Bloomberg Audio Studios, podcasts, radio news. This is Bloomberg Intelligence with Paul Sweeney.
The real app performance has been the US corporate high yield. These are two big time blue chip companies. One person's cast is another person's animal spirits.
Breaking market headlines and corporate news from across the globe our viewer.
If the economy is slowing down, there.
Is the possibility of the death spiral.
Both partum competing and AI are going to power the future.
People are just buying everything with tex.
Bloomberg Intelligence with Paul Sweeney on Bloomberg Radio, YouTube and Bloomberg Originals.
I'm Paul Sweeney and I'm Lisa Matteo filling in on Bloomberg Intelligence.
On Today's Bloomberg Intelligence Show, we dig inside the big business stories impacting Wall Street and at 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 our analysts cover worldwide.
Today you'll look at why retailer Target is naming an insider as its next chief executive officer.
Plus well look at why the Danish drug maker Novo Nordisk is slashing the cause of its weight loss drug ozempic.
First, we begin with the earning from TJX companies.
This week, the off price retailer raised its full year guidance and reported second quarter earnings that beat analyst projections. It's a sign that shoppers are currently turning toward discounters due to economic uncertainty.
For more.
Guest hosts, Alexis Christophers and I were joined by Mary Ross Gilbert Bloomberg Intelligence senior retail equity analysts. First asked Mary for her take on the company's results.
TJX is hitting it out of the park. This is a company that just executes seamlessly and consistently, something in retail that's very, very difficult to do. They saw strength across all categories, across all income groups, all age groups, and they know how to get the merchandise right by store, by region, so they have a terrific planning and allocation. They sort of emphasize that and another key point because they raise their guidance not only for sales but also
on the margin side. And there was such a huge fear with terraffs. They only source probably less than ten percent of their sales come for their merchandise is something they directly source. They were able to buy better, which
means they got better deals. That means there's so much availability out there, and it's something we've observed in our channel checks and when you look at the shopping halls on television, on a YouTube and you see the incredible brands that are available, and they really are across good, better and best. So you can get anything from Puma, Audi, Doos, Nike all the way up to Eve, Saint Laurent and Gucci.
So it's and TJX really really wins across all that, so strength across you know, all their channels and internationally, I mean Canada was a nine percent comp sales.
I want to ask about a possible headwind though, because it seems like they're firing on all cylinders. But I know that TJX mentioned in the past about a key demographic, the Hispanic customer. They were concerned that maybe immigration policy was going to keep them home or not spend as much. Did they mention anything about that.
I don't think they saw any weakness as a result of that. I know it's been a big concern not only for TJX, as you brought up Alexai, but also for Ross and for Burlington, and probably even more so for Burlington because they really skew to a lower income consumer and they're due to report next week, and so we should learn more on that.
Mary, I always think the job of a retail animals like you was really tough because not only do you have to do the regular stuff as an analyst, like get the earnings estimates kind of right and on the financial analysis, but you kind of have to have an opinion on like who's good at picking out the right fashion to even put in the store in the first place. What is TJX doing so well? Do you think?
Well, they have.
The most amazing buying team, and so they spend they have sort of like a buying academy where they teach their buyers. You know, they have to go through you know, I think it's like three years, maybe even up to seven years of work that they do with these buyers. So the pricing that they work on and the product that they're buying is really something that is steeped in experience history. They also invest in systems, you know, so that means technology logistics to make sure that they can
get this all right. Because you can imagine that if they're shipping multiple merchandise, you got to have fresh drops because these customers will shop multiple times a week because it's that freshness that brings them in. So yes, TJX is the leader. They're the largest in the world. I mean, they'll probably hit sixty billion in revenue this year, up from fifty six billion last year. And they keep increasing
the number of potential store openings they see. Previously they said we think we have another twelve hundred stores to open. Now they're saying it's another eighteen hundred stores to open around the country, just around the globe in their existing markets. So yes, this company really has the expertise in doing
it right. Is there a digital strategy here because I remember I'm sure you do too, Mary, when you would go online to try to find out what tjmax had and there was nothing there because you always had to go in the store to find out what they had. I think they had to step up their game right because of Amazon and others online. But what is the digital strategy, if anything, at Tjmax and TJX. That's a
good question. So actually TJX has a digital strategy. It's across all their brands except for home goods, and so it's about I think it's I think it's just under five percent of sales. So it's very small. But they also saw strength in this quarter on their e comm business. So they do have an e comm business. You can go on it and you can shop anything you want on there. Now you can't say that you want to
shop by brand, but you can select. Let's say, let's say that you want to just buy the ultra luxe you know, merchandise that they have there, and you'll see Christian de or sunglasses. You'll see you know, like I mentioned, you know, on the handbag size Balan Chiaga. So you will be able to find what you want on the high end, also on the low end, but you'll have to do it by price points, by sorting that way, because they're not allowed to necessarily have that ability to
sort by brands. So you will see they have a robust online business, you know, and it's around the globe. Now, the key is that they're a key differentiated in that regard. Remember that it's still very small, and that the vast majority of their sales, you know, more like ninety six percent or so, are being generated in store, but nobody else in off price other.
