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.
said it is cutting 2,500 manufacturing jobs globally as the company confronts turbulence in overseas markets and weakening consumer demand.
The maker of Scotch tape, Post-it Notes and thousands of other industrial and consumer products said Tuesday that it expects lower sales and profit in 2023 after demand weakened significantly in late 2022, pulling down quarterly performance.
The St. Paul, Minn., company forecast sales this year to slip from last year’s level with weak demand for consumer products and electronic items, particularly smartphones, tablets and televisions, for which 3M provides components. Fourth-quarter sales for 3M’s consumer business dropped nearly 6% from the same period a year earlier.
“Consumers sharply cut discretionary spending and retailers adjusted their inventory levels,” 3M Chief Executive
Mike Roman
said during a conference call. “We expect the demand trends we saw in December to extend through the first half of 2023.”
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3M shares were down 5.2% at $116.25 Tuesday afternoon, while major U.S. stock indexes were little changed.
The company said demand for its disposable face masks is receding, as healthcare providers spend less on Covid-19 measures, and mask demand returns to prepandemic levels. 3M said it expects mask sales to decline between $450 million and $550 million this year from 2022.
3M executives said the spread of Covid infections in China is weighing on sales there, and sporadic plant closings are interrupting industrial production. China also is reducing production of consumer electronics because of weakening consumer demand, they said, and 3M’s exit from its business in Russia last year will also contribute to lower sales this year.
The 2,500 layoffs represent roughly 2.6% of the company’s workforce, which a regulatory filing said was about 95,000 at the end of 2021. Mr. Roman declined to specify where the job cuts will take place, or whether the company might make further reductions as it reviews its supply chains and prepares to spin off its healthcare unit.
“We’re looking at everything that we do as we manage through the challenges that we’re facing in the end markets and we focus on driving improvements,” he said.
The company said it would take a pretax restructuring charge in the first quarter of $75 million to $100 million.
Mr. Roman said the job cuts were unrelated to litigation facing the company. 3M is defending against allegations that the so-called forever chemicals it has produced for decades have contaminated soil and drinking water. It is also involved in litigation over foam earplugs its subsidiary Aearo Technologies LLC sold to the military. About 230,000 veterans have filed complaints in federal court alleging the earplugs failed to protect them from service-related hearing loss.
3M has said the earplugs were effective when military personnel were given sufficient training on how to use them. In litigation over firefighting foam that incorporated forms of forever chemicals, 3M is expected to argue that the products were produced to U.S. military specifications, granting the company legal protection as a government contractor.
In both cases, Mr. Roman said the company is focused on finding a way forward.
3M said the strong value of the U.S. dollar continues to erode sales from other countries when foreign currencies are converted to dollars.
The company forecast that sales for the quarter ending March 31 will be down 10% to 15% from the same period last year. For the full year, the company projects sales to fall between 6% and 2%, and expects adjusted earnings of $8.50 a share to $9 a share. The company earned $10.10 a share in 2022, excluding special charges, and analysts surveyed by FactSet were expecting the company to earn $10.22 in 2023.
For the fourth quarter, the company posted a profit of $541 million, or 98 cents a share, compared with $1.34 billion, or $2.31 a share, a year earlier.
Stripping out one-time items, including costs tied to exiting the company’s operations making forever chemicals, adjusted earnings came to $2.28 a share. Analysts were looking for adjusted earnings of $2.36 a share, according to FactSet.
Sales fell 6% to $8.08 billion for the quarter, slightly topping expectations of analysts surveyed by FactSet.
Mr. Roman said there were promising signs for some of 3M’s businesses, including in biopharma processing, home improvement and automotive electrification, the last of which he said grew 30% in 2022 to become a roughly $500 million business.
“There’s more to it than consumer electronics, but certainly the consumer-electronics dynamics are the story of the day,” he said.
Write to John Keilman at john.keilman@wsj.com and Bob Tita at robert.tita@wsj.com
said it would stop making so-called forever chemicals and cease using them by the end of 2025, as criticism and litigation grow over the chemicals’ alleged health and environmental impact.
3M Chief Executive
Mike Roman
said that the decision was influenced by increasing regulation of the chemicals known as PFAS, and a growing market for substitute options.
“Customers are taking note of PFAS regulations. They’re looking for alternatives,” Mr. Roman said in an interview. “We’re finding other solutions that have the same properties,” he said.
The company’s move involves chemicals used to make nonstick cookware, food packaging and other consumer and industrial products. 3M estimated its current annual sales of the chemicals total about $1.3 billion.
Perfluoroalkyl and polyfluoroalkyl substances, or PFAS, are commonly called “forever chemicals” because they take a long time to break down in the environment. Such chemicals include highly durable compounds long prized by manufacturers for their resistance to heat, and their ability to repel water, grease and stains.
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In recent decades, research has linked exposure to some forms of the chemicals with health problems including kidney and testicular cancers, thyroid disease and high cholesterol, according to the Environmental Protection Agency. The synthetic compounds have also been found in drinking water, including some municipal systems and private wells, as well as in rainwater around the world.
Regulators and environmental groups have taken aim at the chemicals, and thousands of lawsuits alleging contamination and illness have been filed in recent years targeting 3M and other manufacturers.
