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The real ap performance has been the US corporate high yield.
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On Today's Bloomberg Intelligence Show, we dig inside the big business stories impacting Wall Street and the global markets.
Each and every week, we're going to provide in depth research and data on some of the two thousand companies and one hundred and thirty industries are analysts cover worldwide.
Today we'll talk Tesla and how the company remains the Wilson was a valuable automaker.
Plus our conversation with Rockwell Automation CEO Blake Morritt. But first, another week of earnings and another dismal forecast, this time from the likes of US, the company posting disappointing fourth quarter earnings and providing twenty twenty four guidance that missed the mark.
For more in this co host John Tucker and I spoke with Bloomberg Intelligence senior transport logistics and shipping analysts Lea Clascow. I first asked them about why the results were so disappointing.
They're really just reeling from the impact from the labor negotiations they had last year. So running up ahead of those negotiations, a lot of shippers were like, you know something, I'm not going to use UPS because I might want to use one of their competitors like FedEx or even the postal service, because I don't know if my stuff is going to be able to get where it needs to go on time. So a lot of that diverted freight, you know, is kind of deleveraging effect on the network,
which really weighs on margins. And then you know, they had the negotiations. They have a contract in place, which is fantastic for UPS and also for the teams stairs, you know, but a lot of the costs, the initial costs of that new contract are in year one, and so that's like a real big hit to margins. That coupled with the fact it's taking some time for them to win back some of that share. Management noted that
they've won back about sixty percent of that share. It's going to take time for them to get that share back to where it needs to be. And again, these are networks, and when you're talking about freight transportation, it's all about building density because the more stuff you can deliver at the same time, you know, the better the margins are. And that's what they're really working through right now.
And you know, and what I thought was kind of one of the more interesting little tidbits is that they think that this year that the small package volume from an industry standpoint, is only going to increase like one percent, which to me I thought was a little pessimistic. But you know, all in all, they're really dealing with tepid demand, they're dealing with rising costs, and you know, they're obviously
taking those costs pretty seriously. As you know, they're laying off or planning the layoff or reduce heads however nicely you want to say it, twelve thousand people. And then also they're looking to get there. They're putting their brokerage business, which is called Coyote under a strategic review. Coyote is the third largest freight broker out there. So one of the largest publicly traded ones are C. H. Robinson. People might not know that, might may know that name. Also
r XO is another pure play brokerage as Landstar. There's a couple private ones. A lot of large companies like JB Hunt have their own brokerage business in house.
You get sorry for a series of stupid questions, but this is who you're talking to. What is a freight what's their role on what do they do a freight brokerage?
So it's they're pretty much get together buyers and sellers of freight. So if you think about it, so if you're a shipper and you have a load that you need to get from point A to point B, you might use a broker to find a truck to carry that load, and the broker kind of makes a spread in between what their charge the shipper and what they're paying the trucking company. What's happened is, you know, it's
a very cyclical business. Uh, there's there's there's great highs and kind of depressing loads and margins can be very volatile during this like, so.
This this just a backup of this brokerage that they own that they're now getting rid of. That you could have gone to them and they could have picked a shipper other than you know, the company that owns them UPS.
Yeah, so you know, so UPS could potentially use its own in house brokerage to move a trailer load of freight between two of their sorting facilities. Or if you're Walmart and you know you have an extra load that you need to get from your DC to you know, your spring Lake Walmart. I don't think there's a spring
Walmart and spring Lake Brick. You know, you might, you might use them because either the carriers that you're contracted with don't have the capacity, or you're trying to take advantage of cheap rates and spot market, and right now truckload rates are extremely cheap. They've been bouncing along the bottom for quite some time, and so shippers might like to leverage that. You know, intermodal is an example. So
you know the intermodal space, which is railroads. You know that's when you see like two containers on top of a railroad. You know, they're facing increased competition because of the loose conditions that are on the spot market, and a lot of those shippers might use brokerage to try to find a carrier to carry their loads.
Our Thanks to Bloomberg Intelligence senior Transport, Logistics and Shipping analysts Lea Clasico, let's turn.
Out to Boeing posting fourth quarter earnings, cashul and revenue that surpassed analyst expectations, but the planemaker for gold guidance for twenty twenty four as it faces lapses in safety.
