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Walmart reported some numbers. I thought they were pretty darn good. They're always seemingly pretty good out of Walmart. They know what they're doing over there.
Stocks up two percent.
Here today, let's break it down with Emily Cohene, consumer team leader for Bloomberg News. Emily talk to us about the quarter. What's the company saying about their business?
Yeah, I think you nailed it as another solid quarter for Walmart in the fourth quarter. They did come out with conservative guidance, which is pretty typical for Walmart, come out with cautious guidance and then exceed it later in the year, which is sort of their playbook. And then their guidance was also paired with some warning signs or cautious outlook about the economy, which I found interesting.
Yeah, I want to pick up on that idea because the CFO talked to Bloomberg and mentioned that tariff driven inflation has reached or is reaching its peak, which I thought was really interesting given that there's so many people expecting rate cuts later on this year, given that inflation seems to have settled down, What more can they tell us about pricing?
I think they told us that prices rose one percent in the quarter, which I think was the same as the last quarter. But they also mentioned other things like tepid job growth, student loan delinquencies, rising consumer sentiment being uneven, things that you know, would give any CEO or CFO or company pause when they're trying to outlay what might happen in the coming year.
And I noticed over the last a couple of years they've talked about how maybe their customer base is changing a little bit, people, some middle class maybe for income areas coming down to Walmart.
They're seeing more and more of that. Is that still the case.
I think yes, that's definitely the case, and that's sort of their superpower right now that you know, poor this is the case shaped economy that we talk about a lot. Poor customers are pulling back in areas, but what they're seeing is wealthier clients clientele who might not have come to Walmart in the past, shopping at Walmart, especially for things like their groceries, which they've invested in a lot
in the last ten years. You can now find organic groceries in Walmart and that's really paying off.
And they also have this Walmart Plus program which they're really putting a lot of emphasis on. It's actually one of the benefits if you're an American Express Platinum cardholder, which speaks to that idea that they're really reaching for the higher income consumer. How's that going in Is it making any headway on stealing Marcus share from Amazon with its Prime program?
Yeah, they're seeing a huge growth in e commerce. I think that was one of the major areas that grew this quarter. That is drawing in higher income shoppers who actually pay even more than the membership for faster deliveries, speedier pickup times, and that's helping them also grow market share among wealthier shoppers who are looking for convenience over everything else.
So what are they saying about Did they even talk about on CONFT called tariffs anymore? That's still a discussion point. And what's the company saying about tariffs?
Yeah, tariffs came up a little bit, but they said that they expect that that tariff driven inflation to peak.
Now.
I think they also benefit here again from their groceries. Groceries are a portion of their assortment that is less impacted by tariffs, and they're really benefiting from I think sixty percent of their sales come from groceries these days.
You mentioned e commerce, It sounds like Walmart will continue to invest in techlogy and automation. What were some of the things that they flagged that they're working on in terms of innovation and building on the technology that they have already implemented into their system.
Yeah, it was interesting.
They said most of their fulfillment and stores is now coming from automated warehouses, most of their fulfillment for e commerces coming from automated warehouses. They have really made huge gains here to speed up fulfillment centers, and I think we should expect to see more of that in the coming quarters. They cited story models and automation as the main areas where they're going to be continuing to invest.
You know, one of the things that's amazed me really for ten fifteen years about Walmart is how well their digital business has been.
Their e commerce business.
They have built that to not only I mean they can go toe to toe with Amazon dot Com just about anything, it seems like.
Is that still a growth story for them?
Yeah? I think they said something like a third. They've you know, a huge amount of shoppers are now actually interacting with their AI, their AI assistant on their app and on their website. That really helping people make shopping decisions faster. They're seeing an increasing spend from customers who interact with the AI shopping assistant, they said, which which I think we can expect to see.
Just in the last five years, their ibathas roughly doubled, but their cap X is tripled.
Yeah, so commerce build out, that tech build out, yep. So I mean they're putting their money where their mount is here.
You know what Paul's dream job is, Emily us He mentioned this to you, No.
