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Harley Davidson Shares Soar on Captive Deal · Bloomberg Intelligence

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  Speaker 2: It's called Harley Davidson. Now, John, you know I bought
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  Speaker 2: a ride recently. You did not buy a Hardy. Let's
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  Speaker 2: just make that clear. I bought a Vespa Piaggio scooter
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  Speaker 2: fifty ccs of raw power. So you know, when you're
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  Speaker 2: driving down the road and the guy and Holly Davison
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  Speaker 2: comes the other way, you know, I wave, They don't
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  Speaker 2: wave back. You know, I don't get the cool sign
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  Speaker 2: like he're a bark but you're not anyway. Joe Levington,
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  Speaker 2: he follows the all the credit stuff for a lot
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  Speaker 2: of these industrial and transportation companies. He's a director of
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  Speaker 2: credit research for Bloomberg Intelligence. Harley Davidson doc is up
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  Speaker 2: twenty percent. Here what happened? Paul?
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  Speaker 3: You're on the Vestila. I would think you'd be coming out.
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  Speaker 3: Are you coming out of your Ventley while you do that?
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  Speaker 2: Yeah, I'm vestment on a jersey Shore. You can find
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  Speaker 2: me any day.
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  Speaker 4: Got I believe that. I believe Yeah, you know.
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  Speaker 3: The key for Harley isn't really their earnings, which were
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  Speaker 3: really like not great, but the potential or not the potential,
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  Speaker 3: but a steak sale of their captive finance company which
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  Speaker 3: came in at a much higher price than people were expecting.
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  Speaker 3: That's going to be used or the proceeds are one
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  Speaker 3: point twenty five billion dollars, with the proceed used for
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  Speaker 3: a mix of share purchases, paying down debt, and also
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  Speaker 3: for capital investment.
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  Speaker 5: Okay, so when I go in to buy a Harley
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  Speaker 5: Davidson motorcycle at the dealership, I finance it through this
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  Speaker 5: part of Harley. That's exactly that's what they sold, or
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  Speaker 5: that's part of what they're selling.
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  Speaker 4: Who's buying it and why sure KKR.
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  Speaker 3: And Pimpco are the buyers, each taking a four point
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  Speaker 3: nine percent steak, and really they're buying it because that
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  Speaker 3: business has been a very profitable business for many, many years.
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  Speaker 3: It actually should be more than fifty percent of Harley's
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  Speaker 3: overall profits. They actually make more money from the financing
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  Speaker 3: side than they do from manufacturing vehicles right now, which
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  Speaker 3: goes to the you know, the trouble that they're having
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  Speaker 3: on the manufacturing side, or let's.
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  Speaker 2: Talk about the manufacturing side. What's the motorcycle market like
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  Speaker 2: these days?
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  Speaker 4: The motorcycle business isn't bad.
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  Speaker 3: I think the challenge with Harley is that it's kind
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  Speaker 3: of one of those melting ice cubes that sometimes you
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  Speaker 3: see in the media world that you would know well
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  Speaker 3: of if you go back ten years ago. The manufacturing side,
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  Speaker 3: its sales are down thirteen percent over ten years. But
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  Speaker 3: the real issue is that the margins have gone from
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  Speaker 3: twenty percent, so they're making twenty cents on the dollar,
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  Speaker 3: you know, ten years ago now they make.
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  Speaker 4: About five cents.
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  Speaker 2: Wow.
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  Speaker 3: And so it's really the profitability and the erosion and
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  Speaker 3: not really playing to their strengths.
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  Speaker 2: Not because they can't raise prices or they're costing on them.
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  Speaker 4: Well, I think it's really they've kind of lost their
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  Speaker 4: way a little bit.
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  Speaker 6: You know.
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  Speaker 3: They were talking today about their six thousand dollars motorcycle
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  Speaker 3: that they're excited about, you know, and I know, like
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  Speaker 3: it's the premium brand, it's that iconic image of a Harley,
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  Speaker 3: it's that V eight engine playing to the electrician or
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  Speaker 3: the plumber, you know, the mechanic that has an eighty
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  Speaker 3: to one hundred thousand dollars income and owns a Mustang, Like,
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  Speaker 3: that's who they should be playing to in that forty
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  Speaker 3: to six year old age rings, Like that's their customer.
