Closing Bell - Closing Bell Overtime: Microsoft Disappoints Investors; JetBlue CEO Talks Earnings 7/30/24

Episode Date: July 30, 2024

Microsoft kicks off Big Tech earnings with a cloud growth number that disappointed earnings and the stock moved lower in Overtime. We have you covered with instant analyst reaction. Other earnings include EA, Mondelez, Starbucks, AMD, Skyworks, Arista Networks, Live Nation. JetBlue CEO Joanna Geraghty on the company’s strong quarter and what’s ahead for the airline. 

That's the end of regulation. PSQ Holdings ringing the closing bell at the New York Stock Exchange. People's Financial Services Corps are doing the honors at the NASDAQ. Tech taking a bath as NVIDIA and CrowdStrike sink. But will today's after-hours earnings change the mood? That is the scorecard on Wall Street. The action's just getting started, though. Welcome to Closing Bell Overtime. I'm Morgan Brennan with John Ford. And buckle up for one of the busiest hours of earnings ever, or at least this quarter. We are just moments away from Microsoft, AMD, Starbucks, and EA, along with Mondelez First Solar, Pinterest, and many, many more. Plus,

the CEO of JetBlue will join us for an exclusive interview as that company's stock heads skyward after posting a surprise profit. But as we await Microsoft and the rest of today's results, let's bring in our market panel, Bespoke Investment Group co-founder Paul Hickey and Henion & Walsh Asset Management President and CIO Kevin Maughan. Kevin, it's great to have you here on set. I'm going to kick this off with you. It's a mixed picture today. The S&P finished down about half a percent. We saw a late-day pop for the Dow, but the Nasdaq, the tech tech is really still taking it on the chin here. Nasdaq down one point three percent. Yes. How much hinges on some

of these big cap tech names that we're going to get today and over the next couple of days now? A lot. And I think the second quarter will mark the beginning stages of the monetization of the AI revolution. And we're going to learn more about that from Microsoft, from Arista Networks and from AMD. But investors... We already have Microsoft. So hang tight. Let's go. Microsoft earnings, I just mentioned, they're out. Steve Kovac has the numbers. Hey, Morgan, I was reading your mind here. It is a beat on the top and bottom lines here. Let me go over what we got. EPS coming in at $2.95. Street was looking for $2.93. Revenue, just a slight beat here, $64.7 billion. Street was looking for $64.93. Revenue, just a slight beat here, $64.7 billion. Street was looking for $64.39 billion.

And then Azure cloud growth, as you know, super important. That did miss expectations here. Street was looking for 30.2%, but they printed here 29% Azure revenue growth. I'm going to keep digging through these numbers and come back with some more commentary for you guys. Especially important, how much of that Azure cloud growth was related to artificial intelligence. I'll be right back with you guys on that. Back to you. Okay. And we will come back to you as soon as you have more to bring us. So Kevin, I mean, right there, you've got shares of Microsoft now down more than 7% largely on this Azure cloud miss. I mean, 29% represents a deceleration in the growth

that was starting to perk up in recent quarters. It's a slight miss on their Azure revenue growth. But what I will point out is investors need to remember that the AI CapEx spending game is a long game. And it may be years before we start to realize the benefits of all those investments. Microsoft was very early to the game. They continue to spend in the areas of AI. I think there's work to be done on the co-pilot side. They have to address security concerns. They have to address the higher price point. But cloud Azure is going to be their revenue for growth potential for years to come. Okay, Paul, this is traditionally a difficult quarter for Microsoft. If you're just looking at the quarter itself, also the end of the fiscal year. And we're going to get more sense of the guidance on the call. So, I mean, how much does this Azure,

you can call it a miss because certainly the whispers and the hopes were higher. Can AI assuage any of that? Or is it perhaps proof that AI can't do everything? Yeah, I mean, I think, John, what you said is the key point is this quarter is usually a weak quarter for Microsoft in terms of its earnings and its stock price reaction. It's historically weak in reaction to this July report. Last quarter, Azure was the, you know, stronger than expected. Stock rallied. So this quarter we're seeing the opposite and the stock's falling. What I think is really interesting that you mentioned AI is ever since the launch of like from 2001 up until Chachi PT was launched, Microsoft, when it reported earnings, had an average move of about one to two percent up plus

