Closing Bell - Closing Bell Overtime: CDC Links McDonald’s Quarter Pounder to E. Coli Outbreak; First Interview With New Norfolk Southern CEO 10/22/24

Episode Date: October 22, 2024

The CDC announced a link between McDonald’s and a multistate E. coli outbreak. Dr. Scott Gottlieb on what that means for the company and consumers. Morgan sits down with Norfolk Southern CEO Mark George for his first interview in the new role. Starbucks shares slid in Overtime after giving a Q4 warning and suspending its 2025 guidance. Plus, Evernote co-founder Phil Libin on tempering AI expectations. 

Well, that bell means the end of regulation. Cohen and Steers ringing the closing bell at the New York Stock Exchange. EQTAB doing the honors at the NASDAQ. And stocks making a comeback throughout the session as earnings provide some support, though closing off the best levels of the day. That's a score called on Wall Street. But winners stay late for earnings. Welcome to Closing Bell Overtime.

I'm John Fort with Morgan Brennan. And we do have a lot of earnings ahead this hour. An exclusive interview with the new CEO of Norfolk Southern. This is his first appearance since taking the top job last month after the removal of Alan Shaw. As the company's stock gets an earnings-powered boost. And speaking of earnings yet again, we've got a full lineup on the way this hour, including results from Texas Instruments, Canadian National, Enphase Energy, Seagate and CoStar. And Microsoft leading the Dow today.

And the charts say it could be a key inflection point. We've got the breakdown straight ahead. As we await those earnings, let's get to our market panel. BD8 Capital Partners CEO Barbara Duran and Evans May Wealth Managing Partner Brooke May. Welcome, Brooke. Your end of year price target for the S&P basically right around here on the S&P, a little bit lower, actually. So how much is earnings guidance going to matter this season for what it implies about momentum into 2025? It's incredibly important when we look at earnings expectations going into next year, we think earnings will be up about 15%. And that takes earnings to about $275 on the S&P 500.

If you apply a 21 times multiple to that, you're getting $57.75, which is a little below where we are today. All that said, we think that it's possible that the market goes to 6,000 between now and year end. That's the trajectory. And the market can trade at high multiples for a prolonged period of time. Okay. So, Barb, first of all, I want to mention Texas Instruments numbers have crossed. The initial move for the stock is down. We're ready to get to those numbers. Seema Modi has them. Seema. $1.47 versus the $1.38 estimate. So it's a beat on the bottom line for Texas Instruments. Third quarter revenue did come in at 4.15. The estimate was 4.12.

But we did see revenue decrease by 8% from the same quarter a year ago. The company also says cash flow from operations of $6.2 billion for the trailing 12 months. And over the past 12 months, they've invested about $3.7 billion in research and development, invested about $4.8 in capital expenditures. We know that's been a talking point for activist investor Elliott Management, which does have a $2.5 billion stake in the company.

More on guidance, but we are watching shares fall about 2% in overtime. Okay, we'll listen for more on that. Seema, thank you. Barbara, just about to come to you for what exactly should we look for in some of these names, including Texas Instruments, which of course their chips go into a lot of just general equipment of all types, things that businesses buy, things that consumers buy. And then you've got CoStar that has a read on the

real estate market. How much intelligence can we really get on continued momentum of the economy from some of these names? Well, it does definitely does depend on the name. Like you mentioned, CoStar, which is about real estate. We know what's happening in real estate. We know they're doing a lot of things to try to compensate for the slowdown there. But we're going to get a read what they're seeing out there. But it'll probably confirm what we already know, you know, in terms of the high housing prices and that's how that's affecting things. And of course, Texas Instruments, I think we're pretty well aware

that two of their major markets, autos and industrials, are pretty slow. I mean, this is a cyclical company. And yes, even though their chips are in just about everything we use, we really need to know, is this the bottom? You know, where's the turnaround come from? And the stock could be down. I mean, their whole thing is that they manage through thick and thin to keep their margins intact and good cash flow. So we'll see what they've been doing there. They don't have the luxury of being an AI play. So they've really got to depend on very cyclical markets. And Brooke, I mean, the Russell 2000 small caps finishing lower again today, fourth straight day of declines. You talk about cyclical parts of the market,

industrials, for example. We haven't seen that inflection point for some of these harder hit parts of the market, despite the fact that the Fed is beginning to cut rates. And yet, more broadly speaking, the economic data we are getting is coming in better than expected. And so you're seeing this tug of war, essentially, in the bond market as yields have moved higher in recent days. Where do we go from here and how much are equities going to take their cue from those moves in yields? Yeah, it's incredible. You know, before the first rate cut, we were saying the 10-year Treasury at 3.6 and now it's at 4.2. I mean, 60 basis points move whenever we know the Fed is heading in a different direction.

