Closing Bell - Closing Bell Overtime: Meta Disappoints; Chipotle CEO on Consumer, Inflation & More 4/24/24

Episode Date: April 24, 2024

Investors sold off Meta in Overtime after its Q1 numbers. We have you covered from every angle, including comments from the CFO. Plus earnings from Ford, Chipotle, Lam Research, IBM and ServiceNow. Chipotle CEO on latest quarter, inflation and more. 

Press the pause button. Stocks taking a breather after a strong start to the week as rates creeped higher today. That's the scorecard on Wall Street, but the action is just getting started. Welcome to Closing Bell Overtime. I'm Morgan Brennan with John Ford. Yeah, companies with trillions of dollars in combined market cap are gearing up to report earnings in just moments. Those include Meta, IBM, Ford ServiceNow, and Chipotle. We will bring you all of the key numbers and an exclusive interview with Chipotle CEO Brian Nickell before he talks to Wall Street on the earnings call. As we rate all those earnings, let's bring in our market panel, BD8 Capital Partners, CIO Barbara Duran, and G-Squared Private Wealth CIO Victoria Green. Welcome to both of you. Victoria, I believe you own IBM and I'm sure more.

This market has been chopping around a bit. What do we need to hear from earnings for you to have a better sense of your next move? Yeah, so especially on IBM, it's going to be can we actually make money on Gen AI? Are we actually going to get either a bump up in consulting revenues because we're helping clients understand how to implement AI? Everybody likes to talk about AI, but if you're a Fortune 500 company, you're really stepping back saying, how do we implement this? How do we implement this to either save money or expand our revenues? So for us, it's not just talk. At some point, talk needs to translate to money. IBM, I think, is very well positioned for that. You know, we also want to see that Gen AI pick up in Meadow. We want to

see Gen AI all over the place. There is now, like anybody that's been talking about it the last 12 months, I think at some point people are going to get tired of just hearing about the potential future revenues and actually start to see a little bit of a bump in some of these numbers in Key One. Barbara, when it comes to Meta, that's a big name that a lot of people are looking for. Do you think that there's still enough upside left, given the strong move it's had thus far? It's a good question because it's really short-term versus long-term. Longer term, I think there's a lot more upside. I mean, 95% of their revenues are advertising. And as we expect, there's been a macro improvement there,

and they are really killing it in terms of using AI to find the right algorithms. It's been a couple of years getting it refined, and they're really doing well with both basic Facebook and with Instagram. And now they're starting to monetize Messenger. So I think, you know, it's everybody's tense about this going in. How much is the stock discounting? Because it's run up a lot this year and over the last year. So we'll see if it trades down. It's probably a buying opportunity because this is not a one quarter thing. They have really got their costs in line and they've really got the advertising engine going. Victoria, if I just take a step back here, I mean, we we eked out a gain on the S&P 500, albeit barely. It was like a one point gain here into the close. NASDAQ, a similar story. The Dow

did finish slightly lower. I mean, earnings is really propelling this market. And yet we saw that tug of war with yields moving higher. On the back of some stronger data, a weaker auction this afternoon as well. What matters more here to this market since it does seem like a tug of war? It is, and I think we can have big names are reporting. We have like 70 percent of S&P market cap over the next few weeks. If we see earnings come in, I think the focus is going to, again, shift back to fundamentals, company growth, revenue growth. And if earnings growth is there, we could continue to see this market run.

Absolutely. You're going to see that push-pull. We've got PCE Friday. That's usually market moving. We've got Fed decision next Wednesday. You know, typically we'll see what Powell has to say. You know, he took that really nice dovish pivot there in December, had that nice run up, and he won. If he pulls back more hawkish, that could put more headwinds on these companies. The other thing we're watching that's not really being talked about, the dollar. The dollar may be a headwind. And companies I really love, like IBM, I'm wondering if they're going to address the fact that they potentially have U.S. dollar headwind. You know, we saw that for any multinational, Pepsi, Johnson & Johnson, you know, Procter & Gamble, all these guys that get 40, 50 percent

of their revenues overseas. U.S. dollar strength has been a surprise because we've seen this hawkish pivot. So that tickle-down effect isn't just about higher for longer. It's driving the dollar higher. And that may be a headwind that was less anticipated when we started looking at where earnings growth could go. Yeah, it's a good point. Barbara, I also want to get your thoughts on consumer because we're going to get Chipotle after the bell. We know this has been a sticky name in terms of the consumer base. People have been willing to absorb those price increases for this name specifically. But if you broaden it out and you look at the restaurant sector more broadly, it has been starting to show some signs of fatigue, as we have seen food inflation staying relatively high and elevated here. You take that, you compare it to travel, what we saw with Hilton, with that stock moving higher today, what we saw with Visa, with cross-border transactions as well,

and the strength that continues there. How does it speak to how the consumer is allocating dollars, and how much do we read through from Chipotle results to that? Well, you know, it's very interesting because you mentioned Hilton. Of course, we know how the airlines have been doing. There's a lot of positive spending still going on in the leisure and hospitality. But we certainly heard in other retail reports over the last quarter, too, that really seems to be impacting the lower income consumer. You're seeing people not buying as much in the big ticket items. You know, they are really trading down as much as they can. And as you mentioned, Chipotle is a unique situation.