or minus in reaction to its report. Since Chachi TP, the last six quarters, I believe it is, its average move is plus or minus 10 percent or 12 percent. So it's become very volatile in reaction to earnings during these periods. But the overall trend for the stock has been up. It's just the short term, the market gets ultra focused on the smallest beat or gain because there's just so much focus on the cloud and AI here. Could see some reaction there. Amazon taking it on the chin. Another hyperscaler down more than 3 percent. NASDAQ 100 not very well at all in reaction to Microsoft being down a little more than 7, Morgan. Yeah, it goes back to it raises the question, Kevin, the great rotation as we as we've been sort of debating whether this is. I mean, you saw today in the regular trading session, you saw more of a risk

off behavior around all the tech names. You saw it in the Nasdaq. But the Russell 2000 hasn't necessarily been benefiting in the same way it was in recent weeks. Triple Q's are lower, too, by the way, in sympathy right now. So how does this speak to inflows, outflows? For the great rotation to really take hold, we need the rally to expand beyond the MAG7. That needs to start with earnings. Over the last 12 months, the MAG7 have accounted for 83% of the earnings growth of the S&P 500. So it shouldn't necessarily be that surprising that some of those MAG7 names aren't necessarily leading the way anymore. And that opens up opportunities in small caps and international stocks and other beaten down sectors like utilities and health care and industrials, namely aerospace and defense. So I think this is a reminder to investors to diversify, but not necessarily abandon large cap growth technology stocks.

OK, we've got Starbucks earnings out as well. Kate Rogers has the numbers. Kate. Hey, Morgan. Mixed Q3 for Starbucks here. EPS coming in at 93 cents adjusted, right in line with estimates. Revenues amiss here, 9.11 billion,

a little lower than 9.24 billion that analysts were looking for. Global comps declined 3% versus 8. 2.7% drop expected. North America comps fell 2% versus a 2.7 percent drop expected. North America comps fell 2 percent versus the 2.2 percent drop expected, both roughly in line with estimates there. International comps down 7 percent. That's more than the 5.1 percent expected. And finally, China comps. This is a key market. Its second home market down 14 percent. Transactions fell in all of the company's segments.

And the release says its financial outlook will be discussed during the conference call. Loyalty Rewards Program, 90-day active members in the U.S. totaled 33.8 million. That is up 7% year-on-year. And in a statement, CEO Lantman Narasimhan said in this release, our three-part action plan is beginning to work and driving operational improvements that we expect to improve financial performance. Our growing culture of focused innovation and relentless execution continues to enhance our capabilities while helping return the business to sustainable growth. And as you can see, the stock is higher in the aftermarket.

Guys, back over to you. All right, Kate, thanks. Meantime, Electronic Arts earnings out as well. Steve Kovach has numbers from the video game giant. Yeah, John, looks like some mixed results here. We got EPS coming in at a dollar and four cents, though we cannot compare that to estimates. And revenue was just a tiny miss here. One point two six billion dollars. Street was looking for one point two nine billion. And then guidance for the September quarter. Pretty good. It's the low end of their range here of $1.95 billion.

Matches what the street was looking for. That's for the September quarter. And then full-year guidance remains unchanged and still in line with estimates. You see shares barely reacting here. John. All right, Steve. Thanks. On to advertising.

Pinterest really dropping on results. Julia Borsten, what's going on? Well, Pinterest top and bottom line results did come in ahead of expectations. Earnings, 29 cents per share, a penny ahead of estimates. Revenue of 854 million ahead of estimates of 848 million. And global monthly active users, 522 million, also 2 million more than estimated. But we see shares are plummeting down about 21 percent in after hours trading. And looking at why, it's because of the third quarter guidance, the company pointing to revenue between $885 and

$900 million. That's lower than the analyst consensus of $907 million. So Pinterest providing a range that is below the midpoint of the analyst consensus. The company also does not provide any Q3 earnings guidance in the release. We may learn more in the conference call. And just to get a sense of where the weakness is coming here as the stock is down 20 percent, the average revenue per user number was lighter than expected by a few cents in the U.S. and Canada, though stronger than expected in Europe. Guys, I'm going to send it back over to you. That stock down nearly 20 percent. Yeah, a big move for Pinterest. Julia, thank you. First Solar and Skyworks earnings are out as well. Pippa Stevens

is doing double duty here. Hey, Morgan, it is a top and bottom line beat for First Solar and Q2 EPS coming in at 325. That was ahead of the $2.69. Analysts were looking for revenue at $1.01 billion, also ahead of the $9.41.5 million. But they left their guidance unchanged, which is perhaps why the stock is down here on the call. It will be all about any impacts from the IRA come November, since they have been such a big beneficiary. Moving over to Skyworks, reporting a $1.1 adjusted on EPS. That was in line with estimates. Revenue at $9.06 million. That was slightly ahead of expectations. The company also increased its dividend by 3 percent. And they said their mobile business is ramping up while their broad markets business continues to recover, those shares down some 4.5 percent. John?

