Boeing Cuts Delivery Target, Sending Shares to 18-Month Low

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0:23 Let's get back to the earnings story. We've got coming fast and furious. Boeing. Talk about an American blue chip company, one of my all-time faves. A little bit of a rough spot there. I thought we were back on firm footing. George Ferguson joins us. Bloomberg Intelligence Senior Aerospace, Defense and Airlines Analyst talked to us about Boeing and JetBlue as well.

0:43 They reported. George, let's start with Boeing. What did we learn there?

0:46 So I think we learned nothing happens fast anymore in manufacturing, especially aerospace manufacturing. It sounds like the CEO dropped a bomb right in the beginning of the call and basically said, Rate 47, they're having difficulty stabilizing at, that's for the 737. They're working with Wichita. It sounded like some wings issues, maybe fuselage issues. But essentially, again, the supply chain not stable, and so they push out rate 52 to the back half of 2027. We kind of thought rate 52 would be achieved in the early part of 2027. So I think there's a bunch of folks that have to go back and redo their models. That's the most important airplane for them, right, the 737. When rate gets up on that,

1:40 you're going to get the profitability out of Boeing that you expect, but not sort of pre-pandemic profitability. And, again, it looks like we're delayed on that. And 787 looks like there's delays as well, getting the number of engines they want on that to be able to build that at a rate of 10. So again, we just heard manufacturing problems, and that's going to hurt cash flow. I think CEO Kelly Orberg said it best at the very end.

2:09 He's like, everything just got kind of pushed to the right.

2:12 For a year. Yep. Stock reacting accordingly. Stock's down 9.6% today, down 21% year-to-date, 52-week low.

2:21 You know, I'm curious. Are we finally at a point where maybe the bigger problem is the supply chain rather than maybe just Boeing's own factories? We've been spending a lot of time talking about that as well.

2:32 Yeah, I mean, I think Spirit, they bought into the company because they're having problems. Now, Spirit's history is it was sold out of the company because they wanted to find a lower price way to build fuselages. But I think that, you know, it's just indicative of problems, I think, throughout U.S. manufacturing industry. and maybe to some extent global manufacturing.

2:54 In the US, I think we're really burning through some heavy demand from other sectors that are pulling away people. We're seeing retirements that are losing some of the gray hairs that I think understand how to build airplanes. And that's all hurting, right? I think you just look at things like data centers and the amount of GDP they're responsible for in the U.S. market. And, you know, I think those companies are willing, the hyperscales are willing to spend the money to build those facilities. They pull in people to do the work. They'll pay the most. I think if you're in the manufacturing world, you're having a hard time finding workers and getting your supply chain to work well. And I think this is just indicative of it.

3:40 Does Airbus have similar issues with the supply chain? They do.

3:44 I mean, Airbus is not, you know, last year, Airbus had really no increase in build rates for the A320. They're working hard to get them up this year. One of the choke points there is RTX, the US engine maker. But again, I think globally, we just see the supply chains are having a hard time getting back, aerospace supply chains, having a hard time getting back to pre-pandemic levels of builds.

4:12 It's about people. The equipment's still there. The factories are still there. It's about people and it's about demand from other industries, but a large portion is people.

4:22 Stay with us.

4:23 More from Bloomberg Intelligence coming up after this.

4:30 You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube.

4:44 Big news this morning if you are the New York Stock Exchange because General Motors is leaving the big board and is now shifting its stock listing to the NASDAQ Global Select Market.

4:55 Why?

4:55 Because it wants to position itself as a.

4:57 Tech forward company.

4:58 GM's ticker remains GM when it begins trading on the NASDAQ on November 17th.

5:04 Let's bring in David Welch.

5:05 He is our Bloomberg Detroit Bureau Chief with more on this. David, is this something that was expected? Did we know that GM was moving in this direction?

5:15 We didn't. They've been working on this for more than a month to try to move to the NASDAQ. And it is part about trying to get a sort of tech glow that they've been pushing for for a while as they talk about their self-driving technology, their electric vehicles. and their software-related services development. I think a bigger piece of this, though, really is getting into the NASDAQ 100 and getting some shareholders access to that index so that they can maybe push the stock price up by having more possible buyers for the shares.

