Closing Bell - Closing Bell Overtime: Cleveland-Cliffs CEO On Nippon, US Steel Deal; L3Harris CEO On Global Threats 9/5/24

Episode Date: September 5, 2024

Cleveland-Cliffs CEO Lourenco Goncalves says in an exclusive interview with Closing Bell Overtime that the offer for US Steel is still on the table and he is working with JPMorgan and Wells Fargo on a plan. L3Harris CEO Chris Kubasik talks global threat levels, disruption in the defense sector and what impact the 2024 election will have. Secureworks CEO Wendy Thomas on what a possible deal for the company would look like. Plus, Bernstein’s Stacy Rasgon reacts to Broadcom earnings. 

Well, that bell marks the end of regulation. Kite Realty Group ringing the closing bell at the New York Stock Exchange. Trader ETFs doing the honors at the Nasdaq. And we had big swings for the major averages today as investors jockey for position ahead of tomorrow's jobs report and ahead of key earnings hitting this very hour. That is the scorecard on Wall Street. But winners stay late. Welcome to Closing Bell Overtime. I'm John Fort with Morgan Brennan. Yeah, we're moments away from the big earnings report of the week, Broadcom, which comes after pronounced weakness in the chip space, with the SMH ETF coming off its worst day in years on Tuesday. And we will get numbers from DocuSign, Samsara, and UiPath. Plus, the CEO of Cleveland Cliffs joins us exclusively to talk about the latest turn in the steel deal wars after news that the Biden administration is planning to block the acquisition of U.S. steel by Japan's Nippon Steel. As we await those broadcom results,

also, let's bring in our market panel. Joining us now, Barbara Duran from VD8 Capital Partners and Paul Hickey from Bespoke Investment Group. Good afternoon, guys. Paul, if the economic data, the labor, the jobs data tomorrow morning isn't shocking, what are the details you'll be looking at beneath the surface to help determine where stocks and yields go from here? So I think what you're looking for is you're looking for the labor participation rate. You're looking for average hourly earnings. You don't want too much growth there. But what we're overall looking for is what we've seen in these September reports, or for August at least, the reports in September is three out of the last four were stronger than

expected. So that's something to keep in mind here. But I think beneath the surface, we keep talking about hard or soft landing. And it's really difficult to tell in the moment which you're going to have because they look very similar. You tend to see rising jobless claims. You tend to see falling bond yields. You tend to see lower oil prices because they're both in the early stages a weakening economy. It's whether or not they expand to further weakness. And at this moment, we're not of the view that we're going to really see the hard landing within the next few quarters here. And we're more of the view that we're going to get a softer slowdown in economic data.

Barbara, anything that you've seen in the earnings numbers shaking you as we look ahead to these important jobs numbers in the morning? Well, in terms of individual companies, I think it's really been company by company or sector by sector. In retail, it has been company by company. Look at Dollar General versus Walmart, you know, similar sales on the top line, but very different business models and different and reaction to what they're seeing, you know, or in the semis, youis, in the AI, there's been a lot that has gone well there. And you're not seeing estimates come down for next year. This is really about the time of year where companies will start to put out little feelers and letting key investors know that things may be troublesome. But it still looks like earnings growth for next year could

be in the 12%, 13%, 14 percent range. And certainly this last quarter was pretty positive. So, you know, I'm with Paul. I don't see a lot of slowdown evidence here. I mean, continuing claims this morning, initial claims, you know, were fine and all the underlying of the ADP number missed. But even there, it's not about layoffs. It's about labor normalizing, wage growth slowing. And that's been happening all along. I mean, tomorrow's number will tell us a lot. But it's, I think, very unlikely, given all the other information data we've had, that you're going to see a big one-off miss like we had in July. Paul, I realize that September is seasonally the weakest month of the year. So there's probably that at play, the seasonality,

the technicals that come along with that, too. But isn't the bond market signaling greater recession fears here? And how much do equities actually take their cue from that the longer that plays out? You know, we have seen bond yields fall here over the last few weeks. You know, like I said, though, during any period where you're seeing slower economic growth, you tend to see yields decline. What would really concern us much more is if coupled with the fall in bond yields we saw high yield spreads start to widen out and we're definitely not seeing that. And when we look at we look at breadth in the stock market a lot. But if you look at breadth in the high yield market and high yield bonds what you're seeing is you're seeing strong breadth in that market, stronger than what we've seen in the past few years here. And so that's a positive signal because if the market was really getting concerned about growth here, you'd see lower bond yields and higher spreads. So this whole view that we're seeing weakness on economic concerns, this week's economic

