Google is delaying a portion of employee bonus checks

Google CEO Sundar Pichai speaks at a panel at the CEO Summit of the Americas hosted by the U.S. Chamber of Commerce on June 09, 2022 in Los Angeles, California.

Anna Moneymaker | Getty Images

Google executives are deferring a portion of employees’ year-end bonus checks, according to documents viewed by CNBC, as the company moves toward permanently pushing back payouts.

In past years, employees received their full bonuses in January. However, Google will pay qualifying full-time employees 80% of their bonus checks this month and the remaining 20% in March or April, the documents say. Payments in April would be in the second quarter, potentially allowing Alphabet to spread out its costs.

Google described the January payout as an “advance” in correspondence to employees. Leadership said it will be a one-time change due to “transition” of its employee evaluation system and the altered timing for future bonuses.

“After 2023, full bonuses will be paid in March,” the company said in the memo.

Following publication of this story, a Google spokesperson told CNBC in an email, “This one-time 80% bonus advance was extensively communicated to employees in May 2022 and in subsequent communications since, as part of the transition to our new performance management timeline.”

The delayed payment comes as Google CEO Sundar Pichai seeks to reel in costs while still avoiding mass layoffs. Unlike large tech peers Meta, Microsoft and Amazon, Google parent Alphabet has thus far skirted significant job cuts and focused instead on eliminating lagging products and groups. Last week, Alphabet’s Verily health sciences unit said it will cut headcount by 15%, accounting for about 240 lost jobs, and the company also reduced staff in its robotics unit Intrinsic.

In the latter part of 2022, Alphabet canceled the next generation of its Google Pixelbook laptop, slashed funding to its Area 120 in-house incubator and said it would be shuttering its digital gaming service Stadia. Pichai said in September he wants to make the company 20% more efficient.

Meanwhile, Google has been overhauling its performance ratings system. The company recently released new details, showing a larger number of employees will more easily fall into lower-rated categories, CNBC reported last month. Employees said they feared it could be used as a way to reduce headcount without conducting layoffs.

Internal Google employee memes take on company’s bonus check deferrals.

Staffers also expressed concerns with the latest changes to bonus payments. Some told CNBC they weren’t aware of the partial deferment, and they received little help internally as they searched for answers.

One graphic on Memegen, an employee meme generator, showed a split screen of Prince Harry and Meghan Markle, with a quote from Markle that’s edited to say, “Harry is Adjusting great to Google” next to an image of a disturbed Prince Harry with the text “Where the hell did 20% of my bonus go?” 

Sources also described a meme with the text reading “Got my BONU,” referring to the realization that they didn’t receive their whole bonus as expected.

Alphabet is scheduled to report fourth-quarter earnings on Feb. 2. Analysts expect revenue growth of less than 2% from a year earlier, according to Refinitiv, while earnings per share is expected to drop to $1.18 from $1.53. The stock has dropped 31% in the past year.

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Vice Media restarts sale process at lower valuation

Vice Media offices display the Vice logo in Venice, California.

Mario Tama | Getty Images

Vice Media is restarting its sale process after earlier interested bidders balked at the initial price tag, according to people familiar with the situation.

The digital media company, which was valued at $5.7 billion in 2017, is now likely to fetch a price of below $1 billion, the people said. Initially, Vice was looking for a valuation between $1 billion and $1.5 billion, one of the people added. The people weren’t authorized to speak publicly on the matter.

A Vice Media spokesperson declined to comment.

Vice last year hired advisers to facilitate a sale of some or all of its business, CNBC previously reported. Some of its most attractive assets are likely to be its content studio and creative advertising agency, Virtue, CNBC previously reported, but the company is attempting to sell itself in full rather than in pieces, the people said.

One of Vice’s lenders, Fortress Investment Group, is a driving force in the sale process, the people said, and has agreed to wait on loan repayment. Fortress was reportedly part of a consortium of lenders in 2019 that provided $250 million in debt to Vice.

