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BI Weekend: Coca Cola, Hasbro, T-Mobile Earnings · Bloomberg Intelligence

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Speaker 2: On Today's Bloomberg Intelligence Show, we dig inside the big
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Speaker 3: Each and every week we provide in depth research and
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Speaker 3: hundred and thirty industries are analysts cover worldwide.
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Speaker 2: Today, we'll look at why Kraftthein's new CEO is halting
0:56
Speaker 2: the process of splitting the company.
0:58
Speaker 3: Plus a look at why T Mobile ad and fewer
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Speaker 3: mobile phone subscribers last quarter.
1:02
Speaker 2: But first we begin with a deal in the energy space.
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Speaker 3: This week, deep water oil rigowner Transocean agree to acquire
1:08
Speaker 3: rival Valaris in an all stock deal valued at five
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Speaker 3: point eight billion dollars.
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Speaker 2: The deal will create the world's largest offshore recontractor by
1:15
Speaker 2: market value.
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Speaker 3: And this comes as offshore drilling has been booming, especially
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Speaker 3: in deep waters for more. We were joined by Scott Levine,
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Speaker 3: our senior energy services analysts.
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Speaker 2: We asked Scott to break down who these companies are
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Speaker 2: and the reasons for the deal.
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Speaker 5: Two of the bigger names in offshore drilling. Transocean has
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Speaker 5: the largest backlog, Valaris has largest fleet. Valaris's name may
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Speaker 5: not be that familiar to a lot of folks here.
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Speaker 5: It was actually a combination of a two companies called
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Speaker 5: Ensco and row In a few years ago. But there
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Speaker 5: are two of the biggest offshore drillers, and I think
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Speaker 5: that this deal really has both offensive and defensive motivations.
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Speaker 5: Offshore drilling is in a little bit of a recovery mode,
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Speaker 5: really kind of has been. Most of the drillers went bankrupt.
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Speaker 5: Actually during the twenty twenty one downturn. Transotion was really
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Speaker 5: one of the only companies that did not go bankrupt.
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Speaker 5: Valaris did, and so Transition has kind of been saddled
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Speaker 5: with all this debt as a result of not having
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Speaker 5: their balance sheet wipe during a bankruptcy, and so that's
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Speaker 5: been a limiting factor on their growth for quite some time.
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Speaker 5: And this deal, which is an all stock deal, will
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Speaker 5: accelerate their leveraging process and remove some of that burden
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Speaker 5: from them and better enable them to capitalize on an
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Speaker 5: upturn in offshore drilling. And the second of the thing
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Speaker 5: that's important to note here is that it brings a
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Speaker 5: jack up fleet jet. So a jackup fleet jackups are
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Speaker 5: basically shallow water rigs okay, as opposed to the deep
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Speaker 5: water drill ships or floaters, and Transotion had exclusively been
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Speaker 5: a floater fleet. Jackups are to the seabed, the seabeds
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Speaker 5: lower and shallow water, and Valaris is one of the
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Speaker 5: biggest players there, and so this gives Transition exposure to
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Speaker 5: the jack up or shallow water market, which has really
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Speaker 5: undergone an interesting phase in that it was a bit
3:17
Speaker 5: of a downturn the last couple of years. The biggest
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Speaker 5: jack up driller is Saudija Ramco, and a couple of
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Speaker 5: years ago Saudia Ramco made significant cuts to their drilling program.
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Speaker 5: They essentially Saudi Arabia abandoned plans to increase their oil
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Speaker 5: production capacity to thirteen million barrels a day, and what
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Speaker 5: we've seen since then is a lot of jack up
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Speaker 5: rigs being laid off effectively in twenty twenty four and
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Speaker 5: twenty twenty five. Indication suggests those rigs will return this year,
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Speaker 5: so that market is bottomed and maybe on the cusp
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Speaker 5: of an upswing. So this deal will give Transotion the
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Speaker 5: ability to participate in that recovery.
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Speaker 3: So in terms of why now, when it comes to
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Speaker 3: the timing of this deal, the COEO transortion cited a
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Speaker 3: multi year drilling upcycle. Where are we in that cycle?
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Speaker 5: Are we?
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Speaker 3: You know, first inning?
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Speaker 5: It's kind of been an interesting upcycle, so we saw
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Speaker 5: an inflection in twenty two and twenty three, and twenty
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Speaker 5: four and twenty five, we've seen kind of a plateau
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Speaker 5: to a slight pullback.
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Speaker 4: Now.
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Speaker 5: I do believe we're in a recovery and have been,
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Speaker 5: and this has kind of been more of a mid
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Speaker 5: cycle pause associated rather than a downturn and offshore drilling.
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Speaker 5: So I do think the recovery is intact, but I
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Speaker 5: think the cadence has certainly slowed and in fact deteriorated
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Speaker 5: and offshore drillers, like energy service companies, have been off
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Speaker 5: to the races this year. I think the oil price
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Speaker 5: is held in better than expected. Some of that is
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Speaker 5: due to some of the tensions in the Middle East.
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Speaker 5: I Ran et cetera, Venezuela as well. So the punchline
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Speaker 5: really is that we're still in I think a mid
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Speaker 5: cycle pause until maybe the second half of this year,
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Speaker 5: and in terms of what inning we're in, I think
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Speaker 5: we're probably like third fourth inning, but it's been in
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Speaker 5: kind of an unconventional recovery.
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Speaker 2: Will the regulators allow these two companies to get the other?
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Speaker 5: Yeah, I think so, And it's a good question. These
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Speaker 5: are the two of the largest players that are out there,
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Speaker 5: and rig CEO expressed extreme confidence that that will be
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Speaker 5: the case. It's a competitive market. There's a lot of
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Speaker 5: fragmentation smaller players in the market, and it's generally the
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Speaker 5: quality of certain assets that determine which guys win which contracts.
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Speaker 5: A lot of it depends on which rigs are capable
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Speaker 5: of drilling for which projects, and so no, I do
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Speaker 5: think that this should get to relatively quick approval. Certainly
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Speaker 5: they're talking second half of this year. That's a much
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Speaker 5: shorter time timeline than the last major oil field services merger,
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Speaker 5: which was Slumberge champion X that took over a year
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Speaker 5: two year and a half to approve and required significant divestures.