It is interesting. And small caps, you know, they're very sensitive to interest rates. So, you know, their recent decline isn't a surprise. Small caps, though, are up about 10 percent year-to-date. And we think that they will do well. However, probably not as well as the broad market and large companies in the very near term. OK, we're going to go back to Seema Modi because we do have some more details from that Texas Instruments earnings report. Seema. Morgan, we're looking at Q4 guidance for Texas Instruments, which is much weaker than analysts were

forecasting. It sees its fourth quarter revenue between three point seven to four billion. Wall Street was looking for $4.07 billion. And then when you look at earnings guidance, $1.07 to $1.29 is what the company is indicating. The average estimate was for $1.34. Of course, we've had mixed results from the likes of Taiwan Semi and ASML over the past one week. And this is one of those semiconductors, Morgan, that doesn't have that exposure really to AI. It really has two end markets, autos and industrials, which, as you know, have been very weak. We'll get the full story when the earnings call begins at 4.30 p.m. Eastern.

Seema, thank you. Barbara, we're seeing it in the semis, right? You've got strength. You've got NVIDIA at record highs. You've got strength in all the AI-tied names within semiconductors and chips and tech stocks more broadly. And then anything that's exposed to other parts of the market, case in point here with this guidance from Texas Instruments is not necessarily living up to standards. So what does this mean if we continue to see this bifurcation playing out through earnings season? It's interesting because it

is very mixed, you know, in terms of what's happening. The economy overall is strong. I mean, we've seen that recently with the retail sales, jobless claims, employment, wages and all that. But then and you had the banks, you know, which really reported great numbers a couple of weeks ago. And the investment banking, the IPOs, all that picking up to me says that corporations are getting a lot more confidence in the longevity and stability of this expansion and growth. But at the same time, you do have these areas of weakness that are happening. And the industrial area, even though cyclicals right now are performing, it's really, I think there's a lot of confusion in the market in terms of

how fast the Fed will ease and what it will meet. Because right now, it looks like the Fed is on target for a 25-bip cut in November. They meet the same week as the election and another one in December. But I think the market is not sure. If the economy is that strong, then are they worried about inflation? Which, frankly, I don't think even if it perks up a little bit, it's not going to be dramatic. I mean, you had supply-constrained demand issues because of the COVID, and that's just pretty normalized at this point with some places where it's not. And the wage pressures have abated dramatically.

So it's going to continue to be mixed. We certainly see a bit of earnings so far. All right. Barbara Duran and Brooke May, thanks for kicking off the hour with us. With a mixed picture for the major averages, the S&P finishing just below the flatline. Got to mention, though, Morgan, with a miss on the top and bottom on guidance for Texas Instruments, I'm impressed that it's not down more, given that it's up almost 25% year to date. I think some of the air came out of it with the ASML, sorry, with the Taiwan Semi issues earlier. You see the stock already

went down a bit on expectations that the mainstream chips, non-AI, were the problem there. So perhaps a lower bar, at least as of today, before the close. Well, Microsoft leading mega cap stocks today and scoring its best session in a month. Mike Santoli is at the New York Stock Exchange. He's got a closer look at the stock. Mike. Yeah, Morgan, Microsoft's been pretty much sideways for months. It seemed like it was at a pretty interesting spot for some traders to take a shot to the upside today. You see, we had that nice 2% move to the upside

right from where the 50-day and 200-day averages are converging here. Now, if it really does create a cross where the shorter-term average goes below, it's sometimes considered a dark cross. Maybe that's a little more of a developing downtrend. So you see, at least we've got this pop off that level. It's not all about technicals.

Obviously, there's been a bit of scrutiny in terms of the companies that are footing the bill for all the investment and whether they're going to get proper return on it. You did have a real stampede into every related name in the first half of this year, and that's been worked off in recent months. Microsoft, in a lot of ways, has been out in the vanguard, the front edge of all the excitement from the beginning for ChatGPT and all the rest. Take a look at the valuation, though, of Microsoft relative to Apple. Very similar market caps and very similar valuations, although now you see Apple's forward PE is actually nosed ahead of Microsoft's for the first time in a very long time. Even if you look at a longer term, like 10 year chart, only for very, very brief periods as Apple kind of get ahead of Microsoft. And that's back when Microsoft in sort of the early Satya Nadella years was not really got a valuation premium. So it suggests that there's at least a near-term reason for

people to have some faith that this upgrade cycle for iPhone merits this elevated valuation, both of them expensive stocks above 30 times earnings. But sort of interesting, this interplay here. You know, I'm not saying it's an enduring change, but it does say that the market is applying a little bit more skepticism toward Microsoft in the near term. How much of this hinges on CapEx and how much money is being spent? I mean, we've had this conversation about Apple not spending as much as even as it rolls out Apple intelligence and the likes of Microsoft spending tens of billions of dollars on a quarterly basis. If you start to see that normalized, does that actually create more of a catalyst for for Microsoft?