Vice has lowered its expectations in hopes of getting a deal done and securing a payout sooner rather than later, the people said.

The company had been nearing a deal with Greek broadcaster Antenna Group, but those talks stalled in recent weeks, the people said. Antenna is still likely to be an interested bidder in the renewed sale process, they added.

Representatives for Antenna and Fortress declined to comment.

Digital media companies have fallen from great heights from in recent years as growth has stalled due to shrinking audience numbers and advertising. They’ve particularly faced growing competition for ad dollars from tech giants like Google. Media companies in general have been facing a slowdown in advertising revenue as macroeconomic conditions have caused a pullback from advertisers.

Meanwhile, Buzzfeed, the only digital media company to IPO, has seen its stock fall roughly 90% since going public in 2021.

Vice reached its peak valuation in 2017 with a $450 million investment from private equity firm TPG, valuing the company at the time at nearly $6 billion.

The company later targeted a valuation of roughly $3 billion, including debt, when it attempted to go public via special purpose acquisition company 7GC & Co Holdings in 2021. However those plans also stalled after the market cooled and investors were no longer sold on Vice’s prospects as a standalone public company.

Vice ended 2022 with a slight gain in revenue, but the business deteriorated among macroeconomic headwinds, according to a person familiar with the matter. Vice missed its revenue goal by more than $100 million for 2022, The Wall Street Journal previously reported.

While the company was unprofitable last year, some of its units did post a profit, and Vice has been intermittently profitable in recent years, the person added.

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Even with used car prices falling, buyers paying $7.1K above ‘normal’

Fotostorm | E+ | Getty Images

There’s still a ways to go before used car prices come back down to earth.

While prices were 8.8% lower in December from a year earlier, consumers continue to pay more for used cars than they would if typical depreciation expectations were in play, according to car-shopping app CoPilot, which tracks those price premiums in a monthly report.

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Last month, the average price for a used car was $30,899, according to CoPilot. That amount is $7,146 (or 30%) more than if projected depreciation forecasts had held true. However, the price is headed in the right direction for consumers: Six months ago, the app estimated, car buyers were paying about $10,000 above “normal.”

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“With the average price premium still at 30%, used car prices in America still have a long way to fall before they return to normal,” CoPilot’s report notes.

Demand in the used car market skyrocketed during the pandemic as supply chain issues hampered automakers’ ability to produce new vehicles. That situation is now easing, with modest improvements in dealer inventory as rising interest rates put pressure on affordability. The average price of a new car is $46,382, according to an estimate from J.D. Power and LMC Automotive.

The average interest rate on a used car loan is 10.25%

Yet turning to a used car generally doesn’t yield a better rate when financing. The average interest rate on a used car loan was 10.25% in December, compared with 6.68% to finance a new vehicle, according to Edmunds. That compares with 7.4% and 4.1%, respectively, a year earlier.

In addition, the rate you pay is partly based on your credit score — the higher that three-digit number, the lower the rate you can qualify for.

And, of course, the price depends on the specifics of the car itself.

Nearly new cars are $9,606 above ‘normal’

By age, nearly new vehicles (1 to 3 years old) have an average listing price of $40,273, which is $9,606, or 31%, more than the projected normal amount of $30,667, according to the CoPilot index.

In the 4- to 7-year-old range, the average price is $29,400, an amount that’s $6,731, or 30%, more than the “normal” price of $22,669. Vehicles 8 to 13 years old come with an average price of $18,018, or $4,621 more (about 35%) than the previously forecast $13,397.

Used cars with the biggest price drops

Some car prices have dropped more than others. The chart below shows the 10 used cars whose prices fell the most in two months (September to December), according to iSeeCars.

Meanwhile, the squeeze on new car production during the last couple of years may serve as a headwind in the used car market going forward.

“Inventory shortages of new cars in 2021 and 2022 mean that there are noticeably fewer [of those] model-year vehicles on the road today that will become used cars in the future,” said Joseph Yoon, consumer insights analyst for Edmunds.

