BI Weekend: Target, Home Depot, Retail Earnings

23:07Drew, what does Home Depot say about tariff risk for them? How did they quantify it for the street? Yeah, good question. Obviously, on top of mind for a lot of investors. So Home Depot has done well to diversify their sourcing over the last several years. They get about 50 % of their products from the US. So they are in pretty good shape from that regard. We would estimate products coming from China are somewhere around 15 to 20%. And there's a couple of ways that they're going to manage this. One, given the scale that they have, they're able to push back against suppliers. The second, they continue to diversify their supply chain.

23:43On their last quarter call, they mentioned that no single country outside of the U.S. will be more than 10 % of sourcing. And then lastly, I think we're going to start to see some selective price increases coming through in the next several quarters. Now, they've done a little bit of pre-buy on the inventory side to make sure that they had some of that lower cost product on the shelves for consumers. But I think, you know, as we get to the end of this year and into next year, you're going to start to see a little bit of pricing. Now, we wouldn't expect it to be widespread or significant. Remember, Home Depot sells about 30 ,000 to 40 ,000 products on their shelf.

24:18So they tend to take a portfolio approach and manage pricing really across the entire project rather than raising prices across the board.

24:27Mary Ross Gilbert:Drew, so are you telling me my next Home Depot run is going to be more expensive? It's going to cost me more. Drew, I have painting. I have a deck to build. I have things to do. I mean, you're saying this could take effect pretty soon. Maybe not your next trip. OK, thank you. The next couple, maybe looking more towards the end of this year or into next year, we would expect to see prices up marginally. So I need to rush now. Well, if consumers are putting off those big projects, what are they focusing on? I mean, is it the smaller ones or are they just canceling projects altogether? Yeah, it tends to be more maintenance, repair oriented.

25:03So there's projects around the house where things break and you have to fix them immediately or replacement products for appliances and things of that nature. And again, what we're not seeing is the big ticket discretionary things like kitchen and baths that require financing. Our thanks to Drew Redding, Bloomberg Intelligence, U.S. home building analyst.

25:23Mary Ross Gilbert:We move next to the medical device industry. This week, the medical device company Medtronic reported profit that beat analysts' expectations. The company also lifted its full-year earnings guidance. This came after Medtronic announced that it will expand its board after Elliott Investment Management became one of its biggest investors. For more, Lisa and I were joined by Matt Henriksen, Bloomberg Intelligence Senior MedTech Analyst. We first asked Matt to bring us up to date on what is happening at Medtronic. With the Elliott Management news, they reported that they have a significant stake in the stock.

25:54and they're going to plan to bring on two new board of directors. These are previous MedTech CEOs from back in history. And basically they're looking to revitalize growth and capture efficiencies to, as they quoted in the earnings call, build oxygen for future growth. And so one of the things we saw in the quarter in the earnings today, there were some areas that had strong growth, strong momentum, but in their diversified portfolio, there were other areas that kind of, let's say, needed some tweaking.

26:33Mary Ross Gilbert:When it comes to the board, who are some of the additions that are coming in because of Elliott Investing? And has Elliott disclosed the size of the stake? As I've now, I have not seen an actual size of what the stake is. Some of these, The board directors, they were former CEOs at Dentsply, so some medtech companies. They were also previously at Beckman Dickinson. Other ones, they are able to come in with more of an operational background. And so being able to drive kind of that efficiency to be able to create the savings to be able to invest into their R &D programs. All right. For the folks in front of the terminal, the ticker is MDT.

27:15Then you type in the ANR function to get the analyst rating. the street doesn't know what to do with this stock. 17 buys, 16 holds in one cell. What's the confusion out there about this name? The confusion... I mean, it's medical devices. Everybody needs medical stuff. Everyone needs medical devices. Medtronic has invested a lot of money into these home run type products. Pulse field ablation, renal de-innervation. All these products are trying to disrupt a current market, either if it's atrial fibrillation, hypertension. If you hit a home run like you're doing with pulse field ablation, it is going to drive pulse field ablation.

27:53It's basically a way to ablate an area that's being affected by atrial fibrillation without using heat or without freezing. So that prevents kind of the damage to the tissue. If you hit home runs like that, you're going to have key growth drivers. Other products like renal de-innervation is taking longer for that growth to develop. So analysts, including myself, see all these products in the pipeline, get very excited about the potential for that growth to accelerate from, let's say, the 4 % to 5 % they're currently at to 6%. And then we're just still waiting for that execution of those commercialization of the products to get to that higher growth.

