good thursday morning. welcome to "squawk on the street." i'm carl quintanilla with david faber and jim cramer we have supply chain warnings from tesla and mcdonalds and others road map begins with the return to fundamentals. a slew of corporate earnings and a flood of data crossing the tape futures point to gains at the open. >> plus returning to profitability. southwest airlines posting the first positive quarter of the pandemic outgoing ceo will join us. and tesla is going all in o self-driving elon musk calling it, quote, nutty good from a financial standpoint." we start with elon musk

outlining the supply chain challenges. >> 2022 will be the output across all factories so the chip shortage, while better than last year, is still an issue. >> that is the picture of the morning, jim whether it's the economics and restaurants and mcdonalds or the car business >>well, i was struck, i mean, i kind of want to urge people to listen to his call he's a lot more thoughtful on these conference calls than he was at one point just because he used to have so much fun but, i mean, he's really just talking about, look, i want to produce the most cars possible in order to do that, i can't introduce new cars or trucks they can't produce as much as they want. and the real focus is self-driving and stop worrying about the other things we haven't figured it out. david, one of the things i love, he has a narrative now it's kind of like andy in the old days on intel.

here is the narrative. if you want to keep the narrative, i'm not interested in talking to you he pacifically says are you listening? that's not what i'm talking about >>well, mr. musk doesn't suffer fools gladly never has. never has. >> don't you like that >> yeah. you can have that kind of attitude when he's had that kind of success. >> he's a remarkable man remarkable. >> i know. he's forever changed your thoughts of him as a result of your meeting him last year or whenever it was. >> i just think when he -- he's talking about the idea if you want to know how to control inflation, you do self-driving cars now you know who else feels that way and they're not really in line is jenson you know, these guys think it's the future of course, carl, one accident and people think it's -- >> but there also is a level of criticism of saying that they're

not ready for fully antonymous at tesla selling anything along those lines you can sit in the backseat, don't do that. it's nowhere near ready for prime time. >> but i guess what i'm saying is if you're selling the stock here, what you're selling is the idea that he can't get the chips he wants right now that is a constant there isn't anyone getting the chips. no one ford or gm is not getting the chips. anyone who needs chips. >> what is going to be -- he told it was going to be kind of getting better by now. >> the demand? okay good point. >> i mean, all right telling me it was going to get better. >> let me finish tim archer, i was being nice -- i didn't mean to say it. >> sounded like a conversation at the table. >> yeah. a loving family. occasionally we'll have a spat. >> go ahead and finish your thought. >> thank you okay so you have to listen to tim

archer who is fabulous he runs lam research. >> yes. >> he talks about there's crucial cars that made it so h couldn't deliver all the machines that make it so that someone can produce a lot of chips. so the supply chain problem said now, actually, reach the level where you can't get the machines to make the i chips. if you read what lam says, you realize, wow, even when they offer the factory. they're opening factories everywhere what happens is that if you're counting on machines to make chips, they're not making enough so that's where, you know, it's all the way up stream now. you may think it's going to ease and tim archer, whom i've trusted, said sorry we couldn't make what we wanted. now what happens is a new theme. call this is the most worrisome theme. people are building. analysts are melding what powell said with the information. and what they're saying is, you

know, by the time lam research gets all the machines and then you make all your jets, we'll have an inventory recession because jay powell agrees s-- raised six times that's what people who make semiconductors listen to on the conference call. it's, you know, tim archer and everybody goes listen. don't think you think there's going to be an overhang in machines and the next guy goes no one is listening to the call. they have made up their minds they'll have too many chips. >> do you remember a couple of summers ago we couldn't get gym equipment? >> yeah. called the bull whip effect. double ordering. the double orders get cancelled. there will be a time, jim, there's going to be plenty of chips. >> see i would say the smartest people i deal with say that's happening in q4 and by the time that -- you'll be talking to pat gel singer by the time he's able to make what he needs to make,

we don't need them is that necessarily the case i don't know i would double order if i were in a position needing chips. >> obviously there's intel. >> by the way it was a great quarter. it was great it's great by the way it's great and we're building everything. you don't need to read it. sometimes we forget about samsung. it's the largest in the world. >> extraordinary and enormous part of the south korean economy which reported earnings that were record. >> right carl is right. the analysts have seen it time and again. when you finally get all your chips, it's too late now the question is, will it be like the inventory correction like micron had. it only lasted a short period of time because the secular changes in the economy are such that we're not going to have up-and-down and up-and-down.

hence why i think the hero of the hour is lisa sue she has diversified to something away from the fray she's no longer on the gelsinger trench now it got here even faster. >> what do you think of it >> i think it's an important moment for amd they'll be able to close the transaction very quickly >> right i think when you get a company that is stuck in the cross hairs of pat gelsinger, even though he's failing badly to catch her and losing share, that's not his narrative. honestly it was a bad quarter they spent a fortune to catch up with lisa sue.

and now she's got -- and it's a great company. it's been under managed. she can come out and smash the numbers. cloud service and intel down 5 got a lot of attention where is all the pc strength we thought or microsoft at least saw in their print >> the high end notebooks are good the low end are not good the amount of money he has to spend to keep up with lisa and inv invid ya you're shooting for 63 or 64 for the margin they're in the 53 to 54. and i don't know how they can get off this pat didn't do anything the previous people were like jpmorgan let's cut. now you're suddenly, david, in a

position where amd has been spending like mad. invid ya has been spending like mad and they're wellnvidia has mad and they're well ahead they need to do it to keep up with amazon web services and alphabet and azure. >> without a doubt that is one of the key considerations. >> right. >> the incredible growth of the cloud over the last five years. >> and that's -- >> are we going to hear the interview? >> yes i don't want to be too focussed on the cloud but last night was a seminight. and the cap equipment turned there's two ways to look at this we can focus on what the fed says or we can in david's wheel house or focus on like michael at selling 14 times earnings. >> yeah. there was a report that sigma had preliminary discussions of some kind. i have nothing. >> and talking broadly about m &

a? >> yeah. tommy has a fantastic medicare business he figured out how to do obamacare in a responsible way. >> yes. >> and the fact is that, you know, you think that anyone who buys michael's unbelievable cheap is thinking wait a second, we could get five hikes? >> i don't know. they're not thinking about it. >> no. >> if you're a tmt guy and buying 40 or 50 multiple revenue stock, you're thinking about it. >> exactly. >> by the way, you're thinking maybe it's not coming back >> no. maybe i have to focus on the names 30 to 40 times earnings as posed to -- >> right even those don't necessarily work. >> they may not. >> it's interesting how often lately google is coming into the conversation now same multiple precovid there are people who, in addition to bill akman want to own netflix now. they think it was overdone last friday in terms of the decline there and, at some point, it

should trade it's having that transition from growth to earnings that can be somewhat bumpy so, you know, there are always opportunities, jim the idea that some of these higher multiple companies -- you've been saying this. >> yeah. >> with very little earnings but snow flake falls into that is it going to trade at 80 times revenue again? >> no. but, you know, let me give you -- let's be imper kl rather than antidotal there are 650 companies that started as much last year. they are down. 67 percent are below the offer pricing. 37% are 50% below the offering price. 50%. that's 5-0 spaks, let's talk those. 86 of the 205 former spaks are trading below 10 85 of those are or 41.5% are actually trading around 5. >> yes look at our great spak index >>well, this is where --

