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You know, drive in early enough to work. You get to see their trucks on the roadway making deliveries to restaurants, A Performance Food Group and US Foods.
Oh you see, No, I see all the time. I don't come as early as you I should probably.
Anyways, three am, there's like.
Talk about a possible deal takeover one by the other. Crystal C is our US deals reporter. Who's taking over? Who? Do we know?
Or is this this rumor at this point?
So we're reporting that US Foods has made and has shown interest in tie up. So the companies are actually pretty similar in size in terms of enterprise value. They have a lot of debt, both of them. So at this point it's early. We don't know who'shitting over who just yet. But what we know is if this deal does go through, or if this deal does go ahead,
it will face a lot of regulatory scrutiny. And eventually the goal is to combine the company into a company that has one hundred billion dollars worth of revenue.
Do we think it's more about scale, margins, distribution, overlap, or just really fending off Cisco.
So Cisco is actually currently the number one, the top three four players.
Actually that's Cisco with an S an S.
That's right, and that actually I see those trucks more than I see the others, at least in the city. So Cisco US Foods performances. They all have their moment like in the past decade or so. Actually they have each like taken top spot and it's moved around. So there are moments where you know, they have had activists attack at various different points. So it's interesting that this is the moment where you see that US Food is
performing better than Performance Food despite the name. So it's it's it's going to be a very challenging deal in twenty fifteen when Cisco and US try for a tie up. That that deal got struck by antitrust. So definitely is a market where scale matters, margin matters. You can combine regions, you can combine your fleets, so all of those things make it a very good synergetic.
Margins right now, or like you said, the razor thin right.
So it depends on the market that you surface, like depending on whether you're going after restaurants, is its cafes or is it like uh should back up school?
What do these companies do? They prepare food, they bring explain that.
So there are various different things that they do. They it comes from, they do produce, they do prepared food, and they supplied to places like restaurants, hospitals, schools, hotels. So depending on your end customers and what your products are, the margins slightly different also means your production would be
different and it impacts costs. So I'm sure there is in these CEO's head the dream combination of you know, what the composition of each product or each geographic should be, and well, if so this in this case, US would clearly think that a tie up with performance would get them closer to that ideal business portfolio.
And regarding the why, now, do you think it has something to do with software regulatory regulations with the TRAP administration as compared to the bidens.
Yeah, that's definitely one big concern. It is a very consolidated industry. So my gut feeling is either way, under whatever administration, it will be looked at by d ANTI trust. That said, the M and A deal maker had been expecting twenty twenty five since Inauguration Day that this would be a much friendlier M and A market under President Trump and Liberation Day hit and that put a lot of things on pause. In the past month or so, we have seen people warming up to the idea of
exploring deals or like you know, pulling triggers. So there isn't a there is an element of a friendlier regulatory environment.
All right, Crystal appreciated. Crystal sed the US deals reporter from Bloomberg News talking about Performance Group attracting a takeover interest from US Food. Again, this is a potentially could create a distribution company with combined sales of something on the order of like one hundred billion dollars.
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Did you know the use remnants from the manufacture of denim in the US currency.
No.
Really, Well, if you hold up a bill you'll see like little shreds. It looks like, you.
Know, is that only in the US or does that happen all?
I don't know.
I know that's definitely the case with US currency. And that brings us to a discussion about Levi Strauss with their herrings. Mary Ross Gilbert is senior equity analyst covering retail for Bloomberg.
Did you know that?
I did not.
I mean, I know what you're talking about, those little threads, and.
Yes, no, that's from that's from the byproduct of manufacturing Denham. They use it at the Treasury. Mary was Mary Ross Gilbert yesterday? Was she was wearing?
Where were you wearing yesterday?
Uh?
Ralph Lauren? And today the Brooks brothers No gap, Okay.
Very nice, but it's a it's a it's a malbond gap collab so sold out.
It looked like the Brooks Brothers thing. But anyway, so Levi what did we learn from Levi Strauss and their earnings?
So I think what we learned in the earnings report first of all, you know, very optimistic view. But if you really dissect it, for example, the guidance that they raised on the revenue line. They now expect full your revenue to be up one to two versus down one to two. Most of it looked like a change a shift in their view on the currency headwind, and then the other piece was because they had a strong second quarter.
So the way we look at it is there's probably upside above their guidance and consensus view, which is in that range. So you know, we think that the way the business has been reset, look, Dockers is out of the picture now.
They got rid of some underperforming lines.
They really honed in their skew count, their stock keeping u an account, and really honed on profitable merchandise, and they've really taken their tops business. They've infused more fashion and style and it's a growing category for them, as is non den and bottoms, and of course their core denim business jeans business, which.
They are at the leading edge of the latest trends.
