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Warner Bros. Sales Fall on Loss of NBA, Weak Film Slate · 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 2: We are an earning season, and right now the big
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  Speaker 2: media companies are taking their turn publishing their latest results.
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  Speaker 2: Warner Brothers coming out with numbers. The sales declined after
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  Speaker 2: it lost the NBA rights, but I don't know that
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  Speaker 2: it matters that much given that this is a company
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  Speaker 2: being absorbed by Paramount eventually potentially, Yes, right now that's
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  Speaker 2: kind of on hold, but the thinking is that it
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  Speaker 2: will be. Fox also came out with the results. The
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  Speaker 2: World Cup was.
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  Speaker 3: Certainly a good thing for that company. Let's begin.
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  Speaker 2: Getha rang and Athen she is our analyst on US Media,
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  Speaker 2: joining us from Princeton, KEITHA. Of the results that came out,
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  Speaker 2: what gets your attention?
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  Speaker 4: Yeah, I mean you pointed out Warner Brothers Discovery. Yes,
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  Speaker 4: you know, the earnings, as you said, Scarlett, and rightly
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  Speaker 4: so is definitely the sides the side show for the moment.
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  Speaker 4: But I think you know things could change very quickly,
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  Speaker 4: and you know, it could be the main piece here
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  Speaker 4: because we're really looking at a company, and I think
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  Speaker 4: everybody now is kind of thinking of what happens if
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  Speaker 4: the Paramount sky Dance deal falls through. And you know,
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  Speaker 4: we know that the merger agreement terminates on June fourth
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  Speaker 4: of twenty twenty seven, and if Paramount sky Dance can't
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  Speaker 4: get its act together and can't like settle out of court,
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  Speaker 4: there's a very high probability that they actually lose this
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  Speaker 4: trial and then they are in really bad shape. But
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  Speaker 4: Warner Brothers Discovery actually is doing a lot to improve
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  Speaker 4: its fundamentals. We saw some pretty decent results at least
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  Speaker 4: on the streaming side of the business as well as
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  Speaker 4: you know, on the TV network side. Yes, the loss
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  Speaker 4: of the NBA definitely hurt them, but it also helped
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  Speaker 4: them on the expense side, because you know, the EBITDA
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  Speaker 4: declines that we saw, we were seeing something like, you know,
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  Speaker 4: twenty five thirty percent ebidetic clients last year. Those really
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  Speaker 4: moderated now to around four to five percent. So there
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  Speaker 4: was some good news there as well. And then as
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  Speaker 4: you pointed out, for Fox, of course, huge quarter there
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  Speaker 4: with advertising. But again, the bigger story for Fox is
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  Speaker 4: also it's pending deal for Roku, so a lot of
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  Speaker 4: MNA stuff kind of overshadowing the fundamentals here.
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  Speaker 5: And I saw that Fox so they're not going to
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  Speaker 5: reopen the NFL negotiations until, you know, towards the end
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  Speaker 5: of the twenty twenty nine season. And I know there
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  Speaker 5: was some pressure maybe to do something sooner because the
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  Speaker 5: NFL knows that they can get a big increase in rights.
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  Speaker 5: What's what's the status there?
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  Speaker 4: Yeah, So you know, this was always a huge, huge
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  Speaker 4: downside risk for Fox. Pauls. I think, you know, just
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  Speaker 4: by them kind of you know, kicking the can down
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  Speaker 4: the road. This it's a huge sigh of relief, I
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  Speaker 4: think for investors because Fox was very, very heavily exposed
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  Speaker 4: to the NFL. You know, we ran some numbers and
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  Speaker 4: we thought that if the NFL actually did manage to
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  Speaker 4: secure a big rights increase, that would pressure Fox ebit
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  Speaker 4: about thirty to forty percent almost just because of the exposure.
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  Speaker 3: So this definitely, yeah, really.
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  Speaker 4: Helps kind of the investment case and gives them a
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  Speaker 4: lot of breathing time, if you will, to figure out
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  Speaker 4: everything with Roku.
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  Speaker 2: You know, we talk a lot with Randall Williams, he's
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  Speaker 2: our Business of Sports reporter, about the possibility of a
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  Speaker 2: strike for the MLB season at some point because of
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  Speaker 2: the discussion on some kind of salary cap if that happens, Gita,
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  Speaker 2: who's most exposed, Who among the big media companies will
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  Speaker 2: be most exposed? And is it as bad as we
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  Speaker 2: think it is, because, I mean, the MLB is not
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  Speaker 2: the NFL. There are so many games that the MLB
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  Speaker 2: plays as opposed to you know, trust the limited number
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  Speaker 2: of games for the NFL.
