Latest / Bloomberg Intelligence / BI Weekend: Oracle, Cracker Barrel Earnings, FDA Probe

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BI Weekend: Oracle, Cracker Barrel Earnings, FDA Probe · Bloomberg Intelligence

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Speaker 2: on some of the two thousand companies in one hundred
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Speaker 2: and thirty industries our analysts cover worldwide. Today, we'll look
0:53
Speaker 2: at why the computer tech company Oracle reported disappointing cloud
0:56
Speaker 2: sales last quarter. Plus, we'll look at how the one
0:58
Speaker 2: trillion dollar conglomerate for Ruture Hathaways preparing for the retirement
1:02
Speaker 2: of CEO Warren Buffett. At first, we begin with a
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Speaker 2: survey from Bloomberg Intelligence entitled AI's Cross Industry Disruption. It
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Speaker 2: dives into how various industries are approaching AI implementation. It's
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Speaker 2: also the largest study of c suite executives that BI
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Speaker 2: has conducted. From more on this guest host Christine Keino
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Speaker 2: and I were joined by Matthew Bloxham Bloomberg Intelligence tech Analysts.
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Speaker 2: We first asked Matt to break down this BI survey.
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Speaker 4: So this was a big survey we did, polling the
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Speaker 4: views of six hundred and four c suite executives across
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Speaker 4: the range of industries across the world. Where do you
1:36
Speaker 4: kind of get trying to get a sense on how
1:38
Speaker 4: corporates are assessing the current AI situation and what they
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Speaker 4: think is going to do to their businesses over the
1:45
Speaker 4: next kind of two to three years. So we kind
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Speaker 4: of looked at the motivations for AI investment, what it
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Speaker 4: could do to headcount, well they're expecting in terms of
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Speaker 4: revenue and profit uptick. And we had some kind of
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Speaker 4: interesting results out of the survey, you know, not surprise,
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Speaker 4: perhaps AI is very much at the top of the
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Speaker 4: c suite agenda. Something like thirty six percent of those
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Speaker 4: polls said it was their top strategic priority. In another
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Speaker 4: forty seven percent said it was within the top three
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Speaker 4: strategic objectives for them. When we looked and asked about
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Speaker 4: the main objectives behind their AI strategies, what came out
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Speaker 4: top was improving operational efficiency, which was number one with
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Speaker 4: forty seven percent of the respondents, and in second place
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Speaker 4: was boosting a revenue at twenty one percent. Interestingly, headcount
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Speaker 4: cuts were quite low down the pecking order. Only thirteen
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Speaker 4: percent of respondents put that as their top priority, and
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Speaker 4: actually it was the highest ranked in terms of the
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Speaker 4: least priority. So I think it's interesting that companies are
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Speaker 4: looking to boost productivity, but they're not afraid to make
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Speaker 4: investments both in technology and headcount in the near term
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Speaker 4: to kind of release those opportunities. And actually, on a
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Speaker 4: three year view, sixty two percent of respondents said they
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Speaker 4: expect AI to lead to an increase in headcount over
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Speaker 4: the next three years, an increase, not a decrease, and
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Speaker 4: the average increase they're looking at is about four percent.
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Speaker 4: So that kind of flies in the face a little
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Speaker 4: bit of you know, a lot of the kind of
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Speaker 4: headlines we see about job cuts. I think overall, corporate
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Speaker 4: see the need to invest more in staff, you know,
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Speaker 4: to rule out their AI strategies in the coming years. Yeah.
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Speaker 5: Yeah, well, Matt, you mentioned thirty six percent of C
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Speaker 5: suites now rank AA as their top priority. That number
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Speaker 5: actually strikes me as a little low. I would have
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Speaker 5: thought it would be at least half of the people's survey.
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Speaker 5: But what do you think, is that something that's just
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Speaker 5: set to grow in future surveys as really kind of
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Speaker 5: AI becomes central to a lot of companies workflows these days.
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Speaker 4: Yeah, I think so. I mean, you know, obviously, if
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Speaker 4: you if you add the forty seven percent that set,
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Speaker 4: it's in the top three. I mean, you know, an
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Speaker 4: overall top three priority gives you the kind of majority
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Speaker 4: of the respondents. And obviously companies do have to wrestle
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Speaker 4: with lots of other issues too. You know that there
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Speaker 4: is going on in the world beyond AI, and obviously
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Speaker 4: trade policy is another big thing that's probably on the
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Speaker 4: radar for a lot of these companies too. So yeah,
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Speaker 4: you know, maybe it will kind of inch up, But
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Speaker 4: I think you've given that aggregate, you know, age percent
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Speaker 4: plus in the top three. Probably what you'd expect to see, Matthew.
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Speaker 2: How about return on investment here? That's kind of what
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Speaker 2: the street's starting to ask for now. We know these
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Speaker 2: companies can spend big money on AI, but what's the
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Speaker 2: return for shareholders?
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Speaker 4: Yeah, I think that's still very opaque. And actually, when
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Speaker 4: we asked the respondents to flag the biggest roadblocks they
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Speaker 4: could see to AI deployment, the investment needed in AI,
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Speaker 4: and the question marks around the return on investment, we're
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Speaker 4: definitely up there amongst some of the most important concerns
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Speaker 4: that respondents have, alongside data security and clean data. We
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Speaker 4: didn't ask much of the most specific ROI expectations cause
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Speaker 4: we just kind of get the sense that it's a
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Speaker 4: bit too early to get an accurate read on that.
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Speaker 4: I think most companies are still kind of at a
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Speaker 4: relatively early stage of their AI trials. You know, lots
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Speaker 4: of them have moved out of the kind of testing lms,
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Speaker 4: they're into pilot phases, some of them are even moving
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Speaker 4: into scale deployment. I think it's fair to say a
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Speaker 4: lot of them are not really quite sure yet what
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Speaker 4: the return is going to be and how quick it's
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Speaker 4: going to come. And obviously it's kind of a bigger
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Speaker 4: issue for the wider tech sector. And you mentioned Oracle
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Speaker 4: as a kind of barometer for the kind of broader
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Speaker 4: pulse on AI, and I think the twenty twenty six
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Speaker 4: is going to be a really crucial year for kind
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Speaker 4: of what corporates make of the midterm ROI. And you know,
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Speaker 4: if they don't see a big ROI, then that's probably
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Speaker 4: going to slow the pace of revenue growth, and that's
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Speaker 4: going to have a knock on effect to the levels
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Speaker 4: of investment we're seeing made by the likes of Oracle
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Speaker 4: and Open Eye on the revenues that bringing in.
