Latest / Bloomberg Intelligence / BI Weekend: Netflix, Tesla, AT&T Earnings

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BI Weekend: Netflix, Tesla, AT&T Earnings · Bloomberg Intelligence

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Speaker 3: Each and every week, we provide in depth research and
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Speaker 3: data on some of the two thousand companies and one
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Speaker 3: hundred and thirty industries that our analysts cover worldwide. Today,
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Speaker 3: we'll look at how a heavy promotional campaign at at
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Speaker 3: and T impacted its quarterly earnings, plus breakdown how delayed
1:01
Speaker 3: orders at US retailers impacted earnings for toymaker Mattel. But
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Speaker 3: first We began with earnings from the streaming giant Netflix,
1:08
Speaker 3: Netflix chairs saw the most since April twenty twenty two,
1:10
Speaker 3: after its third quarter earnings missed analyst estimates.
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Speaker 2: This comes after Netflix had to pay about six hundred
1:15
Speaker 2: nineteen million dollars to settle multi year tax dispute with
1:18
Speaker 2: Brazilian authorities going back to twenty twenty two.
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Speaker 3: The results may renew concerns about the sustainability of growth
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Speaker 3: going into twenty twenty six. So for more we brought
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Speaker 3: in Geita Rung Nathan and Bloomberg Intelligence analysts on US media.
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Speaker 2: We first asked Etha for her take on Netflix results.
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Speaker 4: Nobody saw this coming in terms of this transaction tax.
1:36
Speaker 4: It's a little bit of a catch up charge that
1:38
Speaker 4: Netflix took in the third quarter, and there will be
1:41
Speaker 4: an ongoing charge as well, about forty million or soaper quarter,
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Speaker 4: but again nothing that will materially impact results. What that
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Speaker 4: tax charge did was that it definitely depressed the margin performance,
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Speaker 4: and this is something that everybody's been super focused on
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Speaker 4: operating margin numbers. Those came definitely much lighter than what
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Speaker 4: Netflix itself had rejected. But actually, if you just strip
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Speaker 4: out that Brazil tax impact, they would have had record
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Speaker 4: operating margins, so they guided for thirty one point five.
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Speaker 4: They would have come in at close to almost thirty
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Speaker 4: four percent if we didn't have that tax issue. I
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Speaker 4: think fundamentals are definitely strong. But I think what is
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Speaker 4: happening is apart from the tax issue, was that it
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Speaker 4: was just a very very ordinary quarter. You know, people
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Speaker 4: were definitely expecting something, you know, a much bigger beat
2:30
Speaker 4: in terms of revenue, just given that, you know, the
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Speaker 4: second half content slate has absolutely been a monster slate.
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Speaker 4: I mean, we've seen some of their biggest hits ever
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Speaker 4: in the third quarter. We expect to see more coming
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Speaker 4: in four Q, but none of that was really reflected
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Speaker 4: in the numbers, and I think that's why you're seeing
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Speaker 4: so much of nervousness.
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Speaker 3: Okay, so ordinary results at Netflix is like the new bad.
2:49
Speaker 3: Going back to the results, Gita, what was new I
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Speaker 3: thought in the earnings report was that they flagged the
2:56
Speaker 3: possibility of M and A, which is not something you
2:58
Speaker 3: hear from Netflix. Of course, there have been all these
3:01
Speaker 3: reports that Netflix is interested in buying assets for Warner
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Speaker 3: Brothers Discovery. Do these latest results show that Netflix is
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Speaker 3: now in a position where it has to make a purchase.
3:10
Speaker 3: It's a defensive buyer as opposed to an offensive buyer.
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Speaker 4: I don't know whether it has to make a purchase.
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Speaker 4: They definitely left the door open, which which suggests to
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Speaker 4: us that they will take, you know, a long and
3:22
Speaker 4: hard look at the studio assets. Not the cable networks.
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Speaker 4: They made that extremely clear on the call, but the studio.
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Speaker 4: If you just think about it, Scarlett, I mean, this
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Speaker 4: is definitely and I mean we spoke about this yesterday
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Speaker 4: as well. This is a once in a generational opportunity
3:36
Speaker 4: for anybody who wants to own this kind of a studio.
3:38
Speaker 4: I mean, this is a top tier studio with a
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Speaker 4: lot of very very you know, beloved popular franchises across
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Speaker 4: the world. We know that these titles resonate. I mean
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Speaker 4: Netflix themselves has a lot of the Warner brother titles.
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Speaker 4: They perform extremely well on the platform. So yes, it
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Speaker 4: is a defensive move. But again, if Netflix doesn't, you know,
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Speaker 4: go ahead and doesn't make that purchase, I don't necessarily
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Speaker 4: think that they are going to be in a much
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Speaker 4: weaker position. It definitely complicates the strategy for them a
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Speaker 4: little bit, just because you might have another player, like
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Speaker 4: a paramount or a comcast that becomes much stronger, but
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Speaker 4: they still have a considerable lead versus all of their peers.
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Speaker 4: So I don't think it's do or die.
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Speaker 2: So what's the environment like out there in terms of
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Speaker 2: creating content movies and TV shows? Is Netflix still like
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Speaker 2: the first phone call you make if you're a producer
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Speaker 2: or you're a writer. I've got this project. I'm going
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Speaker 2: to go to Netflix and get it done. Is that
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Speaker 2: because they had the biggest and maybe still have the
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Speaker 2: biggest checkbook in Hollywood?
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Speaker 4: They do. They're spending close to about seventeen and a
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Speaker 4: half to eighteen billion dollars on content every year. And
4:45
Speaker 4: you know, there's been a lot of concerns Paul in
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Speaker 4: general about the rise of AI, especially now that you
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Speaker 4: have Sora too, You have all of these new tools
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Speaker 4: from Google, from Meta. You know, is that going to
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Speaker 4: be a disruptive force for all of these streaming players
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Speaker 4: and Netflix? And it looks like it actually won't. You know,
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Speaker 4: We've run some numbers internally. We think that it should
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Speaker 4: help Netflix actually curb content costs by about five to
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Speaker 4: ten percent. That's substantial cost savings, you know for all
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Speaker 4: of these streaming players. Especially for Netflix, which typically has
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Speaker 4: used AI really really well. You're absolutely right. You know,
5:23
Speaker 4: they've done a great job when it comes to content.
