Company Notes Digest 1.31.14

A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

The Macro Outlook

UPS’ 4th quarter results fell far short of expectations:

“I would like to start my comments today by saying UPS fourth quarter results fell far short of our expectations.” ($UPS)

In the best way possible–overwhelmed by too much demand:

“Shipments produced by e-commerce significantly exceeded even our most optimistic forecasts as more and more Americans shopped online.” ($UPS)

Pretty clear that this holiday shopping period was a transformative year for e-commerce:

“From my perspective, the 2013 holiday period has to be one of the most transformative I’ve seen, particularly here in the United States. Consumers came out much later and less frequently to brick-and-mortar stores with ShopperTrak showing retail foot traffic in stores to be down as much as 15%.” ($MAT)

Mattel says that consumers bought, but more deliberate and focused on deals:

“And while consumers ultimately bought, they seem to have done a lot more online research than they had in the past, and they were more deliberate, focusing on discounts and deals.” ($MAT)

Mastercard postulates that the US and Europe will carry the rest of the world:

“Overall, it feels like the U.S. and Western Europe markets where we generate well over half of our revenue are slowly starting to regain their economic footing. The general consensus is the U.S. should have a decent economic growth in 2014, and there is increasing optimism about Europe. As these developed markets recover, it could be a catalyst to spark further growth in Asia and Latin America.” ($MA)

UPS sees signs of recovery in Europe, but Asia remains sluggish:

“on a positive note, Europe began to emerge from recession. Also, cross border trade improved in 2012, express shipments out of Asia remains sluggish.” ($UPS)

Mastercard agrees that Asia is slow:

“In Asia Pacific, consumer and business sentiment levels declined in the fourth quarter across major markets, including Australia. In addition, worries about slowing growth in China go beyond being just a domestic issue and have broader implications, as you all know, for other markets that depend on Chinese demand.” ($MA)

Caterpillar doesn’t think anything has gotten materially worse recently in China:

“The market reaction has really occurred over the past week or 10 days or so. I think in our business, it’s been pretty positive. We’ve seen not just our sales but kind of the overall construction equipment group sales in the industry ticking up year over year, over the past few months. And we saw that again in December. So I think what we’ve seen has been pretty good. We’ve done better than the market there as well. Our sales in China were up more than 20% this year. They were up in the quarter. So you know, it’s not been a big negative for us.” ($CAT)

Financials

Apple is intrigued by mobile payments:

“The mobile payments area in general is one that we’ve been intrigued with, and that was one of the thoughts behind Touch ID. But we’re not limiting ourselves just to that. So I don’t have anything specific to announce today, but you can tell by looking at the demographics of our customers and the amount of commerce that goes through iOS devices versus the competition that it’s a big opportunity” ($AAPL)

Mastercard says mobile payments are a natural fit for tech in multiple dimensions:

“You all know that they’re all thinking about this. And the fact that Google is out there first and actually doing something, doesn’t mean that the others weren’t working on it. They’re all working on it. And they’re all trying to figure out what the right role to play for their respective strengths and weaknesses are, as this payment opportunity evolves. And it’s not just payments. When you talk to most of them, they will tell you it’s about the before, during and after the transaction. So Google tends to think about it as a metric to look at enhancing their advertising and consumer outreach business, not really as a payments business. Others think differently. And everybody comes in from a different perspective. ($MA)

Mastercard sees itself as an integral partner:

So that’s why what we’re trying to do is to partner with as many of them as we can. And we’ve managed, I think, well to shift the dialogue from one of distant mediation to one of partnership, because we bring some very strong assets to the table in terms of what we haven’t possess and also what we’re investing in. And so that’s kind of where they’re going with it. That’s our — I’m not the least surprised. I believe it’s the right thing to do anyway with all the strong players in the digital world. We’ll have a role to play in some way to enable payments for their consumers. It’s the right thing to do.” ($MA)

Property/Casualty insurance companies are staying rational:

