Company Notes Digest 7.31.15

Each week we read dozens of transcripts from earnings calls and presentations as part of our 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:

Who the heck knows where we are in the cycle?

“in terms of the bigger, in terms of where we are in the cycle, who the heck knows?” —Kilroy (Commercial Real Estate REIT)

There’s lots of uncertainty out there

“The global economy has never been as uncertain in my recollection. Not that there’s a huge crisis here, but there’s lots of uncertainty” —WR Berkley (P&C Insurance)

There is plenty to worry about

“this relative tranquility belies the fact that there’s still plenty to worry about. The U.S. economic recovery remains tepid. Interest rates are poised to rise sometime in the coming year, and the global economic environment is quite unsettled with the overhang of the Greek debt crisis and a slowing Chinese economy.” —Oaktree (Asset Management)

UPS saw softening in the US economy

“The U.S. Domestic business is on track with its revenue management and efficiency gains; however, we are seeing some softening in the economy…We think the economy was certainly slower for sure.” —UPS (logistics)

Visa sees very little improvement in the US Consumer

“we continue to see very little change in the overall global economy, with a few exceptions. We are hopeful, but not counting on an improvement in the US economy, but we see very little improvement with the US consumer in our numbers thus far, if any.” —Visa (Payments Processing)

But Mastercard sees a healthy environment

“Overall, the environments in the U.S. and Europe have continued to improve, as key economic indicators remained healthy. But the U.S. consumer is still not spending all of their gas savings….in July through the 21st. Most of our business drivers are showing a higher growth rate compared to what we saw in the second quarter.” —Mastercard (Payments Processing)

Demand for polyolefins has been strong

“I mean at this point we still see demand as being relatively strong…demand has grown through the first half year over year in polyolefins globally in the 3% to 4% range. And the U.S. demand growth has been quite strong as has Asia” —Lyondell Basel (Chemicals)

PACCAR saw strong demand for trucks

“PACCAR delivered 41,600 trucks during the second quarter, an 8% increase versus the first quarter this year and slightly ahead of our expectations. The improvement reflects increased truck deliveries in North America and Europe due to economic growth and strong freight demand.” —PACCAR (Truck Manufacturer)

Marriott says that it doesn’t see RevPAR growth slowing any time soon

“Undoubtedly a slower pace of RevPAR growth is likely to occur at some point in North America as economic growth matures. Trees don’t grow to the sky…While this slower pace is likely at some point, we think it is premature to call it today. Based on our data, we believe North American industry RevPAR growth will be solid for the foreseeable future” —Marriott (Hotels)

Last quarter Steve Wynn warned about Las Vegas, but now says it’s “comfortable”

“In Las Vegas, we’re enjoying a comfortable business, I think is the right word for it. It’s not an aggressive growth by any means, but we are enjoying non-casino revenue that is acceptable.” —Wynn (Casinos)

Labor markets are tight, especially for skilled professionals

“revenue growth rates were the strongest in the United States, where skilled professional talent is currently at a premium as a result of the tightening labor market.” —Robert Half (Temp Staffing)

We’re starting to see the development lights come back on

“we’re starting to see the development lights come back on. If you look at the Urban Land Institute at their most recent meeting, there were a lot of developers there starting to talk about opportunities, growing their business, capital flows coming into their businesses and that sort of thing.” —Plum Creek (Timberland)

We’re six years into the recovery, but can it last longer?

“I think we’ve got some apprehension as a marketplace, in part maybe driven by the fact that we’re in the sixth year of a strong lodging recovery. I think all of us kind of wonder how long can it last and we’re constantly looking for clues that maybe we’re reaching a point where we can somehow say that we’re transitioning to a different phase, and I understand that.” —Marriott (Hotel)

International:

The Canadian economy has slowed more than the American economy

“The general economy in Canada has been more sluggish than what we’ve seen in the U.S. I think what Canada is facing, is people probably understated the impact of the energy complex cutback on capital expenditure. But we don’t see Canada in a recession. We see Canada in a technical slowdown that happened to take place for the first six months of the year.” —Canadian National Railway (Railroad)

Don’t expect Chinese construction markets to rebound any time soon

“it’s obvious I think that the Chinese economy is going through a change and their governments are very serious about making this change. So, I don’t I’m not optimistic that we are going to see a big pump up in any of our end markets in a hurry because I think that Chinese government is going to try to keep going on this change of their focused in the government not so much on infrastructure and not so much on build and export a little bit more on consumer and a little bit more disciplined in the provinces” —Cummins (Heavy Duty Engines)

