Business

Southwest said it plans to slow its capacity growth next year.
It cited moderating travel demand as booking patterns shift back to pre-pandemic norms.
Southwest’s net income in the third quarter dropped 30% from a year earlier.

A Southwest Airlines passenger jet lands at Chicago Midway International Airport in Chicago, Illinois, on December 28, 2022.
Kamil Krzaczynski | AFP | Getty Images

Southwest Airlines said Thursday it plans to slow its capacity growth next year, citing moderating travel demand as booking patterns shift back to pre-pandemic norms.
Southwest will expand its flying between 10% and 12% in the first quarter of 2024 from a year earlier, down from a previous forecast of as much as 16% growth, Southwest said in an earnings release. It expects to grow between 6% and 8% for the full year 2024, it said.

Airlines have expanded their flying this year, while travelers have returned to more traditional booking, traveling during peak vacation periods or holidays. That capacity expansion has driven airfare lower.
Last year, executives cited high amounts of traditionally off-peak travel coupled with a shortage of aircraft and other challenges that kept fares high.
Here’s how Southwest performed in the third quarter compared with Wall Street expectations according to consensus estimates from LSEG, formerly known as Refinitiv:

Adjusted earnings per share: 38 cents vs. an expected 38 cents
Total revenue: $6.53 billion vs. an expected $6.57 billion

Southwest forecast unit revenue, the amount an airline brings in for each seat it flies a mile, would drop between 9% and 11% from a year earlier in the fourth quarter, with capacity up about 21%.
“As we move into 2024, we are slowing our [available seat mile growth] rate to absorb current capacity, mature development markets, and optimize schedules to current travel patterns,” CEO Bob Jordan said in a quarterly earnings release.

Southwest’s net income in the third quarter dropped 30% from a year earlier to $193 million, or 31 cents per share, while revenue advanced 4.9% to $6.53 billion. Adjusting for the impact of labor contract adjustments and other one-time items, the company earned 38 cents per share.
Ultra-low-cost carrier Spirit Airlines on Thursday also said it was reviewing its growth plans after posting a third-quarter loss of $157.6 million, from a $36.4 million loss last year. The company forecast negative margins in the last three months of the year, citing weaker demand even for year-end holidays.
“Softer demand for our product and discounted fares in our markets led to a disappointing outcome for the third quarter 2023,” CEO Ted Christie said in an earnings release. “We continue to see discounted fares for travel booked through the pre-Thanksgiving period.”
(JetBlue Airways is trying to acquire Spirit, though the Justice Department has sued to block the deal. The trial is scheduled to start next week.)
Fellow discounter Frontier Airlines swung to a $32 million loss in the third quarter from a $31 million profit during the same period last year. That carrier also forecast negative margins for the fourth quarter.
Southwest shares were down more than 2% in premarket trading, while Spirit fell more than 4% Frontier was off 1%. More

One of the big questions for retailers is: What will happen when shoppers’ holiday bills come due?
Retailers are paying closer attention to factors that influence consumers’ debt load, including rising interest rates and the resumption of student loan payments.
Credit card delinquencies have ticked up, though they are not as high as during the Great Recession.

A person walks past a Christmas lighting display in a window at Bulbs NYC lighting store near Union Square in New York City, Dec. 20, 2022.
Alexi Rosenfeld | Getty Images

Shoppers are springing for holiday gifts and decorations, but bustling mall traffic, full shopping bags and large hauls under the Christmas tree could hide a challenge for retailers: rising credit card balances and what that may mean when the bills come due.
This holiday season, shoppers who ring up purchases on credit cards will pay more interest if they carry balances from month to month after the Federal Reserve’s string of rate hikes. The cost of borrowing has climbed as credit card delinquencies — the number of people not making payments toward their balance — have ticked up, though the metric remains below the highs of the Great Recession. In addition, student loan payments have resumed after more than three years of a pandemic-related pause, adding to the debt that many Americans are trying to pay off.