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  Speaker 3: But they've tried to move out into different segments of
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  Speaker 3: the marketplace and have really gotten hurt and eroded their image.
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  Speaker 2: I can't think of a more American made product anywhere
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  Speaker 2: than Harley Davidson. So are they immune from tariffs? Does
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  Speaker 2: that give them an advantage versus some of these Japanese brands.
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  Speaker 3: They're not immune from them, but they do have twenty
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  Speaker 3: five percent of their business in Europe and another twenty five.
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  Speaker 2: Percent in Asia.
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  Speaker 3: But really, like the US is where they is, where
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  Speaker 3: they're big, and where they dominate. They just haven't done
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  Speaker 3: a great job of marketing to that person and putting
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  Speaker 3: engineering into that customer.
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  Speaker 5: Should I be more excited about Harley Davidson an stock
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  Speaker 5: hog or Harley Davidson bonds?
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  Speaker 3: Well, I just look at the bonds and I'm not
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  Speaker 3: that excited about the bonds. But what I will say
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  Speaker 3: for them is that they're going to remain investment grade
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  Speaker 3: after the sale, and they trade very wide to their
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  Speaker 3: ratings and so like that is always an interesting combination
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  Speaker 3: that people look.
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  Speaker 5: At what does that yield?
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  Speaker 7: Or well they have a variety of issues, right, Yeah,
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  Speaker 7: but I would say that in general they trade about
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  Speaker 7: twenty to thirty basis points wide of where the ratings are.
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  Speaker 3: So what credit rader thinks, and usually bonds trade to
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  Speaker 3: what the raiders think.
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  Speaker 2: How about you also cover the auto sector. How's the
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  Speaker 2: credit of the auto industry out there?
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  Speaker 8: Because this whole tariff situation, the uncertainty associated with transition
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  Speaker 8: to evs, Like I just say to myself, every time
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  Speaker 8: I look at some of the stocks, I can't find
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  Speaker 8: a scenario to.
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  Speaker 2: Own any of the stocks.
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  Speaker 3: How about the bonds, Yeah, well, you know it's interesting
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  Speaker 3: because the bonds are a different world.
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  Speaker 2: Right.
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  Speaker 3: All of the issues that you see in autos apply
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  Speaker 3: to pretty much everybody except Ferrari, Right, whether it's tariffs
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  Speaker 3: or the EV transition being slower or maybe not actually
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  Speaker 3: happening in the US, all of these challenges still exist.
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  Speaker 3: But the difference between an equity investor and a bond
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  Speaker 3: investor is that your typical mind is three years of maturity, right,
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  Speaker 3: because it's largely tied to the captive finance company, right,
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  Speaker 3: the financing of the loans and leases behind an auto,
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  Speaker 3: And so it's a much shorter term way of thinking.
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  Speaker 3: You know, can I get my money back in three
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  Speaker 3: years supported by a vehicle which will have a residual
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  Speaker 3: value to it. It's a little different than saying, like, hey,
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  Speaker 3: ten fifteen years out, what's my discounted cash flow? So
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  Speaker 3: it's a very investible side from the from the credit side,
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  Speaker 3: maybe not as much on the equity side.
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  Speaker 5: Will they tell us more about the future. Can it
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  Speaker 5: serve as kind of a canary in the coal mine
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  Speaker 5: for a company looking at that end of it.
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  Speaker 4: At the captive side.
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  Speaker 3: Yeah, yeah, Well it's very short term sighted, right, so
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  Speaker 3: you have to you know, for all the treasures and
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  Speaker 3: CFOs that are out there, and as CEOs, they're thinking
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  Speaker 3: long term and where can I take my company? How
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  Speaker 3: can I grow it into something bigger and more meaningful?
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  Speaker 3: A bondholder just wants to.
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  Speaker 2: Get paid back, that's right.
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  Speaker 4: See, this is where I learned different outlook.
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  Speaker 2: Equity is soft, debt is hard. You can always tell
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  Speaker 2: me to go, you know, go some way.
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  Speaker 5: We call this smart money.
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  Speaker 2: It is so smart money. The actually and they're tending
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  Speaker 2: to be pessimists in general. Where's the equity? People were
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  Speaker 2: always class half full? This is what could go right
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  Speaker 2: for these guys. The whole world is what could go wrong.
