Business

Lots of countries have big construction projects that become a byword for ineptitude. In America the “Big Dig”, a highway project that snarled up the centre of Boston for years, came in five times over its initial budget. The stadium built for the Montreal Olympics in 1976 was unaffectionately known as the “Big Owe” after costs overran massively; the debts from the games were paid off only 30 years later. Even the Germans get megaprojects wrong. Ground was broken at Brandenburg Airport in Berlin in 2006, and the first flights took off in 2020, ten years later than scheduled. Listen to this story. Enjoy more audio and podcasts on More

When a New York short-seller’s report wiped some $150bn, or two-thirds, from the combined value of the Adani Group’s listed holdings in late January and early February, several big questions were keeping India Inc up at night. Would Indian banks and insurance companies with significant exposure to the ports-to-power conglomerate also teeter? Would the contagion spread to the rest of the Indian financial world? And would India’s government pursue an aggressive investigation into the short-seller’s allegations of fraud and stockmarket manipulation, which set off the imbroglio (and which the Adani Group vehemently denies)?A month and a half on, the answers to the first two questions are, happily for India, “no”. The answer to the third is less categorical, and somewhat less constructive: the government seems in no rush to settle the matter, perhaps because the Adani firms’ modest free float means a small number of mostly big shareholders bore much of the pain and no angry mob of retail investors is pressing Delhi to get to the bottom of it, fast. With those big questions out of the way, attention has turned to the next conundrum: can the Adani Ggroup and its eponymous tycoon founder, Gautam Adani, recover? Or will they founder, possibly dragging the Indian government’s grand plans for investments in infrastructure and green energy down with them?The past month has offered hope to those rooting for Mr Adani and his businesses, which operate some of India’s biggest ports and airports, store a third of its grain, run a fifth of its power-transmission lines, produce a lot of its cement—and have their eye on clean hydrogen and steelmaking, among other ventures. The group’s total market value has climbed back to more than $110bn, from a low of $82bn. That of its flagship public company, Adani Enterprises, is up by 54% from its nadir on February 27th. The yields on bonds issued by some Adani firms have come down from levels indicating distress. The big turn in the Adani Group’s fortunes came in early March, after GQG Partners, a fund that is based in America, listed in Australia and run by an Indian, bought $1.9bn in shares of several of the group’s companies directly from the Adani family. At the time, GQG’s boss, Rajiv Jain, who lives in Florida, told the Financial Times that “the market was mispricing Adani” and praised the conglomerate’s “very competent management” and “fantastic” execution capabilities. Mr Adani used the proceeds to help repay $2.1bn in margin loans that used Adani companies’ shares as collateral, relieving one possible source of financial stress. Another $1.1bn, half coming from the Adani family and half from the Adani businesses’ cashflows, was used to meet other near-term obligations. These moves reduced the group’s outstanding debt by just 4%, to $27bn. But they eased pressure and reassured the market. So did the acquisitive conglomerate’s decision to pause new capital investments, beyond those it had already pledged, until September 2024, and to put big takeovers on hold.As these demonstrations of financial discipline were taking place, the Adani Group embarked on a global charm offensive, set to conclude on March 17th in California. It appears to be working. Mr Jain, for one, has said GQG’s stakes in Adani businesses “most likely will increase depending on the price and how they deliver”. The group says it has been receiving plenty of interest from investors looking to park their money in its assorted companies. It says that a recent news report of a sale of just under 5% in its cement operations is bogus. But it does not dismiss the possibility of selling stakes in some of its divisions. Several of these, like the ports business, are solid operations offering predictable returns—maybe even good ones, if India’s economy continues to grow at its recent pace of 7-9% a year.With the Adani Group on more stable footing, another question is bound to arise: how long can Mr Adani hold his nation-building ambitions in check? On March 1st his conglomerate was awarded a bauxite mine in a government auction. For the time being, the asset, for which the company had always been planning to bid, will be folded into Adani Enterprises’ mining subsidiary. But before the short-seller’s assault, the bid for the mine was widely regarded as part of a larger plan to enter aluminium smelting, steelmaking and other bits of heavy industry. Mr Adani is unlikely to have forsaken that idea for ever. ■To stay on top of the biggest stories in business and technology, sign up to the Bottom Line, our weekly subscriber-only newsletter. More

