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U.S Earnings, ISM Services Data · Bloomberg Intelligence

0:01
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
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0:16
Speaker 2: Michael halein, Bloomberg Intelligence Senior restaurant and food service analyst,
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Speaker 2: joins us Now. Michael McDonald's down the most in twenty
0:24
Speaker 2: twenty two. What do you think of the quarter? What
0:26
Speaker 2: was the big takeaway?
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Speaker 3: Yeah, it was a weaker quarter than most expected. For sure,
0:34
Speaker 3: sales growth was kind of weak.
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Speaker 4: You know.
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Speaker 3: They cited the impact from the Israel Hamas war, and
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Speaker 3: obviously that hurt results in the Middle East, but also
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Speaker 3: in Muslim countries like Malaysia and Indonesia, and then also
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Speaker 3: countries like France that have a large Muslim population. It
0:55
Speaker 3: may have impacted sales here in the US a bit
0:57
Speaker 3: as well. There were some calls to boycott a brand
1:01
Speaker 3: right after the start of the Israel Hamas war. Those
1:04
Speaker 3: kind of went away in December. In January, however, so
1:09
Speaker 3: there could have been a mild impact in the United
1:10
Speaker 3: States as well. And then in terms of key takeaways
1:14
Speaker 3: from the call, you know, they don't expect their developmental
1:18
Speaker 3: markets where the Middle East is located to improve really
1:21
Speaker 3: until the war ends. And they cited some consumer weakness
1:26
Speaker 3: in the United States, which they have before, right, but
1:30
Speaker 3: it seems like it may be spreading in terms of
1:32
Speaker 3: you know, just low income consumer weakness. You know, it
1:36
Speaker 3: sounds like their customers right now are managing their guest checks.
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Speaker 5: Hey, Mike, I'm just looking at the PGeo function on
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Speaker 5: the Bloomberg turbine. I see that roughly sixty percent of
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Speaker 5: the revenue comes from franchise operated stores in about forty
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Speaker 5: percent from company operating stores. How did they make that
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Speaker 5: decision about what when they go to a particular location,
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Speaker 5: whether the franchise or own it.
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Speaker 3: I think a big part of it is return on investment, right,
2:03
Speaker 3: So if the returns on the investment are very strong,
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Speaker 3: they typically want to hold on to those stores or
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Speaker 3: develop stores. You know, they'll they'll do some store development
2:11
Speaker 3: in the United States and in their more established markets,
2:16
Speaker 3: but it's going to be a small percentage of what
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Speaker 3: they're doing going forward. You know, most of their growth
2:21
Speaker 3: is going to be you know, done by their strong
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Speaker 3: franchise partners, particularly particularly in China and some of these
2:28
Speaker 3: other very fast growing markets talk.
2:30
Speaker 2: About the input part of the situation in terms of
2:33
Speaker 2: their costs, in terms of their labor and all that
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Speaker 2: kind of good stuff.
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Speaker 3: Yeah, so come on, you know, inflation is easing for
2:43
Speaker 3: them this year, but it's still probably higher than normal.
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Speaker 2: They're looking at cows, man cows.
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Speaker 3: That's part of it, for sure. Beef and dairy costs
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Speaker 3: are expected to be higher this year. So but they're
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Speaker 3: looking at a you know, low single digit commodity inflation
3:01
Speaker 3: in the United States and abroad. Abroad had you know,
3:04
Speaker 3: Europe had very high inflation last year, and that that's
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Speaker 3: gonna settle down a bit. Labor inflation is going to
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Speaker 3: be continue to be, you know higher, and a big
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Speaker 3: chunk of a big part of that here is you know, uh,
3:19
Speaker 3: in the US, you know, their California April first puts
3:23
Speaker 3: in the twenty dollars minimum wage for fast food workers,
3:26
Speaker 3: and so that's going to impact some of their stores,
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Speaker 3: primarily their franchisees. However, so so they're still seeing you know,
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Speaker 3: higher inflation than you know, we had in the twenty
3:38
Speaker 3: teens for sure.
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Speaker 5: Hey, Mike, I look at the stock and you know
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Speaker 5: I need to pay a twenty two twenty three times
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Speaker 5: earnings for this stock. What am I really getting? Is
3:46
Speaker 5: it something more than GDP top line growth? What's really
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Speaker 5: the call behind this kind of stock?
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Speaker 3: Yeah, Well, with their global growth, they should They're gonna
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Speaker 3: probably grow higher quicker than GDP. Know, what you're buying
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Speaker 3: with a franchise business is you know, pretty pretty stable
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Speaker 3: and predictable earnings growth, free cash flow growth. There's not
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Speaker 3: a lot of operating leverage in the model, and so
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Speaker 3: they're asset light and so they can lever the business
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Speaker 3: up and return cash to shareholders pretty aggressively. So it's
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Speaker 3: definitely an attractive model, especially one with the strong top
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Speaker 3: line growth like McDonald's has. And they they're also you know,
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Speaker 3: most investors can consider them slightly insulated against a recession
4:33
Speaker 3: in slower economic times, and a big part of that
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Speaker 3: is that the is the value that they offer. During
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Speaker 3: the Great Recession, they outperformed the quick service industry pretty significantly,
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Speaker 3: acquired a lot of market share during that time, and
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Speaker 3: so investors feel there's some safety investing in McDonald's versus
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Speaker 3: some of the other restaurant chains out there.
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Speaker 2: But Mike, that confuses me with what you said about
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Speaker 2: customers watching their checks and their items and what they're buying,
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Speaker 2: because you would think if things are hard and people
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Speaker 2: are struggling, that you would get more value and people
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Speaker 2: would go to McDonald's. But you were mentioning how in
5:06
Speaker 2: general people are watching their money more so they're not
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Speaker 2: How does that kind of square?
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Speaker 3: Yeah, So what we've seen is a lot of traffic
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Speaker 3: deterioration over the last couple of years because price increases
5:17
Speaker 3: have been so aggressive and people's spending is being pinched.
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Speaker 1: Right.
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Speaker 3: But the thing about quick service, you know, they're in
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Speaker 3: the lower end of the market, right, and so they'll
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Speaker 3: see during an economic slowdown, they'll see higher and middle
5:32
Speaker 3: income consumers kind of fall into their bucket. They'll try
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Speaker 3: they'll spend less at higher cost full service occasions, and
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Speaker 3: they'll visit McDonald's more often, whereas a lot of the
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Speaker 3: low income consumers will kind of fall out of that
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Speaker 3: bucket and decide to opt for the grocery store more often. So, uh,
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Speaker 3: they'll lose some traffic on the low end, but they'll
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Speaker 3: they'll probably gain some with some of the middle and
5:55
Speaker 3: upper income consumers.
