Closing Bell - Closing Bell Overtime: Chipotle CEO On Earnings, Pricing; L3Harris On Defense, Space; Amazon Wraps Up Big Tech Earnings 10/26/23

Episode Date: October 26, 2023

Another red day on Wall Street as the major averages closed lower. Bespoke’s Paul Hickey broke down the market action for us as well as earnings from Amazon, Intel, Ford, L3Harris and Chipotle. CFRA’s Arun Sundaram took a deep dive on Amazon’s numbers. Chipotle CEO Brian Niccol on the latest quarter and how the consumer is responding to price increases, as well as how weight-loss drugs are impacting the company. Moor Insights & Strategy CEO Patrick Moorhead on Intel’s strong quarter. L3Harris CEO Chris Kubasik on defense and the quarter. 

Welcome to Closing Bell Overtime. I'm John Fort with Morgan Brennan. It is the busiest day of earnings season and we will be juggling results this hour from Amazon and Intel in sharp focus as the tech sell-off accelerates. Plus, Ford following news of a tentative labor deal along with defense contractor L3 Harris and analysis and interviews with Chipotle CEO Brian Nickell and L3Harris CEO Chris Kubasik before they talk to analysts on their earnings calls. And as we await this wave of earnings this afternoon, let's bring in Bespoke Investment Group co-founder Paul Hickey. Paul, you were with us two weeks ago and you pointed out that the best S&P 500 performance during earnings season comes when the net revision spread was negative heading into earnings season negative sentiment as it was this quarter but we closed at 43 27 on the S&P 500 that day I mean today on the S&P we're around 41 I want to note Amazon is out we're going going through it. Forty one thirty seven. Do you still think there's hope for a turnaround here in the next week or two?

Are you throwing in the towel based on these revenues? I mean, it's been one of the worst earnings seasons we can imagine. You know, it's been very poor reactions, but I think a lot of it. The results haven't been great. I'll give you that. They've been guidance has been weak. But I mean, earnings have almost been a sideshow the last few weeks when you have interest rates and the geopolitical uncertainties. You had before the Middle East flare up about two weeks ago, the S&P was actually up on the month. And then we've been trading lower as we've seen increased uncertainty there, interest rates

rising and earnings not being the greatest. So I think earnings haven't helped, but they aren't the only factor at play here. All right. Mike Santoli joins us here on set as well as we do go through these Amazon results. Do you want to get your take on the fact that now is that composite and correction territory? The S&P 500 didn't. And I'm already going to Deer Drabosa now for those Amazon results. Dee, what do you have for us? I'll be quick, Morgan. Let me give you the top and bottom lines, which are a beat, a massive beat in terms of earnings per share. 94 cents versus 58 cents expected.

On the revenue side as well, $143.1 billion versus $141.4 billion. Amazon shares are only up 2.6%. So let me keep diving into these numbers. We're going to want to look for AWS as well as that guidance. And I'll come right back. All right. Dear Jabosa, thank you. Mike Santoli, I will go right back to you. AWS is really going to be the key here, but also online stores and what we see in terms of the e-commerce side of things and ad revenue continue to hold up. In the meantime, ahead of this, we saw mega cap tech smacked around again today. Yes, just a little bit of an excess of, I wouldn't say complacency,

but belief that these companies could remain impervious to the macro and the rate story. So a sell the news response. This market has been really unwilling to extrapolate strength today into continued strength in the outlook, whether that's for the macro economy or it's for individual earnings right now. So any kind of whisper that the growth path is wavering and they get hit hard. So I think that's the environment into which a lot of these companies are reporting. The Amazon number, even on the top line, is pretty good. You know, on June 30th, when this quarter started, it was under 138, 138 billion for sales. Now they come in at 143. So, you know, it shows a little bit of momentum there. We'll see if they get rewarded because maybe this, okay, now you've got to have 5%.

But before that, you have to believe people are going to be hesitant because we remember Meta reacts to the upside on the reflex and then it sold off the next day. Yeah. I mean, waiting to hear Dee's perspective on AWS. It does look like revenue-wise it came in in line at $23.1 billion, but operating income-wise, better than expected. And so I wonder, Paul, you're still with us, what's your take on the importance of the cloud results? Because we've got strong cloud results for the market overall. We've got strong cloud results from Microsoft, and it doesn't seem to help much this week. Yeah, I mean, I think that it's a very

big part of Amazon's business. So you want to see that strength, especially since they discussed that in their last earnings conference call. They were talking about seeing pickup in that. So if you saw a reversal there, I haven't been able to read the report. That would be concerning. On the retail side, though, they've also talked about how their margins last quarter had been improving for five straight quarters. So as those margins improve, that's a big tailwind for the business. And you come into the last month, we've seen gas prices and energy prices declining. That's positive for the consumer, helps to offset some of the uncertainty with student loans. So I think in that respect, you want to follow the retail business just as much as the cloud here.

