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The FIFA World Cup 26 is coming to North America. Get closer to where business meets the beautiful game with a hospitality package featuring premium seats and entertainment. Get closer to wins on and off the pitch. Register interest@hospitality.FIFA.com Interest Introducing the all new Adobe Acrobat Studio now with AI powered PDF spaces. Do more with PDFs than you ever thought possible. Need AI to turn 100 pages of market research into 5 insights with a click and do that with Acrobat. Need templates for a sales proposal that'll close that deal. Do that with Acrobat. Need an AI specialist to tailor the tone of your market report to sound real smart in real time. Do that with the all new Adobe Acrobat Studio. Learn more@adobe.com Dothatwith Acrobat your next product.
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Bloomberg Audio Studios podcasts Radio News this is Bloomberg Intelligence with Scarlet Fu and Paul Sweeney.
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How do you think the Fed is looking? Tariffs, the uncertainty of tariffs.
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Let's take a look at the sectors and how they perform.
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A lot of investors getting whipsawed every.
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Day by news events, breaking market headlines and corporate news from across the globe. Could we see a market disruption? A market event?
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People just too exuberant out there.
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You see some so called low quality stocks driving this short term rally. Bloomberg Intelligence with Scarlet Fu and Paul Sweeney on Bloomberg Radio, YouTube and Bloomberg.
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Originals on today's Bloomberg Intelligence show, we dig inside the big business stories impacting Wall street and the global market.
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Each and every week we provide in depth research and data on some of the 2,000 companies and 130 industries that our analysts cover worldwide. Today we'll look at how a heavy promotional campaign at AT&T impacted its quarterly earnings. Plus we'll break down how delayed orders at US Retailers impacted earnings for toymaker Mattel. But first we begin with earnings from the streaming giant Netflix. Netflix shares fell the most since April 2022 after its third quarter earnings missed analyst estimates.
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This comes after Netflix had to pay about $619 million to settle a multi year tax dispute with Brazilian authorities going back to 2022.
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The results may renew concerns about the sustainability of growth going into 2026. So for more, we brought in Geetha Ranganathan, Bloomberg intelligence analyst on US Media.
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We first asked Geetha for her take on Netflix results.
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C
Nobody saw this coming in terms of this transaction tax. It's a little bit of a catch up charge that Netflix took in the third quarter and there will be an ongoing charge as well, about 40 million or so per quarter. But again, nothing that will materially impact results. What, what that tax charge did was that it definitely depressed the margin performance. And this is something that everybody's been super focused on. Operating margin numbers, those came in definitely much lighter than what Netflix itself had projected. But actually if you just strip out that Brazil tax impact, they would have had record operating margins. So they guided for 31.5, they would have come in at close to almost 34% if, if we didn't have that tax issue. I think fundamentals are definitely strong, but I think what is happening is apart from the tax issue was that it was just a very, very ordinary quarter. You know, people were definitely expecting something, you know, a much bigger beat in terms of revenue just given that, you know, the second half content slate has absolutely been a monster slate. I mean we've seen some of their biggest hits ever in the third quarter. We expect to see more coming in for Q. But none of that was really refle in the numbers and I think that's why you're seeing so much of nervousness.
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A
Okay, so ordinary results at Netflix is like the new bad. Going back to the results, Geeta, what was new, I thought in the earnings report was that they flagged the possibility of M and A, which is not something you hear from Netflix. Of course there have been all these reports that Netflix is interested in buying assets from Warner Brothers Discovery. Do these latest results show that Netflix is now in a position where it has to make a purchase? It's a defensive buyer as opposed to an offensive buyer.
- [04:32]
C
I don't know whether it has to make a purchase. They definitely left the door open, which, which suggests to us that they will take, you know, a long and hard look at the studio assets, not the cable networks. They made that extremely clear on the call. But the studio, if you just think about it, Scarlett, I mean this is definitely, and I mean we spoke about this yesterday as well. This is a once in a generational opportunity for anybody who wants to own this kind of a studio. I mean, this is a top tier studio with a lot of very, very, you know, beloved popular franchises across the world. We know that these titles resonate. I mean, Netflix themselves has a lot of the Warner Brother titles. They perform extremely well on the platform. So yes, it is a defensive move. But again, if Netflix doesn't go ahead and doesn't make that purchase, I don't necessarily think that they are going to be in a much weaker position. It definitely complicates the strategy for them a little bit just because you might have another player like a Paramount or a Comcast that becomes much stronger, but they still have a considerable lead versus all of their peers. So I don't think it's, it's, it's do or die.