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Speaker 5: But offshore drilling is a.
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Speaker 3: Different market our Thanks to Scott Levigne Bloomberg Intelligence, a
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Speaker 3: senior energy services analyst.
6:18
Speaker 2: Staying with energy on Bloomberg Intelligence, we often look at
6:21
Speaker 2: research from Bloomberg and EF previously known as New Energy Finance.
6:25
Speaker 3: So they're the team at Bloomberg that tracks and analyzes
6:27
Speaker 3: the energy transition from commodities to power, transport, industries, buildings,
6:32
Speaker 3: and agriculture sectors.
6:33
Speaker 2: This week we took a look at robotaxis for more
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Speaker 2: on this and the state of the automated vehicle industry.
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Speaker 2: I was joined by Andrew grant b an EF head
6:41
Speaker 2: of Intelligent Mobility. I first asked Andrew to tell us
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Speaker 2: where we are with robotaxis and what we should watch
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Speaker 2: out for in twenty twenty six.
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Speaker 6: So at the end of twenty twenty five, they were
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Speaker 6: about eight thousand working robotaxis globally. Some of those had
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Speaker 6: safety drivers behind the wheel, Some of the had safety
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Speaker 6: drives in the vehicle but a significant number fully driverless
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Speaker 6: and operating in various cities around the globe. I'd say
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Speaker 6: about half of those eight thousand based in the US,
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Speaker 6: but we expect that number in total to more than
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Speaker 6: double by the end of the year to around eighteen
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Speaker 6: thousand robotaxis globally.
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Speaker 2: Who are the players in this business? I names you
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Speaker 2: know other than no Tesla, Weimo. How do you think
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Speaker 2: about the competitive environment out there?
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Speaker 6: I mean, we spend a lot of time looking at
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Speaker 6: the actual operations and number of vehicles deployed, so rarely
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Speaker 6: you're looking at kind of four companies globally that have
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Speaker 6: the biggest fleets of vehicles on the road. So Waimo,
7:36
Speaker 6: as you mentioned, alphabet backed and has just raised a
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Speaker 6: significant amount of money. But also you're looking at three
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Speaker 6: Chinese companies with a big robotaxi fleet and growing so
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Speaker 6: Bydou's Apollo, and then we Ride and pony Ai, which
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Speaker 6: are robotaxis specialists that are based out of China but
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Speaker 6: looking to expand globally.
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Speaker 2: You know, I think about the just the battery electric
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Speaker 2: vehicle market, and I think the exception of the US
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Speaker 2: byd and some of these other Chinese manufacturers, it just
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Speaker 2: feels to me at this early stage might be able
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Speaker 2: to take over the world of electronic vehicles. Is that
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Speaker 2: a similar view for robotaxis?
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Speaker 6: Yeah. I mean it's interesting how different geographies are going
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Speaker 6: to react and different regulators are going to react to
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Speaker 6: foreign companies coming in and deploying their technology in those areas.
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Speaker 6: We are really seeing kind of a race at the
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Speaker 6: moment for new territories. So you've obviously got the US
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Speaker 6: based companies, the Chinese based companies that I just mentioned,
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Speaker 6: and kind of in the middle, you've got Europe, Middle East,
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Speaker 6: Southeast Asia where a lot of these companies are setting
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Speaker 6: up roots and looking to deploy and kind of twenty
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Speaker 6: twenty six is the year where they're really looking to
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Speaker 6: expand those services. So uber has just announced an earning
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Speaker 6: score last week that they'll be expanding to Houston, Hong Kong, Madrid, Zurich.
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Speaker 6: There's a variety of really competitive battlegrounds across those kind
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Speaker 6: of markets. In the middle.
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Speaker 2: What's the safety records so far in these early testing stage.
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Speaker 6: I mean, it depends how you measure these safety standards.
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Speaker 6: It's whether you're needing some type of intervention with the
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Speaker 6: safety driver and the vehicle on the whole. These vehicles
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Speaker 6: are tending to kind of show safety records that are
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Speaker 6: similar to what humans have displayed, and in some cases
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Speaker 6: it's far surpassing that. But again, the measuring of these
9:27
Speaker 6: standards is kind of a tricky, nuanced subject. That's a
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Speaker 6: lot of regulators are digging into at the moment, and
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Speaker 6: it's really about companies working with regulators to try and
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Speaker 6: figure out and kind of try to prove their safety
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Speaker 6: record over time as they expand their services.
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Speaker 2: Talk to us about these things are expensive to develop, maintain, deploy.
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Speaker 2: Weimo just raised sixteen billion dollars at one hundred and
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Speaker 2: twenty six billion dollar valuation. Tesla's committed twenty billion dollars
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Speaker 2: in R and D this year. Where's the money coming from?
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Speaker 6: I mean a variety of venture backed investors and kind
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Speaker 6: of the big tech companies themselves. So you mentioned Wemo.
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Speaker 6: A lot of that money is coming from its majority owner, Alphabet,
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Speaker 6: and then Tesla is putting a lot of money into this.
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Speaker 6: It's just about where they are putting their money. So
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Speaker 6: Tesla is going with a strategy of deploying a much
10:19
Speaker 6: cheaper vehicle, but they're putting a lot of money into
10:22
Speaker 6: the data centers to try and improve their self driving
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Speaker 6: algorithms and their self driving system, whereas Weimo has got
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Speaker 6: a more expensive vehicle kind of two to three times
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Speaker 6: at a minimum more expensive. So it's going to take
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Speaker 6: a lot of ney to kind of build out that
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Speaker 6: robotaxi fleet and deploy it in the various parts of
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Speaker 6: the globe where they want to deploy. They've just announced
10:41
Speaker 6: that they plan to launch a service here in London
10:44
Speaker 6: in September.
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Speaker 2: Great, some of those little streets, good luck there. What's
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Speaker 2: some of the gating issues here? Is it regulatory? Is
10:52
Speaker 2: it capital? Is it technology? What's the gating issue here
10:56
Speaker 2: for this industry at the moment?
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Speaker 6: I mean, it's kind of all of the above, and
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Speaker 6: there's improvements that need to be made on all of those,
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Speaker 6: but also just finding a business use case for these services.
