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BI Weekend: Walt Disney, Ford Earnings · Bloomberg Intelligence

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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is Bloomberg Intelligence
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Speaker 1: with Alex Steel and Paul Sweeney.
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Speaker 2: The real AP performance has been in US corporate high yield.
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Speaker 3: Do investors like the M and A that we've seen?
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Speaker 2: These are two big time blue chip companies.
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Speaker 1: Bloomberg Intelligence with Alex Steele and Paul Sweeney on Bloomberg Radio.
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Speaker 2: On Today's Bloomberg Intelligence Show, we dig inside the big
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Speaker 2: business stories impacting Wall Street and the global markets.
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Speaker 3: Each and every week we provide in depth research and
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Speaker 3: data on some of the two thousand companies and one
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Speaker 3: hundred and thirty industries our analysts cover worldwide.
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Speaker 2: Today, we'll look at why the world's largest hotel company
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Speaker 2: lowered it's estimate for sales growth this year.
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Speaker 3: Plus we'll discuss why the automaker Ward announced it will
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Speaker 3: be suspending its full year guidance for twenty twenty five.
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Speaker 2: But first we begin with earnings from the media and
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Speaker 2: entertainment giant Walt Disney.
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Speaker 3: This week, Disney reported second quarter results that beat Wall
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Speaker 3: Street's expectations. The company also raised its outlook for the
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Speaker 3: full year.
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Speaker 2: This comes as Disney said it saw increased visitors and
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Speaker 2: guest spending at its parks and and uptick in streaming subscribers.
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Speaker 3: Disney also announced plans for its first theme park in
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Speaker 3: the Middle East, a resort property in the Emirate of
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Speaker 3: Abu Dhabi.
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Speaker 2: For more, we were enjoyed Mike Githa Ranganathan Bloomberg Intelligence
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Speaker 2: Senior media analyst.
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Speaker 3: We first asked Etha for her key takeaway from Disney's
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Speaker 3: earnings and whether the company has turned a corner.
1:34
Speaker 4: This turnaround story has now been in the works ever
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Speaker 4: since Bob Aiger came back more than two years ago,
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Speaker 4: and it looks like, you know, everything that he's kind
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Speaker 4: of put in place along with the CFO Hugh Johnston,
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Speaker 4: is really working. So they did raise a guidance, you know,
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Speaker 4: for the full year. But it's not just that, it's
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Speaker 4: just the conviction in the outlook as you kind of
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Speaker 4: look out and build out the earnings model. I mean,
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Speaker 4: we are basically looking at them doubling their EPs from
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Speaker 4: close to almost six dollars this year to well over
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Speaker 4: ten eleven dollars in the next four to five years.
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Speaker 4: So just a lot of conviction I think now in
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Speaker 4: their long term growth trajectory, with those new parks, with
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Speaker 4: the added capacity, with the sixty billion dollar investment, with
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Speaker 4: you know, the Abu Dhabi Park, new cruise ships, everything
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Speaker 4: seems to be finally kind of coming together.
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Speaker 3: Last quarter, though, the question was about their theme parks
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Speaker 3: prices are too high. The consumers pinched there was a
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Speaker 3: competitor opening up a park in Florida and everyone was
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Speaker 3: kind of worried. What changed in three months.
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Speaker 4: Yeah, so they did say at that point that you know,
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Speaker 4: summer bookings were strong. Of course, nobody really believed them.
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Speaker 4: But you know, when they kind of reported the numbers
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Speaker 4: and you saw that thirteen percent increase in operating income
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Speaker 4: in the domestic parks, domestic parks are really the bread
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Speaker 4: and butter of you know, the Disney theme park business
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Speaker 4: makes up seventy percent of revenue. You know, then that
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Speaker 4: has really managed to I think a lay fears and
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Speaker 4: they you know, it's not just what they reported, Alex,
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Speaker 4: it's what they said for the remainder of the year.
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Speaker 4: So they said bookings are up this quarter four percent.
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Speaker 4: They said bookings advanced bookings are up for the fiscal
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Speaker 4: fourth quarter seven percent, and that is with that new
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Speaker 4: Epic Universe coming on board. So still demand seems to
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Speaker 4: be really resilient. It seems to be strong, even though
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Speaker 4: there's a little bit of softness internationally. Domestically, they seem
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Speaker 4: to be in very good shape.
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Speaker 2: So Geitha talk to us about the profitability of their
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Speaker 2: streaming businesses writ large here, how profitable are they? Do
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Speaker 2: you think they can approach the profitability of say.
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Speaker 4: Netflix, I think they can over time. They definitely can.
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Speaker 4: So this year, Paul, we're looking at just over a
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Speaker 4: billion dollars in operating income on a twenty five billion
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Speaker 4: in revenue. That's about four or five percent margins. But
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Speaker 4: really what we're looking to the north star here is
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Speaker 4: definitely Netflix. As you just pointed out, Netflix should get
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Speaker 4: to thirty percent operating margins this year. So that's really
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Speaker 4: what what Disney is working towards. So even as we
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Speaker 4: kind of build out, you know, or we look at
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Speaker 4: the earnings trajectory for that streaming unit over the next
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Speaker 4: couple of years, I mean, we look at them getting
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Speaker 4: to you know, fifteen sixteen percent margins over the next
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Speaker 4: two to three years, and then of course a lot
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Speaker 4: more upside with you know, the pricing power, with subscription growth,
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Speaker 4: with password sharing, with you know, their advertising buildout, so
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Speaker 4: they have a lot of different levers that they can
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Speaker 4: pull as well.
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Speaker 3: Is the goal to catch up with Netflix in terms
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Speaker 3: of streamer subscribers? Is it about profitability? Like? What's the
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Speaker 3: goal there? Because Netflix is so far ahead just in basic.
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Speaker 4: Numbers, Netflix is absolutely far ahead, and there's no doubt
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Speaker 4: about that, Alex. They have well over three hundred million
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Speaker 4: subscribers just in terms of scale, Disney has about one
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Speaker 4: hundred and twenty five. So there's one hundred and twenty
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Speaker 4: five million. So there's a lot of cashing up to do.