Shoppers making their holiday purchases on credit will do so at a time when consumers are taking on more debt — and face bigger risks from carrying a balance. Retailers will not have a clear idea of how those factors will play out until January or February, said Aditya Bhave, senior U.S. economist for Bank of America.
“In the first quarter, the big question will be how much will delinquencies rise,” he said.
But Bhave said the American consumer has defied “doom and gloom” before and could do that once again. Consumers have kept shelling out, fueled by post-Covid revenge spending and a hunger for experiences, such as tickets to Taylor Swift concerts. They most recently surprised Wall Street with stronger-than-expected September retail sales.

Already, investors and retailers have paid closer attention to credit card payments — and some have cited them as a concern. Macy’s Chief Financial Officer and Chief Operating Officer Adrian Mitchell said on a late August earnings call that the department store operator expected credit card delinquencies to tick up in a more typical environment, but they have risen “faster than planned.” The company, which has its own branded credit cards, has seen lower revenues from those cards because of costs associated with bad debt and related write-offs.
Mitchell said student debt, auto loans and mortgages have all become bigger burdens in a high interest rate environment.

Kohl’s CFO Jill Timm said on the company’s earnings call that the retailer has seen the amount that customers are paying as a percentage of their outstanding balance drop on credit cards — but said some of the decline was expected as the economic backdrop got tougher and people had less in their bank accounts. She said those payment levels, however, are still above 2019 levels.
On Walmart’s August earnings call, CEO Doug McMillon also said the retailer faced debt-related challenges. He mentioned student loan payments and higher borrowing costs among factors pressuring households, even as the job market, wages and disinflation help mitigate those factors.

Tim Quinlan, an economist for Wells Fargo, said he thinks people using credit cards “are not yet fully awake” to the rising interest rates and may not realize how they will be affected until they see a bigger balance.
Average interest rates on U.S. credit cards hover at about 21% for the most recently reported quarter, which ended in August, compared with about 16% in the year-ago period, according to the U.S. Federal Reserve Board. For retailer-issued cards, the average interest rate is nearly 30%, a record high, according to data from Bankrate.
“That’s a huge tax on the capacity of those households to spend,” Quinlan said.

Celebrations, but with bills attached

So far this season, holiday forecasts and surveys of shoppers have painted a picture of a U.S. consumer who wants to celebrate and buy gifts but is also mindful of the budget.
Consumers plan to spend $875 on average on gifts, decorations, food and other seasonal purchases this holiday season, according to a survey of roughly 8,100 people conducted in early October by Prosper Insights & Analytics for the National Retail Federation, a large industry trade group. That’s $42 more than consumers said they planned to spend in the year-ago period and about the same as the average holiday budget over the past five years.
Other surveys predicted a pullback in holiday spending among a larger chunk of consumers. Nearly a third of U.S. adults said they plan to spend less on the holidays this year, compared with 20% who said they plan to spend more, according to a September Morning Consult survey of about 2,200 people.
Jaime Toplin, financial services analyst at Morning Consult, said the firm has seen the percentage of U.S. adults applying for new credit cards, and the percentage reporting that they or someone in their household have credit card debt, remain pretty stable month after month.
Yet she said it’s unclear if shoppers may make riskier moves during the peak holiday season, such as racking up higher credit card balances than they can afford or borrowing in other ways, such as through buy now, pay later. Those plans, through companies such as Klarna and Affirm, break up payments into installments but can come with fees if not paid on time.
About 36% of U.S. adults said they are considering buy now, pay later for holiday purchases this year — up from 28% last year, according to the Morning Consult survey.
Toplin said stretched customers can wind up mixing borrowing methods, with balances that get harder to pay down because of interest. About 36% of buy now, pay later users paid for their plans with a credit card in September. A shopper could do so to boost their credit card reward points — or the move could be a potential sign of financial distress, she said.
Bhave, the Bank of America economist, said credit card delinquencies, not debt, are a better measure of consumer health. Inflation has lifted total spending, but shoppers have also felt more comfortable spending, with higher wages and stable jobs. Those factors contributed to total credit card debt hitting a new high of over $1 trillion for the first time earlier this year, according to the Federal Reserve Bank of New York.
“It’s the labor market, the labor market, the labor market,” he said. “That’s by far the most important thing when it comes to consumer spending.”
He said a solid labor market makes him feel generally optimistic about the holiday outlook and the odds of a “soft landing,” an economic slowdown that tames inflation but does not cause a recession.
Even so, some holiday shoppers are proceeding with caution. Jolene Victoria, 42, of New York, said she plans to spend about $250 on gifts this holiday season, about the same amount she spent last year. Yet she’s looked for ways to save.
She bought her first Christmas gifts in August and September, since she spotted deals such as headphones that were on sale. She snagged a cheaper Amtrak ticket to visit her dad in Virginia for Thanksgiving. But she decided to stay local for Christmas instead of flying to Florida like she did last year.
Early this year, after seeing the effect of rising interest rates, she said, she focused on paying off a small amount of debt on her credit card.
“You see how much interest you’re paying and you think, ‘Oh no,'” she said.
Instead, this holiday season, she’s stuck to paying in cash or with a debit card to limit herself to the money she has on hand.
— CNBC’s Gabriel Cortes contributed to this report. More

