Bloomberg Businessweek Weekend - May 20th, 2022

the American consumer with a host of CEOs. We've got the CEOs of H and R. Block, the CEO of New Balance, and the CEO of Sonos. We're also gonna find out how the industrial giant carrier is overcoming supply chain snarls and a tight labor market. Plus, my co host, Carol Masser was in Panama this past week. She was there for the Bloomberg New Economy event called Gateway Latin America. We'll hear from her panel. She had a lot of executives on it. They talked about the key issues that

are facing both developed and emerging economies. All of that to come. We begin with this week's cover story, though, the long slow death of Lehman Brothers is almost complete. Bloomberg News reporters Luca day Pali and Jeremy Hill co wrote the piece. Jeremy and Business Week editor Joel Webber joined me and senior markets reporter Katie Greifeld to explain why there's still work to be done even fourteen years after Lehman's collapse. We're in some version of a of

a sell off now. Everyone's fearful that, you know, the bottom could fall out at any moment and things get much worse. And here we are talking about, you know, the thing that kicked off a financial crisis all those years ago. Um, Jeremy, how did how did you find a role in this story? Um? Yeah? So, as a bankruptcy and distress debt reporter, I'm always pouring through legal documents and looking for wonky court fights about this and that,

who is owed one and why they are owded? And as you said, Luke actually got in touch with me about this, this case going on in the UK over these weird subordinated notes called e caps, and he's like sending me stories of out how it's so interesting that you know these guys they got these they got these scraps of debt for almost free and they might get

a bunch of money. It's very complicated. But underneath all of this are these people that are still in what are now small offices in the US and in the UK that are kind of overseeing the corps of Lehman brothers. They're they're pushing paper, they're looking for good times to sell their remaining assets and uh, as you said, kind of eking out those those last pennies from the estate. And Jeremy, you have a lot of great characters in here.

Let's start with Darryl Radigan. Who was he? Darryl Radigan, that was Luca spoke a lot with him. He has been in charge of UM some property assets in the UK and has done a fantastic job from what we can tell, because creditors there have done much much better than anybody expected. Um So he was basically one of the people that was tasked with, rather than dumping all of the bad property assets when we went bankrupt, kind of waiting, letting those mature like a fine wine and

then finding a good time to sell them. So obviously there are a ton of bankruptcies every year, uh, none as big as Lehman. But what what else has distinguished Lehman's long, slow death. The size is, of course important, the length is extremely notable, because I mean we're talking

about nearly fourteen years here. Bankruptcy is often you know, even when they fade away from the headlines, there's a lot of clean up work to do um But you know, mostly we're talking a few years, five years something Sears for example, still going on in the background. There's things to sort out there. But I mean, this is more than a decade we're talking about. Everybody has not forgotten about Lehman. But I'm sure I wasn't aware that they still have an office space in the Bowery Savings Bank

building in Midtown. People so still kicking. It's their their whole life. They're living and breathing Lehman Brothers to this day. It is the cover story of the upcoming issue of Amberg Business weeken. It's a great read when you're actually reading it in the magazine, but it's also a really good read if you're reading it online because it's an interactive presentation, and I think it gives a really good explanation of how creditors are repaid Jeremy for people who

aren't familiar with it. Can you kind of sort of go through that waterfall? Sure? Yes, when we talk about a waterfall in bankruptcy, Uh, you want to sort of imagine a stack of champagne flutes um that those by the way, Sorry about that, jo Joel, Did you hold on, hold on, hold on, Joel? Did you know that before you were ordering the art and doing the graphics. I like champagne, you know, and I like my champagne and more than yeah, you know, just so you're gonna drink it,

drink it right right? Sorry? Go ahead, Well that's that's that's very okay. UM. So imagine a waiter pouring the champagne um into the glasses. I'm not even want to try to pronounce the correct word. UM. The people with the most senior debt we're talking about like secured loans, like a mortgage, UM on a house is secured by

the house itself. People who actually have claims to the assets, they get their cups filled up first, and then below those there are cups that have weaker claims to the estate or none at all, so they just get whatever is overflowing. Um. In the UK, there was way more champagne than anybody anticipated. So people at the very bottom ended up getting their fill um, and that's very unusual. I don't know. I'm still stuck on, Darryl. I mean, how many people are going to say, you're still stuck

on Champagne? I mean, thank you? I hate I hate coop glasses. I have to say, they're so hard to drink out of it. But anyway, Darryl Radigan, how many just makes you drink it quicker? I don't know, just to get it at a level where you can actually use the glass. You guys are at a good mood where it's my birthday tempt Yeah, I'm surprised Champagne. Thank you? Um later after five, Jeremy, how many people are there, like Darryl Radigan that are just sort of helping to

put Lehman finally in his final resting place. Sure, so let's talk about the us UM. Not so long ago, a few years ago, there were a couple of hundred people that were still sort of acting as portfolio managers for this like used financial Asset sales lot UM, and now we're down to about twenty as best as we can tell. UM. Not a lot of going into the office these days, as with many of us. But so

we're all here. We are all here today. That was Bloomberg News Bankruptcy and Distressed Debt reporter Jeremy Hill, along with Business Week editor Joel Webber Katie Greifeld also taking part coming up tackling the threat of global food shortages. You're listening to Bloomberg Business Week. This is Bloomberg. This is Bloomberg Business Week with Carol Messer and Bloomberg Quick

Takes Tim Spinovik from Bloomberg Radio. One thing that's become abundantly clear over the last few months to a lot of people is that Ukraine is the bread basket of Europe, and of course it's currently a battlefield. Export roots through the Black Sea to Africa in the Middle East are blocked. A global fertilizer shortage is putting many key crops in jeopardy. So just how dire is the threat to our global food supply and what can be done to mitigate the damage.