5:56
Speaker 5: So, like, who's really their competition these When I was
6:00
Speaker 5: a kid, it was Burger King and Wendy's, but now
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Speaker 5: there's so much more out there.
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Speaker 6: How do you kind of slice it?
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Speaker 3: Yeah, it's the restaurant business, man. It's it's so fragmented.
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Speaker 3: There's there's competition every may everywhere, man, you know, to
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Speaker 3: your point, convenience stores, grocery stores, food trucks, you know,
6:19
Speaker 3: you name it. Still, primarily their biggest competition are the
6:22
Speaker 3: fast food restaurants that are located closer closest to them.
6:26
Speaker 3: So it depends on the market. You know, California, Jack
6:30
Speaker 3: in the Box is number two, you know, on the
6:33
Speaker 3: East Coast, Yeah, you know, Burger King is number two,
6:36
Speaker 3: and in most markets, i'd say in the United States,
6:38
Speaker 3: Wendy's obviously is a big competitor of theirs, but also
6:41
Speaker 3: you know, places like Chipotle and shake Shack, you know,
6:46
Speaker 3: are also all competing for restaurant dollars with McDonald's. But
6:50
Speaker 3: you know, we don't look too closely at market share
6:53
Speaker 3: in this business because it is so fragmented. And you know,
6:58
Speaker 3: I don't really like total addressable more getting restaurants because
7:01
Speaker 3: nobody's gonna eat at McDonald's three times a day, seven
7:03
Speaker 3: days a week, you know, so.
7:05
Speaker 2: That who's there documentary that doing that?
7:08
Speaker 3: There was Yeah, yes there, we gotta.
7:11
Speaker 2: Leave it there. Mike, thanks a lot. Mike Calin, Bloomberg
7:13
Speaker 2: Intelligence senior restaurant and food service analysts, joining us.
7:17
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7:33
Speaker 6: Es Day Lauder.
7:34
Speaker 5: The stocks of thirteen percent today, that's the short term
7:37
Speaker 5: pop well, and I guess some cost cuts. We'll get
7:39
Speaker 5: to that with our next guest. Down forty two percent
7:41
Speaker 5: on a trailing twelve month basis. That's the longer term
7:43
Speaker 5: story I want to dig into as well, and we
7:45
Speaker 5: can do it all with one Deborah Aichin. She is
7:49
Speaker 5: the senior Luxury analyst for Bloomberg Intelligence. She joins us
7:54
Speaker 5: from London via zoom You want to talk luxury, you
7:58
Speaker 5: want to talk high street shopping, talk to Debacon.
8:01
Speaker 6: So deb let's.
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Speaker 5: Start with s day Lauder today. Good day for the company.
8:04
Speaker 5: Stocks up thirteen percent today. What's driving the stock today?
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Speaker 4: Absolutely, it's all about well, let's let's say having really
8:16
Speaker 4: impacted negatively with several earnings with earnings down grades and
8:21
Speaker 4: misses over the last six seven quarters, the company positively
8:26
Speaker 4: positively surprised. It met its organic sales decline of eight percent,
8:31
Speaker 4: not a growth, and its EPs came in slightly better,
8:35
Speaker 4: so down twenty percent. But the big thing is the
8:40
Speaker 4: restructure program. So it already has a restructure program in
8:43
Speaker 4: play that didn't seem to be deep enough, wide enough,
8:47
Speaker 4: and have enough detail to it. And now they've raised
8:50
Speaker 4: five hundred to seven hundred million of cost on a
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Speaker 4: deeper restructure program to bring up to one point four
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Speaker 4: billion through twenty five and twenty six, mostly twenty five
9:02
Speaker 4: or majority twenty five weighted, so with the expectation. So
9:07
Speaker 4: that's kind of like four hundred million extra on what
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Speaker 4: they were expecting before in terms of operating profitability.
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Speaker 2: What was the problem that they had to fix by
9:15
Speaker 2: doing that? Like, why is it so hard to be
9:17
Speaker 2: s day Ladder? I thought everyone would pay a million
9:19
Speaker 2: dollars for perfect skin, not talking my book or anything.
9:23
Speaker 1: Right.
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Speaker 4: The big thing over the last couple of years that
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Speaker 4: we've seen We've always known that Estill order a very
9:29
Speaker 4: premium product, and it did so well for so many years,
9:32
Speaker 4: but it had very high exposure in Asia. So we
9:34
Speaker 4: ended up a couple of years ago with a stuffed retail,
9:39
Speaker 4: duty free travel retail area across China and some parts
9:44
Speaker 4: of Asia, which were exacerbated by South Korea also in
9:47
Speaker 4: the issues there with the Dae Goose shopper and what
9:50
Speaker 4: we found, and we'd always been saying, you know, there's
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Speaker 4: supply side, the way that they organized themselves, the logistics.
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Speaker 4: They didn't have the hubs in place in Asia to
9:58
Speaker 4: do as much as they were doing, so they were
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Speaker 4: caught short or caught overstuffed, so they had far too
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Speaker 4: much in trade and that has taken a long long
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Speaker 4: time to temper down and start to normalize. And we
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Speaker 4: should return overall to growth this next quarter.
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Speaker 6: And dead let's stay with the China stories.
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Speaker 5: I know from talking to you over the years and
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Speaker 5: reading your research, the China consumer is just critical for
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Speaker 5: luxury shopping.
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Speaker 6: Can you give us a sense because.
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Speaker 5: I don't want to walk down Madison Avenue or Fifth Avenue.
10:27
Speaker 5: I see all the European tourists back, they're back in,
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Speaker 5: you know, in size, not so much with the Chinese.
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Speaker 6: What's going on there?
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Speaker 4: The big thing. We very late in getting visas through
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Speaker 4: the reopening of you as we thought from the beginning
10:44
Speaker 4: of last year reopening of travel, but the viewers that
10:48
Speaker 4: travel internationally won't come back until the second half the year.
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Speaker 4: And we are starting to hear some of those luxury
10:54
Speaker 4: companies sane. We're seeing more Chinese, more Asian customers in
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Speaker 4: our stores back home. There's a lot more spent in
11:02
Speaker 4: flights are fuller. The surveys that we're doing are saying
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Speaker 4: that they will travel, but a lot of that travel
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Speaker 4: so far has been across Asia.
