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Speaker 1: Hello, and welcome to The Credit Edge, a weekly markets podcast.

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Speaker 1: My name is Olivia Raymonde and I'm a corporate finance

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Speaker 1: reporter here at Bloomberg News. This week, we're very pleased

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Speaker 1: to have Amelia Pollard on the show with us. She

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Speaker 1: covers the stress debt and bankruptcy for Bloomberg News in

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Speaker 1: New York.

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Speaker 2: How are you doing, Amelia.

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Speaker 3: I'm great, Olivia, thanks so much for having me.

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Speaker 1: Of course, we're also delighted to see Julie Hung, who

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Speaker 1: looks at the consumer sector for Bloomberg Intelligence in New York.

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Speaker 2: We'll be coming back to Julie a little.

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Speaker 1: Bit later in the show, so please do stay with us.

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Speaker 1: But first, Amelia Pollard with Bloomberg News. Amelia, we had

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Speaker 1: a high profile bankruptcy in the news this week, the

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Speaker 1: trucking company Yellow. For our listeners, can you sort of

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Speaker 1: set the scene for us? You know, who is this company?

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Speaker 1: You know what do they do, and then what role

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Speaker 1: do they play.

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Speaker 2: In our economy?

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Speaker 3: Sure? Yeah, so all us really have been on Yellow

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Speaker 3: this week, and Yellow is one of the biggest trucking

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Speaker 3: companies in the US and they specialize in something known

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Speaker 3: as LTL freight shipping. So that basically means less than truckload.

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Speaker 3: And so when companies have less than a full truckload

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Speaker 3: of goods but still need to transport it across the

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Speaker 3: country or from point A to point B, that's when

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Speaker 3: a company like Yellow comes in and really fills that niche.

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Speaker 3: And it is one of the biggest trucking companies in

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Speaker 3: the US. They have whoor they had before filing for bankruptcy,

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Speaker 3: around thirty thousand employees, and many of those, if not

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Speaker 3: almost all of them, are out of jobs now after

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Speaker 3: the company filed for bankruptcy on Sunday.

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Speaker 1: That is unfortunate casualty of bankruptcy proceedings, right. I feel

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Speaker 1: like we don't always talk about sort of the worker

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Speaker 1: loss component in here. I know, especially on Credit Edge,

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Speaker 1: we're going to be getting, you know, deep into the

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Speaker 1: loan and the debt stuff.

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Speaker 2: But it is always.

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Speaker 1: Important to remember when we have bankruptcies like this that

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Speaker 1: there are real workers, you know, behind this that are

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Speaker 1: unfortunately losing their job. And I guess our listeners probably

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Speaker 1: have seen a Yellow truck on the highway maybe when

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Speaker 1: they're you know, driving to a friend or family's place,

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Speaker 1: or you know, going on a road trip. They've probably

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Speaker 1: seen those trucks on the road.

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Speaker 3: Right, mm hmm, Yeah, I think I think it's It's

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Speaker 3: one of the biggest trucking companies in the US, so

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Speaker 3: it is definitely prominent compers.

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Speaker 2: Got it.

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Speaker 1: So tell me about this loan that it has from

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Speaker 1: the US government. It seems like a little bit of

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Speaker 1: a different situation to the type of bankruptcies or corporate

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Speaker 1: bankruptcies that maybe, you know, I've looked at in the

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Speaker 1: past where there's a bunch of you know, corporate loan,

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Speaker 1: but we have one from the US government. Now, can

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Speaker 1: you walk us through you know what that means.

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Speaker 3: Yeah, I'll set this scene real quick, because I think

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Speaker 3: that big companies like this do file with somewhat regularity.

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Speaker 3: But there's a reason why everyone's focused on those bankruptcy

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Speaker 3: in particular, and that's because the US Treasury, the federal government,

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Speaker 3: gave Yellow a seven hundred and thirty seven million dollar

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Speaker 3: loan during the pandemic, and it was actually part of

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Speaker 3: a fund remarked specifically for firms that are critical to

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Speaker 3: national security. But of the money doled out as part

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Speaker 3: of this program, Yellow received ninety five percent of the money,

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Speaker 3: So there was already heightened scrutiny in Congress. There have

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Speaker 3: been several inquiries by Congress people looking into this loan.

