Power Lunch - Disney’s War of Words, Retail Red Flags 4/4/24

Episode Date: April 4, 2024

Disney’s proxy fight is over, but the war of words isn’t done just yet. Who deserves more credit for the stock’s 50% rise since its lows last fall? We’ll discuss.Plus, certain well-known retailers have been late paying their suppliers lately. Could that be a signal of potential financial distress? We’ll tell you which names to watch. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Good afternoon, everybody, and welcome to Power Lunch alongside Deider of both. I'm sorry about the weather here, Dee. You're probably not used to this. It's supposed to be better next week. Maybe better next week that you be here. Welcome, Dee, and welcome to you. I'm Tyler Matheson. Proxy fight is over, but the war of words is not.

At least not yet, Bob Iger and Nelson Peltz on CNBC. Who deserves more credit for the stocks 50% rise since its lows last fall? Plus, certain retailers, they are late paying their suppliers. Could that be a sign of financial distraughts? We will tell you which names to watch. But first to check on the markets. They are higher today. The NASDA continues to be the outperformer up 8 tenths of a percent.

The S&P up about half a percent. Shares of Lamb Weston, they're getting mashed today. The maker of frozen potato products missed on third quarter earnings lowered its forward guidance. MASH. I wasn't prepared for that one. All right. Shares of Paramount down 8 percent on doubts. The company will actually merge with Skydance.

its former CEO Barry Diller, Paramounts that is, on CNBC this morning, saying this would be the worst time to sell. And he thinks the company can turn itself around. And let's get right to the other big media mogul on CNBC today. That would be Bob Iger of Disney, talking earlier today with David Faber following his triumph in yesterday's shareholder vote. David Faber joins us now from L.A. with more. David, it seems as though Mr. Iger is being, I guess I would say, magnanimous, at least pointing to some of the salutary impacts of this proxy fight and the enlightenment that may have come from it? Yeah, I think that's a fair statement, Tyler. He's not given any real credit to Nelson Peltz. You know, that was a back and forth that we had, of course, in terms of, well, was there a way that perhaps having an activist in your stock yet again in the form of Mr. Peltz focused you or gave you a greater sense of urgency?

Iger was having none of that. But to your point, he did at least say, hey, you spent a lot of time with your shareholders and there are some benefits that come out of that. you can take a listen. This whole process gave the board and some members of management an opportunity to engage with many shareholders, perhaps on an even deeper level and have a good, honest, candid dialogue where we had an opportunity to describe the shareholders what our priorities are and what our various processes are, including succession. And we had an opportunity to listen to them and hear what was on their minds as well. So I think if anything came of this from, that's positive, is that it did, in fact, increase the engagement that we've had with shareholders.

And that's a very good thing. And, of course, that engagement, as he indicated, is very much focused on succession. I know you guys have discussed that as well on the previous hour, Deirdre, but it's certainly going to be, you know, his legacy in part is going to be defined by who follows him, which is interesting after all these years at the company. David, I was kind of chuckling this morning when you were kind of pushing him and asking if he was still having fun and he was insisting that he is, that it's always fun to rent Disney, even when he's facing these shareholder battles. Is there a chance he stays past 2026? Has that just been upped because of everything that's happened over the last few months? No, I mean, I know you asked that earlier. No, I don't see that at all. That would really be unexpected. Again, you are talking about somebody who's extended his contract so many times through the years. go around, of course, before he finally stepped aside. And then even the second time, if you recall,

as you well know, he'd come back for what seemed to be a period of what was originally two years, only to extend for another two years. That said, I would be shocked, frankly, if it went beyond that. This board needs to get this right. They've talked about it a great deal over these last few months, how important it is. Mark Parker and James Gorman heading up that committee on the board that will be looking at successors for Mr. Iger. And I just have a hard time imagining it would, in fact, to go anywhere near towards the end of his tender. The key will be when somebody does come in and how long that transition is. And Iger was not willing to give me a timeline. You know, I sort of said, well, how about a year? Would somebody get a year to sort of get a sense for the job while you're

still CEO, but he wasn't willing to go there? Is the betting that it'll be an insider or someone from the outsider, do you know? You know, I think it's too early to say. There's certainly a number of the candidates internally. This is not a company that has gone outside, as you know, Tyler. That said, if you want to go way back, which of course I can, when Iger succeeded Eisner, there was some outside candidates. Meg Whitman was in there. I would guess that the higher likelihood is you have an internal candidate, but I think they will at least take a look externally. So what's next for Nelson Peltz? Is he going, is he likely, he's what, he's got three I don't know, three billion shares or three billion dollars of shares. I can't remember which it is.