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Speaker 4: But there is one area where Disney's far ahead of Netflix,
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Speaker 4: and that's advertising. They have a very very good advertising
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Speaker 4: infrastructure and this is an area that Netflix is kind
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Speaker 4: of really struggling with. And then remember, Disney has a
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Speaker 4: big weapon that they can use with that ESPN. It's
5:02
Speaker 4: not going to be called flagship, I know, but with
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Speaker 4: that ESPN streaming launch coming a little bit later, this
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Speaker 4: year they have. You know, they're spending something like eleven
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Speaker 4: to twelve billion dollars in sports rights that they are
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Speaker 4: going to monetize from a streaming perspective. So that is
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Speaker 4: where you know, they're going to have an unrivaled streaming
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Speaker 4: product even when you compare it to Netflix, because they're
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Speaker 4: going to offer you entertainment, they're going to offer you sports.
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Speaker 4: You know, there's going to be something for everybody. So
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Speaker 4: it's going to be you know, I think they can.
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Speaker 4: You know, I'm not sure if they're going to completely
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Speaker 4: be able to match Netflix in terms of subscriptions, but
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Speaker 4: they're going to be able to get to that profit number,
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Speaker 4: I think pretty quickly.
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Speaker 2: Keith, if I'm an investor in Disney, do I just
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Speaker 2: kind of write off what used to be the core business,
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Speaker 2: which is the cable network business and to say it's
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Speaker 2: in secular decline, I'm focusing more on the growing streaming business.
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Speaker 2: Is that kind of the play that.
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Speaker 4: Is the playball across and that's across majority of the space,
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Speaker 4: So you know, yes, it's it's just kind of you know,
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Speaker 4: coming along if you will. Advertising is a big concern.
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Speaker 4: Their affiliate fees, again as in secular decline. We know
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Speaker 4: other companies are actually trying to separate out their cable
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Speaker 4: networks business just because it's been struggling and the outlook
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Speaker 4: doesn't look good. Comcast actually is, you know, separating out
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Speaker 4: its cable networks a little bit later this year. They
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Speaker 4: even have a new name for that new business. And
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Speaker 4: you know, we kind of expect WBD, Warner Brothers, Discovery
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Speaker 4: will do something similar, But yeah, I think it's pretty
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Speaker 4: much at this point, it's pretty much written off. Paul.
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Speaker 4: The billinear networks business is dying.
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Speaker 2: Our thanks to Githa Wronganathan, Bloomberg Intelligence Senior media analyst.
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Speaker 3: We move next to corporate earnings from Tyson Foods. This week,
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Speaker 3: shares of Tyson Foods some the most since twenty twenty three.
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Speaker 3: Is investors shrugged off stronger than expecting quarterly earnings.
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Speaker 2: Investors were focused mainly on deepening losses at the company's
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Speaker 2: beef business. This business has lost money for six straight
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Speaker 2: quarters due to a severe cattle shortage in the US.
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Speaker 3: For more, we are joined by Jim Martash's Bloomberg Intelligence
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Speaker 3: senior analysts retail staples and packaged foods, and we first
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Speaker 3: asked Jen if there was demand concern at Tyson.
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Speaker 5: On the beef side, it's an input concern. And actually
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Speaker 5: there's a piece to that puzzle that Tyson touched on,
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Speaker 5: but they didn't really go into detail, and that's that
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Speaker 5: they talk about how consumers have really still had a
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Speaker 5: lot of demand for beef, which is true, except that
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Speaker 5: when you look at the consumer they're trading down into
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Speaker 5: like ground beef. Now when you have a shortage of cows,
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Speaker 5: you know, the problem that Tyson has is that they
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Speaker 5: have to put higher quality parts of the animal into
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Speaker 5: grind in order to sell it, which means that their
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Speaker 5: profit per animal is coming down. And that's a concern
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Speaker 5: over the long term if those changes in behavior patterns
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Speaker 5: don't alter in the near future.
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Speaker 2: All right, you know, during our little egg shortage, my
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Speaker 2: scientific analysis was basically, just make more chickens. Tyson's are
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Speaker 2: the chicken people, I think, what are they saying about
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Speaker 2: the chicken population these days and eggs and all that
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Speaker 2: kind of stuff, because they're the folks that know.
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Speaker 5: Yeah, so the chicken supply is actually pretty healthy from
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Speaker 5: a standpoint of the chickens that are used for consumption,
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Speaker 5: they really weren't impacted all that much. By avian influenza,
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Speaker 5: and so that was the good news. The bad news
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Speaker 5: is that the mortality rates on the type of chicken
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Speaker 5: that they're currently using is still pretty high. So that
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Speaker 5: means that they're not getting as many chickens into the
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Speaker 5: processing plants that they normally would given the number of
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Speaker 5: eggs that are being laid, and so that is an
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Speaker 5: inherent top or cap to supply. So supply is robust.
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Speaker 5: It's going to grow about one percent this year, but
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Speaker 5: there are some constraints there with how much more they
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Speaker 5: could actually grow supply overall.
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Speaker 3: What's the tariff impact, if any, on Tyson on both
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Speaker 3: sides the demand and supply.
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Speaker 5: For Tyson, Actually, they have very limited exposure for tariffs
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Speaker 5: they set on their callts. About ninety five percent of
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Speaker 5: their revenue comes from product that's sold in the United States.
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Speaker 5: Their export is relatively small, and they've had some time
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Speaker 5: to work on contingency plans, so finding different end markets
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Speaker 5: that they can send some of the parts of animals
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Speaker 5: that US consumers just don't eat. So right now, it
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Speaker 5: doesn't appear to be a very large risk for Tyson
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Speaker 5: at all.
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Speaker 2: You mentioned maybe some issue with the cow herd. I
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Speaker 2: mean I watch Yosemite. I know all about the.