For foreign investors, India is a puzzle. On the plus side, it is a potentially huge market, recently passing China as the world’s most populous. The IMF predicts that India will be the fastest-growing of the world’s 20 biggest economies this year. By 2028 its GDP is expected to be the third-largest, moving past Japan and Germany. The stockmarket is pricing in heady growth. Over the past five years Indian stocks have beaten those elsewhere in the world, including America’s.The minuses can seem equally formidable. Just 8% of Indian households own a car. Last year the number of individual investors in Indian public markets was a paltry 35m. The smartphone revolution unleashed 850m netizens, but most scroll free apps like WhatsApp (500m users) and YouTube (460m). Blume, a venture-capital (VC) firm, estimates that only 45m Indians are responsible for over half of all online spending. Netflix, the video-streaming giant, which entered India in 2016 and charges Indians less than almost anyone else, has attracted just 6m subscribers.The tension between tomorrow’s promise and today’s reality is reflected in India’s tech scene. Over the past decade giddy projections of spending by hundreds of millions of consumers led investors to pour money into young tech firms. According to Bain, a consultancy, between 2013 and 2021 total annual VC funding ballooned from $3bn to $38.5bn. Now the easy money is running out. In 2022 startups received $25.7bn. In the first half of this year they got a measly $5.5bn.Some of India’s brightest tech stars have fallen to earth. The valuation of Byju’s, an ed-tech darling, has plummeted from $22bn to $5.1bn in less than a year. Oyo, an online hotel aggregator, has delayed its public listing even as investors slashed its value by three-quarters, to $2.7bn. Moneycontrol, an online publication, estimates that since 2022 Indian startups have shed more than 30,000 jobs. Investors now worry that companies in their portfolio will never make money. Heavy losses by Indian “unicorns” (unlisted companies worth $1bn or more) bear this out. According to Tracxn, a data firm, of the 83 that have filed financial results for 2022, 63 are in the red, collectively losing over $8bn. Yet some Indian tech firms manage to prosper. Rather than promise mythical future riches, they are practical and boring, but profitable. Call them camels. Zerodha, a 13-year-old discount brokerage, clocked $830m in revenue and $350m in net profits in 2022. In 2021, the latest year for which data are available, Zoho, a Chennai-based business-software firm founded in the dotcom boom of the late 1990s, made a net $450m on sales of $840m. Info Edge, a collection of online businesses that span hiring, marrying and property-buying, has been largely profitable throughout its 20-year existence. Their success is built on an idea that seems exotic to a generation of Indian founders pampered by indulgent investors: focus on paying customers while keeping a lid on costs.Consider revenue first. Some founders privately grumble that getting the Indian user to pay for anything is hard. But Nithin Kamath, founder of Zerodha, disagrees. He believes that though the wallet size of Indian consumers is small, they are willing to pay for products that offer value. Zerodha charges 200 rupees (around $2.50) to open a new account when most of its competitors do so for nothing. Mr Kamath believes that even this small amount forces the company to ensure that its users find its platform useful enough to pay that extra fee.India’s technology dromedaries are also ruthlessly capital-efficient. Zerodha and Zoho have not raised any money from investors. Info Edge was self-funded for five years before raising a small amount, its only outside financing before going public in 2006. Sanjeev Bikhchandani, who founded Info Edge, advises founders to treat each funding round “as if it is your last”.One way to extend the runway (as VC types call the time before a firm needs fresh funds) is by keeping costs down. Take employee salaries. Richly funded startups throw money at pedigreed developers from top-ranked universities. Zoho enlists graduates of little-known colleges and rigorously trains recruits before bringing them into the fold. The company says that its approach results in a wider talent pool and more loyal employees.Zerodha, meanwhile, in another contrast to profligate unicorns, does not spend any money on advertising, discounts and other freebies to lure customers. It also uses free open-source alternatives to paid software for its technology infrastructure. The company’s tech-support system for its more than 1,000 employees costs just a few hundred dollars a month to run; an external tool would set it back a few million. Despite being a technology-heavy trading platform, it spends just 2% of revenues on software. Keeping overheads low has the added bonus of allowing companies like it to sell their products profitably at bargain prices, reaching many more customers in the price-sensitive subcontinent.Reboot, not copy-paste
The slow, measured approach taken by the camels is the opposite of the Silicon Valley playbook of capturing market share first and worrying about profits later. Karthik Reddy of Blume argues that such a model may be better suited for India, where businesses can take many years to find their feet.One hurdle for companies choosing steady profits over blitzscaling growth remains: the investors themselves. Venture capitalists typically operate on a ten-year clock, bankrolling startups in the first five and cashing out their stakes in the second. This gives investors an incentive to push portfolio firms to pursue growth at all cost. Sridhar Vembu, Zoho’s boss, likens venture capital to steroids—it can boost short-term performance but damage the business in the long run. His may be an extreme view. Still, if investors want big returns on their Indian bets, they are better off backing sturdy camels over sexy unicorns. ■Read more from Schumpeter, our columnist on global business:Are America’s CEOs overpaid? (Oct 17th)Weight-loss drugs are no match for the might of big food (Oct 12th)So long iPhone. Generative AI needs a new device (Oct 5th)Also: If you want to write directly to Schumpeter, email him at [email protected]. And here is an explanation of how the Schumpeter column got its name. More

