Loading summary
Transcript81 lines
- [00:00]
A
Many employees can't afford a hefty medical bill that pops up out of the blue. But it happens. And employees who are financially stressed are understandably more likely to be distracted at work, costing their employers greatly in lost productivity. Luckily, Aflac plans help with out of pocket expenses not covered by health insurance and can be offered at no direct cost to businesses. Learn more@aflac.com Frumarkets that's aflac.com Frumarkets the Hollywood Saga continues. That's As a judge presses pause on the Paramount Warner Brothers mega merger, we have the latest on what could be a costly injunction. Taco Bell in the middle of a food safety scare. Consumers are nervous, but Wall street has been here before we break it all down and Chevron we explore why the US Company just signed a deal doubling down on energy out of the Middle east for Monday, July 20, it's Brew Markets Daily and I'm Ann Bar. More market details to come. But first, Chevron shaking up the oil markets with a significant new move into Iraq. On Friday, the energy OG market cap over $375 billion, signed a new preliminary agreement with the Iraqi government to develop the massive West Corner 2 and in Assyria oil fields. West Corner 2 already produces about 460,000 barrels of oil per day, and it's one of the largest producing oil fields the world, where Chevron entered exclusive negotiations on West Corner two earlier this year. Interestingly, that's after Iraq had reclaimed the project from Russian energy company Luke Oil amid its concerns about US Sanctions, Chevron is also evaluating pipeline routes that could carry Iraqi crude through Syria to Turkey into the Mediterranean, giving Iraq an alternative to shipping through the Strait of Hormuz and representing a meaningful investment into new export infrastructure. Well, months of instability in the Middle east and repeated concerns about the security of the Strait of Hormuz have renewed interest in export routes that bypass one of the world's most important oil chokepoints. Just today, Iran's Houthi allies declared a maritime embargo against Saudi Arabia, escalating the threat to the oil market after repeated threats to close the Bab El Mandeb Strait. That strait connects the Red Sea to the Gulf of Aden and to global markets, another important choke point for commercial ships. Well, Saudi Arabia has diverted millions of barrels of oil daily through a pipeline to an export terminal on the Red Sea volume. By the way, that's offered a critical mitigant to blockades and the shortages that have been coming out as a result of the hits on the Strait of Hormuz. A closure of Bab El Mandeb would block in those much needed barrels. All of this means that Iraq has an opportunity to position itself as an attractive strategic destination for Western investment to expand production capacity and diversify how oil reaches global markets. And in addition to the Chevron deal, ConocoPhillips would also push into Iraq by acquiring a substantial stake in BP's Kirkuk operations, altogether representing $60 billion of new activity in the country. Well, this caught our eye because despite the conflict in the Middle east, when you might think investors would shy away from the region, the Chevron deal actually signals that major oil companies still see the Middle east essential to future global energy supplies, even in the face of years of investment flowing to other places like to US Shale and to international production zones such as those in Guyana and offshore Brazil. Well, the deal notably strengthens economic ties also between Washington, D.C. and Baghdad at a time when Iraq is balancing relationships across the United States, Gulf Arab states, but also Iran and China. Well, lots going up here. And Chevron's reaction to all this, pretty interesting for shareholders that stock up about 2% on Friday, hot off the news, hitting just over 187 bucks. Going up again another one and a quarter percent as the turmoil continues in the region. We're going to keep on watching. Well, coming up in a moment, we look at lettuce and survey the market fallout from the foodborne illnesses making headlines. The first, a few highlights from the day's trading session. Kicking it all off with earnings.
- [04:16]
B
That's right, shares in Domino's Pizza Ticker DPZ are up around 2% today after the company reported quarterly revenue that topped Wall street estimates. And the bulk of that increase came from the company's supply chain business. That's the part of Domino's that sell pizza ingredients like dough, cheese and toppings to its more than 7,000 franchise stores across the United States.
- [04:36]
A
So that revenue beat can be attributed to the chain opening new locations in the recent quarter along with a rise in the price of ingredients. The restaurants themselves, though, underperformed with us. Same store sales, that magic metric seeing their slowest growth in five quarters. Well, despite today's gains, Domino's stock still down more than 23% this year and sticking with earnings heading to the movies this time. Shares in theater chain AMC Ticket. Yep, you guessed it. AMC surging 25% after the company posted a record setting second quarter revenue of $1.6 billion set a new high, up 14% year over year. And EBITDA. That's a measure of profit jumping almost 70% versus a year ago.
