10AM Hour: Pepsi CEO on Earnings, High-Rate Playbook for Banks, Skydance CEOs on Financial Outlook & Content Strategy 10/8/26

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1:00The reason why we went through everything that we did is because with the combination and the completion of this transaction, we are positioned to win in every single vertical that we operate in. By combining Paramount and Warner Brothers, we have the greatest content engine. With marquee intellectual property, you're uniting Lord of the Rings, Harry Potter, the DC Universe under the same house as Mission Impossible, Top Gun Maverick, G.I. Joe, Transformers. That was David Ellison speaking exclusively with our David Faber this morning about the mega media deal that reshaped Hollywood. We've got much more from that interview for you straight ahead.

1:36Good Thursday morning, everyone. Welcome to Squawk on the Street. I'm Sarah Eisen with Carl Quintanilla and David Faber. We are live, as always, from Post 9 of the New York Stock Exchange. Stocks are under some pressure here this morning, but well off the lows as a big spike for oil puts upward pressure on Treasury yields. Familiar story. We're going to talk about those moves in a moment. Plus, the CEO of PepsiCo is with us after just reporting results this morning. We'll get his read on consumer spending and much more. And those chip stocks are under some pressure as well. But we'll speak with one analyst who just raised his target on Micron all the way to$3 ,000 a share, even after a 250 percent rally this year.

2:11But I think, guys, we have to start on oil prices because that's the center of the action, this spike that we're seeing across the energy complex on renewed tensions in Iran and that part of the world, this question of will he or won't he in terms of President Trump renewing a strike on Iran before the midterms, after the midterms, the fact that the Houthis are firing missiles over in Saudi Arabia at the airport, the fact that the tanker traffic has slowed in the Strait of Hormuz because of reports of attacks from Iran on tankers. All of this is why you're seeing prices rise yet again. And today it's a 4 percent increase.

2:50Brent crude, the international benchmark, hitting 105. And that's a problem. Just take a look at what kind of gains we've seen for energy prices since the start of the war. It's been substantial double digit gains since the war began in things like not just WTI crude up 40 percent, jet fuel. We know that goes into you know, the airline costs and why we're paying higher airfares. Diesel has been obviously a huge story, which impacts the industrial chain and also consumer, you know, goes into consumer goods as well. Farmers, too. Farmers. You know, operating a combine for a day gets a lot more expensive when you're looking to cut down your crop.

3:30Absolutely. So this is, you know, problematic. But, you know, I'm always checking for how the consumer's doing and trying to get some sort of early reads on what's happening with the consumer. Bank of America did update their credit card spending data, and they continue to see strength. It moderated a little bit, but still, total card spending was up 3 % for households in the week ending October 3rd. So that was pretty good. I thought Costco was also a strong signal. U.S. comps accelerating to 8%. Yes, they had a little bit of a nice bump from the shift in the Labor Day holiday, but still strong.

4:05And then the Levi's CEO, as you guys were talking about, to Jim, our consumer continues to prove resilient. They just missed out on the low, low rise jeans, which are apparently back in a big way. Is that what happened? That's what happened. We were trying to work through that with Jim, but it wasn't clear to me. Low, low. Low, low. Low, low. Like not just low rise, but low, low. And I guess they were a little late on that. But the consumer continues to be good. And that's the story. Now, psychologically, difficult paying high gas prices. And ultimately, will that translate into even higher inflation because of what's happening into diesel?

4:39That's part of the question going forward. But so far, consumer story's been OK. Yeah, it's going to be really interesting to get some commentary out of the banks. I mean, we're watching shares of Capital One today, pretty substantial drawdown, usually seen as a proxy for maybe early signs of consumer stress. All that's going to be really important in the next few weeks. I know, because the word from the banks in the last quarter was that deposits look good, consumers are in good shape, lending is pretty strong, despite some of the headlines. I remember I sat down with the CEO of Visa. It's only a few weeks ago, a month ago, very strong.

5:15It was bullish, right? Yeah, very bullish, very bullish. Well, Fargo was bullish. I mean, this was all in the last few weeks, so it'll be good to get an update. Yeah, it's not clear consumer spend is what's behind the decline in the bank stocks, as much as it might be any number of other things. Yeah, I mean, but generally, I guess, tied to concerns about the economy, higher yield stampening activity. Maybe. Maybe. Yeah, maybe. I mean, although we're seeing a bond market that is extraordinarily active. I know. Capital markets are strong. I mean, Skydance, what they issued last week, obviously, we talked a lot about that, what SpaceX is going to be issuing in terms of$40 billion.