After Bill Anderson, Bayer’s new boss, arrives on April 1st at the firm’s headquarters in Leverkusen, Werner Baumann, the German drug-and-chemicals giant’s outgoing chief executive, will be on standby for two months to ensure a smooth transition. Given Mr Anderson’s lack of experience in crop sciences, Bayer’s biggest business, you might ask what the board was thinking handing him the reins. The answer is that he has two qualifications that make up for his shortcoming. He used to run the pharmaceuticals business at Roche, a Swiss drug behemoth. And he is American. That makes him just the man for a company that is betting big on its pharma business across the Atlantic.Listen to this story. Enjoy more audio and podcasts on More

Twelve months ago Russia joined the ignominious list of countries—alongside North Korea and Cuba—where consumers are denied the joys of a Coca-Cola. The American beverage giant had halted its operations there following the Russian invasion of Ukraine. Thirty years before, when Coca-Cola expanded in Russia after the collapse of the Soviet Union, barriers to global commerce were being torn down. Today they are being re-erected—and not just around Russia. Listen to this story. Enjoy more audio and podcasts on More

The world’s energy supermajors had a bountiful 2022. ExxonMobil, the largest of the private-sector giants, reported a record annual net profit of $56bn, after Russia’s invasion of Ukraine sent oil prices soaring. Mouth-watering—unless you are Saudi Aramco, in which case it’s peanuts. Last year the desert kingdom’s oil giant brought in some $160bn of net income, the most by any company in corporate history.■To stay on top of the biggest stories in business and technology, sign up to the Bottom Line, our weekly subscriber-only newsletter. More

Retailers including Target, Macy’s and Kroger previewed their recessionary playbooks in recent earnings reports.
The companies’ strategies include stocking up on high-frequency items like food, becoming more strategic about discounts and winning more of loyal customers’ wallets.

A woman carries bags of merchandise from J.Crew, Nordstrom, UGG, and Victorias Secret at the King of Prussia Mall on December 11, 2022 in King of Prussia, Pennsylvania.
Mark Makela | Getty Images

The U.S. economy may not be in a recession, but it feels like it in a lot of stores across the nation.
Take Kroger, for instance. Inflation-pinched customers are downloading more coupons, cooking meals at home and switching to lower-priced private label brands to save money, the grocery giant’s CEO, Rodney McMullen, told CNBC’s “Squawk on the Street” earlier this month.

“What customers are telling us, they’re already behaving like they’re in a recession,” he said.
Now, major retailers are dusting off their playbook for a recession — or at least for a period of slower sales. Companies previewed their strategies for the tougher backdrop in recent weeks, as they reported holiday-quarter earnings and shared full-year outlooks.
Target is bulking up on food and household essentials to drive foot traffic. Macy’s and Walmart are trying to win more sales from their most loyal customers. Best Buy and others are chasing new and exclusive products that may nudge customers to open up their wallets and even pay full price.
As the travel and restaurant sectors bounce back, it looks like the “rolling recession” is coming for the retail sector, even if the economy remains strong. Many retailers are calling for flat to declining sales this fiscal year, especially once the lift from inflation is taken out. It’s a sharp turnabout from the early years of the pandemic, which was a boom time for retail spending.
Here’s a look at some of retailers’ strategies.

Customers shop in the grocery area at a Target Corp. store in Chicago, Illinois, U.S., on Saturday, Nov. 16, 2019.
Daniel Acker | Bloomberg | Getty Images

Zeroing in on everyday items

Gallons of milk, paper towels and soap. Retailers are stocking up on those kinds of everyday products, which shoppers frequently replenish, as shoppers think twice about discretionary purchases.
Target, for instance, said it has intentionally skewed its inventory mix toward food and household essentials. Its overall inventory declined 3% year over year as of the end of the fiscal fourth quarter, but its inventory of discretionary merchandise dropped 13% during the same period.
Walmart, the country’s largest grocer by revenue, benefits from getting a larger chunk of sales from groceries. It has used lower-priced groceries to draw in shoppers across income levels, including more households with annual incomes of more than $100,000.
Yet selling evergreen items comes with a downside: They tend to be less profitable.
Walmart Chief Financial Officer John David Rainey acknowledged that on an earnings call with investors in late February, saying “product mix shifts have negatively impacted our margins.”

