Apple Makes Money: Surveillance (07/24)

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July 24 (Bloomberg) -- On today's "Bloomberg Surveillance," Tom Keene, Sara Eisen and Scarlet Fu bring insight on the state of the market getting you ready for the day ahead. (Source: Bloomberg)

Apple men's money especially overseas while mcdonnell's fall short, we will talk about why we are in that part of earnings season.

The president goes to the heartland to refocus the nation on the american economy and investment and may be on jobs.

Advertising in a digital age -- we go with martin sorrell in the search of eternal youth and will talk about the royal baby.

Good morning, everyone.

This is "bloomberg surveillance." it is wednesday, july 24 and joining me as always, sarah eisen and scarlet fu.

China, manufacturing is weakening more than predicting in july which is a preliminary reading that came and light.

On the plus side, we get that we could report on mortgage applications at 7:00 a.m. at 10:00 a.m., we will get the employment report.

The president is going out to the midwest and the idea of the economy.

Maybe it is not doing as hot as he thought.

There are a lot of earnings.

Before the bell, ford, pepsico, delta, boeing, and caterpillar.

After the bell, facebook reports results, the sets and a big day for dell - that dealt voted tonight and will head out to their headquarters.

Carl icahn had a note yesterday -- another salvo?

He has decided feelings.

Let's do a data check.

We continued the advance with futures up three and a 10-year yield.

You have been seeing this walk back on rumors that the fed will taper with yields lower and the dollar has been weakening.

That is boosting the euro.

Hydrocarbons are backed up to $107. the vix is under 13. it is a bull market.

The euro-yen is up to its euro strength, $1.32. gold and copper are churnuing nicely above $1,300 per ounce.

We have all the stories making the front page.

Sac is on the front pages.

The fed start getting ready to file criminal charges against sac capital.

It is the hedge fund owned by steve cohen.

This is not steve cohen personal it will -- who will be charged.

Is it just they have to -- they can go after him so they go after the firm?

They went after him in the administrative action.

But they cannot file a lawsuit against impersonally.

No major firm has survived a criminal indictment.

If we will see how this plays out.

Of course, all over the front pages is apple which reported a profit drop in the last quarter and sales were flat.

Analysts expected worst of the stock is climbing in the pre- market this morning.

Don't agree with this.

The paper is but a positive and the journal spun it negative, which is it?

Sithe outlook for margins was more stable.

We will talk about this.

That almost returned $19 billion to shareholders.

Also on the front pages this morning is the president read he kicks off his economic tour of the midwest today at knox college in illinois.

He is looking ahead to these renewed battles with congress over fiscal policy and the debt ceiling.

He will have a series of speeches over the next several weeks.

There is a lot going on and i thought it would be a store wednesday.

For the next two hours, our guest host is sir martin sorrell.

Good morning.

We have so much to talk about.

We are talking about babies and youth.

Economic stimulus?

You have to go to david kerr patrick, the author of the facebook effect.

What do you expect from facebook this afternoon?

If they don't short -- show more growth in mobile usage and advertising, people will be disappointed.

I think they will and there is reason to believe they are doing better.

I'm a lower base.

-- from a lower base.

A lot of the media agreed that facebook will have a victory lap.

Ft was neutral about apple.

They said iphone was the savior and is becoming the world's defining device.

The only sold 31 million which is the most ever.

There is an incredible number of wealthy people in the world who still want one.

How do you spend their message?

It is the next leap forward.

We talk about china when i was there, i saw the miphone which is a $99 phone.

It was crowd sourced on the internet.

There is a great group of engineers that continually feed back technical knowledge.

It was assembled by foxcon,. they make money in producing content and the accessories and they are doing an apple tv experiment with 200,000 consumers.

We saw a apple's sales in china down 40%. there is more than meets the eye.

The rise of the miphone, 80 per crowd sourced tone is more effective in terms of engaging consumers.

Brand a matter as much in china and apple still has the identification.

You have 500,000 engineers that they are getting continuous results from.

I love a bad story.

Let me go to the money question.

Are doing well in hong kong.

Let me go to the money question -- are the older iphones a substitute for cheaper phones?

To some extent.

200 million smart phones are in china.

We're getting to the point where smart phones are starting to engage consumers.

Everybody wants a smart phone.

Apple still commands the branding for this product.

I think that is a good thing for them long term.

Were going to say something?

It is interesting that we had the next readout manufacturing in china.

Whether it is the smart phone market or not, there are signals of weakness.

We are not a capital investment company.

We are more geared to the consumer.

It is about switching savings to consumption.

We will talk about health care in a minute.

What's really interesting is that we had seen a slowdown in china but not to the extent that the capital investment companies are not in.

There has been a sharp slowdown but that is the manufacturing investment.

At the consumer level, it is still pretty good.

It is better than we see in the west.

Loads of earnings out today.

Michael dell might learn his fate today.

Shareholders are scheduled to vote on the $24 billion buyout effort of del.

This boat was originally scheduled for last week but was postponed until today to allow delta and silver like to lobby for support dell has been battling carl icahn for control of the company for the shareholder meeting begins at 6:00 p.m. eastern time.

Chipping away at the at&t profit -- smart phone sales setting a record in the second quarter but discounting reduced the profit margin of at&t by 3%. the company posted 57 cents per share in earnings, one penny shy of analysts' estimates.

Credit-card spending boosted discover in the second quarter.

It reported $1.20 per share in earnings.

Purchases made with the discover card more than -- rose more than 4% and car loans climbed almost 5%. we cannot go without showing the duke and duchess of cambridge.

They made their first public appearance with the new son, the little prince, yesterday.

There is the dutch as walking out.

They said they were not ready to announce a name yet.

There is heavy betting.

It named the you think?

They suspended betting on george.

There is something like 400,000 pounds on the table.