Than the rack.
The Nordstorm rack has e commerce capabilities all the rest it's strictly a bricks and mortar model.
Our thanks to Mary Ross, Gilbert Bloomberg Intelligence senior retail equity analyst. We move next to news from the cosmetics company es Day Lauder. This week, the company issued a weak profit outlook for its fiscal year. S Day Lauder said it was weighed down by sluggish demand for high end goods and an escalating trade war for more guestos.
Alexis, Christopherus and I were joined by Debate and Bloomberg Intelligence luxury goods analysts. We first asked deb what she took away from s day latter's earnings.
They're doing well out of the US improve in there. Numbers for the full year are still done, but you could see sequential improvement by end of year, and also
somewhat less soft in China. But for them where they still have so much exposure in Asia and still particularly in travel retail, inventories to me still look stuffed, even though if I think about travel retail overall, it's fifteen percent of their business now it was near thirty percent four years ago, and they're losing about four points of growth annually. For me, when I look at the inventory data over two hundred days versus one ninety, it still
says that there's risk there for me. So they need to write size Asia. They need to do more in getting out of main stores in the US. They're doing a lot positively on things like Amazon Beauty and in Asia on TikTok, but it's all moving onlines. It's the third of their business online, a lot going on, a lot of cost savings, cost cutting, and very low on margin. You know, and that the company has actually taken away.
Quarterly guidance and forecast for EPs on the full year are six cents below the two sixteen is expected by consensus two ten on guidance at the top end is already a little bit below. So shares a week again on the back of a couple of years of underperformance.
You no, dev definitely has you just laid out a few tough years for this legacy brand. But explain to me why there were some upgrades recently. I was surprised to see Deutsche Bank HSBC upgrading from whole to buy. You got JPM upgrading to overweight. What do they see here that maybe others on Wall Street are not.
I think, especially as we've headed through the last couple of quarters, you can see that there are share gains, market share gains in some categories in some countries, so Japan positively, some parts of China by the end positively, some categories in the US positively as well. And there are very easy comps that they will cycle through in the next year ahead, and certainly under the CEO and the CFO, there feels just a lot more entum and
energy to come. So I think that's what the market are buying into, as well as the underperformance that we've seen. But we must remember in terms of them being competitive and what they're doing, they talk about a solid double digital just the EBIT margin, you know, this will will back their investment and then being in front of the consumer,
their innovation pipeline and others. They're only eight percent of the end of fiscal twenty twenty five and they say they get to a double double digitald just a EBIT margin over the next few years. That to me says they're still a bumpy ride. So I understand why why those quarterly numbers have gone right.
Hey, deb sde Lauder said, the terriff's going to cost them about one hundred million dollars to profitability this year. What do you what are some of the luxury companies, the brands that you follow. Are they taking these terriff costs into their p and L or they're trying to pass them along to customers.
What's been the strategy for Yeah, and certainly for the very high end. We saw even at the beginning of the year pre tariff announcements. The very high end like MS would say, because the wage costs and others, we'll be looking at five to six percent price increases, start to passing those through the beginning of the year, and then in May when the spring summer collections came through.
They then have commented generally for the luxury space, and from the work we've done that some may need up to four five percent price to be passed through, and the plan is that they pass most of it through. I don't think very much of it goes up put down the supply chain, and it's going to be done gradually in some categories rather than you know, some completely pass it through more visibly than others. And some will
struggle more. And then we heard the news from Switzerland with the thirty nine percent tariff, So companies like Swatch for US will find it difficult. Companies like I still it's not every brand that is resonating with the consumer will find it difficult in some brands in some categories. So that's why I think we wait quart by quarter and across the rest of the year to see what companies do need to take a little bit of that
on board. But most of them are finding cost cutting as part of that, and certainly on the gross we did see for full years forty basis points improvement on gross margin for US to order with a little bit of that tariff impact mixed in there, and that they're expecting further gross margin improvement in twenty twenty six.