IN SOME ways, big business pow-wows are all alike. Talking heads make over-the-top predictions. The world’s problems are packaged into bite-sized quotes. Chief executives vie to use as many words as they can to say as little as possible. So too at the seventh Future Investment Initiative in Saudi Arabia’s capital, Riyadh, on October 24th-26th.Dancers in space-age suits rocked the stage and a young operatic star wowed the audience at the opening session. Large futuristic screens flashed buzzwords du jour—AI, data, sustainability—in an arena fit for e-sports. Corporate and financial bigwigs engaged in a pretend boardroom dialogue at a roundtable in the centre of the conference’s main hall to discuss the state of the world. Drones hovered overhead.But Davos in the desert, as the event is better known, is singular. Unlike at others, including its European namesake, billions of dollars in deals get signed on the sidelines. It is also even harder to get in. This year, for the first time, the organisers charged a fee of as much as $15,000 per person—steep as talkfests go. That, as one financier put it, filtered for “more high-quality people”.The mood among this select crowd was unusually tentative. Techno-optimism about artificial intelligence and medical advances was tempered by an acceptance that the energy transition is perhaps not just around the corner. The metamorphosis of Saudi Arabia from a joyless outpost of orthodox Islam into a bustling business hub—”so dramatic”, gushed Jamie Dimon, boss of JPMorgan Chase, America’s biggest bank—stood in contrast to the war raging in Gaza between Israel and the militant Islamists of Hamas. Business leaders worried how quickly the conflict was escalating. They pondered Saudi Arabia’s role in navigating the tensions. It is the regional giant and the hostilities threaten its ambitious economic blueprint, which seemed like it might involve normalising relations with Israel.Beyond the regional turmoil, inflationary pressures, especially on wages, and huge fiscal deficits in many countries weighed on participants’ minds. Ray Dalio, founder of Bridgewater Associates, the world’s biggest hedge fund, declared that he was pessimistic about the global economy in 2024. The chief executive of Goldman Sachs, David Solomon, pointed to deep uncertainty that has left business bosses feeling on edge.Another Wall Street stalwart, Jane Fraser of Citigroup, summed it up. “It’s hard not to be a little pessimistic,” she said, noting that global risks were increasingly interconnected and that security was becoming one of the biggest concerns. As Ms Fraser put it, businesses will increasingly need “big ears and thick skin”. Not just to prosper, she might have added, but to survive.■To stay on top of the biggest stories in business and technology, sign up to the Bottom Line, our weekly subscriber-only newsletter. More

