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On Today's Bloomberg Intelligence Show, we dig inside the big business story is impacting Wall Street and the global markets.
Each and every week we provide in depth research and data on some of the two thousand companies and one hundred and thirty industries are analysts cover worldwide.
Today, we'll look at why Kraftthein's new CEO is halting the process of splitting the company.
Plus a look at why T Mobile ad and fewer mobile phone subscribers last quarter.
But first we begin with a deal in the energy space.
This week, deep water oil rigowner Transocean agree to acquire rival Valaris in an all stock deal valued at five point eight billion dollars.
The deal will create the world's largest offshore recontractor by market value.
And this comes as offshore drilling has been booming, especially in deep waters for more. We were joined by Scott Levine, our senior energy services analysts.
We asked Scott to break down who these companies are and the reasons for the deal.
Two of the bigger names in offshore drilling. Transocean has the largest backlog, Valaris has largest fleet. Valaris's name may not be that familiar to a lot of folks here. It was actually a combination of a two companies called Ensco and row In a few years ago. But there are two of the biggest offshore drillers, and I think that this deal really has both offensive and defensive motivations. Offshore drilling is in a little bit of a recovery mode,
really kind of has been. Most of the drillers went bankrupt. Actually during the twenty twenty one downturn. Transotion was really one of the only companies that did not go bankrupt. Valaris did, and so Transition has kind of been saddled with all this debt as a result of not having their balance sheet wipe during a bankruptcy, and so that's been a limiting factor on their growth for quite some time.
And this deal, which is an all stock deal, will accelerate their leveraging process and remove some of that burden from them and better enable them to capitalize on an upturn in offshore drilling. And the second of the thing that's important to note here is that it brings a jack up fleet jet. So a jackup fleet jackups are basically shallow water rigs okay, as opposed to the deep water drill ships or floaters, and Transotion had exclusively been
a floater fleet. Jackups are to the seabed, the seabeds lower and shallow water, and Valaris is one of the biggest players there, and so this gives Transition exposure to the jack up or shallow water market, which has really undergone an interesting phase in that it was a bit of a downturn the last couple of years. The biggest jack up driller is Saudija Ramco, and a couple of years ago Saudia Ramco made significant cuts to their drilling program.
They essentially Saudi Arabia abandoned plans to increase their oil production capacity to thirteen million barrels a day, and what we've seen since then is a lot of jack up rigs being laid off effectively in twenty twenty four and twenty twenty five. Indication suggests those rigs will return this year, so that market is bottomed and maybe on the cusp of an upswing. So this deal will give Transotion the ability to participate in that recovery.
So in terms of why now, when it comes to the timing of this deal, the COEO transortion cited a multi year drilling upcycle. Where are we in that cycle?
Are we?
You know, first inning?
It's kind of been an interesting upcycle, so we saw an inflection in twenty two and twenty three, and twenty four and twenty five, we've seen kind of a plateau to a slight pullback.
Now.
I do believe we're in a recovery and have been, and this has kind of been more of a mid cycle pause associated rather than a downturn and offshore drilling. So I do think the recovery is intact, but I think the cadence has certainly slowed and in fact deteriorated and offshore drillers, like energy service companies, have been off to the races this year. I think the oil price is held in better than expected. Some of that is due to some of the tensions in the Middle East.
I Ran et cetera, Venezuela as well. So the punchline really is that we're still in I think a mid cycle pause until maybe the second half of this year, and in terms of what inning we're in, I think we're probably like third fourth inning, but it's been in kind of an unconventional recovery.
Will the regulators allow these two companies to get the other?
Yeah, I think so, And it's a good question. These are the two of the largest players that are out there, and rig CEO expressed extreme confidence that that will be the case. It's a competitive market. There's a lot of fragmentation smaller players in the market, and it's generally the quality of certain assets that determine which guys win which contracts. A lot of it depends on which rigs are capable of drilling for which projects, and so no, I do
think that this should get to relatively quick approval. Certainly they're talking second half of this year. That's a much shorter time timeline than the last major oil field services merger, which was Slumberge champion X that took over a year two year and a half to approve and required significant divestures. But offshore drilling is a.
Different market our Thanks to Scott Levigne Bloomberg Intelligence, a senior energy services analyst.
