AT&T Shares Tumble After Profit Forecast Disappoints Market

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1:56Eastern 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. AT &T reported some numbers there, some pretty big numbers in subscribers, I noted. Stock's kind of flat today, but it's up 20 % year to date. Let's break it down with John Butler, Bloomberg Intelligence senior telecom analyst and the pride of Lafayette College out there. John, talk to us about AT &T. That's a competitive business they're in. What did they deliver? Boy, it is a tough business, Paul. And I'll tell you what, as quarters go for AT &T, I would say it was a relatively unremarkable quarter.

2:34And in telecom, that's a very good thing. I mean, I seem to just say a quarter and a quarter out, but AT &T is the steady hand in the space here. I mean, they just have done a great job of setting a foundation for a very good business and just executing on that plan. They do a quarter in and quarter out and 2Q was no exception here. What are you expecting? Like, how are AT &T and specific metrics like cash flow and net ads really playing out compared to its competitors in this space? I feel like the network space is really very challenging because, as Paul and I talked about, it's so easy to move, especially these days when you can keep your cell phone number.

3:17Yeah, I mean, what you're talking about is switching activity. And if there was anything this quarter that sort of caught my eye, it was the churn number. And by the way, I wasn't alone. I mean, there were tons of questions on the call from analysts about churn. And for our listeners, churn is a measure of, on a net basis, what percent of people left the brand during the quarter. And AT &T, for AT &T, it was 0.87%. A year ago, it was 0.7%. So we saw this 17 basis point increase, which to me is not incredibly remarkable. It's not alarming per se, but it could be sort of a hint that the subscriber acquisition and retention costs are going to go up a little bit, and that could put a squeeze on the margin.

4:10And as you said, Isabel, there's just this very competitive market out there. The cable operators are really leaning into these low-priced plans, and it's just making life that much tougher for AT &T, Verizon, and T-Mobile. Again, though, I go back to the fact that AT &T just is a steady performer here. They have a great device promotion out there. They continue to rely on that to drive subscriber growth, and it continues to work for them. Hey, John, I know that Verizon, another stock that you cover on their call, they used, I guess, the opportunity from President Trump's tax and spending bill to boost some of their full year guidance metrics.

4:56AT &T did not do that, did they? No, they're actually this is interesting, Paul. They're taking all the savings and they're driving it back into upgrading the 5G network, which they've been doing. It's nothing that they've been ignoring by a long shot, but they are trailing Verizon and T-Mobile just a bit in the deployment of what's called mid-band spectrum, which is very high capacity. So, you know, the download speeds on your phone are dictated by how much spectrum is deployed in the network. And they're going to take those savings and just lean hard into deploying more spectrum on a nationwide basis to get network speeds and network coverage up.

5:41Is broadband still a growth driver for AT &T or are there signs of a slowdown? You know, it's a great question. So the other, I guess, wart on this report in my eyes was the fact that they just missed analyst expectations for fiber net additions, the net new subscriber additions that they had during the quarter in their fiber broadband business. Having said that, they continue to quarter in and quarter out deliver very stable results there. So I think the fiber broadband business is healthy. It's actually healthier in many ways than the mobility business, which is hyper competitive. But to me, AT &T, out of all the big three, is doing a great job just laying that foundation for future growth by continuing to roll out new coverage areas for fiber.

6:41So I think they've done a great job there is sort of the summary statement that I'd make on broadband. All right, John, thank you so much for joining us. Appreciate it. As always, John Butler, he's the senior telecom analyst for Bloomberg Intelligence. 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. Paul Sweeney live here with you in the Bloomberg Interactive Broker Studio streaming live on YouTube here.

7:15Right smack in the middle of earnings season. Let's talk toys. That sounds kind of fun. Hasbro reported numbers that look solid to me. They beat, they raise their guidance, yet the stock's down 3%. I just don't get this whole stock thing. Lindsay Dutch, she's the pro. She understands what's going on here. She's a consumer hardlines analyst at Bloomberg Intelligence. Lindsay, talk to us about what we learned from Hasbro and the toy market. Yeah. Hi, Paul. Hi, Isabel. Thanks for having me. So yes, Paul, just like, as you said, you know, strong quarter, really a continuation from the first quarter where all the strength is really coming from Magic the Gathering, Monopoly Go, and Hasbro's digital gaming business.

7:54What we did not learn from the release is really about the consumer and what the outlook is for toys in the second half, and that's causing a lot of uncertainty you know what that back half might look like. I was going to ask how exposed is Hasbro to current consumers spending trends like especially in the toys and entertainment area? Do we see more middle-income shoppers buying Hasbro or what kind of consumers are you seeing? Yeah, so the toy business typically grows with GDP. It has been, you know, coming down a bit challenge over the past couple of years after the peak during COVID when everyone was stuck at home buying a lot of toys.