IT HAS BEEN quite a year for Mark Zuckerberg. The co-founder of Facebook, a social-media Goliath now called Meta, is no stranger to public rebuke. But exactly a year ago even investors appeared to throw in the towel, accusing him of trashing the core business while lavishing money on his pharaonic dreams for the metaverse, a virtual world where he alone appeared to float in a deluded fantasy realm. On the day Meta issued weak third-quarter earnings last year, its share price fell by more than a fifth. Zuck’s name was mud.In the year since it has been rehabilitated. Meta’s core business—engaging 3.1bn people a day on Facebook, Instagram and WhatsApp, and selling advertisers access to their attention—is back to rude health. On October 25th the company reported revenues of $34.1bn in the third quarter, up by 23% year on year. That was the sharpest rise since the digital boom of the covid-19 pandemic. Net profits more than doubled to $11.6bn. Meta’s share price has risen by 250% since last year’s nadir. image: The EconomistIn the media, Mr Zuckerberg gets little credit for his business nous. There is more focus on other stuff: his recent passion for martial arts; the cage fight with Elon Musk that never happened; public haranguings, such as lawsuits filed by dozens of American states on October 24th, alleging that Meta intentionally sought to make users addicted to Facebook and Instagram. And yet, in the space of a few months late last year, he made two transformative business decisions that were remarkable for their humility and agility—all the more so, given that he controls 58% of the firm’s overall voting rights and barely needs to work, let alone listen to shareholders.In response to investor pressure, Mr Zuckerberg performed one of the fastest pivots in tech history. Within a fortnight of the third-quarter rout he slashed Meta’s spending plans, cut costs and fired staff. And in response to OpenAI’s ChatGPT and the blaze of excitement around generative artificial intelligence (gen AI for short) he launched an internal revolution aimed at using the technology to galvanise Meta’s core business. Those manoeuvres reveal a lot about Mr Zuckerberg’s leadership style. They may even end up vindicating his faith in the metaverse.When Mr Zuckerberg realised he had incensed investors, those around him say, he did not panic. He became methodical. As Nick Clegg, a close adviser to Mr Zuckerberg, explains, his boss doesn’t like people around him “shouting and yelling”. He prefers, like an engineer, to break down a problem to its component parts and decide on a course of action. In this case, he understood that his long-term focus was at odds with investors’ short-term horizons. So he decided to “cut his cloth accordingly”. But he kept many of his long-term investment plans intact, emphasising that they mainly concerned AI, not the metaverse. That emphasis looked shrewd weeks later, when ChatGPT burst onto the scene.Meta had spent years building up its AI infrastructure. Rather than creating chatbots, it was looking for ways to use AI to improve engagement and make its ad business more efficient, as well as working on mixed-reality headsets for the metaverse. Its top brass soon realised they had all the ingredients—enough data centres, graphics processing units (GPUs) and boffins—to make the most of gen AI. By February they had worked out what to focus on. By July they had made their Llama 2 large language model available free of charge to developers. In September they announced the first gen-AI-related gadgets, such as smart spectacles. Mr Zuckerberg, for his part, threw himself into the technical nitty-gritty. His competitive instinct awakened. He appears to have been rejuvenated by working on a new technology rather than on the irksome task of cost-cutting.Making Llama open-source helped turn Mr Zuckerberg from Silicon Valley’s villain to its