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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, well, look at why fast food chain McDonald's experience its first sales drop in four years.
Plus, plainmaker Boeing has a new CEO. We'll discuss that in the company's second quarter earnings.
But first we will begin with the big tech earnings and Microsoft. Microsoft reported fourth quarter earnings and revenue the top analysts expectations.
But the company's Azure cloud competing service posted a slow down in growth last quarter, and this comes as investors are anxious to see a payoff from huge investments in AI products.
For more, we were joined by Anna Agrana, Bloomberg Intelligence technology analyst.
We first asked Animog for his key takeaways from Microsoft results.
When Microsoft keep guidance for rasher last quarter, they said growth rate of thirty to thirty one percent in constant currency, and boy, they didn't hit thirty one.
They hit thirty.
People got disappointed, but they did a good job of explaining what's happening on the conference called at the end of the day, they are adding more capacity for their data centers, and the growth rate of the cloud, still very strong, will slow down slightly because of capacity issues and not demand issues. And as they get more data centers up, growth will accelerate.
Oh okay, So to be clear, then they're saying, look, it's on us to build out all this stuff and then all of a sudden, the revenue will accelerate. This and not like a trend of slowing cloud revenue growth because of demand.
Just to clarify for me, yes, absolutely. In fact, and the cloud growth is driven in part or I would say largely by AI bookloads because of their relationship with Opening Eye. That really is the biggest driving factor. And Microsoft has an edge there over others because of that unique relationship that I mentioned. So I think Microsoft remains the primary beneficiary on the software side, similar to what Nvidia has on the chip side.
So an rag part of the discussion I guess probably over the last month or month and a half about AI has been Okay, I understand the spending aspect of it, to build out capacity, to build out you know, whatever I need. Remind me once again, what's the return on that investment? So there's been some questions about the returns. How do you answer that question?
So you know, if you were in the semiconductor world, your return is pretty quickly because the people are going to buy chips immediately. But if you're in the software world, first you're going to get those chip, create a data center, add more servers, and then create your software products that
which you're going to sell. Now, that thing's going to take time, whether it's going to take six months, twelve months, two years, and then you're going to realize that AI revenue and that's where the entire rest of the world is, whether it's on the software side or the services side, and people need to have a very good understanding of it.
Otherwise they keep on harping on this capex issue, which is going to get much bigger, and which is why the chip stocks are doing very well because Microsoft communicated that they're going to increase their capex even.
More this year.
So this is really where people need to understand this and otherwise this confusion is going to continue going in a next quarter as well.
Well.
Then to that point, you know, we got AMD boosting at sales forecast for AI at the same time Intel's cutting thousands of jobs. Where is Intel in this party?
Yeah?
I mean, I think the biggest party player really is in video with their GPUs that are truly required for these workloads, and AMD is also benefiting a little bit from that. Intel, I think is needs to do a lot more work before they can capitalize on this particular trend.
So Intel's in like the quad, like not even not even closed to coming into the frat house. Basically, can we look at it that?
Yeah?
Exactly?
How else in your space an A rag what else looks attractive here.
I think the fun is going to be tomorrow evening when Amazon reports and they start talking about their AI strategy, because remember they do not have a relationship with open ai, but they are still the largest cloud infrastructure vendor and have more services than anybody else. They will come out and give the message that listen, it's not just OpenAI, but other large language models as well that people are using, and they're using AWS services for that. You know, whether
that's anthropic or whether that's meta. All these companies have their models as well, and people should be trying that.
And before I let you go, what I also found interesting was that eight percentage points of the increase in as your revenue and cloud revenue was attributable to AI. That was up about seven percentage points. How do you think that winds up looking like, are we going to start to see like double digit increases here? Is it going to be a slow grind higher?
No?
I think over time it will be double digits, But again the timing is difficult. When we extrapolated this number, we are coming to somewhere around one point four billion in this quarter. That's over ten times in just one year. It was, you know, it was roughly around one hundred plus million a year ago. This is all the AI workloads from open Ai, So I mean it is really a big number frankly. But over time what will also happen is there's going to be a blending between the
workloads on AI and the non AI workloads. And for us, the net beneficiary are the three biggest cloud vendors, and in fact, even Oracle is going to benefit from this.
