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Ann Berry (3:24)

Inc. Well, we are off to the races with earnings season and we thought to dig into a couple of the big headlines that caught our eye today. Well, let's kick it off with Southwest Airlines. That's Ticket Luv or Love. Net income of $54 million, which is pretty small for such a big company, but better than expected because analysts had been anticipating a loss. Third quarter oper revenues hit a record of just under $7 billion. And shareholders did see a return of capital of just under $440 million. That was through both share repurchases and dividends. So there's just been a lot going on at Southwest. And that's before we even get to all the operating detail where perhaps, John, there's been, frankly, too much change for people to get their mind around.

John Croteau (4:07)

There's been a lot of change for customers, and we're going to decide whether or not they're excited or upset about it. But let's start back in March. Southwest got rid of its bags fly free policy.

Ann Berry (4:19)

Yeah. Everyone was an uproar. Do you remember this?

John Croteau (4:20)

Oh, yeah. People are not happy about that. That's what the airline was known for, bags fly free. Now it's $35. And then starting in January coming up, flights will begin to have assigned seating. That was the other thing. They had open seating. And you'll also have the opportunity to buy extra legroom starting in flights that take off in January.

Ann Berry (4:37)

I don't need it. I'm only 5 2. I never need to pay for extra legroom.

John Croteau (4:40)

Oh, I'll pay for it. I'll pay for it every time. And so the question is, is this making people happy? And so the CEO Bob Jordan said today that the net promoter score has returned to levels that they saw before these changes.

Ann Berry (4:54)

And just net promoter score, by the way, for those of you who like to nerd out on these things, it's something that's often used in marketing and it's a way of measuring whether your customers would go out and recommend you, advocate for you. So that's what a net promoter score or an NPS is.

John Croteau (5:07)

Great. I hadn't heard of that before. And so another point though is that there was a four point higher score because people were excited about having extra legroom without having to pay for it. Because let me put this in context. They've outfitted 400 airplanes so far with this extra legroom, but they're not charging for it until flights that take off in January.

Ann Berry (5:25)

Right.

John Croteau (5:25)

So there are a handful of people that are getting on their flights and they're saying, oh, I've got extra legroom for free. And so that might be driving that score back up.

Ann Berry (5:33)

Well, the other thing is too, there had been a little bit of sort of noise around the numbers. Southwest saying expecting $1 billion in revenue additional from seat sales in 2026, unclear how much of that or sort of double count sales of early bird check in and other aspects of some of their revenue stre streams. One thing I do love, John, about the airlines is so I love traveling, right? So I have a personal bias, which is I absolutely love looking at airline stocks and hotel stocks and anything to do with discovery and adventure. But I decided for this to try to understand why exactly. Southwest stock has been falling steadily since its earnings came out. It's now down about 7%. Because you look at the headline numbers and you see, you know, good earnings, you see good revenues, which just comes down to the fact the devil's in the detail, at least to me. The heart of this story is, is our flyers going to appreciate and like what Southwest is doing and are they going to pony up with higher prices for it? So I went and looked like the points guy, you know, the Point sky, which is one of these sort of experts on how to optimize loyalty program rewards. I went to look at another blog called View from the Wing. You know, people are really passionate about this. And the sort of sense I was getting, folks basically said, I don't understand anymore what Southwest represents.

Sponsor Voice (6:43)

Right.

Ann Berry (6:44)

It used to be very clear. It was a low cost, cost airline, which was good value for Money, not very many frills, but some degree of reliability, what you are getting. And right now people don't understand what they're going to be getting from the Southwest brand.

John Croteau (6:55)

Right. It costs about as much as the other airlines, but it doesn't have the frills yet. Some people are disappointed with the WI Fi. They say it's there, but it's not standard in the way that WI fi is in other airplanes. So it doesn't have the frills still.