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Speaker 2: But what's interesting is that not all are created equal.
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Speaker 2: I feel like you can Jerry pick a couple of
11:15
Speaker 2: luxury stocks that have been somewhat immune and I'm just
11:19
Speaker 2: wondering what those are. And I still and in the
11:23
Speaker 2: skincare world too, like what is that immune skincare high
11:27
Speaker 2: end product? That doesn't matter, We're all buying it anyway.
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Speaker 4: I think that you know there are there's some huge
11:34
Speaker 4: numbers in terms of some of the brands within the
11:38
Speaker 4: portfolio doing extremely well, lots of the brands of double
11:41
Speaker 4: digit but it's that trade that draws down. When you
11:44
Speaker 4: look at the Europe number for Estill order that's where
11:48
Speaker 4: they stock travel retail, that's where it sits in its
11:50
Speaker 4: P and L, and it's down minus fourteen. But actually
11:53
Speaker 4: Europe underline is flat and it's the same for the
11:55
Speaker 4: North American market. Within that there are brands like the
11:58
Speaker 4: Ordinary and and several of the higher end brands doing
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Speaker 4: very very well up double digit. And it's the same
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Speaker 4: across if I think about the way that actually luxury
12:09
Speaker 4: and you know Lorel aside Loreal is doing phenomenally well
12:13
Speaker 4: with a high base of its product in what a
12:15
Speaker 4: classes as Lorel looks. But let's go to some of
12:18
Speaker 4: the luxury companies and the way that LVMH and others
12:21
Speaker 4: are building sizeable scale in perfume and cosmetics. That's for
12:26
Speaker 4: growth of six to eight percent per year and very
12:29
Speaker 4: strong margin. So there are a lot of brands out
12:31
Speaker 4: there doing very very well. But in particular what has
12:36
Speaker 4: happened is and stockpicking, cherry picking. It's about the brands
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Speaker 4: who've had the portfolio that hasn't had so much Asia
12:44
Speaker 4: travel retail or where it's really been able to manage that.
12:47
Speaker 4: Because even if I think about LVMH within its selective
12:50
Speaker 4: retail and it hous dfs due to free stores and Sophora,
12:55
Speaker 4: and at one point last year they were both down
12:57
Speaker 4: and they've now fully recovered. We're starting to see if
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Speaker 4: the US some robust numbers coming through even from that
13:03
Speaker 4: aspirational end across the luxury across brands. It's getting a
13:06
Speaker 4: little better, but it's going to take time.
13:09
Speaker 6: And that's John Talker with the aspirational spend.
13:11
Speaker 2: Do you invest in your face.
13:13
Speaker 6: Other than maximum No? No, I invest in my face
13:19
Speaker 6: maximum strength.
13:20
Speaker 5: You know, sunblock is basically the only thing for this
13:22
Speaker 5: Irish American.
13:23
Speaker 2: Okay, but that's a really good thing. I mean, you're
13:25
Speaker 2: doing something, you know. I was just thinking that the
13:28
Speaker 2: only thing that I will not buy on sale is
13:30
Speaker 2: my skincare. Skincare because you just it never goes on sale.
13:33
Speaker 2: If you find something that works for you, you're sick
13:36
Speaker 2: with a certain aged woman who does media and on TV,
13:40
Speaker 2: like I will pay for it. Then that's I mean,
13:42
Speaker 2: I'm not wrong, deb right.
13:45
Speaker 4: The other thing that you do is you actually, without realizing,
13:47
Speaker 4: you trade up and right right now at the moment,
13:50
Speaker 4: there are some youngsters who are under twenty who were
13:52
Speaker 4: already moving into antih and the market is trying to
13:55
Speaker 4: stop that so as you get older, you're trading up.
13:59
Speaker 4: My story, which I think car relate to Paula Wellbach,
14:01
Speaker 4: was late in the autumn. I was in England and
14:05
Speaker 4: Cambridge and there were three Chinese consumers who couldn't get
14:09
Speaker 4: product from La Prairie very high end skincare product which
14:13
Speaker 4: is under the House of Biased Off. It's bigcause brand
14:16
Speaker 4: b Niveia, and they were there spending over three thousand
14:20
Speaker 4: pounds on a little gift pack. Each of La Prairie
14:24
Speaker 4: very high end eye product was way up of my
14:27
Speaker 4: price range.
14:28
Speaker 2: And these names, these real companies, What is this?
14:31
Speaker 6: I just used Irish spring and a wash cloth.
14:35
Speaker 2: Kind of the lebable hurts my soul, invest in your face?
14:40
Speaker 2: This is this is a strong takeaway from that.
14:42
Speaker 5: How are the luxury stock? What's what's kind of the
14:44
Speaker 5: luxury call here? I look at the FA function for
14:46
Speaker 5: es Day latter and it looks like for your the
14:48
Speaker 5: fiscal twenty twenty five, the June of twenty five year,
14:51
Speaker 5: the street's looking for a big pickup in revenue and
14:54
Speaker 5: profitability for Esday latter.
14:55
Speaker 6: What's behind that?
14:57
Speaker 4: That's that's all about that inventory. The to put that
15:01
Speaker 4: inventory in Asia into context, it's dragged down skincare in
15:05
Speaker 4: this quarter organic cells minus ten percent. It's dragged down
15:09
Speaker 4: Europe to minus fourteen, where underlying Europe was flat because
15:13
Speaker 4: it stores that travel retail. So it's about that inventory normalizing,
15:17
Speaker 4: and they're saying that that has happened right now at
15:19
Speaker 4: the end of two Q, so we head into three
15:22
Speaker 4: Q with normalized level and so therefore if that is
15:25
Speaker 4: the case, then it's better manage. We should start to
15:27
Speaker 4: see double digit growth coming from there. And if we
15:31
Speaker 4: were looking underlying without that area, then we saw mid
15:34
Speaker 4: single digit growth. So that's what that's about. And then
15:37
Speaker 4: also on top of this new restructuring program and with
15:40
Speaker 4: some of those benefits to come through twenty five, we've
15:42
Speaker 4: been playing around on MODL on the calculator and what
15:45
Speaker 4: we see there is around an expectation of twelve to
15:48
Speaker 4: thirteen percent uplift to that twenty twenty five operating profit
15:52
Speaker 4: to hopefully come through one consensus.