“post-9/11, the type of increases that we were seeing, they were accelerating and they decelerated. This is a much different marketplace. People have very good metrics in their — our competitors are trying to be very rational. I don’t think reinsurance is driving it to the same degree that it had in the past. People’s primary carriers, our primary competitors, have very strong balance sheets. I think they’ve got a lot better analytics as we do today, and people are trying to find niches where they have competitive advantages and compete there.” ($CB)

Low potential investment returns keeping insurers in check:

“don’t forget, we are in a much different investment income and interest rate environment today as well. So that also comes into play.” ($CB)

Consumer

E-commerce growing worldwide, not just in the US:

“E-commerce continues to evolve at a rapid pace, not only here in the United States, but around the world.” ($UPS)

Customers care more about price than time:

“customers put greater emphasis on cost rather than time in transit.” ($UPS)

Holiday season 2014 compressed again:

“We are going to spend extra money operationally. We are going to accelerate investments and we are little cautious about exactly how the next peak turns out. It is another compressed holiday season although we get one extra day.” ($UPS)

Technology

Two thirds of the world still doesn’t have internet:

“Only one-third of the world’s population has access to the internet today, and for even many of those, the return on experience remains pretty weak.” ($FB)

These growth rates are unreal on a company this size:

“Our total revenue grew 63% year over year, led by 76% growth in advertising revenue.” ($FB)

And Facebook probably could have grown even more:

“the strategy has been, for the last period, and will continue to be, to primarily focus on increasing the quality of the ads and the experience.  And I really think that it’s easy to look at the model and say, okay, if we ran more ads then the business would grow faster in the short term, but investing in quality is really actually the most important thing, because it’s what improves the experience for the people who use the product. It drives greater returns for advertisers, and over time it increases the potential size of our business.” ($FB)

It’s still early days for digital advertising:

“I think we’re still in the very early days of how much advertising is going to move over to digital media. And I think you’re right to identify that, places like Google+, places like YouTube are still very, very sort of in their infancy in the amount of advertising they can support vis-à-vis the amount of usage we’re getting.” ($GOOG)

After the 2013 holiday experience, more marketing budgets are likely to shift to digital.  Spending on an end cap doesn’t make sense if people aren’t going to the stores:

“I think some of our promotional spending was not as effective. As we’ve been saying here, the store traffic is down 15%. It’s hard for an end cap to work as hard in 2013 as it did in 2012. So there’s a lot going on in terms of where we are in share.” ($MAT)

Apple didn’t do so well in North America, partially because carriers changed their upgrade policies:

“In North America, we did not do as well, and this weighed our results. Our North American business contracted somewhat year over year… some carriers changed their upgrade policies. And this affected last quarter, and will have some effect on the current quarter.” ($AAPL)

Carriers’ customers showing a willingness to pay more up front for phones in exchange for lower monthly contract cost–end of subsidies near?:

“what is probably most interesting to me as we look at what has played out in 2013 and carried into the first month of 2014 is the idea that our customers are demonstrating an interest desire even to put more of their money into the handset in exchange for lower monthly pricing. And that’s what you see happening in the marketplace right now. More and more customers are moving to the handset financing plans picking up more of the cost of the handset with the desire to have a lower monthly rate. And so we are seeing that play itself out.” ($T)

Net Neutrality decision from courts doesn’t change much in AT&T’s opinion:

“We did have this court order. From our standpoint David that changed really nothing. It doesn’t change anyway that we will operate, I really don’t believe it’s going to change much of what anybody in the industry will do.” ($T)

Healthcare

Illumina broke the $1,000 genome barrier.  Demand for whole genome sequencing is insatiable:

“Interest in the HiSeq X10 continues to be exceptional…The demand we’ve seen for the $1,000-genome reinforces our view that there is, as far out as we can see, an insatiable demand for whole-genome sequencing.” ($ILMN)

The $1,000 price point could be the start of a second renaissance in genomic discovery:

“at $1,000 this has catalyzed the imagination of many of our customer types. Our hope is that we have sort of a second Renaissance in genomic discovery begin to happen on the back of the X10. I think it really has that potential broadly.” ($ILMN)