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  Speaker 4: Yeah, there's definitely you know, some overhang, Scarlett, but as
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  Speaker 4: you pointed out, not a whole lot of exposure from
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  Speaker 4: the national side, on the national TV right side. Remember,
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  Speaker 4: the MLB has a lot more local TV rights exposure.
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  Speaker 4: You know, it used to be the case with the
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  Speaker 4: r A sense of course that that business has been
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  Speaker 4: in secular decline. But yeah, some exposure definitely for for
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  Speaker 4: Warner Brothers, Discovery, with the Turner Networks, for Fox. But
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  Speaker 4: I think all of it can be mitigated with you know,
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  Speaker 4: the presence of other sports programming.
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  Speaker 5: Did Warner Brothers with this earnings at least did they
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  Speaker 5: comment on the pending deal with Paramount. Did they give
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  Speaker 5: you any color as to how this might play out.
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  Speaker 4: I mean, it was all just really boilerplate commentary. They said,
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  Speaker 4: you know that they are hopeful that the deal closes,
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  Speaker 4: but you know, I think at the same time, they
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  Speaker 4: do very much realize that, you know, things could go south,
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  Speaker 4: and I think David Zaslav is definitely prepared for that contingency. Remember, Paul,
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  Speaker 4: if if the deal doesn't go through next June, they
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  Speaker 4: do collect a nice, big fat check for seven billion
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  Speaker 4: dollars apart from, of course, the six hundred and fifty
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  Speaker 4: million dollar ticking fee that goes into effect on October first.
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  Speaker 2: Right, and that would be Paramount guidance paying for it
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  Speaker 2: in you know, a lot of that backed by Larry Ellison.
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  Speaker 3: When it comes down to it.
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  Speaker 2: We did hear though, that the you K regulators have
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  Speaker 2: approved the Paramount Warner Brothers deal. Does that move the
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  Speaker 2: needle at all, Gita or is it just.
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  Speaker 3: A duck in a box?
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  Speaker 4: Not at all, Scarlett. Really, the biggest thing right now
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  Speaker 4: for the Warner Brothers and the Paramount deal are the
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  Speaker 4: you know, the the twelve state ages who have filed
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  Speaker 4: a motion to basically block this merger, and it looks
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  Speaker 4: like the judge everything seems to be kind of favoring
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  Speaker 4: the courts right now. So so Paramount, is it really
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  Speaker 4: in a difficult situation at this point, Ken the I've been.
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  Speaker 5: Trying to read up on this, But is there any
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  Speaker 5: type of out of court settlement that Paramount could get
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  Speaker 5: that would be still preserve the merits of the deal
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  Speaker 5: while you know, satisfying these states.
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  Speaker 3: Yeah, it's it's really a double ed sword.
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  Speaker 4: So you know, if we listen to Rob Bonta, who is,
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  Speaker 4: you know, the age in California, he really seems to
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  Speaker 4: not be favoring a settlement. Structural remedies are always possible, Paul,
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  Speaker 4: But then, as you pointed out, does that then get
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  Speaker 4: Paramount the six billion dollars in synergies that they've promised.
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  Speaker 4: It's really going to be a very very tough road.
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  Speaker 4: The obviously, Paramount doesn't want to give up any of
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  Speaker 4: its assets. They want to get away with as few
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  Speaker 4: structural remedies as possible, but they might have to, you know,
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  Speaker 4: actually end up selling a big portion of the TV
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  Speaker 4: network's business or maybe even some of the studio assets.
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  Speaker 2: So GITA operationally, then Warner Brothers Discovery, paramount S Guidance
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  Speaker 2: have to continue to move forward as independent companies, right,
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  Speaker 2: Like they can't really can they do a lot in
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  Speaker 2: terms of you know, looking at operations and seeing where
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  Speaker 2: their synergies or they just have to continue as is.
