Charles Schwab, Manufacturing Data, IPO Market

Street and talk about broker commissions today. This morning there was news that Charles Schwab is eliminating commissions for stocks, ETFs and options listed on US or Canadian exchanges. The race to the bottom accelerates. David Ridder, Payments and specialty finance, analyst for a bloomersig Intelligence, joining us from Princeton, New Jersey. David, what do you make the news? Well, it's been something

that's been a long time coming. I mean, obviously speed compression and brokerage and an asset management more broadly is nothing new. I mean, interactive brokers made their own move last week to cut commissions to zero for basic stock trades um So I think it's going to have a very different impact on the different players in the market.

In Schwab's case, um, you know, they only earned about their net revenue from trading commissions versus um E Trade and TD merrit Trade, where it's more than thirty five. And I think you're seeing that reflected in the action this morning. But but Schwab is really more an asset gatherer than anything, and so I see this move for them is a recognition of the fact that, you know, we don't want to lose customers and assets in a long term to these new stock trading apps, whether it

be robin Hood or whether it be JP Morgan's. You invest, because that's how they make money. They make money on new net new assets coming into the company. Uh. And then you know of their revenue is net interest incomes. So they're essentially a bank, right, so they're paying low interest and reinvesting that money and safe security. So that's

the real driver, not trading missions. Insentially, look at the stocks you mentioned, Dave Schwapp down nine, TD America trade down about today in each trade down, so kind of right in line with what you were saying. And my question is kind of talk to us about some of these new technological competitors that you mentioned kind of robin Hood and things like that give us a sense of what they are and what kind of market share are

they taking. Yeah, well, in the case of robin Hood, you know, very rapid growth company, several million customers already offering quote unquote free trades. I think what's under recognized though, is uh nothing's free, right in the case of all of these retail brokers that charge the customer of zero trading, See, they're sending those trades to market makers, so companies like Citadel and they're getting paid what's called payment for order

flow for those transactions. So in their release last week, Interactive Brokers was very candid. They said, well, you know, this is how we get paid. And if you still want best, best execute ship, you can take our uh four feet product instead of our free products. So I just thought that was an interesting way to approach it.

But uh, you know, certainly these things are having an impact, and for Schwab, they finally said to themselves, look, we we don't want to lose uh these customers because they're young people, right, so they're really the future drivers of their growth. Right now, I'm looking at Schwab shares down now more than nine so shareholders aren't buying it. Yeah.

I mean, I think for both of them. When I described a minute ago what percentage of revenue they get from trading commissions, um, I think the market is pricing in perhaps half of that revenue going away. It's interesting, though, because the last round of price cuts was a couple of years ago. Fidelity sort of kicked it off by

going to four trade and Schwab matched them. What happened across the entire industry was fascinating is that the net inflows to the companies and the trading volumes increased, so it actually drew in more customers. And so again I think that Schwab's rationale here is we're trying to remove any impediment to folks either getting more active or becoming active in the markets for the very first time, and

then going forward into the future. So I'm not sure we'll see exactly that again this time, but that's what we saw last time. David Riddard, thanks so much for joining us David's payments and specialty finance analysts for Bloomberg Intelligence and joining us from the Bloomberg headquarters in Princeton, New Jersey. I want to read a a tweet from

President Trump. Quote, as I predicted, j PAL and the Federal Reserve have allowed the dollar to get so strong, especially relative to all other currencies that are manufacturers are being negatively affected, fed rate too high. They are their own worst enemies. They don't have a clue, pathetic clamation point end quote. So let's dig a little bit deeper with that asset background. Uh. Tim Fury, chairman of the Manufacturing Business Survey for the Institute of Supply Management, joins

us on the phone from Florida. So, Tim, quite, the manufacturing data for the month of September much much lower than people were looking for. What's your takeaway, Yeah, Hi, Paul, Yes, So, so so it was a disappointment for sure, and it's been driven by demand. For the second straight month we had demand in the contraction mode. And more importantly this month compared to last month, is that the three sub indexes that support that demand number we're all in negative

