Bloomberg Markets (01/28/2022)

Bloomberg Markets (01/28/2022)

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From the financial centers of the world. This is Bloomberg Markets with Alix Steel and Guy Johnson. It's 30 minutes into the US trading day on Friday January 28. Here are the top market stories we're following for you at this hour. With last week stocks can't seem to find a footing after a week of price swings not seen since 2008. Selling pressure prevailing for now as investors question whether fundamentals or tighter policy matter more to this market. How do you like them apples. Apple works through supply chain issues to deliver a blow out quarter but it's not enough to lift

sentiment for tech stocks heading to their worst January on record. And missing the mark Mondelez and Chevron shares drop after earnings come up short. We'll speak with the CEOs of both companies this hour from New York on Kailey Leinz with Guy Johnson in London. Alix Steel is off today. Welcome to Bloomberg Markets guy. It has been a week that has felt like a month. In a month that has felt like a year. Thank God it's Friday. Are we nearly there yet. That certainly should be the tagline for today. One more day to go this month in terms of trading. Let's talk about the data because one of the most

important pieces of data breaking on the Bloomberg terminal right now the University of Michigan consumer sentiment survey out a little fade. I think to be honest I'm surprised that it's not more. Given the narrative around inflation right now the consumer is still feeling relatively perky sixty seven point two is the number. We're down from sixty eight point eight. This is the headline number. The market the economists we surveyed had expected that number to remain static in terms of current conditions. Seventy two again a fade from seventy three point

two. Expectations down to sixty four point one from sixty five point nine. So across the board both current and future we are seeing the consumer beginning to back off just a little bit in terms of how they're feeling about the world around them in terms of the inflation narrative. This is the interesting bit. This is where actually things have changed the least here. It's on the front page of every single newspaper out there at the moment.

The president is talking about a day in day out one year inflation expectations four point nine five to ten three point one. Both of those numbers unchanged. And we know the Fed is looking closely at those numbers as well as the numbers we got earlier this morning when it comes to the to eat deflator as well as the employment cost index. Here to break it all down for us. Is Bloomberg's Michael McKee. Mike how is the Fed looking at this data. How do you make sense of it. Well the Fed is going to look at it as a continuation of what we were experiencing through the fourth quarter down the Michigan data is for January.

But we did have the Omicron area into running wild in the country at that time. So it's no wonder that we see a bit of a decline although this is a little bit more than a bit of a decline. It's the lowest since 2011 for the Michigan current. Can that sentiment index current conditions at 72 and expectations at sixty four. One suggests that we did have an impact but will there be any impact on spending. There was in December we had the consumer spending numbers come out along with incomes and spending was down six tenths on the month.

A significant drop after a four tenths gain in November. People putting off buying early and then putting off any purchases around the holidays. The core deflator comes in and Kelly mentioned that at four point nine percent the overall is five point eight percent. So inflation is back.

In terms of where we are with the cost of living now as Kelly mentioned the employment cost index rose significantly up 1 percent on the month one point two percent for wages. Wages still rising. And with the PCC index it just shows you that workers are falling farther and farther behind in terms of keeping up with inflation. All right. Bloomberg's Mike McKee thank you so much. We do now see bond yields flat after that data. They had been up at one eighty five on the tenure. Now we're back down to sub 180 at the moment. That's the bond market.

Let's take a look at the action we've seen this week though in the equity market. It's been wild to say the least in Bloomberg's Abigail Doolittle is here taking a look at the technicals Abigail. Well Kelly it certainly has been a wild week. Volatility is the name of the game. We were talking about that last week. And boy has it shown up. Now one of the key charts to take a look at of course is the VIX. We took a look at a chart of the VIX earlier this year. Now this is the VIX. This is the intraday volatility. And you can see that the VIX more recently has been hitting close to highs but coming down just a little bit. So that suggests that maybe there's some relief ahead for these wild intraday swings that we've been seeing

relative to the VIX itself. This chart would support it. We took a look at this chart earlier this week. I think this is one of the most critical charts you can look at. You can see that the VIX has basically been trading in a range the range of 20 20 with between 20 and 40 to keep it clean. That's the way we have this chart. It so long as the VIX is below 40 but really below 30 right now slightly above it. But this candle suggests that we could see the VIX drop back down toward 20 or even lower suggesting that maybe we're going to see the S&P 500 take another move higher. That said you have the Russell 2000 and the stocks that chip index both in bear markets. That's pretty brutal. A critical chart relative to the

