Morning Brew Daily - Why Companies Do Layoffs Before the Holidays & Disney's Board Battle

Episode Date: December 15, 2023

Episode 214: Neal and Toby look at the recent layoffs from Cruise, Hasbro and Etsy and explain why companies announce layoffs just before the holidays. Plus, there's a board battle brewing at Disney and Starbucks doesn't run the coffee show in China anymore. The guys share their stocks of the week and why the rental market in the US may finally be favoring tenants. Finally, what business lessons can we learn from Willy Wonka? Listen to Morning Brew Daily Here: https://link.chtbl.com/MBD Watch Morning Brew Daily Here: https://www.youtube.com/@MorningBrewDailyShow Get the 2024 Money with Katie Wealth Planner: moneywithkatie.com/wealthplanner Learn more about your ad choices. Visit megaphone.fm/adchoices

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Terms and conditions apply. Good morning, Brew Daily Show. I'm Neil Fryman. And I'm Toby Howell. Today, why are so many companies laying off workers right now? Then the new Willy Waka movie is out. So we're going to break down the business savvy of the greatest chocolatier of our generation. It's Friday, December 15th.

Let's ride. This was bizarre. A rogue bull was found running the tracks of Penn Station of Newark, New Jersey yesterday, causing a 45-minute train delay and sparking a great deal of curiosity. How did a bull wind up at a train station in Newark? Toby, you know I did some digging to try to find out where this bull came from. I know it wasn't a nearby farm because there aren't any near Newark. My first thought was a PBR event at the Prudential Center that also wasn't true.

The Red Bulls who play right around the corner don't have a mascot either. And it wasn't Chris Christie trying another way to sabotage commuting into New York City. So my going hypothesis right now is that it came from a passing freight train that was transporting cattle. My going hypothesis is that it's an absolute sign that we're in. a bull market right now. I did think it was funny yesterday that everyone on Twitter was reacting and saying, this is a sign from everybody, buy everything in sight. These are the same people who look down on astrology people and say, oh, these signs, they don't mean anything, but as soon they see a bull running towards Wall Street, they're like, buy everything. Okay, before we jump

into the news, quick shout out to our friends over at Yahoo Finance. I was doing some thinking, Neil, and there's something just so satisfying about logging on to the number one finance platform to get your market data and news. Some say it's more satisfying than snapping a double A battery into place with that resounding click. Others are saying it's more satisfying than swishing a shot into the garbage in a public setting. It could be even more satisfying than auto fill coming up clutch on a credit card you haven't seen in four years.

All right, all right. We could go on forever. Neil, tell the people where to go. All right, go to finance.yahu.com or download the Yahoo Finance Mobile app to see what we are talking about. It's time to refresh your yard during spring backyard days at the Home Depot. Get low prices guaranteed on propane grills starting at $179, like the next grill 3-burner gas grill. Or get $50 off a select Weber Spirit grill and bring big flavor to your backyard.

Then set the scene with Hampton Bay string lights that bring it all together. Shop spring backyard days for seven days at the Home Depot. Now through May 6th. Exclusion supplies to homedipo.com slash price match for details. Toby, it's already been a rough holiday season for layoffs in corporate America and yesterday brought even more sweeping job cuts. GM self-driving car subsidiary Cruz said it will lay off about 24% of its work first, about 900 employees after a series of safety debacles, forced it to pull all of its robotaxies

off the road. No robo taxis picking up passengers means no revenue, so it knew it had to slash costs in a big way in order to stay in operation. Cruise may be a unique case, but it's not unique. and giving workers the bad news just weeks before the new year. A bunch of corporations, including Etsy, Spotify, Hasbro, and EY have made steep job cuts in recent days, citing the tough economic environment and the need to pare down their workforces after the COVID boom years.

