Speaker 1: This is Bloomberg Business Week. I'm Carol Masser and I'm
Speaker 1: Bloomberg Quick Takes Tim Stanovk. We're here every day bringing
Speaker 1: you the latest news from the world of business and finance,
Speaker 1: plus technology, politics, economics, all partnessing the power of Business
Speaker 1: Week reporters and editors, not to mention our journalists and
Speaker 1: analyst in more than one and twenty countries. You can
Speaker 1: download Bloomberg Business Week and iTunes, SoundCloud, or Bloomberg dot Com.
Speaker 1: You can also listen to our radio show at two
Speaker 1: pm Eastern Time on Bloomberg Radio or watch us on
Speaker 1: YouTube search Bloomberg Global News. Certainly tough in the overall market,
Speaker 1: trades and broad based selling, but not selling investors snapping up.
Speaker 1: In fact, shares of Tapestry stock has been as high
Speaker 1: as nineteen percent in today's sessions, still holding on to
Speaker 1: about a fourteen percent gain, and this despite the parent
Speaker 1: of Coach and Kate Spade cutting its profit outlook due
Speaker 1: to pandemic closures in China. Meantime, a bright spot North
Speaker 1: American demand lifting third quarter sales above estimates. So let's
Speaker 1: get to the quarter and find out what the consumer
Speaker 1: is up to. Delighted to be talking once again with
Speaker 1: Joanne Krivosant. She is you have Tapestry and she is
Speaker 1: on the phone in New York City. Joanne, So nice
Speaker 1: to have you here with Tim and myself. How are
Speaker 1: you and how is the retail environment doing well? Thank you,
Speaker 1: Carol and Tim. It's it's great to be here. Thanks
Speaker 1: for having me. Um. What we're seeing in our business
Speaker 1: is strength and momentum across our business. As you mentioned,
Speaker 1: our third quarter outperformed, led by strength in North America,
Speaker 1: and we drove double digit global sales growth across all
Speaker 1: of our brands at Coach, at Kate Spade, and at
Speaker 1: Stuart Whitzman. And you know, Tapestry is a powerful combination
Speaker 1: of iconic brands that offer tremendous value for consumers, and
Speaker 1: we have a platform that we've transformed to drive innovation
Speaker 1: and customer engagement, and that model is delivering results. We're
Speaker 1: seeing that in the strength of our digital business, increased
Speaker 1: customer acquisition and pricing power across brand. So a lot
Speaker 1: of things are are working and performing, and it really
Speaker 1: reflects the strategies that that we've put in place over
Speaker 1: the last few years, UM to stay closer to our consumers.
Speaker 1: And drive growth behind our our powerful brands. So we
Speaker 1: want to dig deeper into that. But let me ask you,
Speaker 1: if you had to describe the consumer in a word
Speaker 1: or a few words, how would you do it? And
Speaker 1: would you say that the consumers back at pre pandemic
Speaker 1: levels or maybe even better or still a little bit
Speaker 1: under it. Yeah, the consumer is quite resilient. UM. You know,
Speaker 1: we've been driving growth above pre pandemic levels for several
Speaker 1: quarters UM. And you know that's that's most apparent in
Speaker 1: our Coach brand, where we've had more quarters in a row,
Speaker 1: but also true at Cape Spade and at Stuart Whitzman
Speaker 1: and UM. You know, our business in the third quarter
Speaker 1: reflects really the strength and momentum we're seeing around the world.
Speaker 1: You know, we talked about our growth in North America.
Speaker 1: We drove growth in North America in the last UH
Speaker 1: in the last quarter, UM, but we also saw strength
Speaker 1: around the world in all areas except for China. So
Speaker 1: we saw strength in Europe UM and strong growth in
Speaker 1: rest of Asia as well as in Japan. So UM
Speaker 1: business is performing UM. In fact, even in China going
Speaker 1: into the quarter, we saw strength and and UM you
Speaker 1: know that business only started to weekend when we saw
Speaker 1: the disruption related to COVID in the market towards the
Speaker 1: end of the quarter. Um. So we're seeing a consumer
Speaker 1: that is engaging with our brands. They're getting out into
Speaker 1: the real world. There are real life occasions and um,
Speaker 1: you know, we see them engaging with our brands, uh,
Speaker 1: and our categories and handbags and footwear. Um. And in fact,
Speaker 1: we're we just came off a great Mother's Day, so
Speaker 1: that that continues and the consumer really continues to engage
Speaker 1: both again with our brands and in our categories. Joan,
Speaker 1: I want to I want to hit on the China
Speaker 1: point and dig into that a little bit, because you
Speaker 1: had to have in North America, you overcame pandemic related
Speaker 1: weakness in China when you look at the results overall.
Speaker 1: But I'm but I'm wondering from a planning perspective, how
Speaker 1: you're thinking about how long these lockdowns last and how
Speaker 1: long you're going to see that weakness in China where
Speaker 1: business has just dried up since this resurgence of COVID. Yeah,
Speaker 1: the business was disrupted, but it was disrupted in a
Speaker 1: very discrete way. UM, you know, by the by the
Speaker 1: impact of COVID in the market. And you know, our
Speaker 1: business has been quite resilient over the last two years.
Speaker 1: As I said, you know, we've been driving growth above
Speaker 1: pre pandemic levels for some time, UM, and that shows
Speaker 1: the resilience of our model and the way that we're
Speaker 1: able to shift UM. Two changes that we're seeing in
Speaker 1: demand and changes in the supply chain and supply around
Speaker 1: the world. And our latest disruption has been in China.