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Speaker 3: How it came to be, why Yellow was considered such

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Speaker 3: a critical force for national security in the US was

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Speaker 3: a big question. This was all under the Trump administration

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Speaker 3: to kind of lay the background on this. And so

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Speaker 3: the big question of bank skruptcy for everyone always is

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Speaker 3: who's going to get paid back? Because you file for

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Speaker 3: bankruptcy largely because you can't pay back everyone. And something

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Speaker 3: really specific about the US bankruptcy system is there's a

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Speaker 3: hierarchy of who gets paid back, and it's basically on.

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Speaker 2: The debt side.

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Speaker 3: It all comes down to how secured your debt is,

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Speaker 3: whether there is you know, lucrative collateral backing your.

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Speaker 2: Debt or not.

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Speaker 3: And so the US in this case is a secured

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Speaker 3: creditor got it, which means that it has a better

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Speaker 3: chance of getting paid back, which is good. But I

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Speaker 3: may I'll pause there because I think that's kind of

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Speaker 3: laying enough groundwork before maybe get more into the loan.

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Speaker 1: Yeah, for sure, So you said that because the debt

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Speaker 1: is secured, it it's higher up in line to be

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Speaker 1: paid back.

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Speaker 2: Is there a chance that they could not be paid back,

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Speaker 2: or is the.

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Speaker 1: Government pretty certain that they're going to get the money

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Speaker 1: that they lent the company back, or we're not sure yet.

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Speaker 3: Yeah, I mean there's always always a chance. And the

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Speaker 3: fact is that Yellow is liquidating, it is not continue operations.

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Speaker 3: So it's really a matter of how much the company

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Speaker 3: can fetch for its assets. And that is really what

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Speaker 3: the company is going to be spending around the clock

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Speaker 3: doing for the next few months, is trying to sell

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Speaker 3: off all of the trucks they own, all the terminals

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Speaker 3: that they own. Property is a really big component year. Yesterday,

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Speaker 3: on Wednesday, there was a bankruptcy hearing in which a

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Speaker 3: lawyer for the company detailed that some of these terminals

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Speaker 3: were in urban areas, which might be pretty valuable. But

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Speaker 3: I think there was less hope a few days ago

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Speaker 3: about the Treasuries loan. But yesterday during the hearing, an

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Speaker 3: attorney for the Department of Justice showed up and said,

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Speaker 3: we have already negotiated with the company to ensure that

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Speaker 3: we have quote adequate protections no matter what kind of

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Speaker 3: bankruptcy financing comes into play, Because I think the big

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Speaker 3: question now is who is going to fund this bankruptcy,

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Speaker 3: and is their deal to fund the bank going to

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Speaker 3: put them at the very top of the repayment line

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Speaker 3: and presumably push down the Treasury Department in their position

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Speaker 3: in line to get paid back.

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Speaker 1: I see, I see. So I believe that Apollo is

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Speaker 1: one of the lenders involved. Could you talk to us

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Speaker 1: a little bit about what their role is here and

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Speaker 1: you know what money they are they are not lending?

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Speaker 2: Yeah? Sure.

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Speaker 3: And I think this is another reason why the story

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Speaker 3: has gotten so much attention, is because there's been some

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Speaker 3: framing around US Treasury Department versus the Paula, which I

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Speaker 3: think is like seen as two big titans kind of

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Speaker 3: buying off for their debt to be paid back. So

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Speaker 3: while the Treasury is a major lenderer and major secured creditor,

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Speaker 3: Apollo is the biggest private lender.

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Speaker 2: In the InPlay here, got it?

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Speaker 3: And so they in bankruptcy you basically pitch, you have

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Speaker 3: pitches for bankruptcy financing. You need a lender to kind

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Speaker 3: of step up and say we're going to give you

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Speaker 3: even more money in to sure that you can get

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Speaker 3: through the bankruptcy process because bankruptcy is exceptionally expensive, so

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Speaker 3: you need usually an outside source of funds, and so

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Speaker 3: Apollo had originally brought forward bankruptcy financing that seemed to

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Speaker 3: be in place and kind of all but a done

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Speaker 3: deal for Yellow, but it was an exceptionally expensive financing package.