No, it's three billion dollars, yeah. Three billion dollars of shares. And what's he likely to do? I mean, he can, I suppose, be satisfied that his stock holdings are worth more now than they were before this all started. Yeah, I mean, he's going to point to that, and certainly there has been a benefit in terms of the position that Tryon has. Don't forget, though, most of that position is actually made up of Ike Perlmutter's stock. Remember, Ike Perlmutter, the man who, who sold Marvell to Disney many years ago and was the main shareholder there, or got shares in Disney as a result of that transaction. And so, you know, you'd expect he's going to continue to,

listening to Peltz on with Jim Kramer this morning after our IGRA interview. It was hard to even figure out whether this proxy fight was over, but it is over. And it was one fairly resoundingly by Disney. I think that's an important point to make here. And, you know, I think Iger is very much happy to be moving on now to focus on the things that are the key here, not just succession. But as you too well know, the success of the direct-to-consumer business, which is really the crucial component here in terms of growth for the company. Right. And in your interview, he talked about sort of Netflix being the gold standard here.

And I wonder, David, how much time does Bob Eiger have before perhaps other agitators get in here? What does he need to do? Is that that direct-to-consumer business, he needs to show better profitability? Yeah, I mean, listen, this last quarter, which helped the stock price enormously, D, was where they showed losses that were well below than what had been anticipated. And they are now talking about direct-to-consumer. It's Disney Plus that we're talking about here, is going to be profitable by the end of the year, prior to the end of the year. It is clearly going to be the number two. And I sensed from Eiger in this conversation, certainly in contrast to R1 from last summer when we were in Sun Valley together, a real optimism on his part. I think there is a line of sight now, specifically it would seem,

in terms of profitability. He believes it will be a growth business that it will have double-digit margins over time and perhaps even will compete with the likes of Netflix. That said, I also think there's an interesting component to our conversation that may have been overlooked, which is, well, what about the others? What about the Paramount Pluses out there? What about the Peacocks, our own, or even Warner Brothers Discoveries, Max? You know, can they compete? Take a listen to what Iger how to say about that. We know what you need to be successful in streaming, and not everybody has that. And I'm not sure everybody can get it.

We know that we can, given everything that I've discussed, given what, you know, obviously the content that we have and the technology that we're building and the brands that we have. I don't think everybody does, though. I think there's got to be some consolidation in the business. Which is interesting, of course, specifically as well as we sort of talk a bit about Paramount, too. You know, you mentioned it at the top there, Tyler, and what's going to happen with that company. So let's talk a little bit about the future of Disney with respect to the theme parks and to their, what had been distracting political issues that had ensnared the company a couple of years ago,

maybe less than, I guess a couple of years ago, in Florida. Those are largely behind it. Are they not? They are. They've settled with the state of Florida. They do still have a federal case in terms of free speech where they said, you know, they were being prevented from exercising their free speech, essentially. But this was a bitter dispute, as you well know, that pitted Governor DeSantis against the company. It had gone on for quite some time. There is still this sort of overarching anti-woke campaign against Disney to a certain extent. Iger, for his part, is like, get me out of these culture wars. He has no interest at all. He just wants to be focused on making great entertainment and doing that and appealing as to as broad an audience as you can, Tyler.

