BI Weekend: Coca Cola, Hasbro, T-Mobile Earnings

0:00Today's show is brought to you by Vanguard. To all the financial advisors listening, let's talk bonds for a minute. Capturing value and fixed income is not easy. Bond markets are massive, murky, and let's be real, lots of firms throw a couple flashy funds your way and call it a day. But not Vanguard. At Vanguard, institutional quality isn't a tagline. It's a commitment to your clients. We're talking top-grade products across the board of over 80 bond funds, actively managed by a 200-person global squad of sector specialists, analysts, and traders. These folks live and breathe fixed income. So if you're looking to give your clients consistent results year in and year out, go see the record for yourself at vanguard.com slash audio.

0:41That's vanguard.com slash audio. All investing and subject to risk, Vanguard Marketing Corporation Distributor. Donald Trump is rewriting the Washington rulebook and reshaping the global economy. If you're trying to connect the dots behind the headlines, Bloomberg's Trumponomics podcast is here to help. I'm Stephanie Flanders, Head of Government and Economics at Bloomberg. Every week I'll bring you a smart, focused conversation with reporters and experts from Washington, Wall Street and beyond. Listen to new episodes every Wednesday and follow Trumponomics wherever you listen.

1:20Bloomberg Audio Studios. Podcasts, radio, news. This is Bloomberg Intelligence. With Scarlett Fu and Paul Sweeney. Concerned about rising prices. Spooking investors. What does renewables investment look like in the U.S.? More power talk coming out of this administration. Breaking market headlines. And corporate news from across the globe. The president wants lower interest rates. He wants a rate cut cycle. How do you broaden out the A.I. play? Are people just looking for something to worry about when it comes to China? Bloomberg Intelligence. With Scarlett Fu and Paul Sweeney. On Bloomberg Radio, Originals, and the Bloomberg Business App.

2:00On today's Bloomberg Intelligence Show, we dig inside the big business stories impacting Wall Street and the global markets. Each and every week, we provide in-depth research and data on some of the 2 ,000 companies and 130 industries our analysts cover worldwide. Today, we'll look at why Kraft Heinz's new CEO is halting the process of splitting the company. Plus, a look at why T-Mobile added fewer mobile phone subscribers last quarter. But first, we begin with a deal in the energy space. This week, deep water oil rig owner Transocean agreed to acquire rival Valeris in an all stock deal valued at$5.8 billion.

2:30The deal will create the world's largest offshore rig contractor by market value. And this comes as offshore drilling has been booming, especially in deep waters. For more, we were joined by Scott Levine, our senior energy services analyst. We asked Scott to break down who these companies are and the reasons for the deal. Two of the bigger names in offshore drilling. Transocean has the largest backlog. Valaris has the largest fleet. Valaris's name may not be that familiar to a lot of folks here. It was actually a combination of two companies called Ensco and Rowan a few years ago. but they are two of the biggest offshore drillers.

3:05And I think that this deal really has both offensive and defensive motivations. Offshore drilling is in a little bit of a recovery mode, really kind of has been. Most of the drillers went bankrupt actually during the 2020-21 downturn. Transocean was really one of the only companies that did not go bankrupt. Valaris did. And so TransOcean's kind of been saddled with all this debt as a result of not having their balance sheet wiped during a bankruptcy. And so that's been a limiting factor on their growth for quite some time. And this deal, which is an all stock deal, will accelerate their leveraging process and remove some of that burden from them and better enable them to capitalize on an upturn in offshore drilling.

3:57And the second thing that's important to note here is that it brings a jackup fleet. So a jackup fleet, jackups are basically shallow water rigs, okay, as opposed to the deep water drill ships or floaters. And Transocean had exclusively been a floater fleet. Jackups are more to the seabed, seabeds lower in shallow water. And Valeris is one of the biggest players there. And so this gives Transocean exposure to the jackup or shallow water market, which has really undergone an interesting phase in that it was a bit of a downturn the last couple of years. The biggest jackup driller is Saudi Aramco.

4:41And a couple of years ago, Saudi Aramco made significant cuts to their drilling program. They essentially, Saudi Arabia abandoned plans to increase their oil production capacity to 13 million barrels a day. And what we've seen since then is a lot of jack-up rigs being laid off effectively in 2024 and 2025. Right. Indications suggest those rigs will return this year. So that market is bottomed and maybe on the cusp of an upswing. So this deal will give Transocean the ability to participate in that recovery. So in terms of why now, when it comes to the timing of this deal, the CEO of Transocean cited a multi-year drilling up cycle.

