TRANSCRIPT 🔗
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Speaker 1: Bloomberg Audio Studios.
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Speaker 2: Podcasts.
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Speaker 3: Radio.
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Speaker 4: News.
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Speaker 5: 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.
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Speaker 6: Let's get back to the news flow, folks.
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Speaker 4: I tell you, the news flow does not know that it's, you know, the Thursday before Labor Day weekend.
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Speaker 6: It just keeps coming.
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Speaker 1: You're waiting for a slowdown.
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Speaker 6: Particularly.
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Speaker 7: Yeah.
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Speaker 6: And particularly in the tech space, we've got earnings. We've got M & A.
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Speaker 4: Let's check in with Matthew Bloxham, senior media and tech analyst for Bloomberg Intelligence. He's over there in that tech hub of London, England. Matt, let's talk with Broadcom. Here's my takeaway from the Broadcom earnings. They predicted a boom in artificial intelligence chip sales, like what we've been experiencing over the last several years, predicted a boom in artificial intelligence chip sales over the next two years, helping to renew optimism that it can challenge NVIDIA's dominance there. So this spending cycle, it shows no signs of slowing, does it, Matthew?
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Speaker 5: It does not.
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Speaker 8: And obviously what we heard from them was that they expect both Anthropic and OpenAI to become their most important customers, eclipsing Google. And that's significant because it shows you that there's kind of substance behind the plans and capital raising that these companies are undertaking. But, you know, obviously that kind of midterm runway does change. is really contingent on the current momentum continuing. And I think what we're seeing and the opportunity for Broadcom is very much that these big hyperscalers don't want to be purely reliant on NVIDIA for their technology. They're looking to diversify and Broadcom is going to be an incredibly important partner for them in that technology diversification.
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Speaker 3: Yeah. Hawk 10, the CEO is saying we have six customers and four of them are just simply going to be huge. So these hyperscalers, when they kind of spread out their needs across different suppliers, how broadly, how widely can they spread that out? I mean, they don't want eight suppliers for their chips, do they? They want to limit it to a handful.
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Speaker 8: Yeah, I think there's a balance. And we'll see that there are also some compete risk vehicles. You know, Google, as well as being a hyperscaler competitor, is also a technology competitor, too. So there's a balance to be had. You know, I think maybe kind of two or three key suppliers is probably going to be sufficient for most of them. But you want those two or three suppliers to be genuinely competitive. you know kind of uh independent uh and and robust obviously we've had a lot of supply constraints um in the recent past and you know that they continue to kind of impact the growth of the industry um so i wouldn't be surprised that in the short term there's even some kind of broader diversification beyond the two or three you know i think there'll be a core two or three uh but they'll be looking at uh innovative technology around the edges just to kind of make sure that they've got as much supply coming through as they can get their hands on.
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Speaker 4: Matthew, as this, I guess, AI theme continues to ripple through the technology space writ large, one of the potential losers was called out, you know, like a year, year and a half ago, certain software companies that might be displaced by AI. I mean, one of them that doesn't appear to be at all is Snowflake. They reported some really, really good earnings yesterday. And they talked about using AI-assisted coding tool, how that's been a big hit for them. So there's an example, I guess, of a software company adapting AI to making their products even better.
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Speaker 6: What did you make of the Snowflake earnings?
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Speaker 8: Yeah, I mean, if I'm honest, I'm surprised at quite how much the shares have reacted to the results, because obviously there's a beat on the earnings that they reported and an upgrade to the guidance for the full year. It's not that big, if I'm honest, but I guess it's kind of what you kind of mentioned here is that, you know, I think there's been a lot of scrutiny around software companies and their ability to adapt to the AI opportunity rather than being replaced by it. And I think what we've seen today in the Snowflake numbers is that Their execution against AI and adopting it and integrating it into their software is going incredibly well. And so I think probably what you're seeing in the share price today, that it's not just so much about the next two or three quarters or even the next 12 or 18 months. It's the view that actually, yeah, you know, they're grasping this opportunity and it's going to create a kind of mid to long term opportunity for them that's not fully appreciated in the numbers yet.
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Speaker 4: Yeah, it feels like a little bit of a really for Ali trading today, up 20%, up 60% over the year to date. But it's almost like even a similar thing happened to Microsoft when they reported their last quarter. People said, oh, these guys can grow and adapt and use AI and all that.
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Speaker 6: So I think that's case by case. You put up the numbers and boom.
