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BI Weekend: Deere, McDonalds Earnings · Bloomberg Intelligence

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Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg Intelligence
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Speaker 1: with Alex Steele and Paul Sweeney.
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Speaker 2: The real app performance has been the US corporate high yield.
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Speaker 3: Are the companies lean enough?
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Speaker 4: Have they trimmed all the fats?
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Speaker 1: Business, breaking market headlines and corporate news from across the globe.
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Speaker 4: Do investors like the M and A that we've seen?
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Speaker 2: These are two big time blue chip companies.
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Speaker 1: Fast Bloomberg Intelligence with Alex Steele and Paul Sweeney on
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Speaker 1: Bloomberg Radio.
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Speaker 3: I'm Alex Steele and I'm normal Linda filling in for
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Speaker 3: Paul Sweeney.
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Speaker 4: On today's Bloomberg Intelligence Show. We're going to dig inside
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Speaker 4: the big business stories impacting Wall Street and the global markets.
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Speaker 3: Each and every week we provide in depth research and
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Speaker 3: data on some of the two thousand companies in one
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Speaker 3: hundred and thirty industries our analysts cover worldwide.
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Speaker 4: Today, we'll take a look at it TD Bank because
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Speaker 4: exiting it's in Charles Schwab.
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Speaker 3: Plus, we'll discuss why sales at the fast food giant
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Speaker 3: McDonald's improved last quarter.
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Speaker 4: But first we take a look at earnings from the
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Speaker 4: farm machinery leader Deer.
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Speaker 3: This week, Deer said that North American sales are expected
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Speaker 3: to be down thirty percent this year for Maura.
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Speaker 4: And Nora and I were joined by Christopher Chiolino, Bloomberg
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Speaker 4: Intelligence Senior US machinery analyst, and we first asked Chris
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Speaker 4: for his take on this week's earnings report.
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Speaker 5: We knew going into the quarter that was going to
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Speaker 5: be a pretty ugly print, but these results were really
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Speaker 5: well below even some of the most bearish expectations. The
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Speaker 5: company really continues to underproduce retail demand across the board
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Speaker 5: to bring down some of the excess inventories that the
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Speaker 5: industry has been plagued with. We also sounds like some
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Speaker 5: products there were some timing issues, so products got pushed
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Speaker 5: out to subsequent quarters, which which weighed on the one
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Speaker 5: Q performance. Now, Deer did reaffirm its twenty twenty five
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Speaker 5: net income outlook, and it certainly seems that we are
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Speaker 5: approaching a cyclical trough this year.
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Speaker 4: But just our.
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Speaker 5: Concern lies that you know, earnings may not be fully
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Speaker 5: de risked here. You continue to see further softness on
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Speaker 5: the largeag side used equipment inventories remain somewhat of an overhang.
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Speaker 5: Currency headwinds are going to be more pronounced in the
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Speaker 5: back half, and really we still have this uncertainty around
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Speaker 5: what the US trade policy is going to be and
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Speaker 5: what and what those retaliatory actions are going to be
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Speaker 5: as well.
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Speaker 4: Well, I was going to say, if they sound relatively
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Speaker 4: confident they'll be at trough, but then you add on tariffs,
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Speaker 4: how well does that confidence hold up?
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Speaker 5: Yeah, I mean that's the million dollar question, right, I mean,
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Speaker 5: I would say that AG historically has had a tremendous
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Speaker 5: amount of pricing power and deer in particular, this is
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Speaker 5: a company in a market that even gets positive price
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Speaker 5: in down markets. You know, this quarterly sales were down
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Speaker 5: over thirty five percent, earnings down significantly, and we were
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Speaker 5: still up on pricing. It will add costs, but they
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Speaker 5: have a history and the track record of being able
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Speaker 5: to pass those through.
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Speaker 3: What has really been concern for investors out of this
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Speaker 3: report as they're looking forward?
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Speaker 5: Yeah, I think there's two big concerns here. One is,
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Speaker 5: you know, the expectation is that yes, twenty five is
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Speaker 5: trough and that we should start to see that this
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Speaker 5: recovery build into twenty six. But I still think there's
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Speaker 5: a lot of uncertainty out there as to what the
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Speaker 5: recovery trajectory looks like, just given the uncertainty around trade
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Speaker 5: and tariffs, you know, I think we're probably looking at
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Speaker 5: a lower for longer type cycle. So maybe we don't
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Speaker 5: get that typical acceleration in the first year after a
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Speaker 5: cyclical trough. So I think investors are still trying to
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Speaker 5: digest that. And then too, you know, the costs side
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Speaker 5: of the equation. It certainly seems that costs are going
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Speaker 5: to go up. How are they going to mitigate that
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Speaker 5: through some of their you know, internal initiatives or even
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Speaker 5: from shifting some production around with their footprint.
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Speaker 4: I also am wondering where we are in terms of
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Speaker 4: the cyclicality of equipment, Like are are farmers operating on
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Speaker 4: older stuff that they're going to have to replace or
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Speaker 4: did they already do that during the pandemic. So they're
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Speaker 4: good for a while, and it's going to take like
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Speaker 4: really new high tech products to get them to fork
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Speaker 4: over that kind of cash.
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Speaker 5: I think we're good for a little bit a little
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Speaker 5: bit of time here. I mean, you have to remember,
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Speaker 5: up we had you know, three four strong years of
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Speaker 5: growth up to the twenty twenty three peak. Yes, twenty
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Speaker 5: four was a down year. We were down, you know,
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Speaker 5: fifteen sixteen percent in terms of units on high horsepower equipment.
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Speaker 5: We're looking at somewhere of a twenty five to thirty
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Speaker 5: percent decline in volumes this year. So that's going to
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Speaker 5: put us, you know, att lows of you know, over
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Speaker 5: the last two decades where we haven't seen before. So
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Speaker 5: from these levels, we think there's probably limited downside risk.
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Speaker 5: But you know, farmers still have the ability to you know,
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Speaker 5: push out some of these replacement purchases at least for
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Speaker 5: another few years, we think.