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Speaker 4: They're going to I think continue to do that. I mean,
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Speaker 4: not only do we have the second half slate for
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Speaker 4: this year which is extremely strong Scartledge just mentioned all
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Speaker 4: of those titles, but actually looking forward to twenty twenty
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Speaker 4: six again, you have a whole host of different titles
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Speaker 4: coming on the platform, you know, including Emily in Paris.
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Speaker 4: You have Bridgerton, which has been one of their biggest series,
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Speaker 4: and then you have the movie Narnia, which is supposed
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Speaker 4: to be like this huge event for them coming a
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Speaker 4: little bit later. So they have a steady, steady, steady
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Speaker 4: pipeline of titles that should help them, you know, drive
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Speaker 4: engagement and ultimately drive pricing.
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Speaker 3: Are they used to KEITHA. Rang Nathan Bloomberg, intelligence analysts
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Speaker 3: on US Media.
6:03
Speaker 2: We move next to the luxury space. This week, the
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Speaker 2: luxury goods company Caring agreed to sell its beauty division
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Speaker 2: to the cosmetics and beauty company Laurel in a four
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Speaker 2: point seven billion dollar deal.
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Speaker 3: The transaction includes the sale of perfume maker House of Creed,
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Speaker 3: which carrying a bought only two years ago, and this
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Speaker 3: comes as Carrying's new CEO, Luca DeMeo, changes course in
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Speaker 3: a bid to turn around the French luxury giant's fortunes
6:24
Speaker 3: for more guestos.
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Speaker 2: Lisa Matteo and I were joined by Andrea Felsted Bloomberg
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Speaker 2: Opinion Calmness. We first asked Andrea to break down what
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Speaker 2: exactly the Carring transaction shows.
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Speaker 5: Well, it's being dressed up as a partnership between Caring
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Speaker 5: and Loial, but what it really is is effectively the
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Speaker 5: sale of their beauty brands to.
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Speaker 6: Loreo.
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Speaker 5: They've got a new CEO, Luke to Mayo. He's come
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Speaker 5: in at a time when the balance sheet is very stretched.
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Speaker 5: His predecessor, who is now chairman, well bought a lot
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Speaker 5: of things, including Creed, this very very upmarket few business
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Speaker 5: as share in Valentino to try to make the group
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Speaker 5: less dependent on Gucci, but that really increased debt. At
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Speaker 5: the same time, Gucci's really slowed down and they're having
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Speaker 5: to revive it. So they're saying it for four billion
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Speaker 5: euros in cash. That gets some money in to deal
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Speaker 5: with the debt and gives the new CEO a bit
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Speaker 5: more time to turn around Gucci.
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Speaker 7: Isn't this a complete turnaround? I mean, didn't the company
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Speaker 7: want to bulk up the beauty and cosmetics division?
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Speaker 6: Exactly?
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Speaker 5: I mean they're saying, you know, this is built on
7:35
Speaker 5: the potential that they created.
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Speaker 6: I mean, to be fair, they bought Creed. They paid
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Speaker 6: a lot for Creed three point five billion euros.
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Speaker 5: Try worked out to be about fourteen time sales, you know,
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Speaker 5: an awful lot.
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Speaker 6: But what they did it had a supply chain.
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Speaker 5: They did that as a platform to build for beauty.
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Speaker 5: And the argument is they have been able to do
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Speaker 5: this deal because of that platform. That's probably kind of
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Speaker 5: rather generous. Looked at my had a big decision to
8:01
Speaker 5: make when he got him. He either had to stick
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Speaker 5: with beauty and invest in it. But with that day,
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Speaker 5: it's gone in awe and the need to reinvigorate Gucci.
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Speaker 5: It's got an awful lot more calls on its cash,
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Speaker 5: so he just decided beauty wasn't a priority.
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Speaker 2: I consider myself a Gucci expert. I read the book,
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Speaker 2: I saw the movie. On the movie, yes, exactly so, Andrew.
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Speaker 2: I mean, it's obviously an iconic brand. What are the
8:26
Speaker 2: experts saying that needs to be done because it's such
8:28
Speaker 2: an important part for caring.
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Speaker 6: It is it really is.
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Speaker 5: It would at its peak, and in sort of twenty
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Speaker 5: eighteen nineteen, around that time, it was sixty percent group sales. Now,
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Speaker 5: you know, Kerring had an amazing rum with Gucci. They
8:41
Speaker 5: put in this quite unknown designer, Alessandro mckayley, and the
8:45
Speaker 5: prevailing look had been very minimalist, and he came in
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Speaker 5: with these big logos, clashing print, granny sheek, and it
8:53
Speaker 5: was just a bread of breath of fresh air and
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Speaker 5: it changed prevailing fashion. But that was in sort two
8:59
Speaker 5: thousand and six, after the pandemic, when obviously nobody was
9:03
Speaker 5: feeling terribly good Sarring inflation. It just felt very out
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Speaker 5: of sync with how people were feeling, and they tried
9:10
Speaker 5: to turn it round and have a much more minimal
9:14
Speaker 5: minimalist look, and it just wasn't Gucci. Gucci works best
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Speaker 5: when it's very fashionable, when it's over the top. So
9:21
Speaker 5: they've brought in dumbnag Versalia, who was at Balenciaga, and
9:25
Speaker 5: he is trying to, you know, really revive it. He's
9:30
Speaker 5: gone back to the Tom four Days when it was
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Speaker 5: very successful. He's gone back to the Alessandro and Kaylee Days.
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Speaker 6: He did this crazy film in Fashion Week.