It was interesting she wore a blue polka dotted dress.

It's amazing that people care so much.

Come on, now.

Explain to our american viewers -- what is unique here about the british experience?

It is british royalty and how they have adapted over the centuries.

You put out an article in "business -- business week." that is the fascination with the british royal family and their ability to adapt to spike what has been said about the liberal view.

He had an anti-monarchy town.

Everyone loves a romance of the royals.

Comeback but we have lots of talk -- lost to talk about.

We're just getting started and we will dive into the apple earnings would prove it is managing to hold up competition for now.

Some critics thought the company might be losing mobile market share.

Coming up, we will have a debate on "bloomberg surveillance,"on bloomberg television and streaming on your phone, your tablet, and bloomberg.com.

. ? good morning, everyone.

This morning, she is an illinois -- betty liu is inside mcdonald's and look for that today all day.

John thompson is the chief executive officer.

That is at 9:00 a.m. this morning.

Same-store sales challenges and that will be fascinating.

We will check in with betti later in the show.

This is "bloomberg surveillance." we are looking at abel results closer.

What do you make of that?

Profit dropped and revenue remained flat but phones outperformed and investors like the nose.

Expectations have been reset, lowered so much that perhaps this is a local bar to beat.

This was the fiscal third quarter, a traditional slow quarter because apple tends to release new products in the fall.

This was the first back-to-back profit decline since 2003 and sales are flat even as apple made do with an and lineup.

They say we are starting to get new products this fall like the i watch, the new apple tv and the new apple iphone5s. tim cook start -- talked about new products coming out in the fall.

He talked about how he could boost revenue by expanding that retail store network and selling to the emerging markets and software and services, leveraging off of their ios.

This unit sales and price, they did a good job of mixing that to keep margins up.

What did the streets said?

Ipad sales fell by double- digit percentages and iphones sales were better than expected the average selling price declined.

One analyst says the market is becoming more price sensitive as it relates to tablet's then perhaps the street and expected.

Another analyst talked more about that computing systemmoreios, and how that is a seamless experience the other competitors cannot compete with.

They said everybody could not get to the stores.

One of the high points is gross margins stabilized.

Samsung has an impact as well.

Sir martin sorrell is with us.

We still have our manufacturing operations.

Tes pots and pots and pans.

David kirkpatrick is willis as well.

-- is with us as well.

Martin, have you seen their ads?

I think there are good but coming back to the fundamentals, what is next?

You can't read walter isaacson possible.

What is next without steve jobs?

They are a little bit arrogant.

I don't think they are that compelling.

They have gotten a lot of criticism.

The products are still the most compelling and the operating system experience is way better than any other out there including anything samsung can come up with.

Nobody knows what will be next.

I am not a big proponent of phones on your watch.

If they come up with a glasses product, i don't know.

If they can perfect that, this has gotten the world excited.

People are not excited about a phone in your watch because there is not a bigger screen there.

The agencies have found apple not an easy company to deal with.

With iradio, we are starting to see them engage more.

There were more willing to engage.

They are entitled to be a little bit arrogant most.

A guidebook company on the planet.

That does not mean it is a good idea.

Do they need to keep doing what they are doing, 5s, a new ipad, -- if they come up with something dramatic they will be far better off.

They want to see something from them on tv.

Would you buy the stock now?

Yes.

Yes.

Our 20 question of the day?

Which company has the best marketing campaign?

Our twitter question of the day.

The best one i have seen is the david kirkpatrick facebook book.

And not the next hour, investors consider the pepsi challenge.

We will analyze pepsico earnings just out and we will talk to bcf of.

-- will talk to the cfo and that is coming up on "bloomberg surveillance,"on bloomberg television streaming on your phone, your tablet, and bloomberg.com.

? manufacturing in china weakened in july, more than forecast.

The sector contracted at the quickest pace since last summer.

This raises doubts about the chinese ability to meet its economic growth target.

In europe, factory output in the region expanded for the first time in two years.

Germany is leading the charge.

Lance armstrong is fighting to keep the millions of dollars in sponsorship fees the u.s. postal service had paid them.

His lawyers have asked the judge to throw out a justice department lawsuit that seeks to recover the money.

He says the postal service knew of the dumping allegations when it renewed its sponsorship agreement.

A busy day, let's get to mourning must read.

Few weeks ago, we talked about how walmart is doing more financial services.

My morning must read is from the senior fellow at the competitive enterprise institute -- they are pushing for this at a time when the financial-services is being remade.

What do you have?

My morning mustard comes from meredith whitney.

-- my morning must read comes from meredith whitney -- she really goes after the bond paddlers.

This is the toughest language i have seen from her.

I am looking forward to speaking for her because she will be on "bloomberg surveillance" tomorrow.

She was in africa and is back with this op-ed.

People are really steamed about this.

Remember, her muni led to outflows and shook up the entire market and got pushed back and now here we are with detroit.

Is detroit unique and does this signal that more cities are to go?

Chicago lost just as much in population.

This is from gary shilling -- this as a front and center as the president goes to illinois.

What ever the good things is, the job economy is not fixed.

That's right and of vincent reinhart told us yesterday that president obama's middle-class is getting left behind.

We will talk about google versus facebook with the head of the world's biggest advertising firm, next.

? this is "bloomberg surveillance." we need a data check with new home sales out later.

If they sagged, it could move the market.

The 10- year yield is back and forth and a stronger euro, and nymex is $105. american midwest oil, $107. it is a better feeling out there with stronger stocks and strong work your and stronger commodities.

We had a couple of tech companies that did well in trading yesterday.

Texas instruments is trading at the highest level in one year after it forecast sales and profits that topped analyst estimates because of the man from automotive and industrial markets.

The cigarette maker lorillard is off by 4.5%. there is a cautionary language on selling cigarettes.