3M stopped producing some types of PFAS chemicals in the early 2000s but has continued to make other types, which the company has said can be safely produced and used. 3M said Tuesday it would stop making all fluoropolymers, fluorinated fluids and PFAS-based additive products by the end of 2025.
The company also said it would stop using PFAS across its products by the end of 2025, saying that it has already reduced its use of the substances over the past three years.
3M’s shares declined about 0.5% in midday trading, while major U.S. stock indexes slightly increased. The company’s stock has fallen about 29% so far this year, compared with a 19% decline in the S&P 500 stock index.
The EPA has said there are roughly 600 PFAS chemicals in commercial use today. The American Chemistry Council, which represents chemical makers, said Tuesday that PFAS are integral to thousands of products in technologies including semiconductors, batteries for electric vehicles and 5G technology.
The group said its members are dedicated to the responsible production, use, management and disposal of PFAS chemistries, and that it would continue to work with the EPA toward policies that protect human health and allow the chemicals to continue to be used.
3M’s exit from PFAS was seen as a victory by environmental groups that for years have raised alarms over the chemicals.
Scott Faber, senior vice president of government affairs at the Environmental Working Group, said he didn’t think 3M will ever be held fully accountable for producing the chemicals. “But by exiting the market they have sent a powerful signal to the other polluters that it’s simply unaffordable to poison all of us,” Mr. Faber said.
3M’s net sales of PFAS chemicals represent about 4% of the company’s total annual sales, according to research by RBC Capital Markets. “This is a step in the right direction for 3M given all the regulatory scrutiny of PFAS chemicals,” RBC analysts wrote in a note to investors Tuesday.
Over the course of exiting the business of manufacturing the chemicals, 3M said it expects to incur pretax charges of about $1.3 billion to $2.3 billion, including a $700 million to $1 billion charge in the current quarter. The St. Paul, Minn.-based manufacturer said it intends to fulfill current contractual obligations during the transition period.
The EPA in August proposed designating two forms of PFAS chemicals as hazardous substances under the federal superfund law. The American Chemistry Council and companies such as 3M opposed the move, saying that it wasn’t based on the best available science and that it wouldn’t speed up remediation of contaminated sites.
Industry analysts said plant cleanup costs are likely to increase as the EPA uses broad discretion to impose cleanup terms under the Superfund designation. They said the hazardous substance designation also likely would hinder sales growth for the PFAS chemicals that 3M continues to produce, as customers look for alternatives.
3M pioneered the development of PFAS chemicals in the late 1940s, building on atomic research that used fluorine gas. By bonding fluorine with carbon, 3M found it could create durable compounds that could be adapted for use in consumer and industrial products.
3M’s plants where PFAS chemicals are produced have come under increasing regulatory focus for soil and water contamination. 3M has committed billions of dollars to clean up plant sites in recent years, including an $850 million settlement with the state of Minnesota related to a plant in Cottage Grove, Minn. The company also agreed earlier this year to provide about $600 million to remediate contamination connected to a plant in Belgium where PFAS chemicals have been produced.
3M also produces PFAS chemicals at plants in Alabama, Illinois and Germany.
3M phased out production of two PFAS chemicals, known as PFOA and PFOS, in the early 2000s. Those two forms of PFAS chemicals have been at the center of thousands of lawsuits targeting 3M and other manufacturers.
—Will Feuer contributed to this article.
Write to Kris Maher at Kris.Maher@wsj.com and Bob Tita at robert.tita@wsj.com
Income-seeking investors are looking at an opportunity to scoop up shares of real estate investment trusts. Stocks in that asset class have become more attractive as prices have fallen and cash flow is improving.
Below is a broad screen of REITs that have high dividend yields and are also expected to generate enough excess cash in 2023 to enable increases in dividend payouts.
REIT prices may turn a corner in 2023
REITs distribute most of their income to shareholders to maintain their tax-advantaged status. But the group is cyclical, with pressure on share prices when interest rates rise, as they have this year at an unprecedented scale. A slowing growth rate for the group may have also placed a drag on the stocks.
And now, with talk that the Federal Reserve may begin to temper its cycle of interest-rate increases, we may be nearing the time when REIT prices rise in anticipation of an eventual decline in interest rates. The market always looks ahead, which means long-term investors who have been waiting on the sidelines to buy higher-yielding income-oriented investments may have to make a move soon.
During an interview on Nov 28, James Bullard, president of the Federal Reserve Bank of St. Louis and a member of the Federal Open Market Committee, discussed the central bank’s cycle of interest-rate increases meant to reduce inflation.
When asked about the potential timing of the Fed’s “terminal rate” (the peak federal funds rate for this cycle), Bullard said: “Generally speaking, I have advocated that sooner is better, that you do want to get to the right level of the policy rate for the current data and the current situation.”
Fed’s Bullard says in MarketWatch interview that markets are underpricing the chance of still-higher rates
In August we published this guide to investing in REITs for income. Since the data for that article was pulled on Aug. 24, the S&P 500
SPX,
-0.50%
has declined 4% (despite a 10% rally from its 2022 closing low on Oct. 12), but the benchmark index’s real estate sector has declined 13%.
REITs can be placed broadly into two categories. Mortgage REITs lend money to commercial or residential borrowers and/or invest in mortgage-backed securities, while equity REITs own property and lease it out.