28:33Some analysts, as you see in the A &R, they are more bullish on when that will come up. Others are starting to say, wait a minute, we've seen this story before. And so they are waiting. It's a wait and see story for those analysts.

28:46Mary Ross Gilbert:I noticed when we talk with tariffs, they scaled back the impact of tariffs. So they lifted their full year guidance. Are you seeing that more from other companies in this space? Yes. I would say the majority of the companies that have reported so far, Medtronic always reports because their July fiscal quarter end. All the companies that reported their June fiscal end had a similar thing where they cut it by roughly half of what they had predicted in the first quarter. Our thanks to Matt Henriksen, Bloomberg Intelligence Senior MedTech Analyst. Coming up, we'll look at sustainable aviation fuel and how it's breaking records from 2024.

29:20You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in-depth research and data on 2 ,000 companies and 130 industries.

29:26Mary Ross Gilbert:You can access Bloomberg Intelligence via BI Go on the terminal. I'm Lisa Mateo. And I'm Paul Sweeney. This is Bloomberg.

29:39This is the Bloomberg Tech Minute brought to you by ChatGPT. Now with ChatGPT work. I'm Carol Masser. Globetrotters hunting for airfare bargains are in for a rude awakening, as the days of stumbling across a cheap seat on a popular flight could soon disappear. Bloomberg's Juan Ha reports that airlines from Delta to Virgin Atlantic are adopting artificial intelligence to change seat prices more quickly by weighing dozens of variables in real time, helping capture more revenue while shrinking pricing gaps that once allowed travelers to find bargain fares. Machine learning models can more accurately forecast demand by analyzing historical booking patterns, seed inventory, and seasonal trends, while also continuously tracking competitors' fares and capacity changes to update prices in near real time.

30:26The technology could lead to higher fares on busy routes as airlines pack flights closer to capacity, but may also result in lower fares on off-peak and lower-demand routes. That's the Bloomberg Tech Minute brought to you by ChachiPT. Put ChachiPT to work on your most ambitious ideas and projects. Get started at ChachiPT.com today by selecting Work Mode, available on Plus and Pro Plans. Let's talk about healthcare for a second. It doesn't always work the way people expect it to. If you've ever waited on a prescription refill or had a hard time getting the care you needed, you know the feeling.

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32:56You're listening to Bloomberg Intelligence with Paul Sweeney on Bloomberg Radio. I'm Paul Sweeney.

33:03Mary Ross Gilbert:And I'm Lisa Mateo filling in on Bloomberg Intelligence. We move next to news in the drug and pharmaceutical space. This week, the Danish drugmaker Novo Nordis announced it's slashing the cost of Ozempic for cash-paying patients. The company said patients can now get Ozempic for$499 a month. That's about half of its U.S. list price through Novo's cash pay pharmacy, NovoCare. Novo is also partnering with the health care company Guterex to offer Ozempic for the same price as pharmacies across the U.S. And this all comes after Novo's weight loss drug Wegovi received FDA approval to treat a serious form of liver disease.

33:37For more, Lisa and I were joined by Madison Muller, Bloomberg health reporter. We first asked Madison for her take on Novo's recent breakthrough with Wegovi. Novo Nordisk got approval for Wagovi, which is its weight loss drug, to treat a liver disease called MASH. And this sort of is a, we've seen over the last couple of years, so many studies come out to show the potential health benefits of these weight loss drugs beyond just, you know, reducing the number on the scale. And we knew from studies that there was some benefit to the liver from taking these drugs. And so Nova was able to notch an approval for that, which helps one with insurance coverage.

34:13Wagovi and then Eli Lilly's drug ZepBound are still not super widely covered by insurance companies for weight loss. But having some of these other health benefits shown and proven in studies helps them convince insurers that they are worth covering. And so this gives them an edge against Lilly. Lilly's drug ZepBound is not approved yet for this indication. And so it gives them sort of a leg up there. And then it also gets, I mean, it sort of is another benefit for Novo because they've been struggling over the last year. Just with ZepBound sort of making waves in the market and taking market share from Wagovi, this gives them a leg up there as well.

34:59And just with the tumultuousness of the last few weeks, they had a CEO ouster and a few other moving pieces. So this is good news for them. And we'll we'll see. But it will maybe help them gain back some market share. One of the issues for these weight loss drugs is the cost. And if you're not covered by insurance, they really are expensive. So by slashing the cost of Ozempic in half, does the company believe that's going to open up a big new vein of new customers maybe? So it's interesting because if patients are on Ozempic, they are usually on a type 2 diabetes treatment, and usually that's covered by insurance.