Speaker 1: But as as I mentioned, we had strength in the
Speaker 1: market and we've been driving strength as as China came
Speaker 1: out of the first round of lockdowns, the consumer was
Speaker 1: incredibly resilient UH, and we were driving growth significantly above
Speaker 1: pre pandemic levels for a number of quarters. UM. Again,
Speaker 1: as you pointed out, you know, they've they've been hit
Speaker 1: by another round of COVID lockdowns and that has impacted
Speaker 1: traffic UM in the lockdown cities, but also more broadly, UM.
Speaker 1: It's also impacted some of the distribution centers and logistics
Speaker 1: in the market UM, and so we're feeling the impacts
Speaker 1: of that. Our expectation is that, you know, we expect
Speaker 1: Shanghai to begin to reopen. It's beginning of June, and
Speaker 1: we expect a gradual recovery, probably more gradual than what
Speaker 1: we saw last time we came out of lockdown, but
Speaker 1: we do expect a gradual recovery. And you know, our
Speaker 1: brands are targeting the middle class consumer in that market,
Speaker 1: which is an attractive market and growing market, and we
Speaker 1: feel well positioned um as that market recovers over the
Speaker 1: near term, but as well UM for long term growth. Uh,
Speaker 1: you know, with longer runway ahead go in. There's so
Speaker 1: much stress out there. It feels like, certainly when we
Speaker 1: watch the financial markets, right and we look at some
Speaker 1: individual names, even though your stocks rallying, it's down about
Speaker 1: this year, but it's it's broad based selling. It feels
Speaker 1: like no market or sector is immune. It certainly seems
Speaker 1: in the Star Excel off you sound pretty calm, and
Speaker 1: you sound I don't know, is it cautiously optimistic optimistic? UM,
Speaker 1: help me understand fundamentally what the outlook looks like? That
Speaker 1: might you know? I think we're all trying to figure
Speaker 1: out what is the outlook amid a rising rate environment,
Speaker 1: and what is the business environment and what's the market environment? Um?
Speaker 1: Could you seem pretty calm? Yeah? Well, and we are
Speaker 1: optimistic We're very confident. You know, we have such iconic
Speaker 1: brands in our in our portfolio, and our focus has
Speaker 1: been on, you know, restoring the health of our brands
Speaker 1: and driving better and stronger engagement with consumers. And when
Speaker 1: we do that, the business perform. So we're really focused
Speaker 1: on fundamentals UM and you know when we talk about transformation,
Speaker 1: actually I heard you discussing investment UM in the business
Speaker 1: in the in the show just prior to when I
Speaker 1: came on. You know, we're investing, and we're investing in
Speaker 1: digital tools and innovation and technology that's making us better.
Speaker 1: And as we focus on the fundamental we're seeing traction.
Speaker 1: We're engaging customers, were acquiring more customers. We acquired one
Speaker 1: point four million customers in the last quarter alone, and
Speaker 1: since we've embarked on our transformation, we've acquired thirteen million
Speaker 1: new customers to our brands over the last twenty one months.
Speaker 1: And these are customers who are coming in and engaging
Speaker 1: with our brands. They're shopping at higher a you are,
Speaker 1: higher prices than average, and they're coming back more frequently UM.
Speaker 1: And these customers are also increasingly younger. So as we
Speaker 1: focus on the fundamentals of our business. It gives us
Speaker 1: confidence because we're seeing much stronger engagement, much healthier brands,
Speaker 1: and much stronger engagement with our consumers. Joanne'm wondering about
Speaker 1: your pricing power because you said that there these customers
Speaker 1: are paying more than they were paying earlier. How much
Speaker 1: of that has to do with inflation? Where where are
Speaker 1: you seeing a rise in costs right now on your
Speaker 1: production ended, in your supply chain, And how much are
Speaker 1: you absorbing of that versus passing it along to the customer?
Speaker 1: Because as Saunders and analysts with global data set in
Speaker 1: a note after your results, Uh, the customers that you
Speaker 1: have at Tapestry can cope better with inflationary impacts than
Speaker 1: the average customer. Yeah. And the way we think about
Speaker 1: our pricing power is really in terms of delivering value
Speaker 1: to consumers UM and and that's how we've been thinking about.
Speaker 1: In fact, we started this pre pandemic before we started
Speaker 1: to see pressure on the cost side of the equation,
Speaker 1: and those pressures are real. We're seeing pressure on the
Speaker 1: cost side of the equation like others in the industry,
Speaker 1: UM a lot of pressure in freight related to the
Speaker 1: supply chain dislocations that we're seeing, but our focus really
Speaker 1: on the pricing side of it. In the pricing powers
Speaker 1: really driven by the value we're delivering to consumers and
Speaker 1: those emotional connections that we're developing are allowing us to
Speaker 1: drive pricing power, and we're seeing that across our brands.
Speaker 1: You know, some of the investments we've we've made and
Speaker 1: tools and technology or helping us leverage data better in
Speaker 1: across our value chain, so that's making us more informed
Speaker 1: on pricing decisions. It's also making us more informed on
Speaker 1: our assortment decisions and our inventory management so we've got
Speaker 1: the right inventory. We're seeing higher skew productivity UM with
Speaker 1: more concentration behind more powerful items, and that allows us
Speaker 1: UM to drive pricing power as well and to clarify
Speaker 1: our messages with consumers. So on the value side of
Speaker 1: the equation, we continue to deliver unbeatable value for our
Speaker 1: consumers across all of our brands, and that's helping us
Speaker 1: more than offset the pricing pressure that that we're seeing
Speaker 1: UM in terms of costs, in terms of our expectations
Speaker 1: going forward. You know, doing when you were part of
Speaker 1: a Bloomberg panel that we did, you and I did
Speaker 1: it with a few other heads of companies about a
Speaker 1: year ago, and we talked about disruption as a new
Speaker 1: economic driver. I think part of the conversation we also
Speaker 1: got into what consumers want in terms of sustainability, and
Speaker 1: E s G is such a big part of everywhere.
