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FedEx reported some numbers. Le's get back to the corporate earnings disappointing. They're saying tariffs are having an impact on their core shipping business. Let's get the latest on that. Lee Clascow, Bloomberg Intelligence Senior Transport Logistics and shipping analysts and host Bloomberg Intelligence, Taking Transports podcast. If you like railroads, trained trust, he is a big pot.
He's joining the cool kids now he is.
And if you're into all that logistics transportation stuff, this Talking Transports podcast is the place for you to go. Check it out, Lee, FedEx. What are they tell on the street today?
So their last quarter was a decent quarter, but the quarter uh looking forward to their first physical quarter is not going to be a great quarter. And that's really just given the uncertainty that is being driven by the tariffs. So you know they're seeing weakness in their B to B business they're seeing weakness in their industrial kind of end markets, and they're obviously seeing some weakness for volumes that are coming out of China into.
The United States.
So, you know, these are kind of the headwinds that they're facing. You know, FedEx is doing what it can. It has a couple of initiatives where it's trying to take permanent cost out of its network. But at the end of the day, the company is transitioning from one that used to be B to B business to business is now is.
Mostly you know, the growth really is B two C, so that.
E commerce business, which is more expensive to deliver, so that what they're trying to do is create a more efficient network. And unfortunately for them, it doesn't happen overnight. It takes a long time, and this is a kind of a journey that they've been going through for the last couple of years.
Here here's what was confusing to me is that UPS did the same thing like in the last quarter, like they didn't. They were like, it's uncertain, we don't know what's gonna happen. FedEx said the same thing, but the stock got really punished in afterwhere hours. And I appreciate it's just down two percent now, But why wasn't this already baked into the stock?
You know, that's that's a good question.
You know, I was thinking about got an uncertain tattoo to my forehead because I'll.
Say it so much, but it don't do that.
That's gonna hurt.
Or probably spell it wrong too.
And you know what, you know, you know, what the reality is is the stop and go and go and stop with the tariffs are making it very difficult for not only businesses to operate, but consumers. You know, you saw the other day consumer confidence came in below expectations.
So the tariffs are.
Really having an impact on volumes. You know, once we get more I think really what businesses really need to know is kind of what are the rules of the road, and then they can operate within those rules.
But the stop and go aspects.
Of the tariffs can be really confusing and disruptive to supply chains, which is obviously you know FedEx and ups their their core to to move that freight around the world.
What's there when you look at FedEx businesses, what's their exposure to China? How are they exposed at China? Uh?
Well, they're exposed on there.
They're express businesses, so you know, they fly things from all around Asia and Chrivzi China is the largest aspect of that to the United States. You know, it's it could be anything from commercial goods to consumer goods, so you know, they do have a decent exposure.
You know.
One of the other things that FedEx does is they're in the less than truckload business, which also came in a little below expectations, and that's been a tough business that's really kind of geared towards that that industrial economy. So when you see the ism being in contraction territory for twenty nine in the last thirty one months, that's really weighing on that business. And FedEx does plan on spending out that business sometime, you know, next year.
So what's the right question then to be asking for a FedEx and a UPS at this point because you know, the as you point out rightly, the uncertainty trade for transports is definitely front and center, like no one's going to have a firm outlook, So what's the next question.
I guess the next question is how are you restructuring your networks to be able to handle the more expensive home deliveries that we're all accustomed to. So, you know, we're all accustomed to free shipping. You know, when you order something online, how are they going to facilitate that at They're at the lowest cost they possibly can because they're you know, they face competition to FedEx and the
UPS is the world. They fed face competition from local players, from gig economies, from the US Postal Service, and so they they need to know bend that cost curve lower to be able to drive better margins.
And you know, UPS N FedEx have been again.
Trying to restructure their networks. And I guess the real question is when is it going to end and when can we see margins start improving. But I don't think that's going to be a twenty twenty five calendar year story. I think that might be more of a twenty twenty sixth story. And you know, as things normalize and buying begins to grow again, I think that should really generate pretty good margins in these types of businesses.
And Lee, let's pivot just here at the end. Here you also cover the big ocean shipping companies. What are they seeing in terms of freight and cargo and all that kind of stuff again in a world where we're operating with some uncertain terrorf levels.
Yeah, well they're they're enjoying the disruptions that are created, the geopolitical disruptions because those are pushing rates higher than they probably need to be.
So that's for them and that positive.
Then that negative, to your point, is on the volume side, we are seeing a surge of freight that's going to be heading to southern California in the weeks to come, and so that's that is an incremental positive. But the problem is that these surges in freight demand could create air pockets and much tougher to second half comparisons when it comes to volumes, So you could have strong volumes near term, but kind of weaker volumes with the months heading months further out.