>> it comes out of the whole spak thing with the index. >> this is where you're in trouble if you own the stocks. >> yes. >> i found 61 names down 10% so 10% of them are interesting. >> yeah. that's the only one that is above it. >> this is worth real money. david -- >> what? >> did your parents drink -- >> not aware they did, no. >> there's a thing called sark it's an etf. >> it's a short? >> yes it went from 35 to 49. my parents switched to j & b at one point. >> look at this. >> that's after you've done the deal and it's closed you're trading at 60% of where you were if you just got out -- >> that's why i've been on the warpath. >> you you? don't i get any credit in. >> you're right. there's no original thinking, carl he had it before i did we need to talk comcast, our parent company. >> okay. >> stock is going to look down again. it's not been a great year

the stock is flat. we'll call it for the last 12 months on the call moments ago, the company indicated it'll spend more money on streaming service peacock than perhaps anticipated. as well, not getting to break even at peacock as soon as perhaps some had thought this, of course, goes back to direct to consumer remember dual streams here it's an ad-supported and premium service, as well you've seen it in a number of different direct-to-consumer offerings. peacock generated revenue of $800 million and and data loss even with the relatively limiting programming program, we've achieved a level of success. some of of which will be incremental. it goes on to say likely resolve

the ebitda loss for $2 billion for 2022 yes, content is expensive. streaming is expensive we've seen it time and again with these companies that have made it the center piece of their strategy it's not a comcast we haven't mentioned broadband subs. >> that's a concern. >> i know. >> how do we go to commercial with that? >> i don't know. >> jeez. >> but that's why the stock turned down. at some point we'll get people questioning the viebltd long-term and wonder whether the companies are pursuing the right strategy after the netflix and disney clearly the market leaders let's leave amazon and apple out. they have unlimited amounts of money to pursue. >> wow okay yeah okay that depressed you, didn't it? >> well, i mean, i kind of work for comcast. >> you seem sad. >> probably took a lot of comcast. >> oh, yeah.

it's okay. >> they need the content give it time don't you worry. uncle brian will deliver for us. >> take it offline in the meantime, a big morning on tap including interviews with southwest airlines and service now a bunch of earnings to get to including mcdonalds, sques, mastercard, levi, boeing wells skoel kohls, home builders, and snow and amazon and google be right back.

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take a look at the shares of service now. proposing upbeat quarterly results. that being an understatement joining us now is bill mcdermott, the ceo it's a delight to have you on our show. >> thank you very much, jim. great to be with you. >> bill, you'll be a bit of a test case at this particular moment as i listen to the conference call last night, i was aware that every single analyst congratulated you. the numbers are up very big. you're clearly changing the way people are dealing with inflation at the workplace you're a deflationary person because you're doing such a good job. what is your contrast between how you're really doing and what you hear us talk about with the federal reserve? >> well, if you look at digital transformation, jim, it's the biggest opportunity of our lifetime

it's a $10.7 trillion market between now and 2025 servicenow has positioned itself as the control tower for digital transformation and well-run companies. so what is happening with rising interest rates is, obviously, not impacting servicenow we have $5 billion in cash we're growing organically. we build all of our own innovations. we don't need to access the credit markets i talk to a ceo, i talk to him every day, but one last week told me something and i thought hit it on the head he said i have a long list of priorities technology isn't one of them it runs through all of them. we're in a privileged position, jim >>well, i think that for viewers who aren't familiar with your incredible work, it might help to be able to talk about a company gripped with inflation but wants to keep costs down while at the same time keep customer service up and that's delta airlines i think you can speak to what you're doing for them.

>> yeah, you know, ed is a great ceo, as you know, jim. delta is a perfect example of leadership that understands the world is in a war 77 talent. we have to give employees great experiences because you have to retain the ones you have and drive productivity that's the deflationary force you're talking about doing more with each person. we give his ofgs one service center, one portal where every employee can access all the services they need to do their job. for a company, you can recruit, hire, on board, train, and manage all the services of an employee but from an employee's perspective, everything i need on my mobile phone to get my work done, to get trained, to come back to the office safely, and it's all done on servicenow. of course, you know, we do this with jenson and nvidia and many others around the world. >> right bill, it's david you know, there's been a theme

in your world that there was a great deal of pull forward in terms of demand as a result of the pandemic these numbers clearly, perhaps, show otherwise i'm wondering for you could give us your insight on that and what you're hearing from other ceos and the likes of which you mentioned, as well whether the theme is for real or whether it's a bit imagined. >> yeah, david, the theme is not only for real. it's here to stay. one of the statistics to back that up a little bit, well-run software companies operate on a rule of 40 you know, 20% growth, 20% free cash flow. servicenow is operating at a rule of 60 plus. more than 30% revenue growth more than 30% free cash flow it's representative of the leadership platform. really focussed on digital transformation that is hitting the scale drstatus with major corporations around the world. everyone ceo needs to focus on

digital transformation 340 years ago, there was -- there's not a single 20 on the list today so you have to get digitally transformed. you have to do it really fast. that's the speed advantage that servicenow brings. in terms of our revenues, everything came in in a perfectly linear fashion going into the year. we guide on two die mentions one, we guide on the 2022 first quarter, which is accelerating so, obviously, no pull forward we guide on the full year, which was robust and beyond the analyst's expectations, which is why all the research reports have servicenow going through the roof so we're in great shape. our customers need digital transformation believe me, the executives running companies around the world aren't sitting on their hands waiting for the fed interest rate decision they're running their businesses they're satisfying their employees. they're serving their customers and need servicenow

>>well, look, it's great to have you on, bill you're right it's critical analysts who are incredibly excited about you i would say, bill, maybe you're playing chess and the other guys seem to be playing checkers. [ laughter ] >> well, thank you very much, jim. thank you, david we're very honored and i thank all the customers out there for their belief in servicenow we're working for you! >> well, the numbers say that they -- that's true. bill mcdermott, thank you so much for coming on the show. great to see you. still to come, southwest swinging to the first adjusted quarterly profit in a couple of years. we'll talk to gary kelly one last time. passing the torch to robert jordan as of next week futures continue to turn around from the overnight lows as get this thursday session underway dot ay. n'gowa

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markets continue to react to the fed pressure and the slew of earnings we've gotten along with macro. if you missed it, gdp up 6 the two-thirds were inventory consumption. we'll talk about all of this folding into the markets and talk to southwest gary kelly as a number of rlesaiin print today. "squawk on the street" back in a moment

