Exxon’s Buyback Gusher

Plus: Carvana buckles up for a bumpy 2023 ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

December 9, 2022

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TOGETHER WITH

Good morning and happy Friday.

Anti-trust action on Capitol Hill is officially heating up. Yesterday, the FTC officially opened a lawsuit to block Microsoft’s $69 billion purchase of video game giant Activision Blizzard — a business move that would pair one of gaming’s biggest hardware makers with one of its biggest software makers.

A 3-to-1 panel vote to block the merger brings chairwoman Lina Khan’s pledge to counter Silicon Valley consolidation to full fruition. And while some (i.e., Microsoft and its team of lawyers) would argue the acquisition would boost competition in the industry, others say Khan and her agency are simply answering a…Call of Duty.

Morning Brief

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Consumer pain continues to be Exxon’s gain.

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Halcyon days are over for car dealers.

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What would you pay for a Klondike bar?

Energy

ExxonMobil Announces Massive Buyback

The latest decision from ExxonMobil won’t win any popularity contests, but it will make it a champion to its investors.

On Thursday, the oil giant announced it is massively increasing its current buyback program to $50 billion over three years to 2024. It has not, apparently, increased its budget for reading the room.

Pump it Up

If there are any winners of Russia’s deadly and costly invasion of Ukraine, it may just be Big Oil. Disrupted oil supply chains (made worse by the world re-emerging from pandemic lockdowns) have turned gas prices into, at best, a headache at the pump or, at worst, a consumer-crippling crisis. Giant firms like Exxon particularly make hay when crude oil prices begin to slip — as they’ve mostly done precipitously through the past six months — while consumer prices at the pump decrease at a far slower rate, allowing the oil giants to reap increasingly large rewards.

That led to record profits nearly across the board for the industry this year, with Exxon posting an Apple-esque record $20 billion profit in its third quarter — exceeding the previous quarter’s record-setter by over 10%. Overall, the net income for the world’s oil and natural gas producers is projected to hit a new high of $4 trillion by year’s end, doubling 2021’s figure. Now, Exxon is shrugging off threats of windfall taxes and cries to boost investments in climate-conscious projects, instead rewarding investors for sticking through what had previously been a bumpy decade:

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The $50 billion commitment is a massive increase over Exxon’s last buyback program, due to end in 2023, which allocated just $30 billion to shareholders — and highlight’s the firm’s disinterest in splurging on new oil drilling campaigns and other business endeavors.

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Exxon says it is projecting an annual spending range of just $20 to $25 billion over the next half-decade, a steep dropoff from the $30 to $35 billion it said it would annually reinvest in its business in 2019, before the universe threw a pandemic-sized wrench in its operations.

Exxon’s share price this year has been the complete inverse of the broader S&P 500, jumping up over 60% while just about everyone else sinks. Siri, what’s the opposite of ESG?

From Russia, With Discount: The oil market overall faced yet another major disruption this week, as the G-7’s $60-per-barrel price cap on Russian oil finally went into effect. One week into the program and the results are already strikingly clear: sea-borne exports out of Russia have dropped 16% from November’s levels, according to commodity analytics firm Kepler. Meanwhile, TankerTrackers.com, which utilizes satellite images and vessel signals to track oil shipments, estimates that figure may be closer to 50%. And so far, the price cap has yet to trigger a price spike elsewhere in the market. Chalk it up to karma.

– Brian Boyle

Auto industry

Car Dealerships Brace for Bad 2023

Ol’ Gil won’t be eating next year.

A new survey of 1,000 US car dealerships revealed a gloomy forecast as consumers who’d previously been clamoring for hard-to-find cars are now switching off, just as supply starts to catch up to demand.

3 Point Turn

Car retailers have had a lucrative few years as supply has been dwarfed by demand thanks to an automotive supply chain snarled up by the chip shortage. While demand remains elevated, sky-high interest rates on cars are now looking like more of a daunting prospect to cash-strapped consumers already dealing with inflation. The end result is a tepid outlook for retailers and a wobbly environment for prices.