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B
So what's the environment like out there in terms of creating content, movies and TV shows? Is, is Netflix still like the first phone call you make if you're a producer or you're a writer? I've got this project, I'm going to go to Netflix and get it done. Is that because they had the biggest, and maybe still have the biggest checkbook in Hollywood?
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C
They do. They're spending close to about 17 and a half to $18 billion on content every year. And you know, there's been a lot of concerns, Paul, in general about the rise of AI, especially now that you have Sora 2, you have all of these new tools from Google, from Meta, you know, is that going to be a disruptive force for all of these streaming players and Netflix? And it looks like it actually won't. You know, we've run some numbers internally. We think that it should help Netflix curb content cost by about 5 to 10%. That's substantial cost savings, you know, for all of these streaming players, especially for Netflix, which typically has used AI really, really well. You're absolutely right. They've, you know, they've done a great job when it comes to content. They're going to, I think, continue to do that. I mean, not only do we have the second half slate for this year, which is extremely strong. Scarlett just mentioned all of those titles. But actually looking forward to 2026 again, you have a whole host of different titles coming on the platform, you know, including Paris. You have Bridgerton, which has been one of their biggest series. And then you have the movie Narnia, which is supposed to be like this huge event for them coming a little bit later. So they have a steady, steady, steady pipeline of titles that should help them drive engagement and ultimately drive pricing.
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Our thanks to Geetha Ranganathan. Bloomberg intelligence analyst on US Media we.
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Move next to the luxury space. This week, the luxury goods company Kering agreed to sell its beauty division to the cosmetics and beauty company L' Oreal in a $4.7 billion deal.
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The transaction includes the sale of perfume maker House of Creed, which Kering bought only two years ago. And this comes as Kering's new CEO, Luca de Meo, changes course in a bid to turn around the French luxury.
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Giants fortunes for more guest hosts, Lisa Matteo and I were joined by Andrea Felstead, Bloomberg opinion columnist. We first asked Andrea to break down what exactly the Kering transaction shows.
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D
Well, it's being dressed up as a partnership between Kering and l', Oreal, but what it really is is effectively the sale of their beauty brands to. To l'.
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E
Oreal.
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D
They've got a new CEO, Luke demeo. He's come in at a time when the balance sheet is very stretched. His predecessor, who is now chairman, bought a lot of things, including Creed. It's very, very upmarket perfume business as Share in Valentino to try to make the group less dependent on Gucci. But that really increased debt. At the same time, Gucci's really slowed down and they're having to revive it so that they're saying it for 4 billion euros in cash. That gets some money in to deal with the debt and gives the new CEO a bit more time to turn around Gucci.
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A
Andrea, isn't this a complete turnaround? I mean, didn't the company want to.
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Bulk up the beauty and cosmetics division?
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D
Exactly. I mean, they're saying, you know, this is built on the potential that they created. I mean, to be fair, they bought Creed, they paid a lot for Creed. 3.5 billion euros. Try worked out to be about 14 times sales, you know, an awful lot. But what they did, it had a supply chain. It was. They. They did that as a platform to build for beauty. And the argument is they have been able to do this deal because of that platform. That's probably kind of rather generous. Luke Domain had a big decision to make when he got in. He either had to stick with Vue T and invest in it, but with that debt, it's got an all. And the need to reinvigorate Gucci. It's got an awful lot more calls on its cash. So he just decided beauty wasn't a priority.
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B
All right, I consider myself a Gucci expert. I read the book, I saw the movie.
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F
Yes, exactly.
- [09:41]
B
So, Andrew, I mean, it's obviously an iconic brand. What are the experts saying? That needs to be done because it's such an important part for caring.
- [09:48]
D
It is, it really is. It was at its peak in, in sort of 2018, 19. Around that time it was 60 group sales. Now, you know, Kering had an amazing run with Gucci. They put in this quite unknown designer, Alessandro Michele, and the prevailing look has been very minimalist and he came in with these big logos, clashing print, granny chic. And it was just a bread of breath of fresh air and it change prevailing fashion. But that was in 2016, after the pandemic, when obviously nobody was feeling terribly good. Soaring inflation. It just felt very out of sync with how people were feeling and they tried to, to turn it around and have a much more minimal, minimalist look and it just wasn't Gucci. Gucci works best when it's very fashionable, whether it when it's over the top. So they bought in Demner Versalia, who was at Balenciaga and he is trying to, you know, really revive it. He's gone back to the Tom Ford days when it was very successful. He's gone back to the Alessandro Kaylee days. He did this crazy film in Fashion Week that was absolutely bonkers. But it got people talking about Gucci again. I was in New York a couple of weeks ago and I went to the, the store in soho and there was a big installation of all his things and the. A capsule collection. It's, it's trying to get people interested Gucci again. And he's sort of going back to the future to try and revive its magic. Whether it's going to work, I'm not sure. I, I thought he was the wrong person to be appointed, but so far he seems to be doing all the right things.
