WEBVTT - Bloomberg Businessweek Weekend - May 20th, 2022 0:00:01.040 --> 0:00:05.440 This is Bloomberg Business Week Inside from the reporters and 0:00:05.600 --> 0:00:09.200 editors who bring you America's most trusted business magazine, plus 0:00:09.240 --> 0:00:13.200 global business finance and tech news as it happened. Bloomberg 0:00:13.240 --> 0:00:16.759 Business Week with Carol Messer and Bloomberg Quick Takes Tim 0:00:16.800 --> 0:00:21.560 Stinovic on Bloomberg Radio. Hi, everyone, Welcome to the weekend 0:00:21.680 --> 0:00:25.120 edition of Bloomberg Business Week. We've got a packed show 0:00:25.160 --> 0:00:27.080 this weekend. We're going to get a pulse check on 0:00:27.080 --> 0:00:30.360 the American consumer with a host of CEOs. We've got 0:00:30.360 --> 0:00:32.320 the CEOs of H and R. Block, the CEO of 0:00:32.360 --> 0:00:34.840 New Balance, and the CEO of Sonos. We're also gonna 0:00:34.840 --> 0:00:37.920 find out how the industrial giant carrier is overcoming supply 0:00:38.000 --> 0:00:41.400 chain snarls and a tight labor market. Plus, my co host, 0:00:41.440 --> 0:00:44.280 Carol Masser was in Panama this past week. She was 0:00:44.360 --> 0:00:47.800 there for the Bloomberg New Economy event called Gateway Latin America. 0:00:48.360 --> 0:00:50.640 We'll hear from her panel. She had a lot of 0:00:50.640 --> 0:00:53.199 executives on it. They talked about the key issues that 0:00:53.240 --> 0:00:56.840 are facing both developed and emerging economies. All of that 0:00:56.920 --> 0:00:59.240 to come. We begin with this week's cover story, though, 0:00:59.440 --> 0:01:03.000 the long slow death of Lehman Brothers is almost complete. 0:01:03.360 --> 0:01:07.080 Bloomberg News reporters Luca day Pali and Jeremy Hill co 0:01:07.200 --> 0:01:10.120 wrote the piece. Jeremy and Business Week editor Joel Webber 0:01:10.240 --> 0:01:13.480 joined me and senior markets reporter Katie Greifeld to explain 0:01:13.480 --> 0:01:16.520 why there's still work to be done even fourteen years 0:01:16.800 --> 0:01:20.440 after Lehman's collapse. We're in some version of a of 0:01:20.440 --> 0:01:23.120 a sell off now. Everyone's fearful that, you know, the 0:01:23.160 --> 0:01:25.160 bottom could fall out at any moment and things get 0:01:25.240 --> 0:01:27.760 much worse. And here we are talking about, you know, 0:01:27.880 --> 0:01:30.479 the thing that kicked off a financial crisis all those 0:01:30.520 --> 0:01:33.240 years ago. Um, Jeremy, how did how did you find 0:01:34.040 --> 0:01:37.200 a role in this story? Um? Yeah? So, as a 0:01:37.240 --> 0:01:41.000 bankruptcy and distress debt reporter, I'm always pouring through legal 0:01:41.040 --> 0:01:44.760 documents and looking for wonky court fights about this and that, 0:01:45.000 --> 0:01:47.200 who is owed one and why they are owded? And 0:01:47.720 --> 0:01:50.280 as you said, Luke actually got in touch with me 0:01:50.320 --> 0:01:53.600 about this, this case going on in the UK over 0:01:53.680 --> 0:01:58.760 these weird subordinated notes called e caps, and he's like 0:01:58.840 --> 0:02:01.440 sending me stories of out how it's so interesting that 0:02:01.800 --> 0:02:04.800 you know these guys they got these they got these 0:02:04.800 --> 0:02:06.760 scraps of debt for almost free and they might get 0:02:06.760 --> 0:02:09.440 a bunch of money. It's very complicated. But underneath all 0:02:09.440 --> 0:02:12.240 of this are these people that are still in what 0:02:12.320 --> 0:02:15.760 are now small offices in the US and in the 0:02:15.840 --> 0:02:19.240 UK that are kind of overseeing the corps of Lehman brothers. 0:02:19.240 --> 0:02:23.160 They're they're pushing paper, they're looking for good times to 0:02:23.400 --> 0:02:26.480 sell their remaining assets and uh, as you said, kind 0:02:26.480 --> 0:02:28.960 of eking out those those last pennies from the estate. 