territory two, which is a concern. So let me let me just talk quickly about the new export order down to forty one, which is a pretty heavy contraction. We've had two prior months of contraction, but not to that level. And about eighteen percent manufacturing GDP is exported, So without that new export order coming up, I don't I would be very surprised if that new order number currently or

forty seven point three gets above the fifty point. How much is the decline in exports due to the stronger dollar, Well, it's you know, it's hard to tell. I get comments about that. Percent of my comments are tariff and trade related. Uh, we're talking low single digits on the on the currency side. So there's no doubt that from a supply manager perspective, the trade issues are a much begger concern than our currency. So,

but I can't really put it into specifics beyond that. So, Tim, the we have a you know, I guess my question is when do we have a trend here? We had August atteint one contraction and then coming in with this data at forty seven point eight even bigger contraction. When from your perspective at the Institute for Supply Management, do you start sensing a trend here? Well, last month I was asked several times about whether this was a blip,

and especially to come above fifty. I was hopeful that the month of September would have a decently strong new order number, which would allow production to expand again and get us back about fifty. But I think, you know, given the week new order numbers about the same level as last month, nothing worse, nothing better, But you know, supporting that is really the backlog of order numbers forty

five point one, which declined again this month. I was hoping that that would would jump back up, so but the backlog week, it means that you really don't have as much to work on next month as you did the prior month. Very concerning. And then you look at the inventory number at forty seven give or take, it says that supply managers are really watching their input materials so that they're not going to get stuck with something

that they don't need. The two things that you look at from a general manager standpoint is how much materially you have taken in and the number one number two is what's your head count? And I think we're at that point where people are looking at that. We're when the planning season here, for most plans get kind of consummated by the end of November, and the employment count has to really be looked that closer here because there's no doubt we have a more production capacity that we

need to meet the new order level. We've been burning into the back on now for fourth rate months. At some point you have to make a decision. Tim Furi, thank you so much, chairman of the Manufacturing Business Survey Institute for Supply Management, joining us the phone from Florida. What we've been talking about nineteen is being the year where we get a lot of big, high profile unicorn IPOs coming out of Silicon Valley, and I think a little bit of a hindsight here, it's been kind of

a mixed bag. We've had some mixed performance, some real duds. We've actually had some deals pulled. Most notably we work um and um Endeavor was also pulled. To get a sense of what's going on in the US I p O market, we welcome Jackie Kelly, Jackie's America's I p O leader for Ernst and Young joins us here in our Bloomberg Interactive Broker studio. So Jackie, thanks so much for joining us. You know again, we there's so much anticipation for some of these big high profile deals coming public,

Uber Lift and all those types of things. It's been kind of a mixed bag. What do you think the I p O market is telling us these days? Well, um, you know, the markets are actually the sentiments really positive. Behind the scenes, Let's just say that we have a few of the higher profile I p O s that have been working through some market issues and other things. But really this is a long term game. At the

end of the day. Uh, we're very excited that the pipeline is very robust and UH, despite some of the turbulence in the markets. Uh, the we still have a number of companies lined up right now in the healthcare sector that are looking to price over the next week or two. And we have a number of companies also in technology and other sectors that are getting on file and interested in going public over the next let's say

six months plus. How much disappointment are you hearing from your clients at this point and fear as they look at the pipeline getting ready and then they look at the wee work and the endeavor I p O s that were both pulled or iced. Are you having trouble convincing your clients? No, it's still good. It's very interesting. So, UM, I think there's a lot of resilience to some of these the turbulence in the markets and some of the pricings.

Companies are really focused, which is great, on getting themselves ready. I think they recognize and this has been a few years now that we've been in this sort of market where things can shift on a dime with you. You can be thinking you're going to price in a great market and then you know, something changes and then the market is not great. So companies are really focused on

getting themselves ready. They are focused on getting into the filing process which is now available as confidential for everyone, so everybody can get into the confidential filing process, get themselves ready, and be ready to take advantage of a market window win that market window opens. What do you think some of them? What do you think the market has been telling us with some of these high profile misfires. Is our corporate culture becoming bigger part of kind of

what investors are looking for? I'm thinking in Uber, I'm thinking we work you know where there's definitely been some issues with some of the insiders or maybe some of the corporate governance and think things like that. Yeahs, As we're working with companies today, we focus on a number of things and it really is about getting the whole company ready to be a public company, and a critical