All right. I'll take it, Pippa. Thank you. Paul, I'm going to go to you on this because we just flew through a number of names, but I think I have to hone in on Starbucks, which is actually up almost two percent right now. But to put this in context, I mean, the bar was very low here after two really rough earnings reports the last two quarters. Yeah, no, you're exactly right. I mean, the silver lining for Starbucks heading into this report was that expectations were so low. Last two quarters, they missed earnings per share and sales estimates in each of the last two quarters. The only other time they've done that in at least 20 years was during the financial crisis.

So, I mean, you can't get much of a lower bar. Historically, this July quarter has been its best quarter in reaction to earnings. So that's one thing it had going for it. The company still faces a, you know, you saw the international sales in China were down 14%, which is a negative there. I think the domestic declines weren't quite as bad as expected. But the company really, you know, it has an image problem. You know, from a macro perspective, consumers are, you know, tighter with their wallets. And an image problem, they're just, you know, the service has gotten slow and consumers view it as overpriced. So they still have a lot to go to improve their image, I think, going from here. All right. Speaking of the consumer, Mondelēz earnings are out. Kate Rogers back with those numbers. Kate.

Hi again, John. Yeah, mixed quarter here for Mondelēz and the stock is higher on this report. EPS 86 cents adjusted. That is better than the 79 cents analysts estimated. Revenues, though, a slight miss here, 8.34 billion lower than the 8.45 billion the street was looking for. The company's CEO, Dirk van der Putt, saying in a statement here, we are well positioned for the second half of the year with the completion of European pricing, the addition of new value offerings in the U.S., and significant distribution runway across key emerging markets. And as you can see, yeah, the stock higher again by more than 2.5%.

Back over to you guys. All right, thanks. Try to catch your breath because Arista earnings are out as well. That stock is lower. Kate Rooney has the numbers. Kate. Hey, Johnny. Yeah, lower despite a beat on the top and bottom line for Arista. Let's start with that EPS number, a 15 cent beat on EPS. This is the adjusted number, $2.10. That was up 33 percent from a year ago. Revenue also stronger than expected. Revenue of $1.69 billion. That was a beat and an increase of about 7.6% from a year ago. It also looks like Q3 revenues, in terms of the guidance, is better than expected. At the midpoint, at least $1.72 billion to $1.75 billion, better than expected. And then gross margins coming in

at around 64.9%. As you mentioned, though, John, stock down more than four percent here after hours. We'll keep digging through it and get back to you, John Morgan. Back to you. All right. Thank you, Kate. Kevin, what to make of it? I mean, it seems like a couple of areas where we got green on the screen. Mondelez, Starbucks. It's kind of like low bar in a way. Right. And there's some mixed numbers there. But Arista had been strong, been doing quite well. Microsoft, a big name that we have been watching here, and that is down perhaps most of all. It's off the very lows, but still down 6% here.

What's your take? Is there enough to give investors confidence that earnings results can power the market higher? Sure. We'll start with the consumer staples names, Starbucks, Mondelēz. I think they're showing us that the consumer is becoming more frugal and more cost conscious and likely to rein in spending, or perhaps they already have. That's not good for the economy because 70 percent of our economic growth comes from consumer spending. That could mean, though, that we're getting two rate cuts this year, not just one rate cut. And the Fed will come to the rescue to help stall or prevent that serious stall in the economy. In terms of ANET, well, they're actually involved in the whole

cloud networking related to AI, specifically on the Ethernet switches that allow the data centers to connect to the cloud. That's a tremendous area of growth for AI. But I think all of these earnings reports are just failing to meet the lofty expectations of investors as it relates to AI. And we need to remember that AI is a long game. If you're investing in this space, you have to realize that there's going to be additional capex spending. And the results of that capex spending translating into ROI are likely not to come for quarters, if not years to come. It's a key point. Paul, I want to get your thoughts on this, whether it's Arista and what we see in terms of the AI landscape and how this plays out, especially as you have this debate with investors saying, has enough been spent?

