Latest / Bloomberg Intelligence / BI Weekend: Target, Home Depot, Retail Earnings

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BI Weekend: Target, Home Depot, Retail Earnings · Bloomberg Intelligence

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Speaker 2: Today you'll look at why retailer Target is naming an
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Speaker 2: insider as its next chief executive officer.
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Speaker 5: Plus well look at why the Danish drug maker Novo
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Speaker 5: Nordisk is slashing the cause of its weight loss drug ozempic.
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Speaker 2: First, we begin with the earning from TJX companies.
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Speaker 5: This week, the off price retailer raised its full year
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Speaker 5: guidance and reported second quarter earnings that beat analyst projections.
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Speaker 5: It's a sign that shoppers are currently turning toward discounters
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Speaker 5: due to economic uncertainty.
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Speaker 3: For more.
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Speaker 2: Guest hosts, Alexis Christophers and I were joined by Mary
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Speaker 2: Ross Gilbert Bloomberg Intelligence senior retail equity analysts. First asked
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Speaker 2: Mary for her take on the company's results.
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Speaker 6: TJX is hitting it out of the park. This is
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Speaker 6: a company that just executes seamlessly and consistently, something in
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Speaker 6: retail that's very, very difficult to do. They saw strength
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Speaker 6: across all categories, across all income groups, all age groups,
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Speaker 6: and they know how to get the merchandise right by store,
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Speaker 6: by region, so they have a terrific planning and allocation.
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Speaker 6: They sort of emphasize that and another key point because
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Speaker 6: they raise their guidance not only for sales but also
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Speaker 6: on the margin side. And there was such a huge
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Speaker 6: fear with terraffs. They only source probably less than ten
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Speaker 6: percent of their sales come for their merchandise is something
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Speaker 6: they directly source. They were able to buy better, which
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Speaker 6: means they got better deals. That means there's so much
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Speaker 6: availability out there, and it's something we've observed in our
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Speaker 6: channel checks and when you look at the shopping halls
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Speaker 6: on television, on a YouTube and you see the incredible
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Speaker 6: brands that are available, and they really are across good,
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Speaker 6: better and best. So you can get anything from Puma, Audi, Doos,
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Speaker 6: Nike all the way up to Eve, Saint Laurent and Gucci.
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Speaker 6: So it's and TJX really really wins across all that,
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Speaker 6: so strength across you know, all their channels and internationally,
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Speaker 6: I mean Canada was a nine percent comp sales.
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Speaker 7: I want to ask about a possible headwind though, because
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Speaker 7: it seems like they're firing on all cylinders. But I
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Speaker 7: know that TJX mentioned in the past about a key demographic,
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Speaker 7: the Hispanic customer. They were concerned that maybe immigration policy
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Speaker 7: was going to keep them home or not spend as much.
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Speaker 7: Did they mention anything about that.
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Speaker 6: I don't think they saw any weakness as a result
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Speaker 6: of that. I know it's been a big concern not
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Speaker 6: only for TJX, as you brought up Alexai, but also
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Speaker 6: for Ross and for Burlington, and probably even more so
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Speaker 6: for Burlington because they really skew to a lower income
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Speaker 6: consumer and they're due to report next week, and so
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Speaker 6: we should learn more on that.
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Speaker 2: Mary, I always think the job of a retail animals
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Speaker 2: like you was really tough because not only do you
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Speaker 2: have to do the regular stuff as an analyst, like
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Speaker 2: get the earnings estimates kind of right and on the
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Speaker 2: financial analysis, but you kind of have to have an
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Speaker 2: opinion on like who's good at picking out the right
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Speaker 2: fashion to even put in the store in the first place.
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Speaker 2: What is TJX doing so well? Do you think?
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Speaker 5: Well, they have.
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Speaker 6: The most amazing buying team, and so they spend they
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Speaker 6: have sort of like a buying academy where they teach
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Speaker 6: their buyers. You know, they have to go through you know,
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Speaker 6: I think it's like three years, maybe even up to
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Speaker 6: seven years of work that they do with these buyers.
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Speaker 6: So the pricing that they work on and the product
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Speaker 6: that they're buying is really something that is steeped in
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Speaker 6: experience history. They also invest in systems, you know, so
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Speaker 6: that means technology logistics to make sure that they can
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Speaker 6: get this all right. Because you can imagine that if
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Speaker 6: they're shipping multiple merchandise, you got to have fresh drops
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Speaker 6: because these customers will shop multiple times a week because
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Speaker 6: it's that freshness that brings them in. So yes, TJX
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Speaker 6: is the leader. They're the largest in the world. I mean,
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Speaker 6: they'll probably hit sixty billion in revenue this year, up
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Speaker 6: from fifty six billion last year. And they keep increasing
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Speaker 6: the number of potential store openings they see. Previously they
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Speaker 6: said we think we have another twelve hundred stores to open.
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Speaker 6: Now they're saying it's another eighteen hundred stores to open
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Speaker 6: around the country, just around the globe in their existing markets.
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Speaker 6: So yes, this company really has the expertise in doing
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Speaker 6: it right. Is there a digital strategy here because I
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Speaker 6: remember I'm sure you do too, Mary, when you would
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Speaker 6: go online to try to find out what tjmax had
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Speaker 6: and there was nothing there because you always had to
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Speaker 6: go in the store to find out what they had.
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Speaker 6: I think they had to step up their game right
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Speaker 6: because of Amazon and others online. But what is the
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Speaker 6: digital strategy, if anything, at Tjmax and TJX. That's a
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Speaker 6: good question. So actually TJX has a digital strategy. It's
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Speaker 6: across all their brands except for home goods, and so
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Speaker 6: it's about I think it's I think it's just under
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Speaker 6: five percent of sales. So it's very small. But they
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Speaker 6: also saw strength in this quarter on their e comm business.