It's really brutal for morale and at a personal level to layoff workers right before the holidays. Toby, why can't they just wait until January? I know. It is. We've discussed this on the show because we've talked about some of these layoffs that have happened over the past month. And even though it seems just especially.

cruel from just a human human perspective. December job cuts are a way to kind of clean up the books, clean up the balance sheet a little bit, before they show kind of their end of year numbers to shareholders. So it's kind of another reason why you see these cuts right for the holidays. Also, and I know how cynical this sounds, it's a way to dish out fewer of those end of year bonuses. So if you want to save cash, the easiest and quickest way to do it is by laying off people right before the holidays, as brutal and as bad as that sounds. Right. I think these companies really would ideally want to wait till January to do these layoffs,

but the fact that they happened in December, I think, means there is a serious cash crunch, and they're not an emergency, but something bordering on an emergency where if you don't slash cost by Q4, then things could get really bad in the New Year because they know how bad it looks. It's just a really bad thing for morale and everything else at their companies. It is interesting, though, that a lot of these companies point to the macro environment as one of the reasons why they're laying off these workers, but that might be a harder card to play going forward because a lot of people are feeling a little bit better about the macro environment. I mean, University of Michigan's Consumer Sentiment Index jumped 13% to almost 70% as people

are becoming a little less worried about inflation, a little more optimistic about the way that the economy is heading right now. So that was a get out of jail free card for a lot of these companies saying, hey, listen, the macro environment is just so challenging right now. We have to make these job cuts right now. But going forward, I don't think they'll be able to say that because the economy is heading in the right direction. Let's talk about just quickly two of the companies that I briefly mentioned off the top. Etsy.

I just want to just get into some specific. Etsy is laying off 11% of its workforce saying that sales have basically stagnated since 2021. So Etsy's not in a really good place at all. And then Hasbro, the Toymaker, is cutting 20% of its workforce, which amounts to 1,100 jobs as toy sales, I guess, outside of those plush toys we talked about. What was it, jellybelly or something? Not jellybelly. There's squish mellows and jelly cats. Squish mellows and jelly cats. I guess if you don't sell that, outside that, the toy category is really plummeting. Toy sales are down 8% through September. It's right ahead of

the holiday season where toy makers make 50% of their sales. So the fact that Hasbro is cutting so many of these jobs right in the thick of the holiday season shows that its toy making strategy is not in a good place right now. I'm still a toy truther. So I will be buying toys, either for myself or for someone else this holiday season. All right, Neil, a powerful activist investor is trying to alter the future of Disney. For anyone who's been to maybe the movies recently and caught a Marvel flick, you're probably aware that Disney is off its game a little bit. The Tree and Hedge Fund, Disney's largest active investor, certainly has, and it's reigniting

its fight to try and get seats on Disney's board so it can have more say on the company's direction. Nelson Peltz, the founder of Trian, is the main character in this whole saga. He's watched Disney struggle mightily this past year between flops at the box office, declining viewership for linear TV and mounting losses from the streaming business. And he believes that the current board is way too connected to current CEO Bob Iger and to disconnect from what shareholders actually want. The only way to write the ship put himself and former Disney CFO J. Rusullo onto the board.

due to the amount of shares it owns Peltz's fund certainly has some influence, but Disney has been rebuffing his advances for years now. Is this the time where the long simmering tensions finally boil over into some changes at the top, Neil? I think he's attacking Disney when it is quite weak. I mean, its cable business is down bad. Its streaming unit Disney Plus has not been profitable. It's lost $10 billion since its inception. Marvel and Pixar are both in a major slump as well. So I think he's attacking at the right time, and he's rounded up this gang of former executives.