5:47And on and on from there, the CapEx spending not coming anywhere. The demand just continues for capital from all sources. Yes, I know. And that should be theoretically a good story from the banks. Let's get another read on the consumer right now. Pepsi, it is getting a boost after reporting a top and bottom line beat in quarter three. The company, however, telling its investors North American business continues to underperform. And also Pepsi lowered its full year profit outlook. Joining us in a CNBC exclusive now is PepsiCo CEO Ramon LaGuardia. It's great to have you back, Ramon. Thank you for joining us.

6:20Hello, Sarah. Thanks for having me. So the big story here appears to be strength and international. right? That's helping you achieve the targets both on revenues and on profits. What's driving that? Yeah, we're happy. The company's posted its highest growth rate in almost two and a half years. So we crossed the 3%. It was one of our objectives. International growing very fast. We're competing very well across most of the markets. This has been a story for us for a few years now. We continue to believe in that being our main growth driver. But we're clearly dissatisfied with the performance in North America, and that's our number of priority to accelerate the growth in the U.S.

7:04I think we can do it, and that's going to accelerate the company even faster in the coming years. What is the problem, Ramon, in North America? There is clearly an external situation with the consumer. You were referring to it. I was listening to the program a while ago. So there's clearly inflation and there are some parts of the consumer base that are making choices. I think there is also an opportunity for us to compete better in some categories, especially if you think about in the beverage business, the soft drink business needs more investment in the brands, needs probably better execution.

7:41We're doing very well in some other parts of the portfolio. If you think about hydration, if you think about modern soda, If you think about, you know, our improvement in the salty snack business in the U.S. So, you know, the U.S. remains our top priority. And we're putting the resources to do that in the coming quarters. In Frito, North America, Frito-Lay snacks, is it a GLP-1 story? I think there is a there is an affordability story, Sarah. And the investments we made in price have helped us to go from a negative low single digit volume to positive low single digit volume growth. So that's a big pivot in that business.

8:26There is a portfolio transformation story as well required to adapt to the new food trends in the country. I think we've talked about in the past portion control, permissible solutions, functional protein, fiber. Those are all spaces where there is growth in the category. So it's not that consumers are not snacking. They're snacking differently. And we need to evolve with a sense of urgency our portfolio. I think we're moving well. Now, the next wave of growth is investing behind those platforms and scaling those platforms. And that's where we're looking at productivity. We're looking at cost reduction to reinvest back in those investment areas that will produce very high ROI for us and accelerated growth.

9:14Yeah. I mean, what do the cost cuts look like? Because I know that was part of your deal last year that you were going to accelerate the cost cuts in North America. But some some investors are saying that that's been slow to come. Well, listen, I think I think we've been very if you look at our productivity has really increased versus the past. Now, inflation is also a factor. So I think we're looking at, you know, the structural things we've been doing, automation, network rationalization, digitalization of the company, standardization. So all that is, you know, continued. We're adding some new elements.

9:50Clearly, we have to look at every overhead and we need to look at every corporate and allocated investments where we are, you know, investments are not related to growth probably need to be deprioritized. So clearly, the current situation with inflation, as you mentioned earlier, requires a much more aggressive look at cost and make sure that every cost is returning to us. And that is the journey. I don't think we're slow. I think we're very, very focused. The teams are making the right choices for the long term. You know, on beverages, you mentioned some of the weakness there. And even with the environment as it is, inflationary, affordability challenges, you mentioned Coca-Cola, your chief rival, has done really well and taken share.

10:37So how do you fix the beverage business? Good. I think we're competing very well internationally in beverages. So that clearly, we grew 3 % our volume. It is a good business. We're competing well. In the U.S., we're not happy with our performance, especially in soft drink. Soft drinks is where we need to focus. We need to work both on investment behind the brands and execution. Investment behind the brands, as I said, we're going after costs to invest back in our Pepsi, Mountain Dew, Poppy, all the brands that we can play in that space. Execution, we're raising the execution standards, but also we're looking at any option out there to improve our execution, partnering with our butlers in a different way.

11:25So we're open to all that. Now, there's a lot of things that are working well in beverages as well. So hydration, which is a huge space, has tailwinds. We've managed to accelerate that category where we have Gatorade and Propel. Clearly, that's an opportunity. Modern soda, as I was saying, that's the new soft drink. We have Poppy, which is the largest brand in that space. We're going to double down. And also, our partnership with Celsius is doing very well. We have 20 percent share now of that space. Most of it flows through us and it gives us a way to compete in a fast growth category. So SoftRings is the place.