Yeah, it's interesting because for a while what the market seemed to want was for these companies to say there is no limit to how much we need to spend. And then you had Alphabet come out and say, even if this is all money down the drain, we still feel we have to do it on a defensive basis. So the psychology is evolving on that. I don't think anybody worries about Microsoft spending money truly unwisely. It's really about the pace of payback, how that's going to fall to the bottom line eventually. And I always say that the companies like Microsoft and Alphabet and Amazon

and Apple, they operate in a world where there aren't very difficult tradeoffs in terms of doing one thing versus another. They could do it all because they have the cash. It's just about a matter of whether investors feel as if at 30 times earnings, you know, they're paying a little too much for how long it's going to take to see the results. All right, Mike, we'll see you again soon in the show. Right now, we've got breaking news on Starbucks. Kate Rogers has details. Kate. Hi, John. That's right. Starbucks is warning and reporting early for Q4 here, also suspending its 2025 guidance. I'll take you through the numbers we have. The company reporting it expects 80 cents adjusted. That is lower than the dollar. Dollar three cents estimated by analysts expecting

revenues of nine point one billion, also lower than the nine point three eight billion that analysts were looking for. Same store sales expectations down seven percent. The company saying its results for this quarter primarily driven by softness in North America, which we know has been a key issue. Revenues particularly in the quarter, specifically a 6 percent decline in U.S. comp store sales, driven by a 10 percent decline in comp transactions, partially offset by a 4 percent increase in its average ticket. Also, China, another problem area for the company. Comp store sales declined 14 percent, driven by an 8 percent decline in average ticket, compounded by a 6 percent decline in comp transactions.

They're noting it's weighed down by intensified competition and also a soft macro environment in China, which we've been talking about in previous quarters. New CEO Brian Nichols saying in a statement here, our fourth quarter performance makes it clear we need to fundamentally change our strategy so we can get back to growth. And that's exactly what we're doing with our back to Starbucks plan. They will be reporting next week on October 30th. It's the first quarter where we were. We're going to hear from Brian Nickel in greater detail about his plans for the company. But as you can see, the stock is lower by nearly four percent on this report. Guys, back over to you. Kate, how much of this is kitchen sinking? I mean, I think about Cal Yorkburg over at Boeing,

new CEO there a couple weeks ago, preannouncing with Boeing and taking all the charges. Is this a similar situation given the fact that Starbucks has been struggling? Certainly, Morgan, and it's a change in direction. Remember when Jim Cramer interviewed its former CEO, Lakshman Narasimhan, last quarter? He said, why didn't you come out and warn? Why didn't you let people know that this was going to be a tough quarter? It looks like the company is getting ahead of that with this messaging ahead of its results next week and also saying, you know, we're suspending this guidance

for next year and we're looking ahead to our back to Starbucks plan. And that's what we're going to be focusing on. So definitely a change in direction with the new leadership. Bars definitely lower. Kate Rogers, thank you. The coffee bar. Thank you. Well, we've got a lot more on today's earnings action and these big moves we are seeing on results. Plus, don't miss my exclusive conversation with new Norfolk Southern CEO Mark George. This is his first interview since taking the job last month. That's stock jumping today on results. Overtime is back in two. Welcome back. Shares of Texas Instruments are moving lower after reporting Q3 earnings. It's like down about 1% right now. Joining us now is Steeple Managing Director

Tori Spahnberg. Tori, it's good to have you on. I want to get your take, especially since light Q4 guidance really seems to be the issue here. Yes. Thank you, Morgan. Thank you for having me on. So, yeah, I mean, when we published our Simic Doctor preview last week, we talked about the haves and the have-nots. And we classified the haves as those companies that have exposure to AI infrastructure. And we still expect those companies to do quite well this running season. But we did call out those companies or the have-nots that have more exposure to markets like industrial and automotive, and Texas Instruments definitely falls into that category. This quarter looked fine. They did beat a little bit on the top line. The gross margin,

