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Business

Chevron Rides High Oil Prices to Record $35.5 Billion Annual Profit

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Chevron Corp.

CVX -4.44%

banked historic profit last year as the pandemic receded and the war in Ukraine pushed oil prices to multiyear highs, with its shares climbing 53% for the year while other sectors tumbled.

The U.S. oil company in its quarterly earnings reported Friday that it collected $35.5 billion in its highest-ever annual profit in 2022, more than double the prior year and about one-third higher than its previous record in 2011. Almost $50 billion in cash streamed in from its oil-leveraged operations, another record that is underpinning plans to pay investors through a new $75 billion share-repurchase program over the next several years.

That payout, announced Wednesday, is roughly equivalent to the stock-market value of companies such as the big-box retailer

Target Corp.

, the pharmaceutical firm

Moderna Inc.

and

Airbnb Inc.

Chevron, the second-largest U.S. oil company after

Exxon Mobil Corp.

, posted revenue of $246.3 billion, up from $162.5 billion the previous year. The San Ramon, Calif., company reported a fourth-quarter profit of $6.4 billion, up from $5.1 billion in the same period the prior year.

The fourth-quarter results came short of analyst expectations, and Chevron shares closed down more than 4% Friday.

For all of its recent winnings, though, Chevron and its rival oil-and-gas producers could face a rockier year in 2023, according to investors and analysts, if an anticipated slowdown in U.S. economic growth dents demand for oil, and if China’s reopening from strict Covid-19 restrictions unfolds slowly.

U.S. oil prices have held steady this year, but are off about 36% from last year’s peak. The industry is proceeding with caution, holding capital expenditures for 2023 below prepandemic levels and saying production will grow only modestly. Chevron has said it plans to spend about $17 billion in capital expenditures this year, up more than 25% from the prior year, but $3 billion less than it planned to spend in 2020 before Covid-19 took root.

Oil companies are still outperforming other sectors such as tech and finance, which have seen widespread job cuts in recent weeks. The energy segment of the S&P 500 index has climbed 43.7% over the past year, compared with a 6.7% drop for the broader index.

Chevron Chief Executive Mike Wirth said the company is unsure of what 2023 will bring after global energy supplies were squeezed because of geopolitical events last year, particularly in Europe following Russia’s invasion of Ukraine. He said markets appeared to be stabilizing.

“We certainly have seen a very unusual and volatile year in 2022,” Mr. Wirth said, noting the European energy crisis has proven less dire than anticipated thanks to milder winter weather, growing natural gas inventories in Europe. “China’s economy has been slow throughout the year, which looks to be turning around. It’s good that markets have calmed.”

Chevron projects its output in the Permian Basin of West Texas and New Mexico to grow at a slower pace this year.



Photo:

David Goldman/Associated Press

Chevron hit a record in U.S. oil-and-gas production in 2022, increasing 4% to about 1.2 million barrels of oil equivalent a day, stemming from its increased focus on capital investments in the Western Hemisphere, particularly in the Permian Basin of West Texas and New Mexico, where it boosted output 16% last year. Worldwide, Chevron’s oil-and-gas production was down 3.2% compared with the prior year, at 2.99 million barrels of oil-equivalent a day.

Its overall return on capital employed came in at 20%, it said.

“There aren’t many sectors generating the type of free cash flow that energy is right now,” said

Jeff Wyll,

an analyst at investment firm Neuberger Berman, which has invested in Chevron. “The sector really can’t be ignored. Given the supply-demand balance, you have to have some things go wrong here to see a pullback in oil prices.”

Even so, institutional investors have shown limited interest so far in returning to the energy sector, after years of poor returns and heightened concerns about their environmental impact prompted large financiers to sell off their stakes in oil-and-gas companies or stop investing in drillers outright.

Pete Bowden,

global head of industrial, energy and infrastructure banking at

Jefferies Financial Group Inc.,

said energy companies in the S&P 500 index are throwing off 12% of the group’s free-cash flow, but only account for about 5% of the index’s weighting—an indication their stock prices are lagging behind.

Investors’ concerns around environmental, social and governance-related issues are a constraint on the share prices of energy companies, “yet the earnings power of these businesses is superior to the earnings power of companies in other sectors,” he said.

Chevron and others have faced criticism from the Biden administration and others that they are giving priority to shareholder returns over pumping oil and gas at a time when global supplies are tight and Americans are feeling pain at the pump. On Thursday, the White House assailed Chevron’s $75 billion buyout program, saying the payout was proof the company could boost production but was choosing to reward investors instead.

Pierre Breber,

Chevron’s finance chief, said the company expects oil prices to be volatile but within a range needed to sustain its dividend and investments. There are some optimistic signs, he added, including that the U.S. economy grew faster than expected in the fourth quarter, at 2.9%.

“Supply is tight. Oil-field services are near capacity, and we continue to have sanctions on Russian production,” Mr. Breber said. “You’re seeing international flights out of China are way up, and low unemployment in the U.S.”

Mr. Breber said Chevron’s output in the Permian this year is expected to grow at a slower pace, around 10%, because it has exhausted much of its inventory of wells that it had drilled but hadn’t brought into production.

Exxon, which has typically posted quarterly earnings on the same day as Chevron, will report Tuesday. Analysts expect it will also post record profit for 2022, according to FactSet.

Both companies expect to slow their output growth this year in the Permian, considered their growth engine. The two U.S. oil majors, which had been growing output faster in the U.S. than most independent shale producers, are beginning to step up their focus on shareholder returns and allow output growth to ease, said Neal Dingmann, an analyst at Truist Securities.

“This has all been driven by investor requirements,” Mr. Dingmann said.

Write to Collin Eaton at collin.eaton@wsj.com

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Business

CVS, Walmart to Cut Pharmacy Hours as Staffing Squeeze Continues

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CVS, the largest U.S. drugstore chain by revenue, plans in March to cut or shift hours at about two-thirds of its roughly 9,000 U.S. locations. Walmart plans to reduce pharmacy hours by closing at 7 p.m. instead of 9 p.m. at most of its roughly 4,600 stores by March.