Used car prices begin to fall as tight supply eases

Additionally, Yoon said, many 1- to 3-year-old cars that end up at dealerships for sale are leased cars that were returned, and the number of customers leasing their cars has dropped to 16% in December from 29% two years earlier.

“Rental fleets also suffered dramatically from new vehicle shortages, further reducing a reliable stream of late-model used vehicles for consumers to choose from,” Yoon added.

Fed Governor Lael Brainard sees high rates ahead even with progress on inflation

Lael Brainard, vice chair of the US Federal Reserve, during a University of Chicago Booth School of Business event in Chicago, Illinois, US, on Thursday, Jan. 19, 2023. 

Jim Vondruska | Bloomberg | Getty Images

Federal Reserve Governor Lael Brainard said Thursday that interest rates need to remain high, even though there are signs inflation is starting to ease.

Echoing recent comments from her fellow policymakers, Brainard insisted that the Fed won’t waiver in its commitment to taming prices that have come down some in recent months but remain near four-decade highs.

“Even with the recent moderation, inflation remains high, and policy will need to be sufficiently restrictive for some time to make sure inflation returns to 2% on a sustained basis,” she said in remarks prepared for a speech in Chicago.

Her comments come less than two weeks before the rate-setting Federal Open Market Committee holds its next meeting, on Jan. 31-Feb. 1. Markets are assigning a near-100% probability that the FOMC will a raise its benchmark interest rate another quarter percentage point, taking it to a target range of 4.5%-4.75%, according to CME Group data.

That, however, would represent another less-severe step in the Fed’s move to tighten monetary policy. As Brainard put it, the FOMC in December “downshifted” the level of its rate increases to half a point, after three consecutive increases of three-quarters of a percentage point.

“This will enable us to assess more data as we move the policy rate closer to a sufficiently restrictive level, taking into account the risks around our dual-mandate goals,” she said.

Brainard pointed to a number of areas where she sees inflation starting to come down.

She noted weaker numbers recently in retail sales and wages, and expressed doubt that the economy is seeing a 1970s-style wage-price spiral where higher earnings keep pushing prices higher and vice versa.

According to the Fed’s preferred measure, personal consumption expenditures prices excluding food and energy, inflation has been running at a 3.1% annualized pace over the last three months, well below the 4.5% 12-month pace. That’s still ahead of the Fed’s 2% goal, but reflective of some progress.

Housing costs remain high, but Brainard and other Fed officials expect those to ease later in the year as apartment leases catch up with declines in commercial real estate. Consumer surveys of late also show at while inflation expectations remain elevated in the near term, they’re more stable further out.

“Together, the price trends in core goods and nonhousing services, the tentative indications of some deceleration in wages, the evidence of anchored expectations, and the scope for margin compression may provide some reassurance that we are not currently experiencing a 1970s-style wage-price spiral,” Brainard said.

Despite tough talk from Fed officials on rates, markets think the central bank will fall short of the 5.1% peak in the fed funds rate that they pointed to in December. Instead, traders see the rate topping out about a quarter percentage point below that, and the Fed starting to reduce rates later this year.

Brainard gave no indication that rates would be coming down anytime soon.

“Inflation is high, and it will take time and resolve to get it back down to 2%. We are determined to stay the course,” she said.

Norwegian Cruise Line, Allstate, Roblox and more

A Norwegian Gateway cruise ship leaves from the Manhattan port during sunset in New York City, United States on April 10, 2022.

Tayfun Coskun | Anadolu Agency | Getty Images

Check out the companies making the biggest moves midday:

Norwegian Cruise Line — Shares sunk more than 6% after the cruise ship operator reported in a filing with the Securities and Exchange Commission that it will report a net loss for the fourth quarter and full year of 2022, as well as the first quarter of 2023.

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Charles Schwab — The bank stock lost more than 6% after Bank of America double-downgraded shares to an underperform rating, saying that clients will continue moving cash into alternatives such as money market funds.