I mean, they have a very loyal, affluent, younger customer base who tries to eat very healthfully. And given the great value and high-quality food and emphasis they put on that and also continue to improve the customer experience, I think Chipotle probably can continue for a while because it's just their execution and their value and their brand. I want to mention Meta results are out. We are going through them. Victoria, Meta and ServiceNow, these are out. We are going through them. Victoria, meta and service now. These are two names, software side, AI plays. What on service now? Because we talked about meta a bit.

I'm really curious. Let's get those meta results. Julia Boston has them. Julia. That's right. Meta being expectations on both the top and bottom lines. Revenue coming in at $36.46 billion ahead of expectations of $36.16 billion. Earnings of $4.71 a share ahead of estimates of $4.32 a share. But we see the stock trading lower now, and that appears to be on the company's revenue guidance for the second quarter, it's $36.5 billion to $39 billion.

That revenue guidance with a midpoint of $37.75 billion is slightly below expectations of $38.29 billion. Also, another factor weighing on the stock now down 10% in after-hour trading, the company's total expense range. Meta is raising the bottom end of its total expense range for the year to now $96 to $99 billion. The bottom end of the range was previously $94 billion. The company also increasing its CapEx outlook for the year. The range was $30 to $37 billion. Now they're increasing that range to between $35 billion and $40 billion. Just a couple other key things here as we see this stock is trading down on those higher expenses. The company's operating margin of 38% does appear to be above analyst estimates.

Daily active people, that's the people using at least one of Meta's apps daily, that did increase 7% year over year. And then reality labs, the losses in that division, 3.8 billion, that's less than the losses of 3.9 billion in the year ago quarter and also less than the losses of four point three billion that was expected. But it does seem like those higher expenses are weighing on the stock right now. Back over to you. Higher expenses, Victoria, and weaker revenue, at least at the midpoint. Has Mark Zuckerberg at this point earned the right to spend this much money as long as it's not on the metaverse? Yeah, Reality Labs, I think that black hole, we're getting a little tired. We'd like to see a little less burn in there. And the CapEx is a little bit concerning. They've done such a great

job the year of efficiency. So this, I think, is a bit of a normalization from we saw some really great cost cutting, the job reductions, you know, slimming down, right sizing it per se. But now they're seeing the reality of it. And if they want to continue to expand, so they want to expand threads and other areas, they have to staff up again or potentially have higher operating costs and higher capex. I think that was certainly disappointing. We were hoping for a little bit higher ad revenue spend, you know, even though daily active users have continued to grow. I think generally speaking, this is the question of could this toward pace continue? And obviously you're seeing a little concern that we're seeing normalization. Yeah. We got Ford earnings out. Phil LeBeau has those numbers. Hi,

Phil. Morgan shares of Ford moving higher after the company beat the street in terms of a profit for the first quarter, earning 49 cents a share. The street was expecting 42 cents a share. Slight miss when it comes to revenue coming in at 30 point $39.89 billion. The street was expecting just over $40 billion in terms of revenue. Then the numbers within the numbers. EBIT margins, 6.5% in the first quarter compared to 8.1% last year. And the free cash flow, negative $479 million in the first quarter compared to free cash flow growing by $700 million in the first quarter of 2023. Now, for the numbers of each of the divisions, the ICE division, which they call the Ford Blue division, a profit of $905 million. That's not as much as many people might expect, but keep in mind

the F-150 launch has been delayed. That number is expected to pick up the rest of this year. Commercial vehicles, this is where Ford is killing it right now. $3 billion profit. And then when you look at electric vehicles, they continue to lose money there. Ford's EV business, a loss of $1.3 billion in the first quarter. It now expects for the full year, same guidance as they've had before, a loss of between $5 and $5.5 billion. But one other reason the shares are moving higher, three notes in terms of guidance. First of all, they expect the full year earnings to come near the top end of the guidance of between $10 and $12 billion.

They are raising their free cash flow guide for the full year to a range of $6.5 to $7.5 billion. Previously was $6 to $7.5 billion previously, with $6 to $7 billion. And they're narrowing their expectation in terms of CapEx for this year to a range of $8 to $9 billion previously. CapEx was expected to be $8.5 billion to $9.5 billion. So Ford shares moving higher as the company beats the street. And there you saw the guidance as well towards the high end for the full year. That is the expectation. Guys, we'll send it back to you. All right, Phil LeBeau, thank you. In the meantime, IBM results are out as well. That stock moving lower, but off the initial lows, it was down as much as 5 plus percent. Now it's down about two and a half. Here are the results. EPS came in a beat, $1.68 versus $1.60 expected. Revenues, though, were light, 14.46 billion versus 14.54 expected.