We’ve still only scratched the surface of our understanding.  Large sample sets the key:

“after all the work we and everybody in the industry’s been doing over the last 15 years, we’ve still only scratched the surface about understanding what the genome really means. All of the analysis now that are done by the brilliant scientists in our field say that the way you break through that barrier is by sequencing very large sample sets, and by that, the numbers pencil out to be hundreds of thousands of samples.” ($ILMN)

The $1,000 genome enables that large sample set.  We’re at the point where the tools have caught up to the theory:

“I think what you’re seeing in terms of the market reaction is a sense that there really is an opportunity now to redo the discovery programs that were done or attempted to be done 10 or 15 years ago, but now with a set of tools it’s up to the task. That’s really what it’s all about.” ($ILMN)

Mass market applications still “only” a few years away:

“I think we’re only a few years away from the point where everyone who has cancer gets it tested genomically one way or another, with one kind of panel, or exome, or genome.” ($ILMN)

Materials, Industrials, Energy

Argentina has the best shale outside North America:

“Argentina, as far as we know it’s the best shale outside of North America. So we took the opportunity to bring those into the portfolio. ” ($CVX)

Chevron selling pipeline assets to MLPs–not particularly fond of the MLP structure:

“We’re in the process right now of making some sales in our midstream business for example. You referenced MLPs our approach – we’re not fond of the MLP structure as a way for us to hold assets, but we can sell into MLPs and get that value. And so we have been selling pipelines and we’ll continue to do so for pipelines where they are not critical to our upstream or downstream business, now there is more merchant type lines.” ($CVX)

Spread volatility favors integrated oils:

“I think when you look in the middle of the country today I think it makes all the sense in the world to be an integrated company. You’ve had tremendous volatility in relationship – in crude pricing and you capture refinery, recapture on the upstream side just depending upon how infrastructure moves…so I frankly think that the integration story for us is pretty straightforward.” ($CVX)

Miners running their equipment, but not replacing it:

“Based on the size and age of existing equipment fleets, we believe that miners are buying new equipment at a rate that’s well below the average replacement level they’ll need going forward. As an example, we think that our sales of large mining trucks in 2014 will be around half the long term replacement level…we don’t think that can go on indefinitely” ($CAT)

Replacement is going to have to happen either this year or next:

“I’m not making that prediction here today. I hope it’s in 2014. I know it will happen in 2014 or 2015” ($CAT)

Miscellaneous Nuggets of Wisdom

In allocating capital, focus on the things that you understand and can predict:

“it is very hard to predict oil prices, foreign exchange, local content requirements, cost of goods and services. What we have been fairly good at understanding is the competitive nature of our project, so when we put out long-term production forecast we’ve had a view that we know the world is going to need energy, we know that we’ve got projects that will compete because of the resource and general nature of the project.” ($CVX)

R&D takes a long time to come to fruition, and if you cut the pipeline, you can’t buy back the time you lose:

“one thing that I would say that I am concerned about as we go through this budget process, we seem to be protecting personnel and readiness, which is okay. Those can be bought back very quickly, and I’m going to be working hard to make sure that on the R&D side that we don’t take a lot of cuts in the budget there because, being an engineer, I know how long it takes for R&D to come to fruition…I know Raytheon, even in the tough times when we had $13 billion in debt, we still invested, and that’s paying off in some of our wins as we look today, and we’ll continue to invest as a company. But I think as a nation, as we look at the — our investments, we’ve got to make sure that R&D is not sacrificed because you can’t buy back that time that you lose.” ($RTN)

Business is all about relationships and trust.  They don’t happen overnight:

“it takes a while to establish your credibility internationally. And our customers really count on the fact that, I mean, we’ve been in the Mideast 50 years, Japan 50 years, Taiwan 50 years, Korea. I mean, these are the sort of things we’ve done for a long time, and your performance over that period really helps you capture new business. And it’s, to me, it’s all about relationships and trust, and that does not happen overnight.” ($RTN)

Mastercard 4Q13 Earnings Call Notes

A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

Retail sales grew 3.9% in 4Q from Mastercard’s data

“Our SpendingPulse data that showed that U.S. retail sales growth x auto for the fourth quarter was 3.9%, and includes the fact that holiday retail sales grew faster than last year”

7% volume growth in the US

“We saw an increase in our United States business in the fourth quarter with volume growth of 7%, driven by improvements in consumer credit and in debit.”