8:33This year was supposed to be a turnaround year for toys. And then early this year, you know, we got hit with the tariff news, which created a lot of uncertainty in the business. One is, you know, we don't know how the consumer is going to react to broader price increases, and we do expect increases on toys very specifically. So companies like Hasbro and Mattel, you know, some of the biggest toy makers in the globe, you know, are really faced with that challenge. In the second quarter, normally retailers already start buying their holiday inventory. That didn't happen this year. Those retailers, Walmart, Target, took a pause.

9:12So normally by now we would sort of get a sense of holiday, but because of that pullback, you know, Hasbro saw their consumer product segment see a 16 % decline in second quarter revenue because of that hold on those orders. I would have thought they would have tried to front run the tariffs here. What's the company saying about when they expect some of these retailers to place their orders? So they expect the orders to be sort of made up in the third quarter. And the challenge with that is, you know, some of those hotter toys that do sell out maybe in the early holiday shopping season, there will be very little time to sort of replenish on that end.

9:49So Hasbro did continue their production, which, you know, they do still make about 50 % of their toy products in China. They continued in May. You know, they took some of that inventory on their books in the second quarter. That's why we saw the inventory come up there. You know, they're hoping that the retailers, you know, place more of their orders in the third quarter, you know, ahead of holiday. You know, the risk is they just don't really know what those pre-order will be, and there will be limited time for additional orders, like in that fourth quarter right before holiday. To your point, in April, the company warned the tariffs could impact profits by as much as$60 million to$180 million this year, and they did reduce their Chinese manufacturing output to less than 40%, or at least planned to by 2026.

10:35If they do that, will they pass on the cost to consumers? And do you think consumers will bear the brunt of that burden? Yes, so Hasbro is using multiple mitigation strategies. They have been very focused on cutting costs. Prior to tariffs, they sort of accelerated some cost cutting at the corporate level. They will be raising prices, I think, selectively on toys. They are also just going to not sell certain toys in the U.S. if it doesn't make financial sense to do so. If they can't raise the price, and consumers would not buy it at that price. So they're sort of using a mixed strategy. They had predicted tariffs to cost$60 million to$180 million on an annual basis three months ago.

11:22They sort of dropped that impact closer to the 60 million side. That's because of the lower rate on the Chinese imports. They are working to diversify the supply chain, but that will take time. The goal of less than 40 percent, that's really by 2027. So in terms of this year, you know, where their supply chain is, they're sort of locked in with that at the moment. And they kind of have to work with the price increases and sort of balancing. Where do I increase price and not hurt the demand even more? All right, Lindsay, thank you so much. We appreciate your analysis there. Lindsay Dutch, she's a consumer, hardlines senior retail analyst for Bloomberg Intelligence based down there in our Princeton, New Jersey campus.

12:03Talk to us about Hasbro, the toy maker, had some really good numbers, had some good guidance, but there's still tariff concerns out there surrounding this industry as well as other stock trading off a little bit. 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. Right in the middle of earnings here today, we saw Hilton, the hotel company, reported numbers. And they lowered expectations for net income and saying that demand for U.S.

12:38hotel bookings declined in the second quarter. Let's get to break it down a little bit more detail because, boy, I get on a plane. It just seems like it's packed, and I assume those people are staying at hotels and everything. Let's check in with Jody Lurie, senior credit analyst for Bloomberg Intelligence. She covers all the fun stuff, the gaming business, the hotel business, the casino, the cruises, all that good stuff. So she has a great view on the consumer and kind of what's happening out there in that part of the economy. Jody, what did you learn from Hilton here? What are they saying about their business?

13:09So, Paul, I mean, I think what's so interesting is they definitely tried to provide an upbeat, optimistic view. The amount of times they talked about the thawing that after the freeze from tariffs was sort of interesting to hear. And I mean, I think it fits a little bit with the conversation that we've been having with clients is that what we've been seeing in our data is 2025 summer should still be pretty strong. But I think as we get into the latter part of the year and then into next year, it's a little bit uncertain. And I think they were trying to suggest that economic data is positive for them and will provide for additional sort of demand.

13:49But it's still a little bit, you know, it's still a little bit hazy, at least for me. And I mean, more than anything, you know, they're so focused on giving back to shareholders that. And as a credit analyst, that's not something you necessarily. Yeah, yeah. You know, Hilton's one of those companies that we say if they wanted to be investment grade, they probably could work to it yesterday and would have been investment grade five years ago. But, you know, from a margin standpoint, they're so much stronger than a lot of their peers. But from a leverage standpoint, they just they're happy being around three times, three and a half times.

