Closing Bell - Closing Bell Overtime: Southwest CEO Takes On Activist Elliott; Time To Invest in China? 9/26/24

Episode Date: September 26, 2024

Investors cheered Southwest’s new three-year plan, unveiled by CEO Bob Jordan at today’s investor day. Jordan joins to discuss the steps the airline is taking to improve profitability while fending off activist investor Elliott Management. China stocks have been sharply higher this week after the government introduced measures meant to boost businesses. But Rockefeller International Chairman Ruchir Sharma isn’t so sure it will last. He shares why. Plus, Telsey analyst Joe Feldman reacts to Costco earnings.

That bell means it's the end of regulation. Ice climate and Capital Conference ringing the closing bell at the New York Stock Exchange. Currency Group doing the honors at the NASDAQ. Green across the screen at the close. And again, a record close for the S&P 500 as China-sensitive materials stocks surge. Tech gets a boost, mostly semis from Micron. Oh, that's a scorecard on Wall Street, but winners stay late. Welcome to Closing Bell Overtime. I'm John Fort.

Morgan Brennan is off today. Coming up this hour, first on CNBC, interview with Southwest Airlines CEO Bob Jordan from the company's investor day as that stock turns in a very strong session and as Jordan faces calls for his ouster from activist Elliott Management. Plus, a key read on the consumer is coming when Costco reports earnings. We'll bring you the numbers as soon as they cross. And Rockefeller's Rushir Sharma is going to join us to weigh in on the huge move higher for Chinese stocks following a stimulus boost from Beijing.

First, let's get to our market panel, Victoria Green of G Squared Private Wealth and Jeffrey Kleintop of Charles Schwab. Guys, welcome. Happy Thursday. Victoria, 56-48. It's about where we started the month with the S&P, and we're 100 points higher than that. So unless we drop 2% in two trading days, this is an unusual September, no? Why would you bring that up? Why would you even put that on the table, John? Come on. We're looking to break a five-year trend of negative Septembers here. I do think we'll be able to rally out. PCE is supposed to be benign tomorrow. 0.1 to 0.2, depending on the rounding for core,

is likely pretty in line because of what we saw in PPI and CPI. So as long as PCE cooperates, I do think we can end September better. But why would you even tempt fate with that? I know, I know. Playing with fate here. And Jeff, we're talking a lot about China today, but overall international markets have been performing pretty well lately, where the U.S. had been outperforming. So how sticky might that be outside of China even? I like what I'm seeing.

You know, we've seen leadership by rate cut beneficiaries like financials. Financials have doubled the weight in the EFI index versus the S&P 500. They're doing very well, best performing sector in the third quarter outside the U.S., helping to sustain those gains. Obviously, I mean, China's in that picture as well, right? Because there are a lot of European luxury product makers, like many of those that roast sharply today, that would do better on a Chinese consumer.

The jury's still out whether this stimulus translates into actual growth, but that's another plus here that we can look to for the fourth quarter as China continues to apply more and more stimulus. Victoria, how, if at all, do you play this China stimulus trade? I mean, it's great for some of the discretionary and luxury, as he was talking about. And I think I'm a little more wary on how lasting this impact is because they still have a huge issue in the real estate sector. But this is what the market was waiting for for three

or four months. So you saw casino stocks rise. That might be a great play. They're very sensitive to the whales from Asia coming over and then what's happening in Macau. We saw them have a good day. We could see Chinese tech stocks continue to run like Alibaba and some of those names. They've got a long way to go to catch up with the rest of the world. So you could see a run there because China has implicated themselves. And hey, we are going to step in and support this. I prefer U.S. stocks a little more quality, a little less exposed to potential tariffs, trades, and all that nastiness that may come down the pipeline in November. I stick with my U.S. bias, but it's nice to see it broaden out. It's nice to see some of these sectors in travel and leisure get a China bump, because that has been a huge headwind to most multinational corporations.