I thought, was also encouraging, but certainly the guidance is lower for the December quarter. Yeah, but the stock's not that much lower at this point. I mean, granted, this is pre-call. There could be commentary that swings things one way or the other. But I wonder how much the commentary that we got from Taiwan Semiconductor, the fact that that sort of took some air out of some of the chip stocks, affects the fact that it's not down more. I mean, it's up more than 20 percent. Texas Instruments is so far this year. So if this is all you get on misguidance, is that encouraging for the bulls? Yes. So, John, I think you're absolutely right. I don't think there's any

secrets out there that the industrial and the auto markets have been very weak. And to your point, certainly when we heard from ASML, that certainly created a little bit more concerns about those particular markets. So, yeah, I don't think that there's a big surprise here that they are guiding down somewhat. I would say there's another really important thing here, though, because Texas Instruments is a company that's been investing a lot of money in CapEx the last few years. They're going to keep spending quite a bit next year. And that has led to fears about depreciation and gross margins. So the fact that gross margin beat this particular quarter, I do see also as a positive data point for the stock.

All right. Tori Svanberg, thank you for joining us on Texas Instruments. We've got breaking news on Starbucks just a few moments ago. The company is showing a warning for the fourth quarter, projecting a 7% decline in same-store sales. Starbucks also suspending its full year 2025 guidance. So let's bring in Wedbush's Nick Setian on the phone. Nick, it's good to have you. line and same-store sales. Starbucks also suspending its full year 2025 guidance. So let's bring in Wedbush's Nick Setian on the phone. Nick, it's good to have you. We got shares of

Starbucks down 4% right now. I'm going to ask you the same question I just asked our own Kate Rogers, and that is, I mean, they're pointing to softness in North America. They're pointing to softness in China. But you also have a new CEO with Brian Nic Nickel at the helm. So how much of this is just wiping the slate clean, kitchen-sinking the situation, and setting the bar lower? I mean, I think it's all of it. I'm frankly surprised the stock is down as much as it is because I don't think this is a surprise. I think we all expected it to happen during earnings.

They're just doing it a little bit earlier. And so as far as I'm concerned, this was fully expected. So I'm a little surprised the stock is down as much as it is. So given that, Nick, what should we expect to hear? What should investors expect to hear in the confidence out of Brian Nickel that he is going to be able to, in a relatively short period of time, diagnose what the full extent of the issues are here, and start executing a plan to fix them? I mean, I think whatever we hear, it's going to be very early thoughts.

I don't think he's done fully formalizing his strategy. So I do think that part of it has to be how to reposition the brand to regain a unique identity that I believe Starbucks has lost a little bit. So whatever we hear, it's going to be very early plans. And hopefully we get a fuller sort of, you know, strategy over the next six months or so. But I don't expect it to happen, you know, in a week.

Nick, sit tight. Stay with us. We've got some more news that's right up your alley. Breaking news on McDonald's. We're going to Kate Rogers for those details first. Kate. Hi again, John. Yeah, take a look at shares of McDonald's. That stock moving lower by eight and a half percent. This is on an alert from the CDC that there is an E. coli outbreak linked to McDonald's quarter pounders. The investigation start date is today, the 22nd. Fort cases, the CDC says so far. 10 hospitalizations, one death across 10 different states. It notes this is a fast-moving outbreak investigation. We've reached

out to McDonald's for more comment on this. But once again, the CDC alerting here there is an E. coli outbreak linked to McDonald's quarter pounders, and that's stock lower by 9.5 percent now on this news. We'll bring you any updates as we get it. Back over to you. All right, Kate Rogers, thank you. Nick, I'm going to ask you about this one because I think back to 2016 and an outbreak that affected Chipotle. And it took a while for that company to recover from the brand issues associated with it and the trust issues associated with consumers. Right.

You know, obviously, this is breaking news. You know, we don't really fully know the extent of the outbreak and to what extent it's impacting, you know, McDonald's operations. So, you know, if it is on a scale that we saw at Chipotle, it could potentially take a while to turn around. But again, I mean, I do think they're two companies that are very differently positioned. And they have the sort of different operations and scale and different skill sets, you know, especially where Chipotle was in 2016.

So I do believe that McDonald's is in a better position to handle it quickly and effectively. So what kind of timeline did you expect before we know more of what we need to know here on McDonald's, Nick? I mean, the stocks move down about 9.5% here in overtime. It's going to catch a lot of people's attention, certainly, if it opens this way tomorrow. Are there instances where, hey, within a few days, there's some context around this that would give people confidence, given that there were concerns about value menus and margins and all that long-term trajectory? I think it'll be, you know, probably by the end of this week, if not next week. And I do believe that's sort of the timeline in which we'll be able to bracket whatever impact there is. Okay. Nick, thank you.