The pressure on share prices can be greater for mortgage REITs, because the mortgage-lending business slows as interest rates rise. In this article we are focusing on equity REITs.
Industry numbers
The National Association of Real Estate Investment Trusts (Nareit) reported that third-quarter funds from operations (FFO) for U.S.-listed equity REITs were up 14% from a year earlier. To put that number in context, the year-over-year growth rate of quarterly FFO has been slowing — it was 35% a year ago. And the third-quarter FFO increase compares to a 23% increase in earnings per share for the S&P 500 from a year earlier, according to FactSet.
The NAREIT report breaks out numbers for 12 categories of equity REITs, and there is great variance in the growth numbers, as you can see here.
FFO is a non-GAAP measure that is commonly used to gauge REITs’ capacity for paying dividends. It adds amortization and depreciation (noncash items) back to earnings, while excluding gains on the sale of property. Adjusted funds from operations (AFFO) goes further, netting out expected capital expenditures to maintain the quality of property investments.
The slowing FFO growth numbers point to the importance of looking at REITs individually, to see if expected cash flow is sufficient to cover dividend payments.
Screen of high-yielding equity REITs
For 2022 through Nov. 28, the S&P 500 has declined 17%, while the real estate sector has fallen 27%, excluding dividends.
Over the very long term, through interest-rate cycles and the liquidity-driven bull market that ended this year, equity REITs have fared well, with an average annual return of 9.3% for 20 years, compared to an average return of 9.6% for the S&P 500, both with dividends reinvested, according to FactSet.
This performance might surprise some investors, when considering the REITs’ income focus and the S&P 500’s heavy weighting for rapidly growing technology companies.
For a broad screen of equity REITs, we began with the Russell 3000 Index
RUA,
-0.18%,
which represents 98% of U.S. companies by market capitalization.
We then narrowed the list to 119 equity REITs that are followed by at least five analysts covered by FactSet for which AFFO estimates are available.
If we divide the expected 2023 AFFO by the current share price, we have an estimated AFFO yield, which can be compared with the current dividend yield to see if there is expected “headroom” for dividend increases.
For example, if we look at Vornado Realty Trust
VNO,
+1.01%,
the current dividend yield is 8.56%. Based on the consensus 2023 AFFO estimate among analysts polled by FactSet, the expected AFFO yield is only 7.25%. This doesn’t mean that Vornado will cut its dividend and it doesn’t even mean the company won’t raise its payout next year. But it might make it less likely to do so.
Among the 119 equity REITs, 104 have expected 2023 AFFO headroom of at least 1.00%.
Here are the 20 equity REITs from our screen with the highest current dividend yields that have at least 1% expected AFFO headroom:
Company
Ticker
Dividend yield
Estimated 2023 AFFO yield
Estimated “headroom”
Market cap. ($mil)
Main concentration
Brandywine Realty Trust
BDN,
+1.82%
11.52%
12.82%
1.30%
$1,132
Offices
Sabra Health Care REIT Inc.
SBRA,
+2.02%
9.70%
12.04%
2.34%
$2,857
Health care
Medical Properties Trust Inc.
MPW,
+1.90%
9.18%
11.46%
2.29%
$7,559
Health care
SL Green Realty Corp.
SLG,
+2.18%
9.16%
10.43%
1.28%
$2,619
Offices
Hudson Pacific Properties Inc.
HPP,
+1.55%
9.12%
12.69%
3.57%
$1,546
Offices
Omega Healthcare Investors Inc.
OHI,
+1.30%
9.05%
10.13%
1.08%
$6,936
Health care
Global Medical REIT Inc.
GMRE,
+2.03%
8.75%
10.59%
1.84%
$629
Health care
Uniti Group Inc.
UNIT,
+0.28%
8.30%
25.00%
16.70%
$1,715
Communications infrastructure
EPR Properties
EPR,
+0.62%
8.19%
12.24%
4.05%
$3,023
Leisure properties
CTO Realty Growth Inc.
CTO,
+1.58%
7.51%
9.34%
1.83%
$381
Retail
Highwoods Properties Inc.
HIW,
+0.76%
6.95%
8.82%
1.86%
$3,025
Offices
National Health Investors Inc.
NHI,
+1.90%
6.75%
8.32%
1.57%
$2,313
Senior housing
Douglas Emmett Inc.
DEI,
+0.33%
6.74%
10.30%
3.55%
$2,920
Offices
Outfront Media Inc.
OUT,
+0.70%
6.68%
11.74%
5.06%
$2,950
Billboards
Spirit Realty Capital Inc.
SRC,
+0.72%
6.62%
9.07%
2.45%
$5,595
Retail
Broadstone Net Lease Inc.
BNL,
-0.93%
6.61%
8.70%
2.08%
$2,879
Industial
Armada Hoffler Properties Inc.
AHH,
-0.08%
6.38%
7.78%
1.41%
$807
Offices
Innovative Industrial Properties Inc.
IIPR,
+1.09%
6.24%
7.53%
1.29%
$3,226
Health care
Simon Property Group Inc.
SPG,
+0.95%
6.22%
9.55%
3.33%
$37,847
Retail
LTC Properties Inc.