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Speaker 3: Our Thanks to Christopherciellino, Bloomberg Intelligence Senior US Machinery analyst,
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Speaker 3: we moved next.
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Speaker 4: To the energy sector. This week's shares of the British
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Speaker 4: oil giant BP surge the most is twenty twenty.
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Speaker 3: This came after news of the activist investor Elliott Investment
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Speaker 3: Management said it built a stake in BP.
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Speaker 4: And this comes as Elliott seeks to end years of
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Speaker 4: underperformance at BP by pushing for significant change for more.
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Speaker 3: Alex and I were joined by Will Harris, Bloomberg Intelligence
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Speaker 3: Global Energy analysts.
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Speaker 4: We first asked Will what all of the problems are
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Speaker 4: that Elliott wants to fix.
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Speaker 6: I think there's too many to really go through, given
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Speaker 6: there our time constraints here, but I think they can
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Speaker 6: really boil down to a significant moment, which was the
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Speaker 6: original rollout of their twenty twenty energy transition strategy. This
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Speaker 6: is the quickest, most risky energy transition of all the
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Speaker 6: energy global energy majors, and it sort of it depicted
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Speaker 6: a pretty quick drop in their upstream hydrocarbon production, a
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Speaker 6: really rapid rollout of their renewables portfolio. And obviously this
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Speaker 6: has not been taken well by the market. It's undermined
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Speaker 6: the sustainability of their distribution, it's hit their returns, and
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Speaker 6: especially now when we are seeing a sort of backlash
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Speaker 6: against ESG, we're seeing a slowing of energy transition paces
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Speaker 6: across this sector. It hasn't gone down well for BP's
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Speaker 6: financial performance or share evaluation.
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Speaker 4: So well, if we go back to that moment in
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Speaker 4: twenty twenty, and I was there when they laid out
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Speaker 4: this new strategy. Was that a bad strategy or is
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Speaker 4: it bad timing or some combination.
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Speaker 6: There is some part of me that has a little
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Speaker 6: bit of sympathy for BP because because I think they
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Speaker 6: were trying to do the right thing, and then of
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Speaker 6: course Russia's invasion of Ukraine sort of up ended the
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Speaker 6: global energy sector pretty materially. I also think that they were, yes,
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Speaker 6: trying to do the right thing, but doing the right
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Speaker 6: thing isn't isn't always what's best for investors, And I
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Speaker 6: think just comparing it to some of their their peers,
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Speaker 6: particularly Shell, which has taken a much much more capital
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Speaker 6: discipline approach, they have a very high bar for acquisitions.
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Speaker 6: They've been very prudent in their energy transition rollout, and
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Speaker 6: we can just see in the financial performance and how
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Speaker 6: the market is valuing them, which has been the more
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Speaker 6: successful strategy over the last four or five years.
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Speaker 3: As we think about BP in particular, what really can
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Speaker 3: they do in this moment? What are investors really looking for?
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Speaker 6: So I think I think I'll touch on what Elliott
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Speaker 6: is I think going to try and do. There's four
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Speaker 6: levers that I think Elliott might try and pull here,
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Speaker 6: and the first is transition business spin off, so this
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Speaker 6: can remove debt and capital intensity of these businesses off
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Speaker 6: the balance sheet. We think they'll push to focus on
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Speaker 6: growing their oil production. More, the current oil production is
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Speaker 6: supposed to be declining about ten percent to twenty thirty.
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Speaker 6: We can hope to see that flatten or increase over
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Speaker 6: that same time period, and I think there could be
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Speaker 6: a push for a board change. The chairman of the board,
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Speaker 6: helgat Lund, has overseen VP since twenty seventeen and compared
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Speaker 6: to peers, there's been pretty underwhelming performance there and then
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Speaker 6: finally a primary US listing. I think that this could
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Speaker 6: be a big game changer. It has not only been
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Speaker 6: discussed at BP, but amongst the other European majors. It's
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Speaker 6: seen as a major hurdle to starting to close that
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Speaker 6: valuation gap with Chevron and exon our thanks.
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Speaker 3: To Will Harris, Bloomberg Intelligence Global Energy Analysts, we.
8:27
Speaker 4: Move next to the leisure sector. Bloomberg Intelligence recently gave
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Speaker 4: his twenty twenty five outlook on cruises and theme parks.
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Speaker 3: And for more. We were joined by Jody Lori, Bloomberg
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Speaker 3: Intelligence Senior Credit Analysts.
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Speaker 4: We first asked Jody what she expects to perform well
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Speaker 4: for cruise lines this year.
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Speaker 7: I will say that the most fascinating thing is the
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Speaker 7: momentum continues for the cruise lines. The booking rates continue
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Speaker 7: to be very high, and we're seeing that Royal Caribbean,
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Speaker 7: we're seeing that Carnival, and that's what management is communicating.
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Speaker 7: Whether or not that continues into twenty six is the
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Speaker 7: question that we're grappling with. But at least for twenty five,
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Speaker 7: it's very very positive moment.
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Speaker 2: Jody, it seems like demand out there for experiences is
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Speaker 2: still very strong. How about for a family that's thinking
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Speaker 2: about a theme park trip versus maybe a cruise, how
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Speaker 2: does that kind of shake out?
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Speaker 7: Yeah, So, Paul, I think you hit on the major
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Speaker 7: issue is that we're seeing these sort of two sets
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Speaker 7: of consumers, right the lower end consumers that are pairing
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Speaker 7: back or they're still doing experiences, but maybe not as
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Speaker 7: lavish an experience. And then you have the high end
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Speaker 7: consumers that are still doing very well. High end hotels
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Speaker 7: are doing well, high end cruise lines are doing well,
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Speaker 7: anything that's higher end. If you put that in the
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Speaker 7: perspective of theme parks, one thing that we saw in
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Speaker 7: our survey that we ran in November is that for
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Speaker 7: theme park vacations, the average consumers income level is a
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Speaker 7: little bit lower than the average consumer that's planning to
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Speaker 7: do a cruise vacation this year. So I think that's
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Speaker 7: pretty telling when you think about the cost of admission,
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Speaker 7: when you think about who the target audiences and what's
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Speaker 7: going to continue the cash flow generation for the cruise
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Speaker 7: lines versus what might be a little bit of a
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Speaker 7: sticking point for the theme parks.