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  Speaker 4: Yeah, so they are continuing as is, and actually ironically
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  Speaker 4: they both are doing kind of okay, just kind of
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  Speaker 4: given the situation. So Paramount, what we saw in their
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  Speaker 4: results was they actually posted pretty strong profits and a
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  Speaker 4: lot of that was driven by the synergies with the
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  Speaker 4: sky Dance transactions. So what we saw and what really
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  Speaker 4: I think surprised even the street, was that if you
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  Speaker 4: looked at the TV network business, we've seen margins of
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  Speaker 4: about twenty five percent just with all of those synergies
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  Speaker 4: in the business, you know, they kind of took that
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  Speaker 4: up to almost thirty five percent. So there's obviously a
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  Speaker 4: lot of cost savings to be extracted, which is really
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  Speaker 4: what the street is banking on with the whole Warner
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  Speaker 4: Brothers Discovery transactions, since they've outlined about six billion dollars
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  Speaker 4: in cost savings on the Warner Brothers side as well.
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  Speaker 4: We saw again, you know, they're managing their decline in
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  Speaker 4: the TV networks business pretty well. Streaming has been an
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  Speaker 4: absolute standout scarlet. They've really really made fantastic progress when
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  Speaker 4: it comes to profitability. You know, they posted margins of
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  Speaker 4: about seventeen percent, and remember their long term target is
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  Speaker 4: twenty percent, so they're really in pretty good shape. The
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  Speaker 4: studio is a little bit of an up and down,
• 7:39
  Speaker 4: but we do have a pretty exciting line up. I mean,
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  Speaker 4: we have Done coming a little bit later this year,
• 7:43
  Speaker 4: and then of course the Digger with Tom Cruise, which
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  Speaker 4: is you know, expected to do really well, so that'd
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  Speaker 4: be interesting.
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  Speaker 3: 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: weekdays at ten am Eastern on Apple, Cocklay and Android
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• 8:10
  Speaker 5: Let's get back to the tech space, because why not.
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  Speaker 5: You can't stay away from tech very long because that's
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  Speaker 5: what's driving the bus here. I noticed at Google, which
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  Speaker 5: some people call Alphabet, they've had some changes in some
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  Speaker 5: of their AI management ranks. I was told by a
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  Speaker 5: guest from Franklin Templeton, who does a lot of this
• 8:29
  Speaker 5: tech investing. Don't worry. It's okay. He's not going to
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  Speaker 5: be wandering far. But I want to talk to man
• 8:34
  Speaker 5: Deep Sing because he knows all the tech stuff. Yes,
• 8:36
  Speaker 5: he does work intelligence. Man Deep, we had some looks
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  Speaker 5: like some management changes at the all important AI business
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  Speaker 5: within Alphabet. Tell us what's going on there and whether
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  Speaker 5: investors should be concerned.
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  Speaker 6: Yeah, these are a couple of high profile departures after
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  Speaker 6: you know, recently, I believe four weeks back, there were
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  Speaker 6: a couple of other names that had departed. One went
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  Speaker 6: to open Ai. So the fact that Google is losing talent,
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  Speaker 6: I mean, these are people who have been there for
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  Speaker 6: very long. It's definitely not a good sign if you
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  Speaker 6: ask me. And plus their model release has been delayed.
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  Speaker 6: So the Gemini three point five version model pro one
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  Speaker 6: has been delayed, and from what we have gathered, the
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  Speaker 6: Gemini four is most likely going to get delayed. So
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  Speaker 6: this is a race about the models. And if you're
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  Speaker 6: not releasing a frontier model, and Anthropic and open Ai
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  Speaker 6: keep creating all the news about how their models can
• 9:40
  Speaker 6: have you know, any system out there that's definitely feels like,
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  Speaker 6: you know, Google is missing at least the model lead
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  Speaker 6: right now, and it could change, but to my mind,
• 9:54
  Speaker 6: this is not a positive and I think the stock
• 9:58
  Speaker 6: reflected that sentiment.
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  Speaker 2: So we hear that they're going to really centralize their
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  Speaker 2: leadership to California that kind.
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  Speaker 3: Of is the seat of everything, even though we know that,
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  Speaker 3: is it?
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  Speaker 2: Larry Pager Surrey Brinn, who's been moving to outside of California.
• 10:14
  Speaker 3: Florida, I don't know, Nevada, Nevada. Yeah, he went to village. Yeah, yeah,
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  Speaker 3: exactly Incline.
• 10:20
  Speaker 2: Village, which is basically California, but just across the border.
• 10:23
  Speaker 2: What does that say about California as the center of
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  Speaker 2: tech talent and how whatever efforts you want to make
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  Speaker 2: to try to decentralize that to spread it out to
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  Speaker 2: other places, maybe lower cost places.
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  Speaker 3: It's it's kind of a fool's errant, isn't it.