But I certainly think they're on the closer to the other side of that than they have been. And so if you take sort of the D to C business as sort of the number two problem aside from succession, last time he handed over the reins to Bob Chappek, that was just getting off the ground, right? We're some years into this exercise now. And does that give an edge to some of the internal candidates, the ones that are perhaps at the forefront of that business? You know, it may, particularly if it really does hit and exceed the targets that are in place. Remember, a good amount of it is also is cost cutting. They've taken $7.5 billion out of the business overall. That's all of Disney. But some of that is within the content budget and efficiencies and things of that nature. But certainly you'd think if they do hit and exceed profitability metrics, that would elevate, you know, the two executives to sort of have oversight for that. Dana Walden and Alan Bergman. So, but it's, I think it's really too early to say. You know, people can start that whole process, but it doesn't seem to me that there's any

sort of a fulsome debate yet in terms of exactly who's going to be in the running. David, thanks very much. David, Favill reporting from California for us today. All right, let's move on to the markets more broadly now. Fears that the Federal Reserve may keep rates higher for longer of weight on stocks this week. And as a result, tomorrow's jobs report will be closely watched by investors. Always is. you a little more this time. Let's bring in Carl Farmer, portfolio manager with Rockland Trust. Carl, it seems this week that there is a growing sort of thought base that indicates that inflation may be stickier and that the result will be that the Fed will have to keep interest

rates higher than they might otherwise. Where do you come down on this? And are you worried by the possibility that inflation may be, maybe harder to get to that 2% number than thought? I think you're right. I think it is going to be a little harder to get. to that 2% that maybe initially thought a year or so ago. Thanks for having me on today, by the way, Tyler. Of course. Appreciate it. One of the things that we may see here is that right after Powell spoke, there was sort of a 60% chance now that there'll be a cut in June, the first cut.

Before that there was about 50. But I say that's certainly not a given. I mean, if you look out to the end of the year, the market's still pricing in really just a 50-50 chance. We even get the three cuts that the Fed currently has projected. So the fight against inflation certainly isn't over. I mean, you see some of that in the jobs report or the expectations as well. Wouldn't be surprised to see unemployment tick up a little bit above 4% before the Fed's job is done. And yet the market seems relatively stable.

A little bit of wobble here in recent days, last 10 days or so. But the market seems relatively stable as though they can deal with inflation that's maybe not at 2%. they can deal with maybe two cuts, not three, or maybe even one cut, if profits hold in? You agree? Well, so the first quarter was fantastic. Like you say, we're off to maybe a bit of a wobbly start just a couple of days into the second quarter. I saw a report from J.P. Morgan's Guide to the Markets recently that they did a study historically that all-time highs are not always a bad entry point.

I think the one thing that may give you pause is that we're trading at 21 times next year's earnings estimates, but all-time highs, really since 1988, subsequent returns one, two, three years out have been slightly better on average than any other day. So I think you're right. There's some optimism and certainly some momentum behind what the market is seeing right now. But I guess a quick reminder is that it's not all technology led. The rally we've seen is also expanded to energy, financials, and industrials, which are all up more than 10% in Q1. So there's others to be seen out there besides tech. Certainly seen more in breadth this year. Carl, Steve, Lee Sleasman brought up this idea in the last hour that maybe it's even better for markets

if a rate cut is actually taken off the table in June because that means that the Fed would still have it in its back pocket, a Fed put will you have it? Do you think that the market would view it that way as well? Do you agree with that? I think there may be some truth to that. Certainly always having that in your back pocket directionally makes some sense. Also, I think it's still an indicator that you may still see stronger economic growth. certainly the labor market has been above above anybody's expectations in terms of its resiliency so far. So I think you make a good point.

And finally, Carl, the other big catalyst coming up is the start of earnings season, and you could make the case that a stronger economy is better than looser monetary policy. How important is that going to be for markets? And I was talking earlier about Tesla's delivery numbers, how that really hit the stock hard. And Tesla, sort of a unique case, a unique stock, But could it be a warning that misses coming up in the next few weeks and months during earnings have the ability to rattle markets more than they might have before? Oh, definitely. One thing, I'm not necessarily saying Tesla will be a canary in the coal mine, but heading into earnings season, I think you're going to see active stock selection being rewarded.

