Earnings Call Notes 1.30.13

Below are quotes from an assortment of recent earnings calls–snippets of information that I find relevant (typically on a macro/industry level) from companies that I have some working understanding of.  Complete transcripts can be found at Seeking Alpha.

Amazon (AMZN)

There is not a lot I can comment on in terms of our plans similar to last year no as we progress through the year, we can give you further updates on what we plan to do there…. 

there’s not a lot more I can add to it… 

just stay tuned and we will let you know as the year progresses… 

we will continue to expand our footprint over time …Beyond that there is not a lot I can add… 

we haven’t given a lot of detail but I think one thing certainly to look at… 

I can’t give you specific numbers but we have seen very good progress… 

I can’t give you specific for attach rates but the business is making good progress… 

I do not have a specific number for you there, but yes… 

We will continue to add selection on the Instant Video. Beyond that, you have to stay tuned… 

There are not a lot of specifics. We have long been in the practice of not talking about trends in within the quarter in terms of year-over-year growth or anything like that… 

we haven’t broken out the first-party versus third-party units since it’s something we have done for that’s only I am today or we have done in previous calls, so it’s not I can help you with there… 

There’s not a lot I can specifically talk about as it relates to LivingSocial …

Boeing (BA)

commercial airplane deliveries was 601 delivered, the most since 1999, and the second-most in commercial aviation history. 

we also led the industry in net new orders, with 1,203, the second highest total in our company’s history 

Our commercial backlog of nearly 4,400 airplanes totals a record $319 billion 

Nearly two-thirds of our order book is with customers outside the U.S. and Europe 

For the quarter, we delivered 23 787s, reaching a total of 46 for the year 

doubling 787 production, increasing the rate from two airplanes per month to five per month 

final assembly build rate to seven per month in mid 2013 and 10 per month by late 2013
The 737 production rate will increase to 38 per month in the second quarter of this year and then move up to 42 per month in the first half of 2014.

Jones Lang LaSalle (JLL)

while capital values continue to increase in most major markets around the world compared to the prior year, the rate of growth has slowed in a number of key markets. 

The vacancy rates across 98 global markets remain stable in the fourth quarter at 13.2% as vacancy declines in the U.S. and Europe were offset by increases in Asia Pacific. Prime rental growth slowed in the quarter, increasing 2.1% year-on-year, while Beijing, Sao Paulo, Mexico City and San Francisco recorded the strongest rental growth in 2012 while demand falls, so prime rent decreased furthest in Hong Kong, Singapore, Paris, Madrid and Brussels. 

institutional investors are maintaining and, in many cases, increasing their allocations to real estate, attracted by returns that compare favorably to other investment options.

Robert Half (RHI)

Small and midsize companies are hiring. 

There is ongoing demand for flexible staffing. The percentage of temporary jobs created in the U.S. in this cycle is double that of the prior one, 13.2% versus 6.5%. The pace of temporary staffing growth in the current recovery also has been faster. 792,000 temporary jobs were created in the 39 months ended December 2012. In the prior recovery, it took 56 months to add 513,000 temporary jobs. 

As of the end of 2012, the temp penetration rate in the United States was 1.9%, of total U.S. non-farm employment, which is close to the high point in the last cycle. This percentage is approaching the record high of just over 2% in 2000. There is opportunity, we believe, for the temp penetration rate to expand further based on the secular demand for staffing flexibility we have been discussing. 

Affordable care act: we can legally help [our clients] remain under 50 [employees] since we’re the employer of record for the temporaries we provide to them 

It’s estimated that there are 130,000 firms with 50 or fewer employees, that over half of them do not provide coverage to their employees. 

the data would show that our European operations are bottoming

W.R. Berkeley (WRB)

there would appear to be an increasing awareness of the impact that diminishing investment income is having on the industry’s economic model. While this macro situation is widely discussed, the sense of urgency in tackling these issues seems to vary from carrier to carrier. Having said this, there is an ever-growing percentage of the market that is pursuing rate in an effort to remedy the situation.

On Sandy: the industry received a wake-up call with regards to the imperfections of both cat modeling, as well as local building codes as we endure the impact that a large tropical storm can have on a region.

Workers’ compensation remains one of the lines of business where the market is most aggressive in seeking rate.

The excess casualty market is also showing early signs of a return to underwriting discipline

combined of a 98.1%. However, when one adjusts for storms as well as reserve development, we believe the company is running at about a 96.5%

With every passing quarter, it is becoming more apparent we are entering a hard market. The number of carriers seeking broad rate increases continues to grow, and the minority of companies that continue to act irresponsibly is a dwindling population. While it is true we have not yet reached the point where there is low-hanging fruit, it has been many years since we as an organization have been so encouraged by the market.