data hasn't really been that bad. Manufacturing PMIs were weaker than expected. Services, much bigger part of the economy, slightly accelerated month over month and was stronger than expected. So I think it's much more to do with seasonality. The last four Septembers, we were down 3% in each of those Septembers. So, you know, this is I think investors are just, you know, looking ahead to next year. Taxes are most likely going to be the same or higher. So why not take some profits? Barb, we keep talking about the rotation out of big cap tech, but today it was mega cap tech that really led the charge. The Nasdaq is the only major average that finished the day higher. It was consumer discretionary, tech and communication services sectors that eked out gains today. So how much now hinges

on these results we get from Broadcom and the read through to the broader AI trade? Well, you know, I don't think that the Broadcom is going to make a big difference today. It's like NVIDIA last week. You know, did it make a big difference? No, it reaffirmed the AI play. It didn't stop people from taking profits. So I think today the market is going to be swishing about for a little bit. They're going to wait for the number tomorrow. We've got CPI, PPI next week, then, of course, the Fed. So I don't think that it's going to have a big impact. But I do think this is very similar to what we saw August 5th, a massive sell-off like we had this week on Tuesday. MegaCap led and led the way out here.

I think we're just waiting for tomorrow, and also we're waiting for the Broadcom earnings. But I think MegaCap is going to return, and people are saying, well, let's wait, let's wait. I think now is the time to be buying these names that have sold off so much. I mean, NVIDIA itself is now just a 29, 30 times PE and it's growing over 40 percent. And that looks like it can be the next 18 months. So I think what we've seen this week, a lot of rotation. You've seen the interest sensitive plays, utilities, real estate, financials all go up. They've been making new highs and then some cyclical rotation in anticipation there could be a recession. I think that is simply a trade and it's not going to work in the medium term.

Got to mention DocuSign results are out. We are going through it was bumping around. Now it looks like it's headed lower, at least initially. Paul, software, unless you're a mega cap, has largely been struggling over the past quite a while. You can look at DocuSign. You can look at even Samsara, up and down, up and down. What do you do with a category like that? When you've got a broader trend like AI, that longer term is supposed to do good things, I guess, across the board,

but doesn't seem to be showing up. Is that an opportunity or a warning? Yeah, I think in the short term, some of these software names are we're mostly staying away from the, you know, DocuSign is not really a high multiple stock anymore, but it also has the growth rate of utility company with mid to low single digits expected earnings and revenue growth. So on that respect, you know, there's not a whole lot to get excited about there. Some of these other companies, like you said, Samsara, that's held up a lot better. In the last few months, though, we've had multiple rally attempts over $40 a share, and they've gotten reversed each time. So we want to see in this report, you want to see a strong report, and you want to see it break out of that range here.

But, you know, they have some short-term headwinds here. Tech budget's going more to IT than to – more to AI than to software. And then you also have slower employment growth, and that's hurting, you know, seats at companies buying these software subscriptions. Okay. Paul Hickey and Barb Duran, thanks for kicking off the hour with us. The mixed picture for the major averages, the S&P finishing down about three-tenths of one percent, 55.03. Well, DocuSign earnings, we said they're out. We now have the results for you. Pippa Stevens has the numbers. Hey, Morgan, it's a top and bottom line beat here for DocuSign in Q2, adjusted EPS of 97 cents. That was 17 cents ahead of estimates. Revenue coming in at 736 million.

That was also above forecast. Now, in terms of their guidance for Q3, they see revenue between 743 and 747 million against the 739 million Wall Street was looking for, with their full year revenue also ahead of estimates. The stock, though, now down about three and a half percent. Morgan. All right. Pippa Stevens, thank you. Now let's bring in senior markets commentator Mike Santoli for a look at whether the market is starting to get defensive. Mike. Yeah, Morgan, paying at least a little more attention to some downside risk to economic growth. I don't think it's really fully rushing to price in anything like a recession, but clearly through stocks and bonds, you are getting that tone of at least raising the probability of a more pronounced slowdown.

That's one of the messages from the 10-year Treasury yield down to 3.73 percent. It's gone down to more than a one-year low at this point. So this is a two-year chart. You show that we're back in this range, which we've really not spent a lot of time in over the last two years. Remember, the Fed stopped hiking, let's say, 14 months ago at this point. Now take a look at two rent rate sensitive areas. That's utilities and banks that have both been getting the benefit of yields going down quite a bit. But the last little while you see this downturn in the BKX. That's the bank index and sort of kind of bumped its head against its prior highs, whereas utilities kept going up. That arguably is also banks expressing a little bit of concern, having a stutter step about whether, in fact, credit and the economy can hold together. So, again, that's a pretty good uptrend, but very short term misgivings about exactly how it looks.