What's the return on investment? When does that get realized? You have that in one bucket. And then in the other bucket, more and more signs of consumer pushback and softness. It almost feels like value is the new word that we need to, you know, pay attention to in all of the earnings reports now. We just got it again with Mondelez. Yeah, exactly. You just said what I was going to say there with Mondelez. But I mean, what we're seeing after hours here is the out of favor stocks like Starbucks and Mondelez are having a positive reaction to earnings, whereas some of these tech-related names are selling off. And it's just a reflection of what we've seen all month, where we've seen a rotation

out of these high-growth stocks and into, as you mentioned, the value areas of the market. So I mean, I think, and as Kevin was saying, this is a long game. We're going to see periods where the tech stocks will fall out of favor temporarily. But, you know, overall, that's where the growth is. So, I mean, while they got way stretched in terms of performance relative to the rest of the market in June and into early July, that doesn't mean that they have to, you know, fall from here. We just think that there's going to be a broadening of the rally into non-mega cap stocks and, you know, smaller, large cap stocks, so to speak. And of course, we'll see what we get from the Fed tomorrow as well. And Powell in particular got some lofty expectations, arguably around that as well. Paul and Kevin, thank you both for kicking off the hour with us. Let's get back to Steve Kovach for more from Microsoft's report.

Steve, with that stock down 6% right now. Yeah, Morgan, and that's mostly tied to the Azure cloud growth miss. Within that Azure cloud growth number, though, there's an important artificial intelligence bit to it. And so of that 29%, 8% of that came from AI services. That's a really important number that we've been following the last couple of quarters. It's up from 7% the quarter before and 6% the quarter before that. So that portion of Azure cloud revenue, more of it and more of it is going from,

it's coming from rather artificial intelligence services. So that's something to pay attention to and get some more detail on the call. It's still a very disappointing number there on Azure. We're still seeing shares down about 6%. John? All right. Yeah. Steve Kovac, thank you. Well, we're going to have much more reaction to all of today's after hours action ahead, a deeper dive into Microsoft's results, a pullback in the stock we've been talking about, which is weighing on a lot of other names. And I've got to mention AMD results are out. We'll get to those after the break. The stock initially higher by about 4.5%.

All right. Well, don't miss our exclusive interview with the CEO of JetBlue speaking of stocks that have been higher after a surprise profit drove that stock sharply higher today. Overtime, back in two. Welcome back. We mentioned it right before the break. AMD earnings are out. Kate Rooney has the numbers. Kate. Hey, Morgan. So it was a beat across the board for AMD. We'll start with this EPS number. It was a beat by a penny. This is the adjusted number, 69 cents. Revenue also stronger than expected for the quarter, 5.84 billion.

That was a beat. Gross margins of 53 percent. That was pretty much in line with what the street was expecting. The outlook for gross margins also in line there. And then revenue guidance stronger than expected here, 6.7 billion dollars. It looks like the results here were driven by record data center revenue. That was 2.8 billion, better than what the street was looking for. That was up more than 100 percent year over year, 115 percent client revenue better than expected at one point five billion. And the gaming sector as well in terms of revenue, the number to watch for, which I'm told we are not going to get until the call. At least that's what analysts are saying. The full year revenue forecast for that AI chip, the MI300. So that's supposed to come in the call here. So look out for that on the earnings

call. But shares, you can see more than 4 percent after hours, guys. Back to you. Yep. All about the data center, Kate. Thank you. While Informatica, an enterprise software company, also reporting a complicated quarter. Looks like a bottom line beat and a top line miss. But there's an important asterisk here. You can see the stock down about five and a half percent. CEO Amit Walia told me about this quarter that Informatica peeled off a big portion of its professional services business and gave it to partners, which brought down both the Q2 revenue and the guide, while the company's core software business beat expectations on annualized recurring revenue. Here are the numbers. For Q2, Informatica reports revenues of $401 million versus $403 expected, EPS of $0.23 versus $0.22 expected.

For Q3, got into a range of $412 to $428 million, that's $420 at the midpoint, versus consensus of $433. For the full year, Informatica bringing the guidance range down to 1.67 billion at the midpoint. The street was looking for 1.7. Wally, you're telling me again, three factors at work here, the professional services move, currency headwinds, and a lower average duration on subscriptions, which has them booking less revenue up front, Morgan. All right, we can see the move right there in the stock. We've got Live Nation earnings out, and Julia Borson has those numbers as well. Well, Morgan and John, Live Nation revenues of $6.02 billion coming in right in line with expectations, while earnings per share of $1.03 missed estimates of $1.07 per share.

Now, to break down these different revenue categories, concert revenue was a hair ahead of estimates, but ticketing revenue came in lighter than analyst expectations, as did sponsorship and advertising revenue. Now, it's worth noting that this is the first time the concert giant has not posted a top line beat since May of 2022, which might explain why shares are down over 3% right now. And just to dig a little bit deeper into what's behind these trends, this is a time when we're seeing reports of some artists canceling shows, also concerns about potential concert fatigue. The company says no signs of concerts slowing down. Global fan demand fuels record Q2. But the pace of growth is definitely slowing amid tough comparisons. Total estimated fans grew 5% year over year in the quarter to 38.9 million.