12:03SoftRings is where we're putting the focus. SoftRings is investment and execution. And we're working on that with a real sense of urgency and awareness that that is not acceptable. I mean, you've mentioned the word urgency, and I think you communicated that to investors as well on the North America results, on the beverage business. You just mentioned it. I mean, given that, are you open to some of the bigger changes that have been proposed for Pepsi in recent months? I mean, big things like asset sales or, you know, splitting the business, refranchising. I think we're looking at we're open to options that improve our execution in the beverage business, particularly in the U.S.

12:46And so we're looking at every option, Sarah. I think it's investment in the brands, but also there is an opportunity to execute better, and we're open to any option in that space. Would you ever split the business, snacks and beverages? No, that's not what we're thinking about. No, not open to that one. I mean, have you engaged with Elliott since you made the deal at the end of last year to cut costs, cut prices, cut products? We engage with every investor, Sarah. We have regular conversations with most of our investors. They are a key stakeholder for ideas, so they understand our business and they help us.

13:21And they clearly set the expectations for our performance because they own our business. Elliot is one more of those investors. We talk to many more investors on a regular basis. And finally, Ramon, just given the guidance cut for 2026 on earnings, I think one question people have is what does 27 look like? Is it a reset year? And how are you thinking about the balance between investments and productivity gains to get things back on track? Yeah, it's early to talk about 27, obviously. But, you know, our priority number one is continue the acceleration of the business. We were one. We went to two.

14:00Now we're at three level. Continue to accelerate to get to our long term algorithm. That is by far the number one priority. As I said, we're looking at productivity very aggressively to invest in the brands to drive that acceleration. Mostly the innovation platforms that will change the portfolio for the future. So taking costs out, investing in scaling those platforms that will make the portfolio more attractive to the growth spaces where consumers are going. That is the focus. So that's where we are. And when it comes February, we'll be able to give more guidance. We'll have more information as well about the cost.

14:36As you were saying earlier, oil price, we're the largest fleet in the U.S., one of the largest private fleets. So we clearly all these input costs from agriculture is going up. So we'll have more visibility to the cost structure and we'll be able to make more guidance. Do you think you're going to have to raise prices at this point, given what's happened with oil and diesel? And you mentioned agriculture and everything else on inflation. Our priority number one will be obviously productivity, productivity to cover the commodity inflation and some of the other. But we're going to have to use net revenue management tactics to improve, to absorb some of the inflation.

15:20We're going to be very careful. Obviously, as I said, consumers are looking for value, and we need to make sure that we provide that value in every occasion in a very granular way to every consumer. So we'll use a multitude of tactics to absorb inflation and make sure we still gain share, a very competitive and consumers stay with our brands. Has the consumer gotten worse in terms of just the macro, the health of the consumer, given all the headwinds right now? Listen, we see the consumer resilient. We see, as you were saying, at overall level, the consumer is very resilient. Now, every consumer is different.

15:57They're clearly becoming very nuanced in where they invest their money, where they think that it's worth this spend. So for companies like ours, understanding consumers very granularly, dissecting every consumer and being able to provide on a very almost personalized way what they want is critical. You saw our publicist deal that we announced a few weeks ago. It is a capability in that space. It gives us a new way of doing marketing, being much more granular, being able to understand consumers better and personalize. So it is a journey of an overall resilient consumer. But clearly, every family, every person is different.

16:41And how do you provide value to that consumer to stay relevant to them is going to be critical for companies like us, large companies in the consumer space. All right. Well, we'll continue to follow the journey and the story, Ramon. And we really appreciate you taking the time to speak to our audience. Thank you, Sarah. Nice to talk to you. Thank you very much. You too. Ramon Lagarta, CEO of PepsiCo. Here's our roadmap for the rest of the hour. When we come back, the high rates playbook. We'll talk to KBW CEO Tommy Scho about how multi-decade yield highs are impacting the banks and the market at large.

17:13Plus, we'll give you some highlights from the exclusive Skydance interview I did this morning with David Ellison and Inan Crys. And as three more former open AI researchers warn about AI safety, we'll talk to the author of the book, If Anyone Builds It, Everyone Dies, about the growing chorus of doomsday rhetoric as the Dow here goes green by four points. Stay with us.

17:43We'll be right back.

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18:40Schwab's thinkorswim trading platforms were built for real traders like you. They have an insane amount of chart studies. I'm talking over 300 studies for virtually any strategy. They also have integrated risk management technology and nearly unlimited customization so you can shape the platform to fit the way you trade. And when you do that, you can analyze trades from angles you won't find anywhere else. Go see what that looks like at schwab.com slash trading.