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Speaker 6: So they do have an e comm business. You can
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Speaker 6: go on it and you can shop anything you want
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Speaker 6: on there. Now you can't say that you want to
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Speaker 6: shop by brand, but you can select. Let's say, let's
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Speaker 6: say that you want to just buy the ultra luxe
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Speaker 6: you know, merchandise that they have there, and you'll see
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Speaker 6: Christian de or sunglasses. You'll see you know, like I mentioned,
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Speaker 6: you know, on the handbag size Balan Chiaga. So you
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Speaker 6: will be able to find what you want on the
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Speaker 6: high end, also on the low end, but you'll have
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Speaker 6: to do it by price points, by sorting that way,
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Speaker 6: because they're not allowed to necessarily have that ability to
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Speaker 6: sort by brands. So you will see they have a
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Speaker 6: robust online business, you know, and it's around the globe. Now,
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Speaker 6: the key is that they're a key differentiated in that regard.
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Speaker 6: Remember that it's still very small, and that the vast
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Speaker 6: majority of their sales, you know, more like ninety six
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Speaker 6: percent or so, are being generated in store, but nobody
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Speaker 6: else in off price other.
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Speaker 7: Than the rack.
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Speaker 6: The Nordstorm rack has e commerce capabilities all the rest
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Speaker 6: it's strictly a bricks and mortar model.
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Speaker 5: Our thanks to Mary Ross, Gilbert Bloomberg Intelligence senior retail
7:18
Speaker 5: equity analyst. We move next to news from the cosmetics
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Speaker 5: company es Day Lauder. This week, the company issued a
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Speaker 5: weak profit outlook for its fiscal year. S Day Lauder
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Speaker 5: said it was weighed down by sluggish demand for high
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Speaker 5: end goods and an escalating trade war for more guestos.
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Speaker 2: Alexis, Christopherus and I were joined by Debate and Bloomberg
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Speaker 2: Intelligence luxury goods analysts. We first asked deb what she
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Speaker 2: took away from s day latter's earnings.
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Speaker 8: They're doing well out of the US improve in there.
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Speaker 8: Numbers for the full year are still done, but you
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Speaker 8: could see sequential improvement by end of year, and also
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Speaker 8: somewhat less soft in China. But for them where they
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Speaker 8: still have so much exposure in Asia and still particularly
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Speaker 8: in travel retail, inventories to me still look stuffed, even
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Speaker 8: though if I think about travel retail overall, it's fifteen
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Speaker 8: percent of their business now it was near thirty percent
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Speaker 8: four years ago, and they're losing about four points of
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Speaker 8: growth annually. For me, when I look at the inventory
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Speaker 8: data over two hundred days versus one ninety, it still
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Speaker 8: says that there's risk there for me. So they need
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Speaker 8: to write size Asia. They need to do more in
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Speaker 8: getting out of main stores in the US. They're doing
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Speaker 8: a lot positively on things like Amazon Beauty and in
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Speaker 8: Asia on TikTok, but it's all moving onlines. It's the
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Speaker 8: third of their business online, a lot going on, a
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Speaker 8: lot of cost savings, cost cutting, and very low on margin.
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Speaker 8: You know, and that the company has actually taken away.
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Speaker 8: Quarterly guidance and forecast for EPs on the full year
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Speaker 8: are six cents below the two sixteen is expected by
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Speaker 8: consensus two ten on guidance at the top end is
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Speaker 8: already a little bit below. So shares a week again
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Speaker 8: on the back of a couple of years of underperformance.
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Speaker 7: You no, dev definitely has you just laid out a
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Speaker 7: few tough years for this legacy brand. But explain to
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Speaker 7: me why there were some upgrades recently. I was surprised
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Speaker 7: to see Deutsche Bank HSBC upgrading from whole to buy.
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Speaker 7: You got JPM upgrading to overweight. What do they see
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Speaker 7: here that maybe others on Wall Street are not.
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Speaker 8: I think, especially as we've headed through the last couple
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Speaker 8: of quarters, you can see that there are share gains,
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Speaker 8: market share gains in some categories in some countries, so
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Speaker 8: Japan positively, some parts of China by the end positively,
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Speaker 8: some categories in the US positively as well. And there
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Speaker 8: are very easy comps that they will cycle through in
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Speaker 8: the next year ahead, and certainly under the CEO and
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Speaker 8: the CFO, there feels just a lot more entum and
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Speaker 8: energy to come. So I think that's what the market
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Speaker 8: are buying into, as well as the underperformance that we've seen.
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Speaker 8: But we must remember in terms of them being competitive
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Speaker 8: and what they're doing, they talk about a solid double
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Speaker 8: digital just the EBIT margin, you know, this will will
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Speaker 8: back their investment and then being in front of the consumer,
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Speaker 8: their innovation pipeline and others. They're only eight percent of
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Speaker 8: the end of fiscal twenty twenty five and they say
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Speaker 8: they get to a double double digitald just a EBIT
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Speaker 8: margin over the next few years. That to me says
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Speaker 8: they're still a bumpy ride. So I understand why why
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Speaker 8: those quarterly numbers have gone right.
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Speaker 2: Hey, deb sde Lauder said, the terriff's going to cost
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Speaker 2: them about one hundred million dollars to profitability this year.
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Speaker 2: What do you what are some of the luxury companies,
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Speaker 2: the brands that you follow. Are they taking these terriff
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Speaker 2: costs into their p and L or they're trying to
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Speaker 2: pass them along to customers.
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Speaker 8: What's been the strategy for Yeah, and certainly for the
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Speaker 8: very high end. We saw even at the beginning of
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Speaker 8: the year pre tariff announcements. The very high end like
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Speaker 8: MS would say, because the wage costs and others, we'll
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Speaker 8: be looking at five to six percent price increases, start
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Speaker 8: to passing those through the beginning of the year, and
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Speaker 8: then in May when the spring summer collections came through.
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Speaker 8: They then have commented generally for the luxury space, and
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Speaker 8: from the work we've done that some may need up
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Speaker 8: to four five percent price to be passed through, and
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Speaker 8: the plan is that they pass most of it through.
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Speaker 8: I don't think very much of it goes up put
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Speaker 8: down the supply chain, and it's going to be done
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Speaker 8: gradually in some categories rather than you know, some completely
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Speaker 8: pass it through more visibly than others. And some will
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Speaker 8: struggle more. And then we heard the news from Switzerland
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Speaker 8: with the thirty nine percent tariff, So companies like Swatch
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Speaker 8: for US will find it difficult. Companies like I still
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Speaker 8: it's not every brand that is resonating with the consumer
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Speaker 8: will find it difficult in some brands in some categories.