Carol Master was in Panama this past week covering the Bloomberg New Economy event called Gateway Latin America. Here now is an excerpt from her panel discussion with Earther and cousin founder and CEO of Food Systems for the Future, Mauricio Rodriguez, Bayer's President for the Crop Science Division in Latin America, Bio Sarah's Crop Solutions CFO, and Rique Lopez Lacube and Marcella Escobari, Assistant Administrator of USAID's Bureau for

Latin America and the Caribbean. What one action that governments are large companies could take today that would make you think of the significant difference in terms of our global food supplied helping smaller farmers. So if I could jump in, first thing for us it was the committee. So having

the commitment changed substantially the priority. So once we said we need to reach out to a hundred million farmers and chip a smallholders on to twenty thirty, it directed all the efforts and we're seeing that that curve grows substantially because then you fin out your your efforts to make it happen, and you'll start to understand because different from UH selling to a big grower that you don't have the same financing problems, you don't have the same

logistic challenge and so on. You need to dip dive and focus your intelligence in making that happen. And once we started that, we have grown that curve substantially. As I said, we are grovely in our two million farmers. We want to reach out to three and a half to four million farmers in a few years, but we have already gone through that. So I think focus and priority makes you have all the necessary resources for you to make that happen. So the focus is like your action.

Yes that keep seeing it. And let me just point out how important that hundred million number is in the small hole de Farmer. Between the five hundred million small hole, do farmers a commitment to support a hundred million. That's a fifth of all the farmers in the world. That's massive, and we need to remember that small holders, despite the importance of the international trade system, to produce eighty percent of all the food that is consumed in the countries

where they where they grow and work. You know what's interesting is and prepping for this, as someone said to me, we need to think about it's bigger than I mean. It's everything, right, It's the food system, is logistics, it's all the way from R and D to putting food on the table. It's the entire system. How they interact. You have to think about climate, if you think about water, if doesn't have anything about feet, I mean, it's all

of them, right, I mean it's massive. How do we do this in an economy when we're economics putting out a number today and they're cutting global GDP growth by one point six trillion, they're concerned about the pullback and globalization, the impact of war is having we're seeing play out. How do you continue to do the work that you're talking about, Mauricio and make all of you in an economy that may be top mooting forward. I mean, how can you not continue to do it? Is the question?

But how do we do it right? Without just saying very quickly, doing this work is part of solving those economic problems because a productive agriculture system, because we're talking about what happens not just on the farm, but in those other areas as well, processing, warehousing, um as well as retail and manufacturing, and so all of that supports

economic growth within a country. So making the kinds of investments that will ensure the agriculture system, that food systems ability to contribute to the GDP of any particular country is quite critical to addressing the economic challenges that we're facing today, and I think what you're posting is the reality that we're seeing throughout the the the crisis are increasing. We are in a in a crunch because you know, growth, I mean has contracted seven percent in this region um

and I think there there's a pull from everywhere. But sometimes it is not about the amount of money, right, It is about how we surgically use that money, and more so given the technology improvements that exists, that we focus that money so that we have technologies that affect the small holder that that you know, we have policies

that help these technologies spread. You know, when we spend a couple of million dollars to to to secure and the risk you know, a billion dollars towards smallholder farmers like there are market failures that with little money, but with focus, I think we can make a big difference. And I think this is a time to be to be to be surgical. Even when we look at the region, every country is not being effected in the same way in this crisis, and we need to act with that

with that nuance. Well, this is also interesting in that we talk about you know, there are areas of the world where there's potentially oversupply. We also have a incredible amount of food waste, which also contributes to climate change. I mean, it's this really vicious cycle of things that are all connected that we need to kind of tackle at the same time. You know, So how do we kind of think about some of those issues tied altogether

in weekend? Mean, you guys are working and offer products in terms of bioengineering, as you said, to kind of provide that floor yield and help it out. How do we even go further where the world can be slow to adopt and feel comfortable about some of this bioengineering? You know, the US back well that that that that is that is going good aspect of it because the regulatoryform frameworks for biotechnology have been kept the same way

for the last two decades. Prourity and today humanity has hand much better waste of assessing whether technology is viable or not. And I think that that's part of what we need to operate in the system, right, I mean, the first technology that came about, how can we assess whether that technology is suitable or not for the system in a much faster way? But your question, I think that this is an issue of managing surplus and and

and demand of food. So again, small farmers, I think might be a tool that have more of an impact in Africa where you don't have infrastructure and would it would take enormous effort an investment to catch up. When you think about and I think that we need to to be careful about the false tradeoffs by your fuels and food. It depends on where you're making that question.

If you're in the US or if you're in Latin America, you might end up making the wrong column because you might be banning by your fuels thinking that that will have an impact on the food space, and at the end of the day, you will basically end up with at the end of the chain with food waste. So I think that again we need to be careful about the solutions that we find to this, because applying one recipe to a global security issue for food is not

gonna work. I might even create a worst worst situation. That was an excerpt from Carol Master's panel discussion with Mauricio Rodriguez of Bayer Food Systems for the Future CEO and founder Earther and Cousin and Bio Series Crop Solutions CFO Enrique Lopez le Hube and Marcella Escobari of U said it was part of Gateway Latin America. Are Bloomberg New Economy convening in Panama. For the full conversation, just go to Bloomberg dot Com. Still ahead on Bloomberg Business Week,

we go from food shortages to component backlogs. We speak with Sono CEO Patrick Spence, and he tells us why his company isn't ready yet to breathe a sigh of

relief even after strong quarterly learnings. This is Bloomberg Broadcasting from the financial capital of the World Boomberg eleven Frio in New York to Washington, d C. Bloomberg to Boston, Bloomberg one oh six one to San Francisco, Bloomberg nine sixty to the country Sirius XM Chado one nine team, and around the globe the Bloomberg Business app and Bloomberg Radio dot Com. This is Bloomberg Business Week. High end audio equipment maker son no It shares John after second

quarter results came in better than expected. That was back on May eleventh. The company maintained its full year two revenue guidance. It trimmed the high end of its adjusted EBA Duff Forecast analysts called the latest earnings quote impressive, while also noting the rising cost of product components is having an impact on gross margin. Caroline I caught up with Sona's president and CEO, Patrick Spence just after those results came out. We broke down the quarter and the

company's outlook. There's been a ton of demand from our customers and that's continued. So we talked last quarter about the backlog we've been working through that. We still have a backlog, so we still can sent continue to see strong consumer demand, and I just I'm so thankful and proud of the way our team has continued to execute to actually be able to go above and beyond and actually deliver in what is such a challenging, uh, you know,

industry wide supply chain kind of environment. Hey, Patrick, backlog, how much of it is just trying to keep up or how much is it because the supply chain has created some of that backlog? Oh, it's all to do with supply chain. I mean, we you know, we uh you know, we're seeing those challenges that everybody's seeing in Shanghai with the ports we do some manufacturing in China.