Also, IBM announcing that it is buying HashiCorp for 35 bucks a share. I did have a chance to speak with IBM CEO Arvind Krishna about these results and about the acquisition. So let me run through that right now. First of all, they reaffirmed their full year constant currency revenue growth. So Victoria, the currency is an issue here as a revenue headwind. Also, they're roughly $12 billion in free cash flow guide. Here's what Arvin said to me. He said, we've printed $1.9 billion in the quarter. That's free cash flow, which is $600 million better year to year. That's also very important because that gives us confidence toward the 12 billion. And the factoid on that then is trailing 12 months of free cash flow is 11.8 with this print in the first quarter. I asked him about revenue and

particularly the lightness there. He said software performed at or above the model infrastructure, well above the model consulting was light. He said, I would put that down to when you have higher rates, people get a bit more careful about discretionary spending. We are still doing better than our peers. We still did a couple of points in consulting, maybe more, but at least two points better than our peers. Now on HashiCorp, how does this fit in to IBM? We'll have a little bit more on this later when we talk to Amit Daryanani, the analyst. But Arvind telling me anything of this size has got to be accretive within the second year for us. And so this meets all those criteria.

So we're going to maintain that discipline from both a strategy and a financial lens. And Victoria, since we were just talking about this, HashiCorp, for those who remember, it's kind of a multi-cloud play. It's getting all of that data ready to feed into AI and also managing resources across cloud, on-prem, those hybrid strategies. Yeah, and that fits really well with Red Hat. It's a good acquisition, and I think the shares are moving lower and more as a response to the acquisition, which is a very normal. You get a pop in the acquirery, you get a fall in the acquirer. But I think it's a great acquisition, and that's how they've been turning this company around. Red Hat, I think it was 2018, 2019 when they bought that. This is a great add-on. It should be a faster growing line. As consulting has had some headwinds, this is where they're

buying growth. They're buying faster growth. They are a mature company. They've been pivoting this way for a while. I think this continues to then to move the pivot towards the hybrid cloud and the consulting in that area that could tie in then with how companies are using Gen AI. So I like it for them. Not a surprise to see them move lower because this is pretty typical for a merger and acquisition. OK, just taking a look at that chart. Meta now down 9 percent. We've got Chipotle earnings out as well. Kate Rogers has those numbers for us. Hi, Kate. Hey there, Morgan. Strong quarter here for Chipotle. Beat on the. Kate Rogers has those numbers for us. Hi, Kate. Hey there, Morgan. Strong quarter here for Chipotle. Beat on the top and bottom lines for the first quarter.

EPS $13.37. That is higher than the $11.68 adjusted. Also above every analyst estimate for the quarter. Revenue is also better than expected. $2.70 billion versus the $2.68 billion anticipated. Same store sales. a beat at 7%, well above the 5.2% analyst estimates. Restaurant margins also better than expected at 27.5%. That's up two percentage points year on year. Chipotle saying it's braised beef barbacoa and

chicken al pastor offerings helped to drive strong sales and transactions in the quarter. Speaking of transactions, also up 5.4%, while average checks grew in the quarter 1.6%. Now, in terms of guidance, a raise in full-year same-store sales guidance now going to be in a range of mid- to high-single digits. That's up from the mid-single-digit previous guidance that the company gave. You can see the stock is higher by around 3% right now, and CEO Brian Nicol is coming up soon with much more on the quarter, guys. Back over to you. Looking forward to that, Kate. Meantime, ServiceNow

earnings are also out. That stock is moving lower by about 6% right now in overtime. Beats on the top and bottom, though. Revenue came in at $2.603 billion versus $2.585 expected earnings per share at $3.41 versus 3.14 expected. I did have a chance to catch up with ServiceNow CEO Bill McDermott ahead of these numbers. Here's some of what he said now on big deals. He said seven of our top 10 deals this quarter were Gen AI and are now assist AI product and platform has become the fastest selling product in the history of service now. Our deals that are greater than 5 million are up 100% year over year. Our deals greater than 10 million are 300% year over year. Now on the Q2 guide,

if you look at these numbers, analysts were expecting on subscription around 2,525 to 2.53 billion is what they were expecting. They're coming in just a hair shy of that at 2.5275 in what ServiceNow is guiding to. Bill McDermott tells me we had 17 million in FX working against us, so we actually raised the guide by 20 to make sure that we were showing the street that we can actually outrun any FX headwind. Victoria, we're just talking about those FX headwinds. Now, I asked Bill McDermott about M&A. You see IBM doing some. What is ServiceNow doing or not? Now, he says, everything I have in the guide is organic. We have no big deals on the horizon, not one.

I would tell you if we did. I'm telling you we don't. That's not to say we never could. It's just to say there's nothing around that in the guide, and there are no plans at this time to do so. Also, I asked him about this interest rate environment and its impact on companies. You heard about that from IBM. We were hearing about that yesterday from Cleveland Cliffs and others.

