Latest / Bloomberg Intelligence / BI Weekend: Disney, Palantir Earnings, Musk Stock Award

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BI Weekend: Disney, Palantir Earnings, Musk Stock Award · Bloomberg Intelligence

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  Speaker 2: hundred and thirty industries our analysts cover worldwide. Today, we'll
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  Speaker 2: look at why Volunteer Technologies reported its biggest ever quarterly
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  Speaker 2: sales growth since the company went public.
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  Speaker 4: Plus, we'll look at how the fast food Jay McDonald's
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  Speaker 4: returned to sales growth last quarter.
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  Speaker 2: But first we begin with earnings from the median entertainment
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  Speaker 2: giant Walt Disney.
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  Speaker 4: This week, Disney shares fell after the company gave a
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  Speaker 4: mixed earnings report in the third quarter. The results, well,
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  Speaker 4: they showed strength in Disney streaming and parks business, but
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  Speaker 4: the company gave a lukewarm outlook for profit this year.
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  Speaker 2: For more guest hosts, Isabelle Lee and I rejoined by
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  Speaker 2: Keitha Rong Onathan Bloomberg Intelligence Analysts on US media. We
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  Speaker 2: first asked Etha what exactly concerns investors about Disney.
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  Speaker 5: You know, expectations might have been, you know, slightly high,
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  Speaker 5: and the fact that they didn't necessarily give us any
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  Speaker 5: specific guidance for fiscal twenty twenty six. They did point
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  Speaker 5: to a raised guidance for EPs growth for fiscal twenty
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  Speaker 5: twenty five eighteen percent now and sort of sixteen percent,
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  Speaker 5: but they didn't necessarily give us anything specific for fiscal
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  Speaker 5: twenty twenty six. That could be a slight source of disappointment.
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  Speaker 5: They did say that they will stop disclosing Disney plusses
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  Speaker 5: criber numbers, but again this is not something totally unexpected.
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  Speaker 5: I mean, Netflix has stopped doing this. We're seeing this
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  Speaker 5: kind of move away from just subscriber numbers to a
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  Speaker 5: greater focus and profitability.
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  Speaker 6: I want to zero in on parks because I'm still
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  Speaker 6: scarred by how expensive it was when I visited a
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  Speaker 6: couple of years ago as an adult. But how sustainable
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  Speaker 6: is there strong parks performance given the divergent domestic and
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  Speaker 6: international performance.
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  Speaker 5: Very sustainable isabell. So, you know, we saw domestic parks,
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  Speaker 5: and I say that because you know, domestic parks actually
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  Speaker 5: coming into this year, coming into this quarter, there were
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  Speaker 5: a lot of worries, one of course, about the general
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  Speaker 5: macroeconomic environment, but the bigger source of worry was really
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  Speaker 5: the opening of Epic Universe, which is you know, Universal's
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  Speaker 5: big Florida theme parket traction. But the fact that it
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  Speaker 5: had absolutely no impact at all, or very very modest impact,
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  Speaker 5: if at all, is really amazing, and it just kind
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  Speaker 5: of speaks to the resilience in Disney's business model. They
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  Speaker 5: reported again very very strong per capita growth, you know,
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  Speaker 5: in terms of food beverages, in terms of concessions. So
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  Speaker 5: all of that doing really well, and the reason I'm
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  Speaker 5: so positive about this business going forward. First of all
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  Speaker 5: it contributes about fifty five to sixty percent of Disney profits.
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  Speaker 5: Are really really important to their top line, to their
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  Speaker 5: bottom line. Definitely. They have a lot of upcoming capacity,
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  Speaker 5: So the biggest source of expansion over the next few
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  Speaker 5: months is really going to be their cruise ships. They're
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  Speaker 5: launching two new cruise ships, their biggest ever actually, which
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  Speaker 5: is going to come on board in November and December.
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  Speaker 5: One of them sets sail from Asia and that basically
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  Speaker 5: takes the number of cruise ships to eight cruise ships,
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  Speaker 5: effectively kind of doubling their capacity in a span of
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  Speaker 5: just maybe two to three years. So that is going
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  Speaker 5: to really buoy both top line and bottom line going
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  Speaker 5: into twenty twenty six. And then beyond that, you really
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  Speaker 5: have this huge sixty billion capital expansion plan that is
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  Speaker 5: really going to play out over the next five to
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  Speaker 5: ten years. So we're going to see a lot more
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  Speaker 5: attractions all over the world. We're going to see that
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  Speaker 5: new Abu Dhabi park come out. So there is really
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  Speaker 5: a lot of you know, sustained momentum that we can
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  Speaker 5: expect at the parks going forward.
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  Speaker 2: Keith It talk to us about that deal they just
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  Speaker 2: made with the NFL it seems like a really positive
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  Speaker 2: development for the company.
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  Speaker 5: Yeah, it's really good. I think from a Disney from
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  Speaker 5: an ESPN standpoint, that they're so closely aligned now with
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  Speaker 5: the NFL. I mean, the NFL is absolutely the premium property,
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  Speaker 5: the gold standard, Paul, you know this well when it
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  Speaker 5: comes to you know, sports properties in the US. And
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  Speaker 5: the fact now that they're going to be able to
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  Speaker 5: use all of this content for their upcoming ESPN streaming launch,
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  Speaker 5: I mean that that itself just kind of gives it
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  Speaker 5: a tremendous boost, I think even before you know it
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  Speaker 5: comes on board. So it's great for the product. It's
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  Speaker 5: also great from a strategic standpoint because the NFL is
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  Speaker 5: obviously one of the most important sports properties, and this
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  Speaker 5: really gives them access or it at least definitely gives
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  Speaker 5: them a little bit of an advantageous position compared to
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  Speaker 5: let's say, an Amazon or a Netflix or an Apple
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  Speaker 5: if they want to ever outbid you know, the current
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  Speaker 5: media partners. So definitely, I think strategically, very very sound
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  Speaker 5: move on the part of Disney.
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  Speaker 6: So it seems like we had a good quarter. Runway
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  Speaker 6: for growth is really just long and wide. What downside
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  Speaker 6: risks remain then, especially around the macro uncertainty and tiriff exposure.
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  Speaker 5: Do you see, Yeah, maybe a little bit of execution risks.