A shopper carries a Bloomingdale’s bag on Broadway in the SoHo neighborhood of New York, US, on Wednesday, Dec. 28, 2022.
Victor J. Blue | Bloomberg | Getty Images

Relying on loyal customers

As the going gets tougher, retailers are looking toward a familiar audience: Loyal shoppers.
Macy’s and Costco are among the retailers that want to wring out more sales from the tried and true. Some have even turned membership programs into money-makers. Walmart is trying to attract more customers to its subscription service, Walmart+, which costs $98 a year, or $12.95 on a monthly basis. Best Buy has the Totaltech program, which costs $199.99 per year. Lululemon has a free and a paid membership program, which debuted in the fall.
Costco, a membership-based warehouse club, is seeing more customers upgrade to Executive, its top-tier of membership. Chief Financial Officer Richard Galanti told investors on a call in early March that at the end of its most recent quarter, it had 30.6 million paid Executive memberships, which account for about 45% of overall paid members and drive about 73% of worldwide sales.
At Macy’s-owned Bloomingdale’s, members of its Loyallist program drove over 70% of same-store sales, which includes its own brands and third-party brands. Members of that program spent 7% more year over year, as of the end of Macy’s fourth quarter, CEO Jeff Gennette told investors.
Kroger’s McMullen said Wednesday at a Bank of America investor conference that its loyal customers tend to spend 10 times more than an occasional shopper. He said the company wants to get more of their dollars by getting “people into the rewards cycle” and better personalizing their experience.

Televisions are seen for sale at a Best Buy store in New York City.
Andrew Kelly | Reuters

Chasing newness and value

As customers become more cautious, retailers are racing toward the next hot thing or at least the thing that only they have.
Target anticipates modest or even declining sales in the year ahead, with same-store sales ranging from a low single-digit decline to a low single-digit increase for fiscal 2023. Even so, the discounter is pressing ahead with more exclusive items and flashy customer amenities. Target shoppers can soon get a Starbucks coffee, make a return and retrieve an online purchases without leaving their cars. The company is launching or expanding more than 10 private brands in the coming year, too.
“In an environment where consumers are making tradeoffs, more of the same is not going to get it done,” Christina Hennington, Target’s chief growth officer, said at an investor event in New York.
Value is a key part of retailers’ fresh offers. At Kroger, shoppers can find a new exclusive brand called Smart Way that offers basic groceries like sliced bread and mustard at the lowest price point.
And at Best Buy, CEO Corie Barry said innovation will help motivate shoppers to upgrade their phone or spring for new video game consoles, especially in the back half of the year.
“We believe there’ll be a desire to stimulate those replacement cycles going forward,” Barry said on a call with reporters in early March. “Obviously, our vendors are very interested in creating the next hot product and we are the best place — and really the only place — for them to highlight those new technology advances.”

Marko Geber | DigitalVision | Getty Images

Savvier about discounts

As sales dip, retailers want to make sure that every dollar counts.
Profit margins are getting more attention from investors, particularly as retailers follow a year when they were hit with higher costs for labor, commodities and shipping, all while taking a hit from marking down excess inventory.
Some retailers are rethinking their approach to discounts while questioning other costs, such as giving away free shipping or deliveries without strings attached.
Macy’s has gotten more strategic about pricing. Instead of marking down goods online and across every store, it can use dynamic pricing to adjust in places where that price change can make a difference. It can send targeted discounts to a particular shopper based on what he or she has browsed or bought.
On a call with CNBC, CEO Jeff Gennette said the company is “in the early innings of personalized offers, but there’s huge dividends for that.” He called it one of the company’s growth factors for the year ahead.
Some retailers have also turned free shipping into a perk for only engaged or higher spending customers. Nike, for instance, offers free shipping for shoppers – if they share their personal data by joining its membership program.
Amazon, a retailer often associated with no shipping and delivery fees, made a notable change recently, too. Starting in late February, the e-commerce giant began charging delivery fees for grocery orders under $150. It had previously offered free Amazon Fresh deliveries for Prime members who spent over $35.

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Virgin Orbit is furloughing nearly all its employees and pausing operations for a week as it looks for a funding lifeline.
Company executives briefed staff on the situation in an all-hands meeting at 5 p.m. ET on Wednesday.
The company had $71.2 million in cash on hand at the end of the third quarter, with a $42.9 million adjusted EBITDA loss, and has since raised about $55 million in debt via an arm of Richard Branson’s Virgin Group.

Richard Branson’s Virgin Orbit, with a rocket under the wing of a modified Boeing 747 jetliner, takes off for a key drop test of its high-altitude launch system for satellites from Mojave, California, July 10, 2019.
Mike Blake | Reuters

Virgin Orbit is furloughing nearly all its employees and pausing operations for a week as it looks for a funding lifeline, people familiar with the matter told CNBC.
Shares of Virgin Orbit fell about 33% in after-hours trading from its Wednesday close of $1.01 a share. The stock has slid steadily from its debut of near $10 a share in December 2021.