5:25Where are we in that cycle? Are we, you know, first inning? Are we third inning? It's kind of been an interesting up cycle. So we saw an inflection in 22 and 23. And 24 and 25, we've seen kind of a plateau to a slight pullback. Now, I do believe we're in a recovery and have been, and this has kind of been more of a mid-cycle pause associated, rather than a downturn in offshore drilling. So I do think the recovery is intact, but I think the cadence has certainly slowed and, in fact, deteriorated. And offshore drillers like energy service companies have been off to the races this year. I think the oil price has held in better than expected.

6:12Uh, some of that is due to some of the, uh, uh, tensions in, uh, the Middle East, Iran, et cetera, Venezuela as well. Uh, so, uh, the punchline really is that we're still in, I think a mid-cycle pause until maybe the second half of this year. And in terms of what inning we're in, I think we're probably like third, fourth inning, but it's been in kind of an unconventional recovery. Will the regulators allow these two companies to get together? Yeah, I think so. And it's a good question. These are the two of the largest players that are out there. And RIG CEO expressed extreme confidence that that will be the case.

6:48It's a competitive market. There's a lot of fragmentation, smaller players in the market. And it's generally the quality of certain assets that determine which guys win which contracts. A lot of it depends on which RIGs are capable of drilling for which projects. And so, no, I do think that this should get a relatively quick approval. Certainly, they're talking second half of this year. That's a much shorter timeline than the last major oil field services merger, which was Schlumberger Champion X. That took over a year, two year and a half to approve and required significant divestitures. But offshore drilling is a different market.

7:32Our thanks to Scott Levine, Bloomberg Intelligence Senior Energy Services Analyst. Staying with energy, on Bloomberg Intelligence, we often look at research from Bloomberg NEF, previously known as New Energy Finance. So they're the team at Bloomberg that tracks and analyzes the energy transition from commodities to power, transport, industries, buildings, and agriculture sectors. This week, we took a look at robo-taxis. For more on this and the state of the automated vehicle industry, I was joined by Andrew Grant, BNEF Head of Intelligent Mobility. I first asked Andrew to tell us where we are with robo-taxis and what we should watch out for.

8:06in 2026? So at the end of 2025, there were about 8 ,000 working robotaxis globally. Some of those had safety drivers behind the wheel, some of them had safety drivers in the vehicle, but a significant number fully driverless and operating in various cities around the globe. I'd say about half of those 8 ,000 based in the US. But we expect that number in total to more than double by the end of the year to around 18 ,000 robotaxis globally. Who are the players in this business? Names other than Tesla, Waymo, how do you think about the competitive environment out there? I mean, we spend a lot of time looking at the actual operations and number of vehicles deployed.

8:48So really, you're looking at kind of four companies globally that have the biggest fleets of vehicles on the road. So Waymo, as you mentioned, Alphabet backed and has just raised a significant amount of money. But also you're looking at three Chinese companies with a big robotaxi fleet. and growing. So Baidu's Apollo, and then WeRide and Pony AI, which are robotaxi specialists that are based out of China, but looking to expand globally. You know, I think about the just the battery electric vehicle market. And I think with the exception of the US BYD and some of these other Chinese manufacturers, it just feels to me at this early stage might be able to take over the world of electronic vehicles.

9:27Is that a similar view for robotaxis? Yeah, I mean, it's interesting how different geographies are going to react and different regulators are going to react to foreign companies coming in and deploying their technology in those areas. We are really seeing kind of a race at the moment for new territories. So you've obviously got the US-based companies, the Chinese-based companies that I just mentioned, and kind of in the middle, you've got Europe, Middle East, Southeast Asia, where a lot of these companies are setting up routes and looking to deploy. And kind of 2026 is the year where they're really looking to expand those services.

10:02So Uber has just announced in the earnings call last week that they'll be expanding to Houston, Hong Kong, Madrid, Zurich. There's a variety of really competitive battlegrounds across those kind of markets in the middle. What's the safety record so far in this early testing stage? I mean, it depends how you measure these safety standards. It's whether you're needing some type of intervention with the safety driver in the vehicle. On the whole, these vehicles are tending to kind of show safety records that are similar to what humans have displayed. And in some cases, it's far surpassing that. But again, the measuring of these standards is kind of a tricky, nuanced subject that a lot of regulators are digging into at the moment.