Speaker 1: Tim and I are back from Milk and we talked
Speaker 1: about it with every conversation. I am curious about how
Speaker 1: you guys apply it at the company, and and I'm
Speaker 1: really intrigued about this craftsperson Is apprenticeship program because I
Speaker 1: think it's a way of creating jobs, uh and also
Speaker 1: you know, creating really strong sustainability initiatives at the company. Exactly. Yeah,
Speaker 1: We're we're really thrilled to bring that to bear. That
Speaker 1: that UM UM Craftsman Apprenticeship program and the way we
Speaker 1: think about E s G. E s G has has
Speaker 1: been part of the fabric of our company from the beginning,
Speaker 1: and and we value UM and we think about it
Speaker 1: in terms of what we're bringing and delivering for our people,
Speaker 1: for our planet and for our communities. And part of
Speaker 1: that UM effort, and some of those efforts include UM Sustainable,
Speaker 1: UM Materials and and the Circular economy and Coach is
Speaker 1: a great example of where we're leaning into the circular
Speaker 1: economy with our our Reloved program that takes product that
Speaker 1: can no longer be paired um and and we we
Speaker 1: relove it literally and when we restore it and we
Speaker 1: bring it back to health, our designers are working on it,
Speaker 1: are our repair centers are working on this product and
Speaker 1: restoring it and bringing it back, and we've seen unbelievable
Speaker 1: reaction from consumers. This is something consumers are asking for,
Speaker 1: It's something our associates love to do. And as we
Speaker 1: think about scaling these programs, we are looking for more
Speaker 1: people to get involved in terms of leather craftsmanship, and
Speaker 1: that's part of the apprentice program that we're developing to
Speaker 1: allow us to further scale these programs. Can say I'm
Speaker 1: an older consumer, but my daughter is nineteen and she's
Speaker 1: a younger consumer. Those are the kind of things that
Speaker 1: really make us take a second look at a brand.
Speaker 1: So I think you guys are onto something. You're listening
Speaker 1: to Bloomberg Business Week with Carol Messer and Bloomberg Quick
Speaker 1: Takes Tim Stinovic on Bloomberg Radio. The cover story of
Speaker 1: Bloomberg Business Week, The new issue just out on newsstands
Speaker 1: online at Bloomberg dot com slash business Weekend on the
Speaker 1: Bloomberg terminal. It's about the return of the company's longtime
Speaker 1: CEO at Starbucks, along with the rise of a union
Speaker 1: movement among its baristas. We're talking, of course, about Howard Schultz.
Speaker 1: This story by Josh Idolson. Check it out. It's the
Speaker 1: cover story, as Carol mentioned, of the new issue of
Speaker 1: Business Week magazine. It's available on newsstands, on the Bloomberg
Speaker 1: and at Bloomberg dot com slash business Week. Josh's labor
Speaker 1: reporter for Bloomberg News. He joins us on the phone
Speaker 1: from San Francisco. With us here in person is the
Speaker 1: editor of Bloomberg business Week, Joel Webber. He's with us
Speaker 1: in the Bloomberg Interactive Broker studios. Joel, I want to
Speaker 1: start with you because this is the third time that
Speaker 1: Howard Schultz has been at the home of Starbucks. What
Speaker 1: is the Starbucks that he found when he returned just
Speaker 1: about a month ago as CEO. The surprise I think
Speaker 1: that probably awaited him was one that he was not
Speaker 1: probably familiar with from his other stints, which was this
Speaker 1: newfound power that the labor has and Starbucks, which I
Speaker 1: found really surprising the workers of Starbucks. Have you know,
Speaker 1: for all of this talk about unionization sweeping the country
Speaker 1: right now, Amazon being one that we've talked about extensively,
Speaker 1: all those all of those roads lead back to what
Speaker 1: has been happening at Starbucks, and Starbucks has been really
Speaker 1: the workers of Starbucks have been galvanizing force that a
Speaker 1: lot of other workers in corporate America have been inspired by.
Speaker 1: And and Josh to his credit, saw this long ago
Speaker 1: and started reporting the heck out of it and going
Speaker 1: to as many states and and talking to as many
Speaker 1: workers who were behind the scenes of that union effort.
Speaker 1: And so what you really have here is a CEO
Speaker 1: who helped build this company into a global brand, comes
Speaker 1: back to it and has found that the workers aren't
Speaker 1: buying that same vision that he had laid out long ago.