Russell 2000 suggests that it could. It's very very unclear frankly if we take a look at that chart and here's that VIX chart 2. In terms of the intraday volatility again a reason to think it's going to come down. But the Russell 2000 a weekly chart hitting support but we really haven't seen support hit all that much. This is the AAA eye chart. And you can see that sentiment super super bearish more bearish than it was actually at any other time during the pandemic. That's a reason to think

that there's a bounce. But again the S&P 500 if we take a look at the Russell 2000 in the Bloomberg terminal we will see that this index in its bear market is hitting onto critical support. And what we're looking at here is the 200 week moving average in yellow and in blue. You have the 100 week moving average. Both are slightly rising. That is bullish. You also see the Russell 2000 hitting right down on at one hundred week moving average. The RSI momentum indicator toward the bottom. It's unclear

whether it's gonna be like 2020 where it's just a slice right below or 2018 where a little bit of bobbing around. Either way there is reason to think that if there is a near-term bounce that we are perhaps in a sell the rips regime. The big reason why Guy of course is all about a repricing risk. If we take a look at our last chart in the Bloomberg terminal keeping it simple with yields last week we talked about how it seemed likely that the 10 year yield could go up to to twenty five. This chart this long term chart of the 10 year yield really supports it keeping it very simple. We have this yield going down but above the critical level it points to two and a half percent suggesting that maybe the yield curve is going to steep and just a little bit if the two year yield comes up less which there's reasons to think that might be the case. Guy.

Such a wimpy. Hard to figure out market right now so much going on so many cross trends Abigail bringing them together quite nicely. Thank you very much indeed. Lots to factor in. One of the other things that we need to factor in is what is happening with the earnings story. Do earnings matter in an environment where we are so top down where we are so macro. I want to talk

about these two stocks here. And I know that the market is down hard Kaylie today and you can see what is happening on the screens right now. Session lows being here. But Apple had a sensational quarter. Those numbers were absolutely amazing. And you could say the same for LVMH last night after it posted after the close. Super super strong numbers even versus the pre pandemic levels that we were watching records for both. So what we've got here is a situation where I appreciate that the earnings do matter and you're seeing some outperformance today but do they matter enough. Which brings me to kind of exhibit B and this is what is happening with the S&P vs. what is happening with the earnings story. I'm not sure you can actually see the

earnings estimates there on that screen. They seem to be missing a little bit but earnings basically have been tracking the S&P. And now I think you could just about see it in the background there. I think the colors that really stand out. But the the earnings story is still elevated whereas the S&P has come down. So how do you how do you deal with the earnings narrative. The

fundamentals matter in this very much macro driven market. Let's try and get an answer to that question. Kate Faddis Grace Capital President and C I O joins us now. Grace it has been an incredible month an incredible week war in the middle of earnings season. You've got stocks like Apple and LVMH posting absolutely amazing numbers yet they're not really getting significantly rewarded for it. What do you do in this kind of environment if you are a bottom up stocks analyzer and you're trying to figure out what are the right calls and what are the wrong calls. Thank you for having me guy. First of all you do nothing. You do nothing. You have. You've set your strategic asset allocation

and you keep it there. Tactically however you can make some changes. I would hold more cash and I would hold safe stocks. I like the dividend aristocrats. I like utilities. I like boring. That's what I would do. Can't we just have a read headline crossing the Bloomberg terminal right now Wall Street has been briefed by the Biden team on possible Russian sanctions. We understand Citi Bank of America and JP Morgan are among the firms in Russian in discussions on these Russian sanctions. We'll have more on this from our Annmarie Horden and down in Washington in just a moment. But from a market perspective Kate how do you look at the Ukraine Russia issue and what kind if any at all of a

geopolitical risk premium is in this market right now. I don't I don't look at those things at all. I don't think they're very important. You know in the short term they will affect the market they'll affect volatility longer term. They're really not very important. I don't know any market watcher who's saying I'm going to buy stocks or not buy stocks because because of Ukraine I think it'll sort of sort itself out now. Could it affect fundamentals for a gas utility in your in your Ukraine. In Europe possibly. Anything short of that. I think it's market noise. OK. There's a lot of noise around at the moment Kate. How are you figuring it all out. You've got obviously the Fed. The