0:02:29.480 --> 0:02:32.040 And Jeremy, you have a lot of great characters in here. 0:02:32.400 --> 0:02:36.079 Let's start with Darryl Radigan. Who was he? Darryl Radigan, 0:02:36.160 --> 0:02:40.160 that was Luca spoke a lot with him. He has 0:02:40.240 --> 0:02:44.760 been in charge of UM some property assets in the 0:02:44.880 --> 0:02:48.080 UK and has done a fantastic job from what we 0:02:48.120 --> 0:02:51.800 can tell, because creditors there have done much much better 0:02:51.919 --> 0:02:56.520 than anybody expected. Um So he was basically one of 0:02:56.560 --> 0:03:00.359 the people that was tasked with, rather than dumping all 0:03:00.400 --> 0:03:03.919 of the bad property assets when we went bankrupt, kind 0:03:03.919 --> 0:03:07.040 of waiting, letting those mature like a fine wine and 0:03:07.040 --> 0:03:10.120 then finding a good time to sell them. So obviously 0:03:10.160 --> 0:03:14.080 there are a ton of bankruptcies every year, uh, none 0:03:14.320 --> 0:03:17.560 as big as Lehman. But what what else has distinguished 0:03:18.120 --> 0:03:21.880 Lehman's long, slow death. The size is, of course important, 0:03:22.080 --> 0:03:26.720 the length is extremely notable, because I mean we're talking 0:03:26.760 --> 0:03:30.240 about nearly fourteen years here. Bankruptcy is often you know, 0:03:30.280 --> 0:03:32.280 even when they fade away from the headlines, there's a 0:03:32.280 --> 0:03:34.560 lot of clean up work to do um But you know, 0:03:34.600 --> 0:03:37.560 mostly we're talking a few years, five years something Sears 0:03:37.600 --> 0:03:40.480 for example, still going on in the background. There's things 0:03:40.520 --> 0:03:42.520 to sort out there. But I mean, this is more 0:03:42.560 --> 0:03:45.400 than a decade we're talking about. Everybody has not forgotten 0:03:45.400 --> 0:03:48.200 about Lehman. But I'm sure I wasn't aware that they 0:03:48.200 --> 0:03:50.320 still have an office space in the Bowery Savings Bank 0:03:50.320 --> 0:03:54.280 building in Midtown. People so still kicking. It's their their 0:03:54.320 --> 0:03:57.080 whole life. They're living and breathing Lehman Brothers to this day. 0:03:57.400 --> 0:03:59.840 It is the cover story of the upcoming issue of 0:04:00.000 --> 0:04:02.760 Amberg Business weeken. It's a great read when you're actually 0:04:02.760 --> 0:04:04.680 reading it in the magazine, but it's also a really 0:04:04.720 --> 0:04:07.360 good read if you're reading it online because it's an 0:04:07.360 --> 0:04:10.160 interactive presentation, and I think it gives a really good 0:04:10.200 --> 0:04:14.040 explanation of how creditors are repaid Jeremy for people who 0:04:14.040 --> 0:04:15.480 aren't familiar with it. Can you kind of sort of 0:04:15.480 --> 0:04:18.960 go through that waterfall? Sure? Yes, when we talk about 0:04:18.960 --> 0:04:22.359 a waterfall in bankruptcy, Uh, you want to sort of 0:04:22.360 --> 0:04:27.359 imagine a stack of champagne flutes um that those by 0:04:27.400 --> 0:04:30.680 the way, Sorry about that, jo Joel, Did you hold on, 0:04:30.680 --> 0:04:32.800 hold on, hold on, Joel? Did you know that before 0:04:32.920 --> 0:04:35.960 you were ordering the art and doing the graphics. I 0:04:36.520 --> 0:04:39.280 like champagne, you know, and I like my champagne and 0:04:39.800 --> 0:04:42.919 more than yeah, you know, just so you're gonna drink it, 0:04:43.080 --> 0:04:45.680 drink it right right? Sorry? Go ahead, Well that's that's 0:04:45.720 --> 0:04:49.440 that's very okay. UM. So imagine a waiter pouring the 0:04:49.520 --> 0:04:52.680 champagne um into the glasses. I'm not even want to 0:04:52.720 --> 0:04:56.120 try to pronounce the correct word. UM. The people with 0:04:56.160 --> 0:04:59.760 the most senior debt we're talking about like secured loans, 0:04:59.800 --> 0:05:03.880 like a mortgage, UM on a house is secured by 0:05:03.960 --> 0:05:06.719 the house itself. People who actually have claims to the assets, 0:05:06.960 --> 0:05:10.240 they get their cups filled up first, and then below 0:05:10.320 --> 0:05:13.520 those there are cups that have weaker claims to the 0:05:13.640 --> 0:05:15.560 estate or none at all, so they just get whatever 0:05:16.240 --> 0:05:19.160 is overflowing. Um. In the UK, there was way more 0:05:19.240 --> 0:05:22.120 champagne than anybody anticipated. So people at the very bottom 0:05:22.320 --> 0:05:25.159 ended up getting their fill um, and that's very unusual. 