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His friends call him Mikey, and I'm his friend. I'm calling him Mikey. Mikey Shaw. Michael Shaw, senior Pharmer, biotechanaists Bloomberg Intelligence spased in London. Mike, you got to talk to me about what's going on with no vote Nordest. I thought these obesity drugs were the bomb here. What's going on with their guidance? That was a huge miss for them.
Yeah, two pieces in use today versus the guidance cut, so second guidance cut of the year. So reported guidance now is calling for some percent sales grows, six percent operating profit growth after adjusting for currency, and that compares to fourteen and fifteen percent respectively previously. Now a lot of that is related to the US market. There, they're still seeing headwinds from compound and GLP one, which seems to be the main driver that's affecting wegov growth and
there's a lack of visibility here. So all of that creates uncertain z for investors and also kind of questions around not only only twenty twenty five numbers, but the exit rate into twenty six. So there's concerns about you know, mid to long term growth given how concentrated or how reliant sorry Novo is on WE'REGOVI for growth. The other headwind is competition to a zepic, so that's the GP one for diabetes and that's another you know, key growth
driver for the for the company. Second piece of news new CEO appointment. So they went with an internal candidate. I think the market was perhaps expecting them to go for an external candidate, so you know, perhaps a bit of disappointment there. But that said, you know he's been at the company. So this is Mike Dudster. He's been
at the company since ninety two. He's been heading up international operations since twenty sixteen, and over that time, you know, we've seen international operations sales double to around eighteen billion dollars. So you know, he's an internal higher, he's familiar with the company culture. I think it's a bit too early to you know, to write him off before he's even started. Now, his focus is going to be on reget gaining ground to Lily in the obesite space, maintaining leadership in the
diabetes space, and then improving execution. And that's something that's going to be key ahead of the Cagary semma launch as well as the launch for its oral JP one A in obesity, particularly given you know, Cagary Summer perhaps isn't as differentiated as we had hoped for, and then the oral JLP one profile perhaps trails that of Lily's in a car with journalists.
Though the new CEO said he's planning to review the company's cost base with outsetting specific targets and metrics. So could this indicate indicate that Novo is preparing for a period of silver growth after the initial surge and demand, especially the blockbuster we Go V drug.
I mean, I think it will be hard to slash R and D to be honest, So I mean, and they would need to you know, continue marketing, continue to do DTC in order to you know, in order to compete with Lily. They're obviously healy heavily investing into Capex at the moment, but there is probably some operating leverage in there, you know, to provide some sort of relief. I mean, the company's got a margin of about forty five percent, which is at the top end for large farmer.
Hey, Mike, is there any reasons to believe that maybe the marketplace has been over estimating the size of this OBC drug market?
I think, I mean, yeah, I think there's always a risk with it with an indication this size when you look at the market potential. You know, in the US alone, it's one hundred and thirty one hundred and forty million patients, which is a target population. There is a population then yeah, I mean there is a risk that you know, perhaps consensus did get ahead of itself. But the difficulty here is, you know, you have you know, huge runway of patients.
There's obviously limited supply, so it's difficult to know kind of you know, how quickly that supply can come on board. Now, you know, Nova gives guidance around you know, their growth prospects. You know where they think sales et cetera. Are going to go, but they keep they don't necessarily quantify, you know, the cadence supply and how that how quickly that's going to come online. So that kind of makes forecasting quite difficult.
And obviously they don't want to give that information because it's competitive information and they want, you know, Lily to know about it.
Wait, back in my analyst days, I would have slammed at this management team because that guidance was brutal. They were nowhere close to hitting it in they're big reduction the guidance and we see the stock down twenty two percent today, down thirty seven percent year to date, fifty two week low. So they're paying the price for Miikey Shaw Folks is one of the best healthcare pharmat analysts in the city of London. Every institutional investor wants to
talk to them. We appreciate getting a few minutes of his time. Miikei Shaw, Senior Pharma biotech analysts Bloomberg Intelligence over there in our London studios.
