BI Weekend: Six Month Reports, Tesla Safety Issues, Business School Rankings

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2:12Today we'll explain how the global business of sports is getting bigger fast. Plus a look at the yearly Bloomberg Business Week's ranking of the best business schools in the country. But first, this week President Trump pushed for a six-month reporting schedule for publicly traded U.S. companies. This would end their current quarterly format to, quote, save money and allow managers to focus on properly running their companies. For more, Scarlett Fu and guest host Isabel Lee were joined by Michael Casper, Bloomberg Intelligence U.S. equity strategist. They first asked Michael to break down what this would mean for earnings season.

2:44It certainly has been an idea that's been floated for quite some time among ESG circles. Even if you go back to the 2016 election, I believe Hillary was floating this idea. But it does have some validity in terms of aligning shareholder ideas with long-term performance and management incentives. right of management doesn't have to beat a quarterly number every quarter, they can more easily focus on the longer term. And that certainly has its merits. But again, I don't think China is the best analog to make right there. Talk to us about the risks that semi-annual reporting could pose, because why haven't we done it?

3:19Obviously, I'm sure that our regulators and policymakers have weighed the pros and cons. Yeah, so it's less flow of information, right? So you think about the quarterly reporting schedule, you're getting information every three months as an investor, you can process that information more accurately, price things in the market. And with a six-month time frame, you lose a little bit of that, right? And obviously, I think consensus estimates will be a little bit less, let's say, accurate because they have to forecast a six-month time period instead of a three-month time period. So there are some bumps in the road with adopting this.

3:50But again, if it can align shareholder value with management incentives, maybe you do get a benefit out of it. Would CEOs necessarily like this? I mean, I'm sure everyone wants to save time and save money. That was something that the president cited as a benefit of moving to six months reporting as opposed to three months. But in general, is this something that CEOs would favor? I don't know if they would favor it. I think they'd be pretty indifferent to it. It's still the same scheme of, you know, you've got a number every six months, you've got to beat that number. It's just more aligning that goal with shareholder value, right?

4:26So I don't know necessarily if they favor one over the other. They might think their life is a little bit easier trying to beat on a six-month time frame than a three-month time frame. But I don't know if it really affects cost too much, as the president pointed out. Do you think that under the current SEC regime that this would actually be approved? Because to Scarlett's point earlier, and we all know this wasn't the first time this was floated, but maybe it will be approved? Maybe. I don't know. Again, it's been a really long push of this and a back and forth. Should we do six months? Should we do annual even?

4:58There's some countries out there that do annual, and it really hasn't gained a lot of traction. I think investors in the U.S. are really set on the quarterly reporting schedule. They really look for those quarterly numbers to drive their analysis. And so it's going to meet a lot of resistance amongst the investor community, I think. Yeah, especially as more retail investors are now investing in the market, too. They want to hear from the companies directly, and a lot of those companies are tailoring their commentary to this new investor class as well. Not so much institutional investors, but the individual investors out there.

5:30Yeah, certainly. You've got this huge flow of zero-day trading options and everybody trading around earnings events, especially in the retail space that's huge. So maybe amongst the constituency, obviously they don't have as much of a lobbying voice as your big institutional investors. But amongst this constituency, maybe there's a little bit of resistance there as well from the retail community. Would there be a sector or industry that would benefit from a semi-annual reporting? Good question. Oh, yeah. I don't know necessarily if I could pick a sector that would benefit the most. I think tech obviously has gained the most from the quarterly reporting schedule.

6:06They've done a really good job of managing their earnings and consistently beating. We've seen it time and time again. IBM was the bastion of this back in the 90s and early 2000s. Financial engineering to beat the quarterly number. I would argue it's been Apple and Microsoft have been very good at it. I think tech's been the biggest beneficiary, so maybe they're the biggest loser. Our thanks to Michael Casper, Bloomberg Intelligence U.S. equity strategist. And speaking of earnings, Paul, we got results from Cracker Barrel this week. The company offered sales guidance that missed expectations, showing the brand is still dealing with a fallout from its controversial and short-lived logo change.