All right, thanks a Debic and Bloomberg Intelligence Luxury goods analysts. Coming up, I'll look at earnings from the world's largest home improvement retailer, home Depot.
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 Bi go on the terminal.
I'm Lis Matheo and I'm Paul Sweeney. This is Bloomberg.
You're listening to Bloomberg and tell Legends with Paul Sweeney on Bloomberg Radio.
I'm Paul Sweeney and I'm Lisa Matteo filling in on Bloomberg Intelligence. We moved next to news from the merchandise retailer Target.
This week, Target named insider Michael Fidelki as its next chief executive officer. Shares of Target fell after the appointment, indicating that Wall Street had been hoping for an outsider to take over the company's leadership.
This all comes after the company reported second quarter earnings that only narrowly surpass analysts expectations. Target also maintained its outlook for the full year after slashing it a few months back.
For more guest hosts, Alexis Christopheros and I were joined by Jen bartashis Bloomberg Intelligence senior retail analyst. We first asked Jen for her take on the new CEO and whether Target should have gone with an outsider.
It's an interesting choice, and I think there are investors. For a little while now, I've been interested in seeing a CEO change Brian Cornell has done a great job during his tenure, at least initially in terms of really driving growth for Target. But an internal choice really implies much of the same strategy, and I think there was some hopes that there would be something a little different and maybe shake things up and bring something new to the company.
You know, I'm wondering if Target is going through an existential crisis right for this identity crisis because you feel like, I don't know about upon and the last time you went into a Target, Sure, but you feel like they've lost their mojo, Jennifer, because the last time I was in there, the store shelves were not stocked very well, felt disorganized, couldn't find a sales associate to help me. What does this new CEO have to do to help this company get back on track. Well, you know, it's
very interesting. He's highlighted three priorities, but they're not really new priorities. But if they can bring focus to it, maybe that will help. And that's you know, re energizing the assortment, bringing back some of that style and you know value that people crave. It's about having a very good, consistent in store execution. And experience, which is what you were actually.
Just talking about, having things in stock, having you know you associates available. And then the third is an acceleration in the deployment of technology to maybe you know, make processes faster, improve efficiency, that sort of thing. So we'll see if that, you know, if that happens. But it's really about getting back to what is it that consumers loved about Target and how do you get them back in that frame of mind so that they come to stores and spend there.
Well, you're the expitt here, like I don't have a sense of what people go to Target for. What do you think they go to Target for?
Well, what they traditionally have gone to Target for was that sense of discovery. Right, you had a couple of things on your list, you got in and you were inspired. You saw home decoration items that you just were like, oh, that would look great in my living room. Or you would go through apparel and you would see something very stylish and you know value that you thought, oh, that's a great thing to add to my basket. And so
that's what's a little bit missing. And part of that may be because of just the rise in digital orders. It's a less conducive to those impromptu purchases. But it's also inspired by the assortment and by what people experience when they're in the stores, and that's really where they have to focus to get that magic back.
And Jennifer correct me if I'm wrong. I think Target has more exposure to tariffs than say, Walmart because of its mix of products. It doesn't have as much exposure to groceries as Walmart does, but it gets a lot of its products from overseas places that are getting hit by these tariffs. How did that play out in this quarter and how will it play out going forward.
Yeah, it's a great question, and it is one of the things that's sort of been bogging down Target ever since we've had very high food inflation. The willingness to spend on discretionary categories has been a little bit more limited.
And that's really the area that Target has always excelled, things like apparel and electronics and toys and home decor and so you know, right now, the company is saying they're doing a pretty good job of mitigating tariffs, but they are more exposed because of the merchandise mix that they have. They said they've done some right sizing. They've they've paid off kind of the one time cancellation charges they had while they were waiting on the terra verdicts.
We'll see what unfolds in third quarter, and especially because it's back to school, which is a really important quarter for Target.
What's always well? I guess what's recently in the last ten fifteen years really amazed me about Walmart is it how's effective their digital strategy was, and they actually went toe to toe with Amazon, and I think they more than hold their own, not just about Target in their digital strategy. How's that performing?