35:39So it's primarily for the type 2 diabetes, but does it have a side benefit, I guess, of weight loss? Yes. So, I mean, there are two different drugs, right? There's Ozempic, which is the diabetes drug of Wagovi. They both use the exact same active ingredient, which is semaglutide. Wagovi is a higher dose version. If you're on Ozempic, it's lower doses. So it's not quite as strong. But there is that weight loss side effect on both drugs. Previously, Novo actually did cut the cost of Wagovi down to about the same price,$500 a month, back in March. And now they are doing the same for Ozempic. But it's interesting because the question of whether or not this is going to expand access for more patients sort of remains to be seen because, again, if you have Ozempic, you usually are covered by insurance for it.

36:23Mary Ross Gilbert:Now, something I also said they're partnering in this article, it said with GoodRx to offer Ozempic, we go for the same price as pharmacies. But didn't Novo try the partnership thing with HIMSS and hers and that didn't work out so well? Yeah, yeah. So HIMSS was one of several partners that Novo has sort of worked with over the last couple of months, again, to really make waves and get into this market or gain back market share because it's really lost ground to Eli Lilly. HIMSS was one of the companies that they partnered with. They've partnered with a couple of other telehealth companies, as well as CVS, to make this cash pay price more widely available.

36:59but this is the first time that they're dropping the price of Ozempic as well. So this partnership with GoodRx, you know, any patient is essentially a coupon. Like any patient who goes to a pharmacy, uses GoodRx, is going to be able to get this cash pay price for Ozempic and Wegovy. You mentioned the hims and hers, those compound drugs. How effective are they vis-a-vis the GLP ones themselves? Because that would be a, if I were like Novo Nordics, I spent all this money to develop, that would be a bummer to see these guys come out. And that's a really good question, actually, that question of how effective are these drugs, because that's the problem is we don't know.

37:36There are studies that drug makers are required to do. They have to go through a lengthy FDA approval process to prove that their medications are safe and effective. Compounded drugs don't go through that same approval process. So there's no actual studies showing how effective those medications are. And it's a little bit of a gamble. I mean, we've seen patients losing weight on these compounded medications. and we haven't seen a tremendous amount of side effects that are really different from the branded medications. So the problem is just more that we don't actually have a lot of visibility into that compounded market and don't know how those drugs stack up to the branded medications.

38:17Mary Ross Gilbert:Where does this all put Eli Lilly then? I mean, they already had the setback with the weight loss pill. So now we're hearing all this about Nova. Where does this put them? Yeah, yeah. I mean, it's been, it's interesting. Like the two companies, I think last year, it was just they were so red hot and there was like nothing. The expectations were sky high. There was really nothing that seemingly could bring them down. But now we're seeing a couple of stumbles. And I think that that, you know, shows, again, how high the expectations are for this market. There's just no room for failure. But we'll see what happens next clearly.

38:48When is the pill going to be available? Six months, 12 months, a year? Sometime 2026. So they said that they're planning to file for FDA approval by the end of the year and then hopefully launch next year.

38:59Mary Ross Gilbert:Our thanks to Madison Mueller, Bloomberg health reporter. 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. This week, we took a look at sustainable aviation fuel and how it's breaking records from 2024. For more, Lisa and I were joined by Anna Davies, BNEF Head of Renewable Fuels. We first asked Anna to explain the reason behind the record-breaking use of sustainable aviation fuel. There has been an influx in attention and growth in the sustainable aviation fuel market.

39:35And this is basically a market to produce a jet fuel molecule, but not use fossil fuels. So usually they use biofuels instead of fossil fuels. So something like use cooking oil out of a fryer. You can clean it, purify it, upgrade it. And then you can make a hydrocarbon molecule like jet fuel from that oil. And it's a way to decarbonize a sector like aviation, which another, if you don't have these fuels, it's very hard to decarbonize. Because there's no real alternative to jet fuel, and jet fuel is so highly carbon emission. How efficient is this jet fuel, this renewable jet fuel? So it is almost identical to fossil jet fuel.

40:10Okay. So in terms of, it works the same way. You burn it in an aircraft engine. it releases CO2 like fossil jet fuel does. But the main thing is that it's from a plant or some other renewable source. And so if you think of agriculture, they absorb carbon dioxide for photosynthesis. And so therefore, you can think of it as sort of a net CO2 neutral-ish technology because it at least absorbs some CO2 in the growing of the fuels.