Company executives briefed staff on the situation in an all-hands meeting at 5 p.m. ET on Wednesday, according to people who were in the meeting. The furlough is unpaid, though employees can cash in PTO, with only a small team continuing to work. Virgin Orbit is also moving up payroll by a week to Friday.
In the all-hands, company leaders told employees that they aimed to provide an update on the furlough and funding situation by next Wednesday or Thursday, according to the people, who asked to remain anonymous to discuss internal matters.
A Virgin Orbit spokesperson, in a statement to CNBC, confirmed that the company is starting an “operational pause.” Virgin Orbit plans to give “an update on go-forward operations in the coming weeks,” the spokesperson added.

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The rocket-building company developed a system that uses a modified 747 jet to send satellites into space by dropping a rocket from under the aircraft’s wing mid-flight. But the company’s last mission suffered a mid-flight failure, with an issue during the launch causing the rocket to not reach orbit and crash into the ocean.
“Our investigation is nearly complete and our next production rocket with the needed modification incorporated is in final stages of integration and test,” Virgin Orbit’s spokesperson said.

When Virgin Orbit reported third-quarter results in early November, it disclosed cash on hand of $71.2 million as of the end of the quarter. In the face of $30.9 million in revenue, Virgin Orbit reported an adjusted EBITDA loss of $42.9 million for the period as it continued to burn cash.
Since the fourth quarter, the company has steadily brought in funds in the form of debt via an investment arm of Richard Branson’s Virgin Group. The company raised $25 million in an unsecured convertible note in November, before raising $20 million and $10 million in senior secured convertible notes in December and February, respectively. The notes give Branson’s parent company “first-priority” to Virgin Orbit’s assets.
As of Wednesday, the company had yet to announce when it would report fourth-quarter 2022 results.
Earlier this week, Virgin Orbit CEO Dan Hart last-moment canceled a scheduled appearance on a panel during a space industry conference in Washington, D.C. set for Tuesday.

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Nathan Frei is one of more than 200,000 military servicemembers and veterans suing 3M claiming its Combat Arms earplugs failed to protect him from loud noises causing hearing loss and tinnitus.
3M denies wrongdoing and told CNBC the earplugs worked when used properly.
3M has lost 10 of the 16 bellwether cases that have gone to trial so far, with a total of $265 million awarded to 13 plaintiffs.

Nathan Frei, a former active-duty infantry officer who served from 2011 to 2015, first noticed issues with his hearing in 2013, shortly after returning from training with the U.S. Army. Nate was identified with tinnitus and now is one of more than 200,000 claimants suing 3M over its Combat Arms earplugs.
Nathan Frei

Former active duty U.S. army infantry officer Nathan Frei says from 2011 to 2015 he went through some of the most intense training that the U.S. Army had to offer. With it, came loud noises — everything from weapons to helicopters to explosions.
To protect his hearing, Frei wore standard issue earplugs made by 3M.

Today, he’s one of more than 200,000 military service members and veterans suing the conglomerate. 3M stock, which hit a new 52-week low Wednesday, is one of the worst-performing industrial stocks this year, down more than 16% in 2023, versus the XLI Industrials ETF, which is down 1.5% year to date.
Plaintiffs claim 3M earplugs were “defective” and failed to protect against hearing loss and tinnitus.
“We used [the earplugs] every time that we were around loud noises,” Frei, who lives in Seattle, told CNBC. “And I relied on that hearing protection during that time.”
From 2003 to 2015, Aearo Technologies and its parent company, 3M, manufactured and supplied the U.S. military with the Combat Arms CAEv2 earplugs. The plugs were standard issue for soldiers in Afghanistan and Iraq and were designed to protect service members’ hearing in military training and during combat.

3M’s Combat Arms CAEv2 earplugs

Each earplug had two ends: The green end was designed to block out all sound. The yellow end, signaling “whisper mode,” purported to block out loud sound — but allowed the user to hear quieter noises, like conversations.

I don’t look like somebody who probably should have as much hearing loss as I do at my age.

Nathan Frei
Former active duty U.S. army infantry officer

“We were told that by wearing ‘whisper mode’ that we could still protect our hearing,” said Frei, who claims he first noticed issues with his hearing in 2013.
“I was hearing ringing,” Frei recalled. “At first, I thought it was a TV that was on. And so I searched and scoured the house looking for where the noise was coming from before I realized that it was just in my head.”
As the years passed, the 35-year-old said, his hearing issues got worse. Department of Veterans Affairs records shared by Frei with CNBC show he was later diagnosed with tinnitus.
“It’s constant,” he said. “It’s a loud ringing in my ears — very similar to just like a buzz noise.”
He said the ringing is so disruptive it occasionally keeps him awake.
“I don’t look like somebody who probably should have as much hearing loss as I do at my age,” he said.