I think Apple may be a big beneficiary, Tesla with Chinese sales. If we could see Chinese sales pick up for a lot of these multinationals, it's great for not only international names, but also U.S. names that have multinational exposure. Jeffrey, speaking of tariffs, there have been a lot of elections so far this year, a couple of big ones coming up. There's been a nationalist shift in how those have turned out, not yet having an impact on the markets, but might it if we see barriers to trade rising up? And is that something investors should consider? It is probably the biggest risk coming out of this election that affects investors directly. But we've got to keep in mind, even with those Trump 1.0 tariffs back in 2018

and 19, we really didn't see overall tariff levels for the U.S. go up. They're still at 2% on average. That's the average U.S. tariff. And that's because they replied to things, very small amounts of U.S. imports. That could be the case again. Heck, I'm hearing about 60% tariffs on imports, 100%. We've got six weeks to go. I wouldn't be surprised to hear about a million percent tariff on some type of imports. But the actual reality is, as we've seen from elections around the world, actual policy implementation, very different from proposals. I think those would get watered down quite a bit. So, Victoria, you say you still prefer U.S. stocks. What, therefore, are the major trends, despite all this uncertainty, maybe around how much legs the consumers got, et cetera? What are the major things that you think investors can continue to go back to and maybe average into even as we see the S&P at these record highs? Sure. I love rate

sensitive names. We've been hammering on REITs as a great place to be. We love utilities, the electrification and powerification play in utilities and industrials. We think both of those areas are areas of picking up quality names. A lot of them have dividends and cash flow. I'm a sucker for a good free cash flow. It's one of the hardest things to manipulate. If a company is generating fee cash flow and dividends, I love it. As we talked about earlier, financials are a big beneficiary. That sector has been doing well.

And we are keeping our core technology. As we talked, I think Closing Bell talked about, hey, maybe average into some of these semi-names. That's one of the areas that hasn't hit records yet, still about 10% below their highs. And if we see EPS grow as we think it will, it's supposed to be led by health, by technology. And those are areas I want exposure to. Who has growing EPS? Who has strong free cash flow? Who has good balance sheets? Who's paying dividends? I love those stocks because to me, those can be both bunkers and builders if this economy continues to run. I'm a little less concerned about valuations because in a bull market, obviously, we tend to see the P.E. multiples expand. And I think you could continue

to see P.E. multiples expand if we get some of the earnings growth and this upward bull market to the 6,000 target I have on your end. All right. That's a bullish tune you're playing. Victoria, Jeffrey, we'll leave it there. Thanks to you both. Let's turn now to energy sitting out the rally. It's the worst performing sector today as oil takes a leg lower. And Pippa Stevens is here with me to look at what's going on. Pippa, what is it? It was an ugly day for oil. We did see a drop as Saudi Arabia is reportedly set to prioritize market share over oil price stability,

according to the FT, which says the group will bring output back starting in December. The group was initially supposed to raise production in October, but those cuts were pushed out because of weak pricing, and so some in the market perhaps believe that OPEC was committed to supporting prices and that those cuts could have been extended. Now, while OPEC Plus has kept a lid on production, non-OPEC supply has grown, including from the U.S., Brazil, and Guyana. Energy strategist Clay Siegel told me

it's a real pain point for Riyadh, which has absorbed much more than its fair share of the supply restraint, adding that overproduction from nations like Iraq and Kazakhstan adds insult to injury. Energy is the worst performer today, dragged down by the drillers with that direct exposure to oil, Diamondback and APA both down more than 5 percent. We're also seeing some weakness in the pipelines with One Oak and Targa under pressure. But those names, John, have been a relative bright spot in what's been a pretty bleak outlook for energy equities. Because of supply, right? Basically because Saudi Arabia is saying, hey, we're not going to lose share here. And others bringing more supply on also.

As demand seems fine but not booming. How long, like what's the time horizon on supply looking like it's going to be this overhang? Well, I mean, we still have a lot of OPEC plus production cuts to get through. So they're holding back about 6 million barrels per day in total. So that's a lot to work through. And as you said, demand is plateauing. It's staying flat, but it's not growing. And that's what everyone had been banking on. And then plus we've seen we have healthy output here in the U.S. Also, as I mentioned, Guyana and Brazil, that's coming back online. So I think that Saudi Arabia was banking on, you know, demand coming back, particularly in China. We've seen the weakness there that's lasted for more than a

year now. And so at a certain point, I guess they were going to crack. And maybe that's what's happening here when they said, you know, when they indicated that they might start bringing that production back so that it's no longer a they said, you know, when they were they indicated that they might start bringing that production back. So that's no longer a question of keeping the price, but focused on the market share. And of course, we have to look to history that you can't overlook this, because back in 2014, they decided to release output in an effort to undercut the U.S. shale boom. And so there is some precedent for this in the past. All right. Well, good if you're buying it. Not as good if you're selling it. Thank you. Well, now let's turn to senior markets commentator Mike Santoli with a look at semiconductors on the back of Micron's massive gains today. Mike.