McDermott says, when it comes to AI, what happens on the hardware, the margins, as you know, and this is talking about customers and their responses to hire for longer, what it does to AI software demand. Talking about one particular customer, he says, what happens on the hardware, the margins, as you know, are quite thin,

but what happens on the service to the hardware is where the margin is waiting for them. The customer is willing to pay 50% more for that same day service maintenance agreement. Before you had Gen AI and a platform like ServiceNow, there would have been complete chaos in making that promise at the point of sale and keeping it. He's saying customers are continuing to spend on AI because that's where they can get additional margin in this higher rate environment. And AI is helping them to serve those customers better. All right. Share is down about 5%. Barb, you own ServiceNow. Your thoughts on this and some of the other results we've just gotten a wave of? Yeah, well, I think the results are all, I think, very idiosyncratic and germane to this

stocks in question. I think ServiceNow is a great long-term story. I mean, they are really upping their game in terms of getting much larger customers in there, which means a lot of cross-selling opportunities in the future. And it's a really big market that is still just, it's still in its early stages. And they are the leading vendor in this space, which is really automating workflow on a cloud-based platform. So I think the stock, you know, we'll have to read a little bit more in the details here, but probably in here, it's going to be a buying opportunity. But this is another stock that's been up a lot. It's not cheap. And so I think any of these earnings, unless they really blow them away,

like NVIDIA has done the last couple of times, they're bound to be sold off. So I would just wait a little bit here. You know, I think IBM, IBM is, was pretty much priced to perfection in terms of peak valuation. And consulting was a question going into it. And indeed it was soft because you saw a month ago Accenture also missed there. But I think that long run, they still have some gen AI opportunities, which is just emerging for them. So all of these in Chipotle is killing it. I mean, that is a stock to own for long term. All right. Barbara Duran and Victoria Green, thanks for joining us to kick off a busy

hour. Well, you just heard it. Chipotle shares in the green up about four percent right now after beating estimates on both lines and raising same-store sales guidance for the full year. Joining us now in an exclusive interview is Chipotle CEO Brian Nickell and our own Kate Rogers. Kate. Morgan, thanks so much. And Brian, thanks for joining us. Great to see you. Yeah, great to be with you guys.

So I'd love to start out with the consumer pulse right now at the moment. We saw traffic grew for Chipotle again. I'm wondering if you're seeing any pullback given grocery prices are still much lower than the prices we're seeing at limited service or QSR. Yeah, you know, we are not seeing that in our customer base. You know, fortunately for us, we're seeing transaction gains in every income cohort, whether it's sub 50,000 to north of 150,000. So we continue to see a lot of strength in our business with every income cohort and every customer that's coming into Chipotle.

Now that's not to say in some of our research, we don't hear customers talking about concerns as it relates to inflation and also, you know, some of the higher prices that they're dealing with in their daily lives. But fortunately, the value proposition that we're providing at Chipotle seems to really be cutting through and resonating with our customers. So we're happy to serve everybody that shows up to get in line to grab a burrito. And Brian, you just mentioned inflation. What is the outlook on pricing right now for Chipotle?

You took price back in October. I'm wondering if you're planning any additional increases more broadly and then more targeted in places like California, where we are seeing wages increasing and that labor costs going up. Yeah, you know, we did just take some price in California. As you mentioned, wages moved dramatically in the state. So we had to take some price there. But after that, we really currently do not have any plans for taking any pricing action. Obviously, we're going to keep a close eye on what happens with wage inflation and other input costs. But our hope is we can continue to have great growth. And if we have, you know, more mild inflation that we're dealing with, then hopefully we can navigate without a price increase here in the near term.

Reagan, it's great to have you back on the show. I want to stick with that for a second, because with those wage increases in California and with a labor market that continues to be pretty strong here, you've been adopting and implementing automation and AI robots in some of your stores. Does this propel you to move more quickly with some of those capabilities? You know, obviously we're going to continue to invest and experiment in those areas, but the biggest lever for us is ensuring that we run the business correctly with the people that we have. And, you know, this really, I've talked about this quite a bit. We've been very focused on throughput in our restaurants,

and I'm happy to say our teams have delivered in a big way. You know, they're staffed better than they ever have been. We have more stability than we ever have. And with that comes great practice. And then our teams are able to provide a great experience. So obviously we'll continue to invest and learn about things like AutoCado, where we cut core and peel avocados through robotics. Or Hyphen, where we use some robotics to help us build bowls for our digital orders faster. And we're also using technology

like around AI to help us with forecasting and scheduling labor. But look, nothing beats the fact that we've got 120,000 employees that right now are, I think, dialed in, focused on giving a great customer experience with great culinary. And, you know, you're seeing the results in our transactions and you're seeing the results in our margins. And Brian, hi, great to have you. What about the upsell at checkout? How much does technology have potential to help that and continue to give you an advantage on the cost versus the upside you can find? Yeah, look, that's something that we are always working on. You know, I've mentioned this before. We have a rewards program. We have about 40 million people in this rewards program. And now about 35, 40 percent of our business is done

