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It is earning season right now, and one of the most anticipated results set of results that came out today came from Craft Highs, mainly because the food company had been on this mission to split itself up into two in order to really free up its faster growing business
from its slower growing business. Christina Peterson is our food industry reporter and has been reporting on Craft Times, and Christina, the new CEO over at Craft Times, surprise everyone by saying, you know what, I'm not going to split up the company. What's the thinking here?
That's right.
He's only been on the job since January first, so I think this came as a surprise to folks at The split was called off about five months after it was announced or paused. There is no end date to the pause, so we don't know if it will at some point rezuom, but the CEO, Steve Kahleane said that he came on the job knowing that there had been levels of under investment in Kraft Heins's brands and decided that after reviewing all of them, that there were brands
that would respond to more investment. So they announced that they would be putting six hundred million dollars into things like R and D marketing and lowering some prices in hopes that that would bolster the entire company and that that would be in a better position put them in a better position to evaluate whether they should move forward with the split.
So what a most investors want? Did they you think they want the split up? Sometimes split ups work, a lot of times they don't. What if investor's been saying over the past months, There's.
Clearly been some anxiety among investors since the news of the split was announced. I think that the new CEO was seen as there were hopes that he would do what he had done with the Kellgg company, which split into two publicly traded entities and then where both both of those companies were bought by privately held entities. So there was some speculation that the same thing would occur at Kraft Higns, and Kaylaine said basically not yet real.
There's another twist to all of this, which is that Kraft Tigns's biggest shareholder is Berkshire Hathway and Warren Buffett, who runs Berkshire Hathway until he handed the raise to Greg Abel, said he was never a fan of that idea to split up the company. I mean, he was kind of mastermind behind craft Higns becoming the behemoth it was, and that didn't work out so well. But he made clear that the split was not a good thing in his mind. Do we think that has anything to do with this about face?
I don't know. It is clear that he had publicly expressed disappointment in the split, and his successor had said in a filing that Berkshire Hathaway was taking steps to sell its twenty eight percent stake in craft Tigns. So clearly they were nervous about this and not fans of the news.
So do we have any idea how long this pause will last? I mean, is he trying to turn stuff around, make it maybe better, so if when they do split it up it be worth more. What do we know?
They clearly are not going to make the decision this year. They talked about returning to growth in twenty twenty seven, So it seems like this is a month's away decision.
Oh the investment bankers who had that on their deal sheet for twenty twenty six.
But they get paid in the meantime for the work that they've done.
Right now.
You don't get paid to closes.
Oh really, you can't build them along the way.
We're not lawyers. Okay, we get paid.
We take the I like how you still say we yeah, yeah, exactly cause you feel for these guys.
Yeah, what's next for Kellogg? What what's the company want to do now? Is as a standalone company.
For craft Hens. Yeah, well, they've talked about releasing some healthier products. They are launching a craft Heines Mac and cheese PowerMac nice protein it. I knew iber, I knew it.
I knew it.
And they will be lowering prices. They talked about the opening price points being important for low income families. So those are some of the areas that they're going to be focusing on, some healthier options, more affordable price points.
So Kellogg was the example of a company that split into two and then both got taken private. I mean, is that a trend overall? In the food industry to split yourself up after being kind of a big overall food company.
You know, I think we're seeing examples of both of companies getting smaller and bigger. There's obviously a lot more criticism and focus on ultra processed foods. Packaged food companies are dealing with this. We saw the Super Bowl ad this weekend saying processed food kills. So I think big food, generally speaking, is trying to figure out what to do with these headwinds.
So what is the story there?
Is this a short term blip, this whole processed food thing, or is it's been brewing because I hear more and more and more about that being a cause for so many the ills in healthcare and people's health.
I think this is the first time we've seen an administration come down so harshly on ultra processed food. That's clearly been a huge focus of Health Secretary Kennedy and the White Houses backed him up on this. Of course, Americans don't always eat the way they say they want to eat, so you know, there's plenty of Dorito's still being eaten even as people say they're trying to move away from process foods.
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In Hotel reporting some numbers here today beat expectation.
You know, people can't get a room anywhere.
If you do, you got to pay through the nose, and the consumer seems to be doing finding.
Look at some of that stuff.
Brian Egger, Senior Gaming and Lodging Analysts.
Joints is here in our Bloomberg Interactive Brooker Studio.
Hilton Worldwide stocks up about one percent today, fifty two week high today, so pretty good for them. It's got a market cap ISS seventy five billion. What did Hilton report from an earning perspective.
