Squawk on the Street

Stocks After the Sell-Off, Ford’s Massive Miss, ServiceNow & Southwest CEOs 7/25/24

Carl Quintanilla, Jim Cramer and David Faber started the hour by discussing the markets, a day after the S&P and Nasdaq posted their worst sessions since 2022. One of the day’s biggest movers included Ford, which plunged on its big earnings miss. The automaker was on pace for its worst day since 2009, after missing Wall Street’s bottom-line earnings expectations due to warranty problems, a reoccurring issue with the company. Staying with earnings, the CEOs of ServiceNow and Southwest both joined the show to break down their respective quarterly results. Also in the mix, David Faber broke out Warner Bros. Discovery suing the NBA over their TV rights deal with Amazon.

Squawk on the Street Disclaimer

Duration:: 52m
Broadcast on:: 25 Jul 2024
Audio Format:: mp3

Squawk on the Street Disclaimer

Building a portfolio with Fidelity Basket Profolios is kinda like making a sandwich. It's as simple as picking your stocks and ETFs, sort of like your meats and other topics. And managing it as one big juicy investment. That's pretty good. Learn more at Fidelity.com/baskets. Investing involves risks including risk of loss, Fidelity Workers Services LLC, Member NYSC SIPC. My dad works in B2B marketing. He came by my school for career day and said he was a big row-ass man. Then he told everyone how much he loved calculating his return on ad spend. My friends still laughing at me to this day. Not everyone gets B2B. But with LinkedIn, you'll be able to reach people who do. Get $100 credit on your next ad campaign. Go to LinkedIn.com/results to claim your credit. That's LinkedIn.com/results. Terms and conditions apply. LinkedIn. The place to be. To be. It's Jim Kramer here. You're listening to the opening bell of CNBC's "Squawk on the Street." Don't miss a minute of the action. Good Thursday morning. Welcome to "Squawk on the Street." I'm Carl Kingston here with Jim Kramer, David Faber, a post-9 of the New York Stock Exchange. Stocks do look for some stability after Wednesday's long apps and 2% decline. Q2GDP is solid thanks to inventories. But these disappointing earnings afford American Whirlpool, Nestle, and others briefly take the 10-year below 4-2. A roadmap begins with "After the Cell Off." Futures turn green. Investors weigh GDP after stocks saw the biggest one-day drop since 22 with mega-cap tech hit very hard. Mag 7 now in correction. Plus, we have an "Auto's Alert," so to speak. Four chairs are pointing to what could be the worst day those have seen in more than a decade this afternoon. It was a massive miss on earnings. And this hour we are joined by the CEOs of ServiceNow and Southwest. A lot of changes there at Southwest. Of course, both reported quarterly results. Let's get to the markets a day after the S&P and Nasdaq saw their worst day since 2022. Jim, sounds like you still think we might be overbought here? Yeah, we are. And look, the small-cap trade with the mega-cap trade is still going to be on. Look, they're going to try to make a stand here. And I think you have to watch NVIDIA. Why? Because that's been behind everything. Meaning that every company seems to be paying too much for NVIDIA. That's a new narrative. And if they're paying too much for NVIDIA, that means that you don't get the bang for the buck for AI. We do have Bill McDermott, who was very positive on AI, David. But I would say that there is a revulsion to the idea that AI is the Savior. And it really, I think, can be laid to the horrible Tesla call that I actually said, OK, but the reaction has been-- But why would that translate into AI? I mean, don't you? Because he spent the most visibly. Because he talked about the-- He did. He talked about NVIDIA chips. Everything except automobiles. Everyone else kind of. Basically, yeah. But, you know, they're all spent. I mean, like, we could say alph-- look at Micron's down, 50 straight points. Delos down, 60 straight points. I mean, when I say straight, I don't mean like, you know, casual. I mean, like, wow. You had a number of things happen at the same time. You had, obviously, well, you had rates start down and that just sparked this huge rally in the small-caps and medium-caps of the Russell. The IWM, as we've discussed. And then you also had this thesis that's sort of gaining some momentum that, will it-- will they ever see a return on this enormous amount that is being invested in CapEx by the big four, really? Let's call it. Yes. We should get rid of this. And those numbers, those enormous numbers, and we talked about it yesterday with alphabet, ever really generate a return. Now, they say yes, of course. Of course. At alphabet, they say yes. I don't think that's true. I think they say they can't afford to not spend because it might be yes. But that's the answer. The street hates that. Right. I mean, you're buying stuff because Amazon's buying stuff? Is that like the rap? Now, I thought before there's going to be so much, but I still think there's going to be great money. I just think the narrative has changed to the point that you're guilty about spending until proven innocent. And we don't have anything to prove your innocence. Yeah. But they're not going to stop their spending. No, they won't. Well, because we know, quote, a lot of this is at the feet of Jensma, at Nvidia. And what Nvidia said was, you can't afford to not do this bad because you'll never catch up. I believe that. But that may mean that I am an S-U-C-K-E-R. I don't know if you have that ratio. You have that ratio? That's the key ratio. Meanwhile, Jim, all the results today imply price cuts in cars, price cuts in airlines, price cuts at restaurants, price cuts at consumer products. It's unbelievable. But remember, this is in reaction to the customer going on strike. They're not going to pay for the high-end pet food at Nestle. They're really rejecting French fries at restaurants. The customer at the supermarket. Isn't that what we wanted? It's exactly what we wanted. It's what Jay want, Jay Powell. What he wanted. So this is what happens when you finally get your cut. Like, I might think just go off. Oh, I didn't even care. Can you hear me? I hear you. All right, fine. This is when you get the cut. At the ugliest moment, where we come in today and say, you know, David, there's a French fry revolution. And you say, "Let them eat cake." I'm shorting cake. You're shorting cake as well. Oh, cake is a cake big time. Yeah. The reversal that we've seen when it comes to the