15:55
Speaker 2: Hey, deb really appreciate it. Thank you so so much.
15:57
Speaker 2: Debora Aig and Bloomberg Intelligence. I've seen industry analyst so
16:00
Speaker 2: just releases the question at the end of the day
16:02
Speaker 2: when it's trying to wind up coming back and traveling
16:04
Speaker 2: and like that we're back to that trade, which was
16:06
Speaker 2: the trade last last year at this exact same time.
16:09
Speaker 2: And do we buy it this time? Do you think
16:11
Speaker 2: it's really.
16:12
Speaker 5: Boy, I don't know. I think so now they're back
16:14
Speaker 5: to that. We heard from the mccow and Singapore gaming companies.
16:17
Speaker 5: The Chinese travelers are there.
16:19
Speaker 6: Okay, let's go.
16:19
Speaker 5: A little bit further now so they can get the
16:21
Speaker 5: visas and the flights, uh to come to Europe and
16:25
Speaker 5: to come to the US. Because again Fifth Avenue talked
16:28
Speaker 5: to merchants on Fifth Avenue and Madison Avenue.
16:30
Speaker 6: And they're just they're waiting for that.
16:31
Speaker 5: They thought it would be a twenty yeah, you know
16:33
Speaker 5: this year. I mean at twenty three event was not so,
16:36
Speaker 5: but they're I'm.
16:37
Speaker 2: Going to see Paul like strolling down Fifth Avenue, like
16:39
Speaker 2: going into stores.
16:40
Speaker 5: Like like I was into my Mega store getting some
16:43
Speaker 5: work on my watch, and I did ask that question,
16:45
Speaker 5: and I typed a deb acon right away, say here's
16:48
Speaker 5: some feedback from the store on fith Avenue coming starting
16:52
Speaker 5: to come back a little bit, starting to come back
16:53
Speaker 5: a little bit over the last three or four months.
16:56
Speaker 5: So but you know, they're just not taking over the
16:58
Speaker 5: city in the same time. Yeah, yeah, traffic they.
17:01
Speaker 6: Did in some of these luxury shopping areas.
17:04
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17:22
Speaker 5: So Alex and I were talking earlier this morning at
17:25
Speaker 5: you know, around ten am Wall Street time. ISM released
17:28
Speaker 5: us some really good services data, So let's get right
17:30
Speaker 5: to that with Anthony Nieves. He's the chair of the
17:32
Speaker 5: ISM Services Business Committee. He joins us at via zoom.
17:36
Speaker 5: So Anthony again, the ISM Services Index came in at
17:40
Speaker 5: fifty three point four. That's the headline. Consensus was fifty
17:43
Speaker 5: two in the last period. Is fifty point six. Big
17:46
Speaker 5: jump there? Can you walk us through that?
17:50
Speaker 7: Certainly when you look at the composite index, it was
17:54
Speaker 7: driven by new orders increasing two point two percentage points
17:58
Speaker 7: from the fifty two point eight to fifty five point zero,
18:01
Speaker 7: and employment rebounded nicely. We contracted last month in December
18:07
Speaker 7: was attributed to the pullback. The pullback was attributed to
18:10
Speaker 7: the fact that the cycle time of hiring with the
18:13
Speaker 7: holidays and vacations and whatnot, and that rebounded nicely to
18:17
Speaker 7: fifty point five, up significantly six point seven percentage points.
18:21
Speaker 2: Hey Anthony, great to see you. We love this data.
18:24
Speaker 2: I love the ins and analysis from it. It wasn't
18:27
Speaker 2: like all sunshine and rainbows though. Walk us through sort
18:29
Speaker 2: of what areas of services did well, what area of
18:32
Speaker 2: services may be still contracting.
18:36
Speaker 7: That's a great question. And you look at the composite
18:38
Speaker 7: index and also prices were increasing seven point three percentage
18:44
Speaker 7: points fifty six point seven up to sixty four. Food
18:48
Speaker 7: prices still remain very strong. That I feel has impacted
18:53
Speaker 7: the FED. Looking at interest rate cuts, our respondents are
18:57
Speaker 7: telling us that they'd love to see continued cuts in
19:01
Speaker 7: the interest rates. But the bright side of that, there's
19:04
Speaker 7: capital spending, new projects of being released. When you look
19:08
Speaker 7: at the top five industries that contribute to GDP, overall,
19:13
Speaker 7: real estate rental and leasing is still contracting. The increases
19:18
Speaker 7: coming from professional, scientific, technical services as well as healthcare
19:22
Speaker 7: social assistance very strong this month.
19:25
Speaker 5: So I mean the services is seventy percent of our economy.
19:30
Speaker 6: I mean I can't.
19:31
Speaker 5: See a GDP contraction scenario coming out of you know,
19:35
Speaker 5: we get data like this.
19:36
Speaker 6: I mean, are you guys at ism or what's your
19:38
Speaker 6: economic call here?
19:41
Speaker 7: When we look at this monthly report coupled with the
19:45
Speaker 7: semi annual forecast, what our respondents indicated to us that
19:48
Speaker 7: the first half, especially in services wasn't going to be
19:51
Speaker 7: that robust, but the second half was going to be better.
19:54
Speaker 7: I feel we're slightly ahead of the trend. And to
19:57
Speaker 7: your point about GDP growth, think what was it three
20:01
Speaker 7: point three percent last year? When we look at the
20:04
Speaker 7: composite index this month annualized, it's at one point five.
20:08
Speaker 7: And if we see the second half as they indicated
20:11
Speaker 7: to us, being stronger, we'll have this incremental growth continue.
20:16
Speaker 7: It'll be a good story for the services sector.
20:19
Speaker 2: So when we jump to the prices paid, though, I
20:21
Speaker 2: mean it's pretty staggering, jumped the most since twenty twelve.
20:24
Speaker 2: Was this a supply story or a demand story because
20:28
Speaker 2: we have seen a lot of supply chain snarls, et cetera.
20:32
Speaker 7: Well, we definitely see that it's a demand issue, especially
20:37
Speaker 7: with new orders. Even though it looks like, you know,
20:39
Speaker 7: it's fifty five, it's middling as far as the growth
20:43
Speaker 7: two point two percentage points up in the fifty two
20:45
Speaker 7: point eight, but definitely it has some constraint on transportation,
20:51
Speaker 7: and that was indicated to us by our respondents. They
20:53
Speaker 7: said that there's challenges with the Suez Canal with the
20:57
Speaker 7: conflict over in the Red Sea, as well as the
21:00
Speaker 7: Panama Canal. We're seeing the capacity has reduced to less
21:04
Speaker 7: than half of what it was based on the issues
21:07
Speaker 7: with being able to fill up the locks with the
21:09
Speaker 7: water shortage over there.