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  Speaker 2: So anyway, Joe Levington one of the best global director
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  Speaker 2: research Bloomberg in Intelligence, covering all that autos, industrial transportation,
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  Speaker 2: all that kind of stuff from the credit perspective.
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  Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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  Speaker 2: John Tucker Pauls when you live here in our Bloomberg
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  Speaker 2: Interactive Broker Studio streaming live on YouTube. John, you know,
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  Speaker 2: with all this inflation over the last several years, I
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  Speaker 2: found myself at the shopping at the supermarket, buying more
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  Speaker 2: store branded products.
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  Speaker 5: The white label stuff.
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  Speaker 2: But I'll tell you what I haven't is ketchup. I'm
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  Speaker 2: sticking with Heines, no matter what I mean that case
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  Speaker 2: ketchup to me cats Up Ketchup. However you play it,
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  Speaker 2: how does.
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  Speaker 5: Jim say it?
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  Speaker 2: I don't know. Jen Bartash, she does this stuff for
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  Speaker 2: a living. She covers all the staples companies that package
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  Speaker 2: foods company. She also covers all the supermarkets too, So
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  Speaker 2: if you want to talk inflation on the stuff we
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  Speaker 2: buy at the store, Jen Bartashes is the person to
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  Speaker 2: talk to. She joins us from Princeton here, So Jen
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  Speaker 2: Craft hines, they put out some numbers that show they
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  Speaker 2: still have some price power out there in the marketplace,
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  Speaker 2: don't they?
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  Speaker 9: They do, Paul, and it was all by By all
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  Speaker 9: things considered, it was a pretty decent quarter for craft Tigns.
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  Speaker 9: But they're still in progress of trying to really turn
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  Speaker 9: around and accelerate parts of their business. And although Ketchup
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  Speaker 9: is a brand where a lot of people have a
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  Speaker 9: lot of loyalty, there are a lot of other parts
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  Speaker 9: their portfolio where they're still really trying to invest to
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  Speaker 9: regain consumer uptake of their products.
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  Speaker 5: What's like a growth area for this business, like AI
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  Speaker 5: powered mustard or.
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  Speaker 9: Yeah. As funny as it sounds, one of the really
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  Speaker 9: interesting things about AI with regards to food companies is
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  Speaker 9: that it's really allowing and unlocking in an acceleration of innovation.
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  Speaker 9: And so although it's a little bit tongue in cheek
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  Speaker 9: For Kraft Tignes, one of the big areas of focus
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  Speaker 9: for them is the flavors, and that's the sauces. Because
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  Speaker 9: right now, consumers like things, they like different taste experiences,
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  Speaker 9: and sauce is a very easy and economical way to
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  Speaker 9: do that. So they've been really pushing the accelerator in
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  Speaker 9: that area.
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  Speaker 2: All Right, you go to any restaurant diner, USA, it's
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  Speaker 2: kind of at your booth would be ketchup mustard. Maybe
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  Speaker 2: that's basically it. Now, what's there what's as staple as
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  Speaker 2: much as ketchup is is hot sauces. Really Yeah, the
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  Speaker 2: kids you're doing hot sauces don't get it. I mean
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  Speaker 2: they put it on everything, and they got it at
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  Speaker 2: their desks at work. What is this? Jen? Talk to
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  Speaker 2: those about this hot sauce thing? Where did that come from?
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  Speaker 9: Well, you know, there's a real generational shift in terms
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  Speaker 9: of flavor profiles that consumers like. And what we see
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  Speaker 9: is that in younger generations, spicy, the balancing of sweet
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  Speaker 9: and spicy, or salty and sweet, those kind of inner
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  Speaker 9: those those kind of dual type taste flavors are things
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  Speaker 9: that younger generation really are into and they're showing they're
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  Speaker 9: backing that up with why they're buying, whether it's how
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  Speaker 9: they're consuming it in restaurants or what they're buying when
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  Speaker 9: they are purchasing and things to make it home. And
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  Speaker 9: that's why you see other companies like McCormick really doubling
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  Speaker 9: down on spice and flavor, and the hot sauces are
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  Speaker 9: doing really well for them as well.
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  Speaker 5: And in terms of moderating rate of inflation, well, I
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  Speaker 5: haven't seen it. At the food town. I'm paying more
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  Speaker 5: for everything, including seems Heinz products. Am I right?