Okay. We're going to go back to Dee, who has more detail on the Amazon results. Yeah. So you might call these results a little more mixed. You can tell the market is trying to digest them as well. But on that cloud front, that all-important AWS number, it is a slight miss here. $23.2 billion was expected. It came, no, yes, $23.2 billion was expected. It came in at $23.1 billion. That is a year-over-year increase of 12%. Last quarter's year-over-year increase was 12% as well. So we can't really say right now that this is a bottom.

We're going to ask, of course, the executives to see if they can say that. But that's going to be really critical. In terms of the guidance as well. Remember, we're going into this all important holiday season. Revenue Guide is looking a little bit short. One sixty six point six two billion was expected. They're guiding between one sixty and one sixty seven billion. So that mid range is lower than what the street was expecting. Operating income between $7 and $11 billion. The street was looking for $8.5 billion. Shares are up 4%, so not a hugely strong beat, but again, we'll continue to digest the rest of the numbers. Okay, dear Tabosa, thank you. We've got another earnings mover, Ford. Those results are out.

Phil LeBeau has the numbers. Phil. Morgan, this is Ford posting a number that is coming in shy of expectations, earning 39 cents a share in the third quarter. The street was expecting 45 cents a share. Revenue is basically in line with expectations at 41.8,.18 billion. The street was expecting 41.22 billion. Free cash flow of 1.2 billion. That's down quite a bit compared to the third quarter of last year when free cash flow was $3.6 billion. And then each of the divisions, we like to look at this because it's a good snapshot

of how Ford wants to position itself for the future. The internal combustion engine vehicle business, the F-150, the SUVs, the most profitable part of the business. It posted a profit of $1.71 billion in the third quarter. The commercial vehicle division, that's posting a profit of $1.65 billion. And then there is the EV business, what they call a Ford Model E. It posted a loss of $1.3 billion. So there you see the split. Two-thirds of the business making money. They're still losing money when it comes to electric vehicles. Ending the quarter with $51 billion in liquidity, and they are withdrawing their guidance pending the UAW contract offer ratification vote. Guys, the call starts next hour. Be interesting to see what Jim Farley has to say

about the cost complex for Ford now if they get this deal ratified with the UAW. All right, Phil, thank you. Mike, we can talk about Ford, but I want to go back to Amazon for a moment because, I mean, yeah, AWS was maybe a little off of expectations. I don't know if you want to quibble 23.1, 23.2, but the operating income for AWS was expected to be around 5.6 billion. It came in at 7 billion. That's a pretty significant profit beat on the most profitable part of Amazon. Also looking further down on advertising services, that beat at 12 billion versus 11 and a half billion expected. So might that be why the stock is higher? It's a pretty good mix. If those are where the outperformance is happening, I agree with that. Also,

it's a one point two trillion dollar company, one hundred million dollars shortfall on the on the AWS revenues. You wouldn't really think that's a make or break with the stock already down 18 percent. I always point to this, though, when it comes to Amazon guidance. I mean, the guy for operating income in the quarter, $7 to $11 billion, we're a third of the way through the quarter, right? So in other words, they always manage the company to just like meet demand. We're hustling. You know, we're just going to do everything we can do and we'll see what falls out to the bottom line. And so, you know, I think it's a decent number given the setup. It's just a matter of whether this market wants to hear it. Yeah. And Paul Hickey, I mean, they do highlight AI and some of their AI products and services.

And you have Andy Jassy in the release saying they had the strong third quarter as our cost to serve and speed of delivery in our stores business took another step forward. They say the AWS growth continued to stabilize and that advertising revenue grew robustly and overall operating income and free cash flow rose significantly. Your reaction to what we're hearing so far from this result, from this mega cap tech name in a week that we know for which the bar has been so high for others that have reported? Well, yes. So the bar was high coming into the week. I think it's gotten a little bit lower as we've seen the last three days. So Amazon, you know, the guidance, you were just talking about the guidance, $7 to $11 billion. I mean, what are we supposed to even think of that? $7 to $11 billion, you can drive like three trucks through that. So, I mean, it's hard to look at that. I think the pickup and improvement in the retail

is a positive. What you've seen, you saw in prior quarters, that has been a drag on margins and that is starting to improve it. It sounds like from what you're discussing, the cloud, you would have expected AWS maybe to be a little bit stronger based on their commentary last quarter. So that's something that, you know, I would like to hear more about as they go into the conference call. Indeed, we'll listen out for that. Mike, I wonder about after-hours reversals. Meta looked so strong all first hour long before the conference call. And then, I mean, yeah, before the conference call. Then during, I'm not sure what happened, but it ended up lower after hours

and then trading pretty rough all day. I mean, how much do we have to worry about that kind of effect, even with names like Amazon? We have to worry because the market's hypersensitive to any sense that the next several months doesn't have as much visibility as the market would like. When you have these stocks that have outperformed by these massive margins up until this point, it means everybody granted them the credit in advance for making these numbers and being on a growth path that was going to be a little more predictable than the rest of the market. So to me, it's that adjustment in expectations versus reality, a little bit of a crowding effect in there as well. But Amazon's down quite a bit since before Microsoft and Alphabet reported, right? So

you would have thought that, again, the bar might have been lowered. All right. Well, we've got another earnings mover to tell you about. That's L3 Harris, the defense prime contractor. Those earnings are out. It looks like a beat on the top and bottom lines. Earnings coming in at $3.19 adjusted per share. That was better than the $3.03 that the street had been expecting. Revenue is also beating $4.92 billion versus the $4.76 billion that had been expected. Total strong backlog growth, 49% growth in that to $32 billion.

