Why Companies Do Layoffs Before the Holidays & Disney's Board Battle

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0:28Good morning, Brew Daily Show. I'm Neil Freiman. And I'm Toby Howell. Today, why are so many companies laying off workers right now? Then the new Willy Wonka 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.

0:50This 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.

1:24So 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 as 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.

1:56I 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 autofill 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.yahoo.com or download the Yahoo Finance mobile app to see what we are talking about.

2:34When did making plans get this complicated? It's time to streamline with WhatsApp, the secure messaging app that brings the whole group together. Use polls to settle dinner plans, send event invites and pin messages so no one forgets mom's 60th, And never miss a meme or milestone. All protected with end-to-end encryption. It's time for WhatsApp. Message privately with everyone. Learn more at whatsapp.com. 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 Cruise said it will lay off about 24 % of its workforce, about 900 employees after a series of safety debacles, forced it to pull all of its robo-taxis off the road.

3:20No 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 in 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?

3:52I know. 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 humane 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.

4:30Right. I think these companies really would ideally want to wait until 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.

5:08I 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.

5:38Etsy. 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 is not in a really good place at all. And then Hasbro, the toy maker, 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? Jelly Belly or something? Not Jelly Belly. there's squish mellows and jelly cats but 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 eight percent 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 it's it's toy making strategy uh 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.

6:37For 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 Trian 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 too disconnected from what shareholders actually want.

7:19The only way to write the ship? Put himself and former Disney CFO Jay Rusulo 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 tensens 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.

7:56And he's rounded up this gang of former executives. He's got Ike Perlmutter on his team as the former Marvel chief. And then Jay Rasulo 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 Iger returned to the company after a really tough time under his replacement, Bob Chapik. But Disney just can't seem to get out of its own way recently.

8:36I mean, fundamentally, Disney is a storytelling company who is fighting for our attention, fighting against the Netflix's of the world, the TikTok, the Morning Brew dailies 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 Marvels, 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.

9:13This is something similar what Nelson Peltz 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?

9:42Oof. So he's been successful before at Heinz and P &G. He's had some successes. He's got on the board seat. I don't know. Is that a lame answer? I hear you saying 60-40 he makes it this time. You think so? That's what we'll take. We'll go with it. I think Pelz 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.'s 40 ,000. And this is a dramatic changing of the guard.

10:19The 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 decades since. But the once tea-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 Cottey 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.

10:56But 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.

11:29And 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 Lyft 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 OK with it. Yeah. I also think it's interesting how they've they might have a have a better handle on Chinese consumers than Starbucks.

12:08I 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 tastes between U.S. and China, and they've also been very successful overseas, especially in Italy. So I'm sure they have their ear to the ground there, but Luckin and Cottey 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.

12:41It's not actually cheese flavored. That's disappointing. 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 starting 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'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.

13:20Race the runners. Race the sails. Race the sails. Captain, an unidentified ship is approaching. Over. Roger. Wait. Is that an enterprise sales solution? Reach sales professionals, not professional sailors. With LinkedIn ads, you can target Get the right people by industry, job title, and more. Start converting your B2B audience today. Spend$250 on your first campaign and get a free$250 credit for the next one. Get started today at linkedin.com slash campaign. Terms and conditions apply. Tonight on NBC, Jimmy Fallon and Bozema St. John host the highly anticipated new competition show. I hired 10 creatives from all walks of life.

14:00They will be battling it out to see who can impress the world's biggest brands. This is a huge opportunity. This is the battle for the next big idea. This is not play play. We're spending millions of dollars. I'm so excited to embark on this adventure with all of you. Make the best idea win! On brand with Jimmy Fallon. Series premiere tonight on NBC. The market is doing absolutely fantastic these days, like 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.

14:38As 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 993 % 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 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.

15:15Combine that with the market having a good year in general, and this pandemic-era darling has just made a heck of a comeback, Neil. Yeah, supply chains working themselves out were awful for Carvana because this stock went booming during COVID when used car prices surged because no one could get their hands on a car, and they had all 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, and they got absolutely pummeled.

15:53And 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 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.

16:32And so when they said, OK, we figured out a plan of figuring out how to service this debt, people are like, OK, 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 at a business route. Right, exactly. Okay, my stock of the week is Argentina's bonds, which have surged by around 25 % after new president Javier Mille started implementing his so-called shock therapy treatment to repair the country's broken economy.

17:09In 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 calling it a shock therapy package, and it's been well-received. That being said, Argentina is still in a rough spot.

17:44It 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 its sixth recession in the last decade, and inflation is still rampant. 40 % of the population is still mired 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. All right. I have a new phrase for you. It's instead of like throw the kitchen sink at it in Argentina, they say, of course, they say it's Argentina.

18:22It'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, and I'm going to work it into a show in the future. I should not have told you. Oh, no. Okay, moving on. Christmas has come early for anyone considering buying a house because mortgage rates have continued their rapid descent.

18:56The average rate on a 30-year fixed rate mortgage fell below 7 % this week. It's seventh 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.

19:29Rents 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 rushed to start trying to meet that demand.

20:04But 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%. 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.

20:45And 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.

21:17And yet here we are saying that they're coming down. But according to real estate economists, it's because the way the Borough of Labor Statistics calculates rents is on a every six months basis. And they kind of survey different regions at six months 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 rents. 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.

21:52Okay, 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 Timothee 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.

22:27He has whole teams dedicated to coming up with new and exciting candies 24 seven. and he patents his best finds like color-changing caramel and non-melting ice creams. And I haven't even begun to talk about the Oompa Loompas 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.

23:04Neil, 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 standing with the status quo and constantly developing. The other thing I think is crucial about Wonka 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 Wonka, who has this very mysterious persona. Is there any company that you can think of that does mystique and mystery like Wonka?

23:38The 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 mind. And I cannot believe we're comparing the largest company in the world to Wonka, but I think they're on similar terms. It's the largest Coca 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?