21:12
Speaker 5: Interesting, all right, So what are you looking for going
21:14
Speaker 5: forward here? Just to kind of get a sense of
21:17
Speaker 5: the consumer. Is it the labor market? Is that the
21:19
Speaker 5: primary driver here or what else kind of from your perspective,
21:22
Speaker 5: influences the consumer?
21:25
Speaker 7: Well, you know, the labor market and employment you look
21:27
Speaker 7: at it a fifty point five. That's a really interesting
21:31
Speaker 7: story there. It continues the same trend and pattern that
21:34
Speaker 7: we've seen. Certain industries they're still going through job cuts,
21:38
Speaker 7: whereas others are finding competitiveness in the marketplace and trying
21:42
Speaker 7: to recruit and hire applicable workers. But overall, it's really
21:47
Speaker 7: coming down to where is it driven from, and right
21:50
Speaker 7: now it seems to be those two industries that I
21:53
Speaker 7: mentioned previously, professional scientific, technical services, as well as the
21:57
Speaker 7: healthcare and socialists.
21:59
Speaker 2: Before you go, Anthony, before we let you go, is
22:02
Speaker 2: this an economy that has the risk of actually running
22:05
Speaker 2: hotter if you're just looking at the responding data here?
22:10
Speaker 7: Not really, because looking at it at the fifty three
22:14
Speaker 7: point four, it's not over. It's not in any rook
22:18
Speaker 7: of overheating at this point.
22:20
Speaker 2: Hey, Anthony, really great to get your perspective. Thank you
22:22
Speaker 2: so much. Interested in goldilocks, I mean the end of
22:25
Speaker 2: the day, like, hey, prices paid a little bit, but
22:27
Speaker 2: this is definitely a goldilocks story, Anthony Navis. He joins
22:30
Speaker 2: us chair of the Ism Services Business Committee. It's really
22:32
Speaker 2: nice to get the details of the big data.
22:34
Speaker 1: Points at you're listening to the Bloomberg Intelligence Podcast. Catch
22:39
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22:43
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22:46
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22:55
Speaker 2: Is the ISM Services index really solid? Price is paid,
22:58
Speaker 2: really solid? Employment higher, new orders higher? So let's get
23:02
Speaker 2: the breakdown here on what this all means. Danielle de
23:05
Speaker 2: Martino Booth, the CEO and chief strategist of QI Research. Danielle,
23:09
Speaker 2: what do you make of this economy? I mean, it's
23:13
Speaker 2: really hard to see any kind of slowing. It's really
23:16
Speaker 2: hard to see sort of where that's going to come from.
23:19
Speaker 8: What's your take, Well, I think of all of the
23:24
Speaker 8: of all of the indicators that we've seen in the
23:26
Speaker 8: last few days, where it's going to come from part
23:30
Speaker 8: is the most apparent at this juncture.
23:33
Speaker 4: You know.
23:34
Speaker 8: One of the things that we noticed when the ISM
23:36
Speaker 8: Services report came out in December was that the employment
23:40
Speaker 8: component had dropped to forty three and change. We went, oh,
23:43
Speaker 8: my gosh, that's absolutely the worst we've ever seen.
23:45
Speaker 9: Hurse.
23:45
Speaker 8: This morning it rebounded back above the fifty line that
23:50
Speaker 8: separates expansion and contraction. All good and well, you say, right, well,
23:55
Speaker 8: you look under the hood. ISM Services covers eighteen industries.
24:00
Speaker 8: In November, there were ten that had rising employment. In
24:04
Speaker 8: December there were seven of those eighteen with rising employment
24:09
Speaker 8: in seven sectors. In January there were three. And so
24:13
Speaker 8: I think we have to be very careful with the
24:16
Speaker 8: data about getting too excited about any one headline, you know,
24:21
Speaker 8: One of the things that came out on Friday in
24:23
Speaker 8: the employment report was that the headline employment had increased
24:26
Speaker 8: by three hundred and twenty five thousand. You peel the
24:29
Speaker 8: onion back a layer and you find out then since
24:32
Speaker 8: the month of February, since February, we have been at
24:34
Speaker 8: a single full time job created in the United States.
24:38
Speaker 8: In fact, it's been negative ninety seven thousand since then.
24:40
Speaker 8: So the reason I think markets are a little bit
24:44
Speaker 8: schizophrenic is because you have to keep looking left and
24:48
Speaker 8: right or you're gonna get run over.
24:50
Speaker 4: Yeah.
24:50
Speaker 5: One of the many reasons I like Kevin Danielle on
24:52
Speaker 5: the show because I like to just take the headline
24:55
Speaker 5: number and run with it. She doesn't do that. She
24:57
Speaker 5: doesn't allow me to do that. She says, I got
24:59
Speaker 5: to peel back lets and onions and things like that. So, Danielle,
25:02
Speaker 5: I think if I kind of read your very good
25:06
Speaker 5: social media profile, you're not in the soft landing camp,
25:10
Speaker 5: are you.
25:10
Speaker 6: What's your call here?
25:12
Speaker 5: I sense you're more cautious and you think the market
25:15
Speaker 5: should be more cautious.
25:17
Speaker 8: Yeah, I do think the market should be more cautious.
25:20
Speaker 8: We have we have several sign posts that show that
25:23
Speaker 8: October is probably when the National Bureau of Economic Research
25:28
Speaker 8: is going to go back and backdate the recession. We
25:32
Speaker 8: actually have one of their main indicators that they follow UH,
25:36
Speaker 8: which is income X transfers ex Government transfers, adjust it
25:42
Speaker 8: for inflation. That's negative. If you if you look at
25:46
Speaker 8: in adoption production, one of the huge arbiters of recession for
25:49
Speaker 8: the nb ER, it also UH is negative. And in
25:53
Speaker 8: fact we're starting to see problematic inventory build in autos.
25:57
Speaker 8: We had that we had at auto sales come in
25:59
Speaker 8: at fifth teen point zero million seasonally adjusted annualized rate
26:04
Speaker 8: they were expected to commit at fifteen point seven. That
26:06
Speaker 8: was a quiet report that kind of went by the
26:09
Speaker 8: wayside last Thursday. So there are so many revisions going on.