Walgreens Boots Alliance Inc.

previously said it was operating thousands of stores on reduced hours because of staffing shortages. Combined, the three chains operate some 24,000 retail pharmacies across the U.S. 

Walmart last year raised pay for pharmacy technicians.



Photo:

Ryan David Brown for The Wall Street Journal

Earlier in the pandemic, CVS and Walgreens struggled to meet demand for Covid shots and vaccines. The chains cut hours and, in some cases, closed pharmacies for entire weekends. Walmart, which sells a wider variety of goods, cut overall store hours, in part, to cope with Covid-related labor shortages and make time to restock empty shelves as demand for basics such as toilet paper surged.  

CVS, in a recent notice to field leaders, said most of its reduced hours will be during times when there is low patient demand or when a store has only one pharmacist on site, which the company said is a “top pain point,” for its pharmacists. 

CVS said in a statement it periodically reviews pharmacy operating hours as part of the normal course of business to ensure stores are open during high-demand times. “By adjusting hours in select stores this spring, we ensure our pharmacy teams are available to serve patients when they’re most needed,” the company said, adding that customers who encounter a closed pharmacy can seek help at a nearby location. 

At Walmart, the shorter hours offer pharmacy workers a better work-life balance and best serve customers in the hours they are most likely to visit the pharmacy, said a company spokeswoman. “This change is a direct result of feedback from our pharmacy associates and listening to our customers,” she said. Some Walmart pharmacies already close before 9 p.m., which will become standard across the country after the change.

An online community message board for Holliston, Mass., a small town about 30 miles outside Boston, was populated with messages last month from locals venting about the unpredictable hours of the CVS in town, said resident Audra Friend, who does digital communications for a nonprofit. Ms. Friend said she struggled for a week in November to refill a prescription for a rescue inhaler at the store because the pharmacy was sporadically closed.

“I would go in, and there was a note on the door saying, ‘Sorry, pharmacy closed,’” said Ms. Friend, who switched her prescriptions to a 24-hour CVS about 5 miles away. She said it would be better to have consistently shorter hours if that meant fewer unexpected closures. “At least that way we’re not just showing up at CVS to find out the pharmacist isn’t there,” she said.

A CVS spokeswoman said that in recent weeks the Holliston store has had no unexpected closures.

The drugstore chains have been working to stop an exodus of pharmacy staff by offering such perks as bonuses, higher pay and guaranteed lunch breaks. Pharmacists were already in short supply before the pandemic, and consumer demand for Covid-19 shots and tests put additional strains on pharmacy operations. Walgreens recently said staffing problems persist and remain a drag on revenue. 

Retail pharmacies, which benefited from a bump in sales and profits during the pandemic, are now reworking their business models as demand for Covid tests and vaccines decline and generic-drug sales generate smaller profits.

CVS and Walgreens are closing hundreds of U.S. stores and launching new healthcare offerings as they try to transform themselves into providers of a range of medical services, from diagnostic testing to primary care.  

This past summer, Walgreens was offering bonuses up to $75,000 to attract pharmacists, while CVS is working to develop a system in which pharmacists could perform more tasks remotely. The median annual pay for pharmacists was nearly $129,000 in 2021, according to Labor Department data, which also projected slower-than-average employment growth in the profession through 2031. 

In the past year, the chains have poured hundreds of millions of dollars into recruiting more pharmacists and technicians but staffing up has proven difficult. Pharmacists remain overworked, pharmacy-chain executives have acknowledged, and fewer people are attending pharmacy schools. The number of pharmacy-school applicants has dropped by more than one-third from its peak a decade ago, according to the Pharmacy College Application Service, a centralized pharmacy-school application service.

Meanwhile, many pharmacists who aren’t quitting the field are leaving drugstores to work in hospitals or with other employers. 

Walmart raised wages for U.S. pharmacy technicians in the past year, bringing average pay to more than $20 an hour. Walmart said it planned to raise the minimum wage for all U.S. hourly workers in its stores and warehouses to $14 next month, from $12.

CVS and Walgreens last year raised their minimum wages to $15 an hour.

Write to Sharon Terlep at sharon.terlep@wsj.com and Sarah Nassauer at Sarah.Nassauer@wsj.com

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Business

Goldman Sachs Cut CEO David Solomon’s Pay to $25 Million in 2022

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Goldman Sachs Group Inc.

GS 0.07%

Chief Executive

David Solomon

took a nearly 30% pay cut in 2022.

Mr. Solomon received $25 million in total compensation last year, down from $35 million in 2021. His 2022 pay package consisted of a $2 million base salary, a cash bonus of $6.9 million and a $16.1 million stock award that is tied to how well the bank performs in the next few years, Goldman said in a regulatory filing.

Mr. Solomon’s 2022 compensation reflects the bank’s performance compared with 2021, Goldman said in the filing. Profit fell 48% last year, and revenue declined 20%, largely due to a slowdown in corporate deal-making that had previously fueled blockbuster earnings. Still, Goldman shares outperformed the KBW Nasdaq Bank Index and the broader S&P 500 last year. 

In 2021, the bank’s shares were soaring and the bank was minting money in a merger boom that kept its high-price bankers busy. 

Goldman doubled Mr. Solomon’s pay that year, an acknowledgment of the bank’s record profits and following a year when he was penalized for the firm’s involvement in the 1MDB corruption scandal. The bank also awarded Mr. Solomon a one-time stock award of about $30 million that year, citing “the rapidly increasing war for talent in the current environment.”

Late last year, Mr. Solomon engineered a restructuring of Goldman’s businesses meant to spotlight steadier businesses like asset and wealth management, taking some of the focus off its more volatile Wall Street operations. 

He’s also paring back the bank’s consumer-facing Marcus operations and has admitted that Goldman’s attempts to do too much there contributed to missteps. The bank’s newly created Platform Solutions division, which houses credit cards and other pieces of the consumer business, lost about $2 billion on a pretax basis in 2022. 

Mr. Solomon has moved to cut costs at Goldman. The bank laid off some 3,000 employees this month and slashed bonuses for many bankers by up to 40%. 

