Walmart Boosts Outlook While Warning That Higher Costs Loom

0:01Bloomberg Audio Studios Podcast Radio News. 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. One of the names companies have reported numbers was Walmart. Came out with some pretty darn good numbers in the stock market likes it. Stock is up 5.7 percent today. It's up about 18 percent year to date. Let's check in with Jen Bartasch. She covers all the retailers for Bloomberg Intelligence. So, Jen, what did you hear from Walmart with their earnings release?

0:44Yeah, you know, Walmart had another good quarter. And I think that it's very easy to attribute a lot of their success to just the value-seeking behavior of consumers in this environment. But I think that would also be overlooking a lot of the investments they've made in things like convenience that is really spurring the e-commerce growth. And that was really a notable takeaway from today's earnings release. Yeah, that e-commerce aspect helps draw in higher income shoppers. So it's a larger pool of customers that Walmart now has access to. And in our Bloomberg News reporting, we indicate that the digital offerings now include luxury items like pre-owned Chanel bags.

1:21I had no idea that that kind of stuff was available on Walmart.com. Well, you know, Walmart has done a lot to really expand its marketplace. And that includes bringing in items that will appeal to that higher income consumer. You know, and the tactic behind all of this is that the more people are integrated with e-commerce in going to stores, they become sticky and they become loyal customers. So that when the macroeconomic backdrop fades, it really increases Walmart's ability to hang on to these customers going forward. And that just drives future growth. So it's a really interesting play out of how they're applying that tactic.

1:57Jen, I also want to get your take on Walmart transferring its listing to the NASDAQ. That's going to happen on December 9th. And that, of course, is to reflect its focus on being a tech forward company. But I'm wondering, I mean, how much of this is really just about being included in the NASDAQ 100 and therefore the QQQ ETF? Yeah, there's certainly part of that, Scarlett, where, you know, that's that's probably part of the motivation. I think that there is, you know, obviously there's a perception with regards to being perceived more as a tech company, which Walmart, in all truthfulness, has evolved into a tech company, especially amongst other retailers, by being listed at NASDAQ.

2:37You know, long term, maybe it helps their valuation, you know, just in terms of having that perception of being more aligned with peers. You know, Amazon is listed on NASDAQ, things like that. So I think that there's a lot of those components together combined are really behind the move. Jen, nobody arguably has a better finger on the pulse of the consumer than Walmart. What are they saying these days? Actually, they seem relatively optimistic. You know, they talk about, you know, spending holding steady for kind of that middle income consumer. High end consumers seem to be spending pretty freely.

3:12A little bit of concern about some of the lower end consumer, but it does seem to be sort of evening out. And so when they were looking forward to the holiday season, which is the most important thing with regards to the retailers that I cover, they seem cautiously optimistic that there will be a pretty good holiday season this year. We do think that people will prioritize spending on kids. That's usually what happens first if they're holding back in other parts of their budget. But all indicators right now seem that we're headed towards a reasonably solid holiday season. You know, Jen, we tend to look at Walmart as a shortcut for the consumer.

3:50But if this strong performance is really more result of strategy and execution over the longer term, how much of a read does it really provide on the state of consumer spending beyond the fact that Walmart has become this exceptionally well run tech forward company? I mean, you just look at Target, for instance, which has a lower outlook. No, it's a good point, Scarlett. I mean, I think the thing is that nearly every household has some sort of interaction with Walmart during the course of a year, you know, whether it's in terms of frequency or not. And so Walmart has really evolved their ability to capture data about the customers that are spending in stores, even though they don't have a formal loyalty program.

4:30And so they really do have that insight into sort of the motivations behind customers, where they stand. You know, I think one of the interesting things with regards to just focus and discipline, Walmart talked today about apparel sales and their comparable sales for apparel was up 5 % every month of the third quarter. And when you contrast that to Target, who reported yesterday, they're still struggling with some of their discretionary categories. So it seems to be a story of execution and not only the consumer spending where they are. stay with us more from bloomberg intelligence coming up after this

5:12you'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 let's get back to this uh nvidia story certainly a big big player in this story in the market kunjan sobani joins us he's a senior analyst He covers the semiconductor companies for Bloomberg Intelligence. He's based out there in San Francisco. Kujan, I'm sure you've had the opportunity to, A, not only look at the numbers, listen to the conference call, but talk to institutional investor clients.

5:44What's the narrative coming out of this earnings release? Yeah, I mean, this was one of the more bullish earnings we have seen from this name in a while. Not just on the numbers of the 3Q, 4Q guide, which they blew past even the loftiest buy side targets. But just beyond that, the long term, the 26 sort of and going into 27 demand signals that they showed, namely the half a trillion of the pipeline, which we think now is a conservative number, given the number of deals they have announced, if supply keeps on coming up as it has. And if their customers continue executing on these bills without any missteps, we think there's a significant upside to the current street numbers.