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Speaker 8: So that's why I think we wait quart by quarter
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Speaker 8: and across the rest of the year to see what
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Speaker 8: companies do need to take a little bit of that
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Speaker 8: on board. But most of them are finding cost cutting
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Speaker 8: as part of that, and certainly on the gross we
12:19
Speaker 8: did see for full years forty basis points improvement on
12:22
Speaker 8: gross margin for US to order with a little bit
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Speaker 8: of that tariff impact mixed in there, and that they're
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Speaker 8: expecting further gross margin improvement in twenty twenty six.
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Speaker 5: All right, thanks a Debic and Bloomberg Intelligence Luxury goods analysts.
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Speaker 5: Coming up, I'll look at earnings from the world's largest
12:39
Speaker 5: home improvement retailer, home Depot.
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Speaker 2: I'm Lis Matheo and I'm Paul Sweeney. This is Bloomberg.
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Speaker 1: You're listening to Bloomberg and tell Legends with Paul Sweeney
13:02
Speaker 1: on Bloomberg Radio.
13:04
Speaker 5: I'm Paul Sweeney and I'm Lisa Matteo filling in on
13:06
Speaker 5: Bloomberg Intelligence. We moved next to news from the merchandise
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Speaker 5: retailer Target.
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Speaker 2: This week, Target named insider Michael Fidelki as its next
13:14
Speaker 2: chief executive officer. Shares of Target fell after the appointment,
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Speaker 2: indicating that Wall Street had been hoping for an outsider
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Speaker 2: to take over the company's leadership.
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Speaker 5: This all comes after the company reported second quarter earnings
13:24
Speaker 5: that only narrowly surpass analysts expectations. Target also maintained its
13:28
Speaker 5: outlook for the full year after slashing it a few
13:31
Speaker 5: months back.
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Speaker 2: For more guest hosts, Alexis Christopheros and I were joined
13:34
Speaker 2: by Jen bartashis Bloomberg Intelligence senior retail analyst. We first
13:37
Speaker 2: asked Jen for her take on the new CEO and
13:39
Speaker 2: whether Target should have gone with an outsider.
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Speaker 9: It's an interesting choice, and I think there are investors.
13:45
Speaker 9: For a little while now, I've been interested in seeing
13:48
Speaker 9: a CEO change Brian Cornell has done a great job
13:51
Speaker 9: during his tenure, at least initially in terms of really
13:54
Speaker 9: driving growth for Target. But an internal choice really implies
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Speaker 9: much of the same strategy, and I think there was
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Speaker 9: some hopes that there would be something a little different
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Speaker 9: and maybe shake things up and bring something new to
14:05
Speaker 9: the company.
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Speaker 7: You know, I'm wondering if Target is going through an
14:09
Speaker 7: existential crisis right for this identity crisis because you feel like,
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Speaker 7: I don't know about upon and the last time you
14:15
Speaker 7: went into a Target, Sure, but you feel like they've
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Speaker 7: lost their mojo, Jennifer, because the last time I was
14:21
Speaker 7: in there, the store shelves were not stocked very well,
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Speaker 7: felt disorganized, couldn't find a sales associate to help me.
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Speaker 7: What does this new CEO have to do to help
14:31
Speaker 7: this company get back on track. Well, you know, it's
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Speaker 7: very interesting. He's highlighted three priorities, but they're not really
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Speaker 7: new priorities. But if they can bring focus to it,
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Speaker 7: maybe that will help. And that's you know, re energizing
14:43
Speaker 7: the assortment, bringing back some of that style and you
14:48
Speaker 7: know value that people crave. It's about having a very good,
14:52
Speaker 7: consistent in store execution. And experience, which is what you
14:56
Speaker 7: were actually.
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Speaker 9: Just talking about, having things in stock, having you know
15:00
Speaker 9: you associates available. And then the third is an acceleration
15:03
Speaker 9: in the deployment of technology to maybe you know, make
15:07
Speaker 9: processes faster, improve efficiency, that sort of thing. So we'll
15:12
Speaker 9: see if that, you know, if that happens. But it's
15:14
Speaker 9: really about getting back to what is it that consumers
15:17
Speaker 9: loved about Target and how do you get them back
15:19
Speaker 9: in that frame of mind so that they come to
15:21
Speaker 9: stores and spend there.
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Speaker 2: Well, you're the expitt here, like I don't have a
15:24
Speaker 2: sense of what people go to Target for. What do
15:27
Speaker 2: you think they go to Target for?
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Speaker 9: Well, what they traditionally have gone to Target for was
15:31
Speaker 9: that sense of discovery. Right, you had a couple of
15:33
Speaker 9: things on your list, you got in and you were inspired.
15:36
Speaker 9: You saw home decoration items that you just were like, oh,
15:40
Speaker 9: that would look great in my living room. Or you
15:42
Speaker 9: would go through apparel and you would see something very
15:45
Speaker 9: stylish and you know value that you thought, oh, that's
15:48
Speaker 9: a great thing to add to my basket. And so
15:51
Speaker 9: that's what's a little bit missing. And part of that
15:54
Speaker 9: may be because of just the rise in digital orders.
15:57
Speaker 9: It's a less conducive to those impromptu purchases. But it's
16:01
Speaker 9: also inspired by the assortment and by what people experience
16:05
Speaker 9: when they're in the stores, and that's really where they
16:07
Speaker 9: have to focus to get that magic back.
16:10
Speaker 7: And Jennifer correct me if I'm wrong. I think Target
16:12
Speaker 7: has more exposure to tariffs than say, Walmart because of
16:16
Speaker 7: its mix of products. It doesn't have as much exposure
16:18
Speaker 7: to groceries as Walmart does, but it gets a lot
16:21
Speaker 7: of its products from overseas places that are getting hit
16:23
Speaker 7: by these tariffs. How did that play out in this
16:26
Speaker 7: quarter and how will it play out going forward.
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Speaker 9: Yeah, it's a great question, and it is one of
16:31
Speaker 9: the things that's sort of been bogging down Target ever
16:34
Speaker 9: since we've had very high food inflation. The willingness to
16:38
Speaker 9: spend on discretionary categories has been a little bit more limited.