hero. Leigh Marie Braswell of Kleiner Perkins, a venture-capital firm, says startups “really applauded” the move, which helped many develop AI-related businesses. And gen AI may be no less transformative for Meta itself than for Microsoft and Alphabet, owner of Google, whose early bets on proprietary large language models have attracted most of the attention.Start with engagement. Meta is populating its social-media platforms with chatbot avatars which, it hopes, will increase the amount of time people spend on their feeds, and help businesses interact with customers on messaging apps. Some users call them a bit humdrum, probably because the firm is worried about AI’s “hallucinations”. Nonetheless, there is potential. Take Jane Austen, an avatar that emulates the author’s haughty humour. When asked to describe Mr Zuckerberg, she says he is “bright, driven but perhaps a bit too fond of his own ideas”. She describes the metaverse as a “virtual world where people can escape reality and live their best lives. Dear me, how…unromantic.” More compelling in the near term is AI’s potential for advertising. Since Apple restricted Meta’s ability to track user data across third-party apps on iPhones, Mr Zuckerberg’s firm has had to overhaul its advertising business “down to the studs”, says Eric Seufert, an independent analyst. It has done that fairly effectively, he thinks, by using AI to model user behaviour, rather than tracking the behaviour itself. Last year the company rolled out ad technology called Advantage+, which used AI to automate the creation of ad campaigns. Brent Thill of Jefferies, an investment bank, says that advertisers are impressed. J. Crew Factory, a clothing retailer, has told Meta that the features boosted its return on ad spending almost seven-fold.Gen AI could take automation further. This month Meta launched tools that let advertisers instantly doodle with different backgrounds and wording. These are baby steps so far, but Andy Wu of Harvard Business School likens them to the start of a gold rush. He says that by creating gen-AI-infused ad campaigns Meta could benefit from the technology as much as Nvidia, the leading maker of GPUs.Advertisers have their concerns. An ad man at AdWeek NYC, an industry jamboree, described Meta’s AI-assisted campaigns as “black boxes” where it controls all the data. That gives it huge influence over a brand’s identity, which could be tarnished if the AI goes rogue. Others worry about AIs doing untoward things to boost engagements on Meta’s social networks, which could hurt brands by association. Controversies over fake images of the conflict in Gaza on social media illustrate how fraught the terrain remains. Not everyone is convinced by Mr Clegg’s insistence that Meta is prepared for this thanks to years of investment in safety and platform integrity.Some investors, too, remain sceptical. Mark Mahaney of Evercore ISI, another investment bank, reckons that 95% of them would prefer Mr Zuckerberg to spend less on the metaverse. Many are wary of investments in hardware, such as virtual-reality headsets, which tend to generate lower margins than digital products.Still, Mr Zuckerberg has “not resiled at all” from his long-term bet, Mr Clegg says. Some VR enthusiasts see AI as the metaverse’s saviour, helping with the development of crucial hand-tracking technologies and making it cheaper for creators to build three-dimensional worlds. Meta’s Smart spectacles, integrated with its chatbot, MetaAI, and built by Ray-Ban, offer a hint of things to come. They capture what the wearer sees, can live-stream it on social media, and answer questions. Asked for sources on critical thinking in business, the AI replied “The Economist”. Smart, smarmy or scary? Take your pick. ■To stay on top of the biggest stories in business and technology, sign up to the Bottom Line, our weekly subscriber-only newsletter. More