0:05:26.120 --> 0:05:28.880 I don't know. I'm still stuck on, Darryl. I mean, 0:05:28.960 --> 0:05:31.200 how many people are going to say, you're still stuck 0:05:31.240 --> 0:05:33.360 on Champagne? I mean, thank you? I hate I hate 0:05:33.440 --> 0:05:35.360 coop glasses. I have to say, they're so hard to 0:05:35.440 --> 0:05:37.880 drink out of it. But anyway, Darryl Radigan, how many 0:05:38.040 --> 0:05:41.160 just makes you drink it quicker? I don't know, just 0:05:41.200 --> 0:05:42.719 to get it at a level where you can actually 0:05:42.800 --> 0:05:44.760 use the glass. You guys are at a good mood 0:05:45.120 --> 0:05:49.440 where it's my birthday tempt Yeah, I'm surprised Champagne. Thank you? 0:05:49.680 --> 0:05:53.200 Um later after five, Jeremy, how many people are there, 0:05:53.240 --> 0:05:56.599 like Darryl Radigan that are just sort of helping to 0:05:56.680 --> 0:06:00.719 put Lehman finally in his final resting place. Sure, so 0:06:01.120 --> 0:06:04.760 let's talk about the us UM. Not so long ago, 0:06:04.800 --> 0:06:06.640 a few years ago, there were a couple of hundred 0:06:06.720 --> 0:06:10.039 people that were still sort of acting as portfolio managers 0:06:10.080 --> 0:06:14.479 for this like used financial Asset sales lot UM, and 0:06:14.520 --> 0:06:17.520 now we're down to about twenty as best as we 0:06:17.560 --> 0:06:20.400 can tell. UM. Not a lot of going into the 0:06:20.440 --> 0:06:24.640 office these days, as with many of us. But so 0:06:25.040 --> 0:06:28.440 we're all here. We are all here today. That was 0:06:28.480 --> 0:06:32.320 Bloomberg News Bankruptcy and Distressed Debt reporter Jeremy Hill, along 0:06:32.320 --> 0:06:35.480 with Business Week editor Joel Webber Katie Greifeld also taking 0:06:35.520 --> 0:06:39.440 part coming up tackling the threat of global food shortages. 0:06:39.880 --> 0:06:53.120 You're listening to Bloomberg Business Week. This is Bloomberg. This 0:06:53.520 --> 0:06:57.200 is Bloomberg Business Week with Carol Messer and Bloomberg Quick 0:06:57.240 --> 0:07:02.040 Takes Tim Spinovik from Bloomberg Radio. One thing that's become 0:07:02.080 --> 0:07:04.360 abundantly clear over the last few months to a lot 0:07:04.360 --> 0:07:06.880 of people is that Ukraine is the bread basket of Europe, 0:07:07.240 --> 0:07:10.640 and of course it's currently a battlefield. Export roots through 0:07:10.680 --> 0:07:13.040 the Black Sea to Africa in the Middle East are blocked. 0:07:13.280 --> 0:07:16.920 A global fertilizer shortage is putting many key crops in jeopardy. 0:07:17.320 --> 0:07:19.239 So just how dire is the threat to our global 0:07:19.280 --> 0:07:22.400 food supply and what can be done to mitigate the damage. 0:07:22.680 --> 0:07:25.120 Carol Master was in Panama this past week covering the 0:07:25.120 --> 0:07:29.000 Bloomberg New Economy event called Gateway Latin America. Here now 0:07:29.080 --> 0:07:31.400 is an excerpt from her panel discussion with Earther and 0:07:31.440 --> 0:07:34.480 cousin founder and CEO of Food Systems for the Future, 0:07:34.880 --> 0:07:38.560 Mauricio Rodriguez, Bayer's President for the Crop Science Division in 0:07:38.640 --> 0:07:42.920 Latin America, Bio Sarah's Crop Solutions CFO, and Rique Lopez 0:07:43.000 --> 0:07:47.400 Lacube and Marcella Escobari, Assistant Administrator of USAID's Bureau for 0:07:47.480 --> 0:07:51.320 Latin America and the Caribbean. What one action that governments 0:07:51.360 --> 0:07:54.760 are large companies could take today that would make you 0:07:54.800 --> 0:07:57.520 think of the significant difference in terms of our global 0:07:57.560 --> 0:08:01.080 food supplied helping smaller farmers. So if I could jump in, 0:08:02.040 --> 0:08:04.440 first thing for us it was the committee. So having 0:08:04.480 --> 0:08:07.920 the commitment changed substantially the priority. So once we said 0:08:08.200 --> 0:08:10.360 we need to reach out to a hundred million farmers 0:08:10.440 --> 0:08:13.960 and chip a smallholders on to twenty thirty, it directed 0:08:14.000 --> 0:08:17.239 all the efforts and we're seeing that that curve grows 0:08:17.280 --> 0:08:20.680 substantially because then you fin out your your efforts to 0:08:20.720 --> 0:08:23.880 make it happen, and you'll start to understand because different 0:08:23.920 --> 0:08:27.640 from UH selling to a big grower that you don't 0:08:27.640 --> 0:08:30.120 have the same financing problems, you don't have the same 0:08:30.640 --> 0:08:33.360 logistic challenge and so on. You need to dip dive 0:08:33.440 --> 0:08:36.520 and focus your intelligence in making that happen. And once 0:08:36.559 --> 0:08:39.480 we started that, we have grown that curve substantially. As 0:08:39.480 --> 0:08:42.240 I said, we are grovely in our two million farmers. 