Ann Berry (7:08)

Well, in contrast, let's talk about American Airlines, right, Which has a much simpler story than Southwest because it doesn't have quite the same identity crisis. Earnings also came out and it also beat Premium in particular. Doing pretty well, John, relative to coach cabin sales growth. Something we'd actually talked about with Delta. We talked about their earnings last week, I think, or the week before. And there we heard the voiceover that the business traveler was back. Now American is doing a lot more to focus on premium. Some of this caught my eye just because it's also fun to talk about premium travel. More flagship lounges, I think Miami and Charlotte. The company also announced sort of snazzy things to transform the onboard experience. See what you think of these. A new coffee partnership with fancy Italian coffee brand Lava Gaza. A first champagne partnership with Champagne Bollinger and enhanced in flight experience of elevated amenity kits and dining options.

John Croteau (8:01)

I did not know they were going to have a champagne partner.

Ann Berry (8:03)

Yes, they have a champagne partner. Well, American also announcing it's hired a new chief commercial officer. And the idea is that this individual, Nat Piper, is going to work on enhancing the loyalty program. That's usually a real money maker. Very high margin business for all of the airlines. American also really focused on locking down its costs. So they did report a loss per share today, but it was smaller than had been expected. So the least bad news, sort of the way to look at that one. Stock up over 6% today.

John Croteau (8:31)

And we're going to keep an eye on the lounge game because there was a time when everyone was offering lounges and then all the credit cards offered lounges and then there was too many people, too crowded.

Ann Berry (8:40)

Everyone got fussy about it.

John Croteau (8:42)

Now, now there's a champagne concierge in the lounge, apparently, or some sort of relationship. We'll, we'll see where they go with that. Let's wrap up the earnings report with Hasbro today. That's the home of action figures and board games, of course. They reported an operating profit of $340 million. Adjusted earnings per share of $1.68 beat analysts expectation by 5 cents. And revenues rose 8% to $1.4 billion, which also beat expectations. Now, consumer products were down in that area, but the company highlighted the quote, exceptional performance of Magic the Gathering, which is a, it's a game that it's a card game, but it's a collectible. It's also digital. And you have some experience with this?

Ann Berry (9:23)

I do. And just one sort of one clarifying thought around this because I always find it confusing and I have to remind myself everything Hasbro makes is in fact a consumer product. So when they talk about its different divisions, their consumer products nomenclature is talking about sort of stuffed animals and the kinds of toys that are different faction figures different from the card games and the board games and the likes of Magic the Gathering or Dungeons and Dragons, which have all taken on both physical and digital forms, but also really have this sort of collectibles aura about them appealing to a very specific demographic. Now John, back in May, yes, I spoke with the chief financial officer and the chief operating officer. She's a combined role at Hasbro. That's Gina Goetta and that was for our sister podcast after earnings. And she highlighted the fact that the success of Magic the Gathering and Dungeons and Dragons, affectionately known as D and D, is because there's a really passionate following from 30 year olds and older and especially men. And it's such a fast growing segment because as this demographic become parents themselves, they're starting to bring the products to their children. They're also enjoying, you know, adult gaming. And again, this collectibles piece of it contributing to some resilience in this business too. So just worth also contrasting this with, with Mattel, right. Which reported also this week a very different story. 40 of their inventory being sourced from China. Real tariff impact there compared to Hasbro's board games, many of which are actually manufactured here in the United States. So two companies, two toy manufacturers, two very different stories coming out of their earnings this week.

John Croteau (10:59)

And shares in Hasbro were up over 3% today.

Ann Berry (11:02)

Pretty positive actually, all things considered. Well, let's take a quick break and when we come back, Quantum Computing is having a moment. We've got Nobel Prizes, the solving of 150-year-old mysteries using quantum technology, and now of course, interest from the White House. We're going to dive right in. Brew Markets Daily is sponsored by Public, the platform for those who take investing seriously. John, who do you go to if you have questions about your investments?

John Croteau (11:26)

Well, I have in the past called my mother.

Ann Berry (11:28)

Well, instead of calling your mother you can just ask Alpha. It's Public's AI powered research assistant that can help you find the answers you're looking for. In fact, AI is woven into the entire experience of Public. From portfolio insights to earnings call recaps. Public gives you smarter context at every touch point.