19:11Didn't want to alert our viewers to a story the FT ran a little while ago, lead of which is Starbucks has explored a takeover of Chipotle. Let's see, who are they citing in terms of sources? They say the status of the plans and whether the company submitted a formal offer couldn't be determined. It is having an impact on both stocks. I actually had heard about this a few days ago, but not from anybody who would be in a position to actually know whether there was truth to it. I did immediately hit Claude, Sarah. That was printed. I did that three days ago. You know, just wanted to take a look. Yeah, I wanted a little financial analysis on it.

19:51And, you know, there are some parts of it that could make some sense. Obviously, Brian Nicola, who runs Starbucks, was the former CEO of Chipotle. But they're in the middle of a major turnaround still at Starbucks. Yes, it is going fairly well, but it's not done. And the idea of integrating an acquisition of this size, let's throw a premium on it, 50 plus billion dollars. You know, you have to wonder. Operating margin at Chipotle, by the way, fell from 18.2 percent to 15.7 percent. And they had income also dropping as well there. And you'd be paying a fairly high multiple. So I just point all that out, not because I know whether or where this stands, but it is interesting, the FT obviously going with the story.

20:39It was making the rounds, so to speak, a few days ago, guys, at least enough why I wanted to take a look at whether it would make sense. And in some ways you could make an argument for it. And others, Carl, you would certainly question why now do you want to get in the way of what seems to be a turnaround that's working? Yeah, although some might argue same as in the area of consumer products, prices have come in and the red backdrop is fairly benign. Yeah. I mean, the why now is that Chipotle shares have been under pressure. They're down 20 percent, and that's kind of unusual over the years for Chipotle.

21:10It absolutely is. And, you know, there could be some revenue synergies, or I should say some cost synergies. Revenue synergies, I don't think, you know, very much unclear. I don't know. Starbucks trying to figure out what's on its menu and food. I know. No, and then, I mean, Starbucks does have a great drive-through. Chipotle's just starting that, really, is my understanding. But again, I got nothing to share in terms of actually people who may be close to the situation who are telling me whether this is true or not. We'll update you if we get anything. I mean, we've seen, what, Burger King take Tim Hortons.

21:41There's a fast food coffee. Well, there is, and you got, right, the Dunkin' Donuts, Inspire Brands. They have a lot of different brands as well. And obviously, Brian Nichol knows his way around Chipotle. We know that. So there is something to it. We'll see. But they're getting a market check on Starbucks now. If it hangs in there like that, they might get encouraged. Who knows? Meantime, let's turn to Treasuries this morning. The 10 and the 30s, both hovering near their highest levels since 2002, although backing off a bit this morning, complicating the picture for rates into year-end, with earnings getting underway next week from some of the biggest names in finance.

22:12Our next guest says expect the banks to stay under pressure until the rate outlook settles down. Joining us here at Post 9 this morning is KBW CEO Tom Schultz. Tom, it's good to have you back. Good morning. Great to be with you. So we do have to watch the curve, essentially, or something else? Interest rates, interest rate changes is the issue for the banks right now and for financials. And if you want to quantify that, in the second quarter earnings transcripts, we used AI to measure how often net interest margin was mentioned. Compared to the prior three-year average, 60 % increase. We then tested a regression analysis, and the changes in net interest margin forecast was the most correlated with bank stock performance.

22:55That's what the market wants to focus on right now. So in the near term, until this settles down, it's what the stocks are reacting to, but it's also not what the underlying fundamentals are doing, in our opinion, for the drivers in the stocks. The stocks have given back 1 ,000 basis points of relative performance since July 15th, since earnings happened. So the market's been nervous about interest rates, and they've taken it out of bank stock valuation. I personally think the concerns are a little bit overwarranted, are not warranted, and they're overdone. But that's been the price action in the stocks right now.

23:31We did have a spate of delayed IPOs and then some conference commentary about Q3 trading not being Q2 trading. Are those secondary concerns? So here's the way to think about it. So the second quarter was record profits for investment banking. Almost no way it's sustainable, but it is going to be up 10 % year over year. And as someone who's an operator of an investment bank, I can tell you business is still good. The industry still feels like business is good. It can't be a record every quarter. So I think those results, the backlog from private equity, it'll be a good year over year quarter. It won't match second quarter results.

24:08Everything will be fine. But I think what's really we're hearing a lot on our trading desk is the concern about bond marks and interest rates. That is back. That's what spooked everybody in 2023. I want to leave some statistics with you. In 2023, the industry's bond market marks were 19 percent of tangible capital. In the last quarter, the industry's negative bond marks was five percent. Considerably better. This is not the systemic issue it was in 2022. Are you referring to regionals in particular there? Well, no, actually. Bank of America, wasn't that one of the biggest ones? It is actually Citigroup.