11:05
Speaker 6: I mean, as we've been talking about, it takes a
11:07
Speaker 6: lot of money to build them and deploy them. So
11:09
Speaker 6: finding a kind of meaningful market for them and completing
11:14
Speaker 6: kind of useful rides or meaningful rides rather than just
11:16
Speaker 6: kind of being a theme park attraction and driving small
11:20
Speaker 6: parts of the city. You actually want to kind of
11:21
Speaker 6: get those more lucrative ride heading trips from say city
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Speaker 6: center to airports, and that's been a bit tricky for
11:28
Speaker 6: some of these robotaxi companies to actually sort out the
11:33
Speaker 6: If you look at just about a week and a
11:35
Speaker 6: half ago where were announced that they would be opening
11:38
Speaker 6: up to San Francisco Airport. But really what you're seeing
11:42
Speaker 6: from that is they are doing pickups and drop offs
11:45
Speaker 6: at the car rental center, which is kind of a
11:48
Speaker 6: fifteen twenty minute journey from there to the actual airport itself,
11:52
Speaker 6: so it's kind of compete with curbside dropoffs from ride
11:55
Speaker 6: heading vehicles. They still have a bit of way to go.
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Speaker 3: Are thanks to Andrew grant, any, head of Intelligent Mobility,
12:01
Speaker 3: coming up a look at why Coca Cola offered a
12:04
Speaker 3: more conservative full year sales outlook than expected.
12:06
Speaker 2: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
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Speaker 2: depth research and data on two thousand companies and one
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Speaker 2: hundred and thirty industries.
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Speaker 3: I'm Scarlett Foo and.
12:17
Speaker 2: I'm Paul Sweeney, and this is Bloomberg.
12:23
Speaker 1: This is Bloomberg Intelligence with Scarlet Foo and Paul Sweeney
12:28
Speaker 1: on Bloomberg Radio.
12:30
Speaker 2: We moved now to some news at the food and
12:32
Speaker 2: beverage company craft Hines.
12:33
Speaker 3: So this week, Kraft Heins's new CEO, Steve Kaylane, halted
12:37
Speaker 3: the process of splitting the company.
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Speaker 2: Its decision, he said, was backed by the board of directors.
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Speaker 2: Kaylane will instead invest six hundred million dollars in developing
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Speaker 2: new products, marketing them and lowering some prices.
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Speaker 3: The shift in strategy was the result of Kaylane spending
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Speaker 3: the last few weeks immersing himself in Kraft Heeins's vast portfolio,
12:53
Speaker 3: including conversations with retailers and employees.
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Speaker 2: For more and all this, we were joined by Christina Peterson,
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Speaker 2: Bloomberg News food industry reporter.
13:00
Speaker 3: We began by asking Christina to explain Kaylane's thinking with
13:03
Speaker 3: the pause.
13:04
Speaker 7: He's only been on the job since January first, so
13:07
Speaker 7: I think this came as a surprise to folks that
13:09
Speaker 7: the split was called off about five months after it
13:12
Speaker 7: was announced or paused. There is no end date to
13:16
Speaker 7: the pause, so we don't know if it will at
13:18
Speaker 7: some point rezuom. But the CEO, Steve Kahlene, said that
13:22
Speaker 7: he came on the job knowing that there had been
13:25
Speaker 7: levels of under investment in Kraft Heiness's brands and decided
13:29
Speaker 7: that after reviewing all of them, that there were brands
13:31
Speaker 7: that would respond to more investment. So they announced that
13:34
Speaker 7: they would be putting six hundred million dollars into things
13:37
Speaker 7: like R and D marketing and lowering some prices in
13:41
Speaker 7: hopes that that would bolster the entire company and that
13:45
Speaker 7: that would be in a better position put them in
13:47
Speaker 7: a better position to evaluate whether they should move forward
13:50
Speaker 7: with the split.
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Speaker 2: So what if most investors want? Did they you think
13:54
Speaker 2: they want the split up? Sometimes split ups work, a
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Speaker 2: lot of times they don't. What if investors been saying
14:00
Speaker 2: over the past months.
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Speaker 7: There's clearly been some anxiety among investors since the news
14:06
Speaker 7: of the split was announced. I think that the new
14:09
Speaker 7: CEO was seen as there were hopes that he would
14:13
Speaker 7: do what he had done with the Kellegg Company, which
14:16
Speaker 7: split into two publicly traded entities and then where both
14:19
Speaker 7: both of those companies were bought by privately held entities.
14:23
Speaker 7: So there was some speculation that the same thing would
14:26
Speaker 7: occur at Kraft. Himes and Kaylaine said basically, not yet.
14:30
Speaker 3: Really, there's another twist to all of this, which is
14:33
Speaker 3: that Kraft Times biggest shareholder is Berkshire Hathway and Warren Buffett,
14:37
Speaker 3: who runs Berkshire Hathway until he handed the rains to
14:39
Speaker 3: Greg Abel, said he was never a fan of that
14:43
Speaker 3: idea to split up the company. I mean, he was
14:45
Speaker 3: kind of the mastermind behind Kraft Hims becoming the behemoth
14:47
Speaker 3: it was and that didn't work out so well. But
14:50
Speaker 3: he made clear that the split was not a good
14:51
Speaker 3: thing in his mind. Do we think that has anything
14:54
Speaker 3: to do with this about face?
14:56
Speaker 7: I don't know. It is clear that he had publicly
14:59
Speaker 7: expressed a appointment in the split, and his successor had
15:03
Speaker 7: said in a filing that Berkshire Hathaway was taking steps
15:06
Speaker 7: to sell its twenty eight percent stake in Craft Times,
15:09
Speaker 7: So clearly they were nervous about this and not fans
15:12
Speaker 7: of the news.
15:13
Speaker 2: So do we have any idea how long this pause
15:16
Speaker 2: will last? I mean, is he trying to turn stuff around,
15:20
Speaker 2: make it maybe better? So if when they do split
15:23
Speaker 2: it up be worth more? What do we know?
15:26
Speaker 7: They clearly are not going to make the decision this year.
15:28
Speaker 7: They talked about returning to growth in twenty twenty seven,
15:31
Speaker 7: so it seems like this is a month's away decision.