Yeah, so, I mean what we saw in the quarter was kind of mixed in terms of US being down a little bit or maybe a little blow of rep part in the fourth quarter, mostly because of the government shutdown, So a bit weaker in bound travel to the US, a little bit weaker government travel, but the ALC for next year. I should say for this year one twenty six is pretty good. One to two percent rep part growth.
That's revenue per available per available room.
Yeah, and so leisure group, luxury all kind of strong international, a little stronger than the US. But although this is an aging up cycle in the lodging industry, it's still got some WI.
Likes to it.
Now.
Hilton, along with many of the other hotel company like Marriott, has an asset light business model, which means that it's brand licensing right. They don't actually own and manage any of their own properties, and that, you know, allows it to move more nimbly. The profit margins are much higher. What's the downside of that, Brian?
So, I mean, there's some benefit to actually owning the real estate when you're really in an up cycle. But this kind of feebase model is a very capital efficient way to expand and grow. You get your franchise fees and management fees. They've got a little bit of own hotel exposure as well. But most of the lodging companies separate from the reads are actually asset light manager franchisers with some own assets.
Yeah, I'm looking at you know, you've got a company with you know, thirteen billion of revenue call it, you know, four billion of EBATA, one hundred million of cappecs.
Are you kidding me?
That is awesome?
So we who builds a If Hilton wants to.
Build a new hotel in South Beach, they don't build it. Somebody else builds it.
Yeah, so you're you have like ownership entities. Obviously you've got the ds like park hotels, resorts and others that own the real estate. So this is, as you said, like an asset white franchised management, tree driven business with some own hotels. There is some otel exposure.
So what do they do with all the free cashal review they get? You know, most of that debada goes down to the free cashle line.
They have been returning capital, right, so they've got capital returns. Uh. And you know there is real opportunity for growth within their business model, and a while of that is international, a lot of conversions, a lot of conversions from other assets that fit very well under their brand flags. And they have also been launching some new brands as well, and kind of that white style category.
How many brands do they have right now?
So where are they now I know Marriott's thirty one. I'm turning to remember, well, that's all those thirty one is such a slice it is. I mean, yeah, I think over all of you slice the market segment wise, Hyatt and Marriott are more prominent in the luxury high stand. Hilton has some luxury, but it's also got a very
solid kind of mid scale women as service portfolio. And so what you tend to see is that in this environment, luxury upscale is tends to outperforming, and the limited services is somewhat weaker, partly because that's where you've got the government travel, you've got the transit, independent business travel, but stuff like leisure group luxury, particularly international markets UA, Europe, Non China, Asia, all have been really quite strong.
I wonder, Brian, do you I know you don't cover air Andbnb as a company, but do you ever see any correlation between the performance of Airbnb and you know, a Hilton or Marriott, Because I'm sure in markets where Airbnb is not allowed, like New York City for instance, Hilton benefits.
Yeah.
I tend to think of, you know, the the OTAs the Airbnb's of the world, as being a factor with respect to both las Vegas watching particularly and kind of the value conscious consumer women at service. You know, you've got some extra invagery there where it's good for that kind of last minute imagery management. But the big focus of Hilton Marriott High has been for loyalty programs and a strong correlation between loyalty members and kind of booking directly.
So there's there's that aspect as well.
The Walt Disney Company called out in their theme park business some weakness on inbound international travel.
Is that are the hotels seeing.
There as well? There are some of that, I mean, some of it's from Canada terriff related. I think kind of that globally, the weaker areas maybe your inbound US travel, US governor travel, China's kind of flat as strong areas or all the other categories we talked about, you know, luxuries group travel.
I always stayed in my Canadian fans.
You know, the first time it drops like below twenty degrees or ten degrees in like November, you guys are booking your flights down the Florida.
It can be Holling a different too, sing it different, Brian. How exposed are the Hilton's and the Mariots of the world to you know, the whole credit card debate. You know the President wanting to cap interest rates to ten percent on credit card companies and that putting at risk all these reward credit cards.
Right well, I mean it's a consideration partly because a big part of that franchise fee line you see for health and merit is actually fees from co branded credit cards. That's actually a big kind of fee source. So all us being the same, the royalty rates and the level of credit card activity are somewhat of a driver for these franchise fees. These i should say co branded credit card license fees, which which kind of find their way into the franchise fee line.
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Let's get back to earnings right now, because plenty of companies reporting. We're past the point where big tech is reporting. Now it's consumer related companies. We have a telecom name reporting one of the biggest. T Mobile adding fewer subscribers that anticipated, yet the stock is moving higher. John Butler is our senior telecom analyst, and John, in terms of the actual growth in its subscribers, this was a disappointing quarter for T Mobile.
