Latest / Bloomberg Intelligence / BI Weekend: Kraft Heinz Split, Macy’s Earnings

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BI Weekend: Kraft Heinz Split, Macy’s Earnings · Bloomberg Intelligence

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Speaker 3: tech giant Apple.
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Speaker 2: But first we begin with news from the food and
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Speaker 2: beverage company craft hinds.
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Speaker 3: Because this week Craft Hines announced its plans to split
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Speaker 3: into two separate publicly traded companies. One company will sell
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Speaker 3: condiments and box meals, while the other will include its
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Speaker 3: slower growing grocery products like lunchables.
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Speaker 2: For more, Scarlet and I were joined by Jen Bartashi's
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Speaker 2: Bloomberg Intelligence senior retail analysts. We first asked Jen what
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Speaker 2: this news means for craft Hns ten years after its
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Speaker 2: initial merger.
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Speaker 4: It was just about a decade ago that they put
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Speaker 4: the companies together with the plans that it would become
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Speaker 4: kind of a package food powerhouse. But trends have changed
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Speaker 4: and consumers have changed, and it just hasn't materialized the
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Speaker 4: way they originally thought it would.
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Speaker 3: So what did the two companies get out of this
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Speaker 3: merger then?
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Speaker 4: So, you know, when they when we're looking at what
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Speaker 4: they brought together, they brought together some products where they
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Speaker 4: were able to recognize some synergies, They were able to
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Speaker 4: do some co branding, some you know, product development, that
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Speaker 4: sort of thing. But as I said, the consumer has
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Speaker 4: changed and demand for shelf stable packaged food products is
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Speaker 4: just less than it was, and so we've seen multiple
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Speaker 4: years where scanner data shows that Kraft Heiind's brands have
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Speaker 4: sort of been shrinking a little bit, and I think
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Speaker 4: this separation is an attempt to kind of reinvigorate growth
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Speaker 4: in different parts of their portfolio.
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Speaker 3: You mentioned several times how the consumer has changed. Let's
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Speaker 3: dig into that a little bit more. Are we talking
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Speaker 3: about because of the anti obesity drugs like GLP one?
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Speaker 3: Is it a case where RFK and Make America Healthy
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Speaker 3: Again is really taking root? I mean, this is kind
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Speaker 3: of a slow moving shift in the consumer, right.
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Speaker 4: It is, indeed, Scarlet, it's a slow moving shift, and
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Speaker 4: it started, you know, coming out of the pandemic. In
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Speaker 4: the pandemic, everybody sort of retreated to familiarity, right, They
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Speaker 4: went back to brands, they went back to shelf stable products.
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Speaker 4: And since then there's been more emphasis on things that
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Speaker 4: are more natural, lower sodium, healthier for you, that sort
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Speaker 4: of thing. And while craft Tiinn's has been making updates
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Speaker 4: to their portfolio, it is hard to envision how kind
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Speaker 4: of electric orange mac and cheese has a long term growth,
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Speaker 4: a long term growth appeal to people where you know,
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Speaker 4: there's pressure from as you said, RFK on more like
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Speaker 4: natural colorantce and things like that. So you know, their
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Speaker 4: portfolio is caught in that crosshairs.
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Speaker 2: When you put companies together. The pressurelease often talks about
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Speaker 2: the synergies that are going to be the cost synergies,
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Speaker 2: maybe some revenue synergies. Maybe are there disynergies when you
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Speaker 2: break them apart?
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Speaker 4: Yeah, there are dissynergies. The company expects about three hundred
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Speaker 4: million dollars in disynergies. You know, thankfully most of their
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Speaker 4: manufacturing practices are fairly separate, but there is a component
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Speaker 4: to that craft. TIGNDS actually said in May they were
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Speaker 4: exploring strategic options. There's been repeated rumors that it would
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Speaker 4: result in a split of two companies, so the confirmation
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Speaker 4: isn't necessarily unexpected news.
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Speaker 3: Paul, disynergies, Does that just mean upfront costs?
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Speaker 2: I think I need a new CFO, I need a
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Speaker 2: new accounting department. I don't know, Well, so go ahead,
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Speaker 2: JD Jed's what's next for the packaged food business? I mean,
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Speaker 2: is this just a industry wide secular decline?
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Speaker 4: Well, right now it appears to be, especially in North America,
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Speaker 4: a bit of a secular decline. Pockets of growth are
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Speaker 4: becoming more and more isolated, and so when you're looking
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Speaker 4: at scanner data, the problem is the consumer. As I said,
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Speaker 4: they're shifting behaviors, but they're just not buying as much
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Speaker 4: as they used to. And you see this even with
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Speaker 4: Walmart or Target or Kroger, where people used to buy
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Speaker 4: in multiples and stock up their pantries, and they just
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Speaker 4: don't shop that way anymore. They're buying more on an
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Speaker 4: as needed basis, and part of that is the macroeconomic environment,
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Speaker 4: and so that just doesn't favor these companies right now
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Speaker 4: where historically they've been pantry staples. And so right now
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Speaker 4: when consumers are looking what they're going to make for
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Speaker 4: dinner tonight, a bigger portion of their plate is fresh foods.
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Speaker 4: So the perimeter of grocery stores are doing much better
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Speaker 4: than the center of the store, which is these shelf
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Speaker 4: stable products.
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Speaker 3: Let's talk about the folks who brought these two companies together.
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Speaker 3: Is Berkshire Hathaway run by Warren Buffett and three G
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Speaker 3: Capital run by a group of Brazilian operations. Guys, where
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Speaker 3: did they stand in all this gen what happens to do?
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Speaker 3: They each still hold steaks in the companies, I mean,
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Speaker 3: do they come out looking better ten years later.
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Speaker 4: Well, Berkshire Hathaway still has a large stake in the company.
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Speaker 4: I think they owned just over twenty five percent of
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Speaker 4: the outstanding shares. But you know, they did relinquish their
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Speaker 4: their chairs on the board shortly before the strategic options
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Speaker 4: were announced, or that the company was exploring strategic options,
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Speaker 4: So they've been slowly pulling back you know, from the
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Speaker 4: time of their initial steak. They're probably still going to
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Speaker 4: come out ahead, but it has been a ten year
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Speaker 4: play for them.