Vornado Realty Trust — Shares of the real estate investment trust shed 3.3% after cutting its quarterly dividend to 37.5 cents per share from 53 cents. Vornado Realty, which owns commercial properties in cities such as New York and San Francisco, cited the current state of the economy and capital markets, as well as Vornado’s redacted projected 2023 taxable income, primarily due to higher interest exposure.

Roblox — Roblox shares shed 6% following a downgrade to an underweight rating by analysts at Morgan Stanley. The bank said the video game stock’s upside is limited following a strong December metrics report.

Philip Morris — The Marlboro parent gained 2.4% after Jefferies called the stock “recession resistant.”

ServiceNow — Shares gained nearly 3% after Bank of America named the software stock a top pick. The firm noted its “best-in-class growth.”

Tesla — Shares of the electric-vehicle maker slipped more than 1% in midday trading. Piper Sandler reiterated its outperform rating on the stock, saying investors should be “proactively” buying shares. A day earlier, CEO Elon Musk’s fraud trial began over tweets he wrote in 2018 about considering taking Tesla private, which had caused the stock to rally.

Alcoa — Shares of the aluminum company fell 4.6% on Thursday after the company announced its fourth-quarter results. Alcoa’s adjusted fourth quarter loss was 70 cents per share, narrower than the 81 cent loss expected, according to StreetAccount. However, the company’s adjusted EBITDA — a profit metric that includes fewer expenses than net income — missed estimates. Alcoa said it expects total alumina shipments to decline year over year in 2023.

Discover Financial Services — The online bank fell nearly 2% after hiking provisions for credit losses and projecting higher net charge off rates this year, a signal that customers are falling behind. Discover beat expectations for both earnings per share and revenue for the quarter.

CureVac — Shares rallied more than 9% after the biopharmaceutical company was upgraded by UBS to buy from neutral. The Wall Street firm said Phase 1 results for an influenza treatment saw a “major inflection point.”

Ford — The automaker’s stock dropped 1.9% after its price target was cut by Evercore ISI, which said the automaker could struggle if there is a recession.

Allstate — The stock dropped 7%, a day after the insurance company announced preliminary fourth-quarter results that include an estimated adjusted net loss between $335 million and $385 million.

Northern Trust — Shares of the financial institution fell 10% after the company reported fourth-quarter net income per diluted common share of 71 cents, compared to $1.91 in the fourth quarter of 2021. Revenue from its trust and investment services came in at $1.04 billion, less than the $1.05 billion expected by StreetAccount.

Comerica — Shares jumped roughly 6% after the financial services company topped profit expectations in its latest quarterly report. Comerica reported earnings of $2.58 per share, greater than the $2.55 earnings per share expected by analysts polled by Refinitiv.

— CNBC’s Samantha Subin, Jesse Pound, Alex Harring, Sarah Min and Michael Bloom contributed reporting.

Netflix (NFLX) earnings Q4 2022

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Are consumers gravitating towards Netflix‘s new ad-supported service? Shareholders are hoping the streamer sheds light on the new plan during its fourth-quarter earnings report, which is due after the bell Thursday.

Wall Street has kept a close eye on Netflix in recent quarters as it broke with its own tradition to offer up a lower-priced tier with advertisements and teased new strategies for cracking down on password sharing, all in an effort to boost revenue.

Here’s what Wall Street expects:

  • EPS: 45 cents per share, according to Refinitiv.
  • Revenue: $7.85 billion, according to Refinitiv survey.
  • Expected global paid net subscribers: Addition of 4.57 million subscribers, according to StreetAccount estimates.

Last quarter, the streamer said it was “very optimistic” about its new advertising business. While it doesn’t expect the new tier will add a material contribution to its fourth-quarter results, it foresees membership growing gradually over time.

Heading into Thursday’s report, analysts are expecting the company to announce an additional 4.57 million paid subscribers, on pace with Netflix’s own projection of 4.5 million. The number would be stronger than the 2.4 million the service added in the previous quarter and significantly better than the declines it saw in the first half of the year.