Thank goodness. We diversified into Malaysia and we're also diversifying into Vietnam, so we were able to deliver more than many companies. You know, we've navigated the last eight quarters better than most components. Remain a real challenge as well, So um it's all supply chain at this point. You know, everybody is talking about consumer demand, but from everything we see at this point, consumer demand remains strong. You know, I love what you said about your supply chain diversifying

too Malaysia and elsewhere. Are you going to continue to do that? Like, how do you think about the supply chain post pandemic? Oh yeah, I mean host pandemic. And then as well, I think geopolitically before that, right, we were thinking we need to be more diversified, make sure that, um it's more resilient in the face of some of these challenges that happened, and if anything, these zero COVID

lockdowns in China have just really underscored that. So we'll continue to do that and try and build more resilience, more flexibility into the system as well. Help characterize where you are with supply chain challenges. Are you in a better position than you were in last time we spoke back in February, are a backlogs worse at this point because of covid zero. Yeah, well you may recall that back then we thought that by the second half of two things would get a little bit better. It does

not look like that right now. So this quarter in particular is going to be challenging, and it looks like right through two we'll see component challenges. You know, let's hope, you know, covid um restrictions left right, and we end up in a better place in China, But components do not look to be getting that much better. So that's why, you know, we had to kind of factor that into

our forward guidance. For sure, we're still confident we can you know, navigate these choppy waters to deliver the kind of revenue that we've set out to but it's going to cost us a little bit more. But how much more is it gonna cost? Because we're seeing inflationary pressures throughout the supply chain right now, and look what consumers are experiencing as well. They're seeing those inflationary pressures even beyond just energy and food. What specifically is costing more?

How much more is it costing? And how much are you absorbing that versus raising prices. So we're absorbing all of it right now. We raised prices last September, so it was about an average of ten percent across the board. You know, we saw continued strong demand, so we didn't lose any momentum off the back of that. So I think it shows kind of for our customer at least um some degree of price in elasticity, if you will.

But you you know, always want to make sure that you're optimizing for the value you're delivering for those customers. But it's really two things. One is the component costs, so we're seeing, you know, just astronomical component costs out there today, um, so we've factored that in. And then the other thing is these logistics, the shipping, the management, all of that that we expect to stay elevated for

a period of time. And so it's really translated into about a half a point on our growth smart And you know, the nice thing is we've done a lot of work um in that area of the last five years, so we'll still be within our long term guidance range of forty seven percent ROS margin, which is pretty incredible

in this day and age. But um, you know there's been a cost in terms of doing that, but you know we're managing that and making sure we deliver for our customers, managing and also developing and introducing new products. Tell us about so No voice control. Yeah, so something that really builds on an acquisition we made a couple of years ago. We've created a voice assistant which is very focused on the sons experience itself. So being able to control son No speakers really go deep with music

services as well. And one of the most important things is that it really respects your privacy. So all of the processing is done on the son No speaker as opposed to you know, going to the cloud like which is done with Google and Amazon and some of the others. We do not collect your data. Um, we don't want to advertise to you all of those things that I know so many people have been concerned about, and so we think it's going to be a real hit um

with our customers. And it's not exclusionary to Amazon or Google. You can run those assistants as well in a Solar speaker. This goes in addition to it, so we're super excited for people to try that. So Patrick disclosure we always did to our audience. Both Tim and I are customers of Sons. I know the brand well. So can this new UM voice control? Can we tack it on old systems? Yes, you can as long as you have a voice enabled speaker. UM. It will be available in the United States June one

for anybody that has a Sonos voice enabled speaker. So we just download the new firmware. Role there you have it, and talking to my gets better over time. That's the promise that was Patrick Spence, President and CEO at Sons. You're listening to Bloomberg business Week. Coming up next our conversation with Carrier CEO Dave Getlind on the company's commitment to serving the world's growing middle class and the industrial giants contribution to trying to combat climate change. This is Bloomberg.

You're listening to blue Bird Business Week with Carol Messer and Bloomberg Quick takes Tim Stinovan from Bloomberg Radio. When Carol and I took part in the Milk and Institute Global Conference earlier this month, the recruiting topic during our panels and conversations with e s G Environmental, Social and Governance Policy Dave Gitlin, his chairman and CEL at Carrier Global. It's a multinational company well known for its HVAC systems,

it's home appliances, and more. He joined Carol and Me with his thoughts on how to meet the demands of a more climate focused customer base and his company's business outlook. We feel very confident in where we are and where we're going, and a big part of it has to do with the secular trends you mentioned like E s G. But we looked at our first quarter orders were up ten percent. Our backlog is up over thirty percent versus last year, so demand has continued to be very strong.

Backlog up because the supply chain problems are just demands. Well, partly we have some overdue because the supply chain, but it's really because a demand. Our orders have been strong multiple quarters in a row. They continue to be strong. United States very strong. Europe continues. There's a lot of anxiety about Europe, but if you were to be in one of our internal meetings, you'd be very bullish on Europe.

Orders across our portfolio continue to be very strong. We have obviously a watch like others on China, but demand in our residential business, large commercial are light commercial business, which is h VACT for things like K through twelve very very strong in the United States, retail with people coming back, so we do see very very strong demand

right now. Would you say that the primary driver of demand is reopening, that desire for businesses and schools to make sure that they have clean and healthy air for the people who are in their buildings. That's a big

piece of it. If you take K through twelve, it's a vertical that's traditionally been starved for capital, and all of a sudden in the last in the last year, they've been given a hundred and ninety billion dollars in governments, yes, by the U. S. Government, and it comes in three essays. The last is a hundred twenty billion that's going to be spent over these next few years, and a good chunk of that's going to go to h v A C because it's not need to build more energy efficient,

more sustainable type solutions. But schools are very aware of the criticality of the health of the indoor environment, and that's what COVID has really done, is shined a light on the criticality of having safe and healthy indoor environments. If you're in a school system, it not only helps prevent a spread of airborne illnesses like COVID one and thirteen kids have asthma, and then you also look at kids test better when you have lower CEO two levels.