Europe still subdued, but potentially recovering

“In Europe, overall economic growth in the fourth quarter remained subdued, although there are some indicators of a potential recovery. Consumer sentiment continued a slow but very steady climb, as did business sentiment across our major markets.”

Asia Pacific declined

“In Asia Pacific, consumer and business sentiment levels declined in the fourth quarter across major markets, including Australia. In addition, worries about slowing growth in China go beyond being just a domestic issue and have broader implications, as you all know, for other markets that depend on Chinese demand.”

Slow growth in Latam too

“In Latin America, economic growth slowed a bit in the fourth quarter with consumer confidence declining in both Brazil and Mexico. But across the rest of the region, it was fairly positive.”

US and Europe leading, could be a catalyst for emerging markets

“Overall, it feels like the U.S. and Western Europe markets where we generate well over half of our revenue are slowly starting to regain their economic footing. The general consensus is the U.S. should have a decent economic growth in 2014, and there is increasing optimism about Europe. As these developed markets recover, it could be a catalyst to spark further growth in Asia and Latin America.”

$1.1 T gross dollar volume in 4Q

“for the fourth quarter. Our worldwide gross dollar volume, or GDV, was up 14% on a local currency basis to over $1.1 trillion. U.S. GDV grew 7% with credit volumes growing 6%.”

2 Billion cards globally

“Globally, the number of cards grew 9% to almost 2 billion MasterCard and Maestro-branded cards.”

Increased focus on security: EMV, Tokenization

“There’s going to be a ton of things that will happen with how data is secured, how it’s kept, how it’s encrypted in motion and address things that we all do, things that very often — you cannot expect small merchants to do in the same way, or smaller acquirers to do in the same way. That’s one of the reasons why, in the future, with digital technology, tokenization is actually a key because in tokenization, that data doesn’t even go to be stored in that location. It’s encrypted with a key that only the networks and the banks recognize. And therefore, the concept of that data line in the weakest link in the chain will go away. So it’s both EMV, tokenization, fraud tools, all the things that are going on. It’s not one thing, but EMV is a really big arrow in the quiver.’

It makes sense that Apple, Google and Amazon are interested in mobile payments. We’re going to be a partner

“You all know that they’re all thinking about this. And the fact that Google is out there first and actually doing something, doesn’t mean that the others weren’t working on it. They’re all working on it. And they’re all trying to figure out what the right role to play for their respective strengths and weaknesses are, as this payment opportunity evolves. And it’s not just payments. When you talk to most of them, they will tell you it’s about the before, during and after the transaction. So Google tends to think about it as a metric to look at enhancing their advertising and consumer outreach business, not really as a payments business. Others think differently. And everybody comes in from a different perspective. So that’s why what we’re trying to do is to partner with as many of them as we can. And we’ve managed, I think, well to shift the dialogue from one of distant mediation to one of partnership, because we bring some very strong assets to the table in terms of what we haven’t possess and also what we’re investing in. And so that’s kind of where they’re going with it. That’s our — I’m not the least surprised. I believe it’s the right thing to do anyway with all the strong players in the digital world. We’ll have a role to play in some way to enable payments for their consumers. It’s the right thing to do.”

Mattel 4Q13 Earnings Call Notes

A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

A disappointing conclusion to a otherwise good year

“The fourth quarter of 2013 was a disappointing conclusion to what had been a pretty strong year for Mattel.”

A transformative year for holiday sales

“From my perspective, the 2013 holiday period has to be one of the most transformative I’ve seen, particularly here in the United States. Consumers came out much later and less frequently to brick-and-mortar stores with ShopperTrak showing retail foot traffic in stores to be down as much as 15%.”