Staying with energy on Bloomberg Intelligence, we often look at research from Bloomberg and EF previously known as New Energy Finance.
So they're the team at Bloomberg that tracks and analyzes the energy transition from commodities to power, transport, industries, buildings, and agriculture sectors.
This week we took a look at robotaxis for more on this and the state of the automated vehicle industry. I was joined by Andrew grant b an EF head of Intelligent Mobility. I first asked Andrew to tell us where we are with robotaxis and what we should watch out for in twenty twenty six.
So at the end of twenty twenty five, they were about eight thousand working robotaxis globally. Some of those had safety drivers behind the wheel, Some of the had safety drives in the vehicle but a significant number fully driverless and operating in various cities around the globe. I'd say about half of those eight thousand based in the US, but we expect that number in total to more than double by the end of the year to around eighteen thousand robotaxis globally.
Who are the players in this business? I names you know other than no Tesla, Weimo. How do you think about the competitive environment out there?
I mean, we spend a lot of time looking at the actual operations and number of vehicles deployed, so rarely you're looking at kind of four companies globally that have the biggest fleets of vehicles on the road. So Waimo, as you mentioned, alphabet backed and has just raised a
significant amount of money. But also you're looking at three Chinese companies with a big robotaxi fleet and growing so Bydou's Apollo, and then we Ride and pony Ai, which are robotaxis specialists that are based out of China but looking to expand globally.
You know, I think about the just the battery electric vehicle market, and I think the exception of the US byd and some of these other Chinese manufacturers, it just feels to me at this early stage might be able to take over the world of electronic vehicles. Is that a similar view for robotaxis?
Yeah. I mean it's interesting how different geographies are going to react and different regulators are going to react to foreign companies coming in and deploying their technology in those areas. We are really seeing kind of a race at the
moment for new territories. So you've obviously got the US based companies, the Chinese based companies that I just mentioned, and kind of in the middle, you've got Europe, Middle East, Southeast Asia where a lot of these companies are setting up roots and looking to deploy and kind of twenty twenty six is the year where they're really looking to expand those services. So uber has just announced an earning score last week that they'll be expanding to Houston, Hong Kong, Madrid, Zurich.
There's a variety of really competitive battlegrounds across those kind of markets. In the middle.
What's the safety records so far in these early testing stage.
I mean, it depends how you measure these safety standards. It's whether you're needing some type of intervention with the safety driver and the vehicle on the whole. These vehicles are tending to kind of show safety records that are similar to what humans have displayed, and in some cases it's far surpassing that. But again, the measuring of these
standards is kind of a tricky, nuanced subject. That's a lot of regulators are digging into at the moment, and it's really about companies working with regulators to try and figure out and kind of try to prove their safety record over time as they expand their services.
Talk to us about these things are expensive to develop, maintain, deploy. Weimo just raised sixteen billion dollars at one hundred and twenty six billion dollar valuation. Tesla's committed twenty billion dollars in R and D this year. Where's the money coming from?
I mean a variety of venture backed investors and kind of the big tech companies themselves. So you mentioned Wemo. A lot of that money is coming from its majority owner, Alphabet, and then Tesla is putting a lot of money into this.
It's just about where they are putting their money. So Tesla is going with a strategy of deploying a much cheaper vehicle, but they're putting a lot of money into the data centers to try and improve their self driving algorithms and their self driving system, whereas Weimo has got a more expensive vehicle kind of two to three times at a minimum more expensive. So it's going to take a lot of ney to kind of build out that robotaxi fleet and deploy it in the various parts of
the globe where they want to deploy. They've just announced that they plan to launch a service here in London in September.
Great, some of those little streets, good luck there. What's some of the gating issues here? Is it regulatory? Is it capital? Is it technology? What's the gating issue here for this industry at the moment?
I mean, it's kind of all of the above, and there's improvements that need to be made on all of those, but also just finding a business use case for these services. I mean, as we've been talking about, it takes a lot of money to build them and deploy them. So finding a kind of meaningful market for them and completing kind of useful rides or meaningful rides rather than just kind of being a theme park attraction and driving small
parts of the city. You actually want to kind of get those more lucrative ride heading trips from say city center to airports, and that's been a bit tricky for some of these robotaxi companies to actually sort out the If you look at just about a week and a half ago where were announced that they would be opening
up to San Francisco Airport. But really what you're seeing from that is they are doing pickups and drop offs at the car rental center, which is kind of a fifteen twenty minute journey from there to the actual airport itself, so it's kind of compete with curbside dropoffs from ride heading vehicles. They still have a bit of way to go.