So there's multiple benefits and a lot of that spending is going. So our k through twelve orders in the first quarter of So are we all Dave looking at things differently post pandemic about because we understand the air quality really makes a difference. Or is it just something that Okay, we were worried about the pandemic and we're

not so worried now are you saying that? Are you seeing that kind of as a sustained concern and then a sustained upgrade, you know, And I think what's happened is you can see there's a certain amount of anxiety when people go into very crowded indoor environments where your shoulders shoulders. So we're very confident that it's sustained. You know, if you take bottle water in the United States, people spend thirty six billion dollars on bottle water when it's free.

And what's happened is people are sensitized to that's a safer way to drink water. What's going to happen with health errors because it's invisible. People don't know whether or not it's safe. Our job is to make air visible. And what we're selling now is a new digital platform we call abound, which can make air visible. It's an aggregated scorecard of whether or not the air that you're breathing is safe. And our goal is to make that ubiquitous.

So when you come into Bloomberg, or you go into a restaurant, or you go into a school, it's an you can see it in the Atlanta Braves Games in Trumans Park. It's an aggregate score that tells you you are in a safe and healthy indoor environment. So that's our goal to make it sustainable is make it visible. But this only works for HVAC systems and filtration systems that are carrier systems right. Our our system can work with others as well, like it can overlay with anyone's

building management system or anyone else's equipment. It's a it's a digital tool that we've launched in partnership with a WS to really make it so you know, in anywhere we can attach the sensors and collect the data. It looks at CEO two levels, particular matter rate on t V O C. So it's a way to kind of get data and make it visible so you get confident

to go back indoors. How much of what you're doing is upgrades of existing systems day versus what you're what is new construction, because I'm trying to get an idea of construction that's going on right now. Well in the large in the large commercial side, it's seventy new construction

and replacement. And if we look at that space, we look at the Architectural Building Index because that's a six month leading indicator of people work on architectural designs and advance of course of construction and the A B I you want that to be north of fifty. It's been north of fourteen months in a row. So there is demand for large commercial buildings. In the residential and light

commercial space, it's the reverse. It's eight percent replacement and new construction, and residential has been Residential for US was up over in the first quarter. Light commercial, which is things like data center's retail K through twelve that was up over in the first quarter, so very strong demand in that particular vertical. All right, I'm gonna go back to you sound positive and optimistic. So I'm trying to

figure out where we are in this economic cycle. You know, I think there is this there's this anxiety that is very understandable because obviously with the inflation we've seen people know that leads to rate increases, which typically slows in economy. So you can understand the anxiety. But when you kind of go back to things like secular trends that we know there's going to be demand for things like more

energy efficient h v A C systems. So in Europe are orders for heat pumps, for commercial heat pumps where were the market leader, They were up thirty percent in the first quarter. As Europe weans itself off Russian gas, you know there's going to be more demand for systems like heatpumps. You know that if you're if your air conditioner fails when it's hot, it's going to be replaced. You know, people spend time at home, hopefully don't yes, hopefully get so sorry a spot like that, you can

help the quarter care. So what you say is like it was an old system twenty years or so, and it's much more efficient, Like it's just the technology continues to get better and better, and we see the government require it, yes, and people in governments incentivize it. But people are also mixing up, you know, because people spend

more time at home. They don't want it when their air conditioner goes off and on, you know, makes that sounds, So they're actually going for variable speed, more higher end equipment. So to your point, there is this juxtaposition with anxiety about the future and some secular trends like E s G and healthy indoor environments are rising middle class globally, only seven percent of people in India have air conditioning and it's a pretty hot country, you know, at one

point four billion people. So you can see that these forces coming together that's driving demand. Our challenge. We both want to ask you questions climate change. What signs are you seeing of Like you're putting systems in places you never thought you'd put air conditioning, Like that just speaks

to kind of what's going on in our environment globally. Yeah, you know what's really encouraging is the continued trend around around heat pumps, in particular for h v A C system so um in in Europe, almost all new construction is going to heat pumps in Europe for residential we're seeing in the United States states like South Carolina by more they look at we look at their heat pump where they sell heatpumps with um connected to their split

system versus a cooling only. They sell more integrated heat pumps than they do cool and only. So the demand for heatpumps in the United States and globally is going up exponentially. More energy efficient solutions in the United States next year there's going to be the entire country is going to a switch to higher serre units in the South fourteen and fifteen, North thirteen and fourteen. So governments globally are incentivizing their populations to drive more energy efficient solutions,

and that's what we do. So that's why there is this overall anxiety. But when you have things that impact can make a meaningful impact on climate change, that there's going to be demand. If there's going to be things that impact health and wellness, there is going to be demand. There there is this overarching anxiety. But at the same time you do sound really optimistic, as as Carol said,

but there is a lot to be concerned about. We've got concerns about the recession here in the United States that milk, and we heard a lot about a potential recession in Europe and concerned about the customer in Europe. What what keeps you up at night? What concerns you right now? Our biggest challenge is keeping up with the demand.

So clearly we understand the concerns around recessions. Um and you know, we all kind of read about it, and you can understand some of the underlying reasons why there is that anxiety. But it's canceling orders. No one's canceling orders are demand has you know, our biggest challenge right now is truly keep you know, we have chip shortages. We're working around the clock to rectify those. But as we operationally perform, we're taking share because we're able to

support our customers better than some of our peers. We are managing inflation. Came into the year saying that we would get a five percent price increase a billion dollars on twenty billion of sales. In anticipation of a billion dollars of inflation. The only good news with the anxiety that folks have about the economy is some of the

commodities have recently been coming down copper, steel, aluminums. So if we can keep prices at the at the raised levels that we've done, and if we get some relief on some of the commodities, that should drop through with some margins date based on what you're seeing in terms of commodities. I thought that was a really important point. Do you think we have hit peak inflation? Um? It's hard to call that because I you know, every time we feel like it's peak inflation, the next quarters worse.