0:08:42.520 --> 0:08:44.120 We want to reach out to three and a half 0:08:44.200 --> 0:08:46.680 to four million farmers in a few years, but we 0:08:46.760 --> 0:08:49.280 have already gone through that. So I think focus and 0:08:49.360 --> 0:08:52.920 priority makes you have all the necessary resources for you 0:08:53.000 --> 0:08:55.040 to make that happen. So the focus is like your action. 0:08:55.280 --> 0:08:57.840 Yes that keep seeing it. And let me just point 0:08:57.840 --> 0:09:01.520 out how important that hundred million number is in the 0:09:01.559 --> 0:09:04.199 small hole de Farmer. Between the five hundred million small hole, 0:09:04.240 --> 0:09:06.880 do farmers a commitment to support a hundred million. That's 0:09:06.880 --> 0:09:09.880 a fifth of all the farmers in the world. That's massive, 0:09:10.120 --> 0:09:14.480 and we need to remember that small holders, despite the 0:09:14.920 --> 0:09:20.280 importance of the international trade system, to produce eighty percent 0:09:20.360 --> 0:09:23.040 of all the food that is consumed in the countries 0:09:23.120 --> 0:09:27.040 where they where they grow and work. You know what's 0:09:27.040 --> 0:09:29.760 interesting is and prepping for this, as someone said to me, 0:09:30.120 --> 0:09:32.559 we need to think about it's bigger than I mean. 0:09:32.600 --> 0:09:36.959 It's everything, right, It's the food system, is logistics, it's 0:09:36.960 --> 0:09:38.360 all the way from R and D to putting food 0:09:38.400 --> 0:09:41.080 on the table. It's the entire system. How they interact. 0:09:41.360 --> 0:09:43.120 You have to think about climate, if you think about water, 0:09:43.200 --> 0:09:45.480 if doesn't have anything about feet, I mean, it's all 0:09:45.520 --> 0:09:48.440 of them, right, I mean it's massive. How do we 0:09:48.520 --> 0:09:51.480 do this in an economy when we're economics putting out 0:09:51.480 --> 0:09:54.679 a number today and they're cutting global GDP growth by 0:09:54.679 --> 0:09:57.840 one point six trillion, they're concerned about the pullback and globalization, 0:09:58.240 --> 0:10:00.720 the impact of war is having we're seeing play out. 0:10:01.000 --> 0:10:03.600 How do you continue to do the work that you're 0:10:03.600 --> 0:10:06.520 talking about, Mauricio and make all of you in an 0:10:06.600 --> 0:10:11.240 economy that may be top mooting forward. I mean, how 0:10:11.280 --> 0:10:13.840 can you not continue to do it? Is the question? 0:10:13.920 --> 0:10:15.880 But how do we do it right? Without just saying 0:10:15.960 --> 0:10:20.560 very quickly, doing this work is part of solving those 0:10:20.600 --> 0:10:25.600 economic problems because a productive agriculture system, because we're talking 0:10:25.640 --> 0:10:27.880 about what happens not just on the farm, but in 0:10:27.920 --> 0:10:32.760 those other areas as well, processing, warehousing, um as well 0:10:32.800 --> 0:10:37.160 as retail and manufacturing, and so all of that supports 0:10:37.320 --> 0:10:40.240 economic growth within a country. So making the kinds of 0:10:40.280 --> 0:10:45.160 investments that will ensure the agriculture system, that food systems 0:10:45.200 --> 0:10:49.440 ability to contribute to the GDP of any particular country 0:10:49.720 --> 0:10:53.400 is quite critical to addressing the economic challenges that we're 0:10:53.440 --> 0:10:57.440 facing today, and I think what you're posting is the 0:10:57.520 --> 0:11:02.319 reality that we're seeing throughout the the the crisis are increasing. 