15:35
Speaker 2: Oh, the investment bankers who had that on their deal
15:37
Speaker 2: sheet for twenty twenty six.
15:39
Speaker 3: But they get paid in the meantime for the work
15:40
Speaker 3: that they've done right now.
15:41
Speaker 2: You don't get paid to the closes.
15:42
Speaker 3: Oh really, you can't build them along the way.
15:44
Speaker 2: We're not lawyers. Okay, we get paid. We take out
15:47
Speaker 2: of the I like how you still say we yeah, yeah,
15:50
Speaker 2: exactly because you.
15:50
Speaker 3: Feel for these guys. Y.
15:53
Speaker 2: What's the company want to do now? Is as a
15:56
Speaker 2: standalone company.
15:57
Speaker 7: Well, they've talked about releasing some healthier products. They are
16:01
Speaker 7: launching a Kraft Heinz Mac and cheese PowerMac with proteinage.
16:06
Speaker 3: I knew iber, I knew it. I knew it.
16:09
Speaker 7: And they will be lowering prices. They talked about the
16:12
Speaker 7: opening price points being important for low income families. So
16:17
Speaker 7: those are some of the areas that they're going to
16:18
Speaker 7: be focusing on, some healthier options, more affordable price points.
16:22
Speaker 2: Our thanks to Christina Peterson, Bloomberg News Food industry reporter.
16:26
Speaker 3: We move now to the beverage giant, Coca Cola. This week,
16:29
Speaker 3: Coca Cola reported weaker than expected quarterly sales.
16:32
Speaker 2: Soda maker also offered a more conservative twenty twenty six
16:35
Speaker 2: for your sales outlook. Then expected. Shares of Coca Cola
16:38
Speaker 2: fell after the news.
16:39
Speaker 3: The outlook points to the challenges faced by the incoming CEO,
16:41
Speaker 3: Henrique Braun, as the company works to win over shoppers
16:44
Speaker 3: with its widening portfolio of beverages.
16:47
Speaker 2: For more, we heard Kencha Bloomberg Intelligence, senior consumer products analysts.
16:51
Speaker 2: We first asked Ken to tell us what's concerning investors
16:53
Speaker 2: about Coca Cola.
16:54
Speaker 4: I think what maybe concerning the mark a little bit
16:58
Speaker 4: about Coke is that the mix was not as favorable
17:02
Speaker 4: as it had been. Also, the company over the past
17:05
Speaker 4: couple of years had been relying heavily on price mix
17:08
Speaker 4: to boost the top line.
17:09
Speaker 6: Is it was a.
17:10
Speaker 4: Considerable slowing in the quarter. Having said that, there's always
17:14
Speaker 4: some noise in the fourth quarter. It's hard to draw
17:16
Speaker 4: too many conclusions from the fourth quarter. But I think
17:19
Speaker 4: the market is also being spooked a little bit by
17:22
Speaker 4: the guidance for next year, which came in a bit
17:25
Speaker 4: a little bit light. The company's long term algorithm is
17:30
Speaker 4: to generate about four to six percent organic revenue and
17:33
Speaker 4: from that it can generate high comparable EPs growth, and
17:37
Speaker 4: it did that in twenty twenty five, in twenty twenty six,
17:40
Speaker 4: other saying four to five percent top line and four
17:43
Speaker 4: to five percent EPs growth, And so that's EPs growth again,
17:47
Speaker 4: that's excluding currency effects. It's not only below their long
17:53
Speaker 4: term algorithm, but also below consensus expectations going in.
17:57
Speaker 2: What's the You know, we always talk a lot of
18:01
Speaker 2: your companies, the consumer products companies and staples companies that
18:03
Speaker 2: you think about him as kind of GDP maybe a
18:05
Speaker 2: little bit GDP plus kind of growth here. Is there
18:07
Speaker 2: any secret sauce to the Coca Cola story or is
18:10
Speaker 2: that the way we should think about it?
18:12
Speaker 4: Well, there's a lot of truth of that, Paul, because
18:15
Speaker 4: Coca is in the two hundred markets around the world.
18:17
Speaker 4: You know, I guess the way for growth is lunar
18:20
Speaker 4: at this point. I mean, they're everywhere. But I think
18:25
Speaker 4: there's gonna be a new CEO on March thirty first,
18:27
Speaker 4: Henry Barraun. He's a long time veteran at Coca Cola
18:30
Speaker 4: who was the COO used to head up Latin American operations.
18:33
Speaker 4: I think there's a lot of confidence in his ability
18:36
Speaker 4: to take the reins here, and I think what he's
18:40
Speaker 4: going to spell out in his vision next week at Cagney.
18:43
Speaker 4: That's when they oh usually do it.
18:45
Speaker 2: That's where you'll be.
18:47
Speaker 4: Yeah. Well, I think he's gonna say that they need
18:51
Speaker 4: to step up their marketing and innovation here to boost
18:54
Speaker 4: that top line growth. And I think they're going to
18:56
Speaker 4: talk a lot about functionality that we talked about with PepsiCo.
19:01
Speaker 4: What I mean by functionality, well, well, consumers want more
19:04
Speaker 4: from their beverages than just taste good and hydrate them.
19:07
Speaker 4: They want to not only have zero sugar, but if
19:11
Speaker 4: they wants to have more electrolytes in their water, it
19:15
Speaker 4: wants to have more protein in their drinks. Particularly the
19:17
Speaker 4: JLP one crowd, they want to have fiber coke offers
19:22
Speaker 4: in its probiotic sodas like simply Pop. So these are
19:25
Speaker 4: the kind of things they're going to talk about in
19:27
Speaker 4: terms of product innovation, I believe next week. In addition
19:31
Speaker 4: to that, I think the company's going to spend more
19:32
Speaker 4: in marketing digital marketing to get the message out to
19:35
Speaker 4: new young consumers.
19:37
Speaker 3: I guess the idea is to just have your drink
19:39
Speaker 3: or place your food.
19:40
Speaker 6: I guess.
19:42
Speaker 3: Zero sugar actually was a standout right with Coca Cola
19:46
Speaker 3: Zero sugar posting double digit volume growth in the quarter.