Going forward, Netflix will no longer give subscriber guidance, although it will still report those numbers in future earnings reports. The rationale is that the company is growing its focus on revenue as its primary top line metric instead of membership growth.

Tennis Channel to air Major League Pickleball tournament matches

The Tennis Channel is embracing pickleball.

Major League Pickleball announced Thursday the cable channel will broadcast the league’s premier level tournament semifinals and finals in Mesa, Arizona, and will make all matches of the tournament available for streaming. The partnership marks a deepening of the relationship between professional pickleball and the TV network.

Pickleball has soared in popularity, with more than 36 million Americans playing the sport last year. Now the Tennis Channel is poised to capitalize on that surge.

“We’ve gone from one pickleball event in 2021, we had a pretty full year of coverage in 2022 and that is going to escalate significantly in 2023,” Ken Solomon, CEO of the Tennis Channel, told CNBC. “We have big plans.”

Solomon said the network is uniquely positioned to broadcast pickleball after its 20 years of broadcasting tennis.

“We have all the infrastructure in place and all the human capital and the people who create the narrative to the engineers,” he said.

Solomon said the network can transition to pickleball “literally with a flip of a switch.” And, he said, the sport is “hot as hell.”

The longtime Tennis Channel executive said pickleball has already seen a very natural overlap with existing tennis sponsors. He doesn’t worry about pickleball cannibalizing the sport that’s been his bread and butter.

Brian Levine, Major League Pickleball’s interim CEO, agrees the two sports can be mutually beneficial.

“I think there’s this misperception that there’s a competition between tennis and pickleball,” Levine told CNBC. “I think that it’s actually a complement.”

The vast majority of MLP professionals come from a tennis background. Many current and former tennis players have invested in professional pickleball, including Naomi Osaka, James Blake, Kim Clijsters, Sam Querrey, Nick Kyrgios and Lindsay Davenport.

For the Tennis Channel audience, Levine thinks pickleball’s fast-paced action will help attract new fans of the sport. He noted that during MLP professional matches, the ball is in action about 40% of the time, compared with professional tennis matches at 16%.

The Tennis Channel, created in 2003 and owned by the Sinclair Broadcasting Group, struck its first deal with the Professional Pickleball Association in 2021 to broadcast various events and tournaments.

The network has since broadcast a special pickleball celebrity exhibition in Dallas featuring sports legends like Tony Romo, Jordan Spieth and John Isner, as well as MLP’s first-ever draft in Las Vegas, where the league revealed team lineups.

Solomon said pickleball has already delivered strong ratings for his network.

“What we have seen consistently, is real attention, real appointment television type viewing for pickleball. It has rated very, very well,” he said.

The network has been making a push into streaming and making its product available internationally, with a subscription service called Tennis Channel International launching in 2020. Adding pickleball matches to its streaming offerings means beefing up content at a time when linear television is stagnant, at best.

MLP said it has not finalized broadcast agreements beyond the Mesa, Arizona, tournament but is actively in discussions.

Solomon would not comment on his network’s future plans with MLP but said, “We firmly believe that having dedicated destinations is a virtue. We’ve proven it.”

Also on Thursday, the pro pickleball circuit announced the final two teams of the league and their respective ownership groups for the 2023 season, which kicks off Jan. 26: The St. Louis Shock will be led by businessman Richard Chaifetz, with his son, Ross Chaifetz, leading team operations; and the Orlando Squeeze in Florida will be led by Ryan DeVos, whose family has more than 30 years of ownership experience with the NBA’s Orlando Magic.

NFL free agent Odell Beckham Jr. will join the ownership group of the Washington, D.C., team, the league said.

France contends with widespread strikes as unions take to streets against pension reform

French unions and demonstrators have taken to the streets on Thursday in widespread industrial action against the government’s projected pension reforms.