The benefits of start-ups are twofold. One, as opposed to buying something, you don’t get someone else’s problems. And two, you don’t get intangible assets on your balance sheet, you get to tax deduct the expenses of building the business, and you don’t have carry forward issues as you go forward.

Ford (F)

In the fourth quarter, total company production was about 1.5 million units, 125,000 units higher than a year ago. This is 13,000 units higher than our guidance. We expect total company first quarter production to be about 1.6 million units, up 160,000 units from a year ago reflecting higher volume in all regions except Europe. Compared with fourth quarter, first quarter production is up 72,000 units.

This was our first U.S public debt issuance in about a decade and took advantage of favorable market conditions to issue low cost, long term debt.

Europe inventory destocking: It’s principally behind us. We still have a little bit of an imbalance…But the majority, the vast majority of the destocking is behind us.

Manpower (MAN)

Revenue in Southern Europe was slightly weaker than expected…Revenue in Italy was down 8%…Spanish market continues to remain soft in the quarter…higher vacation and lower bench utilization in Germany and Sweden, which also negatively impacted the gross margins…We continue to see soft demand within the Swedish market…Japan experienced modest growth…Australia continues to languish…Our business in China and India continue to grow nicely and contribute to the bottom line 

Secular trends in the area of Manpower, Experis, Right, Manpower Group Solutions, and emerging markets are all there. In many cases, the voice of these positive secular trends have been ground out by the cyclical nature of what is occurring, particularly in Europe, but it cannot be underestimated. 

The conversations we’re having with our clients and prospects for the need for agility is translating to much more of an outcome based solutions environment as well as the use of temporary staff to create the agility that is required

Potlatch (PCH)

Our Wood Products division continues to perform exceptionally well bolstered by a significantly higher demand and pricing as the housing market recovers. Furthermore, the division finished the year with its best annual performance in the nearly a decade.

Like we are currently running our facilities at about 104% of capacity due to the amount of over time that we operate the facilities and that’s on a two shift basis.


The x cat [excluding catastrophe] accident year combined ratio was 91.4% 

Book value per share grew about 2%, and our operating ROE for the quarter was 8% 

Our commercial P&C business in the U.S. continued to benefit in the quarter from an improving price environment where we are now achieving rate-on-rate increases for the second quarter in a row, and I firmly expect this to continue. 

From what I see today, I am more bullish about the pricing environment in the U.S. than I have been for some time.

AK Steel (AKS)

Steelmaking input costs, namely coal, coke and iron ore, have fallen, and that will result in significant cost savings for us in 2013. Second, we expect to benefit from increased shipments to both the contract and spot markets in 2013 due to slightly improved overall demand and a greater share of the automotive market.

Nucor (NUE)

New CEO John Ferriola: As we announced on November 16, I became Nucor’s CEO at the start of this year. 

current capacity utilization of just 75% for the U.S. steel industry.

Nucor will continue to be proactive in bringing attention to the critical need for our government to enforce rules-based free trade.

Waddell and Reed (WDR)

Average productivity per advisor continue to increase reaching $44.3 thousand during the quarter, a record’s high. 

We’ve seen a significant increase in the appetite for our equity products and we have not seen a concurrent diminution of the appetite for the fixed income products that had been working, which is to say, the sales are broad based and in that sense encouraging.

J&J Snack Foods (JJSF)

Churros sales were up 33%…Soft pretzels sales however were up 5%…ICEE and frozen beverages, frozen beverage and related product sales were up 4%

Number of Days Since Last 3% Down Day

2012 was a pretty mild year as far as volatility is concerned.  There were two periods of correction, but both were relatively light and there wasn’t a single day that the S&P 500 was down 3% or more.

Markets have calmed down to the extent that it’s actually been 448 days since the last time that the S&P 500 has fallen by 3% or more in a single day.  At today’s level on the Dow that would be a 400 point decline.  For comparison, since 2008 we had grown accustomed to getting a decline that large once every 32 days on average.
Looking at S&P history since 1957, the current 448 day streak is better than average, but not quite at the best levels that the index has ever seen.  Over that period, a 3%+ daily decline happens about once every 217 days.  However there are several long periods without them. There was no such decline for 11 years between 1962-1973.  Even recently there wasn’t a 3% decline for nearly 1500 days between 2003-2007. That streak was broken on February 27, 2007.

Does Negative GDP Growth Portend Recession?

While it was generally expected that 4Q was a slow quarter for economic growth, it was probably a surprise to many that the growth rate was negative.  What are the odds that this negative growth portends a recession?