19:49
Speaker 3: When you say that they want to focus on the
19:51
Speaker 3: innovation and get the word out, what does that mean
19:53
Speaker 3: in terms of spending on marketing? What does that mean
19:56
Speaker 3: on in terms of capital expenses?
20:00
Speaker 4: Think broadly speaking, more social media advertising. I mean on
20:03
Speaker 4: a purview basis, that's a lot more cost efficient and
20:06
Speaker 4: the you know traditional ways like television, Paul, you would
20:09
Speaker 4: know that right media analyst days. So it's more of that.
20:12
Speaker 4: It's also working more closely with their bottlers in terms
20:15
Speaker 4: of co marketing ventures. That could be a wide range
20:18
Speaker 4: of things, not only digital marketing, but perhaps coming out
20:22
Speaker 4: new packaging, whether it's multi packs to attract you know,
20:25
Speaker 4: an economical consumer to spending more on its fountain dispenser.
20:32
Speaker 4: You see a lot of fast food restaurants where they
20:36
Speaker 4: can make their own sodas and so on. It's just
20:39
Speaker 4: spread that out more to have more consumer engagement matter
20:42
Speaker 4: where they are. Yep, so I see more of that.
20:45
Speaker 3: Our thanks to Ken shah Our, senior consumer products analysts.
20:48
Speaker 2: We move next to news on the toy and board
20:50
Speaker 2: game maker Hasbro.
20:52
Speaker 3: This week, Hasbro reported that it more than doubled year
20:54
Speaker 3: over year revenue from its popular card game Magic. The
20:57
Speaker 3: gathering in the fourth quarter, shares of Hasbro jumped the news.
21:00
Speaker 3: So we brought in Lindsay Dutch, our consumer Hardline senior analyst,
21:04
Speaker 3: and began by asking her to break down Hasbro's results.
21:07
Speaker 8: So the story for Hasbro is, you know, the result
21:09
Speaker 8: in twenty five, including the fourth quarter, is really being
21:12
Speaker 8: driven by their Wizard of the Coast digital gaming segment.
21:17
Speaker 8: That that segment has been growing rapidly forty five percent
21:20
Speaker 8: on the year, sixty percent I think for Magic the
21:23
Speaker 8: gathering in the quarter, so just tremendous growth coming out
21:26
Speaker 8: of that brand, better than expected, and that unit is
21:30
Speaker 8: really going to carry the growth in twenty twenty six.
21:33
Speaker 8: The outlook for the consumer products with their toy segment
21:37
Speaker 8: is still kind of weak, So it's really coming out
21:40
Speaker 8: of that digital gaming segment. But I think investors are
21:43
Speaker 8: pleased with the outlook there just because they're lapping very
21:47
Speaker 8: difficult comps. So to see solid growth in twenty six
21:50
Speaker 8: coming out of that, it was a good surprise.
21:53
Speaker 3: Lindsay, what about tariffs? Is this something that Hasbro has
21:56
Speaker 3: figured out and it's no longer something that lead it's
22:00
Speaker 3: earnings to be kind of unreliable and they've kind of
22:03
Speaker 3: smooth things out.
22:06
Speaker 8: So it definitely affected the year, so about forty million
22:09
Speaker 8: dollars in the fourth quarter. A headwind for margin there,
22:14
Speaker 8: especially on that consumer products segment, so that margin did
22:17
Speaker 8: decline year over year, which was a disappointment. It's certainly
22:21
Speaker 8: going to be a headwind for profitability at least in
22:25
Speaker 8: the first half, and comps will get easier in the
22:27
Speaker 8: second half. But Hasbro did note that, you know, much
22:31
Speaker 8: of the cost savings program that they're working on and
22:34
Speaker 8: other supply chain efficiencies, they were able to offset a
22:37
Speaker 8: significant portion of that cost so that is a good sign,
22:42
Speaker 8: but there's still a little bit of a headwind for
22:44
Speaker 8: the next two quarters.
22:46
Speaker 2: I'm just looking at the FA function on the Bloomberg terminal,
22:49
Speaker 2: gives me all the financial analysism ploy the operating income
22:52
Speaker 2: profit for the Wizards of the Coast and the digital
22:54
Speaker 2: segment is huge, whereas the profitability of their regular toy
22:59
Speaker 2: business not so much. Is a company just throwing all
23:02
Speaker 2: the resources into their digital stuff? Is that the strategy?
23:06
Speaker 8: So they have definitely been pushing for several years now
23:10
Speaker 8: to become a bigger player in that digital world, but
23:13
Speaker 8: also really to become known for that. So I would say,
23:16
Speaker 8: you know, one of Hasbro's big brands Monopoly that that's
23:19
Speaker 8: what many people know that the company for is that
23:22
Speaker 8: traditional Monopoly board game. But are they are pushing into
23:25
Speaker 8: this world of digital games? You know, they want to
23:28
Speaker 8: be valued as such. And I will say, you know,
23:31
Speaker 8: they do have a digital version of Monopoly, Monopoly Go,
23:34
Speaker 8: and that has done.
23:36
Speaker 2: Very, very well over the past couple of years.
23:38
Speaker 8: It continues to surprise, including in the fourth quarter. So
23:42
Speaker 8: they're definitely moving in that direction. But that toy segment
23:45
Speaker 8: consumer products, you know, still.
23:47
Speaker 2: Is pretty large.
23:49
Speaker 8: It was still around fifty percent of revenue for twenty five.
23:53
Speaker 8: I do think that will that mix will come down
23:55
Speaker 8: over time, but it's still a big piece of their
23:58
Speaker 8: business that they can't ignore.
24:00
Speaker 3: Lindsay. I also noticed that in this latest earning support
24:02
Speaker 3: they announced a one billion dollar stock buyback authorization. I
24:06
Speaker 3: believe this is the first FIBACK since twenty eighteen. What
24:09
Speaker 3: does that signal to you?
24:11
Speaker 8: You know, I think that their Hasbro is still working
24:14
Speaker 8: through their capital allocation priorities. They are still focused on
24:18
Speaker 8: reducing leverage. You know, their dividend has been flat for
24:22
Speaker 8: quite some time, So I think they're looking at different
24:25
Speaker 8: avenues now that they're in a much better financial position
24:29
Speaker 8: than they had been maybe a year or two ago.
