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Home Building, Consumers, And Green Products (Podcast) · Bloomberg Intelligence

0:00
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
0:04
Speaker 1: my co host Matt Miller. Every business day we bring
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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
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Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
0:15
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
0:18
Speaker 1: at Bloomberg dot com slash podcast. Housing Starts month a month,
0:23
Speaker 1: down nine point six percent. It's been really during this
0:26
Speaker 1: entire pandemic. The one area the economy that just powered
0:29
Speaker 1: on from day one was the housing market. Announcing a
0:33
Speaker 1: little bit of challenges out there in terms of higher
0:36
Speaker 1: interest rates and just other macro trends. But let's get
0:38
Speaker 1: the latest on what's going on in the world of construction, housing, construction,
0:42
Speaker 1: residential construction. Peter Jackson, chief financial officer of Builders First Choice.
0:47
Speaker 1: That is a New York Stock Exchange listed company b
0:50
Speaker 1: l d R's a ticker you put into your Bloomberg terminal. Uh,
0:53
Speaker 1: it's got about a ten point seven billion dollar market
0:56
Speaker 1: cap here it's off off a couple of percent today
0:59
Speaker 1: at sixty eight cents per share. Bet thanks what for
1:02
Speaker 1: joining us here. We saw that housing start data here
1:04
Speaker 1: we'd love for you to just provide us kind of
1:06
Speaker 1: from your perspective of your company, kind of how do
1:09
Speaker 1: you view viewing the housing market today? Yeah, good morning, gentleman,
1:13
Speaker 1: thank you for having me on UM. You know, this
1:15
Speaker 1: market has been really amazing for quite a long run,
1:19
Speaker 1: and Q two for us, we were really hitting on
1:21
Speaker 1: all cylinders, certainly seeing nice volumes, pricing, good volume, approad
1:26
Speaker 1: swath of the products that we sell. So it's certainly
1:29
Speaker 1: been a very nice trend over the recent past. But
1:34
Speaker 1: certainly we've been watching it the same way you have,
1:36
Speaker 1: and and the impacts of interest rates and inflation have
1:40
Speaker 1: started to have an impact on consumers. Now we've been
1:42
Speaker 1: buffered a bit, certainly because of the youths under construction,
1:45
Speaker 1: but we've seen a bit of that pause, you know,
1:48
Speaker 1: some some lower end maybe first time buyers getting priced out,
1:52
Speaker 1: but also some thoughtfulness by home buyers and i'd say
1:56
Speaker 1: maybe a prudent reaction to by home builders to be
1:59
Speaker 1: thoughtful about how many homes are being built and what
2:02
Speaker 1: they're going to purchase those at what prices. So how
2:08
Speaker 1: much damage is the Federal Reserve doing to this housing market? Well,
2:14
Speaker 1: they're an important component. No doubt. Um, you can't move
2:17
Speaker 1: mortgage rates that much without having a tempering impact. Um, certainly,
2:23
Speaker 1: we've we've had an impact as a results of inflation.
2:26
Speaker 1: You know, broadly speaking, building product costs have gone up
2:29
Speaker 1: quite a bit, and that combination has has certainly slowed
2:32
Speaker 1: things down. But there's no question that capacity on the
2:35
Speaker 1: supply side have limited the available products available homes, and
2:41
Speaker 1: demand has really held up quite strong. We're confident in
2:44
Speaker 1: that demand in the mid to long term, even if
2:47
Speaker 1: fires are taking a pause right now. You know, on
2:50
Speaker 1: the you guys employ about twenty employees. That's what we
2:53
Speaker 1: show here on a Bloomberg terminal. Talk to us about
2:55
Speaker 1: labor and getting people on the you know, for your
2:59
Speaker 1: comp and it's just that we see it across the board.
3:02
Speaker 1: Companies really really challenge in terms of labor. What's it
3:05
Speaker 1: like in your business, Yeah, you're right, it's challenging for
3:10
Speaker 1: us to you know, there's always a challenge to find
3:14
Speaker 1: great people. There's a challenge to fill roles that are
3:17
Speaker 1: critical to the business, things like both like drivers, roles
3:22
Speaker 1: like fabricators, and a lot of our manufactured product facilities.
3:27
Speaker 1: And there's a lot of competition out there for that
3:30
Speaker 1: type of excellence throughout the industry right and broader than
3:33
Speaker 1: our industry. We continue to find ways to you know,
3:37
Speaker 1: lwer people in right looking for performance opportunities. We compensate
3:42
Speaker 1: very well. I think the opportunity to be part of
3:45
Speaker 1: the American dream certainly has an allure um you know,
3:49
Speaker 1: even if it maybe has some dark days at certain points.