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Speaker 2: Jody.
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Speaker 8: One of the earliest memories I have of the very
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Speaker 8: earliest days of the pandemic was these cruise lines rushing
10:12
Speaker 8: out to the bond market. They're raise cash because they
10:15
Speaker 8: knew that their business was in for a tough haul there.
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Speaker 8: How are the balance sheets of some of these big
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Speaker 8: cruise companies theme park companies, How are the balance sheets
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Speaker 8: these days?
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Speaker 7: So we're going to break it out to the cruise
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Speaker 7: versus the theme parks in terms of their balance sheets.
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Speaker 7: So for the cruise lines, you know, particularly Carnival and
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Speaker 7: Royal Caribbean, they are dead set on getting to investment
10:36
Speaker 7: grade level metrics. Norwegian says that they want to as well,
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Speaker 7: They've never been investment grade rated. But Carnival and Royal
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Speaker 7: Caribbean are really set on keeping leverage very low. They're
10:46
Speaker 7: focused on that. Carnival's targeting three point five times by
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Speaker 7: the end of next year, so twenty twenty six, Royal
10:53
Speaker 7: is targeting below three times this year. What we've modeled
10:57
Speaker 7: out is that they can both get there and their
11:00
Speaker 7: relatively comfortably. I mean, they've been pretty aggressive in terms
11:03
Speaker 7: of de leveraging bringing down the debt load. Viking is
11:05
Speaker 7: pretty happy where it is, so we don't see them
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Speaker 7: improving much. But they also have a low leverage. Now,
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Speaker 7: if you think of the theme parks, they repaid their debt.
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Speaker 7: They had this gravy of a year in twenty twenty two,
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Speaker 7: everybody rushed to theme parks, regional theme parks. Since then,
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Speaker 7: it hasn't been as exciting twenty twenty two to twenty three,
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Speaker 7: I should say, And what we're seeing there is a
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Speaker 7: little bit more problem now. SeaWorld really doesn't have that
11:28
Speaker 7: much debt outstanding. So where we're concerned there is that
11:31
Speaker 7: they start getting creative with their balance sheet again, particularly
11:34
Speaker 7: if they're finding issues in the business as a whole
11:37
Speaker 7: and they need to propel sort of. You know, the
11:39
Speaker 7: equity value improving for six Flags. You know, they had
11:42
Speaker 7: the merger between six Fags and cedar Fare and that
11:45
Speaker 7: is resulting in much higher leverage. Management already bumped out
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Speaker 7: the target of when they're bringing down leverage, and we
11:52
Speaker 7: already think that it might be a little bit harder
11:54
Speaker 7: to achieve even pushing it out by a year and
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Speaker 7: a half.
11:57
Speaker 3: Our thanks to Jody Laurie Bloomberg Intelligency, your credit analysts.
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Speaker 4: All right, coming to have a conversation with the chief
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Speaker 4: financial officer over at Huntington National Bank on the firm's
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Speaker 4: outlook and opportunities ahead.
12:06
Speaker 3: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
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Speaker 3: depth research and data on two thousand companies and one
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Speaker 3: hundred and thirty industries. You can access Bloomberg Intelligence via
12:15
Speaker 3: b I go on the terminal. I'm Normal Linda, and
12:18
Speaker 3: I'm Alex Steele, and.
12:19
Speaker 4: This is Bloomberg.
12:24
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12:28
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12:39
Speaker 3: I'm Alex Steele and I'm Normal Linda. Filling in for
12:41
Speaker 3: Paul Sweeney.
12:42
Speaker 4: We move next to the banking sector and Huntington National Bank.
12:45
Speaker 4: Co host Paul Sweeney and I were recently joined by
12:47
Speaker 4: Zach Wasserman, chief financial officer at Huntington National Bank.
12:51
Speaker 3: He discussed where the firm's focus has been and how
12:53
Speaker 3: it's never been better positioned to benefit from significant organic
12:56
Speaker 3: opportunities ahead.
12:57
Speaker 4: And Zach began this portion of the conversation by discussing
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Speaker 4: how the bank is now trying to expand beyond lending
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Speaker 4: to small businesses.
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Speaker 9: The business has been performing exceptionally well recently, and one
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Speaker 9: of the reasons is because we're driving expansion both geographically
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Speaker 9: and in our commercial business, expanding in a number of
13:14
Speaker 9: special divertical areas and national business lines. Just this year,
13:17
Speaker 9: we've launched into three new states, North Carolina, South Carolina,
13:21
Speaker 9: and Texas, and we've also established eight new special verticals
13:25
Speaker 9: that are national, for example of funds financed vertical that's
13:28
Speaker 9: supporting private equity clients, one that's focused on the mortgage ecosystem,
13:33
Speaker 9: and other national commercial areas.
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Speaker 10: Talk to us about loan growth. What I do know
13:39
Speaker 10: about the bank business. That's an important driver. So talk to.
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Speaker 2: Shot loan growth, where it's coming from, where you're seeing it,
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Speaker 2: and is it kind of in line.
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Speaker 9: With what you were expecting You know, we've actually had
13:47
Speaker 9: very strong loan growth of the last two years. If
13:49
Speaker 9: you take a step back, much of the industry has
13:51
Speaker 9: been in a pretty neutral position, not actually growing. Huntington
13:55
Speaker 9: has grown outperformed that by about ten percentage points. And
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Speaker 9: for us, the growth is coming from both our core business,
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Speaker 9: which is consumer small business and then mid corporate typically
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Speaker 9: private commercial clients, and then also these new initiatives that
14:09
Speaker 9: I just mentioned before launching into three New states, a
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Speaker 9: number of specialty businesses.
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Speaker 10: So we're seeing a nice breadth of growth.