Nick Setien from Wedbush. Now we've got some more earnings. CoStar earnings are out in the real estate realm. Diana Olick has the numbers. Diana. Yeah, and it's a mixed bag on CoStar. EPS came in at 22 cents a share versus estimates of 16 cents. So that's a beat. Revenue is a little short, though, at $693 million versus estimates of $696 million. But the real reason the stock is down is because of guidance. Both EPS and revenue guidance came in well below estimates. And I want to also note another number. Their homes.com average monthly users dropped from $148 million in the previous quarter to 130 million.

That may say a little something about what's going on in the housing market right now with higher mortgage rates and the waiting around for a lot of potential homebuyers before the election. So, again, a mixed bag on CoStar. Back to you guys. All right, Diana Olick, thank you. We've got results from Canadian National Railway as well. Those earnings coming in line. This is not a name we talk about very often, but it does speak to the freight picture and broader industrial landscape in North America.

So $1.72 adjusted per share. This is in Canadian dollars, which was in line with expectations. Revenue basically in line, too. $4.11 billion, also Canadian dollars. Operating ratio is 63.1 percent, with the company commenting on their ability to navigate the challenges posed by wildfires and the prolonged labor issues that we're seeing in Canada as well. You can see those shares are up 2 percent right now. When we come back, Norfolk Southern's new CEO, Mark George, in his first interview since taking that job last month.

We will talk about today's earnings, his vision for the company, his read on the economy, and much, much more. Welcome back to Overtime. Enphase Energy earnings are out. Stock is dropping. Pippa Stevens has the numbers. Pippa? Hey, John. Enphase is down 8% on a top and bottom line miss for Q3. EPS coming in at $0.65 adjusted. That was $0.12 short of estimates. Revenue also missing expectations. The Q4 guidance also weak here. They see revenues at the high end of $400 million, while Wall Street was looking for $435 million.

Now, the company did say that U.S. revenues were up 43% quarter over quarter as inventory returned to normal levels. But in Europe, they did point to further softening in demand with those revenues down 15%, the stock falling here 8%. John? All right, Pippa, thanks. Seagate earnings are out now. It's down, too.

Steve Kovach has those numbers. Yeah, and that's despite a beat on the top of bottom lines here. EPS was $1.58 adjusted, John, versus the $1.48 adjusted the street was looking for. Revenues, just a very slight beat here, $2.17 billion versus the $2.13 billion expected. By the way, Q2 guidance is in line with estimates. In addition to that, we got a gross margin beat here. Street wanted 32%. They're reporting here 32.9%. Also increasing the dividend 3% to 72 cents a share. We see shares are off here about 3%, guys.

All right, Steve Kovach, thank you. Well, Norfolk Southern shares closing up 5% today after the Eastern Railroad reported an earnings beat and a big improvement in operating ratio. The company's been cutting costs, streamlining operations and implementing aspects of precision scheduled railroading to improve service and profitability. Now, this as Norfolk Southern looks to move past the impact from last year's East Palestine derailment, a high profile proxy fight earlier this year, and just last month, the dismissal of former CEO Alan Shaw due to a workplace relationship. Earlier today, I spoke exclusively with Mark George, Norfolk's new CEO and president, in his first broadcast interview since taking the helm. I asked him what's propelling the stronger-than-expected volume growth. There is elements of both, but I would say there is a strong piece of company specific because as we've talked about when we set up our strategy, really good service begets volume.

And in this case, you know, sadly, the industry has been losing volume for 30 years because of episodic breakdowns in service. And, you know, our customer base, the industry's customer base, has been migrating more and more to the highway. So we have a lot of opportunity to recapture share with a more sustainable, consistent service product. So what happened here in the past six months is we finally got our service back up to excellent levels, not just acceptable, but really excellent levels. And it's had the effect of attracting freight back onto the railroad because we have such a good value proposition for our customers. We are more fuel efficient and, frankly, a cheaper form of moving

freight. So our customers would prefer to be with us, especially those that aren't hour sensitive in their transit times. So as soon as we can start providing good, consistent service, it's natural that we can start to recapture shares. So I'd say the preponderance of this is basically a share recapture story. So can you sustain those improved service levels? And I guess how much more can you improve them looking to 2025 great question i think the answer is yes you know what i'm really excited about and really proud of is the way our network responded after hurricane helene that was the most consequential weather-related impact to our network since katrina And what our engineering organization did to clear over 15,000 trees, we dealt with about 54 destroyed retaining walls for rock slides. We dealt with

significant washout across many miles of our network, especially around the Asheville area going into eastern Tennessee, sorry, eastern Tennessee, it was remarkable that we got all of our core routes reopened within 72 hours. That's the definition of resiliency. So I'm seeing evidence now that this is sustainable. That kind of event, if it happened a year ago, two years ago, three years ago, we would have been out of commission for three to four months. Now we were up and running in a matter of days. And I'm really confident that we're going to have this momentum going forward.