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Speaker 2: Do we know where they're going to put their shares?
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Speaker 2: Are they can go equally between the two companies, because
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Speaker 2: I'd like to invest alongside.
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Speaker 4: Warren Buffet I think at this point, I don't think
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Speaker 4: that's been disclosed, but it is certainly something that everyone
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Speaker 4: will be watching for.
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Speaker 3: What will you be watching for, Jen, in terms of
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Speaker 3: how competitors respond or react or move in, you know,
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Speaker 3: to kind of take advantage of this breakup.
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Speaker 4: I think what will be interesting is to watch the
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Speaker 4: level of promotional activity. There will likely be some some
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Speaker 4: effort to take market share, and craft Times is likely
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Speaker 4: to up their marketing spend in order to try to
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Speaker 4: drive volumes just ahead of when this split actually becomes
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Speaker 4: realized to sort of show improvement in some of their
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Speaker 4: legacy brands. So what that really sets up a stage
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Speaker 4: for is actually probably good for the everyday shopper and
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Speaker 4: that they'll be probably more sale items, more discounts. But
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Speaker 4: it also means that it's less profitable sales for the
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Speaker 4: companies that are involved in chasing that market share, so
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Speaker 4: it will be interesting to watch how it unfolds. Companies
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Speaker 4: only expecting this to close or to be realized that
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Speaker 4: this second half of next year, so there's some time
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Speaker 4: for those dynamics to play out.
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Speaker 3: Our thanks to Jen bartashis Bloomberg Intelligence senior retail analysts.
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Speaker 2: We turn next to more news in the consumer product space.
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Speaker 2: This week, activist investor Elliott Investment Management announced it built
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Speaker 2: a stake of about four billion dollars in the food
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Speaker 2: and beverage company PepsiCo.
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Speaker 3: This makes Elliott one of PepsiCo's largest investors, and after
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Speaker 3: the announcement, Elliott outlined its plans for the beverage company.
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Speaker 3: This includes potentially restructuring its beverage unit and reviewance Snack's offerings.
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Speaker 2: For more on all of this. Scarlett and I were
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Speaker 2: joined by Kensha Bloomberg Intelligence, senior consumer products analysts. We
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Speaker 2: first asked Ken what the future looks like for PepsiCo
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Speaker 2: and whether the company could eventually break up.
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Speaker 5: I wrote a report or Bloomberg Intelligence saying that given
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Speaker 5: the weakness of the stock, is really just a matter
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Speaker 5: of time where these talks are going to be revived. Recall,
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Speaker 5: back in twenty fourteen, try On, an activist, actually advocated
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Speaker 5: that breaking the company up between beverages and foods. The
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Speaker 5: company decided not to do it. It made the case
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Speaker 5: that it was getting good synergies between the two. Fast
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Speaker 5: Forward Elliott isn't quite going that far. And Elliot's letter
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Speaker 5: it said it believes that value can be created by
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Speaker 5: simply having the beverage side, roughly forty percent of the business,
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Speaker 5: just refranchise their bottling operations and plain English, what that
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Speaker 5: means is to divest those capital intensive operations manufacturing operations
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Speaker 5: that create the finished product from the syrups and concentrates
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Speaker 5: that Pepsi, the beverage company sells. That's really the golden
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Speaker 5: part of that business, you know, the jewel that business
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Speaker 5: is the concentrate business. That's what Coca Cola does. Coca
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Speaker 5: Colatus sells concentrate syrups or high margin to third parties
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Speaker 5: to make the product. PepsiCo chooses to do it in house.
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Speaker 5: That results in tying up capital, lower margins, and so on.
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Speaker 5: At the same time, Eliot is also saying on the
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Speaker 5: food side, perhaps some SKU rationalization is due, meaning there's
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Speaker 5: a lot of food products there that they may not
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Speaker 5: be well suited to sell. The Freda Ley is doing
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Speaker 5: it really well, although it's a kind of a slowdown
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Speaker 5: right now with many consumer products. It's the Quaker foods.
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Speaker 5: I think it's really targeting and saying, you know, maybe
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Speaker 5: some reduction there maybe in order. So that's really what
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Speaker 5: what the gist is today with Pepsi.
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Speaker 3: All right, Ken, thank you for that very very detailed rundown.
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Speaker 3: I want to pick up on what you were talking
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Speaker 3: about with the bottling business, refranchising the bottling business, which
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Speaker 3: is what Coca Cola does right now. What does Coca
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Speaker 3: Cola give up by doing that? I mean, there had
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Speaker 3: to be a reason why Pepsi chose to keep it
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Speaker 3: in house up until now.
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Speaker 5: Yeah, that's a great question, Scarlett. So go back in
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Speaker 5: time with ten fifteen years ago or so, both companies
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Speaker 5: had done that. They both had separated those businesses. Petsico
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Speaker 5: decided to retain or it so and then it brought
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Speaker 5: it back and it decided to keep it and made
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Speaker 5: the case. At the time that's the soft drink business
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Speaker 5: was in a downturn, volumes were weak. They thought by
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Speaker 5: gaining more control of those bottling operations, they could right
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Speaker 5: size the ship if they could get it back in
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Speaker 5: order lining the interest between the bottlers and the company.
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Speaker 5: Because I'm gonna remember Coca Cola. By separating it, it
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Speaker 5: is to some degree giving up a little it's accepting
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Speaker 5: a little risk. I mean, these are third parties, or
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Speaker 5: these are independent companies. They can sell beer, they can
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Speaker 5: do other things. PepsiCo didn't want them to do that.
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Speaker 5: PepsiCo said, look, we want you to be fully aligned
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Speaker 5: with what we want. So that's what they said. They
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Speaker 5: gained from that, and I guess there's some truth to that,
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Speaker 5: But you're giving up a lot also for the factors
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Speaker 5: that I mentioned before.
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Speaker 2: Ken, you've been covering this consumer space for a long time.
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Speaker 2: You've seen the cycles come and go. It seems like
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Speaker 2: we're in a cycle of breaking these companies up. I
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Speaker 2: mean you've seen this game before. How do you think
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Speaker 2: this is going to play out across the consumer space?