14:21And they've indicated that they want to be a little bit higher than where they currently are. So, I mean, I think they're going to invest in organic growth and look at ways to sort of grow some of their newer brands like Spark, which they've been talking about. And the most interesting thing related to that is it seems like they're looking outside the U.S. for growth opportunities. And maybe that's a function of the fact that while they think the U.S. is still having decent momentum, perhaps they need to sort of look outside to sort of really see the growth. Where are they finding that growth elsewhere?

14:53And is that in relation to just the lower consumer confidence in the U.S. and the decline of international travelers? So then they just decided maybe looking elsewhere is better. What was the rationale behind that? So they actually talked about on the first quarter, they talked about Canada and Mexico demand. And they said specifically that it's such a small percentage. It's like 1 % of their total revenue is Canada and Mexico. And inbound U.S. is certainly a large portion, I think, larger than they sort of indicate. But I think they're also sort of saying, OK, yeah, it's going to be an effect, but it's not that much effect.

15:26I think they are seeing, and what we sort of heard on this most recent call, is that there is an element of trickle-down effect related to what's going on in the U.S., the prevalence of travelers coming into the U.S. versus historically because of the tariff and geopolitical environment. And so, you know, they mentioned Saudi Arabia, they mentioned India, they mentioned Turkey on the call. And I think they're looking at anywhere there's potential growth opportunities. I mean, Hilton's so large and global that it's not really surprising to me. But it is sort of interesting when you hear a company that's 75 percent U.S.

16:04dominant that they are sort of looking to expand elsewhere. Hey, Trini, we were hearing from, you know, a number of companies that depend upon travel that maybe international travel inbound to the U.S. is less than than it may be in past periods, maybe in part because of all this tariff discussion, people deciding not to spend their travel dollars in the U.S. What's Hilton say about that? So Hilton didn't so much talk about it on this call, per se, but they danced around it a little bit, saying that they think that with the tariff situation, it hasn't resolved itself by any measure, but with us getting over that shock of Liberation Day that they're now seeing that demand is picking up, they're seeing business conference travel.

16:53And so I think they're sort of dancing around it. But if we recall, I mean, a lot of the companies in my space still haven't gone back to pre-COVID levels when it comes to inbound U.S. I mean, we'd like to talk about United Parks, which is formerly SeaWorld, because they talk about it in their Florida parks that they still haven't seen the return of international travelers to pre-COVID levels. And so you add on top of that the tariff effect in the geopolitical environment. And you say, OK, if we weren't back to pre-COVID levels and then you have this component to it, I don't know if we'll get back to pre-COVID levels sometime soon.

17:27Jody, thanks so much. I always appreciate checking in with you. Jody Lurie, she's a senior credit analyst for Bloomberg Intelligence, talking just a little bit about the Hilton numbers. Again, the company took down a little bit of guidance and maybe citing some of the uncertainty surrounding the tariffs they cited as well as reduced. They also called out reduced government travel. So maybe the whole Doge thing, people, some of the government employees are maybe traveling. I hadn't thought about that. Businesses are also reducing travel. Like, I mean, I don't want to single out Bloomberg, but everyone, like you only really travel when it's mandatory.

17:57If you can do Zoom, you should do Zoom. So we see it really across industries. But I'll do account of that. Not our Salesforce. Our Salesforce is out there all the time pressing the flush with Bloomberg customers. And that's a good thing. That's how it's done. Looking for more investing options? Meet SIBO, the exchange that pioneered options trading.

18:14Isabelle Lee:With exclusive trading products like VIX and SPX options, SIBO can help you trade in any market environment. There are risks associated with SIBO company products. Review the disclosures and disclaimers at SIBO.com slash US underscore disclaimers. So there's a lot of noise about AI, but time's too tight for more promises. So let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need. Now, a global workforce of 300 ,000 can use AI to fill their HR questions, resolving 94 % of common questions. Not noise. Proof of how we can help companies get smarter by putting AI where it actually pays off.

18:50Deep in the work that moves the business. Let's create smarter business. IBM. This is Matt Rogers from Las Culturistas with Matt Rogers and Bowen Yang. This is Bowen Yang from Las Culturistas with Matt Rogers and Bowen Yang. You know when people try a new food and suddenly it's like, Okay, hold on. I got a new favorite food. That's the reaction a lot of people are having when they first try Kewpie mayo. Yeah, it's the one with the red cap and the little baby on the bottle. You've probably seen it at the grocery store. And this mayo is different. Most mayonnaise uses whole eggs. Kewpie only uses egg yolks, which gives it this rich umami flavor.