And you know, even slim and straight are still a thing, but the biggest growth is really coming from loose and baggy and that actually translated with shorts too for summer, and that kind of explains why they also had a strong second quarter and they saw it globally, so you know, very very good and across wholesale too, So that was nice to see that. But DTC directed consumer really led and that was up double digits.
Have you heard John skin and jeans are out and baggy is in. If you look at all the young folks like gen Z, they do wear baggy.
I've got these stretch fabrics. Okay, good's disappointed, which I find myself.
Okay, that's good. Levi's welcomes all styles. Okay, so more than half of Levi's merchandise merchandise needs for the rest of the year according to the company, they've already been imported. But what will happen when that runs out? Have they released any plans when that happens? And with tariffs set in place by then?
Assuming yeah, Isabelle, So you brought up a key point and that is what is the impact of terriffs? So just to give you a little perspective, Levi's is very well diversified. They only source about one percent from China, so very little exposure there. Vietnam is probably five to nine percent. Of course, we have news that that tariff freight Trump has set, but it's not carved in stone and there's no effective date yet.
And as we got news today.
That Vietnam is saying, hey, we don't want a twenty percent tariff.
We wanted to be ten to fifteen.
Nonetheless, with Vietnam being five to nine percent, and then Mexico's probably that is under their Canada agreement, so chances are they're not affected, and then everywhere else they're assuming ten percent. So the unmitigated impact is only about fifty basis points for the year, but with mitigation mitigation measures already taken effect, that's going to reduce it down to
just twenty basis points. So they are one of the companies if I look at my universe of apparel branded retailers that are sort of the least impacted by tariffs. LUs things change, but we still think that the impact will will still not be as significant as it might be for others.
I mean, is a company like this willing to take a hit to margins before raising prices for consumers? Is it like thirty seconds?
Yeah, John, you know, they're actually strategically raising prices on some of their new innovation, and that's where they're able to sort of build it in with that product.
And I think that's working effectively.
All right, Mary, boy, he's a pleasure. I can't wait to see what you're wearing next week. Mary Ross Gilbert, a senior equity analyst covering that sounded kind of creepy, sorry, covering retail for us here at Bloomberg Intelligence.
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You know what time of the year it is. It's time for the mid year assessments for the global communications and network equipment specifically. Who better to do that than Wujin Ho. He's the senior technology analyst from Bloomberg Intelligence and joining us on this Friday morning from our campus in Princeton, New Jersey. All right, midyear updates. So what's the update, Wou Jin.
Well, I will tell you. Look, the fundamentals are actually fairly positive. You have AI drivers driving certain names like Arista Networks and Celestica, and also the enterprise campus switching and the data center searching have upgrade drivers as well. That's going to benefit someone like a Cisco and an HPE. Now the issue is, and your prior guest was talking about tariffs and export restrictions. Tariffs actually really spooked me out.
And does that throw a monkey ranch and enterprise IT spending into the second half of the year and temper the growth and earnings expectations.
So how much could tariff's and economic uncertainty really trip up the global networking sector sales in the latter half of the year. Do we have a number in mind, Yeah.
Don't have a number in mind. There's a couple of things. The networking sector has actually done a very very good job in managing and navigating tariffs. Right from a sales perspective, we really haven't seen estimate cuts as a result of it. From a gross margin perspective, we're thinking about one hundred and two hundred basis points, and that's already reflected into
consensus expectations. What I don't know right, but there are a lot of enterprise IT spending surveys that are out there saying that they are going to start ciphoning, potentially siphoning off some of their spending plans. One of the things that I will say is that enterprise enterprise networking tends to be a more mature and commoditized market. So if there's going to be a couple of areas of spending that could be curtailed, PCs obviously, but also networking would be second in line.
Hey, Wujin, we've been making a big deal about well, it is a big deal that in Vidia across the ford trillion dollar market cap. Can that be sustained given what you just said, Let's let's talk about the multiple expansions.
Sure.
So I'm not the Invidia analyst, I can talk from a high level in terms of what's going on in Nvidia as well as some of the drivers to earnings growth. If we look at some of the AI initiatives that are going on, whether it's by the hyperscale cloud guys or some of the sovereigns and these neo clouds like core Waves, they're building out these one hundred thousand GPU type of installments. This is the lasting based on my work and my colleagues works, this is lasting over the
next couple of years. The only gaming time town for high end GPUs to train AI models is in Vidia. So is there a sales momentum as well as earnings momentum to support it. Yes, there is for Nvidia as well as the rest of the supply chain.
In the note you mentioned or it was mentioned that we aren't seeing any trade overhang risks when it comes to demand in the latter half of the year, and they aren't really reflected in consensus and invaluations. Why do you think that's the case?