digitally. So it presents the opportunity for us to be really smart about what we offer up in the suggestive sell. You know, if we see that historically you usually, you know, get chips and guac with your order and it's missing from your order, it makes a lot of sense for us to serve up chips and guac in that suggestive cell. And not surprisingly, we see a better uptake in those scenarios. So we're trying to be smart about using our data to give people a better experience when they're checking out and get them access to the things they want as fast as possible. And, Brian, there's a lot of focus on your U.S. growth, but Chipotle did open its first Middle East restaurant

this week with the Al Shaya Group. I'm wondering if you can say a bit more about how international growth will factor into the company's continued trajectory here in the future. Yeah, look, I'm really excited about this partnership with the Al Shaya Group. Tremendous partner. We did open our first restaurant just this past week,

and it's really exciting to see that we were able to deliver exactly the same culinary experience that you get here in the States over in the Middle East with the Al Shai group, specifically in Kuwait. And the response has been tremendous. A lot of the feedback early on is, wow, this tastes just like Chipotle that I've experienced. And for other people that have never had the opportunity to experience Chipotle, they seem to be really enjoying it. So we love seeing the lines. We're really proud of the partnership. The Alshaya team's done a fabulous job of handling all the demand and we're off to a great start. And then internationally, we think there is an

opportunity for Chipotle to go much broader than where we are in the U.S. and Canada. Look, over and over again, I hear people say, I love the idea of real ingredients, you know, grown, cooked, and used culinary techniques that provide delicious food fast. And when you end up with clean food, really fast, with affordable pricing, that seems to resonate everywhere I go around the world. So we're optimistic about the growth we have in the U.S., you know, doubling the business from 3,500 to 7,000 restaurants. And we're optimistic about the growth we have in the U.S., doubling the business from 3,500 to 7,000 restaurants. And we're really optimistic about what we can do outside the United States down the road. So we're positioned in a really good spot right now.

All right. Brian Nichols, CEO of Chipotle, thanks for joining us before the call with Wall Street and our own Kate Rogers for bringing us this interview. Shares of Chipotle are up more than 3 percent right now. What's lower, though, is Meta. Those shares are down about 12%, really tumbling here in overtime. Let's bring in CNBC's senior markets commentator, Mike Santoli, at the New York Stock Exchange. Mike, I got to start there. I mean, I realize this is a stock that had moved up 40% since the start of the year, had had a big move last year as well. Nonetheless, valuation, a number of analysts pointing out the fact that valuation was pretty reasonable here. Yeah.

But the bar was high. The bar was high and certain metrics were not met. Your thoughts? Yeah. I mean, the bar was high. I think for the past quarter, the bar was more or less met. Maybe not the whisper, but really it's the added investment. This is no longer year of efficiency messaging about the guidance. It is we have to accelerate investments into infrastructure. Now, on the call,

they could be very detailed, perhaps in terms of what the payback in terms of AI development they might get off of those accelerated infrastructure investments. But it's a few billion bucks that the street wasn't counting on going in that direction and therefore probably near term earnings estimates will come down. This move in the on the reflex here on the number, it kind of makes a little bit of a mess of the meta chart because after last earnings report, that was on February 1st after the close, the stock went from 395 to 475.

It's never traded really between there since then, or at least in the 450s. So now you're below that. You're in this sort of no man's land, and it's going to have to kind of find its level in there after that huge run that we did have, not just, you know, in the last year or so, but even in the last three months. Mike, I also wonder what you think about the growth picture right now. We've got IBM buying HashiCorp. This is a company that had focused on, you know, that balanced growth,

not growth at all costs, just on the top line, And in a way, that made them a good fit for an acquirer like IBM. At the same time, we got Rubrik, which we expect to come to market pretty soon now. Is it clear exactly what the market is valuing? It's getting a little bit more clear, I suppose. I mean, it is really good to have an actual strategic buyer in there setting a price that they're willing to pay, that they think they can make work profitably within their business, and that you can benchmark that across the sector for the stocks that are going to continue to trade. I think that makes sense. There's always going to be a little knee-jerk hesitation when an IBM makes a big acquisition just because, you know, buying growth is not always necessarily done, you know, at the right price. And this is a company a lot of folks have wanted to be a little more of a cash

cow, at least in past years. So I think there's be a little static in the message there, but it does usefully, I think, present a little bit of an actual real world value on those businesses. All right. Mike Santoli, thank you. See you again in just a bit. Lamb Research Earnings also out. Christina Parts Nevelis has those numbers. Christina? Yeah, it's a beat on the top and bottom line. EPS quite strong for the quarter. Q3, $7.78, stronger than what the street was anticipating on revenues of $3.79 billion. The guidance, too, also pretty strong for the EPS, so $7.50, give or take $0.75 there. You just need to know that it was a beat. What was interesting is if you go back to the March quarter of last year, China encompassed

roughly 20% of total revenues. Then December of last year was 40%. Now it's 42%. So China, clearly a strong customer for this company. Memory market also helping it. But yet you can see shares down about one or half a percent right now, even though they did post a beat for Q3. All right, Christina, thank you. Thanks. Yeah, we've been talking about meta, that post-market pullback is hitting some other tech companies as well, including Alphabet, Snap and Reddit. You can see them down to about 2%. Up next, we're going to talk to an analyst who recently raised his price target on Meta and called the stock his top pick heading into earnings.