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Speaker 9: Actually, one thing that's actually, you know, a nice indication
14:20
Speaker 9: of the economic strength is we're seeing strong demand from
14:23
Speaker 9: small businesses from our regional banking business, typically in the
14:27
Speaker 9: kind of smaller middle market client sets. So it's a
14:29
Speaker 9: it's been a healthy dynamic we've been.
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Speaker 4: Seeing before you were in this position. You also was
14:35
Speaker 4: chief financial officer to Visa, and I know that Huntington
14:37
Speaker 4: is trying to get into the payments business in a
14:40
Speaker 4: particular way too. What's the what's the market for that
14:44
Speaker 4: and how do you guys play and compete in that?
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Speaker 9: You know, the market for payments is incredibly broad, and
14:49
Speaker 9: if you think if you took a step back.
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Speaker 4: To categorize it actually, like is that zell or like
14:53
Speaker 4: what is that?
14:54
Speaker 9: You know, it is so broad, the one that really
14:55
Speaker 9: needs to zoom into it. You know, we have a
14:58
Speaker 9: number of card based payment products, so think consumer cards,
15:03
Speaker 9: commercial cards, but also importantly treasury management, and that's really
15:07
Speaker 9: the biggest driver right now. We're seeing in payments growth
15:10
Speaker 9: supporting commercial clients with the ability to accept payments and
15:14
Speaker 9: then make payments in essentially every form you can imagine, Alex,
15:18
Speaker 9: so big big growth driver there. One of the things
15:21
Speaker 9: that we've done recently is invest to expand our merchant
15:24
Speaker 9: acquisition capability. Merchant acquiring is when a company accepts payments electronically,
15:30
Speaker 9: and it's often the lynchpin of their business. Saw the
15:34
Speaker 9: lifeblood of the company is how they accept payments. So
15:36
Speaker 9: we launched a merchant acquiring business just in October and
15:40
Speaker 9: it's been going incredibly well. So, you know, kind of
15:42
Speaker 9: almost every area there's growth in payments for sure, but
15:46
Speaker 9: for us, treasury management and commercial payments in particular as
15:49
Speaker 9: a major growth driver.
15:50
Speaker 2: Talk to us about your long portfolio, specifically your exposure to.
15:54
Speaker 9: Office, yeah, real estate, you know, office and commercial real
15:58
Speaker 9: estate generally for Huntington is.
16:00
Speaker 10: A very small exposure.
16:01
Speaker 9: Actually, typically for large regional banks, the average commercial real
16:06
Speaker 9: estate within the loan portfolio might be fifteen or twenty
16:09
Speaker 9: percent of the loan book.
16:10
Speaker 10: For us, it's nine percent, so.
16:12
Speaker 9: We're relatively smaller and an office is only one percent
16:14
Speaker 9: of that nine To give you a sense. With that
16:16
Speaker 9: being said, you know what we're seeing in that commercial
16:19
Speaker 9: real estate environment is this is gonna this is gonna
16:21
Speaker 9: be a situation that.
16:22
Speaker 10: Plays out over multiple years.
16:24
Speaker 9: Thankfully, we are seeing a fairly orderly process of refinancing
16:29
Speaker 9: and generally seeing pretty sound ability for our commercial real
16:34
Speaker 9: estate developers to maintain their financing and to successfully.
16:40
Speaker 10: Roll through maturities. But it'll take a while to run through.
16:44
Speaker 9: To give you a sense, something like twenty percent of
16:47
Speaker 9: the portfolio matures any given year, so this will be
16:50
Speaker 9: you know, on average, it'll take five years to really
16:52
Speaker 9: roll through. So I think that's a kind of an
16:54
Speaker 9: industry dynamic we're seeing, which this is a dynamic that
16:57
Speaker 9: will play out over quite sometime.
16:59
Speaker 4: What part of this is encompasses any kind of m
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Speaker 4: and as is organic yees.
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Speaker 9: You know, for us we're focused on organic growth m
17:07
Speaker 9: and A. It can be a tool for banks to grow.
17:10
Speaker 9: Certainly we've seen m and A in the industry over time.
17:13
Speaker 9: With that being said, it can also be distracting to
17:16
Speaker 9: the progress that the company is making on organic growth.
17:19
Speaker 9: And for US Alex, we're seeing so much progress on
17:22
Speaker 9: our organic growth initiatives, both acquiring customers but also importantly
17:28
Speaker 9: putting more and more focus around the value added fee
17:30
Speaker 9: services that come around that come to them, namely payments,
17:33
Speaker 9: wealth management, and capital markets, and so, you know, just
17:36
Speaker 9: the customer acquisition. We're seeing the success in those businesses.
17:40
Speaker 9: That's where our focus is. To give you a sense
17:42
Speaker 9: in the fourth quarter just that we just closed a
17:44
Speaker 9: ten percent year of year revenue growth, really driven by
17:47
Speaker 9: those organic strategies.
17:49
Speaker 8: What's a typical corporate customer for you guys?
17:51
Speaker 9: You know, often, Paul, they are middle market companies that
17:55
Speaker 9: are private.
17:56
Speaker 10: That's the most typical company.
17:59
Speaker 6: You know.
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Speaker 9: You know, the regional banks serve a really important niche
18:03
Speaker 9: within the overall US economy because you know, the client
18:06
Speaker 9: set that we are servicing are typically you know, focused
18:10
Speaker 9: on their local market.
18:11
Speaker 10: They want a bank with a company that.
18:13
Speaker 9: Is deeply embedded in the community and knows them personally.
18:17
Speaker 9: But importantly can bring down to them the power of
18:21
Speaker 9: a large bank in terms of specialized capabilities. It's actually
18:25
Speaker 9: one of the reasons why we've been so successful in
18:27
Speaker 9: these new geographic launches.
18:29
Speaker 10: How about private credit?
18:30
Speaker 2: Is that a competitor to you?
18:32
Speaker 9: You know, it's funny we get this question all the time,
18:34
Speaker 9: and the answer generally is no, okay.
18:37
Speaker 10: You know, private credit.