3:53
Speaker 1: I think overall it's still a great industry to be in,
3:55
Speaker 1: and we continue to be able to recruit. Can you
3:58
Speaker 1: get uh? Is this stronger dollar helping you out? In
4:01
Speaker 1: terms of costs for commodities? You know, most of what
4:07
Speaker 1: we do in commodities is domestic. You know, there's a
4:10
Speaker 1: bit that comes in from Canada. Certainly, probably about of
4:14
Speaker 1: the would that we that we use in this country
4:16
Speaker 1: comes from Canada, but most of it, most of its domestic,
4:19
Speaker 1: So not that much impact from currentcy. You know. It's
4:23
Speaker 1: interesting we think about the housing market in the US,
4:26
Speaker 1: Peter and people say there's a there's a real shortage there,
4:28
Speaker 1: and I think, you know, as as I think about
4:30
Speaker 1: some of the you know, the homebuilding companies we talked to,
4:33
Speaker 1: you know, they talked about, you know, building these McMansions,
4:35
Speaker 1: if you will, because that's where the margin is. But
4:38
Speaker 1: how about you know, some of the starter homes are
4:40
Speaker 1: you what kind of activity are you seeing there in
4:42
Speaker 1: terms of some of the entry level buildings. I think
4:45
Speaker 1: about some of these markets that are just exploding in
4:47
Speaker 1: the last couple of years, like in Austin, Texas, for example,
4:49
Speaker 1: they gotta awesome kind of starter homes, don't they. You're
4:53
Speaker 1: absolutely right, Yeah, starter homes has been a challenge, right,
4:56
Speaker 1: it's the it's the opportunity to allow people to take
5:01
Speaker 1: advantage of that American dream. And it's a challenge because
5:04
Speaker 1: they're they're smaller, right, there's less dollars available, there's left
5:07
Speaker 1: opportunity for margin. But I think home builders have made
5:11
Speaker 1: really good progress in creating offerings that makes sense for
5:15
Speaker 1: people in that category, right that are you know, a
5:17
Speaker 1: bit smaller, maybe a bit simpler to build, fewer options.
5:21
Speaker 1: But certainly, you know, some of the large builders have
5:23
Speaker 1: really committed to it, and we see them staying committed
5:26
Speaker 1: to it, you know, even in a bit of a
5:28
Speaker 1: downturn like this, and I think you'll see more of
5:31
Speaker 1: that into the future because it is a critical part um.
5:34
Speaker 1: That's not to say we don't like building the bigger
5:36
Speaker 1: houses who are certainly you know, a good way to
5:38
Speaker 1: build the higher margins. Leave the starter houses to Paul
5:41
Speaker 1: and his company exactly, all right, Peter, thanks so much
5:45
Speaker 1: for joining us. Really appreciate getting your thoughts there. Peter Jackson.
5:48
Speaker 1: He's a chief financial officer for Builders First Source as
5:52
Speaker 1: a New York exchange company. B L d R is
5:55
Speaker 1: a ticket you can put into your Bloomberg terminal. They're
5:57
Speaker 1: based in Dallas, Texas doing the homebuilding stuff. You know what,
6:04
Speaker 1: I don't know, call me a glass half full kind
6:07
Speaker 1: of person, but we had some some pretty good jobs
6:10
Speaker 1: numbers a couple of weeks ago, inflation coming in a
6:12
Speaker 1: little bit better than expected. Maybe that's you know, kind
6:16
Speaker 1: of peeking. Um. One can make the argument that may
6:19
Speaker 1: you know, things aren't so bad at there, that the Fed,
6:21
Speaker 1: you know, may not have to be as aggressive as
6:23
Speaker 1: we originally thought. That's kind of what some of the
6:24
Speaker 1: equity markets have been telling us over the last four
6:26
Speaker 1: or five weeks. Um, But let's check with somebody who
6:28
Speaker 1: does this stuff for a living. Ben Emmon's, managing director
6:31
Speaker 1: of Global macro Strategy at Medley Global Advisors, joins us.