Continued demand and strategic national security-focused acquisitions providing longer-term visibility. That's according to the letter from the CEO, Chris Kabasic. You're seeing book-to-bill 1.17 times, 16 percent increase in top line. That's what that revenue number represents year on year as well. I'll note shares are up about half a percent right now. We have the CEO, Chris Kibasic, coming on exclusively to break down these results and more before he speaks with analysts on the conference call tomorrow morning. So that's coming up just a little bit later in the hour. But to shift gears here again, Paul Hickey, whether it is Ford, whether it's Amazon, whether it's L3 Harris, whether it's some of the names and results we got this morning,

I think about some of these big industrial bellwethers that touch so many different end markets across so many different parts of the globe, like a UPS or a Honeywell this morning. Do we have a clearer picture yet, to your point, on where economic growth is headed right now, especially when you hear about macroeconomic uncertainty from so many of these names? I mean, it's a very interesting environment right now. You look at today, we saw this extremely strong GDP print. And at the same time, we saw... Paul, I got to interrupt you for a moment. I'm sorry.

Chipotle earnings are out. Kate Rogers has those numbers. Kate. Hey there, John. So for the third quarter, Chipotle EPS coming in at $11.36 adjusted. That's a beat compared to the $10.55 estimated by the street. Revenues right in line for the quarter, $2.47 billion. Same store sales

a beat up five percent compared to the 4.6 estimated by street count this was due to traffic being up and higher transactions fueling its sales growth now in terms of guidance fourth quarter and full year comps being guided here in the mid to high single digit range This compared to the up 5.3 percent estimated for the fourth quarter alone there and between 255 and 285 new openings. Once again, the stock is up about 30 percent year to date. It's up more than 5 percent right now. And CEO Brian Nickel is going to be coming up shortly to discuss the quarter with us. So much more to come. Back over to you. OK, Kate Rogers, thank you. We're just shifting gears here. It's like a ball that's in the air and not falling to the ground anytime soon. So let's talk a little bit more about Amazon's results with CFRA analyst Arun Sundaram.

He has a buy rating and one hundred and eighty three dollar price target on the stock. Arun, your response to the results we've gotten so far, especially that AWS number, the revenue number that represents 12% growth in line with what we saw the previous quarter and talk of stabilization there. Yeah. Hey, thanks for having me. Yeah, no, I think that AWS growth number at 12% might be viewed as a little bit of a disappointment. We wanted to see that acceleration, the same kind of acceleration that Microsoft got, but we got pretty much flat growth compared to Q2. But the offset of that was that AWS operating income was about $7 billion this quarter. It's actually the highest in Amazon's history. And AWS operating margins were 33.3%. That's actually a 600 basis point sequential improvement from Q2. So although we didn't get that top line growth number, if we got 13% AWS growth,

the stock would probably be up a lot more. But I think I think investors will be happy to see that that AWS margin of 30.3 percent. That was a big positive. Is is AWS the type of business where they could have chosen revenue or operating income and they just chose operating income? Or is it not that way? How should investors think about the kind of levers they can pull there? No, I don't think it's that way. I think for the top line number, one big headwind is customers are continuing to cut costs, optimize costs. That's been a theme we've been hearing throughout big tech. We heard that with Google. But the fact that we still saw 12% growth, I think that will be viewed as a slight positive. It didn't decelerate.

So that is good news. We didn't get that low single or high single digit growth that some people were really worried about. But we are seeing new AI workloads. And I think that's what's kind of boosting this top line right now. Customers are starting to move away from cost optimization a little bit and starting to think about new AI workloads. And that's starting to have an impact on the top line. And I think that's going to be a catalyst for 2024 as well. And then on the bottom line, yeah, we're starting to see more efficiencies being rolled in not just the retail business, but now also in the AWS business. So it's a good combination to see

improving efficiencies in retail, improving efficiencies in AWS. I think that sets the stock up well in 2024, especially considering if we continue growing operating profits, which operating profits this quarter was $11.2 billion, much higher than the expectation of $7.7 billion. All right. Arun, thanks. Arun Sundaram. Meanwhile, Intel earnings are out. That stock is popping, I think, about 7% after hours. Christina Parks in Everlast has the numbers. Christina? Yeah, that's because it's been a strong beat for EPS, revenues, Q4 guidance.