He's got Ike Perlmutter on his team, who's the former Marvel chief, and then Jay Rusullo is the former CFO. Both of those guys had kind of been spurned by the current management regime, and so Peltz is kind of ganging up with these two and taking a blow at Bob Iger, who has come back recently as CEO, but has not really had anything to show for any of his turnaround plans. Yeah, I want to take us back to 2022. Disney shareholders cheered when Bob Eiger returned to the company after a really tough time under his replacement Bob Chapic. But Disney just can't seem to get out of its own way recently. I mean, fundamentally, Disney is a storytelling company who is fighting for our attention, fighting against the Netflix is the world, the TikTok, the Morning Brew Dailys of the world. So if it doesn't bring its best stunt on stuff on the storytelling front, of course it's going to get lapped in its recent movies, the Marvel's, Wish, Elemental, the TV shows like She-Hulk, they just haven't been that good, which is, I think, the center of Disney's problems and why finally Nelson Peltz thinks he has the leverage to

kind of put himself on the board. And we talked about a hostile takeover earlier this week in the context of Choice Hotels and Wyndham. This is something similar what Nelson Pelt is trying to do. He's an activist investor. He's buying up shares in the company to exert influence. He doesn't want to buy Disney. I don't think he has the money for it. But it's kind of a little cousin of a hostile takeover where you accumulate shares, you put pressure on the board, you take your pitch to shareholders to try to influence management because at the end of the day, Nelson Peltz wants to make money.

He has a $3 billion stake in Disney and he thinks it's underperforming. Do you think, I'm going to put you on the spot right now, do you think he gets his way this time around? Oof. So he's been successful before at Heinz and P&G's had some successes. He's got on the board seat. I don't know. Is that a lame answer? I hear you saying, I don't know what's...

60-40 he makes it this time. You think so? That's what we'll pack it out. We'll go with it. I think Helz gets the board seat. Mark me down. Okay, Toby, you know who really likes their morning brew? China.

The country topped the U.S. as the largest branded coffee shop market in the world this year, according to a new report from World's Coffee Portal. China now has 49,000 branded coffee shops compared to the U.S. is 40,000. And this is a dramatic changing of the guard. The branded coffee shop concept started with a single Starbucks. in Seattle's Pike Place market in 1971, and the U.S. has held the crown in the decade since. But the once-tee-loving China has started to embrace coffee in a big way in recent years,

with 90% of consumers now saying they order from a coffee shop at least once a week. Upstarts like Luckin and Kottie have opened thousands of locations catering to Chinese tastes, while Starbucks is massively expanding in China as well, its second largest market to keep pace. Starbucks opened 785 outlets in the country over the last 12 months. meaning it's opened one location every 12 hours, but is the PSL resonating with Chinese consumers? And it's unclear. While Starbucks was the largest coffee chain in China for a long time, Luckin has sped by it and now has double the number of Starbucks locations. Time to worry.

I think for sure, time to worry. Luckin is absolutely crushing it right now, which is so funny because I remember the scandal of Luckin. It was this hot new item. It went public. And then all of a sudden, it turns out they were fabricating a lot of their sales. number. But what you can't fabricate is just the sheer amount of outlets it has. It's got over 13,000 of them in the country. And it's just made this really, really big comeback. I think where it's been doing a little better than Starbucks is it's almost doing a kind of Uber slash lift market

grab play where they are heavily discounting a lot of their coffees. They're also leaning very much into the quick delivery and partnering with delivery workers. And so I think that they are trying to pull the Uber card, which is we'll lose money grabbing market share by offering these discounts, but as long as we end up winning in the long run, then we're okay with it. Yeah, I also think it's interesting how they might have a better handle on Chinese consumers than Starbucks. I mean, it's very different than the United States. In the United States, we love our iced coffee, but in China, 90% drink hot coffee,

while only 64% drink iced coffee. So Starbucks may, I mean, I'm sure Starbucks has a lot of people on the ground there, and they're trying to understand the different changing taste between U.S. and China, and they've also been very successful overseas, especially in Italy. So, you know, I'm sure they have their ear to the ground there, but Luckin and Kadi may just have a better sense of what Chinese consumers want out of their coffee. Yeah, Luckin offers a cheese-flavored latte, which has been a hit. It's not actually cheese-flavored because I've definitely-

That's disappointing. I know. I've definitely had some cheese flavor. I think at like a boba place, and it wasn't cheese, but I'm not sure exactly what it is. So any Chinese coffee lovers, please let me know what a cheese-flavored latte tastes like. Starbucks is not rolling over by any means, though. It's targeting to have 9,000 stores. And by 2025, it already operates almost 7,000 stores there.