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Speaker 3: And that being said, all financing packages and bankruptcy are expensive,

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Speaker 3: but this one had a seventeen percent fee. It had

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Speaker 3: a massive roll up, which basically meant that its existing

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Speaker 3: debt would be rolled up into the new debt, giving

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Speaker 3: it a better position in the repayment line, and so

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Speaker 3: on Wednesday's hearing, Yellow actually mentioned that two new bidders

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Speaker 3: have actually emerged because the Apollo proposed loan was pretty expensive,

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Speaker 3: and one of them is MFN Partners, which is a

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Speaker 3: fund based in Boston that is the largest shareholder of Yellow,

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Speaker 3: and the other one is a competitor, another trucking company

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Speaker 3: called x ST's Express Lines, and both of them have

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Speaker 3: opposed offers to fund the company through bankruptcy that have

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Speaker 3: slightly better terms than the Apollo deal, and the attorneys

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Speaker 3: on the bankruptcy hearing on Wednesday made it clear these

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Speaker 3: offers are still, you know, just offers at this point

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Speaker 3: if nothing has been said in Stone, But which loan

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Speaker 3: emerges as the winning bid will probably be decided on Friday.

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Speaker 3: There's another bankruptcy hearing being held just to talk about

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Speaker 3: the bankruptcy financing.

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Speaker 2: Got it? Got it?

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Speaker 1: And then why is the interest on the apollo loans

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Speaker 1: so high? Would you be able to explain that? And

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Speaker 1: and how high is it?

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Speaker 2: Sure?

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Speaker 3: So, bankruptcy financing, what's known as debtor in possession loans

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Speaker 3: or financing, have become more and more expensive for the years.

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Speaker 3: Part of it is just that interest rates are higher,

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Speaker 3: so you know, it costs more to ourrow money. But

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Speaker 3: another phenomenon has happened where the private lenders that were

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Speaker 3: involved in a company before the company filed are given

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Speaker 3: are basically in a position where they can propose almost

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Speaker 3: whatever terms they want because very rarely do other bidders emerge.

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Speaker 3: So that's kind of been the trend. We've seen these

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Speaker 3: the terms of these loans become more onerous for the

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Speaker 3: company over in recent months. So I think it's really

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Speaker 3: just this. This is not a unique situation just to

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Speaker 3: say this, This has been the case with other companies

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Speaker 3: where they're really onerous terms for the bankruptcy financing loans.

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Speaker 2: Got it?

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Speaker 1: And is there any indication that you know, one of

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Speaker 1: the offers is more favorable than the other.

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Speaker 2: Do we have any sense of, you.

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Speaker 1: Know, which one the company might be leaning towards.

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Speaker 3: You know, it's a little hard to tell at this point.

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Speaker 3: I think it needs to be the determined how serious

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Speaker 3: the offers are. The trucking competitor actually offered quite a

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Speaker 3: bit more of a loan. They are extending an offered

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Speaker 3: to Yellow of two hundred and thirty million dollars, whereas

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Speaker 3: the Apollo offers only one hundred and forty two point

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Speaker 3: five million, and then MFN partners one really something that's

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Speaker 3: very favorable. But their terms is that the runway that

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Speaker 3: Yellow would have to sell its assets is twice as long.

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Speaker 3: So because those other offers have emerged, it's you know,

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Speaker 3: it's possible at this point that Apollo will change its terms.

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Speaker 3: So that'll all be hashed out on Friday.

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Speaker 2: Got it?

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Speaker 1: And aside from this hearing on Friday, what else can

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Speaker 1: we expect like in the coming weeks from this company

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Speaker 1: and from the bankruptcy as well.

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Speaker 4: I think all eyes will be on how much Yellow

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Speaker 4: is able to fetch for its assets. That really in

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Speaker 4: a liquid donating situation where the company has ceased operations.

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Speaker 4: It's not a matter of whether it will survive because

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Speaker 4: it is definitely ending, and so it really just depends

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Speaker 4: on how quickly it can sell its trucks and other

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Speaker 4: valuable things that has under its purview, and then you know,

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Speaker 4: in coming months or even potential years, because these things

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Speaker 4: can be dragged out for a very long time. People

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Speaker 4: will really be interested in how much the Treasure Department

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Speaker 4: can recoup of its seven hundred million dollar loan from

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Speaker 4: the pandemic.

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Speaker 1: Really interesting stuff, great stuff, Amelia. That's Amelia Poller from

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Speaker 1: Bloomberg News. Thank you so much for joining us. You

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Speaker 1: can read all of Amelia's coverage on the Bloomberg terminal

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Speaker 1: and of course at Bloomberg dot com. As I mentioned earlier,

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Speaker 1: we are delighted to welcome Julie Hung to the Credit Edge.

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Speaker 1: She covers the consumer sector for Bloomberg Intelligence based in

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Speaker 1: New York. How's it going, Julie.

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Speaker 2: It's going well.