Most people seem to expect that the effects of the strong dollar are temporary

“The stronger dollar has slowed U.S. lumber and log exports, and more Canadian supply has been directed towards U.S. markets. This, combined with slow demand growth, put pressure on lumber prices. Our customers recognize these market forces as temporary and remain committed to their investment plans” —Plum Creek (Timberland)

Financials:

Oaktree says that outside of commodities, high yield companies are doing fine

“apart from the weakening commodity and energy sectors, the credit fundamentals of the high yield bond market remain sound. Issuers of the bonds held in our funds in that strategy continue to post top line growth and solid EBITDA gains.” —Oaktree (Asset Management)

Moelis said that the restructuring market will eventually pick back up, we just don’t know when

“there’s certain sectors where you’re starting to see some volatility and that could help, but in general, very low interest rates, kind of a decent economy, I think is — I don’t see a short term reason why [the restructuring] market would pick up, but I know from being alive in Wall Street for 35 years, it will. I just don’t know when.” —Moelis and Co (Investment Bank)

One area of stress is in Taxi medallion loans

“We built allowance over the last three quarters in anticipation of increasing risk in oil and gas and taxi medallion loans.” —Capital One (Bank)

Consumer:

Whole Foods played the victim card on its conference call

“It’s just something that went viral in the media, and it has hurt our trust and yet, we do feel like we’re victims of – we don’t know exactly why the DCA went after Whole Foods like this, and we’re not sure why the media went crazy with it, but it did happen. We are taking steps to not give cause for this in the future.” —Whole Foods (Grocery)

This analyst was pretty unhappy with P&G’s management

[*Analyst Comment*] “So you sound very different than I would have hoped on the call today or on CNBC this morning. There’s still a lot of defiance. There’s still a lot of confidence, it feels like. And look, all the frustration we’re all feeling, I feel as well probably times 10. You’re kind of brushing off the tough questions and maintaining this trust us, it’ll turn, it’ll turn. But just let me offer you a look through the lens of a shareholder, right, who you are as well. And you see what the stock price has done, and you look at organic sales growth and it’s dismal and it’s getting worse” —Procter and Gamble (Consumer Packaged Goods)

There are a lot of new retail entrepreneurs and they are much more sophisticated than they used to be

“the amount of new concepts and new entrepreneurs coming into our environment is at a high… the new retailers we are dealing with is that they are substantially more sophisticated than the crop of new retailers we dealt with say 10 years ago, better financed, much more focused on their niche and it’s been much easier to deal this new crop of entrepreneurs than might have been the case.” —Simon Property Group (Mall REIT)

The pace of expansion in B2C shipping has slowed, but secular trends are still in place

“The pace of B2C expansion continued slowing, while B2B gains were due to omni-channel and return services in the retail sector…I think the secular trends are still in place” —UPS (Package Logistics)

Technology:

Last quarter was the largest for venture funding since 2000

“This was the sixth consecutive quarter of more than $10 billion of venture capital invested in a single quarter and the highest quarter of investing since 2000.” —Silicon Valley Bank (Bank)

The competitive environment in the Bay is heated

“The competitive environment remains heated. Strong funding and exit markets have increased the amount of liquidity in the markets and borrowers have money options. As a result some vendors up here are willing to go to any length to win business regardless of whether that risk justifies that return.” —Silicon Valley Bank (Bank)

San Francisco is running out of office space

“San Francisco Bay area is once again on pace to outperform most U.S. real estate markets in 2015. In San Francisco, rental growth remains strong. The supply of large blocks of space is very limited and demand continues to grow. JLL reports that there are now more than 35 tenants in the market for office space greater than 50,000 square feet and only three available blocks of space of that size…one thing about San Francisco remember it’s 45 square miles, a share less than 10% can be developed for non-residential…you have this incredible kind of economics 101 of supply demand imbalance… So rents I think are going to continue to go up” —Kilroy (Commercial Real Estate REIT)

Amidst the fervor, two high profile internet stocks had tough quarters

It’s not a good sign that Yelp’s chairman is stepping down

“I would like to take a moment to thank Max Levchin, Chairman of Yelp who has decided to step down from the board to pursue other interests. Given the demands on his time, we have mutually agreed this is the right time for him to transition off the board. Max provided the seed capital to start Yelp and I am forever grateful for all of his contributions and wish him all the best going forward.” —Yelp (Small Business Reviews)

And it’s also a red flag when people don’t use your product because they don’t know why they need it

“The number one reason from our market research that users don’t use Twitter because they don’t understand why to use Twitter. They don’t understand the value that Jack and I both talked about and we need to clearly communicate what that value is.” —Twitter (Micro-Blogging)

Perhaps those are company specific, but even Facebook is expecting its revenue growth to slow

“Since the first quarter of 2014, we have seen year-over-year advertising revenue growth rates decline each subsequent quarter. We expect this trend to continue in Q3 and Q4 as we continue to grow off a much larger base and face currency headwinds due to the strong dollar.” —Facebook (Social Media)

Meanwhile, the “unicorn bubble” is driving up the cost of good engineers

“As to the unicorn bubble question and we certainly are feeling those impacts…the cost in a couple of these areas have gone up, in particular, product and development as a percentage of revenue continued to creep up and that’s a function of compensation in the marketplace.” —Yelp (Small Business Ratings)

What will happen if valuations fall and stock based compensation goes with it?