- [05:18]
B
And it wasn't just higher popcorn prices that generated these results. Total attendance was also up 4 14% year over year. And the box office momentum continues. Just this past opening weekend of The Odyssey made $125 million in domestic ticket sales. And AMC said that over the last weekend they had 4.3 million people in one of their theaters. And I have a ticket for this Friday.
- [05:40]
A
Oh, I'm so jealous. I want to go to the IMAX version.
- [05:42]
B
Oh, I think you have to get in line. It's a whole thing.
- [05:45]
A
Well, I'll see it many times. I do one imax one, not imax if you can.
- [05:48]
B
So it seems like today's raise in share price is based on fundamentals. That said, the stock is still down 98% from its 2021 high when AMC was an actively traded meme. Stock now moving out of earnings and into AI shares in Chinese tech and e commerce conglomerate Alibaba ticker B A B A gained around 5% after the company released an upgraded flagship AI model. According to the company, the new model is second only to Anthropic's Claude Fable 5, which is considered the most advanced LLM currently available.
- [06:18]
A
Well, speculation is growing that China is closing the gap with the United States when it comes to levels of AI sophistication. Just last week, Moonshot and other the Chinese AI company released its Kimi K3 model, surprising Silicon Valley with its advanced capabilities. And finally, a quick update from Hollywood. The proposed Paramount Warner Brothers Discovery merger has been hit with a temporary 14 day restraining order. The order comes after A coalition of 12 states sued to block the $110 billion deal last week, citing antitrust concerns.
- [06:48]
B
And that's bad news for Paramount because time is money. Literally in this case. If the merger isn't completed by the end of September, Paramount will have to begin paying Warner Brothers Discovery shareholders a quarterly ticking fee of 25 cents per share, which could roughly add up to $650 million every three months. Shares impairment fell to a fresh 52 week low today. And for its part, Warner Brothers discovery stock down 3%.
- [07:12]
A
Well, coming up, Chipotle, McDonald's and now Taco Bell. We take a look at how markets have reacted in the past to something they've all got in common, which is they've experienced supply chain problems.
- [07:23]
B
So it's no secret that financial stress can take over every aspect of your life, especially when facing an unexpected $1,000 medical expense that may be unaffordable. Employees experiencing financial stress may be more distracted at work, which can impact productivity and may even contribute to the decision to leave their job.
- [07:41]
A
That missed work can cost employers and lost productivity. That's where Aflac comes in.
- [07:45]
B
With Aflac, you can help reduce that stress with no direct cost to your business.
- [07:50]
A
Aflac aims to pay claims quickly, accurately and fairly. Plus, you can save tax dollars for your business and employees when payroll deductions are made pre tax.
- [07:59]
B
Get started@aflac.com BrewMarkets that's aflac.com BrewMarkets this episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome?
- [08:12]
A
That's new.
- [08:13]
B
It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50 page restoration block. Or finally break down that long article you've had open for weeks. Gemini and Chrome is here for it, ready to make anything online make sense. There's no place like Chrome. Check responses set up required compatibility and availability various 18 plus
- [08:33]
A
one of the biggest stories from the past week remains the foodborne illness that has made thousands of people sick in the United States, something that is still being investigated. And Taco Bell is feeling the fallout with its share price down and investors wondering if this can be a contained episode that's quickly remediated and forgotten, like we've seen in the past with restaurant chains such as McDonald's or if it's going to do long lasting brand damage, which is something we saw a decade ago with Chipotle. Well, before we get into some of the historical comms and before John, we get up to speed on what's happening, can we talk about. You've been a bit of a commentator on the subject of illnesses lately.
- [09:08]
B
Over the weekend in Manhattan, I was walking across the street to the Met and I got on PIX11 news where a reporter wanted to know about the Legionnaire deaths that are happening in here in Manhattan and wanted me to weigh in on it.
- [09:20]
A
But wait, so why are we going to the Met? You knew that there was something going on up there, right? I think. Did you know something was going on up there?
- [09:26]
B
I was crossing to Central park to watch the soccer final.
- [09:30]
A
Oh, that's what you were really doing. You throw those going to the Met. So I thought you were going to go to the museum.
- [09:34]
B
No, I wasn't being that fancy.
- [09:35]
A
So the viewing in Central park was happening. But what's been going on in Manhattan is that water cooling towers. You know, there's been a real concern that Legionnaires disease has been spreading across, you know, parts of Upper Manhattan and people have been getting really sick.