President Emmanuel Macron’s administration seeks to raise France’s official retirement age from 62 — lower than much of Europe and the U.S. — to 64. This is the head of state’s second attempt to overhaul the pension system, after scrapping a 2019 proposal to introduce a point-based retirement plan during his first mandate due to public uproar. Macron cemented his pensions focus during this New Year address, stressing, “This will effectively be the year of retirement.”

The pension reform is “just and responsible” and must be carried out, Macron said Thursday, according to Reuters.

Early indications suggest the latest bill is proving equally lackluster with the French public, with 68% appearing “hostile” to the measure, according to an IFOP study.

French syndical unions have made rare common front by agreeing protests against the bill.

“This reform will fully hit all workers and particularly those who began to work early, the most fragile whose life expectancy is lower than that of the rest of the population, and those whose level of work difficulty is not recognized,” said a joint statement signed by eight syndicates, according to a CNBC translation.

The organizations will convene Thursday evening to determine convening further industrial action.

Rail operator SNCF warned train travel will be “severely disrupted” by industrial action between 7 p.m. local time on 18 Jan. and 8 a.m. on Friday. Reuters reports that SNCF said only between one-in-three and one-in-five high-speed TGV lines were in operation on Thursday, with limited local or regional trains running.

The strikes are disrupting traffic along the maritime route between Calais and Dover.

“We regret to inform you that sailings are currently suspended due to a National day of Action in France.,” P&O Ferries said on Twitter, noting services would resume Thursday afternoon.

TotalEnergies Chief Executive Patrick Pouyanne estimated that a short-term one-day mobilization should not lead to fuel supply shortages:

“A day, tomorrow, will not affect the functioning of refineries. Refineries stop if there are many days of strike,” he estimated in a BFM TV interview, according to a CNBC translation. “Do not panic: the stocks are full, the service stations are well-supplied.”

Philippe Martinez, secretary general of the General Confederation of Labor (GCT) union, on 18 Jan. floated the idea of cutting electricity supplies to the affluent of France. On Thursday, he appeared to soften this stance during an interview with Public Senat, when asked if there would be voluntary targeted electricity cuts to lawmakers who support the new retirement bill:

“It is not in our habit to do this,” he said, describing his earlier statements as a symbolic gesture rather than a threat. He reiterated his objections to the reform plan and stressed the syndicates’ willingness to continue strikes beyond the first day of industrial action, “It is a first day, therefore, we will have others.”

Government spokesperson Oliver Veran on Wednesday reproached the perceived threats as “strictly unacceptable,” per a CNBC translation:

He added, “Everything that will raise pressures, threats, insults, whether on social networks or in real life, regarding targeted action against the integrity of the functioning of a parliamentary mandate are unacceptable in a democracy and a Republic, and we condemn them.”

Laurent Bergere, secretary-general of the French Democratic Confederation of Labour (CFDT), on Thursday told BFM TV that “there must be a lot of people at these protests.”

He noted, “Firstly, I expect that the workers of this country who object, and they are many, to this retirement reform project — because they object with respect to [raising] the official retirement age to 64 years — come protest everywhere in France, across 200 locations.”

Procter & Gamble (PG) earnings Q2 2023

Gillette Good News razors on display on January 28, 2005 in San Francisco.

Justin Sullivan | Getty Images

Procter & Gamble reported year-over-year declines in revenue and profit on Thursday, as higher prices struggled to offset declining sales volumes.

Shares of P&G fell about 3% in premarket trading.

Here’s how P&G performed in its fiscal second quarter of 2023 compared with what Wall Street anticipated, based on an average of analyst’s estimates compiled by Refinitiv:

  • Adjusted earnings per share: $1.59 versus an expected $1.59
  • Total revenue: $20.77 billion versus expected $20.73 billion

For the three-month period ended Dec. 31, the company reported net income of $3.9 billion, or $1.59 per share, excluding items, down from $4.22 billion, or $1.66 per share, a year earlier.

Net sales fell 1% to $20.77 billion, a 1% decrease from the previous year, which topped analyst’s projections of $20.73 billion.