Are thanks to Andrew grant, any, head of Intelligent Mobility, coming up a look at why Coca Cola offered a more conservative full year sales outlook than expected.
You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in depth research and data on two thousand companies and one hundred and thirty industries.
You can access Bloomberg Intelligence via Bigo on the terminal. I'm Scarlett Foo and.
I'm Paul Sweeney, and this is Bloomberg.
This is Bloomberg Intelligence with Scarlet Foo and Paul Sweeney on Bloomberg Radio.
We moved now to some news at the food and beverage company craft Hines.
So this week, Kraft Heins's new CEO, Steve Kaylane, halted the process of splitting the company.
Its decision, he said, was backed by the board of directors. Kaylane will instead invest six hundred million dollars in developing new products, marketing them and lowering some prices.
The shift in strategy was the result of Kaylane spending the last few weeks immersing himself in Kraft Heeins's vast portfolio, including conversations with retailers and employees.
For more and all this, we were joined by Christina Peterson, Bloomberg News food industry reporter.
We began by asking Christina to explain Kaylane's thinking with the pause.
He's only been on the job since January first, so I think this came as a surprise to folks that the split was called off about five months after it was announced or paused. There is no end date to the pause, so we don't know if it will at some point rezuom. But the CEO, Steve Kahlene, said that he came on the job knowing that there had been levels of under investment in Kraft Heiness's brands and decided that after reviewing all of them, that there were brands
that would respond to more investment. So they announced that they would be putting six hundred million dollars into things like R and D marketing and lowering some prices in hopes that that would bolster the entire company and that that would be in a better position put them in a better position to evaluate whether they should move forward with the split.
So what if most investors want? Did they you think they want the split up? Sometimes split ups work, a lot of times they don't. What if investors been saying over the past months.
There's clearly been some anxiety among investors since the news of the split was announced. I think that the new CEO was seen as there were hopes that he would do what he had done with the Kellegg Company, which split into two publicly traded entities and then where both both of those companies were bought by privately held entities. So there was some speculation that the same thing would occur at Kraft. Himes and Kaylaine said basically, not yet.
Really, there's another twist to all of this, which is that Kraft Times biggest shareholder is Berkshire Hathway and Warren Buffett, who runs Berkshire Hathway until he handed the rains to Greg Abel, said he was never a fan of that idea to split up the company. I mean, he was kind of the mastermind behind Kraft Hims becoming the behemoth it was and that didn't work out so well. But he made clear that the split was not a good
thing in his mind. Do we think that has anything to do with this about face?
I don't know. It is clear that he had publicly expressed a appointment in the split, and his successor had said in a filing that Berkshire Hathaway was taking steps to sell its twenty eight percent stake in Craft Times, So clearly they were nervous about this and not fans of the news.
So do we have any idea how long this pause will last? I mean, is he trying to turn stuff around, make it maybe better? So if when they do split it up be worth more? What do we know?
They clearly are not going to make the decision this year. They talked about returning to growth in twenty twenty seven, so it seems like this is a month's away decision.
Oh, the investment bankers who had that on their deal sheet for twenty twenty six.
But they get paid in the meantime for the work that they've done right now.
You don't get paid to the closes.
Oh really, you can't build them along the way.
We're not lawyers. Okay, we get paid. We take out of the I like how you still say we yeah, yeah, exactly because you.
Feel for these guys. Y.
What's the company want to do now? Is as a standalone company.
Well, they've talked about releasing some healthier products. They are launching a Kraft Heinz Mac and cheese PowerMac with proteinage.
I knew iber, I knew it. I knew it.
And they will be lowering prices. They talked about the opening price points being important for low income families. So those are some of the areas that they're going to be focusing on, some healthier options, more affordable price points.
Our thanks to Christina Peterson, Bloomberg News Food industry reporter.
We move now to the beverage giant, Coca Cola. This week, Coca Cola reported weaker than expected quarterly sales.