- [09:48]
B
Previously, all these cases had been in people's apartments and homes. And so this was spreading to public spaces like the Met. And so the point that I made on TV was, you know, you think you're, you're safe at home, but then as you travel across the city, you don't know which of these public spaces might be dangerous.
- [10:01]
A
Picks 11 people. Jon Crou. And so here's a question. Do you think that being on tv, giving that commentary, you were more confident doing it as a result of doing this show, or do you think you would have been just as fabulous. Great shirt in that segment, by the way, if you had not been doing this show?
- [10:16]
B
My shirt was fabulous. I know I wasn't giving the reporter what he wanted. Yeah, he wanted tears. He wanted me to scream something stonewalled.
- [10:23]
A
You've done too many interviews and watch too many, you know, it on both sides. How to make sure that you don't, don't get caught out.
- [10:28]
B
You would have gotten it out of.
- [10:30]
A
Well, we'll see. Well, let's, let's bring it to food, unfortunately, and talk about what's happening when it comes to Taco Bell, which is just really. That stock is suffering at the moment.
- [10:39]
B
Yeah. So let me just give you an update about what's happening because things are changing by the hour. Last week, the Centers for Disease Control and Prevention and the US Food and Drug Administration announced that the outbreak was linked to shredded lettuce sold at some Taco Bell's.
- [10:51]
A
Yeah.
- [10:52]
B
Then on Friday, Taylor Fresh Foods, which supplied that product, said it was taking it off the market. And then Taco Bell took the lettuce out of its supply chain. That's where we were last week. Then today the FDA walked back its earlier statement that a sample of lettuce from Taylor Farms had tested positive for cyclospora. So there is no laboratory confirmed positive lettuce sample providing that specific product from Taylor Farms carried the parasite. But the investigation is ongoing. There's a lot of finger pointing. The company has still. The recall still remains in place. Taco Bell is not using the lettuce and Taylor Farms is not putting the lettuce out onto the.
- [11:28]
A
So of all the places that lettuce could be, Taco Bell really has become emblematic of the effects of this. It's become the poster child for this outbreak. Yum Brands owns Taco Bell and Yum Brands is publicly traded shares down 9% over the past five days. Now, there's a lot going on at Yum. So the last thing that it needed was this, quite frankly, on top of everything it is dealing with, because last month, the company entered into an agreement to sell pizza hut for $2.7 billion. One of my favorites there. It's not a great time to be trying to juggle, you know, selling a marquee asset like that and also trying to deal with, like, real health repercussions and just wanting to take care of your customers and being mindful of what this means for their health.
- [12:07]
B
Absolutely. And that's the side that Taco Bell is working on. And then there's Taylor Farms.
- [12:11]
A
Yeah.
- [12:11]
B
Just to give that company some context, it's privately held, but there's estimates that it brings in about $7 billion a year. It's enormous. Dozens of processing centers in the United States, over 20,000 employees that cut, wash, and package raw vegetables. And I was thinking about the supply chain issue is so tricky because you may see a bag of Taylor Farms salad and think, okay, well, that name has been in the news. Maybe it's something I would avoid. But also, over the weekend, on Saturday, Walmart voluntarily removed heads of lettuce that it sells under its house brand that is sourced from Taylor. So even though Taco Bell has been the headline of this, there's been other companies, including Walmart, that have had to change their stocking.
- [12:52]
A
So let me ask you a question. Are you. Are you willing to go and buy lettuce right now just to sort of talk about brand trust, like, for you personally, when would you be willing to go and buy lettuce, either from a restaurant or from a grocery store?
- [13:04]
B
Again, it doesn't seem like there are enough. There's not an understanding of what's happening yet.
- [13:09]
A
Okay.
- [13:10]
B
You know, the CDC said something. They're walking it back. I would have to wait. How about you?
- [13:14]
A
You'd have to wait. I'm going to wait for a long time. I want to hear you're cutting all your veggies.
- [13:19]
B
Cooking.