6:40Yeah, for details, we caught up with BI restaurant analyst Michael Halen. They recorded a great quarter. You know, same-store sales were up 5.4 % in the restaurants, a couple hundred basis points ahead of the street. but sales have decelerated pretty significantly here you know it since august in the logo controversy so you know thought julie massino did a great job i i think she she's running a steady ship right now and and um you know they're focusing on the things that they've been focused on from the beginning which is providing better service and and higher quality food uh at a good price point um i would say it seems like they may have sandbag guidance as well um they basically are extrapolating current traffic trends throughout the rest of the quarter um you know when second measure data that that bloomberg owns that that we follow is is showing that traffic may be stabilizing here so i guess i guess we'll see all right let's move on to uh what's going on with our friends at darted yeah you know darting it was an interesting quarter sales were fantastic but slightly below you know very high expectations um and the most interesting part of their report was that their margins contracted um largely due to beef costs and and uber fees because uh they did this one million free delivery promotions supported by you know uber eats marketing dollars right and And so it actually made up 5 % of sales.

8:13And that's very impressive for something that's been instituted within a year. So yeah, the margins, this company has best-in-class margins. They've always protected their margins. And so seeing a same-store sales gain, a very strong same-store sales gain without the margin expansion, I think shocked some investors. So what are they planning to do to widen those margins? I heard the portions might not be as big. Are they looking at possibly raising prices on the menu? Well, they're going to raise prices, but not too aggressively. So they're very careful about increasing their prices. A big reason why we think they're outperforming is that they've increased their prices a lot less than competitors since the pandemic.

9:01Right. And so they don't want to lose that advantage. So they are going to raise prices this year, but it's going to be modest and less than peers. You know, you mentioned the smaller entrees. That's really a move to boost traffic. So what they're doing is they're taking seven of their popular entrees. They're making an additional lighter menu with those seven items. They're shrinking the portion and they're lowering the price. And they're hoping that actually brings in greater traffic with low income consumers. So shrinking the size of the entrees isn't isn't a major plan in terms of of saving the margins with the margins.

9:41It's going to be, you know, executing. Right. That's that's what they're known for. You know, consistently becoming more productive in their restaurants. That's how they're going to try to fund this. You know, there will be some slight price increases. And they mentioned they could be a little bit more aggressive if, you know, the higher beef prices remain stubborn. All right. Thanks to B.I.'s Michael Halen. We also got earnings from General Mills this week. The maker of Cheerios reported a solid quarter, but was cautious about the road ahead. We spoke with BI consumer staples analyst, Diana Rosero-Pena.

10:13They were mainly in line with expectations. It wasn't that much of a surprise, but still, you know, the stock is a little bit on the soft side. People expected better news than what they disclosed. Yeah, I mean, North America sales came under pressure. What was the drag there? It was mainly on volume. We expected volume declines, but not to the magnitude that they did. It was down 4 % on the organic part. So obviously consumers are still trading down. They are mentioning that about eight brands of theirs, it was positive. But still, it wasn't enough for the whole segment to pull through. What are they doing or what are they saying about tariffs and the impact on their costs versus maybe what they're trying to pass along to customers?

11:08So they are upsetting some of the costs with cost savings. It's usually going to be they expect to be about one to two percent of COGS this year, which is a little bit lower than, for example, Campbell's expected. They expect around four percent. So, you know, they're not there. They do not want to raise prices. They want to be competitive because obviously volume growth is not happening. So. Yeah. I mean, they're getting competition from more folks. I mean, on the one hand, they're they're benefiting from the fact that more people are eating at home. Right. But yet when we're going to the supermarket, more people are choosing those private label brands.

11:46What's their sort of, you know, plan of attack there? Yeah, so they're increasing marketing. They're hoping for innovation. They mentioned that 25 % of sales growth will come in North America retail will probably come from innovation this year. And this is what everybody's trying to get to. The problem is, and that was mentioned on the call as well, was that even though price increases are not as significant as it used to be, they're still high. So on a basket size, you're still paying a lot more than you used to two years ago. Talk to us about store brands versus kind of the brands we all grew up with here.

12:27Talk to us how that's changed over time. Are store brands becoming a bigger, bigger part of the average cart? Yes. Well, retailers are investing more on their private label. It allows them to bring people into the store. Some of the brands have a cult following, I would say. Hello, Costco. Exactly. So people are going to the store to buy that particular brand. They're more profitable than national brands. So obviously there's still incentive for retailers to deploy some of their own brands. I think some people think it's chic to buy private label, right? We're like a badge of honor. Well, certainly, I was shocked at the price differential.

