Closing Bell - Closing Bell Overtime: Adobe CEO On Earnings, Demand; Panera Founder On How To Win In Current Dining Market 9/12/24

Episode Date: September 12, 2024

The tech outperformance continued in trading today. BofA’s Jill Carey Hall and Schwab’s Omar Aguilar break down how to play the current market. Adobe CEO Shantanu Narayen on the latest quarter and what’s next for the company. United Wholesale Mortgage CEO and Phoenix Suns owner Mat Ishibia on mortgage demand and sport valuations. Ron Shaich, Panera founder and Cava Chair, on how to win consumers in the current environment. 

That's the end of regulation. U.S. Bank Corp. ringing the closing bell at the New York Stock Exchange, SS&C, Alps Advisors, and Core Commodity Management doing the honors to the NASDAQ. Well, stocks adding to Wednesday's gains and gains on the week, with tech having another strong session, small caps seeing big gains today. That's the scorecard on Wall Street, but the action is just getting started. Welcome to Closing Bell Overtime. I'm Morgan Brennan with John Ford. Yes, and well, $260 billion software firm Adobe reports results in just moments, we have access you will only get on Overtime. It's an exclusive interview with CEO Shantanu Narayan before he talks to analysts on the conference call. Don't want to miss that.

Plus, billionaire Phoenix Suns owners and United Wholesale Mortgage CEO Matt Ishbia joins us to talk about the pent-up demand to refinance and how next week's Fed decision could impact the mortgage market. And Panera founder and CAVA board chair Ron Shaik weighs in on McDonald's decision to extend its $5 value meal and the tall Pabst Venti task facing new Starbucks CEO Brian Nicol. Well, let's begin with our market panel, Jill Carey-Hall of B of A Securities and Omar Aguilar of Schwab Asset Management. It's good to have both of you here on another day where major averages are in the green. So, Joe, I'm going to start with you here because we just heard Mike Santoli talk about it, the Nick Timoros

article, the journal laying out the possibility or the case for a 50 basis point cut. How much has that factored in to the market here? And does this rally have legs in light of it? Thanks. Yeah, we think there'll be a 25 basis point cut. Our economists believe we'll see one 25 basis point cut at each of the next five meetings and then quarterly cuts through the end of next year. And, you know, I think we are sort of weighing, you know, Fed backdrop, but also the macro data where, you know, we've seen volatility in the markets. We think that could continue. And bottom line is, you know, we're in a period where volatility typically picks up in the months ahead of a U.S. election. The yield curve has been a good long lead signal of volatility, so that had been suggesting volatility could bottom midway through this year and start to pick up. So I think we're in a period where the Fed is going to begin cutting. We're expecting 25 bps, and we think that this is going

to be a period where you want to position for higher volatility, own higher quality investments within the S&P 500. Okay. Omar, how do you see this market, especially as you argue that we are experiencing a bifurcated soft landing? What does that mean? Well, we see a lot of these bifurcation in many things. We see it in the consumers. We see it in just the way that different parts of the economy has gone. We discussed this in the past about this idea of rolling recoveries and rolling recessions. And now we're seeing, you know, very quickly. On one hand, you have softness in the labor market. You have softness in manufacturing. You have softness in the housing market.

And on the other hand, you see that GDP growth is pretty solid, that you see the inflation, which is a lot of what the Fed continues to look for, is on the right trying towards the 2%. And the CPI and PPI numbers clearly reflect the fact that the destination for inflation seems to be moving in the direction that the Fed and other central banks like to see. And overall, you see that the soft landing discussion continues to favor and confirm a lot of what the Fed is trying to do. You know, we believe that overall, you know, the economy and the health of the U.S. economy continues to be very good. And therefore, you know, the Fed is in a well position to decide whether they want to do 25 or 50.

They have the flexibility to go for 50, which was a lot of the article today on the wall street journal said our believe they're not going to go for fifty and a lot of that is because they don't want to sound that there's a panic that there's an issue related to the economy which is the reality the data shows that is in pretty good health so jill you gave us the overview what happens to small caps in particular you think during this period do we get more caps in particular, do you think, during this period? Do we get more breadth in general, or do the mega caps continue to outperform? Well, I think within the S&P 500, we're likely to see more breadth. We were in a period where