The company’s organic revenue, which excludes the impact of foreign currency, acquisitions and divestitures, increased 5% during the fiscal second quarter. That increase was a result of higher pricing, which outweighed shrinking consumer demand.

All of the company’s divisions reported declining sales volume in the quarter, despite seeing increases in organic sales as a result of higher pricing. Its grooming division, which houses brands like Gillette and The Art of Shaving, and which has historically underperformed for the company, reported no sales growth — its volume declines completely cancelled out its higher prices.

P&G executives noted in a call with media that consumer demand is responsible for at least half the 6% sales volume decrease. The remaining volume decline was due to reining in business in Russia as the war in Ukraine persists, along with inventory reductions in China, its second-biggest market, as Covid lockdowns disrupted the region.

As China loosens its Covid restrictions, the market is primed for a rebound. P&G’s Chief Financial Officer Andre Schulten expects that the country’s reopening will return the market to mid-single digit growth.

“When exactly that happens is hard to predict,” Schulten said on the media call.

The Cincinnati-based consumer goods giant, which owns brands like Crest toothpaste, Tide laundry detergent, and Pampers diapers, warned in October alongside its first-quarter report of a $3.9 billion hit to its fiscal year 2023 due to “unfavorable” foreign exchange rates and pricier raw materials, commodities and freight. As a result, the company lowered its guidance, despite posting a solid first quarter.

The company now anticipates headwinds of $3.7 billion for the remainder of its fiscal year, it said Thursday, marking a slight improvement. But it warned those headwinds would continue to squeeze P&G’s gross margins, which saw a 160-basis-point decrease during the second quarter versus a year ago.

P&G is doubling down on its price hiking strategy even as shrinking consumer demand continues to erode sales volume. Schulten said that consumers have reacted to price hikes “generally better than expected,” especially in nondiscretionary categories like feminine care and cleaning supplies.

“Consumers don’t stop washing their hands or doing their laundry,” Schulten said.

The company will further increase prices in the coming months.

P&G lifted its outlook for 2023 sales growth to a range of 4% to 5% from a prior range of 3% to 5%. The company lowered its estimated impact of foreign exchange to 5% from 6%.

This is breaking news. Please check back for updates.

Jamie Dimon says rates will rise above 5% because there is still ‘a lot of underlying inflation’

JPMorgan's Jamie Dimon lays out economic forecast for 2023 and worries over geopolitical conflict

JPMorgan Chase CEO Jamie Dimon believes that interest rates could go higher than what the Federal Reserve currently projects as inflation remains stubbornly high.

“I actually think rates are probably going to go higher than 5% … because I think there’s a lot of underlying inflation, which won’t go away so quick,” Dimon said on CNBC’s “Squawk Box” Thursday from the World Economic Forum in Davos, Switzerland.

To battle soaring prices, the Federal Reserve has raised its benchmark interest rate to a targeted range between 4.25% and 4.5%, the highest level in 15 years. The expected “terminal rate,” or point where officials expect to end the rate hikes, was set at 5.1% at its December meeting.

The consumer price index, which measures the cost of a broad basket of goods and services, rose 6.5% in December from a year ago, marking the smallest annual increase since October 2021.

Dimon said the recent easing of inflation comes from temporary factors such as a pullback in oil prices and a slowdown in China due to the pandemic.

“We’ve had the benefit of China’s slowing down, the benefit of oil prices dropping a little bit,” Dimon said. “I think oil gas prices probably go up the next 10 years … China isn’t going to be deflationary anymore.”

The series of aggressive rate hikes have fueled worries of a recession in the U.S. Central bankers still feel they have leeway to raise rates as the labor market and the consumer remains strong.

The JPMorgan chief said if the U.S. suffers a mild recession, interest rates will rise to 6%. He added that it’s hard for anyone to predict economic downturns.

“I know there are going to be recessions, ups and downs. I really don’t spend that much time worrying about it. I do worry that poor public policy that damages American growth,” Dimon said.