market is going from two hikes to three hikes to full hikes to five heights. Bank of America says seven hikes. How are you factoring that in. I spoke to you before Christmas and you said you want to be fully invested in this market. Does that still apply when we still don't know what the Fed is going to do and ultimately how aggressive it's going to be. Because we don't have the data yet to make that determination. No it does not still apply. Guy look we had three great years. The other time

last time we spoke I said rates. There's got to be a Santa Claus rally and then watch out in January. Here we are in January. You've got to go safe. This market has been very clear. The Fed has been very clear. The Fed is going to raise rates. This is going to affect the market. When the Fed chairman spoke he was very clear. He cares about the real economy. He does not care about the stock market. The Fed raised may or may not affect the real economy but if you're holding equities I would be very careful. This environment better growth names. No way. Kate if we have to go safe does that mean going to cash. I I'm going to CAC cash is always a beautiful thing. You don't

have to go to cash again. I love. There's some great dividend paying stocks that you can go hide it. If you don't want to go to cash because the problem with going to cash is we're still in an inflationary environment. So you're going to have go into cash and you're going to miss out on 7 percent a year 6 percent inflation. I would rather go into some dividend paying stocks.

There are lots of them out there. They're boring. They don't grow much. They give you a nice four and a half percent yield there. Several. Yep. Is that going to be enough. Is that going to be a relative outperformance of those stocks going to be going up this year or are they just going to be going down last CAC. I think you're going to be going down less if you're lucky they're going to be going up entered some of the energy names you like something like a senior. I think that's going to be

going up. The energy names are going to be going up. Some of the other ones AbbVie AbbVie I think is very interesting. Nice yield realty income. But in a general sense you're not going to escape the big move. This market is probably headed into bear territory. You're not going to escape that. So I think at the very least you can protect your assets a little more. I would also look at going into fixed income. I think that would be interesting in the 10 years at 2 percent. OK. We talked about there is no alternative. Now you've got an

alternative going to the 10 year yield at 2 percent. Not bad. All right. Maybe Tina doesn't last forever. And maybe the Fed put doesn't last forever either. Kate that is Greece capital president and CEO. Thank you very much. Now we do want to get back to the breaking news from down in Washington. The Biden administration has held conversations with some of the country's

largest banks including Citi JP Morgan Goldman Sachs and Bank of America regarding possible Russian sanctions. Let's get more on this Bloomberg scoop now and bring in Bloomberg's Washington correspondent and reporter who is down in Washington. Anne-Marie what else can you tell us. Well there's relatively a small portion of U.S. banks that have a large scope in terms of what they are presented to in their work in Russia. But what the administration does seem to be worried about when you look at this story and the reporting by our colleagues is the spill over effects. And we saw that in 2018 when the United States had sanctions on Russia. Then we saw what happened in the aluminum prices specifically and they shot

up soaring. And then that becomes a another issue an issue within the commodity market an issue with supply chains. So that's one of the things the officials have been briefing these banks about. Also given this reporting it does look like the U.S. seems to be honing in with their Western allies on cutting Russia's off on their ability to convert currency. Remember this would be very very difficult for Russian banks and Russian companies especially energy companies that do tons of trade and they have to convert their rubles or the dollars into their rubles in local currency. Does this give us any indication as well that the swift exclusion may also be on the table excluding Russia from the swift financial system. It does seem like the banks have been asking about how likelihood are we going to get that nuclear option of barring Russia from the swift payment system. And it seems to be only coming up in conversations marginally which has me thinking that the administration is

still considering that but very much so is the nuclear option. That would be a hard pill to swallow guy for some of the European allies like Germany. Absolutely. And we have this call that has taken place between Emanuel Macro and Vladimir Putin. France saying within the last couple of minutes that Putin denied on that call offensive intentions vis a vis Ukraine. So we'll get more of a readout from that call as we work our way through the next half hour. I suspect Annmarie Horden great coverage as ever. Thank you very much indeed. Bloomberg's Washington correspondent Annmarie Horden joining us from D.C.. What are we going to do next. It's a related subject. Fourth quarter earnings falling short at