Yeah, I don't know, right. I think what happened was in the after following the first quarter results. You know, the companies have not yet really fully reflected the tariff impacts into their expectations and consensus have carried that through through the through the rest of the year. There has been very little indication after following first quarter results with regards to a pullback in demand or more importantly, a
pull forward in demand that's going to affect the second half. So, you know, my guess is is that I'm waiting for what the second quarter results according to tell Us in terms of the second half.
We thanks, so I appreciate it.
Woljin the hold the senior technology and it's from Bloomberg Intelligence joining us there from our Princeton, New Jersey canvas.
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Do you have a pet?
I used to growing up?
Now I live alone in and I used to growing up, but now it's hard in New York City. You have to take them out in the morning, at noon, after work, and for some even before bed. Do you have a pet.
Used to to? You know?
I was so upset when we lost her that I just I can't bring myself to heartbreak replacer.
Well, it's a bummer.
Janna Rosario Pena is our consumer staples analysts, and she's here to tell us about just how much we spend on pets.
It's like a staggering figure, isn't it.
Yes, yes, and it's going to keep growing up over the next five years. We expect globally that the market my reach about five hundred billion dollars by twenty.
Only five hundred billion, that's it.
What God's name of people's I mean, yeah, it's obvious dog food and stuff like that, But is there anything like else I need to know about, like dressing? Their pets up in little crazy costumes and stuff like that and little boots. Yes, so there's been a couple of things.
Food remains the biggest expense for pet ownership. It's about thirty forty percent of the expenditure. But there are other things that come with owning a pet. Now people are more willing to get into discretionary like you know, vests and shoes for their dogs and creates and the things like that.
Also, healthcare is a big thing.
People are more willing to spend more on the healthcare of their pet than they used to.
Why is that Is it because more dogs are getting sick? Or is it more because of the insurance company? Like why does trend? Well, it's a couple of things. First of all, the humanization of pets.
Now people consider them as family, so they're willing to spend a little bit more to you know, keep their family member around. So there's a greater acceptance of that kind of attitude.
Who benefits the most from all this what particular companies. I think when we used to feed our dog.
The human food, actually when I was younger, No, you don't feed them human Yeah, maybe that's why my dog wasn't the healthiest.
Well human grade food, I will guess. So it really depends if you're looking at food. The big food companies Nestley, Colgate, Mars, General Males, they have you know, food offerings in different price points. But on the more premium side you have things like fresh pet that they have the fresh frozen which is really like human great food that you just you know, take it out of the.
Fridge and you give it to your dog. We know that, I exadly, I shouldn't have said that, So we know that Americans love their pets, and everyone knows that. To your point, people are delaying having children because they have pets are in part because they have pets and because the economy is tough. Where does the US that.
Globally, Yes, so we're still about forty percent of the market. You know, we're probably going to grow about thirty five percent compared to like the thirty eight percent that we expect over the next five years. So we're still going to be the biggest, the most mature part of the industry. There's others that might grow faster than that. There's other regions outside of Europe and the United States. However, that size of the pie is smaller.
Obviously, you know, it's not just dogs.
There was a fascinating Bloomberg profile of a guy I think it must have been Florida who sells designer geckos, and some of them fetch a fortune, like five grand for a little get go.
What's the most popular pet? Is it the dog?
It's steel dogs and cats, you know, And that is like mainly, you know, where we focused on. Of course, there's like others like hamsters and cobras and things like that, but that doesn't by.
The way, just.
Parenthetically, don't put the hamster near the cobra.
Oh my fish is also I don't want to imagine that, she seem Obviously, fish is also fun. I think it's good training for young kids. You know, they just feed it once today. The cleaning of the aquarium is always tough, though, don't you smell them responsibility for sure. Okay, so we know that e commerce sales. You wrote in your note that in the US it might reach twenty seven percent of the total from twenty percent in twenty twenty. So we have that, we have the pharma market, we have
the food market really just growing. What could be what could be the hindrance here. What headwinds are you seeing in this space.
Well, we actually see certain pockets of the market being a little bit more conflicted, particularly in the past year discretionary spending. You know, we did make fun of the vests and even you know, popular fashion brands are expanding their their you know, their names into pets. But that part of the spending has been a little bit subdued, I want to say. And part of it is because the population, the pet population has been you know, not growing as much as they used to, like back in
at the beginning of the pandemic. But another thing is obviously economic, uh, you know, the economic situation. People are curbing their spending, so that is like one of the first few things. In terms of premium we still think it's gonna premium food. We still continue to think that it's probably going to get to fifty seven sixty percent of the food in the US, like the overall food, but the cadence is probably going to be more like
twenty seven on rather than shorter term. We think people are going to probably get with kibbles rather than you know, the fresh frozen part.
Diana, thank you, Diana, Rosaria Penya. The consumer staples analyst, how the world is going to spend five hundred billion dollars other pets.
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