Pfizer said its combination vaccine candidates targeting Covid and the flu will move to a final-stage trial in the coming months after showing positive initial results.
Earlier this year, Pfizer said it hopes to launch a vaccine targeting those two respiratory viruses in 2024. 
Pfizer and other vaccine makers like Moderna and Novavax believe combination shots will simplify the process for people to protect themselves against respiratory viruses that typically surge around the same time of the year.

CFOTO | Future Publishing | Getty Images

Pfizer on Thursday said its combination vaccine candidates targeting Covid and the flu will move to a final-stage trial in the coming months after showing positive initial results in an early to mid-stage study.
That moves the pharmaceutical giant and its German partner BioNTech one step closer to winning a potential regulatory approval for a combination shot for Covid and the flu. Earlier this year, Pfizer said it hopes to launch a vaccine targeting those two respiratory viruses in 2024 or later.

Pfizer and other vaccine makers like Moderna and Novavax believe combination shots will simplify the process for people to protect themselves against respiratory viruses that typically surge around the same time of the year.
“This vaccine has the potential to lessen the impact of two respiratory diseases with a single injection and may simplify immunization practices,” Annaliesa Anderson, Pfizer’s head of vaccine research and development, said in a release. 
Pfizer CEO Albert Bourla said during an investor call earlier this month that he believes the convenience offered by combination vaccines will “unlock a significant potential by improving the vaccination rates.” 
Covid vaccine rates in the U.S. were bleak last year, and could look the same this year.
The trial measured the safety, tolerability and efficacy of Pfizer’s combination vaccine candidates among adults ages 18 to 64. The trial also compared the combination vaccines to a licensed influenza vaccine and Pfizer’s bivalent Covid shot, which targets the omicron variants BA.4 and BA.5 and the original strain of the virus. 

The results showed that “lead” formulations of Pfizer’s combination vaccine demonstrated robust immune responses to influenza A, influenza B and Covid strains, according to Pfizer. The safety profiles of the combination vaccine candidates were also consistent with the company’s Covid vaccine.
Pfizer and BioNTech are also developing a vaccine that targets both Covid and RSV. Meanwhile, both Moderna and Novavax are developing their own combination shots. More

Merck reported third-quarter revenue and adjusted earnings that topped expectations.
That was due to strong sales of its blockbuster cancer drug Keytruda, HPV vaccine Gardasil and surprisingly, its Covid drug Lagevrio. 
Merck will hold a conference call at 9 a.m. ET on Thursday.

Merck headquarters in Rahway, New Jersey, on Tuesday, April 18, 2023.
Christopher Occhicone | Bloomberg | Getty Images

Merck on Thursday reported third-quarter revenue and adjusted earnings that topped expectations on strong sales of its blockbuster cancer drug Keytruda, HPV vaccine Gardasil and surprisingly, its Covid drug Lagevrio. 
The pharmaceutical giant also increased its full-year sales forecast to $59.7 billion to $60.2 billion, slightly higher than the $58.6 billion to $59.6 billion guidance provided in August. 

Merck lowered its adjusted profit guidance to $1.33 to $1.38 per share, from a previous forecast of $2.95 to $3.05 a share. But that updated outlook reflects an upfront charge of $5.5 billion, or $1.70 per share, related to the company’s recent drug collaboration agreement with Daiichi Sankyo. 
That guidance also includes previously announced one-time charges related to the company’s acquisitions of Prometheus Biosciences and Imago BioSciences, along with another upfront payment related to a collaboration deal with Kelun-Biotech. 
Here’s what Merck reported for the third quarter compared with what Wall Street was expecting, based on a survey of analysts by LSEG, formerly known as Refinitiv:

Earnings per share: $2.13 adjusted vs. $1.95 expected
Revenue: $15.96 billion vs. $15.32 billion expected

Shares of Merck are down nearly 7% this year. It has a market value of roughly $263 billion, making it one of the largest pharmaceutical companies based in the U.S.
Merck raked in $15.96 billion in revenue for the quarter, up 7% from the same period a year ago. 

The company posted net income of $4.75 billion, or $1.86 per share. That compares with $3.25 billion, or $1.28 per share, for the same period a year ago. 
Excluding certain items, Merck’s adjusted earnings per share were $2.13 for the period. 
Merck’s pharmaceutical business, which develops a wide range of drugs for different disease areas, posted $14.26 billion in revenue during the quarter. That’s up 10% from the same period a year ago. 
Excluding Lagevrio, pharmaceutical sales grew 9%. The Covid antiviral treatment brought in $640 million in sales for the quarter, up 47% from the third quarter of 2022. Merck said that growth was due to higher demand in Japan, partially offset by lower demand in Australia and the nonrecurrence of sales in the U.K.