And then just for fun, Robinhood against DraftKings. So these are two ways that people use their phones to try to make money, I guess you could say, over two years. Not too dissimilar in terms of the charts. What I find most interesting is the fact that they're both kind of off their highs as maybe the retail speculator calms down just a little bit, Morgan. Speaks to liquidity in the market, perhaps, too. I do want to go back to the fact, because we just saw, we see DocuSign right now under pressure, and that's despite a beat on top and bottom lines. And it looks like strong and expected guidance, both for the current quarter and the full year. It speaks, perhaps, to the fact that we've seen a lot of earnings reports, particularly this week, being met with selling

pressure, even if they weren't bad or disappointing or as disappointing as feared. And I wonder how much it speaks to valuation in the market and investors trying to find equilibrium, given the fact that things look kind of pricey right now. Combination of valuations and also just an unwillingness to extrapolate good times too far in the future. When the Fed's about to cut, I think it crystallizes the debate about whether it's right on time or it's too late. Are we at a bigger inflection point? Right now, soft landing has not at all been disproven, but nobody's willing to pay up to bet that it's going to definitely happen. All right. Mike Santoli, thank you. Note that Samsara and UiPath earnings

just crossing. We are going through those reports now. Both stocks in the green initially. And when we come back, a potential inflection moment for the chips. Broadcom's earnings results due out in just minutes. And we'll have the numbers and instant reaction from analyst Stacey Raskin next. Plus, Cleveland Cliffs CEO Lorenzo Gonsalves will join us exclusively to weigh in on the news that the Biden administration is potentially looking to block Japan's Nippon Steel from buying U.S. Steel. This is something he predicted on the show at the end of last year. This is going to be his first comments as we've gotten those reports. Overtime is back in two.

Well, Sam, I'm sorry. Earning earnings are out. The stock right now of about 6%. Kate Rooney has the numbers. Kate. Hey, John. So it was a beat for software company Samsara. Let's start with that EPS number. EPS a beat by 4 cents, 5 cents adjusted on revenue of 300 million.

That was better than expected as well. Revenue in Q2 grew about 37 percent from a year ago. Guidance also looking good here. You got Q3 revenue looking between 309 million to 311. That was better than expected, at least at the midpoint there. And then EPS guidance looking good for Q3. Full year guidance does look stronger than expected. And they talk about ARR here topping one point two six billion billion, growing about 36% year over year, John. But you can see Street likes it. Shares up more than 6% after hours.

Back to you. Yeah, and it is above that $40 level that Paul Hickey mentioned has been difficult to stay above. We'll see what it does beyond this moment in overtime. And Samsara CEO Sanjay Biswas is going to break down those numbers in an exclusive interview right here tomorrow on Overtime. Yeah, looking forward to that. Sticking with the earnings theme, Broadcom earnings just crossing. We're going through those results right now. We're going to bring them to you any moment here.

In the meantime, investors are watching this report closely after a downturn in the chips recently. So let's bring in Bernstein's Stacey Raskin. He has an outperform rating on Broadcom with $195 price target. Stacey, I'll probably be interrupting you here, but first, as we do await these results, what are you looking for? Oh, they just came out. They just came out. Yep. Yeah, so the quarter looks like a slight beat on revenue EPS. The guide's kind of inline revenue. Maybe margins a little higher. They're guiding 64% EBITDA. The street was maybe 62, 62.5. I'm actually still going through it.

What I want to really see is where else is going through it, Stacey. Seema Modi. So let's get to her for a moment to give us some more numbers. Seema? I appreciate it. Here is the numbers for Broadcom. $1.24, which is a beat on its bottom line. The estimate was for a $1.20 adjusted.