small caps versus the Mag 7 or whatever you want to call them. Whatever. Mega Cap tech. It's historic. No, no. It's unlike anything. Sambalist has enough to shape him in his chief puba. He's got them. It's like a nine. You have to go back a hundred years before you found something like this. Yes. That's a long time of market history. I mean, only you are in a position to actually recall exactly how long that is. Well, it's just like when I told you. Yeah, when I told you, you do need to go. Well, inside my grandfather in World War I with Pershing. You do need to go a long way back. Well, yesterday's action. Yesterday's action. Nvidia down seven. Oh, Tesla down 12. Mag 7 forward PE. Down nearly two points. No, no. It's extraordinary. And so the question is, do people believe in the thesis that David propounded, which is that you're just going to keep until there's an ROI. You're an S-U-C-K-E-R. And I don't want to be that. I've been riding these all the way up for my trust. And believe me, the meetings that I've had both with Jeff Marks and, of course, with myself, very soul searching. Because in the end, I'm kind of like a Dom De Luiz with it. I'm a triple schizophrenic this morning. The summaries are so short, don't you think? It's some period of weeks, everybody'd be like, all right. We're not worried about our ROI right now any longer. It's the same way that I remember the panic around alphabet for about a three-week period. My God, they're monopoly on searches, truly threatened by AI. That went on. And then search grows dirty. And then I was over. Everybody move on nothing to see you. I'm all, the trust is holding on. We actually made trims. Now that means that I was not as stupid as I may look to you. Well, we'll get to Ford in a moment. I didn't go to Harvard to get stupid, but I owned Ford. And it looks like I did. I actually did well at Harvard. Now I feel like they should take my degree back. There's some more chatter today, guys, about September being a 50 rather than a 25. Yeah. If the Fed were to cut, if they were to find a way to cut next week, what do you think the reaction would be? Panic. Yeah. That they know something that we don't know. The streets are really falling apart. That would scare people, wouldn't it? No, that would be like every airline southwest here. That would be like every auto is Ford Motor. Honestly, what are you laughing about? It's just, it's so funny. I find you visible on occasion. Yes. Like a clown? Am I a clown to you? That's what you're supposed to say. No, no. It's in my crustier bosom. The clown has already been decided. You know why? Because I also own Honeywell. Oh, Lord. Pens are already flying, and it's only 907. Let's get to Ford, by the way. On that note, it is down about 13 pre-market, big earnings, missed, warranty costs, hurt the quarter. Jim Farley talked about those concerns on the call last night. As painful it is, quarter after quarter, to have all these great launches. We do not release them until we're happy with the quality, and that we've done all the testing. And it makes our quarters lumpy, and it's challenging, but it will reduce warranty over time. What's weird is the EBIT guide was fine, and they raised the cash flow guide. Well, they thought it was a good quarter, which frankly is delusional. Because the warranties are so bad, and it came back. You know, the pledge not to have the warranties come back, and then warranty issues come back. And then, boom, their back is to me insulting. It's insulting to people who have hung on to the stock. Well, Stellantis is going to open down eight. They're not alone in the store. No, but I think when you go over what Adam Jonas said, like, why aren't you doing a buyback? And they said we have better things to do a buyback. After GM stock has moved up dramatically because of the buyback. This is the bottom five in the S&P. I thought Jonas was a teller of truth on this call. As painful as it was. He has covered himself in glory in this name. Neither am I. Stellantis still says it's a tough pick here. Thanks, Adam. I don't say that anymore. No, I know. Well, I've asked you many times why you own this, and you kind of have a hard time explaining it, but you haven't sold it. No, downgraded. No, look, am I sitting here telling you like what I hear about everybody else who comes on air and says, early? That I'll be fine? Am I saying I'll be fine? You see me being fine? No, but you've been a believer in Farley. I think that's what's kept you positive on the stock and the company, right? That's true. Yeah. And so what you should say is that I've been wrong. You've been wrong. It's okay. I've been wrong. It's all right. It's wonderful on returns because even Jonas has said that the GM performance here to date might be entirely due to the buybacks. Well, I don't care how it gets there. I don't care if he didn't kill his wife. Okay? This is a fugitive-like situation. I don't care. I don't care what happened. I do know that this quarter was not good, and they thought the quarter was good. And you see, if they had just said, listen, we screwed up, I would have liked them. No, I'm sure they can find somebody. They can GG. They can chat it and find something. But this was a very tough. I went home last night and I almost had a drink. I've got an idea. During? On a school night. I got out of that game. But I read and I said, okay, listen, I said something that Gene Hackman said to me 25 years ago. Which was? Sometimes you just get had. Sometimes you just get had. Yeah. All right. That's true. Great man. I'll see you in hell. I didn't see you. That was fun for you. That was fun for you. That was fun for you. What a great movie. No, but I didn't see you in hell because you're not going to be in hell. No, I was just going there. I'm hungry in hell. I was just going with a Hackman quote. One of the great, literally one of the best actors. You won't see me in hell because you'll be up there. They're laughing at me. Other than false words. Listen, Jonas is bringing us some existential questions about, are we sure the EV businesses of value create? How much are they losing per car? Basically talking about in his viewed Tesla also, you know, is only making money. The underlying EV business is not profitable on their estimates. I know you said that he's recommending it, but I got to tell you that that was his questions. I was shaking when he asked that question about the buyback. Why would you buy the buyback? He said it's the family. Maybe we even have any what's known as a side. I