So UM, I could tell you that, UM, we have seen over the last few weeks some relief, but it's really hard to anticipate what's going to happen a few quarters from now. You know, we've been able to now stay out in front of bits. So we've been very, very aggressive because last year we came in. Last year we chased inflation all the year with pricing. This year we said we are not going to chase inflation. We

are to get out in front from pricing. We have to get pricing in the first quarter, and we're very confident that we will do very well on the pricing side this year. Dave, Our high energy prices actually good for you because it compels people to upgrade their systems to more efficient ones. Yes, that does. Overall, that does drive demand for more energy efficient solutions, which is actually good for our business. That was Carrier Global Chairman and

CEO Dave Gitlin. And that wraps up the first hour of the weekend edition of Bloomberg Business Week from Bloomberg Radio. I'm Tim Stanovic. Carol Master on assignment this week in Panama with our Bloomberg New Economy team, and coming up in our next hour, we're gonna hear from her panel discussion on the entrepreneurship economy, plus our conversations with the CEO of New Balance and H and R. Block. This

is Bloomberg. This is Bloomberg Business Week inside from the reporters and editors who bring you America's most trusted business magazine, plus global business, finance and tech news as it happened. Bloomberg Business this Week with Carol Messier and Bloomberg Quick

Takes Tim Stinovin on Bloomberg Radio. Plenty ahead in our second hour of the weekend edition of Bloomberg Business Week, including a conversation with the CEO of New Balance on the importance of manufacturing on us soil and our guide to summer travel with the team from Bloomberg Pursuits. First up this hour, though, we go back to more CEO conversations that we recently had. This time we're checking out on the health of the U S. Consumer. We do that with Jeff Jones, the president and CEO of H

and R Block. Carol and I spoke with Jeff back on May eleventh, that was following the firm's third quarter profit beat. He told us that H and R Block is set to generate roughly fifty million dollars in earnings this year, and yet the tax prep giant is still feeling the weight of rising prices and rising wages. There's two sides of it for us as a professional service. You know, where it impacts our business the most is in labor. But remembering most of our labor our tax professionals,

and they largely aren't paid an hourly rate age. They're paid based on their certification and their and their returns as a business. These kind of times are really what we're built for. I mean, we're fundamentally here to help people be good with their money, and so whether that's getting the most they can in their tax refund or offering a really value driven product like spruce. So we look at inflation both ways, the way it impacts our

business and the ways we can help consumers. Based on the consumers that you worked with over the last year, Jeff wrapping up their tax returns back in April, how is the American consumer? Because consumers are dipping into their savings in order to be able to afford higher prices

for things, how is the American consumer? Well, I think going into these times, the consumer was more prepared than they have been in history, meaning we saw personal balance sheets, we saw in our business tax refunds, or stimulus payments or unemployment benefits. But obviously those wells are not very deep.

And so from a mindset perspective, we absolutely know the American consumer, who we see every day is is worried about where this is headed and what it will mean and how long that little bit of savings they've built up can actually last. And so that's why, again we're so focused on helping people with their money as as

core to our business. Well, that's what I love about talking with you, Jeff, because I do feel like you really get to mainstream America, and it's so easy for us on the coast to talk about the high end of our labor market and a high end of our society which sometimes doesn't feel the strains and stresses of inflation as much, or you know, supply chains and so on and so forth. How would you describe that, you know, middle America consumer individual, how they are doing what you

guys see front and center? And then how would you describe the overall economic situation when so many people are talking either stagflation and recession. Curious how you see it? Yeah? Well, I thank you for remembering that, Errol, because it is a real pleasure of of my role in our business.

I am out a lot with consumers, and you know, the American consumer has a resilient mindset, and so it's important that we never judge people as struggling because from a mindset perspective, they do whatever it takes to get by. And like I said, they've had a little more cash in the pocket coming into where we are now. But we do see worry about you know, because we all we hear it on the news, we see it at the pumps, gas prices, dairy prices. Where is this going war?

There's a lot of uncertainty and instability, and so we do see consumers worry, but we also see them to be incredibly resilient and doing whatever it takes to get by, which is obviously how we try to help them. How how would you describe the economy right now? Broad macro thought, uh, transitioning? Okay, And you know it's interesting because you guys did raise your forecast, your revenue guides for the full year. So do you feel like you do have decent transparency and

visibility because here we are what is it May? Early May? But you feel comfortable? Yeah, we do. We we feel like we understand how our fiscal year will play out, which is through June thirty. We feel very good about those results. You know, this is one of the first times we've been able to raise in many, many years. And if I just take a step back for a second, you know you've heard me talk about our strategy we

call block horizons. But really across the board, are assisted tax prep business, are small business business, the launch of spruce Wave in Toronto. Really, all of our businesses right now are showing great signs of momentum and that's what gives us the confidence to raise. Like we did, how do you keep the momentum going beyond the media term? So when you're thinking about the long term strategy here, Jeff, So for us, we feel really good about the strategy.

We spend a lot of time developing it, and like business oftentimes does, it comes down to deeply understanding the customer and executing at a high level. And that's what Block is doing right now. And so that's my job as a leader and my partners as our leadership team, is to help the company prioritize, focus on the fewest, most impactful things possible, and execute like crazy. And that's

really where we're focused to finish the year strong. That was Jeff Jones, President and CEO of H and R. Block. He joined us back on May eleven, just after the company reported earnings. You're listening to Bloomberg Business Week coming up, we go back to Panama City for a lesson and how to build a better entrepreneurship economy, especially in underserved

regions across the globe. This is Bloomberg. This is Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes Tim Stinovik from Bloomberg, where THEO this past week my co host, Carol Master, went to the Bloomberg New Economy Gateway Latin America event in Panama. She hosted a panel on the region's entrepreneurship economy with Summit Depended, the chief operating officer at d Local, and Helica fuent Is, the founder and president of move Up, and Mante Pence, the founder and

co CEO at Loft. The excerpt begins with Summit Depended explaining the disconnect and getting startup funding for underserved people, especially for women. I think there are multiple reasons for that. I think in most cases, what we what we saw, and I would say this is more When I was an agent and was trying to connect what I would call founders with capital sources, what we saw was that there was a big impact because of the networks that

people lived in. A lot of the capital races that happened in the earliest stages of a company's life journey journey typically happened from friends and family. Who you network with. What's your immediate circle makes a huge difference to where you end up taking your company. I do think that that's changing. I think there is more structured and purposeful

investment criteria that investors are using today. Uh. And this brings into question an important point which is close to my heart, which is about how purposeful should it be. Should investors have more specific guidelines as to where and how they invest or should it be really driven by just a profit motive? And I think that's the social question we need to understand as we think about investors. Most investors are driven by a profit motive. There is

no other motive. But sometimes just a profit motive is not the best motive when it comes to where capital is actually flowing in the short term. And I think when there is abundant capital, it becomes easier to go after social causes. I think as capital titans, it's going to actually become harder for some of the social cause is to get funded. And that's going to be an important question, and I'm durious to hear Angelica's views on this.

