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A (3:48)

Are off to the races with earnings season and we thought to dig into a couple of the big ones that caught our eye today in a day that was packed full of new reports. Well, John, let's kick it off with one that people don't talk much about typically, and that's Caterpillar, Right?

B (4:03)

And I think when people talk about Caterpillar, at least me, I imagine those big yellow construction instruments, the bulldozers, and that's an important part of their business. But there's a lot more to it and we'll get into that market cap of $275 billion. Shares were up 14%. They popped up today on earnings and they've been up 65% year to date. Adjusted earnings 495 beat estimates by 43 cents and revenue rose 10% year over year to 17.5 billion. Now, those are the numbers, but I wanted to talk to you about the different sectors that are part of Caterpillar. So you have on their website that they are the leading manufacturer of construction and mining equipment. That's sort of one area off highway. Diesel and natural gas engines. That's another industrial gas turbines and diesel electric locomotives.

A (4:50)

So all things energy is energy and mining is what I'm hearing from that description on their Website. Right.

B (4:55)

And. Exactly. So let's talk about mining.

A (4:57)

Yeah.

B (4:58)

Because mining, their sales rose 2% to 3 billion. And we've been talking about mining. Everyone's talking about mining with rare earths.

A (5:05)

Yes. Now look, rare earth is very specific. Right. So it has a specific sort of supply chain. But I think the broader point with this again is Caterpillar. Pointing to the strength of its energy and transportation division. The CEO Joe Creed said on the earnings call, quote, we expect strong growth in full year sales for power generation compared to last year. Demand remains robust, driven by data center growth related to cloud computing and, and generative AI. So let's just pause on that for a moment. This is the company that we associate with yellow bulldozers, literally saying we're part of the AI trade.

B (5:39)

That's right.

A (5:40)

Right. Part of the AI trade. A sign that there's a broadening out now of investor money that's been chasing ways to get behind the AI boom, saying we've got to go beyond the hyperscalers, we've got to go beyond the data center names. We're going to expand through the supply chain to energy and also to equipment related to energy generation, just like Caterpillar. So this to me was fascinating. A couple of things too, John, that caught my eye as I was going through this. Let's talk about tariffs for a moment because if there's one company you would think was going to get slammed by tariff impact, it would be Caterpillar Global sourcing global locations. Now, the earnings report did dig in to some of the impact of that. Costs were up. The earnings report did say that from tariffs offsetting benefits from higher volumes. Operating profit was down almost $100 million year over year. So we are seeing that tariffs are really having a tangible impact on Caterpillar. But again, it just goes to show the enthusiasm for AI that all of these other positive noises have drowned out the tariff dis benefit. One other thing just to talk about, sales of construction equipment rose 7% to just under $7 billion. Looks like commercial construction markets have been stabilizing, certainly doing better than residential construction markets. So this one's an interesting one to keep watch. It doesn't usually get a lot of airtime and when it starts to get it for AI, you know, things are changing in market sentiment. Let's talk about Boeing. Let's go on to a different kind of equipment. Absolutely.

B (7:07)

All right. Well, Boeing, their commercial airline business has lost money for six consecutive years from 2019 to 2024. And that span includes the worldwide grounding of the 737 Max following two deadly crashes, the pandemic, of course, and the emergency door bus plug blowout of the 737 Max 9 while in flight. So we remember those big headlines that were negative for.

A (7:29)

Yeah, so there was only sort of one way to go for Boeing for a while, which was up. It just had so much bad news coming out of it. And the last 18 months have seen multiple management shakeups as well. It's really trying to find its footing to get the right team in place to get the engine, pun intended, humming on this one. While the stock is up over 20% year to date today, though, the earnings, John, not quite such good News. Shares were down 4% as a result of some that were a little bit weaker than expected. And very specifically, There was a $4.9 billion charge associated with the 777X program. That charge being higher than analysts had been anticipated. Right.

B (8:09)

And I just want to talk put this in perspective a little bit. This 777X that launched the project in 2013, this is just how long it takes to bring these to market. Yeah, and the first flight was in 2020. But the certification process has been bogged down partially. The FAA has been really scrutinizing this plane because of the problems that I mentioned earlier. But the FAA has released and increased the number of planes that they are allowing Boeing to make of this up to 42amonth. And so there's still, there's this backlog of planes that, that Boeing is hoping to release, the 777.