• 10:38
  Speaker 1: Yeah?
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  Speaker 6: And look right now, it feels like anthropic and open
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  Speaker 6: AI are getting the big names when it comes to
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  Speaker 6: you know, the folks who are actually training these models,
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  Speaker 6: and you know the scaling laws that are driving all
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  Speaker 6: the development. So from that perspective, I mean, Google is
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  Speaker 6: still pretty large firm and they've got you know, folks
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  Speaker 6: all over but there was a time when Google and
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  Speaker 6: Meta used to be the magnet for the top talent.
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  Speaker 6: It feels like right now it's Anthropic and open Ai,
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  Speaker 6: and the departures kind of suggest that. I mean, even
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  Speaker 6: though Google has a lot going for them in terms
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  Speaker 6: of infrastructure, the TPUs and all those are positives, but
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  Speaker 6: when it comes to the model race, I mean, that's
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  Speaker 6: why Mark Zuckerberg spent millions to form that superintelligence unit
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  Speaker 6: with fifty people, but fifty of the smartest people and
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  Speaker 6: still Meta doesn't have a model that is comparable to
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  Speaker 6: the Frontier lab. So it is a very hard problem
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  Speaker 6: to solve in terms of catching up to the frontier
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  Speaker 6: and I feel once you slip, it will get hard.
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  Speaker 2: So just to follow upon that, if you don't come
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  Speaker 2: out with the frontier model and you have this talent,
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  Speaker 2: is it just a matter of time before that talent
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  Speaker 2: then goes to open Ai Nthropic out of frustration that
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  Speaker 2: they're not making more concrete progress.
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  Speaker 6: I mean, it sounds like, especially with Jeff Dean and
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  Speaker 6: a couple of guys that left, you know this week,
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  Speaker 6: there was an element of frustration, and that's been the
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  Speaker 6: case with Google since the chatchipt days they invented the transformer,
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  Speaker 6: Why weren't they the first ones to release a product?
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  Speaker 6: So it keeps coming back with this management team. It's like,
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  Speaker 6: you're not releasing new products fast enough. And yes, they
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  Speaker 6: have to defend that search business, which is the cash cow,
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  Speaker 6: which is what feeds everything. So I can see both sides,
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  Speaker 6: but when it comes to talent, they'll go to the
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  Speaker 6: place where they see, you know, a lot happening in
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  Speaker 6: terms of new products, model development, and so maybe Google
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  Speaker 6: is being conservative on the model side for a good reason.
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  Speaker 6: They have to defend search.
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  Speaker 5: I think what we're all coming to appreciate more is
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  Speaker 5: this stuff's expensive to do this stuff now and Google's
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  Speaker 5: out today with a twenty five billion dollar bond off.
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  Speaker 3: Yeah, they can reach capital.
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  Speaker 2: Snap the fingers.
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  Speaker 3: Yeah, Heaven like the Anthropics.
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  Speaker 5: And the opening as so the world. I mean, at
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  Speaker 5: some point they got to start hitting the capital markets,
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  Speaker 5: I would think.
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  Speaker 6: I mean, the interesting anecdote here is a lot of
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  Speaker 6: Google's cloud revenue comes from Anthropic running their workloads on Google.
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  Speaker 6: In fact, Entropics models are even trained on Google TPUs,
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  Speaker 6: so Google is the infrastructure provider for Entropic. But at
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  Speaker 6: the same time, they are competing at the model there.
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  Speaker 6: So it is kind of quite intertwined when you think
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  Speaker 6: about this race, and it's very concentrated. But I don't
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  Speaker 6: think Google cares about it being expensive.
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  Speaker 2: Yeah, before we let you go, there is a viewer
• 13:42
  Speaker 2: I should say, a listener question for you today. It
• 13:45
  Speaker 2: has to do with Advanced micro Devices, which is hired
• 13:47
  Speaker 2: today by about one point eight percent, but it did
• 13:49
  Speaker 2: plunge about seven percent after its latest set of results.
• 13:52
  Speaker 3: How come AMD stock fell flat.
• 13:54
  Speaker 2: When it reported earnings after the market clothes on Tuesday.
• 13:58
  Speaker 2: What's your read on those results? I investors reacted negatively.