We got the right recipe and we got the right team carrying it out. So it gives me a lot of optimism as we go into Q4 and then we go into 2025 that we, even if the market is weak from a demand perspective, we have recapture opportunities from a share perspective that will allow us to grow. Nineteen months ago, you had the East Palestine derailment. Can we say that the impact of that, at least from a financial and operational standpoint, is behind the company now? Yeah, what you would have seen in today's release is two consecutive quarters now where our insurance recoveries has exceeded the cost related to East Palestine. And much of those costs now relate to monitoring some legal expenses.

So the costs have been coming down. Insurance recoveries have stepped up. We've collected over $650 million of insurance recoveries. So I'm hopeful that the East Palestine costs will continue to go down. I was just there last week, really impressed with the work that's been done. The site looks terrific. And right now we're just working with the EPA to hopefully put a bow on it and have it behind us in 2025. The last two years have been tumultuous for the company. The derailment we just talked about, we've also had this high-profile proxy fight with an activist investor, and then the dismissal of your predecessor, Alan Shaw, just last month because of a workplace relationship. It raises

the question, what do investors need? And I realize you've been with the company for a while. You're a known entity. You were formerly CFO. But how do you keep or get the company, I guess I should say, on track? And what do investors, what do workers, what do shippers and customers need to know about what your tenure is going to involve? Look, I mean, there's been a lot of noise in the back. The reality is our employees are energized by success. They want to be part of a winning team and we're winning again. And, you know, the noise even last month doesn't matter anymore. That's a bump in the road. We are moving forward. And our strategy is sound. You know, the strategy we laid out,

which has my fingerprints on it, makes a ton of sense. We have got to focus on operational excellence. That's been my hallmark in my career coming from an industrial products company. And what John Orr and his team are bringing in, in the way they're deploying their operating system, is very reminiscent of what you would see in industrial products companies with regard to quality systems, whether you call it Six Sigma, whether you call it ACE, where I come from, which was really referring to achieving competitive excellence. It's all about establishing standard processes based on best practices. And when you have issues with standard processes or you have a breakdown somewhere, you do relentless root cause analysis to identify it, put it back into your standard processes so that the mistakes don't repeat themselves. Have you spoken with Ancora and Jim Chadwick yet? Well, you know, we don't talk about,

you know, I'm not going to get into conversations I've had with specific employees, but rest assured, anybody that wants to talk with me, any investor, I have those conversations. So you can surmise that answer. And, you know, we want to really have good constructive relationships with all of our investors. So we try to engage whenever we can, talk about the business, bring them in, see the operations. And, you know, again, we're looking forward. And I think a lot of the concerns that were raised in the past that maybe were the origin of that are no longer a concern. We are running, we are operating well, and we got wind to our back. Well, you saw shares finish higher today. Now, I also asked him the same question I asked CSX's CEO, Joe Henricks, last week, and that

is, does he see a soft landing materializing? He too said he does, but that, again, reiterating that he sees opportunities to recapture market share regardless of what happens with the economy looking out to next year. You can catch the full interview, because there is more of it, online right now at CNBC.com. All right. Well, time for a CNBC News update now with Pippa Stephens. Pippa. Hey, John. Rudy Giuliani has been ordered to turn over all of his valuable possessions and his Manhattan penthouse to the two Georgia election workers he defamed. A federal judge in Manhattan said today Giuliani must turn over the interest in the property

to the women within seven days. A federal jury ordered Giuliani to pay almost $150 million to Ruby Freeman and Shea Moss for defaming them when he made false claims of ballot tampering in Georgia. The Pentagon inspector general will audit the Defense Department's oversight of sensitive weapons and equipment sent to Israel. The audit will look at how well the Pentagon is monitoring the aid, including missiles and drones, to ensure they are accounted for, properly used, and stored correctly. There is no timeline for completing the audit.

And Disney has removed the Marvel reboot of Blade from its 2025 release calendar. The sixth film in the Predator franchise, Predator Badlands, will take its place for a November release. The decision was expected. CEO Bob Iger said in May, Marvel will release a maximum of three movies per year, and the movie had not started production. John? All right, Pippa, thank you.