A (8:48)

It just goes to show that one really big piece of bad news like that can outweigh a lot of progress that Boeing's actually made. Revenue is up overall 30% year over year. And then we should just zoom in a little bit into the company's defense business, which produced a positive operating profit, a massive turnaround from a $2.4 billion loss a year ago. Boeing also reported to be reaching a deal that could result in as many as 500 jet orders from Chinese airlines in the coming weeks, depending, of course, on the outcome of the of trade negotiations that are happening, with a big meeting beating actually taking place tomorrow. So Boeing is one that we're going to keep watching because it is an important indicator of what's going on in terms of air strength, air equipment strength, both on the commercial side and also on the industrial side, globally. Well, we're going to switch gears and talk about something a little lighter, or it should be a little lighter, and that's Etsy let's talk about what's going on there, because a month ago we had talked about how it caught our eye that Etsy was partnering with opening AI's Chat GPT for the first in what actually became a whole series of headlines with retailers both online and then also the likes of Walmart partnering with OpenAI for something called Instant Checkout, where you can go into Chat GPT, say, I'm looking to buy a frame, for example, and up would pop a product and a link so you could do one click and buy it. On that day, shares in Etsy rose 16% very quickly reversed, as the market said. Actually, maybe it's not so great for Etsy after all, because it means people won't leave Chat GPT to go to Etsy's website. So we've been sort of waiting to hear what the next leg of news was going to be for Etsy today. And it wasn't actually great today.

B (10:29)

It was an interesting piece of news that came out with the earnings. There was an announcement that the CEO, Josh Silverman, will leave that role at the end of the year. He's been the CEO for eight years. And Etsy's current President and Chief Growth Officer, Kruti Patel Goyal, will succeed him starting on January 1st. So that's some interesting news. Now, this is something he's. Josh Silverman is going to become the executive chair January 1, a title he will hold until December 2026. What is that? Is that usually how the executive chairs work? Do they say how long the person will be in that position?

A (11:05)

Not always. I actually happen to think it's a good thing when there's clarification around what tenure will be, because one of the things you often see is when a CEO steps out of the seat and then goes and joins the board and becomes executive chair, which means they are still allowed to be involved in operations if the new CE used to report to that person and gets promoted. And by the way, that relationship still holds when you've got a new CEO who's always been there and their old boss is now the executive chair, there is merit to saying, look, it's only going to last for a year because it says to the market this really is a transition period. This isn't forever. And then the next person, in this case Kruti Patel Goyal, is going to be given the ability to go and pursue her own vision and strategy for the company. So it's not atypical, I happen to think that this is actually a good thing to do.

B (11:49)

All Right. Are you familiar with depop?

A (11:51)

No. Tell me more about depop.

B (11:52)

I did not know about depop. Depop is owned by Etsy. It's a fashion resale marketplace.

A (11:57)

That's right.

B (11:58)

And so looking into the earnings today, things are not going well at Etsy here. Buyers are down 5% year over year. Sellers are down 11% year over year. The numbers are down except at Depop, which is inside. It's owned by Etsy. They had active sellers up 41%, buyers up 40%.

A (12:18)

Wow.

B (12:18)

So they're growing. And who was running Depop but Kruti Patel Goyal. So that's who's going to take over as. As the CEO. So it seems like that division was doing well and there's being some reward there.

A (12:32)

It's. It's really interesting, this sort of idea that resale and vintage is having a resurgence. So again, Depop, by the way, Etsy bought it for just over $1.6 billion in 2021. I'd sort of forgotten about that. And it was sort of part of this movement that we saw with places like. And that had struggled. That business has struggled for a while and actually quite recently it's had a resurgence because we've seen the next generation of shoppers getting excited to buy their luxury secondhand. We've seen also an increase in the fashion rental movement. We've seen that sitting within Urban Outfitters. So depop seems to be in keeping with that idea of sort of recycling and reusing. The idea that the next CEO of Etsy is to come from at least a place that's been growing. 40% growth is really significant. It's an exciting moment for Kruti Patel Goyal because I think she can really demonstrate. Now, was that just depop being something unique or is it actually a skill set that she can apply to rev up the engine on Etsy overall? Well, let's take a quick break and when we come back, cash is hitting shareholders in record amounts through public company buybacks. Why is that? And frankly, do investors even want it? Today's show is brought to you by Vanguard. To all the financial advisors listening, let's talk bonds for a minute. Capturing value in fixed income is not easy. Bond markets are massive, murky. And let's be real, lots of firms throw a couple flashy funds your way and call it a day. But not Vanguard. Vanguard makes institutional quality the standard for their products. Across the board, They've got over 80 bond funds managed by a team of 200 experts, from analysts to traders to sector specialists. The bond market is complicated, but Vanguard can help make it make sense with scale, consistency, and zero drama. So if you're looking to give your clients consistent results year in and year out, go see the record for yourself@vanguard.com audio. That's vanguard.com audio all investing is subject to risk. Vanguard Marketing Corporation Distributor John, we have a question from the audience today.

