Each week I read dozens of transcripts from earnings calls and presentations as part of my investment process. Below is a weekly post which contains some of the most important quotes about the economy and industry trends from those transcripts. Click here to receive these posts weekly via email.
The Macro Outlook:
Most retailers seemed pretty happy with their holiday results
“Let me begin by saying that we had a terrific fourth quarter.” ($TJX)
“We were very pleased with the level of transaction growth that we had in the quarter. Matter of fact, it was above what we had anticipated.” ($HD)
“comparable sales growth turned out to be nearly double our original expectation” ($TGT)
“All lines of business were positive and all regions were positive.” ($KSS)
Something that is particularly positive: strength was driven by traffic
“traffic, yes, we’ve been very happy with how traffic has picked up over the last couple of quarters.” ($ROST)
“We’re extremely pleased to see the comp almost entirely driven by customer traffic.” ($TJX)
“We are also pleased that traffic was the primary driver of our fourth quarter growth” ($TGT)
CEOs are once again looking to the future with optimism
“we are focused on accelerating growth.” ($M)
“we’re excited about our business.” ($DLTR)
“we’re raising our estimates for its long-term growth” ($TJX)
Every analyst wanted to know whether this optimism would translate to higher wages in the retail industry
Most companies agreed that you have to pay a competitive wage to retain good people
“we obviously don’t operate in a vacuum, but we never have. We have a pretty robust and very successful system in place to assess the competitive market across the whole country. And fundamentally we pay what’s necessary in each market to attract and retain the talent we need.” ($KSS)
“We’re very focused on ensuring we have competitive wages and that we’re developing our team members. We’re all the time assessing the marketplace to determine competitive wages and making adjustments and we feel very confident that we’ll be paying the teams appropriately.” ($TGT)
Some felt like that didn’t mean any changes were needed though
“outside of complying with the continued changes in the regulations we’ve made no plans for a sweeping change to our minimum wage rates” ($DLTR)
“Overall as we look at some of the announcements that have been in the marketplace and the minimum wage legislation act really hasn’t changed our view of the quarter or the year really at all and won’t be material changes to us.” ($TGT)
TJ Maxx was one of the few to take decisive action. They are raising wages to stay ahead of the curve
“we want to be ahead of it. We want to keep the best of the best and we want to be able to bring the best of the best in. So whether it’s our stores, whether it’s our merchants, whether it’s home office, that’s our goal. So we’re doing what we think is best for our associates and our customers.” ($TJX)
Perhaps it’s naive to think that these announcements wont have an effect
“Obviously, those announcements are fairly recent. But we would expect that they will have an impact on wage — on industry wage rates. Of course, they will. In fact, we’d expect the labor market will tighten up in general as the economy improves.” ($ROST)
There’s certainly a risk of more labor pressure ahead
“there could well be, for all the reasons people have — for all the reasons you read in the papers, there could be more wage pressure ahead. That’s certainly a risk and as I said, we’ll look for ways to mitigate any of those increases.” ($ROST)
Retailers will look to mitigate the cost impact in other parts of the business
“if we do make changes, we’ll look to mitigate the impact of any cost increases through reductions or productivity improvements elsewhere in the business.” ($ROST)
Raising wages costs money though
“investments in our associates as well as other incremental investments and pension costs would have a combined negative impact of about 4% to fiscal ’16 EPS growth.” ($TJX)
Pension expense (another labor component) represents an additional headwind to earnings as interest rates stay low
“the strong dollar and higher pension cost will provide significant headwinds for us in 2015.’ ($ECL)
On the bright side, higher wages are a sign that the economy is doing better
“Just one final thought though, I think it’s worth noting that rising wage rate is actually — it’s a good thing in the sense that it shows that the economy is picking up and suggest the consumer will have more money in their pockets. So it could have a beneficial impact to retail sales.” ($ROST)
Which is great, but very few are on the lookout for inefficiencies that get built up in strong times
“we’re a company now that’s been through several years of very strong earnings results, and I always get nervous during these periods because I know there is inefficiencies being built up in the business as a consequence of having strong earnings.’ ($ECL)
No bubbles here
“When a Fed Governor was asked recently if he saw any evidence of an obvious bubble, he replied and I quote “I don’t think there is anything on the scale of the housing or internet bubble right now. The only candidate is bonds, government debt, and other kinds of debt. But I am not counting that, I guess because that’s us” ($NLY)
Nobody really seems to think that the Fed will tighten any time soon
“expectations for the pace of tightening are not as aggressive as they were before but nonetheless we do think that the tightening that is priced into the market is we would say not overly aggressive. If anything we think it will be slightly less aggressive than that which is priced in.’ ($NLY)
Financials:
Annaly’s CEO had quite a rant against the Fed
“As is often the case with humanity, we fancy our present selves as the most intellectually sophisticated and tend to look back upon our predecessors as somewhat naïve in light of our current knowledge base. There are certainly good reasons for that attitude, here are a few examples. Up until the late 1800s bloodletting was a popular prescription for many ills, in fact George Washington was reportedly a huge proponent and after awakening with a bad sore throat he asked to be blood let. During the next 16 hours five to seven types of blood was drained from his body, four days later he was dead.” ($NLY)
This is a standout quote