Magnificent 7 were the ones that were seeing the really strong earnings growth and surprises, but now we're seeing earnings growth decelerate for that segment of the market and pick up for the other 493. I think for small caps, that's what was expected to happen as well, but it's sort of disappointed. So we've been tactically cautious on small caps because I think even though Fed cutting is a positive and alleviates part of that refinancing risk relative to if we were in a higher for longer backdrop. The other side of the coin is that fundamentals for small caps have not improved. And, you know, beginning of the year, everyone was expecting that by this earnings season, small cap earnings growth would already be outpacing large cap earnings growth. And that hasn't happened. That earnings recovery for small caps has continued to get pushed out. So I think, you know, the Fed is one positive, but we also want to see an improvement in fundamentals,

improvement in the revision and guidance trends for small caps that we just haven't really seen yet before getting more bullish on the Russell 2000 overall. It's interesting to hear you say that, especially with the Russell 2000 finishing up 1%. I'll note we've got both earnings for Adobe and RH out, and we are going through those numbers. We'll bring them to you momentarily here. In the meantime, Omar, I want to get your thoughts on where you should be positioned or invested in this market, whether it's small caps, whether it's something else. Well, I would just summarize it into one thing for both equities and fixed income, which is quality.

I think staying in the higher quality for fixed income as well as staying in the high quality for equities and fixed income, which is quality. I think, you know, staying in the higher quality for fixed income as well as staying in the high quality for equities, you know, will continue to drive a lot of good long-term investment results. You know, I'll touch base on the small caps because what is interesting, despite the fact that small caps have underperformed in general relative to the mega caps, you know,

when you look at just within the Russell 2000, you know, the profitable companies, you know, when you look at just within the Russell 2000, you know, the profitable companies, companies with profits and positive results have outperformed the ones that are unprofitable, but over 20 percent, which means that in general, profitability and higher quality ends up driving a lot of those potential results. So overall, you know, our view is that, you know, usually when you have an economy that is not in recession and you see the easing cycle of the Fed, history tells us that you will see a gap, but eventually small caps tend to do better. The credit market tends to do much better. And in general, you will actually see that potential tailwind for those asset classes. Overall,

in fixed income, we believe that extending duration should be in favor and staying with the higher quality. Don't necessarily have to chase yield. It's another way for continue to position their portfolio, especially because the short end of the curve will clearly come down because of the Fed. And, of course, we are getting ready to bring you those results on Adobe and RH. And you can see both of those stocks moving in opposite directions right now. Meantime, Jill, you're arguing for a manufacturing recovery. So when we do talk about the broadening out of this market, what does that mean as we do look to industrials and cyclicals and other parts of this market that have been

less loved, at least until recently, versus the big tech and the AI trades? Yeah, I mean, overall, that should support part of the broadening story that we talked about in terms of, you know, some of the sectors that you mentioned where, you know, the S&P 500, when you look at earnings overall, the S&P is more exposed to goods than services, which is the opposite of the U.S. economy. And we've been in a services recovery since COVID, and services has been where the strength is. But as you start to see more of a shift towards goods, that could benefit the broader S&P 500 and some of those sectors and would support that earnings recovery

for the other 493 within the market. All right. And many of those cyclical sectors have been very under-owned by investors relative to growth and MAG7. All right. Jill Carey-Hall and Omar Aguilar, thank you for joining us. Mention those Adobe earnings are out. The stock is lower by more than 7.5% right now in overtime. Get you the numbers here. For Q3, the quarter that they are reporting, it's a beat on the top and bottom lines. But for Q4, the guidance is what's driving the disappointment here. First, the Q3 numbers.

Revenue coming in at $5.41 billion versus $5.37 billion expected. Specifically for digital media, revenue at $4 billion. That's above the expected range. Give you earnings per share share non-gap. That comes in at $4.65. That is versus expectations of $4.53, also above the range that Adobe had given. Get you another segment here. Digital experience, that in at 1.35 billion versus 1.34 expected and net new digital media annualized recurring revenue, an important figure for their biggest business. That beats for Q3 by a pretty wide margin coming in at 504 million versus expectations Expectations of 465. Guidance was 460.

Here's the issue. For Q4, the street was looking for revenue of $5.6 billion. Adobe guiding to a range of 5.5 to 5.55. For digital media specifically, of course, their biggest unit, the street was looking for $4.14 billion of revenue. Adobe guiding to 4.09 to 4.12 so the high end of the range is beneath what the street was looking for on digital experience the street was looking for 1.4 billion adobe guiding to 1.36 to 1.38 billion again the range below where the street was looking. And on EPS, Adobe guiding to $4.63 to $4.68. The street was looking for $4.67. So the range that Adobe is guiding to gives them room to meet the street's expectation on EPS, but not on those revenue numbers. And, of course, that is Q4, the last quarter in the fiscal year. So the fiscal year guide, we would fold into that.