don't know that we do. We got some breaking news though. What? You like basketball at all? Do I like basketball only if I pay over paperwork? Yeah. Well, obviously people may know well, know that new NBA contract for the right to air the games beginning not this coming season, but the next one has all been signed up. We've been talking about Warner Brothers Discovery's failure to land the deal. They matched or leave. They claim they have. Amazon has the deal. And now as we've been telling you, Warner Brothers Discovery is suing the NBA. Kind of an interesting moment here, suing your one-time partner, continued partner really in airing games obviously over the next year. But in at least from what I'm hearing and we haven't yet seen the complaint that's expected to be filed this morning, may not be quite readily available, certainly will be redactions, but we'll get a look at the complaint very soon. This is over what is essentially a five page long matching rights provision in the contract that they signed with the NBA 10 plus years ago. And it may come welcome down to a breach of contract so to speak, but really what the definition of internet television is, and that will be something that appears that the courts are now going to be deciding after, of course, the NBA chose Amazon, said in fact that Warner Brothers Discovery did not effectively match. As again, we've been reporting would likely be the case. The package that Amazon has stepped up to the tune of about $1.9 billion. That does include WNBA games. We should point out Warner Brothers coming back with an offer that I'm told was around $1.7, but for only the NBA games, so they say it matched certainly on economics. They say it matched on streaming. It was going to be on max. But yeah, they would also have TNT airing the games as well. That's at least some concern for some out there who own the stock in terms of what becomes of TNT without the NBA. Of course, Warner Brothers Discovery responds, "Hey, we've got plenty of other sports on there as well." There you see the packages that have been selected by the NBA. It's rare that you see this kind of a thing and, you know, what I hear is, listen, they feel as though at Warner Brothers Discovery, they have a duty to their shareholders, a fiduciary duty to defend here, and the hope is that either they come away with some money, they come away with the games themselves, or they lose. But in their opinion, it seems as though they have very little to lose by litigating. And they feel like there were any number of things that were already set against them, including things like the requirement of three years of fees being an escrow, for example, which would have been very difficult for Warner Brothers Discovery to do and is something that was agreed upon by the other participants here. They even came down, after matching, after the exclusive period had expired, they came with YouTube as a potential partner for some other aspects of the deal, saying, "Listen, we can figure it out if we have to, apparently the NBA, not interested in doing that. We'll see, you know, Discovery, Jim, as you well know, in lawsuits, can find a lot or their emails or their text that are going to show that there's a predisposition to Amazon all the way. What happens if there's an email that says, "You know what, we actually don't want to go linear anymore. We see where the world's going. We'd like to be with you." But there's a contract. Yeah. So explosive. You know, again, we'd pointed to this as being likely it has now happened, and it will be in the courts. Of course, we will be interested in reading the complaint itself when it becomes available. But the NBA is being sued by Warner Brothers Discovery. Jim. Fabulous work. I'm very Macquarie. I read it, and I thought it had a lot of cogents. Okay. So let's turn to surface now results. They beat on the top and bottom line. That's actually not diffusive enough. It was a big beat and big bottom line. Company raised its annual subscription revenue forecast on strong demand, but they also had some issues involving a senior executive who left the company. We're going to get to that first before we talk about how great the quarter was. I want to meet right now, bring in the chairman and CEO, Bill McDermott, who joins us first on CBC. Bill, always thank you so much for coming on Squawk on the street. Thank you, Jim. All right. So Bill, you bring it up. I didn't know about this, but you, I thought that, oh, great quarter, great quarter, great quarter, but it was the very beginning of your conference call. You talk about an internal complaint earlier this year that indicated to you, and then you follow it up, that there was some, what I would regard as being, let's say not in keeping with your company, and that meant that CJ Desai, president and COO offered his resignation, the company effective immediately. Bill, what does this, does this mean, does it mean that there'll be a justice department investigation? Does it mean that the $4 million contract that you got with the army while the gentleman was still at the army is now in jeopardy? Because I think a lot of investors want to know, but there is a possibility that your huge federal business could be in jeopardy here. Yeah, this is a single threaded event, Jim, and an internal investigation was conducted, as you said, with the help of outside counsel. We transparently reported that we felt our policy was broken, and the necessary actions were taken, subsequently, you know, the client that you mentioned in the government entity has since renewed and expanded their relationship with service now. Look, we feel that it's a privilege every day. Bill, do they know about this before they renew? I mean, it's great that they renewed, but not if they didn't know. Yeah, we feel it's a privilege every day, Jim, to serve the citizens of the United States of America and all the government entities, and our federal business is fantastic, and I think that everybody appreciates that integrity. We don't braid on a curve when it comes to compliance, and we absolutely want to do the right thing, did the right thing, and we're confident in our position. Have you been contacted by the U.S. government, the Justice Department, the Department of Defense? No, I know I haven't, Jim. Again, we are proactive in disclosing everything, so there's no need for anyone to contact me. We've already given them everything. Okay, I hope that's the case. I don't think that it's necessarily over, but that's your judgment and