Overall? Target's digital strategy has been doing pretty well. They've done a They've made a conscious decision to not go head to head with Walmart and Target. So, for example, in their marketplace, it's not just an endless aisle of sellers. They have a very close criteria of who they let onto their platform and that's worked well for them because it helps keep the product selection closer to what people
expect from Target. Their digital sales were up in terms of same star sales this quarter, well uppaced the visit visits to stores, and so they've been executing pretty well there. It's just a matter of how do they marry the two parts of the business to grow simultaneously.
Aur Thanks to Jen Bartashi's Bloomberg Intelligence Senior retail analyst.
We move next to news from the world's largest home improvem in retail or home Depot.
This week, Home Depot said sales return to growth in the second quarter. This comes as shoppers invested in smaller projects such as lighting and gardening.
For more.
Lisa and I were joined by Drew Redding, Bloomberg Intelligence US home building analyst.
We first asked Drew for his take on Home Depot's earnings.
It was actually a pretty much inline quarter for home Depot. Today comps up about one little shy consensus, but if you back out some of the four X impact, it was pretty much in line. Now. Of course, growth isn't as strong as you would like to see, and a lot of that, as you mentioned, has to do with where rates are, both rates on home equity loans and
mortgage rates. You have to remember, housing turnover is at the lowest level since the financial crisis, and what we've heard consistently from Home Depot over the last quarters is that consumers are pulling back on big ticket discretionary categories, So think of things like kitchen and bathroom models are flooring And the reason is because these tend to be financed with that and with rates where they are, and consumers with the expectation that rates are going to pull back,
they're taking a wait and see approach and deciding to opt for their smaller ticket to projects instead.
Drew, What what does home depots say about terr risk for them? How did they quantify for the street?
Yeah, good question obviously on you know, top of mind for a lot of investors. So home Depot has done well to diversify that are sourcing over the last several years. They get about fifty percent of their products from the US, so they are in pretty good shape from that regard. We would estimate, you know, products coming from China somewhere around fifteen to twenty percent. And there's a couple of
ways that they're going to manage this. One, given the scale that they have, they're able to push back against suppliers. The second they continue to diversify their supply chain. On their last quarter call, they mentioned that no single country outside of the US will be more than ten percent of sourcing. And then lastly, I think We're going to start to see some selective price increases coming through in
the next several quarters. Now, they've done a little bit of pre buy on the inventory side to make sure that they had some of that lower cost product on the shelves for consumers. But I think, you know, as we get to the end of this year and into next year, you're going to start to see a little bit of pricing. Now, we wouldn't expect it to be
to be widespread or significant. Remember, home Depot sales about thirty to forty thousand products on their shelves, so they tend to take a portfolio approach and manage pricing really across the entire project, rather than raising prices across the board.
Sure, so are you telling me my next home Depot run is going to be more expensive? It's going to cost me more, Drew, I have painting, I have a deck to build, I have things to do. I mean you're saying this could take effect pretty soon.
Well maybe not your next trip back, Okay, the next couple. Maybe Looking more towards the end of this year or into the next year, we would expect to see prices up marginally.
So I need to rush now, well, if consumers are putting off those big projects, what are they focusing on? I mean, is it the smaller ones or are they just canceling projects altogether.
Yeah, it tends to be more maintenance repair oriented, you know. So there's there's projects around the house where things break and you have to fix them immediately, or replacement products for appliances and things of that nature. And again, what we're not seeing is the big ticket discretionary of things like like kitchen and bess that require financing.
Our thanks to Drew Redding, Bloomberg Intelligence US home building analyst.
We move next to the medical device industry.
This week, the medical device company Medtronic reported profit that beat analyst expectations. The company also lifted its full year earnings guidance.
This came after Medtronic announced that it will expand it's bored after Elliott Investment Management became one of its biggest investors.
For more, Lisa and I were joined by Matt Hendrickson Bloomberg Intelligence senior medtech analysts as Matt to bring.
Us up to date on what is happening at Metronic.
With the Elliott Management news, they reported that they have a significant stake in the stock and they're going to plan to bring on two new border directors. These are previous medtech CEOs from back in history and basically they're looking to revitalize growth.
And capture efficiencies too.
As they quoted in the earnings call built oxygen for future growth. And so one of the things we saw in the quarter in the earnings today, there were some areas that had strong growth, strong momentum, but in their diversified portfolio, there are other areas that kind of, let's say, needed some tweaking.