You certainly saw a difference between, you know, the results from Nvidia versus Tesla, as you mentioned. And I think you're going to see some separation as companies begin to not only report what happened in the first quarter, but if they're, if, they're willing to give projections of what they see next. Carl, thanks very much for your insights. We'll be watching tomorrow. Everyone will be. Carl Farmer. Treasury Secretary Janet Yellen arriving in China today for four days of meetings with Chinese

officials. For more on whom she's meeting and what they will talk about, let's bring in Megan Kasella. Megan. Hey guys, so Yellen's trip is aimed at managing the economic relationship with China. She'll be pressing Beijing on areas of concern and looking for room for cooperation. Her schedule includes meetings across two cities with government officials, as well as the head of the Chinese central bank and American business leaders working in China. She'll also spend two days meeting with her with He La Fang, her counterpart on the economy. Now, Yellen has made clear that a major focus of her meetings will be China's massive investment in manufacturing of products including solar cells and EV batteries,

which she says has led to overcapacity that hurts manufacturers globally. During a refueling stop on the way to China yesterday, Yellen said that while Inflation Reduction Act Funds, is helping boost U.S. production of these products, more action could be needed. We're providing tax subsidies to some of these sectors, and I wouldn't want to rule out other possible ways in which we would protect them. Now, guys, the trip comes just after President Biden spoke with President Xi earlier this week. And after that call, the Chinese embassy warned that if the U.S. took further action to restrain, China's development, Beijing would, quote, not sit back and watch. So it's clearly a source of

friction heading into this trip. Guys. So, Megan, what would that further action look like then if the U.S. did take additional steps on overcapacity? Tariffs are a very likely answer here. We have heard. We know that the administration has considered imposing further tariffs on China, potentially on electric vehicles specifically, adjusting some of those tariffs that were imposed during the Trump administration and are still in place. But we know that China is not, is going to respond to that. Just last week, they sued the U.S. at the World Trade Organization over our subsidies on electric vehicles already. They say, you know, there's really going to be some tip for tat here because China's the one saying that we're actually engaging in market distorting subsidies,

not them. They're defending their own action. So it's obviously going to be a big part of the discussion this week. Right. We know you'll be tracking it all. Megan, thanks very much. All righty. Coming up, a canary in the natural gas pipeline? Well, prices turning negative in a major West Texas hub. That's another sign of market oversupply negative prices. Plus, further ahead, changing trends in the liquor business. All stemming from a slowdown in consumption, we'll talk the state of the industry when power lunch returned. Who's news? Our natural gas prices down nearly 30 percent so far this year. And in one region in Texas, prices actually falling below zero. Could that oversupply problem spread throughout the

Nat gas industry. Pippa E. Stevens. You got it. I got it. You know, everybody knows who Pippa is. joins us here with more. Hey, Pip. Hey, Tyler. So, not gas prices at one key delivery point have dipped into negative territory, as you said, in a sign of just how oversupplied the market is, with producers effectively paying pipeline companies to transport it. So we're talking about Waha in the Permian Basin, which straddles Texas and New Mexico. Oil is the cash cow there, and gas is produced as a byproduct, meaning that even when not gas prices tumble, production doesn't slow,

especially with WTI at $85. Pipeline infrastructure hasn't been able to keep up with all this new gas coming out of the ground, and with demand a week after a warm winter, there's just nowhere for the gas to go. Now, it's important to note that Waha prices have been negative before, especially during shoulder season,

like right now, which is between the higher demand periods of summer and winter. Still, OTC Global Holdings, Campbell Faulkner told me Waha is a canary for the wider North American gas market, as he put it, an ocean of supply, but not enough consumption. Now, the much more widely followed Henry Hub price is still positive, although it's under $2 forcing some producers to curb output. Got to ask you.

So when the price is negative, what you said there is that the companies that are producing the gas have to pay the pipeline companies or the transporters to transport it. That's right, yes. But where do they transport it if there's over? where do they carry where do they take it where does it go so they can squeeze out a little bit more in the pipeline usually and there are some companies like energy transfer that might have some on-site storage capacity that's otherwise full so they can put it there but the other alternative and what's traditionally been done is flaring and so what you really want is that oil and then when

you pump for oil alongside the crude you also get nat gas and not gas liquids and so traditionally producers have just flared it because they don't hear about it put it on fire burn it exactly But now that's really coming under fire since it's so bad for the environment. I would think that that would not be a popular thing among the environmentalists. Exactly. But so we have to distinguish between the types of companies here because the big, the large publicly traded guys, they typically have those long-term contracts in place. So they're not really exposed to these negative prices.