You see the stock lower by about 8% right now, certainly on the guide. Questions about is there something macro that Adobe is seeing here? Is there some shift versus what they saw in Q3? Is this conservatism? That's some of what we will be asking Shantanu and Ryan shortly, Morgan. Yeah, looking forward to that because that is coming up here exclusively in just a few moments. He's going to break down those numbers with us. Indeed, before he gets on the call, you're going to want to hear all of that. Meantime, further in on AI at the chips level, shares of NVIDIA extending their rally today up more than 15 percent so far this week.

Earlier today, NVIDIA CEO Jensen Huang and other AI leaders spoke at the White House to talk about AI energy and data centers. Huang also spoke to CNBC about the company's Blackwell chip. Each generation reduces energy consumption, increases performance, reduces cost. And so we're we're in a hurry to get the black well. We're in full volume production of black well. And every company in the world is is chomping at the bit for us to ship it to them. On that, let's bring in senior markets commentator Mike Santoli for a closer look at the chips. Mike. Yeah, John. So pretty soothing words in general from Jensen Wang there, but it comes in the context of a pretty abrupt rethink of the overall semiconductor trend of outperformance relative to the market.

This is the SOXX, the Philadelphia Semiconductor ETF relative to the S&P 500 going back to the end of 2022. And what you saw recently is, you know, this pretty defined steady uptrend in relative performance was pretty decisively broken. So you see this bounce this week. It's pretty dramatic on a week to date basis, but you see it's kind of working underneath that level where you would have expected it to be if it was still in trend. All of it means that the group has a lot to prove to suggest that it can resume any kind of leadership profile in this market. Now, within that sector, take a look at NVIDIA compared to the equal weighted version of semiconductors, because it really has become a little bit more top heavy than even it was before. So NVIDIA, relative to XSD, is actually at its highs. It was up today. The average

semiconductor stock was actually negative today and certainly has applied over a longer period. So this is NVIDIA compared to, as I said, the equal weighted version of the semiconductor group, not far from the high. So it's become very much a winners versus losers market. Of course, Broadcom has participated in and there have been other names, but it just does show it's a little bit uneven under the surface, John. Mike, what would we normally expect semiconductors overall to be doing in an economy that's slowing down, if still healthy? You know, first of all, they would try to anticipate where, you know, the cycle was headed. So usually it's going to kind of peak before the cycle peaks and trough before you can see it in the numbers. But there's been a semi cycle in terms of, you know, non-AI parts of the semis well within an expansion cycle for the

economy. So I feel as if it's become a little bit detached from macro, because if you look at the industrial chips areas and things like that, they've actually been relative underperformers for a while right now. And in fact, people are wondering if you can see some clues of bottoming there. So I don't think it's necessarily a broad economy tell, even though it sometimes is a pretty good indicator of equity risk appetites and leadership within that kind of growth part of the of the stock market. Yeah. Parts of what we think of as chips acting a little bit more like software, which I guess makes sense. Mike Santoli, thank you. More chip players doing software. After the break, an exclusive interview with Adobe CEO Shantanu Narayan.

Fresh off the earnings report with his first comments ahead of the analyst call at the top of the hour. That stock down considerably right now. And later, United Wholesale Mortgage CEO and majority owner of the Phoenix Suns, Matt Ishbia, joins us with a look at the huge pence of demand for mortgage refis and if the Fed's decision next week could open the floodgates. We've got a big show straight ahead. We're back in two. Welcome back to Overtime. RH earnings are out. Julia Borson has the numbers for us. Hi, Julia. RH shares spiking on better than expected top and bottom line results. You see shares are now up 16%. The company reporting revenues of $830 million ahead of the $825 million estimated.

The company also reporting $1.69 in adjusted earnings per share. Analysts have been looking for $1.56 in earnings per share. Some bullish commentary from the company's CEO about demand also driving the stock higher. The CEO saying, quote, despite expectations for industry conditions to remain challenging until interest rates ease and the housing market begins to rebound, we expect our demand trends to accelerate throughout fiscal 2024 and into 2025. The company guiding to Q3 revenue growth of 7% to 9 percent and full year revenue growth of 5 to 7 percent. Shares really surging today.