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Speaker 5: Well, you know, given the PepsiCo stock before today was
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Speaker 5: down about twenty percent over the last two years. So
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Speaker 5: it's really disappointed investors. And beyond that, it's that their
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Speaker 5: long term algorithm of high single digit comparable EPs growth
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Speaker 5: is not going to happen this year. They're looking at
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Speaker 5: flat this year, and investors see the writing on the wall,
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Speaker 5: they see a slow down, and they're saying, look, maybe
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Speaker 5: there's more than just a cyclical element here. Maybe there
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Speaker 5: are some structural things this company can do. I think
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Speaker 5: Elliott's making some good points here, and I think PepsiCo
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Speaker 5: ought to follow through on some of these if they
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Speaker 5: want to regain some of the low sentiment that's out
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Speaker 5: there among investors.
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Speaker 3: Do you expect other investors to jump in here and
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Speaker 3: kind of ride on Elliott Management's coattails? I mean, is
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Speaker 3: Elliott going to be empowered to ask for more going forward?
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Speaker 5: That's a great question. I think there's going to be
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Speaker 5: some supporters of Elliott. Like I said, I think Elliott's
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Speaker 5: making some fair points. PepsiCo has been really disappointing on
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Speaker 5: the operational side. And like I said in the Stock Front,
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Speaker 5: I think it ought to be open ears to listen
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Speaker 5: to what Elliott says. I think others will support Elliott
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Speaker 5: in this case.
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Speaker 3: Yes, our thanks to Ken Shape Bloomberg Intelligence senior consumer
11:57
Speaker 3: products analysts. Coming up, we'll look at why the department
12:00
Speaker 3: store chain Maycy's raised its guidance.
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Speaker 1: This is Bloomberg Intelligence with Scarlettfoo and Paul Sweeney on
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Speaker 1: Bloomberg Radio.
12:27
Speaker 2: We moved next to some news from the tech giant Alphabet.
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Speaker 2: This week, US judge ahmit Meta ruled against the government's
12:34
Speaker 2: proposal to break up Google.
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Speaker 3: This includes a forced sale of its Chrome browser in
12:38
Speaker 3: the biggest antitrust case in three decades, and the ruling
12:41
Speaker 3: is seen as a setback for the US government in
12:43
Speaker 3: its bid to curb the power of big tech companies.
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Speaker 2: For more, Scarlet and I were joined by Jenniferree, Bloomberg
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Speaker 2: Intelligence senior litigation analysts. We first asked jen for a
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Speaker 2: clarification on the recent court ruling.
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Speaker 6: You know, really the court aligned much more so with
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Speaker 6: what Google proposed than what the Department of Justice post.
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Speaker 6: No divestiture of Chrome or contingent divestor of Android, because
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Speaker 6: that was in there. Some data sharing, no exclusive agreements,
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Speaker 6: some search syndication, meaning a search engine can basically provide
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Speaker 6: results that just comes straight from Google, right, They're mimicking Google.
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Speaker 6: The surprising thing though here, and what was great for
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Speaker 6: Apple is that the judge said Google could continue to
13:22
Speaker 6: pay for search default positions. That's with Apple. With Mozilla,
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Speaker 6: it pays some OEMs to pre install Google Search on
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Speaker 6: the Android phones that they group that they manufacture, and
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Speaker 6: that I think was a really big surprise.
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Speaker 3: How is this remedy consistent with the original ruling, with
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Speaker 3: the original finding of the court.
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Speaker 6: You know, I actually have a really big problem with
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Speaker 6: aligning those two things because I don't think that it is.
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Speaker 6: In terms of no Chrome divestiture, I think it's very consistent.
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Speaker 6: And Paul, you know, I've been on this show before
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Speaker 6: and I've been saying for two years that there would
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Speaker 6: not be a chrome divestiture ordered here. But where it's
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Speaker 6: inconsistent is with this default position. Because having a monopoly
13:58
Speaker 6: is not illegal, but it's the conduct that maintains the
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Speaker 6: monopoly that's exclusionary, that is illegal. And what the judge
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Speaker 6: found in that liability decision that the conduct that was
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Speaker 6: illegal were the default agreements. Right, This was exclusionary. This
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Speaker 6: kept other search engines from being able to grow and
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Speaker 6: scale and get better. He's allowing those default positions to
14:16
Speaker 6: stay in place. Now it's a shorter term, it's only
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Speaker 6: for one year. Theoretically, in one year or one year
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Speaker 6: after that, other search engines that have improved can compete
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Speaker 6: for that contract. But it's still odd to me that
14:27
Speaker 6: what is found to be illegal is allowed to continue.
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Speaker 2: What does this mean for just Silicon Valley in general?
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Speaker 2: Can I sit back if I'm a CEO in Silicon
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Speaker 2: Valiant saying Hm, the courts are maybe a little bit
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Speaker 2: more aligned with our industry how we think about the
14:43
Speaker 2: world than maybe the government.
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Speaker 6: I would say that the way Silicon Valley can think
14:48
Speaker 6: about it is that this judge was cautious, and this
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Speaker 6: judge did talk about needing to apply caution when you're
14:54
Speaker 6: dealing with tech markets and Silicon valley companies, because judges
14:58
Speaker 6: don't understand it. They don't want to m pack the route,
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Speaker 6: the innovation and the natural course of the industry, right,
15:04
Speaker 6: They don't want to distort that, And so it does
15:07
Speaker 6: suggest that it's more likely a judge is going to
15:09
Speaker 6: be cautious in future remedies for other cases. But what
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Speaker 6: I think everybody has to keep in mind, because I've
15:15
Speaker 6: seen people talking about the fact that there's read through
15:17
Speaker 6: for some of these other monopolization cases, I don't really
15:20
Speaker 6: think that there is, because the facts are entirely different
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Speaker 6: case by case, the markets are entirely different, and what
15:26
Speaker 6: made a divestitor remedy inappropriate here doesn't necessarily exist as
15:30
Speaker 6: a fact pattern. Let's say an FTCB Meta or usdojb
15:34
Speaker 6: Apple or the other DOJ case against Google in the
15:36
Speaker 6: ad tech space. Those are different cases with different facts,
15:39
Speaker 6: and I don't think that there's necessarily a read through
15:42
Speaker 6: that companies are safe from divestiture orders because of this one.
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Speaker 3: Do we think that AI the quickness and how it's
15:50
Speaker 3: developing played any kind of role in the judge's decision here?