6:35
Speaker 1: Live here in our Bloomberg Interactive Broker Studio. So Ben,
6:39
Speaker 1: you know again, I'm gonna be a half the glass
6:41
Speaker 1: half full person. It seems pretty good out there. Can
6:43
Speaker 1: my Felter reserve maybe not be as aggressive in raising
6:47
Speaker 1: rates as maybe were originally thought Paul and math it's
6:50
Speaker 1: great to be here. Um well, I think we want
6:53
Speaker 1: to be cautious there, because you know, the inflation story
6:56
Speaker 1: isn't done. I think that's what the equity market may
6:59
Speaker 1: have been assuming, is that as we started to turn
7:02
Speaker 1: in commodity prices around the mid June, and that now
7:05
Speaker 1: coming through headline inflation and no Master and um Brainard
7:11
Speaker 1: had guided the markets earlier saying okay, we want to
7:13
Speaker 1: see the client in headline inflation every month and then
7:16
Speaker 1: well maybe change our course. That the markets listened too
7:19
Speaker 1: much to that that the inflation picture isn't so changing
7:23
Speaker 1: just yet. And I take note of like the gas
7:26
Speaker 1: prices in Europe spiking again, in Asia spiking again, Canadian
7:30
Speaker 1: inflation much stronger than expected the more this morning, which
7:32
Speaker 1: is by the way, effects are inflation. So I think
7:36
Speaker 1: you want to be somewhat cautious on that. The fat
7:38
Speaker 1: is just turning his course here. The communications come out
7:42
Speaker 1: obviously clear about what we want to try to reach
7:44
Speaker 1: four percent of a fat funds rate maybe higher. They're
7:47
Speaker 1: pushing back and the market hasn't listened so far to that,
7:49
Speaker 1: and that's what everybody's looking at. There's a big di
7:51
Speaker 1: virgins again. But I think the inflation pressure is is
7:55
Speaker 1: not abating such that we're in a let's say, automatic
7:58
Speaker 1: descent and inflation the next months. I had, right, And
8:01
Speaker 1: if they go fifty instead of seventy five, isn't that
8:04
Speaker 1: a signal that they're soft that you could take it
8:07
Speaker 1: that way? Yeah, you know, I will. You could think
8:11
Speaker 1: about it like, okay, they are moderating the tightening paces
8:14
Speaker 1: powless set at some point they would do that. Um,
8:18
Speaker 1: So it's a bit of a toss still here. Right,
8:19
Speaker 1: the market is actually priced right in the middle of
8:21
Speaker 1: fifty and seventy five for September. I think there is
8:24
Speaker 1: caution markets and the interest rates are at least thinking
8:27
Speaker 1: you can't take your chances that they may have to
8:29
Speaker 1: move seventy five to be sure that infacient is indeed
8:32
Speaker 1: in this descent lower from here. So I think the
8:37
Speaker 1: feathers is still in a tough position, definitely, given the
8:40
Speaker 1: the commodity picture, that's not like completely changed. I'm watching,
8:44
Speaker 1: for example, what's happening in Europe yep. Alright, so f
8:47
Speaker 1: o MC meeting minutes tomorrow at two pm Wall Street time.
8:50
Speaker 1: My natural inclination is to ignore it. I probably shouldn't
8:54
Speaker 1: ignore it tomorrow, should I should pay a little with attention.
8:56
Speaker 1: You should always pay attention to it no matter what
9:00
Speaker 1: there's But it was very interesting discussions in there and information.
9:03
Speaker 1: Of course, this is the July meeting. They were debating
9:06
Speaker 1: the pace of tightening there. That will be in there.
9:09
Speaker 1: They were debating there, maybe even the balance sheet and
9:12
Speaker 1: the outlook. I think it will be much about what
9:15
Speaker 1: we saw that press conference. Of what has come out
9:18
Speaker 1: so far since the press conference, by the likes of
9:20
Speaker 1: Cascari and Ballard and Master and others. Everyone is still
9:24
Speaker 1: on the same camp of about we move. We have
9:28
Speaker 1: to keep moving with rage. We can't stop, right, that's clearly,
9:32
Speaker 1: we can maybe even slow down. We can certainly not
9:34
Speaker 1: say what the market's price from going from September investigates
9:38
Speaker 1: to November. That's probably not likely either. So I think
9:42
Speaker 1: a lot of that will be in the minutes tomorrow.
9:45
Speaker 1: The market reaction maybe muted because it's a lot of
9:47
Speaker 1: us communicated out there, but everybody's kind of edgy here.
9:51
Speaker 1: I think still about these surprises, right right, it's the
9:53
Speaker 1: minutes or the Jackson hole coming up. You mentioned the
9:56
Speaker 1: balance sheet. What do you see when you look under
9:59
Speaker 1: the hood, you know, Paul and I just know about
10:01
Speaker 1: the headline rate, but there's a lot of other things
10:04
Speaker 1: that the Fed do, the discount window and money supply
10:07
Speaker 1: and what are they doing that, um maybe affecting financial
10:12
Speaker 1: conditions because they're certainly not bringing them down, you know, no,
10:16
Speaker 1: and the financial conditions of late have been particularly influenced
10:19
Speaker 1: by real interest rates right where at least in Julyman
10:22
Speaker 1: they were falling as much to come up a bit
10:25
Speaker 1: from from since then, Um, yeah, the balance sheet is
10:28
Speaker 1: about an asset and liability site accounting entity. If you
10:33
Speaker 1: think about the liability sign in particular, you have reverse
10:36
Speaker 1: repos and you have these reserves, and there's a lot
10:39
Speaker 1: of analysis out there of how the feather is going
10:41
Speaker 1: to manage to too. Because the experience was about money
10:46
Speaker 1: center banks, the big banks hoarding quote unquote reserves as
10:50
Speaker 1: the economy started to change, as they cut more cautious
10:52
Speaker 1: as they started to see that the foot and foot
10:55
Speaker 1: of a drawing liquating from the system. I think that's
10:58
Speaker 1: still a risk to mark gets in the sense of
11:01
Speaker 1: we've got repo disruptions from that. But there's also an
11:04
Speaker 1: effect on the economy in itself of banks heart reserves.