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Speaker 5: There was absolutely bonkers, but it got people talking about
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Speaker 5: Gucci again. I was in New York a couple of
9:44
Speaker 5: weeks ago and I went to the store in Soho
9:47
Speaker 5: and there was a big installation of all his things
9:50
Speaker 5: and the capsule collection. It's trying to get people interested
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Speaker 5: in Gucci again, and he's sort of going back to
9:57
Speaker 5: the future to try and revive its magic.
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Speaker 6: Though it's going to work, I'm not sure.
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Speaker 5: I thought he was the wrong person to be appointed,
10:04
Speaker 5: but so far he seems to be doing all the
10:07
Speaker 5: right things.
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Speaker 7: Andrew, can you tell us some of the challenges krig
10:11
Speaker 7: has been facing. I mean, there's that slump in Chinese demand,
10:13
Speaker 7: higher US tariffs as well.
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Speaker 2: What are they facing?
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Speaker 5: So what we what we've got at the moment is
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Speaker 5: the one percent of still doing very well. But they're
10:23
Speaker 5: not buying Gucci. They're buying Hermes, they're buying Brunello, Cuccinelle,
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Speaker 5: Laura Piano. They want these very expensive upmarket things. Now,
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Speaker 5: the rest of the less rest of the luxury market,
10:35
Speaker 5: that aspirational customers coming under pressure, and she had a
10:40
Speaker 5: lot of those aspirational customers, particularly in the US. So
10:43
Speaker 5: you've got the sort of esthetic going out of fashion
10:46
Speaker 5: and you've got these aspirational customers coming under pressure. It's
10:51
Speaker 5: really had a bit of a perfect storm and it
10:54
Speaker 5: needs to really revive Guccini and it had the Takeo
10:58
Speaker 5: Vannetta wasn't doing too bad and their designer went to Chanel.
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Speaker 5: So you know, every brand is sort of you know,
11:05
Speaker 5: got its challenges.
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Speaker 3: Our thanks to Andrea Fause, said Bloomberg opinion columnist, coming
11:10
Speaker 3: up a look at why third quarter profit at evie
11:12
Speaker 3: Giant Tesla missed estimates on Wall Street.
11:15
Speaker 2: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing inp
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Speaker 2: research and data on two thousand companies and one hundred
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Speaker 2: and thirty industries.
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Speaker 3: You can access Bloomberg Intelligence via bi go on the terminal.
11:24
Speaker 3: I'm Scarlet Foo and.
11:25
Speaker 2: I'm Paul Sweeney, and this is Bloomberg.
11:32
Speaker 1: This is Bloomberg Intelligence with Scarlet Foo and Paul Sweeney
11:37
Speaker 1: on Bloomberg Radio.
11:39
Speaker 2: We'll move next to earning from the ev Giant Tesla.
11:41
Speaker 2: Tesla report at third quarter earnings that missed analysts expectations.
11:44
Speaker 2: This comes despite record electric vehicle sales.
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Speaker 3: It's a sign of the pressure automakers are facing from
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Speaker 3: shifting federal policies and rising costs. Afterwards, CEO Elon Musk
11:53
Speaker 3: also spent the end of Tesla's earnings called pleading with
11:55
Speaker 3: investors to approve his one trillion dollar pay package and
11:59
Speaker 3: blasted your whold the advisory firms that have come out
12:01
Speaker 3: against that proposal.
12:03
Speaker 2: For more. We were joined by Steve Man Bloomberg Intelligence,
12:05
Speaker 2: Global Autos and Industrials research Channels.
12:07
Speaker 3: We first asked Eeve for his reaction to the recent
12:09
Speaker 3: Tessa news.
12:10
Speaker 8: It was quite a surprise. Given the volume of production.
12:15
Speaker 8: You would think that, you know, the fixed costs absorption
12:18
Speaker 8: would be higher this quarter than in the past, but
12:21
Speaker 8: it didn't happen. Looks like appreciation costs increase for them.
12:25
Speaker 8: Looks like the tariff costs impact is greater than expected.
12:29
Speaker 8: And then even below the gross margin line, the R
12:32
Speaker 8: and D costs went up quite a bit. You know,
12:36
Speaker 8: that could be viewed as a good thing, because that's
12:38
Speaker 8: you know, that's a sign they're pivoting to you know,
12:41
Speaker 8: the ROBOTAXI, the FSD and you know the optimist robots.
12:45
Speaker 2: And Elon Musk, I guess towards the end of the call,
12:48
Speaker 2: made a plea for investors to a previous one trillion
12:52
Speaker 2: dollar pay package. Quote this is from Elon. There needs
12:56
Speaker 2: to be enough voting control to give a strong influence,
12:58
Speaker 2: but not so much that I can't be far if
13:00
Speaker 2: I go insane. Mister Musk said, how did that go
13:03
Speaker 2: over on the call here? And what's the thinking among
13:05
Speaker 2: the investor community about what maybe a one trillion dollar
13:09
Speaker 2: pay package?
13:10
Speaker 8: Yeah, I'm not sure if money is important to him.
13:13
Speaker 8: He does have a lot already, so I do believe
13:16
Speaker 8: that it's more about the control of the company. Look,
13:18
Speaker 8: Tesla doesn't have the dual class shares like some of
13:21
Speaker 8: the tech companies have, so there is he he does
13:25
Speaker 8: have that fear of getting pushed out, and you know,
13:29
Speaker 8: he had that experience right with the open Ai. You know,
13:31
Speaker 8: he's one of the initial investors in open Ai and
13:35
Speaker 8: he got pushed out. So he does have the concern
13:39
Speaker 8: it is his baby. Look, the stocks. You know, the
13:43
Speaker 8: other thing is that the stock hasn't reacted, you know,
13:46
Speaker 8: too negatively to the weak earnings that we saw in
13:49
Speaker 8: the last quarter. Right, there's there's a battle happening between
13:54
Speaker 8: the the bulls and the bears, the long the long
13:57
Speaker 8: guys versus the near term investors. And you know, there
14:02
Speaker 8: are a lot of people believe it, who believes that
14:05
Speaker 8: the you know, he can achieve you know, the getting
14:09
Speaker 8: the optimism robot up and running, uh, you know, getting
14:13
Speaker 8: our physical AI going. So there's a lot of believers
14:17
Speaker 8: out there.