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One of my very first jobs on Wall Street back in the late eighties, I was a research assistant in the equity research department of paynmall recovering the railroad and trucking industry. So I love the railroads. And today's a big, big deal. Union Pacific agrees to acquire Norfolk Southern for seventy two billion dollars. Now, the per share it's cash and stock, works out to like three hundred and twenty bucks.
The Norfolk Southern is trading at a thirteen percent discount two hundred and seventy nine dollars in works trading today. It's actually down seven dollars today. I don't know what's going on out there. I'm not doing this stuff for a living anymore. But Lee Klaska, he is a senior
transport logistics and chipping alys for Bloomberg Intelligence. Lee, I look at the stock price of Norfolk Southern and it tells me a hefty level of skepticism out there in the marketplace that this just mega deal can actually get done.
How do you view it?
Yeah, I think the whole speculation before the deal was formally announced about possible consolidation, you know, really fueled shares of Norfolk Southern previously. And I think people are just trying to take maybe a breather right now because there are some execution risks.
Right this deal is not going to close.
If it does close until early twenty twenty seven, it needs regulatory approval, which is not an easy thing to do. There were certain rules that we created at the Surface Transportation Board to make it very difficult for a large class monrail mergers to happen. That was BECAUST at one time in the eighties and nineties. Those sorts of deals resulted in terrible service. I think that the rails today are much more cognizant of service as it relates to integration.
Uh.
And I don't really think you know, either company once once, assuming a merger does happen, are going scorch earth in terms of, you know, what they're going to do to their networks. You know, they mentioned on the call that they had earlier today that they're really not going to lay off any uh, you know, frontline workers. Most of the probably layoffs are going to happen, uh you know in in in in the offices.
Uh.
So you know that would just mean that services uh would uh prevail. And one of the reasons why they are doing this, you know, from an outsider looking in, you know, it does make complete sense. You're going to reduce interchanges. They mentioned on their call this morning that between the two of them they interchange around a million car loads a day, and if they're just able to if that's that car load is able to be on the same network, it's not only going to improve network fluidity,
it will actually lower the railroads their costs. Let's hope they pass on some of that cost savings to their shippers.
I think that's what shippers might be concerned about.
And it'll it'll provide probably a better service product that they can go out and compete against other modes such as trucks.
And you know that's you.
Know, also a good thing because you know, from an environmental standpoint, railroads are less fuel efficient. You know, trucking kind of deals with you know, turnover issues and trucker availability issues. Right now, that's not an issue, but at times it can be. And so you know, it is definitely a very interesting deal. It will create the first trans continental railroad, but you know, they do have their work cut out for them to get that regulatory approval.
So the deal is worth eighty five billion dollars. How do they plan to make money back? What are finential wins so to speak? To justify that happy price tid.
Yeah, they laid out two point seven five billion in synergies, about one point seven five and that two point seventy five is going to be from revenue.
So what they're saying is that, you know, we.
Can probably get more volume onto the network because it all of a sudden becomes a much more compelling service offering. And then about a billion dollars in cost savings and some of that. Again, you don't need to CEOs, you don't need two CFOs, you don't need two corporate headquarters. You know, the dimension They are going to have their headquarter in Omaha where Union Pacific is located, and keep a I think they word at a major presence in Atlanta where Norfolk is currently.
So but you know, obviously they're not going to need as much space as they once have.
And then there's technology benefits, you know, so you're only investing you know, money in technology once, not twice to get those productivity improvements.
So I think those are the major aspects of it.
And you know they mentioned that you know, they could be you know EPs a creative after year or two.
Well, he mentioned a lot of regulatory agencies are going to weigh in here on this deal. I also think President Trump is likely to weigh in. Do we know anything about how he might view this deal or just consolidation in general? What's the views as to the Trump administration?
I mean, we don't.