Our thanks to anorog Rana Bloomberg Intelligence technology analyst, take.
A look at the latest Bloomberg News Morning Console poll.
It shows a Kamala Harris has wiped out Donald Trump's leader across seven battle ground states as a vice president, rise a wave of enthusiasm among young, black and Hispanic voters.
For more, we are joined by Laura Davison, Bloomberg Politics editor.
We first asked her for her key takeaways from this pole.
This is the best that the Democratic challenger to Trump has ever done. You know, this is the first time we have polled Harris. It's a statistical tie essentially between the two candidates. She's technically up one percentage point, but that's within the margin of air. The other key takeaway here is that black voters, young voters, Hispanic voters are much more likely to vote now that Harris is on
the ticket. So this is, you know, been something that that the Trump campaign has created their strategy around of trying to get you know, pull away at the margins and black voters and Hispanic support. But this would indicate that perhaps the tides are shifting in Harris's favor on that front.
Well, that was sort of one of my questions too. Are these voters that are switching or are they new voters that are swinging these poles.
So we don't yet know what that is based on how the poll works, but what we see is that voters who are unsure if they're going to vote are now saying they're much more likely that they're going to vote. So these may be people who voted in twenty who were not enthused by either candidate, who are going to stay at home, or people who maybe have never voted. But you know, a turnout election is expected to help
Harris on this front versus Trump. You know, the Trump folks were you know, sort of hoping to pull away particularly black men Hispanic men, but you know, we're not hoping to see a big surgeon turnout that you know, really helped Biden in twenty twenty and could potentially help Harris in twenty four.
Or you know, as a former Wall Street person, I tend to follow the money and Vice President Kamala Harris has had a pretty good run here in the last week or so raising money. Do we know where that money's coming from.
Yeah, So, her campaign says they've raised about two hundred million dollars and that's in the first week or so of the campaign. This is largely from small dollar donors. These are people who are going and giving online and you know, increments of you know, anywhere from you know, just a couple of dollars to you know, up to
a couple thousand dollars. We've also known that her super Pack, this is the group that can accept money in unlimited amounts, has gotten one hundred and fifty million in commitments since Biden has dropped out of the race. These big dollar donors, people who give millions of dollars, had decided to withhold a bunch of contributions, you know, in order to sort
of pressure Biden to get off of the ticket. So now that money is coming back into the fore just for you know, kind of some in comparison here of Harris when she inherited the Biden campaign accounts that had about one hundred million dollars. Since then, she's raised another two hundred million dollars, So these are really big sums.
How much of this could be also attributed just to momentum, as in, when you have the RNC, the candidate gets a boost, the DNC provides a boost. This is an unprecedented moment in political history, so no doubt the candidate would get a boosed.
Yes, and the timing year is all really interesting because, of course Biden has dropped out two days after the RNC, so Trump was expecting to see a big polling boost coming out of that. Of course, just a week prior that had been the assassination attempt. Leaving the RNC, Republicans were very confident about their chances, and you know, even Republican operatives were saying one of the things they needed
to be cautious of is that they weren't overconfident. Of course, that all switched, you know, just a couple of days later. What the Trump team is saying is, look, this is a Harris honeymoon. This is a surgeon momentum that will just be a flash in the pan and won't last
until November. That's really what what we'll be looking for in the next couple weeks, if you know, is she able to maintain both this fundraising edge as well as this polling edge, or do we revert to where you know, the Biden Trump race was just with Harris on the ticket in a couple of weeks.
What do we make about the situation in Israel and how that is polling for Kamala Harris, Because clearly there's a huge section of voters that is very unhappy of what's happening in Gaza right that we're maybe not voting at all for President Biden, But are they coming back in now? Do we know anything along those lines?
Yeah, So what this poll shows is that people who are very concerned about the Israel Gaza war, and particularly young voters for whom this is a bigger issue, are more likely to vote for Harris. She's taken a softer tone on this and is you know, just doesn't have quite the same negatives on this issue that Biden does. You know, one of the things, you know, particularly just with the you know events of late of you know, kind of there being more unrest in the Middle East.
