they are buying all of the debt for lee enterprises. will be loaning them $576 million at a 9% annual rate. will help the company lee because it is a lower rate than they're already paying that does it for us today. i want to thank rick rieder for being with us. we'll see you tomorrow right now it is time for "squawk on the street. ♪ this is how we do it this is how we do it ♪ >> good wednesday morning. welcome to "squawk on the street." i'm carl quintanilla with jim cramer and david faber at the new york stock exchange. big hour on deck live interviews with the ceos of amd, dow inc. and starbucks, futures look to extend the market bounce, earnings from apple, starbucks, all roll in, number of coronavirus cases exceeded that in sars. and the fed statement at 2:00. europe is steady oil almost back to 54. road map begins with the corporate earnings parade, 44 s&pers today including at&t,

dow, ge, boeing, the first full year loss in more than 20 years. >> shares of apple are higher ahead of the open. big driver, 8% uptick in quarterly iphone sales. >> and the coronavirus corporate impact starbucks is closing more than 2,000 stores in china and warn the outbreak will hit its full year results kevin johnson will join us first on cnbc later this hour. shares of amd sinking more than 4% ahead of the open on weaker than expected quarterly ref new fo revenue forecasts. lisa su will join us. >> a pair of dow components, apple on track to hit a new all time buy record revenues helped by sales of iphones, wearables and apps boeing rising in the premarket, first annual loss since '97. estimating the total cost of the max grounding at $18.6 billion as we know, calhoun with lebeau earlier on "squawk box" talking about how the company has fallen

short on transparency and as they try to get reinstatement on the max, we won't market our way out of this issue. >> what a great interview. what i think is happening at boeing is they're saying, one, our primary concern is safety. and after we're concerned with that, it is safety and then safety and this is a different boeing i'm not saying previous boeing didn't care about safety i'm saying previous boeing i felt did try to market the way out of it. it is a good term. the fact that boeing can put even a cost on this, even though it is high, is encouraging the fact that it will be the safest plane because of the testing is encouraging that the pilots might want to use it as encouraging, that the backlog has not gone down, that is incredible. you would think with the decline in value of the planes and the so-called third market, that the backlog would go down, it hasn't so i was encouraged. that's why the stock is up, we lost the losses, not as

important nearly as the backlog, i think, which is pretty strong. >> strong as it can be >> lebeau asked about the $18.6 billion, underlines their confidence in meeting the target for reinstatement. >> i believe in this airplane. i believe in the engineering of it i believe in all the fundamentals and we can get this exactly right. as i said before, if we didn't believe or if anybody in this process didn't believe we were going to field an airplane that is safer than any airplane in the sky, we wouldn't do it >> parallel story line is the production cuts to the 787 now going to 12 a month. >> being conservative there. i think that makes sense again, what i like is that boeing is not certain. it is just a pleasure to hear a company that is not certain about things that are not certain. and so in particular just go back to the 737 max, the fact

that they say it is not in their hands is so refreshing it is in the hands of the authorities. the authorities can't be gamed the authorities know the importance of the way they're approaching it remember, they're recommending everybody take a -- do the simulation, that's because there are lots of companies where they don't have 3,000 hours ahead 3,000 hour southwest air pilot and he may not want to have a simulation, boeing is selling this thing to everywhere the lack of -- the lack of recognition of the previous boeing so to speak of the fact that not all pilots are created equal was a travesty that travesty is over. >> by the way, tech is out today saying they will increase the number of max simulators that they're making as demand for the simulators going to be -- >> that's like demand for purell and masks. can't get enough of it i know you're the -- you know. >> on apple, before we get to lease k

lisa su, a lot of talk about the guidance range, the miss on services >> i think people can't get their arms around is the fact that the leverage of the phone, i mean, don't think anyone is expecting the phone to be big. what you really had was this narrative which said, hey, listen, don't worry about the phone growth, don't look behind that curtain, what matters is services, services was fine. there is a lot of things in services in the pipe but i don't think anyone expected the level of growth, particularly level of growth in china of all places, where it is back to being the urban phone of choice the 11, when i spoke with josh about the 11, the 11 is battery life, the 11 is phone, the 11 took everybody by surprise i think the analysts didn't want to admit it. we were talking services and it was only 16, looking for 17 no one thought the phone was going to be the driver because no one thought that there was anything new about the 11 because everyone thinks tim cook has never come up with anything that is really special i think this was the quarter where people said, you know

what, we're so wrong about that. the idea that the company's best times are behind them is stupid and dumb as wood and this company has got everything wearables. >> there it is on the screen there, what cook had to say about what has been behind that popularity of the phone. >> yeah. >> in terms of -- >> accessories >> they benefit -- not being a particularly popular -- >> the 10 surprised us in the downside. >> yeah. >> the 11, they never came with the 11 and told you all these things the 11 sold itself tim cook is talking about people doing movies on the 11, got something at his place i don't know what you've done on the 11 have you sent tim anything >> i still got the 8 >> wake up and smell the coffee. we'll do starbucks later. >> you're right about the street, though, jim. upgrades to hold >> how about that clown -- i'm sorry -- >> because of survey data that

argued that seasonality would play, iphone would be down 5 and none of that happened. >> no. you know what's incredibly encouraging is i was pressing tim, tim cook, the ceo -- >> i'm aware. >> i was pressing tim on the idea what about apple tv he says, not -- well, josh too, not a hobby. not a hobby. look out how about the car? we're going it hear from sir willfred frost, you'll hear the car is good. >> we have to move on to lisa su. >> the max stacked up. >> the apple numbers are staggering in terms of -- >> thank you a trillion dollar company with upside surprise. are you kidding? >> lisa su now. >> people just don't understand, get their arms around the situation, shares of amd are sinking ahead of what was an unbelievable quarter and great outlook, that's because the stock is not in sync with the analysts we'll go to lisa su, amd ceo

i met her when the stock was at 3 and she said get on the amd bus. good call. lisa, right to it. there is a perception on the conference call that gaming is slow, data center is slow, the transition is not that good. you're not going to make as much money and people are disappointed can you tell me how wrong that is >> good morning, jim and good morning, carl and david, good to talk to you guys. we had a great fourth quarter that capped off a great 2019 we grew 50% year on year on the quarter to our highest quarterly revenue and highest annual revenue ever all segments grew other than game consoles, which is going through a product transition so we feel really good about how the market is. we gained share, we believe in the pc market as we had a strong holiday season we grew strong double digits in the data center and we continue on our march to grow data center revenue. i feel really good about 2019 and actually even more excited about what we have in store for

2020 >> one thing i was struck by and not sure where whether in a good way, look, you've been strengthening the balance sheet the whole way. when is that done? you have almost no leverage. i would like to see maybe some more than just trying to get that balance sheet better, i think it might be mission accomplished maybe it is time to spend more money on somethingyou haven't spent on. >> you know, we're really pleased with what we have done with the balance sheet as you said, that was one of the things we said, hey, we want a strong balance sheet, we're in this for the long haul and with that, you know, cash and reduced debt is important. i will say mission accomplished. i think as we ended the fourth quarter, we took out out a billion dollars of debt in 2019. i think from a free cash flow standpoint, we had a very, very strong end to the year and now when you look forward, and look at 2020, you know, we're talking about substantial growth and when you look at the full year for us, you know, we are estimating that we're going

to grow 28 to 30% for the full year of 2020, and all of our business segments well grow, that's pcs, that's gaming, that's data center these are all markets where you need more high performance compute and so we feel really good about that. >> well, let's talk about share. you discussed cloud share and you included everybody i was the -- only one you left out was ibm. and then you have pc you were too negative on pc growth i didn't understand your view of pc growth. so where are we really in share on pc, where are we in cloud, and how fast are both growing? >> if you look at, for example, as we ended 2019, we believe we have grown share every quarter over the last nine quarters. and the share results will come out shortly and pcs are doing very well. as we look at the market going forward for 2020, we think there

is more opportunity for us to gain hare. we have very strong share in desktop, we're gaining share in notebook we're gaining share in commercial notebooks, actually a very good market, you know, going forward. again, i think pcs are a good market for us. and now turning to the data center, again, strong double digit growth, we expect data center to grow substantially in 2020 and so i believe that there are numerous opportunities for us to gain share in 2020 and i think the key here is for people to understand that, you know it a successive progression of share growth. these are not one quarter things, but these are over many quarters, and that's why we're so proud of how much share we gained in 2019 when you look over year on year. >> is that going to stick, because some of that obviously is problems in manufacturing and intel. >> you know, i think about this over the long-term, jim.