Be a greeter at Walmart. See I'm a nice, friendly guymock.
He wants to wear the smock.
But you know, to that point, Walmart employees about two point one million people, which makes it a huge employer. Do we have a sense of whether they've been growing their employee base at all with this commitment to technology, to automation.
I think They've definitely made a huge investment in technology. They have a lot more people working on tech than they ever have, and I think we could expect to see more of that for sure.
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All right, let's move from cars to tractors. We can do that with John Deere. John Deer reported some really solid numbers of stocks up twelve percent today, so a big move for Dear. It's up forty two percent year to date. And when you think about the John Deer company, you think about the US farmer because that's the primary customer there. When a farmer has money, the farmer links to buy some new tractors. So let's check in with Chris Chiolino. He covers all the big equipment companies for
Bloomberg Intelligence. Chris tell us about what did they tell us in their earnings report?
Yeah, it was a really solid beat and race quarter.
And I think this kind of gives us the all clear on the cycle and that you know twenty six will be the trough earnings year. The one Q beat was was broad based, all segments, better top line, better margins than expected, really on the back of higher shipment volumes, with particular strength in the small agg business and construction. Those those are markets that you know, have started to already recover now this year.
The large agg.
Business, which is obviously their their bigger growth engine, continues to be soft. But I think we're seeing that business stabilize and really for the first time, you know, in years, we're starting to see some green shoots emerge there. Order books, you know, strengthened a little bit during the quarter as well.
How about how does this compare it in contrast with what CNH Industrial reported earlier this week, which took more It feels like a cautious stance.
Yeah, you know, I think so. Both companies are calling twenty six as the bottom. I think that's pretty well understood at this point. I think the incremental piece coming out of Deer today is that you're starting to see some early signs of improvement in the North American lar jag business. That's a market they're projecting in terms of unit volumes to you down fifteen to twenty percent this year. That's going to put volumes at the lowest level in
more than four decades. But what you're starting to hear from them this quarter is that the order book strengthened.
Particularly just in the last month of the quarter. You're starting to.
See a little bit more trade flows going to China, the fleets continue to age, you have the government aid support, so this is not a big step change, but it's really the first signs of incremental improvement.
You got to have a great sense of timing, Chris, as I said, Deer's up forty two percent year to date, so the market's anticipating this business bottoming and then turning up. How long is this cycle for some of these companies that you followed here, they are cyclical.
Yeah, so a typical downturn in this business will last anywhere from two to four years.
This will be the third year of the downturn.
So in terms of the downturn, it looks very similar to what we've seen historically. Typically the upturns last a little bit longer. But you know, this is an incredibly volatile market and it's ultimately dictated by crop prices and farmer profitability. So the crop outlooks do have a significant impact here in terms of what farmers are willing and able to spend.
And it looks like Deer relies on the US for a huge part of its revenue, if not half. What is it doing in terms of growing its business overseas does it? Is it just kind of a trajectory of growth there that is similar to what it sees in the US, or is it competing against some established players.
Yeah, so they're regional markets, but in terms of what markets matter for Deer, it's North America and now South is becoming more important. Reason being those are you know, typically the bigger producers of road crops, corn, soybeans. They're larger farms, they utilize more, the larger equipment that you know, is more conducive to some of the precision technologies which
which come in at a higher margin. Europe tends to be a little bit more stable, They get a lot of government support, so I think of that market as less less cyclical. You know, lower peaks, higher troughs. Those are really kind of the three big growth engines. If you think about Deer's geographic exposure.
So what is Deer saying about the US farmer these days?
Listen, things are still challenging.
Let's let's not understate that, you know, crop prices really
haven't moved that much and still under tremendous pressure. As we look at another year of you know, near record production, they are seeing some signs of stability, I would say, And like I mentioned earlier, I think we're starting to see some early signs of improved activity again, albeit off a very low base, and a lot of that's predicated on you know, we're starting to see a little bit more exports going to China, you have a continued government support,
and then also you know, there's certainly a need for replacement. The age of the fleet is as old as it's been in a number of years. So as farmers get more money, you start to see some stability on the crop price front.