Now, that's a big number, but it's much slower growth than the first quarter growth of this year, which was 21% growth to 23 million. So that was a higher percentage growth, but off of a lower base. So definitely slowing growth, tougher comps. John? All right. Julia Borsten, thank you. Let definitely slowing growth, tougher comps. John? All right. Julia Borsten, thank you. Let's check back in now on Microsoft. Those shares now still down about five and a half, six percent on the back of those fourth quarter results, dragging down

some other mega cap names as well. You can see Invesco, Triple Q's now just down slightly, but meta platforms down three. That might have to do with Pinterest. Amazon down about two and a half. Joining us now, Gil Luria from DA Davidson and Rishi Jaluria from RBC Capital Markets. Welcome, guys. Gil, how much of a disappointment is this Microsoft cloud growth, the Azure growth number, or do we need to really listen in on the guide here on the call in some color?

Well, the guide is going to be extraordinarily important. But let's go back to where we came from. A little more than a year ago, Microsoft was just plodding along. AI came in and they had accelerated growth ever since. And they tied that acceleration to AI. But last quarter, they accelerated beyond AI. So coming in today with decelerating growth and more contribution from AI means that their cloud revenue is decelerating. The fact that they came in line with the rest of the businesses, means that that growth has stopped getting that momentum that they got from AI over the last 12 to 18 months.

So that's the reaction today. And then there's a reaction to the very high CapEx number, the CapEx number that's up way more than 50 percent year over year. And so to your point, guidance is going to be extraordinarily important because we're going to learn if the company intends to increase CapEx even more as its revenue decelerates and the CapEx creates margin pressure. So really going to be focused on guidance. OK, Rishi, might we be heading into a version of what investors have gotten used to with Amazon's retail business. You know, these investment phases that can be capital intensive here and maybe a rationalizing of AI expectations or too soon? No, I think that's exactly right. Look, I think investors do need to rationalize their expectations around AI contribution. Microsoft, I think, is in a league of their own.

If we do the math around that 8% Azure AI contribution, it is a very, very impressive number. And remember, Microsoft is capacity constrained. They told us that last quarter. I wouldn't be surprised if they talked about that this quarter. I think the Oracle deal was evidence of that. But I do think we could see an air pocket where just the CapEx is going to ramp up faster than the revenue will follow. Our own CapEx estimates for FY25 are actually $5 billion ahead of where the street is. I think it's going to take time to play out. But look, Microsoft has had experience doing this CapEx build out with the original build out of Azure, doing this with Xbox, doing this with the cloud transition with Office. I think in Sathya, we have faith. Gil, how much do we read through to the other

cloud players? And we already heard from Google last week. We get Amazon later this week. This idea that cloud revenue is decelerating at Microsoft when they do seem to be the leader here in AI compute. I guess, what does it do to set the stage when you have so many other names moving lower in sympathy today? How much read-through is there really? Well, so Google accelerated their cloud growth. So that's part of the ding here on Microsoft is that at the same time, their growth decelerated, which means it's really a toss-up for Amazon next week or on Thursday, because with Amazon, we're expecting acceleration.

So did they accelerate like Google or did they decelerate like Microsoft? Since Microsoft, to Rishi's point, Rishi makes a great point. Microsoft has a huge lead in AI. Nobody has eight points of contribution in their cloud business from AI like Microsoft, but they started that acceleration earlier. So the fact that Google is still accelerating probably has more to do with what to expect from AWS than this result from Azure. Eventually, they're all going to have to revert to the mean in terms of growth. And let's not forget that AI growth is not the highest quality growth within cloud. Really, all Microsoft's doing is rent a GPU. They're buying it from

NVIDIA because they have access to it, and they're turning around and making their customers pay three years in advance to rent out the capacity on a GPU to train their own models. What was higher quality before is that it dragged all this great other revenue from Microsoft, and that's where we need to be focused on. For Amazon, they're far earlier in the journey, so that AI growth is probably still pulling other AWS growth. And we're going to see more of that on Thursday. Okay. Gil and Rishi, thanks for joining us. With shares of Microsoft lower.