Revenue of $13.07 billion, which did also come in higher than expected. Did it beat some of the more loftiest expectations out there? That will be key. Hoctan, who is the CEO of Broadcom, some comments here in the press release. He talks about how the third quarter results really reflect continued strength in the company's AI semiconductor solutions and VMware. They expect revenue from AI to be $12 billion for fiscal year 2024, driven by Ethernet networking and custom accelerators for AI data centers. There's been some working estimates across Wall Street on that AI revenue projection around $11 to over $12 billion. So that will be something that will be debated as well. He goes on to say that the

transformation of VMware continues to progress well. That was something that Wall Street will want more clarity on when the company's earnings call begins at 5 p.m. Eastern. John? All right. I'll take it, Seema. Thank you, Seema Modi. So, Stacey, we're going to go to you for those results because it was a beat. And it also, in terms of the revenue from AI, that's a raise to $12 billion for fiscal 2024 from, I think, previous guidance of $11 billion. Your thoughts? It is. Yeah, look, I think it looks good. And the other, I know the stock's down a little bit, but the other important thing on the AI side is that the margin guidance, especially the EBITDA guidance in the Q4 looks pretty

strong. They're guiding 64. The street was around 62.5. Part of the issue with some of the AI revenues, the custom chips that they're making for the hyperscalers, they too tend to have lower margins. And so the margin guidance to me looks fine. So, I mean, we'll see what they say on the call. But at first glance, this looks decent to me.

Again, the stock's down a bit. So, you know, maybe the first reaction disagrees. But my first glance at this looks pretty good. I'm looking a little bit through the lines here. Infrastructure software was expected to be at $5.55 billion. It's right about at $5.8 billion versus expectations. Infrastructure software seems to have performed better than semiconductor solutions. How do you feel about that? Yeah, that may be part of what's going on here. So, I mean, one of the big questions is what does that AI revenue look like in Q3 versus Q4? They had actually guided for some lumpiness. And so they'll give us some of the segment numbers as we get on the call so we can

see the different drivers of the semiconductor business. In general, though, and the issue is like that, but they took the AI guidance of if it's weak in Q3 because AI is weaker, clearly it would be stronger into Q4 because of the overall raise. I would take that. I do think we need to wait for the call to see what's driving this on the semiconductor side. In terms of semis versus software, I'll be honest. I like the acquisition strategy. I like the software strategy. I still think that there is upside to VMware. That's the big business that they just bought as we go through this year and into next year. It's massively profitable

business. I'll take it. I'll take it at this point. I think it's fine. And we'll see what they have to say. But to put a finer point on what you're saying, some of the excitement around the stock as being an AI play is more around the semiconductor side than it is around the stock as being an AI play is more around the semiconductor side than it is around the infrastructure software side. So if the infrastructure software side is what has outperformed in this quarter, and if you said we don't know yet, we got to listen to the call, the guy being just about in line on revenue at 14 billion is because that core chips business and the AI portion of it isn't outperforming. That could be some of the cause of this initial reaction. Yes, but they actually gave us the AI numbers. So they're taking that up by like a billion dollars. So if there's any weakness in

the semi business, it would probably be the core business. The core business has actually been quite weak. They're not the only ones. It's cyclically weak. I think there was some hope that they had cut it enough. I guess we'll find out if they cut it or not. But I mean, that is not a structural thing. Like that will come back eventually. And if the AI piece is making up the difference, I think it's fine. That's been the story as we went through the entire year, by the way. The core business has been worse. The AI piece has been better. It's actually bridged things over. And they're one of the few semi-companies that actually has not had to cut numbers as we've gone through this year because of the strength of the AI story. So I think that story is still intact. Okay. Stacey Raskin, with initial

reaction to the report we just got from Broadcom. Thanks for joining us. You bet. Shares of Broadcom down about 4% right now. Well, UiPath earnings are out as well. And Kate Rooney has those numbers. Kate. Hey, Morgan. So a beat on the top and bottom line for UiPath. It looks like the company announcing here some share buybacks as well. We'll start with EPS. This was a beat by a penny. Four cents for the quarter on $316 million in revenue. That was stronger than expected. They're expanding stock repurchases of $500 million.

They also see Q3 revenue above the streets expectations here. Full year revenue also looks strong and better than expected stock. You can see popping here after hours on those results up about 6 percent after hours. Guys, back to you. All right, Kate, thanks. Now from earnings to sales, Costco's August sales are out. Pippa Stevens bringing us details on that. Pippa.