Travelers dropped since the most at 2008. and other company we will watch today is facebook reporting after the bell.

It is about the growth in mobile advertising.

It has made headway in the past few quarters.

Be my notice more ads in your news feeds and we have the perfect guest, david kay -- david kirkpatrick, author kirkpatrick"the facebook defect." also said martin sorrell.

I spoke with you right before facebook went public.

We talked about the ad model whether it was sustainable.

Fundamentally, facebook is a branded mechanism and not an advertising mechanism.

Mobile searches more of an infected advertising mechanism.

Facebook is the third largest country on the planet.

It will probably become the largest country on the planet when it crosses 1.3 billion users.

It is extremely powerful and they are starting to get their act together.

Our biggest media relationship, we managed a 7 -- $70 billion media book.

Google last year was $2 billion and will probably grow.

Facebook is $300 million last year.

This year, we will probably do $400 million.

We are starting to see an increase in facebook connectivity.

Their sales force -- google has a lock on the advertising market in digital.

They have exploited that successfully.

They are in the supply as well as search.

Mobile search as well and social and video.

Is the buzz at facebook vair like when you wrote that book?

I don't see it.

The buzz has diminished but the usage has continued to grow.

Thinking of them as the third largest country in the world is an interesting way to look at it considering that none of the other countries have anything close to the ability to send a message to the entire population.

That is why martin says it is the world's best branded mechanism.

Branding is harder to do but that's what tv does.

It is longer term.

And a more substantial thing than advertising search.

If you look at facebook long term, i still see a very positive story.

There is too much pressure because of the ipo.

That really ramped up the pressure.

Which advertising to elect the best?

Do you like to spend more on the desktop advertising or are you buying into the idea of mobile?

Everybody says mobile.

The smart phone is the tipping point.

That's where we will start to see mobile engagement.

We are starting to see a little bit but it is not where we want to be.

Consumers spent 1/3 of their time on the internet and mobile.

We invest 1/3 of our revenues now but the general market is only 20%. it has a ways to go.

From profitability, in the developing world, smart phone growth is still happening.

We have data that shows time spent on facebook has steadily increased.

How about that strategy on mobile?

100 million people are using it already.

It is the internet for some of these people.

People around the world don't know there is something called the internet.

They go from no phone to having facebook on a smart phone.

Go back to the miphone - eight smart phone for $99 in china is very different.

This crowds or smart phone in china is interesting and that will be big growth for giving access to the internet and facebook for people everywhere.

What do your clients say?

They are calling upon you.

Initially, there was a great surge of enthusiasm on facebook and that has been tempered a bit.

There is this intrusion.

If you intrude facebook -- if you're doing a search and mobile or pc is much more relevant.

That initial phase has dampened down and people have become more realistic about the capabilities of facebook rather than the initial splurge.

Generally, probably the elites are using facebook alas.

-- les.

Linked in is a more closed network.

Remember small worlds?

That was very small and became smaller.

I think close to networks in the fullness of time will become more interesting when you have a defined role.

That is perfect because the founder of twitter mentions this in talks about a facebook premium.

He would say that.

This idea of forcing people to pay for a subscription model where they don't have to deal with that is doing well.

Linkedin is doing well, pandora's doing well.

Twitter is a public-relations side.

Our relationship with printer is based on data.

It shows engagement with live television and even with newspapers.

There is some evidence of that suggests there is interesting engagement among consumers on twitter.

How pierce is the advertising between twitter and google and facebook?

Twister is low level.

-- twitter is low level.

Google is still the elephant in the room.

That is where i think our current -- our clients will continue to focus their conversation.

We will be all over the facebook story.

You can see this conversation in a bloomberg + tv.

Which company has the best marketing campaign which is our twitter question of the day.

We will ask sir martin sorrell to answer that twister question and the marketing campaigns are often aimed at the coveted milennials.

They are accessing media on their own schedules.

How on earth do you target them?

We have certainly got a nice career to answer that question.

That is next on bloomberg surveillance." ? this is "bloomberg surveillance." former goldman sachs vice president is taking the stand today.

He is expected to testify in the sec fraud trial against him and answer questions about his role in restructuring and selling mortgage-backed investments that lost investors a $1 billion.

The sec alleged that he misled investors in selling the product.

This -- detroit's emergency manager will grant immunity to the mayor.

The bankruptcy filing threatens their pension benefits.

Nascar has ended its relationship with nbc.

Let's get to the single best charts.

It proves that you are ahead of the trend because both sides are hot right now.

-- but ties are hot right now.

-- bowties are hot right now.

It beat back in december, 2012. this is where bowtie s in style.

Are you from the south?

South carolina leads the way and then alabama, than louisiana, the north carolina.

It has not made it to new york yet.

Those are nice bowties on that graphic.

I see young men wearing them and they have no clothes.

The back has to be shorter.

Here is the secret -- ladies are wrong with the man who cannot tie a bowtie - help me here.

You are in the car and you have to put on a bowtie and that is the secret.

What sort of image is he trying to portray?

It is the button-down shirt.

What kind of brant is he trying to portray?" you are in good company because we will look at photos of notable bowtie wearers - the south korean singer psy also wears one.

Here is rihanna.

Justin biebner.

That is a clip on.

It is popular for the younger set.

Here is ashton kutcher that is too big a statement that i hear is a classic, winston churchill.

Here he is as a young man.

The note here is that the royal baby has more hair than winston churchill.

This is 40 years later and he is wearing the same bowtie.

Did you wear your is 40 years ago?

This is a new one.

You and justin bieber.

Do you have an endorsement contract?

I doubt.

-- i don't. there are many people who seem to look like winston churchill.

We will wrap them up.

That is the first and last time we are doing a bowtie hart.