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  Speaker 5: So we still really don't know how this hole. I mean,
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  Speaker 5: obviously everybody's very excited for the ESPN product launch, but
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  Speaker 5: we still don't know how exactly that's going to play out. Again,
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  Speaker 5: a huge source of upside is going to be the
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  Speaker 5: streaming business. Everybody is expecting huge cost savings when it
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  Speaker 5: comes to the integration of Hulu and Disney Plus. But
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  Speaker 5: again execution is a little bit of a risk. And
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  Speaker 5: then you pointed out, you know, macro factors. Remember, Disney
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  Speaker 5: still obviously has huge exposure because of its parks business,
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  Speaker 5: and anytime we see kind of a slowdown in the economy,
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  Speaker 5: we do feel that in the parks as well. And
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  Speaker 5: of course advertising also, so you know, they do have
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  Speaker 5: a substantial exposure to advertising because of their TV networks business.
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  Speaker 5: So there again we can see a little bit of
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  Speaker 5: an impact. But overall, as it stands right now, the
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  Speaker 5: business seems to be in really good shape all right here.
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  Speaker 2: The problem childs though, are the podcast networks in the
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  Speaker 2: cable networks. What you know, just because of cord cutting,
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  Speaker 2: that they're just declining businesses. What's the company saying that
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  Speaker 2: what we're going to do with those businesses.
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  Speaker 5: They haven't said anything explicitly, Paul. So a few years ago,
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  Speaker 5: you know, this idea was floated that maybe they kind
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  Speaker 5: of spin off ABC their broadcast network, maybe they spin
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  Speaker 5: off their linear cable channels, all of that. You know,
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  Speaker 5: noise has kind of quietened down. You know, Bob Biger
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  Speaker 5: basically said, no, no, no, we need these businesses. They're
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  Speaker 5: all kind of integral to the whole Disney story. So
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  Speaker 5: we haven't heard anything recently that being said. Just this
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  Speaker 5: whole deal with the NFL, the NFL kind of taking
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  Speaker 5: an equity stake, it almost seems like they are prepping
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  Speaker 5: for ESPN to kind of ESPN and maybe ABC to
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  Speaker 5: kind of coast solo. Remember, Bob Biger only has a
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  Speaker 5: few more months left, so the end of twenty twenty
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  Speaker 5: six he leaves Disney, or at least that's what he says. Yeah,
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  Speaker 5: we think, and I really think he kind of wants
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  Speaker 5: to get this deal done so to separate es because
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  Speaker 5: it's not really core to the rest of the Disney properties.
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  Speaker 5: But again, it's a little bit of a weight and watch,
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  Speaker 5: but nothing explicitly stated from Disney management about what they
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  Speaker 5: want to do with the linear piece of the business.
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  Speaker 6: So ESPN is getting a fresh spin. Within August twenty
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  Speaker 6: one launch, it will be thirty dollars a month for
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  Speaker 6: the new streaming app. What do you make of that price?
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  Speaker 6: You think people will pay up for it or is
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  Speaker 6: that steep?
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  Speaker 5: It's a high price point, There's no doubt about it.
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  Speaker 5: I think most people were kind of expecting somewhere in
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  Speaker 5: the twenty three to twenty five dollars range. That said,
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  Speaker 5: what you know, we just ran a survey actually at
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  Speaker 5: Bloomberg Intelligence, and what we found is that there's actually
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  Speaker 5: a lot of interest in this product. So we think
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  Speaker 5: that the updake will be fairly strong. And the updake
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  Speaker 5: not so much as a standalone product, but when you
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  Speaker 5: bundle it with Disney Plus and Hulu, so they are
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  Speaker 5: running a pretty attractive promotion. So for the first year,
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  Speaker 5: you can get Disney Plus, Hulu and ESPN at a
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  Speaker 5: thirty to thirty dollars price point, which which seems like
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  Speaker 5: really good value. So I think we're going to see
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  Speaker 5: a lot of people come in initially through the bund
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  Speaker 5: at least.
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  Speaker 4: Our thanks to Githa Ranganath and Bloomberg Intelligence analyst on
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  Speaker 4: US media.
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  Speaker 2: We move next to recent news from the beverage company
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  Speaker 2: Molson Cores.
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  Speaker 4: This week, the company lowered its full year guidance for
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  Speaker 4: the second quarter in a row. It cited continued pressure
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  Speaker 4: from a week consumer, falling US market share, and rising
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  Speaker 4: costs tied to aluminum tariffs.
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  Speaker 2: For more, Lisa and I were joined by Ken Shay,
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  Speaker 2: Bloomberg Intelligence senior consumer products analysts. We first asked Ken
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  Speaker 2: just how much aluminum tariffs have been impacting Molson.
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  Speaker 3: Course, it's material, you know, they describe it as an
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  Speaker 3: indirect cost, but it really spiked up there in the quarter,
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  Speaker 3: you know, encroaching on their margin. I think though the
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  Speaker 3: bigger picture though here is the continued week sales, the
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  Speaker 3: lackluster sales were seeing in the US beer market and
• 8:45
  Speaker 3: alcoholic beverages in general. You know, this is their peak
• 8:48
  Speaker 3: summer selling season. This is when you know these companies
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  Speaker 3: should be thriving, and it looks like the summer selling
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  Speaker 3: season in the US for alcoholic beverages is going to
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  Speaker 3: be a dud. It's a cautious consumer, it's a particular
• 9:03
  Speaker 3: pressures on the Hispanic demographic. It's it was a lousy
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  Speaker 3: June in terms of the weather and key markets, and
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  Speaker 3: basically all the big brewers are setting up for a
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  Speaker 3: tough second half as you know, these trends continue. You know,
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  Speaker 3: I expect continued sluggish performance in the second half as well.
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  Speaker 2: So is this beer thing? Is it the kind of
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  Speaker 2: a global thing? I mean, I know, you guys at
• 9:27
  Speaker 2: Bloomberg Intelligence, you get the data that choose consumption of
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  Speaker 2: everything out there.
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  Speaker 3: In the case of most in course, Paul, yeah, they
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  Speaker 3: have a big operation in Europe, Eastern Europe, many parts
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  Speaker 3: of Western Europe, and that they had lower volumes as well.
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  Speaker 3: It was saved by higher prices to a degree. But
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  Speaker 3: you know, again the big picture is that consumers are
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  Speaker 3: just not going out to the bars as much. On
• 9:49
  Speaker 3: premise sales, we're particularly weak. That could be weather related,
• 9:52
  Speaker 3: I mean, that's just another example, but also I think
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  Speaker 3: it could be, you know, the culmination of a lot
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  Speaker 3: of price increases over the last few years. Maybe we've
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  Speaker 3: hit a point where there's some sticker shot going on here.