Goldman’s compensation committee also considered the bank’s “continued progress in its strategic evolution as well as Mr. Solomon’s strong individual performance and effective leadership,” according to the filing. 

Mr. Solomon’s pay fell more than his Wall Street counterparts. 

Morgan Stanley

paid Chief Executive James Gorman $31.5 million for his work in 2022, a 10% pay cut from the year before.

 JPMorgan Chase

& Co. awarded CEO Jamie Dimon $34.5 million in 2022 compensation, in line with a year earlier.

Wells Fargo

& Co. CEO Charles Scharf’s 2022 pay also stayed flat at $24.5 million in 2022.

Write to AnnaMaria Andriotis at annamaria.andriotis@wsj.com

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World

Russia Seeks Gains in Ukraine Before Western Tanks Turn Up

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Russian forces pressed an offensive in eastern Ukraine on Friday, seeking to seize an advantage in the months before tanks pledged by Kyiv’s Western allies begin to arrive on the battlefield.

Ukrainian forces said on Friday they had repelled Russian attacks on Vuhledar and several other villages in the eastern Donetsk region over the preceding 24 hours. Russia also launched 148 attacks along the front line with Ukrainian forces in the southern Zaporizhzhia region over the past day using tanks, rockets and artillery, the regional military administration said. 

Russia’s Defense Ministry said it had undertaken more offensive maneuvers over the past 24 hours both in Zaporizhzhia and Vuhledar, where it said it had launched strikes on Ukraine’s 72nd Brigade and had downed a Ukrainian Su-25 warplane.

The European Union on Friday, meanwhile, extended its economic sanctions on Russia for the next six months. The decision affects a swath of sanctions imposed last year, from financial sanctions on Russian banks and its central bank to export and import bans. 

There had been concerns that Hungarian Prime Minister

Viktor Orban

could push to weaken the sanctions package. In recent months, he has attacked the EU’s sanctions, especially the EU oil import embargo on Moscow, saying they are more costly for Europe than for Russia. Decisions on sanctions are taken by consensus among the EU’s 27 member states. 

While Hungary stepped back from objecting to renewing the economic sanctions, it is pushing for the EU to drop sanctions on several Russian executives who have been blacklisted by the EU, according to several EU diplomats. A decision is due in March on rolling over these sanctions. 

Ukraine’s President

Volodymyr Zelensky

discussed the situation in Vuhledar and the city of Bakhmut at a meeting with military chiefs on Thursday, he said in his nightly address.

Russian servicemen in Ukraine launch rockets in an image released Friday by the Russian Defense Ministry.



Photo:

Russian Defense Ministry Press O/Zuma Press

After months of setbacks, Russian forces earlier this month broke through Ukrainian defenses in the east to seize the town of Soledar. That has made it harder for Ukraine to keep hold of neighboring Bakhmut, which has been at the epicenter of the war for several months. The city is central to Russia’s main goal: to take over the remainder of Donetsk, and the wider industrial area known as Donbas. But the fighting there has come at huge cost for both sides.

“The more Russia loses in this battle for Donbas, the less its overall potential will be,” the Ukrainian president said. “We know what the occupiers are planning. We are countering it.”

Ukrainian officials warn that Russia is gearing up for a renewed onslaught this spring after mobilizing some 300,000 men to shore up its faltering campaign last fall. For Moscow, there is a window before tanks pledged this week by Kyiv’s Western allies arrive in Ukraine, potentially tilting the battlefield again. 

Russia’s Defense Ministry said Friday its forces had launched a series of strikes over the past day on Ukrainian military and infrastructure targets that had disrupted the transfer of weapons, including those from countries in the North Atlantic Treaty Organization, being delivered to the front.

Kyiv’s allies are rushing to assemble two battalions’ worth of Leopard 2 tanks from a range of European countries after Germany and the U.S. committed to provide their own tanks. The initial battalion is expected to arrive in Ukraine within three months.

A Ukrainian serviceman in Bakhmut rests next to an armored medical vehicle.



Photo:

anatolii stepanov/Agence France-Presse/Getty Images

Poland, which has been at the forefront of pushing for increased military support for Ukraine, on Friday said it would send 60 upgraded T-72 tanks—half of them Polish-made PT-91 Twardy tanks—in addition to its contribution of 14 Leopards.

The U.S. has also pledged 31 M1 Abrams tanks, but those will take much longer to arrive in Ukraine because they are being procured through the defense industry instead of being pulled from existing American defense stocks. 

Mr. Zelensky has urged Western countries to speed up the delivery of tanks and the training of Ukrainian forces to use them as Russia regains initiative.

Russian officials have said the tanks won’t alter dynamics on the battlefield and will only lead to escalation in the war.

Stefano Sannino,

secretary-general of the European Union’s European External Action Service, said during a visit to Japan that German and U.S. tank provisions weren’t escalatory and were meant to help Ukrainians defend themselves, rather than making them attackers. The decision to supply them is in response to Russian escalation, Mr. Sannino said, accusing Moscow of carrying out indiscriminate attacks on civilians and cities. 

Shelling has caused damage in central Bakhmut as Ukrainian and Russian forces fight over the city.



Photo:

Emanuele Satolli for The Wall Street Journal

The tanks will enable Ukraine to destroy enemy tanks, offer greater protection and support combined operations, the U.K.’s Ministry of Defense said.

Assessing recent Russian claims of advances, the U.K.’s Defense Ministry said Russian forces had likely conducted local, probing attacks near Vuhledar in the east and Orikhiv in the Zaporizhzhia region but that Russia hadn’t achieved substantial gains. 

Russian military sources are deliberately spreading misinformation in an effort to imply that the Russian operation is sustaining momentum, the ministry said.

Write to Isabel Coles at isabel.coles@wsj.com

As the U.S. and its allies start sending Abrams, Leopards and other tanks to help Ukraine, those vehicles are set to change the dynamics of the war along the front lines. WSJ examines how the tanks that Ukraine will receive from the West compare with Russia’s vehicles. Illustration: Adam Adada

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Business

Dow to Cut 2,000 Jobs Globally

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Dow is slashing jobs and shutting down assets as it looks to make cost savings.