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all right. we're going to squeeze in a tight mad dash before we get to an opening bell here energy -- >> yeah. i want to do a little counter to their last thing about comcast. >> yes >> just a positive here. last thing chevron -- >> look at that chart! look at that chart. >> they increased their dividend 6% they report tomorrow and why i mention this is

because if you're worrying about jay powell, you want to take action, this company will report tomorrow mike worth the terrific ceo will give you an amazing number let's not outthink it. it's a chevron market. >> it is it's funny i had a conversation this morning with -- [ opening bell ] buying slumber jay. >> yeah. we have crude up gasoline futures, by the way, above the november peak. remember when we were going crazy over the cost of gas we're going to get back there. >> natural gasnot keeping up and europe is higher than we are. the spread will help dow chemical but, look, we're in a situation if you fill up the pump, go buy

the stock of the company you're filling up. >> you mentioned some of the capital returns. it's not chevron and halburton this week. murphy oil, jacobs, tractor supply 77% dip hike. >> now i thought that the interview this morning with tractor supply, which is a company i like i think carhart stuff is overpriced they had a great number. and the stock is reacting to it. david, when you go and do remote work, one of the things you might want to do is get things to go around the house and fix things up and maybe get a little craft oriented you go to tractor supply they are there and they also have -- at tractor supply. i don't know the last chance i'm picking up animals. >> how about the lowe's/petco. >> pets are more than dogs and cats. >> what else >> goats. >> cows? >> pigs.

>> pigs are very smart. >> i know. >> they're smarter than the average bear. >> and the average dog, for sure. >> yeah. dogs can be dumb last night it was freezing cold. he sits out there and freezing and shivering. he doesn't do anything just shivers. >> there's a lot of green on the board. >> go back to you. >> comcast shares are depressing a lot of people who might own them down 5%. and the parent of our network, year over year, is down and vastly underperformed the s&p and, to a certain extent, the broader sector it's not about broadband ads you know, i think the market, in many ways was prepared for a slowdown there obviously you saw a uptick during the pandemic. people who were adding broadband. but it seems to go more toward perhaps with what they shared on the call increased spending on the streaming service peacock and getting it to break even than perhaps people thought or

investors were originally lead to believe by the company it goes to the larger questions of just how much is being spent by all of these companies that have made direct-to-consumer so important for them remember, this is a participant of nbc universal, which is a part of comcast, which is lead by broadband. >> right. >> but it is not an unimportant part when you're spending $2.5 billion a year. >> no. i think it's important what has been another theme of this earnings is netflix i mean, we have too many things to do and not enough time. david, can you please explain why act vision is trading? >> a "t-d" i >> yes. >> it's let me see where it is now. >> what are they trying to protect? >> i don't know. i can't tell you.

$90 per share. this is an enormous spread that reflective of how long it may take for it to close and whether or not it will because there seems to be a belief it will be challenged, even though, to your point, it's not clear exactly what part of the law they'll re rely on. >> anything can be challenged. and kohls and private equity people get involved. >> by the way, the streaming budget is not scaring away akman. $3 million shares takes them the top holder in netflix. as he said, i'm all in on streaming. that's one of the s&p leaders today >>well, i hope enjoys productions. >> all right he's done okay you like all of them >> yes. >> hbo and yesterday's action was at&t. >> it was disastrous. >> it was. the stock is down another 2% it's worth going over quickly.

>> were you on the call? it didn't sound disastrous. >> a number of cross currents here some related to some things that john stanky said to me in terms of whether or not they're going to pursue a split or a spin of the warner media assets. there was questions of quality of cash flow and vendor ab that is -- as they mentioned. there was quality of the earnings churn may have been up more than anticipated. even though there was ads that were strong. he was well add on that this likelihood it would see based on mr. stanky's comments they're going to pursue a spin it gets complex rather than an exchange offer but simply put, if they could do an exchange offer they could buy back -- this is not necessarily fully believed 25% of at&t shares you have to do it at a discount

but giving people discovery at a price they wanted and taking their at&t shares in return and the $9 billion for this year would be divided over a smaller share base, hence have a larger yield. and people sell discovery or short discovery are setting up for a spin. >> wow. >> what a decline there. it was one of the outperformers this year. >> i know. the woman on the call talked about the spin i'm leaving it to the board. >> he said it to me. you heard it. >> yeah, no. i'm saying that people didn't seem to understand the gravity of it. >> right. >> you said it on the show and hear it on the call and reacting if they listened to you, they would have sold it while it was up, for heaven's sake. david faber 1 and analysts zero. southwest airlines reporting

the first quarterly profit since the pandemic the airline said the covid pandemic inflation and staffing challenges remain. i don't care it's the last time with gary kelly. i'm not going to leave it on that note. that's ridiculous. this man has done a fabulous job! this is a position he's held for the last 18 years! i'm proud to associate with gary kelly. he's not going anywhere. going to transition to the role of executive chairman next week. gary, look, i'm going tell you i'm going to use a word of congratulations on the incredible quarter in the face of 5,000 employees that have omicron? >> well, thanks, jim yeah, you're right it was a great quarter it's been a rollercoaster. and, you know, our demand and our operating challenges definitely follow the covid surges, but we had a very solid profit our folks did a great job. operating spectacularly throug the holiday time period. and, you know, omicron finally

caught up with us in early january, but, you know, we'll have a soft january and february but march bookings look strong now. so i'm proud of our people proud of the fact we turned a profit we're looking forward to a profitable 2022. >> what time -- we said on the show i was excited you said, look, it looks like you're flying everywhere you said there's no place to go. i think that is a reopening play, gary, you're number one when you have destinations, you use southwest. >> oh, jim, we have a great route network! we've got great people we have great airplanes. wonderful destinations we have low fares. it's a wonderful combination i would point out in the fourth quarter, we had strong traffic we had very strong yields. that's with minimal business travel our business travel is down about 50%. so there's a lot to be excited

about with southwest we're looking forward to to 2022 looking forward to getting the pandemic behind us. >> of course david is going to ask about business travel. i thought it was interesting how granular you were. over the last two weeks, you say, we have returned to solid operation performance like we experienced over the holidays and fourth quarter in '21. two weeks, gary? why bother to mention 14 days? >> well, because it was a mess in early january we had the toughest winter operating challenges that we've seen probably in the last, i don't know, five to 10 years we had a lot of cancellations because of that. we had a lot of absenteeism because of omicron it was just rough. it was rough for our people. it was rough for our customers we just wanted to share with everybody it seems to be behind us the covid counts are way down within the company it's pretty much track trend wise the whole country and right now the operations

running very smoothly. and, you know, fingers crossed we don't have, you know, a continuing or another surge here in covid. >> yeah. we all hope not! perhaps not enough yet to get people back into their offices and that leads to the question that jim told you i would ask, will they get back on planes to go see clients and/or even see each other what are your expectations now given the limited visibility you have for some time, gary, to rebounding business travel >> you know, we have booking information and then we talk to real people. so, you know, we've got both inputs as i mentioned, we're about 50% of recovered from where we were prepandemic. i would hope by the time we get to the end of the year and we're down maybe 10 or 20% it's a guess but based on talking with our corporate customers, i think sort of a post president's day weekend. they're anxious to get back.