18:38
Speaker 9: Is looking for the sort of you know, the kind
18:42
Speaker 9: of loans that they finance are typically where there's more leverage,
18:45
Speaker 9: where there's more yield to be had. Because of the risk,
18:49
Speaker 9: that's not the core client for Huntington, and so our
18:52
Speaker 9: head of Commercial Business mentioned that only in two cases
18:55
Speaker 9: last year across our entire business did we see commercial
18:58
Speaker 9: borrowers actually go to a price a credit facility away
19:01
Speaker 9: from our own lending facility.
19:03
Speaker 3: Art thanks to Zach Wasserman, chief financial officer at Huntington
19:06
Speaker 3: National Bank.
19:07
Speaker 4: I'm staying in finance. This week, Canada's TD Banks that
19:10
Speaker 4: it's offloading its entire ten point one percent stake in
19:12
Speaker 4: the financial services firm Charles Schwab.
19:14
Speaker 3: And this comes as part of a corporate overhaul. In October,
19:17
Speaker 3: TD Bank reached the settlement with the US Department of
19:19
Speaker 3: Justice and bank regulators over its failure to catch money
19:22
Speaker 3: laundering at several American branches.
19:24
Speaker 4: For Moura and Nora and I were joined by Paul Goldberg,
19:26
Speaker 4: Bloomberg Intelligence senior equity analyst.
19:29
Speaker 3: We first asked Paul why TD Bank would offload it's
19:31
Speaker 3: full stake in Charles Schwab.
19:33
Speaker 11: I don't think it's necessarily strategic Cox. I think it's
19:36
Speaker 11: partially to simplify the business. Also, TD got hit with
19:40
Speaker 11: AML investigation and was fine, then got an asset cap
19:45
Speaker 11: in the US, so they can really grow in the
19:47
Speaker 11: US much larger on the bank inside. Sounds like they
19:51
Speaker 11: trying to simplify the business, having the ability to buy
19:54
Speaker 11: back some stock, have some extra capital in handhand.
19:58
Speaker 3: Where does TD's business currently if you were to give
20:00
Speaker 3: us a broader perspective, how is it lining up against competitors?
20:04
Speaker 11: Well, I think that you have to look at it
20:06
Speaker 11: in two different areas. One in Canada. So in Canada
20:09
Speaker 11: with the one of the largest banks across personal and
20:12
Speaker 11: commercial banking. In the US, they again one of the
20:15
Speaker 11: largest banks, but they very much personally focused all over
20:19
Speaker 11: the east coast of the US.
20:21
Speaker 4: So what is going to take for them to get
20:23
Speaker 4: their asset cap raised in the US.
20:25
Speaker 11: I think it'll take a long time.
20:27
Speaker 4: But what's the problem that the FED highlighted, Well.
20:30
Speaker 11: The FEED highlighted is they mL deficiencies which they trying
20:33
Speaker 11: to fix. It costs them a lot of money they
20:35
Speaker 11: invested in it, but it can take years. So if
20:38
Speaker 11: we'll look at what's happening to Wells farga we're in
20:41
Speaker 11: eight years and they're still trying to get out from
20:43
Speaker 11: under that.
20:44
Speaker 4: Yeah, and it always seems like nebulous. It's like we
20:46
Speaker 4: have an asset cap, but it's not like you check
20:47
Speaker 4: these three boxes and it's gone. It's sort of like,
20:49
Speaker 4: at least for Wells Fargo, because it's like risk management.
20:51
Speaker 4: It's controls that's making sure that you know everyone's on
20:54
Speaker 4: board doing the right thing at the right time, which
20:55
Speaker 4: can be very difficult.
20:57
Speaker 3: What do you take away from this idea of the
20:59
Speaker 3: repurchasing of its for.
21:01
Speaker 11: TD or for swap. They both do so for TD.
21:05
Speaker 11: I think they repurchasing on the fraction of that. So
21:07
Speaker 11: they's take in Canadian dollars is about twenty billions. That
21:10
Speaker 11: fourteen billion they repurchasing only eight So the impact on
21:14
Speaker 11: TV shares from this sale of from the sale of
21:17
Speaker 11: Schwap shares is about seven percent of the earnings. They're
21:20
Speaker 11: going to repurchase back six so mostly neutralize that kind
21:23
Speaker 11: of impact. The rest is going to add a whole
21:26
Speaker 11: point of capital to them so that they can be
21:29
Speaker 11: invested in other sides of the business. But because they
21:31
Speaker 11: kept in the US, which makes it very challenging because
21:34
Speaker 11: they have they'll have to figure ways to invest adding
21:37
Speaker 11: to capital markets, which they're doing right now, or domestically Schwab.
21:42
Speaker 11: They only bind one percent of the ten percent stake
21:46
Speaker 11: that's being sold, but TD is still keeping the depository relationships,
21:51
Speaker 11: so I think it's strategic more on the TD's side
21:54
Speaker 11: rather than having any impact on Schwap side.
21:56
Speaker 3: Is this bad news for the Swap side of things?
21:58
Speaker 11: I don't think, so that's what I'm saying. It's a
22:01
Speaker 11: strategic decision on t D side to simplify their business.
22:04
Speaker 11: They're still keeping the deposits relationship, which clearly says that
22:08
Speaker 11: they're working well with Schwab and the TD is going
22:11
Speaker 11: to put a decent gain on sale and this kind
22:13
Speaker 11: of thing. So I think that's nothing wrong with the
22:15
Speaker 11: schwab its, just big stake of the company's going up
22:18
Speaker 11: in the open market, right.
22:19
Speaker 4: Totally switching to TD and their actual Canadian business. How
22:24
Speaker 4: are they doing there?
22:25
Speaker 11: They're doing pretty well, right, So the second largest bank domestically,
22:30
Speaker 11: right after the RBC. They've been very consistent right on
22:35
Speaker 11: the mortgage side, on their commercial operations and everywhere, so
22:40
Speaker 11: they've been doing well. But it's an extremely competitive market.
22:42
Speaker 11: That's why the concern is that they're going to have
22:44
Speaker 11: this all extra capital that they're going to try to
22:47
Speaker 11: invest domestically into a super competitive.