Speaker 1: And you see this tension between the workers and Schultz
Speaker 1: and and it even culminates with, you know, the workers
Speaker 1: being invited to the White House um and the company
Speaker 1: sort of saying, hey, you know we we we got
Speaker 1: cut out of this. So so josh Um, what what
Speaker 1: do you know? You're somebody who follows um labor obviously
Speaker 1: very closely. I think Josh is like probably as good
Speaker 1: as it gets in terms of labor reporting in this
Speaker 1: country right now. And what really distinguishes the Starbucks story
Speaker 1: for a wider audience here, so in recent decades in
Speaker 1: the United States, it's pretty much unheard of for workers
Speaker 1: to win a labor board election at a company as
Speaker 1: prominent as Starbucks where there isn't a union already and
Speaker 1: there isn't some kind of deal between the union and
Speaker 1: the company to play nice. And that this union not
Speaker 1: only won that first election in Buffalo, but has now
Speaker 1: won at sixty some stores and is petitioning to unionize
Speaker 1: hundreds of Starbucks cafes around the country. Is a movement
Speaker 1: with little precedent in the twenty one century United States
Speaker 1: at a big company me and it is being done
Speaker 1: mainly through workers mentoring each other. Not just workers organizing
Speaker 1: their coworkers, but workers training other workers to train other
Speaker 1: workers to train other workers to organize their coworkers. And
Speaker 1: that is how, as one worker put at, this ultimate
Speaker 1: group project has spread so quickly and has proven so
Speaker 1: difficult for Starbucks despite all the resources at its disposal
Speaker 1: and the goodwill that it's had to stem this movement
Speaker 1: from growing and spreading further. There are a lot of
Speaker 1: directions I want to go, Josh, but one question that
Speaker 1: continues to stick out to me is, you know, Starbucks
Speaker 1: is as corporate is very pushing back, very aggressively when
Speaker 1: it comes to these unionization efforts on an individual level,
Speaker 1: even before Howard Schultz came back, remember he flew to
Speaker 1: Buffalo to meet with those unionizing employees. What is what
Speaker 1: what does that stake here for Starbucks? If there is
Speaker 1: widespread unionization across US stores here to what that does
Speaker 1: that affect Starbucks business? Well, there are two big reasons
Speaker 1: that companies tend to resist unionization, and one is money
Speaker 1: and the other is power. Of course, for the union
Speaker 1: to prove its worth two workers, it is going to
Speaker 1: need to show that it can extract things from Starbucks
Speaker 1: that workers one an otherwise get, and some of those
Speaker 1: things are going to cost money. But the other reason
Speaker 1: that companies fight unions, and that they often are willing
Speaker 1: to spend a whole lot of money both on anti
Speaker 1: union consultants and on making improvements to try to modify people,
Speaker 1: is that they don't want to give up that control
Speaker 1: over how the businesses run. And Starbucks for years has bragged,
Speaker 1: including Howard Scholtz has bragged that there's an empty chair
Speaker 1: at the board meeting that represents workers voice. So now
Speaker 1: you have workers saying, why is the chair empty? Put
Speaker 1: us in the chair instead. And in fact, in Buffalo,
Speaker 1: they're in collective bargaining negotiations proposing that Starbucks should have
Speaker 1: to put a representative of the workers on its board.
Speaker 1: And so for Starbucks to become substantially unionized would mean
Speaker 1: that Starbucks executives have less unilateral ability to decide what
Speaker 1: the business model should be, what the rules should be.
Speaker 1: And that's part of why the stakes here are so high. Josh,
Speaker 1: what happened at the company? I thought this was the
Speaker 1: one where they paid their workers as well, they had
Speaker 1: nice benefits. I mean, this is something at Chultz kind
Speaker 1: of took pride in as you as you report what happened.
Speaker 1: So workers would answer that question in two different ways,
Speaker 1: and one is to say it's not as dreamy as
Speaker 1: it may sound. Even the fifteen dollar minimum pay that
Speaker 1: the workers will be guaranteed by August is not a
Speaker 1: living wage for someone with a child. In a city
Speaker 1: like Seattle, the staffing issues have been egregious at times,
Speaker 1: especially during COVID, and the handling of COVID disappointed some
Speaker 1: orders and left them feeling betrayed. The other answer they
Speaker 1: would give is that it's not enough to be better
Speaker 1: than other fast food companies, and that they believe they
Speaker 1: should have more say in their working conditions and therefore
Speaker 1: in their lives, and that there is no one particular
Speaker 1: thing that Starbucks could solve that would make them go
Speaker 1: back to being okay with the company having all the control.
Speaker 1: And where does where do things stand with Schultz? Because
Speaker 1: as you write, this is not a He's not permanently
Speaker 1: CEO right now, right He's just back on an entering basis.
Speaker 1: So where where will this dispute go? That's what they've said.
Speaker 1: There's supposed to be a permanent announcement in the fall.
Speaker 1: There are some people hoping that Schultz stays on. But
Speaker 1: it is a fight that is deeply personal for Howard Schultz.
Speaker 1: This is his baby, and he has come back and
Speaker 1: made these personal appeals to workers, sometimes emotionally intensely, and
Speaker 1: as we see in the rooms that we go into
Speaker 1: in this story, and so this is not a struggle
Speaker 1: that he's going to be able to shrug off. Whether
Speaker 1: he's in the CEO seat or not, and some other
Speaker 1: companies watching this very very closely. Um, Josh, thank you
Speaker 1: so much, really appreciate it. Josh Idelson, He's labor reporter
Speaker 1: at Bloomberg News. This is the cover story of the
Speaker 1: new issue of Bloomberg Business Week on newsstands right now,
Speaker 1: on the Bloomberg and of course online. Till Webber, he
Speaker 1: is the editor of Bloomberg Business Week magazine. This is
Speaker 1: Bloomberg Business Week with Carol Masser and Bloomberg Quick Takes
Speaker 1: Tim Stinovic on Bloomberg Radio. So Tim and I were
Speaker 1: at the Milk and Institute Global Conference last week. We
Speaker 1: talked a lot about the Market's big topic touched on
Speaker 1: and so many panels and conversation was E S G.