24:43We put out a report last night. I'd encourage folks to look at it. 23 percent of the tangible capital at Citigroup was in bond marks last quarter. So so what's going to happen is that may slow the pace of some buyback activity at some banks. And here's the other thing. The biggest banks have already optimized their capital. So they're going to be a little bit more just in time with slowing buybacks. If the bond marks are heavy, not that buybacks are going to go away. The regional banks have a lot more excess capital right now, they won't have to slow down. But this is not 23. So even if the marks are what they are, we're not overly concerned about some systemic issue.

25:20Let me tell you what it is. Tangible book value won't grow that much this quarter. And then next quarter it will. We just came out with our 2028 estimates last night. So we have modeled 200 banks through 2028. We think that tangible common equity by the end of 2028 is going to be 10%. It was 6.5 % going into the global financial crisis. Banks have really built their balance sheets well. There's a lot more buyback and growth yet to come, but we are going to have to readjust estimates. And the other thing I'll say, I've said this before with you all, the surprise when credit costs go up, isn't that it goes up.

25:56It's that it was zero for so long. We expect that to go up. We're going to have, we're absolutely going to have one offs of credit problems. The question is, is it systemic? And what's going to happen? So that regression analysis I talked about with the margin, the long term determinant for bank stock valuation is return on tangible capital. That is the best correlated fit that we've seen. That is improving for the industry. This industry is earning high teens on capital. If that is still the fundamental story, these stocks are historically very cheap right now. And as the market's spooked by these things, wondering if they'll be systemic, which we don't think they will, then the stocks are a buy.

26:39So they're being priced for worries about a big accident of some kind, which we do see sometimes when we see a rapid rise in rates. I hate to come on this show and say this word, but Silicon Valley bank shares is still on people's mind. They're like, wow, bond portfolio, bond marks, it hurt confidence. We're nowhere near that. All the big banks have, they're fine. It's made for, and it'll be for some individual banks. Some individual banks may have to slow their buyback. Our analysts are saying, stay away from them. Buy the ones that won't be affected by it. So it's not an industry event. But my own opinion is lots of moving pieces will probably get a credit hiccup or two somewhere.

27:17It will spook folks. Typically, bank stock investors sell first and ask questions later. And that's the buying opportunity if you are still a medium or long term. Any reason to think? I mean, they've been talking about good credit quality, good card spending, good deposit growth for the consumer. Any reason to think that that's that? My own opinion is that is exactly the case. Our payments analysts have been all through that. All that is good. But I have to tell you, we're watching the savings rate slip. You can't keep doing this. I mean, I as I we talked, I hit my 40th anniversary a few weeks ago.

27:51I've seen the whole movie. OK. And the reality is, is this can't continue like this with rates continuing to go up 80 basis points every couple of months. It will affect it. There's a danger that if they're trying to slow the economy, they will actually slow the economy. That's usually the that's usually the point. That's the point. If you're trying to slow the economy, you may slow it. So the so the point is, be careful. Be careful. That's good, Tom. We'll watch certainly provisions and reserves and all the rest in the coming weeks. Good to see you. Great to see you, too. Thank you. Oh, it's me.

28:25Up next, oil is rising. This amidst renewed concerns about U.S. strikes and Iran resuming, possibly even before the midterm elections. We're going to go to Washington, D.C. We're going to get the latest on that. And don't miss, we'll have some highlights. We had an exclusive interview, of course, with those two gentlemen right there. They're running Skydance, which is a giant media company, as its leader David Ellison made clear. We'll also talk about the financial picture, of course, for the company that has taken on an enormous amount of debt in order to finance its acquisition of Warner Brothers Discovery.

28:58Don't go anywhere.

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29:43You give it a project, close your laptop, and when you come back, the job's finished. No matter your industry or role, your agent has the skills to help every team stay in their flow. Seriously, make work less work with Gemini on Google Cloud. Check response, subscription required. Introducing Fidelity Trader Plus, the next generation of advanced trading from Fidelity. Customize your tools and charts and access them seamlessly across desktop, web, and mobile. For faster trades anywhere you go. Try the all-new Fidelity Trader Plus. Learn more about our most powerful trading platform yet at fidelity.com slash trader plus.

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30:31Welcome back. The president saying the U.S. could resume large-scale strikes against Iran before the midterms. Oil jumping on that news. Let's get to Eamon Javers in Washington with the latest. Amen. What do you hear? Thank you, Sarah. President Trump struck a skeptical note on negotiations with Iran last night, suggesting to rally goers that he didn't like the deal that's taking shape among negotiators behind the scenes. Here's what he said. Also with us is a great negotiator. He's done some phenomenal things. He got back all of the hostages in Israel. He has made a deal with Hamas. I mean, all of a sudden everything's quiet.