You're very close to this, Angelica, But I would think that if capital actually becomes more constrained, it's going to be harder to do good than to make money. Is it becoming harder? They just remind everybody if you have questions, please please submit them to the Bloomberg New Economy app we'd love to hear from you. So is it becoming tougher already as capital it is becoming tougher. The thing is that I believe, you know, to your point about our people going to or investors going to do just

you know, I for profit company to invest in. I think that the younger generations are a lot more creative on funding solutions for social problems that we face today. So I think there's a lot more companies out there, startups out there, there are for profit for purpose. So in that respect, I think we're changing mind frame about

doing things. You know, I've been working on women's issues for a little over thirty years of my life, and to me it's very important, you know, the creativity that women have, and most of the ones that at least I personally know, have those two concepts. Within the startups, they want to do good because it's it's something great for environment or for women themselves or you know, well they do need right but yeah, right, And but it's also for profit company. And I think that we're seeing

those two linked together a lot more. But yes, definitely there is you know, a restriction of capital growing into companies. Well, they I wanted to ask you three of you, is what is it that you think the world needs to understand about Latin America as an incubator for innovation and ideas?

And you know, come on back in. I mean you could have you you yourself have lived around the world, right, and I just wonder, why is it that you chose to start your company up in Latin America, specifically in Brazil. Why what was it about Brazil that made you want to do it? Yeah, I think it actually really connects with uh, you know, point around diversity and gender equality and generally just the depth of the op opportunity set

that we see in Brazil and Latin market. I was really really excited, uh, to to solve hard and big problems. Now it's not that you know, other places around the world don't offer heart problems or big opportunities, but I felt that, um, you know, you could really especially when it comes to bringing technology, UM and uh innovative you know, new ways of doing things to bear. Uh. The Latin market ecosystem is just you know, really underfunded and uh

and short on innovation. So I think that's that's what attracted me initially. UH, that's what kept me here for for over a decade and and certainly UH, you know, UH there's an increasing kind of ecosystem of UM foreign founders or foreign founder led UH companies also a lot across fertilization. One of the large largest company is that went public here in Brazil last year, New Bank, is

led by an on Brazilian. So I think that there over the last decade or so, it has been a recognition that, uh, there's a lot of opportunity UM in bringing technology to bear. And you're talking about less incremental improvements, you're really talking about fundamentally changing people's lives UM. And I think, you know, just connecting a little bit to the point around opportunities for a linment and and UH

investment in in female lead UM companies. You know, I've invested in over a hundred fifty companies, both personally and also through Canary, which is a seat stage fund that I helped co found and co create here in Brazil. UM and I you know, UM, one of the challenges that we have is even if you put a pure profit motive aside, UH, for now, we're missing UM a pipeline.

We're missing a more fertile ecosystem UM of female ad companies, So there is still a chicken and neck problem, UM to which I think part of the solution are actually the companies are the latest stage companies themselves. So one of the things that we're doing at Loft is, uh, you know, we have you know, we have a stated goal of gender equality across the company, but not just

for the company as a whole. I think it's relatively easy to say that you have women men across the company, but women in leadership positions, um, you know, with which then becomes a feeder into uh women that are well educated, that are well trained, and have the ability and the financial wherewithal to step aside and say, um, you know, I've um, you know, worked here for a couple of years and I love to start my own company. And

we're starting to see that, um you know. We're still talking about small numbers, but I think that this last cycle of innovation, which frankly was mostly led at least at least at the top of the pyramid by UM, by male founders, male C, E, O, s U, is now seeing a kind of second wave of female led UM executive ranks who you know, this is my hope certainly will go out there and UH and start companies on their own. We're certainly encouraging that proactively. We're investing

behind that. It's very early days, but I think it's UH. It's not not just incumbent upon the UM investors, it's also incumbent upon the companies that are being successful in scaling to UH TO to TO TO, to strengthen that UM as they promote UM, as they promote general quality across the board. That was part of Carol Master's panel discussion with the local CEO SUMI to pand It Move Up founder and president and Helica Fuentes, and Mate Pence,

the founder and co CEO at Loft. For the full conversation on the entrepreneurship economy from the Bloomberg New Economy Gateway Latin America event, go to Bloomberg dot Com and next on Bloomberg Business Week, New Balance CEO Joe Preston on the importance of manufacturing close to home. This is Bloomberg broadcasting from the financial capital of the World, bloom Burg.

He live in Frio in New York to Washington, d C. Bloomberg to Boston Bloomberg one oh six one to San Francisco, Bloomberg nine six to the country, Sirius XM Chado one nine team, and around the globe, the Bloomberg Business app and Bloomberg Radio dot Com. This is Bloomberg Business Week with strains on global supply chains. We're hearing more about companies thinking about or actually relocating supply chains back to

the US. New Balance has been producing shoes and apparel on its home soil for more than seventy five years. It just opened its fifth factory in New England. It also has one in the UK. Joe Preston is the company's president and CEO, and Caroline I recently spoke to him. We asked him all about the biggest headwinds that are facing US manufacturers. Check it out. The biggest issue, quite frankly, on the cost front, is on the distribution part of it.