Chevron the first of the energy giant's companies to report. We're going to figure out what's happening here. We're going to talk to the man himself. The CEO of the company might work up next. This is Bloomberg. Chevron posting disappointing profits in the last three months of the year. The oil giants earnings missed expectations and of course it is the first of the five international super majors to report. Let's get more on this now. We're joined by the company's chairman and CEO Mike Worth. Mike great to talk to you. It seems that a lot of this mess had to do with slumping

valuations for some legacy assets long held oil fields. Is that why you weren't able to further capitalize on the gains we've seen in energy prices. Well good morning Kelly. We had some non-cash charges in the fourth quarter that are very difficult for analysts to anticipate and model. We'll go through that on the call here. And I think that they'll understand afterwards when you look at cash. This was another record quarter. It's the second quarter in a row with record free cash flow. And our annual free cash flow was 25 percent higher than the best year we've ever seen before. So the underlying business is very

healthy. We increased our dividend earlier this week by 6 percent and that's the thirty fifth year in a row where we've increased our dividend payout. It's up almost 20 percent since 2019 when others in the industry actually cut dividends through the pandemic. We yield twice what the 10 year yields right now on our dividend and our share buybacks are at the top of the guidance range. So we're in a very very strong place and set up for a really good 20 22. Mike as you say the the top line looks amazing the cash flow really strong the share price has been on an absolute tear of late. And I'm just wondering you mentioned the dividend than the buybacks. You've gone for a 6 percent increase in the dividend. As you say you announced that a day or so back. My question to you is are you are you favoring the dividend over buybacks

because of that incredible run you've seen in the share price. Well we have many shareholders that really value the dividend to your earlier segment about companies and industries that provide steady reliable dividend growth over time. And so our shareholders really value the dividend. We have a robust capital program which is down significantly from what it was just a few years ago. Very disciplined reinvestment to generate those future cash flows a strong balance sheet. And then we have in

this environment cash that's surplus to those needs. And we've got a history of returning that through share repurchases. We've actually repurchased shares 15 of the last 19 years. And so our investors understand our track record and I think is very consistent with what they expect to see. Obviously the run up in your share price also has to do a lot with the run up we've seen in oil Brent. Ninety one dollars a barrel WTI. Eighty eight dollars a barrel do you anticipate. One hundred dollar oil. And in what timeframe. Well Kelly it's predicting oil prices is fraught with with difficulty. We are in what has been an upmarket here now as the economy grows and we begin to put the pandemic behind us. And

we've seen demand growth very strong even before we see people returning to normal office commutes international travel or business travel. Returning to pre pandemic levels. So demand has been strong. Supply has been struggling a little bit to keep up with that. And that's reflected in the market. And then of course we also have you know geopolitics that are present again a few years ago. These types of events didn't seem to really impact commodity markets. And today they appear to be doing so. And so you know hundred dollars is certainly within the realm of what we could see in the next few months. Longer term we think markets rebalance and prices will moderate. You may get some extra production coming on stream Mike. If we get to 100 not saying thank you but others might decide to make that decision. The word discipline is the word that I've heard

most when I talk to energy CEOs at the moment. Every conversation I have seems to include the word discipline. Do you think that discipline is maintained. What are your plans going forward if we get to 100 dollars a barrel. What are your plans look like in the Permian. Are you going to be increasing production. How do you see the landscape developing.

Where our production in 2021 was a record it's the highest it's ever been. Permian was up 10 percent just quarter on quarter as we closed the year. And as we look to 2022 we got a couple of big contracts in Asia that expire. And if you set those aside we'll grow again 2 to 5 percent in 2022. So we're responding to the demand in markets but we're doing it with capital

discipline. That's a key word that you mentioned. Our budget is at the low end of our external guidance. And if you look at our company plus Noble Energy who we acquired during the pandemic in 2019 capital spending was twice what it was in 2021. So we're much more capital efficient today. We can generate the production and and the growth in a much more capital efficient manner which allows us to generate the free cash which can then flow back to shareholders. That's our plan. Certainly others in

the industry have seemed to have similar plans. And I think that discipline is is what this industry is needed. You mentioned there Mike both your strong capital position as well as a previous acquisition you have made. Do you see any more emanate in your near future to build out your asset base. Well Kelly you know we've got a history of well-timed