That's why we're seeing the strength in the stock right now. EPS coming in at 41 cents, much stronger than the streets anticipated, 22 cents on revenue of $14.16 billion for Q4. Even their range is much higher than what was anticipated. A Q4 revenue range of $146 to 15.6 billion. Street was anticipating only 14.3. Gross margins, that was an important number to look at too because they had been declining for so long. Last quarter was 39.8. This quarter, 45.8 percent, much higher than estimates at 43. We're seeing strength in client computing, a little weakness in data center revenue, which we expected given the shift towards GPUs. But the company

saying, and I know you're reading it too, John, while I'm going through this, but the company saying that they delivered a standout third quarter thanks to their process and product roadmaps and new foundry customers. And they reiterate they'll hit five nodes in four years. Strength, 7% in the stock. That is an important benchmark on the turnaround attempt they're going through, Christina, absolutely. Thank you for that, Christina Partsenevelis. Speaking of which, I'll be speaking with Intel CEO Pat Gelsinger after the earnings call today. You can catch some of what he says first on CNBC tonight, 7 p.m. on Last Call. We'll have more of that interview throughout the day tomorrow on CNBC. Paul, it was really client computing here for Intel. It was a standout.

$7.3 billion in revenue expected. $7.9 turned in here. Data center and AI, as Christina mentioned, was a little soft, but the networking group also came in a bit stronger than expected. But boy, the guidance on gross margin as well here to 46.5 non-gap in Q4, I mean, I can't believe we're talking about wow with 46.5 in Intel. We should be talking in the 60s. But based on where they've been, that's significant, no? Yeah, I mean, I remember a day back when Intel was the most important report in earnings season, and it's come, you know, things have come a long way since then. You want to, I mean, sentiment has become so bad towards the stock, you know, their business has been in the tubes. So the fact that we're seeing this encouraging commentary,

last week we had Taiwan Semiconductor talk about a pickup in the PC and smartphone chips business. You know, that's where Intel is heavily involved. So that's sort of a hint at some strength. But, you know, hey, we'll take any strength these days in stocks where we can get it. So, you know, when you see Chipotle, Intel and Amazon trading up on earnings, you know, we'll take it. Yeah. Intel higher right now, 6.5%. Amazon, 3.5%. L3Harris, 1%. Chipotle's higher. Paul Hickey, thanks for being with us. Mike, we're going to see you a little bit later in the show. Don't go too far.

Chipotle shares that I just mentioned are up in after hours after an earnings beat just moments ago, about 5%. Let's get to our Kate Rogers along with Chipotle CEO Brian Nickel. Kate Morgan, thanks so much. And hi, Brian. Thanks for being with us. Yeah. Hey, Kate. Good to be with you. So let's start here. What is the consumer telling you right now? Are you seeing any signs of resistance to the pricing of the brand? Yeah, look, you know, we're really excited about our quarterly results. You know,

the growth was driven by transaction growth. And I think that's just a, you know, outcome of having a great value proposition. And what we're seeing is every income cohort, whether it's low, medium, or high, continues to really show an affinity for Chipotle. And we're really excited about the momentum that we have in the business. And we're going to continue to push against what makes Chipotle special, which is great culinary, great customization, terrific speed, and all that combined results in just a tremendous value proposition. And Brian, you've talked with us before about pricing levers, the ability to kind of adjust pricing as needed. The company just took price in the last month. Is that going to be it to end the year? Yeah, we don't foresee taking any more pricing this year. And, you know, I think

the thing that's important is in the last quarter, the one we're just reporting, we really didn't take price. This growth was driven by transactions and great operational execution. And I'm delighted to see that we're seeing consumers respond to what I mentioned earlier, the great culinary, the great speed. And obviously, we took some price, frankly, the last two weeks in October. And that was really to offset some labor inflation and some minor food inflation. But we feel really good about where we're positioned. and we're optimistic about where we go from here. Brian, it's Morgan. It's great to have you back on the show. I'm going to ask you a question that many of our CEOs in the food and beverage business,

as well as in medtech business, have been getting asked over the past couple of weeks, and that is your take on these GLP-1 drugs, these weight loss drugs. Have you seen any kind of impact? How are you thinking about that from a business perspective, if you are? Yeah, sure. So thanks for the question. Good to see you, Morgan. You know, these GLP-1 drugs, we're really not seeing any impact in our business. And the more we study it and understand it, frankly, I think this is another place where we're positioned really well. You know, our food is clean, highly customizable. So if you do decide to go on these GLP-1 drugs, you can get exactly what you want to eat, you know, as evidenced by some of our lifestyle goals, right?