It was a bit of a disappointment for T Mobile Scarlet. I think one of the things that really impacted them is we've seen Verizon, which now has a new CEO who's come in. He's very volume focused, so he's out there. They're promoting heavily. They're trying to win new subscribers, and I think it took a bit of a den out of T Mobile's growth in the fourth quarter. I think one thing T Mobile did which was smart is they combined the four Q report with a capital market stay update.
They updated their twenty twenty seven guidance, and they increased their free cash flow outlook for twenty seven by one point five billion. And so when you saw them do that, you saw an inflection and investor sentiment almost instantly, because again this has this has gone from a story of revenue growth. Now they're pivoting more to free cash flow growth.
They're really pointing investors to that bottom line to to you know, get the focus off of revenue growth as things get more promotional and as industry growth slows.
So is this a new wave of just I guess across the board. If you know, Verizon is getting a little bit more promotional this T Mobile to AT and T, do they have to respond or the other things they can do?
So great question, Paul. Right, We're in a mature industry backdrop. Now, growth overall is slowing for everyone. T Mobile is not alone in point pointing to pree cash flow growth. You've got AT and T and Verizon doing the same thing. And so I think again, with that new CEO in place, now you've got T Mobiles sort of driving a growth story that centers on not only smart promotion, but also driving into adjacent markets like advertising and even credit cards.
Yeah.
I'm a Team Mobile subscriber, and there's always a ton of emails from the company offering all kinds of different services and deals, and it really feels like they're just trying to develop you into their ecosystem. John, I kind of call the effort to sell internet access to AT broadband customers a side hustle for these telecoms companies. But this is how they can make sure that they continue to build out their customer base even as they try to fight for market share when it comes to mobile
phone subscribers. How is that side hustle going for TEA Mobile.
So the side hustle, as you call it, and I think that's a good word for it, is still small right now. I think they're real opportunity for them in the near term. Scarlet lies in the broadband business. They're pushing into fiber, another side hustle. It's small, but I think over the next couple of years it could increasingly contribute to growth. And then at the core of the broadband business is their fixed wireless access business, so delivering
broadband to the home over cellular spectrum. That's been very popular and T Mobile remains a real leader there. It continues to be a growth engine for them. And so I think when you pair that with the the ad business, the credit card business, and more importantly the fiber business, it all adds up to help sustain that free cash flow growth and call it the five to six percent range, maybe even more as we go forward over the next three years.
John about thirty seconds dividend policy. T Mobile's got a one point eight percent yield, Verizon five point six percent and eight and T three point nine percent, So there's something for everybody. In terms of investors, does T Mobile DoD They worry about their dividend yield.
Little less so than share buybacks. In fact, one of the things they did with Capital Markets Day was announced that they're buying back five billion in shares over the course of the first quarter here, which is double the normal rate. So you know, I think they're leaning more into that than dividend growth, although it's part of that share buyback program and it's going to continue to be as we go forward here.
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Let's check in with somebody who's in the TV business, in the TV advertising business, trying to make it easier for smaller midsized businesses to really get their message out there versus via all these digital opportunities here, including television. Mark Douglas, President and CEO of Mountain that is a publicly traded company, a newly publican traded company tickers and the reported numbers just today, I think stocks up thirty percent, so I guess them just today, So I guess the
market likes what they heard here. Mark, appreciate you coming in our studio here talk to us about Mountain. I know you guys are trying to work with small and mid sized businesses and help them get their advertising message out in the world. That's got tons of digital and analog opportunities.
So what's going on in your business?
Yeah?
Absolutely, So what we do is television and streaming television in particular has been underserved, but for small businesses. It's just been very hard, very expensive for small mid sized businesses to use that medium. And what we did is we turned it into performance marketing channel, like something that they can add to their marketing mix a long search along social and use streaming TV to get the next customers.
And we've been consistently growing. And you know, we did earnings last night and I had a very strong quarter in Q four, very strong, ended a very strong year, and we're you know, our focus is on continuing to just exeget the business and do the same.
And I am assuming for even the small businesses, the opportunities lie in things like live sporting events, because those are must view, appointment watching that you don't get from other shows.
Yeah.
Absolutely, Well, the nice thing about streaming is you can everyone can find whatever is their you know, thing that they love to watch. For me, actually, one of the things I love talking about in this business is just like the shows I like.
So, I'm a big fan of Traders right now.