5:49 Being part of the Q's. Ah, okay. Sales is wondering. So is there a cost associated to the company for doing this, David? Because I mean, other than the psychological, like we've been on the New York Stock Exchange since the beginning of time.

6:03 If there is, it's not material. They didn't say they had to pay hundreds of millions of dollars to get on this thing. I think they'll probably be listed in December, so maybe one of the perks is it can happen pretty fast and they can get into the 100 when they do the rebalancing of it next month, or two months.

6:24 We're almost in November. Maybe it will help the shares. I can't see it helping a lot. GM's in a position where They're kind of trading on the economy right now. And there are a lot of worries out there with affordability and inflation and where the health and confidence of the consumer is. So maybe over time it helps them.

6:44 I think it's going to be tough sledding going forward for auto stocks.

6:47 Yeah, in the Bloomberg News story that you helped author, analysts from JP Morgan say that GM's market cap would make it the second largest NASDAQ 100 non-member after Hilton. So just something to keep in mind there. So part of this is about how it's a tech-forward company that embraces automated driving and EVs. What are GM's plans when it comes to EVs? Because the Detroit carmakers have really pulled back on their EV ambitions recently. and put, it feels like, more emphasis on those internal combustion engine cars, the SUVs, trucks that we're willing to pay a lot of money for.

7:24 They have. In GM's case, they still... do sell 12 models. They haven't canceled any of them. That's a lot of different EVs out there, which means per name plate, they're not selling very many because they've sold less than 100,000 total through the first three quarters of the year. You know, in New York last week, they had an event where they were showing some technology. And one of the things they talked about was another EV coming with an all new battery system. So they're not walking away from that.

7:54 They just can't sell EVs in this market without government incentives. And even with those government incentives, American consumers were not embracing electric drive as much as GM and the others hoped. So they have to sell a bunch of V8 engine pickup trucks and SUVs. That's where they make all of their money. They're still working on this stuff. I think from a technology standpoint, probably the bigger thing they have is in 2028, they'll have eyes off the road, hands-free driving on highways, starting with the Cadillac and then branching out to other vehicles. And People pay thousands of dollars a month for subscriptions to that sort of thing. Subscriptions.

8:33 Yep. Subscriptions and cars.

8:34 Subscription revenue is what every company likes to talk about to the street, right? So that's where they're going with that.

8:41 The idea that you can have heated seats if you pay a subscription for it, just that feels wrong somehow. David, what about hybrids? I mean, Americans may not be embracing EVs without any government help, but they are certainly flocking to hybrids given where gas prices are right now.

8:57 That's right, and GM doesn't have them, unless you consider the Corvette E-Ray a hybrid. They said at that event last week that they have some coming, but they've been very unspecific about it, and GM's never been really enthusiastic about hybrids. It's always been big V8 engines and then going all electric. Mary Barra, the CEO, has seen hybrids as this unnecessary and expensive interim step, but since it's going to take a very long time for hybrids for American consumers to embrace EVs, they're going to have to do it because Toyota and Hyundai are just stealing buyers at a fast clip in the U.S. Hyundai could pass for this in sales this year. Toyota's threatening GM sales crown because of hybrid growth, at least in part because

9:44 of that. And both of them offer so many. So GM now feels they have to get in step. But when and how many remains to be seen.

9:52 Stay with us.

9:52 More from Bloomberg Intelligence coming up after this.

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10:14 More earnings out there today. UPS, one of the big names that people like to follow. A, if you follow UPS. And B, if you just want to get a handle on how kind of the economy is going, how the consumer is doing, you can judge that in large part by how many packages are flying around the skies and on the trucks and everything. Lee Klaskow, he does this stuff for a living. Covers all the transportation companies and logistics companies. Hey, Lee, talk to us about UPS. What did you learn from the company's release? Yeah, it was a pretty good print.

10:42 And they're showing that their execution of, you know, trying to be better and not bigger is really paying dividends. You know, when you're looking through the numbers from a volume standpoint, while volume was down, it's small to midsize business volumes are up. Its volumes are up pretty strong, around 30 percent for high tech products, which is really being driven by demand for data centers. So there's a lot of things going on there that are showing that they're switched away from Amazon or relying less on Amazon and more towards these higher end. yielding packages is really moving through its income statement down to the bottom line.