they're anxious to get back on the road and see their customers, see their suppliers, and what have you. have events, have meetings, go to con vengss. how fast it recovers is anybody's guess. it's my best guess. >> you're looking for profitability in the remaining quarters for the year and for the full year. but others will respond delta was a surprise omicron came out of nowhere. i mean, how do you give forecasts of that duration given the uncertainty, even with the new era of, say, anti-virals. >> you know, it's been 45 years since i graduated from college i've made a career out of finance, you know, making forecasts and i've admitted during the pandemic it's not a environment you can forecast so i admit that. all we can do is set some plans based on some assumptions, and then do our darnest to execute one thing we must do is we must

continue to hire and get all of our airplanes back in the air and then get the airplanes that we are flying, get them back to the prepandemic productivity so we've got a good plan for that the demand seems very healthy. it's going to be -- it'll have peaks and valleys. again, you look back at the fourth quarter, which had both delta and omicron and we were profitable so i think it's an environment that we can manage i don't know we'll be at peak earnings potential or peak potential, but nonetheless, we'll be out of harm's way, so to speak we'll have to continue to work hard to keep the service levels very high and keep our costs low. >> gary, obviously, 18 years running it you're a serious, rigorous ceo let's say you're listening to jay powell my regard, a serious, rigorous chairman he reads through your release

and listens to the call. we're experiencing higher unit cost inflation in 2022 as we continue to navigate the pandemic isn't that the economy if jay powell reacts to the higher unit cost inflation and then omicron and the pandemic goes the other way, won't he be caught raising rates into a period where perhaps we don't have as much inflation >> well, you know what i learned back in school was inflation, in many ways, is labor and wage rates. it's difficult to hire people. we moved our starting wage rates to $17 an hour that's up $4 or $5 in a period of 24 months so inflation is there. it's across the board. we see it as a consumer and a business i see it as a huge problem i would be concerned about the word transitory. i realize we're not using it

anymore. but i think there are concerns that are valid i think it has to be addressed. >> gary, of course, one of the tough lessons of the pandemic was the airline industry's model of capital return and buybacks and how much of that was financed in the wake of, obviously, later on government aid. does that change for good? >> well, strategy, no. tactics? obviously. you return you have shareholder returns when the earnings support that we always did. we never borrowed money to do a share repurchase ever we've had solid guidelines for years on that or over that so it's this is not a time to be doing share repurchases. we're restricted from doing that under the c.a.r.e.s. act anyway. but at the appropriate time, if the conditions mirror what we've had in the past, obviously, it would be a serious

consideration. dividends first and then share repurchases second. >> i hate to be a down her here, but you have lines about -- jet fuel is going through the roof it's one more problem right now, isn't it, gary >> well, that's why we hedge our hedge is worth -- i think it's over $1 billion at this point. we have over 60% coverage here in 2022 and roughly half of that 30 to 35% coverage in 2023 we're more or less in line with prepandemic fuel prices. so they're higher than they were a year ago arguably a year ago was pretty depressed. so you're right. it's a risk. it's something that we have to manage we have for 50 years we're good at this we'll continue to manage our fuel costs the other thing, of course, we do is continue to modernize our fleet. the 737-8 has a 15% lower fuel

burn than its predecessor. so that's our future through a number of mechanisms, i think we'll do a superior job of managing our fuel compared to the competition. >> and one last line that i thought was worrisome. you said we're working urgently to return to historic productivity levels by the end of 2023. why put it out so long that's southwest airlines. that surprises me. >> it's what you mentioned earlier. omicron is horribly infesht for us it creates massive absenteeism it causes us to reduce our flights, which is infesefficienn terms of asset refuel. the answer is tell me when the pandemic is over and when conditions are more normal, and then we can plan through that.

right now it's hard to forecast. it's hard to plan and execute. we're anticipating it'll take awhile to work its way through first of all, the country and then we'll just have to continue to make adjustments within the company. part of the answer is continuing to hire, manage our attrition, and make sure we have our assets and employees working at maximum efficiency. >> gary, i want to thank you for your shareholders and your 18-year tenure obviously you've made more money -- actually more money than the other airlines. and i'm going to say we won't miss you because you'll remain as executive chairman. we hope to see you again, gary. >> i'll be around and it's a pleasure working with you. i think my first time on cnbc was probably 25 years ago. [ laughter ] >> wow >> so i'm going to miss you guys, too! >> well, maybe we'll see when we

fly on southwest air. >> there you go. i do mean that. >> i'll be looking foryou! >> thanks. speaking of airlines, i want to mention tomorrow we'll be joined by jetblue's robin hayes. stock is moving higher this morning post results as we go to break, the bond report we have curve flattening going on a lot of reaction to what jpmorgan called the most hawkish presser powell has given. >> wow. >> at $44.16 an the s&p. it's above yesterday's open of $44.80 we'll be right back! competition beat us again. how? they have a better finance system than we do.

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trading." >> boeing moving up smartly. they have sold freightatories taiwan they have wide body freighters that is hot. and china eastern. customer in china mainland brought a freighter. these are not discounted full boat. maybe this is at the beginning with the china order i like that. and i think it's important to recognize it isn't over for boeing. >> it's about a billion and a half list prays. >> and the freighter market is good we have this port jam-up you want to solve it buy freighters. >> calhoun talked about freight volume as a measure of traffic. >> i think this could be the beginning of -- you get a china order. why should there be just one people think that the china orders are not going to happen because of the cold war. no you need freighters. you have to go to boeing. >> what about this morning's action at the open >> i think that what we are kind of doing a redo. the machine gun sellers came in

right about the time when steve leishman said, hey, listen, the world is ending. i think they are realizing that the world is not ending. i mean, i don't know people are thinking about football again i just think that it was overdone not unlike comcast, like mcdonald's. and all i can say is that if you are in that stock, that's what you have to sell now to the straight you are getting an opportunity please take it. >> take it what? to sell? >> yes. >> the high multiples? >> yes. >> you are looking at doordash, which was an example of a well run company. i think you would say it has done -- succeeded in many ways it an incredible ipo trading well below the first day of trading because of the high multiple what do you do with names like that >> until it makes money -- and like tony very much. and it's about as good as it gets a lot of restaurants are going under. that's a main stain of his

business i like tony shoe he will come back. that's not the kind of stock you need to own. i like chevron >> some of the inflation metrics, mcdonald's is talking about paper costs, double in the first half of this year. >> so why be in the stocks some people are being conservative think mastered card should be a buy. tonight i have a spice company and nucor. they said things are good. all the other steel companies lowered badly. he is fine these will be very interesting calls. lawrence, obviously, spice does well if you think that we are going into a recession like a lot of people felt like yesterday in that "hollywood squares. they have got to stop that pick the best five here's the five best. >> right. >> jay, come on. >> it does go on a while see you tonight. "mad money" of course 6:00 p.m. eastern time the dow isolng hdi on to a gain of h450. we'll be right back. es need something different.