26:14
Speaker 8: Goldman SAX did a huge report at the end of
26:17
Speaker 8: the year that said every single month of retail sales
26:20
Speaker 8: in twenty twenty three had been revised downwards and that
26:23
Speaker 8: retail sales were flat on the year. I think we're
26:26
Speaker 8: having such an issue with statisticians in Washington, DC because
26:31
Speaker 8: so many of their seasonal analysis modeling is based off
26:35
Speaker 8: of and includes the pre pandemic era. So the time
26:40
Speaker 8: the dust settles are like, oh, wait, wait, now that
26:42
Speaker 8: we've got everything in or maybe we've got the smallest
26:45
Speaker 8: sample size in the history of say the non farm
26:48
Speaker 8: payroll survey. Once we get all of the data in hand,
26:52
Speaker 8: we were incorrect, We're going to go back and revise
26:54
Speaker 8: that down.
26:55
Speaker 2: That's a lot of Danielle. This makes your job difficult,
26:59
Speaker 2: our job difficult, and the Fed's job even more difficult.
27:02
Speaker 2: So we're now looking at a little over four cuts
27:05
Speaker 2: priced in for this year. What do you think is legit,
27:09
Speaker 2: particularly with all this uncertainty and revisions that you're talking about,
27:11
Speaker 2: and when would it start.
27:14
Speaker 8: Well, had it not been for the very strong tone
27:17
Speaker 8: that Chair j. Powell voiced on sixty minutes last night,
27:22
Speaker 8: I would be more in the camp of saying if
27:25
Speaker 8: they do start to cut rates, they will do so
27:28
Speaker 8: at every meeting beginning in May, so May, June, July,
27:32
Speaker 8: and September. But Chair Powell seems so adamant in communicating
27:37
Speaker 8: that he will be the apolitical FED chair. He will
27:41
Speaker 8: be nonpartisan, he will not be viewed as being political.
27:46
Speaker 8: In an election year, it's a toss up fifty to
27:48
Speaker 8: fifty whether or not the Fed historically has cut rates
27:52
Speaker 8: or raised rates. May taken any action in the FMC
27:56
Speaker 8: that immediately precedes the election. That would be the September,
27:59
Speaker 8: the eighth, eighteenth FOMC. I wouldn't be surprised to see
28:04
Speaker 8: three rate cuts May, June, and July and then a pause.
28:09
Speaker 6: Interesting.
28:09
Speaker 5: So, from your perspective, Danielle, the data you look at,
28:12
Speaker 5: which is not necessarily the data that lay people like
28:15
Speaker 5: me look at, which is basically how much does it
28:17
Speaker 5: cost to fill up my car with gas? Is inflation
28:20
Speaker 5: whipped in this country or no?
28:23
Speaker 8: You know, it's interesting you asked that question because recently
28:28
Speaker 8: true inflation truflation, which a bunch of bond traders introduced
28:32
Speaker 8: to me. They actually gave me the raw data. We
28:34
Speaker 8: ran a quick correlation. It's got a point ninety seven
28:37
Speaker 8: correlation with headline inflation, the headline CPI. Two times ago,
28:42
Speaker 8: true inflation hopped down underneath the FEDS two percent target.
28:46
Speaker 8: I said, well, what happened there? And it was mostly
28:48
Speaker 8: led by hotels. It was one sector. Last week it
28:51
Speaker 8: dropped down to one point four one point four percent YEP,
28:56
Speaker 8: And so I reached out to the founders of trueflation,
28:58
Speaker 8: I said, what gives what was that huge swing factor?
29:00
Speaker 8: Did I miss it did I fill up at the
29:02
Speaker 8: gas tank for a lot less and they said no, Danielle,
29:05
Speaker 8: ten out of twelve categories had appreciably large declines, meaning
29:11
Speaker 8: the disinflation that was a one off here or there
29:16
Speaker 8: has become extremely widespread. If you've got ten out of
29:19
Speaker 8: your twelve major categories more than three hundred million real
29:23
Speaker 8: time prices feed this monster model per day, with again
29:28
Speaker 8: a ninety seven percent correlation with headline CPI. I think
29:32
Speaker 8: that Pal's bigger impediment going into the second half of
29:38
Speaker 8: twenty twenty four might be larger rate cuts than he
29:42
Speaker 8: anticipates or would like, if inflation's coming down as quickly
29:47
Speaker 8: as it is.
29:47
Speaker 5: All right, Danielle, thank you so much for joining us.
29:49
Speaker 5: We always appreciate getting your input. Danielle di Martino Booth.
29:52
Speaker 5: She's the CEO and chief strategist at QI Research, joining
29:56
Speaker 5: us via Zoom from Big d Dallas, Texas. She was
29:59
Speaker 5: on the Fed Dallas fed down there years past. A
30:03
Speaker 5: great perspective there. We appreciate chatting with her.
30:07
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
30:11
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30:15
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30:18
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30:21
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30:26
Speaker 5: Just talk about the real company out there, Element Solutions.
30:31
Speaker 5: Ben Glicklich joins us. He's the CEO of Element Solutions.
30:34
Speaker 5: He joins us live here on our Bloomberg Interactive Broker Studio.
30:37
Speaker 5: We appreciate you're based done in Fort Lauderdale in Miami.
30:40
Speaker 1: Nice.
30:40
Speaker 2: Why are you here?
30:41
Speaker 6: Yeah, well in Miami because everybody's is it going crazy
30:44
Speaker 6: down there?
30:45
Speaker 4: What is it?
30:45
Speaker 6: I mean, is it just nuts with all these people
30:47
Speaker 6: coming down.
30:47
Speaker 9: There's a ton of energy.
30:48
Speaker 6: It's a great place to live and work.
30:51
Speaker 9: For better or worse. I'm on the road three months,
30:53
Speaker 9: three weeks out of the month because the business is
30:55
Speaker 9: very global.
30:56
Speaker 2: Just for background. Paul wants to be there, like he
30:57
Speaker 2: wants to move to Florida. He wants to do the
30:59
Speaker 2: show from there.
31:00
Speaker 6: Exactly. I talked to us about Elements Solutions. I know
31:03
Speaker 6: you guys are in. Just tell us about your company,
31:05
Speaker 6: what you do, and then we'll go from there.
31:07
Speaker 4: Great. So.