Worth noting, though, John, right, that we saw softness in intelligent cloud and in Azure versus street expectations. But productivity and business processes, better than expected. More personal computing, better than expected. Margins, better than expected. And cash, also better than expected. Just mostly that our socks were not knocked off by any of this. It's like marginal beats and misses, but what's next is what the investors, I think, really want to know. Exactly. Up next, an analyst who thinks AMD can rally more than 40% from today's closing price joins us with his reaction to earnings. And later, we'll take a closer look

at Starbucks earnings and what management needs to say to reassure investors on the call after a rough start to the year and an ongoing activist fight. We'll be right back. Welcome back to Overtime. AMD out with second quarter numbers just moments ago. The stock is up 5% after reporting record revenue in the data center segment. Joining us now is Christopher Rowland, Susquehanna senior analyst. Christopher, strong ramp here on Instinct GPUs, but is it worth wondering how much of that momentum continues beyond the ramp quarter? Yeah, very good initial read here. But we are absolutely waiting for the conference call. We're waiting for Lisa Su to either raise or not raise that

full year instinct AI GPU number. And we will see. You know, we said in our preview, we would likely think they were going to raise it 500 million to to $4.5 billion for the year, but we will see. Okay. What if they don't raise it? Do the rest of the results that we got in this earnings report matter as much? Or would they be enough to, I guess, offset a lack of a raise? Sure. These are nice numbers. They're a little bit better than expected, but we think the swing factor here in terms of the stock price is going to be that MI300 guidance

or not. Okay. Well, we don't want to miss that then. Christopher, thank you. And don't miss a first on CNBC interview of AMD CEO Lisa Su. That's tomorrow morning, 9.15 a.m. Eastern on Squawk on the Street. Meantime, shares of JetBlue getting a major lift today after the company posted a surprise profit for the second quarter. Up next, the new CEO joins us exclusively to break down the results and her long-term strategy for the airline. Overtime, we'll be right back. Welcome back. JetBlue soaring today after posting surprise profit for the second quarter. The carrier saying it would defer $3 billion in aircraft spending through 2029 to improve cash flow. Joining us now for an exclusive interview is JetBlue CEO Joanna Garrity and our own Phil LeBeau. Phil. Thank you, Morgan. Joanna, thanks for joining us today. Let's start with the results from the second quarter. You post a profit when

the street's expecting a loss. What is it that analysts and investors fail to appreciate about the changes that you put in place that bore some fruit in the second quarter? Sure. Thanks for having me today, Phil. I think Q2 is largely a reflection on great execution on the part of the team. We've driven a strong operation in Q2. We made some adjustments into our network, and I think we're seeing some early results there. But, you know, we've also announced our new strategy, Jet Forward, and we're putting some core pillars in place, comprehensive strategy to really take JetBlue to the next level, driving profitability over the next several years. You were talking about those changes during the conference call. Your president, Marty St. George, said we will not do unproductive

flying. And you've already announced exiting a number of routes, blue cities that you will be closing, deferring aircraft. Is the pace of these changes going to pick up in the second half of this year? Or do you think the bulk of the big changes have already been put in place? Yeah, I'd say the bulk of the big changes have been announced, but they are not yet effective. And so I think that's a little bit of a misalignment. It takes some time to see the benefit of the network changes take hold. A number of them actually go into place in October and they will continue kind of ramping into next year. It's the large part of them, but there are more to come and we're committed to continuing to deliver a number of initiatives so that we can get JetBlue back to profitability. Joanna, it's Morgan. It's great to have you on the show. You've certainly

hit the ground running since you took the CEO helm. I'm really curious about the competitive landscape here, because just today CNBC reporting that Spirit Airlines is trying to go upmarket with some of its offerings. We saw the changes announced at Southwest last week, Frontier a couple of weeks ago. How does this part of the industry continue to evolve and what does it mean in terms of competition for JetBlue? You know, JetBlue is well positioned. We've got a great product, a great brand. We've got to remind customers that, you know, JetBlue is loved. We're well positioned for the premier customer, the premium customer. 25% of our seats are already premium. And we've got a great product offering segmented to attract a number of customers across all spectrums. So I think we're well positioned for what we're seeing in a post-COVID world.

But at the end of the day, we do have gaps in our product offering, and we will continue to look to fill those gaps in the foreseeable future. Joanna, it's John Fort. Good to see you. I want to ask you about Latin America. Got a big exposure there. There's been some overcapacity issues with that. In those leisure markets, what makes you confident that capacity is going to come down and maybe your pricing firms up and is demand going to stay strong? Sure. We're already seeing capacity abate in those markets. And that was one of the things we expected in the last quarter, and we are seeing that happen. The Latin region is a very important part of JetBlue's network. Obviously, strong leisure region, strong visiting friends and relative region.