part of that is governance and an organization. There's sort of the traditional sort of corporate governance and a lot of us think about board governance, et cetera. But there's also just sort of the governance and oversight from the tone at the top of how you run your business. And I think a lot of times, um, you know, as companies are growing so quickly, UH, companies have to start putting in infrastructure policies, a lot of things that

very mature companies are already well familiar with. But these are rapid growth companies. They're going through that process as they continue to grow. That really is it never ends, but governance as top of the agenda. I think all the companies are working on it. It is a process. It's not something to turn on overnight, but they work on it and they all have goals of having that

strong governance function in place. So our own Schnelly Boss wrote a story about how a number of venture capitalists are getting together in Silicon Valley, UH, and they do not invite Wall Street because they are displeased with Wall Street's role in some of the recent I p O s. Do you think it's Wall streets fault that we saw some less than optimal performances from some of the I p O s. I think that, you know, performance is

very complex. UM. One of the most important things as companies are looking to go to the public markets that they really need to get right is predictability in their business. And being a predictable business is a very challenging thing to do for some of these high growth, disruptive companies. I think what's been great is that many of these companies have been able to grow in the private markets

and get funding in the private markets. We have robust private markets that has allowed them to extend and and and grow and scale without that visibility. But once you're in the public markets, a lot of things are visible and so UM, you know, I don't know that you know ultimately, UM companies own uh their decision on timing. They need to think seriously about am I ready to be a public company? Am I running a predictable business?

Do I have that governance and controls and those things in place that help make sure that I can meet and beat expectations and things like that. Jackie Kelly, thank you so much. For being with us. Jackie Kelly is American's I p O, America's I p O leader for Ernst and Young, joining us here in our bloomg inter Active Broker studios. It's almost lunch here on Wall Street. I think it's time to take a look at some pizza, in particular Papa John's ticker p z Z a uh.

And we are so lucky to have Rob Lynch here in our Bloomgard Active broker studios. He's CEO of Papa John's International. He's been CEO for a hot month and after coming in after a tumultuous period of time. Shares of Papa John's up this year, but that follows at nearly declined last year. What was the biggest challenge for you, Rob when you came into the company, given uh, the sort of unceremonious exit of the previous leader. Now, I think the biggest challenge has been um making sure that

everyone is focused on the future. You know, we need to move beyond um those tumultuous times. And you know, I've been surprised that the resiliency of this of this company, our franchisees are employees are all ready to do great things and so that makes it a lot easier for me to come in and drive change and get us going on in the right direction. I'm a big pizza eater,

huge pizza eater, that's my you know, desert island food. So, um, talk to us about the pizza business in the US is a growing how's the market share shifting around between chains like yourselves and you know, the mom and pops and so on and so forth. Sure, you know, um, the pizza business is a pretty stable business. Um, you know, I've think the the interesting thing about the pizza industry is all the technological disruption that's going on in the industry.

You know, pizza has owned delivery for a long time. When you wanted something delivered, it was either pizza or you know, Chinese food, right, And today you can get anything through the third party aggregators. And so I think the challenge for us is figuring out how we continue

to grow and frankly thrive in these new times. And disruption creates opportunity, and so you know, we are focused on and working with these new um companies with these new capabilities to to create a symbiotic relationship where we can both do great things. Over the next few years. So can you give us an example of some innovation I mean other than say an algorithm to better match

people and and sort of the delivery individuals, etcetera. Are there any other advancements that you're looking at from a technology standpoint? Yeah, I mean I think that you know, our mobile application ordering is up about sixty sent year on year, right, so people are definitely moving into the application channel versus the phones and even the web ordering that we used to that used to be so prevalent.

So you know, for us, that's a huge opportunity because we take that that customer and you know data and leverage that their purchase data to understand what their needs are and target them more effectively with offers that are most relevant for them. So we're not sending them a bunch of spam or a bunch of you know, offers that they don't care about. So um analytics and back in artificial intelligence are allowing us to serve our customers better.