But when it comes to this the board, who were some of the additions that are that are coming in because of Elliot and has Elliott the schools, the size of the state.
As I've seen now, I have not seen a actual size of what the steak is. Some of these the board directors, they were former CEOs at den Supply so some medtech companies. They were also previously at Beckman, Dickinson other ones. They are able to come in with more of an operational background and so being able to drive kind of that efficiency, to be able to create the savings, to be able to invest into their R and D programs.
Right for the folks in front of the terminal with tickers M D T. Then you type in the A n R function, get the analyst rating. Street doesn't know what to do with this stuff. Seventeen buy, sixteen holds in one sell. What's what's the confusion out there about this name?
Then everybody needs medicals, everyone needs medical devices. Metronic has invested a lot of money into these home run type products, polse field ablation, renal de innervation. All these products are trying to disrupt a current market. Either if it's atual fibrillation, hypertension, if you get if you hit a home run like you're doing with pulsteril ablation, it is going to drive
us pulse field ablation. It's basically a way to ablate an area that's being affected by autral fibrillation without using heat or without freezing, so that prevents kind of the damage to the tissue. If you hit home runs like that, you're gonna have key growth drivers. Other products like renal deinnervation is taking longer for that growth to develop. So analysts, including myself, see all these products in the pipeline get very excited about the potential for that growth to accelerate.
From let's say the four to five percent.
They're currently at to six percent, and then we're just still waiting for that execution of those commercialization of the.
Products to get to that higher growth.
Some analysts, as you see in the A and R, they are more bullish on when that will come up. Others are starting to say, wait a minute, We've seen this story before, and so they are waiting. It's a wait and see story for those analysts.
I noticed when we talk with tariffs, they scaled back the impact of TERRAFF, so they lifted their full year guidance. Are you seeing that more from other companies in this space?
Yes, I would say the majority of the companies that reported so far. Metronic always reports because their July fiscal quarter end. All the companies that reported their June fiscal end had a similar thing where they cut it by roughly half of what they had predicted in the first quarter.
Our thanks to Matt henrickson Bloomberg Intelligence, senior metech allist.
Coming up, we'll look at sustainable aviation fuel and how it's breaking records. From twenty twenty four.
You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in depth research and data on two thousand companies in one hundred and thirty industries.
You can access Bloomberg Intelligence via bi go on the terminal. I'm Lisa Matteo and I'm Paul Sweeney.
This is Bloomberg.
You're listening to Bloomberg Intelligence with Paul Sweeney on bloom Radio.
I'm Poul Swiney and I'm Lisa Mateo filling in on Bloomberg Intelligence. We move next to news in the drug and pharmaceutical space. This week, the Danish drug maker Novo Nordis announced it's slashing the cost of ozempic for cash paying patients.
The company said patients can now get ozempic for four hundred and ninety nine dollars a month, that's about half of its US list price through Novo's cash pay pharmacy Novo Care.
Nova is also partnering with the healthcare company Gutarex to offer ozempic for the same price as pharmacies across the US. And this all comes after Novo's weightlaws drug we go Vy received FDA approval to treat a serious form of liver disease.
For more, Lisa and I were joined by Madison Muller Bloomberg Health reporter, We first asked Madison for her take on Nova's recent breakthrough with wegov.
Nova artists got approval for regov, which is its weight loss drug to treat a liver disease called MASH.
And this sort of is a we've seen over the last couple of years.
So many studies come out to show the potential health benefits of these weight laws drugs beyond just you know, the producing the number on the scale. And we knew from studies that there was some benefit to the liver from taking these drugs, and so Nova was able to notch and approval for that, which helps one with insurance coverage.
Wigov and then Eli Lilly's drug zet Bound are still not super widely covered by insurance companies for weight loss, but having some of these other health benefits shown and proven in studies helps them convince ensures that they are worth covering, and so this gives them an edge against Lily.
Lily's drug, Zetbound is not approved yet for this indication, and so it gives them sort of a leg up there, and then it also gets I mean, it sort of is another benefit for Novo because they've been struggling over the last year, just with zet Bound sort of making waves in the market and taking market share from Wigov.
This gives them a leg up there as well.
And just with the tumultuousness of the last few weeks they had a CEO ouster and a few other moving pieces. So this is good news for them and we'll we'll see well, but it will maybe help them gain back some market share.
One of the issues for these weight loss drugs is the cost, and if you're not covered by insurance, they really are expensive. So by slashing the cost of a zempic in half, does a company believe that's going to open up a big new vein of new customers.