my judgment. Let's talk about the quarter. There's been a sense that AI has been over-height, but when I look at your quarter, I would say AI is integral to a lot of the business you're winning, and you want a huge amount of business in a very uncertain time for everybody else, but it seems certain for you. Tell us how that happened. Well, I think a couple things. This is the AI platform for business transformation, and when you think about what CEO is looking for today, they have to grow their companies, but you can't grow your company. Anyway, unless you simplify, digitize your company to enable better customer or better employee experiences and obviously innovation, you have to build applications today that serve the consumer and meet them where they are, and this is one platform, one clean sheet of glass that resides above 50 years of mess, and we have powered it with GNAI, so it's now assist GNAI that's built into the platform, and when you think about companies seriously like Stellontus, Merck, Adobe, American Honda, Bayer, ST Microelectronics, and so many more and are great government customers, USA Air Force, National Science Foundation, Australian Department of Defense, they're all jumping on board with this platform because they have an end-to-end operation, a mission to run, and this is a very exclusive enterprise software platform that's transforming businesses every day, Jim. Okay, so, Bill, before these companies brought you in, and I know they brought you in because your phone is actually bringing off the hook because of your product, what were they doing? How much are they saving? Because there's a sense, other than at your company, Bill, that maybe everybody is over hyped AI, and it's not giving you a return on investment. And it sounds like your customers are getting an ROI. They're getting a big ROI, and in fact, what you have to think about, we have domain-specific LLMs, and this is quite a different approach than most, right? Because they run inexpensively, they have no latency, meaning they're lightning fast, and they're totally secure, and we're working with the customers' data. So when you think about helping employees do their job better or serving the customer better, we have cases where we're improving productivity, including with developers by 55%. So the drop to the bottom line is evident, and that's why, quarter over quarter, our now assist business actually doubled. And the pipeline, since our Knowledge 24 event in Las Vegas in April, is up 50% year over year, with an added billion in revenue opportunities, and lots of that's driven by Gen AI. So this is a truly a sensation. I think one of the analysts that covered us and put out a nice article this morning said, "This is the exclusive platform for the enterprise," and we couldn't agree more. Yeah, I mean, just so people know, nine out of 14 analysts congratulated the call, but one would say that you were exceptional, and the other one said you were amazing. That is the highest congratulations ratio that I've seen so far in 2024, congratulations on that. It does matter. You talk about Jensen Wong, and you talk about getting right with Jensen. What is NVIDIA doing with you? That's so exceptional. Well, we started building large language models with Jensen, and NVIDIA, a great company, a great leader, more than five years ago. So this is not wet paint. We've been at this for a while, and because we've been at this for a while, we built our game plan on top of the amazing technology of NVIDIA, and I mean the whole stack. So if you think about that partnership, and what we did, we started with IT, we quickly moved it into the employee experience, now we're running the table in customer experience, and obviously developers are improving their productivity by 55 percent. So the compute power coming from NVIDIA is powering the service now platform. All right, yeah, it is an excellent partnership. One last thing I had, I'll call a lesson back from Workday On, and Mark Benioff, yesterday from ServiceNow. They kind of want to come at you. They want to do one boarding. They want to go in. They say they have the data, not clear. They think that you have the data, but they've got it. Is it an existential threat to your company, or is it just something that keep an eye on? No, I think it's actually more of the same. First of all, everyone's entitled to this strategy, and I couldn't be happier for them, because they have databases with data in it. So if you think about Salesforce, or Workday, or an SAP, or Oracle, or any of the other ones, they have data in their system of record. That's 20th century architecture. We know that. We appreciate that, because that data can be fed into the ServiceNow platform, where everything is automated and workflows in a seamless, rocket-fast way. So it's really more of the same. And the fact that they're cooperating is going to help us help customers. And I want to tell you something, Jim, one of the sleepers and some of the smart analysts picked it up yesterday, is we invented something called RaptorDB. And we're ingesting massive data at scale, 12 times the amount of data that's ever been achieved before in an enterprise platform, and we're processing analytic queries 27 times faster than has ever happened in an enterprise software platform. That data will come from those databases, like the companies that you mentioned. So we're thrilled about it, and our customers are loving it, and that's why we're the unicorn and we're growing faster than all the other ones. It's absolutely true. Let me be the 10th out of 15 people to congratulate you. It wasn't acceptable. That's why the stock is a big. And everything else in your segment is going low, because you outperformed everybody else. I want to thank you, Bill McGovern, who's the chairman and CEO of ServiceNow. Thank you so much, Jim. We'll get Kramer's mad dash in a moment. We'll get to IBM and Honeywell and the airlines in Chipotle. And Kramer's mad dash in a minute. Support for this program is provided by Chevron. 