Well, coming up, Mike Santoli is coming back with a look at the recent volatility in the bond market and what that could signal about the next move for stocks. And another check on two restaurant stocks that are moving right here in overtime. Starbucks falling on a Q4 warning, also suspending its 2025 full year guidance. And McDonald's plummeting after the CDC said an E. coli outbreak linked to quarter pounders has left 10 hospitalizations and one death. You can see those shares are down 8.5%. Stay with us. Welcome back. Yields on the upswing again today with the 10-year Treasury yield topping 4.2 percent for the first time in three months. Mike Santoli is back at the dashboard with a

closer look at Treasury market volatility. Mike. Yeah, John. So government bonds obviously have been very jumpy, but this is a picture of corporate credit spreads and it shows really rock solid activity, really risk seeking and accepting of basically all the corporate credit risks that corporate America can throw at it. So this is B rated debt. That's speculative grade compared to B double A. That's investment grade. So these are a couple of notches apart in terms of credit quality based on rating agencies. And what you see here all the way back to the mid 90s is it's about as low as it gets. It's about as tight a spread, meaning investors are demanding very little premium to go down a couple of notches in quality.

So that's a positive as a macro signal. It suggests there's not a lot of recession fear out there. Slow growth is perfectly fine for servicing corporate debts. But it also means it just doesn't get much lower. So you're probably not going to get a lot of help in terms of equity valuation from additional spread tightening. The only time we were there is in the years leading up to the global financial crisis. Now take a look at a measure of Treasury market volatility. This is the move index. And you see it's threatening.

This is a two year chart threatening to break out to a one plus year high. And that's the first time since we did have the Fed stop tightening rates and you had bond yields calm down. So normally this is going to mitigate things like equity risk appetite. So far it hasn't happened. Maybe because yields remain still contained. But got to see how it develops from here. It seems maybe close to getting a little more volatile than investors want to see, Morgan. All right. Mike Santoli, thank you. Is AI starting to pay off for big tech? Well, that is the question up next. A look at which tech giants could be the big AI winners and losers this earnings season. Welcome back to Overtime. Tech companies are spending massive amounts of money on data centers, including AI. Amazon and Microsoft capital expenditures up more than 50%

versus last year. Investors starting to wonder about the return on investment. We'll start to hear some more specifics tomorrow. ServiceNow and IBM next week when Microsoft and Amazon report earnings. Joining us now is Phil Libin. He is co-founder and CEO of AllTurtles and Mm-hmm, and the founder and former CEO of Evernote. A bit of an AI skeptic, I think, in a healthy way. So at what point, it's data center spending overall,

not just on AI, but at what point should we expect to see a return here, especially from these hyperscalers who are building out so much? Yeah, I mean, we're talking about like a civilizational defining level of investment at this point, right? This is like the amount that we're going to spend on AI. It's sort of up there with like the Apollo program or like the pyramids of Egypt or the Great Wall of China. And yeah, at some point we we have to see actual returns. Most of the revenue so far has been inside the industry. It's been AI companies selling things to other companies working on AI. It hasn't actually been end-user revenue yet.

But that should be coming. I think we'll know a lot in the next couple of months. The internet was overbuilt. Internet infrastructure. Sun servers, remember, were kind of overdone. There was all that dark fiber that hadn't been used for a while. Google bought it up and then figured out a lot of great uses for it. Could we see the same kind of effect? We certainly could, and I hope we do. I really hope that what we see is a bunch of really cool tools being developed. I think AI and AI investment right

now has kind of entered into the design phase. It's not so much the absolute technology that's most important, it's real-world use cases. And there are companies building real-world use cases, not just impressive demos. I think the stuff that Apple is going to release with Apple Intelligence is a pretty good example. It's not world-changing, but it's cool, and I use it all the time, multiple times a day. So I think we'll start seeing this focus on the toothbrush test, is what I call it, right? Use cases, things that you do multiple times a day, not because you're trying to show off, but because they're actually useful.

And we'll see more and more of that, and I think we will recoup the investment. I'm not sure in what time frame though. I mean, just compared to Apollo, the Apollo program, the pyramids, the Great Wall, all huge projects, but all government-funded in some form or fashion. So how is this investment cycle and this sort of innovation era different than what we've seen in the past? Yeah, I mean, it might well be the largest privately-funded thing ever, maybe, like maybe in the history of mankind.