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Speaker 2: All right, thanks to Matthew Bloxam Bloomberg Intelligence tech analyst.
6:16
Speaker 2: We move next to some news in the biotech space.
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Speaker 2: This week, we heard that the Food and Drug Administration
6:21
Speaker 2: is investigating whether COVID nineteen vaccines caused deaths in adults.
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Speaker 2: It's part of a safety review that earlier here to
6:27
Speaker 2: just be focused on children, and the investigation comes at
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Speaker 2: a time when US Health and Human Services Secretary Robert F.
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Speaker 2: Kennedy Junior is upbending long standing guidance for a wide
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Speaker 2: range of vaccines. From more on this guest host Christina
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Speaker 2: Quino and I were joined by Sam Fazzelli, Bloomberg Intelligence
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Speaker 2: director of Research for Global Industries and a senior pharmaceuticals analyst.
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Speaker 2: We first asked Sam to break down what we know
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Speaker 2: about the FDA's investigation.
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Speaker 6: We don't know anything. Right. Last week we heard that
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Speaker 6: they've got data that shows that there were ten children's deaths.
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Speaker 6: Where's the data? Show us? Right? They go and use
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Speaker 6: this thing called VERSE, the Vaccine Adverse Events Reporting System,
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Speaker 6: which is totally voluntary. I can go on there and
7:08
Speaker 6: say I had chicken nuggets just around the time as
7:12
Speaker 6: my COVID shot and I had that allergic reaction, and
7:16
Speaker 6: they go, oh okay, oh dear, So I can put
7:18
Speaker 6: that on there right in order to do an analysis
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Speaker 6: of that database, which we as endless try and do,
7:23
Speaker 6: which is very complicated because you need all the case background,
7:27
Speaker 6: who was that patient, what happened to them? You need
7:29
Speaker 6: to do the work. Fine, I believe that they've done
7:33
Speaker 6: the work. Show us where's the transparency there here? I'm
7:36
Speaker 6: pretty sure I don't know for a fact that they're
7:39
Speaker 6: using the same system. Do you see people? I mean,
7:42
Speaker 6: of course, that's a ridiculous question for us falling over
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Speaker 6: and dying in the streets after getting COVID shots all
7:47
Speaker 6: the time. There are the relevant there are issues that
7:50
Speaker 6: happen a lot of people to take COVID just these
7:52
Speaker 6: days are the elderly, which by definition have a higher
7:56
Speaker 6: probability of complications that in general. So we need to
8:00
Speaker 6: keep an eye on this. I want to see the
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Speaker 6: data and I want it properly scrutinized. Let us do that.
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Speaker 5: Yes, well, I mean, obviously, I guess it seems like
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Speaker 5: it's in the earth that it is investigation. But I
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Speaker 5: mean walk is to kind of the potential impact of this,
8:18
Speaker 5: right I Potentially you could affect public health policy, and
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Speaker 5: then potentially that will have some bearing on how companies
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Speaker 5: move forward, I especially the vaccine providers presumably.
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Speaker 6: Yeah, I mean so two or three things can happen.
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Speaker 6: The if you can say, well, actually we didn't find
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Speaker 6: the link, because it just says that they're looking at it.
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Speaker 6: Number two, they say we found the link, We're going
8:39
Speaker 6: to put a black box morning into COVID vaccines. Fine,
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Speaker 6: that reduces people, that increases people's hesitancy potentially, Or they
8:46
Speaker 6: can go and say we want to take it off
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Speaker 6: the market. I don't think they'll do that. But let's say,
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Speaker 6: let's get there. There are two companies that are most
8:53
Speaker 6: exposed to this. Why is there? Of course has is
8:56
Speaker 6: one of the companies that sell the vaccine, but I mean,
8:58
Speaker 6: you know, there's a lot more going on, right. The
9:01
Speaker 6: ones that are much more leveraged to the vaccines are
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Speaker 6: Moderna and BioNTech. What I find interesting is a Moderna
9:09
Speaker 6: who is much more leveraged to it because they're silly
9:11
Speaker 6: in themselves. They have a less of a cash cushion
9:15
Speaker 6: than BioNTech has. Let's say, the end of the year
9:18
Speaker 6: this year is seven billion dollars in the bank. Biontics
9:20
Speaker 6: are eighteen billion dollars in the bank, and yet that's
9:23
Speaker 6: the Biotic share price that gets hit post And I
9:25
Speaker 6: don't understand why Moderna is more exposed because that cash
9:30
Speaker 6: cushion is lower. So if your revenue the drops, then
9:32
Speaker 6: you're going to have an issue. Of course, they've been
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Speaker 6: very good at cost management, so that's where I think
9:37
Speaker 6: this could end up if it goes really the wire
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Speaker 6: and they go, right, we're not going to suggest this anymore,
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Speaker 6: which would be I think a tragedy for the US.
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Speaker 2: So Sam, we've got we've been ten months into this administration.
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Speaker 2: We've got a US Health and Human Services Secretary, Robert F. Kennedy.
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Speaker 2: We've been X number of months into his leadership. How
9:56
Speaker 2: is how are farmer companies and biotech companies trying to
10:00
Speaker 2: work with this new administration because there's a lot of
10:04
Speaker 2: one to argue, there's all, you know, a lot of
10:05
Speaker 2: headbutting there.
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Speaker 6: Potentially it doesn't look like people are that worried about it.
10:10
Speaker 6: But I promise you if I went on our anonymous
10:14
Speaker 6: drug chat with clients, about two thousand people on it,
10:18
Speaker 6: and I asked, how worried are you, I tell you
10:22
Speaker 6: that no one's going to say zero. There are There's
10:25
Speaker 6: always this background and worry. Right. The thing is the
10:28
Speaker 6: sector is doing well. Only this week so far we've
10:30
Speaker 6: had close to two billion dollars of money raised from
10:32
Speaker 6: companies with good data that's driven the share pricess of
10:36
Speaker 6: this is between five and six companies. So the sectors thriving.