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Speaker 3: Ranching business to see it.
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Speaker 2: Yeah, so I mean, can't we make more cows? What's
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Speaker 2: going on there?
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Speaker 5: We can make more cows. The problem is that for
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Speaker 5: ranchers it's a tough environment to decide to actually build
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Speaker 5: up herds. Interest rates are still relatively high, there's still
9:36
Speaker 5: high cost to expand operations. We've had drought that's only
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Speaker 5: just reversing in a lot of the key areas where
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Speaker 5: we raise cattle, and so that decision has been coming.
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Speaker 5: But the problem is that once you even start, you know,
9:51
Speaker 5: it takes eighteen months to get a cattle for birth
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Speaker 5: to market. So even if they start, we're not going
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Speaker 5: to see an influxus supply for quite some time.
9:59
Speaker 3: I feel like just a few years ago it was
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Speaker 3: all about alternative protein. I remember, particularly with Cargil for example,
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Speaker 3: they're making a really big push into that. Has that
10:07
Speaker 3: trend for these guys shifted now?
10:10
Speaker 5: It has. When we look at the consumer consumption data,
10:13
Speaker 5: the luster around plant based has really fallen off. And
10:17
Speaker 5: so you know, right now there's a core demographic that
10:21
Speaker 5: will always be interested in that product, but at the
10:26
Speaker 5: moment it's not growing. The sales are continuing to contract.
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Speaker 5: Part of that is that the cost of regular meat
10:32
Speaker 5: has come down, and we had food inflation which pushed
10:36
Speaker 5: the cost of special ingredients for alternative meat way up.
10:40
Speaker 5: So the price gap between alternative proteins and conventional proteins
10:43
Speaker 5: got a lot wider in the last couple of years,
10:45
Speaker 5: and it still hasn't completely collapsed again, and so until
10:48
Speaker 5: that gets a little bit closer, it's going to be
10:51
Speaker 5: harder to get consumers to get interested again in alternative proteins.
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Speaker 2: So what is it the Tysons of the world. What
10:57
Speaker 2: are they saying about their consumer these days?
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Speaker 5: So, you know, they talk about the demand for protein,
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Speaker 5: and this is something where at the Bloomberg Intelligence Farm
11:07
Speaker 5: Food Fuel Conference we had a whole lot of panelists
11:10
Speaker 5: on protein, and the demand for protein is really strong,
11:15
Speaker 5: whether you're talking about animal protein, whether you're talking about dairy.
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Speaker 5: Current diet trends are high protein based, and so that
11:23
Speaker 5: really bodes well for producers like Tyson as the consumer
11:29
Speaker 5: is willing to still spend on protein and it's in
11:32
Speaker 5: the majority of their purchases when they're going to the
11:34
Speaker 5: grocery store.
11:35
Speaker 2: Our thanks to Jennifer Bartash, is Bloomberg Intelligence Senior Animals
11:38
Speaker 2: covering in the retail, staples and packaged foods coman.
11:40
Speaker 3: We're going to break down why the German drug maker
11:42
Speaker 3: at BioNTech reported lower than expected quarterly sales.
11:46
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Speaker 2: depth research and data on two thousand companies in one
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Speaker 2: hundred and thirty industries. You can access Bloomberg Intelligence via
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Speaker 2: b I go on the terminal AM Paul Sweeney.
11:56
Speaker 3: An am Alex Steel, and this is Bloomberg.
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12:16
Speaker 3: We move next to the hospitality industry.
12:18
Speaker 2: Marriott followed its rivals Hilton, Hyatt and Wyndham and learning
12:22
Speaker 2: it's four year guidance setting macroeconomic uncertainty.
12:25
Speaker 3: But Marriott did cut its outlook by less and its peers,
12:27
Speaker 3: indicating that affluent travelers are less affected by economic uncertainty.
12:31
Speaker 2: For more on this, we were joined by Brian Egger,
12:33
Speaker 2: Bloomberg Intelligence Senior Gaming and lodging analysts.
12:36
Speaker 3: We first asked Brian for his key takeaways from Marion's
12:38
Speaker 3: first quarter results.
12:39
Speaker 4: Yeah.
12:40
Speaker 6: I think the big surpriser was that the rev par
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Speaker 6: guidance reduction was actually more modest than some of the
12:46
Speaker 6: other hotel companies like Hilton and Hyatt, So I think
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Speaker 6: that was a bit of a sigh of relief. They
12:52
Speaker 6: did acknowledge there's some US softness for certain customer segments,
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Speaker 6: but at the same time they're seeing kind of pretty
12:58
Speaker 6: consistent international so I think it was just the relative
13:02
Speaker 6: magnitude of the reduction that probably was viewed as being
13:05
Speaker 6: somewhat favorable.
13:07
Speaker 2: So across Marriott and Hilton and Huyatt and all those
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Speaker 2: other companies that you cover, BRIME, are they seeing it
13:13
Speaker 2: to the extent they're seeing any softening? Is it from
13:15
Speaker 2: the leisure travel the business traveler both?
13:19
Speaker 6: Yeah, good question. It's really from i'd say three primary
13:22
Speaker 6: customer categories, independent leisure travelers, extended stay kind of the
13:28
Speaker 6: lower tier, limited service customers, and then government employees, which
13:33
Speaker 6: are a customer base of some importance for Marriott, and
13:37
Speaker 6: offsetting that is somewhat greater strength in things like group bookings.
13:41
Speaker 6: So there's a bit of divergence across segments.
13:45
Speaker 3: What about geographically, what's holding up? Because one can make
13:48
Speaker 3: an argument if you're tied on budgets, you're not going
13:50
Speaker 3: to go to Europe, but maybe you'll travel within the
13:51
Speaker 3: United States.