You know, we're going to be sitting at like a trillion dollars of like private expense of this over a couple of years. And those shareholders are expecting returns within timeframes that matter to the shareholders, right? So much of the conversation around AI, both on the upside and the downsides, tends to be maximalist. Oh, it's going to cure cancer and solve physics, or it's going to destroy everyone. Neither of those things is going to happen within timeframes that matter to CNBC watchers. So the real question is how much actual ROI from real customers do we get? And we're going to have a lot of visibility on that in the next 12 months. Meantime, it is, it appears, improving Facebook engagement on Reels, their AI investment, and we'll see if they can export some of that

efficiency gain to customers as well. Philip, great to have you with us here on Set on Overtime. Well, up next, much more on the breaking news this hour surrounding McDonald's as the CDC says it's investigating an E. coli outbreak linked to quarter pounders. Dr. Scott Gottlieb joins us after this quick break as that stock is down nine and a half percent. Be right back. Breaking news on McDonald's this hour. The CDC says it is investigating an E. coli outbreak linked to McDonald's quarter pounders with 49 cases, 10 hospitalizations and one death across 10 states. McDonald's shares falling sharply in after-hours trading. Joining us now on the news line is former FDA Commissioner Dr. Scott Gottlieb. He's also a CNBC contributor.

Dr. Gottlieb, thanks so much for lending us your expertise here. You say this is a very serious infection. How are you judging that? Well, the number of cases, 49 cases where you're seeing 10 hospitalizations and one death already, that suggests that this may be infection with what we call hemorrhagic E. coli, which is a serious and life-threatening infection. Symptoms usually begin three to four days after exposure, so it's not clear how early we are in the course of the exposure and how many people might have been exposed. There may still be cases that become identified. McDonald's has good supply chain management. I had worked with them on an outbreak

of foodborne illness, not as severe as this when I was at FDA. They should be able to localize where these quarter pounders, this meat was distributed and how many people could have potentially been exposed and pull that from the market to make sure that there's no further exposure. They should be able to do that very quickly. For consumers who may have eaten there or be worried about this, just by way of background on the syndrome, the symptoms usually include abdominal pain and diarrhea. The diarrhea can turn bloody, and that's why they call it hemorrhagic E. coli. In about 90% of patients, it will turn bloody after about three days, and it can be life-threatening. It leads to a complication called hemolytic uremic syndrome, which can cause rapid deterioration in blood counts. It can cause failure of the kidneys. Care for this is generally supportive. So just supportive care to help the patient get

through it. Antibiotics typically don't help. Yeah. Dr. Gottlieb, a few questions for you here wrapped into one. The first is what can cause this type of strain of E. coli? And as you just touched on McDonald's supply chain, how quickly then could you potentially see something, could you see affected meat pulled in light of that and see the outbreak in general works through the population and this chapter behind the company? Well, we don't know when the exposure was and how long it's been going on. I would expect that it's probably something that happened fairly recently in terms of when it got into the supply chain and when people got exposed to it, assuming that it is this particular strain of E. coli, because, again, these cases would manifest fairly quickly within

three to four days, and they're severe enough that they would present for treatment. I think that's what you're seeing with 10 hospitalizations and 49 identified cases. So these people would present pretty quickly. Now, these could be the tip of the iceberg. These could be people who were exposed three or four days ago, and you're going to see other people present who were exposed subsequent to that. I think McDonald's can localize the supply of contaminated meat fairly quickly by looking at the stores where people reported eating who got sick and be able to pull that from the market. And I think that some of the reports suggest they're doing that right now. Dr. Gottlieb, thank you for joining us. Thanks a lot. Shares of McDonald's down nine and a half percent right now on this developing story.

Up next, all the key earnings that need to be on your radar for tomorrow, including Tesla. Tomorrow's going to be a big, big day for earnings. Before the bell, we'll get results from AT&T, Coca-Cola, Boston Scientific, General Dynamics, and Boeing. And don't miss Phil LeBeau's exclusive interview with Boeing CEO Kelly Ortberg on Squawk on the Street at 9 a.m. Eastern. It's his first interview since taking the top spot at the troubled aerospace giant. And in overtime, we'll break down earnings from Tesla, IBM, Las Vegas, Sands, T-Mobile and ServiceNow. Also on tap tomorrow, my first on CNBC interview with the CEO of oil services giant Baker Hughes. That's going to be on Money Movers at 11 a.m. Eastern tomorrow morning.

The oil services giant is set to report earnings in just a few moments. But, John, I would also just go back to aerospace and defense. Boeing will be in focus tomorrow. But we saw some big moves, GE Aerospace, Lockheed Martin in particular, on the heels of earnings this morning. Despite beats and raises, there was a lot of high expectations for this sector going into this week's earnings. We'll also get a fuller look at enterprise demand across a number of different reads with IBM, some of that a bit more traditional, and then ServiceNow, which has been pushing pretty hard on AI applications. Let's just see if Elon Musk says anything about a sub $30,000 EV tomorrow night.

That does it for us here at Overtime.