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On Today's Bloomberg Intelligence Show, we dig inside the big business stories impacting Wall Street and the global markets.
Each and every week, we're going to provide in depth research and data on some of the two thousand companies and one hundred and thirty industries our analysts cover worldwide.
Today will take a look at Paramount Global and why they're said to be cutting jobs despite hosting a record breaking Super Bowl.
Plus, we'll discuss why food and beverage company craft Times is experiencing weaker sales.
But first we dive into a major deal that could redefine the US energy sector. Diamondback Energy has agreed to buy fellow Permian base and driller Endeavor Energy Resources and a twenty six billion dollar.
Deal Love Me Energy Deals. We're joined by Vince Piazza, Bloomberg Intelligence senior energy research analyst, and we asked him first what he thought of the deal.
I think the deal ticks all the boxes that we're going to need to see in this MNA.
Wave in the Permian.
It grows Diamondbacks acreage, it grows locations, so inventory is not going to be an issue.
In terms of the price that they paid.
Look, Diamondback, in my universe of coverage had the highest premium, so they're using their multiple to get this deal done and so elevated currency along with some.
Cash and debt.
They do have a fairly low leverage on their balance sheet, so I think the picks all of the boxes. They'll throw off significant free cash flow in twenty twenty four and twenty twenty five, so in terms of paying off whatever bank loans that they're going to take on for this, but also works out for the founding family of Endeavor, they get to monetize decades of hard work.
Vince is this a merger of equals?
Well, in this case, think about what Endeavor brings to the table.
It almost doubles Diamondbacks Middlin acreage, and it brings sizeable oil production for the broader Diamondback franchise. So I would tell you that in terms of size, it is a merger of equals. But the family will get roughly thirty percent of Diamondback with selling off almost half the resource to Diamondbacks, so it basically doubles Diamondbacks total size, and the founding family gets about thirty percent of the new Diamondback.
Let's say, Vince, are there any regulatory issues here? A lot of m and A going on in this space here.
Yeah, you know it's going to get looked at.
So Southwestern and Chesapeake getting together out in Apalachia, that's a gas deal. But that will get a very very clear look, a very very deep look by the regulators.
This will as well.
I don't see why it wouldn't because of the actual size of this entity. It's going to be an enterprise value of north with sixty billion. It will be the largest Permian pure play, so it'll get looked at.
All these deals will get looked at and.
It'll take a deeper look, same as Southwestern and Chesapeake.
I was talking to jenre and she covers Antrust for Bloomberg Intelligence, and she's like, yes, like all of these are going to have to get looked at. They're particularly interested in the Exon Permian Pioneer deal and that all these deals are definite gonna have the FTC sort of
wide eyed looking at it. But you have to wonder though, if they want more oil, they're going to have to do it, right, Vince, I mean it's gonna I'm just trying to think of like what the rationale will be to block say this deal, but like let exce On Pioneer and go through, Like you can't.
This deal is much more North America centric, much more North America focused.
So when you think about you know.
Exon and Pioneer Pioneer fits within Exon's Permian portfolio, but Exon is a large, integrated multinational franchise.
This is more US centric and Permian centric as well. But look, they're all going to get looked at. It is what it is. This is a very large transaction. Like I said, Southwestern Chesapeake is getting looked at. This will get looked at as well. It's an important resource. What you have here, though, is you have resources now in stronger hands. You have Exon Mobile, Chevron, you have Diamondback.
You have very large entities with big balance sheets and the capability to take down even greater levels of capital in order to move production from the delineation phase into the production phase.
Give me a sense, Vincent, I'm putting my banker hat on. Can I keep doing a bunch of deals here? I mean? How many players are left?
Yeah, it's a very interesting question.
So we put out last year the top twenty privately held PE sponsored names in the Permian. In this case Endeavor being the second largest, Mewborn, which has mentioned that it wishes to sell. That's the largest of the top twenty that'll go out, we think, because it has been mentioned as a takeover candidate. Similar situation Founding family looking to move the assets. If you think about the top five, three are now gone, so there is a great deal
of interest. There's interest by the private players as well, especially the PE sponsored players. You're getting close to these vintages that are aged and now this capital needs to be recycled, so you will see more of that. You will see public buying private. Public does have the currency.