13:53
Speaker 6: Yeah, So to the extent that Marriott did trim guidance,
13:56
Speaker 6: all of their guidance cut was related to US in particular,
14:00
Speaker 6: particularly those segments I mentioned. Internationally, they have not changed
14:04
Speaker 6: expectations at all. You know, there's been some concern about
14:08
Speaker 6: inbound travel from international markets to the US, but within
14:12
Speaker 6: those non US markets, Asia, Europe, et cetera, they have
14:15
Speaker 6: not changed or in any way trim their expectations.
14:19
Speaker 2: Just in terms of expansion plans. Are there hotel companies
14:22
Speaker 2: still planning on maybe developing new hotels or building new
14:26
Speaker 2: hotels or are they kind of put their growth plans
14:28
Speaker 2: on hold.
14:29
Speaker 4: Yeah, so the.
14:29
Speaker 6: Unit growth expectations of the rooms are unchanged. There's still
14:33
Speaker 6: as they were that they have not really observed and
14:36
Speaker 6: I'm speaking particularly about Marryout. They haven't really observed any
14:39
Speaker 6: changes in terms of construction starts. So there's really not
14:43
Speaker 6: been a material change. Obviously, in an uncertain economic environment,
14:47
Speaker 6: it's something that we're watchful of. But to the extent
14:50
Speaker 6: that we're looking at that, there's been no change in
14:52
Speaker 6: terms of their room expansion pipeline or development plan.
14:56
Speaker 3: If we wind up getting more calm and more in
15:00
Speaker 3: decision is thrown by the wayside, right, and we get
15:02
Speaker 3: clarity which hotel lodging is best set up for that right.
15:07
Speaker 6: So that's a good question. I think, to the extent
15:09
Speaker 6: that we're talking about the big wild card being independent
15:14
Speaker 6: leisure travel extends fairly broadly across the companies. You know,
15:17
Speaker 6: to the extent that we look at the degree of
15:20
Speaker 6: let's say cuts, Windom probably cut the most, and they're
15:22
Speaker 6: deeply in the extended stay segment, maybe you would see
15:25
Speaker 6: a little bit more bounce back there to the degree
15:28
Speaker 6: that they have reduced expectitions more. But you know, I
15:32
Speaker 6: think across the board they all have some degree of
15:35
Speaker 6: exposure to the segments that have been a little weaker,
15:37
Speaker 6: which is independent leisure travel, certain types of extended state
15:42
Speaker 6: customer segments, particularly for Windom and things like government employees,
15:46
Speaker 6: which I mentioned for Marriott.
15:48
Speaker 2: We've seen a lot of soft data suggesting that inbound
15:52
Speaker 2: international travel is down, and this is a short term
15:56
Speaker 2: data maybe not any long term trends. What are your
15:58
Speaker 2: companies saying about that.
16:00
Speaker 6: Yeah, that's been a concern of hours for a while
16:02
Speaker 6: that you would see a reduction, particularly from inbound travel
16:04
Speaker 6: from Canada and Europe, and I think to some extent
16:08
Speaker 6: we've seen that. Mariot did say that their Canadian bookings
16:12
Speaker 6: for US stay room nights were down about five percent
16:16
Speaker 6: year of the year. However, they did observe that that
16:19
Speaker 6: was offset by strower inbound travel from other markets. And
16:22
Speaker 6: also Hilton mentioned that Canada represented only about one and
16:27
Speaker 6: a half percent of their total company revenues in terms
16:30
Speaker 6: of Canadian customer stays at US hotels, right, so the
16:36
Speaker 6: exposure to some of those inbound markets is relatively small,
16:39
Speaker 6: but there does seem to be some put and takes
16:41
Speaker 6: where they're getting summer leaf from other markets. Even though
16:45
Speaker 6: across the board Canada inbound tourism to the US is down,
16:48
Speaker 6: it's just not a particularly material percentage of the overall
16:52
Speaker 6: customer base.
16:53
Speaker 3: So that's sort of the lodging side. What about the
16:56
Speaker 3: gaming side, What have we noticed in terms of an
16:59
Speaker 3: earnings or forecast or just any sort of read through there.
17:03
Speaker 6: You know, not really much of a change in terms
17:05
Speaker 6: of markets like Las Vegas, which is really principally a
17:10
Speaker 6: domestic audience. Really not any material change in terms of
17:13
Speaker 6: expectations there, although those companies guidance metrics are a little
17:18
Speaker 6: bit less specific. In the case of the Las Vegas companies,
17:21
Speaker 6: we were watchful of the sector because at least one company,
17:24
Speaker 6: Churchill Downs, delayed a capital spending plan at the Churchill
17:29
Speaker 6: Downs racetrack, and there were plenty on fairly large expansion
17:33
Speaker 6: project there which they've delayed amid economic and trade uncertainty.
17:36
Speaker 6: But that does not seem to have extended to other companies.
17:39
Speaker 6: So no major changes in terms of capital spending plans
17:43
Speaker 6: or bookings trends for some of the major gaming operators.
17:47
Speaker 2: So by and large, here what are the stocks telling you, Brian?
17:49
Speaker 2: Here across the lodging space, have they been selling off
17:52
Speaker 2: for underperforming the market? What are they telling us?
17:54
Speaker 6: I think there's been certainly some expectation of an economic
17:59
Speaker 6: impact from both the traded in the economic uncertainties, and
18:02
Speaker 6: we did see, you know, for some of the recent
18:05
Speaker 6: sell offs of the market, lodging companies were certainly hit.
18:09
Speaker 6: And so by the time he got to the companies
18:12
Speaker 6: like Hyatt and Hilton actually reducing guidance, you know, the
18:16
Speaker 6: reduction follow on Stockbrice behavior was not particularly pronounced because
18:20
Speaker 6: I think there's been some anticipation that we'll see a
18:23
Speaker 6: little bit of a slowdown and amid the uncertain economic environment.
18:28
Speaker 2: Our thanks to Brian Egger, Bloomberg Intelligence, Senior Gaming and
18:30
Speaker 2: Lodging analysts.
18:31
Speaker 3: We move next to the biotech space.