companies and customers don't make decisions based on, you know, one quarter, or, you know what is happening, just in the moment i think what we have really been focused on is building a track record and it is a track record of execution. on the pc side, we're on our third generation of our rise in desktops and notebooks and with each generation the pc manufacturers have actually put more new platforms we had great platforms at ces we were really excited about. we'll have, you know, over 100 new platforms in the notebook space in 2020. and then in data center, in particular, you know, what cloud manufacturers do is, you know, they try you out in first generation, and then they do mark and more workloads and put more of their data center on you in the next generation, so these are multiple generation things we have shown great progress, you know, going through the last couple of years and going into 2020. >> in agreement. i think people are wondering

with all of this positive, why is the stock down? the stock went from 33 to 31 in intraday and went up to 50 i'm wondering if some of it isn't because you said about the semicustom business, game business, it was a bit soft than anticipated. used the word soft, like the dotcoms and everybody sells. can you clarify that for people? >> yeah, absolutely. look, first of all, gaming is a great market let's be really clear. there are lots of people who love gaming and that's whether you're talking about game consoles or pc gaming or cloud gaming now, you know, we happen to be fortunate enough to be in the two largest game console manufacturers, both sony and microsoft and both sony and microsoft announced they have new consoles coming out in 2020. and so when you go through product transitions, would expect that right before the console, the new consoles launch, there is a little bit of softness in demand, and that's exactly what we're seeing. but make no mistake about it, there is a tremendous excitement around these new consoles, they

have great technology, new graphics capability, and i'm really excited about what you're going to see in 2020 as it results -- as it pertains to gaming. >> it is david jim did ask about the balance sheet and i would like to come back to it because it is something that investors focus on when a company is doing as well as yours has. leverage is -- growth leverage is half a turn here, down from 1.9 times at the end to 2018 is that an opportunity to perhaps return more to shareholders or do something that can fuel different areas of growth because that does seem to be not optimizing the balance sheet. >> yeah, you know, david, what i would say is, look, we have been on a journey with both the investments as well as the growth and the balance sheet of the company. i'm really happy with where we are. i think we said we're going to build a really, really strong company and a really strong foundation in cash and the balance sheet

are a key piece of that. now, as we go forward, you'll see us make more investments as we should as tech companies should and we'll always look for ways to optimize the balance sheet. in terms of -- when i think about the things that we prioritize first, we are all about growth, growth and more growth and the growth comes from our product portfolio and the markets that we're in and, of course, we'll optimize the balance sheet and we feel great where we are today >> lisa, coronavirus, big picture, with ev bee have been draw analog to sars. given the projection among some we'll get through this one way or another how much of it is going to be noise and how long will that noise exhaust last into 2020, do you think? >> yeah, you know, that's a great question i think we're all watching the developments very carefully. certainly we would like it to be resolved sooner rather than later. from our standpoint, we're

taking precautions in our facilities in china to make sure that's well protected and we look forward to a speedy resolution it is somethinging that we're watching carefully as we go through the year >> lisa, one more thing, i want to talk about the cloud, there is a lot of people who feel cloud pause, clouds have grown, we have facebook this evening, to me it seems like the cloud is still on course to being maybe the great -- other than maybe 5g, the great secular trend of our time do you see it like that? >> i absolutely think cloud is growing and will continue to grow and, you know, for every conversation i have with the major cloud vendors, what they're telling me is that they want to put on as much capacity as possible, there is plenty of demand, whether you're talking about, you know, the traditional applications, you're talking about machine learning, and ai and all of these things, so, yeah, i think that is, you know, not only an important trend for us in 2020, but really over the

next five years and that's why we're investing so much in the cloud and the data center space. >> lisa, thank you so much for coming on as always. again, congratulations to the amazing turn and the balance sheet, which is rather extraordinary great to see you. >> thank you very much >> that's lisa su, who engineered the greatest turn around of our lifetime, ceo. >> that stock was in the 2s. >> yes >> not a -- >> the 2s. >> with a balance sheet from hell. >> i still laugh when people used to say, amd exists at intel's pleasure >> right. >> which was a narrative for a long time. >> i remember when there were people on the board who said as long as amd is alive, we don't have to worry about antitrust. but it is no longer the foil some people would say it is well ahead of a company that no one ever dreamed it would be at, which is intel. >> that said, it is looking like it is going to open down sharply. >> same thing as last time people want to take profits. i wouldn't be surprised if it

flounders around and goes up later. >> all right, let's move on to this parade of ceos that we have this morning and talk a bit about dow. that is dow chemical the shares higher this morning on better than expected quarterly earnings the company reporting in 27% decline in the fourth quarter operating profit the results do point to at least some recovery in demand as global trade tensions ease joining us now, exclusively is the company's ceo, jim fitterling good to have you, jim. >> thank you, david. >> is this a reflection of an overall rebound to bit in the global economy and demand out there or, you know, you still have a ways to go i don't want to -- i'm sure you'll admit that as well when i look at all the notes this morning. a slight dip, not as bad as feared and focus on execution and cash generation, still a positive give me your take on the quarter and how it should be viewed by your investors

>> as i said before, we have seen strong consumer demand that continues into 2020. where we saw weakness was in the industrial markets north america, western europe, and china as well. weakness in big ticket items like automobiles, carrying over into things like appliances, and also into capital spending, capital spending in 2019 in those big markets was off as much as half and so that is really what softened things up on the industrials side i think now that we have got through the phase one trade deal with china, and we got usmca done, that will bring a little confidence back in the markets, but will take some while for that to build up most of the weakness you saw in earnings is based on the supply that has been added. and as you know, we had the big chill phenomenon we participated in and that helped us reduce our operating costs through this cycle. and in our business, in every trough, you need to be lower cost and better margins and at every peak better than the last

peak and that's what we have been trying to do i think that was on display in the fourth quarter in addition to beating on the revenue line, eps and ebitda line, we had strong free cash flow generation. we generated 1.9 billion of cash that's up $500 million a lot of that is because as we spun out from dowdupont, we achieve all cost separations and got to our benchmark best in class cost structure and we pulled $400 million out of working capital. that's managing the cycle. that's the business teams doing a great job of managing the cycle. >> right and now to the extent that i think you already noted, conditions to date in the first quarter of this year, and we're just getting started are similar to those of what we saw in the further quarter of '19 does that indicate that there is yet to sort of be a realearningl make number higs higher than wh you seem to be tracking?

>> we feel like 2020 has the potential to be slightly better than 2019. gdp rates are being moderated a little bit we're about a 1.4, 1.5 gdp company. we have three of our chains that are at the bottom of the cycle we have the ethylene, polyethylene chain, suboxane and silicones. there is exposure on the auto sector and housing there is exposure on suboxane. as we he see that pick up, we'll see that tick up the other thing that is happening in ethylene is typically the end of this quarter, there is usually 8% of capacity off line for turn arounds and maintenance activity this year we're expecting that number to be as much as 15%, so you could see as we go into the quarter a little bit of tightening in that chain

not as much capacity coming on as has been historically so i think you're looking at if we're not at the bottom, we're hovering around the bottom right now. and with the 6% yield and greater than 10% free cash flow upside in the stock, we feel like there is an equity upside here, good entry point for somebody to get into the sector. >> one thing i'm concerned about, jim, is just trying to figure out your cost structure a lot of debt for a project built for $110 oil i try to get my arms around how you cordon that off. >> we made some good perfect gres progress in the year the earnings are stable. what we're going to do is we just reached agreement on the final logistics agreement with sadara that allows us to achieve

project completion, that's a stand alone entity now and that allows us to remove the parent guarantees that are are on that debt and sadara engaged jpmorgan to lead them through a debt reprofiling. what that means to our shareholder, we put in 500 million last year for our portion of the principle repayment. as we profile that debt and get that stretched out and perhaps get some different tables put in place there, that gives us the ability to bring that cash back in, sadara to be cash self-sufficient and we can deploy that $500 million into other uses deleveraging will be part of it. and share bybacks could be part of it as well. >> jim, one question, on just regional activity, we were looking forward in inflexion in growth because of phase one. now we're worried about dampening effects out of the coronavirus in china does that mean that we should look for inflexions more in