Is you know that the Biden administration is still pushing for a ceasefire. Harris is still pushing for a ceasefire. Democrats really want this to be an issue that is working towards a resolution versus, you know, an issue that's flaring up, particularly as students go back to college campuses in a couple of weeks. They don't want to see the protests that we saw last spring.
Did the Republicans have buyer's remorse for JD.
Vance.
I'm seeing some reporting all along those lines.
Yes, there's there's a lot of conversations on that, even on a Bloomberg television mcmulvaney, who's a Trump ally, came on earlier this week and said, no, they're not looking to replace JD. Vance. But of course, if you're being asked about this, this means that this is at least a conversation that is circulating. You know, Vance has had a rough rollout, you know, just in about the you know, two weeks or so that he's been on the ticket. You know, some past comments he's made, you know, sort
of degrading childless cat ladies have come up. He has had had some jokes on the campaign trail that have come across as crass and haven't really landed. So this is a conversation that's happening on the upon the sort of Republican elite to the mainstream Republican class, but isn't really reaching the Trump campaign. They have continued to say JD is our guy, and we're going to stick by him.
Our thanks to Lard Davison, Bloomberg Politics Editor.
Coming up, we're going to break down why wireless carrier Team Mobile added more subscribers last quarter.
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Move next to the aerospace industry and Boeing. This week, Boeing announced its appointing Kelly Ordberg as its next CEO, replacing Dave Calhoun.
Bobbing made the announcement as it reported burning through more than four billion dollars in cash last quarter. Well more and all this. We were joined by George Ferguson, Bloomberg Intelligence Senior Aerospace, Defense and Airlines analyst.
He first asked, George, if it's new CEO, is the guy that Boeing needs to turn things around?
Not so sure. I think it's the guy that Boeing needs for a small period of time, right because he was already retired, right, he has you know, he's a great career in aerospace working to Collins, help him put Collins into RTX, I mean, a great experience. He's sixty four, So my guess is he doesn't have a lot of runway to work at Boeing. I think it'd have been nicer to see a CEO that could have put I
don't know, five, seven, ten years into Boeing. But look, I think the job is very difficult, and so I think it's going to take a lot out of the next CEO. And so maybe this is an interim as they continue to develop internal candidates for the job. Maybe it's very pretty difficult to recruit somebody into this job right now. Could be an interim because of that as well.
So again, you know, the strong aerospace background at the component at the you know, parts maker level, but doesn't look like someone's going to be around for the next five seven years.
All right, George, all right, so that's the CEO. How about on the fundamentals here, I'm looking at the second quarter negative adjusted free cash slow four point three billion dollars. You can't like that. Talk to us about kind of the cash flow, the dynamics and what they need to do.
So we kind of expected that four point three billion dollars to be really honest, I'm not totally sure why the stock is up. I don't think it's Kelly because Kelly News started the day out and bowing anchors up about one so post earnings were up. You know, we've done this pop. I mean, you know, we heard from CFO Brian West during the call. He told us Burn was going to be pretty strong in three Q two, and then some the analysts tried to box him in on what Burn was going to be for the year.
One said would be closer to five billion or ten billion. He said he wasn't. I think his quote somebody got, I'm not smart enough to tell you at this time. So there's just a lot of variability right now. That look, Boeing has to keep taking inventory, taking ship sets from their supplier base to keep their supplier base in business while they ramp up builds. And they had some good
commentaries and builds. They talked about the factory kind of putting out twenty ish I think was the number, and I think total deliveries in the thirty ish range for seven thirty sevens rising to thirty eight shutting down those shadow factories. It's the factories that they have the inventoried airplanes, a lot of seven three sevens, some seven eight sevens in shutting them down by the end of the year.
That was I think, great commentary. You know, we got to the commentary about what's going to go on with the union negotiations. Those are coming up in September. Dave Calhoun kind of told us he I think wasn't totally focused on that right now, or didn't have couldn't give us PU and takes there that's incredibly important. Right, So if we get into a situation where the union shuts this company down in September, the cash burn this year
looks looks horrible. Their back going to capital markets looking for a bond raise, which I think everybody on the bond side is scared to death about because they don't want to see a fall to investment grade, or they're going to the equity side, which the equity guys don't want to hear about, right, because that's dilution, you know.
