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Bank of America's Investor Day, McDonald's Earnings Report, ISM Services Data · Bloomberg Intelligence

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  Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the
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  Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am
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  Speaker 1: Business App. Listen on demand wherever you get your podcasts,
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  Speaker 1: or watch us live on YouTube.
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  Speaker 2: It is Bank of America's Investor Day, and this is
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  Speaker 2: the first investor Day the bank has held in about
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  Speaker 2: fifteen years, and it comes as the stock of Bank
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  Speaker 2: of America has trailed its big bank peers, not just
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  Speaker 2: this year, but as Catherine Doherty of Bloomberg News points out,
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  Speaker 2: last year and for the past five years as well.
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  Speaker 2: Catherine joins us now from Boston, right outside the Bank
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  Speaker 2: of America investors aid taking place. Bank of America has
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  Speaker 2: come out with some new targets that it's talking up,
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  Speaker 2: talking about at least twelve percent earnings per share growth
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  Speaker 2: annually over the next several years. What is the unifying
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  Speaker 2: narrative that the bank is offering up right now to
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  Speaker 2: explain these new targets.
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  Speaker 3: So we have a new narrative today and it expands
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  Speaker 3: from the old narrative of responsible growth. That is a
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  Speaker 3: phrase that CEO Brian moynihan has used talking about building
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  Speaker 3: the bank coming out of the financial crisis. He's talked
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  Speaker 3: about using responsible choices and being explicit about the risks
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  Speaker 3: that the bank is taking on in order to grow revenue. Well,
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  Speaker 3: today we heard a new phrase. He's been repeating this
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  Speaker 3: phrase where he says that the growth is one that
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  Speaker 3: they want to stick to the ribs. I know it
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  Speaker 3: sounds like a funny phrase, or at least it's one
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  Speaker 3: that has stood out to me, and it also makes
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  Speaker 3: me think of, I don't know, barbecue or some sort
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  Speaker 3: of food. But he's repeated it time and time again
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  Speaker 3: this morning and on media. Now he's saying, we want
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  Speaker 3: to have growth that sticks to the ribs. So put
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  Speaker 3: it on a T shirt. This is the new phrase
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  Speaker 3: of Bank of America.
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  Speaker 4: So, Catherine, is there a sense here that Bank of
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  Speaker 4: America is comfortable with the assets they own? Do they
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  Speaker 4: feel like they need to acquire something or maybe divest something?
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  Speaker 4: What are they saying about kind of the way they're
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  Speaker 4: constructed right now?
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  Speaker 3: So there hasn't been a lot of talk about acquisitions
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  Speaker 3: or add ons. It has been a large emphasis on
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  Speaker 3: existing either infrastructure, technology and the deposit growth that they
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  Speaker 3: say they expect in the future, but also they're giving
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  Speaker 3: a lot of detailed information about where they've come from
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  Speaker 3: really since twenty nineteen. Some of the stats even go
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  Speaker 3: back to twenty ten. So it's not just the emphasis
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  Speaker 3: on where they hope to go in the next three
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  Speaker 3: to five years, but an emphasis on where they've come from.
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  Speaker 5: In terms of what it's doing well.
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  Speaker 2: We know that the markets unit has posted fourteen straight
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  Speaker 2: quarters of year over year growth, and of course most
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  Speaker 2: of the big banks had incredible performances for their markets
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  Speaker 2: businesses in the last quarter. What do we hear about
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  Speaker 2: how they're going to double down on the things that
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  Speaker 2: are working.