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Earning your degree online doesn't mean you have to go about it alone. At Capelli University, we're here to support you when you're ready. From enrollment counselors who get to know you and your goals, to academic coaches who can help you form a plan to stay on track, we care about your success, and are dedicated to helping you pursue your goals. Coming back to school is a big step. But having support at every step of your academic journey can make a big difference. Imagine your future differently at Capella.edu. Alright, let's get some mad dash, loud crowd here, a lot of earnings. Let's hit Honeywell. Yeah, in the few seconds before I can't hear you whatsoever, Honeywell reported was actually a mixed quarter. Now, I know this is what anyone's going to believe, but they're setting up for a very strong 2025. They did have margin pressure this quarter. Some of it was related to deals. We're telling people not to panic at the club because it's been... It does have a new solo, and I can tell you that I am very disappointed at all times. You are? Yes, because I expected that. And that's OK. I deserve that. We deserve that. You're where your sales go for five percent, four percent organic sales field. Not enough for me. What do you mean every other guy ever know you can't say, "Hey, I'm not a cat." Let's get the opening bow here. You can't say, "Hey, I'm not a cat." You can't say, "Hey, I'm not a cat." People are talking about that lineage IPO, like it's the next prologist. They're really getting excited about it. Cold storage, you know, in terms of logistics, obviously being a key part of it. I had some statistics here I'm looking for, sorry, or are they. I wrote them somewhere, but I lost them. But it was very much oversubscribed. I think top 25 holders all represent neutral funds or sovereign funds. No hedge funds in the book. It was very interesting because... So we'll see how lineage performs when it opens. It's kind of like it has the advantage of not having very little to do with the mega caps and a lot to do with just kind of the general way that we do business in the country. Prologists actually had a good quarter, so people feel like, "You know what, some are prologists." It could be worse. No, it could be worse, right? But as we point out, one of the largest IPO of the year, so we'll see how it performs. It's going to be a while till it opens. Yeah, look. And it is a week. We need to remember that this is the debt of summer, and I would not, Carl, have expected something this big to be able to be priced so well. Speaking of real estate, Jim, NYCB getting taken apart today on their results, trying to lower their CRE exposure to 30 to 35 billion provisions. This is what they said would happen, so I'm kind of surprised that everyone's in panic mode about it. But, you know, when you go over commercial real estate, there's still nothing really to write home about, and anyone who has any exposure is obviously looked not aghast, but they initially worry, and then they should look at SL Green, Vernado, and they should look at Simon, which is more retail, obviously, and they come back. And that's why I am not as chagrinned as others about this. We did get a nice DIVHIC over at B of A yesterday, 8%, and a little buyback, 25 billion. No, not everybody's being heard here. I think we're way too close to what's not going right. We're going to have the same problem we get to Southwest. It's easy to emphasize what's not going right now. Yeah, what did you make of the American guidance, Jim? They were looking for about 225, 325, they say it could be as low as 70 cents now for the full year. Yeah, that was absolutely horrible, and you can have these conversations. Philbo's great, because he doesn't have to, like I'm the color man on this, but could it really be that bad so fast? I mean, every plane is full, they have a little bit of a seesaw of a fulcrum, but they just add like three more planes, whatever pricing goes down, how could they be so wrong? It's crazy. Where's the stock versus COVID? Load factor was a beat, 86.6, as Phil will tell us, but Razum down, almost six. That was painful, and when I looked at that, I said, "Wow, I thought American could do something better. The stock has been acting quite horribly, but it's deserved it, and I cannot believe that they can do so poorly in what is a tremendous time for travel." Tremendous. Look, Americans especially tell you it's tremendous. We've got companies that cross border, the MasterCard and Visa, that was part that was really strong for those guys. So these guys are playing right in the sweet spot, and this is all they can do. Now they're largely domestic, so you can say, "Oh, Jim, you're talking about overseas." But I don't know. I expected better. I just expected better. Speaking of expecting better, I'll mention a company we don't often talk about here, but it was a $52 billion market value before trading today. Edwards Life Sciences. Oh, why? Their major product is not selling well. Let's take a look. You're talking about... Tapper selling fabulous capital, aortic valve replacement. Oh my gosh. They are. Look at what is happening to this stock. It's the bet, Rob. By the way... Starting... This had the same market cap as Ford, basically. A couple of billion less at the beginning of the day. Sorry, but my point is that it's losing a quarter of its value. If I had the old penguins back from the old squawk box days, I'd be rolling them out. Because this morning, suddenly the analysts see something they don't like. At B of A, at Bear, at JP Morgan, at Truist, and it goes on from there. The downgrades are everywhere. Jim, the growth rate was simply not there for this key product. Sales of a billion grew 5%, 6% constant currency. Edwards competitive position, they did not meaningfully change globally, although the company experienced some regional pressures, and pricing was maintained. So what's the issue here? As they obviously... Again, this trans-catheter, aortic valve replacement. In English, they used to have to crack open the chest cap in order to be able to do an operation. And then this company comes along with a product that makes it so you don't need to crack open the chest. So it's revolutionary. And the fact that it's slowed down, not a lot of communication that it's slowed down, is really kind of like, well, what are they besides that? This is not Boston Scientific where they've got a million products. At Boston Scientific, by the way, they also does cardio. And I don't know what to say about it, Edwards. This is when you're a bread company, and you don't sell a lot of bread, people don't say, well, this might have been the peanut butter. No. Well, what had been 52 billion is 25% less. So that is not a good day to be an E.W. shareholder. No, it's not. It's just switching. Those who have it, just go switch to Boston Scientific. They had a remarkable quarter, and they're doing so many things right in so many different fronts. So let's keep that