europe or the united states or somewhere else >> i think the united states and china are the places that you should look, they're growing the fastest. we saw 7% volume growth in asia pacific. we were double digits in china even with the phase one deal and the tariffs in place before the phase one deal was reached now a lot of the tariffs are still on the demand growth is still strong if it is 5%, we're going to be in the 7 to 7.5% type of growth rates over there the u.s. is still strong on the consumer, but i think what we're all waiting for is automobiles and the industrial demand to pick up. i haven't seen that yet. and i haven't seen a massive negative impact from the coronavirus yet. but we'll watch that we have seen some demand pull from coronavirus on things like clean materials for disinfectants like household

cleaners, nonwovens for masks and wipes and those kinds of things and i think as you see people, you know, stay at home and use more food from the grocery store, you'll see a pull on packaging as well. >> i was curious that's where i want to end real quickly, china is trying to reduce the use of single use plastic. around the world that's a continued trend. are you seeing any weakening there in terms of single use >> we sell primarily into higher end structures, so multilayer pouches and those kind of things, we're not setting a lot into the t-shirt bags, grocery bags, straws or ag films that's a trend globally. people are trying to deselect and move away from the materials. we're trying to work to continue to get more recycle materials. an announcement made by nestle that they're going to buy $2 billion worth of post consumer recycle material for their packaging line, that's a great announcement

it fits with the work we're doing. and we need both that demand pull and the supply of recycle materials to solve this problem. you're going to see some continued bands, i haven't seen that back up into our demand yet. we're going to work through that. >> yes, that's a continued issue. we didn't hit on it as much as we normally do thank you. appreciate you taking some time, jim fitterling, dow ceo. when we come back, starbucks warning that fast spreading virus outbreak will hit full year results coffee chain is closing more than 2,000 stores in china kevin johnson will join us to discuss the company's response and the results. futures look good. we'll get to ge and mcdonald's and goldman and at&t and limited brands and the fed when we come back it's either the assurance of a 165-point

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you're watch iing "squawk on the street." the opening bell in eye moment on what is the busiest day of earnings season, today and tomorrow relief today with boeing, ge, starbucks, we'll get to all of that tonight, facebook, microsoft, tesla and pay pal. we'll await a press conference from the world health organization at 11:00 a.m. eastern on the coronavirus as the number of cases is now near 6,000 surpassing sars and the death toll around 130, 132 futures look good here as we're on pace to erase a lot of the damage done earlier in the week. to the opening bell, the s&p

500, big board today, it is celebrating an ipo so boeing is going to help >> yeah. definitely look, i think that we saw a boeing that basically said, you know, we're doing everything we can. and when you thought he said we're good, it is going to fly as opposed to it is ready. it didn't hear that. didn't hear it is ready. we heard that, look, we're taking some charges, we have to take charges for them being offline. i was very gratified to hear that no one said, you know what, we don't need this plane, the level of confidence that the airlines themselves have demonstrated by that, so i think it is kind of -- i don't want to say it takes the debt issue off the table, but feel better about the balance sheet is the way i

look at it that's what i think is go on with the stock. >> worth mentioning ge as we get started with trading, the stock is up almost 8% over, you know, approaching $13 a share after numbers that are being well received as you might expect total orders, 24.9 billion for the fourth quarter of 19 revenues, 26.2 billion the industrial profit margin gap industrial profit margin, 6.4% that was up 360 basis points this points to cost control, cost cutting it is advancing even more now as the stock, think did reduce ge's industrial leverage, guys. and, you know, overall, i guess there was a sense coming into the year that this would be a key inflexion point in 2020 and nothing dissuades anybody from that belief given these fourth quarter numbers. the idea that at least power, they have gotten their arms around it, particularly gas,

really the important component there. they can move on to focus on renewables these lean principlesthat culp has been pushing in terms of lean workforce, the change in the culture, more transparency, it seems to be coming through here at least in terms of the numbers and what you always want to look at is earnings and cash. and they're getting closer they're getting closer for a long time you had report earning numbers and then cash number that was nowhere near it. and that was always a tell, jim. it is easy to say in retrospect. >> yeah, you talk to larry culp, the ceo, you realize you're talking to the ceo of an industrial company i know for people at home that sounds ridiculous, ge must have been an industrial company, no g ex-was some company that had a very bizarre method of reporting that was good at disguising and camouflaging how bad business is last year was the year we got business under control

this is a year where when you see the numbers, they're like reported numbers, you can do apples to apples united technologies to honeywell. and it shows that the company is not doing nearly as bad. the unfortunate strongest division besides aviation is one they're selling to danaher power is no longer a black hole there are areas around the world, like at india, larry culp came from, where you do have a demand for power this country is no longer the big driver that disaster seems to be gone >> stabilized power, not as though it is going to be growing. >> no, no, but it is small. >> and something you always say they do seem to be focused on underpromising and overdelivering aviation, of course, still the jewel, what was revenues up 6%, orders up 22%, 19 over 8 although they're getting hurt like everybody, by the --

>> right they have very good service revenue from aviation. i think there is two things i like about this quarter, one, i understood the financials, i took a year of accounting, but i've never been able to understand ge because i never took -- i never took fa-- >> nobody could understand. >> regulators couldn't, accountants could, they were the destruction of the company, the s.e.c. didn't, the s.e.c. wasn't used to the terms either but the main thing, david, that i like about this, there is a fella who was pushing this thing as moby dick that man's name is tusa. >> tusa capitulation here? >> captain ahab, he's fictional. i like facts >> he's on the wrong side of this now >> he's on the wrong side of history. >> a call that made his careers,

maybe the most influential industrials analyst. >> yes elaine gasarelli, what do you think, rational exuberance who do we put him in with now? >> what about -- the lady you called -- >> we may have to put him in the pantheon of people who stayed too long it is okay we get a reiteration and target increase like on tesla today, reiterate sell, but your target goes up to 250. >> yeah. >> we get one of those every day. >> i was a hedge fund manager for a long time, goldman for a long time, we a term for that. bad. >> bad >> yeah. >> i think that's very -- >> poor. >> i don't want to -- >> poor is a good one. ill advised. the one i developed since i've become -- is suboptimal.

jimmy chill. >> maybe you're using it. >> i'm using it more >> at&t, guys, i'm not sure how you describe it, i don't think you can say suboptimal it is not getting particularly positive response in the market. stock is down half a percent they reduced their debt load by $23.3 billion. wireless is growing. they had service revenue growth. they lost 945,000 subs in terms of directv they lost another 200,000 plus for this at&t, the old directv now, remember the ott product they had that is down or that is better than the last quarter where they did tell us and, remember, i sat down with john stankey when they introduced us to that hbo max was going to be. and they indicated that subs there had bottomed in terms of losses that said, still losing almost a million of -- a quarter, that's

a lot. they have 19.5 million premium tv subscribers but i talked to john stichevens prior to the call, no, i talked to john stevens prior to the call, and, you know, he talked about the fact that they -- the license revenue, they gave up in terms of warner, because of hbo max, 1.2 billion going forward, that's 1.5 to $2 billion, told us that already. he did indicate, they have seen peak losses at directv and they turned things around to some extent in mexico in terms of the wireless business they had a million net ads in wireless and had ywhen you look at the be sheet overall, they're talking about continuing to buy back stock, got a dividend payout ratio in the low 50s, below 50% this quarter and cash flow number came in at $29 billion, which was above their own

previous sort of targets all of which they're hitting in terms of taking costs out and hitting those cash flow numbers. >> yeah. i agree. good analysis. people see $900,000, they freak out. better than expected >> it is bad the ecosystem has -- it is bad it is getting better. >> all right and here is the stock, and a company, great company that was hurt because of coronavirus. starbucks is falling despite an extraordinary earnings beat including a number i never thought u.s. comps of 6%, back a few years, thought that was not possible let's bring in starbucks kevin johnson on -- from seattle kevin, there is a key line in your conference call, you would have taken numbers up if it were not for the obvious. so could you walk us through what could have been and what was? >> well, jim, good morning you know, we just came off of