So I think again commentary was good around deliveries and things like that, but a lot of variability coming, you know here around this cash flow burn, and it's super important.
Thanks to George Ferguson Bloomberg Intelligence senior Aerospace, Defense and airlines analysts.
We move next to earnings from Training Technologies, the maker of heating and cooling systems. So the company posted better than expected earnings in the second quarter and raise it's full your forecast.
From Morewood, joined by Train's CEO Dave REGNERI. First the asked David why the company had such positive results.
As far as what's driving our growth? You know, I always tell people we have a system of things that makes Train Technology is a great company. And whether it's the way we operate our facilities, through our business operating system ways, whether it's the way we innovate our new products, or whether it's our direct salesforce. Those are a system of things that make us a great company. And we have a service business that's a third of our company
that's performing extremely well. In the second quarter, our service business was up mid teens from a growth perspective, and we have a culture that's you know, we believe in challenging what's possible and innovating for a sustainable world.
So based on that, it's great to chat with you. By the way, I love love talking to you, because you have such a great read on the residential and commercial businesses. Basically a commercial HVAC unit and a near term residential HVAC unit, and of course that's heating, ventiletion, air and cooling. Where's the strength, where's the growth, where are the weak points?
Yeah, I'll start with residential. We had a very strong quarter in the second quarter or revenue was up low teens, but that our residential business for the prior I'll say, you know, three quarters had really been struggling with a refrigerant change that wasn't clear. That's been clarified. It was really struggling with excess inventory kind of a hangover from
the COVID days that was in the channel. Those both correct it, and we're off to a very warm start to the cooling season, which should have us all concerned for a different reason as the climate continues to increase in temperature. But I would tell you that it's a very strong start of the year, so very strong and residential, our commercial business really broad based growth. You know, certainly
the high growth verticals like data centers. We do very very well in our education or in healthcare, but we had broad based growth in the Americas. We track fourteen different verticals and we were hard pressed to find a vertical that we were not strong in. So it was just it was a very strong quarter for Trained Technology. I'm very proud of what the team's been able to accomplish.
Yeah, I'm reading the Bloomberg Intelligence research note on your earnings. North America's sixteen percent organic growth was much greater than the ten percent consensus.
What drove that?
Yeah, really two things. Our residential business perform better. Okay, we thought that was going to be. You know, in the beginning of the year, we thought our residential business would below single digits. We came in you know, low teams in the quarter, so we significantly outdrove that. And then our commercial HVAC business just continues to operate at a very high level.
And like I.
Said, services was up in the high teens actually in the Americas, and their equipment business just continues to exceed our customers' expectations. So very strong quarter. You know, I was listening to your show earlier. You were talking about sustainability, and I would tell you that Trained Technologies our purpose
is built around sustainability. And what people are talking about right now as you're hearing a lot about, you know, how much power is going to have to be generated to meet the demand that's coming, and you'll hear a lot about data centers using a lot of the electricity. What nobody is talking about is the amount of power that's being generated that's being wasted. And I would tell
you we call it demand side management. And we know because we've done hundreds of thousands of energy audits and buildings that most buildings operate about thirty percent inefficiently So just think if we could solve that problem, and if we can make buildings perform the way they were designed or assets performed the way they're designed. Just think about the amount that we could save and the energy that's being produced and which was obviously has a trickle effect
to the carbon footprint. So that's what train technology is all about. People always ask me, where do you see the growth coming from. It's going to be on the demand side, management side, all.
Right, thanks to train Technology CEO at Dave REGNERI.
We move next to earnings from the wireless carrier T Mobile. The company reported new monthly mobile phone subscribers that exceeded analys estimates.
For more on this, we were joined by John Butler, Bloomberg Intelligence Senior Telecom analyst, and we first asked John why T Mobile did have such a successful quarter.
You know, it just boils down to this. They lead in five G and for any wireless carrier, the lifeblood of the network, the speed of the network, that download speeds that you get on your phone is dictated by how much spectrum you own. In plain English, how fat are your air waves? And the great news for T Mobile is they have the most spectrum of any of their competitors, and they have the right amount of spectrum for five G and we're now seeing it translate into better results.
And I'll note that our own Charlie Pellett is a very happy T Mobile customer.