40:34Mary Ross Gilbert:So are there any challenges with renewable jet fuel? There is a lot of challenges. And the main challenge is cost. It's very costly. So the cheapest way to make these fuels is kind of what I've been describing. You take an oil, like use cooking oil. That alone is at least two to four times the cost of fossil jet fuel. And that one is tough because there's only so much used cooking oil out there. You can use other oils like soybean oil, but that has fewer emission benefits associated with it because then you're growing soybeans to cultivate further oil. So you have land issues. You have, you know, all the pesticides and fertilizers and emissions that come from agriculture with that.

41:11Who makes this stuff? It is mostly the oil refineries these days. Really? Because they can utilize existing oil refineries and upgrade them to handle a bio-oil similar to a fossil oil. The process for making it becomes quite similar. So your largest producers are things like Neste or here in the U.S., Phillips 66, and Valero have some pretty big operations.

41:33Mary Ross Gilbert:Now, you talked about 2025 numbers. How do you compare that to 2024? Like, was it a significant jump? Yes, this was a really big, well, 2025 numbers so far is on track to double 2024 numbers of production of this fuel in the U.S. 2024 was a quadrupling of 2023 volumes. These are really growing at a quick rate. That said, it's growing from a very small number. So even with this quadrupling and doubling, we're still at less than half of 1 % of all U.S. fossil jet fuel, or less of all U.S. fuel. So it seems to me this is probably one of those supply and demand situations. is I need demand to ramp up production to bring down the unit costs here.

42:13So what are the airlines committed to taking this fuel? This is definitely a chicken and egg scenario. The airlines have targets in place. A lot of them want to have 10 % of their fuel being SAF, the Stamble Aviation Fuel, by 2030. But these are just targets. There's no real ramifications if they don't meet it. Some countries, like the EU and UK, are setting very strict mandates. So both of those regions have 2 % mandates for staff use in 2025, and that increases over time, and there are penalties associated with it if they don't meet that. Here in the U.S., we're definitely taking the incentive approach by offering tax incentives or other policy incentives to try and encourage production.

42:56There's no strict target.

42:57Mary Ross Gilbert:Now, what about looking longer term? Like, is the outlook for this as it's been on this trajectory, you're saying, but can it continue this? So that is a really good question. The countries like the EU and UK have very ambitious targets. The EU wants to see 70 % of all jet fuel be made from sustainable aviation fuel by 2050. We at BNF think that that's going to be very hard to achieve, just to produce that quantity of these fuels. Where would you get the feedstock from? Who would shoulder the cost of that? So we anticipate it will probably be closer to sort of the 10 % by 2050. 2030 is another time.

43:34There's a lot of targets. Like I said, airlines have 10 % by 2030. We don't think that will be achieved either just because a lot of projects have been delayed or canceled in recent years, especially as interest rates are high, policies have been changing. There's a lot of uncertainty, especially here in the US where a lot of these facilities are being planned. So there's been a lot of slowdown and delay in this industry. And the 2030 might be a time where we see really ambitious targets and not enough supply to meet it. I'm a little reticent to ask this question, but how has this current administration impacted the adoption of SAF, these?

44:06These aviation fields. Yes. Yes. You can't talk about aviation field without talking about policy. This current administration, aviation field is something that they've permitted. They've allowed policies. There was a tax incentive in the Inflation Reduction Act to continue. They've done a few tweaks, though, that really changed the game for the industry. The first is that they are really promoting domestic production ahead of decarbonization. So things like U.S. crops now fare better relatively than, say, imported used cooking oil. The other challenge is they've sort of shifted the incentives a bit, so now it's a lot cheaper to produce the counterpart, which is road fuel, renewable diesel for trucking than it is for sustainable aviation fuel.

44:47They're producing the same method. It's a tad costlier to make jet fuel over diesel just by the mechanics of how it's produced. So the Inflation Reduction Act offered more of a tax credit for jet fuel, making the economics kind of more on par. They've sort of reduced that leg up. So we expect more diesel, less jet fuel in the coming years. Our thanks to Anna Davies, BNEF Head of Renewable Fuels. That's this week's edition of Bloomberg Intelligence on Bloomberg Radio, providing in-depth research and data on 2 ,000 companies and 130 industries.

45:14Mary Ross Gilbert:And remember, you can access Bloomberg Intelligence via BI Go on the terminal. I'm Lisa Mateo. And I'm Paul Sweeney. Stay with us. Today's top stories and global business headlines are coming up right now.

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