11:07
Speaker 1: They're not lending as much, credit is being more constrained.
11:10
Speaker 1: That's one thing under the hood of the bounty I
11:12
Speaker 1: think to pay attention to. The Other part is that
11:14
Speaker 1: reverse repo facility that's so bloated because there's so limited
11:19
Speaker 1: supply of T bills at the moment that can change.
11:22
Speaker 1: I've always thought about that as a low hanging food
11:25
Speaker 1: for the fat to online that first and leave reserves
11:27
Speaker 1: alone and then manage the assets side. If that's the case,
11:31
Speaker 1: then that's a more benign strategy for markets. In terms
11:35
Speaker 1: of the bound sheet, some say that that's maybe the
11:38
Speaker 1: direction we're heading. At the end of the day, the
11:40
Speaker 1: bound she is going to contract, and I think when
11:42
Speaker 1: Barkin was on the other day in one of the networks,
11:45
Speaker 1: he said, like, it's the bounc sheet and rad has
11:47
Speaker 1: are symmetric, so in other words, we're going to continue
11:50
Speaker 1: to wind it out ninetllion a month, and we're gonna
11:53
Speaker 1: keep raising rates. That's I think a viewing in the
11:56
Speaker 1: fat that's more broadly health. That's what they want to
11:59
Speaker 1: stay on on that course. All right, Ben, we appreciate
12:01
Speaker 1: you coming to our studios here here at is your
12:05
Speaker 1: firm based at one World Trade World Trade Center? Yeah?
12:09
Speaker 1: What's it like? What's the one World Trade Center building? Like?
12:12
Speaker 1: I've not been in it. It's fantastic. It's like brand new,
12:15
Speaker 1: really hyper modern building. I went all the way up
12:18
Speaker 1: to the upper floor, right, fantastic. Yeah, it's really nice.
12:22
Speaker 1: Like is anybody in it? Yeah, it's a favorite of
12:25
Speaker 1: what's it like down in Lower manhatt I haven't been
12:26
Speaker 1: down there in a long time. On a weekday, a
12:28
Speaker 1: work day, is there are there people there? I mean
12:31
Speaker 1: we we we look at the prep index, which manages traffic.
12:34
Speaker 1: You know, what's it like downtown on a weekday, It's
12:38
Speaker 1: it's I think it's fairly busy there. If you know,
12:40
Speaker 1: you can tell people are definitely behind the past the pandemic.
12:44
Speaker 1: No masks everybody. It's like, you know, walking around, it's
12:48
Speaker 1: not fully back to full occupancy. That's clear. Even on
12:51
Speaker 1: the office they're not fully occupied. Um, maybe after Libid
12:56
Speaker 1: Day they want to change advice. Are the tourists coming back.
12:59
Speaker 1: I've definitely seen tourism even in midtown here right, that's
13:03
Speaker 1: just happening. You've got to get the man on the
13:05
Speaker 1: ground kind of view because I don't get to downtown.
13:08
Speaker 1: We could just go down there, we could just do that,
13:10
Speaker 1: but I mean we just you know, I kind of
13:12
Speaker 1: kind of go back and forth the Bloomberg HQ, but
13:15
Speaker 1: you wonder about what different parts of the city and
13:17
Speaker 1: downtown you know, Um, the New seven World Trade that's
13:20
Speaker 1: where I worked when I was at Solomon Brothers, the
13:22
Speaker 1: old seven World Trade, the One World Trade, they got
13:25
Speaker 1: the whole. A couple of towers are up and running
13:28
Speaker 1: and looks just awesome down there, and the oculus and everything.