In the case of Diamondback, they had a premium multiple elevated currency that they were able to use to monetize the founding families investment, and you'll see that as well, especially in the permium where you do have this difference of large cap premium valuations looking for assets and the smaller cap names trading at a relative discount to peers, but trading at a discount to the larger names as well.
Our thanks to Vincent Piazza Bloomberg Intelligence and Senior Energy Research analysts, we go.
Next to earnings and focus on Hasbro, the toy maker, reporting fourth quarter net revenue and adjuster earnings per share the trailed analyst estimates, and this comes that the toy industry continues to suffer from week consumer demand after that boom in the early days of the pandemic.
For more on this, we talked with Lindsay Dutch Bloomberg Intelligence Consumer Hardlines Senior Analysts. We first asked Lindsay what she made of the quarter.
Osbro definitely disappointed on the quarter as top and bottom line missing, but more importantly that outlook for twenty twenty four looks pretty rough. They're definitely thinking about the toy industry more bearish than some of their peers like Mattel. And this is coming from a place where they've had more challenges than Mattel. In twenty twenty three, and even at the very end of twenty twenty two, there's some
concern about profitability improvement for this company. They've sort of struggled to raise that operating margin over the past year, and I think that's like a really big worry bead thinking about twenty twenty four. They posted an operating margin for twenty twenty three nine point five percent. It was the lowest in at least twelve years, So there's real concern there.
So let's start with the top line in the toy business. Is this a GDP growth business? Less more, how does this business grew?
Yeah, so typically, I mean the toy business. You know, you think about growth two to three percent a year. Toy business boomed with the pandemic, so we're still coming off of those twenty twenty twenty twenty one highs, and in twenty twenty three, the industry contracted about seven percent per Circana data. Mattel was thinking that, you know, this year twenty twenty four would be a little bit better
than that, but still contraction. Hasbro is saying down eight percent, So definitely a more bearish view on the industry as a whole. But this year definitely looks rough in terms of toy demands, still coming off of those.
Highs, and they don't have Barbie. I mean, I asked the CEO of Mattel this on TV. I was like, you know, do you need a Barbie two? Like, what's your next evolution here? I mean, I know the quarter was better than Hasbro, but it still has problems. There's still an activist investor that wants them to spin off their American Girl and Fisher Price business, et cetera. It's like, you have to sell more cars if you're not selling dolls. And Hasbro doesn't have Barbie. Pow Reliant is a toy business.
On movies, yes, so content has been a big driver over the past couple of years. Barbie is a great example of that. I think we also know that you can't have that blockbuster type movie every single year, but a lot of the preschool brands, you know, you can link to a series. So Hasbro does own Pepa pig. So just getting like this the animated series there sometimes can help with toy sales, but there's a major connection
with entertainment. Entertainment generally across the board, not just Hasbro specific is going to be light in twenty twenty four, so they do lose that driver. Hasbro is also different than Mattel in the key categories that they play in, so they own NERF So they're really big sort of on that outdoor category, which again that's an outsize grower during the pandemic. They play in arts and crafts with Plato.
Plato's like they've come out with some new products, but it's kind of really hard to come up with new innovative things in that category. Some of their outperformers were like Transformers in the past year again and entertainment linked product, you know that did well because of that.
All Right, So if I've got a business where the demand is challenge, what do I do on the cost side to try to preserve my margins here?
Right?
So you know, Hasbro laid out a plan in October
of twenty twenty two cutting costs. They kind of realized over time that wasn't quite enough, but they were planning, so they wint of double that goal, a lot of it coming out of SG and A. They're also offloading some of their brands and basically licensing out to other manufacturers to actually make the products, and that is going to be a key part of you know, their outlook for a stronger operating margin in that toy segment in twenty twenty four, and by that, they're expecting a four
to six percent operating margin this year, whereas last year it was an operating loss. It's still a pretty low number below they're targeting twenty percent over the long term, so there's a lot of work to.
Be done there. What's the Wizards of the Coast segment? Does that really hurt? What is that?