31:07it. He's working on the Iran deal and doing very well. I think the deal isn't really something that I want to do, but they're willing to offer us anything to stop. And we definitely, they will never have a nuclear weapon. So you heard the president there saying that the deal isn't something that he wants to do. And the president didn't give specifics about what it is in the deal that he doesn't like exactly. But to my ear, at least, it sounds as if any deal with the Iranians would come with concessions that the president simply isn't comfortable with or isn't comfortable with yet. And that raises the prospect of further military action.

31:41Over the past 24 hours, we have seen several media reports citing administration sources suggesting that the president is considering relaunching strikes against Iran and possibly doing that before the midterm elections in early November. And of course, the past 24 hours, we've seen an uptick of hostilities in the region. The Saudi Aviation Authority said yesterday that two Saudi airports were targeted in separate attacks, resulting in three fatalities and 36 injuries on the ground. And casualties were reported by British authorities in an attack by multiple projectiles on a tanker traveling in the Persian Gulf north of Madiant Ash-Shamal.

32:19Now, we'll see the president later today in a science summit with tech executives here in Washington, and we'll see if he gives us any more insight into his thinking here, guys. But it appears to be a real conundrum here ahead of the elections. Eamon, thanks. Eamon Javries this morning. Let's get a CNBC News update with Seema Modi. Morning, Seema. Carl, here's what we're watching. One of the Cornell students accused of sexually assaulting a woman at his fraternity in 2024 is trying to get New York Attorney General Letitia James removed as special prosecutor. He filed a petition saying she has already formed an opinion on the case because of a post on social media where she expressed support for Jane Doe.

32:54Governor Kathy Hochul appointed James last week to determine if criminal charges against the seven men are warranted. A British judge said today the search warrants used to seize property from the former Prince Andrew's house were illegal, police arresting him earlier this year in an investigation into his ties to the late convicted sex offender Jeffrey Epstein. Today's ruling could prevent authorities from using any evidence taken during the searches. And Spotify says it has signed a new multi-year deal licensing agreement with podcaster Joe Rogan for the Joe Rogan Experience. And the Wall Street Journal reports that renewal has similar terms to Rogan's previous deal, which carried an estimated earn-out guise of$250 million.

33:33Sort of similar to what we make in TV, but, you know, good there. Yeah. Yeah. Wow. I don't know, Rogan, man. Under-earning there. Thank you, Zima. Up next, the highlights from my exclusive Skydance interview this morning. David Ellison, Neon Krais. Then three more former open AI researchers are now warning about AI safety, about alignment or lack thereof for the models. We're going to talk to the author of the book, If Anyone Builds It, Everyone Dies, about the growing doomsday rhetoric. We're back in two.

34:07Welcome back. Before the opening bell this morning, or actually before our show began at 9 o 'clock, I was able to sit down with Skydance chairman and CEO David Ellison. It's co-CEO, you know, in cries. It's their first interview the two have done since, of course, the close of the Warner Brothers Discovery acquisition by Paramount, the renamed company Skydance. It does start its life with seventy nine billion dollars in net debt. It's over six and a half times levered, but it has very aggressive targets for reducing that leverage and increasing its free cash flow. And I asked David Ellison how they plan to invest in content and deliver on all the six billion plus in cost synergies they're looking at.

34:48And, of course, most importantly for investors, hit those deleveraging targets. Let's talk about the debt and the path to delevering. There's there's multiple avenues to delever. One is to grow the business. We're going to be investing more in content than any of our peers. we're projecting, you know, mid-single digits, basically, you know, top-line revenue growth on a company that's already producing close to$70 billion of revenue. We have$6 billion of synergies in the deal. And let's just look at what we did at Paramount. We were sitting here, actually, day one on your show at Paramount. We announced$2 billion of synergies.

35:20We are going to overperform that by 50%. We're going to complete$2.7 billion by the end of this year. And so when you look at, and then we're also going to be going from$4 billion in cash flow next year when you remove transaction costs to$10 billion by 2030. So we are absolutely in a position to where we can grow the business and delever simultaneously and create a tremendous amount of value for all stakeholders. You do. I mean, but you've got to invest as well. You mentioned the$4 billion in cash. You've got, I think,$6 billion in interest costs going out a year. You've also got$800 million for a dividend.