Photo:

Sean Proctor/Bloomberg News

Dow Inc.

DOW 0.40%

said it is laying off about 2,000 employees globally as job cuts that have so far been concentrated in the technology sector spread to other parts of the economy.

The Midland, Mich.-based chemicals company said it is targeting $1 billion in cost cuts this year as slowing economic growth and a drop-off in demand weigh on sales.

Dow said it is also shutting down certain assets and broadly looking to align spending with the macroeconomic environment. The company said it expects to book a charge of $550 million to $725 million in the first quarter for costs tied to the cost-cutting moves.

Chief Executive

Jim Fitterling

said the company is optimizing its cost structure amid macroeconomic uncertainties and “challenging energy markets, particularly in Europe.”

Shares of Dow rose less than 1% to close at $58.12 on Thursday.

Dow’s layoffs come after manufacturing conglomerate

3M Co.

said earlier this week that it was cutting 2,500 jobs globally, or about 2.6% of the company, as it confronts weakening demand.

The companies join a wave of technology companies that are cutting thousands of jobs as they recalibrate after growing rapidly at the start of the Covid-19 pandemic. On Wednesday,

International Business Machines Corp.

said it would cut 3,900 jobs, while software company

SAP SE

on Thursday said it would shed 3,000 positions.

Dow on Thursday also posted weaker-than-expected results for the fourth quarter. Revenue fell more than 17% to $11.86 billion, missing analysts’ estimates, with the company citing slowing economic growth around the world and destocking of inventory by customers.

The company’s fourth-quarter profit tumbled to 85 cents a share, down from $2.32 a share a year earlier. Adjusted earnings for the quarter missed estimates by a penny.

“While we see initial positive signs from moderating inflation in the U.S., improving outlook for energy in Europe, and reopening in China, we continue to be prudent and proactive,” Mr. Fitterling said.

Dow said it is targeting $500 million in structural improvements and another $500 million in operating cost reductions. The company said it would look to cut costs tied to purchasing raw materials, logistics and utilities.

Write to Will Feuer at Will.Feuer@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Appeared in the January 27, 2023, print edition as ‘Dow to Cut Headcount by 2,000.’

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Business

Corporate Layoffs Spread Beyond High-Growth Tech Giants

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The headline-grabbing expansion of layoffs beyond high-growth technology companies stands in contrast to historically low levels of jobless claims and news that companies such as

Chipotle Mexican Grill Inc.

and

Airbus SE

are adding jobs.

This week, four companies trimmed more than 10,000 jobs, just a fraction of their total workforces. Still, the decisions mark a shift in sentiment inside executive suites, where many leaders have been holding on to workers after struggling to hire and retain them in recent years when the pandemic disrupted workplaces.

Live Q&A

Tech Layoffs: What Do They Mean?

The creator of the popular layoff tracker Layoffs.fyi Roger Lee and the head of talent at venture firm M13 Matt Hoffman sit down with WSJ reporter Chip Cutter, to discuss what’s behind the recent downsizing and whether it will be enough to recalibrate ahead of a possible recession.

Unlike

Microsoft Corp.

and Google parent

Alphabet Inc.,

which announced larger layoffs this month, these companies haven’t expanded their workforces dramatically during the pandemic. Instead, the leaders of these global giants said they were shrinking to adjust to slowing growth, or responding to weaker demand for their products.

“We are taking these actions to further optimize our cost structure,”

Jim Fitterling,

Dow’s chief executive, said in announcing the cuts, noting the company was navigating “macro uncertainties and challenging energy markets, particularly in Europe.”

The U.S. labor market broadly remains strong but has gradually lost steam in recent months. Employers added 223,000 jobs in December, the smallest gain in two years. The Labor Department will release January employment data next week.

Economists from Capital Economics estimate a further slowdown to an increase of 150,000 jobs in January, which would push job growth below its 2019 monthly average, the year before pandemic began.

There is “mounting evidence of weakness below the surface,”

Andrew Hunter,

senior U.S. economist at Capital Economics wrote in a note to clients Thursday.

Last month, the unemployment rate was 3.5%, matching multidecade lows. Wage growth remained strong, but had cooled from earlier in 2022. The Federal Reserve, which has been raising interest rates to combat high inflation, is looking for signs of slower wage growth and easing demand for workers.

Many CEOs say companies are beginning to scrutinize hiring more closely.

Slower hiring has already lengthened the time it takes Americans to land a new job. In December, 826,000 unemployed workers had been out of a job for about 3½ to 6 months, up from 526,000 in April 2022, according to the Labor Department.

“Employers are hovering with their feet above the brake. They’re more cautious. They’re more precise in their hiring,” said

Jonas Prising,

chief executive of

ManpowerGroup Inc.,

a provider of temporary workers. “But they’ve not stopped hiring.”

Additional signs of a cooling economy emerged on Thursday when the Commerce Department said U.S. gross domestic product growth slowed to a 2.9% annual rate in the fourth quarter, down from a 3.2% annual rate in the third quarter.

Not all companies are in layoff mode.

Walmart Inc.,

the country’s biggest private employer, said this week it was raising its starting wages for hourly U.S. workers to $14 from $12, amid a still tight job market for front line workers. Chipotle Mexican Grill Inc. said Thursday it plans to hire 15,000 new employees to work in its restaurants, while plane maker Airbus SE said it is recruiting over 13,000 new staffers this year. Airbus said 9,000 of the new jobs would be based in Europe with the rest spread among the U.S., China and elsewhere. 

General Electric Co.

, which slashed thousands of aerospace workers in 2020 and is currently laying off 2,000 workers from its wind turbine business, is hiring in other areas. “If you know any welders or machinists, send them my way,” Chief Executive

Larry Culp

said this week.

Annette Clayton,

CEO of North American operations at

Schneider Electric SE,

a Europe-headquartered energy-management and automation company, said the U.S. needs far more electricians to install electric-vehicle chargers and perform other tasks. “The shortage of electricians is very, very important for us,” she said.