Speaker 1: So we're going to get into that along with the
Speaker 1: macro environment with our guest. Great to be talking once
Speaker 1: again with us is Dave Getland. Excuse me, Dave Getlind
Speaker 1: chairman and CEO Carrier Global. You know, the company for
Speaker 1: making HVAC systems, refrigeration, so many different things that certainly
Speaker 1: affect all of us on a daily basis. And he's
Speaker 1: here in our Interactive Broker studio how are you. I'm
Speaker 1: doing great. Thank you for having me. It's great to
Speaker 1: have you here. Dave, and I do think about Tim
Speaker 1: and I were just talking. I mentioned when you walked
Speaker 1: in that we're watching the volatility in the market. Uh,
Speaker 1: and we're seeing so many asset classes come undone, it
Speaker 1: feels like, but in a controlled way. And yet we
Speaker 1: just talked to the CEO of Tapestry. She was calm, said,
Speaker 1: consumers are spending. She was optimistic. How do you see
Speaker 1: the environment, how do you kind of cross that with
Speaker 1: what we're seeing in the financial markets. We feel the
Speaker 1: same way. We feel very confident in where we are
Speaker 1: and where we're going. And a big part of it
Speaker 1: has to do with the secular trends you mentioned like E.
Speaker 1: S G. But we looked at our first quarter orders
Speaker 1: were up ten percent. Our backlog is up over thirty
Speaker 1: percent versus last year. So demand has continued to be
Speaker 1: very strong. Backlog up because of supply chain problems are
Speaker 1: just demands. Well partly we have some overdoke because the
Speaker 1: supply chain, but it's really because it demand. Our orders
Speaker 1: have been strong multiple quarters in a row. They continue
Speaker 1: to be strong. United States is very strong. Europe continues.
Speaker 1: There's a lot of anxiety about Europe, but if you
Speaker 1: were to be in one of our internal meetings, you'd
Speaker 1: be very bullish on Europe. Orders across our portfolio continue
Speaker 1: to be very strong. We have obviously a watch like
Speaker 1: others on China, but demand in our residential business, large
Speaker 1: commercial are like commercial business which is h VACT for
Speaker 1: things like K through twelve very very strong in United
Speaker 1: States retail with people coming back, So we do see
Speaker 1: very very strong demand right now. Would you say that
Speaker 1: the primary driver of demand is reopening, that desire for
Speaker 1: businesses and schools to make sure that they have clean
Speaker 1: and healthy air for the people who are in their buildings.
Speaker 1: That's a big piece of it. If you take K
Speaker 1: through twelve, it's a vertical that's traditionally been starved for capital,
Speaker 1: and all of a sudden in the last in the
Speaker 1: last year, they've been given a hundred and ninety billion
Speaker 1: dollars in governments, yes, by the US government, and it
Speaker 1: comes in three essays. The last essay is a billion
Speaker 1: that's going to be spent over these next few years,
Speaker 1: and a good chunk of that's going to go to
Speaker 1: h v A C. Because it's not only to build
Speaker 1: more energy efficient, more sustainable type solutions. But schools are
Speaker 1: very aware of the criticality of the health of the
Speaker 1: indoor environment. And that's what COVID has really done is
Speaker 1: shine a light on the criticality of having safe and
Speaker 1: healthy indoor environments if you're in a school system. It
Speaker 1: not only helps prevent a spread of airborne illnesses like
Speaker 1: COVID one and thirteen kids have asthma, and then you
Speaker 1: also look at kids test better when you have lower
Speaker 1: CEO two levels. So there's multiple benefits and a lot
Speaker 1: of that spending is going so our k through twelve
Speaker 1: orders in the first quarter of So are we all
Speaker 1: Dave looking at things differently post pandemic about because we
Speaker 1: understand air quality really makes a difference. Or is it
Speaker 1: just something that Okay, we were worried about the pandemic
Speaker 1: and we're not so worried now. Are you saying that?
Speaker 1: Are you seeing that kind of as a sustained concern
Speaker 1: and then a sustained upgrade, you know, And I think
Speaker 1: what's happened is you can see there's a certain amount
Speaker 1: of anxiety when people go into very crowded indoor environments.
Speaker 1: Your shoulders, shoulders, so we're very confident that it's sustained.
Speaker 1: You know, if you take bottle water in the United States,
Speaker 1: people spend thirty six billion dollars on bottle water when
Speaker 1: it's free. And what's happened is people are sensitized to
Speaker 1: that's a safer way to drink water. What's going to
Speaker 1: happen with health errors? Because it's invisible, people don't know
Speaker 1: whether or not it's safe. Our job is to make
Speaker 1: air visible. And what we're selling now is a new
Speaker 1: digital platform we call abound, which can make air visible.
Speaker 1: It's an aggregated scorecard of whether or not the air
Speaker 1: that you're breathing is safe. And our goal is to
Speaker 1: make that ubiquitous. So when you come into bloomberg Er,
Speaker 1: you go into a restaurant, or you go into a school,
Speaker 1: it's an you can see it in the Atlanta Braves
Speaker 1: Games in Truce Park. It's an aggregate score that tells
Speaker 1: you you are in a safe and healthy indoor environment.
Speaker 1: So that's our goal to make it sustainable is make
Speaker 1: it visible. But this only works for HVAC systems and
Speaker 1: filtration systems that are carrier systems right. Our our system
Speaker 1: can work with others as well. Like it can overlay
Speaker 1: with any ones building management system or anyone else's equipment.
Speaker 1: It's a it's a digital tool that we've launched in
Speaker 1: partnership with AWS to really make it so you know,
Speaker 1: in anywhere we can attach the sensors and collect the data.