They don't really have to deal with it. So it typically is the smaller players, including the private players. They've brought a lot more production online with WTI passing 70. They've really ramped up output. So they're the ones. And they don't have shareholders to answer to when it. comes to flaring. And Texas has traditionally, you know, offered exemptions in certain cases for flaring, you know, one being that you have 45 days from the start of production to flare.

And so there is some kind of, you know, wiggle room around the flaring, but producers are trying to cut back on it. And then there is nowhere for it to go, as you said. I'm going to ask a very cliche question because when I think about natural gas, I'm increasingly thinking about data centers. A lot of tech companies are going to need a lot of that compute power for artificial intelligence, et cetera, et cetera. How does that play? And is that more of a medium-term thing, or can you sort of tell how much demand there's going to be for an upcoming season? I think right now we're still in the early innings of what AI and data centers is going to mean for not gas and power demand, but there is definitely this growing understanding that

there is this huge surge coming and renewables definitely can't meet that alone. For data centers, as you know, you need 24-7 reliable power and renewables and batteries aren't quite there yet, and so you do need something like Nat Gas. And we're hearing all these producers talk about it, notably Toby Rice and EQT, when he bought Equatrans. He said the data, center alley. Access to that was so important. But I think another thing here is that if you can get, if we have all this gas, but without the pipeline infrastructure to actually get it to the demand center to where the data centers are, that really starts to limit things. And when you have prices at where they are right now with Henry have under $2, there's no incentive to build

new pipelines. Interstate pipelines are very hard. Intrastate are a little bit easier. But if you don't have the price signal, it's a big investment. You're not going to do that. Got it. Let's talk about the broader energy sector doing just fine. The S&P. 500 energy sector is up again today just a couple days after breaking through a record high set 10 years ago. Pippa, tell us what's going on here. Another record high today, and it's pretty remarkable given that energy was all but left for dead a couple of years ago. But, you know, the sector has emerged from the out of the pandemic as a wholly different value proposition. They have very attractive, free cash flow. They have very high dividend yields. They're returning a lot. Rob Thummel over a tortoise

told me that the EV to EBTA level enterprise value to EBITDA is trading below historical norms. And so investors are finding some value here. It does remain to be seen if this is part of a broader market rotation and kind of macro-driven versus new interest in the energy sector itself. But we did screen for some names that still look attractive using the CNBC Pro Stock Screener. And among those names Halliburton, Marathon Oil, Cotera, and Chevron, top to the list. And then also using the stock screener in terms of who looks good from a valuation standpoint, also Chevron, Devin, Kinder Morgan, and Diamondback. So still potentially some upside, but names like the refiners have doubled since the recent low. So maybe looking elsewhere in the sector. Pippa, thank you.

All right. Fantastic. Further ahead, retailers like Sacks and Express failing to pay vendors on time, souring business relationships, and raising a red flag for investors. We'll have details on that story after this. Welcome back to Power Lunch. Stocks have turned lower. The Dow just falling into negative territory, down nearly 190 points in breaking through that 39,000 level. That's a lot of. That's On bond yields ahead of tomorrow's jobs report, Rick Santelli and Chicago for us. Rick. Yes, Deirdre. We've had some volatility, obviously, in stocks.

And how we set up for tomorrow's big March jobs, jobs, jobs report? Well, let's look at a year-to-date chart of 10-year yields. We are now hovering near the highest yield closes of the year. It's going to be a close call, indeed going all the way back to November. And if you look at the dollar index, it's slipping from a recent four-and-a-half-month high close. That is the landscape we're going into tomorrow's number. Maybe more importantly, what are the key variables to pay attention to? That's easy.