Oh I'm okay, very good.
I didn't really know any You're probably the only two I know, which says something about the circles I run in, John Butler, So is this just a share game?
John?
I mean, everybody's got a cell phone's got a cell phone? So is this just a share game between AT and T, Verizon and Timo?
It is, Paul. You know, it's really in a way become a zero sum game. In some ways, there's natural organic growth as you know, young kids get phones, older people who have been getting phones post pandemic here. I think that really shook up enough of the market to lead to that little bit of growth on the edges. But the bottom line is it's a very slow growth market, and so it's all about not only protecting your share, but taking it away from your competitors. And T Mobile
has you know, people forget that. Really wireless is almost a retailing game, right, So it's all about branding and T Mobile has done a brilliant job manufacturing a brand image that's all about being consumer friendly and low prices, and so quarter and in quarter out they tend to lead their peers at and Team Verizon in terms of net new subscriber growth, and this quarter, in my mind, they really hit the ball out of the park on that front.
At some point, will I also get my Internet from Team Mobile? Like, is this the next area that they can just start gobbling up share?
Possibly? Actually, if you live in New York, I would say a definite. Maybe. They've been very cautious in terms of managing expectations for where their broadband business is going to go. But T Mobile offers both over the air broadband called fixed wireless access. You basically put a modem in your window. It talks to the wireless network and provides you broadband that way. It's a real set it and forgeted thing. It's been a major hit with consumers.
Verizon is also a major player there. But Tea Mobile is also getting into fiber broadband. And when you think the future of broadband and where it's headed, it really is going to come down to fiber in the long run.
So I think they're placing the right bets. They're moving ahead with fixed wireless access for now because they have excess capacity on the network, but they're reluctant to really ramp up expectations there because broadband eats up a lot of that spectrum we were talking about on the network, So they don't want to endanger their core wireless mobile business by rolling out too much in the way of
broadband over the air. But I think Fiber hedges their bets there, and by the way, they over index in New York. They really have great share in New York in mobile, so I think broadband is their next foray for that market.
All right, Thanks to John Butler, Bloomberg Intelligence Senior TELECOMMENTA.
List coming up on the program, a look at quarterly earnings from it again.
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We move next to the fast food chain McDonald's. This week, the burger chainsaid it experienced its first sales drop in four years when it reported second quarter results.
This comes as a company has pledged to launch new promotions to help offset a decline in customer visits, and this includes a five dollar value meal deal launched in the final week of last quarter.
For more on all of this, we are joined by Michael Hale and Bloomberg Intelligence senior restaurant and food service analyst.
We first asked Michael first key takeaways for McDonald's earnings.
The biggest takeaway is that they still have work to do. I guess results and as bad as expected. You know, July data that we've seen is pretty bad, so the fact that they're still negative isn't really surprising, but they definitely still have work to do. The five dollars meal deal seems to be bringing in some traffic. They're hopeful that you know, the sales will follow, but it hasn't happened yet, you know, And they talked about the US really needing a revamp of its one two three dollar
value meal. This company has scale that nobody else does. They can offer price points that nobody else can. They have a ton of marketing might So for those reasons, in this really competitive market where where chains are fighting hard to track low income consumers, you know, McDonald's definitely has the tools.
To be in.
For me, the McDonald's experience was always an airport experience because I always say I could justify it per say, hey, I'm rushed for time to gonna make my flake hid something quick. But now all the new airports and like the renovated Newark Airport, there's no fast food in those things anymore. You have to sit down and order and do all that kind of stuff. So that's why that's interesting.
Isn't there fast food? But you it's like nice stuff like wraps.
Well you get that stuff to go, But I mean you could always get like some fast food, serious fast food.
All right.
So, Mike, so what's the story for McDonald's here. Do they open stores, do they rationalize their footprint, what's kind of the strategy there? In terms of managing their footprint these days.
Yeah, well they're there and they're investedtily. Late last year they pushed for more aggressive store openings, right, and so that's going to continue to be the focus. They're going to push hard to grow internationally. China obviously is a big point of focus for them. But yeah, it's going
to be to open stores. But in order to motivate their franchisees to open stores, they're going to have to, you know, have a strong marketing program that's going to pull people into the restaurants, the existing restaurants, grow same store sales, improve profitability, and make it just a more attractive proposition for their international and US franchisees to open new stores.