• 14:03
  Speaker 6: I mean right now when we hear about how supply
• 14:07
  Speaker 6: constrained the market is. And you know, we keep seeing
• 14:10
  Speaker 6: with Nvidio's numbers every time they report, they just beat
• 14:14
  Speaker 6: and raise in a big way. With AMD, we didn't
• 14:17
  Speaker 6: see that big beat and rais and that's how the
• 14:20
  Speaker 6: whisper numbers are always higher. You see the reaction with
• 14:24
  Speaker 6: Sands today, Sock is down. They had phenomenal growth quarters.
• 14:28
  Speaker 6: So that's where you know, expectations and even the consensus
• 14:32
  Speaker 6: numbers are much lower when you compare to what the
• 14:36
  Speaker 6: companies are measured against and Indy had a good quarter,
• 14:39
  Speaker 6: but then it wasn't something to wow, you know, and
• 14:42
  Speaker 6: have that snap positive reaction.
• 14:45
  Speaker 3: Stay with us. More from Bloomberg Intelligence coming up after this.
• 14:52
  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
• 14:56
  Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android
• 14:59
  Speaker 1: Auto with the Work Business Up. Listen on demand wherever
• 15:02
  Speaker 1: you get your podcasts, or watch us live on YouTube.
• 15:06
  Speaker 5: Hurts Global they put out some numbers that beat Wall
• 15:09
  Speaker 5: Streets estimates six flags. Their shares are down as a
• 15:12
  Speaker 5: water park operator reported revenue for the quarter that missed estimates.
• 15:16
  Speaker 5: Let's break it down with Jody Louri. She's a senior
• 15:19
  Speaker 5: credit analyst of Bloomberg Intelligence. She follows all these leisure companies.
• 15:23
  Speaker 5: Let's first start with Hurts because I am a gold
• 15:26
  Speaker 5: member at Hurts Global.
• 15:28
  Speaker 3: I'm proud of it.
• 15:29
  Speaker 5: I'm proud of it. Yes, what's going on? It hurts Jody.
• 15:33
  Speaker 7: I mean, those are the priorities ball so's the thing
• 15:38
  Speaker 7: that's interesting about Hurts is that they were very optimistic
• 15:41
  Speaker 7: on their call. They talked about franchising as the next
• 15:45
  Speaker 7: new endeavor, next big thing, how it was going to
• 15:48
  Speaker 7: really help the company sort of get better margins and
• 15:52
  Speaker 7: be similar to how the hotels do franchising or asset
• 15:55
  Speaker 7: late models. But what's so interesting about it is when
• 15:59
  Speaker 7: you set the bar so low on a company, it's
• 16:02
  Speaker 7: very easy to beat expectations. We a few weeks ago
• 16:06
  Speaker 7: wrote a few pieces on the company that were less
• 16:10
  Speaker 7: positive in terms of just the path forward to liquidity
• 16:14
  Speaker 7: and to the ability to sort of execute on this
• 16:19
  Speaker 7: turnaround that they're doing.
• 16:22
  Speaker 2: So talk a little bit about the unusual way that
• 16:25
  Speaker 2: they're going to achieve this turnaround because they had a
• 16:29
  Speaker 2: debt raise, but they also sold shares that allow people
• 16:33
  Speaker 2: to short it. I didn't quite understand it, but bottom line,
• 16:37
  Speaker 2: they needed money.
• 16:39
  Speaker 3: Right Scarlett.
• 16:40
  Speaker 7: It was not the most attractive of situations. It basically
• 16:44
  Speaker 7: pushed unsecured holders down further in the capital structure, and
• 16:48
  Speaker 7: it's a convertible note that is senior, and then also
• 16:54
  Speaker 7: had that ability that people could hedge or they could
• 16:57
  Speaker 7: short it. They weren't actually receiving any of the proceeds
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  Speaker 7: from issuing additional shares. They only received a nominal amount
• 17:05
  Speaker 7: of money from the banks that did the offering, and
• 17:08
  Speaker 7: so that was that was one of those situations that
• 17:11
  Speaker 7: you kind of scratch your head and you say, okay,
• 17:13
  Speaker 7: about a year ago, the company's equity actually did really
• 17:16
  Speaker 7: well because you had a few activists involved in the company,
• 17:19
  Speaker 7: and at that time they could have in theory issued
• 17:21
  Speaker 7: equity and gotten some money for it. Here they were
• 17:24
  Speaker 7: doing it for free. Now, what's sort of interesting about
• 17:29
  Speaker 7: Hurts is that they've done a few senior convertible bond
• 17:33
  Speaker 7: offerings over the past year and a half years. And
• 17:37
  Speaker 7: the capital.