Plus, Julia Borsten just spoke to Meta's CFO, 12% in overtime after quarterly results. Julia Borsten just spoke with the company's CFO. Julia? That's right, John. I just spoke to Meta CFO Susan Lee, asked her about some of those factors that are weighing on the stock. She explained the higher infrastructure expense guidance that Meta gave for the year, saying that this guidance reflects larger than planned investments in core AI work. A lot of that is going towards GPUs, but also towards data centers. She said that the company raising its total expense guidance is partially due to higher legal related expenses as well as higher infrastructure expenses. Now then, in terms of the light, second quarter revenue guidance, spends guidance is partially due to higher legal related expenses as well as higher infrastructure expenses. Now then, in terms of the light, second quarter revenue guidance, I asked about that. Lee

said, quote, we're continuing to see healthy ad demand and engagement trends, but our outlook is reflecting that we're lapping a period of stronger demand, particularly from China-based advertisers. She said that in the first quarter, their growth was really driven by ongoing ad performance improvements as well as reels, and that they did see brand campaigns recover from October softness. Now, when it comes to AI, which I'm sure we'll hear a lot about on the earnings call, Lee said that their investments AI are continuing to pay off in terms of improvements to their ad business. But it's concerns about that guidance as well as those expenses that's weighing on results, weighing on the stock now down about 11.5% or 12% in after hours trading.

Morgan. All right, Julia, some great context there. Thanks for bringing it to us. For more on Meta, let's bring in Citizens JMP research analyst Andrew Boone. He has an outperform rating on Meta, $550 price target, called it his top advertising idea into earnings. Let's start right there because stocks under pressure. It's down 12%.

They're spending more money on AI, infrastructure, GPUs. We just heard about it. But it also sounds like from the CFO, Susan Lee, some pretty upbeat commentary, albeit some hard comps, but some upbeat commentary around digital advertising. What do you make of it? AI is definitely an investment area, and I also think it's a driver of growth. Reels is still contributing. And then if you look at Meta AI, which is their recently released AI on the platform, there's a real opportunity for Meta to be able to take care of other budgets, meaning search going forward. In combination, we think that growth can sustain itself in the back half of 24 and then into 25.

Okay. So in light of that, especially the commentary about the Chinese e-commerce companies and lapping tough comparisons there, I mean, we know the U.S. government is scrutinizing some of this industry. How much of a risk is that to Meta at a time where they are seeing these green shoots in terms of digital advertising growth overall? Yeah, I mean, there are quick mistakes there. Certainly a TikTok ban would be beneficial to Meta, right? You see a bunch of users that would probably flock to Instagram, while a ban on Tmoo would certainly be a negative in terms of reducing what are two major advertisers on the platform. And so, you know, it's going to, the devil

is in the detail on these. I think NetNet kind of, though, has the potential to continue to be a tailwind as you still see more manufacturers want to reach U.S. consumers. Andrew, how much runway do you think Meta has, particularly with Reels ads? I'm just starting to see them appear more and more. And I know that Reels is also different because, and Zuckerberg has talked about this a bit, they're not showing those ads to you based on who you're connected to. They're really using more AI kind of TikTok style to figure out what you're uniquely going to be interested in. Is this a long-term brand new revenue source that you're measuring yet or no?

You know, I think there are two really interesting points there. One of which is that Reels has the opportunity to take linear TV dollars. Linear TV remains the largest kind of offline bucket of ad spend that's still available to shift to digital properties. That's one point. And then you're right. I think there is better contextual advertising that will be available as Reels continues to work on their algorithms and make everything more personalized, including ads. All right. After hours, overtime session lows now for Met and now down a little bit more than 12%. Andrew, thank you. We're going to have much more on that overtime action ahead, including what to look for on IBM's earnings call. That kicks off the top of the hour. And up next, the changing of the blue chip guard. Mike Santoli looks at which of America's most

well-known and widely held consumer brands are falling out of favor on Wall Street? Stay with us. Welcome back to Overtime. Mike Santoli is back with a look at how Wall Street sentiment is shifting when it comes to big blue chip consumer names like Nike and Starbucks. Mike? Yeah, John. So these shifts, they happen over a relatively long period of time when you're talking about these enduring brands. But take a look at Disney, Nike and and Starbucks here over an eight year period of time, pretty pronounced

underperformance relative to the S&P 500, even after having these huge premiums built up before, during a little bit after the heart of COVID. There's these, you know, enduring brands that America exports to the world. They had some business challenge shifts that all three of these companies had a bit of trouble navigating. And it seemed as if there was just the growth was growing a bit less reliable than they were valued for. It doesn't mean it's game over, but it shows you that the market's moved on. And where has it moved on to? Take a look at maybe a new generation in each of these categories that really started to reach ascendance, starting in the latter part of the prior decade. So Chipotle, Lululemon, Netflix, massive outperformance,

and a very similar, actually, magnitude of outperformance over eight years from the S&P 500. I hesitate to make a generational argument, but it seems as if this is when you have millennial kind of centric brands that really came to the fore. And that shows in the market, John. What else, if anything, that you can suss out is different about those stocks? I mean, it's tempted to say that they're smaller, but they're not really that small. I mean, there's opportunity there. Sure.