0:11:03.240 --> 0:11:06.320 We are in a in a crunch because you know, growth, 0:11:06.440 --> 0:11:09.720 I mean has contracted seven percent in this region um 0:11:10.120 --> 0:11:12.600 and I think there there's a pull from everywhere. But 0:11:12.760 --> 0:11:15.240 sometimes it is not about the amount of money, right, 0:11:15.240 --> 0:11:18.200 It is about how we surgically use that money, and 0:11:18.280 --> 0:11:21.920 more so given the technology improvements that exists, that we 0:11:22.520 --> 0:11:25.280 focus that money so that we have technologies that affect 0:11:25.320 --> 0:11:29.080 the small holder that that you know, we have policies 0:11:29.400 --> 0:11:32.800 that help these technologies spread. You know, when we spend 0:11:32.840 --> 0:11:36.000 a couple of million dollars to to to secure and 0:11:36.080 --> 0:11:40.800 the risk you know, a billion dollars towards smallholder farmers 0:11:40.880 --> 0:11:43.959 like there are market failures that with little money, but 0:11:44.120 --> 0:11:46.840 with focus, I think we can make a big difference. 0:11:46.880 --> 0:11:48.760 And I think this is a time to be to 0:11:48.880 --> 0:11:51.520 be to be surgical. Even when we look at the region, 0:11:52.000 --> 0:11:54.120 every country is not being effected in the same way 0:11:54.559 --> 0:11:57.080 in this crisis, and we need to act with that 0:11:57.960 --> 0:12:00.199 with that nuance. Well, this is also interesting in that 0:12:00.440 --> 0:12:02.480 we talk about you know, there are areas of the 0:12:02.480 --> 0:12:06.000 world where there's potentially oversupply. We also have a incredible 0:12:06.000 --> 0:12:08.719 amount of food waste, which also contributes to climate change. 0:12:08.760 --> 0:12:11.840 I mean, it's this really vicious cycle of things that 0:12:11.840 --> 0:12:13.880 are all connected that we need to kind of tackle 0:12:13.960 --> 0:12:16.880 at the same time. You know, So how do we 0:12:17.360 --> 0:12:21.120 kind of think about some of those issues tied altogether 0:12:21.160 --> 0:12:24.040 in weekend? Mean, you guys are working and offer products 0:12:24.080 --> 0:12:26.720 in terms of bioengineering, as you said, to kind of 0:12:26.760 --> 0:12:29.120 provide that floor yield and help it out. How do 0:12:29.160 --> 0:12:31.160 we even go further where the world can be slow 0:12:31.200 --> 0:12:35.480 to adopt and feel comfortable about some of this bioengineering? 0:12:35.520 --> 0:12:37.880 You know, the US back well that that that that 0:12:38.000 --> 0:12:40.800 is that is going good aspect of it because the 0:12:40.920 --> 0:12:45.120 regulatoryform frameworks for biotechnology have been kept the same way 0:12:45.200 --> 0:12:49.079 for the last two decades. Prourity and today humanity has 0:12:49.360 --> 0:12:53.040 hand much better waste of assessing whether technology is viable 0:12:53.120 --> 0:12:55.800 or not. And I think that that's part of what 0:12:55.960 --> 0:12:58.079 we need to operate in the system, right, I mean, 0:12:58.320 --> 0:13:01.560 the first technology that came about, how can we assess 0:13:01.800 --> 0:13:04.520 whether that technology is suitable or not for the system 0:13:04.559 --> 0:13:08.040 in a much faster way? But your question, I think 0:13:08.080 --> 0:13:12.480 that this is an issue of managing surplus and and 0:13:12.480 --> 0:13:16.760 and demand of food. So again, small farmers, I think 0:13:16.880 --> 0:13:19.160 might be a tool that have more of an impact 0:13:19.640 --> 0:13:23.120 in Africa where you don't have infrastructure and would it 0:13:23.120 --> 0:13:28.440 would take enormous effort an investment to catch up. When 0:13:28.440 --> 0:13:30.800 you think about and I think that we need to 0:13:30.800 --> 0:13:34.359 to be careful about the false tradeoffs by your fuels 0:13:35.040 --> 0:13:38.880 and food. It depends on where you're making that question. 