Speaker 1: It looks at CEO two levels, particular matter rate on
Speaker 1: t V O C. So it's a way to kind
Speaker 1: of get data and make it visible so you get
Speaker 1: confident to go back indoors. How much of what you're
Speaker 1: doing is upgrades of existing systems day versus what you're
Speaker 1: what is new construction, because I'm trying to get an
Speaker 1: idea of construction that's going on right now. Well in
Speaker 1: the large in the large commercial side, it's seventy new
Speaker 1: construction and replacement. And if we look at that space,
Speaker 1: we look at the Architectural Building Index because that's a
Speaker 1: six month leading indicator of people work on architectural designs
Speaker 1: and advance of course of construction and the A B
Speaker 1: I you want that to be north of fifty. It's
Speaker 1: been north of fourteen months in a row. So there
Speaker 1: is demand for large commercial buildings in the residential and
Speaker 1: light commercial space. It's the reverse, it's eight percent. Replacement
Speaker 1: and new construction and residential has and residential for US
Speaker 1: was up over in the first quarter. Like commercial, which
Speaker 1: is things like data centers, retail K through twelve that
Speaker 1: was up over in the first quarter, So very strong
Speaker 1: demand in that particular vertical. All right, I'm gonna go
Speaker 1: back to you sound positive and optimistic. So I'm trying
Speaker 1: to figure out where we are in this economic cycle.
Speaker 1: You know, I think there is this there's this anxiety
Speaker 1: that is very understandable because obviously with the inflation we've
Speaker 1: seen people know that leads to rate increases, which typically
Speaker 1: slows in economy. So you can understand the anxiety. But
Speaker 1: when you kind of go back to things like secular
Speaker 1: trends that we know there's going to be demand for
Speaker 1: things like more energy efficient HVAC systems. So in Europe
Speaker 1: are orders for heat pumps, for commercial heat pumps, where
Speaker 1: were the market leader, They were up thirty percent in
Speaker 1: the first quarter. As Europe weans itself off Russian gas,
Speaker 1: you know there's going to be more demand for systems
Speaker 1: like heat pumps. You know that if you're if your
Speaker 1: air conditioner fails when it's hot, it's going to be replaced.
Speaker 1: You know, people spend more time at home hopefully car no, don't, yes,
Speaker 1: hopefully get so that you can help the quarter care.
Speaker 1: What you say is like it was an old system
Speaker 1: twenty years or so, and it's much more efficient. Like
Speaker 1: it's just the technology continues to get better and better,
Speaker 1: and we see the government require it, yes, and people
Speaker 1: in governments incentivize it. But people are also mixing up,
Speaker 1: you know, because people spend more time at home, they
Speaker 1: don't want it when their air conditioner goes off and on,
Speaker 1: you know, makes that sounds. So they're actually going for
Speaker 1: variable speed, more higher end equipment. So to your point,
Speaker 1: there is this juxtaposition with anxiety about the future and
Speaker 1: some secular trends like E s G and healthy indoor
Speaker 1: environments are rising middle class globally, only seven per cent
Speaker 1: of people in India have air conditioning and it's a
Speaker 1: pretty hot country, you know, at one point four billion people.
Speaker 1: So you can see that these forces coming together that's
Speaker 1: driving demand. Our challenge. We both want to ask you
Speaker 1: questions change what signs are you seeing of Like you're
Speaker 1: putting systems in places you never thought you'd put air conditioning,
Speaker 1: Like that just speaks to kind of what's going on
Speaker 1: in our environment globally. Yeah, you know what's really encouraging
Speaker 1: is the continued trend around around heat pumps, in particular
Speaker 1: for h v A C systems so UM in in Europe,
Speaker 1: almost all new construction is going to heat pumps in
Speaker 1: Europe for residential we're seeing in the United States States
Speaker 1: like South Carolina by more they look at we look
Speaker 1: at their heat pump where they sell heatpumps with UM
Speaker 1: connected to their split system versus a cooling only. They
Speaker 1: sell more integrated heat pumps than they do cool and only.
Speaker 1: So the demand for heatpumps in the United States and
Speaker 1: globally is going up exponentially. More energy efficient solutions in
Speaker 1: the United States next year, there's gonna be the entire
Speaker 1: country is going to a switch to higher serre units
Speaker 1: in the South fourteen and fifteen, North thirteen and fourteen.
Speaker 1: So governments globally are incentivizing their populations to have more
Speaker 1: energy efficient solutions, and that's what we do. So that's
Speaker 1: why there is this overall anxiety. But when you have
Speaker 1: things that impact can make a meaningful impact on climate change,
Speaker 1: that there's going to be demand. If there's going to
Speaker 1: be things that impact health and wellness. There is going
Speaker 1: to be demand there. There is this overarching anxiety. But
Speaker 1: at the same time you do sound really optimistic, as
Speaker 1: as Carol said, but there is a lot to be
Speaker 1: concerned about. We've got concerns about the recession here in
Speaker 1: the United States that milk, and we heard a lot
Speaker 1: about a potential recession in Europe and concerned about the
Speaker 1: customer in Europe. What what keeps you up at night?
Speaker 1: What concerns you right now? Our biggest challenges keeping up
Speaker 1: with the demand. So clearly we understand the concerns around recessions.
Speaker 1: Um and you know, we all kind of read about it,
Speaker 1: and you can understand some of the underlying reasons why
Speaker 1: there is that anxiety. But canceling orders, no one's canceling
Speaker 1: orders are demand has you know, our biggest challenge right
Speaker 1: now is truly keep you know, we have chip shortages.
Speaker 1: We're working around the clock to rectify those. But as
Speaker 1: we operationally perform, we're making share because we're able to
Speaker 1: support our customers better than some of our peers. We
Speaker 1: are managing inflation. We came into the year saying that
Speaker 1: we would get a five percent price increase, a billion
Speaker 1: dollars on twenty billion of sales in anticipation of a
Speaker 1: billion dollars of inflation. The only good news with the
Speaker 1: anxiety that folks have about the economy is some of
Speaker 1: the commodities have recently been coming down, copper, steel, aluminums.