6:26Yeah, just looking through the numbers, clearly a beat and raise report. But, you know, the scale at which it can beat and raise is impressive. Although within the third quarter numbers, I did see that chips used in gaming PCs missed analyst estimates. And I know that that's a shrinking part of the business, or at least it's not as big a part of the business, given that the data center is where the growth is really at. Are there any flaws in this earnings report, Kunjan? Not really. I mean, look, the gaming is becoming so unimportant for analysts that the reliability or the predictability of those numbers against which we're comparing the beat and miss for gaming is no longer as reliable.

7:05So no real flaws to really point out in this. We did see their supply commitments go up quarter over quarter and inventories rising. I don't think that's a negative. while it might seem on the face. That's just them gearing up and getting ready for that next wave to supply the chips in the next year. So, Kujan, what's the latest from Jensen Wang about how he views China going forward? Nothing has changed on the China side. They still don't assume any revenues when it comes to data center, AI, China, GPUs, or the H20s being shipped into. They do have the clearance licenses, so they could. But it seems because of the geopolitical issues, China has basically been shut down for American GPU providers or ASIC providers to be able to ship in the country.

7:54There is, to be honest, no demand. So it seems, you know, because of geopolitical issues, the customers in China are not just ready and getting up to buy NVIDIA chips right now. Jensen Huang said that he, from his vantage point, does not see anything like an AI bubble. We see something very different. And he says competitive pressures remain fairly low because this is a company with more than 90 percent of the market for those high end, super fast AI chips. Who is the closest competitor, if there is one, to NVIDIA? Yeah, in terms of the size of the markets, the next closest competitor would be the AI ASIC chips.

8:31So Broadcom is one of the biggest providers of AI ASIC chips, namely the TPU that Google uses. Another example would be Amazon's Cranium chips, which are different ASIC designer supplies. So in terms of revenues or units, in terms of the market, those are the next closest competitors. Within NVIDIA's realm, which it sells merchant GPUs, AMD would be the second closest competitor in that. Stay with us. More from Bloomberg Intelligence coming up after this.

9:03You'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. Company news out here today. Verizon announced the layoffs that will shrink the company by as much as 20 percent of its non-union workforce. That's big. And they have a big, big footprint in New Jersey from the old Bell Labs and Bell Core days. And so a lot of Verizon employees in the state of New Jersey. So that'll be a big issue for them. John Butler joins us here, senior telecom analyst for Bloomberg Intelligence.

9:40John, what's what's this job cut announcement from Verizon? What does this mean for the company? What are they trying to do here? So, Paul, as you may know, there's a new CEO in town at Verizon named Dan Schulman. Shulman. And I believe Shulman is really, he's been on the board for years. I think he's looked at the organization and believes it's a little too heavy, a little too bureaucratic. He sees room for ample cost cuts. And I think his whole message to the employee base is, we need to move faster. And I think it's very tough to do that with a large bureaucracy. I also think he's cutting costs in order to free up funds and give them room to promote more.

10:28I think one of the reasons that Verizon has lagged its peers in subscriber growth is they're just not matching price promotions out there in the marketplace. And I think if they do that carefully, wisely, I think if they become a little less disciplined than they've been in promoting, they're going to find that they'll drive higher volumes. And, you know, I think at the end of the day, Wall Street wants to see that. That really is a report card for the telcos, that sort of quarterly net additions number that all the telcos report. And Wall Street is OK with a loss in margin or an erosion of margin in order to get those numbers, those subscriber numbers?

11:15Because it sounds like Verizon is getting ready to jump into participating in this price war in a more robust way than it had been. Yeah, good question, Scarlett. I think that's what these job cuts are all about. You can maintain margins. If you're cutting 13 percent of the workforce, there's a big cost savings there. So you're getting leaner on the expense line, which gives you a little more room on the revenue line to begin to promote more and really step up and match competitors like T-Mobile, which continue to be aggressive on price. And then at the lower end, of course, you've got the cable operators and their wireless brands, and they have been promoting very hard on price in order to drive up their wireless installed base.

12:07John, I'm guessing a lot of Verizon communications investors, they're there for the dividend. It's got a yield of 6.7 % here. That is a serious yield there. Talk to us about their dividend strategy, their commitment to the dividend going forward. So, Schumann, when he first joined Verizon, reiterated a commitment to maintaining the dividend. I think with any carrier, as their stock price drops and the effective yield goes up, that dividend yield, it becomes a target for potentially getting cut. Now, the flip side of that is any telco that's cut its dividend in the past will tell you there is a very heavy price to pay for that.