Remember when everybody was talking about keto, low carb, the caveman diet, I mean, pretty much all these things, you can create exactly what you want. And then behind all of it, it is really rooted in this idea of clean food, food with integrity. So we're not seeing any impact from it today, but as we look out into the future, we think we're well positioned, even for those that do decide to use the drug for weight loss. Hey, Brian, it's John Fort. I'm curious about this aces in places strategy that you've been pushing, making sure that you've got the employees in the store really working down that line and being efficient at key times. You mentioned labor costs. How is the tightness in the labor market and the turnover that you're seeing or not seeing in the workforce impacting your ability to really keep those aces in places and be as

efficient as you want to be? Yeah, well, look, you know, we might need to put you on the line with that knowledge. But yeah, look, aces in place is a critical piece of the puzzle for us to execute our throughput. Our turnover right now with our managers is at the lowest level it's been in years, which is really important because that delivers stability for the team, both the leader and the broader team. And we're seeing really good abilities to hire and we're seeing with our growth and our story of growth for people,

both personally and professionally, is resulting in better retention. So we're in the best labor position we've been in in a while. And really what we're focused on now is ensuring people understand how best to execute the operating model. I was just with all of our team directors. We brought in everybody to talk about this exact thing, like how do we perform on great throughput

against Chipotle's standard of excellent food with great people served really fast. We do those things right, we'll get our aces in places and we'll delight our customers every single time. And Brian, one question to kind of follow up on that. I know the company's been testing out some things to improve throughput in the restaurants, the avocado, of course. Of course, we've talked about the double-sided grills, chip you we've had on the air several times. How is that going? How are workers kind of responding to that automation? Are they liking it? Do they think it works well? Is it speeding things up? Yeah, look, so we're very much in our stage gate process and all these things, right? So the dual sided grill to the avocado. The thing that our team members are telling us when we put it into

our test stores is they love the automation. We call it cobotics because it really works with them to execute, whether it's morning prep, like the avocado, right? Cutting, coring, scooping avocados. This is one of the things that our team members told us, hey, that's a task. If we could figure out how to automate, we would actually be better at hand-mashing the guac and making sure that we have guacamole on the line all the time. But all these things are early stages. You know, the dual-sided grill, we have that where we're testing it at about 10 restaurants. Chippy, we're doing some additional work on how you clean that better the autocado uh frankly that's off to a really good start but again very much in the prototype phase same with hyphen and we're going to take our time on this because we want to make sure that it delivers on the food experience the people

experience and obviously the customer experience and then we've got to make sure we get a good return on this investment so it's in our stage gate process, optimistic about what cobotics could do for our company. All right, Brian Nicol, thank you. And our thanks to Kate Rogers as well. Man and machine in the kitchen. Stocks up 5% Chipotle. Solar company Enphase Energy is sinking on earnings, though. Pippa Stevens has those numbers. Hi, Pippa. Hey, Morgan. Yeah, this stock is dropping here in extended trading after posting a mixed quarter. So EPS did beat with the company earning $1.02 per share on an adjusted basis. That was one penny above estimates.

But revenue did miss expectations at $551 million versus $566 million. But it really is this really disappointing guidance that's what's sending the stock 14 percent lower here. They say revenue in Q4 between $300 million and $350 million. That is well short of the $584 million that Wall Street was expecting. Now, during the third quarter, they said that their revenue was down 16 percent in the U.S. and 34 percent in Europe, down 34 percent quarter over quarter, thanks to weakness in key markets and the buildup of inventory. Of course, this does mirror what we've heard from SolarEdge, who last week announced that they were going to see very disappointing results

thanks to a slowdown in Europe. Once again, the stock down 14%. John? Yeah, Pippa, thank you. That's rough. Up next, we're going to dive deeper into Intel's strong results. It's up about 6.5%. So thank you. That's rough. Up next, we're going to dive deeper into Intel's strong results. It's up about six and a half percent. The growing competition the company is facing from the lights of NVIDIA and Qualcomm. When we're joined by a longtime tech industry insider analyst, Patrick Moorhead. We'll be right back.

Welcome back to Overtime. If you're just joining us, it's already been a very busy overtime session. Amazon turning in a very strong quarter. EPS with a big beat. Revenues beating as well. Ford missed on both lines and withdrew full year guidance amid the pending UAW deal vote. Intel nearly doubling EPS estimates, beating on revenues as well. Ford is lower, but Intel and Amazon are both higher right now in trading. Yeah. And let's talk more about Intel up a little better than 6 percent. More insights and strategies. CEO Patrick Moorhead joins us. Pat, the stock after hours now, yes, it's up 6 percent. It's regained most of what it lost this week at this point. But I mean, what does this moment mean? The words in the release, strong operating leverage, are not words that we're used to hearing from Intel over the past couple of years. So is this potentially a pivot moment?

Do we need to hear more? We know that they've got this AI chip event coming up in New York in just a couple of weeks. Yeah, so I look at this on a string of quarters. And quite frankly, the company didn't have a lot of financial credibility with the street. So in some ways, regardless of what they said, they might not get the reaction that they would have wanted. So Intel, a few quarters back, went into a very conservative mode, which I agree with, which is undercommit and overdeliver. And that's what I think we're seeing here. Last quarter, their guide for this quarter was quite conservative. And I think what you're seeing is a melding of everything falling into line.

I'm a big five nodes in four years type of guy. It's the first line item I look at, and it continues that they're on that beat. Hidden in Pat Gelsinger's quote, it looks like that IFS, their foundry company, has yet another customer. And I think that is one of the biggest announcements here. We'll probably never hear about the name of the customer, but IFS has to succeed as a foundry for them to have a decent cost base to be able to compete with TSMC and subsequently NVIDIA and also AMD. Patrick, what do you think of Client Computing Group? $7.9 billion for Q3. It was down 3%. That was better than the street had been expecting.