in mind. That's the winner in the segment, and Edwards is the loser in cardio. How about Viking Therapeutics up 16 as their drug goes to late stage? Let's give them their due. We only lie lilies, but one of the greatest performers I've ever seen. Viking has got a catch-up thing going, but this is phase three, and let's remind people that Lilly has very similar products. Someone should go buy Viking. If I were Pfizer, I would buy Viking. But I would buy it because they didn't want to compete, and it's worth it. But this is not going to hurt Lilly longer-term because it takes billions of dollars to build the plants, and their lilies got the same product. So this would be a me-to-pill, but there's this once a month. We don't share the duration of, is it once a week for Lilly? We need to know from Lilly, and I don't have that sourcing. I don't have the sourcing right now to be able to check to see what Lilly has. Somebody earning this morning, guys, and a lot of movers on them. Here's another positive one that we haven't hit yet. This is Raytheon, or I should say RTX, RTX, very strong results that are getting a very positive response in the market. Reported sales, $19.7 billion for the quarter. That was up 8% versus the prior year. They say 10% on what they call an organic basis. Gap EPS, $0.08 included $0.29 of acquisition accounting adjustments, and a buck O4 of other net significant, so when you back it all out, adjusted EPS, 141% up 9%, Jim, you're getting a very positive response there. Obviously, as Greg Hayes passes the torch to-- To Chris Callio. Now, it's fair to say, is this Greg Hayes's quarter? I think that both of them worked together for a very long time. What I really liked about this quarter, David, in particular, was you remember, a couple of years ago, Greg Hayes came out and said, "Listen, we're having a problem making the big-year turbo fan, the GTF, which is selling like crazy," and they were calling all of them. It turns out it was less than 1% had a problem. Hayes bought every share while the stock was down. Why? Because Hayes believed in Hayes. A lot of other people were skeptical. Greg Hayes is actually one of the great CEOs of our year, and he's now retiring. What a good guy. Never screwed up. Never. Well, the turbo fan thing was kind of a screw up. But if you look at it, I think only less than 1% there was a problem, and they recalled everything. Listen, I'm just saying that he admitted it, he owned it, then they looked at the stock, it wasn't so bad. He gave you an opportunity to buy the stock to be fair. Well, that's black. Yeah. So in the end, the cured turbo fan-- look, they did a great job with that. They called it back. I guess I'd rather do his contrast in this with Boeing. Wow. If you work the RTFs, you should be proud. If you work at Boeing, what are you doing? You know, the airlines, let's get to fill the Boeing Dallas alongside Southwest, Bob Jordan. Morning, Phil. Morning, Carl. Last to discuss, Bob. Let's get straight to it. Q2? That's not necessarily what people are focused on. It is the guidance, much lower than expected for Q3. Is this a case where you've got issues with revenue management, as well as just so much excess capacity? You've got to flush out over the next six months? Yeah, Phil. I'm not happy with our resulting Q2 either. But there are a lot of impacts. So there are, at this point in time, there is excess capacity more than demand. And we're working to flush that out, where our capacity is actually going to come down to about 2% here in the third quarter. It'll actually decline to a 4% decline in the fourth quarter. Actually, seats will be down 8% over a year. But I'm really happy with the demand for Southwest Airlines. We have record passengers. We have record Raptor Wars members. We have record revenues. We have record credit card members. So there's a lot of demand for Southwest, but we have work to do on the revenue side. You've got a lot of demand. But so you're changing the business model though. After 50 years, you are now going to a signed seating, premium seating with more leg room for up to a third of the cabin, new boarding system. Why change now? Well, I'm very excited about the set of strategic initiatives that we have to transform the company. And this is a purposeful build. We've been building for two years, adding seat back power, adding larger bins, expanding our Wi-Fi performance. This is what our customers want. 80% of customers that fly Southwest today wanted a signed seat. 86% of customers that don't fly Southwest want an assigned seat. And when a customer defects from Southwest to another competitor, it's the number one reason. So it's the right thing at the right time. But did it take Elliot management taking a stake and saying you guys aren't doing well enough in order for you to make this change? Because the cynic out there will look at this and say, well, you had to have known this for years. Why have you waited until now to make these changes? The Elliot thing had nothing to do with it. We've been working on this since last fall. We very rigorously studied this. It's a big change. So you don't do this lightly. So an extensive focus on surveying our customers. A lot of engagement to understand the operational impacts. So we've been working on this for actually nearly a year. Now any change like this is huge. We've been open seating for basically the entire life of the company. I know there are going to be customers who say, I want to stay with open seating. It's a minority, but we had the same thing when we switched from plastic boarding passes. We had the same thing when we took peanuts out of the cabin. So I'm convinced we can win them over. And a customer friendly set of things that we offer our customers, the best policies in the industry are going to win them over. Bob, Jim's got a question. Jim, go ahead. Sure. Okay, Bob, thank you for coming on. Terrific. I do want to ask you, what happened to your booking policy or the way you did it? How did you execute it? Because when I look, you estimated two points a year over your headwind from revenue management challenges because you sold an excess number of seats for the peak summer travel period too early in the booking curve, isn't that the kind of execution that you have to be concerned about yourself? New Jim, the move to a new revenue management system and OND system, which is far more complex, it just takes time. And there is an opportunity to really tune the system and continue to improve our processes. But no, we sold too