24:32
Speaker 8: So I think it's just a signal that that that
24:34
Speaker 8: position is solidly better and they're looking to redeploy cash
24:39
Speaker 8: in different ways that they maybe couldn't have done a
24:41
Speaker 8: year or so ago.
24:43
Speaker 2: Thanks to Lindsay Dutch, Bloomberg Intelligence, Consumer Hardline's senior analyst.
24:47
Speaker 3: Coming up, look at why CBS Health is repeating its
24:49
Speaker 3: profit guidance for twenty twenty six.
24:51
Speaker 2: You're listening to Bloomberg Intelligence on Bloomberg Radio for riding
24:54
Speaker 2: in depth research and data on two thousand companies in
24:56
Speaker 2: one hundred and thirty industries.
24:57
Speaker 3: You can access Bloomberg Intelligence through Bigo on the terminal.
25:00
Speaker 3: I'm Scarlett Foo.
25:01
Speaker 2: And I'm Paul Sweeney, and this is Bloomberg.
25:10
Speaker 1: This is Bloomberg Intelligence with Scarlet Foo and Paul Sweeney
25:15
Speaker 1: on Bloomberg Radio.
25:17
Speaker 9: Good move.
25:17
Speaker 2: Next to earnings from the telecommunications company T Mobile.
25:20
Speaker 3: This week, the company reported quarterly revenue that beat estimates
25:24
Speaker 3: but had earnings that missed analyst projections. T Mobile also
25:27
Speaker 3: reported it added fewer mobile phone subscribers and analysts expected
25:30
Speaker 3: last quarter.
25:31
Speaker 2: This comes as the company aims to distinguish itself from
25:34
Speaker 2: competitors in value and network quality with promotions like free
25:38
Speaker 2: Netflix subscriptions and wing Stop Chicken.
25:41
Speaker 3: For more, we brought in John Butler, our senior telecom analyst.
25:44
Speaker 2: We first Askedjohn to break down why this could be
25:45
Speaker 2: considered a disappointing quarter at T Mobile.
25:48
Speaker 10: I think one of the things that really impacted them
25:51
Speaker 10: is we've seen Verizon, which now has a new CEO
25:55
Speaker 10: who's come in. He's very volume focused, so he's out there.
26:00
Speaker 10: They're promoting heavily. They're trying to win new subscribers, and
26:04
Speaker 10: I think it took a bit of a den out
26:06
Speaker 10: of T mobiles growth in the fourth quarter. I think
26:10
Speaker 10: one thing T Mobile did which was smart is they
26:12
Speaker 10: combined the four Q report with a Capital Markets Day update.
26:18
Speaker 10: They updated their twenty twenty seven guidance, and they increased
26:22
Speaker 10: their free cash flow outlook for twenty seven by one
26:26
Speaker 10: point five billion. And so when you saw them do that,
26:30
Speaker 10: you saw an inflection and investor sentiment almost instantly, because
26:36
Speaker 10: again this has this has gone from a story of
26:40
Speaker 10: revenue growth. Now they're pivoting more to free cash flow growth.
26:44
Speaker 10: They're really pointing investors to that bottom line to you know,
26:50
Speaker 10: get the focus off of revenue growth as things get
26:54
Speaker 10: more promotional and as industry growth slows.
26:58
Speaker 2: So is this a new wave of just I guess
27:00
Speaker 2: across the board, if you Verizon's getting a little bit
27:02
Speaker 2: more promotional this T Mobile to AT and T, do
27:06
Speaker 2: they have to respond or the other things they can do?
27:09
Speaker 10: So great question, Paul. Right, We're in a mature industry backdrop. Now,
27:14
Speaker 10: growth overall is slowing for everyone. T Mobile is not
27:19
Speaker 10: alone in pointing to pre cash flow growth. You've got
27:23
Speaker 10: AT and T and Verizon doing the same thing. And
27:26
Speaker 10: so I think again, with that new CEO in place,
27:30
Speaker 10: now you've got T Mobiles sort of driving a growth
27:34
Speaker 10: story that centers on not only smart promotion, but also
27:40
Speaker 10: driving into adjacent markets like advertising and even credit cards.
27:46
Speaker 6: Yeah.
27:46
Speaker 3: I'm a Team Mobile subscriber and there's always a ton
27:48
Speaker 3: of emails from the company offering all kinds of different
27:51
Speaker 3: services and deals, and it really feels like they're just
27:53
Speaker 3: trying to develop you into their ecosystem. John, I kind
27:56
Speaker 3: of call the effort to sell internet access to ad
28:00
Speaker 3: broadband customers a side hustle for these telecoms companies. But
28:03
Speaker 3: this is how they can make sure that they continue
28:06
Speaker 3: to build out their customer base even as they try
28:09
Speaker 3: to fight for market share when it comes to mobile
28:11
Speaker 3: phone subscribers. How is that side hustle going for T Mobile.
28:16
Speaker 10: So the side hustle, as you call it, and I
28:19
Speaker 10: think that's a good word for it, is still small
28:22
Speaker 10: right now. I think their real opportunity for them in
28:25
Speaker 10: the near term scarlet lies in the broadband business. They're
28:29
Speaker 10: pushing into fiber, another side hustle. It's small, but I
28:34
Speaker 10: think over the next couple of years it could increasingly
28:38
Speaker 10: contribute to growth. And then at the core of the
28:41
Speaker 10: broadband business is their fixed wireless access business, so delivering
28:46
Speaker 10: broadband to the home over cellular spectrum. That's been very
28:51
Speaker 10: popular and T Mobile remains a real leader there. It
28:56
Speaker 10: continues to be a growth engine for them. And so
28:59
Speaker 10: I think when you air that with the ad business,
29:02
Speaker 10: the credit card business, and more importantly the fiber business,
29:07
Speaker 10: it all adds up to help sustain that free cash
29:11
Speaker 10: flow growth and call it the five to six percent range,
29:16
Speaker 10: maybe even more as we go forward over the next
29:18
Speaker 10: three years.