Hey, John. So in August, Costco saying that their total sales were up 5 percent with their e-commerce sales rising 22.9 percent. Now, right now, we are not seeing much of a reaction in stock down about half of 1 percent. John. All right. Thank you. U.S. steel now sharply lower for the week on news. The Biden administration is planning to block Nippon Steel's deal to buy U.S. Steel. Our CEO of Rival Steel producer Cleveland Cliffs is going to join us exclusively on these developments next. Welcome back to Overtime. U.S. Steel down sharply this week on news the Biden administration is planning to block Nippon Steel's deal to buy U.S. Steel. And after Reuters said CFIUS sent a letter

to both companies citing national security concerns. Nippon Steel telling us in a statement in part, quote, we have not received any update related to the CFIUS process since the outset of the regulatory review process. We have been clear with the administration that we do not believe this transaction creates any national security concerns. U.S. Steel and the entire American steel industry will be on much stronger footing because of Nippon Steel's investment in U.S. Steel, an investment that Nippon Steel is the only willing and able party to do so, quote unquote. Back in December, the CEO of another steel player, Lorenzo Gonsalves from Cleveland Cliffs, which was also bidding on U.S. Steel at the time, joined us to discuss Nippon's offer. If this deal were to fall apart, would you be back in there as

a bidder for U.S. Steel? Absolutely, but with a much, much lower price, because at that point, it will be abundantly clear that I am the only viable buyer. So they missed a chance to sell this company in the 40s. They'll end up selling this company to me in the 30s. Well, joining us now for an exclusive interview, Cleveland Cliffs CEO, Lorenzo Gonzalez. Lorenzo, it's good to have you back on the show. And I'm going to start right there, because some things have changed since we had that conversation back in December, including the fact that you're now acquiring Stelco.

Are you still in the market potentially if this deal were to fall apart for U.S. Steel? Oh, this deal has already. First of all, it's always nice to be back with you and John. What I said to you on December 18th, 2023 is still valid. So it was the most predictable outcome that I could ever see in our steel business. How come a company, a foreigner, that has been a perpetrator of numerous trade cases and unfair trade practices in the United States.

One of the main responsible for the decimation of the steel industry in the United States, the United States and union jobs, believe that they can come here and scoop assets from one of our companies and take care of their own businesses without any regard to our industry, our national security and our supply chains. So I'm glad that finally you are seeing the end, the light at the end of the tunnel. Well, earlier this week, before we got these latest reports regarding the Biden administration. And we still don't know the actual outcome from the CFIUS report or how all of this plays out. If and when the president decides to take some sort of action and potentially block this deal, if that's what happens, you did have Nippon Steel come out and say, listen, U.S. Steel, they put a whole document out. They said U.S. Steel is going to remain a U.S. company.

It's going to be owned by Nippon Steel North America. They said that it's going to remain headquartered in Pittsburgh. U.S. citizens are going to make up the majority of the board of directors. Core senior management members of U.S. Steel will be U.S. citizens. They're going to prioritize production at U.S. Steel to meet the demands in the U.S. Steel market, and they're going to make investments to the tune of $2.7 billion in unionized facilities. So how does that trigger national security concerns? How does that not calm some of those concerns or some of those fears, especially when you're talking about a corporation from a key strategic U.S. ally? Yeah. As I have already said, Nippon Steel has been one of the most, if not the most,

frequent flyer in our trade cases in front of the ITC. And their behavior is unchanged for decades. So whatever they say now, whatever they quote unquote commit now, it has to be taken with a grain of salt. We know what they're trying to do. They are trying to protect their company or the skeleton of what Nippon Steel once was in Japan and trying to send slabs to the United States. That's what they are doing. We are committed, and we have a commitment with the USW to invest in the assets that we are going to acquire, particularly if the CEO of West

Steel makes good on his shameless attempt to blackmail the president of the United States and the Commonwealth of Pennsylvania with the shutting down Mon Valley and shutting down the office in Pittsburgh. We are going to take care of all that. Yes, John. Yeah. the office in in pittsburgh well we're going to take care of all that yes john yeah so about that i mean um there is this fear out there that if no deal goes through u.s steel um we'll start cutting workers uh so you had a good prediction directionally last time you were with us what do

you predict happens to u.S. Steel and its workers if no one buys it? Let's start with the office in Pittsburgh. What this deal going through or not going through has to do with the office in Pittsburgh. The ownership doesn't change anything. If they want to change the headquarter to Arkansas, they can do that now. They don't need to have a deal blocked and then they change or it's completely unrelated. That's number one. Number two, of course, anyone that acquired the assets will have to invest in the assets. Everybody knows the limitations of urine in the Mount Valley. We need to fix the hot strip mill. But the asset itself is good.

The union jobs are great. The people working there are very valuable and very important. So you would keep the same thing. We would invest. Dave McCall, the president, my dear partner, friend, Dave McCall knows that we are going to invest on the assets of Mount Valley. So if they go ahead and shut down the assets, so do it, because that will make for an easy transaction to buy an asset that is shut down. Do you feel that you have the resources necessary on your own to make that investment? Or do you need government assistance, help?