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Speaker 1: Also depends on the mood of the market at any given point.
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Speaker 3: There's been a lot to be worried about, and that kind of casts a pall over everything. You've got to consider all the macro factors, too. Before we let you go, Matthew, just a quick comment from you on NVIDIA acquiring this AI platform, Hugging Face. NVIDIA getting into software, is that a
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good idea?
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Speaker 8: Yeah, I think it is. Obviously, NVIDIA is playing this role of kind of key cheerleader, if you like, for the whole AI industry and are looking to use their financial and technological clout to kind of really make sure that the industry continues to develop in every direction. I think the kind of critical thing here, there's been a lot of talk about open source and that Hugging Face is kind of really the home for open source AI software. And, you know, I think NVIDIA kind of looks to the kind of mid to long term and thinks, well, you know, if we don't play a role in making sure that the open source community remains strong and vibrant and grows, then we're going to be left with an industry that's dominated by a very small number of very large, very powerful closed source businesses, you know, the likes of OpenAI, the likes of Intel. anthropic. And that's A, not good for the industry as a whole, and B, probably wouldn't be good for NVIDIA because it would create a lot of concentration of their customers. And as we were talking about earlier with Broadcom, potentially if they're diversifying away from NVIDIA technology, that potentially limits the NVIDIA opportunity. So I think it makes a lot of sense for the industry as a whole, and it definitely makes a lot of sense for NVIDIA in terms of protecting the midterm opportunity for them.
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Speaker 1: Stay with us. More from Bloomberg Intelligence coming up after this.
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Speaker 5: 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.
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Speaker 8: All right.
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Speaker 4: I've been doing the stock market thing for 40 years. I have no idea what's going on or how this works. HP Enterprises, for example, But our fiscal third quarter sales beat estimates. Fourth quarter outlook beat estimates. What's the stock doing?
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Speaker 6: Down 7%.
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Speaker 4: No idea what's going on. But the next guest, he knows what's going on. Wu Jinhou, Senior Technology Analyst for Bloomberg Intelligence. Wu, what's going on with HPE stock today? I thought it was a pretty solid quarter all around here, but I guess the stock's up 100% and you can't win every day.
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Speaker 2: Well, hey, Paul. Look, quite frankly, as a head scratcher myself, in terms, you know, we can't talk about valuations and stock movements. But the quarter all in all, to your point, has been very, very good, right? And especially in the outlook. You know, not only did they raise 26, but they also raised their preliminary fiscal 2027 growth outlook because the fundamentals are so strong. And, you know, quite frankly, you know, investors should be a little bit happier than the way they're reacting today.
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Speaker 3: Yeah, HPE's report followed blowout results from Dell, who it competes against in those AI servers, and, of course, AI chipmaker NVIDIA, kind of the poster child for the AI boom, really raised the bar. How much of this is tied to, you know, Paul saying that the stock has done tremendously well? I look at total return, which includes dividends, 257% over the last five years. And then if you just look over the past one year, 114% total return. I mean, the stock has priced in a lot.
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Speaker 2: Well, look, hey, Scarlett, so I will tell you that there's a couple things going on, right? Dell's $ 25 billion.
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Speaker 2: Guidance increase was definitely a tough act to follow, right? So I guess investors were expecting a similar follow through to that, but they're not. But if we also look at it from a valuation standpoint, Scarlett, relative valuation, I think Dell is trading at roughly 18 times forward earnings. HPE is roughly around 14 times. So there is a discount. I will tell you that there's a couple of things going on. HPE doesn't have as big of an AI server exposure as Dell does. Quite frankly, it's probably one fifth of that, if not smaller, of Dell's. And that could be somewhat of a valuation drag because at the end of the day, even though it is a low margin business, it throws off a lot of operating cash flow if they can get into the right deals.
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Speaker 4: Hey, Wooj, when you look across the portfolio of products, services, HB provides the marketplace, are you comfortable with that? Is the street comfortable with that? Or are there areas where they need to either invest or maybe buy?
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Speaker 2: Yeah, look, I like the portfolio where it stands right now, right? They've had a stated goal of focusing more on profitability, and they made the acquisition of Juniper last year, and that is going to be a margin boost. And the way Antonio ended his earnings call was that, hey, they consider themselves more of a networking company more so than anything else. Where I'm most critical of HPE is that they also own Cray computers, and that really should have opened the door for them to be a market leader in these multi-billion, hundreds of billions of dollars of AI server deals. And I really think that management has missed on that. And they continue to stand the course on going for higher margin AI server deals. And quite frankly, that was an opportunity missed.