We've been looking for this rebound in the PC market. Are we getting it? I think we are. I mean, I think we had a trough last quarter, and we're going into growth mode. Now, Q2 is not exactly a blow-the-door-off quarter. And Q3 is always higher, and Q4 is always higher than Q3. But it's a really good start. And as I do my channel checks across the PC OEMs like Dell, HPE and Surface and folks like that,

they are at bare minimum inventory levels. And I think we're ready to rock and roll and get back to not the pandemic days okay where it was crazy 20 growth but we are hitting volumes in the marketplace of of pre-pandemic and that is positive particularly after the inventory bleed off pat from from your background i see some nice pillows there i'm guessing you're still in maui at qualcomm's snapdragon event We had Cristiano on overtime, and I watched the presentation. They made some bold claims about the kind of performance for Windows PCs that they're going to be able to achieve. How concerned should Intel investors be, and hey, even AMD investors, because they called out Ryzen, about what Qualcomm is going to bring to market next year.

So, John, as an industry analyst, I need to be very careful and precise on this answer. I looked at the numbers, I scrutinized them, and they look very legitimate. Now, what we're comparing are products that are in market from Apple, Intel, and AMD, we haven't seen the marks and the benchmarks from their next generation. But one area, John, that I think Qualcomm will have an advantage on for a while is performance per watt on the CPU. and they've put this gigantic generative AI accelerator in there for Windows that I think caught everybody else a little bit flat-footed. So I always like to say that it takes three major players in any market to legitimize and have a healthy market. I do believe, from what I've seen so far,

is that Qualcomm could be the third player in the PC processor and SoC market. See if we get a fourth from NVIDIA as well. I'm sure Pat Gelsinger would be fine. He would have been fine with two. But Pat, thanks for joining us. Thanks. Well, speaking of Intel, again, cue the QR code because it's time for the latest installment of my On the Other Hand newsletter. This week's debate is will new rivals with ARM-based chip designs bury Intel's turnaround hopes? Takes on a whole new flavor after that earnings report. You can sign up using that QR code or just go to cnbc.com slash OTOH, Morgan. Incredibly timely, per usual. Well, it's time now for a CNBC News Update with Bertha Coombs. Bertha. Hey, Morgan. Incredibly timely, per usual. Well, it's time now for a CNBC News update with Bertha

Coombs. Bertha. Hey, Morgan. Two law enforcement officials tell NBC News that the suspect in last night's massacre in Lewiston, Maine, received mental health treatment over the summer. Robert Card's military unit sent him to a hospital at West Point after reports that he was behaving erratically. Card's sister-in-law told NBC News today that the suspect began hearing voices saying, quote, horrible things about him a couple of months ago when he was fitted for high-powered hearing aids. A federal judge ruled that Georgia's redrawn congressional maps violate the Voting Rights Act.

The judge gave lawmakers until early December to submit a new map. If the state is unable to satisfy requirements, the judge said the court will draw plans. The maps were approved in 2021, but face lawsuits accusing the state of diminishing the voting power of minorities. And the new Speaker of the House, Mike Johnson, met with President Biden at the White House today. Johnson was brief speaker of the House, Mike Johnson, met with President Biden at the White House today. Johnson was briefed on the administration's request for additional funding for national security efforts in Ukraine, Israel and along the U.S. southern border. This was Johnson's first visit to the White House as the new speaker. Back over to you. All right. Bertha

Coombs, thank you. After the break, Mike Santoli tackles today's hot GDP print and one under the radar component that could be signaling a more resilient economy than many expect. And we'll have much more on today's after hours action, including an exclusive interview with the CEO of defense contractor L3 Harris before he talks to analysts on tomorrow's earnings call. Welcome back. The strength of the U.S. economy catching Wall Street off guard again with this morning's Q3 GDP release coming in above estimates. Let's get to Mike Santoli over at the market dashboard for more. Mike. Yeah, Morgan, this is a market that's been skeptical recently of the resilience of the U.S. economy. This chart here showing industrials and consumer discretionary equal weighted. Those are the top two lines against the traditional defensive areas, staples

and utilities. Up until late July, when the overall market peaked, this story was cyclicals beating defenses. It was a stronger than anticipated economy. And then rates started to ramp. We had this pullback in the equity markets and you saw declines in the cyclical areas, but also in the rate sensitive defenses. What's happened more recently, though, you see tentative bottoming in the defensive areas, even as we get accelerated downside in the economic. And so at least the market saying, look, we still think this is a vulnerable economy. If you believe otherwise, maybe the market's giving you an opportunity. Now, take a look at one major component of the GDP report today. Yep. The headline annualized 4.9 percent growth was great.

