3 in 3: Packaging Pricing Power, Utilities M&A, Summer Interns

Packaging companies are ripping up their contracts. The wave of utility M&A is upon has the death of entry-level jobs been greatly exaggerated? I'm Jim Lydotes and these are three points in three minutes. So let's flip over the timer and let's go. 

We're seeing an interesting dynamic right now with consumer packaging companies, the companies that make anything from the containers for soda bottles or shampoo bottles. These are companies that historically have not been considered the best businesses, low margins, low returns on invested capital, and generally very little pricing power. Well, what's going on more recently is with the conflict in the Middle East, there's been very real supply constraints on a lot of the materials that go into these products. That has led to a situation where their customers are willing to fully renegotiate their existing contracts, accept much higher prices in agreement to be able to get some supply guarantees. So you've taken an industry that historically has been very poor and you've dramatically changed that dynamic and we think this is creating a huge opportunity as we go into the balance of the year. 

Second, the wave of consolidation in the US utility space is upon us and we think that's a really good thing. We got news that Florida-based NextEra Energy was making an acquisition of Virginia-based Dominion Energy. Dominion operates in Loudoun County, Virginia. That is a hotbed for data center activity. About a quarter of all data centers in the United States are located in Loudoun County, about 800 football fields worth. 

And all of that data center capacity is going to require a ton of investment in infrastructure, a ton of investment in new generation. And that growth was what was so appealing to NextEra. And that's what made that consolidation happen today. We think this is just the start of a wave of consolidation. Larger companies have better access to capital, lower cost of capital, and they're better able to arbitrage growth opportunities across their entire portfolio. So we think this is just the beginning that we saw today. And in utilities, especially US utilities, you get a defensive sector with now a ton of growth and you have the additional opportunity for M&A coming out.

And finally, Memorial Day marks the unofficial start to the summer internship season. Summer internships are generally a leading indicator for full-time hires. With all the concern around AI impacting entry-level job growth, we wanted to do some research on this. 

Our proprietary Grassroots Research team recently completed a survey with campus career service directors to see how AI is changing the landscape. And while there absolutely was an emphasis on making sure that candidates had a baseline level of AI fluency, you know, it wasn't reducing the overall volume of internships. And as important, it wasn't reducing the to convert those internships into full-time opportunities. So again, the skills are important, but from our research, the jobs are still there. 

That's our three points in three minutes with a little sand left in the bottle. Have a great Memorial Day and we'll see you here next time.