They were smaller. I think where it was is they were able to leapfrog to some degree some innovation step that was out there. And when it comes to Lululemon, I guess they created their own category. They still have a massive amount of room to grow in terms of store footprint and customer penetration. But obviously Netflix and even Chipotle kind of were operating in an area just a little bit ahead of where the incumbents were in terms of technology and the consumer offering. So probably something like that is at the bottom of this. I love listening to you Gen Xers talk about us millennials. Exactly.

Well, make sure you accentuate that. We're the largest generation. I'm sorry, I can't hear you. I don't speak your language. I can't tell what you're saying. I'll work on that with you. Mike Santoli, thank you. Up next, an analyst with a buy rating on IBM reacts to the

company's revenue miss and acquisition of HashiCorp and tells us what he wants to hear from executives on the call, which kicks off at the top of the hour. Those shares under pressure. Plus, what investors should expect from Rubrik's IPO, which should price just moments from now. We got more. Stay with us. Overtime's back in two. Welcome back. IBM now down more than six and a half percent in overtime after the company reported earnings moments ago. Coming in light on revenues, IBM also confirming it will buy software firm HashiCorp in a deal valued at $6.4 billion in cash, about $0.35 a share. Joining us now to discuss is Evercore ISI's Amit Dharani. Amit, I want to ask you about a couple of comments from Arvind Krishna. I talked to him about this deal and about where HashiCorp is going to fit in.

We talked about the multi-cloud and hybrid environment. Here's something he said. He said the Terraform platform, that's from HashiCorp, is a great way to automate that complexity of dealing across multiple clouds and platforms and to take away all that complexity and go ahead and do that across. Of course, maybe one of the things we'll deploy across those environments is also Red Hat OpenShift. So they're nice and complementary that way. He said, I think the two combined with what we have in Red Hat is a great fit for the market. And with our geography scale, we'll be able to scale it all

over the complementarity to both Ansible and OpenShift. I think we'll get a lot more sort of combined sales plays. Do you believe it? I mean, listen, the transaction makes sense to the extent you believe IBM wants to scale up in this hybrid multi-cloud story. So I think the deal is actually fairly logical for them to go after and do. The question, John, I think may just become at this point, and this is what I'm worried about, is IBM has been talking about Red Hat business growing double digits solidly for 24. While this deal does make strategic sense, the fear everyone has is, you know, are you doing this because you don't think Red Hat can grow organically, so you need

to compound it in other ways, right? So I think that's one of the things that the company has to talk about, which is, can Red Hat keep growing irrespective of Pashi Corp, or do they kind of need this to bolster the Red Hat and software growth going forward. How much does that matter to how the stock is valued now if they're able to deliver on that roughly 12 billion free cash flow target, which, you know, he says that they are on target to deliver on? And if there are opportunities like this that are going to generate cash and be acc creative- within a couple years. You are also the. I means perspective- they had a lot of success with red hat ready to step back think about the larger deal that are in the. Way to go or CEO- so they had good success with this I

think doing deals like HashiCorp. When you can leverage and scale IBM's go to market sales organization. Makes a tremendous amount of sense to amplify the growth rates and software right. But the part I think investors want to get their arms around is it is truly a way to amplify or put an incremental growth versus offsetting decline somewhere else right. So I think that's a bit of a worry everyone has. But to the extent this is amplifying the growth the twelve million dollar free cash flow number is intact based on their disclosures. You know we can stop we'll keep working higher and certainly in you know high teens free cash flow valuation, the stock should be worth $2.10 to $2.15 versus where it's trading at right now. Free cash flow. The fact that they posted better than analysts expected, the fact

that Arvind Krishna seems very confident that they're going to hit this forecast that they've laid out that was already so robust. Your thoughts? Listen, I think the stock has gone up and down typically on free cash flow metrics. So the $1.9 billion was much better than the $600 million they did last year in Q1. And so certainly the path at this point would appear that they should be upside to $12 billion number versus not. So that part is, I think, doing well for them. The question just becomes, you've had a bit of a revenue miss, the consulting business did decelerate a fair bit, and you're doing a deal. So is there a lot of moving parts? And I think that's about that investors are going to try to get their arms around, which is, to some degree, are you doing