one of the strongest holiday quarters in the history of starbucks. and if you look at what we delivered in the last quarter, certainly a 5% growth in same store sales globally, led by our u.s., u.s. grew 6%, comp with 3% growth in customer cases, in traffic, china grew 3% in same store comparable last quarter with 1% growth in traffic. so, you know, our retail business is really firing on all cylinders. we grew net new stores by 6% channels business grew by 5% we have one of the strongest holiday quarters in the history of the company you know, customer confidence, customer connection scores at an all time high. beverage innovation accounted for 5 points of that 6 point comp growth in the u.s. and we grew our digital active rewards members by 16% to 18.9 million so coming off of q1, that

momentum continues to build. now, as you point out, we're now managing a very dynamic situation in china, related to the coronavirus. and, you know, we have been in china for 20 years, we realized this is a temporary issue we have to deal with. and we're doing it responsibly we're doing it by prioritizing the health and well-being of our starbucks partners, and we're working closely with local health officials and government to help ensure they're able to contain the virus and that we can get through this quickly and get on with. coming up, very, very powerful quarter, you know we had a beat, and we were intending to raise, but given the coronavirus, we felt it was in the best interest to really better understand the implications of that and as we do, we're going to be transparent with our investors. >> don't mean to dwell on coronavirus, but america's growing on it. you closed half your stores in

china. why not close all the stores and you have an incredible delivery system. why not say our stores are closed, we'll deliver it to you because we're worried about coronavirus? >>wise a very dynamic situation. we look at that each and every day. certainly some of the stores we normally close over chinese new year and then certainly in hubei province, where wuhan is, the center of this coronavirus, you know that entire province is closed down. we have been very responsible and thoughtful in working with local health officials and governments and if there is stores, you know, perhaps tourist gatherings, or near universities or hospitals, we have closed those stores and, of course, we do have our mobile order for pickup or delivery in china. and just last quarter, for example, 16% of our sales in china was through mobile ordering and 9% of that was for

delivery we do have delivery available. and, look, we're dealing with this on a daily basis. when there is a concern, we will close stores and we're going to do it responsibly and thoughtfully. >> kevin, got to ask you about cold beverage, which basically led all of your day parts in all of your regions, in the middle of winter. i wonder are there impolitics for kitchen engineering and margins and service time >> well, you know, this in many ways the cold beverage phenomenon is one that really builds on our core platforms think about this, a lot of this is cold brew and nitro cold brew we put into our stores and then the way we complimented that with that with things like irish cream cold brew, that is what is driving it we deployed nitro it our stores in the u.s., that's unlocking cold growth, but it is around our core coffee and espresso

beverage platforms, which is a good thing so we're very pleased with the reception to the entire beverage portfolio, and i think that is a key driver of why we're seeing customer occasions increase and traffic grow into our stores. >> i do think, kevin, when i look at what you're doing, you talked about innovation, starbucks today in terms of the clock, in terms of when you're using the physical plant, versus a few years ago when you first took over, there was really this kind of 2 to 5 period dead weight loss. you changed that with innovation, haven't you? >> we have really transformed the way we drive innovation at starbucks. and, fundamentally i tried to take all of the lesson i learned of 32 years in the tech industry, with how you innovate and constantly drive innovation that is relevant to your customers, innovation that inspires our partner and innovation meaningful to our

business, we have transforretrei 100 days and learn and adapt we see that across beverage, digit digital, store design and it is paying off for us. >> kevin, you know from my twitter following, i have to ask this, it is more than anecdotal, it is empirical, the franchise you have had to deal with and i know you like -- i read the book -- hms in airports, suboptimal, okay it is no longer just, you know what, jim, they're great, it is terrible there are so many of them that are understaffed, so many of them cavalier, they are not up to your standards, kevin what are you going to do about a partner who is -- i don't want to hear they're up to your standards, i have too much evidence that's not true how can you get that mess under control? >> first of all, jim, i'll comment the whole dynamic in airports is changed dramatically over the last five to seven

years. and certainly we had a long-term partnership with hms host. and, you know, the volume of traffic that we saw to our starbucks stores in airports over the this holiday season was phenomenal it is clear, we have got to reinvent and rethink how we do this now, hms host manhas been a long-term partner. hms host will continue to be a partner, but we're moving to a model where they don't have exclusivity. >> oh, amen. >> that will help us to innovate and try different things we're working on ideas with pop-ups, pop-up stores in airports that could move depending on time of day and where gate arrival and gate departures are taking place. hms host will continue to be a partner, but they will be in a model where they are not exclusive, it gives us a range of options to better serve our customers. >> that's so good. it had to happen i love it. go to the airport, get a coffee.

>> last week, you announced some plans to become more resource positive eliminating waste, storing more carbon than you emit i was amazed that adding whipped cream to starbuck drinks emits 50 times the greenhouse gases of the company's private jet. so i guess the question is how far are you going to take this effort into what consumers may want on their coffee >> well, first, we have been focused on sustainability for the last decade. but i think we realized that we have been doing it episodically on different parts of our business so about a year ago, we made a decision that we want to really take a wholistic look at our footprint as it relates to carbon, water and waste. and we engage some of the world's experts, bill mcdonough, paul pullman, and we sat down and we did this benchmark of our entire footprint and we decided to set a very

bold multidecade aspiration to become a resource positive company, a company that gives more than we take from the planet now, when you think about becoming climate positive and water positive and waste positive, that is over the next few decades going to really redefine starbucks and we have outlined a set of strategies and things to get us started we have set some goals and some targets for 2030, but we believe through the research, look, our customers want this. 36% of the world's population is gen does we're embarking on a journey we no they journknow this journ hard it won't be linear but we're going to do it do it in partnership with others and we're going to be thoughtful and we're going to bring the market along with us. but this is something that as we approach the 50th anniversary of starbucks, we'll redefine the company. >> it sounds great you're talking about changing customer behavior in such a

significant way. the single use of your product is enormous, obviously look outside at any garbage can outside of starbucks and it is filled up to the top if not overflowing unfortunately here in new york. you think you can change behaviors to the extent people will, for example, bring in their own thermos and that will be the rule rather than the exception? >> i think when it is a cup for takeaway, part of what we have to understand is how to reinvent those cups so they're compostable and repsychoable and we work to ensure there is a waste management facility that does the recycling we're going to focus on re-useables. and you look at some markets in korea, for example, they're now at about 50% re-useable cups and so if a customer consumes their beverage in the store, maybe it is a ceramic cup, and other cases we'll focus on re-useables. but these are the kinds of problems that we have to solve and part of it will be helping

adapt consumer behavior you take, for example, in beverages, roughly 15% of our beverages and our stores in the u.s. now are alternative milks. plant-based milks. that number continues to grow. those are examples of things that we're going have to -- we're going to have to influence and take customers and partners on this journey with us. but we believe that this is something that the world wants and needs and we're going to do it thoughtfully, we're going to do responsibly, we're going to do it consistent with our brand and we think we can have a significant impact by bringing others on this journey with us >> all right, i know you're doing some great plant-based stuff too. are you in touch with the prc? the chinese government what are they telling you? >> look, we have been in china for 20 years over 20 year now, jim. yes, we have a relationship with government officials, central government, provincial government, local government, and we're connected, we're communicating with them on a regular basis.

certainly as they are working to contain coronavirus, we're playing a responsible, constructive role in helping them do that simply by just being aware of where we need to close stores and how we can also help, you know in we can close stores and also in an area where we have stores open to ensure this virus is being contained. so, you know, this is a temporary issue. don't be confused. we've been in china over 20 years and i am still so optimistic about the long-term growth potential china presents. we will navigate this true to our mission and values and get through it and be stronger for it guess what next year we'll get to comp over this this does not change our outlook for our long-term double digit growth at scale earnings model >> all right kevin, thank you for never ducking us this is a tough quart tower try to forecast but holy cow i think you're as transparent as possible kevin johnson president and ceo of starbucks

let's get to phil lebeau this morning with a news alert related to the coronavirus phil, good morning once again. >> good morning, carl. american airlines has announced it is going to be canceling some of its fillets betwelights betw china, between lax, shanghai, and beijing. this takes effect february 9th and runs through march 27th. now, american will still be doing flights into hong kong out of l.a. and still be doing flights into beijing, shanghai, and hong kong out of dallas. but like united announcing yesterday it is going to be canceling some flights, american now doing the same thing guys, this is all because they've had a huge drop-off in the number of people it will be february 9th through march 27th between l.a., shanghai, and beijing. guys, back to you. >> some reports on the tape here, phil

that luftanza will do the same we already have air canada, cafe, british air, lion air, seoul air also suspending service to china thanks off the initial highs dow is up 122 dow to get back to break even for the week get you this really quick. 28,989.73 to wipe out the week's losses as a reminder you can always watch us live on the go on the cnbc app "squawk on the street" is back in a moment.