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♪ welcome back to "squawk on the street." i'm diana olhio leg. pending home sales pell 3.8%

that's a bigger drop than expected the street was looking for down just and 1%. the drop was 6.9% down year over year this index from the realtors represent signed contracts, people out shopping in december when mortgage rates were actually considerably lower than right now. so what was the problem? well, very, very little out there to buy the inventory of homes for sale in december was the lowest on record, down 14% from december 2020 and it was pretty low back then as well so regionally sales fell the most in the midwest and the west, but they were down across the nation we are seeing more buyer activity right now buyers are worried mortgage rates are rising so fast that they will be priced out come spring, but again the severe shortage of homes for sale is keeping actual sales very low. carl >> thank you very much. good thursday morning. another hour of "squawk on the street." i'm carl quintanilla with morgan brennan and david faber. markets are getting a bounce here you got 44 or 3 is pretty much

at yesterday's open. 200 day moving average is 4434 we didn't quite get there at the open, morgan. >> 30 minutes into the trading session. we have a lot of movers this morning. three we are watching now, our parent company comcast theme parks and studios bouncing back also 8% dividend hike, increasing the share boyback program to $10 billion shares moving between gains and losses back down 1% now. plus, mcdonald's missing on earnings with the fast food giant's results higher expenses, wage hikes, ingredient costs, chicken nuggets. shares down half a percent and intel beating estimates but the company's overall profit down from a year earlier as they ramp up spending on new production facilities and products amid a bigger turnaround that is taking place under ceo pat gelsinger who will be joining the gang on "tech check" the next hour shares of intel are down about 7% david.

>> okay. turning back to the broader markets rallying a day of a the fed signaled a rate hike is on the horizon, steve liesman has more. >> yeah, david, movement this morning, futures markets are speeding up and also increasing their outlook for fed rate hikes in the wake of that meeting yesterday. the fed signaled a rate hike in march and likely balance sheet reductions sometime soon thereafter while the market had priced four quarterly hikes this year, fed funds futures see a high probability of three consecutive hikes beginning in march a fourth one comes in september and now the new one here, a fifth in december. so take a look here's what the funds rate would look like base odd on that pricing. it bring it from around zero to a range of 1.75 to 1.5 by year end. below the 150 to 175 range before the pandemic. step back a for a second

the big change here. the virtual withdrawal of forward guidance which it offered the market assurances of low rates since the pandemic started. how much the fed does now will be tied to the incoming data and the outlook for inflation rather than the kind of long-term guidance that we had for such a long time. that likely means ongoing volatility which i am sure you noticed. as paul mcculley told me, for stocks it's the return of alpha instead of levered beta. everybody got a shiny participation award for being in stocks before. that may not be the case going forward. real quick, economic data not too bad. gdp to the high side jobless claims ticked down a little bit maybe not the firings that we had that you might have expected from omicron and the durable goods number okay if you take out transportation, which still has chip problem, but there is decent capital investment going on. >> participation awards, like that >> we are joined by citi u.s. equity strategist, scott croner.

the fact that the market is pricing in given the comments from powell yesterday and even more aggressive, even more hawkish fed, overdone? >> i think we are getting there. we are focusing on a couple of areas. nominal interest rates and real rates and the spike in nominals and reals this year certainly has created a valuation headwind some of the work that we are putting out suggests that the market is getting pretty close to adjusting for the rate hike that we face so far this year. >> i got a sore neck it's only thursday the whiplash inducing moves we have seen in the markets this week i mean, for many folks who maybe don't necessarily pay attention to their portfolios on a daily basis but are seeing this type of action and the headlines associated with it this week, how would you advise them? >> well, we are doing a couple of things. we are suggesting keep a focus on the fundamentals and so far,

again, on the premise that we are getting pretty far into the valuation correction the fundamental profile for the market still looks pretty resilient this year. we have been protecting 8% earnings growth for the full year the way q4 earnings are coming in, looks like that's going to be i think a steady number so what we're suggesting is that there is still room for the market to work higher, but we have to navigate this changing fed circumstance the way we have been suggesting doing that is leave with a value focus into the first part of this year, which is going to capture what we think is gradual supply chain relief. as the year unfolds and we get further into this fed hawkishness circumstance, what we're suggesting is be much more aligned with quality metrics, right. so to the earlier comments, you wanted perhaps to be a little bit more weary of the companies that are stretched from a valuation perspective on much longer-term growth trajectories. focus on traditional metrics, on traditional valuations, quality

metrics and where you got companies that have been able to manage their debt levels more appropriately during the past couple of years. >> i am looking at your notes. you have some pretty contrarian bets, if you will, when it comes to different sectors we hear about the strength consumer and how that will help powers us through all of these shifting and, i guess, conflicting dynamics in the broader economy. consumer durables and apparel you lowered to underweight you have seen a downgrade in household and personal products as well. materials you have lifted to overweight i guess talk through some of those dynamics, especially given the fact that there has been a theme around a shift from, for example, goods to services >> so i think we have to acknowledge even if inflation rates do mechanically come down over the course of this year and with an assist by the fed rate action, you are still going to be looking at higher levels of pricing and inflation metrics

then might otherwise have been the case so we want to have call it a stake in the sand if you will for areas in the market that can benefit from that, materials kind of stands out in that regard valuations for that industry group and now sector look pretty compelling and so what we think is it provides a pretty decent portfolio hedge against this concern againststubborn inflati >> scott, thanks for joining us. with all the major averages higher to start this trading session. >> meantime, tesla shares lower. elon musk says the company has not been immune to supply chain constraints. >> 2022 supply chain will continue to be the fundamental limiter of output across all fact reese so the chip shortage while better than last year is still an issue