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  Speaker 9: You are right in with regards to certain categories. I
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  Speaker 9: will say retailers are pretty good about trying to bring
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  Speaker 9: down prices where they can as quickly as they can,
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  Speaker 9: because they really are trying to get consumers to value
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  Speaker 9: them in terms of being a loyal you know, to
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  Speaker 9: be loyal to their retail operations. But inflation has been persistent,
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  Speaker 9: and commodity costs are down from previous highs, but they're
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  Speaker 9: still elevated relative to historic levels. That means that these
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  Speaker 9: companies have absorbed a lot and don't have a lot
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  Speaker 9: of room to absorb more, so there is still some
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  Speaker 9: selective price increases that are going through. You know, tomatoes
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  Speaker 9: are a unique category because we're looking at prices going
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  Speaker 9: up for tomatoes through the end of the year because
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  Speaker 9: of some trade agreement changes that have happened.
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  Speaker 5: Oh well, if you're in New Jersey, you kind of
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  Speaker 5: grow your own.
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  Speaker 2: We got a Jersey tomato.
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  Speaker 6: Sure.
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  Speaker 2: Hey, Jen, I mean you are the expert when someone
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  Speaker 2: says someone asked me, like, hey, who bears the brunt
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  Speaker 2: of these terrors? Is it the order? Is it the
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  Speaker 2: you know, the package goods company is at the supermarket?
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  Speaker 2: You cover pretty much all of that, Jen, how do
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  Speaker 2: you explain it to people? Like where are those cost
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  Speaker 2: increases get born?
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  Speaker 9: So, I think there's a little bit of a distribution
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  Speaker 9: across the whole supply chain, and so everybody's taking a
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  Speaker 9: little bite of it, But that also includes consumers at
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  Speaker 9: the end of that chain. The problem with that and
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  Speaker 9: so you know, if a retailer is negotiating, they're negotiating
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  Speaker 9: with their package food counterparts, they're you know, absorbing a
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  Speaker 9: little bit of cost, but ultimately the consumer has to
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  Speaker 9: pay a little bit more as well. Because there's been
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  Speaker 9: so much inflation over the last couple of years that
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  Speaker 9: there's just no more bandwidth to absorb it and to
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  Speaker 9: protect and shield consumers from it. So it is inevitable
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  Speaker 9: that price increases and inflation is going to hit that
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  Speaker 9: end consumer. We just haven't really seen the full brunt
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  Speaker 9: of the tariff impact yet because of all of the
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  Speaker 9: delays and the implementation and things like that. We're really
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  Speaker 9: expecting to see that tick up in the second half.
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  Speaker 5: Company like craft PNEs. Is there some sort of dividing
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  Speaker 5: line or are they just kind of experimenting in terms
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  Speaker 5: of like eating the costs the impact on the margins
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  Speaker 5: and raising prices for consumers. How does that work?
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  Speaker 9: They're really looking at it in a very targeted way,
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  Speaker 9: so it's more like category by category or even sometimes
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  Speaker 9: product by product areas where you want to make sure
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  Speaker 9: that you have at least part of your product portfolio
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  Speaker 9: that preserves value for consumers. So that means not changing
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  Speaker 9: the pack size, that means not changing the price, but
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  Speaker 9: being selective and maybe increasing the price somewhere else in
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  Speaker 9: your portfolio to sort of offset that. So it's a
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  Speaker 9: big balancing act. One of the really great things that's
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  Speaker 9: come out in the last couple of years is that
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  Speaker 9: through AI and through big data, these companies have gotten
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  Speaker 9: much more sophisticated in how to maintain that balance, and
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  Speaker 9: so that's actually really helped in why we've seen some
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  Speaker 9: of the margin expansion that we've seen at least the
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  Speaker 9: gross margin line for some of these companies in the
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  Speaker 9: last couple of years.
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  Speaker 2: Thirty seconds left here are they going to split this
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  Speaker 2: company up? Didn't I when are we talking to you
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  Speaker 2: about this a week or two ago?
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  Speaker 9: Yeah, there's you know, they they're exploring strategic strategic options,
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  Speaker 9: and I think one of the big obstacles is that,
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  Speaker 9: you know, what was rumored out there and the press
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  Speaker 9: was that they were going to spin the bulk of
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  Speaker 9: their grocery business into some of the entity. The problem
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  Speaker 9: is they've tried to sell a bunch of these brands
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  Speaker 9: already and have been unsuccessful in doing so. So the
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  Speaker 9: question is can they do this in a way that
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  Speaker 9: bundles it, creates value for shareholders, and still gives them
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  Speaker 9: the returns that they think they deserve for the brands
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  Speaker 9: that they're looking to sell.