Consumers bought, but more deliberately, focused on deals

“And while consumers ultimately bought, they seem to have done a lot more online research than they had in the past, and they were more deliberate, focusing on discounts and deals.”

Part of it was our fault

“It was clear that our innovation and end market execution did not resonate with consumers enough to achieve our sales goals.”

But categories were weak

“U.S. NPD results showed the key categories we play in, dolls, infant preschool and vehicles, performed below the industry average. In the end, 2013 looked a lot like the past decade for toys with a relatively flat market in mature markets and growth in emerging and developing markets.”

Looking at the leverage points of the business

“Our long-term goal was to deliver a 6% to 8% profit growth, and that drives our TSR model so that we deliver the upper third, upper quartile TSR. The way that we think about that is we have a variety of levers to pull. Revenue is a lever. Gross margin is a lever. The middle of the P&L is a lever. And we approach every year a little bit differently trying to get an understanding of where we think opportunities are on each of those particular levers. Now if I look at 2013, we obviously thought that revenue was going to be a stronger lever for us.”

We just didn’t have the innovation

“with hindsight being 20/20, as we look at the innovation in our product line relative to competition out there, frankly, we just didn’t have the innovation. And that’s what’s hurt our share in Fisher-Price. And again, we were very disappointed in that.”

Hard for an endcap to work as well in 2013 as in 2012

“I think some of our promotional spending was not as effective. As we’ve been saying here, the store traffic is down 15%. It’s hard for an end cap to work as hard in 2013 as it did in 2012. So there’s a lot going on in terms of where we are in share.”

Chevron 4Q13 Earnings Call Notes

A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

Our 2013 performance was solid

“Our financial performance in 2013 was solid. Once competition results are fully analyzed we expect to once again post the highest upstream cash and earnings margins per barrel compared to a broad set of peer competitors.”

Reserve replacement ratio 85%

“Our one year reserve replacement was 85%, brining our 3 year replacement ratio to 123%. We are proud of our performance this past year.”

$11 in EPS

“For the year earnings were $21.4 billion, this equates to $11.09 per diluted share.”

2.6 Million barrels per day

“Production declined by 13,000 barrels per day in 2013. Production averaged 2.6 million barrels per day for the year, 98% of our original guidance.”

Similar production forecast for 2014

“our net production outlook for 2014 is 2.61 million barrels oil equivalent per day based on average Brent price of $109 per barrel, which was the same average price as 2013. This outlook does not assume OPEC curtailments, material and security or other market impacts.”

Base business contracting at 4% per year

“Papa-Terra and in the Permian Basin. These are expected to be partially offset by declines from our base producing assets, where we continue to assume an average decline rate of approximately 4%. Our focus is on managing the decline rate related to our base business, which is performing very well and on executing with excellence”

Five big projects to add 500k barrels per day

“five large projects; Angola LNG, Jack/St. Malo, Big Foot, Gorgon and Wheatstone, which in total will add over 500,000 barrels per day of net new production to Chevron at full capacity. In 2015, we’ll see the start-up of Gorgon and Big Foot and additional ram up of Jack/St. Malo.”

We can understand the fundamental nature of the project. We can’t predict oil prices

“One of the reasons I have told you and others before, one of the reasons we haven’t put out long-term capital forecast is because it is very hard to predict oil prices, foreign exchange, local content requirements, cost of goods and services. What we have been fairly good at understanding is the competitive nature of our project, so when we put out long-term production forecast we’ve had a view that we know the world is going to need energy, we know that we’ve got projects that will compete because of the resource and general nature of the project.”

Argentina has the best shale outside North America

“Argentina, as far as we know it’s the best shale outside of North America. So we took the opportunity to bring those into the portfolio. ”

Not fond of the MLP structure, but don’t mind selling assets to them

“We’re in the process right now of making some sales in our midstream business for example. You referenced MLPs our approach – we’re not fond of the MLP structure as a way for us to hold assets, but we can sell into MLPs and get that value. And so we have been selling pipelines and we’ll continue to do so for pipelines where they are not critical to our upstream or downstream business, now there is more merchant type lines.”