10:40
Speaker 6: We need to make sure the FDA is in a
10:43
Speaker 6: place that will have very clear guideline at of people
10:46
Speaker 6: know what they're dealing with and not get advice today
10:48
Speaker 6: that in six months they go, well, whatever we said,
10:50
Speaker 6: then we don't we have a different view now, right,
10:53
Speaker 6: So that is a problem and there is something to
10:56
Speaker 6: worry about there. Let's hope that twenty twenty six becomes
10:59
Speaker 6: a lot more stable for the FDA with logical, scientific
11:04
Speaker 6: based decisions.
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Speaker 5: Yeah, well, Sam, you know, speaking of the sector is
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Speaker 5: doing overall. But what do you think is going to
11:09
Speaker 5: be the key differentiator amongst the companies between the successes
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Speaker 5: and I guess the less successful in twenty twenty six.
11:18
Speaker 6: It's always been the same clinical data. Get me a
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Speaker 6: drug that's showing me clean data. Don't give me press
11:24
Speaker 6: releases with some cut off the data, and the next
11:27
Speaker 6: press release is a different cut of the data. Publish
11:30
Speaker 6: dator take it to medical conferences. The reason these companies
11:32
Speaker 6: are up, most of them and have been able to
11:35
Speaker 6: raise money is that that they've been very transparent with
11:37
Speaker 6: their data they presented. You can analyze it. Some more
11:41
Speaker 6: transparent or some of them are presenting a medical conferences
11:44
Speaker 6: like the ones we just had ash the American Societical Hematology.
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Speaker 6: That is what drives this sector. Give me good clinical data.
11:51
Speaker 6: Of course, M and A is great because they come
11:53
Speaker 6: and you get a price and you decide to share.
11:55
Speaker 6: Price goes there. But it's clinical data that is that
11:58
Speaker 6: data that gets them to being taken out our.
12:00
Speaker 2: Thanks to Sam Fazzelli, Bloomberg Intelligence, Director of Research for
12:03
Speaker 2: Global Industries and senior pharmaceuticals analysts. Coming up, we'll look
12:07
Speaker 2: at why the restaurant and gift shop chain Cracker Barrel
12:10
Speaker 2: cut its sales outlook for the year. You're listening to
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Speaker 2: Bloomberg Intelligence on Bloomberg Radio, providing in research and data
12:16
Speaker 2: on two thousand companies and one hundred and thirty industries.
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Speaker 2: You can access Bloomberg Intelligence via Bigo on the terminal.
12:21
Speaker 2: I'm Paul Sweeney and this is Bloomberg.
12:28
Speaker 1: This is Bloomberg Intelligence with Scarlett Foo and Paul Sweeney
12:33
Speaker 1: on Bloomberg Radio.
12:34
Speaker 2: We move next to some earnings in the tech sector.
12:37
Speaker 2: This week, the computer tech company Oracle posted quarterly cloud
12:40
Speaker 2: sales that missed analyst expectations. This suggests that it will
12:43
Speaker 2: take longer than expected for the company's recent huge AI
12:46
Speaker 2: bookings to pay off. For more on all of this,
12:48
Speaker 2: guest's hosts Isabel Lee and I were joined by Anna
12:50
Speaker 2: rag Rana, Bloomberg Intelligence technology analysts. We first asked him
12:53
Speaker 2: to give us his take on Oracle's results so there were.
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Speaker 7: A few thanks to keep in mind. You know, the
12:58
Speaker 7: number one thing is cloud infrastructure growth consensus was sixty
13:03
Speaker 7: nine percent. They came at sixty six. I know it's
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Speaker 7: a very big number. However, in the cloud world, missing
13:09
Speaker 7: by even one percentage point.
13:11
Speaker 2: Is not good.
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Speaker 7: So that's first thing. But you know, there's a very
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Speaker 7: logical reason about it. Everybody can see the backlock, so
13:16
Speaker 7: it's not as if they don't have a business there.
13:18
Speaker 7: But converting that backlog into sales is an issue. Everybody
13:21
Speaker 7: knows that there is a capacity constraints out there, whether
13:23
Speaker 7: it's data center, whether it's networking, et cetera. Power is
13:26
Speaker 7: a very big issue for example. So that's one area
13:29
Speaker 7: of it. But although I would say the management did
13:31
Speaker 7: not harp on it as much as we would wanted
13:33
Speaker 7: them to be that to explain why the growth can
13:37
Speaker 7: improve going forward. So that's one factor. But I think
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Speaker 7: the biggest question is something that we had discussed earlier
13:42
Speaker 7: also is everybody is questioning that out of their big backlock,
13:45
Speaker 7: which is over five hundred billion right now, three hundred
13:48
Speaker 7: plus billion of that comes from OpenAI. Now open ai
13:51
Speaker 7: currently or the order book is from open Ai. By
13:54
Speaker 7: the end of this year, open ai will have a
13:57
Speaker 7: revenue rund it of about twenty billion. So everybody is saying, okay,
14:00
Speaker 7: well tell me, if you have revenue of twenty billion,
14:03
Speaker 7: how are you going to spend three hundred billion just
14:05
Speaker 7: with Oracle? So there's a big question mark. But then
14:07
Speaker 7: your question is, well, why didn't this happen when they
14:10
Speaker 7: first announced it? Well, their bottle was at the top
14:13
Speaker 7: at that point, and right now Google's Gemini has caught up,
14:16
Speaker 7: So people don't know what will open AI's future look
14:19
Speaker 7: like two years from now, three years from now, and
14:21
Speaker 7: so forth. So there are multiple factors that are going
14:24
Speaker 7: into this equation. And not to mention that capex is
14:27
Speaker 7: going to go up by fifteen billion, so thirty five
14:29
Speaker 7: billion going to fifty billion. So it's a big, big,
14:33
Speaker 7: you know, change across four or five different vectors that
14:37
Speaker 7: are having an impact.