acquisitions over the years and that's certainly part of our DNA. But the discipline that guy referenced needs to apply in MDA as well. And in a market where commodity prices are elevated and equities are beginning to reflect that I think we have to be very prudent in how we think about that. And so we're always on the alert for a value creating transactions for our shareholders. But we don't need to do anything unless it's really a deal that is is a good one. Mike we broke the news just a few minutes ago that Wall Street firms are being briefed by the administration on possible sanctions. Were Russia. Was Russia. If Russia goes in to the Ukraine and what those sanctions might look like for the

financial sector the real concern over here in Europe is what that would mean for gas prices for energy security. There has been some suggestion that the administration is trying to find a way to deal with that risk possibly talking to Gutter. And I'm wondering whether the same conversations are happening with the big U.S. energy companies such as yourself. Have you had any conversations with the administration. Do you think that the U.S. could help Europe were there to be a gas price crisis again. How do you see this story developing and what role do you think you may play.

A guy I'm not going to comment on what discretions we may or may not have had with the administration. I think there have been plenty of media reporting that indicates the U.S. administration and governments in Europe are sensitive to the current low level of gas inventories in Europe and the risks that exist should there be armed conflict that would break out in Ukraine. There's certainly a lot of gas that flows through Ukraine into Europe from Russia. The US is producing a lot of gas and exporting it right now to Europe. The prices that we see in the market incentivize that and and and we could see further strength in

prices if these anxieties increase. Inventories in Europe are at a relatively low level for this time of year. And I think governments around the world are in contact with one another to understand what they might be able to do collectively to address that situation. If it were to worsen and certainly we operate around the world and would look to do what we could to support those kinds of efforts. Mike we appreciate that. Thank you very much for your time today. We appreciate that as well. Mike Worth so Chevron chairman and CEO sir thank you very much indeed. Brent crude currently trading up. We're at ninety 114. TCI 88 21. Not very far away from 98. Coming up Apple gaining the upper hand against those supply chain shortages. Execution really strong sales soaring to a record. What does it mean for some of the other

heavyweights in the space alphabet. Facebook Amazon. They'll report next week. We'll talk tech next. This is Bloomberg. We're about an hour into the U.S. trading day. Bloomberg's Abigail Doolittle is tracking the moves and on the move. We are Abigail. We're up we're down. We're up again. We're down again. Indeed. Volatility the name of the game. But this is the week that was or is. Take a look at the S&P 500 down one point nine percent down four weeks in a row. That's the longest losing weekly streak going back to September 20 20. The Nasdaq 100 down three point two percent. The composite however down for a fifth week in a row. The longest weekly losing streak going back to 2012. And these markets do feel a lot like that 2011

2012 time period. So interesting. And of course we have bear markets in both the Sox and the Russell 2000. Those leading indicators you can see with those kinds of declines. Why. As for the day how will we end. Let's take a look at the intraday chart of the S&P 500. Many futures because much of the session overnight higher than down and then up and down and up down a little. So that intraday volatility really really continuing. Very interesting. One sector that has gotten overshadowed this week because of all the movement in rates and stocks. If we take a look at metals in particular some of the metal ETF the gold ETF Jihye Lee down about six tenths of one percent down many days in a row. The silver ETF SLV down about one point six

percent. We have TLT right now lower. That of course means yields are higher. That could be one pressure and of course the dollar about flat. But on the weak the dollar is up sharply pressuring these metals. If we go into the Bloomberg terminal and take a look at what is happening with yields. Technically there may be reason to think that GLC could continue to decline.

You can see this downtrend here in jail. There's different ways to look at this range but this range may suggest especially since there's a death cross that's when the 50 day moving average goes below the 200 day moving average suggesting the near-term buyers are out that we could go back down in the range. That is also supported of course guy by that RSI on bottom. Losing momentum can be interesting to see whether or not this happens for. And if it does it would suggest the dollar is going higher and probably yields to. I'd like to lose a bit of momentum right now. There seems to be a lot of momentum out there. It's been a week of a lot of momentum trying to keep up.