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  Speaker 3: So another business line just sat through the presentation this
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  Speaker 3: morning is consumer viave is the second largest bank given
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  Speaker 3: its deposit franchise, and Holly O'Neill, the head of Consumer
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  Speaker 3: and Retail, talked about how they are seeing really ninety
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  Speaker 3: percent plus of their customers have a core checking or
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  Speaker 3: savings account, and they are pointing to that as a
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  Speaker 3: particular strength because once you have the core checking or
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  Speaker 3: saving you can then add on and introduce customers to
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  Speaker 3: other parts of the business. Maybe they can even grow
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  Speaker 3: to be a banking partner if they are a CEO
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  Speaker 3: or owner of a company. So that is one particular
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  Speaker 3: emphasis that the bank executives have made today. The other
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  Speaker 3: wealth management. They're really emphasizing just the brand recognition that
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  Speaker 3: comes with if you are an advisor out and looking
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  Speaker 3: to take on new clients and bring in more assets
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  Speaker 3: to the bank. Having DFA's larger franchise is something that
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  Speaker 3: they're speaking to as a core strength. So these are
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  Speaker 3: just some of the beyond the numbers, the details that
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  Speaker 3: they're going through this morning in Boston.
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  Speaker 5: Stay with us. More from Bloomberg Intelligence coming up after this.
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  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
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  Speaker 1: you get your podcasts, or watch us live on YouTube.
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  Speaker 2: The earnings continues, Paul, and of course we're talking about
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  Speaker 2: blue chip companies, McDonald's being the latest one.
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  Speaker 4: Yep, absolutely McDonald's, which by the way, it's number two
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  Speaker 4: with a coke that's been my order since Immon fourteen.
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  Speaker 4: Nothing's changed, and I think pretty good numbers coming out.
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  Speaker 4: The stocks up a couple of percent here today. So
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  Speaker 4: Red Brown joins US earnings reporter for Bloomberg News. This
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  Speaker 4: is a busy time for the folks in our stock
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  Speaker 4: desk because earnings are coming out fest and furious, and
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  Speaker 4: they stay on top of it.
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  Speaker 5: Red would you make of the McDonald's results.
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  Speaker 6: I think, in the context of the other results that
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  Speaker 6: we've gotten in the last week or so from a
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  Speaker 6: couple of other restaurants, I think it's really interesting. During
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  Speaker 6: the call, the McDonald's CEO CFO really talked about this
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  Speaker 6: bifurcation that they've been observing for the last two years
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  Speaker 6: between higher income diners and lower income people, and it
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  Speaker 6: seems like that trend is continuing, persisting, potentially accelerating. It
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  Speaker 6: seems like, and specifically what I'm talking about is the
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  Speaker 6: higher income consumers seem to be coming down into McDonald's
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  Speaker 6: and shopping a bit more drawn in by the value
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  Speaker 6: that McDonald's has been pushing over the last couple of quarters.
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  Speaker 6: And we're seeing that across all of the fast food
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  Speaker 6: chains that's young as well, and also burger king things
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  Speaker 6: like that. And then on the other side of that,
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  Speaker 6: companies like Chipotle and Cava, these kind of like middle
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  Speaker 6: tier that you know twenty dollars bowls of food are
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  Speaker 6: struggling a little bit more is like people lose interest
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  Speaker 6: in that value proposition that they're offering. So I think McDonald's,
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  Speaker 6: obviously the biggest name in the space, really kind of
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  Speaker 6: hammers that point home for this earning season. And I
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  Speaker 6: think that's kind of the thing like the main takeaway
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  Speaker 6: for me at the moment.
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  Speaker 2: And of course McDonald's is leaning into this idea that
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  Speaker 2: it offers value at a difficult time for a lot
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  Speaker 2: of consumers. It's got a lot of deals and promotions
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  Speaker 2: to maintain that reputation. Does that cost it in any
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  Speaker 2: way or do the same source of sales kind of
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  Speaker 2: back that up that this works.