Yeah, John, it's sort of part of this effort by the semiconductor group to maybe try to reestablish leadership. Take a look at semiconductors as measured by the Philadelphia Semiconductor ETF relative to the S&P 500. So this is the outperformance trend over the past few years, going back about five years in semis relative to the broad market. And pretty strong uptrend, even if you go through that kind of bear market period, that was more or less broken. So you see this big rally up, but it's still in the lower end of this range. You had sort of spotty strength.

Obviously, Micron very strong, but it wasn't necessarily fully inclusive. The market's being a little more discerning. We'll see if this gets up further than the August rally did on a relative basis, because you did see that sharp comeback. I do think it is important, maybe mega long term, that it never kind of gave back this few years worth of upside relative to the market. It did bounce off that level that had contained it for a while back. So now take a look at semis relative to software. And this is

on an equal weighted basis that sort of kind of flattens out the impact of NVIDIA in particular on the semis. Goes back to the first quarter end of 2021. That was the end of the cloud software mini bubble, I would say, when everything was coming public, trading at 20 times sales. And you remember all that neck and neck right here. So even though it seems the semis have kind of dominated the story, maybe some software areas have been disadvantaged, not really showing up in the typical stock for each group there, John. Mike, back to that first chart. I can't help but wonder, is there a Mag7 type effect that's happening on the Sox? How much does that have to do with comparing that to the S&P, like NVIDIA, Broadcom, maybe a couple

of others really driving a lot of those gains? NVIDIA is a tremendous, tremendous swing factor within it. And that's why the Sox is market cap weighted. It is dominated, I would say, NVIDIA, then, as you say, Broadcom. Qualcomm is still pretty big in there as well. But there's no doubt about it that we are working through this period. In fact, the NASDAQ 100 relative to the S&P would look somewhat similar, a peak back in July or so. And then we're still trying to sort of struggle through the range that's that, by the way, it's the broadening of the market. Everyone said they wanted. But what that sometimes does is deprive the market of very, very strong, concentrated bellwether leadership for periods of time. Reminds me of the Chicago Bulls, the New England Patriots. It's been a time of like legacy, legacy stocks just having huge.

When you lose your big franchise player, you mean? No, no. I mean just certain companies doing particularly well over a period of time, driving a lot of attention. Mike Santoli, see you again in just a little bit. Well, fresh stimulus measures from Beijing sending Chinese stocks sharply higher today and all

week with the K-Web ETF up more than 20% since Monday's open. But up next, Rockefeller International's Ruchir Sharma explains why he says it's a rally to rent, not to own. And later, Southwest CEO Bob Jordan's gonna join us from the sidelines of the company's Investor Day to talk about the changes he's making at the airline and to respond to Elliott Management's effort

to oust him overimes back in two. Chinese stocks, we mentioned rallying hard today after Chinese officials affirmed stimulus measures for the company. Appaloosa founder David Tepper was on Squawk Box this morning reacting to those moves. I thought that what the Fed did last week would lead to China easing. And I didn't know that they were going to bring out the big guns like they did. And I think there's a whole shift. Here's Rashir Sharma, chairman of Rockefeller International, founder and CIO of Breakout Capital and author of the book, What Went Wrong with Capitalism. Rashir, so you don't buy this China rally? Literally, you rent it? Yeah, in terms of what I mean here is the fact that the playbook I've been using

has been Japan of the 1990s, which is that the market and the economy both have made secular tops. There are some very structural reasons as to why the economy has been decelerating, but it is punctuated by frequent stimulus measures and also very big rallies. So if you look at Japan back in the 1990s, even though the market lost two-thirds of its value through the decade, there were two or three very, very sharp rallies, one as much as 80% to 90% in dollar terms. So I think that that's the structural point here. I do think that this is a trading rally which has more to go. So, yeah, we've rallied about 20 percent of the lows just now. Could we rally to 20, 30 percent? I think that's

certainly plausible. But from a long-term perspective, I think that this is a rally to rent, as I said, not to own, just because of the structural problems that China still faces. This is still an economy saddled with an incredible amount of debt and its demographics are very negative. How do you fight that? How do you fight when your working-age population is set to shrink 80 million this decade? I do want to mention Costco results are out. We're going through them. The stock is higher by about a percent initially. We'll get more into those in just a moment. But Roshir, so what are the broader implications here? If you're saying

this is kind of a sugar high with Chinese stocks in the economy, not something sustainable, there are a lot of other markets, other economies that are closely tied to China. Are those in some cases emerging markets in trouble? Well, I think that those are the economies which could eventually benefit. I penned an op-ed on this last month called The Rise of the Rest 2.0. And the point I made there was that the pessimism regarding emerging markets, including China, by the way, was extremely negative and that we were likely to see these economies do better outside of China in particular in the coming years. In fact, as I argued in the piece that about 88 percent of the economies in emerging markets

outside of China were likely to experience a faster per capita income growth than even the United States over the next five years. What this stimulus does, I think, in a very meaningful way is at least it puts the floor under China for now. There was a risk before this that the Chinese economy was going down really a vicious spiral because of the deflation that it set in, the property market being bust, the banks being undercapitalized. There was a lot of trouble that was happening in China. What this does for now is put a floor under China, and that allows other emerging markets to stop facing the deflationary pressure coming from China.