• 17:38
  Speaker 4: Structure is just ugly.
• 17:39
  Speaker 7: It's not one that makes you write home to mom about.
• 17:43
  Speaker 5: So I'm looking at the capital structure that's it's definitely ugly.
• 17:46
  Speaker 5: So and there's really no cash flow with no EBIT thought. Here,
• 17:49
  Speaker 5: they used to crank out three four billion dollars of
• 17:51
  Speaker 5: EBI thought per year, now just a couple of hundred.
• 17:55
  Speaker 3: What happened.
• 17:57
  Speaker 7: What didn't happen? Pop So in twenty twenty two, we
• 18:01
  Speaker 7: sort of said that twenty twenty two was the best
• 18:03
  Speaker 7: it was going to be for both Hurts and Avis,
• 18:06
  Speaker 7: and they hit peaks in terms of even that generation.
• 18:10
  Speaker 7: And that was a combination of coming off of the
• 18:12
  Speaker 7: pandemic of people revenge spending, of them being able to
• 18:17
  Speaker 7: access use vehicles at such a rate that was more attractive,
• 18:21
  Speaker 7: and also they had significantly reduced their fleets at an
• 18:27
  Speaker 7: attractive rate, and Hurts had come back from or structuring.
• 18:31
  Speaker 7: Now after twenty twenty two, they both said, oh, let's
• 18:35
  Speaker 7: give some money back to shareholders by way of buybacks,
• 18:38
  Speaker 7: and after that.
• 18:40
  Speaker 3: It's gotten worse and worse.
• 18:41
  Speaker 7: Now Hurts of course had a couple of hiccups. They've
• 18:45
  Speaker 7: definitely been a little bit more experimental than Avus and
• 18:48
  Speaker 7: in terms of what they've tried to do to right
• 18:49
  Speaker 7: side the business or attract customers attract investors. One of
• 18:54
  Speaker 7: them was when they bought into Tesla and Evs and
• 18:57
  Speaker 7: they didn't understand that if your visiting a national park
• 19:01
  Speaker 7: in Wyoming, you're not necessarily comfortable having a Tesla, So
• 19:05
  Speaker 7: having a lot of Tesla's in your fleet might not
• 19:07
  Speaker 7: necessarily sit nicely with people, and so you had that.
• 19:12
  Speaker 7: Now fast forward, they're well past that. But they brought
• 19:15
  Speaker 7: in a new CEO and probably what you'd say is
• 19:17
  Speaker 7: the eleventh hour of needing this help. And while they
• 19:21
  Speaker 7: guide for positive Ebidad this year, I would sort of
• 19:24
  Speaker 7: argue that the path to get there is a little
• 19:26
  Speaker 7: bit tenuous, particularly when they're dealing with auto recalls when
• 19:31
  Speaker 7: they're dealing with just these sort of hiccups that are unexpected.
• 19:35
  Speaker 2: Yeah, I know a lot of people who actually bought
• 19:38
  Speaker 2: used Tesla's from Hurts Okay because they needed to get
• 19:41
  Speaker 2: rid of or trim down their fleet. Jody, before we
• 19:44
  Speaker 2: let you go, we got to ask you about six Flags,
• 19:46
  Speaker 2: the amusement park company, the water park operator. They reported results.
• 19:50
  Speaker 2: The stock is down eighteen percent. What are you looking
• 19:54
  Speaker 2: at from a credit perspective?
• 19:57
  Speaker 7: The scarlet. What's so interesting that six Flags is is
• 20:00
  Speaker 7: it definitely struck a little bit more positive tone in
• 20:04
  Speaker 7: my view when you look at the company on a
• 20:07
  Speaker 7: same park basis. By that we mean is that they
• 20:09
  Speaker 7: got rid of eight parks, so they sold seven and
• 20:11
  Speaker 7: they closed one last year, and so stripping out those
• 20:14
  Speaker 7: parks that aren't operating, it actually was relatively positive. Now,
• 20:18
  Speaker 7: there are caveats that, for instance, the adjusted EVADAD numbers,
• 20:22
  Speaker 7: they had a lot of non cash buybacks. There are
• 20:24
  Speaker 7: non cash add ins that somehow appeared out of nowhere
• 20:27
  Speaker 7: that they didn't have last year. And so you say, okay,
• 20:31
  Speaker 7: were those just sitting there and they were waiting for
• 20:33
  Speaker 7: a time to kind of plug them in I'm not
• 20:35
  Speaker 7: quite sure, but I think more importantly, they know they're
• 20:40
  Speaker 7: at a time when they can sort of see a
• 20:43
  Speaker 7: path forward. But I think the expectation is that with
• 20:47
  Speaker 7: the Canada wildfires, with consumer health being a little bit rocky,
• 20:52
  Speaker 7: that the sort of positives that we saw in second
• 20:56
  Speaker 7: quarter might not necessarily be sustainable. But from a liquidity perspective,
• 21:00
  Speaker 7: if they did buy some additional time with their debt
• 21:02
  Speaker 7: issuance earlier this year, and with the fact that they're
• 21:05
  Speaker 7: able to meet their Georgia Park put payment which comes
• 21:10
  Speaker 7: to in a year or in January, I should say so,
• 21:14
  Speaker 7: there are some bright spots to it, but I think
• 21:16
  Speaker 7: it's really early stages, and so as a credit anast,
• 21:19
  Speaker 7: they still can't sit comfortably with the name. But I
• 21:22
  Speaker 7: do see a scenario when they could get there. Now.