it's time for jim to talk trading. >> with wind, las vegas sands being really las vegas mchale, looking for a gambling stock

how about penn national gaming it's up big because business is good and because they just gave a big stake in bar stool they bought and valued bar stool at $450 million i've had one bite. >> churning group owns 36% >> they are a very big winner. >> national owns 36% as you point out they just paid in convertible stock for it. i thought they did pizza reviews. am i confused? >> why don't i ask portnoy tonight when i have him on >> oh, it is that guy. >> one of the smartest guys in the world. >> not only is he rich he's brilliant. also a patriots fan. >> we never got to mcdonald's. i'm sure you'll cover that tonight. >> oh, yeah. we never got to yum doing, you know, faux chicken so to speak, beyond chicken, which is blunting the reaction of tim horton's being out

i don't know why it was down doing some good things there >> best annual comp since 2006 >> a lot of good numbers you know what? also transparent sick of that yet >> goldman investor day now? >> not transparent enough. just kidding he is completely transparent he is like taking his clothes off for heaven's sake. >> we'll see you at 6:00 "mad money" here on cnbc when we come back more reaction to apple's numbers new record high for the stock. helping out the dow is up 79 legendary terrain in telluride, the unparalleled landscape of park city, or the famed peaks of whistler, you've faced the hassle of lugging your gear through the airport. with ship skis, you're just a few clicks away from having your skis, snowboard and luggage shipped from your doorstep to your destination. with unrivaled pricing, real time tracking ship skis delivers, hassle free.

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welcome back to "squawk on the street." i'm diana olick with breaking news from the national association ofrealtors pending home sales dropped 4.9% in december compared with november much lower than expected the street was looking for a slight gain. sales were still 4.6% higher annually though. the measures are for signed contracts to buy existing homes not closings so people out shopping in december mortgage rates were a full percentage point lower in 2019 than the year before so that helped the record shortage of homes for sale is the real problem

regionally month to month sales fell sharply in the south and west but all up compared to 2018 the chief economist is predicting just a 3% increase in home sales for 2020 due to that shortage of homes for sale on a brighter note though both pulte and d.r. horton reported earnings this week and strong gains in their entry level homes. carl >> thank you for that. good wednesday morning everybody. welcome back to "squawk on the street." i'm carl quintanilla with sara eisen and david faber at the new york stock exchange. markets losing a little steam here dow up 51. we were up 200 plus at the open on the busiest day for earnings season and of course fed day >> our road map begins with the earnings parade. mcdonald's, boeing, ge among the more than 40 s&p 500 companies reporting. stocks rallying but off session highs. >> it is the world's largest company. apple shares hit an all-time high but should investors be cautious of looming china risks? >> goldman sachs is holding its first ever investor day at the new york city headquarters not far from here. we'll take you there live.

>> as we said we are in the middle of the busiest earnings week, 44 s&p 500 companies reporting. we've got you covered here on cnbc our phil lebeau is covering boeing's big loss speaking with the ceo earlier this morning josh lipton has apple hitting an all-time high. we'll have the latest on ge with shares surging and will break down both mcdonald's and starbucks getting impacted by coronavirus. we'll start with phil, though, on boeing. >> sara, the q4 numbers worse than expected a loss of $2.33 per share, first annual net loss for boeing since 1997. let's be honest. it's the max people want to focus on and that is what wall street is focused on in that regard boeing had three announcements today in terms of a charge as well as two increased costs. the charge being $2.6 billion for airline and lesser payments. those are the airlines that don't have it or can't fly it right now. the increased cost to produce over the lifetime of the aircraft another $2.6 billion and it'll cost boeing $4 billion

shutting down the assembly line which is now completely shut down and then starting it back up now, the most important piece of news of the day came when we talked with the ceo david calhoun. he said, again, that he is reaffirming the company's guidance that they expect to have the plane ungrounded by the middle of this year. here is calhoun talking with us earlier today. >> we put together a schedule we think we can make. not easily it requires a lot of execution it requires a lot of discourse a lot of back and forth with the faa and the certification process. but we think we've been realistic about that as we laid out this timetable >> as you take a look at shares of boeing one other piece of news from dave calhoun this morning. we pressed them on this question of whether or not you drop the name max when this plane finally comes back that the public won't want to fly it and he says, we are not changing the name of this airplane. this is not about marketing. this is about proving to everyone that this will be a safe plane when it is recertified. guys, back to you.

>> phil, you made the point the total cost of 18 six is about double what it was at the end of the third quarter. he did say transparency would be a priority and it would be uncomfortable in his words i wonder what you think that means. >> well, i think what it means is that they're trying to as much as possible, because this question came out this morning, people saying, wow 18.6 billion is that what wall street was expecting? some were only expecting 15 billion. there were some saying it could be as much as 20 billion what calhoun said this morning, both on camera and off camera is, look this is our best estimate as of right now. and what we're comfortable with is what we're giving in terms of guidance, both in terms of the schedule as well as the cost associated with the max. so i think that's what he is talking about at the end of the day is this is the best we'll be able to give you at this point that may shift that may change in a month or two. if so, we'll see changes from them certainly in future earnings reports >> phil, i read some of the analysts' reports on the quarter

this morning it looks like the defense business is also under a little bit of pressure. i know we're focused on the main issue of the plane >> right a little bit >> also china was somewhat of a disappointment are you surprised to see shares higher >> i'm not surprised because people are looking for some greater certainty. that came through with the interview with dave calhoun. this is all about the max, guys. that is what is driving the stock right now. and the belief or nonbelief depending where you are as an investor that this plane will be certified and start back into service maybe not by the middle of the year but shortly after that when you listen to dave calhoun and i can also tell you from when i talk to people at the faa there is feelings at least with the faa that they're making progress here. nobody wants to go out there and say it is definitive but it is a big change from where we were just a couple months ago when you listen to people a couple months ago, it was, i don't know maybe. maybe not. that is starting to change >> phil, thank you phil lebeau.

overall the s&p now actually down after a bit of a rally at the outset apple shares still are higher. let's move on to that dow component. of course it did hit an all-time high on what was a strong earnings beat. josh lipton is in san francisco and has a lot more on that record setting quarter josh >> reporter: that's right, david. a blockbuster quarter is how apple's recent report was described to me. one big question for investors of course what is the impact of the coronavirus on tim cook's company, cook saying he gave a wider than usual revenue forecast because of the uncertainty caused by the outbreak you can see from the range he says that it anticipates some level of issue there otherwise, we would not have a $4 billion range cook says he has alternatives to his suppliers in wuhan, considered the center of the virus, but says retail traffic has been impacted. overall, though, the tone of our chat very positive iphone revenue, $56 billion blew past expectations

the 11 is cook's best seller with cook saying, people love the battery life they love the camera we also hit the right price with it as for other segments, services jumped 17% to a record $12.7 billion though that did miss expectations. wearables surging 44% and cook could have sold more but he remains supply constrained there. i asked whether he is worried that consumers if they can't get their hands on new air pods pro right away might buy rival products instead cook not worried saying it's a materially better product. i think most people will order something and take a little longer to get it versus getting something that they're not as happy with and having to have it for several years. guys, back to you. >> josh, it is obviously coloring so many different universes of coverage today including mcdonald's and starbucks, both with deep exposure in china. we talked to kevin johnson of starbucks a few moments ago

about the impact of the virus. this is what he said >> we're now managing a very dynamic situation in china related to the coronavirus, and we've been in china for 20 years. we realize this is a temporary issue that we've got to deal with we're doing it responsibly we're doing it by prioritizing the health and well being of our starbucks partners we're working closely with local health officials and government to help ensure they're able to contain the virus and that we can get through this quickly and get on with it >> our guests joining us this morning to talk about the restaurants and how they are being impacted by events all around the world good to see you. good morning starbucks closed 2000. mcdonald's said theyclosed several hundred but still have 3,000 open in china. how do you compare the impact between the two companies? >> mcdonald's is a headline risk it's an entirely franchised