John? Yeah, up some 17 percent just about in overtime. Julia, thanks. Meantime, Adobe shares are falling in overtime after posting Q3 results, beating on both lines. Guidance, though, coming in short of expectations. Joining us now ahead of the conference call with analysts is Adobe CEO Shantanu Narayan. Shantanu, good to see you. Strong performance on the top and bottom line in Q3. That net new ARR in particular for digital media jumps out. But I know I'm going to want to get to this guide, so set up the quarter. But tell me, are you feeling iffy about the holidays?

Well, John, thanks for having me first on your show. And as always, when we think about dissecting the business, we look at what the second half performance was. And on our Q2 earnings call, we actually raised the targets. We had a very strong Q3 across every aspect of the business. As you pointed out, net new digital media ARR record for Q3 with over 500 million of net new ARR. Acrobat continues to surge along. Creative, we said we would expect to see creative ARR

also year-over-year show growth, which it did. And digital marketing, you know, again, strong subs revenue. And as we look at the rest of the year, nothing's changed as it relates to the innovation roadmap that we have. And, you know, relative to the second half targets that we had given, we're on track to meet and exceed all of them. So we feel good about the business. Well, to my eye, the Q4 digital media net new ARR that you're guiding to, 550 million, that looks strong as well. So are there areas where you're cautious questioning whether it is on the experience side, whether it is on the documents side, how is the AI adoption going with the credits in Firefly? Are those converting to more paid in that ARR number? Well, John, hopefully we'll see you at MAX. As you know, MAX is coming up in Miami,

and we have an incredible show again planned. When you look at AI specifically and you know what I've always said is it's all about inference and AI and I don't know of any other large company that's been demonstrating the amount of innovation roadmap Acrobat AI Assistant continues to do well where you can have a conversational interface with the trillions of PDFs out there as it relates to our imaging Firefly models. We've upgraded Photoshop to image model three. We said we had over 12 billion generations on Firefly with the fastest amount in the last month, also driven by what we see in Lightroom. We have a vector model and illustrator users who are creating logos and other brand assets are seeing the benefits of that. Just yesterday, we sneaked a little bit of what we are doing with the Firefly video model,

as well as the ability to control that within applications like Premiere Pro. So I think we're really executing against it. And you're seeing the inference, which is where people are actually deriving value also go up. And last but not least, on the digital experience side, as we have delivered AI Assistant for the Adobe Experience Platform and the Experience Cloud, that's where people, they're creating more campaigns, they're creating more content, and they're creating personalized experiences for their customers. So, you know, from my perspective, we continue to delight customers. I think we've had a strong year thus far and we expect that momentum to continue so shantanu it's great to

have you on when when morgan stanley which published a preview note earlier this week says that they're expecting adobe could return to mid-teens growth compound annual growth rate in the medium to longer term due to the benefits stemming from Gen AI. Are they right to believe that? Well, Morgan, I think the way we look at it is we also follow what all of the other tech companies are talking about, the macroeconomic situation. And I would say most people would characterize the economy as either, you know, a little bit slow or stable. We have seen stability in our business. I think we're all probably looking forward to seeing what both the Fed says as well as

what happens in the elections. But if you look at our fundamental long-term trends and the ability for technology to continue to drive even more value, we're bullish. We have some really incredible new initiatives, Morgan, that are actually starting to show significant traction. One is dealing with enterprises and giving them a customer data platform so they can engage with their customers.

The new Firefly services, which allow people to automate content production, that was off to a strong start. The product called Adobe Express, which fulfills our mission of creativity for all. So the current business is strong, but I think equally exciting for us, to your point, the new initiatives that we have been investing in, they continue to show promise and differentiation. So Shantanu, going back to what you just said about some of the macro uncertainty, talking about the general environment being stable to slightly slow, how much do the questions about what the Fed is going to do in Q4, the election results and the impact that that's going to have on the macro, how much does that factor into how you decided to guide? You know, we take our targets very seriously, John. And, you know, those are

unknowns. I think that was more in response to Morgan's question about what would a long-term growth rate would be and how does that accelerate as the economy improves and what happens as it relates to the fiscal situation in the U.S. I think as it relates to our second half performance, if you look at it again, as I said, after Q2, we announced new targets. And, you know, with digital media ARR, which is I know a number that everybody on the street really looks as a bellwether. With Q3, we beat that number. With creative, we showed growth over growth. And if you look at it for the second half of the year and the fiscal year 24 we're on track to deliver record digital media net new arr so that's the way i look at it you know uh you're better equipped to talk

about what expectations were on the street and how that happens but you know we continue to just focus on uh the innovative roadmap that we have indeed look forward to talking more about what comes out of max and and what you're making out of Firefly and other AI initiatives. Shantu Narayan, CEO of Adobe, thanks for joining us here first before the call in overtime. Thanks for having me. Insurers of Adobe are down about 8% right now, but when we come back, Matt Ishbia, the CEO of mortgage lender United Wholesale Mortgage on why a refi boom could be right around the corner. And later, a rare interview with Panera founder and Kava chairman Ron Shaikh on why he says the restaurant industry right now is a tale of haves and have-nots.