14:19
Speaker 3: There's a lot of believers in you know, what the
14:21
Speaker 3: company actually reports, especially when it comes to his vehicle sales,
14:24
Speaker 3: almost doesn't matter based on this idea that Elon Musk
14:27
Speaker 3: will steered the company in the right direction eventually maybe
14:30
Speaker 3: because you know, the robotaxis, which are you know, in operation,
14:35
Speaker 3: but the self driving vehicles, the humanoid robots, those are
14:39
Speaker 3: going to take a couple of years to pan out.
14:41
Speaker 3: If that we don't have any details on it.
14:43
Speaker 4: So in the.
14:44
Speaker 3: Meantime, what is the growth driver for this company?
14:47
Speaker 8: Well, you know, he definitely in the call, he you know,
14:51
Speaker 8: he didn't talk about cars a lot anymore other than
14:53
Speaker 8: robotax and FSD. He's very focused on physical AI. But
14:57
Speaker 8: at the end of the day, he needs this out cars.
15:00
Speaker 8: He needs to continue to sell cars to actually generate
15:03
Speaker 8: the cash to support his endeavors. Now he has launched
15:08
Speaker 8: cheaper vehicles. It would have been better if he is
15:11
Speaker 8: offering even a cheaper model, like something under thirty thousand
15:15
Speaker 8: that you know we talked about in the past. He
15:18
Speaker 8: is expanding overseas, right he had, you know, record sales
15:21
Speaker 8: in countries like Japan and South Korea. Now he's going
15:25
Speaker 8: into India, big market, big market, So cars is still
15:29
Speaker 8: going to be important.
15:30
Speaker 2: Our Thanks to Steve Man Bloomberg Intelligence Global Autos and
15:33
Speaker 2: Industrials Research.
15:34
Speaker 3: Channelst we move next to earnings from the telecoms company
15:36
Speaker 3: AT and T.
15:37
Speaker 2: This week, AT and T reported revenue that fell slightly
15:40
Speaker 2: short of analyst expectations in the third quarter. This was
15:43
Speaker 2: the result of a heavy promotion campaign to move new
15:45
Speaker 2: customers in a fiercely competitive mobile phone market.
15:48
Speaker 3: A G and G CEO John Stanky also said the
15:50
Speaker 3: carrier is up against quote increased marketplace activity that shows
15:54
Speaker 3: no sign of slowing through the end of the year.
15:56
Speaker 2: For more, we were joined by John Butler, Bloomberg Intelligence
15:59
Speaker 2: Senior Telecom We.
16:00
Speaker 3: First began by asking John to talk about H and
16:02
Speaker 3: d's quarter that ended and just how competitive this wireless
16:06
Speaker 3: business is.
16:07
Speaker 9: It's a very mature market right now, you've had a
16:09
Speaker 9: lot of movement and the management suite with new CEOs
16:14
Speaker 9: at Verizon and T Mobiles. So the fear is that
16:18
Speaker 9: promotional activity is going to pick up as these new
16:21
Speaker 9: CEOs try and make their mark, and I think we
16:24
Speaker 9: saw some evidence of that in three Q. You know,
16:27
Speaker 9: if you look at AT and t's numbers, they were
16:29
Speaker 9: truly mixed. I was really surprised at that. What we
16:33
Speaker 9: saw was revenue growth across the board just missed estimates slightly.
16:38
Speaker 9: It was a little bit slower than everyone expected. Subscriber growth, though,
16:43
Speaker 9: was higher than expected, and that really to me that
16:49
Speaker 9: those are the kind of financial metrics you see in
16:51
Speaker 9: a highly promotional environment. Right you're promoting heavily, there's pressure
16:56
Speaker 9: on pricing. Their average revenue per user actually fell in
17:00
Speaker 9: the quarter on the wireless front, but subscribers rose, and
17:04
Speaker 9: so you're out there trying to build up your roles,
17:08
Speaker 9: your subscriber roles, at the expense of revenue in the
17:12
Speaker 9: short term, on the promise that in the long term,
17:15
Speaker 9: if you can keep those subscribers, it pays back.
17:18
Speaker 3: I always pay special attention to AT and t's results
17:21
Speaker 3: because I switched from AT and T after like I
17:23
Speaker 3: don't know, fifteen years because of the original iPhone to
17:27
Speaker 3: T Mobile because they had all these great deals, and
17:29
Speaker 3: I don't know, it seems more fun in general. The
17:31
Speaker 3: reason I bring this up is because now AT and
17:33
Speaker 3: T is actually the smallest of the big three wireless providers,
17:37
Speaker 3: behind Rise and behind T Mobile. Does being the underdog
17:40
Speaker 3: work for it?
17:41
Speaker 9: It's a good question, Scarlett. What they're really doing is
17:44
Speaker 9: throwing their weight behind broadband John Stankey. He has really
17:49
Speaker 9: pursued the broadband market in a big way, and I
17:53
Speaker 9: think a lot of it has to do with the
17:55
Speaker 9: fact that the broadband market is growing faster than why wireless.
18:01
Speaker 9: It's still a mature market, it's still relatively saturated, but
18:04
Speaker 9: there's room for more growth there. AT and T is
18:09
Speaker 9: pursuing a fiber broadband strategy, and fiber is the single
18:13
Speaker 9: best way to deliver Internet period, full stop. There's nothing
18:18
Speaker 9: better out there, and AT and T is a real
18:20
Speaker 9: leader there. So I think on the wireless run, I
18:24
Speaker 9: don't want to say they have their eye off that
18:26
Speaker 9: ball in any way whatsoever. They're going through a big
18:29
Speaker 9: modernization of the wireless network right now, standing up a
18:33
Speaker 9: lot of new spectrums, so you're going to see network
18:36
Speaker 9: quality increase significantly over time, and that will drive more
18:40
Speaker 9: net additions I think down the road. But if you
18:44
Speaker 9: think about AT and T, don't just think wireless. I
18:47
Speaker 9: think it's important to pay attention to what's happening in
18:51
Speaker 9: that broadband business because that really is setting the foundation
18:55
Speaker 9: for their future growth.