To help recap the earnings, co host Emily Grafeo and I spoke with Bloomberg Intelligence Senior Aerospace, Defense and Airlines analysts George Ferguson. He began the conversation by discussing his key takeaways from fourth quarter earnings.
I thought that the quarter's numbers looked pretty much in line with what we expected, maybe a little bit better. Commercial airplane. Some of the cash flow generation was a little bit better. A lot of it from deposits, you know that they're getting from airplanes as they move through production. So I wouldn't call that sort of I mean, it's good cash FLOWD what I wouldn't call it super high quality, right like when you're generating a lot of cash from
your core operations. Their their global services business had some very nice margins, even better than we expected, and that's been a star performer.
It's good to see that holding up.
But yeah, I think the real story here is about going forward. How they, how they, you know, nip these quality problems in the bud. And so I do think that as I think about it more sort of pulling back guidance, I think that indicates that management is ready to do whatever it takes to get these.
Quality problems in hand.
And so, you know, my senses maybe they think, look, we we you know, we may not want to be whole to an exact number of airplanes in twenty twenty four as we dig through our manufacturing process and through the supply chain processes and make sure that we're getting a quality airplane out the door every single time.
So if pulling guidance is all.
About that and the efforts around that, at what it's going to take, and focusing again on quality over just management management metrics, I think that could be a very very good sign. You know, again the management team is crystal focused on this is what we have to do.
How different is that than what the company has already been doing for the last few years. Were they not as focused on quality and safety beforehand? Like how much of this is truly a turnaround and a change for Boeing.
So I think I think the business has just materially changed. I was at an aerospace defense conference last week, and you know, I didn't need the conference to tell me this, but I was prize that it was persistent and that and what I heard from people at the conference over and over again is that finding employees and employee turnover is still a problem.
In this industry. It's still a problem now, you know.
I think that the higher you up in the tiers, like a Boeing or an RTX or a GE, it's easier to retain employees because you provide great benefit packages.
Everybody wants to be there. But even they have had a lot of turnover.
And so I think pre pandemic, you could you could potentially fall back on the thought and in the manufacturing process of Boeing that you had very, very seasoned.
Folks on the line that have been well.
Trained, seen years in and years out of the business and we're always going to get it done right. But I think with the amount of turnover they've had. They really need to go back and rethink, you know, how they supervise the line, how they train the employees, and they have to they have to create more stability by investing in those people. And so I think this business has been to rely changed since the pandemic. I will also say that, you know, Bowling has been sort of
pushing this outsourcing of the business again. They were doing this pre pandemic, and this is all about, you know, they want to sort of turn it into the auto industry, where you outsource subcomponents, you bring it together and rent and you put together an airplane. And that's turned the supply chain into a much bigger, you know, portion of of what you're doing. And it's global as well, right
You're making some of these doors in Malaysia. Things are coming from all over the world into renting to turn into an airplane. And I think that's making it more difficult to keep track of the supply chain and the quality and the supply chain and what folks are doing down at those factories. And so I think it's terially changed.
That's the problem, So George, and that sounds like a problem to me. That was probably decades in the making, i e. You know, going more to subcontractors and and you know, as part of globalization. Perhaps is there a sense that this is a really a long term fix that investors should not expect anything months. Maybe it's gonna take years here.
Well, so I mean, I don't think they're going to stop production. I do think they're going to dig through the supply chain, you know, sort of hopefully methodically, and figure out where there could be sources of problem. But I think what it means is that you're just not going to see potentially the margin and the cash flow out of this business that you saw a pre pandemic for years. While they spend more money and more time and invest in people and go down and make sure
that everything works. Some stuff may need to be reconsolidated back at sub tier suppliers or even at Boeing if they can't get comfortable that they're going to get the quality out of it. I think it drags. Like I said in Earnings, Cash Generation two years from now.
At the same time, what I hear from you and from others in the airline businesses, there's a big demand for new aircraft out there. So how do they balance maybe slowing down the line a little bit with the fact that they're customers need more and more of their product.
So I think it I think it hurts. I think you'd like to be breaking to higher build rates. Now air Bus will and air Bus will get market share, but I think in the long term if you don't, if you don't fix the quality problem here, you'll lose long term share and competitiveness and that and that would be really really bad.