0:13:38.920 --> 0:13:40.840 If you're in the US or if you're in Latin America, 0:13:41.480 --> 0:13:44.080 you might end up making the wrong column because you 0:13:44.160 --> 0:13:46.440 might be banning by your fuels thinking that that will 0:13:46.480 --> 0:13:49.319 have an impact on the food space, and at the 0:13:49.400 --> 0:13:52.240 end of the day, you will basically end up with 0:13:53.440 --> 0:13:57.000 at the end of the chain with food waste. So 0:13:57.120 --> 0:14:00.720 I think that again we need to be careful about 0:14:00.720 --> 0:14:03.959 the solutions that we find to this, because applying one 0:14:04.040 --> 0:14:08.520 recipe to a global security issue for food is not 0:14:08.559 --> 0:14:13.080 gonna work. I might even create a worst worst situation. 0:14:13.559 --> 0:14:15.960 That was an excerpt from Carol Master's panel discussion with 0:14:15.960 --> 0:14:19.520 Mauricio Rodriguez of Bayer Food Systems for the Future CEO 0:14:19.680 --> 0:14:23.400 and founder Earther and Cousin and Bio Series Crop Solutions 0:14:23.440 --> 0:14:28.120 CFO Enrique Lopez le Hube and Marcella Escobari of U 0:14:28.240 --> 0:14:31.400 said it was part of Gateway Latin America. Are Bloomberg 0:14:31.440 --> 0:14:34.600 New Economy convening in Panama. For the full conversation, just 0:14:34.640 --> 0:14:37.720 go to Bloomberg dot Com. Still ahead on Bloomberg Business Week, 0:14:37.880 --> 0:14:41.480 we go from food shortages to component backlogs. We speak 0:14:41.520 --> 0:14:44.600 with Sono CEO Patrick Spence, and he tells us why 0:14:44.640 --> 0:14:47.000 his company isn't ready yet to breathe a sigh of 0:14:47.000 --> 0:14:57.640 relief even after strong quarterly learnings. This is Bloomberg Broadcasting 0:14:57.720 --> 0:15:01.520 from the financial capital of the World Boomberg eleven Frio 0:15:01.600 --> 0:15:05.560 in New York to Washington, d C. Bloomberg to Boston, 0:15:05.640 --> 0:15:09.080 Bloomberg one oh six one to San Francisco, Bloomberg nine 0:15:09.160 --> 0:15:12.240 sixty to the country Sirius XM Chado one nine team, 0:15:12.320 --> 0:15:15.520 and around the globe the Bloomberg Business app and Bloomberg 0:15:15.600 --> 0:15:20.520 Radio dot Com. This is Bloomberg Business Week. High end 0:15:20.560 --> 0:15:23.800 audio equipment maker son no It shares John after second 0:15:23.880 --> 0:15:26.120 quarter results came in better than expected. That was back 0:15:26.160 --> 0:15:29.520 on May eleventh. The company maintained its full year two 0:15:29.560 --> 0:15:32.160 revenue guidance. It trimmed the high end of its adjusted 0:15:32.240 --> 0:15:36.280 EBA Duff Forecast analysts called the latest earnings quote impressive, 0:15:36.360 --> 0:15:39.680 while also noting the rising cost of product components is 0:15:39.720 --> 0:15:42.640 having an impact on gross margin. Caroline I caught up 0:15:42.640 --> 0:15:45.880 with Sona's president and CEO, Patrick Spence just after those 0:15:45.920 --> 0:15:48.640 results came out. We broke down the quarter and the 0:15:48.680 --> 0:15:51.520 company's outlook. There's been a ton of demand from our 0:15:51.560 --> 0:15:54.760 customers and that's continued. So we talked last quarter about 0:15:54.760 --> 0:15:57.400 the backlog we've been working through that. We still have 0:15:57.480 --> 0:15:59.960 a backlog, so we still can sent continue to see 0:16:00.360 --> 0:16:03.360 strong consumer demand, and I just I'm so thankful and 0:16:03.400 --> 0:16:05.640 proud of the way our team has continued to execute 0:16:05.640 --> 0:16:08.440 to actually be able to go above and beyond and 0:16:08.480 --> 0:16:11.960 actually deliver in what is such a challenging, uh, you know, 0:16:12.000 --> 0:16:15.760 industry wide supply chain kind of environment. Hey, Patrick, backlog, 0:16:15.840 --> 0:16:17.520 how much of it is just trying to keep up 0:16:17.600 --> 0:16:19.800 or how much is it because the supply chain has 0:16:19.800 --> 0:16:22.600 created some of that backlog? Oh, it's all to do 0:16:22.640 --> 0:16:25.320 with supply chain. I mean, we you know, we uh 0:16:25.360 --> 0:16:27.280 you know, we're seeing those challenges that everybody's seeing in 0:16:27.320 --> 0:16:30.160 Shanghai with the ports we do some manufacturing in China. 