And their fundamentals, I feel, are stronger when you look at the debtor demographic profile. So I wonder what this means for index fund and some mutual fund investors out there who might be in Asia funds in general, international funds in general, considering that you expect China, which has been such a big deal, to sort of stall out. Does this mean you need to shift strategies now and start thinking about things in a more specific, market-specific way. Absolutely. And that's already been happening. So if you look at this decade, there's been a massive difference in performance between China and, let's say, India or other emerging markets in

the region, in Indonesia or even in Eastern Europe, the likes of Poland. There's been a huge dispersion in returns. Now, what this does is for a while it closes that gap out. But I think that the long term trend is still for that dispersion to continue. So I do feel that the Chinese market has some interesting buys, even for long term investor, even Japan in the 1990s. There were some export companies in Japan which did very well in the 1990s. Much harder for China to do that given the threat of tariffs, but it's been going down that path as well. So yes, I think that this is the time for a very differentiated kind of strategy. But I feel that as far as this China rally is concerned, yes,

it could go up another 20-30% from here. I think that's because the pessimism had become so entrenched where people were saying this country is uninvestable. This takes that risk out of the way for now. But if you're looking for a three to five year time horizon, then I do feel these some of the emerging markets offer much better growth and value opportunity than China. All right. Noted. Rishir Sharma, thank you. Thank you. Well, Costco earnings are out. Angelica Peebles has those numbers. Angelica. Hey, John, it's a bit of a mixed quarter here for Costco, the company beating on the bottom line but missing on the top line. EPS coming in at $5.29 a share versus $5.08 a share. And on revenue, the company reporting $79.7 billion, and that's short of the $79.97 that analysts were expecting in the fiscal fourth quarter. Back to you, John.

All right, Angelica, thank you. And those shares now lower. We were just talking about investing overseas. Andrew Ross Sorkin sat down with U.K. Prime Minister Keir Starmer earlier, who was in New York today meeting with business leaders. Here's Starmer discussing his party's pro-business message. You now have, we now have, a Labour government whose number one priority is wealth creation. Now that, I said that's the business roundtable this morning, it's counterintuitive. They don't expect a Labour government to say wealth creation is the number one priority,

but it is. Of course we want good public services. Of course we want the NHS, our national health service to work well. But the only way that will happen is if we grow the economy and have wealth creation. So that is, we're a Labour Party that is proud to say that we are pro-business just as much as we're pro-worker. Don't miss that full interview tomorrow on Squawk Box starting 6 a.m. Eastern. Well, now after the break, analysts' reaction to Costco's results and the read-through for the American consumer. Plus, Southwest CEO Bob Jordan is going to join us from the company's investor day with his message for Elliott Management, which is calling for his ouster. We'll be right back welcome back to overtime costco shares are fractionally lower

after reporting a mixed quarter moments ago let's bring in joe feldman of telsey advisory group he has a buy rating on the stock joe uh i guess revenue looks uh barely better than even EPS, to my eye, better than you expected. How much of this might be gas sales? Yeah, I think gas sales is a fair amount of that. That's a great call out because when you look at their core same store sales, when you exclude gas, when you exclude foreign exchange, their same store sales were up 6.9 percent. I mean, it was a really strong quarter for them from a from that standpoint the numbers came in basically about flat I'm a little surprised that the street didn't adjust their numbers down a little after the last time the company reported sales because they kind of tell you what the number is going to be they said it was going to

be you know that 78.2 billion and that's what it was for the total sales the membership fee income did come in a touch shorter, but we're not too worried about this. I mean, I think they had a very solid quarter, and the earnings reflect that. So we've got some chop here in overtime. The stock initially traded higher by about a percent, then it traded lower by a little bit more than a percent. Now it's fractional.

Overall, is your sense that this is good news because once you X out the energy stuff, the stock is doing what you expected. You said you expect Costco to be a share gainer in this environment. What's going to give more confidence, perhaps even on the call, that that's the case? I think just the fact that the company is generating very strong traffic to the stores. They consistently for the past year have been generating mid-single digit traffic, meaning foot traffic, people going into the store. That's better than just about anybody else in retail. And I get it. It's a membership model. So it does drive you back in. They offer tremendous value. That also drives customers back in. But it is their same store sales and their traffic is better than just about everybody out there. And that's what drives this business.