Railroad CSX Corp. told investors on Wednesday that after sustained effort, it had reached its goal of about 7,000 train and engine employees around the beginning of the year, but plans to hire several hundred more people in those roles to serve as a cushion and to accommodate attrition that remains higher than the company would like.

Freeport-McMoRan Inc.

executives said Wednesday they expect U.S. labor shortages to continue to crimp production at the mining giant. The company has about 1,300 job openings in a U.S. workforce of about 10,000 to 12,000, and many of its domestic workers are new and need training and experience to match prior expertise, President

Kathleen Quirk

told analysts.

“We could have in 2022 produced more if we were fully staffed, and I believe that is the case again this year,” Ms. Quirk said.

The latest layoffs are modest relative to the size of these companies. For example, IBM’s plan to eliminate about 3,900 roles would amount to a 1.4% reduction in its head count of 280,000, according to its latest annual report.

As interest rates rise and companies tighten their belts, white-collar workers have taken the brunt of layoffs and job cuts, breaking with the usual pattern leading into a downturn. WSJ explains why many professionals are getting the pink slip first. Illustration: Adele Morgan

The planned 3,000 job cuts at SAP affect about 2.5% of the business-software maker’s global workforce. Finance chief

Luka Mucic

said the job cuts would be spread across the company’s geographic footprint, with most of them happening outside its home base in Germany. “The purpose is to further focus on strategic growth areas,” Mr. Mucic said. The company employed around 111,015 people on average last year.

Chemicals giant Dow said on Thursday it was trimming about 2,000 employees. The Midland, Mich., company said it currently employs about 37,800 people. Executives said they were targeting $1 billion in cost cuts this year and shutting down some assets to align spending with the macroeconomic environment.

Manufacturer

3M Co.

, which had about 95,000 employees at the end of 2021, cited weakening consumer demand when it announced this week plans to eliminate 2,500 manufacturing jobs. The maker of Scotch tape, Post-it Notes and thousands of other industrial and consumer products said it expects lower sales and profit in 2023.

“We’re looking at everything that we do as we manage through the challenges that we’re facing in the end markets,” 3M Chief Executive

Mike Roman

said during an earnings conference call. “We expect the demand trends we saw in December to extend through the first half of 2023.”

Hasbro Inc.

on Thursday said it would eliminate 15% of its workforce, or about 1,000 jobs, after the toy maker’s consumer-products business underperformed in the fourth quarter.

Some companies still hiring now say the job cuts across the economy are making it easier to find qualified candidates. “We’ve got the pick of the litter,” said

Bill McDermott,

CEO of business-software provider

ServiceNow Inc.

“We have so many applicants.”

At

Honeywell International Inc.,

CEO

Darius Adamczyk

said the job market remains competitive. With the layoffs in technology, though, Mr. Adamczyk said he anticipated that the labor market would likely soften, potentially also expanding the applicants Honeywell could attract.

“We’re probably going to be even more selective than we were before because we’re going to have a broader pool to draw from,” he said.

Across the corporate sphere, many of the layoffs happening now are still small relative to the size of the organizations, said

Denis Machuel,

CEO of global staffing firm Adecco Group AG.

“I would qualify it more as a recalibration of the workforce than deep cuts,” Mr. Machuel said. “They are adjusting, but they are not cutting the muscle.”

Write to Chip Cutter at chip.cutter@wsj.com and Theo Francis at theo.francis@wsj.com

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Business

Elon Musk Explores Raising Up to $3 Billion to Help Pay Off Twitter Debt

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Elon Musk

‘s team has been exploring using as much as $3 billion in potential new fundraising to help repay some of the $13 billion in debt tacked onto Twitter Inc. for his buyout of the company, people familiar with the matter said.

In December, Mr. Musk’s representatives discussed selling up to $3 billion in new Twitter shares, people familiar with the matter said.

Mr. Musk’s team has said to people familiar with the finances of the company that an equity raise, if successful, could be used to pay down an unsecured portion of the debt that carries the highest interest rate within the $13 billion Twitter loan package, people familiar with the matter said.

Paying off the debt would provide welcome financial relief to Twitter, which has struggled to keep advertisers on the platform. In November, Mr. Musk said Twitter had suffered “a massive drop in revenue” and was losing over $4 million a day. He also said that month that bankruptcy was a possibility for the company, although Mr. Musk later shared more upbeat prospects for the company, saying he expects Twitter to be roughly cash-flow break-even in 2023 as he has slashed some 6,000 jobs.

The state of the fundraising talks couldn’t be learned. In mid-December, Mr. Musk’s team reached out to new and existing backers about raising new equity capital at the original Twitter takeover price.

Mr. Musk’s advisers had hoped to reach a deal to raise cash at the initial takeover price by the end of 2022, according to an email sent to prospective investors at the time. However, some prospective backers said they balked at the terms, given concerns about Twitter’s financial performance. The Musk team didn’t specify a funding amount or purpose for the fundraise in the email.

Fidelity, one of the co-investors that backed Mr. Musk’s takeover of Twitter, wrote down its stake in Twitter by 56% in November, public filings show, suggesting Mr. Musk would face an uphill battle raising funds at the original valuation from outside investors. The banks holding the $13 billion in debt that backed his takeover of the company haven’t yet received any formal notice of any repayments, people familiar with the matter said.

Layoffs Across the Tech Industry

Representatives for Mr. Musk didn’t respond to requests for comment.

Twitter’s unsecured bridge loans, which total $3 billion, are the most expensive portion of the $13 billion debt package Mr. Musk incurred as part of his $44 billion acquisition of the social-media company. They carry an interest rate of 10% plus the secured overnight financing rate, a benchmark interest rate that has shot up in recent months and currently sits at 4.3%.

With every quarter that passes without Twitter refinancing the debt, the interest rate goes up by an additional 0.50 percentage point, according to regulatory filings. Twitter’s first quarterly interest payment is due at the end of the month, the filings show.