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  Speaker 4: And what about people drinking he said, not going to
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  Speaker 4: the bar, But what about just drinking less alcohol in general.
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  Speaker 3: Well, that's a great point, least, I think longer term,
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  Speaker 3: you have some secular headwinds as well, things you've talked
• 10:17
  Speaker 3: about in the past. You know, the spread of legal cannabis,
• 10:20
  Speaker 3: particularly here in the US. In the US, you also
• 10:23
  Speaker 3: have these intoxicating hemp drinks which are all the rage
• 10:26
  Speaker 3: now in many markets. You have the GLP one users
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  Speaker 3: are cutting back. Gen Z doesn't seem to embrace alcohol
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  Speaker 3: as much as their parents did. All those things are
• 10:35
  Speaker 3: weighing on it longer term, but that, combined with some
• 10:38
  Speaker 3: near term pressures, is really weighing on these companies.
• 10:41
  Speaker 2: It's a disappointing discussion here. I mean, not that we're
• 10:44
  Speaker 2: gonna have fun here. I'll tell you here's the problem
• 10:47
  Speaker 2: with all this white claw and sea breeze and I
• 10:50
  Speaker 2: don't know what you know, the iced tea and vodka,
• 10:52
  Speaker 2: what's that all about?
• 10:53
  Speaker 5: Is that a fad?
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  Speaker 3: It seems to have some legs there, you know, the
• 10:56
  Speaker 3: pre mixed cocktails. Well, let me put it this way.
• 10:58
  Speaker 3: With some of the things that did l in the
• 11:00
  Speaker 3: quarter are things like bush light apple, you know, some flavor.
• 11:07
  Speaker 3: You know, some of the hard teas are doing well.
• 11:09
  Speaker 3: The premixes continue to do well, So I think the
• 11:12
  Speaker 3: way you could take away is maybe the consumer, while
• 11:15
  Speaker 3: you know economizing, is also looking for a flavor and
• 11:18
  Speaker 3: different variety. And also the non alcoholic and low alcoholic
• 11:21
  Speaker 3: segment continues to do well from a low base. So
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  Speaker 3: I think in the second half I would expect a
• 11:27
  Speaker 3: higher level of promotion and innovation along those themes low
• 11:33
  Speaker 3: alcohol and no alcohol flavor innovation that's going to be
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  Speaker 3: really popular. I think in the second half the super volume.
• 11:40
  Speaker 4: Hey, before you go, can you break down some of
• 11:42
  Speaker 4: those macro economic headwinds that the company's facing.
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  Speaker 3: Sure, well, they The primary one is just you know,
• 11:49
  Speaker 3: consumer confidence. Consumers just feel you know, they're reading the
• 11:52
  Speaker 3: papers all these you know, tire fund certainties, and you
• 11:56
  Speaker 3: know the pressure on the Hispanics in particular, what's going
• 11:59
  Speaker 3: on there. Those are the big things, you know, And
• 12:02
  Speaker 3: I don't think it's anything major, but it's it's just
• 12:04
  Speaker 3: enough on the margin that these are purchases that can
• 12:06
  Speaker 3: be deferred and consumers by and large r.
• 12:11
  Speaker 4: A our thanks to Kenhey Bloomberg Intelligence senior consumer products analysts.
• 12:14
  Speaker 4: Coming up, we'll look at earnings from one of the
• 12:16
  Speaker 4: world's biggest producers of heavy machinery Caterpillar.
• 12:20
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  Speaker 2: I'm Lise Matteo and I'm Paul Sweeney. This is Bloomberg.
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  Speaker 4: I'm Paul Sweeney and I'm Lice Matteo. Filling in on
• 12:54
  Speaker 4: Bloomberg Intelligence.
• 12:55
  Speaker 2: Move now to earning from the software company Palaneer Technologies.
• 12:59
  Speaker 4: This week, palente reported its biggest ever quarterly sales growth
• 13:02
  Speaker 4: since the company went public, and Palenteer cited astonishing impact
• 13:06
  Speaker 4: of artificial intelligence technology on its business.
• 13:09
  Speaker 2: For more, Lisa and I were joined by Mandeep saying
• 13:11
  Speaker 2: Bloomberg Intelligence, senior tech industry analyst. We first asked man
• 13:15
  Speaker 2: Deep if Palenteer should be considered a dominant software company
• 13:18
  Speaker 2: of the future.
• 13:19
  Speaker 7: I mean, clearly there is a lot baked into the valuation,
• 13:23
  Speaker 7: But I want to focus on, you know, the net
• 13:27
  Speaker 7: new ERR, which is a metric that software companies are
• 13:31
  Speaker 7: measured on. And when you compare Palenteers commercial segment revenue,
• 13:36
  Speaker 7: which everyone is excited about, their total deal value that's
• 13:42
  Speaker 7: remaining is around two point eight billion, the new ARR
• 13:46
  Speaker 7: increased by five hundred million. Contrast that with a Microsoft
• 13:51
  Speaker 7: or a Google Cloud. Microsoft added almost nine billion in
• 13:55
  Speaker 7: net new ARR this quarter, and they talked about, you know,
• 14:00
  Speaker 7: being used across one hundred million Microsoft Copilot users twenty
• 14:05
  Speaker 7: million GitHub Copilot users. So from that perspective, you know,
• 14:10
  Speaker 7: Balenteers increase in remaining deal value of five hundred million
• 14:14
  Speaker 7: looks pretty small. I mean, Palenteers overall revenue rund rate
• 14:19
  Speaker 7: is four billion. Microsoft clearly is you know, a company
• 14:24
  Speaker 7: that's almost one hundred times or eighty times more bigger
• 14:28
  Speaker 7: than Palenteer. But it just goes to show that even
• 14:32
  Speaker 7: on a net new AIRR basis, Microsoft is adding more
• 14:36
  Speaker 7: revenue per quarter than a Palenteer is. And still people
• 14:40
  Speaker 7: are very excited about Palenteers prospects. And to my mind, clearly,
• 14:45
  Speaker 7: you know, they have a product that is appealing to
• 14:48
  Speaker 7: a certain section of enterprise users. But at this valuation,
• 14:53
  Speaker 7: I mean, they can't sustain that for the next thirty
• 14:56
  Speaker 7: forty quarters, which is what they need to show to
• 15:00
  Speaker 7: grow into the evaluation. And I just don't see from
• 15:03
  Speaker 7: a product perspective they'll have the same kind of appeal
• 15:07
  Speaker 7: as a Microsoft Copilot or a Google Cloud or you know,
• 15:10
  Speaker 7: any of these large companies.