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Speaker 9: And that's really the area that Target has always excelled,
16:44
Speaker 9: things like apparel and electronics and toys and home decor
16:49
Speaker 9: and so you know, right now, the company is saying
16:51
Speaker 9: they're doing a pretty good job of mitigating tariffs, but
16:54
Speaker 9: they are more exposed because of the merchandise mix that
16:58
Speaker 9: they have. They said they've done some right sizing. They've
17:02
Speaker 9: they've paid off kind of the one time cancellation charges
17:05
Speaker 9: they had while they were waiting on the terra verdicts.
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Speaker 9: We'll see what unfolds in third quarter, and especially because
17:11
Speaker 9: it's back to school, which is a really important quarter
17:13
Speaker 9: for Target.
17:15
Speaker 2: What's always well? I guess what's recently in the last
17:17
Speaker 2: ten fifteen years really amazed me about Walmart is it
17:19
Speaker 2: how's effective their digital strategy was, and they actually went
17:22
Speaker 2: toe to toe with Amazon, and I think they more
17:24
Speaker 2: than hold their own, not just about Target in their
17:27
Speaker 2: digital strategy. How's that performing?
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Speaker 9: Overall? Target's digital strategy has been doing pretty well. They've
17:33
Speaker 9: done a They've made a conscious decision to not go
17:36
Speaker 9: head to head with Walmart and Target. So, for example,
17:38
Speaker 9: in their marketplace, it's not just an endless aisle of sellers.
17:43
Speaker 9: They have a very close criteria of who they let
17:46
Speaker 9: onto their platform and that's worked well for them because
17:49
Speaker 9: it helps keep the product selection closer to what people
17:51
Speaker 9: expect from Target. Their digital sales were up in terms
17:55
Speaker 9: of same star sales this quarter, well uppaced the visit
17:58
Speaker 9: visits to stores, and so they've been executing pretty well there.
18:03
Speaker 9: It's just a matter of how do they marry the
18:05
Speaker 9: two parts of the business to grow simultaneously.
18:08
Speaker 5: Aur Thanks to Jen Bartashi's Bloomberg Intelligence Senior retail analyst.
18:12
Speaker 2: We move next to news from the world's largest home
18:14
Speaker 2: improvem in retail or home Depot.
18:15
Speaker 5: This week, Home Depot said sales return to growth in
18:18
Speaker 5: the second quarter. This comes as shoppers invested in smaller
18:20
Speaker 5: projects such as lighting and gardening.
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Speaker 3: For more.
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Speaker 2: Lisa and I were joined by Drew Redding, Bloomberg Intelligence
18:26
Speaker 2: US home building analyst.
18:27
Speaker 5: We first asked Drew for his take on Home Depot's earnings.
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Speaker 10: It was actually a pretty much inline quarter for home Depot.
18:34
Speaker 10: Today comps up about one little shy consensus, but if
18:37
Speaker 10: you back out some of the four X impact, it
18:40
Speaker 10: was pretty much in line. Now. Of course, growth isn't
18:43
Speaker 10: as strong as you would like to see, and a
18:46
Speaker 10: lot of that, as you mentioned, has to do with
18:48
Speaker 10: where rates are, both rates on home equity loans and
18:51
Speaker 10: mortgage rates. You have to remember, housing turnover is at
18:54
Speaker 10: the lowest level since the financial crisis, and what we've
18:57
Speaker 10: heard consistently from Home Depot over the last quarters is
19:00
Speaker 10: that consumers are pulling back on big ticket discretionary categories,
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Speaker 10: So think of things like kitchen and bathroom models are
19:07
Speaker 10: flooring And the reason is because these tend to be
19:10
Speaker 10: financed with that and with rates where they are, and
19:13
Speaker 10: consumers with the expectation that rates are going to pull back,
19:16
Speaker 10: they're taking a wait and see approach and deciding to
19:19
Speaker 10: opt for their smaller ticket to projects instead.
19:22
Speaker 2: Drew, What what does home depots say about terr risk
19:26
Speaker 2: for them? How did they quantify for the street?
19:29
Speaker 10: Yeah, good question obviously on you know, top of mind
19:31
Speaker 10: for a lot of investors. So home Depot has done
19:34
Speaker 10: well to diversify that are sourcing over the last several years.
19:37
Speaker 10: They get about fifty percent of their products from the US,
19:40
Speaker 10: so they are in pretty good shape from that regard.
19:44
Speaker 10: We would estimate, you know, products coming from China somewhere
19:47
Speaker 10: around fifteen to twenty percent. And there's a couple of
19:50
Speaker 10: ways that they're going to manage this. One, given the
19:52
Speaker 10: scale that they have, they're able to push back against suppliers.
19:55
Speaker 10: The second they continue to diversify their supply chain. On
19:58
Speaker 10: their last quarter call, they mentioned that no single country
20:01
Speaker 10: outside of the US will be more than ten percent
20:04
Speaker 10: of sourcing. And then lastly, I think We're going to
20:07
Speaker 10: start to see some selective price increases coming through in
20:10
Speaker 10: the next several quarters. Now, they've done a little bit
20:13
Speaker 10: of pre buy on the inventory side to make sure
20:15
Speaker 10: that they had some of that lower cost product on
20:18
Speaker 10: the shelves for consumers. But I think, you know, as
20:20
Speaker 10: we get to the end of this year and into
20:22
Speaker 10: next year, you're going to start to see a little
20:24
Speaker 10: bit of pricing. Now, we wouldn't expect it to be
20:27
Speaker 10: to be widespread or significant. Remember, home Depot sales about
20:31
Speaker 10: thirty to forty thousand products on their shelves, so they
20:33
Speaker 10: tend to take a portfolio approach and manage pricing really
20:37
Speaker 10: across the entire project, rather than raising prices across the board.
20:42
Speaker 5: Sure, so are you telling me my next home Depot
20:44
Speaker 5: run is going to be more expensive? It's going to
20:47
Speaker 5: cost me more, Drew, I have painting, I have a
20:49
Speaker 5: deck to build, I have things to do. I mean
20:51
Speaker 5: you're saying this could take effect pretty soon.