LTC,
+1.09%
5.99%
7.60%
1.60%
$1,541
Senior housing
Source: FactSet
Click on the tickers for more about each company. You should read Tomi Kilgore’s detailed guide to the wealth of information for free on the MarketWatch quote page.
The list includes each REIT’s main property investment type. However, many REITs are highly diversified. The simplified categories on the table may not cover all of their investment properties.
Knowing what a REIT invests in is part of the research you should do on your own before buying any individual stock. For arbitrary examples, some investors may wish to steer clear of exposure to certain areas of retail or hotels, or they may favor health-care properties.
Largest REITs
Several of the REITs that passed the screen have relatively small market capitalizations. You might be curious to see how the most widely held REITs fared in the screen. So here’s another list of the 20 largest U.S. REITs among the 119 that passed the first cut, sorted by market cap as of Nov. 28:
Company
Ticker
Dividend yield
Estimated 2023 AFFO yield
Estimated “headroom”
Market cap. ($mil)
Main concentration
Prologis Inc.
PLD,
+1.29%
2.84%
4.36%
1.52%
$102,886
Warehouses and logistics
American Tower Corp.
AMT,
+0.68%
2.66%
4.82%
2.16%
$99,593
Communications infrastructure
Equinix Inc.
EQIX,
+0.62%
1.87%
4.79%
2.91%
$61,317
Data centers
Crown Castle Inc.
CCI,
+1.03%
4.55%
5.42%
0.86%
$59,553
Wireless Infrastructure
Public Storage
PSA,
+0.11%
2.77%
5.35%
2.57%
$50,680
Self-storage
Realty Income Corp.
O,
+0.26%
4.82%
6.46%
1.64%
$38,720
Retail
Simon Property Group Inc.
SPG,
+0.95%
6.22%
9.55%
3.33%
$37,847
Retail
VICI Properties Inc.
VICI,
+0.41%
4.69%
6.21%
1.52%
$32,013
Leisure properties
SBA Communications Corp. Class A
SBAC,
+0.59%
0.97%
4.33%
3.36%
$31,662
Communications infrastructure
Welltower Inc.
WELL,
+2.37%
3.66%
4.76%
1.10%
$31,489
Health care
Digital Realty Trust Inc.
DLR,
+0.69%
4.54%
6.18%
1.64%
$30,903
Data centers
Alexandria Real Estate Equities Inc.
ARE,
+1.38%
3.17%
4.87%
1.70%
$24,451
Offices
AvalonBay Communities Inc.
AVB,
+0.89%
3.78%
5.69%
1.90%
$23,513
Multifamily residential
Equity Residential
EQR,
+1.10%
4.02%
5.36%
1.34%
$23,503
Multifamily residential
Extra Space Storage Inc.
EXR,
+0.29%
3.93%
5.83%
1.90%
$20,430
Self-storage
Invitation Homes Inc.
INVH,
+1.58%
2.84%
5.12%
2.28%
$18,948
Single-family residental
Mid-America Apartment Communities Inc.
MAA,
+1.46%
3.16%
5.18%
2.02%
$18,260
Multifamily residential
Ventas Inc.
VTR,
+1.63%
4.07%
5.95%
1.88%
$17,660
Senior housing
Sun Communities Inc.
SUI,
+2.09%
2.51%
4.81%
2.30%
$17,346
Multifamily residential
Source: FactSet
Simon Property Group Inc.
SPG,
+0.95%
is the only REIT to make both lists.
Researchers at the University of North Carolina Tax Center analyzed securities filings to determine what companies would have paid if the tax had been in place last year. They found fewer than 80 publicly traded U.S. companies would have paid any corporate minimum tax in 2021, and just six—including Amazon and
Warren Buffett’s
conglomerate—would have paid half of the estimated $32 billion in revenue the levy would have generated.
The tax, which takes effect in January, is the largest revenue-raising provision in Democrats’ climate, healthcare and tax law. The provision, projected to generate $222 billion over a decade, alters tax incentives and complicates corporate tax decisions. Democrats aimed the provision at large companies that report profits to shareholders but pay relatively little tax.
Berkshire Hathaway would have paid $8.3 billion last year if the new tax law had been in place, according to UNC estimates.
Photo:
Michelle Bishop/Bloomberg News
“Who actually pays a lot is just not very many firms at all,” said Jeff Hoopes, an accounting professor at UNC Chapel Hill who is one of the study’s authors. “My guess is it will not be the same firms every single year.”
Although this wasn’t the aim of the law, it could have an impact on some of the wealthiest Americans. Some Democrats proposed direct taxes on billionaires’ unrealized capital gains earlier in the legislative process. While that wasn’t adopted, the new corporate minimum tax would increase the tax burden on some wealthy shareholders, such as Warren Buffett at Berkshire and
Jeff Bezos
at Amazon.
Mr. Buffett owned 16% of Berkshire Hathaway’s shares earlier this year, while Mr. Bezos owned nearly 13% of Amazon’s, securities filings show. Representatives for Messrs. Bezos and Buffett declined to comment.
Corporate tax directors and accounting firms are also analyzing the law, figuring out how they are affected and preparing to lobby over regulations. Few have estimated its impact publicly.