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Speaker 5: There's been some activity in the news recently, so yeah,

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Speaker 5: interesting time to be in the consumer sector.

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Speaker 2: And thank you for having me on this podcast.

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Speaker 6: Of course, of course we're thrilled to have you, so

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Speaker 6: I know you cover a lot of different things. And

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Speaker 6: as you said, there's a lot going on in this

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Speaker 6: industry right now, but.

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Speaker 1: I wanted to focus on M and A today.

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Speaker 2: Julie, tell me what's the scoop.

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Speaker 6: On the deals front for companies in the consumer sector.

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Speaker 5: So the consumer sector, there's a lot of If you're

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Speaker 5: looking at a consumer name, there's they own a lot

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Speaker 5: of different brands.

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Speaker 2: And you know, what's very.

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Speaker 5: Interesting about this sector is that they're constantly buying and

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Speaker 5: selling different names, different brands. And you know, over the

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Speaker 5: past few years, we've been hearing from management companies that

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Speaker 5: you know, they're they're always going through portfolios, they're getting

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Speaker 5: rid of the lower margin businesses, focusing their resources on

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Speaker 5: the higher margin businesses because you know, resources are limited.

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Speaker 5: There have been, you know, some big deals in the

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Speaker 5: past few years, but lately we've been seeing and hearing

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Speaker 5: from management that they want to focus more on tucking acquisitions,

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Speaker 5: smaller acquisitions, you know, acquisitions that are strategic, so they're

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Speaker 5: not just going to buy something just to buy something.

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Speaker 5: I spoke with one company recently who said, you know,

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Speaker 5: we're not in the market, you know, just just for

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Speaker 5: the sake of it. You know, we really want to

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Speaker 5: buy something either targeted in something that they have so

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Speaker 5: they can expand their brand reach, or something that they

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Speaker 5: want to be in, but they don't want to grow

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Speaker 5: from the bottom.

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Speaker 2: And you know, I.

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Speaker 5: Kind of brought it up with you know this with

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Speaker 5: the management team, you know what about this, like have

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Speaker 5: you been looking at this? And they're like, well, we

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Speaker 5: don't want to buy anything too big because then we

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Speaker 5: take what we want and we don't know what to

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Speaker 5: do with the rest of it. So I think that's

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Speaker 5: kind of the general feeling that we're getting from the

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Speaker 5: consumer sectors. You know, they want to do M and A,

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Speaker 5: they want to be strategic about it, they want to

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Speaker 5: be smart about what they're doing, they want to be careful.

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Speaker 5: So the focus is on smaller deals, and especially in

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Speaker 5: a current market like what we have now.

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Speaker 6: Smaller deals in the market like we have now, that

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Speaker 6: makes a lot of sense. In the news this week,

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Speaker 6: Campbell just announced an acquisition and acquisition excuse me, h

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Speaker 6: rao two point seven billion dollars I believe could you,

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Speaker 6: you know, walk me through that high level? Is that

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Speaker 6: considered a tuck in? And how did the credit rating

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Speaker 6: firms react to that?

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Speaker 5: Well, the two point seven billion is a little bigger

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Speaker 5: than what we would consider tuckings, like for US, tuckins

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Speaker 5: are about a billion dollars or smaller. And you know,

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Speaker 5: I'll get to you know, the downgrade. But if you're

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Speaker 5: looking at there's a Boomberg function and may go where

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Speaker 5: you can search by sector to see what M and

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Speaker 5: A activity is active. So if you drill down to

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Speaker 5: food and healthhold products, you'll see that. You know, over

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Speaker 5: the past year, most of the deals have been five

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Speaker 5: hundred million dollars or less, and you know, those are

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Speaker 5: more what we consider as for the Campbell deal. As

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Speaker 5: for the Campbell deal, so you know, RAOS is considered

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Speaker 5: a premium you know, sauce business, and it goes with

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Speaker 5: their preg line. You know, it's they're going to fund

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Speaker 5: it with debt and you know S and P had

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Speaker 5: downgraded them following the announcement because this is going to

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Speaker 5: stress their free cash flow, it's going to increase their

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Speaker 5: leverage metrics, and you know, they felt that the mid

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Speaker 5: tropo be rating wasn't appropriate for them at the time.

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Speaker 5: So you know, they're downgraded to one not above junk.

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Speaker 5: You know, I think you know another reason why a

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Speaker 5: lot of companies are focused more on tucking deals. Is

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Speaker 5: the cost of financing is a lot higher now than

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Speaker 5: it was a year ago than.