13:11Yeah, because they have that pricing power, right? These stores, it's to, you know, make their products a lot more attractive. Really quick, Blue Buffalo, it's their pet food. I was surprised to see that that was not a leader for them. Yeah, so Wilderness is not doing as well as they are hoping. Dog food in general has been a headwind, not only for them, but also for the overall industry. Cat food seems to be the leading indicator here, which is surprising. So cat food is outpacing dog food? Yes, correct. We have seen this for the past year. There seems to be growth in the cat population more than the dog population.

13:51Thanks to BI's Diana Rosero-Pena. Coming up, we look at Elon's purchase of$1 billion worth of Tesla shares. 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 BI Go on the terminal. I'm Alexis Christophorus. And I'm Paul Sweeney. This is Bloomberg. Over$100 trillion estimated to be transferred to generations in the next 25 years. It's both a risk and an opportunity because we see that only about 18, 19 percent of high net worth investors plan on sticking with their advisor post-transfer.

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16:15Subscribe to Bloomberg Daybreak for a precise, thoughtful take on the stories that matter. Listen to Bloomberg Daybreak each morning on Apple, Spotify, or anywhere you listen. This is Bloomberg Intelligence with Scarlett Foo and Paul Sweeney on Bloomberg Radio. I'm Paul Sweeney, joined this week by Alexis Christophorus. We move to news from the EV giant Tesla. This week, Elon Musk purchased about$1 billion worth of Tesla shares. And this comes after the billionaire was awarded one of the biggest pay packages in corporate history. For details, host Scarlett Fu and guest host Isabel Lee were joined by Bloomberg Global Autos editor Craig Trudell.

16:52There was an all-out push with Robin Denholm, the chair of the company, speaking with us at Bloomberg Television, speaking with the New York Times, the Wall Street Journal, all sorts of major news organizations about the merits of this pay package that the board is proposing. There's going to be a big shareholder vote in November on handing Musk this potentially up to$1 trillion worth of stock. There's a lot of caveats to all that, that Musk would have to sort of pull a rabbit out of the hat again after doing so after a 2018 pay package where the board laid out all these really ambitious market value and performance milestones.

17:36And Musk, you know, at that time, it was kind of perceived as this moonshot pay package. He proceeded to knock them all out. And they're now calling this next pay package a Marshot pay package. So, you know, I think there's this this is all sort of part of a piece, right, of trying to get investors to sort of, you know, focus on, you know, far out there targets, objectives for Musk that would make shareholders a whole lot of money. and it comes amid real signs of stress for the core here and now business for Tesla, where their sales have just really struggled this year. And there haven't really been signs of sort of meaningful change in that trend, even into this quarter.

18:19Right. So this will properly motivate him. I'm so glad you brought up the 2018 pay package and some of the moonshot milestones that it laid out for Elon Musk. What was the most, I don't want to use the word outrageous, but the most ambitious of those milestones? And did he surpass each and every one of them? Yeah, I mean, in terms of the milestones there, I mean, just even the market cap figures, I think, you know, when they were laid out, you know, it was just sort of unfathomable that, you know, a car company could be, you know, a trillion dollar company. And, you know, give the guy credit. He went out there and made it happen.

18:55You know, I think Tesla now is trying to sort of, you know, incentivize him to turn Tesla into a company that is many multiples of even NVIDIA, the most valuable company in the world in the here and now. And yet, you know, the sort of path to getting there is really uncertain because, you know, you've heard Musk make these pitches about robo taxis and about humanoid robots. But, you know, he is a long way from accomplishing some of these new objectives that the board has set for him. Does Musk buying shares personally ease governance concerns or could it even actually reinforce skepticism about how closely Tesla's board is aligned with his self-interest?

19:39Generally, whenever a CEO or an insider of a company is buying shares, it's taken as a good thing and not necessarily, you know, something to look at from a corporate governance perspective. It does. However, I think it's worth sort of, you know, thinking about this billion dollar purchase in context. This is a guy who's, you know, sort of, you know, a billion dollars can be found in his couch cushions. Right. He is is the top person on the Bloomberg Billionaires Index. he's worth about, you know,$420 billion at the moment. And so, you know, just how meaningful this is with any other CEO, you would look at a billion dollar stock purchase and maybe take, you know, take real note of that.

20:22With Musk, is it that huge a show of confidence? Maybe not in the context of, you know, just how much wealth he has. Our thanks to Craig Trudell, Bloomberg Global Autos editor. Keeping with Tesla, we're going to move now to door safety. This week, U.S. auto safety regulators open an investigation into whether Tesla door handles are defective. This comes after a Bloomberg exclusive saying NHTSA received complaints that Tesla's design features like the door handles are confusing occupants and first responders. For more Scarlet Flu and Stacey Vanek-Smith, we're joined by Steve Mann, Bloomberg Intelligence Global Autos and Industrials Research Analyst.