22:49
Speaker 3: Market and breakdown in Canada. There's fewer banks than we
22:52
Speaker 3: have a million over here, so like, how do they
22:55
Speaker 3: shake up in terms of their competition in Canada? How
22:59
Speaker 3: do they line up the well.
23:00
Speaker 11: Their competition there are six largest banks, or some people
23:03
Speaker 11: call it five plus one because National Bank is a
23:05
Speaker 11: little bit smaller, even though they just finalize in the
23:09
Speaker 11: closure of Canadian Western Bank, that's going to expand them
23:12
Speaker 11: a little bit. But some people describe that market as
23:16
Speaker 11: a competitive monopoly between these banks. So there's some smaller
23:19
Speaker 11: banks and credit unions, but these banks control ninety plus
23:22
Speaker 11: percent of deposits and loans in the country, so very
23:26
Speaker 11: very concentrated, and they compete very aggressively against everything, so
23:31
Speaker 11: the market shares when you see them shift. We're talking
23:34
Speaker 11: about basis points here and there from period to period.
23:37
Speaker 4: All right, thanks to Paul Goldberg, Bloomberg Intelligence and your
23:39
Speaker 4: equity analyst, you're.
23:40
Speaker 3: Listening to Bloomberg Intelligence on Bloomberg Radio, providing in depth
23:43
Speaker 3: research and data on two thousand companies and one hundred
23:46
Speaker 3: and thirty industries. You can access Bloomberg Intelligence via b
23:49
Speaker 3: I go on the terminal. I'm normal ind and I'm
23:52
Speaker 3: Alex Steele, and.
23:53
Speaker 4: This is Bloomberg.
24:01
Speaker 1: You were listening to the Bloomberg Intelligence podcast. Catch the
24:04
Speaker 1: program live weekdays at ten am Eastern on Apple car
24:08
Speaker 1: Play and Android Auto with the Bloomberg Business app. You
24:11
Speaker 1: can also listen live on Amazon Alexa from our flagship
24:14
Speaker 1: New York station, Just Say Alexa played Bloomberg eleven thirty.
24:19
Speaker 3: I'm Alex Steele and I'm normal Linda filling in for
24:21
Speaker 3: Paul Sweeney. We move now to earnings from the fast
24:24
Speaker 3: food giant McDonald's. This week, McDonald's reported that its sales
24:27
Speaker 3: rose in the fourth quarter, and this comes after growth
24:29
Speaker 3: in the chains international business made up for a decline
24:32
Speaker 3: in the US.
24:33
Speaker 4: For Maura Nora and I were dorma Michael hallon Bloomberg
24:35
Speaker 4: Intelligence and your Restaurant and food service Analyst, and we
24:38
Speaker 4: first asked Michael for his broad read on these latest results.
24:41
Speaker 12: You know, the most important piece of the report really
24:43
Speaker 12: is the US recovery post e Coli, and we got
24:47
Speaker 12: some good news on that front. So traffic was actually
24:50
Speaker 12: positive in December, so I think that was much better
24:53
Speaker 12: than anyone had expected. They cited kind of a choppy
24:57
Speaker 12: January here, but the only the only region still impacted
25:02
Speaker 12: by ECOLI seems to be the Rocky Mountain region where
25:05
Speaker 12: the outbreak occurred, and they expect a full US recovery
25:08
Speaker 12: by the beginning of the second quarter, which is good news.
25:11
Speaker 4: What about the rest of the world versus the US,
25:14
Speaker 4: It was the rest of the world that really performed well.
25:16
Speaker 12: Yeah, yeah, And a big part of that was just
25:19
Speaker 12: lapping like pretty weak year ago results, right, so we
25:23
Speaker 12: wrapped the start of the of the Israel Hamas war,
25:26
Speaker 12: and so the Middle East was stronger. Countries with large
25:30
Speaker 12: Muslim populations were also stronger. And then also China lapped
25:34
Speaker 12: a very weak result last year, and management cited some
25:37
Speaker 12: stabilization in that market, which is encouraging for them. So
25:41
Speaker 12: the easy comps was what really fueled international sales. You know,
25:46
Speaker 12: we're kind of more bullish on the US moving forward
25:49
Speaker 12: than international, you know, because outside of the Middle East,
25:53
Speaker 12: in China, Europe is we think is going to continue
25:55
Speaker 12: to kind of be an issue for them. The Arizona
25:59
Speaker 12: is experienced it's seeing much higher inflation than the US
26:03
Speaker 12: and that's really crimping low income and family spending on
26:07
Speaker 12: the continent.
26:08
Speaker 3: Are people still buying the Big Mac.
26:11
Speaker 12: They don't break out Big Mac sales, but they cited
26:14
Speaker 12: pretty strong results out of the Chicken Big Mac, which
26:17
Speaker 12: I was kind of surprised about. You know, my associate
26:20
Speaker 12: tried it, he was not a big fan. But but yeah,
26:24
Speaker 12: they cited, you know, pretty strong results out of the
26:26
Speaker 12: Chicken Big Mac in the United States and other markets.
26:29
Speaker 12: I think France was who they called out specifically and
26:33
Speaker 12: to the point where they're going to continue to you know,
26:36
Speaker 12: bring it back as a limited time offerre.
26:38
Speaker 10: In the future.
26:39
Speaker 4: So I was actually talking to an ib user, a
26:42
Speaker 4: Bloomberg user about this. Why are McDonald's franchises elsewhere like
26:48
Speaker 4: at rest of world so much better than in the
26:50
Speaker 4: US and that like you can get like super good
26:53
Speaker 4: food that doesn't taste like fast food. Why is that?
26:56
Speaker 12: Yeah, Jonathan Farrowe asked me the same thing, said he
26:59
Speaker 12: wants them all to be like the you know McDonald's
27:02
Speaker 12: in Italy, you know. And the answer I had there
27:04
Speaker 12: was just more discerning tastes, right, that.
27:10
Speaker 4: Might be it, No, but really, like is it? I mean,
27:12
Speaker 4: does it affect margins? Like what are the margins like
27:14
Speaker 4: in the US versus the rest of the world.