The UNC analysis comes with caveats. Lacking confidential tax returns that would allow precise calculations, the authors used publicly available financial data. Companies might change behavior to minimize taxes. A one-year snapshot includes unusual situations that cause companies to pay the minimum tax once, generating tax credits that can be used in future years.
Jeff Bezos owned nearly 13% of Amazon shares earlier this year, securities filings indicated.
Photo:
Jay Biggerstaff/USA TODAY Sports
Under the new law, companies averaging more than $1 billion in publicly reported annual profits calculate their taxes twice: once under the regular system with a 21% rate and again with a 15% rate and different rules for deductions and credits. They pay whichever is higher.
The new system, known as the book minimum tax, starts with income reported on the financial statement, not traditional taxable income. Differences between the two—the treatment of stock-based compensation, for example—could drive a company into paying the new tax.
According to the UNC estimates, Berkshire Hathaway would have paid the most in 2021, at $8.3 billion—or about a quarter of the estimated total—followed by Amazon at $2.8 billion and
Ford Motor Co.
at $1.9 billion.
Add the next three companies and that reflects more than half the $31.8 billion total:
AT&T Inc.
at $1.5 billion,
eBay Inc.
at $1.3 billion, and
Moderna Inc.
at $1.2 billion.
Berkshire Hathaway didn’t comment. Amazon declined to comment on the figure but said it awaits federal guidance. Amazon said its taxes reflect a combination of investment and compensation decisions and U.S. laws.
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An AT&T spokesman said the company doesn’t expect the minimum tax to affect its 2023 tax bill. “Academics don’t prepare our taxes; trained and expert tax professionals do that work,” the spokesman said.
Moderna’s tax rate in 2021—its first year with an operating profit—was shaped by the use of deductible net operating losses generated from research expenses, said
Jamey Mock,
the company’s chief financial officer. The company also paid much of its 2021 taxes during 2022. “We do not anticipate those unique conditions factoring into our future tax considerations,” he said.
Melissa Miller, a Ford spokeswoman, said the company pays all the taxes it owes and pointed to tax credits in the law designed to accelerate the transition to electric vehicles.
Heather Jurek, eBay’s vice president of tax, said the study’s computations and interpretations of the law are inaccurate when applied to the company. “UNC’s conclusions are driven by a significant disposition in 2021 that eBay is unlikely to replicate,” she said.
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Exelon Corp.
is among the few companies that has disclosed what it anticipates to be detailed effects from the tax. The utility-services holding company said in an August securities filing that it expected to incur annual cash costs of about $200 million starting next year, down from an earlier $300 million estimate.
Exelon said it continues to evaluate the tax provision and it expects to benefit from legislative provisions encouraging investment in electric vehicles and electrical-grid modernization.
Lynn Good,
chief executive of
Duke Energy Corp.
, told investors in August that the utility giant also expects to be affected, without providing figures. A spokesman said the UNC estimate, $802 million based on 2021 income, is far too high. He said the company also expects to benefit from the legislation’s tax credits for renewable and nuclear power.
Linking taxes closer to publicly reported profits is intentional. It will become harder for companies to maximize profits to impress shareholders while managing taxable profits downward to minimize payments to governments, tax advisers say.
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Mr. Biden has said the new tax means that the days of profitable companies paying no tax are over.
“There are companies that, for a variety of reasons, will perpetually be in a minimum-tax position,” said April Little of accounting firm Grant Thornton LLP.
Some profitable companies could still pay very little or no federal income taxes. Companies can offset up to 75% of tax liability with credits—including renewable-energy incentives Congress just expanded. The law includes special provisions benefiting companies with wireless spectrum investments, defined-benefit pensions and significant capital investments.
“We have the anti-loophole tax bill that’s full of loopholes,” Mr. Hoopes said.
Tax advisers say companies are trying to understand the law, pointing to uncertainties such as the treatment of currency losses and gains, capitalized depreciation deductions and rules around mergers and acquisitions.
By early next year, companies will start providing earnings guidance, making estimated-tax payments and reflecting the tax in quarterly earnings. They might also start crafting mitigation strategies and looking for flexibility in the accounting rules for when income and expenses are counted.
“What I see most people doing right now is worrying about: How is it supposed to work? How am I going to do this without going crazy?” said Diana Wollman, a partner at law firm Cleary, Gottlieb, Steen & Hamilton LLP.
“They’re spending more time trying to figure out what they want to ask for in regulations in terms of either clarity or regulatory discretion than they are trying to figure out how they’re going to game it,” Ms. Wollman said.
Write to Richard Rubin at richard.rubin@wsj.com and Theo Francis at theo.francis@wsj.com
The Army has about 400 Chinook helicopters in its fleet, a U.S. official says. Soldiers approach a Chinook during a training exercise in Pirkkala, Finland, earlier in August.
Photo:
Roni Rekomaa/Bloomberg News
The U.S. Army has grounded its entire fleet of CH-47 Chinook helicopters because of a risk of engine fires, U.S. officials said.
Army officials are aware of a small number of engine fires with the helicopters, and the incidents didn’t result in any injuries or deaths, the U.S. officials said. One of the officials said the fires occurred in recent days.
The U.S. Army Materiel Command grounded the fleet of hundreds of helicopters “out of an abundance of caution,” but officials were looking at more than 70 aircraft that contained a part that is suspected to be connected to the problem, officials said.