With spread volatility, it’s good to be integrated

“I think when you look in the middle of the country today I think it makes all the sense in the world to be an integrated company. You’ve had tremendous volatility in relationship – in crude pricing and you capture refinery, recapture on the upstream side just depending upon how infrastructure moves and we’re capturing that in Salt Lake. So I frankly think that the integration story for us is pretty straightforward.”

Chubb 4Q13 Earnings Call Notes

A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

Combined ratio sitting at a healthy 85.5

“Our combined ratio for the quarter was 85.5 compared to 111.2 in the fourth quarter of 2012. The impact of catastrophe losses in the 2013 fourth quarter was 2.1 points compared to 29.7 points in the fourth quarter a year ago due to Storm Sandy. On an x cat basis, our combined ratio was 83.4 compared to 81.5 in the fourth quarter of 2012.”

Seeing slightly more competition on rates. Increases to slow

“As our book approaches rate adequacy, we’d expect the size of rate increases to decline. That said, during the fourth quarter, we did see signs in the U.S. of increased competition in certain lines, most notably, large commercial property programs”

Sever winter weather classified as catastrophe

“To date, weather has resulted in 2 declared catastrophes related to the freezing and winter storms that occurred in 19 states between January 3 and January 8. Both cats entailed freezing, ice, snow and wind, with the majority of our losses related to water damage from frozen burst pipes”

14% ROE

“We generated annualized GAAP and operating ROE in the quarter of 14.4% and enjoyed very strong book value growth of 4% from the prior quarter.”

What constitutes a large client

“what we mean by large when we’re talking about accounts. And by that, we’re talking about premiums basically in excess of $1 million for the standard commercial lines. That portion of our portfolio is about 6% to 7%. Now that 6% to 7% includes for CCI property. It includes casualty, workers’ comp, umbrella/excess, et cetera.”

Really just a slight change in competitive environment

“when I said we saw a tad bit more competition and a bit of retention drop, it was just that. We’re talking just small incremental amounts. And yes, there’s been 1 or 2 new players that has entered that market. They brought in some additional capacity. I think that we have seen the prices go down on a magnitude of anywhere from, say 5% to 15% on the deals.”

A rational environment

“post-9/11, the type of increases that we were seeing, they were accelerating and they decelerated. This is a much different marketplace. People have very good metrics in their — our competitors are trying to be very rational. I don’t think reinsurance is driving it to the same degree that it had in the past. People’s primary carriers, our primary competitors, have very strong balance sheets. I think they’ve got a lot better analytics as we do today, and people are trying to find niches where they have competitive advantages and compete there.”

Low potential investment returns keeping everyone in check

“don’t forget, we are in a much different investment income and interest rate environment today as well. So that also comes into play.”

Google 4Q13 Earnings Call Notes

A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

Larry Page no longer on the earnings calls

“Larry will no longer be joining us on a regular basis on this call as he focuses with energy on running the Company. But consistent with our prior calls, Nikesh and I will be here.”

Thoughts on Nest

“In the case of Nest, look Nest and Google share a real common vision. Nest, both of us believe that technology should be doing the hard works so that people can get on with their lives and do great things. So our goal is really in the case of Nest is to help them scale. And bringing the resources of Google to increase their investments, reach broader audiences and then scale internationally. So, for us it’s a terrific opportunity and then bring people like — being able to attract people like Tony and Matt to the team is actually wonderful.”

CPG advertisers attracted to YouTube

“our strength this quarter was not just from retail or automotive also from CPG. And part of our ability to get CPG customers to come and advertise with us is our ability to convince them that brands can be built on the internet and YouTube clearly is the key player in our brand story, vis-à-vis advertisers, because they still think visually — they still video when they think brand advertising not just text ads.”

Advertisers want a third party to endorse the medium

“I think look in the long-term what advertisers want is a third party to endorse various media.”