Maybe.
So it's interesting because if patients are on ozempic, they are usually on it. It's you know, type two diabetes treatment and usually that's covered by insurance diabetes.
But does it have a side benefit I guess, of weight loss?
Yes?
So, I mean there are two different drugs, right, There's ozembic, which is the diabetes drug Wigov. They both use the exact same active ingredient, which is semiglue tide.
Wigov is a higher dose version.
If you're on ozempic, it's lower doses, so it's not quite as strong, but there is that weight loss side effect on both drugs.
Previously, Novo actually.
Did cut the cost of wigo V down to about the same price five hundred dollars a month back in March, and now they are doing the same for ozempic. But it's interesting because the question of whether or not this is going to expand access for more patients sort of remains to be seen, because again, if you have ozempic, you usually are covered by insurance for it.
Now something I also said, there are partnering in this article, it's said with good Rx to offer ozempic we go before the same price as pharmacies. But didn't Novo try the partnership thing with Hymns and hers and that didn't work out so well.
Yeah, yeah, So Hyms was one of several partners that Novo has sort of worked with over the last couple of months again to really make waves and get into this market or gain back market share because it's really lost ground to Eli Lilly. Hyms was one of the companies that they've partnered with. They've partnered with a couple of other telehealth companies as well as CVS to make this cash pay price more widely available. But this is the first time that they're dropping the price of ozempic
as well. So this partnership with good Rx, you know, any patient is essentially a coupon, like any patient who goes to a pharmacy uses good rx is going to be able to get this cash pay price for ozempic.
And Wigov mentioned that the hymns and hers those compound drugs, how effective are they vis a v the golp ones them themselves, because that would be a if I were like Novo Nordics, I spent all this money to develop, but that would be a bummup recease.
Yes, and that's a really good question actually, that question of how effective are these drugs, because that's the problem is we don't know. There are studies that drug makers are required to do. They have to go through a length the FDA approval process to prove that their medications are safe and effective. Compounded drugs don't go through that same approval process, so there's no actual studies showing how effective those medications are. And it's a little bit of
a gamble. I mean, we've seen patients losing weight on these compounded medications, and we haven't seen a tremendous amount of side effects that are really different from the branded medications. So the problem is just more that we don't actually have a lot of visibility into that compounded market and don't know how those drugs stack up to the branded medications.
Where does this all put Eli Lilly then, I mean, they already had the setback with the weight loss pill, so now we're hearing all this about Nova. Where does this put them?
Yeah?
Yeah, I mean it's been it's interesting, like the two companies. I think last year it was just they were so red hot and there was like nothing that expectations were sky high. There was really nothing that seemingly could bring them down. But now we're seeing a couple of stumbles and I think that that, you know, shows again how high the expectations are for this market.
There's just no room for failure. But we'll see what happens next to Lily.
When is the pill going to be available day year?
Sometime twenty twenty six, So they said that they're planning to file for FDA approval by the end of the year and then hopefully launch next year.
Our thanks to Madison Mueller Bloomberg Health Reporter.
Each week we look at research from Bloomberg and EF previously known as New Energy Finance.
They're the DM at Bloomberg that tracks and analyzes the energy transition from commodities to power transport industries. This week we took a look at sustainable aviation fuel and how it's breaking records from twenty twenty four.
For more, Lisa and I were joined by Anna Davies BNF, head of Renewable Fuels.
We first asked Anna to explain the reason behind the record breaking use of sustainable aviation fuel.
There has been an influx in attention and growth in the sustainable aviation fuel market. And this is basically a market to produce a jet fuel molecule but not use fossil fuels, so usually they use biofuels instead of fossil fuels. So something like used cooking oil out of a fryer. You can clean it, purify it, upgrade it, and then you can make a hydrocarbon molecule like jet fuel from
that oil. And it's a way to decarbonize a sector like aviation, which another if you don't have these fuels, it's very hard to decarbonize because there's no real alternative to jet fuel, and jet fuel is so carbon emissions.
How efficient is this jet fuel? This renewable jet fuel, so it.
Is almost identical to fossil jet fuel. So in terms of it works the same way you burn it in an aircraft engine. It releases CO two like fossil jet fuel does. But the main thing is that it's from a plant or some other renewable source, and so if you think of agriculture, they absorb carbon dioxide for a photosynthesis, and so therefore you can think of it as sort of a net CO two neutralish technology because it at least absorbs some CO two in the growing of the fuels.