18:57
Speaker 2: So John, in the broadband business, are they competing against
19:01
Speaker 2: the cable companies because they've made that a key focus
19:04
Speaker 2: over the last decade or so.
19:06
Speaker 9: Yeah, I mean, the broadband market's getting really interesting right now.
19:09
Speaker 9: What you've seen is the cable guys are losing a
19:13
Speaker 9: lot of share to fiber, and particularly to fixed wireless access,
19:19
Speaker 9: which is basically a wireless link of broadband into your home.
19:24
Speaker 9: That's been a runaway hit with consumers, really popular. AT
19:29
Speaker 9: and T was late to that game, but they're getting
19:32
Speaker 9: a lot of growth in FWA right now, as it's called.
19:36
Speaker 9: So it's interesting to see the dynamic where the cable
19:40
Speaker 9: guys are losing share and the telcos are gaining share,
19:45
Speaker 9: and soon you're going to have starlink in on the
19:47
Speaker 9: market in a bigger way. They're right on the cosp
19:50
Speaker 9: of upgrading the capacity of their constellation and so they're
19:55
Speaker 9: going to go from a very high priced product, I think,
19:59
Speaker 9: to a much more reasonably priced broadband offering. Once they
20:03
Speaker 9: get more capacity up there, they're going to look to
20:06
Speaker 9: fill that and the way to do that is to
20:08
Speaker 9: cut your prices. And so suddenly you're going to have
20:12
Speaker 9: another wireless option, which is going to be satellite. So
20:16
Speaker 9: the competitive dynamics there are getting interesting. But for AT
20:20
Speaker 9: and T and their dedication of fiber, I think they're
20:23
Speaker 9: extremely well positioned and not only hold their own but
20:27
Speaker 9: grow from here.
20:28
Speaker 2: Our thanks to John Butler, Bloomberg Intelligence Senior Telecom analysts.
20:32
Speaker 3: We move next to earnings from toymaker Mattel.
20:34
Speaker 2: This week, Mattel reported third quarter sales and earnings that
20:37
Speaker 2: missed analyst expectations, and this comes as US retailers delayed
20:41
Speaker 2: orders due to uncertainty over President Donald Trump's tariff policies.
20:44
Speaker 3: So we talked Lindsay Dutch, Bloomberg Intelligence Consumer hardline senior
20:47
Speaker 3: analysts for her take.
20:49
Speaker 2: First asked Lindsay to comment on Mattel's delayed orders.
20:52
Speaker 10: We heard earlier, actually in the second quarter earnings, that
20:55
Speaker 10: there were possibilities for delays and for the toymakers Walmart target.
21:01
Speaker 10: Those retailers tend to take their holiday orders by July,
21:05
Speaker 10: so there was already worry sort of heading into third
21:08
Speaker 10: quarter earnings, and of course it was a negative surprise
21:10
Speaker 10: on the top and the bottom line. Those orders were
21:13
Speaker 10: delayed further than sort of everyone expected, and they're taking
21:17
Speaker 10: smaller quantities than usual, you know, onto their shelves ahead
21:23
Speaker 10: of the holiday season, which which was a real concern
21:26
Speaker 10: for Mattel's fourth quarter earnings, which would be coming up.
21:30
Speaker 2: So, lindsay, what's Mattel and some of the other companies
21:33
Speaker 2: saying about, you know, when their products, you know, get
21:37
Speaker 2: stamped with a tariff, Like how much do they try
21:40
Speaker 2: to push back on the manufacture in whatever country comes from,
21:43
Speaker 2: say China, how much the importer made taken his or
21:46
Speaker 2: her p and l versus. You know, how are they
21:48
Speaker 2: saying that they're navigating that?
21:51
Speaker 10: So from the cost side, the toymakers actually have been
21:55
Speaker 10: managing this pretty well. So Mattel is forecasting less than
21:59
Speaker 10: one hundred million dollars hit on the cost side on
22:02
Speaker 10: an annual basis. They're mitigating that in several different ways.
22:06
Speaker 10: They're cutting costs in other areas. They did adjust sourcing
22:09
Speaker 10: as much as they could, you know, selling more internationally
22:13
Speaker 10: versus the US, you know, shifting that mix a little bit.
22:16
Speaker 10: And they did roll out some price increases in the
22:19
Speaker 10: second and the third quarter, which is ahead of holiday,
22:22
Speaker 10: so that should help protect on the profit on the
22:25
Speaker 10: margin side for that fourth quarter. It looks like those
22:29
Speaker 10: toy makers are bearing the brunt of that cost rather
22:32
Speaker 10: than sort of passing it through towards a retailer.
22:35
Speaker 2: Lindsay, what are the trends impacting the toy business these days?
22:39
Speaker 2: I mean, I guess a lot of electronics, but what
22:42
Speaker 2: are some of the big trends that you're paying attention to.
22:46
Speaker 10: So a big trend that we have seen growing momentum
22:49
Speaker 10: on is really the adult trend, which is adults eighteen
22:54
Speaker 10: plus playing with more toys, and Hasbro, Mattel, Lego they're
22:58
Speaker 10: all playing into this. So those big black box legos
23:02
Speaker 10: that are very high price points, you know, they've done
23:05
Speaker 10: very well the past couple of years. But Mattel is
23:08
Speaker 10: also leaning into that. A lot of their new products
23:10
Speaker 10: coming out, even with Barbie or hot Wheels, are really
23:13
Speaker 10: collector's items. They're really aiming at that adult and honestly,
23:18
Speaker 10: the industry was up six percent in the first half
23:21
Speaker 10: of high single digit in the third quarter, and that's
23:24
Speaker 10: really being driven by this trend.