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A
Andrew, can you tell us some of the. The challenges Keri has been facing? I mean, there's that slump in Chinese demand, higher US tariffs as well. What are they facing?
- [11:35]
D
So what we, we, what we've got at the moment Is, is the 1% are still doing very well, but they're not buying Gucci, they're buying Hermes, they're buying Brunello, Cucinelli, Laura Piano. They want these very expensive upmarket things. Now the rest, the rest of the luxury market, that aspirational customers come in under pressure and Gucci had a lot of those aspirational customers, particularly in the U.S. so you've got the sort of aesthetic going out of fashion. You've got these aspirational customers coming under pressure. It's really had bit of a perfect storm and it needs to really revive Gucci and it had Bottega. Veneta wasn't doing too bad and their designer went to Chanel. So you know, every brand is sort of, you know, got its challenges.
- [12:25]
A
Our thanks to Andrea Faustad, Bloomberg Opinion Columnist. Coming up, a look at why third quarter profit at EV giant Tesla missed estimates on Wall Street.
- [12:33]
B
You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in depth research and data on 2000 companies and 130 industries.
- [12:39]
A
You can access Bloomberg Intelligence via BI Go on the terminal.
- [12:43]
B
I'm Scarlet Fu and I'm Paul Sweeney and this is Bloomberg.
- [12:48]
A
The FIFA World Cup 26 is coming to North America next summer. It's the ultimate celebration of sports and culture and an opportunity to elevate your company. Get closer to where business meets the beautiful game with a premium hospitality package. Build partnerships in the best seats and suites. Achieve goals over world class food and beverage. Get closer to wins on and off the pitch. Register interest@hospitality.FIFA.com Interest how can you free your team from time consuming office tasks? Amazon Business empowers leaders to not only streamline purchasing, but better support their teams. Smart business buying tools enable buyers to find and purchase items fast so they can focus on strategy and growth. It's time to free up your teams and focus on your future. Learn more about the technology, insights and Support available@AmazonBusiness.com you're thoughtful about where your money goes.
- [13:43]
F
You've got your core holdings, some recurring crypto buys, maybe even a few strategic options plays on the side. The point is you're engaged with your investments and public gets that. That's why they built an investing platform for those who take it seriously. On public, you can put together a multi asset portfolio for the long haul. Stocks, bonds, options, crypto. It's all there plus an industry leading 3.8% APY high yield cash account. Switch to the platform built for those who take investing seriously. Go to public.com and earn an uncapped 1% bonus when you transfer your portfolio. That's public.com paid for by Public Investing. All investing involves the risk of loss including loss of principal. Brokerage services for U.S. listed registered securities options and bonds in a self directed account are offered by Public Investing Inc. Member FINRA and SIPC. Crypto trading provided by Bakkt Crypto Solutions LLC. Complete disclosures available@public.com disclosures this is Bloomberg.
- [14:43]
A
Intelligence with Scarlet Fu and Paul Sweeney on Bloomberg Radio.
- [14:49]
B
We move next to earnings from the EV giant Tesla. Tesla reported third quarter earnings that missed analysts expectations. This comes despite record electric vehicle Sales.
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It's a sign of the pressure automakers are facing from shifting federal policies and rising costs afterwards. CEO Elon Musk also spent the end of Tesla's earnings call pleading with investors to approve his $1 trillion pay package and blasted shareholder advisory firms that have come out against that proposal.
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For more, we were joined by Steve Mann, Bloomberg Intelligence global autos and industrials research analyst.
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We first asked Steve for his reaction to the recent Tesla news.
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G
It was quite a surprise. Given the volume of production, you would think that the fixed cost absorption would be higher this quarter than in the past, but it didn't happen. Looks like depreciation costs increased for them. Looks like the tariff cost impact is greater than expected. And then even below the gross margin line, the R and D costs went up quite a bit. That could be viewed as a good thing because that's a sign they're pivoting to the robo taxi, the FSD and the optimist robots.