10:51And it's really about companies working with regulators to try and figure out and kind of try to prove their safety record over time as they expand their services. Talk to us about the these things are expensive to develop, maintain, deploy. Waymo just raised 16 billion dollars at 126 billion dollar valuation. Tesla's committed 20 billion dollars in R &D this year. Where's the money coming from? I mean, a variety of venture-backed investors and kind of the big tech companies themselves. So you mentioned Waymo, a lot of that money is coming from its majority owner, Alphabet. And then Tesla is putting a lot of money into this.

11:32It's also about where they are putting their money. So Tesla is going with a strategy of deploying a much cheaper vehicle, but they're putting a lot of money into the data center to try and improve their self-driving algorithms and their self-driving system. Whereas Waymo has got a more expensive vehicle, kind of two to three times at a minimum, more expensive. So it's going to take a lot of money to kind of build out that robotaxi fleet and deploy it in the various parts of the globe where they want to deploy. They've just announced that they plan to launch a service here in London in September.

12:04Great. Some of those little streets. Good luck there. What's some of the gating issues here? Is it regulatory? Is it capital? Is it technology? What's the gating issue here for this industry at the moment? I mean, it's kind of all of the above and there's improvements that need to be made on all of those. But also just finding a business use case for these services. I mean, as we've been talking about, it takes a lot of money to build them and deploy them. So finding a kind of meaningful market for them and completing kind of useful rides or meaningful rides rather than just kind of being a theme park attraction driving small parts of the city.

12:38You actually want to kind of get those more lucrative ride-hailing trips from, say, city center to airports. And that's been a bit tricky for some of these robotaxi companies to actually sort out. If you look at just about a week and a half ago, Waymo announced that they would be opening up to San Francisco airport. But really what you're seeing from that is they are doing pickups and drop-offs at the car rental center, which is kind of a 15, 20-minute journey from there to the actual airport itself. So it's kind of compete with curbside drop-offs from ride-hailing vehicles. They still have a bit of a way to go.

13:16Our thanks to Andrew Grant, BNEF, Head of Intelligent Mobility. Coming up, a look at why Coca-Cola offered a more conservative full-year sales outlook than expected. You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in-depth research and data on 2 ,000 companies and 130 industries. You can access Bloomberg Intelligence via B.I. Go on the terminal. I'm Scarlett Fu. And I'm Paul Sweeney, and this is Bloomberg. Today's show is brought to you by Vanguard. To all the financial advisors listening, let's talk bonds for a minute. Capturing value and fixed income is not easy. Bond markets are massive, murky, and let's be real.

13:51Lots of firms throw a couple flashy funds your way and call it a day. But not Vanguard. At Vanguard, institutional quality isn't a tagline. It's a commitment to your clients. We're talking top-grade products across the board of over 80 bond funds, actively managed by a 200-person global squad of sector specialists, analysts, and traders. These folks live and breathe fixed income. So if you're looking to give your clients consistent results year in and year out, Go see the record for yourself at vanguard.com slash audio. That's vanguard.com slash audio. All investing is subject to risk, Vanguard Marketing Corporation Distributor.

14:47as the day gets going. From Brussels, I'm following the politics, policy and the people shaping the European Union right now. And from London, I'm looking at what all that means for markets, money and the wider economy. We've got reporters across Europe and around the globe feeding in as stories break. So whether it's geopolitics, energy, tech or markets, you're hearing it while it happens. It's smart, calm and to the point. And it fits into your morning. You can find new episodes of the Bloomberg Daybreak Europe podcast by 7am in Dublin or 8am in Brussels, Berlin and Paris. On Apple, Spotify, YouTube or wherever you get your podcasts.

15:29This is Bloomberg Intelligence with Scarlett Foo and Paul Sweeney on Bloomberg Radio. We move now to some news at the food and beverage company Kraft Heinz. So this week Kraft Heinz's new CEO Steve Kaelin halted the process of splitting the company. Its decision, he said, was backed by the board of directors. K-Lane will instead invest$600 million in developing new products, marketing them, and lowering some prices. The shift in strategy was the result of K-Lane spending the last few weeks immersing himself in Kraft Heinz's vast portfolio, including conversations with retailers and employees. For more on all this, we're joined by Christina Peterson, Bloomberg News food industry reporter.