23:27
Speaker 3: As we look ahead to the holiday season, I realized
23:29
Speaker 3: for companies themselves, they are already knee deep in it,
23:32
Speaker 3: but as consumers we're looking head to it. Are there
23:34
Speaker 3: any must have items that the toymakers are really counting
23:38
Speaker 3: on or these toy retailers are really counting on.
23:41
Speaker 10: So I look through all the holiday lists and I
23:44
Speaker 10: was a little bit disappointed. I didn't see any Wow
23:46
Speaker 10: gifts or what I would call a Wow gift. One
23:49
Speaker 10: cool collab that Mattel has, but it's really for twenty
23:52
Speaker 10: twenty six. Pre Orders will be available in November as
23:56
Speaker 10: they are doing a collab with Netflix the Kpop Demon Hunter,
24:00
Speaker 10: So they are doing action figures and dolls for that
24:03
Speaker 10: series and that should be coming out next year and
24:05
Speaker 10: I do think that could be a big hit.
24:07
Speaker 3: Our Thanks to Lindsay Dutch, Bloomberg Intelligence Consumer Hardlines senior
24:11
Speaker 3: analyst coming up a look at why the hospitality company
24:14
Speaker 3: Hilton Worldwide has raised his full year profit outlook.
24:17
Speaker 2: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
24:19
Speaker 2: depth research and data on two thousand companies and one
24:22
Speaker 2: hundred and thirty industries.
24:23
Speaker 3: You can access Bloomberg Intelligence via bi go on the terminal.
24:26
Speaker 3: I'm Scarlet Foo and.
24:27
Speaker 2: I'm Paul Sweeney, and this is Bloomberg.
24:37
Speaker 1: This is Bloomberg Intelligence with Scarlet Foo and Paul Sweeney
24:42
Speaker 1: on Bloomberg Radio.
24:44
Speaker 2: We move next to the hospitality industry.
24:46
Speaker 3: This week, Hilton Worldwide reported third quarter earnings that beat
24:49
Speaker 3: analyst estimates. Hilton also boosted the lower end of its
24:52
Speaker 3: full year outlook for expanding its hotel network.
24:54
Speaker 2: For more on this, I was joined by Jody Lourie,
24:56
Speaker 2: Bloomberg Intelligence credit analyst. I first asked Jody what she
24:59
Speaker 2: heard from Hilton in its earnings release.
25:02
Speaker 11: So I think, Paul, you know what's interesting is that
25:04
Speaker 11: Brian Egger, my equity counterpart, and I came up with
25:07
Speaker 11: the same conclusion in that they are a little bit
25:09
Speaker 11: too optimistic, it seems in general. I think what's so
25:12
Speaker 11: funny is when you compare and actually taking a step back,
25:16
Speaker 11: it's a little alarming when equity and credit analysts are
25:18
Speaker 11: right just as a decide note, but when you compare
25:22
Speaker 11: what their estimates were for RevPAR looking a year ago.
25:27
Speaker 11: You know, fourth quarter of last year, you were talking
25:30
Speaker 11: two to three percent positive two to three percent. Now
25:32
Speaker 11: they're saying zero to one percent. Yet for some reason
25:35
Speaker 11: they're able to reach an eb DA that's almost similar
25:37
Speaker 11: to what they were projecting then. So it's a little
25:40
Speaker 11: bit of a head scratcher. I guess a lot of
25:42
Speaker 11: it's coming from the cost component of it. You know,
25:44
Speaker 11: if your your revenue per available room isn't necessarily growing,
25:48
Speaker 11: but then your EBDA is growing, you sort of say, okay,
25:50
Speaker 11: where is that coming from and what does that mean?
25:53
Speaker 2: Overall? So what is the company saying about kind of
25:57
Speaker 2: theirs just the underlying book of business? How are their
26:00
Speaker 2: bookings looking, and what are they saying about I guess
26:03
Speaker 2: components of their customer base.
26:06
Speaker 11: So if you break it out, the US is a
26:08
Speaker 11: clear sort of underperformer at the moment. In terms of travel,
26:12
Speaker 11: we're seeing some weakness, some more muted results on the
26:16
Speaker 11: leisure side of things. For group and business, which was
26:19
Speaker 11: supposed to be a tailwind this year, it's actually pulling back.
26:23
Speaker 11: It's a little bit decreased. Now they're saying that group
26:25
Speaker 11: going into next year is going to be positive. But
26:27
Speaker 11: it is interesting to hear that this component where they're
26:30
Speaker 11: hanging their hat on as the area of growth is
26:32
Speaker 11: now not really performing. Now if you look across their brands,
26:37
Speaker 11: what stood out for me, especially for the third quarter,
26:40
Speaker 11: but also year to date, is that comparing their higher
26:43
Speaker 11: end brands versus a year ago, it was very strong
26:46
Speaker 11: in terms of growth from an occupancy standpoint, But then
26:50
Speaker 11: if you look at the lower end brands, they're actually
26:52
Speaker 11: a lot weaker. So the farther down you go in
26:54
Speaker 11: terms of their quality of their brands, So if you're
26:56
Speaker 11: talking the Conrad brand, which is one of their more
26:58
Speaker 11: premier brands, Welder for Story, et cetera, those who have
27:01
Speaker 11: been doing pretty well compared to last year. If you
27:04
Speaker 11: go further down the line into some of their more
27:06
Speaker 11: economy scale brands, that's where it's weakest. And that speaks
27:09
Speaker 11: to that K shaped economy that everybody is talking about.
27:12
Speaker 2: I noticed they get probably eighty percent of the revenue
27:14
Speaker 2: is US based here. What's their international strategy these days?
27:19
Speaker 11: So internationally they seem to be growing a lot. They're
27:21
Speaker 11: they're focusing on new types of brands to get there.
27:25
Speaker 11: They definitely see certain pockets of international doing well. I'm
27:28
Speaker 11: in the Middle East and Africa actually did very well
27:30
Speaker 11: this quarter, which was an interesting component to see. And
27:33
Speaker 11: I think that they're looking at Asia and they're sort
27:35
Speaker 11: of a little concerned to some extent, but they definitely
27:39
Speaker 11: it was an interesting sort of dichotomy between what's going
27:41
Speaker 11: on in the US and what's going on elsewhere.