And it's one that we continue to prioritize. We made a number of big announcements in May with Puerto Rico, largest airline there, largest airline in the Dominican Republic, largest airline in Jamaica. So very important, and we're happy with what we're seeing with capacity in that region. Joanna, it's Phil again. On the call, you talked about the volatile situation, and I think that's the word you used when it comes to dealing with the Pratt & Whitney-geared turbofan engines that are going through analysis and then, some cases repairs. That's going to accelerate in the next year or so for you guys in terms of aircrafts with these engines. Are you worried that this

gets extended out even further into the future than what is currently expected? Yeah, thanks, Phil. You know, it's a multi-year issue for JetBlue. We announced today that we'll see mid to upper teens aircraft on the ground due to the Pratt & Whitney engine situation. It's incredibly frustrating. You know, we take a new plane and then within a year and a half, we're grounding it because the engines require a maintenance inspection. You know, that's ultimately what is driving flat capacity for next year. Due to the volatility of the situation with Pratt & Whitney, you know, we're not actually in a position to provide more details with regard to our growth plans over the long term, but this is something

that will be with us for a few years, but it will abate over time. All right. Joanna Garrity, thank you. CEO JetBlue and our own Phil LeBeau. Now, another big mover today, cloud backup recovery and resilience firm Commvault out with earnings this morning. Commvault beating on the top and bottom lines, raising the guy. The stock popped 23 percent to all time highs. I spoke with CEO Sanjay Merchandani, who said the company's comprehensive resilience offerings are resonating with more of the C-suite. So the folks that give you the threat intelligence, we take that, we use it to make sure that the data is better protected, and then in turn, give our threat intelligence back into

the SIM and SOAR that the customers are using. So that integrated capability is really resonating with customers and partners. It's one platform that allows CISOs and their organizations and CIOs and their organizations to work together. So, you know, we're not trying to over-engineer it. We're giving them resilience at the heart of what we're trying to do is to protect our customers and it's, you know, it's working. And he told me the CrowdStrike debacle helps with the sales conversation as well. Well, up next, a top Starbucks analyst tells us what he wants to hear from management on the call, which kicks off at the top of the hour. Be right back.

Welcome back. Starbucks getting a lift after matching earnings expectations and coming in light on revenue. The company's CEO saying efficiency efforts are tracking ahead of expectations. Joining us now to break the quarter down is city restaurant analyst John Tower. John, it's good to have you on. I mean, global same store sales fell 3 percent. China in particular, very, very weak. North America also down 2 percent, but perhaps not as bad as feared after two really rough quarters. Your take. Yeah, I think you hit the nail on the head. Right. The U.S. business, I think, came in slightly better than feared with respect to aggregate comp. The traffic still down six and decelerating on a multi-year basis.

Not that encouraging. But on the flip side, the cost savings are starting to show up in the model, first on the COGS line, but also on the G&A side. So, you know, management has been talking about the idea of seeing some cost savings roll through the model over time. We're finally starting to see it show up here in one of these quarters. On the other side of it, China not looking so hot. Another quarter where comps disappointed, transactions were down. It looks as if, you know, the recovery over there is really just stalled out. And while it's still a small piece of the puzzle for Starbucks with respect to overall, you know, revenue and EBIT contribution, it is one of the longer term growth drivers of the business. And that seems to be kind of just

stuck in the mud at the moment. And certainly we're seeing that and hearing that from a number of consumer facing global companies where China and the Chinese consumer relates. But if I look at Starbucks, you've got pressure from Elliott. So you've got activist investor pressure on one end. You've got pressure from the founder and now multi-times former CEO Howard Schultz on the other end. Does this do enough to calm some of those concerns? Will we look back on this and say, OK, this is the quarter of bottoming? I don't think so. I mean, look, a potential activist investor in here could be what would, you know, at least keep the stock in this kind of 70 plus dollar range. But from a fundamental standpoint, we're still seeing decelerating trends, which is not

encouraging. And with all of the initiatives that the company put out during this quarter, particularly in the US, when it comes to energy drinks, Boba, all the deals that were coming through the app. It's disheartening to not see traffic improve sequentially or, excuse me, improve that much, especially if you look at all of the deals that they've been doing. And, you know, the cost savings are nice, but I don't think investors really want to pay for cost savings. They want to see sales growth over time. We'll get an update from management on this call with respect to their guidance for this year. I think it might be a little too early for their commentary on fiscal 25. So I think we'll still be kind of feeling around a little bit in terms of how they're expecting