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Sponsor Voice (12:04)

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Ann Berry (12:34)

Well, John, you know I'm fascinated by quantum computing and I love to nerd out over new technologies and all the innovations we have coming out of this. I'm really excited for this one.

John Croteau (12:42)

Yes. And I saw this nerd outcoming. So let's kick you off with this and it's your and Nerds out segment.

Ann Berry (12:52)

When did you. Where did that come from?

John Croteau (12:54)

It came this morning. Yes, while my partner was sleeping.

Ann Berry (12:57)

Really?

John Croteau (12:57)

That's why it's kind of whispery.

Ann Berry (12:58)

Oh, it's fantastic. Well, thank you to you and your partner for that. Well, next time we're going to crank up the volume. I love it. Well, look, October has turned into the month for nerding out on all things quantum computing. The people, the tech, and now the government policy. Unlike classic computing, just a couple of definitions, which processes data sequentially, quantum computing allows mass massive amounts of data to be processed at the same time. A little bit like the human brain is simultaneously getting so much stimulation from our different senses and sort of aggregating all that information in one go. Well, the power of quantum computing is such that the race really is on to try to unleash its power in everything from drug discovery to cybersecurity. Well, earlier this month, three professors in the United States won the Nobel Prize in physics for their work in quantum mechanics, which is a foundation of quantum computing. Just yesterday, the promise of quantum came to the rescue, actually of Alphabet stock, which had wobbled as OpenAI launched a browser set to compete with Google Chrome. Investors did not like that. But as shareholders did, cheer up when the science journal Nature yesterday unveiled that Alphabet's new Quantum algorithm running on Alphabet's quantum processor called Willow solved in just two hours a physics puzzle that has stumped scientists for over 150 years, sending Alphabet stock up just on the promise of that. Well, needless to say, national security players are watching Quantum very closely. And today the Wall Street Journal reported that the Trump administration is in conversations with several publicly traded companies in the field to consider taking equity stakes in return for federal funding. We've seen this playbook now in rare earth materials and chips. Well, IonQ, Regatti Computing and D Wave Quantum all saw their stocks pop up on the news. I love this topic. I love the technology here. I'm so happy that I'm going to be able to keep on watching. Well, it's 4pm on the east Coast. The markets have closed. There's our bell. We don't have a ticker tape, but we'll throw it over to our human ticker. Our producer, John.

John Croteau (15:00)

That's right, all the major indices finished up today. The S&P 500 finished up nearly 6.10 of a percent. The Dow was up a third of a percent. And the NASDAQ was up 9.10 of a percent. Some market headlines, you started the show talking about Tesla. More news in the world of electric vehicles. Rivian Automotive reportedly plans to lay off more than 600 people, or about 4% of the company's workforce. This is the second round of layoffs at the company in about a month. Rivian and other electric vehicle manufacturers are being hit hard by the expiration of the $7,500 federal EV tax credit. We'll be watching when Rivian reports its full quarterly earnings on November 4th. Now, some are saying that Las Vegas Sands hit the jackpot with shares up nearly 13% today, making it the S&P 500's top performer. The company reported quarterly earnings that exceeded Wall Street's expectations, with revenue up 24% year over year. We've been hearing that the city of Las Vegas is struggling with declining tourism. So it's no surprise that the global casino operator Las Vegas Sands was buoyed by a strong quarter in Macau and also helped by its Marina Bay Sands resort in Singapore, where revenue grew 56% from a year before. Finally, shares in Honeywell International were up nearly 8% today after the company raised its full year earnings outlook and recorded a jump in third quarter sales for its aerospace segment. As a reminder, Honeywell is in the process of restructuring and spinning off several businesses, including its aerospace division. Related to the spinoffs, Honeywell is streamlining the company into three reporting categories. Next year, it will replace its energy and sustainability solutions segment with a new category called Process Automation and Technology.

Ann Berry (16:33)

That's all for today's Brew Markets Daily.

John Croteau (16:35)

Brew Markets Daily is hosted by Ann Berry and produced by John Croteau, Tark Abdelatif and Emily Milian. Our technical director is Utenawa Ogu. The president of Morning Brew Inc. Is Devin Emery.

Ann Berry (16:44)

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