Soda maker also offered a more conservative twenty twenty six for your sales outlook. Then expected. Shares of Coca Cola fell after the news.
The outlook points to the challenges faced by the incoming CEO, Henrique Braun, as the company works to win over shoppers with its widening portfolio of beverages.
For more, we heard Kencha Bloomberg Intelligence, senior consumer products analysts. We first asked Ken to tell us what's concerning investors about Coca Cola.
I think what maybe concerning the mark a little bit about Coke is that the mix was not as favorable as it had been. Also, the company over the past couple of years had been relying heavily on price mix to boost the top line.
Is it was a.
Considerable slowing in the quarter. Having said that, there's always some noise in the fourth quarter. It's hard to draw too many conclusions from the fourth quarter. But I think the market is also being spooked a little bit by the guidance for next year, which came in a bit
a little bit light. The company's long term algorithm is to generate about four to six percent organic revenue and from that it can generate high comparable EPs growth, and it did that in twenty twenty five, in twenty twenty six, other saying four to five percent top line and four to five percent EPs growth, And so that's EPs growth again, that's excluding currency effects. It's not only below their long term algorithm, but also below consensus expectations going in.
What's the You know, we always talk a lot of your companies, the consumer products companies and staples companies that you think about him as kind of GDP maybe a little bit GDP plus kind of growth here. Is there any secret sauce to the Coca Cola story or is that the way we should think about it?
Well, there's a lot of truth of that, Paul, because Coca is in the two hundred markets around the world. You know, I guess the way for growth is lunar at this point. I mean, they're everywhere. But I think there's gonna be a new CEO on March thirty first, Henry Barraun. He's a long time veteran at Coca Cola who was the COO used to head up Latin American operations.
I think there's a lot of confidence in his ability to take the reins here, and I think what he's going to spell out in his vision next week at Cagney. That's when they oh usually do it.
That's where you'll be.
Yeah. Well, I think he's gonna say that they need to step up their marketing and innovation here to boost that top line growth. And I think they're going to talk a lot about functionality that we talked about with PepsiCo. What I mean by functionality, well, well, consumers want more from their beverages than just taste good and hydrate them. They want to not only have zero sugar, but if they wants to have more electrolytes in their water, it
wants to have more protein in their drinks. Particularly the JLP one crowd, they want to have fiber coke offers in its probiotic sodas like simply Pop. So these are the kind of things they're going to talk about in terms of product innovation, I believe next week. In addition to that, I think the company's going to spend more in marketing digital marketing to get the message out to new young consumers.
I guess the idea is to just have your drink or place your food.
I guess.
Zero sugar actually was a standout right with Coca Cola Zero sugar posting double digit volume growth in the quarter. When you say that they want to focus on the innovation and get the word out, what does that mean in terms of spending on marketing? What does that mean on in terms of capital expenses?
Think broadly speaking, more social media advertising. I mean on a purview basis, that's a lot more cost efficient and the you know traditional ways like television, Paul, you would know that right media analyst days. So it's more of that. It's also working more closely with their bottlers in terms
of co marketing ventures. That could be a wide range of things, not only digital marketing, but perhaps coming out new packaging, whether it's multi packs to attract you know, an economical consumer to spending more on its fountain dispenser. You see a lot of fast food restaurants where they can make their own sodas and so on. It's just spread that out more to have more consumer engagement matter where they are. Yep, so I see more of that.
Our thanks to Ken shah Our, senior consumer products analysts.
We move next to news on the toy and board game maker Hasbro.
This week, Hasbro reported that it more than doubled year over year revenue from its popular card game Magic. The gathering in the fourth quarter, shares of Hasbro jumped the news. So we brought in Lindsay Dutch, our consumer Hardline senior analyst, and began by asking her to break down Hasbro's results.
So the story for Hasbro is, you know, the result in twenty five, including the fourth quarter, is really being driven by their Wizard of the Coast digital gaming segment. That that segment has been growing rapidly forty five percent on the year, sixty percent I think for Magic the gathering in the quarter, so just tremendous growth coming out of that brand, better than expected, and that unit is really going to carry the growth in twenty twenty six.