many seats too early for the high peak demand summer travel period, especially on our best flights, so you get to the summer and there are just fewer seats to sell. We have a plan. We brought in experts to understand what is happening. We have an action plan going forward and I expect the issues to taper off. But no, the new system is far more complex. We're also adding talent in the area. We're bringing in a new SVP chief revenue officer. We're beefing up resources, but I think we understand what's happening. We have an action plan. But no, we cost ourselves roughly two points of revenue. Not the FAA has launched a safety audit of your operations. After a string of scary incidents, how do you explain these incidents? Safety is number one, absolutely nothing top safety at any airline, especially at Southwest Airline. So we take the issues very, very seriously. We have a team that's focused on understanding what happened, what we can do to improve. I actually talked to FAA administrator Whitaker earlier this week to make sure he understands my personal commitment to safety. We welcome the FAA and we welcome their assistance. But how do you explain this? Because the person watching this at home will say, "Yeah, you want safety." How do you explain aircraft that are diving low and staying at a very low altitude? That is the purpose of the investigation, to understand of our own personal investigation here at Southwest. To understand what happened, a lot of times these things are human factors in the cockpit. I don't want to speculate, but we're going to do the hard work to understand exactly what happened. How do we improve? We're going to work with the FAA and we will get better. Jim's got another question. Jim? Kind of a good news bad news situation. One week ago, CrowdStrike released an update and it infected a lot of PCs around the world. It did not infect yours as I looked into that. It was because you had not updated previously to this because you didn't have the latest computers. You weren't hurt by CrowdStrike. Was that the correct narrative? That is absolutely the incorrect narrative, Jim. We've been investing in operational systems for a long time now and our operational systems and improvements and the redundancy they provided actually is what helped us operate through this. We had poor redundancy in key operating systems that were affected by CrowdStrike. We were able to go ahead and find a workaround that redundancy helped us have a 99.9% completion factor on that variety. But no, we do use endpoint cybersecurity and in some cases we use a different vendor, but we had key operational systems that were affected by CrowdStrike and we were able to mitigate that through investments that we've made, redundancy, and we will continue our investment in operational systems. Quickly, Bob. One last question. Elliot Management has basically said, "You should be fired?" Chairman Gary Kelly should be fired. Have you engaged in any meaningful discussions with them or is this pretty much their position? We're going to continue running the airline. We listened and talked to all of our shareholders so far. Elated has shown no willingness to engage in any meaningful conversation. We'd be happy to do that, but it's hard to have a dialogue that's one-sided. Right now I'm focused 100% of my time looking forward the strategic transformation plan we have for Southwest Airlines and making this an even better company. Bob Jordan, CEO of Southwest Airlines. Thank you. Got a lot of stuff going on around here. Guys, we're going to send it back to you. Fantastic stuff, Phil. I'm at Busy Morning for you between South-West and American. That's our Phil LaVoe in Texas. Jim, I want to get you on Chipotle where the drawdown is now almost 25%. We had Nickel on over time last night. This is near-term guidance on margin pressure, at least for the coming quarters. Right. Now we had Jack Hartung answering those questions. No one's more straight than he did. It kind of took my breath away and when he said, "Look, we raised prices in California," and that actually caused a drop off in sales. The gains of the sales wasn't that good, meaning that the best month was the beginning and went down from there. But let's just talk about the social media issue that I thought was put to rest. There's one thing that Brian Nicholson listened. We instructed everybody, there were some uneven, there were some uneven sizes. Everyone's going to go back to full. I thought that was great. I am never going to criticize a company that did double-digit comp numbers. Yep, that's true. They'll be back. They will be back. And I think people are jarred by the fact that they're turned out to be a price that people wouldn't pay. And that's what really surprised people. I mean, we have Heather Gaines is one of our producers for birthday, today, happy birthday. And I know we'll order Chipotle. We don't look at the price. But in California they look. Tom was up, I'm sorry, I didn't mean to interrupt. It's not because of a lot after an hour or something. We didn't know about the California comment. We didn't know about the California comment. We didn't know about the California comment. We didn't know about the California comment. We didn't know about the California comment. We didn't know about the California comment. We didn't know about the California comment. I mean, can I just say Chipotle tells them there's no, there's no omission of facts. You see it right there. What did Chipotle call? And I think that yes, it was jarring to hear that there was a price, but no, they will be back. Comps were up 11 and sales up 18 to Jim's point on price. Meanwhile, Lam Westin gets a downgrade today at B of A. They go to neutral. They were at 109. They go to 66. Yeah. That's a haircut. Yeah, look, Lam Westin remains the benchmark in 2024 of the worst prediction and the fact that french fries got too expensive and that dining out, which is really the culprit, got too expensive is something which says speaks to what you asked me at the beginning of the show, which it's the backlash and they were caught through the collateral damage of the reason why the consumer has had it and they're not going to take it anymore. It just so happens that they're the ones that got hurt by it. That's the future if you, if you don't know where your pride was yesterday's news as well. I mean, today, I mean, some of these moves we're seeing are dramatic on earnings. Ford is down over 17%. Had to bring that up. I had to bring it up. Yeah. Well, service now