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Looking at Deer, they reported numbers guidance a little bit weaker than expected, but it's still up about eleven twelve percent year to dates. Checking Chris Chiolino Bloomberg Intelligence, he covers all the big machinery companies. Chris, what's the takeaway from from Deer today? They called out the US farmers facing some economic challenges here that guess that's impacting their businesses? Would you learn?
Yeah, listen, I mean this really wasn't a particularly great quarter. Three key results were mixed at best. It was really a low quality earnings beat, primarily driven by a lower tax rate. And as you alluded to, they did cut their twenty to twenty five guidance. But to be honest, I don't think that really changes the investment thesis here. You know, we still expect earnings to bottom this year. We're still looking at a very you know, gradual recovery.
As twenty twenty six unfolds, the reduction in the outlook was really driven by weakness in their construction business, and it appears to us that it was really more of a function of some of the higher tariffs and costs coming through. We knew that construction forestry was really going to bear the brunt of the tariff impact, but this court just came in, you know, a little bit more
of a headwind than we anticipated. It doesn't appear to be that there's been much of a change in terms of you know, farm fundamentals and their appetite to go out and buy equipment.
Hey, Chrich, can you get more into the struggle that that farmers are facing. That's that's impacting dear.
Sure, you know, we've been in this kind of prolonged downturn in the ag economy. Crop prices continued to deteriorate, farm fundamentals remain weak, interest rates remain high. We have the you know, the overhanger, the uncertainty around the trade environment and export market access. Really there's really no signs or i would you know, say, green shoots yet that
we're at this inflection point. I think the positive takeaway is that you know, inventories are coming down, Deer's not going to have to massively underproduce retail demand next year. So even if we're looking at a flatish type of environment in terms of underlying retail demand, we're still looking at probably higher production and some pricing coming through, which should still generate some operating leverage in the business.
So, Chris, when demand is down from for their core farm equipment, what does Deer typically do? Do they let inventories build, do they get promotional to move inventory out the door? How did they usually manage that?
Yeah, so this is it's a delicate balancing act, right, I mean, it's almost impossible to time the cycle. And what they've been doing, you know, for the better part of this year, and even at the end of last year they had been underproducing retail demand to bring down those elevated inventories. They've done really a commendable job on new equipment. Issue right now is still on the used equipment inventory side, particularly on tractors, which are still quite elevated.
And you're right, they are allocating more merchandising programs and pool funds to help address that issue and move the equipment. And I think you see that partly reflected in their production precision agg business this quarter, and pricing actually flip negative, which was a surprise to us. It does appear that this is you know, relatively transitory. We should expect pricing to bounce back next quarter. But yeah, it's been a you know, they've done a real good job of managing inventories.
It's just you know, when you're slogging along through the bottom of the cycle here, it does become quite challenging.
So then I got to follo up, are you still cautious about the pace of their recovery?
Yes, you know, I would say signs of recovery are still you know, pretty elusive to us. And if you just look over the last couple of months, you know, you continue to see further downward pressure on crop prices, which at the end of the day is one of the bigger drivers of deer's business and farmer cash receipts.
We had a pretty ugly Wady report this week. You know, it looks like we're going to get another year of record corn production, so those stockpiles continue to build, which is really going to keep you know, somewhat of a stealing on crop prices here in the near term. So we think this recovery is going to look much more modest or subdued than what we typically see during a
normal cycle. Right now, we're still anticipating you know, a modest you know, flat to up five percent next year in terms of underlying retail demand for lar Jag, particularly in North America.
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Let's go to earnings. We want to talk about Cisco Systems. So you had sales from its AI projects, right they're beginning to pick up. But the problem was that it's forecast for the current fiscal year. Well it was a little bit on the concern side, and that didn't Investors didn't like that very much. Let's find out why. So let's go to wou Jinhoi's Bloomberg Intelligence. Senior technology analysts
joining us from Princeton. Wujin, thanks for joining us. I got to ask you right after the bad What did investors did? They just think that they should be benefiting more from AI spending? What was the issue?