The grounding of the Chinook helicopters, a battlefield workhorse since the 1960s, could pose logistical challenges for American soldiers, depending on how long the order lasts.
The grounding was targeted at certain
Boeing Co.
-made models with engines manufactured by
Honeywell International Inc.,
people familiar with the matter said. The grounding took effect within about the last 24 hours, these people said. The Army has about 400 helicopters in its fleet, one of the U.S. officials said.
Boeing declined to comment, referring questions to the Army.
A Honeywell spokesman said the engine maker worked with the Army to determine that certain components known as O-rings didn’t meet the company’s design specifications. He said the parts were installed during routine maintenance at an Army facility. While he declined to name the company that made the parts, the Honeywell spokesman said the company is working to supply the Army with replacements.
An Army spokeswoman said the service has identified the root cause of fuel leaks that caused “a small number of engine fires among an isolated number” of the helicopters. She said the Army is taking steps to resolve the issue.
“The safety of our soldiers is the Army’s top priority, and we will ensure our aircraft remain safe and airworthy,” the spokeswoman said.
The Chinook is a heavy-lift utility helicopter that is used by both regular and special Army forces, ferrying more than four dozen troops or cargo. It has been a staple of the Army’s helicopter fleet for six decades.
Write to Andrew Tangel at Andrew.Tangel@wsj.com and Gordon Lubold at Gordon.Lubold@wsj.com
even further isn’t expected to serve as a prelude to a full takeover of the resurgent energy company by the widely watched billionaire, at least for now.
In a regulatory filing Friday, the Federal Energy Regulatory Commission said that Mr. Buffett’s
Berkshire Hathaway Inc.
BRK.B -2.30%
had received permission to buy up to 50% of the driller’s shares. The news stoked speculation that Berkshire could be gearing up to acquire Occidental.
Analysts have said Occidental’s oil business would complement Berkshire’s existing energy holdings, which include utilities, natural gas and renewables. Mr. Buffett has a warm relationship with Chief Executive
Vicki Hollub
and has publicly praised her efforts to turn the company around after its acquisition of Anadarko Petroleum Corp. and her plans to pay down debt and increase dividend payouts.
But Mr. Buffett hasn’t informed Occidental of any plans to acquire a controlling stake in the company, according to people close to the matter. Given Mr. Buffett’s well-known aversion to hostile deal making, it would be out of character for him to make a bid without sounding out the company’s executives and directors first.
Owning such a big stake—Berkshire is Occidental’s largest shareholder—gives him major influence over the company already, and acquiring control could cost him a hefty premium to the current share price. The stock closed Friday at $71.29, up nearly 10% on the news, giving the company a market capitalization of about $66 billion.
Why would Berkshire seek out permission to buy more of Occidental, then?
For one, it was close to running up against FERC-imposed investing limits.
Filings show Berkshire currently has a 20% stake in Occidental. It also has warrants to purchase another 83.9 million common shares and 100,000 shares of preferred stock that pay a hefty dividend—both of which it acquired after helping Occidental finance its 2019 acquisition of Anadarko.
If Berkshire were to exercise the warrants, its stake would rise to roughly 27%. That would have exceeded the 25% limit FERC allowed for before Friday’s ruling.
“This is not a company that’s going to raise regulators’ hackles,” said Cathy Seifert, an analyst for CFRA Research.
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It should also give Berkshire breathing room in case share buybacks or other company moves decrease the amount of shares outstanding, thus increasing its percentage stake.
There are other reasons to doubt a Berkshire takeover of Occidental is imminent.
One of them is price, said David Kass, a professor of finance at the University of Maryland’s Robert H. Smith School of Business.
So far, Berkshire has bought virtually all of its Occidental shares at a price in the range of $50 to $60, Mr. Kass said. The highest price Berkshire paid was $60.37 in July, according to filings.
Mr. Buffett is a well-known bargain-hunter, so it is difficult to imagine Berkshire rushing to buy more Occidental shares at the current price, Mr. Kass said. The shares are up 146% for the year, boosted by a rally in the price of oil, compared with an 11% decline for the S&P 500.
People familiar with deliberations at Occidental said the company’s leadership believes Mr. Buffett might consider making an offer if oil prices fall, bringing down Occidental’s stock price. If Mr. Buffett made an offer the company viewed as fair, a majority of the Occidental’s board would likely approve presenting it to shareholders, one of the people said.
Mr. Buffett didn’t respond to a request for comment. An Occidental spokesman declined to comment.
Mr. Buffett is currently represented as a passive shareholder in Occidental, based on the so-called 13G filing he has on record with the U.S. Securities and Exchange Commission. If he were to change his intentions and hold meaningful discussions with the company about a full-on takeover, he would likely need to change his filing to a 13D, which is required by large shareholders who intend to get actively involved in the running of a company.
Taxes could also play a role in Mr. Buffett’s bid for a bigger minority stake in Occidental. Corporations with a stake of at least 20% in another company are eligible to deduct 65% of dividends received, up from the standard 50%.