That should, you know, unlock some pent up demand.
Yeah, I'm just looking at the stock price trading. It at a record high, but it really has gone on a tear over the past three weeks or two weeks. What accounts for that? Was it anticipation of this report or was it something else?
A combination of things.
You know, I think, you know, it's pretty well understood now that we this year will be the trough of the cycle. So I think there's some positioning ahead of that. And you know, a lot of these heavy machinery companies typically do well in early in the rate cut environment. So the anticipation of lower rates stronger growth environment not only in the ag business but also construction, and I think that sometimes get over gets overlooked. They're completely refreshing
their excavator product lineup. They have a pretty strong position in construction equipment, and I think the growth dynamics there moving for twenty six and twenty seven are still quite favorable.
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Six Flags Great Adventure, my first amusement and next second amusement park.
The first one is Hershey Park.
Okay, yeah, that's a good starter.
Amusement park.
Yeah, yeah, that was a good one. Then you go to then you step up to six Flags. Great adventure. That's some serious park there.
Yeah.
Well we have to be ready to kind of be you know, have trouble standing because of the roller coaster rise being super aggressive.
Yep.
Absolutely, And they're still there, cars going in, packing in all the time down there in Jackson, New Jersey. They're all around the country. They reported some earnings here today. Let's get down to it with Jody Lourie. She's a credit analyst. She covers all the leisure companies, including six Flags Entertainment. Jody, thanks so much for joining us. What did you hear from six Flags today with their earnings?
So I think what's interesting, Paul, is that we're seeing that some of what six Flags said, oddly was similar to what we saw on APHIS's call. And both companies had these large impairment charges to boost ebada, but it didn't necessarily equate to cash generation, And both companies are focused on improving their debt load and also just the core of the business, the operational side, adding an AI to boost the business and figuring out ways to turn around,
and both companies are dealing with new CEOs. So it's just like a weird sort of compare contrast scenario that I've been toying with my head all morning.
I mean, Paul was talking about how Hershey was his first amusement park, and then we're obviously the big one would be Disney, yep or Universal.
Have you been there?
No?
Okay, that's a pretty good one.
Yeah.
Is that the competition for six Flags or does it work on a different level than those?
It is and it isn't the competition Scarlett. I mean, I think you know, six Flags likes to compare itself more to alternatives in leisure and entertainment. There was a great slide that they provided that that showcase the value proposition if you compare it to like concert tickets or
you know, in cert sporting event. The amount of time that you spend at six Flags, in theory is all day, right, So the cost to enter and the cost for the you know, all the sort of concessions is much lower than what you would pay to go to like a Taylor Swift concert. Now that said, I mean, I think what's so interesting is is when the company combined, there was this image that they could create like an all pass promotion, right that you can end in all parks.
They've only finally started rolling out something that's our regional pass recently, and I'm curious to see what could happen with the company as they improve those sort of points of it. Because what's funny is if you look at it from a revenue perspective, it did actually pretty well this year compared to twenty four, and twenty four was
a pretty strong year. Same thing with some of the per cap spending pieces of it, right, the per cap component, the admissions were down, but the in park spending was decent, and so you say, what's going on, like why are they having such issues? And it comes down to an operational issue. It comes down to the fact that the legacy six Flags assets, I think were in way worse shape than Cedar Fair anticipated when they took on the company,
and they're saddled with a lot of debt. So it's really a question of if the capital markets are going to be encouraging enough to help them through. You know, they helped them through in January with a new issue, but really are they able to sort of support the company through this transition.
That park past you mentioned sounds like a you know, the amusement park version of an epic, which makes sense if you're skier and you are chasing the weather around the country. What doesn't make sense to go to the West Coast for six Flags and then come back.