Didn't they unveil like a five dollars meal thingy, But that was at the end of the quarter, right, so we don't really know the full impact of that for McDonald's.
Yes, yes, so on the call, management said that it's driving traffic but not sales yet. So it seems like there's some trade down from current customers saying, you know, well five dollars, I get a lot of food for that five dollars, So maybe instead of getting a big McNeal, I'll get this five dollars meal deal. But so it hasn't really impacted results yet, but they said that, you know, historically traffic comes before the sales boosts, and so they
seem positive on it in this near term. You know, they said ninety three percent of franchisees in the US have agreed to extend this offer deeper into the summer. So they seem positive on it. But their real focus is going to have to be on the one, two, three dollars value menu. That menu isn't resonating with customers, right, and it seems like a full revamp is in the cards.
You know, they've they've received a lot of.
Shade on social media that you can't find anything on that menu for a buck, right, and so some reengineering is going to be necessary here in the United States.
All right, dumb question of the day comes from me. Never at McDonald's, Burger King, even Starbucks, the drive through line or the twenty cars deep. I walk inside, I walk right up to the counter and boom, I'm served. And if I'm a McDonald's, isn't that a source of opportunity for me to figure out how to get them through faster.
Yeah, well, I guess we're lazy.
That's that's the problem, right, But uh no, to your point, you know, a big percentage. You know, historically the counter was like say fifteen percent of a drive through restaurant sales, and historically that's really just been used when the drive through line is too long and people say, you know, I don't want to wait that long. I'm gonna go inside and pick up my stuff. So there is an opportunity, there's and it's a it's a point of focus for
all of the quick service restaurants we cover. Everybody is constantly trying to improve their throughput, you know, decrease the time waiting in line, because they know, if there's you know, at a certain number of cars for McDonald's, historically it's been you know, say five or six cars in the drive through, people will either you know, drive past the restaurant or maybe they'll say, you know what, I'll park and come in. But uh that's that's potentially business loss.
Right.
So you know, improving throughput at the drive through, in at the counter is constantly a point.
I mean in theory, right, you get like an I thing to do the drive through, right, But that has been really tough to manage right now, right, it's not really the best.
It's not working.
I mean, people have they're having a lot of trouble with accents, not only from you know, international customers, but also dialects across the United States, so voice ordering and a lot of these AI initiatives. You know, there's a lot of potential with them, but they haven't been able to really pay dividends just yet.
All right, So what is the investment call here, Mike for some of these fast service McDonald's, Burger King, what's the investment call here for these names?
Well, they're looking at you know, it's interesting because the year over your comparisons, base effects get easier into the second half, but the consumer's weakening, right, and so you know McDonald said they expect you know, more consumer weakness over the next few quarters, right, And so there's definitely concern about about restaurants spending here in the second half.
You know, I think I mentioned it at the top.
McDonald's is well positioned though in you know, periods of distress. You know, during the Great Recession, they outperform by offering value that competitors couldn't match, right, and so it's a very tough environment. But we think McDonald's is positioned pretty well for such a tough environment.
In the value war where everyone's chasing a smaller part of everyone's wallet. How do these guys remain profitable? I'm not saying McDonald's, but like all its competitors too, like it's sort of a race to the bottom to some perspective, how does that play out?
It's not just a race to the bottom. So in terms of the loan, they're trying hard to keep that low income consumer business, and there's no doubt that that's a big focus right now, but they're also bringing in you know, middle income and higher income consumers into the fold, right, So you also get this traded down effect where you know, yes, sure, low income consumers are trading down into grosser restore, but McDonald's and some of their competitors, Jack in the Box
being one, you know, Chipotle, have been able to attract these higher income consumers that actually come in and buy premium items and spend more when they come. The problem is they're just a much lower percentage of the of the overall traffic. But that's what we've seen over the last year and a half or so's chains that have been able to attract these higher income consumers are definitely outperforming.
So where in your overall space there mic on the restaurant side is the best place to be these days.