Berkshire’s 20% stake also allows it to include a proportionate share of Occidental’s earnings in its own results. That could give its earnings a multibillion-dollar boost annually, based on analyst estimates of Occidental’s earnings. Before the most recent purchases, disclosed this month, Occidental fell below the 20% threshold for both benefits.
Since Berkshire started buying Occidental shares in February, Mr. Buffett has had a friendly and collaborative relationship with Ms. Hollub, and the pair speak regularly, according to people familiar with the matter.
When Mr. Buffett bought another slug of Occidental shares this spring, he called Ms. Hollub to let her know about the transaction, according to one of the people. Ms. Hollub was driving at the time and pulled over to take the call, the person said.
Mr. Buffett’s message was simple: “Keep doing what you’re doing,” he told Ms. Hollub.
Berkshire’s growing ties with Occidental have an unexpected link to Mr. Buffett’s earliest days of investing.
At age 11 in 1942, Mr. Buffett made his first investment: three shares of Cities Service’s preferred stock. Forty years later, Occidental went on to acquire the oil company, which Ms. Hollub had just joined the year before.
Mr. Buffett’s investment in Occidental this year shows his first stock purchases “coming full circle 80 years later,” Mr. Kass said.
—Benoît Morenne contributed to this article.
Write to Akane Otani at akane.otani@wsj.com, Christopher M. Matthews at christopher.matthews@wsj.com and Cara Lombardo at cara.lombardo@wsj.com
In a regulatory filing Friday, the Federal Energy Regulatory Commission said that Berkshire Hathaway had asked for and received its permission to buy up to 50% of the driller’s shares. Berkshire has been loading up on Occidental’s shares this year, amassing roughly 20% of the company’s stock, public filings show, leaving many analysts to speculate whether Mr. Buffett would seek control of the company, one of the largest U.S. oil producers.
Occidental’s shares jumped to lead stock gains among the S&P 500 Friday, rising 9.9% after the publication of the ruling. The company’s stock has risen about 146% this year, far and away tops in the S&P 500 stock index, which is down 11% this year.
Berkshire requested the authorization on July 11 and said at the time it owned approximately 18.72% of the outstanding common shares of Occidental, according to the federal ruling. Berkshire has since added shares and earlier this month said in a securities filing that it held roughly 20% of Occidental’s common stock. Berkshire also owns warrants to buy another big slug of Occidental’s common stock as well as $10 billion worth of preferred shares that pay Berkshire about $800 million annually, filings show.
“It is concluded that the Proposed Transaction is consistent with the public interest,” Carlos D. Clay from the FERC’s Office of Energy Market Regulation wrote in the filing.
A spokesman for Occidental confirmed that Berkshire could now buy up to 50% of common shares and didn’t comment further. A Berkshire Hathaway representative didn’t respond to a request for comment.
Mr. Buffett has invested billions in renewables such as wind-farm projects through Berkshire’s energy unit and has also added oil companies to the holding company’s portfolio in recent years.
Chevron Corp.
is now one of Berkshire’s largest stock investments.
Occidental has raked in high profits from elevated oil prices, netting $3.7 billion in the second quarter. The profits are a dramatic turnaround for the company, which lost around $14.8 billion in 2020 after the global pandemic gutted oil demand. Berkshire’s stock purchases, as well as that of the many investors who follow Mr. Buffett’s moves, have helped lift Occidental’s shares to the head of the broad rally in energy stocks.
Occidental’s ill-timed $38 billion deal to take over rival Anadarko Corp. in 2019 loaded the company with debt, leaving it in a perilous position as oil prices tumbled during the pandemic. Chief Executive
Vicki Hollub
made deep spending cuts over the past two years, moved to rein in growth and focused on using cash to pay down debt.
The company has repaid $8 billion in debt this year to bring it to $22 billion, down from nearly $36 billion a year ago, according to the company and analysts. Occidental’s endeavor to reach investment-grade status and its cash-generating capabilities have made it an attractive target for Mr. Buffett, said Neal Dingmann, an analyst with Truist Securities. “It’s a great sort of hedge against a lot of his other businesses to own such a high free-cash-flowing business,” he said.
Occidental has raked in high profits from elevated oil prices, netting $3.7 billion in the second quarter.
Photo:
Reuters Staff/REUTERS
Mr. Buffett has made no secret of his admiration for Ms. Hollub, describing her as one of the best executives in the business. In 2019, he acquired $10 billion in preferred stock to help the company pay for the Anadarko deal.
“What Vicki Hollub was saying made nothing but sense,” Mr. Buffett said at Berkshire’s annual shareholder meeting in April. Occidental looked like “a good place to put Berkshire’s money,” he added.
Mr. Buffett had to show his hand to the market because power plants controlled by both Occidental and Berkshire Hathaway feed the same grid in Louisiana. Occidental owns a power plant in Taft, La., that feeds its chemical plant next door. Leftover power is sold on the local grid, which Berkshire Hathaway Energy plants also feed.
FERC ruled that since Occidental’s plant accounts for just 0.48% of the capacity connected to the region’s grid, a combination with Berkshire “will not have an adverse effect on competition” in the local electricity market. Mr. Buffett had to ask, though, before beefing up Berkshire’s Occidental stake.