Wait until you hear the median age of the fox audience and it brings a big question about demographics and who you are trying to reach in the advertising business.

It is the milennials, the preteens, surprisingly there is a lot of money there and we will discuss that with sir martin sorrell and david kirkpatrick year on "bloomberg surveillance." ? this is "bloomberg surveillance." from the files of "bloomberg west comco federal prosecutors are set to level criminal charges against sac capital.

The charges would not be brought against the founder of the firm, firmcohen some of it.

Strong demand for smart bombs is helping lg electronics topped analysts' estimates.

The ships 12.1 units in the second quarter and they reported a big jump in sales in air- conditioning.

Twitter expands its tv ad tools for marketers.

That is making this service available to any company running a national campaign in the u.s.. let's advertisers direct promotions to tweet about shows they are watching.

I don't want that on my tour feet.

Advertisements?

Yes.

It is interested.

-- it is interested.

-- intrusive.

The ads are not great.

A sermon from david kirkpatrick.

Will talk about advertising on television because executives are finding them in a cash-22. the heaviest tv watchers are also the oldest banks to fox news.

That's major trouble when it comes to targeting the coveted young spenders.

It is about following the money.

Where are the advertising dollars going?

Sir martin sorrell was a third brother at saachi & saachi and has seen every episode of "gunsmoke." it goes back to cbs and that show 1 million years ago.

What is troubling is if you look at the television audience, for the last year or so, amongst the younger age groups, it is not dissimilar to some of the pattern you sought in terms of legacy newspapers and a drop in circulation even pre-google.

Live television , the pattern of doing is shifting to smart phones and tablets'. actual hours watched are on the increase.

People are more engagements television but different types of screens.

We have other developments like aereo which was the subject at sun valley.

Doesn't have a future?

It depends on the litigation.

It is certainly a threat for free to air television.

If aereo was going to still content, rupert murdoch would go to cable.

There are things that are extremely significant in the legacy television bureau spread the u.s. is probably the most developed market and it will take time to feed through to other markets.

We are seeing big shifts.

On youtube, we see a big take up of the video content in a high television penetration markets.

Markets like italy, brazil where tv is predominant and will remain so, and video content and video advertising are important.

I perceive that video for kids not just to be about the older crowd.

The older people are time ich.

A lot of platforms you are talking about crone's in one in which there is less time for them to see ads or were they can skip them.

We can find different ways of dealing with that.

We found that with dvr's. which is the most important demographic?

Younger people are older people?

But older people have the time on their hands and they are wealthier than they used to be.

You need to build that brand loyalty.

Within the united states, this is a government charge.

You want to go for the youth and the older but the youth is not on conventional tv.

How does cbs, nbc, bloomberg tv response?

They have to develop their subscription platforms and alternative ways to reach the audience is using all the devices we are now using.

They need to recognize that most consumers are multi-tasking.

You have your basketball game, your twitter feed and all these devices around him and he is watching live events.

The interesting thing about the data we get from twitter is showing the engagement of consumers on live television with other devices and other forms of communication at the same time.

Understanding the changing patterns of behavior is critically important.

Free to air television is facing a difficult future.

Given the demographic targets, what does that mean for the future of newspaper or magazine advertising?

I think it will continue to decline . warren buffet takes a different view on newspapers.

Local information is becoming more importanttim armstrong is investing more in local news.

Time inc says they are not a digital company.

To walk away from magazines sounds stupid.

It is different for newspapers.

We see more readership in magazines.

Physical magazines are not going away.

But they will be under less pressure.

Their circulations will have more ups and downs.

There will be shorter lifespans of magazines.

Newspapers have a more problematic future.

Analog dimes will turn into digital pennies.

Is mr.

Zucker going for a younger or older audience?

He is going for a smarter audience.

He is using the devices we talk about, david kirkpatrick, thank you very much.

Sir martin, stay with us for the next hour to address the royalty aspect.

This is the 4 x report.

The euro is on the mode.

It is at a one-month high with better manufacturing numbers out of europe and will cover the economic data and we will take you down to texas a head of the dell vote on "bloomberg surveillance." ? . . this morning, president obama plus the beltway escape.

He goes back to his political roots for a new meshes on the him -- and you message on the american cup economy.

Is apple really in trouble?

Mcdonald's comes up short.

We'll take a look inside the home of the number two value mill during -- meal.

A beautiful baby, a young couple, is this camelot all over again you?

We will talk with the man leading the largest advertising company, sir martin sorrell will join us on the name of the royal baby.

Good morning, everybody.

This is bloomberg "surveillance." i'm tom keene.

It is wednesday, july 24. joining me as always, sara eisen and scarlet fu.

Sir martin sorrell, ceo of wpp, is our guest host.

What is your name for the baby?

Minus james.

Georges wester martin said your i said stop the bedding.

I like philip.

Philip.

It is time for our morning re-think heard plenty of economic data to get you caught up on.

Starting with china were manufacturing weakens more than estimated in the month of july according to april mary reading.

On the plus side, european manufacturing actually came in better led by expansion in germany.

Here in the u.s., this hour, mortgage applications are out.

The big one will be 10:00 a.m. report on new home sales, especially in light of that weaker than predicted housing number earlier in the week.

Earnings just up this hour.

Scarlet will go through that.

That's eco- -- pepsico.

We'll be seeking to the the cfo later in the hour.

Delta, boeing, caterpillar before delving or after the dell -- bell, facebook will be the big deal.

Watch shares of dell because the dell vote on the buyout is at 6:00 p.m. tonight.

We will be heading over to texas for an update on that in just a few moments.

The first, scarlet fu with company news.

Pepsico beating analysts' estimates.

A lot of analysts were looking forward to increase that estimate because what is forecasting now is a lot lower than what the average investment is out there.