Speaker 1: So if we can keep prices at the at the
Speaker 1: raised levels that we've done, and if we get some
Speaker 1: relief on some of the commodities, that should drop through
Speaker 1: with some margins. Date based on what you're seeing in
Speaker 1: terms of commodities, I thought that was a really important point.
Speaker 1: Do you think we have hit peak inflation? Um? It's
Speaker 1: hard to call that because I you know, every time
Speaker 1: we feel like it's peak inflation, the next quarters worse.
Speaker 1: So UM, I could tell you that. Um, we have
Speaker 1: seen over the last few weeks some relief, but it's
Speaker 1: really hard to anticipate what's going to happen a few
Speaker 1: quarters from now. You know, we've been able to now
Speaker 1: stay out in front of bits. So we've been very,
Speaker 1: very aggressive because last year we came. Last year we
Speaker 1: chased inflation all the year with pricing. This year we
Speaker 1: said we are not going to chase inflation. We are
Speaker 1: going to get out in front from pricing. We have
Speaker 1: get pricing in the first quarter, and we're very confident
Speaker 1: that we will do very well on the pricing side
Speaker 1: this year. Dave, very briefly fifteen seconds. Our high energy
Speaker 1: prices actually good for you because it compels people to
Speaker 1: upgrade their systems to more efficient ones. Yes, that does. Overall,
Speaker 1: that does drive demand for more energy efficient solutions, which
Speaker 1: is actually good for our business. It's the only business
Speaker 1: where more from oil and energy companies. Right, you have
Speaker 1: to think about that, right, You've got to really think
Speaker 1: about how all the different markets. Um, Dave, thank you
Speaker 1: so much, really appreciated, Dave. Gitlin Sherman, CEO a carrier
Speaker 1: joining us here in our studio. You're listening to Bloomberg
Speaker 1: Business Week with Carol Messer and Bloomberg Quick Takes Tim
Speaker 1: Stinovic on Bloomberg Radio. All right, we have about ten
Speaker 1: minutes left in today's trading session. Man, talk about a
Speaker 1: volatile one once again. Up down, up down. Yeah, it's
Speaker 1: a seesaw market, is how I'm going to describe it.
Speaker 1: We're definitely off our lows, as we just heard from Charly,
Speaker 1: and really interesting to see investors coming back into the market.
Speaker 1: And I think this is the trade we continue to
Speaker 1: see tim as investors trying to figure out, at least
Speaker 1: on the equity side of things, where is the body. Yeah,
Speaker 1: that's exactly what we talked about with Equities Reporter, just
Speaker 1: meant in a little earlier sharing with us some key technicals,
Speaker 1: but we are above those technicals at least as of today.
Speaker 1: Let's get into it with Chris Zaccarelli, the chief investment
Speaker 1: officer at Independent Advisor Alliance. Chris joined us once again
Speaker 1: on the phone from Charlotte, North Carolina. Chris, how are
Speaker 1: you doing well? Doing well? Thanks for having me back.
Speaker 1: Are you doing well? This market has been pretty tough
Speaker 1: for a lot of people. Well, I mean, I think
Speaker 1: the market has been a challenge, absolutely, and clearly we've
Speaker 1: had a lot of volatility, but I think it's not
Speaker 1: completely unexpected, you know, given what I had A reserve
Speaker 1: needs to do you to get inflation on our control.
Speaker 1: We can't say we're surprised, but obviously we'd love to
Speaker 1: get through this period of market turbulence as quickly as
Speaker 1: we can. Unfortunately, there's nothing we can do to control it,
Speaker 1: so we just have to ride through the volatility or
Speaker 1: in the fifth week of that market volatility. So here
Speaker 1: we go two. Uh, what is it out there on
Speaker 1: the horizon? Fundamentally that maybe gives you hope that you
Speaker 1: see some sign of a conclusion at some point later
Speaker 1: on this year, or do you feel like the visibility
Speaker 1: is not so great right now? Well, I think we're
Speaker 1: definitely in the bearer market. You know, clearly we're not
Speaker 1: in the technical definition of downs from the all time
Speaker 1: high on the SMP, although we continue we got really
Speaker 1: close today, Yeah we did, we did absolutely um, but
Speaker 1: you know, ultimately we think about it in terms of
Speaker 1: this kind of qualitatively. You know, the the idea of
Speaker 1: a buyer market is that investors to see everything as
Speaker 1: glass half empty, and that's clearly where you're where we
Speaker 1: are now. Some things that would give us confidence on
Speaker 1: the positive side of things is that, you know, the
Speaker 1: consumers still has a lot of cash on their balance sheet. Uh,
Speaker 1: companies are are equally pretty well capitalized, and so we're
Speaker 1: heading into a more difficult time where the feed is
Speaker 1: raising interest rates, but the economy for all intensive purposes,
Speaker 1: with the exception of obviously inflation being a challenge, is
Speaker 1: still on pretty strong footing. So for that reason, we
Speaker 1: feel pretty confident that you're not going to see a
Speaker 1: recession this year, now, next year, or the year after.
