Happy Tuesday, Happy August!

📝 Focus

• Down that Heineken!

📊 In the Markets

• Bad is good in China

• J&J Settlement Shot Down

📖 MoneyFitt Explains

🎓️ Chapter 11 Bankruptcy Protection

📝 Focus

Down that Heineken!

Heineken NV, the world’s second-largest beer maker after Belgium’s Anheuser-Busch InBev (formed in a series of mergers from the 1st, 2nd, 3rd, and 5th largest brewers), dropped 8% in Amsterdam trading on diving operating profits, sales falling faster than expected (down 7.6% in the second quarter), a poor showing in the crucial Asia Pacific region and a cut in profit guidance.

..... ▷ Like other brewers, Heineken has steadily raised its prices to offset rising costs, but consumers have been resisting. The company maintained market share even as volumes fell in all regions, though Heineken’s premium brand sales still grew. Revenues were up 6.3% in the first half, but operating profits plummeted 22% due to higher input and energy costs, increased marketing expenses and charges in its Russia business (which it is trying to sell off.) Founded in Amsterdam in 1864, Heineken has over 300 brands in its stable besides Heineken, including Amstel, Moretti, Tiger, Bintang, Red Stripe, Sol, Dos Equis and Newcastle Brown Ale.

..... ▷ July was the world’s hottest single month in about 120,000 years, and Augusts historically have a 1-in-3 chance of being even hotter. Warmer weather tends to increase beer consumption as beer is often perceived as a refreshing beverage and hot weather encourages outdoor social gatherings where beer is commonly consumed. Studies and anecdotal observations show a positive correlation between hot weather and beer consumption (though, contrary to expectations, not rosé, sparkling and other wines.) But… climate change could impact barley and freshwater enough to impact production (and taste) and force prices higher.

..... ▷ The global beer market is forecast to grow at a CAGR of 5.44% during 2023-2027 (with China the largest market), accounting for approximately 60% of the total volume of the Alcoholic Drinks market. Of course, alcohol consumption – especially in excess – is linked to a number of negative health and other outcomes and globally causes 2.8 million premature deaths per year. Fortunately, studies have found that younger generations are drinking less than older generations did at their ages (one 2018 study reported over 20% less per capita than millennials) or abstaining entirely, in part from a heightened awareness of the risks that come with drinking.

📊 In the Markets

Bad is good in China: US stocks closed flat on Monday in directionless trading, wrapping up a strong July supported by positive company earnings and optimism surrounding the resilience of the economy. During the session, Chicago Fed President Austan Goolsbee said the central bank was "walking the line pretty well" on bringing down inflation without causing a recession, code for the unicorn-rare soft landing. Energy stocks surged 2% due to the oil price breaking $80 per barrel. European stocks advanced on data showing the eurozone grew more than expected while inflation continued to slow, though core inflation remained unchanged and too high at 5.5%.

..... ▷ Earlier, Asian stocks traded firmer on Monday, partly on a strong Friday US market and partly on hopes that Beijing would launch fresh measures to boost the stalled economy. Bad news is good news: China’s service sector missed expectations in July, and manufacturing activity contracted for a fourth straight month. Reflecting China’s sluggishness, the Hong Kong economy grew by only 1.5% in the second quarter, way lower than the 3.5% expected in a Bloomberg survey and way off the pace to meet official estimates of between 3.5% to 5.5% for the year.

J&J Settlement Shot Down

Johnson & Johnson's shares dropped 4% on Monday, losing $18bn in market value, the largest one-day percentage loss since June 2020. This came after a US bankruptcy judge rejected the company's second attempt to resolve talc-related lawsuits, putting the proposed $8.9 billion settlement to halt new lawsuits in jeopardy.

..... ▷ The Judge ruled that the second bankruptcy, like its first, must be dismissed because, with access to $30bn in resources, the talc lawsuits did not put it in immediate "financial distress" and hence “closes the door of Chapter 11.”🎓 The April settlement agreed with the lawyers of many of the plaintiffs was supposed to draw a line under the decade-long battle with almost 70,000 claimants who allege that its talcum powder caused their cancers. But no.

..... ▷ JNJ has been trying to use bankruptcy🎓 courts to limit the financial fallout from the lawsuits over its talc products, which it maintains are safe and asbestos-free.

..... ▷ The sneaky Texas Two-Step legal manoeuvre involves shoving the sued business units into a separate legal entity which then declares bankruptcy. In JNJ’s case, that entity, LTL, was funded to pay out to litigants in a more organised way through a single bankruptcy court with fairer and faster outcomes, according to JNJ. Plaintiffs will now have to turn one by one to the broader US court system to get settlements, potentially with juries awarding punitive sums as well. (For more, see: “Let’s Talc about Bankruptcy”.)