I'll give you the big two right now. When we look at the unemployment rate, it jumped up to 3.9% in the February jobs report. That's the highest unemployment rate going back to January of 22. And month or a month average hourly wages, the smallest gain up 1 tenth of a percent in almost three. years. These are two variables that have huge ramifications, not only as barometers of the U.S. economy, but maybe more importantly, especially for the equity markets, and, of course, the yield curve in treasury yields is how it'll all be viewed by the Federal Reserve members. Tyler, back to you. Rick, thank you very much. Let's go meantime to Bertha Coombs. She's got a

CNBC News update. Bertha. Hi, Tyler. The White House says President Biden told Israeli Prime Minister Benjamin Netanyahu that future U.S. support for the war in Gaza depends on Israeli taking immediate, Israel, rather taking immediate measurable steps to prevent further civilian harm. The demand came during a 30-minute phone call this afternoon, just days after an Israeli airstrike killed seven aid workers in Gaza. No labels. The centrist group looking to run a third-party candidate for president is reportedly a abandoning its attempt to create a unity ticket this year. Wall Street Journal reports that the organization is making the decision

because it has not been able to find a credible ticket that could win the election. And Stanford University announced a new leader months after its former president resigned following scrutiny of his scientific research. The university says the board of trustees appointed economics professor and school of business dean Jonathan Levin to the position. today, he will take the helm on August 1st. Tyler, back over to you. And a young fellow indeed.

Bertha Coombs, thank you very much. As we had to break, a quick power check. On the positive side, Genarack on track for its longest winning streak since August of 2021. On the negative side, Lamb Weston, reducing full year guidance. That's your power check. We'll be right back. Welcome back to Power Lunch. It's time now to get into high spirits with a check on the beverages space.

A Gallup report finding Americans' drinking habits are changing young adults significantly cutting back on alcohol compared to older generations. Get this, only 62% of people under 35 said they drank last year. That's down from 72% two decades ago. And their drink most likely contained a liquor with spirits out selling beer for a second year in a row, according to the Distilled Spirits Council of the U.S. So what does this all mean for the industry? Joining us now to discuss is Ed Mundy, managing director of beverages, research at Jeffries. Ed,

it already feels like we have so many new spirit brands. What does this mean? Are we going to see some consolidation or more celebrity endorsed spirits? Sure. There's clear a lot of spirits out there. And I think for younger generations, they tend to be a lot more experimental, I think,

relative to prior generations, they're coming into alcohol with more options. I think they do drink, they still drink, but they probably drink less frequently and probably less intensely. And ultimately, I think that's quite good. of longevity of this industry. So go ahead, Tyler.

I was going to ask you what's happening with respect to sweet drinks. In other words, if I'm reading my son's demographic well, they don't drink as much beer as maybe their fathers did, but they certainly

drink more of what I would call sweet beverages, whether it's spiked iced tea or spiked lemonade and so forth. Am I reading it right? I think you're absolutely spot on. I mean, what you tend to see is that, you know, people don't necessarily want to drink what their parents drank. And you often do see, you know, people skipping a generation when it comes to sort of drinking. I think there's more accessibility in some of these sweeter drinks.

And, you know, what's really hot at the moment, frankly, within the spirits industry, is tequila, you know, mescal, you know, bourbon. But what you're referring to are, you know, what we refer to as ready to drink, products. That was initially malt-based ready-drink products, such as white claw, and that's migrated onto spirits-based related-to-drink products. But there's going to be continued product proliferation. As you say, like, iced tea, hard iced tea is really, really hot. And in three or five years' time, it's going to become something completely different. So the beauty of this industry is it continues to evolve. And, you know, it's a pretty lively industry to follow. Ed, what about some of the other alternatives like cannabis and psychedelics, which you see more and more

of in a place like San Francisco, do you think that the spirit companies, some of the drink companies, are going to start to delve more deeply into that space? Well, it's hard to really know what the pure impact is of this, because there's obviously been a big sort of gray market, you know, before it's been legalized for recreational use. I think there's probably, you know, enough space for a lot of these activities to sort of coexist alongside each other. But ultimately, the big picture here is that people are not drinking more alcohol. Alcohol levels have been quite steady for, you know, over 20 years now, but what you have seen is you've seen a shift, you know, from beer and wine into spirits.