27:43
Speaker 2: In the world.
27:44
Speaker 11: I think where we're sort of concerned is that they
27:48
Speaker 11: are still giving back to shareholders the same level that
27:51
Speaker 11: they were. You know, the three point three billion expected
27:54
Speaker 11: for this year they have leveraged that's roughly within their
27:59
Speaker 11: range of three three and a half times. But if
28:01
Speaker 11: you're talking about in twenty twenty six, that's very uncertain.
28:04
Speaker 11: You say, Okay, wouldn't you want to hold onto your
28:06
Speaker 11: cash maybe just a little bit more than you're giving out.
28:09
Speaker 2: What are the Hiltons of the world doing in terms
28:10
Speaker 2: of capacities is the industry? Are they building new hotels,
28:14
Speaker 2: are they taking hotels off the market? Are they building
28:17
Speaker 2: higher end or lower end? Where's the kind of the
28:19
Speaker 2: capital for this.
28:20
Speaker 11: Industry going For Hilton specifically, they're still very much growing.
28:24
Speaker 11: I mean, that was a lot of the conversation. You know,
28:27
Speaker 11: the management team was very optimistic about growth coming from
28:31
Speaker 11: these new properties and also from new brands. I mean,
28:34
Speaker 11: they have a new lifestyle brand that they're introducing as
28:37
Speaker 11: part of their growth strategy, and I think they're trying
28:39
Speaker 11: to key into these younger consumers, getting them to go
28:42
Speaker 11: into these lifestyle brands and more of these quick service
28:46
Speaker 11: brands that might not necessarily be traditional hotels, maybe sort
28:49
Speaker 11: of tapping into what they're seeing in airbnbs and verbos
28:53
Speaker 11: and other sort of alternatives to your traditional hotels. Now,
28:56
Speaker 11: what I will say, though, is something that was a
28:59
Speaker 11: little bit jarring to me as a credit analyst and
29:02
Speaker 11: as somebody who likes macroeconomics is they talked about how
29:06
Speaker 11: inflation is actually reducing and with it our rates, and
29:10
Speaker 11: I don't think that's quite the calculation I would do.
29:12
Speaker 11: But I also am sort of curious as to if
29:15
Speaker 11: the consumer is necessarily feeling that you layer that in.
29:18
Speaker 11: They did mention a little bit about the government shutdown
29:21
Speaker 11: affecting volumes and affecting the outlook, but I do sort
29:26
Speaker 11: of wonder what that means for other companies in the space,
29:28
Speaker 11: For example, choice that really depends on government in terms
29:32
Speaker 11: of infrastructure spending and long term stays. At their properties
29:36
Speaker 11: throughout the country.
29:37
Speaker 3: Our thanks to Jody Lourie Bloomberg Intelligence Credit Analysts, we move.
29:41
Speaker 2: Next to the aerospace industry. This week we received third
29:43
Speaker 2: quarter earnings from General Electric Aerospace and RTX.
29:47
Speaker 3: GE Aerospace reported results that beat analyst estimates, and the
29:50
Speaker 3: company also raised its full year outlook due to strong
29:53
Speaker 3: air travel demand.
29:54
Speaker 2: Meantime, the aerospace and defense company RTX raced its four
29:57
Speaker 2: year profit outlook and reported earnings at top all street estimates.
30:01
Speaker 2: This came a sales and profit rose across rtx's commercial,
30:04
Speaker 2: aerospace and military hardware businesses.
30:06
Speaker 3: So for more we were joined by George Ferguson, Bloomberg
30:09
Speaker 3: Intelligence Senior Aerospace, Defense and Airlines analysts.
30:12
Speaker 2: The first asked George for his take on results from
30:14
Speaker 2: GE Aerospace.
30:15
Speaker 12: I think it's telling too that Larry Colp, the CEO
30:19
Speaker 12: of the combined companies, broke them apart and went with
30:22
Speaker 12: the aerospace business right that was the crown jewel. They're
30:27
Speaker 12: the largest maker of jet engines globally. I think they
30:30
Speaker 12: have probably the best technology for jet engines globally. And look,
30:35
Speaker 12: this was a really nice quarter. Margins were even stronger
30:39
Speaker 12: than we expected. I think they may be close to
30:42
Speaker 12: plateauing though here there's just a heavy, heavy demand for
30:46
Speaker 12: aircraft maintenance, even higher than sort of the amount of
30:50
Speaker 12: the increase in airline traffic would indicate just a lot
30:55
Speaker 12: of pent up demand. And then coming out of the
30:57
Speaker 12: pandemic and some of the newer technology ends just aren't
31:00
Speaker 12: as robust, so a lot of people flying the old
31:03
Speaker 12: ones longer. And we heard a lot of good news
31:06
Speaker 12: about supply chain. Supply chain sound like it was delivering.
31:09
Speaker 12: For Larry, it's been generally been a challenge. It was delivering,
31:12
Speaker 12: and he had parts to put on airplanes and those
31:14
Speaker 12: were high margin parts and each showed it in the
31:16
Speaker 12: financial statements.
31:18
Speaker 7: Hey George, you mentioned maintenance and repairs. So does that
31:21
Speaker 7: help the company offset those higher costs when you have
31:23
Speaker 7: the rise in the new engine deliveries.