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Speaker 7: Oh?
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Speaker 6: Absolutely, the judge even observed that in the liability hearing,
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Speaker 6: which was now a year and a half or so ago,
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Speaker 6: that AI barely came up at all other than by Google,
16:03
Speaker 6: it barely came up. But in the remedies hearing it
16:05
Speaker 6: was all about AI and the witnesses were all AI.
16:08
Speaker 6: And he says, it just shows in a year, a
16:09
Speaker 6: year and a half, how much things have changed, and
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Speaker 6: the fact that you now have real competition to general
16:15
Speaker 6: search other than other general search engines. And I think
16:17
Speaker 6: that impacted him a lot.
16:19
Speaker 3: Our Thanks to Jennifer Ree, Bloomberg Intelligence Senior litigation analyst.
16:23
Speaker 2: Staying on tech, this week, we learned that the tech
16:25
Speaker 2: giant Apple lost Gian Jang, its lead AI researcher for
16:30
Speaker 2: robotics to meta platforms.
16:31
Speaker 3: Three more AI researchers are also leaving Apple's in house
16:35
Speaker 3: large Language Models team to join other companies. The departures
16:38
Speaker 3: are part of an exodus of AI talent from Apple,
16:41
Speaker 3: and the AI departures may only worsen with a potential
16:44
Speaker 3: shift toward using third party models.
16:46
Speaker 2: For more on this and all things Apple, Scarlet and
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Speaker 2: I were joined by Mark German, Bloomberg news Managing editor
16:51
Speaker 2: for Global Consumer Tech First to ask Mark if he
16:54
Speaker 2: thinks it's a problem Apple is losing its AI experts.
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Speaker 8: It's only a problem if it impacts the consumer, and
17:03
Speaker 8: right now, Apple's AI efforts are impacting the consumer because
17:07
Speaker 8: Apple Intelligence and Siri lag very much in comparison to
17:12
Speaker 8: competing products on other platforms. Now, this can all be
17:16
Speaker 8: turned around. Right You've got the ability for Apple to
17:19
Speaker 8: do partnerships. I predict there'll be some sort of big
17:22
Speaker 8: AI partnership for Apple. I've reported that they were in
17:25
Speaker 8: talks with Google and AI partnership. I've reported they've been
17:28
Speaker 8: in talks with Anthropic and Open Ai on potential AI partnerships.
17:32
Speaker 8: They get one of those done, it's a different ballgame.
17:35
Speaker 8: They buy a company. I reported first reported over the
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Speaker 8: summer that they've talked to Mistral reported that they talk
17:40
Speaker 8: to Perplexity. I don't expect either of those deals to
17:43
Speaker 8: get done, but that certainly shows you where their head's at. Okay,
17:47
Speaker 8: if this all gets turned around with a major new
17:49
Speaker 8: version of Siri next year, if they get the Apple
17:53
Speaker 8: Intelligence pipeline heading in the right direction, if they buy
17:57
Speaker 8: and hire the right LLLM people, they could be in
17:59
Speaker 8: pretty good shape. Don't forget Apple has the best ecosystem,
18:02
Speaker 8: they have the best hardware, and they're able to deploy
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Speaker 8: new features and operating system upgrades faster than any other company.
18:09
Speaker 8: And so at the end of the day, this is
18:11
Speaker 8: still their game to lose because there are so many
18:14
Speaker 8: levers they can pull, especially with their cash balance, to
18:17
Speaker 8: turn this thing around.
18:18
Speaker 3: So why haven't they done any of those things so far?
18:20
Speaker 3: Why are they waiting? What's the hold up?
18:23
Speaker 8: Well, you know Apple, Unfortunately for them, they're very tied
18:28
Speaker 8: to a couple cycles, right. They have their spring cycle
18:32
Speaker 8: and then they have their fall cycle. The fall cycle
18:34
Speaker 8: has been set for some time. There's really no changing that.
18:37
Speaker 8: That's locked and loaded. You'll see the introduction of those
18:40
Speaker 8: products and those software features next Tuesday at the iPhone
18:43
Speaker 8: seventeen launch event. The spring is really the next opportunity
18:47
Speaker 8: for there to be major new features, right, that's when
18:50
Speaker 8: they're going to roll out pretty big update to iOS
18:52
Speaker 8: twenty six called iOS twenty six point four. At that time,
18:55
Speaker 8: I expect them to release an overhauled version of Siri
18:58
Speaker 8: that are going to fix a lot of these.
19:00
Speaker 3: Issues that's all supposed about now.
19:02
Speaker 8: It is a long time, yeah, it is a long time.
19:04
Speaker 8: And the truth of the matter is that the AI
19:06
Speaker 8: space runs far more quickly than even the mobile space.
19:10
Speaker 8: You saw a lot of innovation in the smartphone space
19:11
Speaker 8: for the last two decades. AI is moving ten times
19:14
Speaker 8: as fast.
19:15
Speaker 2: As that, and they're aware of that. They're smart people.
19:18
Speaker 2: I guess they've made the decision that they're comfortable with
19:21
Speaker 2: their timing. Did they run the risk of making a
19:25
Speaker 2: fund fundamental error in their judgment of that timing.
19:28
Speaker 8: I don't think they're comfortable with the timing. I think
19:30
Speaker 8: that the timing was actually even further out. I wasn't
19:33
Speaker 8: expecting a major new version of sery with incredible enhancements
19:38
Speaker 8: for consumers, probably not until the end of twenty six
19:41
Speaker 8: or sometime. Even had the tail out of twenty twenty seven.
19:44
Speaker 8: So this is going to be happening at least six
19:46
Speaker 8: to twelve months sooner than Apple had originally planned. They
19:50
Speaker 8: are probably one or two years away if they did
19:54
Speaker 8: nothing of starting to bleed share to competing smartphones with
19:58
Speaker 8: major AI features right now. Tell you the truth. We
20:00
Speaker 8: talk about AI all day every day. It's very important
20:02
Speaker 8: to the market. It's very important for the current technology age.