system and so it has less of an impact on the actual financial performance. starbucks can see double digit operating income impact from its china stores that being said, because the stock is off it could actually end up creating a buying opportunity. starbucks is also a strong digital relationship with their customers in china and i thought most impressive was the digital transaction growth that was up 40%. i believe 10 million users that have essentially using the rewards or having that digital relationship program, so if and really when this rebounds they're perfectly positioned to be having that guest and that consumer back in the starbucks stores >> matt, do we go along with that, that this creates more of a bargain in starbucks than mcdonald's maybe >> well, not really. i am a little concerned with what starbucks showed also in china before the virus broke out. they did a 3% comp in china that's down from 5% in the prior

quarter. it is down on a one and two-year basis. it does reflect or bring up concern that are the competitors on the ground taking some share from them. they did 9% from delivery. it implies that they're seeing negative -- the rest of the business is negative in the walk up retail business i think that is a big concern for a company leaning in to do 600 stores out of their 2,000 dploebl globally coming from china >> why is that, matt what was the explanation are the nitro and other cold beverages not working as well in that market as the u.s.? >> you heard a lot about the competition. there is a local competitor there growing very fast. they are taking on delivery. delivery is not always incremental overall to sales it does cannibalize some of the existing store sales also you have to question the pace of growth almost two stores a day. are they self-cannibalizing also and then lastly, they are going into second and third tier markets potentially the brand might not be set up yet for that evolving middle class which they're making a long-term bet on >> all that said, in the

americas starbucks comp 6. mcdonald's 5.1 it was above 4.5 for all of last year and additional comments today about how owner/operators' cash flow is an all-time high what is driving strength in america? >> well, let's kind of also go back to matt's comment on china. it's apples and oranges. the competitor he is no the talking about, they're not reporting come pleases for a reason and it is that cannibalization. the 3%, apples and oranges 80% of the revenue growth comes from unit growth we just need to keep that in mind to answer your question, it's beverage and they're spot on in beverage tan is definitely cool beverage specifically driving that traffic. >> what about mcdonald's i wonder if it says something, matt, about the u.s. consumer or if just starbucks and mcdonald's are two good examples of companies innovating around their menus and executing well in the u.s >> that is a great point

certainly mcdonald's has leaned in with the experience of the future they call it eotf. they are spending $2.4 billion in capx. a large portion is globally they are remodeling the stores. in is u.s. 70% of the footprint is at the higher, elevated store experience that is showing through in the comp numbers starbucks has invested in the u.s. and it is rewarding them. i think to the point about china you have to be concerned investors don't like to see square footage growth in the face of what can be perceived to be negative comps outside of delivery >> you guys really want to address this china thing it's interesting finally, nicole, traffic what is it going to take to get that to go positive which clearly it did not do at least for mcdonald's this quarter? >> i think mcdonald's is a tougher call on the traffic point. the competitive set, it's all about breakfast and all about maybe chicken actually could be the year where it's really about chicken and qsr especially if we end up having beef inflation i would say two things

it's just an incredibly difficult environment. it takes value but value not just on price point. value across every day part, across every platform. really that can mean value in terms of a lot of food at even a higher price point, new, novel items. i also want to say we're totally losing sight of who is not impacted there's another large cap player that has zero stores in china and doesn't have these issues and that's chipotle. we shouldn't lose sight of that either >> obviously had its own tailwind to work with in recent quarters thanks, guys hugely important we'll watch it closely >> thank you well, after the break both l brands and ge shares as you can see are up sharply the they're lead in the s&p. this piece is talking to me. yeah? so what do you see? i see an unbelievable opportunity.

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fitch, the limited, victoria's secret into national chains. last year wexner drew attention for his association with disgraced financier jeffrey epstein. that was a problem for wexner but also, guys, the fundamentals especially of victoria's secret have been a problem for a long time they just have not resonated with the younger consumer. look at a brand like airy which is american eagle's answer to lingerie they have real people in their ads, real campaigns. the whole victoria's secret angels thing just really didn't catch up with the times and as a result has been losing market share for years now. >> yeah. it is unclear. it's funny, i've had a conversation with a couple people who considered an activist run at the company. there was an activist there. barrington a while back. but they begged off in part because it was not clear to them who the buyer of victoria's secret could be if there was one. but even more importantly the growth aspect of the company is bath and body works. you know, can you really fashion

something that would work there and can you bank on bath and body works continuing to have the kind of growth it has? he obviously made his name -- created this company based on seeing the opportunity in malls but we all know that is no longer the case, sara. so it'll be interesting if they, you know, it is a trophy brand but can they really find somebody here who actually wants to take on victoria's secret >> well, an analyst puts out a note today pretty skeptical of the fact they could find a buyer. he said maybe a sale or go private deal is more likely but again, this is a company that has to deal with the fundamentals at least on victoria's secret. yes, wexner ran victoria's secret for 38 years. he built it into a multi billion dollar brand maybe it is time not to be run by an older gentleman. it's all sale lately >> at 82 he is thinking about as you would expect potentially handing it over. we'll see. it is not clear to me it will necessarily result in a far

higher stock price unless you get an unexpected sale at some sort of unexpected price of victoria's secret, which seems unlikely perhaps just enough the idea that he would step aside is seen as a positive. >> i don't know. he's what, owns 17% of all these shares but the question is, what is the future of the company? he is also considered one of the best in the world. the epstein though was a black eye. >> wuchb the great merchandisers of all time. >> longest serving ceo of any s&p company. 57 years amazing. when we come back goldman sachs holding its first ever investor day at their nyc headquarters. we'll take you there live as that stock has gone red wh quk t see returns there's a bridge. between endangered and protected, there's a bridge. between chaos and wonder, there's a bridge. there from the beginning to where we stand today. one company. one promise.

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with infrastructure built for the future, the companies of tomorrow can thrive here today. see your future at esd.ny.gov. it is now time for our etf spotlight. today taking a look at the financial select sector spdr ticker xlf in negative territory for 2020 though currently trading up about one-third of a percent. goldman sachs is moving lower this morning, a bit of a reversal from earlier. the company's first ever investor day is under way. we'll go to goldman headquarters

in new york just down the street for the very latest. good morning, wilfred frost. >> reporter: good morning. the stock is down about a half percent but the sentiment i've gotten from investors here is goldman sachs has beaten elevated expectations with the projects they've laid out and the financial tarkgets last year return on equity was 10%. then new target over the next three years is 13% or higher and over the long term mid teens or higher they've also broken roe out by segment for the first time what really stands out here is how low roe is for the consumer business therefore being framed as it can only improve from here and temporarily low it was for the all important markets, business 40% of revenue. r.o.e. of only 7% below and clear guidance that can get up to double digits fairly quickly. also pretty impressive targets in terms of efficiency ratio

saying they can get that down from 68% to 60% over the next three years in part because of significant cost savings and we've just had a break here. i got a chance to talk to quite a few investors and i'd say the single thing they were most positive about from the early presentations was how much of this is achievable by internal levers, things like cost cutting but also a shift in funding from wholesale to deposits whether that is in asset management or the consumer business? in that sense investors feel it derisks slightly, achieving these targets, compared to if it was all on new revenue targets particularly if the macro environment turns. nonetheless as you said at the top, the share price now down about 0.7% it was up as much as 1%. year to date it is up 5% compared to as you said at the top the broader banks index down over 1% year to date we will be able to discuss a lot more of this with the chairman

and ceo david solomon closing us on closing bell about 3:20 eastern time guys >> an important day for him and so many members of this management team many of whom are taking that stage i guess to present various parts of the business i don't want to make too much of it but it is interesting the stock looked up and turned down. there is nothing that you identified in particular that disappointed people? >> reporter: no, i don't think so as i said, the head of the investment bank took the stage maybe 20 minutes ago and during the break before that, the first chance we all had to talk to investors after the initial presentations from david solomon the chair and ceo and the president and coo and the cfo, the big picture presentations, the tone was very optimistic i don't know if that was a little bit of profit taking as everyone kind of came together but, no. i maintain that everyone was pretty optimistic off the back of that. i do think, clearly, these targets are strong