Yeah, I think a couple of things. AI wasn't one of them. But also there's a big product refresh cycle that investors were hoping would drive better growth. But at the end of the day, the guidance was a reminder that they are still tied to IT spending. And you know, I viewed it as more as prudent conservatism because they don't know what's happening on the second half.
Of the year.
Given where we are, you know, we have little visibility in terms of rates as well as tire Still.
So the company recognized about one billion dollars in AI revenue on fiscal twenty twenty five, and I guess AI infrastructure orders for large from large cloud of providers whoever eight hundred million in the quarter. So where do you think these numbers can go?
Yeah? Look, Paul, they forecasted a billion dollars in orders for fiscal twenty five. They double that if fiscal twenty six recognize the billion of it this year, I wouldn't be surprised if AI revenues grow at least another fifty percent from here, and they're penetrating multiple pockets right not only into the cloud. But if you think about a longer term, when enterprise adoption really starts kicking in, there is going to be a growth driver.
So we have to.
See where it'll be in twenty six and twenty seven when enterprise grows. But the partnership with then video should be beneficial to the longer term.
What AI sector? Is it just to competitive? I mean, who are some of their peers, how are they doing against them?
Well, if we think about it, well, they have multiple they're in AI in multiple vectors right, So from a networking space, Arista is one of the bigger competitors, as well as a smaller company called Celestica from They also they're also very very big on optical components and they're coming up against companies like Marvel as well as Siena. And they also provide AI servers and think about Dell
and HPE. So look, is it competitive, yes, but they're one of the few American vendors that can actually supply components all the way to the system hardware.
Oh what what are companies like Cisco and and Dell and some other big American companies throughout the tech stack chain. What are they saying just about the environment in terms of demand from their customers? Are they sensing waning demand or wavering demand? Just to see how some of these I don't know, TIFFs other economic policies may work out.
Sure, Paul, you know Cisco is one of the first hardware belt wathers that that came out. I will tell you from from the numbers that I've seen on the companies that have reported, uh, you know, the I spending of vironment has actually been more resilient than I had thought. I went into the quarter with my mediar outlook as being a little bit cautious and negative, and quite frankly, the results have come in better than I had anticipated.
The outlooks have come in better than I anticipated. But the fact of the matter is I don't know what's going to happen past December, and I think the Cisco's guidance reflect that we'll have a better sense in a couple of weeks from now. When companies like Dell and then HPE after Labor Day when they report.
Did they talk about their guidance at all about the impacts? We mentioned tariff quickly, but did the impact of tariffs. If so, like, did they intend to how do they intend to lessen that impact from tariffs?
You know, you know, Cisco has been probably one of the better companies in terms of managing expectations of tariffs as well as maneuvering the supply chain with the tariff. So in terms of managing expectations, they embedded tariff impact in their guidance. And because tariffs came in a little bit lower than we had anticipated, that actually helped the EPs just a little bit going forward. You know, all
of the guidance includes the tariff impact. Now, the one thing I will add, we're still waiting for the semiconductive rulings as it relates to Section two three to two. We'll see where it stands. If we do have a negative ruling there, that could not only affect Cisco's guidance and margins, but also the rest of the electronics space.
So I'm looking at the stock would Cisco that is, and it's up about eighteen percent year to date, so certainly being in the market, and I look at the A and R function, I see sixteen buys, ten holds, and one sell. So kind of a little bit of a split up there on the street. In terms of expectations, what do you think the bold cases for Cisco from these levels?
Yeah, the bowl case is fairly easy, Paul. Faster than five percent to six percent growth driven by the product reforst cycle security as a driver for Cisco, that's going to raise multiples. And if it's going to raise multiples, it's gonna you have a higher stock from where it is today.
So Chuck Robin, Cisco CEO, is gonna be speaking with BTV anchors Ed Ludlow Karen Hide just after eleven o'clock. So if you were in that room, what would you ask?