20:05
Speaker 8: Nobody's buying phones because of AI or not because of AI,
20:09
Speaker 8: but we are moving towards that, and that is going
20:12
Speaker 8: to happen. It's one or two years away, and so
20:14
Speaker 8: if they're not in good shape by then, they're going
20:16
Speaker 8: to start being impacted not only in terms of what
20:19
Speaker 8: we talk about, not only on Wall Street in the
20:21
Speaker 8: stock market, but in actual purchasing decisions by consumers, because
20:25
Speaker 8: right now consumers only care about a few things when
20:27
Speaker 8: they buy new phones. They want to fix their broken screen, yep,
20:30
Speaker 8: they want a better camera.
20:32
Speaker 3: That was Mark German, Bloomberg News Managing editor for Global
20:34
Speaker 3: Consumer Tech. We move next to earnings in the retail space.
20:38
Speaker 2: This week, the department store chain Makesy's raised its annual
20:41
Speaker 2: outlook and reported it's best comparable sales growth in three years.
20:45
Speaker 2: This comes despite new tariffs and moderation in consumer spending.
20:49
Speaker 3: Meanwhile, the discount retail company Dollar Tree raised its annual
20:52
Speaker 3: sales guidance. However, it disappointed investors, stating the benefit from
20:55
Speaker 3: price heights would disappear.
20:57
Speaker 2: For more on these companies, Scarlett and I were joined
20:59
Speaker 2: by Emily Cone, Bloomberg Consumer team Leader. If We first
21:02
Speaker 2: asked Emily for her key takeaways from Macy's most recent quarter.
21:06
Speaker 7: I think this falls in line with what we've heard
21:08
Speaker 7: from other retailers. Shoppers are still shopping, They're being precise
21:12
Speaker 7: about what they're spending on, being choosy. They called out
21:16
Speaker 7: home furnishings and apparel as strong sellers, also citing high
21:20
Speaker 7: demand for fine watches, jewelry, mattresses. So they are shopping.
21:26
Speaker 7: I think the main question I have is how long
21:28
Speaker 7: will this last?
21:30
Speaker 2: How promotional are some of these retailers. How promotions do
21:33
Speaker 2: they have to be? Because I know that goes right to
21:34
Speaker 2: the margin.
21:36
Speaker 7: Yeah, I mean that's an interesting segue into Dollar Tree.
21:39
Speaker 7: I think Dollar Tree raised prices so far this year
21:43
Speaker 7: to offset the cost of tariffs, and shoppers felt that
21:47
Speaker 7: and that doesn't have that has a limit. There's only
21:51
Speaker 7: so far you can raise prices, and I think that
21:54
Speaker 7: is starting to eat away at their bottom line. They
21:56
Speaker 7: can't really raise prices that much anymore. I think these
22:00
Speaker 7: retailers are in a difficult spot. They want to keep
22:02
Speaker 7: let prices low because of how the consumer is feeling,
22:06
Speaker 7: but also their costs are up on account of tariffs.
22:09
Speaker 3: I would imagine Dollar Tree has a lot less cushion.
22:11
Speaker 3: As you say, to raise prices, given who they're targeting,
22:15
Speaker 3: and given how they're seeing a lot of higher end
22:17
Speaker 3: consumers trade down to Dollar Tree than a Macy's. Macy's
22:20
Speaker 3: did say explicitly that price increases are on the way,
22:23
Speaker 3: didn't they.
22:24
Speaker 7: Yes, they said that they have already started and that
22:26
Speaker 7: they're coming. But their sales are strong, and I think
22:30
Speaker 7: you know they're in the midst of a turnaround. There
22:32
Speaker 7: were signs that Tony Springs strategy is taking hold. Comp
22:36
Speaker 7: sales rose more at his reimagined stores than they did overall.
22:40
Speaker 2: What is what's different about a quote unquote reimagine good question.
22:45
Speaker 7: I think that is a really good question. I think
22:47
Speaker 7: these are the stores where they believe that they can
22:49
Speaker 7: have the greatest edge. So they're doing a lot to
22:53
Speaker 7: reinvigorate sales. They're redesigning the stores, they're rethinking their assortment,
23:00
Speaker 7: and these are the stores that they say we should
23:03
Speaker 7: really watch. This is the future of Macy's.
23:06
Speaker 3: Let's put this into context. What we heard from Macy's,
23:08
Speaker 3: what we heard from Dollar Train. Of course, Dollar General
23:11
Speaker 3: earlier in the month, or was it this month or
23:14
Speaker 3: last week? In any case, what are we hearing from
23:18
Speaker 3: retailers overall because investors are punishing some and rewarding others.
23:22
Speaker 3: Even though the message, I would say is fairly consistent
23:25
Speaker 3: that consumers are spending, they're just being really, really weary
23:28
Speaker 3: and careful.
23:30
Speaker 7: I think you nailed it. I think retailers continue to
23:32
Speaker 7: point to strong sales momentum. People are shopping even in
23:37
Speaker 7: the face of tariffs and threats of inflation. I think
23:40
Speaker 7: the question I have is knowing that retailers stock up
23:44
Speaker 7: months ahead of time, They had their inventory that they
23:47
Speaker 7: sold through now months ago, perhaps even before tariffs. I
23:51
Speaker 7: don't think we've really seen the full paths through of
23:55
Speaker 7: the costs of tariffs yet, and I think we'll continue
23:57
Speaker 7: to see that in the coming months, and especially during
24:01
Speaker 7: the all important holiday shopping season.
24:04
Speaker 2: Let's go there. What's Is there a consensus building to
24:06
Speaker 2: how the holiday season may shape up?
24:09
Speaker 7: It's still early. I think the outlook isn't great so far.
24:16
Speaker 7: Although Tony Spring did say that the back to school
24:19
Speaker 7: shopping season was he used the word good, and he
24:22
Speaker 7: said that back to school is generally a good bell
24:25
Speaker 7: weather for the holiday shopping season. So there was a
24:28
Speaker 7: slight note of optimism there, but not totally bullish.
24:32
Speaker 3: That was Emily Cone, Bloomberg Consumer team leader, coming up
24:35
Speaker 3: a look at how the Trump administration is impacting the
24:38
Speaker 3: clean energy transition.
24:39
Speaker 2: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
24:42
Speaker 2: depth research and data on two thousand companies and one
24:44
Speaker 2: hundred and thirty industries.
24:45
Speaker 3: You can access Bloomberg Intelligence via bi go on the terminal.