11:25 And net, you know, it seems like they're really well positioned as they head into peak season.

11:30 And speaking of peak season, we see UPS raising its outlook heading into the holiday season. What do you think gave management the confidence to do that?

11:39 I think it's really just their execution on becoming a more profitable company. Like I mentioned earlier, the company has been really focused on pivoting away from that low margin business of business to consumer B2C packages. The packages that we get at our doorstep, working with Amazon while they promise you a lot of volumes. the margins on each packages tend to be low because of the higher cost it is to deliver that. So they're really focused on higher margin areas, whether it's the data centers that I mentioned earlier, healthcare, pharmaceuticals, that's another great growth area for them, as well as automotive has become a growth area and a higher margin business, just given the fact that service

12:25 is really paramount with those kind of deliveries.

12:29 Lee, I'm looking at the stock price performance of some of the competitors. Year to date, FedEx is up about 30 percent. DHL is up 25 percent. United UPS lagging, I guess, up about 4 percent. Is that kind of reflecting that this is still a little bit of a show me story that they can kind of manage the change in their business flow?

12:47 Yeah, I think it's a combination of a show me story. And those other companies that you mentioned are kind of doing things this year that maybe UPS was doing a couple of years ago and was getting credit for back then. So I think it's more of the other companies catching up to UPS. But I do, you know, would agree that UPS continues to be a show me story because they are trying to really restructure their overall business, whether it's having a smaller footprint, really leaning into becoming more of a tracking network. There's a lot of things that they're doing to improve the overall productivity. And with that comes some execution risks. They sold a lot of businesses that really didn't make sense for them, like their LTL business.

13:36 FedEx recently did that. This year, they recently spun out their LTL business. So both companies are really trying to focus more on the parcel markets.

13:49 Lee, what's really been the latest considering the fact there's still this key overhang as it relates to the union negotiations? I know that the CEO plans to stick around for another two or more years to negotiate another labor deal with its unionized delivery drivers. But what have you been watching as it pertains to that?

14:06 Yeah, I honestly think it's a little too early to say. I mean, I think the market likes to talk about it because the last package that was negotiated with the Teamsters, folks maybe didn't like it so much because it increased costs by a lot. You know, what I would say is that, you know, going into this negotiation, the UPS, there are less drivers needed. There are less people needed.

14:33 So I think it'll be a very interesting negotiation. But, you know, they have to remain competitive if they're able to continue to grow and remain profitable. So I think it's a little too early to tell. But, you know, the one thing I can say with confidence is their costs are probably going to go up.

14:50 Hey, Lee, you follow all the trucking companies as well. And give us a sense of how they've been dealing with these higher fuel costs. I mean, gasoline, diesel prices, you know, just brutal for these guys. How are they dealing with it?

15:02 Yeah, we're about a third way through earnings season. I'd say about 80% to 85% of the companies that have reported have beat expectations. A lot of that has been their ability to manage higher fuel prices. Most large trucking and railroads, these kind of companies, they're able to pass on the higher costs through fuel surcharges. Truckers, their fuel surcharge usually lags about a week. So it's not a huge deal. Obviously, you know, they don't get all of that back. They probably get around 70 to 75 percent back from the higher costs. They're able to recoup that. But, you know, the bigger impact that we're watching is, you know, how is this really going to impact demand? You know, consumers have been pretty resilient here in the U.S. and

15:50 through my career, I've never bet against the U.S. consumer because they always find a way to spend. But as these prices remain higher, whether it's food or fuel, you know, they're just apt to spend less. So I think it'll be very interesting to see, you know, when you have some of these sentiment indicators that are nearer lows, you know, how the retail industry is going to do and therefore, you know, how transportation companies are going to be able to do.

16:13 All right, Lee, great stuff as always. Lee Klaskow, he's a senior transport, logistics, and shipping analyst with Bloomberg Intelligence. He also hosts a weekly podcast, Bloomberg Intelligence Talking Transports. So if you're into that kind of thing, he always gets great guests and a lot of great information. And the reason I like it is, again, transportation gives you just a really good view of how this underlying U.S.