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Speaker 2: It was two years ago.

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Speaker 5: So you know, when you're thinking about funding a deal

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Speaker 5: with debt, you don't know what You know what the

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Speaker 5: synergies are going to and you can estimate what the

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Speaker 5: synergies are going to be like, but you don't know

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Speaker 5: what how easy it is. You don't know what what

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Speaker 5: kind of obstacles you're gonna they're gonna face, like incorporating this.

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Speaker 5: So there's a lot of costs with you know, with

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Speaker 5: incorporating like a new brand into their company. If you're

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Speaker 5: looking at like the cost of financing, so that's gonna

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Speaker 5: that could that's going to affect their operating income ittal

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Speaker 5: like lower that. A lot of the companies now are

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Speaker 5: also increasing capital spending, investing in like more like factories

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Speaker 5: and you know, updating like capacities, so it's really gonna

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Speaker 5: stress their free cash flow. So Campbell said that you

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Speaker 5: know they're going to focus on debt reduction, but if

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Speaker 5: you don't have the cash to reduce debt, then you

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Speaker 5: know you kind of question, well, you know, how are

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Speaker 5: you going to do it? The other thing too, is

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Speaker 5: you know, operating performance. It depends on you know, the

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Speaker 5: demand for your products. And demand has been okay for

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Speaker 5: the consumer staples. But we heard in the second quarter

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Speaker 5: is that volume has been impacted because pricing has gone up,

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Speaker 5: you know, and companies have been raising pricing to try

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Speaker 5: as best they can to preserve margins and to offset

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Speaker 5: higher inflation and you know, higher labor costs, and you know,

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Speaker 5: you know the cost of goods, so you know, you're

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Speaker 5: trying to balance all that in an economy where you're

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Speaker 5: not really sure where where the economy is headed. So

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Speaker 5: I think, again, going back to my original comments about

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Speaker 5: tucking M and A, I think that's why, you know,

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Speaker 5: companies are not as willing to just go out there

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Speaker 5: and do something big, because then they would have to

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Speaker 5: borrow to do that, and that'll just you know, create

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Speaker 5: this domino effect stressing. You know a lot of other

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Speaker 5: metrics and their credit profile, a lot.

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Speaker 6: Of credit metrics, and to focus on for sure, as

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Speaker 6: you mentioned before, you know, leverage, how much data company

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Speaker 6: has compared to their earnings, and you know free cash flow,

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Speaker 6: how much money companies are generating. Those are really a

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Speaker 6: lot of important important things, especially to the credit grads.

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Speaker 6: Of course, we've seen some other downgrades though in industry.

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Speaker 6: I think, can you talk to me maybe about newal Brands.

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Speaker 2: Yeah, newal Brands is a hiel company.

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Speaker 5: You know, we had called for a downgrade to mid

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Speaker 5: triple B and you know they were downgraded last week

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Speaker 5: to mid triple B by S and P.

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Speaker 2: Newal product line is a little bit.

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Speaker 5: More discretionary than like, let's say, like a consumer food.

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Speaker 2: Packaged consumer food company.

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Speaker 5: You know, they own like food Saver, Mister Coffee, crop Pod,

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Speaker 5: they own outdoor brands like Homan and Marmott and Contigo.

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Speaker 5: So most of their revenues are from more are from

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Speaker 5: more discretionary products. So that in an economy that wasn't

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Speaker 5: you know, very strong, in addition to a consumer that

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Speaker 5: was cash strapped.

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Speaker 2: In addition to.

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Speaker 5: You know, new All themselves being more shareholder friendly, they

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Speaker 5: had a very aggressive financial policy up until recently, so

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Speaker 5: they were still paying a high dividend.

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Speaker 2: There were sharing purchases when you.

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Speaker 5: Know, operations weren't doing very well, so that kept their

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Speaker 5: leverage very high. And they have a debt reduction plan,

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Speaker 5: which is good. They cut their dividend by seventy percent,

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Speaker 5: which will help with their free cash flow and they'll

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Speaker 5: free up some cash to pay down debts. But you know,

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Speaker 5: it was kind of like a little too too late

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Speaker 5: to do all that, So S and P decided they

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Speaker 5: were going to take them down to UH to mid

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Speaker 5: triple B. You know, we also want to highlight that,

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Speaker 5: you know, carl Icon owns about seven percent of the

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Speaker 5: outstanding shares, and you can encourage them to do something

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Speaker 5: shareholder friendly.