20:55Well, it is a very serious situation, serious safety situation. Now, first of all, there is a manual release from the interior of the vehicle. But the safety issue is that you can't manually override the electronics and open the door from the outside. Now, this is an issue that's plaguing the whole industry. It's not just Tesla. Fair. Okay. And there's a number of automakers that have solved the issue. And I think Tesla does need to solve this issue because, you know, people have died because of this problem here. I think from the investor's perspective, there is a solution. There is a number of vehicles, for example, the Audi.

21:41They actually solved that issue. And they solved it by, you know, having a double pull on the latch to actually open the vehicle manually. So I think from an investor perspective, it is an issue. It needs to be solved, and it's solvable. As you know, the trillion-dollar pay package and the reiteration of the company moving towards AI is really getting the investor very excited. The robo-taxi is rolling out. Apparently, the extended Model Y is selling really well in China. And then in Europe, where we saw a lot of decline in EV sales, it seems to be ticking up. But the pay package rewards Elon Musk for thinking really big, not dealing with how to unlock car doors in the event of some kind of problem.

22:32You say that Audi has solved this. Are Tesla engineers going to take their cue from Audi? Possibly. Really? Yeah. I mean, it's important. It's important that they solve this because Tesla, when they roll out the robo-taxi, safety is an important issue for them. And it's an important issue not just for Tesla, I think for the whole industry. And it's a reputation that they're trying to build, especially, you know, they're trying to roll out RoboTaxi. And, you know, they want to project themselves as a safe automaker. So I think it's going to be a priority list for Elon Musk and the rest of the organization there.

23:12It does also seem that people are feeling quite optimistic about this stock. But also there's there does seem to be a liability issue in addition to a need to solve this problem issue. Is that at all a concern? Yeah, it is. It is a liability. And I wouldn't be surprised that, you know, there's going to be other legal issue that that comes up. I think from an investor perspective, this is normal business. Recalls are normal. And there are other safety issues that has been recalled, not just at Tesla, but other automakers. So I think the investors are taking this, I don't want to say lightly, but it's normal business that, you know, we're going to get over this.

24:00It's a work in progress. Yes. Are there other safety issues in particular that Tesla needs to focus on, pay attention to that could, if left unresolved, could become legal liability issues? RoboTaxi. There's still a safety driver sitting on the passenger seat on pretty much on every RoboTaxi. taxi i think there is discussions of taking the safety driver out at the end of the year but i think they need to tread very very carefully especially for tesla it's a high profile company anything negative is going to damage their reputation so if they don't take up the safety driver at the end of the year i wouldn't be surprised i think they do need to take it one step at a time and make sure everything goes well before they do a full launch without the safety driver.

24:51Our thanks to Steve Mann, Bloomberg Intelligence Global Autos and Industrials Research Analyst. And each week we look at research from Bloomberg NEF, previously known as New Energy Finance. They're the team at Bloomberg that tracks and analyzes the energy transition from commodities to power, transport, industries, buildings, and agricultural sectors. This week who looked at data center demand and RE +, North America's biggest renewable energy conference. For more, host Scarlett Fu and guest host Isabel Lee were joined by Derek Flackel, BNEF lead U.S. policy analyst. RE +, renewable energy plus, is one of the biggest conferences in North America.

25:24You see battery manufacturers, transform manufacturers, energy storage manufacturers from all over the world hawking their wares. And basically what everybody is trying to do is rush to build, rush to safe harbor in order to get legal compliance, to get tax credits in the U.S. government. before rules change at the end of the year. Now, as a reminder, those who are following the Trump administration will recall the one big beautiful bill, a big budget act passed in the middle of the year. That has substantial changes for the way that you can claim tax credits. If you're a wind or solar project, you have to get under construction by a certain deadline or you face an even harder cutoff for when your project can enter service.

25:58And at the beginning of next year, suddenly you've got new foreign entity of concern rules that could make you ineligible for tax credits based on your exposure to mostly Chinese firms, whether through corporate ownership, through supply chains, or through intellectual property and other agreements. You're seeing firms restructure themselves in order to avoid getting hit by those rules. You're seeing developers build up massive stocks of solar and energy storage in order to try and have equipment that allows them to claim those credits before the rules come into effect. And you also have massive growth in U.S.