18:33
Speaker 2: This week, the German drugmaker BioNTech reported lower than expected
18:37
Speaker 2: quarterly sales on weaker demand for its COVID nineteen vaccine
18:40
Speaker 2: developed with Pfizer.
18:41
Speaker 3: This comes as the company's now seeking to evolve into
18:44
Speaker 3: a broader biotech company focused on cancer treatments.
18:47
Speaker 2: For more on this and the latest news in the
18:49
Speaker 2: drug space, we were joined by Sam Fazzelli, Bloomberg Intelligence,
18:52
Speaker 2: Director of Research for Global Industries and senior pharmaceuticals analysts.
18:55
Speaker 3: The first asked Sam for his take on Biontechs results.
18:58
Speaker 7: I can remember BioNTech is the originator of the Pfizer
19:01
Speaker 7: COVID shot, so they're one of the two mRNA shots
19:04
Speaker 7: out there. And what was again good to see is
19:08
Speaker 7: that despite all the uncertainties that we're hearing about with
19:10
Speaker 7: regards to attitude, CMRNA, vaccines, et cetera. Neither of the
19:14
Speaker 7: companies have reduced their guidance for the air, but the
19:17
Speaker 7: guidance have got really really wide margins in terms of
19:21
Speaker 7: where they're going. And they both need it because they're
19:24
Speaker 7: both spending a large amount of money on R and D,
19:27
Speaker 7: which is what companies should be doing to discover new drugs,
19:30
Speaker 7: and a lot of those drugs are at least in
19:32
Speaker 7: the biontic case in cancer in general. And we have
19:36
Speaker 7: some interesting mechanisms that are going to read out, so
19:39
Speaker 7: that it's going to be interesting to see how this
19:41
Speaker 7: all pans out over the next few months with regards
19:44
Speaker 7: to vaccine attitudes, et cetera. So as crossed that people
19:48
Speaker 7: would take those shots.
19:50
Speaker 2: Yeah, Historically, sam have healthcare stocks broadly defined. I'm thinking
19:54
Speaker 2: that the big cap pharma companies, So, are there are
19:57
Speaker 2: places to hide out in times of uncertainty?
20:01
Speaker 7: Yeah? Absolutely, They are probably the most defensive of the
20:04
Speaker 7: defensives along with utilities. Along with utilities, et cetera. But
20:08
Speaker 7: the problem I think Farma got right now is that,
20:10
Speaker 7: as we just saw, President Trump apparently has said that
20:13
Speaker 7: he might come back again in the next two weeks
20:15
Speaker 7: with some tariffs for pharmaceutical companies. Most of them have
20:19
Speaker 7: said that they're ready to manage it and be able
20:21
Speaker 7: to absorb it. Some have already given us some numbers
20:25
Speaker 7: as we spoke about last time and with regards to
20:27
Speaker 7: how they've been hit in the first quarter. But they
20:30
Speaker 7: you know, that is the one thing that maybe takes
20:33
Speaker 7: a little bit of the shine off from that defensive field.
20:38
Speaker 3: How do they mitigate it? Like, I mean, you make
20:40
Speaker 3: it sound like it's no big deal. They can manage it,
20:42
Speaker 3: But how does a company mitigate issues like that?
20:45
Speaker 7: Right, So a whole bunch of them, I think, have
20:47
Speaker 7: shipped a ton of drug to the US already.
20:50
Speaker 3: Just to stop piling, right, that's their solution stockpiling.
20:53
Speaker 7: They can't just switch manufacturing overnight so that that can't happen.
20:57
Speaker 7: So they're just putting a whole bunch of drug in
20:59
Speaker 7: the US and also hoping that the telefst doon't come
21:03
Speaker 7: and if they come, there the numbers that they can manage.
21:06
Speaker 7: And let's not forget these are companies that have got
21:08
Speaker 7: pretty good margins, so maybe they'll manage the margin impact
21:13
Speaker 7: within their capabilities of the guidance that they give. But frankly,
21:18
Speaker 7: I think that, as they keep saying, the better way
21:20
Speaker 7: to try and get these companies to move manufacturing too
21:23
Speaker 7: the US is to just give them some time and say, look,
21:26
Speaker 7: you've got instead of a ninety today thing, you've got
21:28
Speaker 7: a year two years to show that you genuinely are
21:30
Speaker 7: opening and moving manufacturing here. If not, then I'll hit you.
21:33
Speaker 2: All right, I'm going to preface this question with a statement. Here, Sam,
21:37
Speaker 2: I've been found in the healthcare industry for I don't
21:39
Speaker 2: know forty years. I had zero knowledge of the economics
21:43
Speaker 2: of the healthcare industry. I don't know who sets what
21:45
Speaker 2: price where, who gets paid. I have no idea. I
21:48
Speaker 2: just write a check every once in a while. If
21:50
Speaker 2: in fact they wanted to push through price increases, can
21:54
Speaker 2: they do it with all the insurance and the governments
21:56
Speaker 2: and all that kind of stuff they do?
21:58
Speaker 7: They do every year in January pretty much every farmer company,
22:03
Speaker 7: and I can't say one hundred percent of drugs take
22:05
Speaker 7: it a price rise on the list price, let's not forget,
22:08
Speaker 7: and then some of them do another one in midiear so,
22:11
Speaker 7: and but of course the majority of that price rise
22:13
Speaker 7: they give back in discounts. To the to the middlemen
22:16
Speaker 7: as they call them, so the pharmacy benefit managers and
22:19
Speaker 7: the insurers in the middle so it discounts and rebates,
22:23
Speaker 7: and so the end price that gets to the consumer
22:26
Speaker 7: is never really up by that much as much as
22:30
Speaker 7: what you can see on the list price. So that's
22:31
Speaker 7: how that works. And you know, some of the companies
22:34
Speaker 7: that are in a very competitive position, So as we've
22:37
Speaker 7: seen with these GP one drugs, some of them are
22:40
Speaker 7: beginning to discount a little bit. So Nova noticed they
22:43
Speaker 7: just announced last week they've got this done this deal
22:45
Speaker 7: with Hymns, They've done this deal with CVS, and the
22:48
Speaker 7: CVS deal is at a lower price. It's the cheapest
22:51
Speaker 7: that you can get for this listed type of dr
22:53
Speaker 7: you know, the.