So are there any challenges with renewable jet fuel.
There's a lot of challenges, and the main challenge. The main challenge is cost. It's very costly. So the cheapest way to make these fuels is kind of what I've been describing. You take an oil like use cooking oil. That alone is at least two to four times the cost of fossil jet fuel. And that one is tough because there's only so much used cooking oil out there.
You can use other oils like soybean oil, but that has fewer emission benefits associated with it because then you're growing soybeans to cultivate for their oil, so you have land issues, you have you know, all the pesticides and fertilizers and emissions that come from agriculture with that.
Who makes this stuff?
It is mostly the oil refineries these days. Because they can utilize existing oil refineries and upgrade them to handle a biooil similar to a fossil oil, the process for making it becomes quite similar. So your largest producers there are things like Neste or here in the US, Phillip sixty six and Valero have some pretty big operations.
Now, you talked about twenty twenty five numbers, so how do you compare that to twenty twenty four Like it was a significant, significant jump.
Yeah, so this was a really big well, twenty twenty five numbers so far is on track to double twenty twenty four numbers of production of this fuel in the US. Twenty twenty four was a quadrupling of twenty twenty three volumes, So these are really growing at a quick rate. That set is growing for a very small number. So even with this quadrupling and doubling, we're still at less than half of one percent of all US fossil jet fuel or less of all US fuel.
So it seems to me this is probably one of those supplying demand situations. I need demand to ramp up production to bring down the unit costs here, So what are the are the airlines committed to taking this fuel?
This is definitely a chicken and egg scenario. The airlines have targets in place. A lot of them want to have ten percent of their fuel being sustainable aviation fuel by twenty thirty, But these are just targets. There's no real ramifications if they don't meet it. Some countries like
the EU and UK are setting very strict mandates. So both of those regions have two percent mandates for saff use in twenty twenty five, and that increases over time and there are penalties associated with it if they don't meet that. Here in the US, we're definitely taking the incentive approach by offering tax incentives or other policy incentives to try and encourage production. There's no strict target.
Now, what about looking longer term? Is the outlook for this as as it's been on this trajectory you're saying, but does it can it continue.
This, So that is a really good question. The countries like the EU and UK have very ambitious targets. The EU wants to see seventy percent of all jet fuel be made from sustainable aviation fuel by twenty fifty. We have benf think that that's going to be very hard to achieve. Just to produce that quantity of these fuels, where would you get the feedstock from?
What?
Who would shoulder the cost of that? So we anticipate it will probably be closer to the ten percent by twenty fifty twenty thirties. Another time, there's a lot of targets. Like I said, airlines have ten percent by twenty thirty. We don't think that will be achieved either, just because a lot of projects have been delayed or canceled in recent years, especially as interest rates are high, policies have
been changing. There's a lot of uncertainty, especially here in the US where a lot of these facilities are being planned. So there's been a lot of slow down and delay in this industry. And the twenty thirty might be a time where we see really ambitious targets and not enough supply.
To meet it.
We reticent to asked this question, but how has this current administration impacted the adoption of a.
These aviation fuels. Yes, you can't talk about aviation feel without talking about policy. This current administration, aviation feel is something that they've permitted. They've allowed policies. There was a tax incentive and the Inflation Reduction Act to continue. They've done a few tweaks though that really changed the game
for the industry. The first is that they are really promoting domestic production ahead of decarbonization, so things like US crops now fare better relatively than say imported use cooking oil, the other challenges. They've sort of shifted the incentives a bit, so now it's a lot cheaper to produce the counterpart, which is road field renewable diesel for trucking, than it is for stable aviation field. They're produced in the same method. It's a taed costlier to make jet fuel over diesel,
just by the mechanics of how to produce. So the Inflation Reduction Act offered more of a tax credit for jet fuel, making the economics kind of more on par. They've sort of reduced that leg up, so we expect more diesel less jet fuel in the coming years.
Our thanks to Anna Davies BNEF, head of Renewable Fuels. That's this week's edition of Bloomberg Intelligence on Bloomberg Radio, providing in depth research and data on two thousand companies and one hundred and thirty industries.
And remember you can access Bloomberg Intelligence via bi Go on the terminal.
I'm Lisa Matteo and I'm Paul Sweeney. Stay with us. Today's top stories and global business headlines are coming up right now