Twitter’s annual interest burden has increased by over $100 million since he announced the takeover deal last April, as the overnight rate has increased. At the time of the announcement, the overnight rate was 0.3%.

Elon Musk has said that Twitter is losing over than $4 million a day.



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Marlena Sloss/Bloomberg News

Twitter’s total interest expense has been estimated to be roughly $1.25 billion a year, according to a December analysis by

Jeffrey Davies,

a former credit analyst and founder of data provider Enersection LLC. By that estimate, Twitter is incurring roughly $3.4 million every day in interest-payment obligations.

On Dec. 13, Mr. Musk tweeted “beware of debt in turbulent macroeconomic conditions, especially when Fed keeps raising rates.”

Repaying the unsecured bridge loans would leave Twitter with a debt burden that has much more manageable interest rates. Twitter’s $6.5 billion in term loans and $3 billion in secured bridge loans carry an annual interest burden of 4.75% and 6.75%, respectively, plus the overnight rate, according to public filings.

Tesla CEO Elon Musk is set to testify in a federal trial over tweets from 2018 in which he floated the possibility of taking the company private. WSJ’s Rebecca Elliott explains what to know about the trial. Illustration: Adele Morgan

A potential deal would also provide a degree of relief for the banks that backed Mr. Musk’s takeover of the social-media company and that intended to sell the debt to third-party investors but changed course after deteriorating market conditions sank Wall Street’s appetite for exposure to risky bonds and loans.

The $13 billion of Twitter debt on bank balance sheets, one of the biggest “hung deals” of all time, has helped contribute to a drag in the number of mergers and acquisitions as banks’ firepower to back deals is tied up.

Morgan Stanley,

the lead bank on Twitter’s debt deal, has approximately $807 million in unsecured bridge debt on its balance sheet, while

Bank of America Corp.

,

Barclays

PLC and MUFG Bank Ltd. each have approximately $623 million of exposure, according to public documents and calculations by The Wall Street Journal.

Each of the four banks have more than $2 billion in other Twitter debt commitments on their balance sheets separate from the unsecured bridge facility, including term loans and other secured debt, the documents show.

Representatives of those banks declined to comment.

—Corrie Driebusch, Alexa Corse and Laura Cooper contributed to this article.

Write to Berber Jin at berber.jin@wsj.com and Alexander Saeedy at alexander.saeedy@wsj.com

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Technology

Microsoft’s Cloud Doesn’t Quite Cover All

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Demand for Windows operating-system software has fallen with sales of the personal computers that use it.



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STEVE MARCUS/REUTERS

Microsoft’s

MSFT -0.22%

latest results are like a blast from the past—and not in a good way. 

The software titan has come a long way from the days when it depended on its ubiquitous Windows operating system. But it is still a lucrative business—enough so that a slump in personal computer sales can weigh on Microsoft’s financial results. And a slump this is; IDC reported earlier this month that PC unit sales slid 28% year over year during the December quarter—the biggest drop tracked by the market research firm’s numbers going at least back to 2015. 

Not surprisingly then, Microsoft said Tuesday in its fiscal second quarter results report that Windows revenue slid 27% year over year to about $4.9 billion for the same period. That is less than 10% of the company’s revenue now, but it is a profitable contributor given that much comes from PC makers simply paying Microsoft to bundle Windows onto their machines. Hence, operating profits in Microsoft’s More Personal Computing segment that includes the Windows business slid 48% year over year. That played a big part in the company’s total operating profit for the quarter coming about 3% shy of Wall Street’s forecasts, at $20.4 billion.   

Investors have largely learned to look past Windows these days in favor of Microsoft’s far more important cloud business. But as Microsoft’s last report three months ago proved, even that isn’t immune to the slumping global economy. Azure, the cloud computing service that competes squarely with

Amazon

‘s AWS, grew revenue by 31% year over year. That slightly exceeded Wall Street’s forecasts, but it was still a record-low pace for the business. Things also aren’t looking like they will get much better anytime soon. Chief Financial Officer

Amy Hood

noted that cloud growth moderated, “particularly in December,” and projected revenue growth of 14% to 15% year over year for the company’s Intelligent Cloud segment during the March quarter—a deceleration of 11 percentage points from the same period last year. 

Investors were at least better-prepared for bad news this time. Microsoft’s share price slipped 1% in after-hours trading following the results and forecast compared with the 8% drop sparked by its previous quarterly report. As the first major tech player to post results for the December quarter, Microsoft also casts a large shadow. It has a highly diversified business that spans corporate and consumer software, cloud services, videogame systems and even online advertising. The company even noted that the recent spate of big tech layoffs will hurt its LinkedIn business, which is a major corporate recruiting tool in the tech sector. Those layoffs include 10,000 positions to be cut from Microsoft’s own payroll–another sign that even a cloud titan can’t keep floating above the economy. 

Write to Dan Gallagher at dan.gallagher@wsj.com

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Business

Microsoft Earnings Fell Last Quarter Amid Economic Concerns

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Microsoft Corp.

MSFT -0.22%

recorded its slowest sales growth in more than six years last quarter as demand for its software and cloud services cooled on concerns about the health of the global economy.

The Redmond, Wash., company’s revenue expanded 2% in the three months through Dec. 31 from a year earlier to $52.7 billion. Its net income fell 12% to $16.4 billion. That is the company’s lowest revenue growth since the quarter that ended in June 2016.

“Organizations are exercising caution given the macroeconomic uncertainty,” Microsoft Chief Executive

Satya Nadella

said on an earnings call Tuesday.

The software company is the first of the tech titans to announce earnings for the quarter. It and others have recently announced layoffs of thousands of people to reflect a sudden lowering of expectations about future demand. Last week Microsoft announced plans to eliminate 10,000 jobs in response to the global economic slowdown, the company’s largest layoffs in more than eight years.

Microsoft said it expects around $51 billion in revenue this quarter, a 3% increase from the same quarter last year. Its shares, which had initially risen on the results in after-hours trading, gave up their gains after the company announced its guidance. 

Microsoft’s Intelligent Cloud business, which includes its Azure cloud-computing business, grew 18% to $21.51 billion. Azure grew 31%, which was slightly above some analysts’ expectations.