Reading between the lines, nest to replace motorola as hardware engine

“Motorola – let’s never forget right has really strengthened our Android ecosystem and done a terrific job on that. So I think that both from a perspective of the hardware itself in the handset area as well as for the core Android ecosystem, I think that it’s a real win-win for everybody. In addition to that, right, as you know from the Nest acquisition and Glass and Wearables, we continue to innovate and we continue to be committed to the hardware in areas that are kind of enterprising, promising, new frontiers and that’s where actually we’re focusing on.”

Cash is a strategic asset

“the cash position of Google is seen as a strategic asset. It is an important asset to us both in terms of offensive and defensive, given the world in which we live in. And in that context, it’s been reviewed regularly and we make sure that actually we get the best return for our investors on that asset as well. So, we have a real strategy for that as well. So, for now we have nothing else to announce on it but just to give comfort to our investors that we do take this issue seriously and it is reviewed on a regular basis by both ourselves, management, but also raised to the Board for the right answer”

Still very early days for digital advertising

“I think we’re still in the very early days of how much advertising is going to move over to digital media. And I think you’re right to identify that, places like Google+, places like YouTube are still very, very sort of in their infancy in the amount of advertising they can support vis-à-vis the amount of usage we’re getting.”

Raytheon 4Q13 Earnings Call Notes

A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

Bill Swanson stepping down as CEO

“As you all know, I announced my intention to step down as Raytheon’s CEO, and the board appointed Tom Kennedy to be CEO, and Tom is on the call with us today”

Must continue to invest in R&D

“Since you asked me to reflect, one thing that I would say that I am concerned about as we go through this budget process, we seem to be protecting personnel and readiness, which is okay. Those can be bought back very quickly, and I’m going to be working hard to make sure that on the R&D side that we don’t take a lot of cuts in the budget there because, being an engineer, I know how long it takes for R&D to come to fruition. And we’re always a country that has invested in our capability, in war-fighting capability. I know Raytheon, even in the tough times when we had $13 billion in debt, we still invested, and that’s paying off in some of our wins as we look today, and we’ll continue to invest as a company. But I think as a nation, as we look at the — our investments, we’ve got to make sure that R&D is not sacrificed because you can’t buy back that time that you lose.”

It takes time to develop relationships and trust

“I mean, what I would do is remind everybody back to about 8 or 9 years ago when, I guess, we were talking about international. It’s not something you can flip a switch and turn on a light and have it instantaneously happen. So I appreciate people starting organizations and putting things in place, but it takes a while to establish your credibility internationally. And our customers really count on the fact that, I mean, we’ve been in the Mideast 50 years, Japan 50 years, Taiwan 50 years, Korea. I mean, these are the sort of things we’ve done for a long time, and your performance over that period really helps you capture new business. And it’s, to me, it’s all about relationships and trust, and that does not happen overnight.”

UPS 4Q13 Earnings Call Notes

A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

Far short of expectations

“I would like to start my comments today by saying UPS fourth quarter results fell far short of our expectations. ”

Huge e-commerce volumes, and late season surge

“Shipments produced by e-commerce significantly exceeded even our most optimistic forecasts as more and more Americans shopped online.”

“In addition, we experienced a much later peak day than expected as purchasing decisions by consumers shifted closer to Christmas.”

Weather complicated things

“In addition, we experienced a much later peak day than expected as purchasing decisions by consumers shifted closer to Christmas.”

Europe emerging from recession

“on a positive note, Europe began to emerge from recession. Also, cross border trade improved in 2012, express shipments out of Asia remains sluggish.”

E-commerce growing worldwide, not just US

“e-commerce continues to evolve at a rapid pace, not only here in the United States, but around the world.”

Customers care more about price than time

“customers put greater emphasis on cost rather than time in transit.”

Four key areas that need to be improved to avoid repeat of 4Q mess

“First, UPS volume forecasting methods were challenged. The paradigms for planning no longer apply due to the rapidly evolving marketplace.”

“second issue we need to address. UPS network capacity. We are in the process of identifying ways to enhance the throughput of our network. We will make appropriate investments such as facility expansions, process automation, job simplification and the acceleration of the technology implementations”

“we plan to expedite the progress of updating our legacy buildings with automation to streamline the thought process.”