31:07
Speaker 9: Element Solutions is a provider of chemical technology that enables
31:11
Speaker 9: high performance applications so our materials and process solutions are
31:15
Speaker 9: used in manufacturing high value products from semiconductors to smartphones
31:19
Speaker 9: to high performance autom So.
31:21
Speaker 5: Your customers are technology companies primarily.
31:23
Speaker 9: So our customers are technology supply chains. Technology supply we're
31:27
Speaker 9: we're selling to printed circuit board manufacturers, semiconductor manufacturers, it's
31:31
Speaker 9: very fragmented below the original equipment manufacturers that make the
31:34
Speaker 9: smartphones in the cars. So we're a critical enabler of
31:38
Speaker 9: their technologies, but we're not selling directly to them.
31:40
Speaker 2: So you're not making like plastic for the end user
31:44
Speaker 2: kind of thing either, because usually, like what I love
31:46
Speaker 2: about chemicals is that is that really closed early cycle
31:49
Speaker 2: read on the global economy, right, like what air Products
31:51
Speaker 2: is doing when relationship telling me about China, that's not you, guys.
31:54
Speaker 9: So we're selling critical components that enable performance of high
32:00
Speaker 9: value products. So we do have a read on what
32:04
Speaker 9: the next generation smartphone is going to look like. We
32:07
Speaker 9: have a read on trends in automotive and other electronics
32:10
Speaker 9: and markets.
32:11
Speaker 6: How did you find yourself to this business. It's a
32:14
Speaker 6: fantastic business.
32:17
Speaker 5: I'll take your word for it, but I mean it's
32:18
Speaker 5: not something I would have thought about just off.
32:20
Speaker 6: You have to been dropped in there somehow.
32:23
Speaker 9: So better lucky than good, I would say. I partnered
32:26
Speaker 9: with our chairman, Sir Martin Franklin, who's been very successful
32:29
Speaker 9: building multiple different businesses, and together through acquisitions, we've built
32:33
Speaker 9: this portfolio of market leading companies.
32:36
Speaker 5: Doesn't when I think chemical company, I don't think South Beach, true,
32:40
Speaker 5: I think like Cleveland, What are you doing in South Beach?
32:43
Speaker 7: Not that?
32:44
Speaker 6: Or Miami? What's no reason not to be there? Everybody
32:46
Speaker 6: else is.
32:47
Speaker 9: So we are there because it's as good of a
32:51
Speaker 9: place as any, and our business is very dispersed. We
32:53
Speaker 9: have one hundred and sixty locations in over thirty countries,
32:56
Speaker 9: more than sixty manufacturing sites, and so my job is
32:59
Speaker 9: to make sure that our folks are working on the
33:01
Speaker 9: right things with the right incentives. And so I'm traveling
33:04
Speaker 9: as chief cheerleader to visit our people all over the
33:07
Speaker 9: world most of my time, and coming home to Florida
33:11
Speaker 9: is in such.
33:11
Speaker 6: A bet that's not a bad thing.
33:12
Speaker 5: And so public and traded company EESI is the ticker
33:15
Speaker 5: for those playing at home, it's up. I guess it's
33:18
Speaker 5: got a market cap about five and a quarter billion,
33:20
Speaker 5: dollars on a trailing twelve month basis up at about two percent,
33:23
Speaker 5: and you're to date off about six percent. What's the
33:25
Speaker 5: message you bring to your shareholders? You're in New York,
33:27
Speaker 5: I'm sure you're seeing some shareholders as well. What's the
33:30
Speaker 5: message for your company?
33:32
Speaker 9: So this business has come off of a difficult demand
33:35
Speaker 9: environment in twenty twenty three, Electronics markets drew down significantly,
33:40
Speaker 9: the global industrial economy stuttered a little bit. And as
33:44
Speaker 9: we enter twenty twenty four, we manage twenty three well,
33:47
Speaker 9: preserve profits, made some great capital allocation decisions to position
33:51
Speaker 9: the business well for growth, and our end markets are
33:53
Speaker 9: getting better. Semiconductor markets are improving, Electronics markets are improving,
33:57
Speaker 9: So we're well positioned for you know, several years here
34:00
Speaker 9: of above cycle above cycle average growth.
34:04
Speaker 2: Is that an inventory thing or is it an end
34:06
Speaker 2: user demand thing? I mean just restocking inventory At this point.
34:09
Speaker 6: It's an end user demand thing.
34:11
Speaker 9: We did have a drawdown of channel inventories post COVID.
34:14
Speaker 9: There was a bullwhip effect. Electronics were overbought by the
34:18
Speaker 9: supply chain in twenty twenty one into twenty twenty two.
34:20
Speaker 9: There was a big inventory clearance in twenty twenty three,
34:23
Speaker 9: and now we're starting to see semiconductor production increase. We're
34:27
Speaker 9: starting to see new smartphone models gaining traction. Our story
34:31
Speaker 9: is not just one of units, it's content per unit,
34:34
Speaker 9: and so the more technically challenging, the more robust the application,
34:37
Speaker 9: the more value for a company like ours. And so
34:40
Speaker 9: we're going to grow over and above units through the cycle,
34:44
Speaker 9: and unit growth is poised to recover nicely here.
34:46
Speaker 5: So I'm just looking at the FA function on the
34:49
Speaker 5: Bloomberg terminal financial analysis. It looks like the street's got
34:51
Speaker 5: kind of mid single digit kind of revenue growth over
34:54
Speaker 5: the next several years, mid teens EPs growth. So it
34:56
Speaker 5: some operating leverage in your business model? Is is that
35:00
Speaker 5: what you're telling investors to buy or do you also say, hey,
35:03
Speaker 5: this is also a fragmented business and if we see
35:05
Speaker 5: things out there to buy to maybe goose our growth rate,
35:08
Speaker 5: we'll do that.
35:09
Speaker 6: How do you think about that?
35:09
Speaker 9: So the answer is yes, in the first instance, the
35:12
Speaker 9: business's asset light. It generates incredibly strong cash flows. So
35:15
Speaker 9: our moat isn't in manufacturing process, it's in technology and people,
35:21
Speaker 9: and so we don't have to invest a lot of
35:22
Speaker 9: capital in order to drive the business's growth, and then
35:24
Speaker 9: we're able to find very interesting things to do with
35:27
Speaker 9: that strong cash flow. So we've been very inquisitive in
35:29
Speaker 9: our history, and we doubled our adjuster learnings per share
35:32
Speaker 9: in our first three years as a public company. We
35:34
Speaker 9: set a goal to do that in five years. We
35:35
Speaker 9: set another goal to double it again in five years,
35:37
Speaker 9: and we're in the middle of that process right now.