29:20
Speaker 2: John about thirty seconds dividend policy. T Mobile's got a
29:23
Speaker 2: one point eight percent yield, Verizon five point six percent,
29:26
Speaker 2: and AT and T three point nine percent, So there's
29:28
Speaker 2: something for everybody. In terms of investors, does T Mobile
29:31
Speaker 2: do They worry about their dividend yield.
29:35
Speaker 10: Little less so than share buybacks. In fact, one of
29:37
Speaker 10: the things they did with Capital Markets Day was announced
29:40
Speaker 10: that they're buying back five billion in shares over the
29:44
Speaker 10: course of the first quarter here, which is double the
29:47
Speaker 10: normal rate. So you know, I think they're leaning more
29:51
Speaker 10: into that than dividend growth, although it's part of that
29:54
Speaker 10: share buyback program and it's going to continue to be
29:57
Speaker 10: as we go forward.
29:58
Speaker 3: Here our thanks to On Butler, Bloomberg Intelligence, Senior Telecom analyst.
30:02
Speaker 2: We moved next to some newsom to healthcare company CVS Health.
30:05
Speaker 3: This week, the company disappointed Wall Street by repeating its
30:08
Speaker 3: profit guidance for the full year.
30:10
Speaker 2: It's a move analysts are calling a letdown after a
30:12
Speaker 2: strong fourth quarter performance.
30:14
Speaker 3: And it comes as CBS faces scrutiny from lawmakers and
30:17
Speaker 3: regulators in Washington who are concerned about the rising cost
30:20
Speaker 3: of healthcare.
30:21
Speaker 5: For more.
30:21
Speaker 2: We were joined by Jonathan Palmer, Senior Equity Research analyst
30:24
Speaker 2: at Bloomberg Intelligence.
30:25
Speaker 3: We first asked Jonathan to give us his take on
30:27
Speaker 3: the latest results at CBS.
30:29
Speaker 11: I think what investors were really focused on was twenty
30:31
Speaker 11: twenty six. They had done an investor day in December
30:34
Speaker 11: and already weigh out twenty twenty six guidance and they
30:38
Speaker 11: kept it the same, So that was a little bit
30:40
Speaker 11: of a sigh of relief for investors in managed care.
30:43
Speaker 11: Managed care has had a pretty challenging couple of years.
30:47
Speaker 11: Most recently, the Center for Medicare and Medicaid came out
30:51
Speaker 11: with some advanced rates for Medicare payments in twenty seven.
30:55
Speaker 11: That caused all the stocks, whether it was United Health
30:57
Speaker 11: or Humanity, a pullback pretty Significecantly, the important takeaway, I
31:02
Speaker 11: think was that even though that happened and CBS is
31:05
Speaker 11: going to advocate for better payment rates, their goal of
31:09
Speaker 11: turning their healthcare benefits business around isn't really dependent on that,
31:14
Speaker 11: and they're still going to hit their margin targets in
31:15
Speaker 11: the future.
31:17
Speaker 3: Did they talk about what kind of risks are involved.
31:20
Speaker 3: I mean, obviously big policy risks remain a headwind here
31:24
Speaker 3: for not just CBS, but for the entire sector. But
31:27
Speaker 3: did they address how they're thinking through those challenges.
31:29
Speaker 11: Well, the industry has been in the crosshairs of Washington
31:34
Speaker 11: forever and that hasn't really changed. I mean, interestingly enough,
31:39
Speaker 11: Senator Warren and one of the Republican senators actually just
31:42
Speaker 11: introduced another bill to break up these companies. So you
31:45
Speaker 11: know that's I think table stakes for them. You know,
31:49
Speaker 11: they're always in the crosshairs here. Whether we actually see
31:52
Speaker 11: some huge sea change out of Washington. I mean, do
31:55
Speaker 11: I think the odds are better than they were in
31:57
Speaker 11: the past, Yes, But I don't know that a lot
31:59
Speaker 11: of people or investors worry about that on the day
32:01
Speaker 11: to day. I think it's a pretty wee percent chance
32:03
Speaker 11: that these companies get broken up anytime soon.
32:06
Speaker 2: What's the call on the CBS and and this peer
32:08
Speaker 2: group here of healthcare? Is it supply chain? Is that
32:11
Speaker 2: the sector or it could be Okay, I have your industry.
32:16
Speaker 11: I have no idea of it as healthcare services more broadly,
32:19
Speaker 11: and so that encompasses everything from the managed care companies
32:21
Speaker 11: to hospitals, shriters, everything under the sun.
32:25
Speaker 2: I watched the pit though, so I'm getting smarter about
32:27
Speaker 2: the whole emergency room thing.
32:30
Speaker 11: I think the call here is we're very much in
32:32
Speaker 11: a holding pattern in this world of managed care. There's
32:36
Speaker 11: a lot of things swirling around in terms of these
32:39
Speaker 11: Medicare rates and star ratings and really like the nuances
32:43
Speaker 11: of how they run their businesses, and there's been a
32:46
Speaker 11: there's been a real hard how do I say, this
32:51
Speaker 11: era of compression and margin for those businesses, and everybody's
32:56
Speaker 11: trying to build that back up, and it's you know,
32:59
Speaker 11: when your contract and you have members coming in and
33:02
Speaker 11: out of plans and you're dealing with the government. These
33:04
Speaker 11: things don't get fixed overnight. So I think a lot
33:07
Speaker 11: of people are waiting for more quarity on where things
33:10
Speaker 11: are going and can the improvements that a lot of
33:13
Speaker 11: these companies have talked about actually show up in the numbers.
33:16
Speaker 3: Who would you say is CBS's main competitor, because it's
33:19
Speaker 3: a vertically integrated healthcare company. It's no longer a drug store.
33:24
Speaker 3: Managed care is a big part of its business. Once
33:26
Speaker 3: upon a time, I might have said Walgreens, but that's
33:28
Speaker 3: not the case anymore.
33:29
Speaker 11: Yeah, I mean, they're very clearly the best run pharmacy
33:32
Speaker 11: out there. Now that Walgreens has succumbed to private equity
33:36
Speaker 11: and we've seen right aid just go out of business.