Do you think that should be coming in the direction of a U.S. buyer of this? I have been working with my banking group led by JP Morgan and Wells Fargo with UBS and Truist Bank and several others. They are ready to go. I will not deploy the details of the package in this interview, but we are good to go. We're good for the money. And more important than anything, we are going to be working to preserve jobs, to create new opportunities like we have just done in West Virginia with transformers. We will continue to grow manufacturing in North America. We will continue to reinforce middle class for our benefit, for the benefit of the United States, not for the benefit of Japan. How do you balance that against the fact

that you're also acquiring Stelco from Canada right now, and we do have a US economy that is starting to slow down? Well, this business is cyclical, Morgan. And when everybody is afraid, we move. We acquired AK Steel in March of 2020, days ahead of the COVID-19 pandemic hitting hard. And then in the middle of that, we acquired ArcelorMittal USA. So we are known for making moves at the right time. This is the right time because nobody is really other than the ones

that really understand the business are seeing what's going to happen next year. We are going to have a rebound. The acquisition of Stelco is part of the plan. It has been a pleasure to work with the Canadian authorities at the provincial level of Ontario, as well as the federal government. And we are very, very excited about the opportunity of pairing a real American company with union workers government. And we are very, very excited about the opportunity of pairing an American, a real American company with union workers in the United States, Cleveland Cliffs,

with Stelco in Canada and our workforce with the USW in Hamilton and Lake Erie. Okay. Lorenzo Gonsalves, the CEO of Cleveland Cliffs, we appreciate you coming on Overtime. Thank you for being with us. Thank you for having me. Thanks a lot. And of course, John, as he's been speaking, shares of U.S. Steel up 2%. Yep. Let's get a news update with Julia Boorstin. Julia. John, Hunter Biden is changing his plea in his federal tax case today, admitting his guilt in court right now to nine tax offenses.

Earlier, as jury selection was about to begin, his lawyers tried to enter an Alford plea. It's a legal maneuver that would have allowed him to plead guilty but avoid admitting any wrongdoing. But prosecutors objected to that. The U.S. government charged former Donald Trump campaign advisor and Russian-born U.S. citizen Dmitry Sims today for his work with sanctioned Russian media. The indictments alleged that Sims and his wife received more than $1 million in a personal car and driver for work they did for Russia's Channel One. The Russian state TV network was sanctioned by the U.S. in 2022

following Russia's invasion of Ukraine. And teen vaping just hit a 10-year low, according to a new government study. The federal survey of more than 29,000 students in grades 6 through 12 showed the vaping rate dropped to 6%, down from 7.7% in 2023. More than 1.6 million students reported vaping in the previous month. Back over to you, John and Morgan. All right, Julia Boorstin, thank you.

Up next, consumer staples stocks have taken a commanding lead over discretionary names in terms of investor returns recently. Mike Santoli is going to be back on the other side of this break. He's going to look at what's behind that divergence. Stay with us. Welcome back to Overtime. Costco's August sales were out earlier this hour, and the company recorded a 5% increase for the month. Mike Santoli is back with a look at the race between Staples stocks and discretionary names. Mike? Yeah, John, and Costco kind of straddles those two categories. We'll get to that in a second.

But first, take a look at the consumer Staples ETF XLP against the consumer discretionary one, XLY, over the last year. And you see just recently, the last several weeks, staples have really separated themselves to the upside from discretionary. So this is part of that theme of a defensive turn and maybe some misgivings about the cyclical momentum of the economy. That being said, I still think it's notable that discretionary is hanging in there. It's not as if it's breaking down in absolute terms. And actually, over the nearly two-year bull market that we're in, discretionary is way ahead. I'll also point out it's very similar for the equal-weighted discretionary index as the market cap-weighted one. Now, take a look at what's behind that great move in consumer staples, in the XLP.

Well, there's Costco. Yep, it's a consumer staple stock, according to S&P. That's been a monster over the last year or so. Walmart as well. Costco and Walmart together, about a quarter of this ETF. And then you have the XLP itself. And this is the equal weighted. So it's not as if the staples outperformance is all about, you know, diaper and canned soup stocks. It's obviously got some discretionary component to it as well, especially when it comes to things like those big retailers, Morgan. All right. Thanks.

All right. Mike Santoli, thank you. Up next, the CEO of L3 Harris on how the outcome of the presidential election could impact the government's defense budget. And Salesforce just announcing it's buying startup Own Company for approximately $1. billion dollars in cash. Own company operates in the data protection and data management spaces. I guess CRM can acquire things again. We'll be right back. Welcome back. Today, I sat down exclusively with L3 Harris Technologies CEO Chris Kubasik from the Jeffries Industrials Conference.