“History is littered with long standing theories and beliefs that ultimately prove incorrect. My hope is that as policy makers of the world continue to prescribe their remedies for the ailing economic patients that they do not render it worse off. As with their predecessors, I suspect that there is no doubt in the minds of our central bankers that they are the smartest they have ever been. Yet I fear that they are not the smartest they will ever be.” ($NLY)
Toll Brothers is seeing momentum build as housing enters the spring selling season
“Momentum continues to build as we begin the spring selling season…we’re now three to four weeks into a spring selling season and there are more buyers in the market…we certainly feel better and have more pricing power than we had in November and December.” ($TOL)
People are confident that they can sell their homes
“as this recovery strengthens, we’re hearing better news that they’re more confident they can sell their home…they’re out in the market anticipating the ability to sell their home later in the spring.’ ($TOL)
The housing market could still benefit from loosened underwriting standards
“As we think about the recovery and the steepness of the recovery, it could be accelerated if mortgage underwriting standards were to be loosened up…it’s still very tight.” ($HD)
Small homebuilders are capital constrained
“They’re still constrained. The small guys have not come back into the business. They’re unable so far, at least in our markets, to find the capital to compete on the land deals that we go after.’ ($TOL)
Consumer:
Home Depot can’t find any clear correlation between gas prices and sales growth
“as it relates to the gasoline, we’ve looked hard over the years to try to look at the correlation gas prices to sales, and we have not been able to draw that correlation. Clearly it is a positive thing when a customer has more disposable income in their pocket, so even though we can’t draw that correlation, that is a good news thing for us.” ($HD)
The port issues have been a headwind, but not a significant one in the grand scheme of things
“If I was looking at the ports slowdown in a list of things that can either be a headwind or tailwind, it’s definitely been a headwind, for sure…But if I put it in a priority of other things..like our ability to deliver amazing product, our ability to have more effective marketing through more utilization of personalization or loyalty, weather as a factor at any point in time, those things all outweigh this.” ($KSS)
Chaos at the ports is good for off-price retailers
“in terms of the port, I can tell you as you know, chaos does tend to be our friend. I hate to say it. But we are seeing some things. Our pack-aways are already up.” ($TJX)
It will take some time to work out the backlog at the ports
“We were very pleased with last weekend’s news that a tentative agreement had been reached, but what we know it will be sometime before the backlog at these ports will be fully eliminated.” ($TGT)
The tenor of the holiday season has changed over the last decade
“Across the U.S. retail landscape, this year’s holiday shopping season began earlier and ended later than ever before. This lengthening of the season reinforced a pattern we’ve seen for well over a decade, where we saw the strongest sales in the early and late portions of the season and experienced a period of softness in the middle.” ($TGT)
Media companies can’t expect to keep getting price increases with falling viewership
“The network itself they have an only playbook which you are paying us x and we want x plus 10%, next year even though our viewership might have gone down by 10%. Well, that math doesn’t add up. And the industry can’t survive in a situation where content providers want double digit increases but they got double digit decreases in viewership.” ($DISH)
Content creators shouldn’t expect to have their cake and eat it too. When you distribute over the top, you diminish value for an existing customer
“content providers also have diluted their programming to some extent by selling the same content to other providers particularly some other OTT providers with their contents now available then that dilutes the value to product” ($DISH)
Cable network ratings are under more pressure than they have been in recent years
“In terms of the cable network business I think what we’re finding is throughout the entire industry is that the ratings pressure is greater than it was a year or two ago” ($CMCSA)
Technology:
PC sales are no longer benefitting from the XP refresh cycle, but consumers are showing some strength
“We have seen an expected slowdown in the commercial segment following the XP refresh that fueled high growth last year. However, we’ve seen to counter balance that momentum in the consumer side of the business as consumers refresh their older PCs.’ ($HPQ)
Servers are hitting a refresh cycle
“The combination of Gen9 and the refresh cycle makes us fairly bullish on industry standard servers kind of throughout the rest of 2015” ($HPQ)
In telecom, when you come at the king, you best not miss
“So what happens in this industry is as soon as you become a competitor the big guys take you on and try to stop you. They try to stop you in Congress, they try to pass laws, they try to file against you an auction…they try to go handset manufacturers and they cause all kinds of mischief.” ($DISH)
The best telecom networks are comprised of low and high band spectrum
“to be successful in wireless you have to have a combination of low band and mid to high band spectrum. Mid to high band is obviously for capacity and the low band is for coverage. And probably the strongest asset that AT&T and Verizon have is they have virtually all of the low band spectrum so that their networks, when they brag about their networks in part it is because their coverage is better because of the low band spectrum.’ ($DISH)
Comcast says lets not regulate the internet with 1930’s era regulations
“[there are] unnecessary risks associated with applying 1930 style regulations to something as dynamic as the Internet…We are absolutely for a free and open Internet…The disagreement boils down to what legal authority the FCC should use to put in place these rules. We think the Title II regulation is antiquated and has real downsides” ($CMCSA)
Materials, Industrials, Energy:
Ensco says that oil companies have cut spending at an unprecedented rate
“The severe fall-off in customer demand is unprecedented compared to what we’ve seen in prior cycles…this has been a much more rapid and aggressive fall-off…[it] has not only taken us by surprise; it’s taken a large part of the sector and the industry by surprise.’ ($ESV)
Early signs of distress starting to pop up?