So this is definitely a race that I don't want it. It's heating up, Neil. It's heating up. The hot coffee race market in China is heating up. All right, before I make any more bad jokes, let's take a quick break. Wishing you could be there live for the big game, soaking up the atmosphere of the crowd, but too often, life gets busy,

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You said this place was steps from the water. We just haven't found the thing. steps yet. How much did we save? Enough. Enough to get lost. Or you could book a stay with Hilton. Welcome to your oceanfront room. Just steps from the water. The Hilton sale is on now. Book on Hilton.com or the Hilton app and save up to 20% to get the stay you expected. When you want savings, not surprises. It matters where you stay. Hilton for the stay. The market is doing absolutely fantastic these days. Dow at an all-time high, fantastic. So with your guys' permission, Neil and I are going to break the rules for this week's edition of Stock of the Week, Dog of the Week. We're doing two stocks

of the week, baby, because it's Friday and we're all having fun here. As always, we are just humble podcasters, not financial advisors. Neil, I won the pre-show game of Wii Tennis, so I'm up first, and my stock of the week is Carvana. I won't even bury the lead for you guys. Carvana is on an all-time heater. It's up 990,000. 3% year-to-date and nearly 50% in the last month alone. It hasn't just been one specific thing driving the rebound either. Carvana had a debt problem at the beginning of the year, but by issuing new stock and kind of taking a buy-now, pay-later approach to its debt servicing, they were able to skirt some interest payments and avoid a looming cash crunch. Combine that with the market

having a good year in general, and this pandemic-era darling has just made a heck of a comeback, Yeah, supply chains working themselves out were awful for Carvana because this stock went booming during COVID when used car prices surge because no one could get their hands on a car and they had all of these elevator vending machines all around the country. So they had just this crazy surge. But the problem is they took on a lot of debt. So when supply chains kind of worked themselves out, used car prices came down, new car prices came down a little bit when inflation receded. Carvana was really not in a good place. they got absolutely pummeled. And now they're on their way back. We should note they're still about 85% down from their peak. That's what the crazy part is. It's almost 1,000% this year. And it's still down 86% from its pandemic high.

So it just goes to show you kind of the euphoria of that time. But also how much it has to come, how big of a rally you have to make it back to your former height. So 993% this year. Are you bullish on Carvana after this little surge? or is this just a little blip on its continuing languishing? I do think that the massive surge was due to them figuring out their debt issue because it was an existential issue at the time. And so when they said, okay, we figured out a plan of figuring out how to service this debt,

people are like, okay, we're going to get Carvana's back to the valuation that is kind of more sane. It's not the insane valuation from 2020. So I think that it's reaching a homeostasis point here, and it's not going to have one of those massive runs anytime soon. Yeah, this is just, okay, this company is not going out of business rally. Right, exactly. Okay, my stock of the week is Argentina's bonds, which have surged by around 25% after new president, Javier Miele, started implementing his so-called shock therapy treatment

to repair the country's broken economy. In his first few days in charge, the anarcho-capitalist has stuck to his word of taking drastic measures to bring hyperinflation back from 160%, including cutting the value of the peso in half, slashing new public works projects and reducing government subsidies. Investors have applauded these moves, saying they're exactly the bitter pill Argentina needs to swallow in order to take itself out of this crisis. Yeah, people are drinking the Miele Kool-Aid right now for sure. I love the calling it a shock therapy package, and it's been well received. That being said, Argentina is still in a rough spot. It owes 13.7 billion on international bonds between now and

just two years from now, it owes almost $2 million to the IMF specifically. So there's lots of ifs here. And you have to remember still that Argentina is heading towards probably at six, six recession in the last decade, and inflation is still rampant. Forty percent of the population is still marred in poverty. So even though people are saying this is a step in the right direction, and at least it's a break from the status quo, nothing is quite perfectly on track right now in Argentina. I have a new phrase for you. It's instead of like throw this, kitchen sink at it in Argentina, they say, of course they say it's in Argentina, it's put all of the meat on the grill. I was going to say it has to have to do with meat or cows in some way.