The company was recently awarded the NextGen Jammer contract to enable F-18 fighter jets to fly into adversaries' airspace and jam their radars. This is after four years of protests, litigation, and delays. So I asked what needs to change about the acquisitions process, especially as defense tech startups mushroom and L3Harris considers itself a trusted disruptor as well. Well, Kabasic thinks the entire defense industrial base should be viewed commercially, not just the nontraditional dual-use tech companies that are not necessarily subject to the same regulations as traditional contractors. We need more agility and I think migrating towards a commercial defense industrial base, to quote the Department of Defense, is the right answer and the right vision. So let's move forward. I'm fully behind it, fully supportive, and we're going to do everything we can to get that to be the future.

In fact, 20 percent of our revenue comes from the commercial business model, which is why we have the highest margins in the defense industry anyway. Let's do more and more of that. It's interesting to hear you say that. And you talk about the fact that L3Harris has this trusted disruptor tag or approach to how you do business in this industry. How do you see the competitive landscape evolving here as you do see these new defense tech entrants come in? And I think about even just recently the first Titan vehicles being delivered, which is Palantir is the prime for that. But L3Harris contributed. Absolutely. We've been embracing the new entrance.

We started several years ago on your show when we rolled out and announced that we were going to be the exclusive strategic investor in Shield Capital. As of today, we have 2% to 8% ownership in about 40 high-tech companies focused on autonomy, AI, cyber, and space. And the vision which is working is to pull those technologies into our solutions. I doubt we'll ever buy one of these companies. We want to use their technology. It's a form of accelerating R&D. So we're seeing that. You mentioned Palantir. Perfect example. We're a subcontractor to Palantir. They won. We thought it was the best probability win for the

combined team to let them be the prime. And then the business case closes. So we're working collaboratively with them. I think that's unique. I think that's different. And when we talk about our 2026 financial framework of $23 billion of revenue, 16% margins, and $2.8 billion of free cash, it's that type of approach that's going to get us there. And after closing the Aerojet Rocketdyne acquisition last year, L3Harris unveiled this multi-year framework to cut costs and boost operations. Kabasic telling me they're ahead of schedule and will increase the cost savings target in coming months. I also asked about demand, especially since the 2025 U.S. defense budget is poised, at least right now, to be flat year on year. He thinks it will grow.

You go back 80 years, there is no correlation to the defense budget and who's in the White House, who's running the Senate, and who's running the House of Reps. It's always tied to the threats. And when you look around the world, you know better than I, China, Russia, Iran, North Korea, not a good situation. And those countries are collaborating more than anyone ever expected to, which just makes the threat environment very, very dangerous.

And we need a strong defense industrial base and national security posture. How would you characterize this level of risk from a geopolitical standpoint in the world right now? I think it's the highest that it's been in decades, unfortunately. And, you know, we're just talking about, we haven't even thrown in the non-state actors, right? There's, you know, we still have those in addition to the states that I mentioned. So we need to deter, and I think that strategy makes sense. You know, a recent meeting in the Pentagon, that's part of our national defense strategy. You need a strong industrial base. You need strong capabilities. It's all about positioning for the future of warfare. That's why we've taken a portfolio approach. And I'm happy with the portfolio we

have and how we can help the Department of Defense deter our adversaries. So I am going to ask the election question. So this was back on August 9th. Morgan Stanley writes, the November election presents somewhat of a wild card in our view, as conventions around relative political party support for defense spending may be coming undone. Now, I realize a lot has changed, even just in the last month, in terms of this presidential race. But two months out from an outcome, do you think that's true? Do you think some of the norms that we've seen along political lines has shifted? No, I think, you know, people say what they need to get elected. And then once you get in office, you look at the threats, you do what's in the best interest of protecting the freedoms of the nation. And, you know, unfortunately, that means more and more

money for defense. And, you know, that's how I see this playing out over the months ahead. And again, you know, every four years we have an election. I know we go through this. It's not, I don't want to say it's not a big deal. We know how this works. There's an election. There's a change of government. There isn't a change of government. You look at the threats, you pass the budget and we continue forward. So I think it's business as usual. And of course, we'll see when that budget gets passed, probably a continuing resolution before we get there. But with Boeing Starliner set to return tomorrow from the International Space Station without its crew, a call made by NASA due to technical issues, I also asked Kubasic about his company's role since the Aerojet Rocket Dining Division makes Starliner's propulsion system. I'm going to ultimately defer to NASA and