More CNBC health coverage

Analysts had been expecting the drug to rake in only $140.8 million in sales, according to FactSet estimates. Lagevrio’s revenue is surprising since sales of Covid products from companies like Pfizer and Moderna have plummeted this year as the world emerges from the pandemic and relies less on vaccines and treatments for protection. 
Merck’s popular antibody treatment Keytruda, which is used to treat several types of cancer, booked $6.34 billion in revenue, up 17% from the year-earlier quarter. Analysts had been expecting $6.20 billion in Keytruda sales, FactSet estimates said.
The company has been under pressure to reduce its dependence on Keytruda, which is slated to lose patent protection in 2028. But Merck is trying to defend its patent edge over Keytruda by developing new formulations of the drug, such as a version that can be injected under the skin.
Merck’s pharmaceutical business also saw a jump in sales of Gardasil, a vaccine that prevents cancer from HPV, the most common sexually transmitted infection in the U.S.
Gardasil generated $2.59 billion in sales, which is up 13% from the third quarter of 2022. Analysts had been expecting sales of $2.64 billion, according to FactSet estimates.
The company’s animal health division, which develops vaccines and medicines for dogs, cats and cattle, posted $1.40 billion in sales, up 2% from the same period a year ago.
Merck will hold a conference call at 9 a.m. ET on Thursday.
Correction: Merck acquired Imago BioSciences. An earlier version misstated a company name.
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Bristol Myers Squibb reported quarterly adjusted earnings that topped expectations and posted revenue in line with estimates.
But sales of the company’s popular blood cancer drug Revlimid plummeted due to generic competition. 
Bristol Myers will hold an earnings call with investors at 8 a.m. E.T. on Thursday. 

Dado Ruvic | Reuters

Bristol Myers Squibb on Thursday reported quarterly adjusted earnings that topped expectations and posted revenue in line with estimates, even as sales of the company’s popular blood cancer drug Revlimid plummeted due to generic competition. 
Bristol Myers, one of the world’s largest pharmaceutical companies, raked in $10.96 billion in revenue for the third quarter, down 2% from the same period last year. 

The drugmaker said that decline was due to lower sales of Revlimid, which generated $1.43 billion for the quarter. Bristol Myers has been under pressure to launch or acquire new drug products as Revlimid – and eventually, other top-selling treatments such as blood thinner Eliquis and cancer immunotherapy Opdivo – competes with cheaper generic versions. 
Revlimid sales, which fell 41% from the third quarter of 2022, also dropped due to an increase in patients receiving the drug at no cost through the company’s patient assistance foundation, Bristol Myers said. 
The company reported a net income of $1.93 billion, or 93 cents per share. That compares with a net income of $1.61 billion, or 75 cents per share, for the year-ago period. Excluding certain items, adjusted earnings per share were $2 for the period.
Here’s what Bristol Myers Squibb reported for the third quarter compared with what Wall Street was expecting, based on a survey of analysts by LSEG, formerly known as Refinitiv:

Earnings per share: $2 adjusted vs. $1.76 expected
Revenue: $10.96 billion vs. $10.96 billion expected

Shares of Bristol Myers fell nearly 5% in premarket trading Thursday. The stock is down more than 21% for the year through Wednesday’s close, putting the company’s market value at roughly $118 billion. 

The company narrowed its full-year adjusted earnings outlook to $7.50 to $7.65 per share, from a previous forecast of $7.35 to $7.65 a share. Bristol Myers also reiterated its full-year revenue guidance of a low single-digit percentage decline. 
Notably, the company hiked its full-year revenue projection for Revlimid to $6 billion from $5.5 billion in July, even as the drug sees falling sales.
Bristol Myers said both older and new drug products helped offset the lower sales of Revlimid for the third quarter.
Eliquis raked in $2.71 billion in sales for the quarter and Opdivo generated $2.28 billion, up 2% and 11% from the year-ago period, respectively. However, both drugs fell short of analyst estimates compiled by FactSet. 
Eliquis, which Bristol Myers shares with Pfizer, is among the first ten drugs selected to face price negotiations with the federal Medicare program. 
Meanwhile, a portfolio of several newer products booked $928 million in sales for the quarter, up 68% from the year-ago period. Bristol Myers said that growth was primarily driven by higher demand, including for prescription anemia medication Reblozyl, which generated $248 million in sales for the quarter. 
Skin cancer drug Opdualag also raked in $166 million in sales for the third quarter, which is up 98% from the same quarter a year ago. Those two drugs missed analyst sales estimates compiled by FactSet. 
Bristol Myers will hold an earnings call with investors at 8 a.m. E.T. on Thursday. 
During the call, executives will likely be asked about the company’s plan to acquire cancer drugmaker Mirati Therapeutics for up to $5.8 billion. More