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Speaker 2: So you know, Newell like, yeah, they do have really good.

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Speaker 5: Brand names, but because of just the nature of you know,

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Speaker 5: of what sectors they're in within the consumer product sector,

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Speaker 5: you know, there, it was just kind of a little

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Speaker 5: difficult for them operationally.

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Speaker 2: Got it, Got it?

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Speaker 6: And for our listener, could you explain, you know, exactly

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Speaker 6: what a credit rating downgrade means for a company should

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Speaker 6: they want to come to the market and borrow again,

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Speaker 6: you know, how is that going to impact them going forward?

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Speaker 5: Yeah, so a credit credit rating downgrade, it basically just

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Speaker 5: increases your cost of funding and increases your access to

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Speaker 5: capital markets. So, tied in with a long term rating,

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Speaker 5: you have a short term rating which you could access

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Speaker 5: short term commercial paper for immediate needs. Let's say so

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Speaker 5: if you can't, if you can't access the short term

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Speaker 5: market if you need it, then sometimes that just makes

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Speaker 5: financing your business a little more difficult. So it's kind

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Speaker 5: of like, you know, when we have a credit rating,

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Speaker 5: like we personally have credit ratings, if we want to

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Speaker 5: go borrow money in the bank, it's easier for you

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Speaker 5: to borrow money in the bank if you have a

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Speaker 5: higher credit rating. Same thing with a company. It's a

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Speaker 5: little easier for them to borrow money, and they could

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Speaker 5: borrow at better rates if they have a higher credit rating.

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Speaker 5: So a downgrade impacts all of that. And then when

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Speaker 5: you when you go from investment grade to high yield,

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Speaker 5: it really, you know, just change your cost of financing.

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Speaker 6: Yeah, the cost of financing and high yield is definitely

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Speaker 6: significantly higher than investment grade for sure. Would you be

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Speaker 6: able to talk to me a little bit about the

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Speaker 6: overall performance of the consumer names, specifically in high yield,

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Speaker 6: let's shift over to the more speculative green names. How

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Speaker 6: are they performing compared to say, like the.

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Speaker 7: Base Yeah, I mean, you know, the general consumer non

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Speaker 7: cycical sector is pretty recession resistant, and we've heard that,

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Speaker 7: you know, since since the pandemic we've heard that since

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Speaker 7: you know, we're in this high inflation environment and when

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Speaker 7: you know economists are calling for a recession, you know,

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Speaker 7: can the consumer packaged food non cyclical sectors generally hold

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Speaker 7: in pretty well?

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Speaker 5: Obviously because we all need to eat, we all, you know,

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Speaker 5: which help me like you know, take showers, and yeah,

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Speaker 5: it's it's it's a it's a very relatable sector, so

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Speaker 5: you still need your your basic needs met. The year

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Speaker 5: to date hyel told returns. The year to date total

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Speaker 5: returns for the corporate higal sector is six point two percent.

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Speaker 5: The year to date total returns for the consumer non

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Speaker 5: cycical sector is six point zero seven percent. So while

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Speaker 5: it's not overperforming the general corporate higal sector, it's holding

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Speaker 5: in there, which I think just speaks to the general

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Speaker 5: commentary that we've been hearing that consumer non clcicals are

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Speaker 5: pretty recession resistant.

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Speaker 6: That makes a lot of sense. And do you have

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Speaker 6: any insight on sort of how this sector is positioned

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Speaker 6: for the second half of the year, especially if we

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Speaker 6: the economy manages manages to have a soft landing like

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Speaker 6: perhaps market participants are hoping.

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Speaker 1: For at the moment.

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Speaker 5: Yeah, I mean, we've been hearing recession and recession for

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Speaker 5: so long, and now landing, that's you know that that's

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Speaker 5: good news. You know, I'll take that over, you know,

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Speaker 5: the fears of our recession. But you know, soft landing

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Speaker 5: it's good for the consumer. It's good for the consumer

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Speaker 5: sector in general. Good for the consumer, you know obviously

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Speaker 5: because you know, you're you're you're not going to.

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Speaker 2: Be so stressed for cash. All the headwinds that have been.

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Speaker 5: Discussed as it personally affects the consumer, it doesn't go away,

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Speaker 5: but we're we're not so worried about it. You know,

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Speaker 5: the job market is holding in pretty well, the unemployment

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Speaker 5: rate is still low.

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Speaker 2: You know, we've been here again.