The language that management noted on the call is like they wouldn't have moved forward with this transaction if they felt that it was impossible to get regulatory approval. So whether that means they were talking to the administration, whether that means they were talking to the STB or the DOJ or everybody in between, that's kind of you know, if you read between the lines, is what they were saying.
The fact that they're not going to lay off any union foe is probably a net positive for a Donald president Donald Trump to say, you.
Know, this is okay with me. You know.
So there's a lot of unknown still and again this is this is going to take a long time.
So we have a deal.
It has to get Surface Transportation Board approval, which you know won't happen at least for a year and a half.
Could this park more railroad mergers in the US, and if it goes through, what will shipping look like in fivet to ten years? You said, absolutely, please elaborate.
Yeah.
So, so the other railroads in the US are Burlington Northern, which is you know, owned by Berkshire Hathway. They may make their own bid for Norfolk Southern, or decide, you know, we're just going to go after CSX because if they do not merge, then they're going to be at a competitive disadvantage. Why would you want to send your freight across two railroads when you can send it across one.
So it just would make sense.
And if there is regulatory appetite for this kind of a transaction, you know, you could see a Berkshire hacked the Way and CSX coming and you know, if their competitors were able to get a deal, there's no reason why you wouldn't get a deal done between the two. A lot of ifs and butts and candies and nuts, but we'll see what happens.
For an old real estate anamals like myself, today's a big day. I got to speak to two of my favorite railroad anamals on Wall Street, first Tony Hatch this morning and now leak Glasgow Senior Transport Logistics and Shipping annals for Bloomberg Intelligence. Again the big M and A trade of the year so far and certainly the biggest one, well personally one. I never thought i'd see a transatlantic a trans continental railroad. Union Pacific Regied acquired Norfolk Southern
seventy two billion dollars. That's about three and twenty dollars a share that's in cash and stock would create North America. The US is first transcontinental railroad.
That's a pretty cool thing.
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Isabell Lee, Paul Sweet. We're live here in our Bloomberg Director Broker Studio, streaming live on YouTube as well. So check us out there. Aerospace Airlines a lot of earnings going on in that part of the world. Boeing in jet Blue today. Let's check out with George Ferguson s in your Aerospace, Defense and Airlines analys for Bloomberg Intelligence. Safely asconsin don there in Princeton, New Jersey. Hey, George,
let's start with Boeing. I know, you know, for analyst investors, for Boeing, it's all about cash flow and free cash flow and stemming the free cash flow bleed here. How did the company do this quarter?
Yeah, I mean, so the free cash flow is still a little bit negative, not much. Operations positive a little bit two hundred million. I think it was roughly on two hundred negative free cash flow to a positive and cash flow I think roughly. So we're seeing an inflection point here in cash flow. So cashlow had been negative for the last I think it was six quarters before this, and I think that's just the sign of they're getting
more aircraft delivered. They're gonna you know, they've got a lot of inventory still, they'll pull off the shelf to build aircraft going forward, to pull a bigger report proportion of stuff off the shelf than they would during normal times, which should juice that cash flow up. Uh, you know pretty well. So I think it it's you know, the
turnaround is still in u is underway. It looks like it's uh, you know, well in uh you know, in swing in the results we saw on the way you know, company management commented on the end of the year and so, uh, you know, I think it was a pretty good results quarter for Boeing again, turn around intact.
How are they addressing quality in safety issues, especially when it comes to the seven three seven MAX program.