the question then moves on to can they execute and deliver on all of them? the other factor i think coming into today, david, people were wondering, was, were they going to be able to make a clear announcement on settling the 1 mdb issue and they haven't done that the tone similar to a while, the sense is it is close the forecast on litigation expense drops off significantly in the future years relative to the parties which again suggests they don't need to provide further money against that but they haven't been able to make that loud and clear announcement that is a long way behind them maybe people were expecting that this morning and didn't see it but the stock still significantly out performing year to date the rest of the pack >> there is a report today jpmorgan is cutting a few hundred jobs in its consumer division which is sort of interesting because i know at goldman they've been really pushing that business, the consumer bank, pretty hard >> yeah, i saw that. it was in the consumer bank. it was less than 1% of the work force in the consumer bank for jpmorgan so of course even less

than 1% of total head count. it is therefore hard to attribute that more to anything other than sort of annual churn. that said, the consumer bank you can expect to see that start to see a bit of head count. over the next decade of course tech is more important in consumer facing businesses rely more on tech than necessarily on bank tellers but goldman has the polar opposite model on that it doesn't need bank tellers it is all on just the consumer the interesting thing on that, the deposit aspect of that even if it doesn't lead to a massive change for jpmorgan or bank of america in retail banking, it is helping goldman sachs in terms of funding costs relative to wholesale funding which we heard about today. >> it is interesting 1.7% on savings and 2.15 on a cd, one year well, thank you. wilfred frost. we'll be hearing from him later. don't miss that interview with david solomon. let's get to shares of ge, up

sharply, up almost 10% in fact, this after the company topped earnings expectations. the stock is up about 50% over the last year of trading but of course still down dramatically from those highs of, well, many years ago at this point. we have more on what is being viewed as a positive quarter for this company as it heads into of course deeper into 2020 seems such an important year >> yeah. i just got off the phone with the ceo of general electric and asked him about the strength they're seeing in aviation where ge was able to grow its free cash flow versus prior years despite the $1.4 billion cash headwind from the grounding of the boeing 737 max which ge makes the leap engine for. he says they're aiming for the mid 2020 return to service of the max but notes, quote, the situation remains fluid. meantime ge is cutting shipments of the leap engine to boeing by half this year compared to the 2019 run rate. with that bringing down

production levels not to zero because ge wants to be ready for the return to service and subsequent ramp up he also says general electric has had a terrific year with airbus as ge manufactures the engine for the air 320 culp says the key operational focus in 2020 this year will be renewables, ramping up onshore wind with the launch of the holly x next year the world's largest turbine plus projects related to hydro power culp says we are not pleased with the cash performance in renewable. he did spend time in india and france this past month speaking to existing and new customers. still waiting for progress in that division. on india culp says he is keen to see the second term for the prime minister modi result in a better story lastly on the story of coronavirus ge's health care division is increasing deliveries to wuhan hospitals in china including patient monitors he says they are in the middle

of the action there. still too early to discern the specific impact on sales and its business he has repeatedly said over the past couple quarters 2019 is a reset year for general electric. i asked him what word he would use to describe 2020, david. he said a multi year, transformation story you take a look at the stock trading around $13 a share it dipped below $8 last summer and the 20-year chart will show you it is trading around $60 20 years to go certainly some progress to be made in the coming quarters. >> i remember those days about 45 times earnings was the high right back around the turn of the century you know, getting their arms around power was such an important thing that they seem to have accomplished last year into this year it is interesting now they seem focused on turning around renewables not nearly as big a portion of course of the company as power >> yeah. well, with utilities now closing down a number of coal plants, natural gas prices continuing to fall, in general the industry is moving toward renewables and trying to invest more in that

space and making it more cost effective as well. so i think wind and making wind more cost effective for the industry is something that ge and all of these other players will have to work on i think it will be really interesting to see once that debuts next year, the world's largest wind turbine is what ge is calling it. >> ge is having a very good day. up 15% so far for this year. thank you. >> yes time for a news update let's get over to sue herera back at headquarters for that. >> good morning, david good morning, everyone here's what's happening at this hour a plane evacuating 201 americans from the chinese city at the center of the coronavirus outbreak landed in anchorage early this morning it then continued on to southern california after everyone onboard was screened again >> all passengers had already been screened twice before they left china they were monitored throughout the flight in anchorage the passengers were screened twice more and approved to continue on to california by the cdc.

in california they will undergo additional screenings and finish the repatriation process >> a palestinian official rejecting president trump's middle east peace plan which would create a small palestinian state in the west bank and allow israel to annex nearly all the jewish settlements in the area >> i think this is known from the beginning. it is a very cynical exploitation of a very tragic situation of occupation and violations of palestinian rights and so on. in order to serve the narrow interests, personal and political interests of netanyahu and trump. >> you are up to date. that's the news update this hour i will send it back downtown to you, carl. >> sue, thank you very much. after the break the world's largest company apple hitting a new all-time high on its earnings beat but should investors be cautious with some of the risks involving china we'll break down those numbers when we come back with the dow up almost 90 ♪

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apple hitting a record high after results beating on both the top and bottom line. ceo tim cook calling it a blockbuster quarter. here to discuss what to do with the stock, the senior tech analyst at citi and the senior research analyst at cowen. i believe both you gentlemen raised your price target on apple. both have a buy. jim, i'll start with you how do you think about how much more upside this stock can have given it's already what, 100% run over the last 12 months? >> you are correct if we look at the fundamentals about demand of what's happening with apple, here are some dynamics that are very interesting. some of their products such as air pods as well as watch are selling out. that's a great indicator for demand it's not because they're having issues with production or yield issues it is simply demand is so strong

we see this year revenues growing about, you know, 10%, 11%, and earnings growing 20%, 21%. then we believe in april they'll announce another capital deployment of increasing the stock by backing dividend. we think estimates keep going higher the company keeps making more money. and margins are also going higher it is setting up for a very good opportunity and a reason why we think people should buy and own apple stock. >> you're not worried, jim, at all, about the uncertainty around the coronavirus and the supply chain >> we're definitely keeping an eye on it. to completely say we're not worried would not be true. i am definitely concerned and watching it. tim cook did mention that they're building in a little more conservativism around the virus. we're carefully watching it. we hope that the people who are smarter in the medical field really get their arms around this and contain it sooner rather than later. we're watching it. but right now, fundamentally,

apple's end markets in every region and every product are seeing great demand trends >> chris, what is your take on what drives the stock from here? >> i do agree with a lot of what jim said i think the three things from my vantage point is, number one, i think the iphone momentum is still there. especially as we head into the 5g cycle what you've seen over the last six months is iphone units get devised upwards. i think that movement definitely helps the stock. i understand the bear argument which is maybe nit picking a little bit but concerns over valuation that services kind of came in slightly below consensus but the reality is that you have a 50 plus billion dollar revenue business growing at mid to high teens. growth rate is pretty impressive the third thing i'd also highlight is i understand that december is seasonally the strongest quarter but the free cash flow margin is almost 28% and all the buy back apple has done over the last six to eight quarters has been funded by cash

flow you know, being net cash neutral for two years but still a hundred plus billion in net cash i think the dynamics are still in favor of the stock and buys to the up side >> i'm glad you mentioned that bear case. we did have a guest on yesterday, has jumped in and out of apple, runs the hedge fund. he has been short. has been long. he did say he was looking at today as an opportunity to potentially go short he didn't like the $300 million miss on the quarter for services if you're going to value the stock higher which has been the whole thesis over the last year he said you can't miss on that kind of growth how do you push back against that >> that's why i said, it is a little bit like nit picking on one end. because you miss by 300 million. roughly a three-person downslide versus where consensus was and these are consensus numbers not management guidance. but the flip side of the argument is i do understand the bear argument because part of

the whole services thesis is that it helps relay the multiple for the stock and that is kind of what happened i do understand the argument i would probably say taking one quarter and the $300 million miss on the $12.7 billion revenue and extrapolating it is being a little too aggressive. i would say look at the bigger picture. look at the trends you have a $50 billion revenue business growing, still, you know, i think that is respectable and, you know, what surprised people to the upside on the services was the margins which is still like a healthy 64%. >> jim, i am curious about your view long term about the number of shares outstanding and buy backs. you look at the peak back in 2012 and the degree to which it has come down since. do you think there is more to go in terms of removal of the float? >> we do when we look at apple's capital deployment program, they've been very consistent with returning cash to share holders in the method of two things first, a stock buy back. and second, a dividend

we expect when the march quarter ends and they announce earnings in april, that they will announce another stock buyback of about $75 billion as well as increase the dividend by 10% so those two metrics we believe are going to return cash to shareholders because apple is generating traditionally ballpark around $70 billion of cash per year and they eventually want to get to net cash neutral, which as krish said, again, he is absolutely correct on his numbers, that they have a lot of net cash they can still deploy in addition to additional m & a and we expect another stock buy back of $75 billion and that is going to help reduce the share count and drive earnings in addition to the sales and margin expansion. >> jim with a buy at 375 and krish at 370 thank you both for joining us.