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Speaker 6: Gotcha.
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Speaker 3: You mentioned networking equipment kind of being what it does, and the AI servers as a smaller part of their business. HPE also announced this partnership with Oracle to provide networking equipment to Oracle's data centers. Is that a risk, given that at least credit investors look at Oracle kind of skeptically?
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Speaker 2: Yeah. And that's one of the knocks on the deal. But, you know, I think it should be OK for the next couple of quarters. There's a couple of things here, Scarlett, that I think investors were focused on. There was some sort of secular financing. HPE issued some
warrants as part of, you know, related to the partnership with Oracle. And I looked at the 10Q filing today, and thank you, Paul, for having us read the 10Qs. But, you know, 4 million shares were tied to that deal. So, you know, from a dilution standpoint, it's really not a big deal. You know, we have to trust Oracle to go on and continue on with some of these deals. And at the end of the day, HPE should be able to get its money.
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Speaker 6: So, which we've now had, I don't know, 24 hours to digest that conversation.
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Speaker 4: News out of Dell that they're taking their guidance up a monster amount that we've really never seen before. When you talk to institutional investor clients, how are they putting that into context these days? Because that was just a monster print from Dell yesterday.
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Speaker 2: Yeah, and that's the thing. It's a monster print and they're trying to, you know, the trade has been long Dell, short HPE. And I don't view this as a binary type of outcome, right? I do think that Dell is going to do its thing and they're going to win. I think there may have been some share shifts that have gone on based on Dell's results. But at the end of the day, HPE is going on this phenomenal growth run on the traditional server business. And given that they've been able to give out 2027 guidance, it's going to be durable. Now, when you had me on before, you asked about the cyclicality of the traditional server business. What we're seeing from corporates is that they're looking to upgrade their IT infrastructure to help support AI workloads inside the corporates and lower the token costs. So that's going to help HPE in my mind.
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Speaker 7: All right.
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Speaker 6: So here's my.
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Speaker 4: dumb question of the day, but this was actually my job at one point when I was a youngster on the equity.
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Speaker 6: Capital markets desk.
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Speaker 4: I would call our companies, our clients, that had a $ 500 stock price and say, hey, are you interested in a stock split? We think you should do a stock split here, blah, blah, blah, blah. What does Dell say about that? Do they even talk about that or they don't mind a $ 500 handle on their stock?
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Speaker 2: Look, if, you know, Berkshire Hathaway can get away with, you know, thousands of dollars, hundreds of thousands of dollars stock, why can't Dell?
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Speaker 6: Yeah, that's a good point. If I'm Michael Dell, I would say, hey, if Warren can do it, I can do it to do it. It's a high class problem to have. Woojin Ho, thanks so much. Appreciate it.
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Speaker 4: Busy couple of days for you with some of these big tech companies reporting earnings.
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Speaker 6: Appreciate getting some of your time.
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Speaker 4: Woojin Ho, folks, he's Senior Technology Analyst at Bloomberg Intelligence working at our Princeton office.
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Speaker 1: Stay with us.
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Speaker 5: More from Bloomberg Intelligence coming up after this. 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.
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Speaker 6: All right, Scarlett, I just learned a new term today. Semi-scratch cooking.
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Speaker 1: Do we do it?
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Speaker 4: I don't know, but our next guest can help us out here. Diana Rosado-Pena, Consumer Staples Analyst for Bloomberg Intelligence.
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Speaker 6: What is... semi-scratch cooking.
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Speaker 4: And if I want to play it in the stock market, how do I do that? Yes.
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Speaker 7: So basically it is based off of what Campbell's has said. It's, it's basically when you cook a meal in less than 30 minutes and with less than five ingredients. So they're positioning themselves, this is Campbell's soup in terms of like, you know, with their soups and condensed soups and all of that. to make it easier for you to, you know, do that and, you know, save time and money.
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Speaker 6: I guess.
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Speaker 1: So you're kind of cooking, but in a very truncated way.
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Speaker 2: Yes.
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Speaker 1: And you can feel some sense of accomplishment from that. Exactly.
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Speaker 3: But how does that match up with this current demand for protein and healthy foods? I mean, condensed soup has a lot of sodium, for instance.
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Speaker 4: Yes.
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Speaker 7: Yes, but they are hoping that because of, you know, the fact that you add your own ingredients as well, then you kind of.