That includes their magic of the gathering at tabletop gaming digital gaming brands, So that has been a top grower for this company over the past couple of years. They're again lapping difficult comparisons, only expecting three to five percent growth in twenty twenty four. But that business is a high margin business for them, So you're talking about thirty eight forty percent margins, but the problem is it's it's
closer to thirty percent of their overall business. So as continued growth there is great, the margin is great, but it's still a smaller part of their mix, so it can't quite offset this weakness that they feel sort of in the traditional toy business.
Thanks to Lindsey Dutch Bloomberg Intelligence Consumer Hardline Secret Analyst.
Coming up, we're going to break down what Paramount Global said be cutting jobs.
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Let's turn out to the media and entertainment industry. Earlier in the week, we heard the Paramount Global is cutting roughly eight hundred jobs, or three percent of its workforce.
We're told the cuts of our response to the continued loss of cable and satellite TV subscribers to streaming services like Netflix, and this comes despite Paramount hosting a record breaking Super Bowl TV audience.
So for more, we're joined by either Maganathan Bloomberg intelligence analyst on US Media, and we ask Ether for her take on this week's news.
This is really more of course, they did have a great Super Bowl, but I think this is really more about the future outlook for the company, and that is super super bleak. Yes, it was a great night for TV advertising. We think they gotten seven hundred million dollars in roughly about four hours. But then it's throughout twenty twenty three we've seen TV advertising decline by low double digits.
It was down almost thirteen percent in the latest quarter that they reported, and it's not going to get too much better. And it's not just the challenges on the
TV side of the equation for them. It's also about their streaming business and they've made good strides absolutely in terms of you know, streaming subscribers, and again I anticipate that they're going to have some good streaming numbers to report thanks to the Super Bowl, but it is burning a lot of money, almost one point seven billion dollars is what they will report in losses for twenty twenty three, and before that they lost about one point eight billion.
So it's just been a continuous drain on the company.
And I know they're there's a lot of talk around perhaps the controlling shareholder, Sherry Redstone, will consider selling all a part of the company. What's the latest on that?
So the latest actually in that saga, and this has now been an ongoing drama for many months now, Paul, The latest is that Byron Allen actually came up with a bid for all of the company, not just for the controlling stake held through National Amusements.
And he actually put up a pretty good bid.
You know, it was fourteen billion dollars in terms of equity, so thirty billion dollars enterprise value. We think it was a pretty fair bid. The problem is, you know, Byron Allen, I don't think anybody is taking him too seriously. He's you know, had this track record of kind of coming up with these empty bids. So while it is a number, again, we've not really seen a whole lot of action that we would have expected.
So this is a totally unfair question to Paul. Let's pretend you're still an M and a banker here, investment banker. What would you be talking to Paaramount about.
I would I would say, I think the best buyer here there's a strategic buyer, maybe Warner Brothers, the Discovery, But both of those companies, as keitha Wall and those bound sheets are not great. I think I would be shopping into a private equity because they're still good for free cash flows here and let them deal with it.
So Githay, what is the sense here as to I think about Paramount, I think about Warner Brothers, Discovery, what happens to these companies because it just feels like against some of the big tech companies, they're just not big enough here, against Netflix, are just not big enough. What did they do?
So?
I think Warner Brothers Discovery actually had a pretty interesting move last week Pall, which was they banded together with ESPN, Disney and Fox to kind of create this sports super app which will launch in the fall. And that's one way for them to kind of protect at least some part of their linear revenue stream, because I mean they've kind of everybody's seeing the writing.
On the wall here.
We're seeing cord cutting, we're seeing about ten percent of the subscriber base get eroded ear after ear We've already lost thirty million subscribers. So that's one good way for them, I think, to kind of control their destiny a little bit in terms of distribution. Again, remember Paramount is not part of that bundle, so that again is a little bit of you know, a strike against them. But you know, you bring up a good point. I think at the end of the day, we are going to have to
see consolidation. Of course, as you just pointed out, there were rumors of actually Warner Brothers Discovery being interested in Paramount, but that would be about more than you know, sixty billion dollars I think in debt for those combined companies. So yeah, it is it is definitely going to be challenging, but I think consolidation is definitely on the cards.