Assuming that the revised number remains negative this is the 42nd time in 279 quarters since 1947 that quarterly GDP growth has been negative.  Of those 42 times, 27 of them came during a recession (as defined by NBER).  Therefore GDP has contracted 15 times while the economy was not in recession.  Below is a list of those times.  The economy entered into a recession in the following quarter five out of those fifteen times.

Of course, NBER defines recession dates after the fact, so we could be in a recession right now and just not know it.  Given that the market is hardly lower today, that would probably be a surprising result.

Note: Figures are NON-Annualized

QE Effect on S&P 500

After QE3’s announcement in mid September there was some concern that the effect of QE on the market had eroded because the S&P 500 proceeded to sell off by 5%.  It could be true that QE is losing its efficacy, but it’s worth noting that true balance sheet expansion didn’t really start until mid November because of the mechanics of MBS purchases.  It therefore may or may not be coincidental that MBS started to show up on the Fed’s balance sheet around the same time that the S&P 500 found a bottom.

Below is a chart of how the S&P 500 has done during periods of QE, but instead of using the announcement dates, the chart highlights the times that the Fed’s holdings of Treasuries and MBS were increasing (note that this analysis therefore excludes operation twist).  Since the S&P 500 is now hitting new cycle highs, perhaps one could argue that QE hasn’t exactly lost its potency.

Earnings Call Notes 1.29.13

Below are quotes from calls that I’ve read today–snippets of information that I find relevant (typically on a macro/industry level) from companies that I have some working understanding of.  Complete transcripts can be found at Seeking Alpha.

Caterpillar (CAT)

“After a great first half the economies around the world began to slow around mid-year, and as a result dealer sales to end users began to flatten out. We found ourselves with inventory that was too high and dealers also found themselves with too much inventory. As a result dealers slowed orders, and in the third quarter we began the process of scaling back production. Now while production declined somewhat in the third quarter, we took it down much more in the fourth quarter, and because of that we were able to reduce inventory in the fourth quarter. “

“We’ve already seen pretty substantial pickup in construction orders in the fourth quarter. “

“On mining again, we had massive orders, I mean very large orders in mining throughout much of a ’11 and really through almost the entire first half of ’12. That’s when sentiment changed I think in the world economy it was evident, in China it was softer, you had an easing of commodity demand, although, overall mining activity actually did go up in ’12. So, orders on hand were quite significant and over the past six months customers have really eased off on ordering.”

Plum Creek Timber (PCL)

“Lumber and wood panel prices have increased significantly, encouraging lumber mills to increase their output. “

“Mill operators are reinvesting in their mills and some are adding shifts.”

“contractor availability is expected to be a meaningful supply constraint to the industry” 

“Southern sawmill owners are running extra hours to increase production to meet demand, and many are at the point where they are contemplating adding employees and an additional shift to meet the expected demand growth this year.”

“assumptions that we’ll see, 950,000 to 1 million housing starts next year, and we believe for that demand to be met, you’re going to have to see an increase in production U.S. South, and the Southern production right now is about 14 billion board feet, and we expect that you’ll see an increase in production in North America of about 3 billion board feet, and about half of it should come from the U.S. South.”

Harley Davidson (HOG)

“The biggest thing, I think, surprise in 2012 was just how low the retail credit losses were. At 79 basis points, clearly, the lowest we’ve seen in over a decade and considerably better than what we had seen in 2011.”

“we think as far as the consumer is concerned, that they’re starting to shift their behavior a little bit. We may see a little bit higher credit losses. “

“we said, I think, 3 years ago, that we were going to open between 100 and 150 new dealers around the world. As you mentioned, we’re certainly on plan to do that. We believe that there is still opportunity really in every market.”

Yahoo (YHOO)

“talent is fundamental to our success. Attracting the best people to Yahoo! is critical, and we embarked on a number of initiatives to make Yahoo! the absolute best place to work.”

“Yahoo! is focused on making the world’s daily habits inspiring and entertaining. And while we’re starting with unique strengths, exceeding the growth that we aspire to will take multiple years. Essentially, we need to start a chain reaction. First, we need to achieve product excellence and differentiation by launching new revamped and innovative products. With great products, comes user growth and more engaged audiences. And finally, that user adoption drives advertiser attention, spend and, therefore, revenue.”

“Focusing more on the pure advertising and monetization standpoint, there’s greater opportunity with the big 4: Search, Display, Mobile and Video”


“Deposits are now almost $10 billion, representing over 30% of our total funding.”

“I think the competitive dynamics are increasing, as we’ve kind of talked about. There’s the continued focus on loan growth in our competitors as well as ourselves, but we are being very, very disciplined and so we’re going to keep that discipline.”