20:54
Speaker 10: Well maybe not your next trip back, Okay, the next couple.
20:57
Speaker 10: Maybe Looking more towards the end of this year or
20:59
Speaker 10: into the next year, we would expect to see prices
21:02
Speaker 10: up marginally.
21:03
Speaker 5: So I need to rush now, well, if consumers are
21:06
Speaker 5: putting off those big projects, what are they focusing on?
21:09
Speaker 5: I mean, is it the smaller ones or are they
21:12
Speaker 5: just canceling projects altogether.
21:14
Speaker 10: Yeah, it tends to be more maintenance repair oriented, you know.
21:19
Speaker 10: So there's there's projects around the house where things break
21:22
Speaker 10: and you have to fix them immediately, or replacement products
21:25
Speaker 10: for appliances and things of that nature. And again, what
21:28
Speaker 10: we're not seeing is the big ticket discretionary of things
21:31
Speaker 10: like like kitchen and bess that require financing.
21:35
Speaker 2: Our thanks to Drew Redding, Bloomberg Intelligence US home building analyst.
21:38
Speaker 5: We move next to the medical device industry.
21:41
Speaker 2: This week, the medical device company Medtronic reported profit that
21:44
Speaker 2: beat analyst expectations. The company also lifted its full year
21:47
Speaker 2: earnings guidance.
21:48
Speaker 5: This came after Medtronic announced that it will expand it's
21:51
Speaker 5: bored after Elliott Investment Management became one of its biggest investors.
21:55
Speaker 2: For more, Lisa and I were joined by Matt Hendrickson
21:57
Speaker 2: Bloomberg Intelligence senior medtech analysts as Matt to bring.
22:01
Speaker 5: Us up to date on what is happening at Metronic.
22:03
Speaker 11: With the Elliott Management news, they reported that they have
22:07
Speaker 11: a significant stake in the stock and they're going to
22:10
Speaker 11: plan to bring on two new border directors. These are
22:16
Speaker 11: previous medtech CEOs from back in history and basically they're
22:23
Speaker 11: looking to revitalize growth.
22:25
Speaker 3: And capture efficiencies too.
22:27
Speaker 11: As they quoted in the earnings call built oxygen for
22:31
Speaker 11: future growth. And so one of the things we saw
22:35
Speaker 11: in the quarter in the earnings today, there were some
22:39
Speaker 11: areas that had strong growth, strong momentum, but in their
22:42
Speaker 11: diversified portfolio, there are other areas that kind of, let's say,
22:46
Speaker 11: needed some tweaking.
22:48
Speaker 5: But when it comes to this the board, who were
22:51
Speaker 5: some of the additions that are that are coming in
22:54
Speaker 5: because of Elliot and has Elliott the schools, the size
22:56
Speaker 5: of the state.
22:57
Speaker 11: As I've seen now, I have not seen a actual
23:00
Speaker 11: size of what the steak is. Some of these the
23:06
Speaker 11: board directors, they were former CEOs at den Supply so
23:10
Speaker 11: some medtech companies. They were also previously at Beckman, Dickinson
23:15
Speaker 11: other ones. They are able to come in with more
23:18
Speaker 11: of an operational background and so being able to drive
23:21
Speaker 11: kind of that efficiency, to be able to create the savings,
23:24
Speaker 11: to be able to invest into their R and D programs.
23:27
Speaker 2: Right for the folks in front of the terminal with
23:28
Speaker 2: tickers M D T. Then you type in the A
23:32
Speaker 2: n R function, get the analyst rating. Street doesn't know
23:35
Speaker 2: what to do with this stuff. Seventeen buy, sixteen holds
23:38
Speaker 2: in one sell. What's what's the confusion out there about
23:40
Speaker 2: this name?
23:41
Speaker 11: Then everybody needs medicals, everyone needs medical devices. Metronic has
23:47
Speaker 11: invested a lot of money into these home run type products,
23:52
Speaker 11: polse field ablation, renal de innervation. All these products are
23:55
Speaker 11: trying to disrupt a current market. Either if it's atual fibrillation, hypertension,
24:02
Speaker 11: if you get if you hit a home run like
24:04
Speaker 11: you're doing with pulsteril ablation, it is going to drive
24:06
Speaker 11: us pulse field ablation. It's basically a way to ablate
24:11
Speaker 11: an area that's being affected by autral fibrillation without using
24:14
Speaker 11: heat or without freezing, so that prevents kind of the
24:17
Speaker 11: damage to the tissue. If you hit home runs like that,
24:21
Speaker 11: you're gonna have key growth drivers. Other products like renal
24:24
Speaker 11: deinnervation is taking longer for that growth to develop. So analysts,
24:28
Speaker 11: including myself, see all these products in the pipeline get
24:32
Speaker 11: very excited about the potential for that growth to accelerate.
24:36
Speaker 3: From let's say the four to five percent.
24:37
Speaker 11: They're currently at to six percent, and then we're just
24:42
Speaker 11: still waiting for that execution of those commercialization of the.
24:45
Speaker 3: Products to get to that higher growth.
24:48
Speaker 11: Some analysts, as you see in the A and R,
24:51
Speaker 11: they are more bullish on when that will come up.
24:54
Speaker 11: Others are starting to say, wait a minute, We've seen
24:56
Speaker 11: this story before, and so they are waiting. It's a
24:58
Speaker 11: wait and see story for those analysts.
25:01
Speaker 5: I noticed when we talk with tariffs, they scaled back
25:04
Speaker 5: the impact of TERRAFF, so they lifted their full year guidance.
25:07
Speaker 5: Are you seeing that more from other companies in this space?
25:10
Speaker 11: Yes, I would say the majority of the companies that
25:13
Speaker 11: reported so far. Metronic always reports because their July fiscal
25:17
Speaker 11: quarter end. All the companies that reported their June fiscal
25:20
Speaker 11: end had a similar thing where they cut it by
25:22
Speaker 11: roughly half of what they had predicted in the first quarter.
25:26
Speaker 2: Our thanks to Matt henrickson Bloomberg Intelligence, senior metech allist.