• 15:12
  Speaker 2: Some question today, how do you guys value this thing?
• 15:14
  Speaker 2: I mean, I got it at like two three hundred
• 15:16
  Speaker 2: times earning, So that's not the way to go.
• 15:18
  Speaker 7: So we've seen that with you know, new IPOs. When
• 15:21
  Speaker 7: they come to the market, they get a premium multiple.
• 15:24
  Speaker 7: They get traded at you know, thirty forty time sales.
• 15:27
  Speaker 7: Snowflake which is a competitor to Palenteer, when it went public,
• 15:32
  Speaker 7: it traded at sixty seventy time sales. Look at where
• 15:36
  Speaker 7: the stock is now. It's flat since the IPO. Even
• 15:39
  Speaker 7: though the company has grown top line at thirty thirty
• 15:42
  Speaker 7: five percent Kegger, the stock is flat. So that's what
• 15:46
  Speaker 7: I mean by growing into the valuation, because there is
• 15:50
  Speaker 7: so much embedded in that upfront multiple that even growing
• 15:54
  Speaker 7: at thirty percent is not enough. Palenteer really needs to
• 15:57
  Speaker 7: grow at fifty percent to be able to show any
• 16:00
  Speaker 7: sort of stock return from this point on, Can I
• 16:03
  Speaker 7: do that? No? I mean that's why I said I
• 16:05
  Speaker 7: compare the product. My initial comments were around comparing Palenteers
• 16:10
  Speaker 7: product versus other large enterprise software makers and even you know,
• 16:15
  Speaker 7: you go down the list Salesforce Service, now Adobe like,
• 16:20
  Speaker 7: these are much bigger companies and they have compounded at
• 16:23
  Speaker 7: twenty percent Keger over the years because they had a
• 16:26
  Speaker 7: seat base or a consumption based model. We don't even
• 16:30
  Speaker 7: know what kind of a business model Palenteer has. Yes,
• 16:33
  Speaker 7: it's winning government deals, Yes it's winning some enterprise deals,
• 16:37
  Speaker 7: but we don't know how they account for that revenue
• 16:40
  Speaker 7: every quarter. Is it a seat based model, is a
• 16:42
  Speaker 7: consumption base? We don't have that kind of visibility to
• 16:46
  Speaker 7: their business model.
• 16:48
  Speaker 2: In a Concter party, I can tell you the Google story,
• 16:51
  Speaker 2: I can tell you that Microsoft story. I have no
• 16:53
  Speaker 2: idea what the Palenteer story is. Can you explain it
• 16:56
  Speaker 2: to me like I'm a five year old?
• 16:57
  Speaker 7: Yeah, so their software out of the box will help
• 17:01
  Speaker 7: you make sense of your big data strategy. They really
• 17:05
  Speaker 7: curved out a name for themselves when big data became
• 17:09
  Speaker 7: the thing. When a company had a large amount of data,
• 17:13
  Speaker 7: whether it's log data or some other type of reporting data,
• 17:17
  Speaker 7: they would help you make sense of it because they
• 17:19
  Speaker 7: have something proprietary that no one else has in terms
• 17:23
  Speaker 7: of organizing that data and making it usable. So that's
• 17:27
  Speaker 7: their value proposition. But with the AI wave and llms,
• 17:32
  Speaker 7: they were able to integrate LLM calls within their offering
• 17:36
  Speaker 7: to develop a customer service or a supply chain use
• 17:40
  Speaker 7: case that you can apply AI on top of their ontology,
• 17:44
  Speaker 7: which is their core product. And a lot of other
• 17:47
  Speaker 7: companies are doing the same. To my mind, Microsoft is
• 17:49
  Speaker 7: doing the same for their customers. They're trying to embed
• 17:53
  Speaker 7: open AI with their core offerings with their CRM system
• 17:57
  Speaker 7: and help them deploy customer service use case. So the
• 18:01
  Speaker 7: differentiation of Balenteer versus Microsoft, to my mind is not
• 18:05
  Speaker 7: that big as the valuation reflects. And that's where I'm
• 18:08
  Speaker 7: betting they're not going to grow fifty percent for the
• 18:12
  Speaker 7: next twelve to twenty quarters, which is what the valuation
• 18:15
  Speaker 7: is implying.
• 18:16
  Speaker 4: Now, how would you compare what they do as far
• 18:18
  Speaker 4: as a government contractor versus the commercial side, like which
• 18:21
  Speaker 4: is doing better for them?
• 18:23
  Speaker 7: Yeah, so they have a much higher exposure to government side.
• 18:26
  Speaker 7: I mean, government side is still more than fifty percent
• 18:28
  Speaker 7: of their revenue, and all these large enterprise software companies
• 18:32
  Speaker 7: they have ten to fifteen percent government exposure. So Palenteer's
• 18:36
  Speaker 7: government exposure is way too large compared to other software makers.
• 18:42
  Speaker 7: And on top of that, their international sales seem to
• 18:45
  Speaker 7: be declining at least, you know, on the commercial side
• 18:49
  Speaker 7: because of the polarizing views of the management. So if
• 18:53
  Speaker 7: they were more balanced, probably they would win more international business.
• 18:57
  Speaker 7: But right now this is a US centric story, and
• 19:00
  Speaker 7: that's where I think it sort of puts a dent
• 19:03
  Speaker 7: to the growth rate down the line once they run
• 19:06
  Speaker 7: out of the deals that they currently have signed.
• 19:09
  Speaker 4: Our thanks to Man Deep, saying Bloomberg Intelligence senior tech
• 19:12
  Speaker 4: industry analyst.
• 19:13
  Speaker 2: We look next at earnings from one of the world's
• 19:15
  Speaker 2: biggest producers of heavy machinery, Caterpillar. This week, the company
• 19:19
  Speaker 2: posted qually earnings that missed analyst expectations.
• 19:22
  Speaker 4: Caterpillar also said it now expects full year adjusted operating
• 19:25
  Speaker 4: profit to fall in the bottom of its annual target range,
• 19:28
  Speaker 4: even with higher annual sales and the companies that it
• 19:30
  Speaker 4: expects to face net incremental tariffs on one point three
• 19:34
  Speaker 4: to one point five billion dollars this year.