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  Speaker 2: All right? I looked at the comp function coNP for
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  Speaker 2: craft Tigns last five years. Compounded annual return for the
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  Speaker 2: stock wait for it, one percent per year that's it.
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  Speaker 2: But on the flip side, they do pay a dividend
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  Speaker 2: yield of five and a half percent, so you can
• 13:47
  Speaker 2: all in about six and a half percent. That's basically
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  Speaker 2: it for that part of the world. I don't know.
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  Speaker 2: And you pay, you pay a pe of you know,
• 13:54
  Speaker 2: ten times earnings. That's kind of the story for a
• 13:56
  Speaker 2: lot of that stuff in the consumer stable space.
• 14:00
  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
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• 14:10
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• 14:14
  Speaker 2: Let's get back to the restaurant business. I know the
• 14:17
  Speaker 2: restaurant business. I mean, I'm not sure about this whole
• 14:19
  Speaker 2: go to restaurants, restaurant almost every single day here, so
• 14:22
  Speaker 2: I know what's going on at there. Michael Hale and
• 14:24
  Speaker 2: he really knows what's going on with the restaurant business.
• 14:26
  Speaker 2: He covers all the restaurants and the food services companies
• 14:29
  Speaker 2: for Bloomberg Intelligence. Starbucks big turnaround story, Mike, is it working?
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  Speaker 10: You know, there was some positive points that Brian Nickel
• 14:40
  Speaker 10: hit on last night. You know the fact that their
• 14:44
  Speaker 10: value perception scores are the best they've been in two years,
• 14:47
  Speaker 10: and hourly turnovers down to forty nine percent, which is
• 14:50
  Speaker 10: actually phenomenal in the restaurant industry. Service times are improving,
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  Speaker 10: customer satisfactions up, customer complaints are down. So with a
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  Speaker 10: small beat on the US same store sales, you know,
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  Speaker 10: and some.
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  Speaker 2: Of these these positives.
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  Speaker 10: He's pointing to, it's given bulls, you know, some confidence
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  Speaker 10: that that a turnaround in its biggest market is near.
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  Speaker 5: What counts as innovation when you're basically selling coffee.
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  Speaker 10: Well, yeah, restaurants tend to get some shade by calling
• 15:25
  Speaker 10: you know, new menu items innovation. I'd say have One
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  Speaker 10: of the more innovative products they're going to have is
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  Speaker 10: protein cold foam. Cold foam sales are up twenty three
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  Speaker 10: percent in the quarter, So they're going to launch new
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  Speaker 10: protein cold foam and that's part of a broader initiative
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  Speaker 10: to sell healthier items.
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  Speaker 5: Protein, web pham, cold phone.
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  Speaker 2: Hey do they have macha? Isn't that what the kids
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  Speaker 2: are drinking?
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  Speaker 5: Is it Ai generated?
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  Speaker 2: Is it A?
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  Speaker 10: So they do have much I know they're they're going
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  Speaker 10: to try to implement some debut some healthier food items
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  Speaker 10: as well, because typically their offerings are pretty unhealthy generally.
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  Speaker 10: You know, they made an effort to remove dies and
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  Speaker 10: high fruit toast, corn syrup and stuff like that, and
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  Speaker 10: so they're going to continue to move towards you know,
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  Speaker 10: healthier options.
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  Speaker 2: Hey, Mike, let me ask you one question here on tariffs.
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  Speaker 2: How do your companies, how are they exposed and how
• 16:22
  Speaker 2: are they dealing with it? What are you hearing from
• 16:24
  Speaker 2: your companies?
• 16:26
  Speaker 10: You know, we're not hearing much because most of them
• 16:29
  Speaker 10: don't have much exposure. You know, Starbucks is one we're
• 16:32
  Speaker 10: probably we're watching most closely because of because of coffee, right,
• 16:36
  Speaker 10: and the impacts that taps can have on coffee prices.
• 16:38
  Speaker 10: But Starbucks and all the other coffee chains that we
• 16:43
  Speaker 10: follow are sourcing from many different countries.