25:30
Speaker 5: Coming up, we'll look at sustainable aviation fuel and how
25:32
Speaker 5: it's breaking records. From twenty twenty four.
25:35
Speaker 2: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
25:38
Speaker 2: depth research and data on two thousand companies in one
25:40
Speaker 2: hundred and thirty industries.
25:41
Speaker 5: You can access Bloomberg Intelligence via bi go on the terminal.
25:44
Speaker 5: I'm Lisa Matteo and I'm Paul Sweeney.
25:46
Speaker 2: This is Bloomberg.
25:55
Speaker 1: You're listening to Bloomberg Intelligence with Paul Sweeney on bloom Radio.
26:01
Speaker 5: I'm Poul Swiney and I'm Lisa Mateo filling in on
26:03
Speaker 5: Bloomberg Intelligence. We move next to news in the drug
26:06
Speaker 5: and pharmaceutical space. This week, the Danish drug maker Novo
26:09
Speaker 5: Nordis announced it's slashing the cost of ozempic for cash
26:12
Speaker 5: paying patients.
26:13
Speaker 2: The company said patients can now get ozempic for four
26:16
Speaker 2: hundred and ninety nine dollars a month, that's about half
26:18
Speaker 2: of its US list price through Novo's cash pay pharmacy
26:21
Speaker 2: Novo Care.
26:22
Speaker 5: Nova is also partnering with the healthcare company Gutarex to
26:25
Speaker 5: offer ozempic for the same price as pharmacies across the US.
26:29
Speaker 5: And this all comes after Novo's weightlaws drug we go
26:32
Speaker 5: Vy received FDA approval to treat a serious form of
26:35
Speaker 5: liver disease.
26:36
Speaker 2: For more, Lisa and I were joined by Madison Muller
26:38
Speaker 2: Bloomberg Health reporter, We first asked Madison for her take
26:41
Speaker 2: on Nova's recent breakthrough with wegov.
26:43
Speaker 12: Nova artists got approval for regov, which is its weight
26:46
Speaker 12: loss drug to treat a liver disease called MASH.
26:49
Speaker 13: And this sort of is a we've seen over the
26:52
Speaker 13: last couple of years.
26:53
Speaker 12: So many studies come out to show the potential health
26:56
Speaker 12: benefits of these weight laws drugs beyond just you know,
26:59
Speaker 12: the producing the number on the scale. And we knew
27:02
Speaker 12: from studies that there was some benefit to the liver
27:05
Speaker 12: from taking these drugs, and so Nova was able to
27:07
Speaker 12: notch and approval for that, which helps one with insurance coverage.
27:12
Speaker 12: Wigov and then Eli Lilly's drug zet Bound are still
27:14
Speaker 12: not super widely covered by insurance companies for weight loss,
27:19
Speaker 12: but having some of these other health benefits shown and
27:22
Speaker 12: proven in studies helps them convince ensures that they are
27:25
Speaker 12: worth covering, and so this gives them an edge against Lily.
27:29
Speaker 12: Lily's drug, Zetbound is not approved yet for this indication,
27:32
Speaker 12: and so it gives them sort of a leg up there,
27:37
Speaker 12: and then it also gets I mean, it sort of
27:41
Speaker 12: is another benefit for Novo because they've been struggling over
27:47
Speaker 12: the last year, just with zet Bound sort of making
27:52
Speaker 12: waves in the market and taking market share from Wigov.
27:55
Speaker 13: This gives them a leg up there as well.
27:58
Speaker 12: And just with the tumultuousness of the last few weeks
28:01
Speaker 12: they had a CEO ouster and a few other moving pieces.
28:05
Speaker 12: So this is good news for them and we'll we'll
28:10
Speaker 12: see well, but it will maybe help them gain back
28:12
Speaker 12: some market share.
28:13
Speaker 2: One of the issues for these weight loss drugs is
28:15
Speaker 2: the cost, and if you're not covered by insurance, they
28:18
Speaker 2: really are expensive. So by slashing the cost of a
28:22
Speaker 2: zempic in half, does a company believe that's going to
28:25
Speaker 2: open up a big new vein of new customers.
28:28
Speaker 10: Maybe.
28:29
Speaker 12: So it's interesting because if patients are on ozempic, they
28:32
Speaker 12: are usually on it. It's you know, type two diabetes
28:35
Speaker 12: treatment and usually that's covered by insurance diabetes.
28:38
Speaker 2: But does it have a side benefit I guess, of
28:41
Speaker 2: weight loss?
28:42
Speaker 13: Yes?
28:42
Speaker 12: So, I mean there are two different drugs, right, There's ozembic,
28:45
Speaker 12: which is the diabetes drug Wigov. They both use the
28:47
Speaker 12: exact same active ingredient, which is semiglue tide.
28:50
Speaker 13: Wigov is a higher dose version.
28:52
Speaker 12: If you're on ozempic, it's lower doses, so it's not
28:55
Speaker 12: quite as strong, but there is that weight loss side
28:57
Speaker 12: effect on both drugs.
29:00
Speaker 13: Previously, Novo actually.
29:02
Speaker 12: Did cut the cost of wigo V down to about
29:05
Speaker 12: the same price five hundred dollars a month back in March,
29:08
Speaker 12: and now they are doing the same for ozempic. But
29:10
Speaker 12: it's interesting because the question of whether or not this
29:13
Speaker 12: is going to expand access for more patients sort of
29:16
Speaker 12: remains to be seen, because again, if you have ozempic,
29:19
Speaker 12: you usually are covered by insurance for it.
29:22
Speaker 5: Now something I also said, there are partnering in this article,
29:25
Speaker 5: it's said with good Rx to offer ozempic we go
29:27
Speaker 5: before the same price as pharmacies. But didn't Novo try
29:30
Speaker 5: the partnership thing with Hymns and hers and that didn't
29:33
Speaker 5: work out so well.