>> our next guest this along with increased pricing competitor from competitors the ev place leaves him bearish on the space. one of the bullish arguments was that musk to date seemed to be navigating pretty well that tough supply chain environment has that changed now >> i don't think it's changed. i cover the semiconductor industry so the production of chips whether it's power management, sensors, wifi, it continues to be in short supply there is more production coming online from the fund reese that will help ease the bottlenecks in the automotive supply chain think the production of chips will start to increase for the automotive sector. so that should help. i think that elon musk is being somewhat conservative in terms of his delivery targets leaving some room for possible upside

beyond the 50% growth rate that he talked about. >> it sounds like your concerns go beyond just the chain and has more to do with pricing pressure as more competitive offerings come online. can you talk about that dynamic and at what point that really becomes acute? >> yeah. so where i'm focusing on has been the automotive gross margin line the ex-the credits that was 29.2% this quarter it has improved from last year but it only grew about 40 basis points sequentially. and this is despite the fact that the automotive revenue grew 31% sequentially very high volume from 3q to 4q the margins ex the credits eked out 40 basis points of improvement. what needs to happen for tesla, the automotive gross margins need to continue to expand and that is going to be driven by lowering the battery pack costs

because the pricing pressure is going to be intensified through more competition and there will be more market share dynamics this year and next year. >> so why don't you expect the margins will actually expand the way that perhaps others do >> well, i think that the margin expansion is already in the price. i think the stock price and this current valuation reflects gross margins that are going to kind of move to the mid-30s so based on our, you know, ten-year discounted cash flow analysis we look at over a ten-year period, we are assuming gross margins moving to mid-30s. when you discount those cash flows back, assuming a higher t rate because of the environment, you get fair value shares around $600 or so, which is, you know, 30, 40% downside from here so i think the valuation already reflects this. so the stock is really priced to

perfection in my mind with respect to the margin expansion. so it's critically importantfo them to lower the cost of the battery packs down to a point where they can offset any pricing pressure from competitors, which is going to happen >> all right so do you think they are going to be able to lower the price of the battery packs effectively to do that, or are you a doubter? >> i think they have shown some progress that they are lowering the battery pack costs i think the shift towards the 4680 battery sales is a good initiative that increases the energy con sifrms by 5x and then reduces the cost of the battery packs by about half if they can successfully move to the 4680 battery sales. they are currentlyon the lithium battery sales, the 2170. if they move to that transition, then i think they are going to be more cost competitive and

they can lower the price of the tesla down to kind of $25,000 level, which would increase the volume but there is a lot of steps that need to -- for that to happen my point is that the stock price already reflects that happening given the discounted cash flows that you anticipate over the next several years >> raj, you said something very telling at beginning of this conversation you said that you thought this was conservative guidance from elon musk. when when have we ever had conservative guidance from elon musk i ask that question not necessarily looking for an answer, but that seems potentially a tangential shift and part of reason the stock is trading lower this morning despite the fact we see these strong results and record profit the clear message last night was a focus on profitability was more of a focus on supply chain and managing that and ramping production, ramping scale and holding off on new

models as well does this represent a shift in terms of how this company is strategizing for the future? >> i think that's an excellent question, and that's my sense as well if you look at 2021, they grew deliveries 86% year over year. initially the street had deliveries maybe growing 30, 40%. they 2 x'd the growth rate for deliver deliveries last year and used the supply chain shortages as a way to have some sort of -- build in some sort of level of conservatism as they continue to see strong demand across their products this year they might be using the same playbook to be a bit n more conservative. near clearly expanding production at their facilities in fremont- they have a very strong demand profile. i think they want to build some level of conservatism it does represent a shift in tone, a shift in kind of

guidance to the street, and i think that actually has served the stock well the last month -- the last year or so as they, you know, have beaten and raised over the last several quarters. >> we are going to watch the price action today 892. not quite the 851 from earlier in the week. ranel, thank you. as we go to break, the roadmap for the rest of the hour, including an interview with levi's ceo chip bergh shares are up after topping estimates. >> and an earnings exclusive with the chairman and ceo of freeport mcmoran, the largest publicly traded producer of copper. and so long netflix and chill. hello to netflix and bill. shares of the streaming service getting a boost. "sawonhetrt" you why when quk t see returns stay with us

♪♪ ♪♪ ♪♪

out with fourth quarter earnings, increasing scarcity for copper as it plays a major role in the global push for clean energy join us now is richard adkerson, the chairman and ceo of the company. richard, always a pleasure to have you and i want to start off on that increasing scarcity, reading you from the conference call, incr increasing scarcity in supply when demand is growing

significantly, limited number of projects which have been under development for some time. you said it's hard to find actionable projects that are or can be developed within a very short period of time are we going to have a shortage of copper? >> david, i think we are heading for a shortage of copper absent some economic event. the uses of copper in the world today are growing. i talk about it, the copper demand beyond just the general rust uses in the economy and developing countries, china and other places with this movement towards carbon reduction investments, every one of those investments requires more copper and then just connectivity with infrastructure development, artificial intelligence, the uses of copper are growing as i said, i believe it's a new era some of the supply challenges are getting to be even more acute. >> yeah.

you, obviously, indicated that the last time we spoke to you, i think last spring. like a big oil company, you operate around the world in some areas that have a lot of political instability. you said chile and peru, 40% where the world's copper come from, there are new presidents to run on agendas oriented towards social programs that require more revenues to implement. how are you going to deal with that >> well, from our company's standpoint, we have a major attractive development project in chile, partners with coldeco, we are putting hold now until we see how the reconsideration of the fiscal requirements for the copper industry pan out with the new issues that's just one example. it's clearly issues that are going to affect project development.

it's going to have an impact on production in some cases and those countries are so significant, but it's true all around the world i mean, even though the world needs more copper, in some ways the challenges in working with governments and communities to get projects approved are growing. we benefit the u.s. because we are -- our growth will come from existing projects which are a lot easier but country after country is deferring, delaying or c cancelling projects. >> right but all that being said, you do have at 250 for copper more than what you say is a 25-year reserve life approved in reserves 25 years is a pretty long time. >> david, i couldn't be more pleased about where freeport is positioned right now as you know, after years of really significant challenges. but we've got our balance sheet. we've been rated as investment grade by two agencies.

our debt is diminimus after being a huge problem in the past we have completed the ramp-up. this was a major multi-year, multibillion-dollar project to convert our mine in indonesia to an underground mine at a scale that's never been done in the mining industry. david, last quarter that mine p produced copper at a net cash cost of 8 cents a pound when the price of copper was approaching $4.50. so i love where our company is placed for our commodity that will be scarce and we have the chance to grow because of our reserve and resource position that you just referenced. >> richard, it's morgan. we have a federal reserve that's getting ready to raise rates, tighten monetary policy very aggressively, a number of other major central banks doing the same or poised to do the same, excluding perhaps china. i mean, historically that has

created headwinds for commodities like copper. when you hear you talk about the era and technological innovations are fueling demand for it, are we in the midst of a secular change in terms of how copper will be priced? >> well, morgan, we don't have to go back too far to see just how much copper prices have increased. i mean, two years ago, you know, we were entering into a covid period and the price of copper dropped to very low levels so it has increased. and the current price is attractive by long-term measures i am pointing out these other factors to say that the indications are with the new demand and scarcity of supply that prices have to go higher. there will also abe a need for substitution to meet the demand, to recover more scrap. we are doing some projects from that standpoint. but we'll always be affected by things that you mentioned,