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Speaker 5: Like I you know, I mentioned before that you know,

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Speaker 5: we're hearing, we were hearing in the second quarter earnings

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Speaker 5: that the consumer.

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Speaker 2: They were stretching their budgets.

441
00:24:47,400 --> 00:24:51,280
Speaker 5: So when you're looking at volume performance, you know, give

442
00:24:51,280 --> 00:24:53,960
Speaker 5: an example like Craft. You know, their volumes were down

443
00:24:54,119 --> 00:24:59,120
Speaker 5: more than what was expected, and it was it was

444
00:24:59,400 --> 00:25:03,280
Speaker 5: the volumes were down more sequentially as well. And you know,

445
00:25:03,280 --> 00:25:07,359
Speaker 5: they were commenting that consumers are kind of stretching their budget.

446
00:25:07,400 --> 00:25:10,159
Speaker 5: They're they're they're not buying as often. It's not that

447
00:25:10,200 --> 00:25:13,639
Speaker 5: they're trading down to something cheaper, but they're just not

448
00:25:13,720 --> 00:25:17,000
Speaker 5: buying as often, you know craft. You know, just like

449
00:25:17,080 --> 00:25:20,240
Speaker 5: other consumer packaged food companies like they raise their prices

450
00:25:20,280 --> 00:25:24,600
Speaker 5: to kind of offset the inflationary impact. So you're starting

451
00:25:24,640 --> 00:25:28,720
Speaker 5: to see that the consumer they've reached their limit on

452
00:25:28,960 --> 00:25:31,359
Speaker 5: how much they're going to pay for something. So I

453
00:25:31,359 --> 00:25:33,720
Speaker 5: think in a soft landing, you know, volume, it will

454
00:25:33,720 --> 00:25:37,400
Speaker 5: help volumes a lot, and you know, we'll see volumes

455
00:25:37,400 --> 00:25:42,320
Speaker 5: bounce back somewhat, so good for the consumer. Now for

456
00:25:42,359 --> 00:25:46,280
Speaker 5: the consumers, the consumer general and sector, I think, you know,

457
00:25:46,359 --> 00:25:49,040
Speaker 5: it's definitely good for the consumer sector in general as well.

458
00:25:50,280 --> 00:25:53,520
Speaker 5: Everyone's kind of been holding their breast management, you know,

459
00:25:53,680 --> 00:25:57,639
Speaker 5: just very cautiously optimistic for what's going to happen in

460
00:25:57,640 --> 00:26:01,520
Speaker 5: the second half of the year. You know, not knowing

461
00:26:01,560 --> 00:26:04,720
Speaker 5: whether you know geopolitical risks are going to continue. There's

462
00:26:04,760 --> 00:26:08,439
Speaker 5: just so many headlines there, so you have geopolitical risks,

463
00:26:08,800 --> 00:26:11,760
Speaker 5: you know, whether you know the consumers are still going

464
00:26:11,800 --> 00:26:14,640
Speaker 5: to be strapped, like the state of the economy. So

465
00:26:14,760 --> 00:26:18,719
Speaker 5: when you have this this talk of a soft landing,

466
00:26:18,880 --> 00:26:22,399
Speaker 5: I think it's you know, it's just good news. It's

467
00:26:22,440 --> 00:26:26,360
Speaker 5: it's very good news. Consumer companies have just been very

468
00:26:26,400 --> 00:26:28,800
Speaker 5: careful how they're spending their money, which they're still going

469
00:26:28,880 --> 00:26:32,119
Speaker 5: to be, but there's a little more breathing room in

470
00:26:32,200 --> 00:26:36,320
Speaker 5: a soft landing. We've seen that generally, and we're going

471
00:26:36,359 --> 00:26:40,480
Speaker 5: to speak very generally. Balance sheets cashflow has had been

472
00:26:40,760 --> 00:26:45,080
Speaker 5: very good, and I think that's because given the headwinds,

473
00:26:45,160 --> 00:26:48,359
Speaker 5: given the unknowns, not knowing what's going to happen in

474
00:26:48,720 --> 00:26:52,359
Speaker 5: the economy, I think they've just been very cautious in

475
00:26:53,119 --> 00:26:57,879
Speaker 5: their approach to shareholder returns. They caution their approach to

476
00:26:58,000 --> 00:26:59,960
Speaker 5: M and A like what we were talking about earlier before.