And that's a generational shift that's taken 20 years. And I think it's still got momentum. What's happened over the last couple of years is that, you know, there's been a super cycle during COVID. You know, people were stuck at home. They traded up. And they made more cocktails, frankly. So the industry at the moment's going through a little bit of a normalization phase. But ultimately, I think the long-term prospects for this industry are still very, very bright. How important is it? It seems as though celebrity branders or endorsements are more important than ever. In some cases, the celebrities are part of the founding group.

I think of Clooney with Cosamigos or Ryan Reynolds with aviation. Jim. Gin, how important are those celebrities and how risky is it to tie your brand to a celebrity? And here I'm thinking of Diddy? who's got his legal problems. Sure. Look, I think, like, celebrity endorsements, they're not unique to spirits. You know, you're seeing this across, you know, a lot of consumer staples, you know,

whether it's, you know, coffee or whether it's makeup. And clearly outside of consumer staples and, you know, clothing and cars and what have you. You know, part of it is just, frankly, the growth of social media. You know, it's a key toolbox for, you know, the 21st century marketing. But, look, I think the recent boom in celebrity endorsed liquor brand, is, you know, partly down to successive Casamigos, which has really set the bar, you know, quite high for services looking to come into spirits and then looking to exit, you know, once the brand has reached a certain critical mass. So, look, I think it's not without its risk,

but if it's done well, you know, it can be incredibly successful. Do you have three favorite stocks in this area? Just quick? Yeah. Yeah. So what we like, we like beer stocks more broadly. So, look, our top stocks would be Heineken, it would be ABI, and it would be Carlsberg. You know, beers had a really difficult last three or four years. It's been a real COVID loser. It's been hit by, you know, the disruption to the industry, you know, from pubs being shut. It's been hit by, you know, disproportionately hard by, you know, glass costs going up, production costs going up and then barley costs going up. So, you know, Bairz had a really, really tough year, tough last couple of years. And, you know, what we see is we see confidence in beer investments, you know, started to grow off a relatively low level. the stocks are very, very cheap. And I think expectations across the street are quite well set.

So there's scope for earnings momentum as margins start to expand, as growth starts to come back. And that will drive a re-rating, I think, for these names. So beer is what we really like. Yeah. Go for beer. I love it. All right, Ed, thanks very much. Ed Monday. Big drop in the markets in just the past half hour. Let's bring in Steve Leasman for the latest we've heard from members of the Fed. A lot of Fed chatter going on. A lot of Fed chatter. We don't know why the market accelerated to the down. You can kind of see it if you look closely as what happened.

But I want to tell you that the feds Neil Kuskari, the president of the Minneapolis, Fed's saying if inflation continues to move sideways, it makes him wonder if they should cut rates at all this year. What you saw was that the market was headed down. And you see where that dotted line is right there? That's about when Kaskari made that remark. And that's where you have that other move to the downside right there, whether or not that accelerated, something was happening, whether or nothing could do at all. I will say, Tyler, the sometime.

total of all the Fed speak we've had today is we're going to take our time. Yeah. And at some point, I don't know if you're a kid and you say mom or dad, when are we going to go get ice cream and you'll say in a while, in a while, you give up hope. You get a little frustrated and at some point, I mean, so that would suggest that the general tenor of we're going to take our time is a kind of hawkish tenor. And that now I have not seen the probabilities move. Yields on the two-year, if you look, are actually lower the 10-year as well.

which doesn't suggest this was all a Fed rethink, but that is one of the more hawkish comments that have been made in several days of Fed speaks, Heather. All right, Steve, thank you very much. Appreciate the explanation. And still ahead. Retail red flags, troubling new data, show relationships between popular retailers, vendors,

soaring, due to late payments and other issues. We'll get the key details when Power Lunch returns. Welcome back, everybody. new data from business intelligence firm CreditSafe, raising some red flags, about the retail industry. Names like Peloton, Sacks, Express, and others seemingly paying vendors late and souring relationships in the process here to discuss that is CNBC.com, retail expert and reporter Gabrielle Fon Rouge. Gabrielle. Thank you, Tyler.