Has been tough. Abigail thank you very much indeed. Abigail Doolittle. Kailey Leinz article a bit about Apple. Execution was amazing. This caused a posting record quarterly sales well past Wall Street's estimates. It was able to work through some of the supply chain issues that have hit everybody else. CEO Tim Cook talking about that very issue on the earnings call. I think our supply chain actually does does very good considering the shortages because it's it's a fast moving supply chain. The cycle times are very short. Let's talk about this really solid execution. I think the only

area they had problems was with the iPad. Ed Ludlow joining us now from San Francisco. Ed I'm looking at Apple share price. It's up in a down day. So in some ways we need to factor in the latter into what we see on the screen right now. But nevertheless I'm surprised that the market isn't reacting more strongly to what looked like a pretty flawless quarter and maybe confirmation as well that Apple is a kind of a haven a safe haven in all this volatility. Yeah I mean it's living up to

that haven status finding growth in a challenging environment. And you're right that the impacts of supply chain shortage particularly a shortage of semiconductors was limited to iPod which was the only product segment that missed estimates in terms of sales you got record sales across MAC wearables services and of course the iPhone. And this is a global company. And there are markets like China where growth has been in question the backdrop of the pandemic the Omicron variant at the end of last year. But even in China they saw 21 percent growth. So it's becoming dependable. But what I found so fascinating is that Apple communicates a lot and very little at the same time. But they did seem to get some really nuanced guidance on an outlook for this current and the coming quarters. Well yeah. Tim Cook saying that the March period is going to look a lot better in terms of supply chain challenge right. But Ed thinking about the read

through into other technology here which is what Dan ISE over at Wedbush said you know Apple indicating brighter skies ahead is a positive read through for tech. This is Apple. This is the Titan. So in theory they have more market power to navigate these supply chain issues. How much of a read through is there really to other tech players that maybe just don't poll as much weight. Well this goes to guy's point. I'm looking at the Nasdaq 100. Right. 15 stocks up 86 down. And Apple is up 60 points. It's helping the index. But we thought we'd see more big picture right in this earnings season. We've been so focused on outlook but we haven't had much discussion of the macro picture. Somebody asked him cook on the call. What is your read of the global economy right now. And he literally said I'm not an economist. I'm not going to go that. And this is the

frustration. You know look on your screen. Look at the companies that are reporting next week particularly the advertisers. We forget that matter. Parent company of Facebook is essentially just advertising. Right. We're so focused on its transition to the metaverse. But what we will get next week is a read through on that on the strength of the consumer because advertisers aren't going to spend if the consumers aren't coming out of hibernation. In terms of what we what we take away from Apple about the consumer what is its ads. This is this is a hardware sorry

software did really well and services did really well. But hardware continues to perform really strongly. The consumer's going to bump up against a whole range of problems this year. I did. Did they talk about whether or not this is sustainable in any shape or form. Is this something they can continue to. So the key takeaway retail revenue stores Apple shiny Apple stores hit record levels despite the pandemic. That's kind of Apple's own words with Omicron in the fourth quarter. That is

surprising. You know in China. Like I said consumers came out and bought the high end products. You know six out of 10 Mac book buyers in China with first time MAC book buyers. They've never owned the product before. But then that's what I'm talking about. The nuance on guidance they said year on year. The March quarter or that fiscal second quarter. We'll see strong growth that quarter on quarter from December to the March quarter. It will slow down and margins will be impacted by inflation and

rising commodity costs higher input costs from supply chain crunches. There is a sense that it was a smashing quarter in the fourth quarter but things even if the supply chain improve that level of growth may not continue in the first six months of the year even though the consumer is strong in this environment. On the other side of supply chain issues I still remember snaps earnings from the previous quarter where it said that it was experiencing a slump in revenue because advertisers didn't want to advertise their products. They didn't want to stimulate demand if they couldn't meet it with supply. Is there a sense that that story has now changed as we look forward to the matters and alphabets of next week. So quick thing tying it back to Apple. That was the holiday quarter that we're talking about the time where people do buy iPhones and these expensive high end products. Right. The March quarter is a different story and on the ad spend. You know I