And I think that's what drives the stock. That's why I think people should feel good about what they saw today, because the numbers were quite solid. If you're at all concerned about the membership fee income, remember, they just announced a membership fee increase. Five dollars per everybody that has a membership. Ten dollars at the executive level. But that should help drive that business as well. And they still have a lot of room to open stores. Joe, what about the omni-channel opportunity? Costco has not been particularly aggressive

about the online side of the business or any kind of buy online, pick up in store. How much of that is just Costco being smart and saying we're not experimenting, that's not all for us. And how much of it is them figuring out how to do it in a Costco way? I think a lot of it is figuring out the Costco way. They have been ramping up their e-commerce business more lately. They are not at the same level from a technology standpoint that you might see out of Sam's Club at Walmart, where they scan and go when you walk through the store you can just scan the items walk out they they have buy online pick up at store at Sam's Club Costco doesn't part of it is just they don't have the space to do it in the stores so they're trying to figure out the right way to do this I think

they're trying to figure out how to do scan and go and still make it such that there's not too much loss and damages, things that walk out the door. So they're getting there, and Costco tends to operate slowly when it comes to new technology and new changes. At what point does that become a liability? They might never figure it out, and Walmart, Sam's Club surges ahead versus, hey, it's an opportunity for them to do better in the future as soon as they do? Yeah, I think that the company has definitely been more aggressive as of late about testing and trying new things. They very quickly moved to self-checkout and rolled that out to a lot of stores very quickly, and they did it their way, but it's been effective, and the consumer does like it.

So I think that they'll get there. I'm not too worried about them from that standpoint. All right. Well, watch it. Joe Feldman I think that they'll get there. I'm not too worried about them from that standpoint. All right, we'll watch it. Joe Feldman, thanks for helping us out there. Time now for a CNBC News Update with Pippa Stevens. Pippa? Hey, John. Hurricane Helene quickly intensifying into a Category 3 storm

ahead of its projected landfall in Florida's Big Bend tonight. Already, more than 100,000 residents are without power, according to PowerOutage.us. Florida officials are warning of catastrophic storm surges, as well as flash flooding and extreme wind damage along the I-95 corridor all the way up into Tennessee. Conservative news outlet Newsmax confirms it reached a deal to settle with voting technology firm Smartmatic over accusations of defamation in the 2020 election. Details of the deal were not disclosed. Smartmatic is also suing Fox News

for defamation and recently settled a suit with One America News Network. And the State Department is offering up to $20 million for information on an Iranian charged with plotting to kill former U.S. National Security Advisor John Bolton. U.S. authorities say the man, a member of Iran's Islamic Revolutionary Guard, allegedly worked to hire someone to kill Bolton between 2021 and 2022 and sought to hire the would-be assassin for $300,000. John, back to you. Pippa, thank you.

Up next, Mike Santoli's back to look at new clues on the labor market from today's jobless claims data. And Elliott Management slamming today's Investor Day turnaround plan from Southwest, calling it another promise of a better tomorrow from the same people who have created the problems we face today. Well, Southwest CEO Bob Jordan is going to join us to respond. Over time, we'll be right back. We've got a news alert on DraftKings. Angelica Peebles back with it. Angelica. Yeah, John, the SEC is charging DraftKings for selectively disclosing non-public information via the CEO's social media accounts. The SEC is saying that DraftKings is agreeing to pay $200,000 to settle the SEC's charges.

The SEC is saying that DraftKings disclosed non-public information, saying that the company was seeing really strong growth in states where it was already operating. And at the time, DraftKings had not disclosed its second quarter 2023 financial results. And these statements were posted on X and the CEO's personal LinkedIn account. And so again, the company is agreeing to settle this. Back to you, John. All right, Angelica, thank you. Now let's bring back Mike Santoli for a look at this morning's weekly jobless claims report and what it reveals about the state of the labor market. Mike? Yeah, John, pretty reassuring. This continues to be the most solid labor market reading, the weekly initial unemployment claims. You see that decline in the orange line there,

down to about 218,000. So it's well below the level that we were getting concerned about back in late summer, above 230,000. Even that, in absolute terms, is not a particularly elevated number. Also, there's some signs, and some people have pointed this out, of these peaks in late summer. Maybe there's some kind of seasonality in there. Might not be in all the models. But that seems to be one of the most rock-solid areas of the messaging set for the Fed. But you do see the elevated blue line there, which is continuing claims. So it