35:49By the way, why have a dividend? Why bother, given the constraints you're under? It's good for shareholders. And again, when you look at the free cash flow conversion of this company, we can absolutely delever the business to three times in three years. and invest more in content than any of our peers to be able to grow and scale this company. Absolutely. Again, I come back to it. What gives you that confidence when you say absolutely? Why? What are you seeing that, you know, many people are even rooting for you say, well, it's going to be a hard road. Let's look at the overall platform that we're operating right now.

36:1912 percent of all television watch time. That is second only to YouTube. So we have the scale. We have the intellectual property. We have the plan and we have the people to be able to execute. And very thankfully, I'm sitting here with an incredible partner. And I believe the two of us are completely capable of the task at hand. Why did you hire Inan? So I've known Inan for seven years. I think he is an incredible operator. He's a visionary leader. There is candidly nobody in the world I would rather do this with. And I believe that as a team, we are incredibly strong. But actually, Inan, I'll let you answer that as well.

36:50You know what? Inan, I'd love to come to you in terms of just the synergy opportunity is key here. It does appear that is going to be one of your focuses day one. I guess I'll ask the question, what is your focus day one when you look at having to deliver on those cost synergies that are so important to making this deal work? Well, let me start by saying that I could not be more excited to be sitting here and partner with an entrepreneur like David and everything that he's accomplished today is nothing but inspiration. We have a unique opportunity to build the next generation media and entertainment global company that is powered by creativity and technology.

37:26We have the assets that David mentioned. We have the capability. We have the people. And all of this is happening at the point in time when the industry is at an inflection point where it's getting harder and harder to reach the consumer and aggregate fans. We have what it takes. We have what it takes. And while everybody's focused on synergy and debt, don't forget, this is a growth story. And the key to that growth story is going to be the growth of the direct-to-consumer platform. Remember, they'll be bringing together Paramount Plus and HBO Max. There's a real international opportunity. You're talking about a unit that already does about$2 billion, but they've got to get that growth rate moving even higher.

38:10And if they can do so, they're going to get a higher multiple on that growth part of the business. That's going to be the key to making this work. And I did ask David Ellison how he views that and how quickly it all can happen. He took us on a bit of a history lesson as well. Can we step back, actually? Let's look back at how we got here 10 years ago. Tech came into media and fundamentally disrupted the business. Yes. Companies didn't pivot fast enough. We can talk a lot about the owner-operator entrepreneurial culture of Silicon Valley versus the more steward culture of Hollywood that candidly put the businesses in this position.

38:47this transaction is the solution to those mistakes 10 years ago. Big tech took platform technology, pushed into media. What we're doing, but by the way, people are still there for the content. They're there for the stories. They're there for the news that they love, the sports that they love, the stories they love. We have assembled an unmatched portfolio of intellectual property, sports, and news assets. And then we are building the product and tech organization that can compete with anybody coming out of Silicon Valley. That is going to enable us to push back. And when you look at the late delay to pivot, this accelerates streaming growth by years as a standalone company.

39:26And you get to that inflection point very, very quickly to where the growth businesses of studios and streamings outpaced linear declines. I get it. And let's focus on that, because that is the key. If you're going to succeed, it's got to be the DTC portfolio. It's got to be the international platform as well. Absolutely. And if you look at that, we have incredible room to run here in the States domestically. These services are still nascent internationally. So we have a tremendous amount of room to grow in the international business. Our fast business is growing rapidly, both in terms of engagement and market share.

39:58And then in addition to that, we are investing more in content than any of our peers. Like just talk about the scale of it. 30 movies a year, over 180 series. CNN news assets, CBS news assets, unmatched sports portfolio, plus the product and tech layer, we are positioned to compete with anybody and to win by putting these companies together. And guys, that's going to be the key in terms of how quickly they can do that, how quickly they can unify those brands and get subscriber growth and profitable subscriber growth. International is definitely an opportunity for them, but it's going to be executing.

40:34Ellison does talk about the technology challenges as fairly easy to grapple with. Others perhaps say, and especially I've talked to people who've actually tried to do it at other key companies that we follow, and it's not that easy. No, but I do think this is an interesting experiment because for winning in tech for a media company, which we really haven't seen other than Netflix, right? I mean, because a lot of these media companies have IT, like old school IT departments, building their streaming capabilities. and what he has, and he mentioned this a few times, is the head of product is someone from Meta, right, from Facebook, where they can really actually compete on tech.

41:11So I think that'll be interesting and part of the unlock, right? No, listen, I think the key sentence is this transaction is the solution to those mistakes, the ones that he clearly said were made by Hollywood 10 years ago and giving away a lot of their business, Carl, to the likes, of course, Netflix and YouTube, although it's a different form factor in some way in terms of the way people watch YouTube, certainly. You've still got to get the artists to use it. Yeah. And to do that, you need Hollywood to trust Silicon Valley, for lack of a better word. And that cultural exchange is going to be, I think, the most interesting to watch.