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B
Elon Musk, I guess towards the end of the call, made a plea for investors to approve his $1 trillion pay package. This is from Elon. There needs to be enough voting control to give a strong influence, but not so much that I can't be fired if I go insane. Mr. Musk said. How did that go over on the call here? What's the thinking among the investor community about what may be a $1 trillion pay package?
- [16:20]
G
Yeah, I'm not sure if money is important to him. He does have a lot already. So I do believe that it's more about the control of the company. Look, Tesla doesn't have the dual class shares like some of the tech companies have. So there is, he, he does have that fear of getting pushed out and you know, he had that experience right, with OpenAI. You know, he's one of the initial investors in OpenAI and he got pushed out. So he, he concern it is his baby. Look, the stocks, you know, the other thing is the stock hasn't reacted, you know, too negatively to the weak earnings that we saw in the last quarter. Right. There's, there's a battle happening between the, the, the bulls and the bears, the long, the long guys versus the near term investors. And you know there are a lot of people believe, who believes that the, you know, he can achieve, you know, the, the, the robot up and running, you know, getting physical AI going. So there's a lot of believers out there.
- [17:29]
A
There's a lot of believers and you know what the company actually reports, especially when it comes to its vehicle sales, almost doesn't matter based on this idea that Elon Musk will steer the company in the right direction eventually maybe because, you know, the robotaxis which are, you know, in operation, but these self driving vehicles, the humanoid robots, those are going to take a couple of years to pan out if that. We don't have any details on it. So in the meantime.
- [17:54]
G
Yeah.
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A
What is the growth driver for this company?
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G
Well, you know, definitely in the call he, you know, he doesn't talk about cars a lot anymore other than Robo Taxi and fsd. He's very focused on physical AI. But at the end of the day he needs to sell cars. He needs to continue sell cars to actually generate the cash to support his endeavors. Now he has launched cheaper vehicles. It would have been better if he is offering even a cheaper model like something under 30,000 that, you know, he, we talked about in the past. He is expanding overseas. Right. He had, you know, record sales in countries like Japan and South Korea. Now he's going into India. Big market, big market. So cars is still going to be important.
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Our thanks to Steve Mann, Bloomberg Intelligence Global Autos and Industrials Research Analyst.
- [18:44]
A
We move next to earnings from the telecoms company AT&T.
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B
This week AT&T reported revenue that fell slightly short of analysts expectations in the third quarter. This was the result of a heavy promotion campaign to woo new customers in a fiercely competitive mobile phone market.
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AT&T CEO John Stankey also said the carrier is up against, quote, increased marketplace activity that shows no sign of slowing through the end of the year.
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For more we were joined by John Butler, Bloomberg Intelligence Senior Telecom Analyst.
- [19:10]
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We first began by asking John to talk about AT&T's quarter that ended and just how competitive this wireless business is.
- [19:17]
H
It's a very mature market right now. You've had a lot of movement and the management suite with new CEOs at Verizon and T Mobile. So the fear is that promotional activity is going to pick up as these new CEOs try and make their mark. And I think we saw some evidence of that in 3Q. You know, if you look at AT&T's numbers, they were truly mixed. I was really surprised at that. What we saw was revenue growth across the board just missed estimates slightly. It was a little bit slower than everyone expected. Subscriber growth though, was, was higher than expected. And that really, to me that's, those are the kind of financial metrics you see in a highly promotional environment. Right. You're promoting heavily. There's pressure on pricing. Their average revenue per user actually fell in the quarter on the wireless front, but subscribers rose. And so you're out there trying to build up your roles, your subscriber roles, at the expense of revenue in the short term, on the promise that in the long term, if you can keep those subscribers, it pays back.
- [20:28]
A
I always pay special attention to AT&T's results because I switched from AT&T after, like, I don't know, 15 years because of the original iPhone, to T Mobile because they had all these great deals and, I don't know, it seemed more fun in general. The reason I bring this up is because now AT&T is actually the smallest of the big three wireless providers. Behind Verizon, behind T Mobile. Does being the underdog work for it?