Okay, So then how does that happen? Because if like, three wrongs don't make a right, and you're not going to put all the media companies together because it's going to create more problems. So is it private equity like to split up different areas of media within the company.
Yeah, I think Paramount I think one of the things has been you know, to sell it for parts. Right, there are some parts of the company, the TV networks that could be very, very attractive to private equity, as you just pointed out, because of the cash flows. Right, it's still a business. It used to throw out about six billion dollars in ebit dah, but it will still throw out about four and a half to almost close to four point eight billion dollars in ebit DAH. So
again cash highly cash generative. Of course, the future you know flows don't look so great. But then there has been a lot of interest in the studio part of the business, right, whether that's you know, David Ellison with his guy Dance Media, maybe.
Somebody else, maybe even an Apple.
We haven't necessarily seen any of those you know, bids kind of come to fruition, but there definitely will be a lot of interest. But I think the one thing that we kind of have to wait to get some clarity on is definitely the regulatory environment. We've seen big tech kind of really shy away from anything too splashy, but who knows, maybe when the government changes, all of that will change as well.
You know, Githa, When these networks bid and pay billions of dollars for sports rights. And even if you you know, you put up that seven hundred million dollars of bad revenue that you reference, you know, it's tough to make a profit on that kind of business. So what the networks have always said is, yes, but we promote other shows on our networks, and that value is really worth paying these big rights fees. But if you're promoting all these shows on the CBS network that nobody's watching because
of chord cutting, how valuable is that? I mean, I thought about that they were promoting all their shows that I don't think anybody's watching because they've already cut the cord.
Yeah, you're absolutely right for them. Though.
The one thing that Paramount has done really kind of well, and I don't know whether this is a plus or a minus.
But it definitely helps them at least shore up.
I think the total value of their assets is they've actually all of their sports properties, including the NFL, they've actually kind of leaked it outside the bundle, so they were showing it on Paramount Plus Day one, and they did the same thing with the Super Bowl as well. So I think even if they're you know, even if you have cord cutters. They could make the argument that yes, you know, people can potentially sign up for that service. We saw, of course Peacock do that with that wildcard
NFL game. Again, what they know that they're losing subscribers on the PATV bundle, so they're trying to they're trying their best, I don't know how successfully to kind of make it up on the streaming side, but you're right, I mean it is kind of a lose.
Lose, Keitha. So what's next? Like, what are you watching? Preparea amount now?
For Paramount, It's definitely it is an M and a place. Something has to happen. It has to happen fast. Bob Backish, the CEO, has pretty much said it. You know, he said he's.
Evaluating Bayern Allen's proposal again, not sure whether that will necessarily pan out, but somebody has to come up with something and it has.
To happen quickly.
Our thanks to Keitha Ranganathan Bloomberg intelligence analyst on US Media fall.
Let's turn out of Cisco So the largest maker of computer networking equipment, Cisco announcing plans to cut thousands of jobs, saying the cuts will affect roughly five percent of its workforce.
This all comes after a slow down and corporate tech spending wiped out Cisco's sales growth last quarter. For more on all of this, we spoke with Woojin Hoo, Bloomberg Intelligence senior technology analysts. We first asked him if anything stood out from Cisco's quarterly results.
I think after the job cuts league from last quarter, I think there were expectations that there were going to be cut the estimates. Quite frankly, the big standout for me was that the cuts were big enough. You know, five percent op X cuts. That's part of the course for what Cisco typically does. But at the end of the day, I mean, based on reports, it looks like a lot of this was expected.
You know which I've followed the Cisco name for decades. I mean it's one of the founding Silicon Valley tech names based in San joseric smack in the middle, you know, Silicon Valley. What are they not getting right here? This SoC hasn't worked for a long time, and it just what from your perspective, what are they just missing here?
Well, let's talk about large cap stocks in general, right, If we if we think about the big bangs let's say Microsoft, the old tech guard of the Microsoft Google, Right, they all really led on a cloud software transition. If we think about it, from the hardware old guard Cisco, Dell, HPE or the old HP, there's still relatively a hardware business. So you're not going to get the fast, sexy growth
from the hardware business. I mean, if you look at Cisco, you know, after the estimate cuts fifty two billion for fiscal twenty four, that brings them back to twenty twenty four levels, right, So you're not getting the growth that people want, and also you're not getting the margin profiles that you want as well. So that's why the multiples are lower and the growth of shallower.