does show you that there's sort of slower turnover, a little bit of a less vibrant job market because people are staying on unemployment insurance just a little bit longer than they had been a while back. Though, again, 1.8 million or thereabouts for continuing claims. It's sort of this plateau level that is not really associated in the past with a recessionary turn just yet, John. All right. Some good news in that chart for those watching. Mike Santoli, thanks. Well, Southwest shares flying high after raising third quarter revenue guidance and authorizing a two point five billion dollar buyback. Up next, the carrier CEO joins us live from the company's investor day on that outlook. And now he's trying to fend off Elliott Management's push to oust him.

And check out shares of Jabil, one of the big winners in the S&P 500 today. The electronic components maker beating Wall Street's earnings estimates, announcing a billion dollar stock buyback and plans to cut jobs. The stock's up 11.5 percent today. We'll be right back. Welcome back to Overtime. Southwest posting its best day since June, though closing off session highs. Investors cheering the plan outlined at today's Investor Day, a plan the company says will add more than $4 billion to earnings before interest and taxes in 2027. But Elliott Management, now one of the company's largest outside shareholders, according to FactSet, is still not impressed, putting out a statement in the last two hours questioning CEO Bob Jordan's ability to implement the changes, writing, quote, in 2021 and 2022, Southwest made similar promises of billions of dollars in profitability enhancements.

Instead, we've seen billions of dollars of profitability deterioration under the leadership of CEO Bob Jordan. Well, joining us now for a first on CNBC interview is Southwest president and CEO Bob Jordan with our own Phil LeBeau. Phil. John, thank you very much. Bob, we'll talk about Elliott here in a bit. But I want to first ask you about the presentation today. We're not going to go into all the details, but one of the things that stands out is you're forecasting double-digit profit margins by 2027. You're basically breakeven today.

How do you convince investors you can actually deliver? Well, I'm glad we're not going into all the detail because it was two hours hours and we're standing in front of the centerpiece here, an aircraft equipped with extra legroom section, assigned seats. It looks beautiful. That's half of the revenue that we're talking about adding by 2027. You layer on top of that improvement of the base business. That's a big piece as well. You saw a big re-guide this morning of our third quarter revenues up by nearly three points, which is very positive,

shows you that the actions are working. Then on top of that, we have a lot of ability to monetize our fleet. So we have a lot of aircraft that are coming from Boeing in our order book. We don't really need them all with the lower growth rate that we are planning now, about one to two percent a year. But all of those aircraft have value And the used aircraft and the aircraft market is very strong right now with the issues with Boeing and the geared turbofan. So we plan to monetize every delivery, whether that would be sell leasebacks or selling into the market. But all those things together add up to the numbers in 2027 that you saw. You laid out a detailed plan, and yet you heard the introduction from John. Elliott Management came out within a couple of hours of the end of your presentation and said, so what?

Bob Jordan should be fired. And they're not listening to us in terms of making real changes real fast. Have you had any meaningful discussions with the people at Elliott? Because they say they've reached out to you. You guys say there haven't been meaningful talks. Well, first, today was not about Elliott. Today's about all of our shareholders and driving value. But no, there's really been no meaningful conversation with Elliott at all. We've asked to engage. We've offered to engage. We've offered to

interview their slate of board members, and they've really said no at every turn. And in fact, this plan that you see has been ongoing for well over a year, and every piece of the plan is underway. You've got an aircraft that is fully equipped for assigned seating and extra legroom, so everything is under construction. So for Elliott to come out and say the plan is rushed and it's hasty, to me it's just inane because this plan has been being driven by our leadership team for well over a year now. If they call for a shareholder meeting and they want to have some of their people

join the Southwest board, the question for investors is going to be, do I believe Bob Jordan or do I think that Elliot's right, that these guys are too slow to react? Look, the last two years under your leadership have not been good for Southwest. How do you convince investors, trust us, we have the right plan? Well, there's no doubt. We have not lived up to the financial goals that I want or our shareholders want. That's for sure. And making no excuses, it's been a very tough couple of years. Coming out of the pandemic, strike of staffing issues, and now you've got a lot of ongoing delivery issues with Boeing. That's really the number one thing affecting our plan.