Overtime, we'll be right back. Welcome back. With an expected rate cut on the way and mortgage rates hitting their lowest level since February of last year, could we see a boom in refinancings? Joining us now is Matt Ishby, CEO of United Wholesale Mortgage. He is also an owner of the Phoenix Suns. And, Matt, it's great to have you back on Overtime. Welcome back.

Thanks for having me. So that's exactly where I'm going to start because we have seen Treasury yields and with them mortgage rates falling. We're at a 19 month low for mortgage rates and the Fed hasn't even begun to cut yet. So how are you preparing for the possibility of a reemergence and not only refis, but also interest in taking out mortgage loans if we do start to see a housing rebound here? Yeah, no, it's really interesting. You know, rates are really low right now. And, you know, people are waiting for the Fed to cut rates next week. We all anticipate they'll cut 25 basis points. But the mortgage rates are already lower. People are waiting. Oh, it's going to happen. It already happened. The refi boom is

happening right now. People aren't really available and realizing. But people are doing refinances right now. Anyone that bought a house in 2022, 23, 24 should be refinancing. Rates are 30-year fixed in the fives, not six and seven or eight. And so people got to go to MortgageMatchup.com, find the right originator. But the truth is it's happening right now. You don't have to wait for the Fed. It's really exciting. And we're seeing a big boom already here at UWM. That said, how do you expect that trajectory to play out now as you do have a Fed that's moving into an easing cycle? Yeah, I think it's going to continue. So it's not only refinances, but also purchases, right?

Because now more purchasing powers, someone buying a $400,000 house yesterday couldn't afford it, but now they can afford it because interest rate's 5.75 instead of 7, right? So more homeowner demand, more opportunity. So we're seeing it on purchase, ref refi and it's going to continue. We really look at 25 is going to be an amazing year in the mortgage industry. It's already a great year, 24, but it's going to get even better next year. We've been waiting. We've been prepared at UWM and we're excited about it. And it's already happening. You'll see it in our third quarter results, but more likely fourth quarter and next year. Matt, is there a magic number on rates where the homeowner is likely

to feel more comfortable tapping into the equity to make purchases? Yeah, I really think that the number is in the fives when we're there. Like I said for probably a year and a half, two years, like when it gets to 5.99, 5.75, you're going to see demand on refinances. You know, anything in the fives is like amazing rates. If you look over over the span obviously you got to take out 20 and 21 where the rates were 2.75 and three percent but beyond those two years anything the fives is fantastic and so we're there now and the fed's going to drop rates even more will that mean more mortgage rates go down even further maybe but 30 year fix in the fives um is a great deal people are taking advantage of rate insurance but also to also, to your point, cash out.

Equity in housing is as big as it's been in a long, long time. People have equity, and so cashing out, it's been hard to get off those 3% rates, but now at 5.5 or 5.75 and being able to pay off some heavy debt from credit cards, we're seeing a lot of people do that right now. So opportunity is out there right now, and we're taking advantage of it, and I think consumers are as well. I'm glad you went there because U.S. homeowners are sitting on $32 trillion in home equity right now. That is a new record. And we talk about depleted savings and we talk about cash strapped consumers that are tightening their belts. But

as you do start to see rates come down, does this become another lever that consumers can pull on for more spending? Absolutely is another lever for them, right? It's their money. If someone has a $400,000 house and their mortgage is $300,000, there's $100,000 in equity. Now, how do you tap that, right? Once again, you've got to find the right place. Sometimes your servicer is not the right place. You've got to go to a mortgage matchup or find a local lender that can actually help you with that and actually get you that equity, $30,000, $40,000, $50,000 at a rate. And if you look at it and do the math, like some people talk about their mortgage interest rate

rather than their actual housing rate. Because if you think about their housing rate and then also their credit card debt and their auto loans, interest rates all blended, it might be 7% or 8%. So getting them down to 5.5%, 5.75% on a cash-out refinance is becoming very popular right now beyond just the regular rate and term refinance lowering your payment. Okay.