• 19:36
  Speaker 2: For more, Lisa and I were joined by Chris Gielino,
• 19:38
  Speaker 2: Bloomberg Intelligence senior US machinery analyst. We first asked Chris
• 19:42
  Speaker 2: to discuss his takeaways from Caterpillar's earnings.
• 19:46
  Speaker 8: The print was a little weak. It came in a
• 19:47
  Speaker 8: little below expectations. The big takeaway here is that underlying
• 19:51
  Speaker 8: demand is still pretty darn resilient. You had backlog ubsequentially
• 19:56
  Speaker 8: again this quarter, which set another record. You had improving
• 19:59
  Speaker 8: order trad across all three of their main businesses. Dealer
• 20:03
  Speaker 8: inventories still remain quite low, and the company actually raise
• 20:06
  Speaker 8: their sales guidance for the year. So you know, that
• 20:09
  Speaker 8: seems to suggest us that underlying demand is still intact
• 20:12
  Speaker 8: despite all these these tariff headwinds.
• 20:15
  Speaker 4: And now, how do their results kind of match up
• 20:17
  Speaker 4: to some of their their peers. They believe there's Terex Lindsay,
• 20:21
  Speaker 4: who already opened their books. How does Caterpillar match up?
• 20:24
  Speaker 8: Yeah, I characterized the overall earning season for for US
• 20:27
  Speaker 8: machinery is kind of mixed if you think about really
• 20:31
  Speaker 8: construction peers, which which is kind of more Caterpillars sweet spot.
• 20:37
  Speaker 8: That's a market that's you know, kind of bouncing along
• 20:39
  Speaker 8: the bottom.
• 20:40
  Speaker 7: Here.
• 20:41
  Speaker 8: We do have you know, infrastructure projects and these large
• 20:45
  Speaker 8: meggat projects which are helping to offset some of the
• 20:48
  Speaker 8: weakness that you're seeing on the private, non residential side,
• 20:51
  Speaker 8: things that are more interest rate sensitive. But you know,
• 20:54
  Speaker 8: you're starting to see some positive indicators that would you know,
• 20:57
  Speaker 8: lead us to believe that you're going to start to
• 20:58
  Speaker 8: see a cycle clover emerge in twenty twenty six. There's
• 21:02
  Speaker 8: a number of you know, leading indicators out there that
• 21:04
  Speaker 8: would support that. And I think really Caterpillars results here
• 21:08
  Speaker 8: with orders being up in the construction business, with the
• 21:10
  Speaker 8: backlog being up, really kind of reinforced that view.
• 21:14
  Speaker 2: Where does Caterpillar make their big trucks and stuff like
• 21:18
  Speaker 2: that everywhere?
• 21:19
  Speaker 8: Right, They're they're a global company. They've got a large
• 21:22
  Speaker 8: footprint that spans you know, every continent in you know,
• 21:27
  Speaker 8: most countries. But if you think about it, at the
• 21:29
  Speaker 8: end of the day, it's North America, right, it's more
• 21:32
  Speaker 8: than half of their revenues. Europe is called it, you know,
• 21:35
  Speaker 8: twenty percent, ish Asia Pacific a little bit below that,
• 21:39
  Speaker 8: and then you know Latin America is kind of closer
• 21:41
  Speaker 8: to ten percent. They are a net exporter out of
• 21:44
  Speaker 8: the US, but as we saw, Tariff's probably going to
• 21:47
  Speaker 8: be a little bit more of a head wind they
• 21:49
  Speaker 8: than they had initially anticipated. They're looking for, you know,
• 21:52
  Speaker 8: somewhere between a one point three to one point five
• 21:55
  Speaker 8: billion dollar hit for this year.
• 21:57
  Speaker 4: So, Chris, you kind of touched upon this sales lie
• 22:00
  Speaker 4: in construction resource industries, but energy and transportation unit that
• 22:04
  Speaker 4: had some higher sales. What is that that driving force
• 22:07
  Speaker 4: behind the growth in engines and transportation?
• 22:11
  Speaker 8: So this continues to be one of really the big
• 22:13
  Speaker 8: highlights for Caterpillar, you know, despite some of the cyclical
• 22:17
  Speaker 8: softness that they're seeing, is the energy and transportation business,
• 22:21
  Speaker 8: particularly in power generation. So think you know, data centers
• 22:25
  Speaker 8: that are becoming an increasingly larger part of the portfolio.
• 22:30
  Speaker 8: Power gen continues to drive outsize growth within the energy
• 22:33
  Speaker 8: and transportation business. There's you know, a multi year backlog there,
• 22:37
  Speaker 8: so we have, you know, veryly tremendous visibility, and what
• 22:41
  Speaker 8: Caterpillar is doing now is really expanding capacity to help
• 22:44
  Speaker 8: you know, meet this growing demand for data centers and
• 22:48
  Speaker 8: power generation. So there's a long secular tailwind at play.
• 22:52
  Speaker 8: Here and really, you know, we think we have a
• 22:54
  Speaker 8: pretty good visibility here over the back half of the decade.
• 22:57
  Speaker 2: Is Caterpillar and companies like Caterpillar, are they benefit or
• 23:00
  Speaker 2: do you expect them to benefit from maybe on shoring
• 23:03
  Speaker 2: even more manufacturing in this country if to the extend
• 23:07
  Speaker 2: that President Trump you know, wants to do that and
• 23:09
  Speaker 2: he's been talking about that a lot. Is that something
• 23:11
  Speaker 2: where kat would will see it?
• 23:14
  Speaker 8: Yeah, I mean I would say we haven't really heard
• 23:17
  Speaker 8: of you know, I would say concrete or tangible evidence
• 23:21
  Speaker 8: of that happening yet, And it's really difficult to you know,
• 23:25
  Speaker 8: get a lens on that on a quarter to quarter
• 23:27
  Speaker 8: I think, you know, if we look back maybe over
• 23:30
  Speaker 8: a five year window, maybe we'll have a better picture
• 23:32
  Speaker 8: of that. But yet, no doubt Caterpillar is a big
• 23:34
  Speaker 8: beneficiary of any kind of construction activity here domestically. And
• 23:40
  Speaker 8: then not only on top of you know, not only
• 23:43
  Speaker 8: just moving the dirt and building the facilities, they're also,
• 23:47
  Speaker 8: like I mentioned, having have a bigger piece of the
• 23:50
  Speaker 8: data center and power generation needs within our within our
• 23:54
  Speaker 8: country as well. So it's really kind of twofold. Not
• 23:58
  Speaker 8: only you know, with the moving the dirt and the facilities,
• 24:02
  Speaker 8: but also you know, longer term, we think the secular
• 24:05
  Speaker 8: tailwinds around power generation. Are you pretty favorable?