Yeah, what I would ask is when does a security story really start to take hold where it does affect the growth positively?
Right?
Security offers a faster hardware growth as well as software growth, as well as a high margin recurring revenues. So it's a security it's turning into security.
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All right, we shift from the markets to tech, and some have suggested that President Trump's novel export arrangement with Nvidia AMD paying the US government fifteen percent of revenue from some chip sales in China, Well, it could violate federal law. And if it did, what would happen? That is the question of the latest article on the terminal. You have to check it out. Matthew Shuttlin is Bloomberg Intelligence media litigation analyst. Matthew first question right off the bat is does.
It Yeah, it does it violate the law? It's an interesting question that I don't think people had.
Thought about for a while.
But there is this clause in the twenty eighteen Export Control Reform Act that says that no fees can be charged for the processing of these export control licenses. There's also a clause in the US Constitution going way back that says that taxes cannot be levy against articles exported from US states. You put those two things together and you start to see, you know, some serious questions that could be raised about whether imposing a fifteen percent effective
tax on exports is actually legal or not. Now, no lawsuits have been filed yet, and there would be some hurdles to filing them, But I think there is a very plausible legal case that could be made.
If a lawsuit were to be filed, Who would do it? What entity would do that?
Yeah, so that's a great question. I mean, if you're in Nvidia or AMD, I don't think you want to run right into court after you negotiated a deal with President Trump and challenge it there. And so I think you would see a potential lawsuit come from from a trade association that's concerned about the potential for this setting
a precedent that goes forward after these particular deals. You could also envision shareholders of the companies who are upset about the company agreeing to something that might be inconsistent with federal law potentially filing lawsuits as well.
And I like, we keep saying if this sword happ and yes, what would be the timeline for something like this?
Yeah, so it's hard to say exactly. We don't we haven't seen the final agreements here between Nvidia and AMD, and just a couple of days ago, the White House said that they were the Commerce Department was still exploring the legality of how to do this, probably because they're looking at this precise statute we're talking about here. So timing's very much in flux for all of this, and it's going to be a question of whether we see this sort of approach going forward. But lawsuits could be
filed any time. They would be filed in in federal district district courts. Probably you would seek injunctions trying to stop the imposition of these taxes, and it could be litigated up through the court system from there.
But I mean to be clear, were agreed to by the companies and the government. I guess the companies met. The companies are just saying, hey, this is just the cost to do business in this country with this administration. Is that kind of think they were.
I think that's exactly it, and I think there would be hurdles to these companies suing for that reason. I suspect these agreements are going to include waivers of their particular right to sue. And it's better to access these markets than, you know, to not access the markets at all, even if it comes at a fifteen percent price tag.
Now, this whole.
Deal, it started to fuel some concern that the government could charge companies for a range of business activities with other countries. I mean, is that a viable concern? And then what questions could that bring up in the meantime?
Yeah, that is really I think the big question here is is this a one off or is this how how this administration is going to operate for all exports going forward? And if it's it's the latter, I think that raises much much bigger concerns. Usually you would look to Congress to set the standards here, and there is, as I said, a statute that says no fees for the processing of these export licenses. And so in a typical world you would see Congress, you know, explore maybe
setting the legality of something like this. But right now we have a law from seven years ago that may or may not be be challenged.
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Right here's the story my eyes went to immediately this morning when I came in US and Canadian banks are summoning staffers back to their offices at a faster rate than European rivals. That was very interesting, and we've got lots of good data in their charts and stuff like that, But to me, it just went right to the difference between the US and Europe is it relates to banking and investment banking, where it just seems like the US
banks have just dominated. And I know there's a lot of reasons why structurally, but this one just feels like a part of it. So we want to get right into it now. Tom Metcalf, finance editor for Blow News. He's in our London office. Tom, what do you guys find are are American bankers really coming back more to the office more frequently than the Europeans.