Meantime, let's look afford ford says profit beat analysts' estimates $.45 versus an estimated $.37. revenue on the automotive side, $36 billion more than what analysts were looking for.

Its logic of a news.

Federal prosecutors are said to level criminal charges against fac capital.

Be firm -- the "new york times" say it will not be brought against stephen cohen.

Suspected fraud at one of the most successful hedge funds in the u.s. apple fight the opposition from smartphone makers.

Net income declined and revenue was flat.

Sales of iphones surprisingly strong, but customers opted for cheaper models.

Credit cards spending -- the bank card network reported $1.20 in the prophet, a nickel better than estimates.

Purchases made with the discover card rose more than 4% and car loans climbed almost 5%. i will add another one to the mix.

Dell --because the day of reckoning has arrived.

A series of delays, shareholders will finally vote on a 24 point $4 billion buyout from founder michael dell and private equity firm silver lake.

Cristina alesci has been following the story since a broker to she is in austin, texas, gearing up for the vote.

Joining us by phone, which way is it tilting ahead of the vote?

It is incredible.

And like like michael dell and silver lake are still short.

That could all change.

Either vote, 20% of them have not voted, or change their vote from a no to a yes is what michael dell and silver lake are hoping for.

Remember that the dell site has been competing all week, trying to urges shareholders who did not vote to go ahead and cast a vote.

Who will be the big shareholders?

Names and names who you are watching and who could swing the vote.

We already saw some big shareholders flip sides.

Blackrock comes to mind.

That was a big name that everybody was watching.

Now they're supporting michael dell.

The wildcard is t. rowe price.

Will they finally cave and support michael dell?

What will likely happen today, although anything could happen , but what we're hearing could happen today if that silver lake and michael dell will go ahead and say look, guys, $13.65 is our best offer.

They have to communicate that formally to the board.

That they hope will maybe a smoke out some shareholders who are just really hoping -- they're not looking for a full icahn takeover.

Let's say the vote does not go in their favor.

Let's say the shareholders vote against it.

Then what for michael dell and silver lake?

They walk away.

They are entitled to some expense reimbursement.

$450 million that is in question as to whether or not they get that full amount or a reduced amount.

There is no doubt that if the deal does give voted down, they can just walk away, especially for soberly.

It is a little more propagated for michael dell.

This is the company he started.

It will be much harder on him than it is going to be on silver lake.

It could be the, nation of a month-long saga over dell.

Cristina alesci, do do have you out there in austin, texas.

We'll be checking back in with you throughout the day on bloomberg television and radio.

Thank you for joining us here on bloomberg "surveillance." we have uncovered the baby gas but i gasp, but it was really something yesterday at the baby made its debut.

Our world headquarters came to a complete halt as rental man princess kate showed off the latest addition.

-- as prince william and rents as kate showed off the latest addition.

She looked for a good is having a baby.

A broader scale of the royal family.

Do think your counsel of how they should brand themselves or message themselves -- if they did, i would not say, but they don't. the amazing thing about this monarchy is the adaptability of the institution.

They have continuously adapted.

You just see, compare that film to charles and diana.

Just the way that it is done, the way it is executed -- world war ii versus world war i -- driving away in a little car, driving the car himself.

It is a very different, much more, and touch.

Highly orchestrated, but actually with considerable understanding of the way people feel.

Now you have got three successors, three generations behind the queen.

It is quite amazing.

You have charles, william, and you've got the baby.

Three successors.

That is the ultimate in succession planning.

[laughter] it is a boost to the british economy as well.

A baby bump.

$369 million, a third of that -- two baby bump , one there will be a high birthrate, but also it will encourage -- you know, britain is going for a tremendous recession.

We have this great campaign which we are involved in, the great campaign which is the government used to showcase all the things.

British sporting achievements.

It goes back to olympics a year ago.

We had the anniversary games coming up -- is this one big british state -- shameless plug we have got?

Thing about you, tom, you are actually a frustrated bridge.

-- frustrated brit.

This is one of the oldest brands on earth.

It has been able to adapt over the years.

We had big problems, big reputational problems to deal with around princess diana and her death, etc.

But it has been a home run the last couple of years, the royal wedding, the london olympics, now the royal baby.

Absolutely.

David cameron -- politically, it is manna from heaven.

You have an election in 2015. this creates a different environment here quacks who orchestrates this for this extended family?

I know you are not going to tommy if you know -- you know -- they have a whole team of branding people?

Historically, some of the people who have given advice come i cannot think of it up to the mark.

In latter years , the queen come i think, listen, which is very important.

You see some leaders, whether they are president or prime minister's, who don't listen.

I think she listens.

I think she takes advice and make their own judgments.

There are retainers , not people who are retained, but retainers -- costamare and sorrel with us.

As you see, and the people outside the gates yesterday.

It is the pageantry.

We did have the birth announced by a tweet.

I want to know what brandy baby is going to be wearing.

Coming up on bloomberg "surveillance," ethical earnings just out.

There is some escutcheon of breaking up the snacks and the beverage businesses -- pepsico earnings just out.

? this is bloomberg "surveillance ergo i'm sara eisen here with tom and scarlet.

In the past 50 years, mcdonald's has run from a drive-in hamburger shop to a global restaurant powerhouse.

Betty liu of bloomberg television's "in the loop" will go inside the golden arches.

Here she is telling a by the numbers.

Mcdonald's raised its golden arches and illinois on april 15, 1950 five.

First-day sales totaled $366.12, and it's a mess amberg are sold for $.15 a patty.

Today, mcdonald's feeds over 25 million people in the u.s. daily.

It is also a global brand with over 34,000 restaurants in 100 18 countries.

Every day, customers eat up 9 million pounds of french fries, equal to the weight of 900 elephants.

There are over 145 items on mcdonald's menu, and it is really the big five that bring home the bacon.