The cost of containers, the cost of the shipping product is just so far ahead of what it was prior to pandemic, and so we're we are absorbing some of those costs and we are passing on some of them through the selected price increases. So manufacturing in the United States is just is just one part of it. Because the the components that go into the materials that go into making a shoe come from all over the world. So where are you seeing sort of the most supply

chain snarls and the biggest price increases. Well, I mean right now, you're seeing it in oil. So the impact of oil is going to impact rubber, which is obviously on the bottom of every running shoe that's made. It impacts e v A, which is in the midstle. It impacts some of the synthetics that are that are in the that are that are in the uppers on shoes, that are in the materials of polyester, etcetera, that are made on apparel, athletic apparel. So you're seeing that verberate

throughout the entire product cost chain, if you will. So okay, So that's good to know. And I'm also curious about labor costs in particular, Um, whether it's that stores or elsewhere. How are you dealing with that? What kind of increases have you seen there? Uh? And so I'm also curious about if you're getting all the workers that you need

to do what you need to do. Yeah, So we just opened up a new factory, as you mentioned in the wind masks, and we've hired over a hundred people, and quite frankly, we were a little bit surprised that that that it was. It wasn't easy. It's not easy hiring people today, but it went a lot smoother than possible. And we believe it's because it's proxim in proximity to our other factory up there, which is about five miles away in Lawrence, and because we have a long tenure

associate there. There's a lot of word of mouth on whether or not you're a good employer or not, and so I think that's helped us in uh In in hiring for that facility. But certainly wages are going up everywhere, whether it's inside distribution centers, whether it's retail stores, or on the factory floor. So how much have you had to increase wages that these factories in order to attract and retain talent. Well, we went through a process in

and which we raised associate wages in our factories. We just felt it was time. Our folks and our factories have been working there and continued to work there throughout the pandemic. Actually they closed for three weeks in March and open back up and began to produce over a million masks in the question whyday UH to use our factories to to make products to help the medical community.

So we we've seen wages increase and UH and we increased them again this year when you see the struggles that we've had with supply chains during the pandemic, and so coming out of it, like, what do you think are the big smart macro discussions we need to be having right now? I think we've all learned through COVID that early on how the country was not prepared and we were not controlling our own destiny. We didn't have manufacturing facilities for just simple but basic UH protective equipment

for for our medical community. So just prior to COVID, we came up with this philosophy of about controlling our destiny and it was all about getting closer to the consumer work. And we fundamentally believe that domestic manufacturing allows us to get closer to the consumer, to detect changes and trends, and to allow us to reach to respond quicker.

But it is challenging. Were the only athletic footwear manufacturer that produces here in the US, and so the supplier base is limited, and so there's a need for additional incentives for suppliers to come back on to to support a community so that domestic manufacturing can can can prosper. You've been at this company for a long time. I think you joined it back in if I'm correct. So I mean this whole retail industry continues to change significantly.

What have you seen in the you know your arc and just even the ark of the last couple of years in terms of increased digitization, Uh, in terms of how people shop. Um, you know where this kind of retail world has gone, and there's so much competition. There's new upstart brands. You guys have been around for a while, but there's a lot of selection for consumers out there. Yeah. When I joined the company, the company was a hundred and fifty million and today we're four point four billions.

So I've seen a lot of change for us here in the US and how we have grown around the globe. But retail has has gone through a complete transformation, and it's really been driven by the digital revolution. It's putting the consumer completely in control of when they want to shop, how they want to shop, and where they want to shop. And it's up to brands to make sure that they are up for that challenge. That was New Balance President and CEO Joe Preston. You're listening to Bloomberg Business Week

coming up next, it's time to pack your bags. Are Bloomberg Pursuits team is out with its summer travel guide for this is Bloomberg. You're listening to Bloomberg Business Week with Carol Messer and Bloomberg Quick to Tim Stinovan from Bloomberg Radio. All right, well, that's Mellow Yellow, of course, by the singer songwriter Donovan, popular in the nineteen sixties, but we all know it. It is a good introduction to our weekly deep dive into our Bloomberg Pursuits section.

My co host, Carol Master traveling for work this week, but we do want to talk about leisure right now. For that, I'm joined by Bloomberg Pursuits Deputy editor Jim Daddy also Travel editor Nicki Eckstein. They're here with us to help build the perfect itinerary for our summer vacations. Yes, there's still time to do that, Jim. I want to start with you, though, why are we listening to Mellow Yellow. Mellow Yellow has a prominent role in one of the

stories this week. Uh, summer travel season is upon us, and we're all feeling a little bit sensory deprived, and so Nikki came with this really great idea about how to reinvigorate your senses. So we picked five, you know, the five senses, and found itineraries for each one where you can kind of engage those senses and get back in touch with them. Nikki, what were you thinking whenever you were had this sort of like, you know, wide world of travel, uh, and how to engage your senses?

You know, we always think about travel in terms of a destination first, Right where am I going? Do here? It feels a little bit like people don't care where they're going. They want to go anywhere and they want to feel something. And I think in comparison to how we were traveling, we were still a little bit conscious

of COVID, We were still social distancing. And I just remember going to the Caribbean and seeing the bluest water I thought I had ever seen in my full entire life, because my eyes had not laid you know, I haven't laid eyes on that conger in so long. But touch, uh, the sound of people close by, all of those other senses were still far in the background, and this year, I think we can really flood our senses in a in a less restrained way, and that's what we were

going for here. Yeah, I remember, you know, going to the Caribbean as well, and the sun on my skin just felt a little bit warmer. You didn't get to touch any whales, though, did You did not touch any well anywhere. I want to talk a little bit about that, Nikki, because I think this was was such a great way to approach the travel section in the pursuit section for the magazine, and I want to start with that that

sense of touch. You found uh an area of the world where people can travel to not so easily, it turns out, and make contact with whales. Yeah. So you think about Baja California in Mexico, and you think about Cabo. This is a part of that that state granted Cabos and Baja California sore. This is regular Baja California just north of that um. And there's a bay with or sheltered lagoons in Baja California. It's called Laguna soun Ignacio. And there is an operator called Baja Expeditions that runs

the only luxury leaning trips to this area. Getting there is a little bit of a schlett. But once you arrive, you stay in sort of like a plush safari camp kind of a situation, and you go out on these boat rides where you can visit gray whales. These are huge animals. They grow up to almost a hundred thousand pounds each. They're enormous, and you're on tiny little boats

and what do you do. You splash in the water to draw their attention, and they come right up to you and they introduce you to their babies who are born in these lagoons learning how to swim, and you can interact with them, and you can physically touch them. They give you permission to touch them, which is pretty unprecedented in terms of wildlife encounters and ethical wildlife encounters. Nikki.