The outlook for the consumer products with their toy segment is still kind of weak, So it's really coming out of that digital gaming segment. But I think investors are pleased with the outlook there just because they're lapping very difficult comps. So to see solid growth in twenty six coming out of that, it was a good surprise.
Lindsay, what about tariffs? Is this something that Hasbro has figured out and it's no longer something that lead it's earnings to be kind of unreliable and they've kind of smooth things out.
So it definitely affected the year, so about forty million dollars in the fourth quarter. A headwind for margin there, especially on that consumer products segment, so that margin did decline year over year, which was a disappointment. It's certainly going to be a headwind for profitability at least in the first half, and comps will get easier in the
second half. But Hasbro did note that, you know, much of the cost savings program that they're working on and other supply chain efficiencies, they were able to offset a significant portion of that cost so that is a good sign, but there's still a little bit of a headwind for the next two quarters.
I'm just looking at the FA function on the Bloomberg terminal, gives me all the financial analysism ploy the operating income profit for the Wizards of the Coast and the digital segment is huge, whereas the profitability of their regular toy business not so much. Is a company just throwing all the resources into their digital stuff? Is that the strategy?
So they have definitely been pushing for several years now to become a bigger player in that digital world, but also really to become known for that. So I would say, you know, one of Hasbro's big brands Monopoly that that's what many people know that the company for is that traditional Monopoly board game. But are they are pushing into this world of digital games? You know, they want to
be valued as such. And I will say, you know, they do have a digital version of Monopoly, Monopoly Go, and that has done.
Very, very well over the past couple of years.
It continues to surprise, including in the fourth quarter. So they're definitely moving in that direction. But that toy segment consumer products, you know, still.
Is pretty large.
It was still around fifty percent of revenue for twenty five. I do think that will that mix will come down over time, but it's still a big piece of their business that they can't ignore.
Lindsay. I also noticed that in this latest earning support they announced a one billion dollar stock buyback authorization. I believe this is the first FIBACK since twenty eighteen. What does that signal to you?
You know, I think that their Hasbro is still working through their capital allocation priorities. They are still focused on reducing leverage. You know, their dividend has been flat for quite some time, So I think they're looking at different avenues now that they're in a much better financial position than they had been maybe a year or two ago.
So I think it's just a signal that that that position is solidly better and they're looking to redeploy cash in different ways that they maybe couldn't have done a year or so ago.
Thanks to Lindsay Dutch, Bloomberg Intelligence, Consumer Hardline's senior analyst.
Coming up, look at why CBS Health is repeating its profit guidance for twenty twenty six.
You're listening to Bloomberg Intelligence on Bloomberg Radio for riding in depth research and data on two thousand companies in one hundred and thirty industries.
You can access Bloomberg Intelligence through Bigo on the terminal. I'm Scarlett Foo.
And I'm Paul Sweeney, and this is Bloomberg.
This is Bloomberg Intelligence with Scarlet Foo and Paul Sweeney on Bloomberg Radio.
Good move.
Next to earnings from the telecommunications company T Mobile.
This week, the company reported quarterly revenue that beat estimates but had earnings that missed analyst projections. T Mobile also reported it added fewer mobile phone subscribers and analysts expected last quarter.
This comes as the company aims to distinguish itself from competitors in value and network quality with promotions like free Netflix subscriptions and wing Stop Chicken.
For more, we brought in John Butler, our senior telecom analyst.
We first Askedjohn to break down why this could be considered a disappointing quarter at T Mobile.
I think one of the things that really impacted them is we've seen Verizon, which now has a new CEO who's come in. He's very volume focused, so he's out there. They're promoting heavily. They're trying to win new subscribers, and I think it took a bit of a den out of T mobiles growth in the fourth quarter. I think one thing T Mobile did which was smart is they combined the four Q report with a Capital Markets Day update.
They updated their twenty twenty seven guidance, and they increased their free cash flow outlook for twenty seven by one point five billion. And so when you saw them do that, you saw an inflection and investor sentiment almost instantly, because again this has this has gone from a story of revenue growth. Now they're pivoting more to free cash flow growth.
They're really pointing investors to that bottom line to you know, get the focus off of revenue growth as things get more promotional and as industry growth slows.
So is this a new wave of just I guess across the board, if you Verizon's getting a little bit more promotional this T Mobile to AT and T, do they have to respond or the other things they can do?