What does this mean for Boeing stock price? Because compare it to air Bus, it's underperforming on a year basis Boeing versus Airbus. So is this enough to bring investors new money into Boeing or is Airbus still going to be the outperformer here?
So I mean, I think you know, Boeing investors are going to have to take the long view here, right because again I don't see any quick fix, you know, quick leaping to much higher build rates, much better cash generation, because I think they need to invest back in their business.
Airbus apparent doesn't apparently have this problem. I think more of the supply chain is bill in house at Airbus or at least better controlled, And so I think you're going to see that Airbus is going to perform fundamentally better.
Here thanks to Bloomberg Intelligence. Senior Aerospace, Defense and Airlines analyst George ferguson.
Coming up why Tesla's profit margin may deserve more appreciation than it's actually getting.
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Let's turn out a Tesla, who stock has tumbled so far this year, the auto industry warns a plunging ed demand, and Wall Street analyst scale back on expectations.
Co host Emliker Feel joined me as we spoke with Bloomberg News Editor in chief Emeritus Matt Winkler on this He discussed why Tesla's profit margin deserves more appreciation than it's getting.
After losing fifty percent of shareholder worth since November twenty twenty one, Tesla still is, surprise, surprise, the tenth most valuable company, and it has the greatest market capitalization of
any maker of cars and trucks in the world. And there's a reason for that why that is so today, and it's because Tesla's margins of profit profit margins are superior to any automaker, including by the way, you could say its most interesting competitor, BYD from China, which if you look at the last quarter, became the global sales leader for zero mission vehicles, which of course it's the Tesla space, which it has owned. And with all of that, with all of that, if you like bad news, Tesla
still is holding its value. And I will say this that if you looked at bid over the past six months, it's actually trading it it's low. It's declined significantly since August. So if there was if you like a reevaluation in the market, if anything, Tesla is more than holding its own and if anything, BYD is depreciating, and the rest of the auto industry, of course doesn't have anything close to the profit margins of Tesla. So that's the story.
I kind of like it, only because after last week, everybody seemed to be going in one direction if you read the narrative. The prevailing narrative was, you know, Tesla's days are numbered not so fast.
So why are people overlooking? And is the fact that Tesla is down more than fifty percent from its all time high? Does that mean to you that this profitability is actually not priced in yet?
Tesla has been a volatile stock, and remember we're talking about an adolescent here when public in twenty ten, and it's had many periods like this one where it has retreated significantly, only to rebound with greater fervor. You've seen that time and again. You know we're likely to see it again. But here's an example. If you were to go right now to the say Fortune magazine most admired Companies, Tesla isn't there. Now, Think about that for a second.
This is a company that has completely transformed the auto industry as we know it. It has essentially convinced people that zero omission vehicles or the future, and even the very traditional auto giants that competes against have conceded that they have to make evs, and you would have thought that would be in and of itself significant enough to
be admired, But no, it's not there. So there's a lot of, if you will, noise that's associated with Tesla because of its co founder, Elon Musk, and often the noise obscures the signal, which is the vehicle itself.
Hey, Matt, I know you've been a long time owner of the Tesla automobile, so you follow this industry probably as close as anyone, just because I suspect it's always been of interest to you. I think the issue now for investors, not just for Tesla investors, is what is the ultimate demand for evs out there? And now there's a question. We saw Ford pull back the production of the Ford F one fifty Lightning, which I've test driven.
It is an awesome vehicle at ninety four thousand dollars, or better be, what is your sense as to the man picture for electric vehicles in this country?
Okay, so you're quite right. I do own a Tesla models. I never owned the shares for obvious reasons, because it would be a conflict of interest. In Bloomberg. Being Bloomberg, we're very careful about such things. But I am at the one hundred thousand threshold on my Tesla and there's no sign of any kind of deterioration. And I would say that many people who write about Tesla probably don't have the experience of the people who own Tesla's and if you ask people who own Tesla's pretty much the
satisfaction there is right near the top. And actually Consumer Report spares that out. So I would say that the demand for evs is only going to increase. There was recently a story on Bloomberg about more competition in California, which has been the same that has led.
But that's California. It's like a different country.
Let's be honest.