The writer Sarah Clements has a really funny image describing what it's like to touch one of these These are huge animals, as you mentioned, but how did she describe that? It's a little bit like touching a hard boiled egg. Hard boiled egg also talked about similar debscratching a dog belly, but a two ton puppy at that um, she has. She has a very very funny way of writing. And she also really struggles with this idea of petting wild animals because it's something that we as travel writers usually

are telling people not to do. So how is this okay, Nikki? It's okay because the whales are interacting on their own terms. Um. There are a lot of restrictions put into place on tourism. There are only sixteen tiny little boats allowed into an approved viewing area at any one time, which is very few people. Uh. The whales, it's at their discretion whether they come up to you or not. Nothing is being done to feed them to entice them, um. And and

all of the interactions are completely on their terms. Interestingly enough, wills are very sense three animals. We're kind of coming back to this idea of the five senses. They communicate the a touch, which I did not know. The babies roll all over their moms to signal that they're ready to nurse. They touch one another to talk. Dude, this

is something that they like to do. I want to talk about site the next sense that you cover in the sniky uh and I think for anyone who saw HBO's white lotus, Uh, this this will be a familiar image, but the forgotten Polynesian are of voyaging or wayfinding. For that, we go to Hawaii tell us about it. Yes, so we you know, we really wanted to do something surprising

with each sense. We didn't want to give you, you know, the classic blue water in the Caribbean, because we've all been there and done that, as I have already established, right, but what about seeing at night? What about seeing in the dark. That's what our writer Jen Murphy did when she learned how to read the stars in order to steer her outrigger canoe in Maui, which is the sport

that she had been first doing for fitness. And when she realized that there was this kind of forgotten cultural aspect lurking beneath the surface of this thing that she'd been doing to work out, she got really interested in it, started learning and ended up training with a master voyager who who teaches her about reading the stars and reading

the way of like fingerprints in the ocean. And it is poetic and lyrical and beautiful to think about how nature sends all of these visual signs our way that um we take for granted, and she stopped taking them for granted in this piece and teaching us a little bit about what we can be looking for. Yeah, that

was what was interesting to me about this story. You know, you think of going to Maui and it's like a feast for the eyes kind of thing, you know, this sort of you know, stereotypical travel writing kind of thing, um nikki. But one of the things that was really impressive to me about this is that it feels very relevant to average people like myself, who may not have the best sense of direction. Um, you know. She uh, she's getting trained on how to read the stars, and

she's like, what can you see? And she immediately goes to the constellations, the big Dipper, Ryan's belt. But that's not really how you navigate, right, Well, that's what I would have done too, right, like super relatable moment, and the master navigator immediately corrects her just because she looks up into the sky and and that's such an interesting thing, right, Like you think, how do you look at the stars?

How do you read the stars without looking up? But as it turns out, the stars are read like a compass if you look out onto the horizon. And she teaches Jim the writer, she she teaches her that as you watch stars move from their origin point on the horizon up into the sky, each one has a trajectory and if you learn the patterns of the stars when they come up on the horizon, then you can continue tracking them throughout the course of an evening and understand

where you are. But what's on the horizon is really what's telling, not what's directly above you. Yeah. It takes some courage, I think though, to to get out on the open ocean in the dark, and something I think I would have to be convinced about. Um we we uh, we now get to mellow yellow and for that we we we go with the sound sense, and James, I want to start with you here. For that we we

find ourselves in Botswana's Alcavoo delta. Yeah. You know, we were talking about these senses in our meetings, and I really vividly remember Nikki being like, you know, this is gonna sound like I'm talking about site, but I'm really talking about sound. Nikki, you want to take it from here. So when you think about uh, you think about sound. You don't think about any verb that ends been watching, do you exactly? Birdwatching is the subject of this essay.

And that's because I don't know if you've ever gone birdwatching in any capacity, but you bird watch with your ears first, and the key to find ending beautiful birds is to listen for them. And if you listen for birds, you can actually see your entire surrounding in a different way because what they're chirping about and the songs that they're making will actually point your eyes to all sorts of things that you might not see otherwise. And that's what this piece is about. We've got to cover the

other senses in the remaining time we have sent. It takes us to Tokyo Nikki uh and too. I think a really surprising conclusion in this piece for a writer looking for breakfast that is not fish spoiler yellow would work. Yes, this is you know this. This piece is about a travel truism gone wrong, and the writer is convinced that all the guide books must be right in saying that you've got to get to Sukiji Fish Market at four m and see the fish auctions. This is obviously before

the Sukigi Fish Market had closed. That she goes on this trip, but um she wakes up at the crack of dawn tries to do this thing that she wants to check off of a bucket list that's been established for her by all the outsiders that told her that it was the thing to do, and she arrives at the market still completely full and bloated from her night of indulgences before a big thank you to Bloomberg Pursuits Deputy editor Jim Gaddy and Travel editor Nikki Eckstein for

our guide to summer travel. And that wraps up the weekend edition of Bloomberg Business Week from Bloomberg Radio. Thanks so much for joining us. I'm Tim Stanivik. Carol Master returns next week. Be sure to tune into Bloomberg Business Week Monday through Friday, starting at two pm Wall Street Time on Bloomberg Radio. You can also watch our daily broadcast on YouTube. Just search Bloomberg Global News and check

out our Bloomberg Business Week podcast. You can find that at Bloomberg dot com, Apple, or wherever you get your podcasts. Bloomberg Business Week is available on newsstands now at Bloomberg dot com and on the Bloomberg Terminal, and you can also see me on Bloomberg quick Take, available at bloom Berg dot com. Slash qt and streaming platforms like Roku, Apple TV, Samsung TV and more. Have a great weekend. Everyone, This is Bloomberg.