is up $90. That's great, Jim. Ford is down 17%. Well, Ford had warranty problems after they told you that they had fixed it. Ford had the goal to say they had a good nails up $94. They had the goal to say it was a good quarter. You can't do that, Jim. You can't say something's a good quarter and have your stock down 17%, without having some serious solcer. Yeah. Serious solcer. Either way, Lulu's down to the lowest level since COVID. Well, that downgrade by city was just shook you to the core because they said, look, there's just a tremendous, again, revulsion just paying a lot of money for athleisure. These are all the consumers saying, I'm not going to pay for this stuff. I mean, even if you look at tractor supply, one of the ones that David is so familiar with, tractor supply, they actually came out and said, look, some discretionary sales weren't that strong, but at least they have all this other stuff that makes up for it. But if you just have discretionary sales, you have been annihilated at this quarter. There's no going back from the consumer just saying, we're done, we're absolutely done. What's interesting is there are companies like Whirlpool, which already took the medicine and didn't get hit again. Yep, that's true. Whirlpool took the medicine, we knew it was going to happen. Sure. They were flying. And we say, hey, you know what? That's what they told us. They told us that. We should have marked the clock. Keeping an eye on mega cap tech, of course, all of which appears to be down right now. Other than Tesla, if you want to include that, obviously, there are others who have a larger market value. Right. By the way, Lily is below an $800 billion market value. You want to circle back quickly to Warner Brothers' discovery story. We brought you towards the top of the hour, there's Tesla, which is bucking that trend. Those shares are down sharply, down 7% again on news that we share that they are suing the NBA. I guess never a great story when you're suing your longtime partner at some point. And then there's, you know, are there questions about whether other leagues then will think twice about going into a long term deal with Warner Brothers' discovery. They say this is a one off. This is a contractual issue. It's a five page thing on matching rights. They matched. They said they didn't. And they want to see what a court decides ultimately. But I did want to point that out, guys. And again, so many of these movers, dramatic moves on earnings, whether up or down to your point service now up, or down, or life sciences, getting crushed this morning, when you execute poorly and you don't tell the community what's going to happen, you get an eyelid. When you communicate ahead of time, like a tractor supplier or a whirlpool, you don't get an eyelid. Own it. Memo to corporate America. Own it. Own it. Don't skate. You won't get away with it. Did Southwest own it there? Did Southwest own it? I think Phil asked the question, like, if everybody knew and didn't want the way you did seating, how the heck did you do this, and I thought, I thought, Bob, quit it himself. I thought he quit himself well in that question. Yeah. I don't know. Not everybody. Well, he's been under a lot of fire. Meantime, Jim, we'll watch bonds 10 year briefly got to 419 this morning as we're in this blackout window back above 4-2 at the moment. Oil still below 77. That's a one month low. Fix is holding 18. Stay with us. At Ever North Health Services, we believe costs shouldn't get in the way of life-changing care, and we're doing everything in our power to make it possible. Behavioral health solutions that also keep your projections at their best, it's possible. Pharmacy benefits that benefit your bottom line, it's possible. Complex specialty care that cares about your ROI, it's possible, because we're already doing it, all while saving businesses billions. Just wonder made possible. Learn more at EverNorth.com/wonder. Earning your degree online doesn't mean you have to go about it alone. At Capelli University, we're here to support you when you're ready. From enrollment counselors who get to know you and your goals, to academic coaches who can help you form a plan to stay on track, we care about your success and are dedicated to helping you pursue your goals. Going back to school is a big step, but having support at every step of your academic journey can make a big difference. Imagine your future differently at Capella.edu. Let's get to Jim and stop trading. First, I want to apologize to the viewers. You can't do justice to all these companies. For instance, I've got Hasbro tonight, and Hasbro reported a terrific quarter that's the beginning of it. This is the regime that's doing well, the stock was up six before. I can't wait to speak to them. Cracker Barrel and O2V, that'll be good. Dow, the old Dow Chemical, with just an OK quarter, a big single company, but this is a morning where you, where it's a Jeff Prob's morning, as I just posted on Twitter. Memo to corporate America, you screw up, we ain't got nothing for you. One we didn't get to is IBM worth a quick mention, up over 4% on earnings. They raised the FCF Guide, $12 billion plus now? Yep, and software was good, but the mainframe cycle is good. You give them their due, that was a very strong quarter. I was looking at the red hat business, which was only single digit growth, and I thought that might hurt them, but it didn't, because they executed very, very well. Congratulations, Tom, yeah. I mean, we could spend another half hour on the Robert Haffes and the O'Reilly autos of the world. Absolutely, and you know, again, there's so much of corporate America that is in flux, and I don't even think we did justice to AI, but I think the rallying surface now shows you, if you use AI, you've got a return on investment. But crush it, that rallying surface now is real and deserving. What are you? I was thinking about the crazy story about succession in the Murdoch Empire. Wow, we didn't even get to that either. Well, those lawsuits, the three children, I mean, it literally is playing out like the HBO show. They don't have shiv's vote, they're not, clearly they don't, and they have Kendall's vote. Frank must be like, what in the world is going on here? Jim, we'll see you at 6. Wow. Thank you. Yeah, me. Eastern time. We'll take a quick break at stocks. Try to rebound after Wednesday's, dropping back in three. You've been listening to the opening bell on CNBC's Squawk on the street. 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