- [13:20]
A
Cooking all your veggies. I was going to say that was an excuse to get back into the carb diet. Well, this all is giving me a little bit of deja vu because I remember Chipotle struggling a decade ago with a food safety issue. And you got to remember the company was founded with a philosophy of no freezers and said its ingredients were fresh. So much so that they didn't obviously need to freeze their ingredients and built a brand around the tagline quote, food with int. Then, though, in 2015 came multiple waves of food safety outbreaks. E. Coli and Norovirus kept popping up over the course of six months and traffic just fell off the cliff. Same store sales fell 15%. They were down nearly 30% the following quarter. And the share price, of course, tanked. Right before the outbreaks, that stock price had been peaking at about $750 a share. A few months later, it was, you know, less than half that at 370. So when this kind of thing happens, it's not just. It's bad enough that people are getting sick. Right. It's bad enough that you're having to worry about people's health and safety from a financial perspective. It's tough enough that you've got the immediate term consequences of seeing your traffic and your revenues go down, but it's the longer term consequences. It's this question I just asked you, John, which is how. What does it take and how much time has to go by before people are comfortable sort of forgetting about it and moving into coming back in store again?
- [14:40]
B
It depends on as one person, I think about that Chipotle outbreak every time
- [14:45]
A
I walk into Chipotle. Yeah.
- [14:47]
B
And that's not to disparage Chipotle, but it's just in the back of my mind, these things make so much news. There was one analyst today that said that with social media so active that people's memories are shorter.
- [14:59]
A
Oh, interesting.
- [15:00]
B
When affirming the stock.
- [15:02]
A
That's really interesting. Shorter. But the news gets around much, much more quickly and more loudly.
- [15:08]
B
I mean, over the weekend everyone was talking about Taco Bell, but maybe, maybe, maybe his point is that there will be something new to talk about in a couple of days and it'll fall off.
- [15:16]
A
Just muscle through the news cycle. Well, it's interesting to look at what Chipotle did to try to sort of move past this. The company closed restaurants, which is actually a massive step to take. Launched investigations and overhauled its food safety procedures as a result of those investigations. So it wasn't quite a mea culpa, but it was definitely, we've done our homework to get to the bottom of this. Chipotle also spent $100 million on high resolution DNA testing of ingredients and third party audits. So they had a lot, but also wanted to get mind share back again.
- [15:45]
B
Right, Exactly. They had to fight a PR campaign. The first quarter of 2016 alone, they spent $50 million on public relations, including super bowl ads. And I remember this, they started handing out free burritos. They were handing out rain checks if your store was closed, free burritos. And that reportedly cost the chain another $50 million.
- [16:03]
A
So it did work. Customers did return. The share price did nudge back up from that $370 low and eventually soared, trading above $2,000 a share before it split its stock in 2024. But it took a while. You know, 2024 was a decade afterwards. And so there was recovery, but it wasn't quite a V shaped recovery versus what you're describing now in the age of social media.
- [16:25]
B
And I think that Chipotle is still, they're still leaning into that advantage instead of running away from the idea that we have fresh and maybe that will lead to problems. At the time when the stock split, a analyst said consumers interest in ingredient transparency was a win for Chipotle. They the space of do you want to know where your food is coming from? And I looked on their website today, they have a page called Real Food Print, which I guess is supposed to look like footprint. And you can see where your ingredients are raised, grown and cared for for an item that you get from Chipotle.
- [16:57]
A
I do, I do wonder, and this is just a speculating too, whether they benefited from a category that was growing. Sweetgreen was coming into its own at this point. Right. So people were going back into the fresh ingredients narrative. So it feels as though Chipotle's recovery was a little bit tied also to consumer preferences shifting once they could get the immediate sort of crisis that the brand was in. Now, one challenge for Chipotle's supply chain even today is that it does use similar ingredients across many of its menu items. So when one ingredient is contaminated, it can actually affect several of the menu options. It's just not as simple as picking the shredded lettuce off a taco. And for a situation that's closer to Taco Bell's, we've got to take a look at McDonald's. Right. We were talking about this one earlier. In 2018, salads, salads sold at McDonald's were linked to a cyclospora outbreak. So McDonald's had to stop selling salads until they could find a new supplier. But the stock was barely affected, which I find so interesting.
- [17:52]
B
Well, it makes sense because I don't think of McDonald's as a salad destination. And so they take it off the menu for a couple months and rejigger it, then I think it's fine. And similarly, in 2024, McDonald's was linked to an E. Coli outbreak stemming from onions that were from Taylor Farms in that example as well.
- [18:07]
A
Taylor Farms is getting it all over the place.
- [18:10]
B
And McDonald's pulled the onions off the burgers. They stopped selling Quarter Pounders in certain stores for a similar time. But the stock initially dropped 5%. But you know, it didn't last very long. You know, they were able to recover. And similar to Yum Brands, the damage was not prolonged.