• 24:09
  Speaker 4: Hey, Chris, before you go, we have like about a
• 24:11
  Speaker 4: minute or so left. People usually say this is like
• 24:13
  Speaker 4: the Bell weather for a look at the economy. Is
• 24:16
  Speaker 4: this company going to continue to be that spot and
• 24:19
  Speaker 4: to hold that title?
• 24:20
  Speaker 8: I don't see anything changing in the near term here.
• 24:23
  Speaker 8: They are the largest global manufacturer of heavy machinery. They
• 24:29
  Speaker 8: have the scale, the dealer network, and really there's not
• 24:33
  Speaker 8: too many competitors that are that close to them. So
• 24:37
  Speaker 8: they are the leading indicator for the heavy machinery markets
• 24:41
  Speaker 8: and construction activity, and I don't foresee that changing anytime soon.
• 24:45
  Speaker 4: Our thanks to Christopher Chiolio, Bloomberg Intelligence senior US machinery analyst.
• 24:50
  Speaker 4: Coming up, well, look at why the ev giant Tesla
• 24:52
  Speaker 4: approved a thirty billion dollar stock award for its CEO,
• 24:56
  Speaker 4: Elon Musk listening.
• 24:57
  Speaker 2: To Bloomberg Intelligence on Bloomberg Radio providing in the research
• 25:00
  Speaker 2: and data on two thousand companies in one hundred and
• 25:02
  Speaker 2: thirty industries.
• 25:03
  Speaker 4: You can access Bloomberg Intelligence via bi go on the terminal.
• 25:06
  Speaker 4: I'm Lice Matteo and.
• 25:08
  Speaker 2: I'm Paul Sweeney.
• 25:09
  Speaker 7: This is Bloomberg.
• 25:17
  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
• 25:21
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• 25:24
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• 25:27
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• 25:31
  Speaker 4: I'm Paul Sweeney and I'm Lace Matteo filling out on
• 25:34
  Speaker 4: Bloomberg Intelligence. We move now to second quarter earnings from
• 25:37
  Speaker 4: the fast food giant McDonald's.
• 25:39
  Speaker 2: This week, McDonald's reported their global sales at restaurants open
• 25:41
  Speaker 2: at least thirteen months rose three point eight percent last quarter.
• 25:45
  Speaker 4: This suggests that pop culture focused collaborations and budget meals
• 25:48
  Speaker 4: are helping to offset diners' economic anxiety.
• 25:51
  Speaker 2: More guest hosts Isabelle Lee and I were joined by
• 25:53
  Speaker 2: Michael Halen, Bloomberg Intelligence senior restaurant and food service analysts.
• 25:57
  Speaker 2: Your first ask, Mike, if returning to sales growth feels
• 25:59
  Speaker 2: like a waiting for McDonald's.
• 26:01
  Speaker 9: It's definitely a win for you know, overall industry, saam
• 26:06
  Speaker 9: source sales because it's such a monster. It also could
• 26:08
  Speaker 9: be bad news for some of their competitors. With fourteen
• 26:12
  Speaker 9: thousand stores in the United States. Listen, man, they know
• 26:15
  Speaker 9: how to run run good restaurants right right now in
• 26:19
  Speaker 9: the US, they're starting to lap some easier comparisons and
• 26:25
  Speaker 9: you know that's showing up and the you know, that's
• 26:27
  Speaker 9: helping their results. They're also you know, doing a good
• 26:30
  Speaker 9: job with you know, the menu, right, They're bringing back
• 26:33
  Speaker 9: snack wraps, they're bringing back the mccrispy strip. They just
• 26:37
  Speaker 9: debuted a daily double. They've been pressing on value all year.
• 26:40
  Speaker 9: That was a big thing since the first quarter. And
• 26:42
  Speaker 9: so you know, McDonald's has the scale that they can
• 26:46
  Speaker 9: you know, offer products a little bit cheaper than their
• 26:50
  Speaker 9: peers and still in the franchisees can still make a
• 26:53
  Speaker 9: little bit of money off of it, right, So you know,
• 26:56
  Speaker 9: they they seem to really be hitting their stride and
• 26:59
  Speaker 9: their lap easy comps in the second half of the year.
• 27:01
  Speaker 9: So you know, we're looking at a pretty good second
• 27:04
  Speaker 9: half for McDonald's.
• 27:06
  Speaker 6: And international markets led the company's growth. What regions of
• 27:09
  Speaker 6: the world did they really pushed aggressively towards.
• 27:13
  Speaker 9: Yeah, they mentioned some really good strength in Germany. They
• 27:17
  Speaker 9: talked about some improvement in some markets that had been struggling,
• 27:20
  Speaker 9: like France and Australia and so you know, what they're
• 27:25
  Speaker 9: doing overseas is similar to the US playbook, right, but
• 27:28
  Speaker 9: they're probably ahead of the game, ahead of the US
• 27:32
  Speaker 9: in terms of providing everyday value. Their value messaging has
• 27:37
  Speaker 9: been on point and it's really helped them grow internationally
• 27:40
  Speaker 9: and that's why we've seen international grow faster than the
• 27:43
  Speaker 9: US for the last year or so. They also cited
• 27:46
  Speaker 9: the fact that there's less competition overseas, so they're really,
• 27:50
  Speaker 9: you know, a pricing leader overseas. You know, they can
• 27:54
  Speaker 9: the same type of thing in the US where they
• 27:55
  Speaker 9: can offer price points that competitors just can't match. And
• 27:59
  Speaker 9: then they're also in improving the operations, improving the quality
• 28:02
  Speaker 9: of the product, which has been an ongoing theme here.
• 28:05
  Speaker 9: They're improving the quality of the beef, better burgers, the
• 28:08
  Speaker 9: way they cook the burgers their day being the big
• 28:12
  Speaker 9: Arch which is a big, bigger sized burger in their lineup.
• 28:17
  Speaker 9: They're also expanding chicken overseas. So this company's humming along
• 28:21
  Speaker 9: right now.