One big retailer shows the circuitous bind car dealerships now find themselves in. Online retailer Carvana was a pandemic boomer baby and its growth was buoyed by consumers stuck indoors (and off dealership lots) coupled with record-breakingly high prices in the used car market. After that incredible run however, the company finds itself in a ditch:

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The specter of bankruptcy is now looming over Carvana, and its creditors have bonded together to form an alliance in potential negotiations with the company. The wholesale price of cars coming down is also bad news for Carvana, which bought up its inventory back when prices were sky-high and now has to try and make up the difference.

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To give you an idea of why consumers are balking even though prices are technically down, in Q3 of this year the average consumer strapped on $41,347 worth of financing compared to $38,315 last year, according to car shopping guide Edmunds.

“There is pent-up demand from people who’ve been in the market for six or nine months and haven’t been able to find a car,” one car dealer told The Wall Street Journal, adding ominously: “But it’s going to dry up. We’re very concerned about 2023.”

Sheer Fining Pleasure: Iconic German car brand BMW got a £30,000 slap from the UK on Thursday after failing to comply with an information request from the British antitrust regulator relating to a probe into whether BMW was anti-competitive in its recycling of old vehicles. It’ll keep racking up additional £15,000 fines for each day it doesn’t respond to the request, but BMW’s argument is the information lies outside of the UK’s jurisdiction. James Bond might have to scrub BMW models from his roster.

– Isobel Asher Hamilton

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Ice Cream

Unilever Might Sell Off Breyers and Klondike Ice Cream Brands

(Photo Credit – Courtney Cook/Unsplash)

Well this could be a pretty sweet deal.

Unilever, the consumer goods megacorp with 400 brands under its belt, may sell part of its extensive ice cream portfolio worth billions.

You Want Anything from the Shop?

The global ice cream market is expected to be valued at $165 billion by 2027, and Unilever is the world’s largest producer. The British-based conglomerate sold nearly $7 billion of the delectable dairy dessert in the first nine months of 2022 through brands such as Cornetto, Popsicle, and Talenti. Whether they come in cones, sandwiches, or tubs, business is booming for frozen treats. So why the potential sale?

Investors across the board are urging companies to set better health standards with its products and fix a “global nutrition crisis.” Also, countries like the UK and Mexico, where Unilever does plenty of business, have implemented taxes on foods and drinks high in sugar and calories that can increase obesity rates. It’s no secret ice cream is junk food, and Unilever CEO Alan Jope appears keen to leave a healthy legacy:

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The sales would concern local US brands including Breyers and Klondike and total roughly $3 billion, anonymous sources told Bloomberg. Its international varieties like Magnum and Ben and Jerry’s wouldn’t be on the table.

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Unilever is likely looking to replicate the sale of its tea business that it completed in late 2021. The sale of brands like Lipton and PG Tips yielded a $5.1 billion windfall for Jope and his team.

Candy and Ice Cream: There’s more deal news in the ice cream world! Italian confectioner Ferrero announced Wednesday it will acquire Blue Bunny maker Wells Enterprises, one of the largest US ice cream companies. With access to each other’s brands, the two companies will be able to collaborate on new flavors. We’re all praying the 100 Grand Bar ice cream finally becomes a reality.

– Griffin Kelly

Extra Upside

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Streaming is becoming like regular TV, Disney+ launched its ad-supported subscription.

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Janet Yellen became the first female to have her signature on the US dollar.

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Time is running out to maximize tax-advantaged accounts: 401k, IRA, Roth IRA… all these accounts offer impressive tax advantages — but only if you optimize your contributions year after year. Figuring out which to contribute to first, what types of investments belong where — it’s an intricate maze requiring a C.P.A., C.F.A., and J.D. on speed dial. Or, you could check out Playbook. They deep-dive your finances to figure out exactly which accounts you need, then set ‘em up on autopilot. Learn more about Playbook’s month-to-month, cancel-anytime plan.

Just For Fun

Perfectly balanced.

Bed and breakfast.

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