27:17
Speaker 12: We don't We don't have that information, you know what
27:19
Speaker 12: I mean. It's a franchise business, right, so.
27:25
Speaker 6: You know what I mean.
27:26
Speaker 12: So, so we don't have a ton of color on
27:28
Speaker 12: all the different franchise markets and what kind of margins
27:32
Speaker 12: they pull in. You know, the US generally is a
27:37
Speaker 12: lower margin for the franchise business, just because they have
27:42
Speaker 12: a lot more franchisees and need a lot more oversight.
27:47
Speaker 12: The international franchise business tends to generate wider margins.
27:52
Speaker 3: So I always used to think about McDonald's is a
27:54
Speaker 3: really cheap place, a discount fast food place, but prices
27:58
Speaker 3: are getting higher. Are we still seems demand from lower
28:01
Speaker 3: income consumers for the brand.
28:04
Speaker 12: You know, it continues to be the weak spot at
28:07
Speaker 12: McDonald's and for anyone that has a lot of exposure
28:10
Speaker 12: to low income consumers. So the entire QSR space, right,
28:13
Speaker 12: Jack in the Box, Wendy's, Burger King. You know, a
28:17
Speaker 12: lot a lot of chains, you know, struggled last year
28:19
Speaker 12: because of their inability to draw low income consumers. You know,
28:23
Speaker 12: they're impacted most by inflation.
28:25
Speaker 2: Right.
28:25
Speaker 10: We've had four plus years.
28:28
Speaker 12: Of restaurant price hikes and higher costs across the board, right,
28:33
Speaker 12: and so you know, chains that are exposed to low
28:37
Speaker 12: income consumers are going to continue to press on value
28:39
Speaker 12: to try to bring them into the fold. You know,
28:43
Speaker 12: it seemed like it didn't seem like restaurants sales did
28:47
Speaker 12: improve for a quick service in the fourth quarter, and
28:49
Speaker 12: we think a big part of that is just a
28:51
Speaker 12: re establishing of their value proposition.
28:53
Speaker 2: Right.
28:54
Speaker 12: McDonald's early last year got a lot of shade about
28:56
Speaker 12: the eighteen dollars big Mac meal in Connecticut, and so
29:00
Speaker 12: they decided to push hard on value, and prior to
29:03
Speaker 12: the E Coli outbreak, you know, October.
29:05
Speaker 10: Had some really good results.
29:07
Speaker 12: They were drawing customers in with that five dollars meal
29:10
Speaker 12: deal and traffic was positive for the first time during
29:14
Speaker 12: the year. So value pushing on value has been successful
29:18
Speaker 12: for McDonald's. That's not good for their competitors because McDonald's
29:22
Speaker 12: has the most scale, right, But we think this is
29:24
Speaker 12: going to continue throughout twenty twenty five in the quick
29:27
Speaker 12: service industry.
29:28
Speaker 3: So just to confirm, you're saying there was a meal
29:30
Speaker 3: that came up to eighteen dollars.
29:31
Speaker 4: She totally missed this. She totally missed this one.
29:34
Speaker 10: Yeah.
29:34
Speaker 12: Yeah, it was one franchisee in Connecticut. No comment, No,
29:44
Speaker 12: fair enough, fair enough. But he was he was pushing
29:46
Speaker 12: back because he, you know, he was dealing with a
29:49
Speaker 12: lot of inflation and he was just, you know, he
29:52
Speaker 12: wanted to make some money on the big McNeal. He
29:54
Speaker 12: was trying to make a point.
29:55
Speaker 3: Our thanks to Michael Halen, Bloomberg Intelligence senior Restaurant and
29:58
Speaker 3: food service analysts.
30:00
Speaker 4: Each week we look at research from Bloomberg n EF
30:02
Speaker 4: previously known as New Energy Finance. They're the team at
30:05
Speaker 4: Bloomberg that tracks and analyzes the energy transition from commodities
30:08
Speaker 4: to power, transport, industries, buildings, and agricultural sectors.
30:12
Speaker 3: This week we looked at the energy sector and how
30:14
Speaker 3: it's being impacted by Donald Trump's presidency in the United States.
30:17
Speaker 3: For more, Alex and I were joined by Derek Fletgall
30:20
Speaker 3: b Any F lead US policy analysts.
30:22
Speaker 4: We first asked Derek, where we stand today with the
30:25
Speaker 4: energy transition.
30:26
Speaker 13: Where we stand today is at a point of uncertainty
30:29
Speaker 13: and early consolidation. At this point, we've heard a variety
30:33
Speaker 13: of conflicting reports about the release or lack thereof, of
30:37
Speaker 13: obligated federal funding for climate grants. We've heard reports that
30:40
Speaker 13: EPA has released some others that are implicated by some
30:43
Speaker 13: of the presidents DEI related orders, anything with an environmental
30:47
Speaker 13: justice or a community benefits component have been more affected.
30:51
Speaker 13: And meanwhile, at the executive level, we've seen some people
30:55
Speaker 13: at Brook Rawlins the USDA, Doug Bergham at the Department
30:57
Speaker 13: of Interior, and Chris Wright at the Department of Energy
31:00
Speaker 13: get into place and put forward their formal priorities. So,
31:03
Speaker 13: with that early staffing up in place and continued uncertainty
31:08
Speaker 13: about the release of funds, we are kind of looking
31:11
Speaker 13: at a wait and see period, seeing how things shake
31:13
Speaker 13: out in the courts and in the executive branch itself.
31:16
Speaker 3: Well, it definitely has been a massive makeover that Trump
31:19
Speaker 3: has been planning to do and it is continuing to
31:21
Speaker 3: do right now in terms of federal agencies. But are
31:24
Speaker 3: there any areas in particular that you're keeping an eye on.
31:26
Speaker 3: I know that there's things going on in terms of
31:28
Speaker 3: EV charging funding right absolutely.
31:32
Speaker 13: I mean sectors that were specifically named in Trump's executive orders,
31:36
Speaker 13: oil and gas. They're supposed to be four momentum on that,
31:39
Speaker 13: as well as electric vehicles and electricfical charging and offshor win.