Boeing relative to the specifics. I think both have publicly said we've been working collaboratively and very supportive. Deliveries were made four or five years ago and they have to be used within the certain specs relative to how they're designed, but it's a team effort. Everybody's focused on learning from this and what we can do better, but no, nothing but positive accolades for the team and how we're working to help solve this problem. We'll be monitoring that Starliner return tomorrow evening. Now you can catch the full interview right now on CNBC.com. And John, it was a wide ranging interview. There's much more to it. All right. Be sure to check that out. Well, shares of cybersecurity company SecureWorks rallying today after better than expected quarterly results. Up next, the

company's CEO on the impact AI is having on her business. And cue the QR code for the latest installment of my On the Other Hand newsletter. This week's debate is founder mode, a legit new CEO model for management. Well, you can scan that code now on your screen to join the conversation. We'll be right back. Welcome back. Some big movers, earnings movers in overtime this hour. Broadcom is lower despite beating on earnings and revenue. Fourth quarter revenue guidance was essentially in line. You can see shares are down about 5% right now.

Samsara turning in a big beat on earnings, also topping revenue estimates with solid guidance as well. Those shares are up 6%. And UiPath also beating estimates and announcing expansion of its stock buyback program. Those shares are popping about 8.5%. And shares of mid-market cybersecurity company SecureWorks jumped about 6 percent in the regular session today, up another percent here in overtime after an earnings report this morning that saw beats on the top and bottom lines and a strong guide. I spoke with CEO Wendy Thomas exclusively about the momentum and margins. We have been really selling AI-powered security since the Tagus platform was launched nearly five years ago. And for us, because we are writing our proprietary software, we're using our proprietary threat research, the real scale challenge and opportunity for us was around the data. In security, you want to collect as much data as you possibly can to find patterns

and to detect things quickly, find the unknown unknowns. So for us, it's been about keeping our cloud architecture costs low in order to pass those savings on to our customers. And you see our gross margins, 74% growing, nearly 400 basis points year over year, that's been based on our ability to uniquely match the way we use data storage to specific security use cases and optimize that cost structure. The results come after the stock spiked last week. That was on a Reuters report that Dell, which still owns close to 80 percent of SecureWorks, is considering a sale of that stake.

Thomas said she couldn't comment on rumors, but she did say this. I can't say that interest in our company and a view that it's more valuable than is reflected in our stock price makes a lot of sense to me. Given the advanced security technology we've built and just having completed the transition of our customers and our business to this new model in security, generating positive EBITDA and cash flow with evaluation multiple below market, I can see where it's a great opportunity and conversation would be happening. Looks like winners might be staying late in that stock right now. Well, lots of cybersecurity news on overtime this week between Zscaler, Palo Alto, and SecureWorks. Didn't Nikesh, Palo Alto say M&A and security isn't done? Well, we'll see what happens to SecureWorks.

Want to continue to watch. Well, up next, what's at stake for the market and your money tomorrow when the August jobs report will be released. And speaking of money, scan the QR code on your screen right now to check out how much every NFL team is worth as the new season gets set to kick off tonight. Welcome back to overtime. Tomorrow's August jobs report could be the next catalyst for this market. Economists are expecting 161,000 jobs to be added. The unemployment rate is seen declining by one-tenth of a percent to 4.2 percent, and average hourly wages are predicted to rise 3.7 percent year over year. According to the latest Intuit QuickBooks Small Business Index,

the employment growth rate of the very smallest businesses in the U.S. economy was flat at companies between one and nine employees. And Intuit's new Small Business Revenue Index shows sales were basically unchanged from July. But overall revenue since February has been solid and gaining, reversing a nine month decline that began in May 2023. And Morgan, I want to mention we're just talking about SecureWorks and the positive quarter they had and the interest in potential acquisition. Well, the divestment of Dell by that of that 80 percent stake. I was saying winter staying late, watching that stock here in overtime. Watching that stock, I'd also flag Cleveland Cliffs, which is up 1% right now,

and U.S. Steel, which is up almost 2% after the CEO of Cleveland Cliffs came on this show just earlier to say a deal is still potentially on the table if the Nippon Steel acquisition of U.S. Steel falls apart here. Yeah. You will not be able to get a valuation of overtime itself, you know, despite the fact that we're using that NFL type terminology from CNBC. Yeah. Jobs report tomorrow. That's our focus. That does it for us here at Overtime. Fast money starts now.