12:53You typically get a big price correction when you cut that dividend because, of course, at least with the AT &T and Verizon, you're attracting a lot of investors to buying this stock based on the yield. So if you cut the yield, obviously you're going to lose some of those investors. So he's got a tightrope to walk here. Again, you're cutting 13 % of the organization as a first move. I think there are other cost cuts down the road and efficiencies to be gained in not only network operations, but customer care as well, particularly with the advent of AI. So my hope is they're going to be able to sustain free cash flow, which will generate more than enough to sustain that dividend there.

13:48OK, so in Dan Schulman's drive to make Verizon a simpler, leaner and scrappier business, how do its competitors, T-Mobile and AT &T, respond? Do they respond? They always respond, Skorla. You know, it's it's it's that kind of market. Wireless is a very mature business. It's a saturated market. It's a zero-sum game. And so I think what we've seen from all the big three recently is they are willing to promote heavily to protect that base. is Verizon, again, has been the laggard there. But I think Shulman, who is very focused on subscriber volumes, is probably going to step up and play that game.

14:34So that's been the concern among investors, that it can get ugly very quickly. And frankly, I share that concern. So we'll have to see what the change in direction is going to be at Verizon with regard to promotion. But all indication so far is that they're getting ready to promote more. Stay with us. More from Bloomberg Intelligence coming up after this.

15:16Let's take a look at what's happening in the biotech and pharmaceutical space. There's a big, big M &A deal. Abbott Laboratories agreeing to buy the cancer screening company Exact Sciences with a total deal value of about$21 billion. Yeah, pretty, pretty large. Let's get some perspective now from Matt Henriksen, Bloomberg Intelligence Senior MedTech Analyst. So, Matt, I guess this is a surprise given that we're looking at Exact Sciences shares moving quite a bit. this deal price represents a 51 % premium to its last close. Yeah, and this includes yesterday there. Bloomberg News reported some of the initial rumors that there was this deal taking place.

16:00So the fact that it kind of materialized so quickly and with that type of premium is a little bit of a surprise given that it started leaking yesterday. But when you look at it from a multiple standpoint, You know, it's the sales about seven times Exact Sciences 2025 sales. Seems pretty reasonable for the growth that could be incorporated into Abbott's overall portfolio. And the bankers on the deal. Morgan Stanley, exclusive financial advisor to Abbott, fully funding this deal. So that's good for them on the sell side. Centervi Partners and XMS Capital Partners advising the seller there. So again, more M &A fees there.

16:43I have no idea who Exact Sciences is, and I think I speak for most of our audience here. Who is Exact Sciences? What do they do, and why does Abbott want to pay such a big price? Well, you actually might know of them because they have been doing a lot of TV commercials for their ColoGuard product. Oh, they're the ColoGuard people. They're the ColoGuard. I was like, oh, I know who they are. Yeah, so there we go. Oh, yeah. So, it's kind of one of those things where they're the ones that have been the pioneers in driving the force around that take-home pre-screening test to kind of just help the continuum of cancer screening and to provide an easier access for that pre-screening before you have to go into kind of more of the invasive colonoscopies to make sure you have that colorectal stress.

17:35cancer risk. That thing sat in my closet for like a year. It's like, oh, my God. It's one of those things you have to do, but you don't want to do. You have to do it. So, Matt, is there any reason to think that regulators may raise their hand and say, hold on, let me just take a closer look at this? I mean, I'm sure they will cross their T's and dot their I's. But just in general with MedTech acquisitions, it's usually pretty straightforward unless there's a clear 100 % of the market maybe going to one company. And in this case, there's enough competition where I don't think that should be a hurdle for Abbott or Exact Sciences.

18:19And for such a big deal, I mean, Abbott's stock is only down about 1.5 % today on the news. So presumably, is this a deal you think is a good deal for Abbott? Yes, I think it checks off a lot of boxes potentially for Abbott. Once it becomes fully integrated and starts contributing to organic growth, it should be accretive to that organic growth that Abbott already has. For a company that is almost$45 billion in sales, they're generating 7.5 % organic sales growth. Exact Sciences comes in with double-digit sales growth. So that's going to be accretive for them in the long run. You can also look at the gross margin profile.

19:02Abbott is around a 56%, 57 % gross margin profile. Exact Sciences comes in at 72%, improving to 73 % based off of consensus in 2026. And then lastly, you look at the expenses that Exact Sciences has. Because there's still, well, it's the emerging growth story. So they're still investing a lot in their SG &A kind of commercial profile to help generate these growths. We kind of expect Abbott to come in and be able to slash some of that SG &A costs to be able to make it more profitable overall for the Abbott once it kind of gets fully integrated. This is the Bloomberg Intelligence Podcast, available on Apple, Spotify, and anywhere else you get your podcasts.

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