On credit spreads: “So cash flow still is probably in the 500 (bps) range, plus or minus, depending on the transactions. Our ABL is probably more in the north of the 300. And then some of the ABL market, more of the retail flow stuff is probably in the 200 range. So at least for our core markets, we feel the risk return is still attractive”

“we have 10 (Boeing 787’s) on order. Our first delivery is we have 2 being delivered — or scheduled to be delivered in 2015. So I think — from our perspective, I think it’s a little premature to kind of sort (concessions from Boeing) out. But the viewpoint is that it’s modest in our overall order book and we hope that these issues kind of get resolved because it’s something — the aircraft itself is something that is big in the industry.”

Danaher (DHR)

“I was in China 2 weeks ago, and we spent a fair bit of time on this subject. I think it’s interesting if you just look at our own trends through the course of last year, we really saw quite the bifurcation between our industrial businesses and our healthcare businesses, both LS&D and Dental. We were basically up 20% for the full year, and we saw that strength throughout the year on the healthcare side of the portfolio. We were down nearly double digit the first half on the industrial side…I think when we look at what’s happened in Life Sciences & Diagnostics, we are clearly the beneficiary of a multi-year buildout with respect to the healthcare delivery, particularly in the West but also increased utilization.”

 Seagate Technology (STX)

“For the December quarter, we shipped over 47 exabytes of storage with an average of approximately 823 gigabytes per drive. This reflects a 59% year-over-year exabyte growth, which is well over twice the current rate of areal density growth.”

“Data consumption and creation, along with the increase of global internet connectivity continue to drive petabyte growth at rates that are significantly greater than the areal density growth rate.”

Illumina (ILMN)

“the Illumina Genome Network received orders for approximately 13,000 genomes. Today, interest in sequencing services remains high, including preliminary talks of large hospitals and governments that hope to sequence significant numbers of individuals.”

“we’ve added significant new capacity to our San Diego facility and will open a new lab later this quarter in our Hayward location. This facility, along with improvements to our existing infrastructure, will provide the capacity to sequence approximately 30,000 genomes this year.”


“We are squarely focused on several of the hottest areas in IT: cloud computing, big data and trust.”

“the companies and entities out there understand that cloud and big data are going to change the landscape and if one doesn’t invest in these technologies, their companies will be left hopelessly behind.”

How Long Does the Average Bull Market Rally Last?

As of today, the bull market which began in March of 2009 is 1,422 calendar days old.  Over that whole period there have been nine drawdowns of greater than 5% which segment the bull market into ten periods of bull market rally.

The average bull market rally since 2009 has lasted 99 calendar days and has seen the market rise by 18.8%.  By contrast our current rally, which started in mid November, is just 75 days old and has charted a 10.9% rise.  If this rally were to last in line with the averages it would go on until February 22 and the S&P 500 would rise to 1608 before the next 5% pullback.  Below is a chart of the full bull market broken down by periods of rally and >5% drawdown.

Bull Market Rally

Longest Interval Between Dow All Time Highs

Even though the Dow was down by 12 points today, it’s beginning to look increasingly likely that we’ll see a new all time high for the index in the not too distant future.  The previous all time high was at 14,164, just 281 points away from where the index closed today.  The index hit that mark in October 2007–a little over 5 years ago.  That’s the 5th longest span in history that the Dow Jones Industrial Average has gone without making a new high.  After the depression it took 25 years to get back to its highest levels.


2013 is beginning the year with a strong dichotomy in asset class returns.  While the S&P 500 is on pace to have its best January since 1997, the 10 year yield has moved higher by 20 bps.  Expressed in more intuitive terms, SPY is up 5.3% year to date, while TLT is down 3%.  The divergence between the two could represent some psychological pain for any investors substantially invested in bonds.

Offbeat Analysis: Optimum Class Size and Investing

An observation on the limits of cognitive capacity: the number of investments that any individual can properly monitor is not dissimilar to the number of children that an individual teacher can keep track of in a classroom.

It’s logically accepted (albeit with some challenges to the conventional wisdom) that smaller class sizes are better for students because teachers can devote more time to each student.  Similarly a smaller investment portfolio means that the investor can devote more time to monitoring each investment.  There are tradeoffs though.  Smaller classrooms mean a higher cost of education per student and smaller portfolios come at the expense of diversification.

Unfortunately there’s no scientific way to determine the optimal level that balances these competing forces in classrooms or investments (sorry efficient markets theorists).  However, qualitatively, the best size would be the largest size possible without sacrificing the individual attention needed to monitor the progress of each student/investment.

Looking at international data, the prevailing balance in the classroom seems to be in the 20 student range.  In the average teacher’s portfolio, each student is a 5% position.

Classroom Size by Country
Source: OECD