And we mentioned, I mean, you're the owner of the NBA's Phoenix Suns. You also own the WNBA's Mercury. So I would be remiss if I didn't ask you a question on a day like today where CNBC has reported on the Milwaukee Bucks in a deal, a stake that values that team at $4 billion. That's up from $3.2 billion last year. Your thoughts on sports teams' valuations. Do they continue to climb?

Is there a point at which we start to see this peak out? Yeah, you know, it's great. I think, you know, I don't focus too much on valuation. I focus on how to make the fan experience great. How do I do great things for the league, the WNBA, the NBA? But Adam Silver in the NBA has done an amazing job. Valuations are going up because there's a supply and demand. There's only 30 NBA teams. And the truth is, with the new TV deal

that Adam Silver did an amazing job putting together, it's going to make a big impact on valuations. But valuations, like, I want to focus on winning. You know, how do we win a championship with the Suns or the Mercury? And so that's why I focus on more than valuations. Valuations are for finance people. I'm much more of a fan, and I enjoy the game too much to focus on that. But they definitely are going up to answer your question. Is hockey going

to come to Arizona? Oh, I hope so. It's a four sport town. So hopefully we'll get it back at one point. OK, Matt Ishbia, great to have you on. Thanks for joining us. Thank you. Well, time now for a CNBC News update with Kate Rogers. Kate. Hi, John. A Georgia judge dismissed two criminal counts against former President Donald Trump in the election interference case. Judge Scott McAfee wrote in a decision released Thursday that the counts could not stand because they concerned accusations of perjury under federal jurisdiction. However, the judge did allow for the rest of the case to move forward, including eight charges against Trump. Meanwhile, former President Donald Trump announced today that there won't be another presidential debate. Trump broke that news on his Truth Social platform, claiming victory over Vice President Harris

in their first and now only debate on Tuesday evening, speaking at a rally last hour in North Carolina. Harris told supporters that she believes both candidates, quote, owe it to voters to debate a second time. And Kamala Harris raised $47 million in the first 24 hours following that debate with Donald Trump, according to a source familiar who spoke with CNBC. That haul is Harris's largest single-day fundraising period since she entered the race in July and will extend her lead over the Trump campaign in donations. Back over to you, John. All right, Kate, thank you.

Now we've got a news alert on Oracle. Let's get back to Julia Boorstin. Julia? That's right. Oracle shares are trading higher in after hours. News coming out of the company's financial analyst meeting, which is happening right now. The company guiding to 2025 revenue of at least $66 billion. That's a billion dollars ahead of guidance and even more ahead of the midpoint of analysts estimates. The company also guiding to 45 percent operating margin and EPS growth of

20 percent by 2029, saying they remain committed to growing EPS at least 10 percent in fiscal 26. And given strong demand, they've decided to defer an even higher EPS growth rate near term to grow revenue faster over the next five years. You see that shares are now up about six and a half percent. John? Yeah, and approaching half a trillion dollars in market cap as well for the first time. Julia Borsten, thank you. Well, a year ago this week, chip designer Arm rejoined the public markets in a Nasdaq IPO. Shares popped 25 percent that day to value the company at $65 billion. Now, cue the QR code for my On the Other Hand newsletter, because before shares began trading that day, I posed the question,

should retail investors buy shares? I argued both sides, and today it's very clear which argument wins. But what were the arguments? They might help you decide it's still a buy or it's not. Scan that code or type in cnbc.com slash OTOH to sign up, read and share both sides. Well, energy stocks getting a lift today as oil rises, but the sector has been a big underperformer. In fact, it's the only sector in the red over the last 52 weeks. Up next, Mike Santoli looks at whether energy stocks are due for a bounce. Plus, details on the big shakeup at Norfolk Southern as CEO Alan Shaw, now former CEO, gets fired for cause by the Railroads Board.

What comes next? Stay with us. Welcome back to Overtime. Mike Santoli returns with a look at the lack of energy in the energy sector. Mike. Yeah, Morgan, seems a little bit tired in terms of the trend here. Here's the XLE Energy Sector ETF over three years. And you see it kind of crossing below its 200-day average. Now, it's done that several times here. As you see, it's traded in this range.