• 16:46
  Speaker 2: But you know, the.
• 16:47
  Speaker 10: Restaurant business, most of the companies, all of the companies
• 16:51
  Speaker 10: are primarily sourcing their product in the countries that they're
• 16:54
  Speaker 10: operating in, right, And so most companies, you know, ninety
• 16:59
  Speaker 10: percent plus of the of the items that they're sourcing
• 17:03
  Speaker 10: are coming domestically.
• 17:04
  Speaker 2: All right, let's go wings Baby. Wingstop stocks up twenty
• 17:08
  Speaker 2: four percent. John Tucker and I have never been to
• 17:10
  Speaker 2: wingstock We're going to the one on West fifty fifth
• 17:12
  Speaker 2: Street after the show. Here, what's going on to Wingstop? Yeah?
• 17:17
  Speaker 10: So Wingstop had a phenomenal year last year, and the
• 17:21
  Speaker 10: stock is you know, had a pump bumpy time over
• 17:24
  Speaker 10: the last you know, we'll call it eight nine, ten months,
• 17:28
  Speaker 10: because investors knew that there was going to be a
• 17:30
  Speaker 10: top ham bottom line slowing this year. You know what
• 17:33
  Speaker 10: happened today. The top line slowing was a lot less
• 17:37
  Speaker 10: than expected. That unic growth was better than expected. I mean,
• 17:41
  Speaker 10: these stores are generating seventy percent cash on cash re
• 17:44
  Speaker 10: terms for their franchisees. People are lining up to open
• 17:47
  Speaker 10: new stores. And the same sort of sales decline was
• 17:50
  Speaker 10: a lot less than expected, just about a percent, lapping
• 17:54
  Speaker 10: a plus twenty four from last year.
• 17:56
  Speaker 4: So less bad, less bad.
• 18:01
  Speaker 10: Equals, you know, a lot of optimism around Winkstop, you know,
• 18:06
  Speaker 10: especially around the smart kitchen roll out. They cited, yes,
• 18:10
  Speaker 10: smart kitchen roll out.
• 18:11
  Speaker 5: Go that AI team again there we go.
• 18:14
  Speaker 10: Yeah, and so those those kitchens are you know, are
• 18:17
  Speaker 10: improving the service time significantly, making the jobs easier for
• 18:22
  Speaker 10: the employees, and it's actually driving better traffic and sales.
• 18:26
  Speaker 10: Four months after implementation, all right the.
• 18:28
  Speaker 2: West fifty fifth Street, Manhattan Story Better get Ready, John
• 18:32
  Speaker 2: Tucker and Air coming over. Michael Halean, thanks so much
• 18:34
  Speaker 2: for joining us. Michael Handy covers all the restaurants for
• 18:36
  Speaker 2: Bloomberg Intelligence.
• 18:39
  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
• 18:43
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• 18:46
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• 18:50
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• 18:53
  Speaker 2: John Tucker and Paul Sweeney, we're live here in our
• 18:55
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• 18:58
  Speaker 2: Head over there and search Bloomberg Live Deal and that's
• 19:00
  Speaker 2: where you'll find is here. Tesla in the news yet again,
• 19:03
  Speaker 2: but this is for just a more mundane kind of
• 19:06
  Speaker 2: business piece of news. Tesla's agreed to buy go into
• 19:10
  Speaker 2: a battery supply pack with a company called LG Energy
• 19:13
  Speaker 2: four point three billion dollars worth of batteries or I
• 19:17
  Speaker 2: want to see what that means for Tesla, what it
• 19:18
  Speaker 2: means for just kind of this continuing transition to electric vehicles.
• 19:23
  Speaker 2: We need batteries, they need we need charging stations, all
• 19:26
  Speaker 2: that kind of stuff. Steve Mann joins his global Autos
• 19:28
  Speaker 2: and Industrials research channels for Bloomberg Intelligence. Steve talk to
• 19:31
  Speaker 2: us about this deal between Tesla and LG Energy. What
• 19:35
  Speaker 2: is Tesla signing up for here?
• 19:38
  Speaker 6: Well, Tesla does have a pretty sizeable energy storage battery business.