3M’s response

Eric Rucker, an attorney for 3M, told CNBC the company has great respect for the men and women in the military and that their safety has always been a priority.

Maplewood, Minnesota, 3M company global headquarters.
Michael Siluk | Getty Images

“The purpose of the creation of [the Combat Arms earplugs] was to collaborate with the military to solve one of the longest-standing problems they have had, that soldiers won’t wear their hearing protection around loud noises and in combat,” Rucker said.
Rucker said the plugs were designed in collaboration with the U.S. military and tested by the Air Force, Army, National Institute for Occupational Safety and Health, and others.
“All of that testing shows the Combat Arms earplugs, when properly fitted and when used according to its instructions, work to protect people’s hearing,” he said.
Rucker conceded that military audiologists were “well trained in how to train people and fit people for the use of earplugs,” but maintained, “it should have worked and protected their hearing in environments where it was appropriate to be using these earplugs.”
After a whistleblower suit was filed in 2016, accusing 3M of selling “dangerously defective” earplugs, the company agreed to pay $9.1 million to the Department of Justice to resolve the allegations without admitting liability.
Soon after, there was a flood of new suits from hundreds of thousands of other service members.

Where things stand today

Today, the lawsuits have been consolidated in Florida federal court, creating what some are calling the largest mass tort in U.S. history, surpassing even the multidistrict litigation involving Johnson & Johnson’s talc products.
3M has lost 10 of the 16 cases that have gone to trial so far, with a total of $265 million awarded to 13 plaintiffs to date.
“There have been several bellwether trials. And unfortunately, Aearo and 3M have not been able to present all of the evidence related to the original design of the product, the military’s involvement in the design of the product, all of the issues concerning the instructions, and how to use the product, and how well the product performed, including some testing information which has been excluded from certain trials,” Rucker said.
“All of that is on appeal. And we’re hoping that the decisions on appeal will cause more of that information to come forward,” he added.

The Combat Arms earplugs, when properly fitted and when used according to its instructions, works to protect people’s hearing.

Eric Rucker
3M attorney

3M recently unveiled new data that shows 90% of a group of 175,000 plaintiffs have no hearing impairment under medically accepted standards, according to U.S. Department of Defense records. The lead attorneys for the plaintiffs call the data a “misrepresentation.”
“3M has purposefully skewed this data by relying on hearing standards that do not measure frequencies most affected by noise, concealing the hearing damage suffered by veterans,” said Bryan Aylstock and Chris Seeger, co-lead counsel for the service members and veterans, in a joint statement.
3M disagreed with those claims, telling CNBC: “The data support what 3M has maintained throughout this litigation: the Combat Arms Earplugs version two were safe and effective to use. This has been confirmed by every independent, third-party organization that has tested the product, including the Army Research Lab, the Air Force Research lab, NIOSH, and others.”

Liability risk

Mizuho’s executive director Brett Linzey wrote in a note to clients that “even the low end of previously settled Combat Arms lawsuits (or even half that amount) equates to some pretty healthy liabilities 3M may have to address.”
According to one Wall Street analyst, 3M’s liability risk could potentially be in the billions.
“Do the math on the number of plaintiffs, which is north of 200,000 and you take the average settlement value — the simple math on that gets you well north of $10 billion to $20 billion,” JPMorgan analyst Stephen Tusa told CNBC. 3M told CNBC that estimate was “completely speculative.”
“We will continue to defend the cases. But the vast majority of these claims do not have complete information,” said Rucker.
In a legal maneuver that would indemnify 3M, the company’s attorneys attempted to put its subsidiary Aearo Technologies into bankruptcy protection, and put aside a $1 billion trust to settle the suits. The service members suing 3M are accusing the company of using the bankruptcy to shield itself and have asked a judge to dismiss it.
A ruling on that potential dismissal is scheduled for April. Oral arguments for the appeal of the initial bellwether trials are scheduled for May 1.
As for Frei, he expects his case to go to trial by year-end.
“It does make me mad,” Frei told CNBC, accusing 3M of “trying to scheme away through either bankruptcy or through these arguments to try and avoid responsibility for what they’ve done.”

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