I don't know it could Scarlet. You don't talk to Ira Jersey enough. Apparently, at least when it comes to roller coasters. You probably talked him about interest rates. Next time when you have him on, ask him about his son's American Coasters Enthusiast card that he proudly can If you are deep into the roller coaster dynamics and culture, people will go to the end of this of the Earth.
And I am curious to see how the Middle East traction for six Flags, for SeaWorld and for some of the other parks that have expanded there, how that's going to play out If you do see these park coaster enthusiasts fly out to Saudi Area, fly out to the Oe to ride certain coasters.
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Our good friends over in Switzerland Nesley, a lot of news coming out of them today. They're talking about maybe backing away a little bit from the ice cream business.
How can you do that? I don't know.
But let's check out what's going on with Nesley with our good friend Duncan Fox. He's Bloomberg Intelligence senior Consumer Stables Analytis based over there in London. Duncan, what's going on with Nestley. It seems like they considering some strategic moves here.
Well, yes, I think it's such a large organization. I spion it's quite a small part of their business, and that it's already in it Well, I love it too, but it's in a joint venture, well, most of it's in a joint venture with fron Aire, and they took a back two billion dollars out last year when from
Area did a raising capital. So I think it was sort of set that the chance would be that they would probably clean up their portfolio a little bit and try and concentrate on really where they have huge market share. I mean, as much as I love the ness, I scream, it is not the global leader. Magnum is so and
it's well behind. It's sort of half the market share globally that that Magnum's got, So it makes sense, I think, to monetize that that stake and put it into areas where they are global number one or number two, which is coffee, pet food, and nutrition. So it does make sense.
And it makes sense in the context of there's a new CEO and he's kind of putting his stamp on the company and setting out strategic direction for Nesley based on what he's done so far, is he still in the assessing stage of, you know, trying to figure out what works, what doesn't work, or is he ready to make actual moves.
It feels like it's ready to make those moves. I mean, he's already sort of sharpened up the focus in sort of making it much more of the four big core acid bases, and you know, three of which are global, so he's merging two sort of nutrition businesses into one. So I actually get some cost savings which should then be invested back into driving organic growth or particularly volume in the case of Nessie, which is something that's been
a bit shy the last couple of years. So it really feels that he's sort of focusing very much on getting the volume moving forward on their core categories and sort of I wouldn't say he's getting rid of everything else, but he's de emphasizing that the importance of some of the smaller parts of the business to make sure they get the large parts right. And you know, if you can do that, then maybe there'll be some other assets
to monetize over time. But he did say that in the food businesses a lot of local assets there, things like kick Kat, which which are very very big and very cash generative. So you know, there are ways they've got to make sure that they keep investing in some of those, maybe smaller because they actually offer quite a lot of cashloads of the business. But it's really about focusing on the core areas where they can grow and
really shape the business moving forward. So it does look, like you said, the ground running dunk and I.
Know that part of the Nestle story is a cost cutting story. Give us a sense of kind of what costs they're looking to cut and kind of how far along in their plans.
Well, I suspect they'll always be looking to costs. It's such a huge organization. I mean, I think it was October, they said they're getting in red of sixteen thousand employees, which is a bit shy eight percent of the global workforce. So I think there's probably quite a lot of middle managers in the business that could potentially be moved and moved out. I mean, they've got to keep the local
salesforce moving in the right direction. But it's quite clear that maybe the decision making was a little bit fuzzy in the past in that there were too many competing people trying to push the runs in one way or the other. So it does feel that they're going to be taking the costs out of there. They've got about three two billion to three billion to take out by twenty twenty seven twenty twenty eight, so I think that
they're well on the track on that. After that, merging the two nutrition businesses together could generate a little bit more sewing assets as well. You end up with some sort of stranded overhead which will presumably give them a little bit more to take out as and when those assets are sold. So I think this is going to be an ongoing story, but it won't be as big as the sort of a three billion that they've got
out there. Over the next sort of few years, so yeah, it'll be probably sort of Most company seems to say half a percent percent of sales wishing Nessles's case, ninety billion of ninety billions with frant to sales is quite a chunk coming out on an annual basis. Break.
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