24:49
Speaker 3: I'm Scarlet Foo.
24:50
Speaker 2: And I'm Paul Sweeney. This is Bloomberg.
24:59
Speaker 1: This is Bloomberg Intelligence with Scarlet Foo and Paul Sweeney
25:04
Speaker 1: on Bloomberg Radio.
25:06
Speaker 2: On Bloomberg Intelligence, we often look at research from Bloomberg
25:09
Speaker 2: and EF previously known as New Energy Finance.
25:12
Speaker 3: They're the team at Bloomberg that tracks and analyzes the
25:15
Speaker 3: energy transition from commodities to power, transport, industries, buildings, and
25:19
Speaker 3: agriculture sectors. And this week we took a look at
25:22
Speaker 3: how the Trump administration is impacting the clean energy transition.
25:25
Speaker 2: For more. Scarlett and I were joined by Antoine Wagner Jones,
25:28
Speaker 2: Bloomberg BNEF, head of Trade and Supply Chains. First to
25:32
Speaker 2: ask Antoine to explain how the Trump administration is now
25:35
Speaker 2: impacting the transition to cleaner energy.
25:38
Speaker 9: There's a few things that have happened that are quite dramatic.
25:40
Speaker 9: In recent months, there's been a bill that has been
25:42
Speaker 9: passed by the Trump administration which seeks to reverse a
25:46
Speaker 9: lot of what was brought in under Biden under the
25:48
Speaker 9: Inflation Reduction Act, which was this big climate bill that
25:51
Speaker 9: gave all of this federal money, mostly in the form
25:53
Speaker 9: of tax credits for clean energy. A lot of that's
25:56
Speaker 9: being cut. So there was a really big, high profile
25:58
Speaker 9: tax credit for electric vehicle that's going to be gone
26:01
Speaker 9: as of this month, and a lot of the other
26:03
Speaker 9: stuff is made much harder to access. So this is
26:07
Speaker 9: a big problem for many of the manufacturers who have
26:11
Speaker 9: led to over one hundred and ten billion dollars of
26:13
Speaker 9: announcements for factories in the United States. There's a lot
26:17
Speaker 9: of question marks about the fate of those factories and
26:19
Speaker 9: the business case under the current environment.
26:22
Speaker 3: Does the current administration want a transition to clean energy
26:25
Speaker 3: to green energy?
26:26
Speaker 9: The current administration is focused on a number of different things,
26:29
Speaker 9: such as when it comes to energy date load increasing
26:34
Speaker 9: due to data centences one a nuclear revival for the
26:38
Speaker 9: United States is another. When it comes to clean energy,
26:40
Speaker 9: when it comes to electric vehicles, those are things that
26:43
Speaker 9: are being actively diminished in terms of their rollout and
26:46
Speaker 9: support at a federal level. So the answer is no,
26:49
Speaker 9: they are pushing against it.
26:51
Speaker 2: So how are companies within the entire supply chain, how
26:56
Speaker 2: are they reacting?
26:57
Speaker 9: They're waiting and seeing force. For example, there's a number
27:02
Speaker 9: of different things that are happening where it's just not
27:03
Speaker 9: clear what the outcome is going to be. One of
27:05
Speaker 9: the things is that in the most recent bill that's
27:06
Speaker 9: been passed by the Trump administration, there's a number of
27:10
Speaker 9: rules around whether or not you can have any kind
27:13
Speaker 9: of Chinese involvement in a factory project at any real level.
27:17
Speaker 9: It seems incredibly expansive beyond what was done under the
27:20
Speaker 9: Biden administration, and the guidance for that isn't out yet.
27:24
Speaker 9: And that's just one of the things where uncertainty is
27:27
Speaker 9: just continuing. We're still waiting for clarifications on that specific rule.
27:31
Speaker 9: And then if you zoom out again the tariff situation,
27:33
Speaker 9: the volatility there. We've had recent news around you know,
27:37
Speaker 9: the ultimate Supreme Court decision, which will likely impact many
27:40
Speaker 9: of the so called reciprocal tariffs, is going to be
27:44
Speaker 9: you know, something that we are waiting for early next year,
27:46
Speaker 9: and That's just one example of how even with the
27:49
Speaker 9: tariff situation, things are changing by the day, and there's
27:51
Speaker 9: a lot of uncertainty there too. So in you know,
27:55
Speaker 9: in terms of new investments, very little is happening because
27:58
Speaker 9: people are waiting and seeing and that's due to the
28:00
Speaker 9: volatility not just in terms of federal support and the
28:03
Speaker 9: fate of those programs, but also in terms of trade policy.
28:06
Speaker 3: And there was the one big beautiful bill as well.
28:08
Speaker 3: How did that change up the landscape?
28:11
Speaker 9: So that scrapped the electric vehicle tax credit, for example,
28:15
Speaker 9: that is gone. That has also brought a whole host
28:18
Speaker 9: of what's called foreignenety of concern rules around accessing many
28:22
Speaker 9: of those tax credits. Those rules were in place under
28:25
Speaker 9: the Biden administration, but in a much more restricted form.
28:27
Speaker 9: These are being expanded be far beyond what they were,
28:31
Speaker 9: and the aim there is really interesting. Originally there was
28:33
Speaker 9: a thought that the Trump administration when it came to
28:35
Speaker 9: Chinese involvement investments in the US, would be much less ideological,
28:39
Speaker 9: much more quote unquote transactional. That doesn't seem to be
28:42
Speaker 9: the case with this bill, where suddenly you have a
28:44
Speaker 9: new series of rules which is going to make extremely
28:46
Speaker 9: hard for any project where there's any you know, any
28:50
Speaker 9: kind of doubt as to some Chinese investment in the
28:52
Speaker 9: form of debt financing inputs into a factory from going
28:55
Speaker 9: ahead and receiving tax credits. That's one big outcome from
28:59
Speaker 9: the spill, and we're still waiting on the guidance for
29:02
Speaker 9: that and how it's going to play out.
29:03
Speaker 2: I mean, does the US have the capability to be
29:06
Speaker 2: self sufficient in transitioning to cleaner energy or does it
29:12
Speaker 2: need a global supply chain.