And, of course, we've had self-inflicted revenue management system issues that are now being fixed, which you saw in our guide this morning. But you've got to ask yourself, what about the team? What about Bob? The team that we've got here at Southwest Airlines has nearly 200 years of airline experience. It's the team that implemented the new rapid award system, that bought AirTran, that integrated AirTran, that put up the new Consumer Direct website, that did our current boarding that our customers love, that put together our ancillary products today like early bird boarding. So to look at that team and say they cannot execute, to me, does not make sense. But we've got to prove it, and this is a big piece today to show you this aircraft in action. And we're ready to drive forward and produce for our shareholders.

Bob, John's got a question for you. John, go ahead. Go ahead, John. Hi, Bob. Yeah, thanks. Tell me how you've calculated the loyalty danger to these changes. With these premium changes you expect will drive revenue, how do you avoid turning off loyal customers who will say you've changed your egalitarian DNA? Yeah, John, I think there's two parts to that. Number one, on the sign seating and extra leg room, we did intensive studies with tens of thousands of current customers and customers of other airlines, and it was totally conclusive. 80% of our customers want to assigned seating and 86% of other airline customers want

assigned seating. So it's very clear. So it's what our customers want today. That has a lot, I think, to do with flying longer, the aircraft are fuller, but it's what our customers want. The other question was, what about bags fly free? And you've heard some talk about that. We did the same extensive research and it was also very clear, which is it's the number three reason somebody picked Southwest. After fare, then schedule, then bags fly free. And 97% of customers are aware of the policy. So there's tremendous consumer loyalty and awareness of this, and they love it. And the financial risk says that what you would gain by charging for bags versus what you would lose by those customers defecting to another airline, it just does not make sense.

And I am proud of our bags fly free policy. And we stand alone. It's a moat for Southwest Airlines. And our customers love it. Okay, one more from me. Since you're talking specifics, I love it. Tell me about Atlanta and your thought process behind the pullback and the cuts that you're making there. Are there any other cuts that you might be contemplating like Atlanta?

Well, as you're driving the profitability, you've got to make tough decisions. And we're constantly optimizing our network. So it's a very tough decision. We have employees there. We have employees there, we have customers there, and we have cut the market back by about 40% starting next April. And we recently closed cities. We pulled back in the next April about 20% Interisland Hawaii and have restructured that. But on the other side, we've added new things like new red eye flying. We're growing Nashville. So you're constantly optimizing the

network. But no, we always hate to pull back from a community. But you've got to do what's right. You've got to be profitable. And we're making those kinds of decisions to drive profits for the future. And we will take care of our employees. Bob, part of your decisions in the future will involve how many MAX aircraft you need. You're not going to need as many as you originally agreed to. Will you get the number that you need, though, given the issues there? The MAX 7 hasn't been certified. Nobody's quite sure when it's going to be certified. There are serious production problems that are there.

I know that you know Kelly Orford. Do you have questions about whether you're going to get the planes, even the reduced number, as you plan them over the next several years? Well, luckily, we've got great planners with a lot of airline experience, and we plan for a strike. So we plan for 20 aircraft this year. We have 19 right now. So we're good till about spring break. So as long as the strike doesn't go for months and months and months, we're good. But we need our aircraft, and we need aircraft in 25 and 6 and 7. I have had a chance to talk to Kelly several times. He's got a huge job in front of him in all of their

businesses, but I have a lot of confidence. He's up for the job, and I'm confident we'll see improvements, but a good Boeing is good for all of us. Bob Jordan, CEO of Southwest, on a day where they show the new interiors with extra legroom. Guys, we'll send it back to you. All right. Thanks to Bob Jordan and to you, Phil LeBeau, for bringing that to us. Now, up next, a top airlines analyst reacts to that interview, making news. Plus, check out First Solar, a big winner in the S&P 500 today. Truist initiating coverage of the solar energy company with a buy rating, a $300 price target, implying roughly 20%

upside from here, citing a substantial contracted backlog and strong R&D investments. That was up more than 5.5%. And because you love overtime and you want even more of it, we've got a QR code for you. You can scan that. It's on your screen. Follow us on LinkedIn, where we'll post exclusive content. O Over time, we'll be right back. We've got some news on the Trump Media and Technology Group. Angelica Peebles back with that. Angelica? Yeah, John.

We are learning that Trump Media shareholder United Atlantic Ventures selling or getting rid of 7.5 million shares of the company. Now, these are two former Apprentice contestants who pitched Trump on the idea of a media venture like this a few years ago. And this is coming from a form 13G filed today with the SEC showing that they have 100 shares of the company left. Back to you, John. All right, Angelica, thank you. Well, Southwest just had its best day since June, and we just heard from CEO Bob Jordan about his priorities for the next three years as he and the company battle activist Elliott Management. There's really been no meaningful conversation with Elliott at all. We've asked to engage, we've offered to engage, we've offered to interview their slate of board members, and they've really said no at every turn.