Yeah, so put all the meat in the grill. It's kind of just like throw everything at a particular problem and that's what Miele is doing because the first order of business here is to boost the foreign exchange reserves so they can pay those tens of billions of dollars in debt because right now, as Miele says, there is no money. I love the meat on the grill analogy. I'm going to work it into a show. I should not have done. told you. Oh, no. Okay, moving on. Christmas has come early for anyone considering buying a house because mortgage rates have continued their wrap in dissent. The average rate on a 30-year fixed-rate mortgage fell below 7% this week. It's 7th straight week of declines and the first time it's been

under 7% since August. The fall in mortgage costs is a direct response to the Fed, signaling it will begin cutting the benchmark interest rate next year. And everything here is connected. The Fed's rate influences the 10-year treasury yield, which influences mortgage rates. So when there's an expectation that the Fed will cut rates, treasury yields will fall and so do mortgage rates. Declining mortgage rates aren't the only sign that housing is becoming a bit more affordable now. Rents are falling at their fastest pace since the beginning of COVID, according to a recent report from Redfin, falling 2.1% in November. And in one of the most closely watched housing markets in the country, Manhattan, rents fell year over year for the first time since 2021. Housing and rental costs are still

much higher than they were before the pandemic hit. But it seems like we finally hit a plateau here. Yeah, I think what we're seeing right now is a result of a construction cycle that began during the pandemic. So builders looked at the pandemic era and saw the demand and saw the sky high rental prices and rush to start trying to meet that demand. But it takes a while for these projects to get underway. So three years later, we finally have this influx of supply, which is finally leading to

some relief on rents. Yeah, I just don't know how much supply is actually going to come onto the market from existing homes because, yes, mortgage rates are now below 7%. But when you look at what mortgages people are holding, two-thirds of current mortgage holders have an interest rate on their mortgage right now of 4% or lower, and 90% have a mortgage rate of 6% or lower. So that is the big constraint here is that people aren't moving out of their homes because they're going to pay so much more in borrowing costs, just to move houses. And so that's really constraining supply. Yes, you can build apartments, and that's amazing. That stat is really a relief to a lot of people, the fact that there's this apartment housing boom, but still you have so many people in place. Until mortgage rates get below 6%, I think that will spark a little more supply in the market. Yeah, no one's selling their

houses right now. I do want to talk about a little bit of the disconnect between official government data and what some economists in the industry are seeing, because remember, on the show this week, we talked about how rents were still one of the things that keeping inflation pretty high, and yet here we are saying that they're coming down. But according to real estate economists, is because the way the borough of labor statistics calculates rents is on a every six-month basis, and they kind of survey different regions at six-month intervals. So those official statistics might be lagging indicators in certain ways,

and that more boots on the ground economists are saying, we are seeing rents falling in places like Manhattan, which is obviously one of the highest. Yeah, is your lease up soon? My lease is up soon, and I'm really hoping I see that little 2% fall that we're seeing reflected in the data. Okay, for our final story of the week, the Willy Wonka movie is out,

and as much as I'm sure you all would love to hear Neil and I give a review of Timothy Salome's lovely performance. We're going to do something different and break down the fictional Wonka business, because what a business it is. First of all, the scale of it, Neil. Wonka's chocolate factory is huge and competitors would find it difficult to match its sheer capacity.

Plus, he's got a huge moat when it comes to brand awareness. He is well-known everywhere around the world, and people love the Wonka brand. And don't even think about trying to compete on the research and development front. He has whole teams dedicated to coming up with new and exciting candies 24-7, and he patents his best finds like color-changing caramel and non-multing ice creams.