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Speaker 3: So I'll add organic milk to my cream of mushroom and that'll make it better.
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Speaker 7: Like some protein in that. They're also coming up with like new products. lines with added protein, especially for like drinkable soup and stuff like that. But, you know, cooking is now it's like half of their meal, uh, meal and beverages, uh, segment sales. So it seems that it's, it's, it's growing for them.
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Speaker 6: It's, but they just reported earning some disappointing results.
00:16:13
Speaker 8: Yes.
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Speaker 4: And then they also cut their dividend, uh, cut 13% of salaried workforce.
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Speaker 6: What's going on here with Campbell's soup company?
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Speaker 7: So basically, the biggest issue is snacks. Snacks is a very challenged segment for them, particularly on chips or salty snacks, which is, you know, we have seen in the past year salty snack sales as the category. It has slowed down. People are more conscious about what they're eating. You know, dieting, GLP-1 might play into that as well. And also, it has become really aggressive in terms of pricing. I mean, PepsiCo has 60% of their products. the salty snacks market. So definitely that seems to be working against them, against Campbell's.
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Speaker 1: So Paul is a big fan of goldfish.
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Speaker 3: Every day around 10, 18 p.m., he
goes upstairs and gets a cup of goldfish. And Campbell's has done a pretty good job with reviving sales of goldfish.
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Speaker 1: What did it do with the goldfish line?
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Speaker 7: So they're actually starting to, it's been marketing, it's been packet sizes, it's been they're going to introduce a goldfish gluten-free. So all those, they're really trying to get into what the trends for nutrition are about, and they're following them.
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Speaker 1: Macho-flavored goldfish, Paul. Oh, I don't know about that.
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Speaker 4: Campbell's Soup Company. IPO-ed November 16th, 1954. How about that?
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Speaker 1: That is a moment in time.
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Speaker 6: How cool is that? Based in Camden, New Jersey.
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Speaker 1: I was waiting for the New Jersey reference. We got it.
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Speaker 4: What does a company say they want to be when they grow up? I mean, there's been so much consolidation in this industry. They've been around forever.
00:18:02
Speaker 7: Yeah.
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Speaker 4: Is there still any kind of family connection or anything like that that says we're just going to stay independent forever?
00:18:09
Speaker 6: In a consolidating world, what do they want to be?
00:18:12
Speaker 7: Well, I think they want to, at least we're hoping, is to bring shareholder returns. And they seem to be committed with that. But not necessarily this year. Like you said, they slashed dividend interest. This is the third company that has done that this year after Conagra and B & G. And, you know, a consumer staples company cutting dividends is... It's a significant red flag as I will see it. You know, you don't have a lot of growth. So share buybacks and dividends are, you know, you're bread and butter and you're not necessarily doing that. So, yeah, they're hoping they save $ 170 million annually that is going to go to debt repayment.
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Speaker 3: So it feels like Campbell's is at the center of a lot of trends that are overtaking it and societal trends, whether it's GLP-1, whether it's people being more healthy, people wanting to cook, but with limited ingredients and unlimited time margins.
00:19:15
Speaker 1: What about tariffs? How do tariffs affect a company like Campbell's Soup? Well, they affect them significantly.
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Speaker 7: They did not mention it this quarter, but tariffs on steel has been a significant headwind for them. And that is obviously something that they're working through. They actually expect COGS for fiscal 2026 to be about 5% to 6% greater.
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Speaker 1: Cost of goods sold.
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Speaker 7: Yes, exactly. And obviously, they are going to increase prices in 60% of their portfolio around the same 4% to 5%. So price increases, they are willing to sacrifice some volume on that. The elasticity is significant compared to others.
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Speaker 6: All right.
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Speaker 1: Favorite Campbell's soup when you're a child?
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Speaker 5: Flavor.
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Speaker 7: Chicken noodle soup. Is that lame?
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Speaker 3: I like chicken with stars because I thought the stars were cute.
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Speaker 6: I'm a Manhattan clam chowder guy.
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Speaker 1: I like cream of mushroom.
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Speaker 6: Solid. We had that stacked.
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Speaker 4: Apocalypse was coming. We had so much of that in our house. Again, I was the last of four children. Cooking food wasn't really on the agenda for the rent.
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Speaker 1: You're hungry? Have some Manhattan clam chowder. Go for it.
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Speaker 4: Or goldfish.
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Speaker 5: This is the Bloomberg Intelligence Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, 10 a.m. to noon Eastern on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.