So over the last five years, this stock has compounded three percent per year, Cisco S and P five and fourteen and a half percent, the S and P information technology sector twenty six percent. So it's really really underperformed going forward, which I guess over the next several quarters. What Cisco's saying about their customers and inventory and cutting this forecast suggests that they don't have a lot of great visibility here.
If you remember the server and storage cycle from a year ago, Cisco is going through that right now. Part of it is because of the supply chain glut all of a sudden, Their customers got their equipment two quarters ago and they're taking their time implementing it. So typical
cycles are roughly five to six quarters. I was running through the numbers and when we're talking about anywhere between twenty seven to thirty percent declines for the next two to three quarters for Cisco for the networking business, not sales. But they won't get out of this decline until the second half of fiscal year, which is about a year from now. Right again, the model's going to be reworked,
primarily because of this Plunk deal. The hope is is that they're going to have more recurring revenues to boost up the multiples going forward.
Where's the AI component for Cisco.
I will tell you they're making a lot of good progress. They had a billion dollars in bookings in black black orders with Cloud customers, and the issue is is that that only represents two percent of total orders, right so it's still relatively small. It is going to be growing, and they're probably going to bang the drum louder on the AI the over the next couple of quarters As these deals really start to balloon. The one thing is, again,
it's still a corporate IT name. If I were to pick one AI name on the networking side, it's probably going to be more Arista than Cisco for now.
So again, is there a way WOODS is broadly defined On the hardware side, Have investors embraced any of the hardware's names as AI plays?
Is it?
Because it just doesn't feel like it. It feels like what I'm hearing from a lot of your folks on the tech team of Bloomberg Intelligence. It's kind of software applications, that kind of thing.
I can name for Arista Networks, Wow, super Micro and Dell. And they reported in a couple of weeks there's a growing AI story there and one name that's been underappreciated is probably Hpe. They have a high performance computing business, but the story is a little muddled because of a
pending Juniper deal. And then there's you know, my colleague Steve saying he covers the white box vendors, and there's some white box vendors that may potentially benefit because they sell server equipment to the cloud guys.
Our thanks to Wu Jinho, Bloomberg Intelligence senior technology analysts.
Coming up on the program, we'll discuss why food and beverage company Craft Tines is experienced in weaker sales.
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We move next to the food and beverage industry. So earlier in the week, Craft Times reported first consolidated organic sales declined since the second quarter of twenty twenty one.
We heard from Jennifer Bartashi's Bloomberg Intelligence senior analysts retail, staples and packaged food. We first asked Jennifer for her key takeaways from Craft's earnings results.
The big surprise for Craft was that volume was down, which was not a surprise, but it was down more than prices rows and that really put pressure on the ability to generate sales growth. And so organic sales were negative for the first time since twenty twenty. And although there's some momentum in the business, it's got people concerned.
So, jenn as I understand the package food business from reading your research and talking to you, you know, I guess post pandemic volumes were down, but they've been able to make up for it by raising prices. More so, is that game kind of played out now?
Yeah. Basically a lot of these companies have run out of their pricing power. And what that means is, you know, they were able to raise prices because their input costs were hire, whether it was ingredients or transportation or packaging. But as inflation is coming down, they're losing the ability to pass through additional price increases, which means that if you want to have top line growth or organic sales growth, you have to have positive volume growth because you're not
getting it from just higher price anymore. And the problem for craft tind size right now is that volume is still down, price is lower than it's been and they're not seeing that bounce back in volume that typically lower pricing would encourage.
Okay, so a couple things to focus on. Let's go to the product side then, because you mentioned that a few times so volumes are down, it doesn't seem like that's just a pricing power thing. Do they not have the right products right now?
Well, I think their portfolio is actually pretty good. It's just that the consumer is not buying as much as they were before. So if you think back to pre pandemic, people had huge pantries and everything was stocked. They had lots of boxed goods in there. And now people are still a little bit more conservative and buying more on
a need basis rather than a stockpiling basis. And so until people start to bulk up those pantries again, it's hard to entice them to buy more than what they just need for this week.