22:54
Speaker 1: We go v.
22:56
Speaker 3: It also raises the question for me, like what how
22:58
Speaker 3: sticky our customers it comes to drugs, Like in general,
23:01
Speaker 3: it's like, is it the cheapest one?
23:03
Speaker 4: Is it?
23:04
Speaker 3: Once you start a regimen you don't want to ever
23:06
Speaker 3: change it?
23:07
Speaker 8: Is that?
23:07
Speaker 3: Like how high is that barrier to entry? I mean,
23:10
Speaker 3: we've seen that be a little confusing when it comes
23:12
Speaker 3: to the GLP ones.
23:14
Speaker 7: Yeah, yeah, so Alex, some of that isn't up to
23:17
Speaker 7: the consumer. So a lot of that is up to
23:19
Speaker 7: the insurance companies. So if your group insurance suddenly decides
23:25
Speaker 7: to switch provider and say, okay, from now on, we're
23:29
Speaker 7: going to push you to take we Go Vi versus
23:31
Speaker 7: Z bound, you're either going to have to go back,
23:33
Speaker 7: go out in the market and bly it out of
23:34
Speaker 7: the pocket, or you accept that switch. So that switch
23:37
Speaker 7: does happen, it is harder in diseases where you're actually
23:42
Speaker 7: maintaining a response or like in a even in those diabetes,
23:47
Speaker 7: for instance, you're under control very well, why switch, Well,
23:50
Speaker 7: the cities, I don't think it's going to work like that,
23:52
Speaker 7: and I think you can see probably more price competition,
23:56
Speaker 7: but also I think the best drug will get the
23:58
Speaker 7: you know, the one with the lowest side effects of
23:59
Speaker 7: the best sweight loss, we'll get the And as you
24:02
Speaker 7: can see that Bounds doing a lot better than we
24:04
Speaker 7: Go Vi on our prescription data that we have on
24:06
Speaker 7: the terminal.
24:07
Speaker 2: Our Thanks to Sam Fazzelli, Bloomberg Intelligence Director of Research
24:10
Speaker 2: for Global Industries and senior pharmaceuticals analyst.
24:13
Speaker 3: Coming up on the program will break down how the
24:15
Speaker 3: clean energy build out in the US is being impacted
24:17
Speaker 3: by the Trump administration.
24:19
Speaker 2: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
24:22
Speaker 2: depth research and data on two thousand companies and one
24:24
Speaker 2: hundred and thirty industries. You can access Bloomberg Intelligence via
24:27
Speaker 2: b I go on the terminal.
24:28
Speaker 3: I'm Paul Sweeney and I'm Alex Steele, and this is Bloomberg.
24:39
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
24:43
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24:46
Speaker 1: Auto with the Bloomberg Business App. Listen on demand wherever
24:49
Speaker 1: you get your podcasts, or watch us live on YouTube.
24:53
Speaker 2: This week, the automaker Ford announced it'll be suspending it's
24:56
Speaker 2: full year guidance for twenty twenty five. The company cited
24:59
Speaker 2: uncertainly surrounding President Donald Trump's auto tariffs.
25:01
Speaker 5: For more.
25:02
Speaker 3: We were joined by Steve Mann, Bloomberg Intelligence Global Autos
25:04
Speaker 3: and Industrials research analyst. We first asked you for his
25:07
Speaker 3: take on why Ford's halting its guidance.
25:09
Speaker 9: It's normal for these companies to, you know, to to
25:14
Speaker 9: kind of remove their full year guidance. There's a lot
25:17
Speaker 9: of confusion. We still really don't know what the full
25:21
Speaker 9: impact and what is the impact of these tariffs. There
25:24
Speaker 9: is still hope that you know, some of these will
25:27
Speaker 9: go away. No, President Trump did give some reprieve for
25:31
Speaker 9: the automakers, but at the end of the day, it's
25:34
Speaker 9: still a big number. We estimate it's going to be
25:38
Speaker 9: an eighty five billion dollar impact on the US auto
25:42
Speaker 9: industry alone, just you know, in the next twelve months
25:46
Speaker 9: from these tariffs. So well, we'll have to see you know,
25:50
Speaker 9: full yer guidance pulling them. It's it's it's it's it's
25:54
Speaker 9: seems like the norm.
25:55
Speaker 2: Now, what are the companies, I mean, realistically, are the
25:58
Speaker 2: companies saying, hey, we can I don't know, go to
26:03
Speaker 2: kind of change our sourcing, change our supply chain, or
26:06
Speaker 2: we're going to we're committed to trying to pass these
26:08
Speaker 2: along to customers, or we're going to take it in
26:11
Speaker 2: the margin. Any kind of guidelines here just in terms
26:13
Speaker 2: of broad strokes.
26:14
Speaker 9: Yeah, there's been a lot of question on how they're
26:17
Speaker 9: going to approach this, and there's a number of ways.
26:20
Speaker 9: You know, there's a lot of production vehicle full fieldal
26:23
Speaker 9: productions in Mexico as well as Canada. Now, a lot
26:28
Speaker 9: of these automakers do have some spare capacity that they
26:31
Speaker 9: they can shift back into the US, but it's going
26:35
Speaker 9: to cost them and some of these costs eighty five
26:38
Speaker 9: billion I just mentioned earlier really doesn't include some of
26:41
Speaker 9: these costs on shifting that production back themselves as well
26:46
Speaker 9: as supply chain. So for example, you know, if you
26:50
Speaker 9: move a plant either from Mexico to Canada back into
26:54
Speaker 9: the US, it could cost an upwards of four billion dollars,
26:57
Speaker 9: you know, if they have to build a greenfield site.