14:38
Speaker 8: So the cloud strategy of Oracle continues to evolve. What
14:41
Speaker 8: is the next major inflection point for you when you
14:44
Speaker 8: see these cloud companies really move towards more AI driven efforts.
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Speaker 7: So the big thing is that five hundred billion of
14:52
Speaker 7: backlock needs to bleed into revenue. For that, they need
14:55
Speaker 7: to open new data center. But even to open new
14:58
Speaker 7: data center, they need more cash. So the big catalyst
15:01
Speaker 7: for them is they need to go out. Most likely
15:04
Speaker 7: they need to create a special purpose vehicle where they
15:06
Speaker 7: can raise funds with the help of private equity investors,
15:10
Speaker 7: private credit and basically you know, keep that off Oracle's
15:14
Speaker 7: balance sheet, and that will help pacify this fears that
15:18
Speaker 7: they actually have a way to finance this big order
15:21
Speaker 7: book that they have.
15:22
Speaker 2: All right, look, well you mentioned open AI. Can you
15:24
Speaker 2: re fresh my memory? Because I have no idea where
15:27
Speaker 2: do they get their money that they like? Where are
15:30
Speaker 2: they getting the money to? I don't do all this stuff.
15:33
Speaker 7: So the single biggest is the consumer app right now,
15:35
Speaker 7: That's where most of the money is coming in because
15:38
Speaker 7: you know, if you want the best model, you're going
15:40
Speaker 7: to pay twenty dollars a month. I mean, you can
15:42
Speaker 7: get the free version of it. But that's one area.
15:44
Speaker 7: They have over nine hundred million users right now, but
15:47
Speaker 7: only a small portion of them are paying customers. So
15:49
Speaker 7: that's one. Second is if you as a company, let's
15:52
Speaker 7: say you're you know, let's call a hypothetical bank and
15:55
Speaker 7: you're creating a chat pot which needs intelligence or in
15:59
Speaker 7: large language, more, you're going to use APIs from open
16:02
Speaker 7: Ai and that gets embedded intelligence into whatever system that
16:06
Speaker 7: you're creating, your chatboard, but that becomes smarter. They get
16:10
Speaker 7: paid from that. So those are the two I think
16:12
Speaker 7: big elements or the big sources of revenue for them.
16:16
Speaker 7: And there is a huge you could say, looking ahead,
16:20
Speaker 7: all the enterprises around the world will have some intelligence
16:23
Speaker 7: into their code applications and they're going to use model
16:26
Speaker 7: from somebody, whether it's Google, whether it's Entropic, whether it's
16:29
Speaker 7: open Ai.
16:29
Speaker 2: Our thanks to Ana rog Rana, Bloomberg Intelligence technology analyst.
16:33
Speaker 2: We move next to some news at Berkshire Hathaway. This week,
16:36
Speaker 2: the firm annows a handful of leadership changes, including the
16:39
Speaker 2: retirement of its longtime chief financial officer, Mark Hamberg. This
16:43
Speaker 2: comes as the one trillion dollar conglomerate prepares for the
16:45
Speaker 2: retirement of CEO and billionaire investor Warren Buffett. For more
16:49
Speaker 2: on this, co host Scarlo fil and I were joined
16:51
Speaker 2: by Matthew Palasola, Bloomberg Intelligence senior analysts covering the P
16:55
Speaker 2: and C insurance industry. Your first AaTh Matthew to talk
16:58
Speaker 2: to us about some of the turner on we're seeing
17:00
Speaker 2: at Berkshire.
17:02
Speaker 9: So the big news I think the bigger news of
17:04
Speaker 9: the announcements was Todd Colmbs, the one of the investment
17:08
Speaker 9: deputies and CEO of Geico, is moving to JP Morgan.
17:13
Speaker 9: So I don't know if that was a plan thing
17:15
Speaker 9: or what, but that seems like an, you know, kind
17:19
Speaker 9: of an unwelcome shake up in light of Buffett leaving
17:22
Speaker 9: at the end of the year. I would say his
17:26
Speaker 9: investment track record at Berkshire not very transparent. They don't
17:30
Speaker 9: really tell you what the investment managers are doing aside
17:33
Speaker 9: from Buffett, so you know, I think many of the
17:35
Speaker 9: big moves are made by Buffett anyway. And I actually
17:38
Speaker 9: do think that Geico had some issues with loss costs
17:43
Speaker 9: going up, so the cost of car accidents was going
17:45
Speaker 9: up a lot. Combs's reaction was to like cut a
17:49
Speaker 9: lot of costs and shed a lot of policies, which
17:52
Speaker 9: is actually the opposite of what I thought Berkshire would do.
17:54
Speaker 9: I thought they'd kind of ride it out and maybe
17:56
Speaker 9: gain some market share. And I do think Progressive handle
17:59
Speaker 9: that environment a little bit better, so I think it
18:02
Speaker 9: will be a manageable loss. But probably the biggest.
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Speaker 3: News, yeah, Todd Coms. We should mention was already a
18:07
Speaker 3: JP Morgan board member, so he had a relationship with
18:11
Speaker 3: the bank and he's going to be advising Jamie Diamond
18:14
Speaker 3: and other senior JP Morgan leaders on strategic issues. Let's
18:18
Speaker 3: talk a little bit about the changes that involve a
18:21
Speaker 3: new General Council position over at Berkshire as well. So
18:25
Speaker 3: this is a brand new position that they're creating versus
18:28
Speaker 3: I guess in the past they just relied on the
18:30
Speaker 3: daid outside.
18:30
Speaker 9: Help outsourced it, I believe to a firm that was
18:34
Speaker 9: associated with Charlie Munger. You know, not a huge deal,
18:40
Speaker 9: I don't think. I mean, I think it makes sense
18:41
Speaker 9: for them to have their own GC. Why not I
18:44
Speaker 9: mean Berkshire Hathaway. I think really the outsourcing was in
18:47
Speaker 9: part due to it being you know, related to the
18:49
Speaker 9: company anyway. So I think it's important. Obviously they're going
18:53
Speaker 9: to face tons of legal issues across all of their companies,
18:56
Speaker 9: and I think, you know, probably each one has their
18:58
Speaker 9: own individual but it would be uh, probably makes a
19:01
Speaker 9: lot of sense to have this all roll up to
19:02
Speaker 9: someone at the top.