“A third area for improvement is timely and accurate visibility of shipments. As more customers work with UPS to optimize their supply chains, a growing number of trailers were dropped at our facilities with limited visibility to their contents.”

“Lastly, improved communication with our shippers and receivers is needed.”

Holiday season 2014 compressed again

“We are going to spend extra money operationally. We are going to accelerate investments and we are little cautious about exactly how the next peak turns out. It is another compressed holiday season although we get one extra day.”

Facebook 4Q13 Earnings Call Notes

A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

1.23 Billion users

“ore than 1.23 billion people now use Facebook each month. Last quarter was our first quarter where more than 50% of our ad revenue came from mobile.”

Still only 1/3 of the world’s population has internet

“Only one-third of the world’s population has access to the internet today, and for even many of those, the return on experience remains pretty weak.”

Huge growth

“Our total revenue grew 63% year over year, led by 76% growth in advertising revenue. Approximately 53% of our ad revenue came from mobile.”

Personalized marketing

“Before mass media, all business was personal. Sales happened customer by customer at the local store or door to door. The evolution of mass media made it possible to sell at scale, but business was no longer personal.

On Facebook, marketers can do both. We’re building the world’s first global platform that lets marketers personalize their messages at unprecedented scale. This is marketing where you are for who you are.”

Could sell more ads if they wanted to but focused on experience

“the strategy has been, for the last period, and will continue to be, to primarily focus on increasing the quality of the ads and the experience.

And I really think that it’s easy to look at the model and say, okay, if we ran more ads then the business would grow faster in the short term, but investing in quality is really actually the most important thing, because it’s what improves the experience for the people who use the product. It drives greater returns for advertisers, and over time it increases the potential size of our business.”

Ramped up ads with little sacrifice to user experience

“we’re really one or two years into this, and we’re still learning how to provide the best experience. I think one of the most important pieces of positive news from 2013 was as we ramped up newsfeed ads, they performed as well as they did, delivering great value for marketers, having a very minimal effect on the user experience, and enabling Facebook to deliver the kind of results that we reported today.”

We take teens very seriously, focused on that problem

“In terms of teens, we don’t have any new data to report today. As you know, we take engagement very seriously, and we’re focused on building great products that all our users, including teens, will find useful and engaging.”

It’s about sharing.

“some of the things that we’re thinking about are all of the different kinds of ways that people might want to share different kinds of content with different audiences.”

Facebook’s three, five and ten year plan

“we talk about our strategy, and there’s a three-year strategy, a five-year strategy, and a 10-year strategy. And the three-year plan is really all about building new kinds of experiences for sharing, like so many of the questions on this call have been about. The five-year approach is really mostly about helping people use their network to answer interesting questions or solve problems that they have…But over a 10-year period, if we can get a lot more of the world on the internet, I think that’s going to really mean a quite different world in terms of what folks in a lot of developing countries have access to in terms of some of the things I said in my opening remarks, around basic financial services, and people can get credit to start businesses, and buy homes, really life-changing stuff, or get access to health information or education materials, which I think are just a really big deal.”

10 Year Performance of 10 10 10

It hasn’t been easy to be a value investor recently.  High multiple stocks have climbed continuously higher as most value investors wait diligently and patiently for lower prices.  All good value investors know that this is the way things typically unfold.  Momentum stocks will periodically reach unfathomable levels, but it still is unsettling to watch the market work in such an antithetical way to what sound judgment and logic would dictate.

Still, faithful value investors also know that value is the only reasonable and time tested approach to earn consistent long term returns on meaningful amounts of savings.  So we wait anyways, even as short term price action seems to discredit our approach.

Below is a chart to remind us that in the end value does matter.  The companies below are the ten stocks (ex-healthcare) which 10 years ago sold for 10x sales with a $10 B market cap.  All except for one did significantly worse than the S&P 500 over the next ten years, and four declined over the period.  Today there are 15 companies which would fit into this group, including Facebook, Visa, Mastercard, Linkedin and Tesla.

10 10 10 clubSource: Compustat Data