Big macs, quarter matters, mcnuggets, fries, and egg mcmuffins account for 25% of total sales.

More americans visit mcdonald's than any other chain of any kind, including walmart, and it is that the grocery list to prove it.

Let's start with the fixings.

43 million pounds of tomatoes, 102 million of lettuce, and don't hold that she's. -- cheese.

Mcdonald's buys 231 million pounds of cheese a year, a yearly tally that adds up to $9 million.

-- $9 billion.

$3 billion more than the military close the food budget.

They have a bigger workforce to.

But donald employs more than the army, navy, marine corps, and air force combined.

And that he is inside mcdonald's all day to lay -- today.

It is a 6:15 in the morning.

How many millions of hammers have you already had, betty?

Not hamburgers, but i've got my mcdonald's coffee.

Billions of these cups of coffee served everyday.

As he said, sara, we will be going inside mcdonald's all day to a -- today.

Don thompson, the ceo, will be on with me at nine clock a.m. ex was lovely to talk about all surrounding the fast food giant.

I really got first and exterior tubing at mcdonald's. you can see here in a video.

I got to make a mcwrap.

There, by the way, is don in the background.

I got into taste tested.

He is fine.

Ask you guys.

All right all right, betty liu, great stuff.

Don thompson will be joining you later on this morning at 9:00 a.m. betty liu going inside mcdonald's for the entire day on bloomberg television.

Coming up, the cfo on -- of that seco -- of pepsico.

This is bloomberg "surveillance -- this is bloomberg "surveillance." and how that length am a manufacturing in china week ended july than forecast.

A purchasing manager said that a key part of the economy contracted at the quickest pace since the last time -- since last summer, actually.

It is raising more debt about china put the ability to reach economic growth targets.

In europe, factory output in the region expanded for the first time in two years.

Germany leading the way as manufacturing moves into growth territory there for the first time since back in february.

And lance armstrong fighting to keep those millions of dollars in sponsor fit -- sponsorship fees the u.s. postal service had paid him.

Armstrong for the lawyers are trying to throw out a justice department lawsuit that tries to get the money back the disgraced cyclist.

Those are your top news headlines.

Lance armstrong -- money grab . crexendo keeps going on.

Do you dovetail into the baseball and the coming thing in the eight ball?

Ryan braun and a-rod perhaps are next.

Are they drug test -- drug tested?

They are drug tested.

The test do not always catch everything.

We will talk about the airline businesses.

Us airways shareholders have improved -- approve a pending merger with american airlines, moving it closer to becoming the largest carrier in the world.

Our next guest is the merger will make the airline industry more competitive.

Boeing earnings out and a couple of minutes.

What's that about the impact with robert crandall, former chairman and ceo of american airlines.

Our guest host here, sir martin sorrel, ceo of wpp.

This consolidation of the big airlines, how much better shape are these companies in?

Vastly better shape.

You can look at the numbers.

You have eliminated a number of relatively irrational -- consolidation has enabled the major carriers to consolidate the control of the hubs, they have adapted much more aggressive pricing and terms of a® la carte, so much for a bed, so much for windows ce, etc.

-- and we are accepting a, right?

It is the consumer then want to pay the higher fares and have you fewer options than -- then.

In the short-term, the consumer is paying more than he would have paid had the consolidation not occurred here it on the other hand, in the longer term, i do think the consumers are likely to be better off.

You cannot run the airline business forever at a loss.

You are going to get lower and lower standards of service.

The consequence is the airlines make money that consumer pays a little more, but the standard of service -- you are going to have ubiquitous service, and it will be there.

Also the configuration.

The lesson the front of the aircraft, more and isn't, more in various type of economy offers.

So the yield has changed.

Fields do change, martin, but it is changing among other things because there is -- and a recovery economy, more demand for the front of the airplane come up more demand for first, more demand for business.

The asian airlines do first- class so much better than any american airline.

What is the key decision between what the urgent -- the overseas airlines do that is better than the american airline industry?

Most of your asian airlines do not have to deal with american labor law.

Let me give you an example -- just from a cost standpoint.

We used to fly competitively with the asian airlines.

This was many years ago.

We had a 10 flight attendants on a 47, they had 14. big costs difference.

In less everyone is planning on -- playing on a level playing field, it is hard to compare letter a to b. should we lesser martin and british airways and the rest of them -- the iag router with iberia, and we have got union in spain threatening to -- one interesting point, when i was in china with the local chinese, i flew with i and and airways.

The only private airline in china.

They're positioning is on service.

So all their effort is on service, which is interesting.

Emirates, singapore, cascade specific, i think the rise of the chinese airline -- are any american airlines on service?

Let's bring you down to the rural world.

We've got to get sara to cincinnati the second week of august.

She is going coach -- $406. she's going on business -- $787. $400 versus $800. the state of business class right now.

There is growing demand for business class.

People who are able to pay for it are willing to pay someone extra for the additional space , both before and side to side.

Do you see a cabin with the wall coming back?

I have seen that in a lot of airplane, tom.

I just want to bring in here, it is not just about the legacy carriers.

As this consolidation happen, where does this leave the jetblue and the spirit and the southwest?

Will the watchdogs watch out for the more?

What you've seen is southwest and jetblue become much more like a legacy carrier.

If you look at the cost structures of southwest and jetblue, they are moving towards the cost structures of the legacy carriers.

You started this by saying, and tom was sarcastic , but not excepting this notion is if you have got to guerrillas in a room , and two monkeys, you had better let the monkey -- bob crandall with us, he is never less -- lost a landing gear.

It is no joke, 60% of flights have been canceled from the cincinnati airport.

It is a victim of the merger.

I cannot see you in economy.

I take economy.

What about renewal economy?

There you go, sir martin.

We wanted to the ceo of pepsico.