29:34
Speaker 12: Yeah, yeah, So Hyms was one of several partners that
29:37
Speaker 12: Novo has sort of worked with over the last couple
29:39
Speaker 12: of months again to really make waves and get into
29:43
Speaker 12: this market or gain back market share because it's really
29:46
Speaker 12: lost ground to Eli Lilly. Hyms was one of the
29:50
Speaker 12: companies that they've partnered with. They've partnered with a couple
29:52
Speaker 12: of other telehealth companies as well as CVS to make
29:56
Speaker 12: this cash pay price more widely available. But this is
29:59
Speaker 12: the first time that they're dropping the price of ozempic
30:01
Speaker 12: as well. So this partnership with good Rx, you know,
30:04
Speaker 12: any patient is essentially a coupon, like any patient who
30:07
Speaker 12: goes to a pharmacy uses good rx is going to
30:10
Speaker 12: be able to get this cash pay price for ozempic.
30:13
Speaker 2: And Wigov mentioned that the hymns and hers those compound drugs,
30:18
Speaker 2: how effective are they vis a v the golp ones
30:22
Speaker 2: them themselves, because that would be a if I were
30:24
Speaker 2: like Novo Nordics, I spent all this money to develop,
30:26
Speaker 2: but that would be a bummup recease.
30:27
Speaker 12: Yes, and that's a really good question actually, that question
30:31
Speaker 12: of how effective are these drugs, because that's the problem
30:34
Speaker 12: is we don't know. There are studies that drug makers
30:37
Speaker 12: are required to do. They have to go through a
30:39
Speaker 12: length the FDA approval process to prove that their medications
30:42
Speaker 12: are safe and effective. Compounded drugs don't go through that
30:45
Speaker 12: same approval process, so there's no actual studies showing how
30:49
Speaker 12: effective those medications are. And it's a little bit of
30:52
Speaker 12: a gamble. I mean, we've seen patients losing weight on
30:55
Speaker 12: these compounded medications, and we haven't seen a tremendous amount
31:00
Speaker 12: of side effects that are really different from the branded medications.
31:04
Speaker 12: So the problem is just more that we don't actually
31:07
Speaker 12: have a lot of visibility into that compounded market and
31:10
Speaker 12: don't know how those drugs stack up to the branded medications.
31:15
Speaker 5: Where does this all put Eli Lilly then, I mean,
31:17
Speaker 5: they already had the setback with the weight loss pill,
31:20
Speaker 5: so now we're hearing all this about Nova. Where does
31:22
Speaker 5: this put them?
31:23
Speaker 13: Yeah?
31:23
Speaker 12: Yeah, I mean it's been it's interesting, like the two companies.
31:26
Speaker 12: I think last year it was just they were so
31:29
Speaker 12: red hot and there was like nothing that expectations were
31:31
Speaker 12: sky high. There was really nothing that seemingly could bring
31:34
Speaker 12: them down. But now we're seeing a couple of stumbles
31:36
Speaker 12: and I think that that, you know, shows again how
31:39
Speaker 12: high the expectations are for this market.
31:41
Speaker 13: There's just no room for failure. But we'll see what
31:44
Speaker 13: happens next to Lily.
31:46
Speaker 2: When is the pill going to be available day year?
31:50
Speaker 12: Sometime twenty twenty six, So they said that they're planning
31:53
Speaker 12: to file for FDA approval by the end of the
31:55
Speaker 12: year and then hopefully launch next year.
31:58
Speaker 5: Our thanks to Madison Mueller Bloomberg Health Reporter.
32:00
Speaker 2: Each week we look at research from Bloomberg and EF
32:03
Speaker 2: previously known as New Energy Finance.
32:05
Speaker 5: They're the DM at Bloomberg that tracks and analyzes the
32:08
Speaker 5: energy transition from commodities to power transport industries. This week
32:12
Speaker 5: we took a look at sustainable aviation fuel and how
32:15
Speaker 5: it's breaking records from twenty twenty four.
32:17
Speaker 2: For more, Lisa and I were joined by Anna Davies BNF,
32:20
Speaker 2: head of Renewable Fuels.
32:22
Speaker 5: We first asked Anna to explain the reason behind the
32:24
Speaker 5: record breaking use of sustainable aviation fuel.
32:27
Speaker 4: There has been an influx in attention and growth in
32:31
Speaker 4: the sustainable aviation fuel market. And this is basically a
32:35
Speaker 4: market to produce a jet fuel molecule but not use
32:38
Speaker 4: fossil fuels, so usually they use biofuels instead of fossil fuels.
32:41
Speaker 4: So something like used cooking oil out of a fryer.
32:44
Speaker 4: You can clean it, purify it, upgrade it, and then
32:47
Speaker 4: you can make a hydrocarbon molecule like jet fuel from
32:50
Speaker 4: that oil. And it's a way to decarbonize a sector
32:52
Speaker 4: like aviation, which another if you don't have these fuels,
32:55
Speaker 4: it's very hard to decarbonize because there's no real alternative
32:58
Speaker 4: to jet fuel, and jet fuel is so carbon emissions.
33:02
Speaker 2: How efficient is this jet fuel? This renewable jet fuel,
33:05
Speaker 2: so it.
33:06
Speaker 4: Is almost identical to fossil jet fuel. So in terms
33:09
Speaker 4: of it works the same way you burn it in
33:11
Speaker 4: an aircraft engine. It releases CO two like fossil jet
33:15
Speaker 4: fuel does. But the main thing is that it's from
33:18
Speaker 4: a plant or some other renewable source, and so if
33:21
Speaker 4: you think of agriculture, they absorb carbon dioxide for a photosynthesis,
33:25
Speaker 4: and so therefore you can think of it as sort
33:26
Speaker 4: of a net CO two neutralish technology because it at
33:30
Speaker 4: least absorbs some CO two in the growing of the fuels.
33:33
Speaker 5: So are there any challenges with renewable jet fuel.
33:36
Speaker 4: There's a lot of challenges, and the main challenge. The
33:39
Speaker 4: main challenge is cost. It's very costly. So the cheapest
33:42
Speaker 4: way to make these fuels is kind of what I've
33:44
Speaker 4: been describing. You take an oil like use cooking oil.
33:47
Speaker 4: That alone is at least two to four times the
33:50
Speaker 4: cost of fossil jet fuel. And that one is tough
33:53
Speaker 4: because there's only so much used cooking oil out there.