this deal from a position of strength and offense or not? I think that's about that everyone's going to focus on. What's the read-through? The fact that consulting was light. I realize that Krishna told John that they still perform better than their peers. But it comes on the heels of that trimming to guidance by Accenture. Who else could be potentially impacted by the softening we're seeing in that particular market? You've seen a host of these consulting companies. You mentioned Accenture. I think Infosys is the other one. But a lot of them have been talking about a bit of a downtick in the consulting market the last couple of quarters. The assumption I think everyone had, in fairness, was IBM is less discretionary, so perhaps less susceptible to these macro worries. But you're seeing the downturn, again, not as severe as Accenture or others are seeing,

but you're certainly seeing it. I'd say the one positive part in the whole thing is their AI-centric business on their backlog in consulting is more than a billion dollars right now. So that piece, longer longer term is doing extremely well for them. So there's a contrast here between what ServiceNow said about the impact of the macro and what IBM said. Bill McDermott saying it's actually fueling it because customers can use AI to make money off of services. IBM not seeing that in consulting. What do you make of it? You know, we'll have to see what the details are on this. I suspect they're not seeing it in their business right now, but the backlog, the billion dollar backlog on the AI side,

which I believe has more than doubled sequentially, is perhaps a reflection of what you're saying, which is AI will get used as a source of productivity enhancement for companies, and IBM is very well positioned to benefit from it. I guess it's more, John, on their backlog numbers right now versus the revenue numbers, though. OK. Daryanani, thanks for joining us. With shares of IBM down 6.5% right now. Whirlpool earnings are out, too. Steve Kovac has those numbers.

Hey there, Morgan. Yeah, and shares are up about 2%. We got beats on the top and bottom lines, plus some job cuts, plus some price increases. Let's go through the numbers here. EPS coming in, $1.78 adjusted. Street was looking for $1.68. Revenues also a beat here, just a slight beat though, $4.49 billion. Street was looking for $4.42 billion. And then, like I said, price increases. The company announcing a 5% increase to their promotional program prices here in North America and also reaffirming its ongoing earnings per share. So even though we had a beat today, still reaffirming their guidance. And then job cuts.

Wall Street Journal reporting 1,000 job cuts at Whirlpool. We see shares here up a little over 2%, Morgan. All right. Steve Kovach, that's at least the second time you're covering Whirlpool for us. Not just Apple. All kinds of hardware. I can do it all. Yeah, appreciate it. It is interesting, though, to see some more signs with this whirlpool result

of maybe some goods inflation, disinflation stabilization that like all of a sudden we're starting to see price increases or at least prices not come down, fall any further. Indeed, indeed. Well, speaking of falling further, Meta is pulling back hard in overtime, dragging on the whole tech sector and this wild hour of earnings not over yet. Up next, the other overtime movers that should be on your radar. And check out shares of Boeing, one of the biggest drags on the Dow today after Moody's downgraded the aerospace giant's credit rating to one notch above junk status on concerns commercial airplane headwinds will persist through at least 2026. That was after earnings. Welcome back. O'Reilly Automotive falling right now in overtime. First quarter numbers came in light of street estimates, including comparable store sales and free cash flow. CapEx was also higher than expected.

You can see those shares are down about 4 percent. United Rentals, though, moving higher. The company posting a strong beat and raise for the first quarter. Management saying it's excited about the immediate and long-term outlook, particularly for large projects. Those shares are up 3 percent. John, one more example of this secular infrastructure boom and the impact that we've been talking about on different parts of this economy. Yeah. And there are more results to follow. So get ready for another onslaught of earnings tomorrow in overtime. Up next,

we'll tell you what you need to know ahead of those results. And we are still awaiting pricing of Rubrik's highly anticipated IPO. We'll bring you those details as soon as they are announced. Welcome back. Right on the screen from tech giants, namely AI tech giants, Meta, IBM service now in the after-hour session. Tomorrow is shaping up to be another key day for earnings, though, with results from Alphabet, Microsoft, and Intel, along with Roku, Snapchat and T-Mobile all happening right here on overtime. And in the morning, we're going to get numbers from Caterpillar, Bristol, Bristol Myers, American Airlines and more.

Plus, John, we get that GDP reading tomorrow morning, which matters. Yes, backward looking, but matters at a time where we know the economy has been hanging in there and inflation's been stickier. That's a lot, but that's not all we get. We're also going to get Rubrik's IPO pricing this afternoon could range between $28 and $31 a share. The cybersecurity company backed by Microsoft says it's targeting a valuation of up to $5.44 billion. Rubrik's CEO and founder, co-founder Bipol Sinha is going to join me tomorrow, 10.30 a.m. on Squawk on the Street. We expect to have an IPO there. It's a really interesting space. Cyber security is hot.

You know, data backup and all of that with all the ransomware attacks. And also Commvault, which is already a public comp, reports in just under a week its earnings. So a very interesting space to watch. All right, we'll be watching that very closely. In the meantime, you've got Meta's call kicking off here. It's going to be interesting to hear what Zuckerberg has to say about AI, especially after Musk with AI and Tesla

and what happened in that stock on the heels of that. Yeah. That's going to do it for us here at Overtime. Fast Money starts now.