19:04
Speaker 2: What's the call, what's the sentiment out there on the street.
19:07
Speaker 9: It's tough because you can look at it and say,
19:09
Speaker 9: out of their core competencies, are they going to do
19:12
Speaker 9: any of that any better? Now, right, you've got Buffett
19:15
Speaker 9: going away. You've got a g Chain who is in
19:18
Speaker 9: charge of the insurance operations. He's he's getting old, he's
19:22
Speaker 9: been selling a lot of stocks and maybe he leaves
19:25
Speaker 9: and he was kind of the magic sauce behind a
19:28
Speaker 9: lot of the insurance business. So you know, you've kind
19:31
Speaker 9: of got these two titans of the company perhaps being
19:35
Speaker 9: gone and saying, well, how could they be good as
19:37
Speaker 9: good in investing or as good at the insurance business.
19:40
Speaker 9: And it would be tough to say that they would be.
19:42
Speaker 9: But when you have Able coming in, it was a
19:44
Speaker 9: positive sign of some shake up. And maybe you know
19:47
Speaker 9: his strength is he's not Buffett. Well, his weaknesses he's
19:50
Speaker 9: not Buffet also, right, but his strength is he doesn't
19:53
Speaker 9: have to do things the same way, and you know,
19:55
Speaker 9: perhaps he takes a different lookie capital allocation. So I
19:58
Speaker 9: think the street's hopeful that we see some more capital
20:00
Speaker 9: allocation come out of Berkshire.
20:02
Speaker 2: All right, thanks to Matthew Pallizola, Bloomberg Intelligence Senior insurance analyst.
20:06
Speaker 2: We move next to some news at the American restaurant
20:08
Speaker 2: and gift shop chain Cracker Barrel this week the change
20:11
Speaker 2: that it expects sales for the current fiscal year to
20:13
Speaker 2: fall faster than it previously forecast. This suggests Cracker Barrel
20:17
Speaker 2: brand is hurting from the firestorm that erupted following its
20:20
Speaker 2: attempts to use a new streamline logo. The company also
20:23
Speaker 2: planned to update its dining rooms to give them a
20:25
Speaker 2: more modern feel. For more on all of this, guest
20:28
Speaker 2: host Christine Aquino and I were joined by Michael Haylen,
20:31
Speaker 2: Bloomberg Intelligence Senior restaurant and food service analyst. First asked
20:35
Speaker 2: Michael to break down Cracker Barrow's most recent earnings report.
20:38
Speaker 10: Guidance was cut, and this was their fiscal first quarter,
20:42
Speaker 10: so it's always tough to have a guidance revenue and
20:47
Speaker 10: EBITDAC cut after your first report. But they hadn't seen
20:52
Speaker 10: a bounce yet in their traffic post logo change, controversy
20:57
Speaker 10: and everything that went along with it, you know, on
21:01
Speaker 10: the positive side, they said, you know, traffic has now
21:04
Speaker 10: steadied at this down ten to eleven percent level, which
21:08
Speaker 10: is translating into a you know, a down a mid
21:10
Speaker 10: single digit same store sales. You know, so if you're
21:15
Speaker 10: if you're a glass half full investor, you're saying that,
21:18
Speaker 10: you know, after the stabilization comes in improvement. You know,
21:23
Speaker 10: their new guidance has a pretty wide range. So the
21:26
Speaker 10: low end of the range is assuming no improvement through
21:29
Speaker 10: year end, which we think could be sounds pretty conservative
21:32
Speaker 10: to us, you know, and then on the higher end
21:35
Speaker 10: they would see a gradual slow improvement in traffic going forward.
21:40
Speaker 10: So what are they going to do? You know, it's
21:43
Speaker 10: it's going to be a continue to be about improving
21:46
Speaker 10: the operations, right. That's been you know, a key tenant
21:50
Speaker 10: under under CEO Julie Messino. It's also going to be
21:54
Speaker 10: food innovation. It's going to be Southern favorites, it's going
21:56
Speaker 10: to be twists on old classics. It's going to bring
22:00
Speaker 10: be bringing back items that people love and want to
22:03
Speaker 10: see return to the menu. But I think what really
22:08
Speaker 10: stood out is their willingness to listen more closely to
22:13
Speaker 10: their customers. I think that's a big key point of
22:17
Speaker 10: focus for them moving forward after the controversy that they suffered.
22:21
Speaker 5: Well, Michael, So in terms of what are they going
22:23
Speaker 5: to do right, it seems as a cutting capex is
22:26
Speaker 5: a part of the plan. Is that something that you
22:28
Speaker 5: think wood single discipline or does it actually risk slowing
22:32
Speaker 5: to turn around even more?
22:35
Speaker 10: Well, they're going to still refresh the stores. What they're
22:39
Speaker 10: cutting back on is a more extensive remodel, which was
22:45
Speaker 10: in tandem with the logo change, which was something that
22:49
Speaker 10: was angering customers.
22:50
Speaker 2: Right.
22:51
Speaker 10: So I think the capex change is probably you know,
22:56
Speaker 10: the lowered capex is probably smart. But they're gonna continue
23:00
Speaker 10: to refresh their stores. They're gonna continue to give them
23:03
Speaker 10: a fresh coat of pain, improve floors where they need
23:06
Speaker 10: to clean up the bathrooms, things of that nature that
23:08
Speaker 10: nobody's gonna get up in arms over.
23:12
Speaker 2: I'm actually surprised in hindsight that maybe this manager team
23:15
Speaker 2: kept their jobs there. I mean, this was a real
23:17
Speaker 2: self inflicted wound there. What's the shareholder's been saying. Has
23:22
Speaker 2: it been any pushback?
23:23
Speaker 10: Yeah, So listen, Julie Messino. The you know that you
23:26
Speaker 10: make a great point, Paul and Julie Messino. The reason
23:30
Speaker 10: why I believe she's still there is that she was
23:32
Speaker 10: doing a great job until this controversy hit. You know,
23:35
Speaker 10: this is a chain that had been bleeding traffic for years. Right,
23:40
Speaker 10: They've been really struggling for a long time to bring
23:43
Speaker 10: in younger consumers, right, and she had shown pretty good
23:48
Speaker 10: success over the twelve months leading into the logo change.