33:55
Speaker 4: You can use other oils like soybean oil, but that
33:57
Speaker 4: has fewer emission benefits associated with it because then you're
34:01
Speaker 4: growing soybeans to cultivate for their oil, so you have
34:04
Speaker 4: land issues, you have you know, all the pesticides and
34:07
Speaker 4: fertilizers and emissions that come from agriculture with that.
34:10
Speaker 3: Who makes this stuff?
34:11
Speaker 4: It is mostly the oil refineries these days. Because they
34:15
Speaker 4: can utilize existing oil refineries and upgrade them to handle
34:19
Speaker 4: a biooil similar to a fossil oil, the process for
34:22
Speaker 4: making it becomes quite similar. So your largest producers there
34:25
Speaker 4: are things like Neste or here in the US, Phillip
34:27
Speaker 4: sixty six and Valero have some pretty big operations.
34:31
Speaker 5: Now, you talked about twenty twenty five numbers, so how
34:34
Speaker 5: do you compare that to twenty twenty four Like it
34:37
Speaker 5: was a significant, significant jump.
34:40
Speaker 4: Yeah, so this was a really big well, twenty twenty
34:42
Speaker 4: five numbers so far is on track to double twenty
34:44
Speaker 4: twenty four numbers of production of this fuel in the US.
34:48
Speaker 4: Twenty twenty four was a quadrupling of twenty twenty three volumes,
34:52
Speaker 4: So these are really growing at a quick rate. That
34:54
Speaker 4: set is growing for a very small number. So even
34:57
Speaker 4: with this quadrupling and doubling, we're still at less than
35:00
Speaker 4: half of one percent of all US fossil jet fuel
35:03
Speaker 4: or less of all US fuel.
35:04
Speaker 2: So it seems to me this is probably one of
35:06
Speaker 2: those supplying demand situations. I need demand to ramp up
35:09
Speaker 2: production to bring down the unit costs here, So what
35:12
Speaker 2: are the are the airlines committed to taking this fuel?
35:16
Speaker 4: This is definitely a chicken and egg scenario. The airlines
35:20
Speaker 4: have targets in place. A lot of them want to
35:23
Speaker 4: have ten percent of their fuel being sustainable aviation fuel
35:27
Speaker 4: by twenty thirty, But these are just targets. There's no
35:30
Speaker 4: real ramifications if they don't meet it. Some countries like
35:33
Speaker 4: the EU and UK are setting very strict mandates. So
35:36
Speaker 4: both of those regions have two percent mandates for saff
35:40
Speaker 4: use in twenty twenty five, and that increases over time
35:43
Speaker 4: and there are penalties associated with it if they don't
35:45
Speaker 4: meet that. Here in the US, we're definitely taking the
35:47
Speaker 4: incentive approach by offering tax incentives or other policy incentives
35:52
Speaker 4: to try and encourage production. There's no strict target.
35:56
Speaker 5: Now, what about looking longer term? Is the outlook for
35:59
Speaker 5: this as as it's been on this trajectory you're saying,
36:01
Speaker 5: but does it can it continue.
36:03
Speaker 4: This, So that is a really good question. The countries
36:07
Speaker 4: like the EU and UK have very ambitious targets. The
36:11
Speaker 4: EU wants to see seventy percent of all jet fuel
36:14
Speaker 4: be made from sustainable aviation fuel by twenty fifty. We
36:17
Speaker 4: have benf think that that's going to be very hard
36:19
Speaker 4: to achieve. Just to produce that quantity of these fuels,
36:22
Speaker 4: where would you get the feedstock from?
36:23
Speaker 10: What?
36:24
Speaker 4: Who would shoulder the cost of that? So we anticipate
36:28
Speaker 4: it will probably be closer to the ten percent by
36:30
Speaker 4: twenty fifty twenty thirties. Another time, there's a lot of targets.
36:33
Speaker 4: Like I said, airlines have ten percent by twenty thirty.
36:36
Speaker 4: We don't think that will be achieved either, just because
36:38
Speaker 4: a lot of projects have been delayed or canceled in
36:40
Speaker 4: recent years, especially as interest rates are high, policies have
36:44
Speaker 4: been changing. There's a lot of uncertainty, especially here in
36:46
Speaker 4: the US where a lot of these facilities are being planned.
36:49
Speaker 4: So there's been a lot of slow down and delay
36:51
Speaker 4: in this industry. And the twenty thirty might be a
36:53
Speaker 4: time where we see really ambitious targets and not enough supply.
36:55
Speaker 8: To meet it.
36:56
Speaker 2: We reticent to asked this question, but how has this
36:59
Speaker 2: current administration impacted the adoption of a.
37:04
Speaker 4: These aviation fuels. Yes, you can't talk about aviation feel
37:08
Speaker 4: without talking about policy. This current administration, aviation feel is
37:13
Speaker 4: something that they've permitted. They've allowed policies. There was a
37:15
Speaker 4: tax incentive and the Inflation Reduction Act to continue. They've
37:19
Speaker 4: done a few tweaks though that really changed the game
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Speaker 4: for the industry. The first is that they are really
37:25
Speaker 4: promoting domestic production ahead of decarbonization, so things like US
37:31
Speaker 4: crops now fare better relatively than say imported use cooking oil,
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Speaker 4: the other challenges. They've sort of shifted the incentives a bit,
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Speaker 4: so now it's a lot cheaper to produce the counterpart,
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Speaker 4: which is road field renewable diesel for trucking, than it
37:44
Speaker 4: is for stable aviation field. They're produced in the same method.
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Speaker 4: It's a taed costlier to make jet fuel over diesel,
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Speaker 4: just by the mechanics of how to produce. So the
37:53
Speaker 4: Inflation Reduction Act offered more of a tax credit for
37:55
Speaker 4: jet fuel, making the economics kind of more on par.
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Speaker 4: They've sort of reduced that leg up, so we expect
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Speaker 4: more diesel less jet fuel in the coming years.
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Speaker 2: Our thanks to Anna Davies BNEF, head of Renewable Fuels.
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Speaker 2: That's this week's edition of Bloomberg Intelligence on Bloomberg Radio,
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38:11
Speaker 2: and one hundred and thirty industries.
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Speaker 2: I'm Lisa Matteo and I'm Paul Sweeney. Stay with us.
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