27:00
Speaker 9: So it's it's it's gonna be a lot of money,
27:03
Speaker 9: uh to to actually you know, reshift the supply chain
27:08
Speaker 9: that's been built.
27:10
Speaker 3: Which company, now that we've sort of gotten through a
27:12
Speaker 3: lot of this is best equipped to handle this uncertainty.
27:16
Speaker 9: Well, I think it's gonna be Uh, it's gonna be
27:19
Speaker 9: really tough for for automakers. I don't think they really
27:22
Speaker 9: have a good handle onto what the what the costs are,
27:26
Speaker 9: and what they need to do. You know, there's price
27:29
Speaker 9: increases that they can apply to the consumer, and I
27:32
Speaker 9: think that's a very viable option.
27:35
Speaker 5: Uh.
27:35
Speaker 9: The other one is moving capacity. Uh, then it's going
27:39
Speaker 9: to be a huge costs. We actually think among the
27:41
Speaker 9: legacy automakers, like if you look at ST. Lentist, GM,
27:45
Speaker 9: and four UH. We think Ford has the biggest will
27:49
Speaker 9: have the biggest impact from the UH tariffs because of
27:54
Speaker 9: their more global strategy around supply.
27:58
Speaker 2: Chain Steve, Are we gonna see layoffs in the auto industry?
28:01
Speaker 2: Are we can see plants cutting shifts, maybe shutting down
28:06
Speaker 2: for they can't get parts or the demand might not
28:08
Speaker 2: be there.
28:09
Speaker 9: Yeah, it's very possible. I think initially we'll see that
28:14
Speaker 9: type of reaction in the market because if prices do
28:17
Speaker 9: go up, you know, sales will actually dwindow or decrease,
28:24
Speaker 9: and we've already seen that earlier in the year before tariffs.
28:29
Speaker 9: This is gonna you know, exacerbate the slowdown in the
28:34
Speaker 9: in the auto industry. So we probably will see some
28:37
Speaker 9: layoffs and production pep back. We're hearing from the auto suppliers,
28:41
Speaker 9: a lot of them, most of them saying that, you know,
28:44
Speaker 9: they expect auto production to come off from their already
28:49
Speaker 9: reduced forecast for this year.
28:52
Speaker 3: When we take a look broadly at autocard sales demand
28:56
Speaker 3: here in the US, how is that holding up, especially
28:58
Speaker 3: as we can consider are the rising price of potential
29:01
Speaker 3: cars and being imported like a rush to buy now
29:04
Speaker 3: that kind of thing.
29:05
Speaker 9: Yeah, I think we have seen some rush to buy
29:08
Speaker 9: now UH before April. First quarter sales is actually pretty good,
29:14
Speaker 9: but a lot of that is pull for demand, you know, prices.
29:19
Speaker 9: You know, we we actually do see inventory coming down,
29:22
Speaker 9: supply being cut UH and UH prices will will come
29:27
Speaker 9: up as a result the result of the tariff costs.
29:31
Speaker 9: You know, there's there's news out there that some of
29:34
Speaker 9: the automakers that import cars in the US are actually
29:38
Speaker 9: not releasing those vehicles into the dealer lots. For example,
29:42
Speaker 9: we're seeing increase you know, vehicle inventory at the Baltimore
29:46
Speaker 9: Ports from Volkswagen and and Aldi. We'll probably see the
29:49
Speaker 9: same thing for some of the Japanese and Korean automakers
29:55
Speaker 9: UH inventory at the ports UH out on the West Coast.
29:59
Speaker 2: Thanks to the man Bloomberg Intelligence Global Autos and Industrials
30:02
Speaker 2: research channels.
30:03
Speaker 3: Each week we take a look at research from Bloomberg
30:05
Speaker 3: NF previously known as New Energy Finance.
30:08
Speaker 2: Through the team of Bloomberg that tracks and analyzes the
30:11
Speaker 2: energy transition from commodities to power, transport, industries, buildings, and
30:15
Speaker 2: agricultural sectors. This week we looked at the clean energy
30:18
Speaker 2: build out in the US.
30:19
Speaker 3: Research from Bloomberg NEEF says the clean energy will continue
30:22
Speaker 3: to grow, and that's despite ongoing tear off threats, President
30:25
Speaker 3: Trump's hostility toward clean energy and risks of possible cuts
30:28
Speaker 3: in tax credits.
30:29
Speaker 2: For more on this, we were joined by Paul Lescano,
30:31
Speaker 2: Bloomberg BNF Senior Associate. Were first to ask Paul about
30:35
Speaker 2: how the Trump administration is currently impacting clean energy.
30:38
Speaker 8: We have to look at every industry separately and in conjunction.
30:42
Speaker 8: We have to align to understand what are the common
30:44
Speaker 8: threats and then what are the individual characteristics of each
30:48
Speaker 8: of those industries. So so far we've seen obviously, offshore
30:54
Speaker 8: wind has been badly hit, mostly because offshore wind is
30:58
Speaker 8: heavily heavily reliant on federal agencies and federal authority, whereas
31:04
Speaker 8: solar has been pretty much unstoppable. There's very little thing
31:08
Speaker 8: that Trump and the administration can do to really slow
31:11
Speaker 8: down growth. And then battery storage with this nation technology
31:15
Speaker 8: that's coming to support both solar and wind generation has
31:20
Speaker 8: also been i would say somewhere in the middle, not
31:23
Speaker 8: as badly head as offshore wind, but tariffs have had
31:27
Speaker 8: much a much bigger impact because the US still imports
31:31
Speaker 8: a lot of the batteries from China because the battery
31:34
Speaker 8: supply chain is not as diversified as a solar or
31:37
Speaker 8: the wind supply chain.
31:39
Speaker 3: So you guys have a no doubt that talks about
31:40
Speaker 3: how US clean power build will caudruple by twenty thirty
31:44
Speaker 3: five despite all of these risks. That's a big number.
31:48
Speaker 3: So you mentioned that solar is unstoppable, battery and energy
31:52
Speaker 3: storage potentially, also, can you walk us through your outlook
31:55
Speaker 3: for solar in particular.