• 28:22
  Speaker 2: What does a company say, Like when I think about McDonald's,
• 28:25
  Speaker 2: I think a lot of folks probably feel like the
• 28:26
  Speaker 2: low end, low income consumers probably it's bread and butter
• 28:30
  Speaker 2: there and maybe that consumers more at risk in this
• 28:33
  Speaker 2: economic environment. What's the company saying about low income patrons.
• 28:38
  Speaker 9: Yeah, you know what I like about this call call
• 28:40
  Speaker 9: is that you know, they're talking about what they can control.
• 28:43
  Speaker 9: You know, they cited the fact that low income consumer
• 28:46
  Speaker 9: traffic is down double digits, right, versus a small gain
• 28:50
  Speaker 9: for middle income consumers and steady consistent gains with high
• 28:54
  Speaker 9: income consumers. So they are seeing, you know, weakness with
• 28:57
  Speaker 9: low income consumers like everyone else. That's why they push
• 29:00
  Speaker 9: so hard on value. That's why they have these you know,
• 29:03
  Speaker 9: five dollars meals and buy one, get one for a dollar,
• 29:06
  Speaker 9: and why they put marketing dollars behind that. That's part
• 29:09
  Speaker 9: of the you know, the beauty of the snack wraps.
• 29:12
  Speaker 9: They're coming back at a two ninety nine price point.
• 29:14
  Speaker 9: We think that's going to bring some low income consumers
• 29:17
  Speaker 9: back into the fold, right, So they understand that that
• 29:20
  Speaker 9: people are very priced sensitive right now, and you know,
• 29:24
  Speaker 9: they're addressing it with the price points. But they're also
• 29:27
  Speaker 9: trying to give people better quality and better service. At
• 29:30
  Speaker 9: the same time.
• 29:31
  Speaker 6: They also plan to taste new beverages and this includes
• 29:35
  Speaker 6: cold coffees and crafted sodas at more than five hundred
• 29:37
  Speaker 6: US locations. How much of a pull are beverages when
• 29:41
  Speaker 6: it comes to McDonald's offerings or is food really still king?
• 29:45
  Speaker 9: Food is still king? But listen, beverages are hot. Beverages
• 29:48
  Speaker 9: are hot everywhere right during highlges, energy and very high margin, right.
• 29:54
  Speaker 9: And so we think this is a very good opportunity
• 29:57
  Speaker 9: for McDonald's. I think this is kind of a problem
• 30:01
  Speaker 9: for Sonic, which has long done a really good job
• 30:06
  Speaker 9: with their drink offering. But yeah, we think this is
• 30:10
  Speaker 9: something that can help drive sales at McDonald's. Taco Bell
• 30:15
  Speaker 9: is something Taco Bell's expanding as well, But we think
• 30:19
  Speaker 9: this is going to be more of a twenty twenty
• 30:21
  Speaker 9: six story for McDonald's.
• 30:22
  Speaker 2: For McDonald's, my percentage of the revenue comes from owned
• 30:26
  Speaker 2: and operated stores versus franchise stores.
• 30:30
  Speaker 9: Oh, they're ninety eight percent franchised. So there, Yeah, they're
• 30:34
  Speaker 9: heavily franchised. And you know, it's a beautiful model, man.
• 30:37
  Speaker 9: There's not a lot of operating leverage in the model.
• 30:40
  Speaker 9: They generate a ton of cash that they return to shareholders.
• 30:44
  Speaker 2: It really is a buy What's so, what's the royalty
• 30:47
  Speaker 2: rate on there's a franchise e paid McDonald's based upon revenue,
• 30:50
  Speaker 2: based upon net income, based upon how many Big Max
• 30:53
  Speaker 2: say sale. How does that work?
• 30:55
  Speaker 9: Yeah, yeah, yeah. McDonald's is a little bit unique. They
• 30:57
  Speaker 9: have a five ish percent royalty eight plus they own
• 31:01
  Speaker 9: a lot of the real estate. So a lot of
• 31:02
  Speaker 9: franchises in the United States are paying a rent, which
• 31:06
  Speaker 9: is typically you know, a ten inch percent of sales,
• 31:08
  Speaker 9: we'll say, and then they'll pay another three and a
• 31:11
  Speaker 9: half to four percent into the ad fun.
• 31:13
  Speaker 2: I didn't know that until I saw the movie and
• 31:15
  Speaker 2: then that famous scene. Yeah, you're not in the hamburger business,
• 31:19
  Speaker 2: you're in the real estate business. And that was such
• 31:21
  Speaker 2: a great scene. I learned a lot there. All Right,
• 31:24
  Speaker 2: I can't let you go without Crackerbrowl and I need
• 31:25
  Speaker 2: my daily update Country Boy Breakfast. How's that company doing? Listen.
• 31:29
  Speaker 9: We're we're big fans of new CEO Julie Messino. That
• 31:34
  Speaker 9: stock's been a bit of a rollercoaster, not a surprise
• 31:36
  Speaker 9: since it's a small cap. It rows more than one
• 31:39
  Speaker 9: hundred percent off its April lows. Now it's in the
• 31:42
  Speaker 9: midst of a pretty aggressive downturn.
• 31:44
  Speaker 5: But you know, we like it.
• 31:46
  Speaker 9: We like Julie's plans to improve the operations, to spend
• 31:50
  Speaker 9: more and be more efficient with their marketing spend. We
• 31:54
  Speaker 9: think this is a chain that hadn't been taken care of,
• 31:57
  Speaker 9: It hadn't been run really well for the last decade,
• 32:00
  Speaker 9: and so we see a lot of low hanging fruit
• 32:02
  Speaker 9: for the current management team to turn things around and
• 32:04
  Speaker 9: really drive strong seam source sales through year end twenty
• 32:08
  Speaker 9: twenty five and well into twenty twenty six.
• 32:10
  Speaker 4: All right, thanks to Michael Hale and Bloomberg Intelligence senior
• 32:13
  Speaker 4: restaurant and food service analyst. We move next to news
• 32:17
  Speaker 4: at the ev giant Tesla.
• 32:18
  Speaker 2: This week, we heard that Tesla proved an interim stock
• 32:21
  Speaker 2: award worth about thirty billion dollars for chief executive officer
• 32:23
  Speaker 2: Elon Musk to keep his attention on the automaker.
• 32:27
  Speaker 4: The award includes ninety six million shares of the automaker
• 32:30
  Speaker 4: that will vest if Musk continues to serve in the
• 32:32
  Speaker 4: top post for another two years.
