Climate knockout or COPout?

There were mixed climate reviews coming out of the G20 meeting this weekend, with some citing breakthroughs such as a commitment to stop financing new coal-fired power plants overseas and others saying the communique offered little specifics. Clean energy investors are now eyeing the COP26, a U.N.-sponsored climate summit in Glasgow that will take place over the next two weeks. Complicating matters is a global energy crunch that has prompted China to turn to coal to avert power shortages, Europe to seek more Russian gas and the U.S. blaming the OPEC oil "cartel" for soaring gasoline prices.

Why is it important? The goal of the summit is to finalize the 2015 Paris Agreement, which aimed to limit the rise in average world temperatures to well below 2, preferably to 1.5 degrees Celsius compared with pre-industrial levels. However, that meeting left out concrete details on how to achieve that objective, as well as how countries report emissions, what standards are used and who is responsible for auditing the data. Carbon offset trading is another area that will be discussed, as well as rules governing that framework.

President Biden is heading into Glasgow with a half-a-trillion-dollar plan to cut greenhouse gas emissions, or what National Climate Advisor Gina McCarthy calls the "largest investment to combat the climate crisis in American history." The current framework agreement is still pending congressional approval, however, with a $150B program aimed at pushing utilities to draw more power from clean energy sources under pressure from Sen. Joe Manchin. Countries and companies will also detail what they are doing independently of the Paris climate accords, including cutting methane emissions, as well as pledges for electric vehicles.

Thought bubble: Developing nations want wealthier countries like the U.S. to fork over more money to help ease the energy transition, saying it's unfair to sacrifice for the good of the planet after America spent decades industrializing without any restrictions on its growth. India's Foreign Affairs Minister Subrahmanyam Jaishankar is specifically looking for wealthier nations to raise $100B a year to help poorer countries, calling it "less than the money [that the] NFL is making from media rights." The negotiations will ultimately boil down to questions of fairness and trust, as well as how much each nation will be able to commit given their economic resources.

Travel disruptions

Plans for air travelers were disrupted again this weekend as American Airlines (NASDAQ:AAL) scrubbed more than 1,900 flights due to adverse weather and labor shortages. The issues started on Thursday and Friday, when high winds shut down American's busiest hub at Dallas/Fort Worth International Airport. The cancellations then snowballed, resulting in pilots and flight attendants not being in the right places for their flights.

Problems are getting worse: Spirit Airlines (NYSE:SAVE) canceled 2,800 flights over a 10-day period in September due to a number of factors, including bad weather and staff shortages (the affair ultimately cost the airline $50M). Last month, Southwest Airlines (NYSE:LUV) canceled abound 2,000 flights in a $75M loss that the airline blamed on thin staffing that made it difficult to recover after bad weather in Florida. It also triggers more concern about the upcoming holiday season, when increased traffic could cause further disruptions.

Airlines were banned from laying off workers during the pandemic as a condition of billions in federal pandemic relief, but that didn't stop airlines from urging thousands of workers to retire early or take leaves of absence to conserve cash. Carriers are still working to rebuild their operations to catch up with demand that has surged since the summer, but getting off the ground is not proving easy, with fully packed schedules often getting delayed or canceled.

Commentary: "Airlines found they overcompensated in terms of the cut they made to their fleets, to their payroll counts," noted Vik Krishnan, an aviation consultant at McKinsey & Co. "You can't fly planes, if you don't have people to unload the bags that are on them, or people to check you in, or people to help you board an airplane safely."

'Upgrade your sports drink'

Talks have been going on for some time, but Coca-Cola (NYSE:KO) today is set to buy full control of sports drink maker BodyArmor. Coke already took a 30% stake in the brand in 2018, adding a premium drink to its lineup that includes the Powerade label. The deal for the other 70% will have a price tag of $5.6B, valuing BodyArmor at an electro(lyte)fying $8B, sources told the WSJ.

Backdrop: BodyArmor was launched in 2011 by Lance Collins, the successful beverage entrepreneur who founded Fuze Beverage and NOS Energy Drink, as well as Mike Repole, co-founder of Energy Brands, vitaminwater, and Smartwater. In March 2013, Kobe Bryant purchased a large stake in the company (which the estate currently values at $400M) and Keurig Dr Pepper (NASDAQ:KDP) also has a 12.5% stake. BodyArmor's products include sports drinks, alkaline water and caffeinated sports drinks, but none of them contain artificial sweeteners, colors or flavors

While PepsiCo-owned (NASDAQ:PEP) Gatorade still dominates the sports drink market, BodyArmor purchases have been climbing quickly and are even expected to generate about $1.4B in retail sales this year. According to Goldman Sachs analyst Bonnie Herzog, Gatorade accounted for 64% of sports drinks sales in the four weeks ended Oct. 9, compared to Coke's Powerade, which represented 13%. However, BodyArmor has now taken the No. 2 spot, with 18% of the total market.

Go deeper: The BodyArmor transaction would be the largest brand acquisition in Coca-Cola's history as CEO James Quincey pushes the corporation to become a "total beverage company." The last big deal came in 2018, when Coke shelled out $5.1B for Costa Coffee to break its way into the coffee shop business. Another large Coke acquisition was its $4.1B purchase in 2007 of Glaceau, the company behind vitaminwater and smartwater brands.

Staley steps down

Reverberations of the Jeffrey Epstein scandal are still being felt in the capital markets as Barclays (BCS) CEO Jes Staley resigned overnight, ending a six year reign at the U.K.-based bank. It follows an investigation into Staley's characterization to Barclays of his relationship with the convicted sex offender and the subsequent description of that relationship in Barclays' response to the Financial Conduct Authority (FCA). Head of global markets, C.S. Venkatakrishnan (known as Venkat), will step into the top role with immediate effect, subject to regulatory approval.

Quote: "It should be noted that the investigation makes no findings that Mr. Staley saw, or was aware of, any of Mr. Epstein's alleged crimes, which was the central question underpinning Barclays' support for Mr. Staley following the arrest of Mr. Epstein in the summer of 2019," Barclays said in a statement. BCS -1.7% premarket.

The Wall Street veteran, who has run Barclays since late 2015, has had some additional trouble with U.K. regulators. Back in 2018, the FCA fined him about $870K after it emerged that he had tried to identify a whistleblower at the bank. He later apologized and Barclays held back about $680K of his 2016 pay over the incident.

What it means: "Although detail is limited, it appears regulators believe there was a distinct lack of transparency over this [Epstein] relationship," said Susannah Streeter, senior investment analyst at Hargreaves Lansdown. "It's understood Mr. Staley will contest the conclusions, and clearly the board wants to distance Barclays from what could be a long drawn out process." Staley's departure is "very disappointing" as he has improved capital and profit, added Shore Capital analyst Gary Greenwood, but Venkatakrishnan is well respected and experienced.

Today's Markets

In Asia, Japan +2.6%. Hong Kong -0.9%. China -0.1%. India +1.4%.
In Europe, at midday, London +0.5%. Paris +1%. Frankfurt +0.8%.
Futures at 6:20, Dow +0.5%. S&P +0.5%. Nasdaq +0.4%. Crude +0.5% at $83.95. Gold +0.3% at $1788.10. Bitcoin +2.7% at $62401.
Ten-year Treasury Yield +2 bps to 1.58%

Today's Economic Calendar

9:45 PMI Manufacturing Index
10:00 ISM Manufacturing Index
10:00 Construction Spending

Companies reporting earnings today »

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