13:31
Speaker 1: I mean, the rebuilding Lower Manhattan. Folks, if you haven't
13:34
Speaker 1: been to the city in a while, go down to
13:36
Speaker 1: the Lower Manhattan. The rebuilding there has just been awesome,
13:40
Speaker 1: anchored by One World Trade Center, which is just an
13:43
Speaker 1: awesome building. And uh and Ben Emmon's Managing Director Global
13:46
Speaker 1: macro Strategy at Medley Global Advisors uh MET that's where
13:49
Speaker 1: Medley is. They're based on One World Trade Center, forty
13:51
Speaker 1: seven floor. So we appreciate Ben coming into our Bloomberg
13:54
Speaker 1: and Actors studios here in midtown. Uh, Manhattan, folks out
13:59
Speaker 1: and about Tuesday, Wednesday and Thursdays. This city is pretty bustling,
14:05
Speaker 1: all right. We had some retailer's report. Home Depot stocks
14:09
Speaker 1: up four percent today, Walmart a little bit better than expected,
14:12
Speaker 1: although they lower their expect their forecast twice. But that
14:15
Speaker 1: stocks up five percent today. But we've got somebody who
14:18
Speaker 1: does uh follow these big retailers, Jen Bartashes, senior equity
14:23
Speaker 1: research analysts for Bloomberg Intelligence. Jen, you joined Bloomberg in
14:26
Speaker 1: two thousand two. This is twenty years for you. It's
14:29
Speaker 1: been a long time, that's for sure. Paul Nice and
14:32
Speaker 1: Jen's had leadership positions all throughout Bloomberg and you know,
14:35
Speaker 1: maybe ten years ago we we entice her to join
14:38
Speaker 1: Bloomberg Intelligence, and since then she's built this great franchise
14:41
Speaker 1: looking at some of these big retailers here. Uh, And
14:44
Speaker 1: we appreciate Jen's research at b I Go. Jen talked
14:47
Speaker 1: to us about home Depot, Walmart, maybe what you expect
14:50
Speaker 1: from Target tomorrow. What are some of the takeaways from
14:53
Speaker 1: these retailers? Well, thanks, Paul. You know, when I look
14:57
Speaker 1: at these big retailers, I think some of the big
15:00
Speaker 1: takeaways are that things are maybe not as bad as
15:03
Speaker 1: everyone was thinking, um, And that these retailers, especially Walmart
15:08
Speaker 1: in particular, is really getting better at managing their supply
15:12
Speaker 1: chain UM and that's helping to smooth things out throughout
15:14
Speaker 1: the entire business UM. And so it does give a
15:18
Speaker 1: little bit of confidence that the second half of this
15:20
Speaker 1: year may actually turn out to be better than we
15:23
Speaker 1: additionally has anticipated, especially for retailers that cater to kind
15:27
Speaker 1: of the lower income to middle income consumer. So, Jen,
15:31
Speaker 1: one of the things that we had learned over the
15:33
Speaker 1: past several quarters is some of the retailers had some
15:37
Speaker 1: bloated inventories and that was kind of impacting their margins
15:40
Speaker 1: as I had to cut price to kind of move
15:42
Speaker 1: that inventory. Is that still an issue? It is definitely
15:45
Speaker 1: still an issue. Um. We we heard Walmart talk about
15:48
Speaker 1: it this morning, but more importantly when we're looking and
15:51
Speaker 1: turning it to look at Target for tomorrow. UM. You know,
15:54
Speaker 1: Target had a slightly different approach to handling their inventory
15:57
Speaker 1: than Walmart, and that they were choosing to sort of
15:59
Speaker 1: rip the band aid off and try to shed as
16:02
Speaker 1: much as their inventory in the second quarter as possible
16:04
Speaker 1: UM and so they were really looking to call that
16:07
Speaker 1: they were canceling some future orders in order to right
16:09
Speaker 1: size their inventory. UM and that does mean that their
16:12
Speaker 1: their profit will be significantly crimp tomorrow. But if if
16:17
Speaker 1: the consumer is behaving a little bit better than expected,
16:20
Speaker 1: there may be a slight surprise for Target tomorrow on
16:22
Speaker 1: the upside. So what's the UM deal with the inventory
16:27
Speaker 1: issues that Walmart has been having? Target had had them
16:31
Speaker 1: as well. Do you think they're going to fare just
16:34
Speaker 1: as poorly as Walmart on the home goods and electronic side. Well,
16:38
Speaker 1: you know, home goods and electronics are certainly two of
16:40
Speaker 1: the areas UM where Target actually has a little more
16:43
Speaker 1: exposure even than Walmart is on apparel because they are
16:46
Speaker 1: so strong in apparel. And you know, this is the
16:49
Speaker 1: time when they're selling through their excess summer inventory, when
16:52
Speaker 1: they're trying to clear out seasonal merchandise UM and so
16:56
Speaker 1: the discounting that's been happening is is higher than it
16:59
Speaker 1: usually is this time of year because of that excess inventory. So,
17:03
Speaker 1: you know, the good news is that if they were
17:05
Speaker 1: successful in actually canceling orders, and Walmart mentioned this morning
17:09
Speaker 1: that they also canceled a lot of orders to sort
17:11
Speaker 1: of right size inventory. Then they should be set up,
17:14
Speaker 1: you know, pretty well for the second half of the year.