0:16:30.240 --> 0:16:33.560 Thank goodness. We diversified into Malaysia and we're also diversifying 0:16:33.600 --> 0:16:36.080 into Vietnam, so we were able to deliver more than 0:16:36.120 --> 0:16:38.800 many companies. You know, we've navigated the last eight quarters 0:16:38.840 --> 0:16:42.600 better than most components. Remain a real challenge as well, 0:16:42.720 --> 0:16:45.440 So um it's all supply chain at this point. You know, 0:16:45.480 --> 0:16:48.280 everybody is talking about consumer demand, but from everything we 0:16:48.320 --> 0:16:51.600 see at this point, consumer demand remains strong. You know, 0:16:51.840 --> 0:16:53.880 I love what you said about your supply chain diversifying 0:16:53.960 --> 0:16:55.960 too Malaysia and elsewhere. Are you going to continue to 0:16:56.000 --> 0:16:57.720 do that? Like, how do you think about the supply 0:16:57.800 --> 0:17:01.160 chain post pandemic? Oh yeah, I mean host pandemic. And 0:17:01.160 --> 0:17:03.440 then as well, I think geopolitically before that, right, we 0:17:03.440 --> 0:17:06.120 were thinking we need to be more diversified, make sure that, 0:17:06.480 --> 0:17:08.359 um it's more resilient in the face of some of 0:17:08.440 --> 0:17:11.760 these challenges that happened, and if anything, these zero COVID 0:17:11.760 --> 0:17:14.440 lockdowns in China have just really underscored that. So we'll 0:17:14.480 --> 0:17:16.879 continue to do that and try and build more resilience, 0:17:16.880 --> 0:17:20.320 more flexibility into the system as well. Help characterize where 0:17:20.320 --> 0:17:22.080 you are with supply chain challenges. Are you in a 0:17:22.080 --> 0:17:24.280 better position than you were in last time we spoke 0:17:24.400 --> 0:17:27.440 back in February, are a backlogs worse at this point 0:17:27.440 --> 0:17:30.440 because of covid zero. Yeah, well you may recall that 0:17:30.840 --> 0:17:32.800 back then we thought that by the second half of 0:17:33.520 --> 0:17:35.400 two things would get a little bit better. It does 0:17:35.440 --> 0:17:37.560 not look like that right now. So this quarter in 0:17:37.600 --> 0:17:40.040 particular is going to be challenging, and it looks like 0:17:40.119 --> 0:17:44.560 right through two we'll see component challenges. You know, let's hope, 0:17:44.600 --> 0:17:47.639 you know, covid um restrictions left right, and we end 0:17:47.680 --> 0:17:50.000 up in a better place in China, But components do 0:17:50.119 --> 0:17:52.360 not look to be getting that much better. So that's why, 0:17:52.640 --> 0:17:54.240 you know, we had to kind of factor that into 0:17:54.240 --> 0:17:57.200 our forward guidance. For sure, we're still confident we can 0:17:57.320 --> 0:18:00.600 you know, navigate these choppy waters to deliver the kind 0:18:00.600 --> 0:18:02.119 of revenue that we've set out to but it's going 0:18:02.160 --> 0:18:03.720 to cost us a little bit more. But how much 0:18:03.720 --> 0:18:07.120 more is it gonna cost? Because we're seeing inflationary pressures 0:18:07.119 --> 0:18:09.440 throughout the supply chain right now, and look what consumers 0:18:09.440 --> 0:18:12.280 are experiencing as well. They're seeing those inflationary pressures even 0:18:12.320 --> 0:18:15.960 beyond just energy and food. What specifically is costing more? 0:18:16.119 --> 0:18:18.479 How much more is it costing? And how much are 0:18:18.480 --> 0:18:21.920 you absorbing that versus raising prices. So we're absorbing all 0:18:21.960 --> 0:18:25.000 of it right now. We raised prices last September, so 0:18:25.040 --> 0:18:27.200 it was about an average of ten percent across the board. 0:18:27.560 --> 0:18:30.160 You know, we saw continued strong demand, so we didn't 0:18:30.200 --> 0:18:31.840 lose any momentum off the back of that. So I 0:18:31.880 --> 0:18:34.000 think it shows kind of for our customer at least 0:18:34.359 --> 0:18:36.800 um some degree of price in elasticity, if you will. 0:18:36.840 --> 0:18:38.520 But you you know, always want to make sure that 0:18:38.560 --> 0:18:41.160 you're optimizing for the value you're delivering for those customers. 