- [20:51]
H
It's a good question, Scarlett. What they're really doing is throwing their weight behind broadband. John Stankey, he has really pursued the broadband market in a big way, and I think a lot of it has to do with the fact that the broadband market is growing faster than wireless. It's still a mature market, it's still relatively saturated, but there's room for more growth there. AT&T is pursuing a fiber broadband strategy, and fiber is the single best way to deliver Internet, period, full stop. There's nothing better out there, and AT&T is a real leader there. So I think on the wireless front, I don't want to say they have their eye off that ball in any way whatsoever. They're going through a big modernization of the wireless network right now, standing up a lot of new spectrums. So you're going to see network quality increase significantly over time, and that will drive more net additions, I think, down the road. But if you think about AT&T, don't just think wireless. I think it's important to pay attention to what's happening in that broadband business because that really is setting the foundation for their future growth.
- [22:07]
B
So, John, in the broadband business, are they competing against the cable companies because they've made that a key focus over the last decade or so?
- [22:16]
H
Yeah, I mean, the broadband market's getting really interesting right now. What you've seen is the cable guys are losing a lot of share to fiber and particularly to fixed wireless access, which is basically a wireless link of broadband into your home that's been a runaway hit with consumers. Really popular. AT&T was late to that game, but they're getting a lot of growth in FWA right now, as it's called. So it's interesting to see the dynamic where the cable guys are losing share and the telcos are Gaining share. And soon you're going to have Starlink enter the market in a bigger way. They're right on the coin cusp of upgrading the capacity of their constellation. And so they're going to go from a very high priced product, I think, to a much more reasonably priced broadband offering. Once they get more capacity up there, they're going to look to fill that. And the way to do that is to cut your prices. And so suddenly you're going to have another wireless option which is going to be satellite. So the competitive dynamics there are getting interesting. But for AT&T and their dedication to fiber, I think they're extremely well positioned to not only hold their own, but grow from here.
- [23:38]
B
Our thanks to John Butler, Bloomberg Intelligence Senior Telecom Analyst.
- [23:42]
A
We move next to earnings from toymaker Mattel.
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B
This week, Mattel reported third quarter sales and earnings that missed analyst expectations. And this comes as US Retailers delayed orders due to uncertainty over President Donald Trump's tariff policies.
- [23:54]
A
So we tapped Lindsey Dutch, Bloomberg Intelligence Consumer Hardline Senior Analyst, for her take.
- [23:59]
B
We first asked Lindsey to comment on Mattel's delayed orders.
- [24:02]
E
We heard earlier actually in second quarter earnings that there were possibilities for delays. And for the toy makers, you know, Wal Mart, Target, those retailers tend to take their holiday orders by July. So there was already worry sort of heading into third quarter earnings. And of course it was a negative surprise on the top and the bottom line. Those orders were delayed further than sort of everyone expected. And they're taking smaller quantities than usual, you know, onto their shelves ahead of the holiday season, which, which was a real concern for Mattel's fourth quarter earnings, which would be coming up.
- [24:40]
B
So, Lindsey, what's Mattel and some of the other companies saying about, you know, when their products, you know, get stamped with a tariff, like how much do they try to push back on the manufacturer in whatever country it comes from, say China, how much the importer may take in his or her PNL versus, you know, how are they saying that? They're navigating that.
- [25:01]
E
So from the cost side, the toy makers actually have been managing this pretty well. So Mattel is forecasting Less than $100 million hit on the cost side on an annual basis. They're mitigating that in several different ways. They're cutting costs in other areas. They did adjust sourcing as much as they could, you know, selling more internationally versus the U.S. you know, shifting that mix a little bit. And they did roll out some price increases in the second and the third quarter, which is ahead of holiday. So that should help Protect on the profit on the margin side for that fourth quarter, it looks like those toy makers are bearing the brunt of that cost rather than sort of passing it through towards a retailer.
- [25:45]
B
Lindsey, what are the trends impacting the toy business these days? I mean I guess a lot of electronics, but what are some of the the big trends that you're paying attention to?
- [25:56]
E
So a big trend that we have seen growing momentum on is really the kidult trend which is adults 18 plus playing with more toys and Hasbro, Mattel, Lego, they're all playing into this. So those big black box Legos that are very high price points, you know, they've done very well the past couple of years. But Mattel is also leaning into that. A lot of their like new products coming out even with Barbie or Hot Wheels are really collector's items. They're really aiming at that cadalt and honestly the industry was up 6,6% in the first half, up high single digits in the third quarter and that's really being driven by this trend.
- [26:37]
A
As we look ahead to the holiday season, I realize for companies themselves they are already knee deep in it, but as consumers we're looking ahead to it. Are there any must have items that the toy makers are really counting on or these toy retailers are really counting on?