So great question, Paul. Right, We're in a mature industry backdrop. Now, growth overall is slowing for everyone. T Mobile is not alone in pointing to pre cash flow growth. You've got AT and T and Verizon doing the same thing. And so I think again, with that new CEO in place, now you've got T Mobiles sort of driving a growth story that centers on not only smart promotion, but also driving into adjacent markets like advertising and even credit cards.
Yeah.
I'm a Team Mobile subscriber and there's always a ton of emails from the company offering all kinds of different services and deals, and it really feels like they're just trying to develop you into their ecosystem. John, I kind of call the effort to sell internet access to ad broadband customers a side hustle for these telecoms companies. But this is how they can make sure that they continue to build out their customer base even as they try to fight for market share when it comes to mobile
phone subscribers. How is that side hustle going for T Mobile.
So the side hustle, as you call it, and I think that's a good word for it, is still small right now. I think their real opportunity for them in the near term scarlet lies in the broadband business. They're pushing into fiber, another side hustle. It's small, but I think over the next couple of years it could increasingly contribute to growth. And then at the core of the broadband business is their fixed wireless access business, so delivering
broadband to the home over cellular spectrum. That's been very popular and T Mobile remains a real leader there. It continues to be a growth engine for them. And so I think when you air that with the ad business, the credit card business, and more importantly the fiber business, it all adds up to help sustain that free cash flow growth and call it the five to six percent range, maybe even more as we go forward over the next three years.
John about thirty seconds dividend policy. T Mobile's got a one point eight percent yield, Verizon five point six percent, and AT and T three point nine percent, So there's something for everybody. In terms of investors, does T Mobile do They worry about their dividend yield.
Little less so than share buybacks. In fact, one of the things they did with Capital Markets Day was announced that they're buying back five billion in shares over the course of the first quarter here, which is double the normal rate. So you know, I think they're leaning more into that than dividend growth, although it's part of that share buyback program and it's going to continue to be as we go forward.
Here our thanks to On Butler, Bloomberg Intelligence, Senior Telecom analyst.
We moved next to some newsom to healthcare company CVS Health.
This week, the company disappointed Wall Street by repeating its profit guidance for the full year.
It's a move analysts are calling a letdown after a strong fourth quarter performance.
And it comes as CBS faces scrutiny from lawmakers and regulators in Washington who are concerned about the rising cost of healthcare.
For more.
We were joined by Jonathan Palmer, Senior Equity Research analyst at Bloomberg Intelligence.
We first asked Jonathan to give us his take on the latest results at CBS.
I think what investors were really focused on was twenty twenty six. They had done an investor day in December and already weigh out twenty twenty six guidance and they kept it the same, So that was a little bit of a sigh of relief for investors in managed care. Managed care has had a pretty challenging couple of years. Most recently, the Center for Medicare and Medicaid came out with some advanced rates for Medicare payments in twenty seven.
That caused all the stocks, whether it was United Health or Humanity, a pullback pretty Significecantly, the important takeaway, I think was that even though that happened and CBS is going to advocate for better payment rates, their goal of turning their healthcare benefits business around isn't really dependent on that, and they're still going to hit their margin targets in the future.
Did they talk about what kind of risks are involved. I mean, obviously big policy risks remain a headwind here for not just CBS, but for the entire sector. But did they address how they're thinking through those challenges.
Well, the industry has been in the crosshairs of Washington forever and that hasn't really changed. I mean, interestingly enough, Senator Warren and one of the Republican senators actually just introduced another bill to break up these companies. So you know that's I think table stakes for them. You know, they're always in the crosshairs here. Whether we actually see
some huge sea change out of Washington. I mean, do I think the odds are better than they were in the past, Yes, But I don't know that a lot of people or investors worry about that on the day to day. I think it's a pretty wee percent chance that these companies get broken up anytime soon.
What's the call on the CBS and and this peer group here of healthcare? Is it supply chain? Is that the sector or it could be Okay, I have your industry.
I have no idea of it as healthcare services more broadly, and so that encompasses everything from the managed care companies to hospitals, shriters, everything under the sun.
I watched the pit though, so I'm getting smarter about the whole emergency room thing.