Some oil companies continue to pump because they have bills they have to pay
“we’re seeing some markets where production is up quite dramatically because they’re trying to offset the negative impact of lower price, because they’ve got I would say some bills to pay. ‘ ($ECL)
Ensco has customers that are overcommitted and are trying to renegotiate contracts
“we do have some customers who are overcommitted on their drilling contracts. So there are various customers who are looking for renegotiation of some terms, usually in exchange for an extension of contract or something to mutual gain.We do have a few customers who are looking at whether they’re going to early terminate or not.’ ($ESV)
Banks aren’t seeing an impact to credit yet though
“From a credit perspective we believe our direct exposure to oil and gas producers is manageable. We are not seeing any signs of deterioration though it is early days” ($TD)
Toll Brothers has not seen any impact on home sales in Houston either
“Houston has remained solid with backlog cancellation rates well below the company average and contracts per community up compared to last year.” ($TOL)
The distress could take a couple of years to play out
“it’s much more likely we’re going to see distressed assets in the jackup category, where you have a lot of speculative buyers there who are not completely financed. So I think we’re going to see a lot there and you’re going to see some interesting transactions probably over the next couple of years.” ($ESV)
The agriculture industry is in for a rough year
“crop receipts for 2015 are forecast to be down about 23%, lower than the levels in 2012, which was the record.” ($DE)
Still, global grain inventories are tight enough that unfavorable weather could lead prices higher
“global grain stocks-to-use ratios remain at somewhat sensitive levels…unfavorable growing conditions in any key region of the world could…result in prices quickly moving higher.” ($DE)
Livestock is better positioned than grain. Smaller farmers tend to be heavier in livestock
“livestock profitability generally is expected to continue through 2015…so overall we’re still looking at small ag, which tends to be a little more closely tied to livestock to be relatively strong versus certainly large ag” ($DE)
It’s too early to tell whether the ag sector will rebound after 2015
“it’s very premature really to talk about market conditions beyond 2015. As we all know, that will largely be impacted by the upcoming growing season and it’s just very, very early.’ ($DE)
Normal weather patterns should lead to some improvement though
“If you look at normal weather patterns…If that would transpire, we would certainly expect to see some improvement next year.” ($DE)
Miscellaneous Nuggets of Wisdom:
In case you were wondering, wages are set on a market-by-market basis
“We continually look at the market on a market-by-market basis” ($HD)
“we will continue to pay competitive wages market-by-market” ($DLTR)
“we set rates on a market-by-market basis” ($ROST)
“Frankly, cost of living are not the same everywhere and neither are wages.” ($KSS)
“by the way, its market-by-market” ($M)
Charlie Ergen is receptive to some alternative methods of financing
“we are receptive to [raising money through] debt, equity, converts, whatever else, I don’t know what else you can do, you can sell your kids” ($DISH)
Selling to large enterprises can make for long sales cycles
“this is a long sales cycle business. I think we first engaged with Deutsche Bank over 18 months ago maybe even closer to two years.’ ($HPQ)
No one knows the future, so the best thing you can do is to stay flexible
“bottom line is we don’t really know what’s going to happen in the economy, but if we manage our business flexibly, we should do just fine.” ($ROST)
Full transcripts can be found at www.seekingalpha.com