19:24It's smoother, deeper, almost buttery. Once people try it, they start putting it on everything. Egg sandwiches, fries, burgers. Chefs use it. Restaurants use it. People who really care about flavor use it. Put it on just about anything. Then you'll understand. Kewpie, the original Japanese mayonnaise. 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. Switch gears to technology here. We check in with Anurag Rana, senior tech analyst at Bloomberg Intelligence.

20:00Anurag, a lot of news is going to be coming our way from your tech space starting tonight after the close. We'll have Google, Tesla, then all the other tech names will be coming out as well. I'm going to start with Microsoft. Can you give us a summary or an update of what's happening with this software cyber breach here? It doesn't seem to be impacting the stock that much. What's Microsoft saying, if anything?

20:24Isabelle Lee:I think the news is out. And frankly, apart from the one big breach last year where CrowdStrike really got hurt, But these breaches typically don't have that big an impact on the stock, frankly, because, you know, it's a small portion of the one particular application. And, you know, I think the news story is far bigger than what it has an impact on the stock. In fact, if anything, people will be more inclined to buy Microsoft security products to protect themselves down the road. They would be more inclined to move more workloads to the cloud to make sure that the, you know, the online version of the software was not impacted.

20:58Isabelle Lee:So, you know, it just sells by itself. Some of the security products in these breaches, obviously not a good headline for the company. But, you know, these things do happen quite a bit. How is the cloud business looking like these days? I feel like it's one of the main drivers of growth for many companies from Amazon to Microsoft, as we're talking about, to most of the big tech giants. Is the competition becoming more fierce and is there a leader emerging in this space? See, the leader was always AWS, but frankly speaking, over the last two years, Microsoft has really narrowed the gap because of its OpenAI relationship.

21:31Isabelle Lee:They are the only company who is really seeing the biggest benefit of all the searches we are doing in Shack GPT because OpenAI runs primarily on Microsoft's cloud network. So when they report next week, we are expecting a big number coming out of that AI contribution. So Microsoft, I think, is the bigger beneficiary right now amongst all the bigger vendors. So, you know, it's interesting. Is it worth investors ranking kind of who are the big cloud players, who are the big AI players? Is it worth it or is it better just to say, you know, AI is going to kind of be all over the tech stack and I just got to be long tech.

22:08How do you think about really getting quality exposure to that theme?

22:14Isabelle Lee:Yeah, when you look at cloud, I think all the top four vendors will flourish and flourish well. I mean, that would be AWS, Microsoft, Google, and then Oracle after that. So all four will make a lot of money. Then you want to dissect each one of them. Within this group, Microsoft is the one that's seeing the current direct benefit, and that's because of OpenAI. The other two, whether it's Amazon or Google, will start to see more and more revenue flow in because of the applications people are building on their cloud platform. And then lastly, on the Oracle side, they are benefiting in another part of cloud, which is more on the infrastructure side, where they're getting a lot of money or future funding from OpenAI to create their data centers to help train the model.

22:57Isabelle Lee:So each one is slightly different, but I would say, as you mentioned, the total basket should do well over time. You cover tech and next week is a big week for those companies and beyond. Tech behemoths are expected to deliver nearly 15 % of profit growth and robust demand for AI. And that's compared to the virtually no growth for the rest of the 400, nine or three stocks. Are you watching anything, any specific company you're excited about? And you mentioned you're looking at cloud, but is there anything else that is factoring in your outlook? So there's going to be two elements of it. One is the cloud, the AI side of spending and the non-AI side of spending.

23:33Isabelle Lee:What we saw from SAP yesterday and Infosys this morning and then, you know, Tata a couple of weeks ago or so, that the non-AI tech spending is under pressure. People are not spending as much because they are not sure how the tariff-related uncertainty is playing out. So they're seeing a delay in closing of deals and everything around it. But on the AI side, we anticipate strong results from Microsoft, for example. So there are the two dichotomy over there between the two vendors. The third thing that we are watching is actually what happens on the margin side of things, because a lot of these companies are investing very heavily in AI because of that, their margins are going to get squeezed.

24:14Isabelle Lee:And for that, what we think is going to happen is they're going to take reduction in force, either through not hiring at the same pace that they have been or basically laying off a portion of their workforce in order to counter some of that pressure. So those are the three themes that we are most interested in right now. Anurag Rana, absolutely. Thank you. Appreciate it. Anurag Rana, tech analyst, Bloomberg Intelligence. Anurag Rana, Mandeep Singh, those are our two senior tech analysts. They manage our global technology research effort for Bloomberg Intelligence. We have close to, I think, 20 analysts covering technology on a global basis, It's a lot based in Asia, based in the U.S., and based in Europe.