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  Speaker 6: I think it's a little early before they've seen that
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  Speaker 6: benefit from it quite yet, Like they have seen a
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  Speaker 6: little bit of pressure on the profitability because the company
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  Speaker 6: is so committed to this, like getting restoring the value
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  Speaker 6: reputations kind of the language that they use with their
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  Speaker 6: customers that they're actually supporting the franchisees, they're giving them marketing,
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  Speaker 6: they're helping them make up some of that losses that
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  Speaker 6: they will make they will have from offering these discounts
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  Speaker 6: on the menu. So McDonald's committed to this. It sounds
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  Speaker 6: like they're committed to this in the long term because
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  Speaker 6: they do want to get people back in the stores.
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  Speaker 6: It doesn't it's kind of remains to be seen whether
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  Speaker 6: or not the foot traffic is actually benefiting such that
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  Speaker 6: it is driving the bottom line as well.
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  Speaker 5: But they see it is so.
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  Speaker 6: Important to kind of refreshing or kind of reintroducing the
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  Speaker 6: brand proposition to people that they're willing to commit to
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  Speaker 6: this take a little bit of that short term pain
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  Speaker 6: for the long term benefits.
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  Speaker 4: What are they saying about their cost structure here actually
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  Speaker 4: beef prices much higher over the last year or two.
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  Speaker 4: What are they saying about there's some of their cost
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  Speaker 4: of gets sold here.
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  Speaker 6: Well, so the one thing they call it the cost
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  Speaker 6: of good sold before we get into the beef issue
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  Speaker 6: is the marketing. So they are kind of bumping up
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  Speaker 6: the marketing. They saw around a twenty percent jump in
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  Speaker 6: there their SGNA et sense because of that. But on
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  Speaker 6: the beef thing, McDonald's is the largest buyer of beef,
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  Speaker 6: so that scale kind of allows them to take it.
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  Speaker 6: They can take advantage of the scale and you know,
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  Speaker 6: and negotiate strong contracts when it comes to be. Obviously,
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  Speaker 6: beef inflation has been hitting all of these companies, but
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  Speaker 6: not in a way that the companies are like outsized
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  Speaker 6: negatively impact thus far, but definitely something to watch as
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  Speaker 6: the beef prices continue to go higher.
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  Speaker 2: And the improvement here, especially for its US comparable sales.
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  Speaker 2: Really it comes at a timely point because for a
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  Speaker 2: while the company had been laggered when it came to
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  Speaker 2: comparable sales at least domestically.
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  Speaker 6: Yeah, definitely, and it does speak to the kind of
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  Speaker 6: strategic changes that they've they've made, like they did act
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  Speaker 6: maybe a little bit late in the game. Burger King
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  Speaker 6: has been rolling out their value offerings for a little
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  Speaker 6: over a year, but McDonald's has like acted and acted swiftly,
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  Speaker 6: like you know, it's a big deal, I think, to
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  Speaker 6: get the buy in from the franchise ease of McDonald's,
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  Speaker 6: like they had almost a consensus. It's very rare that
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  Speaker 6: you see almost like a high ninety percentage of franchisees
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  Speaker 6: willing to take the prices because they're the ones that
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  Speaker 6: are dealing with this at the end of the day.
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  Speaker 6: But I think, you know, McDonald's acting fast, acting boldly
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  Speaker 6: to kind of get back into the green.
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  Speaker 4: I've noticed really really in the last several years, so
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  Speaker 4: much more technology in the stores, Like you can a
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  Speaker 4: lot of them don't even have people practically and your
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  Speaker 4: order it's all done electronically. What are they saying about
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  Speaker 4: their investments in technology maybe even AI?
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  Speaker 5: How's that impacting that business? Yeah? For McDonald's, like they
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  Speaker 5: it was.
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  Speaker 6: There's quite a bit of talk about their their digital
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  Speaker 6: offerings for this quarter. All of these companies, so between McDonald's,
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  Speaker 6: Young which has a KFC, Taco Bell, and a couple
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  Speaker 6: other brands under that umbrella, are all really pushing the
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  Speaker 6: digital for the exact reason to get the costs down.