29:13
Speaker 9: It needs a global supply chain. So what we've done,
29:15
Speaker 9: we've just published a huge report sort of detailing the
29:19
Speaker 9: current installed capacity for lots of different sectors in terms
29:22
Speaker 9: of factories online in the United States. We look at
29:25
Speaker 9: what's been announced, we make a call as to what
29:27
Speaker 9: could come online. And when it comes to some products
29:30
Speaker 9: like downstream products for things like solar modules, so solar
29:33
Speaker 9: panels in their finished form. When it comes to lifthiumine
29:36
Speaker 9: battery cells, so that's batteries in their finished form, the
29:39
Speaker 9: US actually has a pretty good shot at being self
29:41
Speaker 9: sufficient by twenty thirty we think. However, and this is
29:45
Speaker 9: a big however, when it comes to the inputs, the
29:47
Speaker 9: components that go into those things. So for a battery,
29:50
Speaker 9: it's stuff like the cathode, the anode, You're going to
29:52
Speaker 9: have to rely on other trade partners. If we suddenly
29:55
Speaker 9: have rules which shut out China from those supply chains,
29:58
Speaker 9: that means that the mapping exercise that we've don suddenly
30:00
Speaker 9: becomes quite relevant where you begin to say, oh, well,
30:03
Speaker 9: Japan has a surplus in separators that are used for
30:05
Speaker 9: making batteries. South Korea as a surplace in cathodes. And
30:09
Speaker 9: that's when you start having this sort of rejigging of
30:12
Speaker 9: all the different puzzle pieces and where procurement teams are
30:14
Speaker 9: going to be very busy over the next few months.
30:16
Speaker 3: Can any of that be brought back to be made
30:18
Speaker 3: in the US on shore manufacturing.
30:21
Speaker 9: That's the aim. And under the Biden administration, where you
30:23
Speaker 9: had not just tariffs that were relatively stable, but you
30:26
Speaker 9: also had visibility in terms of future support, and you
30:28
Speaker 9: also had demand side policies which meant that there'd be
30:31
Speaker 9: local demand for your product that was locked in. Even
30:34
Speaker 9: under those circumstances, still quite hard to do with the
30:36
Speaker 9: kind of price increases you see in the US. We've
30:39
Speaker 9: got a lot of announcements we'll see whether those factories
30:41
Speaker 9: get built now. But in terms of that midstream, we
30:43
Speaker 9: haven't seen as much in the way of announced investments,
30:45
Speaker 9: and it's very unlikely that we're going to see anything
30:47
Speaker 9: in the short term under the current environment. So the
30:49
Speaker 9: short answer is no, not anytime soon.
30:53
Speaker 3: Is it.
30:54
Speaker 2: What are the capital markets like for any of this
30:56
Speaker 2: these days? I would think with the uncertainty that you've
30:59
Speaker 2: laid out for capital markets must have they dried up.
31:03
Speaker 9: Yeah, capital for these it's become a lot harder, and
31:06
Speaker 9: we've seen a real fall in terms of VC funding
31:09
Speaker 9: for for example, for a lot of these projects, there's
31:11
Speaker 9: been a shift towards things like AI defense spending. And
31:15
Speaker 9: there's also some big question marks around, you know, the
31:18
Speaker 9: suitability of some of these early stage funds for funding
31:21
Speaker 9: clean energy and climate technology in general, the returns profiles
31:24
Speaker 9: are very different to many other sectors, and that means that, Yeah,
31:27
Speaker 9: that means that there's an increased relevance to the kind
31:30
Speaker 9: of policy changes we've been seeing recently. And actually, when
31:33
Speaker 9: it comes down to it, you really do need a
31:35
Speaker 9: lot of state support, even you know that that needs
31:38
Speaker 9: to be qualified when it comes to evs. That might
31:41
Speaker 9: be the case we're still going to see a lot
31:43
Speaker 9: of deployment of solar power, for example, and things like batteries,
31:47
Speaker 9: because costs have just gone down so dramatically that a
31:50
Speaker 9: lot of that will be built even without the kind
31:53
Speaker 9: of federal support that we saw until recently. So there
31:55
Speaker 9: is a silver lining for some sectors, but for many
31:58
Speaker 9: sectors we're going to see some real difficult in terms
32:00
Speaker 9: of financing.
32:01
Speaker 3: Our Thanks to Antoine Wagner Jones, Bloomberg bn EF, head
32:04
Speaker 3: of Trade and Supply Chains, we move.
32:06
Speaker 2: Next to some recent research by Bloomberg Intelligence on Environmental,
32:09
Speaker 2: social and governance investing.
32:11
Speaker 3: Now, in simple terms, ESG is a framework used to
32:14
Speaker 3: evaluate a company's management of environmental, social, or governance risks,
32:18
Speaker 3: and since the war in Ukraine, roughly half of the
32:21
Speaker 3: ESG registered equity funds in Europe have been allocating at
32:24
Speaker 3: least some capital to companies that manufacture, supply, or transport
32:28
Speaker 3: nuclear arms.
32:29
Speaker 2: Now, according to Bloomberg Intelligence, that number may only increase.
32:33
Speaker 2: This comes as recent guidance in an EU proposal leaves
32:35
Speaker 2: nuclear arms out of its definition of controversial weapons.
32:39
Speaker 3: For more guest hosts, Lisa Mattail and Alexis christoffers spoke
32:42
Speaker 3: with Shaheen contractor Bloomberg Intelligence senior ESG strategist.
32:46
Speaker 2: The first asked Shaheen to break down how ESG funds
32:48
Speaker 2: are tied to nuclear arms.
32:50
Speaker 10: Traditionally, I mean ESG funds defense. This whole thing has
32:54
Speaker 10: been quite controversial, so historically ESG funds tend to exclude
32:59
Speaker 10: such sectors such weapons. I guess now the companies I
33:04
Speaker 10: analyze are part of not just banks exclusionless you know,
33:07
Speaker 10: biggest one of the biggest asset owners, things that excluded.
33:11
Speaker 10: What's happened now is that the EU and a new rule.
33:14
Speaker 10: It's defined controversial weapons, but it's left nuclear weapons out,
33:19
Speaker 10: so it now defines it as cluster ammunition, land mines,
33:22
Speaker 10: things like that. So it's now explicitly not for the
33:26
Speaker 10: lack of better words, controversial according to the ALA.