Although right now, the 200-day trend is also just dead flat just about. So it's no longer really an uptrend. You can see it's kind of saved itself at times after some time under that 200-day average. And by some other measures, the group is getting a little bit oversold, and you've seen some outflows from energy funds. So maybe there's the setup for a relief balance. Take a look, though, at the relative trend from the date of the invasion of Ukraine by Russia back in early 2022. We just lost all that outperformance that had been built up when oil prices did spike. There were a lot of supply concerns. Obviously, it's behaving like a pretty well-supplied market, crude oil down below 70 and all the rest. But it does seem as if maybe you can look for some kind of relief. And probably it's going to trade a little bit with

global growth sentiment as opposed to other dynamics right now, because right now there is a sense out there of demand concerns. If those are allayed, maybe it could get a bit here. We're certainly seeing some debates around whether energy is a value trap right now. Mike Santoli, thank you. We're going to turn now to the drama at Norfolk Southern, where the company's board has terminated CEO Alan Shaw for cause, unanimously appointing Mark George, the company's CFO since 2019, to that CEO role. That's effective immediately.

He will be speaking at a Morgan Stanley conference tomorrow. This after preliminary findings from an ongoing investigation found Shaw violated company policies by engaging in a consensual relationship with Norfolk's chief legal officer, Nabonita Nag, who also has been let go. The decision coming just days after CNBC broke news of the investigation. Now, this ends a tough two-year tenure for Shah, who took the helm amid intense labor negotiations. This is a tenure that spanned 2023's toxic Ohio train derailment and cleanup efforts. That's something I covered closely, even sitting with Shaw in East Palestine. And just earlier this year, a contentious proxy fight with shareholder Ancora, which fought for Shaw's ouster and a majority of the board.

That resulted in a partial victory with three board seats turned over. So what's next? Norfolk Southern reiterating full year guidance as it looks to improve service margins, service and margins. And analysts expect to see minimal disruption to the railroad's operations. As for compensation, with Shaw specifically fired for cause, he will be forfeiting any severance package and outstanding stock. And pending the outcome of that ongoing investigation, clawbacks on compensation are not off the table. Shares of Norfolk Southern basically finishing the day unchanged. And John, I'd also note, no comment from Ancora on any of this. Wow. What a tale.

Up next, Kava chairman and Panera founder Ron Shaik on what McDonald's move to extend its $5 value meal says about the state of consumer spending. Overtime will be right back. Welcome back to Overtime. McDonald's today announcing it is extending its $5 value meal into December for most U.S. locations. Other fast food companies have tried similar promotions, including restaurant brands and Wendy's. Joining us now is Ron Shakey, CEO and managing partner at Act Three Holdings, board chair at Kava, also the founder and former longtime CEO of Panera.

Ron, good to see you again. John, it's been a while. How are you? Yeah, a little while. I'm doing well. Let's go straight to this McDonald's thing. You say this is a value war and nobody makes money in a value war. So should McDonald's just not be doing this, you think? Well, I think only the strongest win. If you're betting on price, it's a very difficult place to make a better

competitive alternative. The key to the restaurant industry is to get people to walk across the street and choose you, to walk past your competitors and choose your establishment. And if all you've got going for you is price, it's a very tough position to play from. Yeah, I mean, McDonald's, a lot of these fast food, like cheap options aren't that cheap anymore to my eye. And you're focused on creating a unique niche, right, where customers are willing to spend money. But isn't that still going to be affected by an economic slowdown? Well, what we're always about in every concept I've been involved in, every business is building a better competitive alternative, getting people to choose us. In the case of Kava, which has been a phenomenal success, stocks been up sixfold since the IPO hit an all time high

today. In the case of Kava, it's a powerful category. Mediterranean is the kind of diet people want to eat. It's the number one diet in America for the last seven years. Kava has the dominant position in it. It's healthy. It's fresh. It's the kinds of foods that excite people today. It brings humanity. It brings an expression of the Mediterranean to its cafes. That's what consumers, certain consumers want today. And if we can offer that, we're going to win. That's building a better competitive alternative, not on price, but on something better. In fact, John, I will tell you something. I was just looking at some data from the high point of the pandemic, fast foods prices are up 30 percent. The CPI is up 18 percent. Kava's prices are up 12 percent. We have pricing power. And when you compare what you get

in Kava, you're getting fresh Mediterranean with exciting and innovative spices that get you charged up. When you compare that to prior to freezer fast food. Yeah. You know what the better alternative is. Ron, it's interesting to hear you break, break out that data. I would put Cobb in the same category as Chipotle and up until maybe not that long ago, even Starbucks. So just to invert this question and this focus on pricing, do you want to get your thoughts on what we are seeing at Starbucks, especially as Chipotle's now former CEO, Brian Nicol, has taken the helm? I so appreciated Brian's letter. I agree with him. The problem for

Starbucks is it degradated. It diminished its competitive advantage. That's what Howard was talking about. That's what Brian wants to fix. The problem is that Starbucks once represented something in this country. It was the leader. It was differentiated. It was powerful. You look today, through the pandemic, it turns itself into an automated beverage machine in which its advantage was it could get you through its drive-through quickly.