unit growth to play out next year and their're actually overall offline john i'm wondering how much of this is just starbucks being this higher priced company at scale certainly in the u.s and and some significant scale in china too when the macro environment has changed and even people's habits have changed maybe i've got a little bit too much of an urban perspective, but I think of Starbucks as something that a lot of people do during breaks at work. If people aren't going into work physically as much as they did before, the Starbucks have to retool where they put stores, how stores are organized for the way culture has shifted. And can you entirely blame them for that? Well, look, I think a lot of other companies are dealing with similar situations, but their traffic isn't down as much as it is here. I think it's more to the broader point,

are price points too high for the company, for the average consumer? When you've got a store based north of 16,000 stores in the U.S., you're effectively the second largest footprint when it comes to stores in the United States. should you still be offering premium price points? Or really, that's your entry-level price point. Should you rethink the menu architecture where perhaps you introduce everyday value to the menu to kind of drive that lower-frequency customer to come to your store more often? So McDonald's? Yeah, look, yes. I mean, does it make sense to kind of move down that path of,

hey, you know, we're too big now to offer premium price points only. Perhaps we need to get more aggressive on everyday value to get those customers back in the door. You've already got a massive loyalty program and that doesn't appear to be moving the needle here. So you got to figure out something else. We'll see what they figure out. John Tower, thank you. Thank you. Well, up next, all the overtime earnings that need to be on your radar and the huge name set to report tomorrow. And Merck, the biggest drag on the Dow today because weaker than expected full year guidance overshadowed and earnings beat. Those shares fell 10%. Welcome back.

Some major moves here in overtime earnings reports. Microsoft falling 6% despite beating on both lines. Azure and other cloud services growth below expectations. Now, separately, Microsoft saying in a memo to employees it will pay a one-time performance-based cash award of up to 25 percent of annual bonuses to non-executive, those rank-and-file employees. You can find out more about that on CNBC.com. Meantime, Pinterest getting slammed down 15% after beating on both lines and topping active user estimates. Investors keying in, though, on third quarter revenue outlook, which came in below estimates. On the positive side, we got Match.

It is feeling, let's see, what's it doing? It is up almost 10% after a strong performance there in cloud. Software company Freshworks also popping after a beat on both lines with strong third quarter revenue guidance, Morgan. Some big tech moves. Yeah, 9% for Freshworks. Well, to cut or not to cut? That's the big question on J-PAL's mind as the Fed kicks off its two-day meeting. Up next, the impact that decision could have on your money

as well as all of the big names on tomorrow's earnings calendar. And before we head to break, our colleagues from Squawk Box are in Paris as the Olympics heat up on NBC and Peacock. Check out some of the highlights from a special edition of Squawk Box at the Olympics. We are live from the Olympic Games in Paris.

This is officially day four of the Summer Games, and it's already been a memorable run for Team USA. One of the things that for me is just so inspiring is to watch all the people from around the world cheering for everyone. There's just such a sense of unity. When you're in the stadium, you're going to see what? You're going to see all the Snapchat AR effects built just for the Olympics in 2024 overlaid on the audience. And so it's a really fun fan experience. What you're seeing right now is there's a hunger by broadcasters for live sports. It's the one thing that's sort of cutting through with all of the differences that are happening with streaming and with cable. There's an insatiable appetite for it.

Squawk Box, live from the Paris Olympics, continues tomorrow, 6 a.m. Eastern. Welcome back to Overtime. The Fed's interest rate decision will be on the minds of just about every investor tomorrow, but it's also another huge day of earnings. Boeing and GlaxoSmithKline headline results before the bell. And in Overtime, we'll bring you instant analysis of earnings from Meta, Qualcomm, Arm Holdings, MGM Resorts, eBay, and Etsy. All right. Well, I mean, we had major moves here in Overtime. We're going to get more

of them tomorrow, including, as you mentioned, Meta, which will be the next mega cap tech name. The Nasdaq sold off today more than one point three percent. We did see the Dow, the Russell, the transports actually move higher in the session. So we continue to have this conversation around rotation, around rally broadening. But of course, the key is going to be how much these tech names disappoint or save the day here as the week unfolds. Yeah, with Meta, I think there's a question on costs. What do they do? They can always pull in some of that Metaverse spend. Then Qualcomm is an interesting one when you think about their IoT and automotive growth areas and just the overall smartphone market. They can't really do that

much about that, but they have been gaining premium share, it looks like, in China. And that could help them if that continues to be the case. Yeah, it's really micro versus macro. You mentioned the Fed. We get BOJ decision tonight as well. But tomorrow, it's really how much does Powell set up the possibility of a September cut? And also, just how much is the Fed really focusing on the labor picture as we do see that market continue to soften? We'll see. All right. Well, that's going to do it for us here at Overtime. Fast Money starts now.