23:54
Speaker 10: Same store sales at the restaurants were up five percent
23:58
Speaker 10: in the August quarter. So I think that's why the
24:02
Speaker 10: proxy fight kind of failed, the attempt to remove her
24:06
Speaker 10: from the board failed, and why she still has her
24:09
Speaker 10: job right now is that this chain was a mess
24:12
Speaker 10: prior to her arrival, and she was showing some pretty
24:15
Speaker 10: good progress up until August o.
24:18
Speaker 2: Right, thanks to Michael halein Bloomberg Intelligence, senior restaurant and
24:20
Speaker 2: food service analyst coming up. But look at how earnings
24:23
Speaker 2: at the food and beverage company Campbell's were impacted by
24:26
Speaker 2: the holiday season. You're listening to Bloomberg Intelligence on Bloomberg Radio,
24:29
Speaker 2: providing in depth research and data on two thousand companies
24:32
Speaker 2: and one hundred and thirty industries. You can access Bloomberg
24:35
Speaker 2: Intelligence via Bigo on the terminal. I'm Paul Sweeney, and
24:37
Speaker 2: this is Bloomberg.
24:47
Speaker 1: This is Bloomberg Intelligence with Scarlett Foo and Paul Sweeney
24:51
Speaker 1: on Bloomberg Radio.
24:53
Speaker 2: We moved next to the quarterly earnings for the food
24:55
Speaker 2: and beverage company Campbell's, known for its iconic soups and snacks.
24:59
Speaker 2: This week, the company reported first quarter earnings that beat
25:01
Speaker 2: analysts expectations. This was positive largely thanks to some holiday
25:05
Speaker 2: inventory build by retailers. For more on this and her
25:08
Speaker 2: outlook on packaged foods, Scarlett and I were joined by
25:10
Speaker 2: Deanna Pain Bloomberg Intelligence Consumer staples analysts. We first asked
25:15
Speaker 2: about Campbell's two businesses, that snacks business and the meals
25:19
Speaker 2: and beverages portfolio.
25:20
Speaker 11: You know, for meals and beverages, there's some headwinds on
25:24
Speaker 11: ready to serve soup, whereas broth and condensed soup, which
25:28
Speaker 11: is usually used in cooking, is improving. You know, you
25:32
Speaker 11: have V eight, which is not really it's a brand
25:35
Speaker 11: that is not really doing that well. So you do
25:39
Speaker 11: well to me.
25:40
Speaker 2: To me, that's like my healthy eating for the day.
25:42
Speaker 2: When I drink a little one in the morning, when you're.
25:44
Speaker 3: On a plane, you'll get a VA and you're like,
25:46
Speaker 3: I'm good.
25:46
Speaker 4: I'm good, I'm good.
25:47
Speaker 2: Workout, no need to go to the gym exactly.
25:50
Speaker 11: So, but it's still facing some headwinds for snacks. It's
25:55
Speaker 11: it's kind of I found out odd because there seems
25:59
Speaker 11: to be a buyer cation of the consumer trends. Here.
26:02
Speaker 11: You have salty snacks being you know, challenged by people
26:07
Speaker 11: trying to eat healthier, reducing their sodium, but then you
26:11
Speaker 11: have cookies outperforming. So I guess it's the salad with
26:15
Speaker 11: the fries.
26:16
Speaker 3: All right, which I love.
26:17
Speaker 2: By the way, Yes, yeah, absolutely. Campbell Wills agreed to
26:21
Speaker 2: take a forty nine percent stake in Lot Regina. What
26:24
Speaker 2: is law Regina? What's Campbell's trying to do here?
26:26
Speaker 11: Yeah, so that is the supplier for REOs, which they
26:30
Speaker 11: bought it a year or so ago, and that it
26:34
Speaker 11: makes it kind of like have a little bit more
26:37
Speaker 11: control on the supply side. There has been some headwinds
26:41
Speaker 11: on this brand because tomatoes are being exported or imported
26:45
Speaker 11: to the United States, so they have to face some tariffs.
26:48
Speaker 11: So you know, with this, they're they're trying to not
26:51
Speaker 11: only off sat tyres, but have a little bit more
26:53
Speaker 11: on the on the supply chain, have a little bit
26:56
Speaker 11: more control on that.
26:57
Speaker 2: Here's my Raios story. I mean, it's it for people
26:59
Speaker 2: to art in New York City. It's a very famous
27:01
Speaker 2: restaurant in New York. It's very difficult to get a
27:03
Speaker 2: table there, to get a reservation. On my thirty years
27:06
Speaker 2: of Wall Street, I've asked people to take me. Who
27:09
Speaker 2: I know go there to take me. I haven't gone once. Really, Yeah,
27:12
Speaker 2: I mean it's impossible. Like I never asked people to
27:15
Speaker 2: take me out on their great golf course. I just
27:17
Speaker 2: wait for the invite to come. But for REO's, I've
27:19
Speaker 2: actively tried to get and haven't gotten through.
27:22
Speaker 3: Anyone who has an invite into Rio's, let possible, you know.
27:26
Speaker 3: You know I did actually get to eat there. We
27:28
Speaker 3: ordered take out during the pandemic when there's do take out. Yeah,
27:30
Speaker 3: so that was my one time I got to eat.
27:32
Speaker 6: Right, very good.
27:33
Speaker 3: But Diana, I want to ask you about, of course,
27:35
Speaker 3: the controversy that surrounded Campbell's. Just last month, there was
27:39
Speaker 3: an executive he was a vice president of the IT
27:42
Speaker 3: department who talked about how the company's products are being
27:45
Speaker 3: made for poor people and you know, had some disparaging
27:49
Speaker 3: remarks about some of the employees, the Indian employees. Is
27:53
Speaker 3: that something that's going to cast a pall over Campbell's.
27:56
Speaker 3: I mean, do you see any long term effects from that?