inflation, monetary fiscal policies, geopolitical events will affect us ours is such a long-term business and this mine in indonesia, february and mash, 34 years since i first visited. we mined an open pit it there that had 50 billion pounds of copper, 50 million ounces of gold we completed that in 2019. now this underground mine has the potential of producing much more than that so we have to, in this company, have a long-term focus on what we're doing and develop resources prudently, but position ourselves to be there for this great future that i am very confident we are going to have. >> it is such a big consumer china, what is your outlook in terms of that country and how it affects, i guess, broader global demand for something like copper >> well, beginning -- i became

ceo in 2003. that was about the time that china meernled in such a dramatic way on the world stage. up until now, it has been the source of the growth it consumes about 50% of copper. and so our business there has continued to be strong despite all of these issues that are raised about china it's such a strong economy but now future growth is going to come outside of china china will be important, but the opportunities for future growth are really significant outside of china and that's what's so exciting for us at freeport. >> richard, you are not questioning the ability of china to continue to grow and be an important market because some, obviously, are somewhat concerned about the property bubble deflating, the covid lockdowns and things of that nature >> well, david, we were probably

talking back in 2003 and every year i look back, people would be saying the same thing about china. the issues would be different, but there is always speculation about their financial system and so forth, and it's just such a, you know, we're -- we don't get involved in political type issues but the economy is strong. such a big population. people are smart, hard working there. and so it's going to continue to be an economic force not only for copper but for the world. >> finally, richard, a couple of quick issues m&a, there had been speculation that bhp might want to look at doing deals. is that something you could ever see in terms of consolidation within your industry >> i think consolidation will come and it will be driven by the scarcity of copper and we have large companies that are well capitalized that have a

strategy of growing in what they are calling forward looking assets like copper and so i think it's not a question that m&a will come. you know, there will be opportunities for us potentially, although it's not part of our basic strategy to be a participant in that marketplace, and we run our business for shareholders and other stakeholders, and we've got a great new board now and if opportunities come up for us, you know, it will be something that we will view from the lens of shareholders and stakeholders. >> okay. finally, you, i mean, as you mentioned, you reconstituted the board, reduced debt to virtually nothing from what was a very dangerous level. you have got things it seems where you want them. are you going to stay on or are you thinking about retiring at some point >> you know, age is a fact thank god at my age i've got

great health and energy and, david, we have been through so much and it was a real challenge and so gratifying to be here that i want to stay around to participate in the success our company is going to have, god willing, and my health stays great. i work with a great group of people you know people all over the world that have been involved with us. that's really enjoyable. i'm enjoying the work and, obviously, there will come a time when i won't be able to do it but right now is not that time. >> all right well, then i look forward to speaking to you in the future, richard. appreciate your time. >> always a pleasure, david. i covid has allowed me to watch more cnbc than i have in years and years, and you guys are doing a great job. you make me laugh and you educate me at the same time. so keep up the good work >> thank you very much as we go to break, check out the airlines southwest, alaska jetblue

reporting results, all in the green. jetblue, tomorrow morning an exclusive with ceo robert hayes. that's at 10:30 a.m. tomorrow. make sure you tune in for that despite all the volatility, s&p up just a few points on the week right now. we'll rhtacbeig bk. don't be shy, now. i like that prime cut. -aflac! -i love my gold jacket, but that aflac blue feels so right. when you feel right, you coach right. i know that's right! prime never believed in double coverage, but health insurance and aflac...is money. ♪ must be the money ♪

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welcome back i'm rahel solomon and here is your cnbc news update. nbc news reports supreme court justice stephen breyer will come to the white house for a joint appearance with president biden and formally announce he is retierlg in june president biden will nominate a black woman to join the high scored. a spokesman for russian's foreign minister says there is no intention to attack anyone and the thought of a war with ukraine is, quote, unacceptable. but intelligence and defense officials tell nbc news that there are now 62 russian battalion tactical groups near the border that's up from 59 at this time last week. and there are several more on the way. and a solemn ceremony today in germany's parliament for international holocaust remembrance day.

soviet troops liberated the auschwitz concentration camp and nazi-occupied poland 75 years ago today. shares of netflix one of the s&p gainers this morning after big ackman revealed they acquired shares of the streaming service. leslie picker has more. >> hey, carl yeah, forget netflix and chill today it's all about netflix and bill ackman taking a new stake? netflix in his letter to his pershing square investors, they acquired 3.1 million shares worth more than $1 billion the news helping netflix pare back the slide that that been 41% through yesterday but today shares up about 6.6% at least right now. ackman is well known as an activist rallying for change of beaten down companies. however, he hasn't run a proxy fight since he lost one with adp four years ago and the quieter

approach has paid off in terms of performance based on conversations with sources close to the firm and the contents of the letter it sounds like he doesn't plan to use the stake to wield major changes at the company in a tweet he said, quote, i have long admired reed hastings and the remarkable company he and his team have built. we are delighted that the markets has presented us with this opportunity so clearly somewhat of a value play here. ackman saying, quote, he is all in on streaming and began analyzing netflix in connection with his spacs deal to acquire a minority stake in universal music group. it ultimately was abandoned. >> all right thank you. as we head to break, shares of another earnings mover this morning, that is northrop grumman, down about 4.5% after profit beat expectations but sales missed amid ongoing supply chain and labor market challenges something the ceo had flagged at top heading into this year when

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we are a little past an hour into trading we have a rally going on off the highs. bob pisani has more. the important thing is we were 11 sectors, all of them were up today and now it's slipping a little bit led by technology look at the major sectors. we want to watch tech holding on, but off of the highs energy has been a pretty performer. remember oil seven-year high right now. that's an important move we have seen banks slipping a little bit, but on the upside today. new high list, all energy stocks you have got chevron, you've got schlumberger, halliburton, marathon oil oil is a proxy for growth and inflation as well. so that's something you want to keep an eye on here. in terms of where we are, i call

this the hope rally today. we have a fragile stalemate with the market right now the market's pricing aggressive rate hikes, but bulls want evidence that inflation is peaking and we don't have that yet. we don't have the data to support that kind of idea. so it's very murky you can see this looking at the earnings situation supply chain inflation story all over the place in the earnings commentary pricing was up 39% that's an amazing number the profit doubled they are a winner here whirlpool had higher prices but it was off set by $500 million in inflation costs mccormick, same thing. partially offset by pricing. then component delays. lam research, revenues missing, guidance below consensus you see the commentary is all over the place there is no real bottom yet in inflation and supply chain problems that's right right now the earnings situation is a little murky. take a look at the trends here we have had beats for the s&p