think that's travel for example was heavily impacted in the December quarter. If you look at the strength we saw with Facebook or matter and the likes of Google and Alphabet with its search ads the rebounds during the pandemic period came when travel restrictions eased when consumers felt confident to leave their homes and search for other things to do. So that will be the narrative we look to. What is the consumer doing in this next phase of economic rebound. If there is an economic rebound with Omicron or a transition to an endemic from a pandemic. If they start searching for travel for example then you'd expect that we'll see the high double digits growth in these two ads that Bloomberg Intelligence and others are forecasting. All right. Thank you so much to Bloomberg's ad Ludlow always super smart out there in San Francisco. Now coming up your

favorite snack foods like Oreos may soon cost you a little bit more. Mondelez is expected to raise prices in order to fight off inflation. We'll be talking about that with the company's chairman and CEO Dirk Van de Putte next. This is Bloomberg. This is Bloomberg Markets CAC Group. You're looking at a live shot of the principal room coming up Kamala Harris and Morgan

Stanley senior client adviser joining Bloomberg TV to thirty p.m. New York 750. Here in London this is Bloomberg. So inflation eating into profits pretty much across the board. One area we're certainly seeing it is in snacking Oreos. Cadbury. Let's talk about what is happening with the maker of those products. Mondelez reporting fourth quarter earnings today. Missing estimates. Like lots of other companies Mondelez is dealing with supply chain issues higher input costs when it

comes to commodity prices. Labor shortages a huge factor as well. There's also the additional headwind of what is happening in the currency market as well which is certainly had an impact on this set of numbers. Let's figure out what's going on. The company's chairman and CEO Dirk Van de Putte joining us now to give us his take. Great to speak with you as we look forward to these conversations. The currency looks like it's been a fairly big factor in terms of these numbers stripping that out. What is

the underlying business look like right now. The underlying business is looking good from a top line perspective. The categories that we are in are growing faster than they were before the pandemic which is biscuits and chocolates. In our case we see demand all around the world very strong North America Europe emerging markets. And while the global growth of our categories used to be around the 3 percent mark we're now well above 4 and sometimes at 6 percent. In the case of chocolate. So all that is good. Our

market shares we have increased market share compared to before the pandemic and we did well in Q4 as it relates to the bottom line. But if you look at the middle of the Biennale I would say that's where it was a little bit more difficult still. Okay. Three point six percent growth in gross profit but we normally aim for 4. And so we were a little bit below that. And that's a reflection of what you were mentioning guy. Supply chain disruption inflation labor shortages in that race on our costs pricing will kick in and that will solve that problem in the coming quarters. And then there is currency rich in 2021 was tailwinds for us in 2022. We expect that to be a headwind of about probably 8 cents on our EPW and about two and a half

percent on our top line. We still are expecting to deliver against star growth algorithm which is a 3 percent plus top line growth in a mid single digit bottom line growth. We will still do that but we will in reported the results. We will see that effect of the currency. Derek let's talk about the pricing point in particular which you mentioned to this point. By and large consumers have seen Tyler have seen tolerance of higher prices. At what point do you think that tolerance changes. How do you

gauge that level of how far you can push it before it starts to affect demand. Well you. You. This has been so abnormal I would say that you almost have to gauges as you go and see if the price increases have any effect on your volumes. As everybody has been saying you we're seeing the same so far. Price increases have not had a lot of effect on volumes. The reason being to my opinion a few one consumers feel financially pretty good. They saved during the pandemic so they feel like they're in a good place. Overall there's a labor shortage so people are rarely employed. They see their salaries go up. They've also changed. They're spending less discretionary spending less travel less eating out

and more importance to the home life. And so they're prepared to spend more on what they are consuming at home. And then our products are not that expensive. They're an affordable treat. So all that makes that our categories normally don't have a huge price elasticity. But in this particular case it's very limited. I assume as the consumer will change and we get out of the pandemic and they start to spend more on other items that then they start to eat out more and so on that that's where the moment comes that they might not be so benign as it relates to the price elasticity. Let's let's just talk about where the consumer is right now. We've come through Omicron that looks now. It's like it's now going to fade as you say. That means the people will ultimately maybe be looking to go and eat out a little bit more. But what

have they been doing during the pandemic. Have they been stocking up. What is what is the consumers working capital that like right now. Is the larder full. And does that mean that there'll be a bit of an overhang in terms of demand for product. I think in certain items they did not. Not in ours I would say they. They get consumed. I think what is changing in the world of snacking is that there is a change in mentality where snacking more often to feel better to have a little bit of stress relief is seen more acceptable. And we just published last week our state of snacking report. And that's one of the key things that comes out of there. 80 percent of consumers say now indulging once a day having a chocolate or a biscuit is very acceptable to go to three years back. That was not as high. And so in our case it's not stocking. It's really more consumption that's going up.