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  Speaker 6: You know, McDonald's just rolled out their Monopoly program. And
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  Speaker 6: when I was a kid, Monopoly was the peel off
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  Speaker 6: on the cops.
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  Speaker 7: It was very exciting.
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  Speaker 6: Now it's completely digital, right, So, like that's another way
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  Speaker 6: of their driving trying to drive people into the app,
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  Speaker 6: to get people to shop through there. This is where
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  Speaker 6: a lot of promotions are that'll help also drive foot traffic.
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  Speaker 5: So it's it's it's two.
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  Speaker 6: It's helping in two ways. It's helping people get.
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  Speaker 5: In shop more and also helping in the past from
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  Speaker 5: stay with us. More from Bloomberg Intelligence coming up after this.
• 9:56
  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us Live
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  Speaker 5: Guy some services Index a minute seventy. The consensus was sixty.
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  Speaker 5: Seems pretty good to me.
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  Speaker 4: Checking with Steve Miller, he's a chairman of IS and
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  Speaker 4: joining us via zoom from Aledo, Texas.
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  Speaker 5: Think oil Patch and that's where Alaedo is.
• 10:23
  Speaker 4: Think Landman, which, by the way, second season starts in
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  Speaker 4: like a weeks list. I know you're all over that
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  Speaker 4: huge see talk to us about this ism data here
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  Speaker 4: what stands out to you?
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  Speaker 7: Well, one of the things that was great news is
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  Speaker 7: we saw new orders come back and we saw business
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  Speaker 7: activity increase. So I'm a little bit of a surprise
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  Speaker 7: to me given the government shutdown. We saw public administration
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  Speaker 7: go into contraction from expansion month over month, but the
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  Speaker 7: rest of the economy seemed to hold up. Real estate
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  Speaker 7: rent on leasing and retail trade returned from contraction to expansion.
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  Speaker 7: So those were some of the leaders.
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  Speaker 2: At the same time, though it seems like inflationary pressures
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  Speaker 2: remain because you look at prices paid and prior month
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  Speaker 2: in September was at sixty nine point four and economists
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  Speaker 2: had anticipated it to decline to sixty eight, but instead
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  Speaker 2: we got an increase to seventy.
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  Speaker 5: Talk a little bit about that.
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  Speaker 7: Sure the index this first time. It's been in seventy
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  Speaker 7: at seventy since October of twenty twenty two. So we're
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  Speaker 7: definitely seeing in the commentary as well, tariff impacts starting
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  Speaker 7: to flow through for some commodities. We see chemicals, electronic components,
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  Speaker 7: some other things are showing in increases to prices paid.
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  Speaker 7: I think the positive side on the inflationary inflationary aspect
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  Speaker 7: is employment is still a little bit weak, and we're
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  Speaker 7: seeing that the supplier and supply chain performance is still strong.
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  Speaker 7: So in that environment where it looks like there's available
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  Speaker 7: capacity in all of the industry except for except for utilities,
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  Speaker 7: I believe that's a very positive sign for competition in
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  Speaker 7: the market and keeping inflationary pressures from hitting the consumer.
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  Speaker 4: Steve, thanks so much for joining us. Really appreciate getting
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  Speaker 4: a couple of minutes of your time. Steve Miller, he's
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  Speaker 4: the share of im services PMI.
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  Speaker 5: We get some data here looked pretty good to me.
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  Speaker 4: And one of the things that jumped out of me
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  Speaker 4: scar this is the new orders fifty six point two.
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  Speaker 4: The consensus was fifty one. Last period is fifty point four,
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  Speaker 4: So nice jumping in new orders there.
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  Speaker 2: And of course the services part of the economy is
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  Speaker 2: much bigger than the manufacturing side of the economy, and
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  Speaker 2: earlier this week we heard from ISM that manufacturing remains
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  Speaker 2: in this slump. I believe in eighth month of shrinkage manufacturing.
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• 13:06
  Speaker 4: Yeahm