In recent years, Occidental has ventured into renewables through its Oxy Low Carbon Ventures unit. This new focus dovetails with Berkshire’s own investments in renewable energy and puts Mr. Buffett’s company in a position to benefit from tax breaks, said
Bill Smead,
chief investment officer at Smead Capital Management.
“We see Berkshire’s filing as a vote of confidence in the oil macro and the value proposition in energy equities,” said Kevin MacCurdy, a managing director at investment firm Pickering Energy Partners.
Write to Benoît Morenne at benoit.morenne@wsj.com and Ryan Dezember at ryan.dezember@wsj.com
Shares of Berkshire Hathaway Inc. Cl B
BRK.B,
+4.02%
rose 4.02% to $278.28 Friday, on what proved to be an all-around favorable trading session for the stock market, with the S&P 500 Index
SPX,
+3.06%
rising 3.06% to 3,911.74 and the Dow Jones Industrial Average
DJIA,
+2.68%
rising 2.68% to 31,500.68. The stock’s rise snapped a two-day losing streak. Berkshire Hathaway Inc. Cl B closed $83.82 below its 52-week high ($362.10), which the company achieved on March 29th.
The stock demonstrated a mixed performance when compared to some of its competitors Friday, as Honeywell International Inc.
HON,
+3.12%
rose 3.12% to $180.02, 3M Co.
MMM,
+3.21%
rose 3.21% to $134.33, and General Electric Co.
GE,
+4.70%
rose 4.70% to $67.08. Trading volume (6.4 M) eclipsed its 50-day average volume of 4.6 M.
Editor’s Note: This story was auto-generated by Automated Insights, an automation technology provider, using data from Dow Jones and FactSet. See our market data terms of use.
It’s been called the Woodstock of Capitalism, Coachella for Capitalists, and a whole lot worse too.
What’s for certain is that Berkshire Hathaway’s annual general meeting is a must-watch event for market lovers.
While our UK readers may have been catching a break over the public holiday, the long weekend saw plenty of fiery comments from Berkshire’s storied leaders Warren Buffett and Charlie Munger, not least on the future of cryptocurrencies like bitcoin.
“Whether it goes up or down in the next year, or five or 10 years, I don’t know. But the one thing I’m pretty sure of is that it doesn’t produce anything,” Buffett said.
What’s the entire world’s stash of bitcoin worth? Not even $25, according to the Oracle of Omaha.
Not to be outdone, Munger added: “In my life, I try and avoid things that are stupid, evil and make me look bad in comparison to somebody else… and bitcoin does all three.”
Robinhood — which owed a significant part of its lockdown-induced success to bumper crypto trading volumes — also came in for another beating from Munger.
God is “getting just”, he said, as the day trading platform continues to lose customers and report stalling revenue.
The continued criticism of bitcoin marks the latest salvo in a war of words between the Berkshire bosses and crypto enthusiasts like Peter Thiel.
Last month, the billionaire entrepreneur branded Buffett a top “enemy” of bitcoin and part of a “finance gerontocracy” that has held back the cryptocurrency’s adoption — a club that also includes Jamie Dimon, chief executive of JPMorgan, and Larry Fink, chief executive of BlackRock.
Thiel’s fellow crypto fans were quick to hit back again after the Berkshire AGM.
“They’re not exactly the most technology-forward investors,” said Eric Chen, co-founder and chief executive at Injective Labs. “As a matter of fact, I think that goes more towards the affirmation that the space is really disrupting something.”
David Tawil, president and co-founder of cryptoasset fund ProChain Capital, noted that it was “decades before [Berkshire] decided to go ahead and invest in Apple”.
In case you missed any of the action from the event, see below for the most talked-about themes.
We’ve also got a roundup of what you need to know as crypto faces a challenging path ahead — down some 13% over the year to date, big names such as Starling Bank’s Anne Boden are among the latest to sound a sceptical note on bitcoin’s fortunes in recent days.
Regulators across the world are also stepping up their scrutiny of the sector.
Last week, Commodity Futures Trading Commission chair Rostin Behnam told an audience at the City Week 2022 conference that giving firms permission to clear crypto derivatives directly was not a given.
“It might not sound like a big issue, but it is a significant issue. It is really proposing and presenting a very different market structure model that has some opportunity, but certainly some risk,” said Behnam.
Meanwhile, the US Labor Department said it has “grave concerns” about Fidelity’s bitcoin pension plan, putting a potential spanner in the works for firms looking to expand crypto’s range in the retirement space.
Everything you need to know from Berkshire’s famed AGM
Warren Buffett and Charlie Munger hit out at bitcoin at Berkshire’s AGM but crypto fans are unmoved
Why Warren Buffett says markets are a ‘gambling parlour’
Berkshire Hathaway’s Charlie Munger hits out at Robinhood again
Warren Buffett Is Still Setting Berkshire’s Direction. For How Much Longer? (The Wall Street Journal)
And on crypto’s current troubles
The Fed isn’t going to save bitcoin’s bear market
Too many crypto transactions are fraudulent, Starling CEO Anne Boden warns
US Labor Department has ‘grave concerns’ about Fidelity’s bitcoin pension plan
The SEC is beefing up crypto enforcement. Its target is basically everything (Barron’s)
The new way to get a tax break: NFT and crypto donations (The Wall Street Journal)
To contact the author of this story with feedback or news, email Justin Cash