So changes and consumption behavior. Are there any pandemic era changes that you don't think well sector. I do believe that the mobility will come back. Consumers at the moment spend 10 to 15 percent more time at home. I think once they feel more safe and they feel better and Covid is now endemic and we know how to control it I think there will be sort of a return to mobility which will have all types of side effects less online buying potentially more on the gold buying more travel more eating out as we were discussing. I think that that is not going to stick. And probably the other one that is not

going to stick is is that the amount of time that is being spent at home. I do think people will go back to the office more. And and so as a consequence the home consumption will come down and on the go consumption will go up. But for the rest. What else do we even see. Much higher e-commerce online buying. I think that will still remain the same. For instance. Dirk as you say people are starting to go back to work. I'm sure that probably applies to your business as well. Can you just talk me through what it's been like over the last few weeks and months in terms of staff outages what you've seen in terms of the production lines. Have you had any issues there. Have there for instance. Has there been any demand out there that you haven't been able to fill because of what has been happening with Omicron.

Yes. Yes. I would say we've certainly seen an increase in absenteeism and in our offices. That is that was not really an issue because we were still working from home. We delayed the reopening of our offices in our plants and in the fields our sales force. That is a bigger issue of course. It hasn't been worse than it was at the start of the pandemic. You know there was the famous tracing and if you had a contact you had to stay at home. So the absenteeism level that we've seen is being has been similar to the start of the pandemic which does have an effect on our potential or our possibility to supply to supply the different orders. Add to that on top the labor shortage. Just add to that. The transportation issues and and yes we

measure something called on shelf availability which we like to be well above 95 at least 97 percent which means of all the items you expect to have in a store. Ninety seven percent is there. We are now more at 90 percent. So yes the the availability of our products has been affected by this. Obviously when we're talking about Omicron and pandemic related impacts in China there's a very specific story. It is a Covid zero policy. We pay a lot of attention to that when we're thinking about China and other markets in the emerging world relative to the developing one. What differences and divergences are you seeing in terms of how

it affects your business. We still have markets around the world where the whole country needs to go down in a severe lockdown because the use of vaccines is or the availability of vaccines is not as high. And so at the moment in Southeast Asia that is severely affected. And so we have issues like we need to stop our plans for a number of days. We cannot have our sales force allowed. Stores might not be open. So that severely affects our business. That sort of moves around the world. We'll see for instance what's going to happen now in Latin America as Armstrong is starting to appear there. Vaccination rates in Latin America are relatively high in the

most important countries. So I assume it will not have the profound effect as as we are currently seeing in Vietnam or in the Philippines and so on. For the rest it it just interferes. If you look at the U.S. and and Europe where vaccination rates are relatively OK I would say it just puts us back into these sort of crisis mode that we had during the beginning of the pandemic where we have to focus on a limited number of rescues where we have to sort of manage offenders on a day to day basis and it disrupts normal operations. Dirk this is gonna sound like a strange crush. What is hot in snacking right now. What do you see the trends being. What is going to be interesting and how do you think you're going to take advantage of any of these trends. Is it organically. Is it via Eminem. For sure although I was talking about the indulgence factor that is something that is quite unique certainly the consumer saying hey it's OK to to indulge myself every day. That is a big change of mentality. And so you will see heavy indulgent items

like premium chocolate and so on. That will do that will do well. The other one is that health and wellness is still there. And I think that trend will come back as we feel better about the pandemic. And that will continue to grow. So for instance we've launched in recent months we've launched an Oriole Zero Sugar in China or free or we have launched the Cadbury Vegan in the U.K. a Philadelphia vegan in the UK plan based. So I think those are those are some of the trends that you will see. It's sort of a union yang heavy indulgence or higher indulgence while at the

same time health and wellness keeps on growing gradually and more and more consumers are gonna do both. And so that's that's really what is quite unique about this situation. Everything in moderation. So they say thank you so much for joining us Derek Van de Putte Mondelez International chairman and CEO. Appreciate your time. This is.

2022-02-01 18:16

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