So this data from CreditSafe, it paints a really interesting picture about the retailers that could be at financial risk in the coming months, in the coming years, especially if we don't see turnarounds when it comes to. sales or other operational challenges that they're having. So it's important to note that this data is not a complete trading profile for a company. It comes from suppliers sharing that information with CreditSafe. So it's a great insight into the state of affairs. It's also showing you how it changes month to month. And so that's really where it's most important because a retailer might, or any kind of business might, you know, pay their suppliers 10 days late every single

quarter. But if they suddenly start paying them 20 days late in one month and then goes down to five days late and then 30 days late, that's showing issues with cash flow. You're not projecting for changes in revenue. It's showing some financial distress. When I think about Peloton, I think about by now, pay later. It was, you know, during the pandemic when it had this, you know, huge rise, a lot of folks were using those tools to, does that have anything to do with a name like Peloton? So they, of course, they work with the firm to finance some of the bikes. and the hardware. That's a burden that a firm takes on. And they actually, like, when they report their own earnings, they separate Peloton because it's just its own whole thing. So this

would be things like anywhere from, you know, warehouse, you know, cost, any kind of materials costs that they're using to build the bikes. They have plenty on inventories, so they're not building that many. It could be even things like toilet paper and office supplies that you need for your office, things like that. What is this generally portend for the companies that are late? What happens to them? Are they more inclined to have to go into a distress situation, raise capital, go bankrupt? What? When companies have soured relationships with their vendors, it's one of the things that push them into a restructuring.

It's massively important to have a good relationship with your vendors. When you're thinking about a company like Bath and Body Works or even like Bed Bath and Beyond, that was one of the things that accelerated them into bankruptcy because in the year leading up to their filing, they were paying their vendors late. Later, later, later, later. Bender started tightening those terms, started requiring payment on delivery. And then when Christmas, when the holiday season rolled around, they didn't have any inventory to stock on the shelves because they couldn't pay on demand. Their liquidity was under pressure.

They didn't have the cash. And then they weren't able to, you know, affect the turnaround that they needed, right? So right now, this is kind of the writing on the walls. If this continues, it could cause a lot of trouble for them. And it's kind of like a canary in the coal mine situation. And you've got Peloton stock, what? At $3. Put the chart back up there.

Maybe a three year or five year of Pelotan. You got to go, yeah, from pre-pandemic. Yeah. Look at that. $3.95. $0.25 down about 2% today alone, 66% over the past year. And Tyler, what's really important when you think about Peloton is what's their balance sheet. They've got a lot of debt on that balance sheet.

They've got a billion dollars in debt that they took out for free a few years ago. That's no longer going to be free soon, especially if the Fed doesn't cut the rates like everyone is expecting them to. And then they also have a term loan as well. And if they're going to need to make about $800 million in payments by next November to avoid triggering an early maturity. So it's all kind of teetering, right? If you have debt, if your sales are falling, you don't have positive free cash flow.

How much longer can you go on for? We just put up Peloton's statement with respect to the credit safe data. They do not see the same fluctuations or monthly drivers that are being reported. They say they are adequately capitalized and their access to capital remains strong. Gabrielle, thank you. Thank you. Appreciate it. Coming up, the cloud, cars, and clothes will get the trade.

on Palantir, Ford and Levi Strass ahead in three-stock lunch. We're back in two. Over the last hour or so, we've seen a turnaround in the markets. The Dow Industrial is down nearly 400 points. We broke the 39,000 level. The S&P 500 is down 7 tenths of a percent. And, Tyler, I'm looking at sectors, health, technology, financials. Those are the ones getting hit hardest at the moment.

There's been so much, as Steve Leeson pointed out, a lot of Fed chatter this week, a lot of growing concern, I guess concern is not too strong a word, about whether inflation is slain or not. And Neil Kashkari, the head of the Minneapolis Fed, within the past couple of hours, saying maybe we don't even need to cut rates at all this year. That's sort of taking the rug out from under a lot of the working hypothesis about 2024. The start of the week, we thought, okay, maybe we're not going to get that June rate cut. That's in doubt. But none at all. That would be something different. Quite quite surprised.

Got jobs report tomorrow. so that'll play a big factor. That'll be a bit. We'll be talking about a little bit here, I suspect, on Power Lunch. Sure will. Meantime, thanks for watching Power Lunch. Closing bell starts right now.