500 but much more modest than prior quarters earnings growth, increases in earnings estimates basically flatlined right now. the outlook is a lot nor murky from the corporations. there is only a quarter of the way through. we don't have a complete picture yet. you get the idea it's not quite clear what's going on right now that's why the market is in such a tissy. the s&p 500, we haven't had an up kday in about two weeks so at this point, carl, i think everybody's just looking for a little stability and a little clearer picture on what the inflation outlook is that's why we are going to carefully watch every single earnings report and come mentar. trying to stabilize the s&p 500 would be a victory for the bulls. >> thanks. continue to watch tesla this morning. the stock is sinking after boating on the top and bottom line getting close to monday's 851 and matching those october lows. phil lebeau has more on the

quarter. hey, phil. >> carl, not a lot of enthusiasm for shares of tesla from tesla bulls in part because they don't have something fresh and tangible to look forward to. certainly not in the reference of new models. here is elon musk talking about what they are planning for 2022. >> introducing a new vehicle models this year, would not make any sense. so we will be constrained. >> that is the smart and rational answer given the situation in the supply chain right now. but that's not what many people wanted to hear what do the analysts think morgan stanley, nothing truly narrative changing for tesla bulls here tony at bernstein says, strong results but no work on a $25,000 car and seemingly struggling with cybertruck affordability. finally, brian johnson at barclays he wrote, we are concerned about the lack of a physical product

piper. you look at shares of tesla, do not mistake musk's comments to mean there will not be an increase in deliveries he said they will be comfortably above 50 emerging% in terms of y growth the expectation on the street is tesla will deliver 1 now 48 million vehicles this year they did 936, 940 last year. that's the out there but we will not get a new model. you won't see the cybertruck this year. i think that's a reason a lot of bulls get the juice from those announcements and they are not seeing that right now. >> all right phil lebeau, thank you. shares of tesla are down about 7% right now after the break, we will check in with levi's ceo chip bergh. blue jean baby reminder check out my podcast manifest space covering everything from the billionaire space race to

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shares of levi is up almost 9% after an upbeat forecast. joining us this morning on cnbc to talk about the quar is leonardo dicaprio ceo chip bergh. good to see you again. >> good to see you, carl thanks for having me. >> looks like it's good days for apparel especially and denim on top of that. before we get to the supply chain stuff, how do you characterize demand right now? >> well, we are seeing demand really, really strong. there are a number of headwinds coming our way, david, or carl you know, we have got a new denim cycle. we are still in the very, very early innings with that. and it's on both men's and women's and it's been over a decade since the last new denim

cycle. second is this big trend towards casualization. that is a global phenomenon now. and during the pandemic people's -- changed and that gives them a reason to update their wardrobe that combined with the new denim cycle, we have some serious headwinds -- or tailwinds. as the denim leader, we are by far the number one brand in denim globally the wind behind our sails is generating a lot of demand >> one thing we have been hearing a little bit more of in recent days, chip, is the return to normalization of sales to inventory, a little bit more of a restocking picture there has been downgrades of, for example, gap in the last couple of weeks. on the notion that we might be getting to a time where promotions are back. how likely is that >> we are still seeing supply chain challenges we are still chasing demand right now, to be honest. we left $50 million of revenue on the table in the fourth quarter and demand is still really strong and we still have

supply chain challenges. i think the thing that many people were worried about was holiday merchandise that didn't make it in final for holidays, all of a sudden hitting the shores and back driving a lot of promotion. our inventories are really, really clean what we are holding as well as what our wholesale customers are holding. we are trying to play the promotion game very, very low key. promotions through the holidays were much lower than they have been over the last couple of years. that's helped to drive record gross margins in the fourth quarter. and from our standpoint, we're seeing on our business, is not a need to go back to deep discounting and heavy promotion. that's good for us and it's good for our whale sale customers as well. >> i want to dig into that a little bit every company across every industry is dealing with supply chain issues and higher costs and trying to navigate that right now and the theme of this earnings season is ex cam newtoncution who is executing on that successfully shares of levi's are up 9% right

now. speaks to the execution in the last quarter the fact that the pricing strategies, those promotions or fewer promotions that are part of the pricing strategy have been able to offset inflation, do you feel like you would have to raise prices again this year or do you feel good with those levels and where they are at now? >> well, we have raised prices over the last six months or so in fact, our average unit retails in the quarter were up 10%. they were up 7% for the full year as aside, we are still chasing demand we haven't seen a lot of resistance to the price increases. given the inflationary trends we are seeing and what is happening to cost of goods, distribution and logistics costs, we will likely have to take more pricing in the year ahead. but the brand is really, really hot. and when we bring newness and we bring freshness, there is a lot of pricing elasticity, particularly on our denim

bottoms. our brand still represents a real tremendous value to the consumer so we can keep the brand hot, continue to resonate with the consumer, continue to drive newness and freshness, you know. we have been successful passing on pricing over the last six months and we believe we have more room to go on bottoms if we need it. >> chip, it's david. direct to consumer, obviously, growing. what are your expectations in terms of its continued growth as a percentage overall of your sales and i know you are building now a new d.c. on the east coast as well to sort of satisfy that demand. >> yeah. and i was watching the show earlier this morning and i know you have been talking about direct to consumer across multiple industries. it's been streak for the ten years i have been ceo. when joined it was 20%. we are now 40% of the total business and it should be over 50% of the total business over the next five years or so.

we are focused on it we are investing in it we are investing in a new distribution center. we are investing in digital capabilities our dtc business is gross margin accretive. it drives this mixed shift that is driving our gross margins up 100 basis points that is driving up a couple basis points it's pea us a stronger and better company than we are even before the pandemic. it is a big part of our playbook, and we are investing in it in a business way. bring and mortar is still important to us our stores delivers our investments in technology deliver. we're going to continue to in

invest i got asked this call yesterday on the earnings call here's my answer -- what is the super bowl it's super bowl lvi, right what is that in roman numerals lvi! [ laughter ] >> the only thing missing is the "e." sofi stadium is called levi stadium south. so i'm feeling cautiously optimistic, so let's see, but every game -- boy, has football been great the last couple weeks. >> oh, my gosh, yeah >> we'll have you and noto on at the same time and deconstruct the game. >> looking forward to it thanks, all. don't miss a first on cnbc

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♪ welcome back to "squawk on the street." the dow is up more than 400 points, but we're going to look at financials, ticker iyf. up almost 30% over the last year of trading, boosted by top holding with berkshire hathaway, bank of america -- but today, though, watch blackstone, better than expected results, as well as record cash inflows shares are up 7% and they're up 8 o3%ver the past year wow. we're going to take a quick break.

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sharge of virgin were halted why nasa is selecting virgin orbit, which has been public for about a month now, to provide a future launch services for the dedicated rideshare missions so total maximum value of this contract is a five-year ordering period is up to $300 million as you can see, shares of the small launch company of moving higher on that news, even as some of the competitors, which is astro space, are moving lower. we just showed you a screen for my new space podcast that has just launched, manifest space. it's been a number of generations since space has been so exciting, not just for the general public, but also for investors.

you're looking at earthly mobility >> yes, i am rivian, by the way, owned by a lot of hedge funds, who even it privately it's trading well below that now certainly a subject for "techcheck," which starts right now. good thursday morning. welcome to "techcheck. i'm here with jon fortt and deirdre bosa chips get hit today, before talking to intel's ceo pat gelsinger. the dow is rallies after barely reup