Speaker 1: Obviously that's anyone's guests, and unfortunately, as the Fed begins
Speaker 1: raising interest rates, the probability recession increases. But as far
Speaker 1: as from a positive point of view, the idea that
Speaker 1: we're not going to have a recession this year could
Speaker 1: potentially provide a floor under the SMP and and we
Speaker 1: won't drop through um pique, the trough um drop the
Speaker 1: you typically see with a bear bear market that the
Speaker 1: companies work. Yeah, Vincent derelebrating the Fed is not, as
Speaker 1: critics like to say, behind the curved, is actually way
Speaker 1: ahead of it, and as such, on the verge of
Speaker 1: a major policy mistake. So he's certainly concerned about the
Speaker 1: Fed over doing it. You mentioned Chris consumer balance sheets,
Speaker 1: and yes they are flesh and heaven flushed because of
Speaker 1: all of the government stimulus. But that's not gonna last forever. Yeah,
Speaker 1: that's absolutely right. And actually, if you think about it,
Speaker 1: part of the reason why we have the inflation problem
Speaker 1: we have now is because there's so much cash in
Speaker 1: the system, whether that's from the federal government spending or
Speaker 1: whether that's from the Fed reserves balant sheet. Clearly all
Speaker 1: of that fiscal and monetary stimulus provided the precondition such
Speaker 1: that you know, supply chain issues, need other things that
Speaker 1: eventually started started the process. Going not to mention the
Speaker 1: war in Ukraine, but ultimately with all that cash, it
Speaker 1: does set the seats, or does set the tone for inflation,
Speaker 1: and so at some point consumers are are going to
Speaker 1: need to pair back on what they're purchasing. They're gonna
Speaker 1: have to make harder decisions. Ultimately, it just won't be
Speaker 1: a blanket statement that the entire stock markets you go down.
Speaker 1: You're gonna have to pick winners and losers. You're gonna
Speaker 1: have to look at those companies that are likely to
Speaker 1: be to have pricing power and to be able to
Speaker 1: make it through a recession if there is one. And
Speaker 1: I think that's what we're looking ahead to, not just
Speaker 1: watching the market as a whole, but looking at, you know,
Speaker 1: a market of stocks instead of just a stock market. Well, well, Chris,
Speaker 1: help us understand how you're thinking about opportunities right now?
Speaker 1: Are you putting cash to work? And where are you
Speaker 1: putting cash to work? So we've bringised a good amount
Speaker 1: of cash earlier this year in the concerns that we'd
Speaker 1: have a lot of volatility, we've been slowly putting cash
Speaker 1: to work. I think, unlike in where there was v
Speaker 1: shape recovery and it would have been very difficult to
Speaker 1: put cash back to work, this has obviously been a slower,
Speaker 1: slower process, and as Carol mentioned, you know, we're five
Speaker 1: weeks since of volatility. We think this entire year will
Speaker 1: probably be full of volatility because ultimately the volatility is
Speaker 1: being caused by uncertainty around inflation, uncertainty around set policy,
Speaker 1: and then ultimately uncertainty about growth, and we don't think
Speaker 1: any of those things will resolve in the near term,
Speaker 1: so there's gonna be a volatility. We do you think
Speaker 1: there's opportunities for the market to bounce, as I point
Speaker 1: out in the note, so I think there's been a
Speaker 1: lot of bear market rallies that have been very sharp.
Speaker 1: As far as the things that we've slowly been putting
Speaker 1: back into the market, we've been looking a little bit
Speaker 1: more defensive positions in terms of healthcare providers, where things
Speaker 1: that we think will make it through recession, and we've
Speaker 1: added a little bit more cyclicality as energy and some
Speaker 1: of those commodity complexes has sold off in recent days
Speaker 1: on growth ears. We've added a little bit more to
Speaker 1: our portfolio because we think inflation will be a little
Speaker 1: bit more persistent that people are thinking even though the
Speaker 1: fet is raising rates, not hearing any of the high
Speaker 1: flying tech names. Now. We we we reduced a lot
Speaker 1: of our tech exposure last year. We definitely were concerned
Speaker 1: not only evaluations, but also have the idea that you know,
Speaker 1: tech and some of those longer duration assets so to speak. Um,
Speaker 1: we're doing very well at a low interest rate environment
Speaker 1: and they've had they've had, you know, tail winds for
Speaker 1: over thirty years. But we did think we were going
Speaker 1: to move into a new regime of interest rates moving higher,
Speaker 1: and as such we paired a lot of those a
Speaker 1: lot of those positions. By no means are we underweight technology,
Speaker 1: but we had naturally gotten overweight technologies I think everyone else.
Speaker 1: That's just from the market appreciation, and so we just
Speaker 1: rebalanced in order to bring that back to a more
Speaker 1: market weight rather than necessarily a market overweight. And so obviously,
Speaker 1: given the way things have happened this year, that's turned
Speaker 1: out to be a good thing. But if we do
Speaker 1: add into recession, which we do think is likely in
Speaker 1: the next year or two, some of those technology names,
Speaker 1: like the ones that you're seeing selling out today, those
Speaker 1: really big tap cap tech, the ones that have great
Speaker 1: balance sheets, that have pricing power, that have a you know,
Speaker 1: really great business model, they're the ones that are likely
Speaker 1: to probably do well for the next resession. So that's
Speaker 1: the can underm. I think people find themselves in all right,
Speaker 1: Gonna leave it there. Hey, Chris, thank you so much.
Speaker 1: Chris Scarelli, chief investment officer at Independent Advisor Alliance. They
Speaker 1: are a registered investment advisor, and he joined us on
Speaker 1: the phone from Charlotte, North Carolina. Thanks for listening to
Speaker 1: Bloomberg Business Week. Download the podcast on iTunes, SoundCloud, or
Speaker 1: Bloomberg dot com, and you can also listen to our
Speaker 1: radio show at two pm Eastern on Bloomberg Radio or
Speaker 1: watch us on YouTube search Bloomberg Global News.