Yeah, I mean there it's you know, as Kelly Oprok said, it's a process. I think just the sign of seeing increased deliveries is showing us that the quality improvement at Spirit, you know, has has seen success. And they're talking about you know, they're at thirty eight seven thirty sevens a month now. Kelly Orperk says he's going to approach the FA in a short period of time and work on
the forty two seven thirty sevens a month. So again, he must have some level of confidence that his quality and his engineering is good in order to in order to go further. It's it's not perfect. They've been slowed down a little bit in the certification of seven three seven DASH ten and DASH seven. They've pushed them into twenty twenty six. I think it's okay, it's not a
big move. You know, we'd like to see them come faster because seven thirty seven to ten is a large competitor to the Airbus A three twenty, which is very successful and one of the reasons they saw United place a big order with Airbus. But again, I think that you can't expect this stuff to go on a straight line. And the fact that they think twenty twenty six is when they could get certification, it doesn't tell me anything's broke.
It just tells me the process is nonlinear, and I think to be expected in aerospace.
All right.
Also, Jet Blue posted a smaller than expected loss. Here, what's going on with Jet Blue and an airline businesses as because I think the last quarter, Boy, these airline companies are really reticent to give any kind of guidance.
Yeah, I mean a lot of them have come back with guidance and a lot of cases lower a lot. You know, the airline business right now is really counting on less capacity in the second half of twenty twenty five, and we'll see how that goes. Last time I looked at domestic capacity plans for three Q it's kind of about zero growth. I mean, I think they need to cut capacity in the marketplace. If you look at Jet
Blues results, load factor fell by. I think it was around three hundred basis points down to the low eighties from mid eighties, and they held fares pretty much flat. Yields were kind of just up a little bit. So that just tells me that there's too much capacity in this market. They just can't fill airplanes at the right price. Jet Blue has other problems, like you know, the gear turbo fan keeps them from expanding. That means costs are
ballooning on them. But I don't see how they'd want to expand right now because again, what I see as a market that has can't fill airplanes at the price that's going to keep them very profitable, and so someone's got to cut. And the question is who the full service carriers are saying, Hey, we got premium to subsidize us.
We don't care the low costs are going to have to jet Blue will cut in three Q but every time they cut, their costs go high or per seat, so they're a bit of a challenging position.
It does seem like the issues just compound for the companies in this space from aircraft shortages, delivery delays, pilot shortages, wage inflation, labor and negotiation and so on. Are there differences in how Boeing and Jet Blue addressing the issues or is really an industry wide consensus and problem.
Well, I mean if you talk to Boeing, everybody wants an airplane, right and they're sold out in the seven thirty seven and seventy eight seven to the end of the decade. Everybody wants the newest. And I think what needs to happen is again the airlines are just putting too much capacity in the marketplace, especially in the US, and someone has to cry uncle and say, hey, you know, we can't take the profitability at these levels. Park some airplanes, get them out of the business so they can write
size capacity. And I think nobody wants to do it. You have some competitors that are in a situation where they they you know, some of them are declared Chapter eleven. It's like Spirit and then and then refashioned themselves and got back out in the marketplace. But it's either someone's going to have to go away or the market's going to have to get negative enough and profitability that people start to park airplanes. As we get into laid end of this year, four Q and one Q, those are
weak quarters for the US airline industry. If something doesn't improve, if you've got a Jet Blue that's barely positive positive and profitability in two q without a change in this market, that's that's a strong negative. Near the end of the year, people will start to cut capacity and try to boost fars.
So, George, who does that? Is it one of the big three? I mean, Jet Blue can't drive capacity in this industry. It's got to be one of the big three, right, Yeah.
Look, I don't think it's. The big three are in a game of chicken with the low cost right they think that they've got pole position here and that they just keep capacity and someone's going to fail on the low cost side because the low cost doesn't have this, you know, premium seating. They might be right right right now, it looks like their profitability is hanging in there. Low cost carriers are the ones taking it on the chin.
Yep. We saw Southbuth Airlines actually now kind of start charging for bags and you can do seat reservations and all this stuff on that premium Yep. They didn't do before, which was part of their cachet. One could argue their brand, but they're saying, heck, we need the revenue. George, thanks so much for joining us.
We appreciate that.
George Ferguson, Senior Aerospace, Defense and Airlines Analyst. If it flies, he knows what's going on there.
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