I love that show on Peacock cannot wait till they only released one episode of the week. I'm like, kind of damn, well, I just get all tet episodes and once. But you know live sports, I watch the super Bowl, you have March and it's coming up. You have a lot of dating shows for Valentine's say.
So all of that.
We give our customers access to all of that kind of content, get their message and really target it and most importantly, measure the impact how much revenue that drive to their business. And so we pioneered this space. We call it performance TV. We literally created the term performance TV. It's now ubiquitous in the advertising industry, and we just kind of keep growing into the scaley opportunity, which we think is enormous.
Talk to about AI.
How's AI impacting the advertising business? Meta calls it out. Google calls it out as.
Relates to their YouTube business and or search business.
How do you see it impacting it?
It's having an impact across the board. The obvious is on the creative the time they get creative, like meaning what does it take to get a TV commercial? Used to be a lot of costs, very time consuming, lots of people involved. That still occurs for some of the creative, but increasingly there's AI creative. We ourselves are now putting out two to three Mountain branded TV commercials a week that are being created like in the under a day.
We have what we now refer to as AI creators using our own tools to do that, and it's just substantially lowered the cost. We did a video last week for around the show Heated Rivalry, which is kind of a hot show right now. So video has hockey players in it and so forth got created. An under a
day costs five hundred dollars. If we tried to do that in the physical world, that would have been like six weeks fifty grand one hundred grand to film that, And so I think there's a mixture of still filmed video AI video and you use like you use what's appropriate for exactly what you're trying to do.
Does that mean that the images that the viewer sees is AI generated?
Yes, fully, AI generated thirty second?
Do you have to put a disclaimer disclosure on that or that that doesn't come up?
You don't have to, I actually would like to.
My personal view is all AI videos should be labeled AI period. I actually, you know there's a can Spam Act for email. I think there should be a similar act for AI content that if I'm on Instagram or watching commercial on TV, I should know that this is you know, AI created. And that's that's kind of a personal opinion. I don't see a downside to that, And I think people would appreciate the transparency. They don't want to guess what they're looking at, you know, is it
kind of real? Ironically, we ran another ad campaign the other day with Jamil White, who's u a famous child actor and now is involved in a lot of projects as an adult, and the campaign was is it AI? So yeah, yeah, yeah, and so.
I know you guys are with your company.
You guys are so involved in the media space in general from the advertising site. What do you make of what's going on with Warner Brothers Discovery? It just seems to be kind of out there. I don't know if Netflix is gonna buy him, Paramoun's gonna buy him. If Paramount doesn't buy them, what happens to Paramount? What do you guys, what's the scot about out there?
Well, for full disclosure, I worked for Larry Ellison liter early in my career, and I didn't see him lose very often, and so I mean, when he's determined, he's ferocious. But obviously Netflix is very capable. They have an incredible management team. I think ultimately it comes down the dollars.
I don't know how it doesn't. I mean, and at the moment, I believe that, you know, Paramount has a bigger offer on the table, but unless there's elements of the offer that haven't been published, so you know, and I think paramount strategy is let's take let's literally take it to the streets and do a tender offer, so
we'll see how that plays out. I'm pretty bullish on Paramount, but I know a lot of people on Netflix and they determined also, so unless they're going to come in over the top, I think Paramount has a real shot there.
Can I just jump in here absolutely, Matt Miller.
I just wanted to swing by Matt Miller from Bloomberg Television.
I anchor Open Interest every weekday from nine to eleven, and as friends of the program.
Yes, I've been friends with Mark Douglass for a number of years, and I feel like you're being really diplomatic. This does not look good for Paramount at all. Even if they get it across the line. At this level, they're so levered up that they're going to have trouble meeting their payments. I mean, freak cash flow isn't going to be that strong. So it seems like a dead deal like Netflix has won.
Well. I mean Netflix certainly.
Has access to a tremendous amount of capital and they have the capitol. But I mean, Larry Ellison, if he's guaranteed, you know, if he's providing guarantees, I think that carries a lot of weight.
But he hasn't raised his price yet. That's what everyone's waiting for.
Nobody can I think that he can and why isn't he well, because he's he's doing everything but that, and he has the ability to do that. But his Matt was pointing out, you still got to do something to improve the pro former capital structure.
That's just a banker speaking. I don't know.
I Also my thoughts on the deal is the deal is a nice half for Netflix. It's a must have for parents, Like it just literally is a must have for parent. Yeah, and so so, you know, I think when some things must have for that way you kind of get to the finish line.
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