35:39
Speaker 9: The goal is to compound EPs in the teens.
35:42
Speaker 2: So what about the what about the input side? Like
35:46
Speaker 2: it sounds like you're trying to run pretty lean, but
35:48
Speaker 2: we still definitely see inflation kind of all around. Any
35:51
Speaker 2: kind of manufacturing is going to get hit by that.
35:53
Speaker 2: And I appreciate that you're sort of on a different scale,
35:56
Speaker 2: But what do you see.
35:57
Speaker 9: So we've had inflation over the past several years, started
36:00
Speaker 9: to stem big inflation, and logitition copper to stop a
36:05
Speaker 9: little bit of both. So logistics have plateaued. They're starting
36:08
Speaker 9: to come in a little bit. But with some of
36:10
Speaker 9: the disruptions in global supply chains, we're starting to see
36:12
Speaker 9: a bit of pressure there. Raw material price inflation has
36:15
Speaker 9: slowed down. We're starting actually to see some deflation. As
36:19
Speaker 9: a company we're able to take price from customers when
36:22
Speaker 9: our costs increase and typically able to hold that and
36:26
Speaker 9: so margins have gotten better in the back half of
36:28
Speaker 9: twenty twenty three and we expect that to continue in
36:30
Speaker 9: twenty twenty four.
36:32
Speaker 5: So you recently acquired a company, a new science, a
36:36
Speaker 5: new copper science company.
36:38
Speaker 6: What is that?
36:39
Speaker 9: So this is a really exciting opportunity. There aren't big
36:43
Speaker 9: step change breakthroughs in material science in our markets. What
36:47
Speaker 9: used to work typically works with small modifications. Okay, we
36:50
Speaker 9: acquired a business called Couprion that has a product called
36:53
Speaker 9: active copper, which is nano particular copper. That is a
36:57
Speaker 9: new mechanism to enable next generation electronics. If you think
37:01
Speaker 9: about your smartphone, it's computing power is getting greater through
37:04
Speaker 9: smaller lines on the circuit board and smaller holes connecting
37:08
Speaker 9: the layers of the circuit board, and conventional material science
37:11
Speaker 9: struggles to deal with those technical challenges. Coupriyon is a
37:16
Speaker 9: solution for that. So it's got huge potential. We've got
37:19
Speaker 9: great customer engagement. It's a very very exciting story, not
37:23
Speaker 9: just for our company, but for our customers.
37:25
Speaker 2: In a broader sense. The smartphone trough like the electronics
37:29
Speaker 2: trough you were mentioning, sort of we had a lot
37:31
Speaker 2: of buying and then that came down during the pandemic.
37:33
Speaker 2: Now and then we're sort of have we troughed? Are
37:35
Speaker 2: we going to see a meaningful acceleration over the next say,
37:38
Speaker 2: eighteen months? So yeah, cause it is Paul going to
37:41
Speaker 2: buy a new phone. That's twelve physicists, I'm an eleven. Yeah,
37:45
Speaker 2: it's fine, okay, so speak to me about.
37:48
Speaker 9: Yeah, there's so the smartphone mark we call the bottom
37:53
Speaker 9: in broader electronics in the second quarter, and we saw
37:56
Speaker 9: recovery in the back half. The slope of that recovery
37:59
Speaker 9: is uncertain, but the long term legs of increased technical
38:04
Speaker 9: requirements for electronics are very very long running, and the
38:08
Speaker 9: smartphone replacement cycle has extended, and smartphone saturation of the
38:12
Speaker 9: market is getting there. We troth from a unit's perspective,
38:16
Speaker 9: in twenty twenty three, we'll see unit growth in twenty
38:17
Speaker 9: twenty four, we expect that, but we're starting to gear
38:20
Speaker 9: up for.
38:20
Speaker 6: The next thing.
38:21
Speaker 9: The next thing is enabled by AI, right, so more
38:24
Speaker 9: computing power proliferating around the edge of the network has
38:27
Speaker 9: very very high technical demands and We're not capacitated by
38:33
Speaker 9: the number of people on Earth when it comes to AI, right,
38:36
Speaker 9: the number of smartphones is kind of driven by the
38:38
Speaker 9: number of people walking around AI. You know, Industrial automation
38:42
Speaker 9: is not capped by that, and as we get autonomous
38:45
Speaker 9: factories and autonomous cars, there's just more and more application
38:49
Speaker 9: space for high performance electronics, which is great for our company.
38:53
Speaker 6: Thirty seconds, who you compete with?
38:55
Speaker 9: We've got great competitors, but diverse competitors. We're the only
39:01
Speaker 9: company in our market that can speak to the breadth
39:03
Speaker 9: of electronics applications that that we have in our portfolio.
39:07
Speaker 9: So we compete a bit with DuPont. We compete with
39:09
Speaker 9: a company called at Tech that's part of MKAS Group.
39:12
Speaker 9: We've got local competitors and markets like Japan and China.
39:15
Speaker 9: It's a competitive market, but our ability to provide value
39:19
Speaker 9: to customers through materials compatibility and a broad product offering
39:23
Speaker 9: is unrivaled.
39:24
Speaker 6: See I was trying to figure out how he got
39:26
Speaker 6: to where he is now. I figured it out and
39:29
Speaker 6: investment banking to private equity. Then he says, screw this,
39:32
Speaker 6: I'm going to go and do it myself.
39:34
Speaker 5: And he went to like a real industry and get
39:36
Speaker 5: a real job that makes stuff.
39:37
Speaker 6: I've seen that route before. A lot of success.
39:39
Speaker 2: Industry is really fun.
39:41
Speaker 6: Yeah, really like I'm not just going to bank these people.
39:43
Speaker 6: I'm gonna go do it.
39:44
Speaker 5: Ben Glicklich, CEO of Element Solutions, appreciate you coming in
39:48
Speaker 5: here into our studio. It's a fascinating company. Never would
39:51
Speaker 5: have thought about it. I learned something new today Element Solutions.
39:53
Speaker 5: You need all the chemical stuff for the tech and
39:55
Speaker 5: the chips and all that kind.
39:56
Speaker 6: Of stuff, and there are people that do that for
39:58
Speaker 6: a living. That's good.
40:00
Speaker 4: Up.
40:00
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