0:18:41.359 --> 0:18:44.119 But it's really two things. One is the component costs, 0:18:44.200 --> 0:18:47.360 so we're seeing, you know, just astronomical component costs out 0:18:47.400 --> 0:18:49.600 there today, um, so we've factored that in. And then 0:18:49.640 --> 0:18:52.520 the other thing is these logistics, the shipping, the management, 0:18:52.600 --> 0:18:54.720 all of that that we expect to stay elevated for 0:18:54.800 --> 0:18:57.600 a period of time. And so it's really translated into 0:18:57.680 --> 0:19:00.240 about a half a point on our growth smart And 0:19:00.440 --> 0:19:01.880 you know, the nice thing is we've done a lot 0:19:01.920 --> 0:19:04.480 of work um in that area of the last five years, 0:19:04.480 --> 0:19:06.720 so we'll still be within our long term guidance range 0:19:06.760 --> 0:19:10.160 of forty seven percent ROS margin, which is pretty incredible 0:19:10.160 --> 0:19:12.520 in this day and age. But um, you know there's 0:19:12.560 --> 0:19:14.600 been a cost in terms of doing that, but you 0:19:14.600 --> 0:19:17.080 know we're managing that and making sure we deliver for 0:19:17.080 --> 0:19:20.159 our customers, managing and also developing and introducing new products. 0:19:20.160 --> 0:19:23.639 Tell us about so No voice control. Yeah, so something 0:19:23.680 --> 0:19:25.880 that really builds on an acquisition we made a couple 0:19:25.880 --> 0:19:28.919 of years ago. We've created a voice assistant which is 0:19:29.040 --> 0:19:31.960 very focused on the sons experience itself. So being able 0:19:31.960 --> 0:19:35.000 to control son No speakers really go deep with music 0:19:35.040 --> 0:19:38.040 services as well. And one of the most important things 0:19:38.200 --> 0:19:40.840 is that it really respects your privacy. So all of 0:19:40.880 --> 0:19:43.639 the processing is done on the son No speaker as 0:19:43.640 --> 0:19:46.040 opposed to you know, going to the cloud like which 0:19:46.080 --> 0:19:48.480 is done with Google and Amazon and some of the others. 0:19:48.640 --> 0:19:50.520 We do not collect your data. Um, we don't want 0:19:50.520 --> 0:19:52.720 to advertise to you all of those things that I 0:19:52.760 --> 0:19:54.600 know so many people have been concerned about, and so 0:19:54.640 --> 0:19:56.240 we think it's going to be a real hit um 0:19:56.320 --> 0:19:59.639 with our customers. And it's not exclusionary to Amazon or Google. 0:19:59.800 --> 0:20:02.159 You can run those assistants as well in a Solar speaker. 0:20:02.440 --> 0:20:04.560 This goes in addition to it, so we're super excited 0:20:04.600 --> 0:20:07.399 for people to try that. So Patrick disclosure we always 0:20:07.400 --> 0:20:09.520 did to our audience. Both Tim and I are customers 0:20:09.520 --> 0:20:12.120 of Sons. I know the brand well. So can this 0:20:12.200 --> 0:20:16.080 new UM voice control? Can we tack it on old systems? Yes, 0:20:16.119 --> 0:20:18.440 you can as long as you have a voice enabled speaker. UM. 0:20:18.480 --> 0:20:20.040 It will be available in the United States June one 0:20:20.200 --> 0:20:22.600 for anybody that has a Sonos voice enabled speaker. So 0:20:22.680 --> 0:20:27.480 we just download the new firmware. Role there you have it, 0:20:27.520 --> 0:20:29.800 and talking to my gets better over time. That's the 0:20:29.800 --> 0:20:33.920 promise that was Patrick Spence, President and CEO at Sons. 0:20:34.359 --> 0:20:37.560 You're listening to Bloomberg business Week. Coming up next our 0:20:37.600 --> 0:20:41.360 conversation with Carrier CEO Dave Getlind on the company's commitment 0:20:41.359 --> 0:20:44.080 to serving the world's growing middle class and the industrial 0:20:44.119 --> 0:20:48.919 giants contribution to trying to combat climate change. This is Bloomberg. 0:20:58.880 --> 0:21:02.080 You're listening to blue Bird Business Week with Carol Messer 0:21:02.320 --> 0:21:07.480 and Bloomberg Quick takes Tim Stinovan from Bloomberg Radio. When 0:21:07.520 --> 0:21:09.320 Carol and I took part in the Milk and Institute 0:21:09.359 --> 0:21:11.959 Global Conference earlier this month, the recruiting topic during our 0:21:11.960 --> 0:21:15.080 panels and conversations with e s G Environmental, Social and 0:21:15.160 --> 0:21:18.720 Governance Policy Dave Gitlin, his chairman and CEL at Carrier Global. 0:21:19.040 --> 0:21:22.119 It's a multinational company well known for its HVAC systems, 0:21:22.119 --> 0:21:24.920