Yeah, it's a very very clear trend actually. So what we did went back looked at the biggest fifteen US and Canadian banks and then also the biggest fifteen European and the split basically simpers flies down to is about three days a week in Europe compared to four days a week in the US. And of course in the US has a lot of very notable examples who are back fully to five days, right, the JP Morgan's, the Goldmans.
So I think it's been a really interesting split, and like you say, it's it's kind of part and part sort of this divergence really between particularly the US banks and europe in that, you know, one of the theories going out there's lots of reasons why this is happening, but certainly one analyst was saying, you know, one element is the fact US banks are just that much more profitable and thus they sort of have almost like a little bit more leverage over their employees to effectively go no,
it's going to be our way or the highway, is what Mike Mayo told us. But as you say, it's one of those stories where you know, I think anecdotally that was the kind of clearly the sense, but it was quite startling to see it kind of you know, when you really dive into the day to go, oh, yes, it's really basically almost two different strategies, with broadly speaking, the Europeans kind of viewing it as a almost like employee retention tool and US banks going we don't care.
We think the most efficient way to work is in the office. You're coming back in, Well, you're.
Kind of leading to it. I wanted to ask Tom, is this a cultural thing? Is this also playing a factor?
Yeah, and there's obviously no one size fits all, right, but like broadly speaking, a little bit more of that, you know, go attitude, et cetera, say Goldman, Whereas the European banks, you know, structurally there's more retail banks in that space, or certainly investment banks. The capital markets is a bit smaller part of their business. So certainly a
bunch of different things flowing through here. And you know what, the other interesting thing was the academic research we took a look at the same time, is not out there going if you bring everyone back to the office, you necessarily get better stock market performance or even better financial performance. So it's very much I think cultural is probably what's drive in this. You know, the tone from the top.
You know, someone like a Jamie Diamond, probably the most outspoken executive on this, very very keen to have everyone back in the office. And then on the flip side, Bill Winters here, who runs Standard Chartered, he's literally taken the opposite tone, so he's just effectively going, look, we believe our employees can make the right decision for their particular teams, and we will. And you know, standard charters
are a fascinating example of everyone we spoke to. They basically said they don't even have a specific mandate at all. They just truly are sort of decentralizing this and just telling people that there's no policy, just make sure you do what to write for you.
Wow, that's interesting, and I wonder I'm hearing stories that you know, back to work schedules and requirements maybe used as a recruiting tool to attract and retain talent. Ie City group. I know Jane Fraser, the CEO is there is she thinks it's a recruiting tool for City because they're only at three day mandate. Are other banks thinking that way.
Yeah, exactly. It goes to like it's not like kind of a universal monolith here, Like you go through the US banks and there's a bunch of an art in and City is probably maybe the most interesting example because as you say, it's got that, you know, it's going through a big restruction and as part of that, it's
offering a bit of flexibility to its employees. Some people think, because you know, that helps retain talent, who might otherwise, you know, look further afield, but they can go, well, look, if I'm at city, I get way more flexibility. It fits my lifestyle, or it gives me that ability to
work from most places. So it's really fascinating and I think you kind of almost have to go case by case, but broadly speaking, still, if you're looking at a US bank, you can expect a little bit more strictness around artio.
Hey, Tom, before you go, is there anything that surprised you when you were doing this research where you were like, I didn't know that.
I didn't think that was possible.
I think the biggest thing was like, how has it been five years since?
You know?
I was just like, I didn't realize there's been half a decade already. And I think, I mean, look, I think that's the sense of you know, this is still very much a work in progress. And I remember writing about it, you know, during the pandemic and beyond, it was very much felt to be this kind of big philosophical debate about you know, the future of work, and you know, I don't think anyone's actually reached a satisfactory argument. I think basic answer, Sorry, I think basically banks have
settled into kind of where you think they would. Of course, a JP more than Goldman are basically knowing that was all nonsense. Let's come back and you know, I guess in some ways, it's just that the firms are living up to their stereotypes, right like you know, it's kind of a classic. We're in August in Europe. Guess what, everyone's working from home and stuff like that.
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