33:28
Speaker 11: But doesn't that sit in direct conflict with what these
33:32
Speaker 11: ESG funds are supposed to be about, like ethically and
33:34
Speaker 11: morally or is this really not following the money at
33:38
Speaker 11: the end of the day.
33:39
Speaker 10: So it's it's I guess Traditionally ESG has been about
33:43
Speaker 10: you know, socially responsible investing, values investing. Actually those are
33:46
Speaker 10: two separate things. So if you want to go based
33:48
Speaker 10: on your values, your ethics and yes, but ESG now
33:53
Speaker 10: or you know, the way we analyze it, it's following
33:56
Speaker 10: the money. It's financially material metrics that lead to out how.
34:00
Speaker 11: It all leads there, because I mean, initially always do
34:02
Speaker 11: no harm, right, no significant harm? Correct, And so it's
34:05
Speaker 11: hard to make the argument that nuclear weapons may not
34:08
Speaker 11: do significant harm.
34:09
Speaker 10: So I would say a lot of these values things,
34:12
Speaker 10: they're so subjective. I'm not saying that they do significant harm,
34:15
Speaker 10: but I'm just saying it's so subjective and never changing.
34:18
Speaker 7: That's the point that is true.
34:20
Speaker 12: But it could boost returns if defense continues.
34:22
Speaker 2: To aub performed.
34:23
Speaker 10: Correct, So the two things it could booster, it turns.
34:25
Speaker 10: But at the same time, some values based investors might
34:29
Speaker 10: you know, it might go against their mandates. So I
34:32
Speaker 10: guess the point is we cannot assume that these funds
34:36
Speaker 10: now no longer have such exposures. It would lead to
34:39
Speaker 10: greater fund scrutiny. That's the point of this. You have
34:42
Speaker 10: to examine the fund.
34:43
Speaker 11: So who's going to be driving this push into these
34:46
Speaker 11: ESG funds sort of focusing or including now nuclear weapons.
34:51
Speaker 10: So driving the pushes it's always been Europe. If you're
34:53
Speaker 10: talking about you know who's investing into this, it's always
34:57
Speaker 10: been Europe. North America, i would say, is seeing a
34:59
Speaker 10: bit of pause when it comes to these kinds of investments.
35:02
Speaker 10: It has been for a while.
35:04
Speaker 13: And when you look into that, I was looking at
35:05
Speaker 13: some of the numbers that you put. You said, five
35:07
Speaker 13: ESG funds have seven percent or more of their portfolio
35:10
Speaker 13: invested in companies excluded. How significant is that figure?
35:14
Speaker 10: So seven percent of your portfolio in such companies, it's
35:19
Speaker 10: quite substantial. It's concentrated. Now the number behind that that five, Yes,
35:24
Speaker 10: she funds, it's not that much. I think, contrary to
35:27
Speaker 10: what people might think. You know, historically exposure to such
35:32
Speaker 10: companies that are involved in uklear weapons like Saffron Jacob Solutions,
35:36
Speaker 10: it hasn't increased. So before the war, the Russia Ukraine War,
35:41
Speaker 10: people might have thought it increased, but actually it didn't.
35:44
Speaker 10: But it could going forward.
35:46
Speaker 11: Russia's invasion of Ukraine did it push money into these
35:50
Speaker 11: ESG funds inclusion of nuclear weapons?
35:52
Speaker 10: So it did not push ESG funds to increase allocation
35:57
Speaker 10: into these companies. That's the point. And it's interesting because
36:01
Speaker 10: you would expect that it did, but I think not
36:04
Speaker 10: just bank you know, being on not just banks exclusion
36:06
Speaker 10: list has such a like stigma to it historically that
36:09
Speaker 10: it didn't that being said, that could change now.
36:12
Speaker 12: So I'm still confid. So why does the E you
36:15
Speaker 12: want to change things?
36:18
Speaker 10: I don't know, right.
36:23
Speaker 3: So I guess so let me so.
36:25
Speaker 10: Historically, the EU defined controversial weapons, as you know, according
36:30
Speaker 10: to international treaties and UN principles, so it was always
36:34
Speaker 10: up in the air as to whether what was included.
36:36
Speaker 10: So some asset managers exclude nuclear weapons, some didn't, so
36:40
Speaker 10: it was always a gray area. It was never defined.
36:42
Speaker 10: Now it's explicitly defined as not being included. If that
36:46
Speaker 10: makes sense.
36:47
Speaker 11: It does, it does, But what do they risk pushing
36:51
Speaker 11: away value based divestors.
36:53
Speaker 10: Yes, so that's the point. You know, it could boost returns,
36:55
Speaker 10: but then you have this conflict for people where this
36:59
Speaker 10: does not align with their value. So it's that dual conflict.
37:01
Speaker 10: So again the point is funds might need additional scrutiny.
37:06
Speaker 10: I can't if that doesn't align with my values. I
37:08
Speaker 10: can't assume that those companies are not in this sort.
37:11
Speaker 11: Of the next generation of investors are doing that because
37:13
Speaker 11: you're talking about younger investors where those things sort of
37:15
Speaker 11: matter in a way they maybe didn't for the prior generation.
37:18
Speaker 10: Yes, I mean, survey show that a lot of you know,
37:21
Speaker 10: research shows that how this pans out, we'd have to
37:25
Speaker 10: see as the younger generation takes on.
37:27
Speaker 12: Well, I was gonna statish, where where does this go
37:29
Speaker 12: from here?
37:30
Speaker 10: I think where does this go from here? So I
37:32
Speaker 10: think if we continue to focus on ESG as sort
37:35
Speaker 10: of risk and returns, I think that's why we go
37:37
Speaker 10: from here. These values based things are very subjective.
37:40
Speaker 3: Our thanks to Shaheen contractor Bloomberg Intelligence senior ESG strategists.
37:45
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37:48
Speaker 2: providing in depth research and data on two thousand companies
37:50
Speaker 2: and one hundred and thirty industries.
37:52
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37:54
Speaker 3: go on the terminal. I'm Scarlet Fox and.
37:57
Speaker 2: I'm Paul Sweeney. Stay with us. Today's top stories and
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Speaker 2: global business headlines are coming up right now.
38:03
Speaker 1: Mm hmm