It's a case of yeah, there are more people buying evs, and they're not buying as just Tesla as anymore. Tesla had a seventy percent market share and now it's down to sixty something percent. But Tesla's still growing. And that's the whole point, is that the pie is getting bigger, and Tesla's piece of the pie is going to get biggers.
From people say I want to buy a Tesla, I don't want to buy an ev you know, it's like I want to buy a Tesla because a teslacas it's such a cool car core brand, But I'm not buying it because per se, because it's an EV.
Yeah.
And look, here's the thing. Tesla makes only zero mission vehicles. It's competing against companies outside of BYD and a handful of others that make all these other fossil fuel machines. That's a very complicated equation, which is why the profitability in the auto industry is inferior compared to Tesla. Tesla only has to focus on one thing, and so far,
if you look at it, it's done very well. You know, first there was the models, and then there was the Model X, and then there's the Model Why you know, the Model three. All of these vehicles actually have made Tesla a very formidable company, and there's more to come. I mean, the reason why the stock fell as much as it did is because Elon Musk actually said we're going to take a pause, so to speak, to get an even cheaper EV model in front of people in the years to come.
What do you think that China's situation is for Elon must from a competitive standpoints, selling those Teslas into China, visav byd and some of the other Chinese manufacturers.
The vehicle speaks for itself, and to the extent that consumers make that choice, it's a good thing for Tesla to be in China.
Our thanks to Bloomberg News Editor in Chief Emeritus Matt Winkler.
Amazon dot Com abandoning its plan one point four billion dollar acquisition of rumba maker I Robana. This comes after a clash with European Union regulators who had threatened to block that.
Co host Molly Smith and I spoke about this and the latest and anti trust enforcement with Bloomberg Intelligence senior litigation antitrust analyst Jennifer ree I first asked Jennifer if she was surprised the deal between Amazon and I Robot fell apart.
It wasn't at all, because back in July, the EU said we have concerns about this deal. I mean they're concerned about competition in the market for robot vacuums. I think there's this idea that anti trust is only interested in really big deals. But at the end of the day, no matter how small the business is or how few consumers it might impact, if there's an anti trust problem, they still have concerns and it's still an illegal deal
in the eyes of regulators. So here they said in a couple different countries in Europe that Amazon was a particularly important distributor for robot vacuums and they could foreclose competitors.
I mean, but Amazon's in the market for everything obviously, not just you know, the robo vacuum market. So and surely there must be other real competitors out there that have a more narrowed focus on the robo vacuum space than Amazon.
Well likely, and that's probably what they argued. But the thing is, the European Commission said, but this is a particularly important channel because you won't only own the vacuum, but you're going to own distribution. An important distribution is like a vertical acquisition, right. It's an integration that they had a problem with because that would give them the ability to foreclose some of these other smaller makers of
these vacuums that need to sell on Amazon. And apparently in some countries there wasn't enough other competition, so they had some concerns. There could have been a remedy offered, but the company decided not to do that. So it was kind of a stalemate and honestly they were going to get sued in the US, right, That's what I think.
Yes, OK, I kind of feel like this sets like a bit of a tone maybe for I would think there's got to be other similar consumer electronics companies the where Amazon is a big competitor. That's like, I mean, does this set some kind of a standard maybe that this could be an issue going forward in the antitrust world.
Well, I think what it tells you in terms of mergers, I think it'll tell you that anytime these big tech platforms, particularly Amazon, try to continue to expand their businesses this way through mergers, they're going to have trouble. They're going to face hurdles in the EU, UK, US, The UK didn't have too many problems with this one. But I think it does tell us something about the FTC's lawsuit.
You know, they have now this ongoing lawsuit against Amazon, and they're looking at all these different businesses where that compete with Amazon but also sell on the marketplace and have some concerns about it. So you know, some of the concept that went into the concerns here will be part of that lawsuit in the US. We're a long way away from an outcome there. That's pretty new, but it's pending.
Chen when you talk to some of your friends in the business, the M and A attorneys out there is the feeling like almost it really is different out there. It is really appreciably harder to get anything approved these days.