Microsoft is one of the top companies in cloud-computing services that have boomed during the pandemic. In the middle of the health crisis, Microsoft reported several quarters in a row of 50% or more year-over-year sales growth for its cloud-computing platform, the world’s No. 2 behind

Amazon.com Inc.’s

cloud. While Azure and Microsoft’s other cloud services remain the main engine for the company’s growth, demand isn’t what it was even a year ago as customers try to manage their cloud computing costs.

The company has been betting the next wave of demand for cloud services could come from more companies and people using artificial intelligence. It has been deepening its relationship with the AI startup OpenAI, the company behind the image generator Dall-E 2 and the technology behind ChatGPT, which can answer questions and write essays and poems.

“The age of AI is upon us and Microsoft is powering it,” Mr. Nadella said Tuesday.

Microsoft had been sheltered from much of the recent downturn because it gets most of its sales from companies rather than advertising and consumer spending. However, it isn’t immune to the end of pandemic trends that turbocharged demand, hiring and investment as well as economic headwinds such as high interest rates.

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Demand for Windows operating-system software has fallen with sales of the personal computers that use it. Households, companies and governments that bought computers during the pandemic are scaling back.

That was reflected in Microsoft’s personal computing segment revenue, which fell 19% to $14.24 billion. Sales related to its Windows operating system declined 39% and sales of devices like its Surface tablets fell 39%.

Worldwide PC shipments were down 29% in the fourth quarter last year compared with the previous year, according to preliminary data from the research firm Gartner Inc. Financial analysts don’t expect that trend to improve until 2024.

Photos: Tech Layoffs Across the Industry

Microsoft said its videogaming revenue fell 12% during the quarter. Videogames and Microsoft’s Xbox videogame consoles are increasingly important businesses for the company. The videogaming industry is going through a slowdown as pandemic-related restrictions ease and people spend less time at home.

The company made a huge bet on the sector a year ago with its $75 billion plan to acquire videogame giant

Activision Blizzard Inc.

Last month the Federal Trade Commission sued to block the acquisition, saying the deal would give Microsoft the ability to control how consumers beyond users of its own Xbox consoles and subscription services access Activision’s games. Microsoft then filed a rebuttal saying the deal won’t hurt competition in the videogaming industry. It could take months before it is decided in the U.S. and elsewhere whether the deal can go through.

After the close of regular stock trading on Tuesday, Microsoft shares had slipped around 18% over the previous year, broadly in line with the tech-heavy Nasdaq Composite Index.

Write to Tom Dotan at tom.dotan@wsj.com

Write to Tom Dotan at tom.dotan@wsj.com

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Business

DOJ Sues Google, Seeking to Break Up Online Advertising Business

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The Justice Department is seeking the breakup of Google’s business brokering digital advertising across much of the internet, a major expansion of the legal challenges the company faces to its business in the U.S. and abroad.

A lawsuit filed Tuesday, the Justice Department’s second against the

Alphabet Inc.

GOOG -1.98%

unit following one filed in 2020, alleges that Google abuses its role as one of the largest brokers, suppliers and online auctioneers of ads placed on websites and mobile applications. The filing promises a protracted court battle with wide-ranging implications for the digital-advertising industry.

Filed in federal court in Virginia, the case alleges that Google abuses monopoly power in the ad-tech industry, hurting web publishers and advertisers that try to use competing products. Eight states, including California and New York, joined the Justice Department’s lawsuit.

The lawsuit asks the court to unwind Google’s “anticompetitive acquisitions,” such as its 2008 purchase of ad-serving company DoubleClick, and calls for the divestiture of its ad exchange.

“For 15 years Google has pursued a course of anticompetitive conduct that has allowed it to halt the rise of rival technologies, manipulate auction mechanics, insulate itself from competition, and forced advertisers and publishers to use its tools,” Attorney General

Merrick Garland

said at a press conference Tuesday. “Google has engaged in exclusionary conduct that has severely weakened if not destroyed competition in the ad-tech industry.”

Attorney General Merrick Garland said Tuesday that the digital-advertising industry was harmed by Google’s allegedly monopolistic conduct.



Photo:

Al Drago/Bloomberg News

A Google spokesman said the lawsuit “attempts to pick winners and losers in the highly competitive advertising technology sector.”

“DOJ is doubling down on a flawed argument that would slow innovation, raise advertising fees, and make it harder for thousands of small businesses and publishers to grow,” the spokesman said.

By calling for specific divestitures from Google’s ad-tech business, the Justice Department lawsuit went further in seeking a breakup than some antitrust experts had expected. Shares of Alphabet fell by about 2% in trading on Tuesday.

Though largely invisible to internet users, the ad-tech tools controlled by Google facilitate much of the buying and selling of digital ads that helps fund online publishers. Google’s business includes a tool publishers can use to offer ad space, a product for advertisers to buy those slots and an exchange that automatically links bidders with webpages as they are being loaded for individual users.

Big tech companies such as Google are under a barrage from lawmakers and regulators across multiple continents who have targeted the companies’ dominance in online markets. Justice Department officials also are investigating

Apple Inc.

The Federal Trade Commission has sued

Meta Platforms Inc.’s

Facebook unit over antitrust allegations and

Microsoft Corp.

to block its planned $75 billion acquisition of

Activision Blizzard Inc.

President Biden recently urged lawmakers from both parties to unite behind legislation seeking to rein in tech giants. The European Union also has opened cases looking at alleged anticompetitive conduct by Google, Meta and other companies.

The Justice Department’s 2020 lawsuit against Google targeted its position in online search markets, including an agreement to make Google search the default in Apple’s Safari web browser. Google is fighting the case, which is expected to go to trial this year.

Alphabet gets about 80% of its business from advertising. The Justice Department’s new suit targets the subset of that ad business that brokers the buying and selling of ads on other websites and apps. Google reported $31.7 billion in revenue in 2021 from that ad-brokering activity, or about 12% of Alphabet’s total revenue. Google distributes about 70% of that revenue to web publishers and developers.