- [26:51]
E
So I look through all the holiday lists and I was a little bit disappointed. I didn't see any wow gifts or what I would call a wow gift. One cool collab that Mattel has, but it's really for 2026 pre orders will will be available in November as they are doing a collab with Netflix, the K pop Demon Hunters. So they are doing action figures and dolls for that series and that should be coming out next year and I do think that could be a big hit.
- [27:17]
A
Our thanks to Lindsey Dutch, Bloomberg Intelligence Consumer Hardlines Senior analyst. Coming up, a look at why the hospitality company Hilton Worldwide has raised its full year profit outlook.
- [27:27]
B
You're listening to Bloomberg Intelligence on Bloomberg Radio providing in depth research and data on 2000 companies and 130 industries.
- [27:33]
A
You can access Bloomberg Intelligence via Big Go on the terminal. I'm Scarlet Fu.
- [27:37]
B
And I'm Paul Sweeney and this is Bloomberg.
- [27:45]
A
Every business starts with an idea. How can you go from daydreamer to industry leader? Amazon Business accelerates your journey with smart business buying. Get everything you need to grow in one familiar place. From office supplies to IT essentials and maintenance tools. Amazon Business takes the buying experience you know and love from Amazon. Plus tools that help you save costs and make insights based decisions ready to bring your visions to life.
- [28:11]
F
Learn how@AmazonBusiness.com you're thoughtful about where your money goes. You've got your core holdings, some recurring crypto buys, maybe even a few strategic options plays on the side. The point is, you're engaged with your investments and Public gets that. That's why they built an investing platform for those who take it seriously. On Public, you can put together a multi asset portfolio for the long haul. Stocks, bonds, options, crypto. It's all there plus an industry leading 3.8% APY high yield cash account. Switch to the platform built for those who take investing seriously. Go to public.com and earn an uncapped 1% bonus when you transfer your portfolio. That's public.com paid for by Public Investing. All investing involves the risk of loss, including loss of principle. Brokerage services for U.S. listed registered securities options and bonds in a self directed account are offered by Public Investing Inc. Member FINRA and SIPC. Crypto trading provided by Backed Crypto Solutions LLC. Complete disclosures available@public.com disclosure the Chase Inc.
- [29:14]
A
Business Premier card is made for business owners who make things happen. Designed for high spend and limitless cash back, Inc. Business Premier is a painful card with built in flexibility. Get the buying power you need to make large purchases, cover unexpected expenses and help your business grow. Earn a total of 2.5% cash back on every purchase of $5,000 or more plus earn unlimited 2% cash back on every other purchase, giving you unlimited earned potential to invest cash back into your business. From innovation and technology to everyday expenses, Inc. Business Premier is the only business credit card with 2.5% cash back on every purchase of $5,000 or more and is part of a suite of credit cards from Chase for Business designed to meet your needs every step along the way. Learn more@chase.com businesscard Chase for Business Make More of what's Yours Account subject to credit approval Restrictions and limitations apply. Cards are issued by JPMorgan Chase Bank NA member FDIC this is Bloomberg Intelligence with Scarlet Fu and Paul Sweeney on Bloomberg Radio.
- [30:21]
B
We move next to the hospitality industry.
- [30:23]
A
This week Hilton Worldwide reported third quarter earnings that beat analysts estimates. Hilton also boosted the lower end of its full year outlook for expanding its hotel network.
- [30:32]
B
For more on this, I was joined by Jodi Lurie, Bloomberg Intelligence Credit Analyst. I first asked Jody what she heard from Hilton in its earnings release.
- [30:39]
I
So I think Paul, what's interesting is that Brian Egger, my equity counterpart and I came up with the same conclusion in that they are a little Bit too optimistic it seems in general. I think what's so funny is when you compare and actually taking a step back, it's a little alarming when equity and credit analysts, just as a side note, but when you compare what their estimates were for Revpar looking a year ago, you know, fourth quarter of last year you were talking 2 to 3% positive 2 to 3%. Now they're saying 0 to 1%. Yet for some reason they're able to reach an EBITDA that's almost similar to what they were projecting then. So it's a little bit of a head scratcher I guess. A lot of it's coming from the cost component of it. You know, if your revenue per available room isn't necessarily growing, but then your EBDA is growing, you sort of say okay, where is that coming from and what does that mean overall?
- [31:32]
B
So what is the company saying about kind of their just the underlying book of business, how are their bookings looking and you know, what are they saying about I guess components of their customer base?