Oh, Paul, Absolutely, it is so much harder. There's so much more scrutiny, it takes longer, and that we're seeing that in the merger agreements. They are different than they were five years ago. There are much bigger breakup fees for sellers because they're concerned about the investigation, which can take a year. They're concerned about a lawsuit. You have much longer end dates. I mean, it used to be the end date of a year seem like a really
long end date. Now we're looking at like two years in some of these agreements because they know they might have to go to litigation.
So, yeah, there's a big.
Difference right now.
And is that a sense that this it's a short term reflection of who's in the White House, or is that just a sense that I don't know, Congress or society is anti big deal, or.
It's more about who's in the White House, because it's about the appointments at the FTC and DJ making these anti trust decisions. Right, So it just happens that we have two people making decisions that the DOJ and FTC that are particularly activists, particularly progressive in this area, believe anti trust enforcement has been way too lax for years and they're trying to change things.
Are these people's jobs potentially at risk if if Biden doesn't win re election, Absolutely, and what would the potential other candidates view on antitrust be.
So the interesting thing is that it really depends on who's appointed. So let's just say the next president is Republican, right, Trump or somebody else? Right Now, the Republicans are kind
of a mixed bag. I mean, it used to be you could always think they're going to be way more business friendly, they're going to appreciate the efficiencies that come from consolidation, right, But now you kind of have this populous side of the Republican Party, and some of the people in that group also believe we need to crack down on andy trust, like sort of the Josh Hollies
of the world. So I think if you get a Republican it's going to depend exactly on who they put as the chief of Anti Trust at DOJ and who the commissioners are that get appointed at the.
FTC our Thanks to Bloomberg Intelligence, senior litigation analyst Jennifer Ree.
Coming up on the program, We're going to get the latest on earnings from Rockwell Automation directly from the company.
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Rockwell Automation posting first quarter propit that missed analyst expectations. So for more, Paul and I spoke with Rockwell CEO Blake Morett. We discussed the state of American manufacturing and the use of automation and technology. I first asked him why the street was so disappointed in his numbers.
Well, I think they did hear the message of continued underlying demand remaining strong. But we had a shipment miss in the quarter. A lot of that was execution, and we look at that as timing for shipments that will come back in the year. You know, we had a very strong growth last year of seventeen percent top line
twenty eight percent adjust to EPs. This is a bit of a reset year as we get done shipping off that older backlog that piled up as a result of supply chain shortages and go back to booking and billing incoming new orders. And so we're seeing lower growth in the year with some growing pains, but the underlying demand remains pretty strong.
That's kind of where I want to go. Blake, tell us who your customers are and what are your customers telling you these days, we may.
Be the most pervasive technology in American manufacturing, so everything from automotive and battery manufacturing to warehouse automation, food and beverage, life sciences, energy, both traditional fossil fuel as well as renewables across that whole spectrum our technology, our hardware, and our software and our services are pretty prevalent.
So when do you know, Blake, if it's still the supply chain issues that you're still working through versus just weaker demand, Like do you even know when that moment shifts?
Well, So we had an encouraging quarter in the demand side in that in Q one, so the quarter ended in December. We did see double digit sequential growth and orders off of the trough in our fiscal year, our fiscal Q four last year, and those orders increases have
continued into January, so that's a very positive sign. Now, a lot of our distributors, and most of our business does go through electrical distributors, they had higher inventory than they wanted and we expect in the coming couple of months that that inventory gets to more of a normal level so that their orders to us reflect the strong underlying demand from machine builders and end users.
Blake, how much lead time do you have in your business? What's your order book and kind of how much how much lead tien do you really have?
So the product business, which is the majority of our business, those lead times are typically days and weeks in a normal period, and part of our challenge in Q one was returning all of our products to those fast lead times. But in a normal, you know, environment, we get an order and it either gets shipped that day off our distributors shelf, or we're able to make it and ship it within days or a few weeks for those products.
So are you an early cycle economic read? Is that fair to say?
You know, we certainly have exposure early in the cycle, but the so called late cycle is also an important part of our business. Whether you're talking about the traditional process industries or life sciences, we've got pretty broad exposure early,
mid and late cycle. Although I have to say with the supply chain backlog that we had in twenty twenty two and twenty three, with the distributor overstock that we're working through now, it's hard to pin a particular point in the traditional cycle on this time.