31:26
Speaker 12: Yeah, So, like I said, I think we might be
31:29
Speaker 12: seeing a plateau here in the margins we're gonna get
31:32
Speaker 12: out of this company. So the air framers Boeing and
31:36
Speaker 12: Airbus have been slow in ramping up deliveries because they're
31:39
Speaker 12: working through their supply chain challenges. So we really see
31:43
Speaker 12: Boeing an Airbus increasing deliveries of new aircraft all the
31:47
Speaker 12: way to the back end of the decade, and that
31:50
Speaker 12: increase in deliveries is gonna you know, we'll come with
31:53
Speaker 12: those new engines from GE and RTX for that matter,
31:57
Speaker 12: and those are diluted to margins, so you know, so
32:01
Speaker 12: they're kind of in this sweet spot where the original equipment,
32:05
Speaker 12: you know, shipments haven't taken off yet because Bowing and
32:09
Speaker 12: Airbus are working on that supply chain and they're doing
32:12
Speaker 12: a lot of spare parts deliveries and that's really juicing
32:15
Speaker 12: profitability very strongly. So next year I think becomes more
32:19
Speaker 12: challenging on the whole profitability front.
32:22
Speaker 2: All right, George, rt X, the old wraitheon. That's kind
32:26
Speaker 2: of how I know this company. Tell us like what's
32:28
Speaker 2: the business of RTX, what are their specialties and what
32:31
Speaker 2: did they report?
32:32
Speaker 12: So they they make jet engines as well, right, competitor
32:36
Speaker 12: to GE. They make the Pratt Wie gear turbo fan.
32:40
Speaker 12: They have the Collins business, which is is all kinds
32:45
Speaker 12: of parts for aircraft. You know, it could be breaks,
32:47
Speaker 12: it could be landing gear. And then they've got the
32:51
Speaker 12: Raytheon business, which is the old Raytheon that you know,
32:54
Speaker 12: the defense contractor from up Boston area, and they make radar,
33:00
Speaker 12: they make missiles, they make air defense kind of equipment,
33:05
Speaker 12: and like all of the you know, all of those
33:07
Speaker 12: businesses in that portfolio are really clicking right now. Look,
33:12
Speaker 12: defense is going to grow slower. It takes time. That
33:15
Speaker 12: backlog builds quickly, but it takes a lot longer to
33:18
Speaker 12: build some of those products because they're not you know,
33:21
Speaker 12: running down a line that are making you know, as
33:23
Speaker 12: many like you know, seven thirty sevens or a three twenties,
33:27
Speaker 12: you're doing five or six hundred a year. These are
33:29
Speaker 12: a lot slower cadence. But we're seeing a lot of
33:33
Speaker 12: demand from customers around the world for missiles and for
33:37
Speaker 12: air defense, and so that backlog continues to build and
33:40
Speaker 12: they're building margin in that business. There's still a kind
33:43
Speaker 12: of eleven ish twelve ish percent margin that was quite
33:46
Speaker 12: good in that defense business. And then at the same time,
33:50
Speaker 12: like it has told you for Ge, the strength of
33:53
Speaker 12: demand for aircraft maintenance right now and the high margin
33:57
Speaker 12: parts that go into it drove that Collins business. Their
34:01
Speaker 12: Collins business is a thirteen is fourteen percent ise operating
34:05
Speaker 12: margin business really seeing strong growth. Their engine business is
34:10
Speaker 12: not as strong as gees GE's returns in the twenty
34:13
Speaker 12: plus percent margins. Pratt and Whitney's kind of an eight
34:18
Speaker 12: to nine percent operating margin. They've had problems with their
34:21
Speaker 12: latest narrow body engines, so they're managing some of those issues.
34:26
Speaker 12: They just don't the volume that GE has, but they
34:29
Speaker 12: continue to see margin growth in that business too as
34:32
Speaker 12: they deliver spare parts of some of the older Legacy
34:36
Speaker 12: V twenty five hundred engines we know them as that
34:39
Speaker 12: power old A three twenties. Really did a nice job
34:42
Speaker 12: in that business, and they raise guidance even more than GE.
34:46
Speaker 12: Going into the back into the last quarter of the year.
34:48
Speaker 12: I think they had some of that in their back pocket,
34:50
Speaker 12: but it looked pretty nice.
34:52
Speaker 7: Hey, Jeorg before you go about a minute left. One
34:54
Speaker 7: of the they're one of the largest recipients of US
34:56
Speaker 7: federal contract funding. We're talking about RTX. Can you name
34:59
Speaker 7: some of the projects they're working on with the Trump administration?
35:02
Speaker 7: What are they working on?
35:03
Speaker 12: Yeah, So, I mean they're gonna do things like Patriot
35:06
Speaker 12: missile systems. They're gonna do a bunch of sorry, Patriot
35:10
Speaker 12: air defense systems. They're gonna do a bunch of missile systems.
35:13
Speaker 12: Like GMT. All right, you can think of if you know,
35:17
Speaker 12: in air defense, you use they make raiders as well.
35:20
Speaker 12: You use a radar, you find a target, you you
35:24
Speaker 12: sort all the targets you got coming at you at it,
35:26
Speaker 12: and then you have to shoot a high value interceptor
35:30
Speaker 12: at that target. And the reason that interceptor is so
35:32
Speaker 12: high value is it's got to go and hit a
35:34
Speaker 12: missile approaching you know, your position, your country, whatever, which
35:39
Speaker 12: means you put a lot of value out in that
35:40
Speaker 12: missile so it can go find another one and destroy it.
35:44
Speaker 12: So that's part of what they're building. They'll also probably
35:48
Speaker 12: be involved in the in the you know, the Global
35:51
Speaker 12: Dome or whatever, you know, the our version of iron.
35:54
Speaker 2: Dome, Golden dome.
35:55
Speaker 12: Yeah, so there's just a lot of demand for the
35:59
Speaker 12: products that they're to build.
36:00
Speaker 3: Our thanks to George Ferguson Bloomberg Intelligence, Senior Aerospace, Defense
36:04
Speaker 3: and Airlines analyst.
36:05
Speaker 2: That's this week's edition of Bloomberg Intelligence on Bloomberg Radio,
36:08
Speaker 2: providing in depth research and data on two thousand companies
36:11
Speaker 2: in one hundred and thirty industries.
36:12
Speaker 3: And remember you can access Bloomberg Intelligence via Big on
36:16
Speaker 3: the terminal.
36:16
Speaker 2: I'm Scarlett Foe and I'm Paul Sweeney.