- [18:28]
A
Well, Yum Brands at the moment trading down about 0.5%. In addition to Taco Bell, by the way, they also operate KFC Pizza Hut, as we said, at least for now in that. So given the sale process and habit, Burgers so not directly affected the parent company like a McDonald's or a Chipotle. And with the benefit of course of being diversified. But just what this means for longer term, trust in Taco Bell is something we're going to be watching. We'll see how quickly the supply chain is corrected. The thing I want to know is how Taylor Farms is doing out of this. But being privately held, something that's going to be very hard to crack open, you know.
- [19:02]
B
And if we're talking about what we did this weekend and what sort of parasites we were around or thinking about.
- [19:08]
A
I can't believe you just threw parasites. This is great. Yeah.
- [19:12]
B
Before we transition into the closing, I
- [19:13]
A
thought I was in the clear.
- [19:14]
B
We've got little time to kill before 4 o'.
- [19:16]
A
Clock.
- [19:16]
B
What were you doing this week?
- [19:17]
A
Oh, I was not on PIX11. I was in Las Vegas and I was at the Backstreet Boys concert with three of my girlfriends. Oh, that sounds great. I brought my cap to show you, but I sort of. I was second guessing wearing my cap on the show. But since you wouldn't let me off the. Let me off the hook. It's a fabulous white cap with baby blue writing on it. The baby blue writing says Backstreet Boys. And it was playing at the Sphere and everyone went dressed in either white or baby blue. And a couple of people, there were some ladies wearing these fabulous silver palazzo pants. And I had envy. Actually, I coveted the silver palazzo pants, but it was super fun. I gotta tell you though, it's very weird to see your teenage heartthrobs in their 50s doing the same moves. And I mean, looking a little stiffer, I'm not gonna lie. As they were trying to do the shimmy shimmy shake thing. But it was a ton of fun.
- [20:11]
B
It's fun that back streets.
- [20:12]
A
Back, back. All right. Yes, exactly.
- [20:15]
B
And just to bring it around to the sphere. Shares in the sphere down three and
- [20:19]
A
a half percent today. Well, you wouldn't. I will say one thing though, because I Can't help myself because I'm such a nerd. I obviously went to enjoy the show. I wanted to see what was going on at the Venetian, which is the casino and the resort that is attached to the sphere. But I couldn't help but go for a wonder in the close to 100 degree heat just because I really wanted to see for myself what we've been hearing on the show, which is Vegas has been struggling as a destination. And I got to tell you, it was pretty quiet. It was quiet when I was walking along the strip and I was sort of poking around looking at the shops. It was lacking energy. It was lacking energy. Hotel occupancies had me down in that market.
- [20:51]
B
They've been down and we keep hearing that they're going to get free parking or they're going to waive the resort fee. So we have to see if that's going to show up in hotel earnings.
- [20:58]
A
Yeah, I really wish they sort of waived the cost in some of this merch because I got to tell you, 37 bucks for my hat, which I'm never going to wear after bringing it on the show. I don't know what I'm going to. Maybe I'll try and play tennis in it or something.
- [21:09]
B
Well, you wore it on the show. It's a business.
- [21:10]
A
I know. It's a big. I am set submitting my receipt to Morning Brew on that note. 4:00pm we got there on the east coast. The markets have closed and we don't have a ticker tape, but we'll throw it over instead, as always to our human ticker.
- [21:24]
B
Our producer John the S&P 500 finished the day down 2.10 of a percent. The Dow was down 6.10 of a percent and the NASDAQ finished the day flat.
- [21:32]
A
Well, we are in earnings season. It was starting to pick up with the banks last week. We're about to go and brew another cup of coffee because it is really starting to ramp up. This week we are going to be drinking from a fire hose. All that being said, we want to hear from you. We love it when you send us your questions. We want to know which stocks you want us to unpack, which business news of the week and the highlights. Which CEOs you want to get to know more about. So do the following. Write a handwritten note. I love that. Send it by pigeon, send it by snail mail. Email us@brewmarketshoworningbrew.com and write comments on YouTube and Apple and Spotify and wherever it is that you get your podcasts because we look at all of them. That's it for today's Brew Markets Daily.
- [22:11]
B
Brew Market Daily is hosted by Anne Barry and produced by John Cotto, Tarka Delatif, Abeni laroya and Emily Miller. Jim Orzo is our audio engineer and the president of Morning Brew Inc. Is Devin Emery.
- [22:20]
A
Wake up tomorrow with the Morning Brew newsletter and tune in to Neil and Toby on Morning Brew Daily. See you back here tomorrow. Same time, same place, Facebook.