All right, Ley, it's a pleasure. Thank you so much to Klasical. He joins us from Bloomberg Intelligence. He covers all the transports. There a senior transport logistics and shipping analysts. He's doing the podcast train there's a Bloomberg Intelligence talking transports podcast. I thought we were the only BI podcast.
No, he's look at that.
A lot of them out there, all right, all right, you know.
You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at ten am Eastern on Apple Corplay and Android Auto with the Bloomberg This Up. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
Alex Steal Paul Sweeney live here in our Bloomberg INTERACTI broker studio, streaming live on YouTube as well. All right, up at the pantry on the sixth floor here, I start every morning around six am with the bowl of honey nut cheerios, and that is a General Mills product. They had some numbers that weren't very good. The company expects adjusted earnings per share to decline as much as fifteen percent a constant currency basis this year. That's tough.
Let's go to Diana Recital Pain. Yes, she's a consumer staples analyst Bloomberg Intelligence, joining us live here in our Bloomberg Interactive Broker Studio. So Diana General Mills week earnings outlook talk to us about what's going on in their business.
So it's pretty much what is happening across the package food industry. Volumes are not coming in and they're going to have to invest more in pricing, some cutting prices as well as weak volume. It is basically flat. It's to negative organic growth and that is obviously with a negative product mix, is probably going to go down the P and L.
But why, Like, we still got to eat so and these are staples, right, So what's the problem.
Well, basically there's a greater private label penetration. People are being more strategic with their spending and they're not.
So private labels like three sixty five from Whole Foods or something.
Right, Za's exactly. And in the past few years, retailers have invested a lot on private label brands. So the competition has become more fears and it seems that the equity, the brand equity that these companies used to.
Have is not hidden anymore.
Like people are just not buying their products.
I'm one of them. I mean, before the pandemic and the inflation, I don't think I've bought one private label thing ever. In fact, you know, I felt strongly about brands, but now I'm like, screw it, And so we buy so many private label products now versus and I don't.
Know, and you're not the only one we're seeing, like across all age groups, particularly for gen zs, they're less dedicated to brands that the older generations.
What do you do about that?
Yeah, then we have to make your own private Well, you know.
Some of these companies do have some private label, but it doesn't it obviously, they don't break it down and they're trying to make it not as evident. And obviously they want to invest, they want to increase marketing. They're gonna probably cut prices, which is which is why you see adjusted operating income probably gonna decline in fifteen percent over the next fiscal year.
Can they invest in their own private label brand or is that market so saturated? No, it's not necessarily like in the marketing side.
That will fall on the retailer side to invest in their private label. But I'm meaning more unlike this Cereal, the brand Cereal branded Cereal.
All right, I'm asking for a friend who may or may not be getting his first pet ever in his lifetime on July sixteenth, a dog, Australian labradoodle. Not just about the pet food business. What's that like?
So they have been it seems that that part of their business stabilizing a little bit. They are now and you probably will see Fresh Pet declining I believe four to five percent today because they're start they're extending the Blue Buffalo brand into fresh Pets.
Who's doing what well?
So General Mills is expanding Blue Buffalo into fresh food fresh pet food, but Fresh Pet has like ninety percent of the market share, so obviously you know that intrusion is probably hitting them. We're not necessarily that convinced. They weren't very forthcoming in terms of like the type of distribution. Obviously, this is more refrigerated food that needs a little bit different than like the boxes of cereal that they are
used to. So we're we're still you know, taking a look how they're going to distribute that and how they they're gonna kind of get share from Fresh Pet, which has like their own fridges and stuff.
What consumer staple brand is doing everything right?
Uh? I would say, uh wow, that is from what I'm seeing probably, I mean, like yogurt, like you're thinking about Chiavani, like those guys seem to be so.
Like a specialty Hell yes, sort of staple eat place exactly.
You have.
You know, high protein, like all the good attributes that people are looking for. I think those are like the ones that will probably benefit from from this, and.
I'll sell what I but I still buy the brand Campbell soup. Maybe that's just a kid thing.
That's like, that's definitely a kid think, but I feel that way about like generics. We talked about this at drug stores, like you got to get the real band aids. Like if you don't get the real band aids, they just fall off.
It's just terrific.
It's very upsetting, all right, Dana, Thanks very much. Dianna as their opinion. Bloomberg Intelligence consumer staples analysts. Joining us there.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Applecarclay, and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
Happy Wednesday, everybody. Alex Steal here alongside Paul Sweeney. This is Bloomberg Intelligence Radio. We cover all the tap news and business economics and finance through our lens of our Bloomberg Intelligence folks take over two thousand companies and one hundred and thirty industries all around the world. We talked earlier about General mills and sort of the issues there
with the private label brands and store brands. Let's take another look at consumer products, but look at it at the lens of restaurants and restaurant valuations.