17:17
Speaker 1: All right, Jen, it's mid August. The last thing I
17:20
Speaker 1: want to think about are the holidays. But I know,
17:23
Speaker 1: you retail analyst people, you do, in fact think about
17:26
Speaker 1: that at this time. So what are the retailers telling
17:29
Speaker 1: me about the back to school and the holiday season?
17:32
Speaker 1: Did they think it's going to be good, bad, or
17:34
Speaker 1: and different? Well, right now we're in the midst of
17:36
Speaker 1: back to school, Um, it seems that it will be
17:39
Speaker 1: a fairly solid season. Um. It's probably not going to
17:42
Speaker 1: be stellar, um, but but fairly solid. Um. But when
17:45
Speaker 1: you look at holiday, um, it's it's looking a little
17:49
Speaker 1: better than it did even a month ago. Um. You know,
17:51
Speaker 1: as these retailers are showing that they're able to to
17:55
Speaker 1: work through some of their supply chain issues, UM, that
17:58
Speaker 1: that gives a little bit of confidence. But but more importantly,
18:01
Speaker 1: on the macro side, we're seeing fuel prices come down,
18:03
Speaker 1: We're seeing food inflations start to stabilize in some categories,
18:08
Speaker 1: and that means that you know, the consumer pivoted very
18:11
Speaker 1: quickly when those costs escalated, and if the consumer pivots
18:14
Speaker 1: back just as quickly as those costs come down, that
18:18
Speaker 1: could really set us up for a nice strong holiday
18:20
Speaker 1: season this fall. Jen, I know you also follow the
18:24
Speaker 1: supermarket business. Talk to us about the cost of food,
18:28
Speaker 1: kind of where are we how did the supermarkets think
18:31
Speaker 1: it's gonna trend over the next several months. I know
18:33
Speaker 1: you're pretty close to that industry. Yeah, and you know,
18:36
Speaker 1: food inflation is is slowly starting to stabilize. UM. But
18:39
Speaker 1: the issue that we really have is that the package
18:42
Speaker 1: food companies are still struggling to control their costs, and
18:45
Speaker 1: that means that they're passing through still additional price increases
18:49
Speaker 1: to the retailers. And for the retailers then like the
18:52
Speaker 1: Krogers of the world, or the Albertson's of the world,
18:54
Speaker 1: and Walmart for that matter, who sells a lot of groceries. UM,
18:58
Speaker 1: it's very hard to to not pass prices on to consumers,
19:01
Speaker 1: and so there's a there's a lag effect that you know,
19:04
Speaker 1: when the actual commodity prices come down, it takes time
19:07
Speaker 1: to move through that whole food chain, from the manufacturers
19:11
Speaker 1: through the through to the retailers and then to the
19:13
Speaker 1: consumer before we see some relief. And so you know,
19:16
Speaker 1: when we look out towards the end of the year,
19:19
Speaker 1: we see food inflation remaining elevated until we get into
19:21
Speaker 1: the early but it should become more manageable as the
19:26
Speaker 1: year progressive. Alright, So the stock does it recover to
19:30
Speaker 1: the highs that we saw before the profit warning? Your
19:35
Speaker 1: meaning target? Um? No, I'm talking about Walmart, but in
19:39
Speaker 1: general retailers, I mean, did they come back? Well? I
19:42
Speaker 1: think that if if we have a good back to
19:44
Speaker 1: school season, that will create a lot of confidence in
19:47
Speaker 1: terms of investors for the holiday season. Um. I don't
19:51
Speaker 1: know that we'll recapture everything that was lost um year
19:53
Speaker 1: to date, um, given given the challenges that they've had,
19:57
Speaker 1: but there's certainly some cause for some optimism as we
19:59
Speaker 1: will towards the end of the year. And Jen just
20:01
Speaker 1: real quickly, thirty seconds are people going to the stores?
20:05
Speaker 1: So when I have to look at the Walmart earnings
20:06
Speaker 1: is hard target earnings? Is that e commerce? Is that
20:10
Speaker 1: people going to the stores? Where are we on that trend? Yeah?
20:12
Speaker 1: People are definitely going back into stores more. Um. And
20:15
Speaker 1: actually one of the things that that differentiates Target above
20:18
Speaker 1: Walmart is the traffic that they bring into stores. UM.
20:21
Speaker 1: They historically outpaced Walmart by a huge margin in terms
20:24
Speaker 1: of traffic growth UM. So e commerce is still continuing
20:27
Speaker 1: to grow UM, but people are a lot more comfortable
20:30
Speaker 1: being out and about UM, and so visits into stores
20:33
Speaker 1: is pretty strong. And it's you know, supporting people buying
20:36
Speaker 1: those impulse purchases when they're in the store as well.