16:36 economy is performing. You see the numbers from the truckers, from the railroads. from the shippers, all that kind of stuff. If they're busy, they're doing well. That means this economy is probably doing pretty well.

16:46 Stay with us. More from Bloomberg Intelligence coming up after this.

16:53 You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube.

17:07 One of the tickers that I've definitely put in the terminal over the years is Coca-Cola. KO is the ticker. They reported some decent numbers, raising guidance, buoyed by soda sales abroad. How about that? Ken Shea joins us. He covers all the big consumer stocks for now. Ken, thanks so much for joining us here. What did you learn from our friends at Coca-Cola?

17:26 Yeah.

17:26 Hi, Paul. Well, Coke, as you mentioned, beat nicely on the top line and bottom line and raised guidance. And a bull would say that's great. And the guidance is very encouraging and trends are really good. Some of the bears out there said, you know, that North America didn't perform quite as well as some would have hoped. You have a looming IRS tax case out there the company could be vulnerable to. But having said all that, it was a good number, good print today. And if you're a bull in the stock, there's no reason to not be after today's report.

18:02 And, you know, Ken, we did see a lot of the growth coming from outside of the United States. What is that really telling you about the U.S. consumer versus consumer? maybe foreign consumers outside of the United States?

18:12 You know, it's a good question, but it's hard to read too much into one quarterly report. One of the things that skewed the results also was the benefit of the World Cup. The company spent quite a bit on the World Cup activations, particularly Latin America. It boosted results to some degree in Europe. It was more of a second quarter event, but it did spill over to the third quarter. And so the North America didn't quite benefit quite as much from that. But to your point, I think some of the softness in North America could result also from a difficult comparison. As the company said a year ago, the 4th of July, for instance, fell over the second quarter. Or I should say the third quarter.

18:53 This year, it was a second quarter. So it didn't benefit them as much. Also, some of the higher margin products like Topo Chico, Fairlife, for instance, really did really well a year ago, lesser well this year. So unbalanced North America may be a little more difficult, but there's also some near-term comparability issues that weighed on it.

19:16 All right. This is what I never would have guessed. Over the last five years, the S & P 500 has had a compounded annual return, 12.7 percent. Coca-Cola, 14 percent. I would have thought Coke would have lagged this thing big time because you don't see the growth rate there. So the stock's up 30 percent here this year to date. Ken, why are people all fired up about Coca-Cola?

19:39 You know, I think it's the geographic balance this company has. I mean, it's in virtually every market, as you'd imagine. And I think that gives it a consistency, which investors... like. It's also more focused. I mean, think about, you know, I don't want to beat up too much on PepsiCo here, but Coke is, you know, very, very focused on selling high margin concentrates and to its bottling partners. And you've got to remember, because the bottling partners are basically third parties, they're the ones that are incurring a lot of these higher costs that PepsiCo and other manufacturers are concerned about.

20:15 While Coke is not totally immune, the way that it organizes its organization, it really falls on third parties, these inflationary periods. So it's a combination of all those things that I think investors are embracing with Coke.

20:30 You know, Ken, I see that global volume rose about 5%. You saw price mix contributing to about just 1%. So have we really moved away from this story of beverage companies like Coca-Cola really relying on price hikes and maybe back towards some of the actual volume growth that we're seeing here?

20:48 And that's been a key theme since the pandemic, really, that Coke, Pepsi, a lot of the consumer product companies in general have been relying heavily on price. And a lot of it is, you know, defendable because costs have been, you know, significantly higher since that time, waning, but still higher. You know, a bull would look at Coke's report here and say, look, you know, price mix was up only 1%.

21:12 That's far below 6% than it was last year and well below trend line. And so Coke, like many other CPG companies, are doing their best to have more of a balance between price mix and volume. And I think Coke has done a pretty good job in doing that. Looking forward, you would think price mix will still be positive, but far below that that we saw a few years ago when it was more dependent on price. I think that's an encouraging trend.

21:44 How long have you been covering Coca-Cola stock, Ken?

21:49 See these gray hairs here? More than I'd probably want to admit. I'd say on and off for about 35 years. There you go.

21:57 You've seen the cycles, my man. Ken Che, thank you so much. We appreciate it. Heck of a career there covering all the consumer products companies.

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