, so there's
likely the ability to you know, to defray some of
those costs through those cost plus contracts. So not that
big of an issue, I think, George.
Speaker 4 (13:56):
It seems like Boeing is always in the headlines. Nonetheless, though,
whether it's internally what's going on with employees or what's
happening with their planes here. Have things seem to have
gotten any better at least internally? Is this a more
you know, a newer strike if that makes sense, or
have there been a lot more claims being made?
Speaker 5 (14:17):
So I think you've broke up a little bit on me.
But I think you're asking if things are any better.
But I think they are right. I think we saw
two Q numbers for the company and they're delivering airplanes.
They're at thirty eight build rate going to forty two.
The defense business has got some problems right with the
fixed cost contracts. They still eked out a bit of
(14:40):
a profit this year. They've might have made about two
hundred million operating profit so far this year. So that's
about the increase in the cost here to the machine.
It's not looked, you know, the things should get continued
to get better. At that defense business. They have that
big fixed price legacy programs. There's some very important programs
(15:00):
inside that legacy fixed costs program business that they'll be
happy they have over the years. One of them is
the Sting Ray. It's a it's an autonomous refueler that
works off Navy aircraft carriers. I think in the future
that'd be pretty important. The case forty six is the
tanker they build, that'd be very important as well. So
(15:22):
I do think, you know, this is no sign that
things aren't you know, haven't turned around. This is just
one of the last stubs of the of their labor
that you know, once there increases after the pandemic to
cover that increased inflation. I think it's again, it's going
to be a blip.
Speaker 4 (15:38):
I think, George, you mentioned that there are still some
things to iron now as it pertains to Boeing's defense
business in particular. But how are they stacking up? How
is their defense unit stacking up against a lot of
the other different defense primes like a Lockheed for instance.
Speaker 5 (15:52):
I mean, like Lockey just had a bunch of at
least one major charge in their last earnings and just
got roiled by that. But I would say that first financially,
they're just not performing very well compared to their peers,
which I think, you know, on the on the glass
half full kind of side. You could say that they
(16:13):
ought to have a lot of capacity to improve performance
at that business, you know, and they've got some, like
I said, some pretty good programs. I just talked it through,
you know, that refueler, the two refuelers actually, but they
they won the F forty seven contract where they're going
to help develop the next sixth generation fighter. That's going
(16:35):
to be some twenty billion dollars we think over the
next four years that's going to be largely cost plus.
That's a great contract that will improve their fighter business.
They build F fifteens and F eighteen's. Those are sort
of sunsetting but they're very, very capable fighter jets. You know,
we've seen countries around the world order them and use
them very effectively. So the defense business has again those
(16:59):
glimmers of hope because there's there's a strong product portfolio there.
It's just been eclipsed again by some of these fixed
price contracts that they've really you know, sort of messed
up under Muhlenberg and now need to sort of get reordered,
get some of them off of the books and and
get going. But it's a good business.
Speaker 2 (17:18):
Hey, Jeff, how was I mean, George, how is the
global defense prime business change just in the last six months,
with President Trump getting agreements or from a lot of
big European countries to up their defense budget. Presumably, if
the Germans are spending more, of the French are spending more,
they're probably coming to the US defense primes. How has
(17:41):
the world changed, if at all?
Speaker 3 (17:43):
So?
Speaker 5 (17:44):
We think so so, you know, I think right now
the debate is can Europe really provide all the defense
products they need to be, you know, to create a
credible deterrent, or do they need to go outside the
block in order to buy capability. We think they need
to go outside the block to get capability, especially especially
sort of the most important capability you know currently and
(18:08):
I think that some of that most important capability is
air defense. And US defense companies do very very well.
They've got sort of you know, very advanced products that
they've built through a number of generations of those products
that have shown their ability over in the Middle East,
and those are going to be like RTX raytheon very
(18:30):
strong and interceptors radars. Lockheed as well as is in
that business and is going to do well. And we've
seen the orders come from Europe for that. I think
some of the things that Europe needs they'll probably get
largely at home, things like armored vehicles, tanks. The Europeans
built some very capable of products there. I think they'll
(18:52):
buy them at home. Fighter jets are a little bit different,
right Europe doesn't build a stealth fighter yet. They have
two programs in the continent that they want to build.
They'll take a decade to build. In the interim, they'll
buy the Eurofighter out of air Bus Leonardo Bae Systems.
A consortium builds that. But they're also buying Lockheed F
thirty five's because they don't have any stealth technology in
(19:14):
Europe right now. They need that Lockheed stealth technology, so
they'll buy some of those in the interim. So I
think that's exactly what you're going to see out of
Europe as a mixed buy. But I think it's going
to be a big improvement for the US primes because
Europe was spending nothing on defense and now they'll spend
eight hundred billion. Right, They'll go from three hundred to
eight hundred billion over a short number of years. And
(19:36):
think it'll give the US primes a lot of a
lot of opportunity and European primes off the ramp up
pretty quickly.
Speaker 2 (19:42):
I think that means we have to send George over
to Europe even more frequently to go to some of
these spots there. George Ferguson Senior Aerospace, Defense and Airlines analyst.
He covers it all, folks, and he's a Bloomberg Intelligence
one of the best on the street. You appreciate getting
some of his times.
Speaker 1 (19:58):
This is the Blue Our Intelligence podcast, available on Apple, Spotify,
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