Kind of the haves and have nots.
Michael Hale and Bloomberg Intelligence senior restaurant and food service analyst joins us now fresh at up a recent report. So I asked Diana this, like, who's the winner in the consumer staples? And she was like ooh, and it like took her a while to get there because it's really rough. Same question to you, who are the winners in the restaurant is uh?
You know, the two of the names that we really like this year are Cracker Barrel and Shake Shack.
They Cracker Bail.
I still got to go many the goals.
They hired new CEOs last year.
Uh, they're really focusing on improving the operations first and then the marketing.
Uh there and so we're really excited about.
Some of the changes and some of the early results. You know, both of them we expect to outperform pretty significantly on the on the top line this year.
Well, the Cracker Barrel, I mean I know my way around at Cracker bar. I know where every little nud nick is in every store. Every store is the same. And then of course the same order the Country Boy breakfast.
But what'sn't that again, it's not like.
The Country Boy breakfast with the country ham okay, and you get biscuits and gravy.
It's a whole thing.
It's a whole thing.
It's a whole thing. Unbuttoned yourself and sit right down. Yeah, what did they changing here?
What is it?
Because that's kind of what they are. It seems like their DNA is kind of that type of stuff.
Yeah.
So so one of the first things they did was focus their menu right. There was a lot of items on there that were not selling very good and also bogging down the kitchen. That has made the experience better for the employees. Employee turnover has plummeted. It was down, you know, high.
Teens year over year in the last quarter.
So that saves them a lot of money on training and things of that nature provide, you know, as the longer your employees stay, obviously, the better experience your customers get and then people come back.
They're also touching up the stores.
They're going to remodel the stores, lighting and paint are some are some of the things that they're going to do across all the stores. Some of the stores need more work. They'll do the floors as well. That's something they're starting to do. And then they're ramping up the marketing.
So now that the operations are running well, they're doing more social media marketing talk, they're they they just had their first NASCAR race and the Cracker Bar of four hundred down in Tennessee, right Crystal, And they're advertising on live sports as well as Bravo. There's a huge overlap between casual dining fans and Bravo watchers, and so yes, do not see that coming.
So on the other hand, what are some of the companies that aren't doing so well?
Oh yeah, so you know some of the legacy casual dining brands. Casual dining in general is having somewhat of a renaissance. This year's casual Chili's is the one they've Chili's is rocking it absolutely, and Applebee's is not. So you got you got your preferences confused right now?
Backwards, I'd say so, yeah.
Dine Brands, which owns Applebee's and Ihop, they're having a real real hard time resonating with younger consumers and and haven't been able to bring those consumers into the brand. They also have a large number of low income consumers that visit those brands, and so that's really hurting their hurting their results. And then blooming brands out Back Steakhouses
their biggest chain, they've same type of situation. They've struggled to bring in younger consumers into the brands, and their pricing.
Got way ahead of itself.
So if you compare them to Texas Roadhouse, it's a way more expensive experience and yet maybe not a better product, not a better experience for the consumer, definitely not better service.
Your coverage is a great reflection of the consumer. What are your takeaways? How is the consumer out there? What are the restaurants telling you?
They're doing all right? They're doing alright. Last year was a restaurant session. This year results are better, and we expect them to get better in the second half. You know, first quarter there was some consternation, but it was a lot of bad weather. There was a bad flu season.
There was some pullback by low and middle income consumers in March, but they seem to have rebound results have been pretty strong thus far, and we and the economic indicators that we watch are starting to get a little bit better.
So unvalued appropriately for the conditions right now.
Well, you know me personally, I don't look at historical valuations because the market cycles change so much.
I'm looking at it on a relative basis, right, and relative to the peer group. Okay, yeah, and so I see.
And so it depends on the name, right, It definitely depends on the name. But you know, I think restaurants are set up for a nice strong second half. We also have we are going to have that tailwind of tax cuts, and so I think just getting that, having that and be the narrative versus tariffs and war and whatever else, I think it's going to help shift consumer sentiment and spending.
Just the quick service restaurants, which otherwise is fast food. How are they doing?
Fast food is struggling. Number one, they're lapping harder comparisons from last year. Number two, they have more exposure to income consumers, which continue to be hurt by the inflation that we've.
Seen, right.
And number three, they've overbuilt so since the since the pandemic, full service chains, casual dying chains, kind of pulled back on their development.
They closed stores. Fast Food has.
Just been full steam ahead of opening stores, so supplying de Man has gotten out.
Of whack, all right, Michael, thanks a lot, Really appreciate it, really good stuff.
I still going to make it.
To crack a barrel.
Michael hallin the Brig Intelligence senior restaurant and food service analysts, joining us on the winters and losers of a restaurant valuations.
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