So what percentage of your businesses franchise e versus own stores? And how do you think about that? Because I know every you know, restaurant company has a kind of a different view on that. Yeah, you know, I I love

it that we have a flexible balance sheet. We own about of the system domestically and franchise is on about and so that allows us to two seed markets with our restaurants and bring in new franchise e s or if and help some of our other French our current franchisees grow and and and really maximize the opportunity in those markets. You know, we new restaurant development as a

key indicator of a healthy system. Internationally, we're all franchise We have two thousand restaurants internationally, we're number three globally and pizza delivery UM and so you know that model obviously is a franchise only model, and that allows us to find partners in the geographies that we want to move into who who know that marketplace, know the real estate, know how to do business there. So we we are definitely UM a blended company. There's a lot of talk

about the tight labor market. Do you find that it's difficult to hire and retain people? Are more difficult than it than it has been previously? And you were, uh, the CEO of RBS previously, so this isn't new for you in terms of running a food services company. Yeah, it's it's definitely not a Papa John's problem. It is is an industry challenge, right, I mean record low levels of unemployment. I mean a lot of great things for our country. It makes it a little bit tougher for

for companies like US and and so um. It just makes it that much more important to foster UM a culture that people want to be a part of, right and to be the kind of the employer of choice in the choice in the markets in which we compete. And so that's been a big part of of what I focused on coming in as the new CEO. How do we make sure that we move kind of past where we've been focused on the future and build, you know, a culture where people feel like they have a future

that's bright. So looking forward, what's the kind of the market I know it's a competitive marketplace. What's kind of the marketing strategy that you guys like to employ to kind of establish your brand in the marketplace, maybe differentiate your brand in the marketplace? Do you use traditional media, new media? What's what's working best for you guys? Pizza pizza, Pizza pizza. That's our competitors. That's a competitor. We're better ingredients, better pizza, and I like ours a lot better. Um,

but that's okay. Sorry to call you out. Please call me out every time. I love it. Uh. Now you know we we we want to communicate with our customers and the most engaging and compelling way. I mean, we

still leverage television obviously is a big advertising channel. Um, but the media industry is changing almost as rapidly as the delivery industry, and so UM, we are focused on making sure that that we've made the right investments in technology and then the channels that our customers are moving towards. I already mentioned the mobile applications. So UM, we're focused on connecting with our customers across all the channels. You came in here and said that your first job was

making pizzas. Is that correct? Um? And here you are running a pizza chain franchise operator. I'm just wondering what is your favorite pizza? First of all, my favorite pizza. That's an easy one. Papa John's mushroom pizza. Mushroom pizza. I don't know if you know this, most people don't, but we actually use Baby Portobellows mushrooms on our pizza Like that's a testament to the kind of quality, right, and we chop them fresh in our restaurants every day. Okay,

do you ever make pizza. I've made probably about a hundred and fifty thousand pizzas in my life, I know, but yeah, Ceo. So, I have spent the last three or four weeks going around this country meeting with my franchise ease and every time I get there, you know, they're expecting me to be kind of afraid of the back of house, right, And I walk in and you know, I've got my my shirt and my I roll up my sleeves and I'm like, okay, let's sling some dough

and I started making pizza. I love it. I absolutely love it. I got, you know, I got Like yesterday, I was here in New York. I was up on Fourth Street at one of our great franchisees restaurants, and you know, I walk in and I've got my suit on, I take the jacket off, but I walk, you know, back back of house, make a pizza. Finish up. I've got flower all over my slacks and shoes. Yeah, I'm like, if you know, if you're not gonna to have flower on your shoes. You're not a pizza maker. So yeah,

that's it. That's the story. That's a takeaway. Love it. You don't have flower on your shoes, you got some other business. Robert Lynch, chief executive Officer Papa John's International, joining us here on our Bloomberg Interactor Broker Studio giving us the up to date on Papa John's International. P z z A is the symbol. Thanks for listening to the Bloomberg pen L podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer.

I'm Paul Sweeney. I'm on Twitter at p T Sweeney. I'm Lisa abram Woyit's I'm on Twitter at Lisa abram wits one Before the podcast, you can always catch us worldwide. I'm Bloomberg Radio