20:38
Speaker 1: All Right, Jen, good stuff. As always, we can ask
20:41
Speaker 1: Jen anything about retail and she's got an informed opinion.
20:45
Speaker 1: Jen Bartash a senior equity research analysts. She covers consumer staples, retail. Basically,
20:50
Speaker 1: we just bring her on to talk anything retail for
20:53
Speaker 1: Bloomberg Intelligence. Really one of our leaders at bloombergt Talents.
20:56
Speaker 1: We appreciate getting some of her time. All Right, let's
21:02
Speaker 1: talk eco friendly products, green products in the household, talking
21:07
Speaker 1: consumer products. Allison written Er, CEO of Seventh Generation, joins us. Allison,
21:12
Speaker 1: thanks so much for taking the time here. I'd love
21:15
Speaker 1: to just start by you're right, it's right now, and
21:20
Speaker 1: let's let's let's say, Allison Allison, how do we pronounce
21:22
Speaker 1: your last name? You got it, It's right, Nor Thank
21:25
Speaker 1: you Okay, very good, I'll get it. Seventh generation. Tell
21:29
Speaker 1: us about what seventh generation is. What are you guys doing? Yeah? Great.
21:33
Speaker 1: So we're a company that for more than thirty years
21:37
Speaker 1: has been on a mission to transform the world into
21:40
Speaker 1: a healthy, sustainable, and equitable place for the next seven generations.
21:44
Speaker 1: And we do that by way of household cleaning products.
21:47
Speaker 1: And so we really invest um in making sure we
21:51
Speaker 1: have the most sustainable plant based products and market and
21:54
Speaker 1: that allows us then to invest back into advocacy work. Um,
21:58
Speaker 1: so work that we do with our partners to make
22:01
Speaker 1: sure that we're standing up for the climate crisis and
22:03
Speaker 1: making sure that we are taking active strides on fighting
22:06
Speaker 1: for climate justice every day. So, um, in terms of
22:11
Speaker 1: the products that you make, what does that mean? Are
22:13
Speaker 1: we talking about recycled materials? Are they the soaps biodegradable? Um? Uh?
22:19
Speaker 1: Do you know the wipes disintegrate? How? How does that work? Yeah? Great,
22:24
Speaker 1: So you've got so much of that right. So. Um.
22:27
Speaker 1: You know, from from a product standpoint, we really focus
22:29
Speaker 1: on less impact, less, waste less materials and so what
22:34
Speaker 1: that means for us is that we strive to make
22:36
Speaker 1: everything one percent recyclable or recycled and our primary primarily
22:41
Speaker 1: our source of ingredients as plant based, which means we
22:44
Speaker 1: used the same type of ingredients as our competitors, that
22:48
Speaker 1: we make them from plants, not petroleum. So, Alison, how
22:53
Speaker 1: from your businesses and your experience here over the last
22:56
Speaker 1: with seven generation during a pandemic, that people pivot more
23:01
Speaker 1: towards your types of eco friendly products away from it,
23:04
Speaker 1: because boy, the pandemic and being shut in your home
23:07
Speaker 1: and has really changed away people consume various products. Yes,
23:12
Speaker 1: I will say it's been a wild ride. Um SO.
23:15
Speaker 1: Certainly through those early pandemic days we saw a huge
23:19
Speaker 1: spike in our household cleaning products um SO, cleaning sprays,
23:23
Speaker 1: um A, paper products, and and since then, I think,
23:26
Speaker 1: along with the category, we weathered, you know, some pretty
23:29
Speaker 1: volatile demand spikes, just as consumers have normalized the amount
23:33
Speaker 1: of products that they have at home. But the thing
23:35
Speaker 1: that's been most interesting for us in this is the
23:38
Speaker 1: fact that through this time UM more and more consumers
23:41
Speaker 1: say that they are interested in environmentally friendly products. But
23:45
Speaker 1: what we've seen in practicality UM is that it's been
23:48
Speaker 1: harder for them to purchase it. So he think real
23:51
Speaker 1: life challenges like supply availability, UM financial challenges. You know,
23:56
Speaker 1: folks have a lot of things on their plate these days,
23:59
Speaker 1: and so I think really making sure that we're clothing
24:01
Speaker 1: that gap between intention and action has been the primary
24:05
Speaker 1: focus of our company. What about the prices, I mean,
24:08
Speaker 1: obviously inflation is the hottest issue right now. UM. You know,
24:12
Speaker 1: the UH President's most recent climate bill is actually called
24:18
Speaker 1: the Inflation Reduction Act, just to show you how key
24:21
Speaker 1: inflation is. UM. Have you seen your input costs rise?
24:24
Speaker 1: Are you able to keep margins at a steady level?