This is bloomberg "surveillance to." i am scarlet fu joined always by sara and tom.

Let's get to company news.

Ford raising profit forecast.

Strong demand for the ford focus and -- in china and in the u.s. driving sales for the carmaker.

Profit will be equal to or higher than last year's $8 billion.

It had said that profit would be in line with that figure.

Meantime, discounts for smartphones chip away at at&t but the profits.

Smartphone sales set a record in the second quarter, but it reduced at&t's profit margins by 3% points.

A penny shy of what analysts had been looking for.

Starbucks will start selling greek yogurt next year.

The operator is partnering to offer yogurt and it's cafe.

It is move of starbucks' plan to offer healthier menu items.

Those are your company news headlines.

Bowling earnings anymore and it -- any moment.

The legendary ceo of american airlines, sir martin sorrel with us.

-- sir martin sorrell with us.

We don't know how big boeing is, do we?

Boeing is a tremendously good company, delivers wonderful, high-quality products, and stands behind.

Sir martin, does boeing have a pr problem?

I think a lot of these new planes have initial teething problems.

They are difficult.

Factories have caught fire.

Superb machine.

Knowing is highly dependable.

Great safety record.

We will talk about that than a bit.

Let's get to the bowling earnings.

Lots of earnings coming up this morning.

I see some guidance beat there.

That's right, boeing boosting its earnings forecast for the full year.

2013 revenue at 83 billion dollars to $84 billion.

It had originally estimated $82 billion.

$1.67 now, and that this was one dollar 58. it is higher than bullish analysts' estimates out there.

Boeing boosting its four-year earning per share estimate.

It's not just sales either.

In terms of backlog, this is where we have 400 $10 billion at the end of the second quarter.

Sara, we were were talking about how the 787 jim letter had its growing pain, but the other boeing jets have been doing well in making up for the -- we are nothing a financial impact from the problems that we see on the front page of the newspapers.

I am linking two stories.

Ford is a boeing success as well, alan mulally, world lane, -- how many bad news headlines to we have to see before it starts to impact the consumer and the orders for boeing?

A lot more that we see now.

You look at the introduction of the 747, the introduction of new airplanes, they have the seating problems.

The 787 is moving way beyond existing technology.

That is why it is so much lighter and it saves so much fuel and that is why they are selling so many.

We've got the two of you on the set, you mentioned mr.

Mullally moving from boeing to ford motor.

He wants one afford.

I heard you are telling -- you are terrible in meetings.

Absolutely vicious.

I don't believe that.

You should see him in meetings.

One american airlines, one wpp as steve ballmer look that one microsoft.

What is a guy like steve ballmer have to do to him make alan mulally's success?

You can never tell.

The measure of how important good leadership is -- no better example than mulally.

Date terrific job on the 777. he is transformed ford.

With a very strong team.

Mark feels, m crawley, superb team.

Know one guy ever does that.

Leadership is very -- jon rice at ge had the same idea.

A team of 10 or 20 people under you where you have to delegate authority.

Microsoft has always been, like wpp, to vertical.

We have gone horizontal integrators.

The return of the country manager to try to bring people together because if we work together among there is no client that we can't perform spectacularly for peer it we have 165,000 people in 110 countries.

Together that is an extremely effective army.

The real difficulty is good people are difficult to manage.

We're going to the the run here and move on.

$1.67 per share, revenue of 28 point -- $20 billion.

Revenue now look 83 billion dollars to $86 billion.

Gemara, everyone.

Bloomberg "surveillance," on bloomberg television, streaming on your tablet, your phone, and bloomberg.com.

All of our interviews out on bloomberg radio plus and bloomberg tv plus.

Martin sorrel with l with us, the dub -- the ceo of wpp.

Pepsico reporting profit per share of $1.31. this number includes the adjustment for the areas pension fund expenses.

When you adjust the numbers, the consensus here was $1.19, so higher than analysts had estimated.

We're looking at pepsico shares moving higher in the premarket.

Pepsico's valuation has exceeded that of coca-cola.

Absolutely.

Apart from earnings, the desire of many is to see pepsi move forward.

Activists investor nelson phelps suggested they spin off slow growth.

We sold in the organic values in the release this morning.

Maybe pepsi should merge with my delay in the national.

Hugh johnston pushes against that.

He is the chief financial officer of pepsico.

Senior vice president transformation at pepsico.

Hugh, good morning.

Good morning, tom.

Let me get right to the debate of the moment.

I read the white paper.

I know you will push against it.

He wants needed synergies.

I look at your earnings release, and i would suggest you are doing that right now.

Have you changed your business plan because outside investors want to see a higher market valuation?

We fill like this portfolio is working really well right now.

If you look at the be we had, we just had a solid $.12 beats.

We have grown our revenue, mid- single digits, six straight quarters.

It is driven by developing and emerging markets, whether it is latin america with 12% growth, china, the philippines, pakistan with 20 or thing growth.

-- 20% growth.

That combined with the relentless focus we have in productivity is what is making pepsico work.

The risk of an $80 billion transaction and then try to drive a lot of synergies out of that, taking on all the integration risk, we just don't think it makes sense for pepsico shareholders.

You are dead on their.

You started at the university of chicago.

It is really hard to affect large-size transactions are and what is the one pushback you have to mr.

Peltz over the risk of an $80 billion transaction?

A really falls into two categories.

Number one, it is just the and gretchen -- the integration risk of putting together those two businesses, operating in almost 200 countries.

That combined with the fact that for the premium that we have to pay, i don't doubt that shareholders would do well.

I have i doubt over whether pepsico shareholders would do well.

One thing worth looking at, for people who advocate that transaction, what is the percentage ownership of mine the lease and of pepsico?

I know the you have made clear that you are looking to restructuring the north american beverage bottling business.