Well, also because you're exposed to sort of all the structural changes too, like infrastructure act A, chips ACT, the IRA, So that's a structural shift even though you're still cyclical. I can imagine that being quite confusing. So based on where you are and all the different cycles, how are we doing, Like how's the global economy doing, you know.
Particularly in our home market in the US, where we have the largest market share, we see continued strong underlying demand. So we're expecting our orders to be up, you know, low single digits, and we've guided to one point up in terms of organic shipments. Underlining demand I think remained strong and one of the key indicators for me is continued low unemployment rates in our most important markets.
So, Blake, I'm looking at the PGeo function on the Bloomberg termol and I could see just by geography looking at your revenue again, sixty percent roughly of your revenue as North America. So give us a sense of kind of North America versus rest of the world. What do you guys seeing North America is.
The strongest market. China has significant problems right now, and Europe still dealing with some of their structural issues. A lot of the business we get in Europe is actually for export back to North America from the machine builders over there. But we expect for this year North America is going to be the strongest market and that's good for us because we've got home field advantage.
It feels like a US exceptionalism conversation right. Like yet again, so if we just go macro them for a minute, if the FED cuts rates in May, what does that do, Like if you're already seeing us hold up pretty well, does that accelerate the economy from where you stound?
I think that could help some of the largest CAPEX projects, which you know we get some business from. But we're not as much of a capex play as you know some other names, and that we're pretty balanced between CAPEX as well as op X in terms of improvements additional efficiency in existing facilities as well. So I don't know
that interest rates are our biggest indicator. As I said, for the economy, I look at unemployment, and you know, I look at the amount of automation investment, both for new green fields as well as adding efficiency and resilience in existing facilities.
Like just explain to us kind of what your competitive marketplace looks like. Where are you guys versus your competitors? Who do you compete against? And how's that changing?
So our big competitors are mostly the European conglomerates. Really, it's Semen, Schneider abb in certain narrow parts in the market, Honeywell and Emerson here in the US where really, you know, we distinguished ourselves by having a very balanced exposure from discrete applications like automotive, to hybrid applications like food and beverage and life sciences, to continuous process applications like energy and mining and so on.
Hey Blake. To that point, Seemens Energy, part of Semen had just been really hurt by offshore wind here in the US, I should say, not owned by Semens, but Semens owns a stake in Semens Energy. How what's your view on the energy green transition build out right now? Are you losing money? You making money? What is your order book look like?
It's still early innings, but we're seeing good business as a result of energy transition. And I would bucket it in three different ways. I'd look at first, the decarbonization of the traditional oil and gas companies, so carbon capture projects.
We've talked about the work we're doing with Occidental in their director capture projects, the one point five initiative, it's renewables, and again we've talked publicly about what we're doing with companies like First Solar in creating you know, PV panels. And then it's the thing that we've been doing for our entire history, and that's driving efficiency across all manufacturing,
and those are all good applications for us. You know, there's some relatively nascent areas like hydrogen that are sources of optimism, but you know, I would put them in those three main areas.
Hey, Blake, I'm looking at the A and R function on the Bloomberg terminal. It shows me that there are eleven Wall Street analysts buys on your stock, twelve holds and five cells, so pretty mixed across the board. What's the message that you bring to your investors into the marketplace.
That the underlying demand remained strong, that we really have a unique position among all of those competitors and among the niche competitors. I like the hand we have, and as you know, manufacturing picks up and resets from the period of supply chain shortages. We're in a great spot to accelerate our profitable growth before.
We end here.
I don't know ninety seconds left. You mentioned jobs quite a few times. What is your assessment of the labor market? Hard to get you're going to keep labor paying more?
What do you see?
You know, I think in manufacturing workforce there's still a lot of unfilled jobs, and we think that, you know, having a skill workforce is absolutely essential for manufacturers to compete, but it's augmented with the kind of technology that we offer. So it's really that winning hand of having an enabled and engaged workforce, and we do a lot to help with workforce development, and it's also given them so called superpowers with the technology that we offer.
Superpowers.
Can you find people for your type of work?
You know, certain jobs, it takes longer than in others. We're actually helping with workforce development programs that we offer in house and then provide labor, particularly focused towards technician level jobs for manufacturers in America through our Academy of Advanced Manufacturing.
Thanks very much to Rockwell Automation CEO Blake Morrett.
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