So as I look at the analyst forecast, jen, I kind of see the one and a half to two to two and a half percent revenue growth in the next several years. That really is the story for most of these consumer package goods companies, isn't it.
It really is, especially for companies where the bulk of their portfolio are what you would call center of the store items, so that's the candle items, the boxed items. That type of outlook for top line growth is pretty much in line with where you would expect normal inflation rates to be, and so that in and of itself is probably a reasonable expectation for where these companies can go over the next few years.
Do you think that prices then will come down or do you think that they stay sticky?
Prices will slowly come down. Retailers are looking to pass through cost savings to their customers, so there will be higher pressure on package food companies to low prices as well. And as their input costs and packaging costs come down, it's harder for them to justify holding prices at a higher level and not passing through some of those savings.
So while prices may never come back down to where they were pre pandemic, they should come down a little bit from where they were in terms of peak pricing in the last eighteen months.
A little bit.
I don't know if we like a little bit, No, we don't, And that's and that's what the problem. That's a problem for a lot of people and it's a problem for the politicians who are saying inflation is still a bad story here. So all right, So Jen, with these names like Craft Hids and General Mills and Kellogg's, I got a you know, low single digit revenue growth. I'm looking. I got dividend yields for Craft Highs about four point seven percent. I mean, what am I owning
this thing for? Am I owning it for single digit kind of maybe stock price return plus some dividend yield And that's my game.
That's probably the value play at the moment, right, Meaning you've got steady kind of slow and steady growth, you've got a reasonable dividend. They do do share buybacks, you know, so there's some some shareholder benefit there, and you know, as consumers start to pick up their spending, then we may see a better outlook for these companies as well.
Who does Craft compete with, like the cokem PEPSI I know that PEPs was all like snack snack snacks, but they have the soft dam business. Who's like a straight up Craft competitor.
Someone like Canagra would be, you know, or Campbell Soup. You know, those would be kind of those center type store companies. That would compete most directly with the Craft Times.
Hey, Jen, I look at the at the holder's list here and I forgot about this. Berkshire Hathway Warren Buffett by far the biggest shareholder of this company with about twenty six twenty seven percent ownership. What is Berkshire Hathway publicly said about this investment? How long have they owned it? What do they say about their stake here?
They've been involved for a very very long time. Haven't made a lot of public comments lately. But when Kraft Times began its transformation plan, which was now a little over three years ago, Berkshire Hathway was very positive on that transformation story. And to be fair, Kraft Times has executed on that transformation plan and generally ahead of schedule when it comes to cost savings initiatives, streamlining things, rebalancing their portfolio. So they really have been sticking to that
plan and delivering ahead of schedule. It's just that it's a multi year process. Jen.
In your coverage area, you know you got to Staples, the package food companies. What's the kind of the best idea. What do you talk to clients about most often?
Well, right now, we're talking to people about you know, who is it that has taken the least amount of price increases over the last say, eighteen months, and where are volumes holding up? Because to be successful over twenty twenty four and into twenty twenty five, it really is that question of how are you going to actually drive
overall growth and profitability? And so the companies that have been more conservative and been more prudent in that approach are the ones who are positioned right now to maybe benefit from that.
So you haven't benefit from those Actually, what's a representative name there?
So a good example there would be Mandolies where they took a lot less price than and actually the spinoff from Craft Times. Yeah, they've been a little bit more prudent in terms of their price increases, and what we've also seen is that their volume has held up better.
Hey, Jen, what's something you really don't like right now? Like what sort of a negative trend? Because I'm also trying to understand for some of these names and normalization that we've seen sort of backtrack the last four years and erase that, and that's where we have to kind of pick up and go from there.
I think one of the things that is an issue for the industry is that everyone still believes that they can optimize their portfolio and that they're going to find a buyer for the products and the product lines that
they don't want at a good multiple. At the end of the day, there aren't a lot of buyers out there for you know, categories that are slow growth or declining, and so there's maybe a little bit of a mismatch in terms of the belief that they can streamline their portfolio, get up you know, all the value that they think they deserve out of it, and yet I don't see a whole, you know, a whole suite of buyers lining up to look at those products.