What are the options for that business right now?

What we've said is we will come back to investors in early 2014. what i would tell you is the management here is relentlessly focus on unlocking shareholder value in that business.

All options are on the table as long as they create long-term value for pepsico shareholders.

Hugh johnson, thank you so much, chief financial officer of pepsico.

If you have ever seen a big murder that is worth so you?

They are all worth something.

You see with warren buffett with three g, heinz, the first they publicly stated, the first of a number of transactions.

If you see what three g did with burger king, with anheuser-busch , people said that transaction cannot happen.

Their l aze-r0-- like focus on cost.

Put that together with low-cost, long-term finance.

We went into the 30 year bond market last year and raise money at 5.17%. you put those two things together, strong management, annuities, cheap finance, we see is people putting pressure on companies like pepsi.

Sir martin sorrell with us.

It is bloomberg "surveillance." the morning, everyone.

Bloomberg "surveillance." i'm tom keene, joining me as always scarlet fu in sara eisen.

When it is our with caterpillar, the shares are down in the premarket.

We talk about how this company beat analysts' estimates.

Caterpillar missed its earnings estimate.

China certainly one big week.

It also cut its earnings forecast and says that it is not going to provide an outlook for 2014. there a little but of a lack of visibility here for the world's biggest mining equipment maker.

We know that slowing commodity demand is in the backdrop here for big companies, big industry comedies like caterpillar.

We saw that china is thing be weakness, and apple as well because apple managed to beat analysts' predictions.

The hope is that apple is going to refreshes product line.

Shares are up as much as a 4.5%, but expectations were coming down going into the apple released.

The challenge is getting these new products and the excitement that they have with some of the old products and stuff like iwatch, apple tv, and the apple 5s. people are on one side of this debate or the other.

Jane robertson on bloomberg "surveillance" yesterday saying he read steve jobs biography and was convinced there was no long- term plan in place for this comedy.

He likes the global leadership much better.

He sees apple flailing a little bit.

Not wailing this morning is boeing.

One dollar 67 -- $1.67 this morning.

Backlog of orders, $402 million -- 400 and million dollars.

-- $410 million.

Another one to keep an eye on has to be mcdonald's because bloomberg is giving you an inside look at mcdonald's all day too late.

Bloomberg television, betty liu of "in the loop" is out there at mcdonald's global headquarters.

The conductor an earnings report that we got earlier the wake -- in the week which showed some weakness.

Betty liu out there.

Wendy's recently launched pretzel bacon cheeseburgers.

There is products competition.

You have another idea.

It is a little rocky, isn't it?

Rocky year.

Goldman sachs, michael keltner says it is a high-quality at the, mcdonald's, sure they pay a nice devon, but the 2013 bowl case is essentially out of reach because the comparisons have not resulted in better same-store sales revenue.

Would you eat a pretzel bacon -- you know i don't eat bacon.

I would buy the yogurt at starbucks.

Doma -- don't miss the conversation.

Betty liu will be speaking with don thompson on "in the loop.

She has artie made a rap.

I think it is a great success story.

We have enough for years.

A recent stumble due to the competition.

Like service restaurants -- quick service restaurants, they're going to chipotle, panera.

We are not eating out as much.

Quite the -- the pretzel bacon cheeseburger.

Coming up, president obama bring them into the economy today by going out to the midwest.

We will talk about that next.

Good morning everyone.

Bloomberg "surveillance." tomorrow the program, ralph with evercore.

Their relationship in the dell transaction, ralph shaw sign -- schlosstein tomorrow.

Greg i'm sara eisen here with tom keene and scarily -- scarlet fu.

Our guest host its samara and sewer -- sir martin sorrell.

Scarlett, i know you have a been is here.

Michael dell may learn his fate today.

Shareholders scheduled to vote on the dell's $24 billion buyout offer for the pc maker.

Be vote was originally scheduled for last week, but it was both one until today to allow dell and his partner silver lake more time to lobby for support.

As you know, michael dell has been battling carl icahn for control of the company.

The shareholder meeting begins at 6 p.m. eastern time this evening.

Strong demand for smartphones helping electronics top analysts' estimates.

A rose to a shipment of more than 12 minute -- 12 million units last year.

Hot weather in south korea helped that.

Twitter expand this tv ad tool for marketers.

The microblog are making the service available to any company running a national campaign in the united states.

The service lets advertisers direct the motion to viewers to tweet about show that they're watching.

That is today's coming as from the file of "bloomberg west." president obama wilbur knew his focus on the economy.

Kicking off a u.s. tour.

His first in a series of speeches will be at knox college . ahead of key budget deadlines in the fall.

He has been to knox college before.

Julianna goldman is with us, our white house correspondent.

She has traveled with the president too many foreign lands like china, also like illinois.

She joins us now from washington.

There is a real special significance here today.

Illinois, china, not sure they are one anything, tom, but that is right.

There is a special significance.

It is kind of like a homecoming for barack obama today.

He went to knox college, he was a newly elected senator back in june 2005, and he believed white house officials those who are closest to him believe that when he was there, it was really -- he articulated his clearest vision for his economic beliefs.

This idea of middle outgrowth instead of trickle-down growth at the economy, the economy does best when the middle-class is growing, everybody have a feeling of shared prosperity that we are all in this together.

That is really the theme that that you will be hearing today.

What is the new new for the president?

We have a lot of distractions.

What is the single message he wants to convey today?

There has been all this without here and white white house officials have been saying that they were looking for an opportunity to get what they in the past described as a circuit- breaking speech.

Trying to turn everyone's attention back to the economy.

That is what this is about.

Trying to refocus the discussion on the economy, set up the terms for the budget bites that we will be having in the fall.

The new new is kind of hard to park down here becaus

This text has been automatically generated. It may not be 100% accurate.

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