And, in fact, this plan that you see has been ongoing for well over a year, and every piece of the plan is underway. You've got an aircraft that is fully equipped for assigned seating and extra legroom, so everything is under construction. So for Elliott to come out and say the plan is rushed and it's hasty, to me it's just inane because this plan has been being driven by our leadership team for well over a year now. Joining me now, city analyst Stephen Trent. Well, you got a neutral rating on this. Today's stock moves, takes it solidly above

your price target of $28.25. Are you unbalanced more convinced today that this plan can work? Yeah, great question. And thank you very much for having me on. So I think to some extent, this is a wait and see. I am impressed by the 3Q guide that they put out. It is showing that the industry itself has had some unit revenue inflection. Even as Southwest admitted, they had some demand spillover from those carriers that had some crowd strike problems. So I think the broader plan, I think, is wait and see. You know, I wouldn't be in a rush to make any big moves on today's stock price action. OK, so no big moves to buy it. But if you were in Elliott's shoes, would you be moving

to force a complete management overhaul? Yeah, so certainly that's something that Elliott can answer much better than I could, but I do buy the point that you have a team that knows the company and the industry very well. I think you've had some post-pandemic structural items that are very difficult if your name is not Delta or United or maybe one or two others. So to purely lay all of that problem on management's feet seems going a little bit too far. And I would imagine that some conversations could be helpful. So if you have this stock and you're holding it, I guess how long should you expect to wait before you decide to either get out or really get in? How long is it going to take management to be able to prove in a more consistent way that this plan is workable? Yeah, so there's a lot of stuff to digest here. And they did put out some three-year numbers looking at 2027 incremental EBIT of $4 billion,

which I would think looks a little bit ambitious. And when we look at the EBIT to free cash flow conversion, that looks a little bit worse than it did pre-pandemic. The margin should not be back to pre-pandemic EBIT margin. So I would imagine if we're not seeing some very good movement, some very good earnings quality after a year, you know, I'd be asking some serious questions. Okay. A year. I love the specificity. Steven Trent from Citi. Thank you. Well, Supermicro has had a super rough six months after being one of Wall Street's AI darlings. Up next, find out why the stock is getting crushed again today. And don't forget, you can catch us on the go by following the Closing Bell Overtime podcast on your favorite podcast app.

Be right back. Welcome back to Overtime. Supermicro, the worst performer in S&P 500 today by far, on a report the company is being investigated by the Justice Department. Seema Modi has more. John, Supermicro reportedly being probed by the DOJ on accounting violations. Those accounting concerns were first raised by short-seller Hindenburg Research in a report released in August alleging fraud and other red flags. One day later, Supermicro delayed the release of its 10K, setting shares down double digits.

And this isn't the first time the company has been accused of accounting mispractices. In 2017, the company settled with the SEC over associated claims but denied any wrongdoing. The company, which counts NVIDIA as a customer, specializes in AI servers, competing with Dell and HP Enterprises. Over the past year, the stock has surged as investors piled into AI beneficiaries, which sent its market cap from $4 billion back in 2023 to $67 billion in March of this year, now currently at around $25 billion and falling in wake of negative news and down 12% today, John. Yeah, it's interesting. It's still up more than 40% year to date, 60% over the last 12 months. This is one that gets traded a lot and a company that has had some questions about it before that it has overcome. I can't help but wonder, right, how this shakes out and maybe if other competitors like Dell are positioning themselves as it has these headline issues? Key question, as you point out, do all these concerns around accounting force the company to take its eye off the ball in AI servers, which is becoming an incredibly competitive

market? Yes, you mentioned Dell. There's HPE, which is pouring a lot of money into its AI server business. And then AMD with that acquisition of ZT Systems for $4.9 billion. You interviewed Lisa Su back then about how they really want to own more of the end-to-end AI infrastructure. So we'll be waiting for an update from Supermicro. Interesting that AMD is being so careful not to compete directly with the likes of Supermicro with that acquisition. More about design than manufacturing and delivering those systems.

Supermicro's reputation on product, though, does remain strong. It seems like there continues to be outsized demand for these AI systems. Yes. Yes. And there was a recent note from Loop Capital. The analyst there says that Supermicro is the vendor of choice for NVIDIA's Blackwell. So talk about reputation. The biggest player in the game, they still go to Supermicro, among the others. All right. Well, that's driving a lot of the market on a day when the market was high. A record for the S&P.

That's going to do it for overtime. Fast Money starts now.