31:42
Speaker 13: In particular, EV charging saw a pause on existing dispersements
31:47
Speaker 13: of funds from the National Electric Vehicle Infrastructure Program. That's
31:50
Speaker 13: about five billion dollars if I recall correctly from the
31:52
Speaker 13: Infrastructure Investment and Jobs Act, what about one billion dollars
31:55
Speaker 13: if that had been allocated, So it's clearly a disruption
31:59
Speaker 13: to those on going disbursements. Keep in mind that there's
32:02
Speaker 13: also something called the Charging and Fueling Infrastructure Program, which
32:05
Speaker 13: was not as directly targeted by that, that's obligated rather
32:08
Speaker 13: more funding. So there's still some full momentum so far
32:13
Speaker 13: to the EV charging sector. But what this does is
32:16
Speaker 13: throw a bit more sand in the gears that continued
32:19
Speaker 13: forward movement.
32:20
Speaker 4: Do we know what the Republican's energy plan consists of,
32:24
Speaker 4: versus just rolling back certain things, like I know, we
32:27
Speaker 4: know that it's energy independence and we want more oil, Like,
32:30
Speaker 4: I get that. But in terms of dismantling Democrat policies
32:34
Speaker 4: versus their own support for different.
32:36
Speaker 13: Industries, I don't think we do. And there's two different
32:39
Speaker 13: reasons for that. Firstly, on the executive side, my sense
32:44
Speaker 13: is that they are reviewing and looking to see which
32:46
Speaker 13: aspects of existing policies are worth keeping in place for
32:49
Speaker 13: goals like national security, energy independence, and so forth. Certainly,
32:53
Speaker 13: we've seen emphasis that subsidies for nuclear critical minerals manufacturing
32:57
Speaker 13: those should continue, and to the degree that renewables can
33:01
Speaker 13: help meet new load for new factories for data centers
33:04
Speaker 13: that might also be somewhat protected. We've seen these reversals
33:07
Speaker 13: quite rapidly, even in the renewables permitting space. For example,
33:10
Speaker 13: within the same day our colleagues at Bloomberg News reported
33:13
Speaker 13: that federal permitting was paused and then unpaused by the
33:17
Speaker 13: US Army Corps of Engineers. That's just the federal side,
33:20
Speaker 13: executive side. On the legislative side, we are still waiting
33:23
Speaker 13: for the Senate and the House to come together on
33:26
Speaker 13: one core plan for the big tax and reconciliation bill
33:31
Speaker 13: that's going to come later this year. They need to
33:33
Speaker 13: find a lot of pay force to extend Trump's tax
33:35
Speaker 13: cuts from twenty seventeen. And other than being sure they
33:38
Speaker 13: want to sell more oil and gas leases and cut
33:41
Speaker 13: back taxes on methane, they're not really consolidated around one
33:45
Speaker 13: common plan of movement. The House wants to do one
33:47
Speaker 13: big beautiful bill. The Senate wants to have an early
33:50
Speaker 13: energy measure, And of course, the earlier you move on
33:52
Speaker 13: some of these big unifying factors like the border or
33:56
Speaker 13: increasing supplies of fossil fuel energy, the harder it will
34:00
Speaker 13: be to have consensus on doing some other, maybe more
34:05
Speaker 13: controversial things like pulling back clean energy subsidies that have
34:09
Speaker 13: mostly benefited Republican districts and states. So we're really waiting
34:12
Speaker 13: to see where these negotiations land. And I think the
34:15
Speaker 13: more that businesses can continue to engage with the Trump
34:17
Speaker 13: administration to make the case with their priorities in Trump's
34:21
Speaker 13: own terms, the more we'll see clarity around where this
34:23
Speaker 13: administration will land.
34:25
Speaker 10: Ultimately, so with a.
34:26
Speaker 3: New administration in power, where do things stand with Biden's
34:29
Speaker 3: Inflation Reduction Act, particularly tax credits.
34:33
Speaker 13: Right, So, the key thing about tax credits is that
34:36
Speaker 13: these are a bit more of a complicated instrument than
34:38
Speaker 13: simple grants and loans. Right there's legal obligations that are
34:42
Speaker 13: associated with those, but there's also a lot of sort
34:46
Speaker 13: of intervention points to try and keep that money back
34:49
Speaker 13: with taxes. That's a thing that you file to the IRS,
34:53
Speaker 13: the IRS eventually gives back to you. And further complicating this,
34:57
Speaker 13: the IRA created a sellable tax credit mark. So right
35:01
Speaker 13: now there's a lot of businesses that effectively have anticipated
35:05
Speaker 13: getting tax credits from the government later and use that
35:08
Speaker 13: to sort of set up some transfers with other businesses
35:11
Speaker 13: in advance. Everything is kind of moving along before tax
35:15
Speaker 13: day comes and before IRS disbursement needs to come back.
35:19
Speaker 13: But because of all of that, there's a lot less
35:21
Speaker 13: certainty right now about whether tax credits are affected by
35:25
Speaker 13: this alleged funding freeze, and of course that it's sort
35:28
Speaker 13: of like you know, the roadrunner running off of a
35:32
Speaker 13: cliff in a cartoon. As long as you don't look down,
35:35
Speaker 13: maybe there's not as much fall as you would expect.
35:37
Speaker 13: We're going to see later on what real implications this has. Now,
35:41
Speaker 13: from what I've read of legal analysis, it's going to
35:44
Speaker 13: be particularly hard to try and hold back tax credit funding,
35:46
Speaker 13: even if you know there's a longer wait on that.
35:49
Speaker 13: But that level of uncertainty has yet to affect the market.
35:53
Speaker 10: To my knowledge.
35:54
Speaker 13: Later on though, we'll.
35:55
Speaker 3: See our thanks to Derek flake Hall be an eapp
35:59
Speaker 3: lead US pol analysts.
36:01
Speaker 1: This is a Bloomberg Intelligence podcast, available on Apple, Spotify,
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36:09
Speaker 1: weekday ten am to noon Eastern on Bloomberg dot com,
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