477
00:27:00,600 --> 00:27:04,280
Speaker 5: So just operating performance wise in a soft landing environment,

478
00:27:04,359 --> 00:27:09,520
Speaker 5: it'll be good for the consumer sector in general. The

479
00:27:10,119 --> 00:27:13,320
Speaker 5: counterbalance is, well, are they going to start being aggressive

480
00:27:13,320 --> 00:27:16,760
Speaker 5: with share share repurchases? Are they going to be, you know,

481
00:27:16,760 --> 00:27:21,440
Speaker 5: more aggressive with their dividends? So they need to counterbalance that.

482
00:27:21,640 --> 00:27:25,160
Speaker 5: So you preserve your credit ratings and you still keep

483
00:27:25,200 --> 00:27:28,320
Speaker 5: some dry powder on your balance sheet just in case

484
00:27:28,920 --> 00:27:32,040
Speaker 5: something else happened, you know, And I go back to

485
00:27:33,240 --> 00:27:36,960
Speaker 5: you know, February twenty twenty, I was at the Cagney Conference,

486
00:27:36,960 --> 00:27:40,920
Speaker 5: which is the large consumer consumer products, food and beverage

487
00:27:40,920 --> 00:27:44,480
Speaker 5: conference that they hold every year. And I remember back

488
00:27:44,520 --> 00:27:50,240
Speaker 5: in February twenty twenty, you know, we were we were

489
00:27:50,240 --> 00:27:52,879
Speaker 5: hearing questions about what's going on in China, What do

490
00:27:52,880 --> 00:27:54,000
Speaker 5: you think is going to happen in China?

491
00:27:54,000 --> 00:27:55,840
Speaker 2: How is that going to affect you guys?

492
00:27:56,000 --> 00:28:00,359
Speaker 5: And you know management up there and you could tell no,

493
00:28:01,280 --> 00:28:04,560
Speaker 5: and they just their comments were all, we're watching it,

494
00:28:04,720 --> 00:28:05,679
Speaker 5: we're monitoring it.

495
00:28:06,760 --> 00:28:09,639
Speaker 2: You know, we'll see you know, we'll keep you guys updated. Well,

496
00:28:09,920 --> 00:28:11,880
Speaker 2: then a month later, we're in full lockdown.

497
00:28:12,480 --> 00:28:15,640
Speaker 5: So the speed at which the pandemic came, I think

498
00:28:15,720 --> 00:28:19,280
Speaker 5: it took everybody by surprise, and I think they nobody

499
00:28:19,280 --> 00:28:23,080
Speaker 5: wants to be in that position anymore. So, you know,

500
00:28:23,160 --> 00:28:28,960
Speaker 5: we'll probably see more shareholder friendly activities, but I think

501
00:28:29,280 --> 00:28:31,520
Speaker 5: there's going to be something in the back of their

502
00:28:31,560 --> 00:28:34,119
Speaker 5: minds that, Okay, you know, we can't be too aggressive

503
00:28:34,200 --> 00:28:36,800
Speaker 5: because we need our credit ring, we need cash, because

504
00:28:36,800 --> 00:28:38,800
Speaker 5: we just don't know what's going to happen down the line.

505
00:28:38,840 --> 00:28:41,719
Speaker 6: I just don't know, Julie. That's that's exactly what it is.

506
00:28:41,800 --> 00:28:44,160
Speaker 6: None of us have that crystal ball that we we

507
00:28:44,200 --> 00:28:47,160
Speaker 6: all wish that we had. Well, thank you so much.

508
00:28:47,240 --> 00:28:47,720
Speaker 2: Julie.

509
00:28:47,760 --> 00:28:50,920
Speaker 6: That was Julie Hung of Bloomberg Intelligence. You can read

510
00:28:51,200 --> 00:28:54,920
Speaker 6: all of her great analysis on the Bloomberg Terminal. Please

511
00:28:55,000 --> 00:28:57,280
Speaker 6: do check it out, and Julie, hope to see you

512
00:28:57,320 --> 00:28:58,080
Speaker 6: back again soon.

513
00:28:59,400 --> 00:29:02,040
Speaker 2: Thank you so much much, and.

514
00:29:02,040 --> 00:29:05,640
Speaker 1: Thanks again to Amelia Pollard from Bloomberg News. Read all

515
00:29:05,680 --> 00:29:08,520
Speaker 1: of her great credit speech and coverage on the terminal

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Speaker 1: and at Bloomberg dot com. I'm Olivia Raymonde. It's been

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Speaker 1: a pleasure having you join us again next week on

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Speaker 1: the Credit Edge