27:59
Speaker 11: Well, they did not address that during the call, but
28:03
Speaker 11: I think it's it might be a short term headwind
28:07
Speaker 11: if there's any boycott happening. I don't I'm not necessary
28:11
Speaker 11: I don't necessarily think that there's going to be one.
28:14
Speaker 11: It's just one executive, and the company went ahead and
28:18
Speaker 11: kind of tried to put on record that they're not
28:20
Speaker 11: necessarily agreeing with what he said, So it's you know it,
28:25
Speaker 11: I don't necessarily see that as a significant headwind for
28:28
Speaker 11: the company.
28:29
Speaker 2: Package good companies. I kind of think of them kind
28:32
Speaker 2: of a GDP top line growth story at best. What's
28:36
Speaker 2: the twenty twenty six out for your companies?
28:37
Speaker 8: Are?
28:38
Speaker 2: What are investors looking for?
28:40
Speaker 11: So for twenty six, they're hoping that there's some light
28:44
Speaker 11: at the end of the tunnel in terms of volume growth. Again,
28:48
Speaker 11: it might be a second half of the year story
28:51
Speaker 11: because comps get a lot easier going forward, but you know,
28:56
Speaker 11: profitability seems to be a little bit more difficult because
28:59
Speaker 11: they have tariffs, they have to contend, costs steal are
29:02
Speaker 11: a little bit higher, specific specifically on the employee side,
29:06
Speaker 11: and there's also marketing that they have to do because
29:10
Speaker 11: they want to spur growth and pricing is not necessarily
29:14
Speaker 11: the you know, the only lever that they have.
29:17
Speaker 3: To But you know, I think about Campbell's and other
29:19
Speaker 3: packaged foods companies and how much competition they must face
29:22
Speaker 3: from private label products. I go to the supermarket, I'm
29:26
Speaker 3: going to get the check and brought that's cheapest, and
29:28
Speaker 3: it's usually the ones sold by the supermarket and not
29:30
Speaker 3: Campbell's or anyone else's. So that's I mean. And for
29:33
Speaker 3: private label, you don't need to do any marketing exactly,
29:36
Speaker 3: So what is there how do they counter that?
29:39
Speaker 11: Well, more marketing. They're they're trying to work with the
29:43
Speaker 11: with the retailers to position themselves in the best part
29:46
Speaker 11: of the shelf to be able to move that product. Yeah, well,
29:50
Speaker 11: obviously retailers have to contend with increasing their private label perenetration.
29:56
Speaker 11: At the same time have a good relationship with this
29:59
Speaker 11: national brand, so they're not necessarily want them to go
30:03
Speaker 11: against you know, the products. So they're trying to there's
30:06
Speaker 11: some negotiations happening and usually you know, when I speak
30:10
Speaker 11: to retailers, because I do cover Canadian retailers, they mentioned
30:13
Speaker 11: that they tried to expand their private label into white
30:16
Speaker 11: spaces not necessarily served by national brands, So you're while
30:20
Speaker 11: your minds might see some you know, condensed soup private label,
30:25
Speaker 11: it's not as as intricate or better quality than probably Campbell's.
30:31
Speaker 2: Thanks to Diano Rossero pea Bloomberg Intelligence consumer staples analysts
30:35
Speaker 2: on Bloomberg Intelligence, we often look at research from Bloomberg
30:38
Speaker 2: and EF previously known as New Energy Finance. They're the
30:41
Speaker 2: team at Bloomberg that tracks and analyzes the energy transition
30:45
Speaker 2: from commodities to power, transport, industries, buildings, and agricultural sectors.
30:49
Speaker 2: This week, we took a look at the renewable fuels business.
30:52
Speaker 2: According to bn EF, last year, the US imported over
30:55
Speaker 2: eight hundred million gallons of biodiesels, but this year we're
30:58
Speaker 2: on track to import just ten percent of that. The
31:01
Speaker 2: US is now the largest producer of biofuels in the world.
31:04
Speaker 2: For more, I was joined by Anna Davies, Bloomberg bn
31:07
Speaker 2: EF head of Renewable Fuels. I first asked Anna to
31:10
Speaker 2: break down what biofuels are and how that business has
31:13
Speaker 2: changed under the new Trump administration.
31:15
Speaker 12: So when we say renewable fuels, we're mostly meaning biofuels
31:18
Speaker 12: at the comment, and these are things you might be
31:20
Speaker 12: familiar with, like ethanol and biodiesel that are mixed into
31:23
Speaker 12: your gas or diesel streams. There's some new ones coming
31:26
Speaker 12: as well. There's one called renewable diesel, which unlike biodiesel,
31:30
Speaker 12: it's basically identical to fossil diesel, but just made from
31:33
Speaker 12: crops or waste speed stalks. So that means you can
31:36
Speaker 12: basically substitute it one for one into your diesel stream
31:39
Speaker 12: and you don't have to worry about engine performance and things.
31:41
Speaker 12: And then also there's a bio version of jet fuel
31:44
Speaker 12: called sustainable aviation fuel.
31:46
Speaker 2: All right, all right, so I've heard of those. Now
31:48
Speaker 2: my minderstanding is we do produce some of that stuff
31:50
Speaker 2: here in the US, but we also import a lot.
31:52
Speaker 2: So how's that whole world changing?
31:55
Speaker 12: Yes, so we produce a lot of it at home,
31:57
Speaker 12: and we're growing our production. Ethanol is the biggest, but
32:00
Speaker 12: there's a growing segment of these drop in fuels that
32:03
Speaker 12: I mentioned, like jet fuel and renewable diesel. We produce
32:07
Speaker 12: a decent amount of that here in the US, and
32:08
Speaker 12: we're increasing the capacity to do so. There's a lot
32:10
Speaker 12: of old oil refineries actually in California and the Gulf
32:13
Speaker 12: Coast that they're converting to take in biofeedstocks rather than
32:17
Speaker 12: fossil fuel feedstocks. But we also import a lot of
32:19
Speaker 12: these fuels. Nest Days a big producer in Singapore and Rotterdam,
32:23
Speaker 12: and a lot of that gets imported here for use
32:25
Speaker 12: in our markets.