I think the call here is we're very much in a holding pattern in this world of managed care. There's a lot of things swirling around in terms of these Medicare rates and star ratings and really like the nuances of how they run their businesses, and there's been a there's been a real hard how do I say, this era of compression and margin for those businesses, and everybody's trying to build that back up, and it's you know, when your contract and you have members coming in and
out of plans and you're dealing with the government. These things don't get fixed overnight. So I think a lot of people are waiting for more quarity on where things are going and can the improvements that a lot of these companies have talked about actually show up in the numbers.
Who would you say is CBS's main competitor, because it's a vertically integrated healthcare company. It's no longer a drug store. Managed care is a big part of its business. Once upon a time, I might have said Walgreens, but that's not the case anymore.
Yeah, I mean, they're very clearly the best run pharmacy out there. Now that Walgreens has succumbed to private equity and we've seen right aid just go out of business. I mean, the best peer comparison is United Healthcare, but even then they're very different animals because United Healthcare owns a lot of technology assets that CBS doesn't. They also own a ton of provider assets that CBS doesn't. But in the areas of managed care and the PBM they
match up pretty well. And then there's sigmas in that business those two businesses as well.
Our thanks to Jonathan Palmer, Senior Equity Research Achannels at Bloomberg Intelligence.
We move next to news from the hospitality giant Hilton Worldwide.
This week, Hilton reported fourth quarter earnings that beat analyst expectations.
The company's ability to add new hotels to its global network ended up driving growth.
For more on this, we were joined by Brian Eggert, Bloomberg Intelligence Senior Gaming and Launching analysts. We first asked Brian about what Hilton reported from an earnings perspective.
Yeah, so, I mean what we saw in the quarter was kind of mixed in terms of us being down a little bit or maybe a little blow rep part in the fourth quarter, mostly because of the government shutdown, so a bit weaker in bound travel to the US a little bit weaker governor travel, But the ALC for next year, I should say, this year one twenty six is pretty good, one to two percent report growth.
That's revenue per available.
Per available room. Yeah, and so leisure group, luxury all kind of strong. International, a little stronger than the US. But although this is an aging up cycle in the lodging industry, it's still got some white to it.
Now.
Hilton, along with many of the other hotel companies like Marriott, has an asset light business model, which means that it's brand licensing right. They don't actually own and manage any of their own properties, and that, you know, allows it to move more nimbly. The profit margins are much higher. What's the downside of that, Brian?
So, I mean, there's some benefit actually owning the real estate when you're really in an upcycle. But this kind of fee base model is a very capital efficient way to expand and grow. You get your franchise fees and management fees. They've got a little bit of an hotel exposure as well. But most of the lodging companies, separate from the Reeds, are actually asset white manager franchisers with some own assets.
Yeah, I'm looking at you know, you've got a company with you know, thirteen billion of revenue call it, you know, four billion of EBATA, one hundred million of CAPEX. Are you kidding me? That is awesome? So we build who builds a If Hilton wants to build a new hotel in South Beach, they don't build it. Somebody else builds it.
Yeah, so you're you have like ownership entities. Obviously you've got the rates like park hotels, resorts and others that own the real estate. So this is, as you said, like an asset light franchised management tree driven business with someone hotels. There is some otel exposure.
So what do they do with all the free cash interview they get? You know, most of that ebadad goes down to the free cash line.
They have been returning capital, right, so they've got capital returns and you know, there is real opportunity for growth within their business model and a lot of that is international, a lot of conversions, you know, a lot of conversions from other assets that fit very well under their brand flags. And they have also been launching some new brands as well and kind of that lifestyle category.
How many brands do they have right now.
So where are they now? I know Marriott's thirty one. I'm turning member, Well that's all those thirty one is such a slice it is. I mean, you know, I think over all of you slice the market segment wise. Hyatt and Marriott are more prominent in the luxury high stand. Hilton has some luxury, but it's also got a very
solid kind of mid scale women at service portfolio. And so what you tend to see is that in this environment, luxury upscale tends to outperforming, and the limited services is somewhat weaker, partly because that's where you've got the government travel, you've got the transit, independent business travel, But stuff like leisure group luxury, particularly international markets UA, Europe, Non China, Asia, all have been really quite strong.
That was Brian Egger, Bloomberg Intelligence, Senior Gaming and Lodging analyst.
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