16:06We began by asking Christina to explain K-Lane's thinking with a pause. He's only been on the job since January 1st, so I think this came as a surprise to folks that the split was called off about five months after it was announced or paused. There is no end date to the pause, so we don't know if it will at some point resume. But the CEO, Steve Kahlene, said that he came on the job knowing that there had been levels of underinvestment in Kraft Heinz's brands and decided that after reviewing all of them that there were brands that would respond to more investment. So they announced that they would be putting$600 million into things like R &D, marketing, and lowering some prices in hopes that that would bolster the entire company and that that would be in a better position, put them in a better position to evaluate whether they should move forward with the split.

16:58So what do most investors want? Do you think they want the split up? Sometimes split ups work. A lot of times they don't. What have investors been saying over the past months? There's clearly been some anxiety among investors since the news of the split was announced. I think that the new CEO was seen as there were hopes that he would do what he had done with the Kellogg company, which split into two publicly traded entities. And then both of those companies were bought by privately held entities. So there was some speculation that the same thing would occur at Kraft Heinz. And Kay Lane said, basically, not yet.

17:38There's another twist to all of this, which is that Kraft Heinz's biggest shareholder is Berkshire Hathaway. And Warren Buffett, who runs Berkshire Hathaway until he handed the reins to Greg Abel, said he was never a fan of that idea to split up the company. I mean, he was kind of the mastermind behind Kraft Heinz becoming the behemoth it was, and that didn't work out so well. But he made clear that the split was not a good thing in his mind. Do we think that has anything to do with this about-face? I don't know. It is clear that he had publicly expressed disappointment in the split, and his successor had said in a filing that Berkshire Hathaway was taking steps to sell its 28 % stake in Kraft Heinz.

18:15So clearly they were nervous about this and not fans of the news. So do we have any idea how long this pause will last? I mean, is he trying to turn stuff around, make it maybe better? So when they do split it up, it would be worth more? What do we know? They clearly are not going to make the decision this year. They talked about returning to growth in 2027. So it seems like this is a months away decision. Oh, the investment bankers who had that on their deal sheet for 2026. But they get paid in the meantime for the work that they've done, right? No, you don't get paid until it closes. Oh, really?

18:49You can't bill them along the way like lawyers? No, we're not lawyers. Okay, we get paid. We take a cut of the... I like how you still say we. Yeah, yeah, exactly. Because you feel for these guys. Yeah. What's the company want to do now as a standalone company? Well, they've talked about releasing some healthier products. They are launching a Kraft Heinz mac and cheese power mac with protein and fiber. I knew it. I knew it. And they will be lowering prices. They talked about the opening price points being important for low-income families. So those are some of the areas that they're going to be focusing on.

19:25some healthier options, more affordable price points. Our thanks to Christina Peterson, Bloomberg News, food industry reporter. We move now to the beverage giant Coca-Cola. This week, Coca-Cola reported weaker than expected quarterly sales. Soda maker also offered a more conservative 2026 four-year sales outlook than expected. Shares of Coca-Cola fell after the news. The outlook points to the challenges faced by the incoming CEO, Henrique Braun, as the company works to win over shoppers with its widening portfolio of beverages. For more, we heard from Ken Shea, Bloomberg Intelligence Senior Consumer Products Analyst.

19:57We first asked Ken to tell us what's concerning investors about Coca-Cola. I think what may be concerning the market a little bit about Coke is that the mix was not as favorable as it had been. Also, the company over the past couple of years had been relying heavily on price mix to boost the top line. It was a considerable slowing in the quarter. Having said that, there's always some noise in the fourth quarter. It's hard to draw too many conclusions from the fourth quarter. But I think the market is also being spooked a little bit by the guidance for next year, which came in a little bit light.

20:33The company's long-term algorithm is to generate about 4 % to 6 % organic revenue. And from that, it can generate high comparable EPS growth. And it did that in 2025. In 2026, they're saying 4 % to 5 % top line and 4 % to 5 % EPS growth. And so that's EPS growth. Again, that's excluding currency effects. It's not only below their long-term algorithm, but also below consensus expectations going in. What's the – we always talk – a lot of your companies, the consumer products companies, the staples companies, you think about them as kind of a GDP, maybe a little bit GDP plus kind of growth here. Is there any secret sauce to the Coca-Cola story, or is that the way we should think about it?