This is real final sale to domestic purchasers. It's kind of the underlying trend of actual demand in the economy without inventories and such. Now, of course, the pandemic destroyed all these maps that show trends. But this little uptick that we've seen recently, reacceleration to the upside is something that we did not typically see ahead of prior recessions, at least not very soon before prior recessions. So a little bit of hope that we have some time, some leeway for this market to prove that it is not headed for a steep slowdown, Morgan. This is fascinating to me, and it kind of reminds me of CSX Joe Henricks,

the CEO there, and what he had to say about the reacceleration of some of the products that they move on the railroad. We spoke to him post earnings last week. He talked about chemicals, for example, which have been hit hard all year and tend to be an economic bellwether of where the economy is going. Does this when you see a data point like this, does it raise the question of forget soft landing, but no landing? It raises that question for sure. I think you're seeing things like industrial production tick up to even some of the purchasing managers indexes that would seem to suggest that we have the capacity. Now, Wall Street economists still saying fourth quarter is going to be weak.

The consumer is getting fatigued and doesn't have as many resources to draw on. So we have to see how it plays out. Also have to see if the bond market is going to like the idea of a no landing if we start to see it and have rates go up even more, which, again, is kind of this self undermining process which would sap faith that the economy can handle it. Is good news. Good news. It seems to vary from day to day, Mike. Thanks. And up next, the CEO of defense contractor L3 Harris discusses his company's earnings beat and how the wars in Ukraine and the Middle East are impacting the industry. We're going to be right back. Welcome back to Overtime. Let's get back to Deirdre Bosa for more on Amazon's results. Dee? So, John, Wall Street was looking for AWS, for the team at Amazon, to say that growth has

bottomed. It's been six quarters of decelerating growth, 12 percent this quarter. So I just got off the phone with the CFO, Brian Olsowski, and I asked him that question. Can you say that AWS growth has hit a bottom? He said, and I'll quote him, I wouldn't characterize it that way. We're in a delicate position. He said that cost optimization remains a headwind. That optimization is starting to slow down, but he also said that there's still companies joining that effort. The takeaway here, though, is that they will not call a bottom. And that seems to have hit the stock, which was higher initially after the results, but dipped into the red. Now it's up about two tenths of one percent. OK, Deirdre Bosa, thank you. Aerospace and defense earnings in focus amid the Israel-Hamas war and

more fraught geopolitical landscape more broadly. That has pushed stocks like General Dynamics, RTX and Lockheed Martin higher. Northrop Grumman reported a beat and raise today amid strong demand for weapons and deterrence systems. Northrop CFO Dave Kepford telling me, quote, we continue to be responsive to the needs and demands of our customers, be it the U.S. or allies, noting, quote, in the U.S., continued growth in the national security space arena as well as in munitions and missile defense, to name a few. Now, that's been a consistent theme. Demand is soaring. Contractors are working through lingering supply chain challenges to keep pace. In focus now, though, here in overtime, L3 Harris, which just reported an earnings beat, sales that grew 16 percent in

Q3 and a backlog that jumped 49 percent to $32 billion. Joining us now exclusively on set, L3 Harris, CEO and chair, Chris Kibasik. Chris, it's great to have you back here. Always good to be here. Thank you. You also grew margins for the quarter. Walk me through where you're seeing the demand strength coming from right now and what that supply chain picture looks like as you do grow margins. Yeah, let me just focus back on the quarter to start with. I have to start by recognizing the 50,000 men and women at L3 Harris.

It's a resilient, hardworking group that's focused on the mission. Today's results, I think, really highlight their hard work. I mean, you mentioned the 16% top-line growth, the beat on EPS, and cash. We have generated positive cash every quarter since the merger in 2019. So margin expansion has been a key focus for me and the team. This is the second consecutive quarter that we've sequentially improved our margins. And I think you see the results on the bottom line as a result of it. As far as demand, you know, space has been our hot market. We've been growing double digit in space. The airborne, the maritime and the land domains are also growing. And then we are one of the unique companies that have the

ability to connect all the pieces. And I know how much you like acronyms through JADC2 and Joint All Domain Command and Control. So we seem to be well positioned. And that's what we're doing is really trying to build a portfolio that aligns with the needs and the growth markets. What does that demand picture look like? I mean, we've seen stocks, including L3 Harris, move higher given this war in Israel, in the Middle East now. We continue to have this war in Ukraine, continues to be focused on replenishment of stockpiles of munitions, missiles, et cetera, here in the U.S. How does this continue to take shape? And just as importantly, what is your assessment of the geopolitical landscape

right now? Well, yeah, let me start with the geopolitical landscape. I mean, clearly, the terrorist attack in Israel is reprehensible. And anytime there's a loss of innocent lives in a conflict is just tragic. And what we're seeing, obviously, in Israel, Ukraine, and even in the South China Sea is currently in the last 24 to 48 hours, there's been some some interactions there. It's just a dangerous world, plain and simple. It's a dangerous world and we have to have the ability to build up our national defense capabilities through technology. Now in L3 Harris's case, we have a unique portfolio because we have products and programs or platforms if you will. So the products are quick turn. That's one of the reasons we had the hit from the supply chain earlier than most,