Hershey, this company went public in nineteen twenty seven. Oh boy, they did one follow on offering m HM, and then for about a period about twelve months in nineteen ninety three or four, we pitched them hard on doing another follow on. We actually had a good analyst on the
name in the company. Like this, We went to Hershey probably six or seven times in a space of a year, pitching a following off, pitching a nothing, didn't get paid, but got the Hershey and got a lot of Hershey chocolate there's that, So, Jen, what does a company like Hershey do. It's one of those things. I know they've gotten bigger through some acquisitions, but there's still relatively a small player relative to some of the other big names.
But is there a brand so good that they can kind of remain independent?
Yeah, I believe that the Hershey brand is really iconic, and if you think about some of their biggest chocolate lines, there really aren't a lot of mass targeted competitors out there. When it comes to kind of that mass market. It's hard for an external brand to come in and get the kind of penetration that her She has. And in addition, Hershey has really done a good job of diversifying into the broader snacking. So they own you know, they own
popcorn brand, they own you know, pretzel brand. They've done a good job of diversifying and that'll help them with their long term growth as well.
Our thanks to Jennifer Bartash is Bloomberg Intelligence Senior Animals. She covers retail, stables and packaged food.
We turn out to earnings from deer so the world's biggest farm machinery producer trimmed its profit outlook for this year and this comes as crop prices are giving farmers less money to use on those equipment purchases to help recap.
We were joined by Christopher Cilino, Bloomberg Intelligence Senior US machinery analyst. We first asked Chris his take on Deer's earnings.
The quarter was great, really much better than we anticipated across the board, beats both top line and margins for most of the businesses, but the outlook was the disappointment of the quarter. They cut knit income guidance by about five percent, and that's largely reflective of incremental weakness in the ag business, specifically the largejag business. And there's really
two components to that. One Europe Year now plans to underproduce retail demand due to some weakness in Central and Eastern Europe given the conflict there, so they're going to try to bring down inventories. They're already under producing in Brazil as well. And then the second component of the cut was really some additional softness beginning to transpire here
in North America. We saw some of the order velocity start to moderate, so demand seems to kind of be trending towards the low end of their down ten to fifteen percent. Industry outlook when it comes to LARGEAG equipment.
Yeah, let's get through some of these here. Production precision AGNET sales for their yearly forecast, they're looking down twenty percent worse. An estimated construction and forestry net sales down five to ten percent, small EG and turf net sales down ten to fifteen percent. Yiki, is this a early cycle, mid cycle or late cycle read on the economy.
We're early in an AG downturn. Last year was a peak production level. You know, historically you don't have one year downturn, so I would suspect this is kind of the beginning of a multi year downturn. And some of the numbers that you're seeing that your reference on their guidance are well below you know, market retail demand expectations, suggesting that you know, they have some more work to
do on bringing down inventory levels. Values continue to kind of come down here over the last twelve months, and I suspect you'll see further pressure on the use side. New equipment pricing, you know, deers kind of guiding to one and a half percent, which is kind of below historical averages. And remember we're coming off of you know, three years of really strong phenomenal pricing, So returning to I would say below normal historical trend, which will also be a drag on margins.
Caterpillar had a different kind of read, and I appreciate they also do metals and mining and stuff. So is it going to be the diversified players that are going to really win on this?
Yeah?
So, I you know, constructions holding up certainly better than the farmer and then the ag economy A couple of different moving pieces there. I mean, you still have a tremendous amount of infrastructure related funds and government stimulus coming through the system that will not only be kind of a tail wind here in twenty four, but even twenty five and twenty six. So I think that certainly helps offset some of the cyclical headwinds facing both the rezie
or non residential markets. But if you look at the farm economy almost kind of a completely different story. You look at crop prices, which are ultimately the biggest driver of farm income and equipment purchases, corn, soy, wheat down you know, twenty five thirty five percent plus, So that's beginning to trickle through to farm incomes. Farmer incomes are going to be down twenty six percent this year, and I suspect will be under further pressure as we exit the year.
Too our thanks to Chris Gillino, a Bloomberg Intelligence Senior US Machinery analyst.
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