24:27
Speaker 1: Can you still compete on price with the nonplant based
24:30
Speaker 1: kind of petroleum products or can you even undercut them? Yeah? Great?
24:35
Speaker 1: So what I will say is that we have not
24:37
Speaker 1: been immune to a lot of the challenges that we've
24:39
Speaker 1: seen in our categories and through our competitors, and so
24:42
Speaker 1: I think we've been weathering the inflation storm like many
24:46
Speaker 1: UM and as a result of that. Actually, it's one
24:48
Speaker 1: of the things that I'm most proud about over the
24:50
Speaker 1: course of this year is that, well, we had to
24:53
Speaker 1: make a lot of hard choices about our business model.
24:55
Speaker 1: I think the one thing that we have not done
24:57
Speaker 1: is taking the quality out of our products, and so
25:00
Speaker 1: we've ensure that we're continuing to invest in plant based products.
25:04
Speaker 1: We've continued to make sure that we're investing in a
25:06
Speaker 1: hundred percent recycled materials to make sure that we're really
25:09
Speaker 1: living through on the promise that we're creating for consumers
25:11
Speaker 1: that you know, they're really clear on what they're getting
25:14
Speaker 1: when they buy into the company and the brand. So
25:17
Speaker 1: Alison matt was mentioned the Inflation Reduction Act and some
25:19
Speaker 1: folks are saying this is a historic move and climate justice.
25:24
Speaker 1: Do you buy into that or what do you make
25:26
Speaker 1: of it? Yeah, well, first of all, this is a
25:29
Speaker 1: super you know, super exciting time for us. Um. So
25:32
Speaker 1: I want to start with the fact that you know,
25:34
Speaker 1: we're about to approve unless four hundred billion to be
25:38
Speaker 1: allocated for climate change and energy efforts within our country,
25:41
Speaker 1: which is absolutely remarkable. Right. So we've been in this
25:44
Speaker 1: work for a long time alongside with the front line
25:47
Speaker 1: communities and our partners, and so this is a historic
25:50
Speaker 1: step in the climate fight, especially with the fact now
25:53
Speaker 1: that we have a real path to reducing carbon emissions
25:56
Speaker 1: by Um that's said from right, that's right. But you know, progress, progress,
26:06
Speaker 1: progress is what I would say. And so, um, you know,
26:09
Speaker 1: for us the Climate Reduction Act. You know, while it's
26:12
Speaker 1: a great step forward, it's not climate justice. And the
26:15
Speaker 1: fact that it still allows drilling for fossil fuels to
26:18
Speaker 1: happen period, Right, So we're continuing to put marginalized communities
26:22
Speaker 1: in places of drilling at risk, um, And we're asking,
26:25
Speaker 1: but wouldn't those communities also be at risk if they
26:28
Speaker 1: had to pay like six dollars a gallon for gas?
26:30
Speaker 1: I mean, they'd be stuck, wouldn't be able to get
26:32
Speaker 1: to work or school. Yeah. So I mean, obviously there's
26:36
Speaker 1: an argument on on either side of this, but we've
26:39
Speaker 1: seen it play out, and we've seen it play out
26:41
Speaker 1: in real life as gas prices have soared, um, the
26:44
Speaker 1: low income communities had been the worst affected. They can't
26:47
Speaker 1: afford to put food on their table or drive to
26:50
Speaker 1: working back. So you've got to choose between that and drilling, right, Yeah,
26:55
Speaker 1: And I guess we choose to see a world, um
26:59
Speaker 1: where you don't have to compromise the short term in
27:01
Speaker 1: the long term. And I think you know, the big
27:03
Speaker 1: picture for us around the i ra A is that
27:05
Speaker 1: this is a huge step forward. But as simply as
27:08
Speaker 1: I can put it, it's it's about throwing up a
27:10
Speaker 1: balloon that still has a little bit of weak right,
27:12
Speaker 1: So there's continued work that needs to happen on the
27:14
Speaker 1: other side of that, and we're just here to, you know,
27:17
Speaker 1: to make sure that we're continuing to to rally um
27:20
Speaker 1: the the US around the fact that the climate work
27:23
Speaker 1: will continue and and protecting our community is to continue
27:26
Speaker 1: to be at climate risk is a key priority for
27:29
Speaker 1: this company. All Right, Allison, good stuff. I really appreciate
27:32
Speaker 1: you taking the time to chat with us. Allison right,
27:35
Speaker 1: nor CEO of Seventh Generation making some eco friendly consumer products.
27:40
Speaker 1: They're owned by Unilever, which is a little bit of
27:43
Speaker 1: a bendeg summer products they had everything. Thanks for listening
27:49
Speaker 1: to the Bloomberg Markets podcast. You can subscribe and listen
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27:57
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Speaker 1: Bloomberg Radio.