>> thank you as we go to break let's look at some of the dow's top performers on this big earnings day. dow ink we talked to jim earlier in the show. boeing enjoying a 3% gain. as a reminder you can always watch us live on the go on the cnbc app make sure you down load that today. how well does your financial advisor know you? if they saw you on the street would your advisor recognize you? at ameriprise, we see you as more than a client. that's why our advisors care about what's important to you. they offer personalized advice to help you prepare for what's expected and even what's not. giving you the freedom to live financially confident. because to us, you're more than just another face in the crowd. with the right financial advisor, life can be brilliant. ameriprise financial.

one market bull is changing course and forecasting a pullback as large as 10% find out why on "trading nation.cnbc.com. more "squawk on the street" coming up.

let's get the santelli exchange >> reporter: good morning, carl. this is fed day so we always have a special guest today's special guest vincent reinhart mellon's chief economist. thanks for joining me. 1.5 to 1.75 and it certainly seems as though it will take much more for tightening than an

ease what do you see at today's meeting and press conference >> so, jay powell hopes he is boring but it is his ability to mike it interesting. what you want to listen to is how high the guard rails are around the current fed funds rate much more likely to ease than tighten but he has to express his willingness to do either depending on the economic outlook. just see how much pain he takes to express the down side relative to the upside risk. >> three eases and many were pinpointed to the notion of the uncertainties of that era. one of them being trade. that has been settled. there is definitely no talk of a take back. but now we have a coronavirus out there that could be another issue for the fed to look at in its asymetric viewpoint, meaning another chance to potentially ease do you see it that way

>> not right now they've got to get a lot more information. what will be interesting is how empathetic the fed comes across in expressing concern about the risks of the outlook because of the coronavirus. they'll probably tuck in a phrase in the statement but jay powell is going to get a lot of questions about it in the press conference he is going to want to say it's early days, too early to tell. of course they'll be responsive. but he also doesn't want to over state it to, among other things, to add to the notion of risk off. just worrying investors and also promise something they may not do, i.e., ease >> now, the biggest topic in my opinion outside of course of the coronavirus would be the balance sheet. if you look every thursday afternoon, in market parlance it certainly looks like resist tins

just under $4.2 trillion with respect to the size of the balance sheet and that is with $60 billion a month of bills being purchased for liquidity purposes how will that be addressed >> brute force it's not about the size of balance sheet. it is about how much reserves they're providing on that balance sheet. and they have decided they're in an ample reserve rate regime they don't want to replay the end of the third quarter when overnight rates spiked so they are just going to keep buying assets whether on an outright basis or temporarily so that they keep enough reserves in the banking system so they don't repeat september >> you know, mr. dudley, today in a bloomberg piece wrote that he doesn't see what we all see and that is how the equity markets are following the size of the balance sheet like a dog on a leash

weigh in on that for your final thought. >> so, fed modelers, fed economists believe it all passes through the interest rate not the amount on the balance sheet. if the fed is providing liquidity to get the funds right where it is, that is the support to equity markets not the size of the balance sheet probably not right in the sense that the size of the balance sheet contributes to the risk on nature in equity markets it's reassuring to investors if it's reassuring to investors, if it is taken as a sign that the fed will always be there to watch your back, then it supports equity prices >> excellent thanks, vincent. to me it seems like a financial argument based on semantics, but we will see. carl, back to you. >> all right rick, thank you very much. very special closing bell coming up this afternoon, sara, given all the earnings and the fed reaction >> right we'll have jay powell and his news conference of course a

great panel. wilfred will also have goldman sachs ceo david solomon from goldman's first investment day here in new york the white house director of trade and manufacturing will join us and today's closer is jason robins betting heating up ahead of the super bowl. all kicking off at 3:00 p.m. the most important guest of course is you, carl. my wing man. >> always happy to help out. it's going to be good. >> in the meantime let's send it over to john with a look at what's up next on "squawk alley. >> we got an analyst famously bearish on apple throwing in the towel. yes, maybe it is time to eat a little crow but also a good opportunity to really zero in on what's changed with this apple anarter and guidce that's coming up on "squawk alley. y medic, made of the flexibility to handle whatever monday has in store and tackle four things at once.

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welcome back to "squawk on the street." i'm done niminic chu. stocks trading slightly higher today but not nearly what we've seen over the course of the past two sessions one of the sectors underperforming is the communications sector, you can

see the second-worst performing sector today as we look at some of the laggards, including netflix, comcast, viacom and disney as well at&t is the worst performer after fourth quarter revenues came in shy of expectations, dragged down by a drop in subscriptions. the company did reaffirm it will invest up to $22 billion on streaming content in 2020. shares down though 2 1/2%. carl, back to you at the new york stock exchange. >> dom, thank you very much. the market trying to get back to the rally here meanwhile, live picture at the white house as we await the signing ceremony for the usmca kayla is there with what we might expect. >> good morning, carl. you can expect a victory lap from the president and administration on replacing the

25-year-old nafta. that was his key and specific campaign promise now it will be signed once canada ratifies it will be taking effect. today on the south lawn we expect more than 400 attendees including the ambassadors from canada and mexico to the u.s we expect lawmakers, executives from industries like the automobile and pharmaceutical sector to be president a lot of constituents and stakeholders who have been very in depth participants in this more than two-year process to replace the nafta deal but it's impossible, carl, to cover this event without talking about the bitter politics of this moment. on the other end of pennsylvania avenue, questioning getting under way during the president's impeachment inquiry. white house officials trying not only with this event but china trade two weeks ago to establish the split screens, exercise in contrast to show they're working for the american people and achieving economic successes meanwhile, democrats at the white house are toiling through this inquiry they believe will

still result in the president's acquittal. we should note, no democrats were invited that is something that resulted in much hand ringing on that side of the aisle. a spokesperson for nancy pelosi said the white house has not invited democrats to the signing ceremony but we will be represented in the huge changes to the usmca that they rushed out on labor, prescription drugs, environment they were expected to pass this out of the house and senate to get to where the president is today, as we await his signature on that bill guys >> kayla, a lot of investor notes and business groups have all come out and praised the usmca and mostly for clearing out uncertainty related to these negotiations based on what you can tell about the agreement, what's the biggest difference in terms of actual implications for business between nafta and this deal?

>> you have to separate there some of the macro-impacts, which we don't really know but there are stats. and then specific industries the international trade commission said by the sixth year the deal takes effect, there will be an impact of about $68 billion to gdp 035%. they say it will grow the company by half a percent as soon as this year. but we don't know any of that to be true. we don't know exactly what the effect will be and we don't know exactly when canada will ratify this, chsz whwhich is what we no happen for it to go into effect. and then the impact on automobile and pharmaceutical industries they will pay more in tariffs according to estimates and pay more in wages what they produce in mexico and pharma companies will certainly sue shorter protections for brand-name drugs. and we're still trying to decide the impact of that.

>> after a year of trade uncertainty, the market would like to have this signed and ratified by all sides. we will see what the ceremony is like in a few moments. see you in a bit our kayla taushy outside the white house. after the break, we will go live to the signing. dow is up 146, 3286 on the s&p

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it's 11:00 a.m. at the white house for the president's signing of the usmca a few moments away it's 11:00 a.m. on wall street, and "squawk alley" is live ♪ it's fun to stay at the ymca ♪ it's fun to stay at the ymca they have everything that you're meant to enjoy ♪ ♪ you can hang out with all of the boys ♪ ♪ it's fun to stay at the ymca ♪ it's fun to stay at the ymca ♪ you can get yourself free ♪ you can have a good meal ♪ you can do whatever you feel ♪ young