• 21:25
  Speaker 7: Four times net leverage target is a little bit far fetched,
• 21:29
  Speaker 7: something we've heard before from prior management, and not something
• 21:32
  Speaker 7: we see anytime soon.
• 21:34
  Speaker 2: Stay with us more from Bloomberg Intelligence coming up after this.
• 21:41
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• 21:45
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• 21:48
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• 21:51
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• 21:55
  Speaker 5: We had some restaurant and numbers come out. Restaurant brands say,
• 21:59
  Speaker 5: it'll own a whole bunch of different brands like Burger King,
• 22:03
  Speaker 5: Tim Hortons, Popeyes, all kinds of brands there, and they
• 22:06
  Speaker 5: reported some numbers that kind of beat estimates. So some
• 22:08
  Speaker 5: pretty solid numbers there. I think Burger Can actually did
• 22:12
  Speaker 5: well as well. Michael Haylen joins his senior restaurant and
• 22:15
  Speaker 5: food service analysts for Bloomberg Intelligence. Hey, Mike, talk to
• 22:17
  Speaker 5: us about food restaurant brands. What did you What do
• 22:20
  Speaker 5: we learn about the restaurant business today?
• 22:23
  Speaker 3: Yeah, it was a good report.
• 22:24
  Speaker 8: You know, Burger King US, you know, had a great
• 22:28
  Speaker 8: comp high cycle digit comp Man, they're doing a really
• 22:31
  Speaker 8: nice job. They are taking to share in service business
• 22:35
  Speaker 8: here in the United States. International, which has been very
• 22:40
  Speaker 8: strong for this company for for quite some time, continues
• 22:43
  Speaker 8: to do really well with you know, just newer restaurants
• 22:48
  Speaker 8: and less competition overseas. But you know, Tim Hortons was
• 22:54
  Speaker 8: about flat. You know that that that chain has done
• 22:57
  Speaker 8: really well in Canada for the last two years and
• 22:59
  Speaker 8: now it's it's it's lapping some difficult comparisons, and so
• 23:03
  Speaker 8: the street might have liked to see a little bit
• 23:05
  Speaker 8: better result there, and Popeyes continues to struggle.
• 23:09
  Speaker 6: So as we see.
• 23:11
  Speaker 8: Quite often with these multi brand companies. You know, not
• 23:16
  Speaker 8: all chains are firing at firing at the same time,
• 23:21
  Speaker 8: but you know, generally with the Burger King and International
• 23:25
  Speaker 8: doing well, and then with the refranchising of Burger King,
• 23:29
  Speaker 8: restaurants here in the United States are seeing some pretty
• 23:31
  Speaker 8: good ebadam margin expansion. So I'd say overall, it's a
• 23:34
  Speaker 8: pretty good report.
• 23:35
  Speaker 2: And of course I like the restaurant brands ticker it's QSR,
• 23:38
  Speaker 2: short for quick service Restaurants. Michael, How do Burger King
• 23:43
  Speaker 2: zumbers in particular compare against McDonald's, which came out with
• 23:46
  Speaker 2: results earlier this week and we're kind of disappointing to
• 23:49
  Speaker 2: the point where they needed to change leadership as well.