• 32:34
  Speaker 2: For more, guest host Norma, Linda and I were joined
• 32:36
  Speaker 2: by Steve Man Bloomberg Intelligence, Global Autos and Industrials Research Channels. First,
• 32:40
  Speaker 2: ask Steve what he makes of this stock award.
• 32:42
  Speaker 10: I think it's very positive news for Tesla because you know,
• 32:47
  Speaker 10: they are going through a pivot right now, not only
• 32:51
  Speaker 10: an automaker, but they're very focused on AI. But if
• 32:55
  Speaker 10: you look at Elon Musk, you know he's Tesla is
• 32:58
  Speaker 10: not his only business, right He's got x Ai, his
• 33:02
  Speaker 10: AI company, which owns the former Twitter, and he also
• 33:07
  Speaker 10: Hash you know, space x Neurlink. I think they're all
• 33:13
  Speaker 10: related in some ways to AI. And I think, you know,
• 33:17
  Speaker 10: without you know, must and Tesla, I think you know,
• 33:21
  Speaker 10: there's going to be a lot of risk to that
• 33:23
  Speaker 10: vision for Tesla without him there.
• 33:26
  Speaker 11: See, if you mentioned that there are a lot of
• 33:28
  Speaker 11: different things that are vying for Musk's attention. Of course,
• 33:31
  Speaker 11: we do know that he was really politically involved and
• 33:33
  Speaker 11: then we thought kind of pulled back, and then he
• 33:35
  Speaker 11: mentioned his intention for creating the America Party. So clearly
• 33:38
  Speaker 11: he still remains in these conversations here. But what are
• 33:41
  Speaker 11: investors looking for right now from him? And doesn't seem
• 33:44
  Speaker 11: as though his attention is devoted as much as it
• 33:46
  Speaker 11: should be to Tesla.
• 33:48
  Speaker 10: Yeah, I think fortunately for now, his attention is very
• 33:51
  Speaker 10: much devoted to Tesla. He set that at the second
• 33:54
  Speaker 10: quarter earnings call. I think, you know, his presence is
• 33:59
  Speaker 10: important because you know, you know, right now the company
• 34:03
  Speaker 10: is going through a changeover in terms of the direction
• 34:07
  Speaker 10: the strategy right uh. You know, cars has been very
• 34:10
  Speaker 10: important continues to be important to drive that AI theme.
• 34:15
  Speaker 10: But without must there, I think the company will have
• 34:18
  Speaker 10: to you know, won't able to find the next person
• 34:21
  Speaker 10: really to drive the company to the next step and
• 34:24
  Speaker 10: expanding robo taxi, expanding their optimness robot offering in the future.
• 34:31
  Speaker 2: Do we care about how many cars they make and
• 34:32
  Speaker 2: whether they make any money in the old car business?
• 34:35
  Speaker 5: Seed we do.
• 34:37
  Speaker 10: And you know a lot of people think that, you know,
• 34:40
  Speaker 10: it's a it's a full pivot towards AI, But I
• 34:43
  Speaker 10: think making cars and UH and developing that AI UH
• 34:49
  Speaker 10: software it goes hand in hand. It's almost like Apple
• 34:52
  Speaker 10: and its ecosystem.
• 34:55
  Speaker 5: UH.
• 34:55
  Speaker 10: I mean, there are opportunities for Tesla to actually license
• 35:00
  Speaker 10: the FSD, the full self driving software out, but I
• 35:05
  Speaker 10: think in the meantime it's not it's not something he's
• 35:08
  Speaker 10: looking to do. I think he wants to build out
• 35:10
  Speaker 10: Robotaxi internally and actually drive revenue and profits. He's does
• 35:16
  Speaker 10: see huge profits from from the Robotaxi and from the
• 35:20
  Speaker 10: FSD software. If you look at other software companies, margins
• 35:25
  Speaker 10: are high double digits on the software for any software.
• 35:29
  Speaker 10: But then you know with with his FSD software, the
• 35:33
  Speaker 10: car isn't an integrated component to it. It's it's it's
• 35:37
  Speaker 10: it's very important that he continues to make cars, not
• 35:40
  Speaker 10: only for the for cash, but for for really marketing
• 35:44
  Speaker 10: that software.
• 35:45
  Speaker 9: That he has.
• 35:46
  Speaker 11: You have a lot of pressuring Tesla over the last
• 35:48
  Speaker 11: few months. I mean we're looking at a stock. It's
• 35:49
  Speaker 11: the worst performing stock within all the mag seven stocks
• 35:52
  Speaker 11: that there are right now. Explain to me right now
• 35:55
  Speaker 11: what the latest overhangs are right now for the company.
• 35:58
  Speaker 10: Well, I think one big overhang that's to remove this
• 36:01
  Speaker 10: it is his pay package. There is a lot of
• 36:04
  Speaker 10: fear in terms of him potentially being kicked out of Tesla.
• 36:09
  Speaker 10: But I think the biggest overhang right now, or where
• 36:12
  Speaker 10: the investors are more focused on, is the expansion of Robotaxi.
• 36:17
  Speaker 10: Right He's he launched it back in June in Austin.
• 36:22
  Speaker 10: He's launching it in the San Francisco Bay area, and
• 36:25
  Speaker 10: he's also thinking about launching it in Nevada. And it's
• 36:29
  Speaker 10: from the looks of it, it's going quite well. I mean,
• 36:32
  Speaker 10: there are some hiccups here and there with this complex
• 36:36
  Speaker 10: engineering system that he's putting in place for cars. It's
• 36:41
  Speaker 10: it's normal, it's normal. So but you know, safety is
• 36:45
  Speaker 10: still his priority, and you know he's gonna going at
• 36:48
  Speaker 10: it at a measured pace, but it seems like he's
• 36:52
  Speaker 10: expanding it relatively fast. You know, his the the area
• 36:57
  Speaker 10: of coverage is is much bigger than initially was back
• 37:01
  Speaker 10: in Austin back in June, and we're seeing something similar
• 37:05
  Speaker 10: in San Francisco. So investors are really focused on when
• 37:10
  Speaker 10: Robotaxi will start contributing to the bottom line, and we
• 37:14
  Speaker 10: think that you're probably more likely in twenty twenty seven.
• 37:17
  Speaker 4: Our thanks to Steve Man, Bloomberg Intelligence, Global Autos and
• 37:19
  Speaker 4: Industrials Research analyst.
• 37:21
  Speaker 1: This is the Bloomberg Intelligence podcast, available on Apple, Spotify,
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• 37:30
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