It became fast food. And the agenda for any CEO is to build differentiation, not on the base of being like everybody else and beating them at their own game, but because you're better at your game. And Brian's right. We need to bring back the cafe. We need to bring back humanity to Starbucks. And Starbucks has got to stand out in an ever more competitive market and not on price. But but they did raise prices quite a bit, too. So I do wonder if those need to come down. Well, they have to be appropriate. Listen, if we're going to pay people right, a living wage, if we're going to have quality food, we have to charge. But take a look at Kava. Our prices have

moderated compared to the CPI and absolutely compared to fast food, which is up 30 percent, CPI up 18 percent. We're up 12. We want to give people real value. How long are workers staying now, say, in fast casual compared to the old fast food days, is there value in trying to get workers to stay longer, to work up through the ranks, et cetera, because it's been sort of a revolving door for much of the industry for a long time. Well, I think that like everything else, when we talk leadership, we have a great CEO in Brett Shulman. What he's done is build the kind of company people want to stay at. That's what Chick-fil-A did.

That's what the best companies in our industry always do. You want to know one of the key metrics in this industry? Don't just look at comps. Look at turnover. That's a leading indicator. What this industry is about is hospitality. And if we're going to have hospitality and humanity, we need to have people that are stable and can stay and care. And so good companies focus on how you do that. They build an environment. They share with

their employees. They take care of their employees. They do it in a way that people want to stay. Our employees are not extensions of the cash register. They are not machines. They're human beings. And if we bring them in, they're going to take care of our customers. Well, the financial results you've achieved add credence. So I listen to you on this stuff. Ron Shaik, chair over at Kava, Panera founder. Thanks for being with us, Sharon, over time. Speaking of Kava, don't miss more on that company tonight when Jim Kramer speaks exclusively with the company's CEO that 6 p.m. Easter. All right.

Well, it was a big day for Elon Musk's SpaceX featuring the first ever spacewalk by a private citizen and the launch of key smartphone satellites. We've got all of that news coming up next. Up next, no gravity, no problem. Details on a history-making day for SpaceX. And a check on Adobe and RH here with those earnings just moments away heading in opposite directions. We'll be right back. Back at home, we all have a lot of work to do, but from here, it sure looks like a perfect world. Well, that's Polaris Dawn's commander, Jared Isaacman, just before 7 Eastern this morning as the Shift 4 founder and CEO made history conducting the first spacewalk ever by a private citizen. He and then later SpaceX engineer Sarah Gillis floated outside their Open Dragon spacecraft

while tethered and holding on to handrails testing SpaceX's new suits. This after the Polaris crew already broke records earlier this week flying at the highest Earth orbit. But it wasn't the only mission for SpaceX this morning. Elon Musk's company also launched the first Bluebird satellites for AST Space Mobile, bringing the first five production smartphone satellites to orbit in a milestone not only for AST,

but for its longstanding stakeholder and partner, AT&T. What we're going to do with AST in partnership with them is we're going to bring satellite connectivity and not just voice, not just text, but full data connectivity to your regular cell phone that's sitting in your pocket today. And that's pretty exciting. So really, we're bringing satellite connectivity to the masses. And it's never been that way before. And AST is the first company to do this at scale, at data speeds over 20 megabits per second, to a regular, unmodified cell phone like you and I carry around all day.

So AT&T's head of network, Chris Sambar, who joined AST SpaceMobile's board earlier this year, says this is the moment the telecom giant has been waiting for as the constellation scales with, quote, robust service, hopefully on track to roll out in the next 18 to 24 months. It's not determined yet, though, what the business model for that service will look like. AT&T isn't the only partner either. In addition to Vodafone and Rakuten, AST Space Mobile inked a commercial deal earlier this year with Verizon. They did that with the blessing of AT&T. So space-based service will be a complement to Telco's terrestrial networks, providing coverage in areas where

it's cheaper than building out cell towers and fiber. So AST selling off today on the news. It's up almost 800% in six months. It was a $2 stock as recently as mid-May. Check out my podcast, Manifest Space, for the entire conversation. Yeah, be sure to do that. Also got my eye on Adobe now. We'll see. It's at some interesting levels if you look at a five-year chart. Yeah. Strong day for the markets in general, though. That's going to do it for us here at Overtime.