- [31:43]
I
So if you break it out, the US is a clear sort of underperformer at the moment in terms of travel, we're seeing some weakness, some more muted results on the leisure side of things for group and business, which was supposed to be a tailwind. This year it's actually pulling back, it's a little bit decreased. Now they're saying that group going into next year is going to be positive. But it is interesting to hear that this component where they're hanging their hat on as the area of growth is now not really performing. Now if you look across their brands, what stood out for me, especially for the third quarter but also year to date, is that comparing their higher end brands versus a year ago, it was very strong in terms of growth from an occupancy standpoint. But then if you look at the lower end brands, they're actually a lot weaker. So the farther down you go in terms of their quality of their brand. So if you're talking the Conrad brand, which is one of their more premier brands, Waldorf Astoria, etc. Those have been doing pretty well compared to last year. If you go further down the line into some of their more economy scale brands, that's where it's weakest and that speaks to that K shaped economy that everybody is talking about.
- [32:49]
B
I know that 80% of the revenue is US based here. What's their international strategy these days?
- [32:56]
I
So internationally they seem to be growing a lot. They're, they're focusing on new types of brands to get there. They definitely see certain pockets of international doing well. I mean the Middle east and Africa actually did very well this, this quarter, which was an interesting component to see. And I think that they're looking at Asia and they're sort of a little concerned to some extent, but they definitely, it was an interesting sort of dichotomy between what's going on in the US and what's going on elsewhere in the world. I think where we're sort of concerned is that they are still giving back to shareholders the same level that they were, you know, the 3.3 billion in expected for this year. They have leverage that's roughly within their range of three to three and a half times. But if you're, you're talking about a 2026 that's very uncertain, you say, okay, wouldn't you want to hold on to your cash maybe just a little bit more than you're giving out?
- [33:46]
B
What are the Hiltons of the world doing in terms of capacities? Is the industry, are they building new hotels? Are they taking hotels off the market? Are they building higher end or lower end? Where's the, the kind of the capital for this industry going?
- [33:59]
I
For Hilton specifically, They're, they're still very much growing. I mean, that was a lot of the conversation. You know, the management team was very optimistic about growth coming from these new properties and also from new brands. I mean, they have a new lifestyle brand that they're introducing as part of their growth strategy and I think they're trying to key into these younger consumers, getting them to go into these lifestyle brands and more of these quick service brands that might not necessarily be traditional hotels, maybe sort of tapping into what they're seeing in Airbnbs and VRBOs and other sort of alternatives to your traditional hotels. Now what I will say though is something that was a little bit jarring to me as a credit analyst and as somebody who likes macroeconomics is they talked about how inflation is actually reducing and with it are rates and I don't think that's quite the calculation I would do. But I also am sort of curious as to if the consumer is necessarily feeling that you layer that in. They did mention a little bit about the government shutdown affecting volumes and affecting the outlook. But I do sort of wonder what that means for other companies in the space. For example, choice that really depends on government in terms of infrastructure spending and long term stays at their price properties throughout the country.
- [35:15]
A
Our thanks to Jodi Laurie, Bloomberg Intelligence credit Analyst.
- [35:18]
B
We move next to the aerospace industry this Week we received third quarter earnings from General Electric Aerospace and rtx.
- [35:24]
A
GE Aerospace reported results that beat analysts estimates and the company also raised its full year outlook due to strong air travel demand.
- [35:31]
B
Meantime, the aerospace and defense company RTX raised its full year profit outlook and reported earnings that topped Wall street estimates. This came as sales and Profit rose across RTX's commercial, aerospace and military hardware business businesses.
- [35:43]
A
So for more we are joined by George Ferguson, Bloomberg Intelligence Senior Aerospace, defense and airlines analyst.
- [35:49]
B
We first asked George for his take on the results from GE Aerospace.
- [35:52]
J
I think it's telling too that Larry Culp, the CEO of the combined companies, broke them apart and went with the aerospace business. Right. That was the crown jewel. They're the largest maker of jet engines globally. I think they have probably the best technology technology for jet engines globally. And look, this was a really nice quarter. Margins were even stronger than we expected. I think they may be close to plateauing though here there's just a heavy, heavy demand for aircraft maintenance even higher than sort of the amount of the increase in airline traffic would indicate just a lot of pent up demand and they coming out of the pandemic. And some of the newer technology engines just aren't as robust. So a lot of people fly in the old ones longer. And we heard a lot of good news about supply chain. Supply chain sound like it was delivering. For Larry, it's been generally been a challenge. It was delivering and he had parts to put on airplanes and those are high margin parts and he showed it in the financial statements.