• 19:44
  Speaker 6: So basically, these batteries are usually used at data centers,
• 19:50
  Speaker 6: used at various utility of power generation sites to kind
• 19:55
  Speaker 6: of even out, you know, power production between peaks and
• 20:00
  Speaker 6: valleys of usage. So it's it's a sizable business, and
• 20:06
  Speaker 6: more importantly, it is mundane. But it's a very profitable business.
• 20:12
  Speaker 6: So it's a thirty gross margin compared to cars that
• 20:17
  Speaker 6: they make today they're about low teens, so at least
• 20:21
  Speaker 6: double the gross margin, so very profitable. And this if
• 20:26
  Speaker 6: the LG deal sounds really really promising for that business
• 20:31
  Speaker 6: going forward.
• 20:32
  Speaker 5: All right, So this has nothing to do with putting
• 20:34
  Speaker 5: LG's batteries in Tesla's electric vehicles.
• 20:39
  Speaker 6: No, no, okay, it's I mean out there, it's.
• 20:42
  Speaker 5: I can't get excited about cars, I got to admit.
• 20:45
  Speaker 5: But what I can get excited about is saving money.
• 20:49
  Speaker 5: And if I have batteries but store electricity when electricity
• 20:54
  Speaker 5: rates are lower, say in the overnight hours. Yes, that
• 20:58
  Speaker 5: excites me. How big of a business potentially is this
• 21:01
  Speaker 5: going forward?
• 21:03
  Speaker 6: Yeah, you can actually consumers also, consumers can actually buy
• 21:06
  Speaker 6: those batteries and you know, install them in their house
• 21:09
  Speaker 6: and their garage and you know, maybe link that up
• 21:14
  Speaker 6: to a solar bunch of solar panels on the roof.
• 21:18
  Speaker 6: You know, consumers in some cases can effectively not even
• 21:22
  Speaker 6: have to pay that can actually make money selling power
• 21:25
  Speaker 6: back to the utilities.
• 21:26
  Speaker 2: Nice Steve. The number one issue continues to be just
• 21:30
  Speaker 2: demand out there for Tesla products and deliveries and things
• 21:34
  Speaker 2: like that. Anything new that you can tell us here
• 21:37
  Speaker 2: about kind of what you're hearing at there.
• 21:39
  Speaker 6: Yeah, on the car front, you know, earning is going
• 21:42
  Speaker 6: to be pretty volatile. I think in the next few quarters.
• 21:46
  Speaker 6: I think, as many know, the seventy five hundred EV
• 21:48
  Speaker 6: tax credit is going away at the end of September,
• 21:53
  Speaker 6: so we should see a surge of demand not just
• 21:56
  Speaker 6: for Tesla but the whole EV market here in the
• 21:58
  Speaker 6: US between now and in September, and Tesla is is
• 22:02
  Speaker 6: going to fall out in in in in meeting that demand.
• 22:06
  Speaker 6: I think they've actually built a little bit of inventory
• 22:10
  Speaker 6: even before this quarter uh to to to meet that demand.
• 22:14
  Speaker 6: But and then we can we can see the man
• 22:17
  Speaker 6: fall off, you know, in the fourth quarter and into
• 22:19
  Speaker 6: the first half of twenty twenty six. Now the only
• 22:24
  Speaker 6: the question is the can can Tesla you know, roll
• 22:28
  Speaker 6: out their cheaper vehicle and and hopefully create some demand
• 22:32
  Speaker 6: for that vehicle to offset the falloff in the overall
• 22:37
  Speaker 6: falloff and in the band from from the elimination of
• 22:41
  Speaker 6: the text credit.
• 22:42
  Speaker 5: Is Elon back focusing on his companies.
• 22:46
  Speaker 6: Yes, it seems like it. I mean, he hasn't been
• 22:49
  Speaker 6: really tweeting a lot on the politics, and I think
• 22:52
  Speaker 6: uh uh, various channels within the social media media have
• 22:57
  Speaker 6: indicated that he is uh focused, and I think he
• 23:00
  Speaker 6: himself had said on social media that he is full
• 23:05
  Speaker 6: on in managing Tesla and as was as other businesses.
• 23:09
  Speaker 2: All Right, Steve, thanks so much for that quick update.
• 23:11
  Speaker 2: Appreciate it. Steve Ban Global Autos and Industrials research channels.
• 23:14
  Speaker 2: Bloomberg Intelligence.
• 23:15
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• 23:24
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• 23:35
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