It's companies that provide a lot of value and a very good price point, right and so, you know, like most earning seasons and industries, you know, a lot of the top performers end up reporting earnings first, and we've seen that Chipotle and Texas Roadhouse are two They outperform everybody on seamsore sales over the last five years and
it's not even there's not even a close second. And a big reason why they've outperformed by so much is that customers see a lot of value on that plate for the price that they pay right and there, and they're provided a pret good customer experience, and that's what's bringing people in the door. If you're providing very strong everyday value and a good in restaurant experience, you know, clean restaurants, good service, when everything that that entails, then you're winning, all right.
Thanks to Michael Halen, Bloomberg Intelligence Senior restaurant and food service analyst, we next.
Take a look at earnings from the Dutch brewer Heineken. This week, the company report a quarterly profit and revenue that fell short of analyst expectations.
Heinegansited a nine hundred and forty nine million dollars hit as at stake in China's largest brewer has fallen in value. For more on this, we were joined by Duncan Fox, Bloomberg Intelligence consumer staples analyst.
We first asked Duncan to take us through the laundry list of things that were a problem for Heinegen.
Well, I suppose the main one was consumer sentiment was still quite weak, so what they were hoping for was a bit of a bounce back in Europe for volume with the euro twenty four, but unfortunately the weather was just again four in northern Europe, so that was a his In China, it's just that China Resources a share price has been below the price they bought it for about four or five months now, and the accounting system
means they have to take that hit. So if if that share price goes back up again whenever the Chinese economy recovers, then they'll get some sort of recovery from that. But I can't tell you when that will be, so it's just double consumer.
So what is Heineken saying about just underlying demand in general? What are they saying about the consumer and is there regional differences?
I guess basically the consumer's been hit by inflation curvac years from double digit pricing, and I think they're just pairing back. The big problem is that people are not really going to the partner as much the entrade that's where they make great profit. Well in Europe, it's certainly been the case in places like Africa where you've had
devaluation as well. You've just got a working way through that and they've done a very good job actually, but you still have short term issue where you know, Nigeria is a big, big market for them and you get a massive devaluation and so they're just working their way through all these issues. They're doing actually quite a good job on the ground. But weather was the real thing
that was a surprise. I mean, the upgraded guidance a little, but I think people are expecting a bit more because of the Euro twenty four.
So Paul brought up sort of those mixed infused cocktails and stuff. I can get the mimosa in a can. It's not terrible at all. Does Heineken have exposure to that kind of stuff and is that sort of eroding the appeal of beer at all?
Well, beers getting it from each from every angle really, because you're seeing a lot of these new odd drinks. I probably grew with.
Poorn and that once.
Some of them are a bit weird. But they've got Desperado, which is a spirit tasted beer, tequila based beer, which is doing very well. So they have got things that they can attack these products with. But you need to keep basically innovating with new things all the time. You know, Diazu're doing a pretty good job on trying to do that. But the problem is some of these don't last very long the eighteen months and then things sort of fall off a cliff, So you've got to sort of keep
replacing them otherwise you're getting to a bit of trouble. Actually, the Hearneken one's doing well, but they just haven't come up with innovation in that area. It's probably not their key area for them.
Is Hanegan calling out different regions of the world behaving differently as the US market stronger than the European.
If you have a nice beach, your sales are up exactly.
Well, certainly it's the suns out. They're not that big. In the US Latin America, they're big, and they've they've been they've taken quite a lot of costs out. They were importing bottles to Brazil, for instance, which is a huge market for them, so they've taken the cost down. So it's not particularly great consumer environment there, but the profits are improving because you know, they've realigned their cost space. In Asia, they're bouncing back from a really horrid time last year where.
The economy is.
Vietnam in particular, had a terrible time in sort of Q two and Q three last year. That's bouncing back. I wouldn't say the beer market because of regulation, is buoyant, but they're gaining share and they've done innovation on the beer. Beer market there there seems to be working very well. So there are a few issues in Asia that they've still got to overcome. China some quite a chunky bit of their market now, so they need to see that
economy improved. Places like Cambodia have got a bit of an issue in the short term because of the economic growth. So just a case of good old policies from governments turning the economies around. I'm surely get a bit happier with book. We'd life and people then go out and buy beer.
Thanks to Duncan Fox, Bloomberg Intelligence Consumer Staples Analyst.
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