- [36:55]
A
Hey George, you mentioned maintenance and repair. So does that help the company kind of offset those, those higher costs when you have the rise in the new engine deliveries?
- [37:03]
J
Yes. So like I said, I think, I think we might be seeing a plateau here in the margins we're going to get out of this company. So the airframe is. Boeing and Airbus have been slow in ramping up deliveries because they're working through their supply chain challenges. So we really see Boeing and Airbus increasing deliveries of new aircraft all the way to the back end of the day decade. And that increase in, in deliveries is going to, you know, will come with those new engines from GE and RTX for that matter. And those are dilutive to margins. So you know, so they're kind of in this sweet spot where the original equipment shipments haven't taken off yet because Boeing and Airbus are working on that supply chain and they're doing a lot of spare parts deliveries and that's really juicing profitability very strongly. So next year I think becomes More challenging on the whole profitability front.
- [38:00]
B
All right, George, rtx, the old Raytheon, that's kind of how I know this company. Tell us like what's the business of rtx? What are their specialties and what did they report?
- [38:10]
J
So they, they make jet engines as well, right? Competitor to ge. They make the Pratt Whitney gear turbofan. They have the Collins business which is all kinds of parts for aircraft. You know, it could be brakes, it could be landing gear. And then they've got the Raytheon business, which is the old Raytheon that, you know, the defense contractor from up Boston area. And they make, they make radars, they make missiles, they make air defense kind of equipment. And all of the, you know, all of those businesses in that portfolio are really clicking right now. Look, defense is going to grow slower. It takes time. The back backlog builds quickly, but it takes a lot longer to build some of those products because they're not, you know, running down a line that are making as many like you know, 737s or a three twenties where you're doing five or six hundred a year. These are a lot slower cadence. But we're seeing a lot of, lot of demand from customers around the world for missiles and for air defense. And so that backlog continues to build and they building margin in that business. They're still at kind of 11 ish, 12 ish percent margin. That was quite good in that defense business. And then at the same time, like I just told you for ge, the strength of demand for aircraft maintenance right now, now and the high margin parts that go into it thoroughly drove that Collins business. Their Collins business is a 13 ish, 14% ish operating margin business really seeing strong growth. Their engine business is not as strong as GE's. GE's returns in the 20 plus percent margins. Pratt and Whitney's kind of an 8 to 9% operating margin. They've had problems with their latest narrow body engines. So they're managing some of those issues. They just don't have the volume that GE has. But they continue to see margin growth in that business too as they deliver spare parts. Some of the older Legacy V 2500 engines, we know them as that power old A320s really did a nice job in that business and they raised guidance even more than GE going into the, back into the last quarter of the year. I think they had some of that in their back pocket, but it looked pretty nice.
- [40:29]
A
Hey George, before you go, about a minute left, one of the, they're one of the largest recipients of U.S. federal contract funding. We're talking about RTX. Can you name some of the projects they're working on with the Trump administration? What are they working on?
- [40:41]
J
Yeah, so I mean they're going to do things like Patriot missile systems. They're going to do a bunch of sorry, Patriot Air defense systems. They're going to do a bunch of missile systems, systems like gemt. Right. You could think of if, you know, in air defense you use, they make radars as well. You use a radar, you find a target, you sort all the targets you got coming at you at it, and then you have to shoot a high value interceptor at that target. And the reason that interceptor is so high value is it's got to go and hit a missile approaching your position, your country, whatever, which means you put a lot of value add in that missile so it can go find another one and destroy it. So that's part of what they're building. They'll also probably be involved in the, in the, you know, the global dome or whatever. You know, our version of iron Dome, golden dome. Yeah, I mean, so there's just a lot of demand for the products that they're going to build.
- [41:38]
A
Our thanks to George Ferguson, Bloomberg Intelligence Senior aerospace, defense and airlines analyst.
- [41:43]
B
That's this week's edition of Bloomberg Intelligence on Bloomberg Radio, providing in depth research and data on 2,000 companies in 130 industries.
- [41:49]
A
And remember, you can access Bloomberg Intelligence via BI Go on the terminal. I'm Scarlet Fu.
- [41:54]
B
And I'm Paul Sweeney.
- [41:55]
A
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