31:56
Speaker 8: Yeah, the reality is the US and pretty much everywhere
32:00
Speaker 8: in the world.
32:01
Speaker 9: Will need power.
32:03
Speaker 8: What's the fastest, cheapest new source of power generation. It's
32:07
Speaker 8: older like, hands down, it's easier, quicker to build. If
32:11
Speaker 8: you can get the permits and the great connection on time,
32:14
Speaker 8: which are really the only bottlenecks to get to getting
32:17
Speaker 8: new solar built, then it's very very hard to stop.
32:20
Speaker 8: And we've seen that all over the world, especially now
32:23
Speaker 8: the US gas nuclear there's a you know, there's talks
32:28
Speaker 8: about a renaissance for both of these technologies, but the
32:32
Speaker 8: reality is is that physical there's physical limitations to building
32:35
Speaker 8: gas into building nuclear that probably most of the audience
32:39
Speaker 8: is very familiar with.
32:41
Speaker 9: With soul.
32:41
Speaker 8: You don't need pipelines. You don't need to build new pipelines,
32:44
Speaker 8: you don't need to improve new pipelines. You just grap panels,
32:47
Speaker 8: You install them, you connect them to the grid, and
32:49
Speaker 8: that's it. And then you have new source and new
32:51
Speaker 8: source of generation. And the reality is that despite the
32:55
Speaker 8: efforts from the from the administration to revitalize false fossil
32:58
Speaker 8: fuels and nuclear, the easiest thing to build to solar,
33:02
Speaker 8: and it's going to continue to be to be like
33:05
Speaker 8: that for a long time.
33:06
Speaker 2: Well, talk to us about the towers here, Like, if
33:08
Speaker 2: there's one hundred and forty percent tariff on a battery
33:11
Speaker 2: coming in from China, doesn't that make a lot of
33:13
Speaker 2: projects just unfeasible economically.
33:15
Speaker 8: Yeah, that's a great question. And there's certainly some battery projects,
33:19
Speaker 8: big battery projects in parts of the US there are
33:23
Speaker 8: going to be delayed. There's going to be probably delayed
33:25
Speaker 8: by twelve to eighteen months as everyone figures out what
33:28
Speaker 8: the final tariff on China will be. But the reality is,
33:31
Speaker 8: if we look at what happened to the solar sector
33:34
Speaker 8: and the global solar supply chain back in the day
33:36
Speaker 8: when Obama started introducing high tariffs on solar panels, supply
33:40
Speaker 8: chains re route very very quickly. So we do expect
33:43
Speaker 8: eventually with the next couple of years, if tariffs in
33:47
Speaker 8: China continue to be pretty high and the risk of
33:49
Speaker 8: using Chinese batteries remains pretty high, irrespective of what the
33:52
Speaker 8: tariff level is, we do expect some new capacity coming
33:55
Speaker 8: online in South Korea and Southeast Asia as well as
33:59
Speaker 8: in in the US.
34:01
Speaker 3: What about battery storage and energy storage.
34:05
Speaker 8: So, battery storage is as I said, it's it's what
34:09
Speaker 8: it's more mower hit for by tariffs and solar because
34:12
Speaker 8: of its reliance on China. So we had to we
34:15
Speaker 8: had to re assuming a slowdown in new additions because
34:18
Speaker 8: right now the ramp up has been pretty quickly. But
34:21
Speaker 8: the role of battery storage for power markets has been
34:25
Speaker 8: very very critical over the past couple of years. It
34:27
Speaker 8: has probably arguably saved Texas from blackouts in the past
34:32
Speaker 8: twelve eighteen months because the ability of batteries to ramp
34:36
Speaker 8: up quickly and meat peak demand. It's it's it's really
34:40
Speaker 8: it's fascinating and and it's really quick to dispatch, and
34:45
Speaker 8: and we think it's going to play a bigger, bigger
34:47
Speaker 8: role in markets outside of Texas too in the US?
34:50
Speaker 2: How hard How hard is it to get connected to
34:52
Speaker 2: the grid? If I build a wind farm in the
34:54
Speaker 2: middle of West Texas like I saw on land Man,
34:57
Speaker 2: they're off the grid. How do you get stuff to
34:59
Speaker 2: the grid.
35:00
Speaker 8: It's very very difficult. Some of the difficulties are obvious
35:04
Speaker 8: when there's a very very long distance between where you're
35:07
Speaker 8: building the farm and where you want to deliver the power.
35:09
Speaker 8: So you need to get transmission built, which means you
35:12
Speaker 8: need to get everyone along the way who owns the
35:14
Speaker 8: land where that transmission where those transmission lines are going
35:17
Speaker 8: to be, to approve to allow you to build it, which,
35:21
Speaker 8: as I'm sure you can imagine, is a very very
35:23
Speaker 8: tedious process. You need different regulatory approvals, and then to
35:27
Speaker 8: get connected to the grid, you have to undergo years
35:32
Speaker 8: and years of different system studies where they have to
35:35
Speaker 8: assess what's going to happen if your wind farm now
35:38
Speaker 8: connects to the grid, what's going to happen to all
35:40
Speaker 8: the power flows going in all directions. Imagine just doing
35:43
Speaker 8: that study for one farm, and they do this for
35:47
Speaker 8: pretty much everyone who's applying for the grid at the
35:49
Speaker 8: same time or the same grid connection point. So the
35:52
Speaker 8: engineering is really really complicated, and it's been by far
35:56
Speaker 8: the biggest bottle knight of getting any new source of
35:58
Speaker 8: power generation.
36:00
Speaker 3: And yeah, is it easier to do that or build
36:02
Speaker 3: a pipeline?
36:02
Speaker 8: Easier to do that than build a pipeline, I would say,
36:04
Speaker 8: except if you're in Texas or Louisiana.
36:08
Speaker 3: All right, Thanks to Paul Ascano, Bloomberg Leanni app Senior Associate.
36:12
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