41:44It will be. You know, we didn't get into AI that deeply. He did bring up, though, the opportunity it presents to essentially cut costs of production, for example, and empower the artists to potentially make what they want, but do so at a lower price point, which is going to be key. You're making 30 movies. That's not cheap. I know. And I remember your interview with him in Studio M maybe earlier in the year or last where he talked about rewriting scripts through AI six, seven, eight times. And I got to wonder what writer, director is going to want to play with that. Right. Right. You know, there are so many different challenges.

42:18Not to mention, of course, the one that we discussed a lot, which is the continued decline of the overall cable ecosystem. And so how quickly does that decline? How much can you deliver on the synergies and how quickly to shore up on that side and get the growth that they're talking about? So he said cable is still a high margin business. It is a high margin business. It is. He said he was bullish on it. I thought also your question on CNN, you know, clarifying they're going to be separate. Right. CNN. Well, they're going to be separate in terms of editorially. But I think it's clear that they are going to have to do something with the news operations.

42:49There's too much of a cost opportunity there. Yes. A lot of they use the word synergies a lot, but they also use the word growth. They did. A lot. It's a good interview. Yeah, really good. Wow, Sarah. Thank you. I always like your interview. It's really wow. I live for that. Now I can go home just feeling good all day. Oh, great. Thank you. I gave you the seal of approval. That's all you care about. I got a good one. All right. When we come back. Don't get too excited. Alphabet having a stealth rally here. Five days up in a row. We'll talk about what's driving that move. And CNBC just revealing its eighth annual list of top financial advisors.

43:23Howland Capital Management takes the top spot. President and CIO Peter Dixon will join the half today at noon Eastern. We're back in a minute.

43:36Welcome back here. Three big movers we're watching. First up, chipmaker Wolfspeed getting a big boost at the open, but now losing much of those gains. After securing a$1.5 billion loan commitment from the DOD to expand domestic production of silicon carbide materials and power devices, which it makes, The government could also receive warrants representing up to 7.5 percent of Wolfspeed's equity. Speaking of chips, Taiwan Semi Q3 revenue surging to a new record high of nearly 47 billion dollars, up 50 percent from a year ago. Its September sales growing even faster, about 55 percent. Despite the astronomical growth, the news not enough to lift the stock or the sector this morning as geopolitical tensions weigh on the market.

44:17It's been a huge winner already. And then Levi Strauss is down after revenue missed estimates. The performance of direct-to-consumer business weakened in the U.S. and Europe. But Levi did say that the trends were improving in September. EPS was above consensus, boosted by tariff refunds. That's been a big theme. Pepsi had it, too. The company also raising its profit outlook. And importantly, as I told you, David, they're on the low, low-rise trend now. Not just low. It's double low. Low, low. All the way down. All the way. Not all the way. You know. It used to be high-waist. Now we're low. Got it.

44:54They tell us we have to go. I can only imagine why. All right. Up next, big options activity and shares of Alphabet. This is it launches new AI-enabled tablets. We're going to look at how traders are thinking about Google's latest physical AI push. That'll be right into this.

45:11Welcome back. Alphabet's on pace for five days up. It's first since January. Let's get to Oliver Rennick at SIBO in Chicago, get a look at what options are saying. Hey, Oliver. Good morning, Carl. With some rough and tumble in stocks and bonds the past 48 hours, traders are leaning into a few big tech staples, namely Google, Apple and Microsoft, which were all higher at the open this morning. Alphabet in particular is seeing some elevated options flows that exude confidence in the stock ahead of earnings at the end of this month. More than 120 ,000 calls traded in the first hour versus 30 ,000 puts.

45:48And the ratio of calls to puts bought was six to one at one point. That's some seriously one-sided flow that matches what we've seen in Google options for about a week. On top of that, the four biggest single trades in the stock were also bullish, including a lot of call buying at the 355 strike expiring tomorrow, and also the 360 strike call, which needs a two and a half percent rally before the weekend. There was Similar action in Microsoft and Apple, both of which had twice as many call buyers as put buyers this morning. Most of it was buying of safe and solid in-the-money calls, but we did see a handful of Apple 345 strikes go off for tomorrow's expiry, which would require a new all-time record to work.

46:36Guys, back to you. That's a good look at some big names, Oliver. Thank you, Oliver Rennick. Still to come next hour, can Micron surge to$3 ,000 a share? We'll talk to one analyst who is suggesting that when Squawk on the Street continues after this.

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