And I haven't even begin to talk about the oompa lupis. yet, Neil. Who needs business school when you can just look at how Wonka operates his business? You know, Toby, all of the most successful companies have created a brand that sort of stands for something greater than itself. Nike achievement, Amazon convenience, Walmart abundance, Coca-Cola happiness, Olive Garden family. And Wonka has done that as well. He stands for imagination. Neil, that was so beautiful. But it's true. I know. Another thing that you didn't touch on, I agree with the R&D. I mean, he has a whole room, the inventing room that's dedicated to R&D and not, you know,

standing with the status quo and constantly developing. The other thing I think is crucial about Wanka is the mystery and mystique because the golden ticket promotion is all about getting a tour of the factory. Yes, it's free chocolate for life. But I think the key here is a tour of the factory. You get to meet Wanka who has this very mysterious persona. Do you, is there any company that you can think of that, like, does mystique and mystery like Wanka?

The closest I was thinking was actually just Apple because remember there's rumors of them working on an Apple car. Apple does the best in kind of fueling the rumor mill in my opinion where any leak you're like, oh, they're working on something big. So that was the company that came to mine. And I cannot believe we're comparing the largest company in the world to Waka. But I think they're on similar terms. It's the largest company in the world. They're both consumer companies.

Toby, you're a marketer. Walk me through the golden ticket, viral marketing strategy. Can an actual company pull this off? What led to the craze in the golden ticket? What was the key sauce there? It's probably the best promotion that we've ever seen in kind of modern culture because what other promotion immediately leads to an uptick in sales? People were going crazy trying to buy these chocolate bars.

So I do think if you turn, a lot of us marketers get a little caught up in trying to have these beautiful campaigns, and they don't necessarily drive business results. This campaign drove business results because it led to an uptick in chocolate sales, which is the goal of any marketing campaign. So Wonka is definitely something, you know, he's a great entrepreneur. I think we can agree on that. Maybe a little eccentric CEO, but I think there's a few things, a few lessons we should not take. And you mentioned the umpalupas. And I, the umpalupa whole situation is very odd. Apparently, he saved them from their land, from people who are trying to kill them. But now it's this quasi-slave labor situation.

in gentred servitude, he pays them in cocoa beans. I mean, dude, pay your workers a living wage here. We're going to check it in a year and the upalumpas will have unionized. I hope so. It's so weird. Gone from the year. And then also, one thing I didn't like about Wonka's entrepreneurial, his management style is succession planning, because the whole golden ticket concept was to find an heir to his CEO throne. And he's picking this little kid who has absolutely no experience in the chocolate industry. I think you need, sure, he has a very strong moral compass, and that was the whole point of this. He, he's a good kid. He's humble. He's modest. He doesn't get tempted by things. But he has no experience in the consumer

for packaged goods industry. It's a value-driven company, Neil. So he's looking for someone who aligns with his values. I'm bullish long-term on Wanka, as long as the Umpaluma Union doesn't come down the pipeline. All right. That is a wrap on our shows for the week. Have a wonderful weekend, everyone. I'm saying this in front of everyone listening so they can hold you accountable, Toby. Get your Christmas presence tomorrow. Thank you. Everyone, hold him accountable. As always, feel free to send your thoughts on the show or just say hi at our email address, Morningbrewdaily at Morningbrew.com. Let's roll the credits. Emily Milliron is our editor and producer. Samantha Velas and Raymond Lou are associate producers. Yuchinawa Ogu is our technical director. Billy Minino is on audio.

Hair and makeup is 93% perspiration, 6% inspiration, 3% perspiration, and 2% butterscotch ripple. Devin Emery is our chief content officer and our show is a production of Morning Brew. Great show today, Neil. I wish you all well. Yamava Resort and Casino at San Manuel is California's number one entertainment destination

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