32:26
Speaker 2: So do we need imports though? Because I'm just looking here,
32:29
Speaker 2: you know, I guess last year we imported over eight
32:31
Speaker 2: hundred million gallons of biodiesels. This year we're on track
32:34
Speaker 2: to import just ten percent of that. Yeah, wow, is
32:36
Speaker 2: that just tariffs?
32:38
Speaker 12: This is policy policy changes the US. The main reason
32:43
Speaker 12: biofuels get off the ground anywhere is due to policy,
32:46
Speaker 12: because otherwise they wouldn't. The economics on their own don't work.
32:49
Speaker 12: Biofields are more expensive than their fossil counterparts, so you
32:51
Speaker 12: usually need some policy to incentivize them. The US has
32:55
Speaker 12: a main policy called the Renewable Fuel Standard, which obligates
32:59
Speaker 12: refine to blend in certain amounts of biofuels into their
33:02
Speaker 12: refining streams. We also have tax incentives, and we've kind
33:06
Speaker 12: of both of those have now been changed in the
33:08
Speaker 12: last year or so, which is really causing the market
33:11
Speaker 12: to whiplash. In the tax incentive side, of things. There
33:14
Speaker 12: used to be a tax incentive called the Blenders Tax Credit,
33:16
Speaker 12: which was basically one dollar per gallon for all biofuels
33:19
Speaker 12: in the US, and that's a pretty attractive offer. It's
33:22
Speaker 12: been it ended in twenty twenty four, and it's been
33:25
Speaker 12: replaced by the Clean Fuel Producers at tax credit or
33:28
Speaker 12: the forty five Z. Now that tax credit is a
33:31
Speaker 12: sliding scale based on your emissions, and most biofuels aren't
33:34
Speaker 12: zero emissions, so they still have sum so they don't
33:36
Speaker 12: get the full dollar value anymore. And now only domestically
33:39
Speaker 12: produced fuels are eligible for that tax credit, so imports
33:42
Speaker 12: no longer get it. And then on top of that,
33:44
Speaker 12: the volume obligation is currently being set by the Environmental
33:49
Speaker 12: Protection Agency, that's the agency that oversees this program, and
33:52
Speaker 12: they have proposed a volume for twenty twenty six and
33:56
Speaker 12: twenty seven that's quite aggressive, that's quite strong. It would
33:59
Speaker 12: basically require hire all of the US capacity to be
34:02
Speaker 12: operational in producing fuels and likely also either imported fuels
34:07
Speaker 12: or feedstocks, because we need to actually meet that be
34:10
Speaker 12: able to produce that somehow.
34:12
Speaker 2: Well, this administration is definitely pro farmer, like all that
34:16
Speaker 2: kind of stuff, some of the feedstocks you would put
34:18
Speaker 2: put into renewable energy. So that's a good thing, right,
34:22
Speaker 2: It is a.
34:22
Speaker 12: Good thing, that is I think one of the reasons
34:24
Speaker 12: for a lot of these changes is to promote domestic
34:27
Speaker 12: soybean oils use in biofuels. The challenge is that only
34:33
Speaker 12: works if you have access to US soybeans. So, for instance,
34:37
Speaker 12: a lot of the biodiesel production, those conventional biodiesel facilities,
34:40
Speaker 12: they're located in the Midwest, right near soybean farms, right
34:43
Speaker 12: near crushing capacity, so it's relatively easy for them to
34:46
Speaker 12: use soybean oil. But a lot of these newer facilities
34:48
Speaker 12: producing renewable diesel or jet fuel are located in California
34:52
Speaker 12: or the Gulf Coast, and there it's much harder. You'd
34:54
Speaker 12: have to bring it in by rail, and there's not
34:56
Speaker 12: much capacity there, and it's a lot easier to bring
34:58
Speaker 12: a shipment full of waste oil from China, say, than
35:02
Speaker 12: to even get access to the soybeans. So it's unclear
35:05
Speaker 12: of those facilities we'll be able to switch.
35:07
Speaker 2: So I was at a Bloomberg Philanthropy sponsored conference at
35:11
Speaker 2: the Plaza Hotel a couple of months ago talking about
35:14
Speaker 2: this transformation evolution into cleaner energy, and the guests we
35:18
Speaker 2: had on non US guests, international guests, their basic message was, Hey,
35:24
Speaker 2: we being the rest of the world, We're moving forward
35:27
Speaker 2: with this stuff. We're not slowing down or stopping us.
35:30
Speaker 2: If you want to come along, that's great. If you don't,
35:32
Speaker 2: that's great too. Is that kind of how the world's
35:34
Speaker 2: thinking about it, at least in the short term it is.
35:37
Speaker 12: I think everybody is taking a bit aback by it
35:41
Speaker 12: because the US has generally had the most attractive incentives.
35:44
Speaker 12: You can stack all these credits and you get an
35:46
Speaker 12: attractive number that can kind of bridge that cost gap.
35:49
Speaker 12: But there is a lot of policy momentum in the
35:50
Speaker 12: rest of the world moving forward rather than back, and
35:53
Speaker 12: so you can see a lot of the shift happening.
35:54
Speaker 12: For instance, Europe, the EU and the UK both instituted
35:58
Speaker 12: a sustainable aviation field mandate this year, so we anticipate
36:01
Speaker 12: a lot of those volumes from Singapore might flow that way.
36:05
Speaker 12: Singapore itself has a new staff mandate, so they might
36:08
Speaker 12: even keep the volumes at home. And then China is
36:10
Speaker 12: an interesting one to watch because they're building a lot
36:13
Speaker 12: of new capacity to produce these fuels, so it's unclear
36:16
Speaker 12: whether their feedstocks will go elsewhere or if they'll keep
36:19
Speaker 12: a lot of it domestically for increasing their own production.
36:21
Speaker 2: Our thanks to Anna Davies, Bloomberg bn EF, Head of
36:24
Speaker 2: Renewable Fuels. That's this week's edition of Bloomberg Intelligence on
36:27
Speaker 2: Bloomberg Radio, providing in depth research and data on two
36:30
Speaker 2: thousand companies and one hundred and thirty industries. And remember
36:33
Speaker 2: you can access Bloomberg Intelligence via b I go on
36:35
Speaker 2: the terminal ump Paul Sweeney, Stay with us. Today's stop
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