Last year, Google offered to split off parts of its ad-tech business into a separate company under the Alphabet umbrella to fend off the most recent Justice Department investigation. DOJ officials rejected the offer and decided to pursue the lawsuit instead.

For years, Google has faced allegations from advertising- and media-industry executives, lawmakers and regulators that its presence at multiple points of the online ad-buying process harms publishers and gives it an unfair advantage over rivals. Google also operates the most popular search engine and the largest online video-streaming site, YouTube, giving rise to allegations it has tilted the market in its own favor.

Rivals say that Google’s power in digital advertising stems from a series of acquisitions Google used to build its ad-tech business, beginning with the company’s $3.1 billion purchase of DoubleClick. The FTC approved the merger in a controversial decision. Google went on to purchase a host of other startups including the mobile-advertising company AdMob.

“Having inserted itself into all aspects of the digital advertising marketplace, Google has used anticompetitive, exclusionary, and unlawful means to eliminate or severely diminish any threat to its dominance over digital advertising technologies,” the complaint read.

Google has said it has no plans to sell or exit the ad-tech business. It has also strongly contested claims in a lawsuit filed by state attorneys general, led by Texas, containing allegations similar to the Justice Department complaint. A federal judge denied the bulk of Google’s motion to dismiss the case last year, allowing it to proceed to the discovery stage and ultimately toward trial.

Google’s Android operating system is the most popular in the world—you can find Android code on everything from Peloton bikes to kitchen appliances and even NASA satellites. WSJ’s Dalvin Brown explains why it is the world’s most-used OS. Illustration: Rami Abukalam

Any divestiture of parts of Google’s ad-tech business would cause big ripple effects across the online advertising industry, which has recently shown signs of weakness as consumers dial back purchases in response to worsening economic conditions.

Breaking off parts of Google’s ad-tech business from the rest of the company could take years of litigation to resolve. Depending on the outcome of the case, ad-tech executives have said the results could range from a higher share of ad dollars flowing to publishers to lower overall spending because digital ads would be less efficient without Google brokering them.

The 149-page complaint makes detailed allegations about the internal workings of Google’s ad-tech operations. The suit alleges, for instance, that Google used anticompetitive tactics to build up the market share of its own ad server, which issues requests for advertisements on behalf of websites, and then used that market power to effectively push publishers into sending their ad inventory only to Google’s in-house ad exchange, AdX.

The Justice Department argues, in part, that this conduct locked out rival ad-tech providers, increasing prices for advertisers and costs of publishers.

“Google keeps at least thirty cents—and sometimes far more—of each advertising dollar flowing from advertisers to website publishers through Google’s ad tech tools,” the lawsuit alleges. “Google’s own internal documents concede that Google would earn far less in a competitive market.”

The lawsuit also alleges that Google executives worked to kill a rival online-bidding technology called “header bidding,” which the lawsuit says the company referred to internally as an “existential threat.” As part of a plan dubbed Project Poirot, the company allegedly changed its own ad-buying tools to underbid on behalf of advertisers when they turned to outside ad exchanges that used header bidding, so those rivals would lose more auctions and “dry out,” the complaint says.

At one point, Google also approached

Amazon.com Inc.,

to ask “what it would take for Amazon to stop investing in its header bidding product,” the complaint alleges, adding that Amazon rebuffed those requests.

“Google uses its dominion over digital advertising technology to funnel more transactions to its own ad tech products where it extracts inflated fees to line its own pockets at the expense of the advertisers and publishers it purportedly serves,” the complaint read.

The Justice Department case overlaps in some ways with the late 2020 lawsuit from the group of U.S. states led by Texas.

In Tuesday’s complaint, the Justice Department quotes some of the same internal communications as the Texas-led lawsuit, including how one Google executive compared the company’s control over ad-tech to the financial sector: “The analogy would be if Goldman or Citibank owned the NYSE,” referring to the New York Stock Exchange.

The case also shares similarities with an investigation that the EU’s top antitrust enforcer, the European Commission, opened in 2021, as well as one by the U.K.’s Competition and Markets Authority. Those probes are exploring allegations that Google favors its own ad-buying tools in the advertising auctions it runs, but also look at other elements of Google’s ad-tech business. The EU, for instance, is also looking at Google’s alleged exclusion of competitors from brokering ad-buys on its video site YouTube.

Mr. Garland said Tuesday that the Justice Department filed its own lawsuit because the federal government was harmed by Google’s allegedly monopolistic conduct. Federal agencies have since 2019 spent over $100 million on display ads, the complaint says. The government paid inflated fees and was harmed by manipulated advertising prices because of Google’s anticompetitive conduct, the lawsuit alleges.

Microsoft is deepening its partnership with OpenAI, the company behind ChatGPT and Dall-E. That has investors and analysts speculating whether Microsoft could challenge Google’s dominance in search. WSJ Heard on the Street columnist Dan Gallagher joins host Zoe Thomas to discuss how AI could affect search and at what cost.

Jonathan Kanter,

the assistant attorney general for antitrust, said while there are similarities with other lawsuits against Google, the Justice Department’s complaint is based on its own investigation that yielded “meticulous detail” about Google’s ad-tech business.

“We detail many facts, many episodes that in the individual and in the aggregate have maintained numerous monopolies,” Mr. Kanter said.

Google has attempted to settle the claims against its ad-tech business. In addition to offering to split off parts of its ad-tech business to avoid the Justice Department suit, the company last year discussed with the EU an offer to allow competitors to broker the sale of ads directly on the video service.

In 2021, the company agreed to give U.K. antitrust regulators effective veto power over elements of its plans to remove a technology called third-party cookies from its Chrome browser to settle an investigation there into the plan.

In France, Google agreed to pay a fine of 220 million euros, equivalent to about $239 million, and to improve data access to competing ad-tech companies, to not use its data in ways rivals couldn’t reproduce to settle a similar antitrust investigation in the country.

—Keach Hagey contributed to this article.

Write to Miles Kruppa at miles.kruppa@wsj.com and Sam Schechner at Sam.Schechner@wsj.com

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