• 23:54
  Speaker 8: Yeah, and I think there's there's when you see McDonald's
• 23:57
  Speaker 8: slow that tends to help other QSR chains. But you know,
• 24:02
  Speaker 8: I would suggest most of this gain here at Burger
• 24:05
  Speaker 8: King is due to the changes that they've made over
• 24:09
  Speaker 8: the last few years. Patrick Doyle, chairman of the board,
• 24:13
  Speaker 8: You know, brought into this chain some years ago and
• 24:17
  Speaker 8: has done a really good job of mentoring the management
• 24:21
  Speaker 8: team and helping them turn that business around.
• 24:25
  Speaker 6: You know.
• 24:26
  Speaker 8: You know, one thing I thought was interesting that McDonald's
• 24:29
  Speaker 8: mentioned on their call was that they need to get
• 24:31
  Speaker 8: more families back in the stores. And you know, it
• 24:35
  Speaker 8: sure seems like they mentioned that because Burger King seems
• 24:39
  Speaker 8: to be taking some share there. They pointed out how
• 24:42
  Speaker 8: strong hids meal growth was over the last year, and
• 24:47
  Speaker 8: so Burger King really seems to be firing all cylinders here.
• 24:51
  Speaker 8: There was a lot of opportunity to improve the quality
• 24:54
  Speaker 8: of the stores, which they're doing with the remodels, to
• 24:57
  Speaker 8: improve the quality of the product, which they've done with
• 25:01
  Speaker 8: the Whopper, and you know, now they're really focused on
• 25:04
  Speaker 8: the operations and getting people in and out of the
• 25:06
  Speaker 8: store quickly.
• 25:07
  Speaker 3: Okay, speaking of Burger Joints.
• 25:10
  Speaker 2: Yesterday, Starboard Value CEO Jeff Smith was on Bloomberg Deals,
• 25:14
  Speaker 2: telling Danny Berger exclusively that the firm has built a
• 25:17
  Speaker 2: new stake in Shakeshack and he described himself as probably
• 25:21
  Speaker 2: the biggest single shareholder in the company active shareholder, describing
• 25:26
  Speaker 2: it as a great undervalued brand and kind of what
• 25:28
  Speaker 2: he wants to see, is more franchising domestically you've been
• 25:32
  Speaker 2: looking at Shakeshack.
• 25:33
  Speaker 3: Is this something that can be done quickly?
• 25:37
  Speaker 8: No, this is something This is really interesting because you know, hey,
• 25:42
  Speaker 8: I would say this is not the standard activist playbook.
• 25:46
  Speaker 8: The playbook is typically find a management team that's been underperforming,
• 25:50
  Speaker 8: replace them, and get the core business running more effectively
• 25:56
  Speaker 8: before you start to accelerate growth.
• 25:59
  Speaker 5: Right.
• 25:59
  Speaker 8: And so we see a chain here with with some
• 26:02
  Speaker 8: some headwinds and some issues, and that isn't part of
• 26:05
  Speaker 8: their formula this time.
• 26:06
  Speaker 6: Right.
• 26:07
  Speaker 8: They hired Rob Lynch at Papa John some years ago
• 26:11
  Speaker 8: when they were involved in that stock.
• 26:13
  Speaker 3: So that's that's the first.
• 26:14
  Speaker 8: Thing that was kind of interesting. The second part is
• 26:16
  Speaker 8: franchising is a completely different muscle. Right. This is not
• 26:20
  Speaker 8: something that you can just you know, you wake up
• 26:22
  Speaker 8: one day and decide to do and people just line
• 26:26
  Speaker 8: up in open stores, right Like, this is a completely
• 26:29
  Speaker 8: new muscle. It's a relationship and a marketing business. They're
• 26:32
  Speaker 8: going to have to hire corporate corporate team members to
• 26:37
  Speaker 8: actually grow this business. And then it's not something that's
• 26:40
  Speaker 8: going to hit the P and L for eighteen months, right,
• 26:42
  Speaker 8: So it takes about that long to get restaurants approved, permitted, approved,
• 26:49
  Speaker 8: and built, you know. And so this is a really
• 26:54
  Speaker 8: curious investment in our view, because who knows what the
• 26:57
  Speaker 8: restaurant in business is going to look like eighteen that's
• 26:59
  Speaker 8: right from now when this catalyst actually starts to kick.
• 27:02
  Speaker 5: In thirty seconds, Mike, when is In and Out Burger
• 27:05
  Speaker 5: are gonna be public?
• 27:08
  Speaker 8: Last I've heard is that that is not what they
• 27:12
  Speaker 8: want to do.
• 27:13
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• 27:18
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• 27:22
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