B (14:29)

That's right. Kayla in Pennsylvania wrote in Ann, I keep reading that corporate buybacks are really high. I don't understand why that matters. Can you please explain?

A (14:37)

Yes, Corporate America is on a shopping spree, and it's not just buying other businesses, but with many public companies actually buying themselves. Stock buybacks, when a company repurchases its own shares from the market, have surged this year, hitting a record high of over a trillion dollars in announced buybacks by late August and rising since. Well, it's been happening across multiple sectors. Tech Apple with $100 billion buyback, for example. Banking JP Morgan with $50 billion. Energy Exxon at 25 billion. Travel book 20 billion cars GM at 6 billion. The list goes on. Well, the what behind the wave signals why it matters. Market conditions right now make buybacks appealing. Corporate earnings have held up well over the past 24 months, especially among big tech and energy firms. This has left companies with record amounts of cash on their balance sheets, and they have to decide what to do with that cash. Many public companies are looking for acquisitions, but that takes time, and deals are always uncertain. All of them are already looking for ways to invest in organic growth, which is why the headlines are blowing up with reports on massive capex spend, especially on AI. So where else can that surplus cash go? And companies do want to send it somewhere. Interest rates are finally moving down, and just like the cash we hold in our savings or brokerage accounts, the interest earned on it is dropping. That motivates executives to return cash to shareholders by buying stock from them rather than hoard the money. This matters because the market is often skeptical about buybacks. It reduces the total number of shares a public company has outstanding, which mechanically lifts earnings per share, even if profits haven't grown. It's a quick way to make the stock look stronger and reward shareholders, creating a win through financial engineering. And because executive pay is sometimes tied to earnings per share, buybacks can inflate compensation without improving the company's fundamentals. Critics argue that the money should be used for higher wages, or that management just needs to work harder to find ways to invest that cash in research and development or capital investment, things that will actually strengthen a company's future competitiveness. Even in Washington, buybacks have become a political flashpoint. The Biden administration introduced a 1% excise tax on repurchases, something that the Trump administration has kept. There's also a timing risk. Companies tend to buy back shares when profits are high and stock prices are, too. That means they're often buying buying at the top of the market. So if the economy slows or rates rise again, those billions spent on buybacks could end up looking like a missed opportunity. Well, for now, just one person's view. The market seems to be nodding fairly happily at the way companies are both buying back shares and investing in growth with the cash funding. All this a reflection of how strong profits have been recently, which at the end of the day is good news. However, if the market cracks, that can change. So we're going to keep on watching.

B (17:32)

And if you have a question for Ann, send an email or Voice memo to brewmarketshoworningbrew.com There it is, the closing bell.

A (17:40)

Because it's 4pm on the east coast now, we don't have a ticker tape, so we'll throw it over to our human ticker, our producer, John that's right.

B (17:46)

The S&P 500 finished flat today. The Dow was down nearly 0.2% and the Nasdaq finished up 0.5%. Some market headlines, shares in Nvidia were up over 4% this morning, making it the first company to hit $5 trillion in market value. Some context from the Wall Street Journal, Nvidia is now larger than amd, ARM holdings, asml, Broadcom, Intel, Lam Research, lrcx, Micron, Qualcomm and Taiwan Semiconductor Manufacturing combined. Its value also exceeds entire sectors of the S&P 500, including utilities, industrials and consumer staples. Finally, to one of my favorite ticker symbols, eat, shares in Brinker International, parent company of Chili's, were down nearly 5% today. Chili's has been a bright spot for the company, reporting today that same store sales increased over 20%. Apparently the $10.99 burger deal is attracting customers from fast food chains. But Brinker also cautioned that tariffs on beef, shrimp and other commodities are starting to materialize as menu prices go higher.

A (18:50)

Well, we are going to have to caffeinate because we are in the thick of earnings season. But there is no thicker part of it than where we are this week. We have got Microsoft, Alphabet, Meta, Amazon and Apple all coming up in the next couple of days. So we are going to be up late tracking it at all to break it down for you. That's it for today's Brew Markets Daily.

B (19:07)

And Brew Markets Daily is hosted by Anne Barry and produced by John Crateau, Tarka Delatief and Emily Milian. Our technical director is Uchenawa Ogu. Brittany To Taco handles audio. And the president of Morning Brew Inc. Is Devin Emery.

A (19:18)

Wake up tomorrow with the Morning Brew newsletter and tune in to Neil and Toby on Morning Brew Daily. We'll see you back here tomorrow, same time, same place.