whether it's radios, night vision goggles, cameras, sensors. We're in ability to turn some of those things really quick, in some cases, less than a week. So to the extent there's demand, which there was in Ukraine, especially for our radios, we're getting signals from Israel. We can provide capability into theater rather quickly while also working on the longer term programs or platforms as well. Now, when I talk to some of your peers at other provide capability into theater rather quickly while also working on the longer term programs or platforms as well. Now, when I talk to some of your peers at other defense primes, one of the things they say is that within the supply chain, while they're seeing improvement, one area where there's continued to be challenges is rocket motors. You did just close on the deal during

the last quarter, $4.7 billion deal for Aerojet Rocketdyne. How is that integration going? What is that company within your company going to look like moving forward? Absolutely. When you and I first met back in December talking about it, I think I told you we would close this deal in about a year. We were able to close it in seven and a half months, so we're rather proud of that. On day one, we hit the ground running, deployed L3 Harris team to actually run this business. They're looking at everything with the single goal of improving or increasing deliveries and production. So whether it's the supply chain, the talent, the systems, the processes, and the choke point is in fact the supply chain. It's not at the rocket

motor level. It's at the sub-tiers. There are very few companies, in some cases only one, that can provide igniters, nozzles, cases. So the focus on fixing the overall munitions portfolio is to get the money and get the investment to those sub-tier suppliers. There are several companies that now want to get in a rocket motor business, which I guess confirms to me that it's a growth market and a hot place to be. But it's going to be a key part of our portfolio. And again, we take a portfolio approach. We divest companies that are not core to our national defense technology focus,

and we buy companies to this year, to be specific, that align with that strategy. All right. Of course, I'm sure operating off of a continuing resolution and question marks around when we get to fiscal 2024 is going to be key when we talk about things like supply chain and defense industrial base as well. Chris Kibasic, it's great to have you here. All right. Thank you very much. On earnings day, too. Appreciate that. Sure. Up next, all the after hours earnings movers that need to be on your radar as we count down to the conference calls.

We'll be right back. Welcome back to Overtime. A couple more earnings movers to tell you about. Decker's is surging after a big bottom line beat. Revenues were above estimates as well. Full year guidance topped the street. Juniper Network's also higher after beating on both lines. And Amazon is well off its post earnings pop after management's comments about

AWS. An Amazon shareholder tells us what he wants to hear from executives from that earnings call, which kicks off next hour. Stay with us. Let's get another check on Amazon. Stock initially jumped on an earnings beat, but Deirdre Bosa reporting she asked the CFO if AWS growth had bottomed. He said he wouldn't characterize it that way, saying, quote, we're in a delicate situation. There are a number of cross streams right now, unquote. Joining us is Majorna Venture Group Managing Director Matt McElwain holds Amazon in his personal portfolio. Matt, get us ready for this call. And what should investors really care about most when it comes to AWS, the operating profitability, which looked pretty good,

or the revenue, which is just in line? Well, let's take the biggest picture. This is a company that has now generated $72 billion in operating cash flow in the last 12 months. And their free cash flow went from negative $20 billion to positive $20 billion. So cash flow in the last 12 months, and their free cash flow went from negative $20 billion to positive $20 billion. So that's pretty darn impressive across the board, and they should focus on that, plus all the things they're doing internally with AI. When you bring it down to AWS, I think the real key there is, can they prove that they're the most open player? They launched Bedrock this quarter. They've come out with a bunch of open partnerships, including with Anthropic, where they've committed to investing up to $4 billion.

And can they capture the hearts and minds of both the developers and the enterprise customers who are clearly embracing AI and be the most open and the best partner? Yeah, I mean, the other piece of the puzzle for Amazon, right, is that they have this holiday season quarter sales guidance, a little bit disappointing versus what the street had been expecting. Online stores revenue for the just completed quarter only slightly better than street expectations. How much does that matter here? To your point, as you do see stronger cash flows, you do see stronger operating income. I think all those pieces matter because the past year was a lot about getting fit, and that's why you see the cash flow results. And as we turn the page into 2024, across all the different businesses, whether it's e-commerce, whether it's advertising, and certainly AWS, we're going to be looking for real revenue growth. I think they're doing quite a number of things to

apply AI internally, and I think that's going to continue to help them improve both efficiency and new offerings. They even are putting things into, for instance, Thursday night football with generative AI. But they've got to be able to work with others, especially in AWS, to show that they're the best partner around generative AI, generative AI applications. And that's going to be a big driver of long-term growth. Matt McElwain, thanks for joining us. Shares of Amazon up fractionally now, John, and some other big movers, of course, in the hour. Yeah, Intel still up more than fractionally at this point. The conference call starts in literally just a minute.

We're going to be talking to Pat Gelsinger. We'll hear from him on Overtime tomorrow about what's really behind this quarter and what's ahead. We're looking forward to that. Also, key inflation reading, PCE tomorrow. That's going to do it for us here at Overtime.