21:19Well, there's a lot of truth to that, Paul, because Coke is in like 200 markets around the world. I guess the way for growth is lunar at this point. I mean, they're everywhere. But I think there's going to be a new CEO on March 31st, Henrik Baran. He's a longtime veteran at Coca-Cola. He was the COO, used to head up the Latin American operations. I think there's a lot of confidence in his ability to take the reins here. And I think what he's going to spell out in his vision next week at Cagney, that's where you usually do it. Oh, that's where you'll be. Yeah. Well, I think he's going to say that they need to step up their marketing and innovation here to boost that top line growth.

22:01And I think they're going to talk a lot about functionality, something that we talked about with PepsiCo. What do I mean by functionality? Well, consumers want more from their beverages than just taste good and hydrate them. They want to not only have zero sugar, but it wants to have more electrolytes in their water. It wants to have more protein in their drinks, particularly the GLP-1 crowd. They want to have fiber, which Coke offers in its prebiotic sodas like Simply Pop. So these are the kind of things they're going to talk about in terms of product innovation, I believe, next week. And in addition to that, I think the company is going to spend more on marketing, digital marketing, to get the message out to new, young consumers.

22:43I guess the idea is to just have your drink, replace your food. I guess. Zero Sugar actually was a standout, right, with Coca-Cola Zero Sugar posting double-digit volume growth in the quarter. When you say that they want to focus on the innovation and get the word out, what does that mean in terms of spending on marketing? What does that mean in terms of capital expenses? Well, I think broadly speaking, more social media advertising. I mean, on a per view basis, that's a lot more cost efficient than, you know, traditional ways like television. Paul, you would know that, right? Media analyst days.

23:17So it's more of that. It's also working more closely with their bottlers in terms of co-marketing ventures. That could be a wide range of things, not only digital marketing, but perhaps coming out new packaging, whether it's multi-packs to attract an economical consumer to spending more on its fountain dispenser. You see a lot of fast food restaurants where they can make their own sodas and so on, to spread that out more, to have more consumer engagement no matter where they are. Yep. So I see more of that. Our thanks to Ken Shea, our Senior Consumer Products Analyst. We move next to news on the toy and board game maker, Hasbro.

23:58This week, Hasbro reported that it more than doubled year-over-year revenue from its popular card game Magic the Gathering in the fourth quarter. Shares of Hasbro jumped after the news. So we brought in Lindsey Dutch, our consumer hardline senior analyst, and began by asking her to break down Hasbro's results. So the story for Hasbro is, you know, the results in 25, including the fourth quarter, is really being driven by their Wizard of the Coast digital gaming segment. That segment has been growing rapidly, 45 % on the year, 60%, I think, for Magic of the Gathering in the quarter. So just tremendous growth coming out of that brand, better than expected.

24:35And that unit is really going to carry the growth in 2026. The outlook for the consumer products with their toy segment is still kind of weak. So it's really coming out of that digital gaming segment. But I think investors are pleased with the outlook there just because they're lapping very difficult comps. So to see solid growth in 26 coming out of that was a good surprise. Lindsay, what about tariffs? Is this something that Hasbro has figured out and it's no longer something that leaves its earnings to be kind of unreliable and they've kind of smoothed things out? So it definitely affected the year.

25:15So about$40 million in the fourth quarter. a headwind for margin there, especially on that consumer products segment. So that margin did decline year over year, which was a disappointment. It's certainly going to be a headwind for profitability at least in the first half, and comps will get easier in the second half. But Hasbro did note that much of the cost savings program that they're working on and other supply by chain efficiencies, they were able to offset a significant portion of that cost. So that is a good sign, but there's still a little bit of a headwind for the next two quarters. I'm just looking at the FA function on the Bloomer terminal, it gives me all the financial analysis and boy, the operating income profit for the Wizards of the Coast and the digital segment is huge.

26:02Whereas the profitability of their regular toy business, not so much. Is a company just throwing all the resources into their digital stuff? Is that the strategy? So they have definitely been pushing for several years now to become a bigger player in that digital world, but also really to become known for that. So I would say, you know, one of Hasbro's big brands, Monopoly, that's what many people know the company for is that traditional Monopoly board game. But they are pushing into this world of digital games. You know, they want to be valued as such. And I will say, you know, they do have a digital version of Monopoly, Monopoly Go, and that has done very, very well over the past couple of years.