33:39
Speaker 11: I mean, the best peer comparison is United Healthcare, but
33:42
Speaker 11: even then they're very different animals because United Healthcare owns
33:46
Speaker 11: a lot of technology assets that CBS doesn't. They also
33:49
Speaker 11: own a ton of provider assets that CBS doesn't. But
33:53
Speaker 11: in the areas of managed care and the PBM they
33:56
Speaker 11: match up pretty well. And then there's sigmas in that
33:59
Speaker 11: business those two businesses as well.
34:01
Speaker 2: Our thanks to Jonathan Palmer, Senior Equity Research Achannels at
34:04
Speaker 2: Bloomberg Intelligence.
34:05
Speaker 3: We move next to news from the hospitality giant Hilton Worldwide.
34:09
Speaker 2: This week, Hilton reported fourth quarter earnings that beat analyst expectations.
34:12
Speaker 3: The company's ability to add new hotels to its global
34:15
Speaker 3: network ended up driving growth.
34:17
Speaker 2: For more on this, we were joined by Brian Eggert,
34:18
Speaker 2: Bloomberg Intelligence Senior Gaming and Launching analysts. We first asked
34:22
Speaker 2: Brian about what Hilton reported from an earnings perspective.
34:25
Speaker 9: Yeah, so, I mean what we saw in the quarter
34:27
Speaker 9: was kind of mixed in terms of us being down
34:30
Speaker 9: a little bit or maybe a little blow rep part
34:32
Speaker 9: in the fourth quarter, mostly because of the government shutdown,
34:35
Speaker 9: so a bit weaker in bound travel to the US
34:39
Speaker 9: a little bit weaker governor travel, But the ALC for
34:41
Speaker 9: next year, I should say, this year one twenty six
34:43
Speaker 9: is pretty good, one to two percent report growth.
34:46
Speaker 2: That's revenue per available.
34:47
Speaker 9: Per available room. Yeah, and so leisure group, luxury all
34:52
Speaker 9: kind of strong. International, a little stronger than the US.
34:55
Speaker 9: But although this is an aging up cycle in the
34:58
Speaker 9: lodging industry, it's still got some white to it.
35:01
Speaker 7: Now.
35:01
Speaker 3: Hilton, along with many of the other hotel companies like Marriott,
35:05
Speaker 3: has an asset light business model, which means that it's
35:07
Speaker 3: brand licensing right. They don't actually own and manage any
35:10
Speaker 3: of their own properties, and that, you know, allows it
35:13
Speaker 3: to move more nimbly. The profit margins are much higher.
35:15
Speaker 3: What's the downside of that, Brian?
35:17
Speaker 9: So, I mean, there's some benefit actually owning the real
35:19
Speaker 9: estate when you're really in an upcycle. But this kind
35:22
Speaker 9: of fee base model is a very capital efficient way
35:25
Speaker 9: to expand and grow. You get your franchise fees and
35:27
Speaker 9: management fees. They've got a little bit of an hotel
35:30
Speaker 9: exposure as well. But most of the lodging companies, separate
35:34
Speaker 9: from the Reeds, are actually asset white manager franchisers with
35:39
Speaker 9: some own assets.
35:40
Speaker 2: Yeah, I'm looking at you know, you've got a company
35:42
Speaker 2: with you know, thirteen billion of revenue call it, you know,
35:45
Speaker 2: four billion of EBATA, one hundred million of CAPEX. Are
35:49
Speaker 2: you kidding me? That is awesome? So we build who
35:53
Speaker 2: builds a If Hilton wants to build a new hotel
35:56
Speaker 2: in South Beach, they don't build it. Somebody else builds it.
35:58
Speaker 9: Yeah, so you're you have like ownership entities. Obviously you've
36:01
Speaker 9: got the rates like park hotels, resorts and others that
36:05
Speaker 9: own the real estate. So this is, as you said,
36:07
Speaker 9: like an asset light franchised management tree driven business with
36:10
Speaker 9: someone hotels. There is some otel exposure.
36:14
Speaker 2: So what do they do with all the free cash
36:15
Speaker 2: interview they get? You know, most of that ebadad goes
36:17
Speaker 2: down to the free cash line.
36:18
Speaker 9: They have been returning capital, right, so they've got capital
36:20
Speaker 9: returns and you know, there is real opportunity for growth
36:25
Speaker 9: within their business model and a lot of that is international,
36:28
Speaker 9: a lot of conversions, you know, a lot of conversions
36:30
Speaker 9: from other assets that fit very well under their brand flags.
36:33
Speaker 9: And they have also been launching some new brands as
36:35
Speaker 9: well and kind of that lifestyle category.
36:38
Speaker 3: How many brands do they have right now.
36:40
Speaker 9: So where are they now? I know Marriott's thirty one.
36:42
Speaker 9: I'm turning member, Well that's all those thirty one is
36:45
Speaker 9: such a slice it is. I mean, you know, I
36:48
Speaker 9: think over all of you slice the market segment wise.
36:52
Speaker 9: Hyatt and Marriott are more prominent in the luxury high stand.
36:56
Speaker 9: Hilton has some luxury, but it's also got a very
36:58
Speaker 9: solid kind of mid scale women at service portfolio. And
37:02
Speaker 9: so what you tend to see is that in this environment,
37:04
Speaker 9: luxury upscale tends to outperforming, and the limited services is
37:10
Speaker 9: somewhat weaker, partly because that's where you've got the government travel,
37:14
Speaker 9: you've got the transit, independent business travel, But stuff like
37:18
Speaker 9: leisure group luxury, particularly international markets UA, Europe, Non China, Asia,
37:25
Speaker 9: all have been really quite strong.
37:27
Speaker 3: That was Brian Egger, Bloomberg Intelligence, Senior Gaming and Lodging analyst.
37:31
Speaker 2: That's this week's edition of Bloomberg Intelligence on Bloomberg Radio,
37:34
Speaker 2: providing in depth research and data on two thousand companies
37:36
Speaker 2: and one hundred and thirty industries.
37:38
Speaker 3: And remember you can access Bloomberg Intelligence via b I
37:40
Speaker 3: go on the terminal. I'm Scarlett Foo.
37:42
Speaker 2: And I'm Paul Sweeney. Stay with us. Today's top stories
37:45
Speaker 2: and global business headlines are coming up right now.