“We continue to expect stock-based compensation in 2015 to be in the range of $3 billion to $3.3 billion, approximately half of which is related to our prior acquisitions, most notably WhatsApp.” —Facebook (Social Media)

Not everyone is going to survive

“We’ve always said, there is going to be some failures, the nature of — it’s just like baseball. Not everybody gets up and it’s a homerun and not every team with a winning season wins every game. I don’t mean to be cute here, except for there are going to be companies that fail, this is the nature of it…I think if anybody thought that all these companies are going to survive, they’d be smoked at some point.” —Kilroy (Commercial Real Estate REIT)

People are consuming more and more data

“we continue to see data growth per handset to be significant. And it’s been running at kind of the 50% year-over-year increase for a while.” —AT&T (Telecom)

Data use could explode as more people move from linear TV to Over-the-top

“Typical subscribers watching OTT video delivered across the Akamai platform could consume 10 megabits per second or more of traffic while they’re watching. This means that an audience size of only 5 million users, which is the equivalent of about four Nielsen points, could generate 50 terabits per second of demand, far more than we deliver today for all of our customers combined.” —Akamai (Content Delivery Network)

Middle market companies have increasingly complex IT staffing needs

“Middle market accounts, we’re seeing more complex IT staffing needs that have been the case in the recent past and with that there is demand for mobility, cloud, security, app and web development, data analytics, the type of demand you typically have seen only at larger companies.” —Robert Half (Temp Staffing)

Materials, Industrials, Energy:

National Oilwell Varco sees energy markets stabilizing

“Pricing appears to have stabilized across North American markets as the rig count has more or less stabilized…There’s a lot of conversations underway around land rigs. And I think generally, our land rig customers are much more optimistic about recovering commodity prices driving higher levels of activity.” —National Oilwell Varco (Oil Services)

Lower prices are leading to better than expected gasoline demand

“we certainly expected some price demand elasticity for gasoline with the fall in flat price. And we’ve seen that, and we didn’t really know exactly what the magnitude of the pent-up demand would be. And it’s been a very pleasant surprise, and I think we do expect that that response will continue into the future.” —Valero (Oil Refinery)

But supply has been surprisingly resilient despite the drop in rig count

“I think we’ve been surprised with the decline in rig count, production still seems to be holding.” —Valero (Oil Refinery)

That’s partially because producers are using the rigs that they have more efficiently

“we’ve driven our drilling cost down in the Wattenberg field by almost 35% in the last six months and doubled our rig efficiency over the last year, drilling the same number of wells with half the rigs…I think there is a lot of things we’ve done that are permanent…it’s not just price reductions from various service vendors” —Anadarko (Oil E&P)

And there could be plenty of pent up supply as companies are drilling wells and waiting to complete them

“because we have drilled the wells, we are going to have a significant uplift in what we would call the DUCs, the drilled but uncompleted. We went in last quarter saying we’d probably carry over 125 into next year and as we see it now, we’re probably going to do – carry over around 200” —Anadarko (Oil E&P)

High inventories (coupled with refinery maintenance) could also keep pressure on oil prices in the back half of the year

“We’re sitting on a pretty good overhang of crude oil inventory here in the U.S. We’re 90 million barrels above where we were last year. So with that overhang and then heading into a typical maintenance period where refiner demand is down, you would think that that would add pressure on the price of crude oil.” —Valero (Oil Refinery)

Sentiment has turned negative in the oil and gas space, but not negative enough quite yet

“The psychology is starting to turn negative, but it’s just beginning and we haven’t dived in yet by any means. We have a lot of dry powder and we are right now accessing opportunities that again are structured to basically minimize the risk. But we also want to take advantage if now happens to be in retrospect the right time to step in for part of the opportunity. So our instinct is that it’s not time to dive into the water completely, but it is time to take advantage of low oil prices and gas prices.” —Oaktree (Asset Management)

Amazingly, it’s still a seller’s market for assets

“we see time and again, people coming in there and buying things at prices that surprise us. I will also say that we’ve been – we fought fairly aggressively on a couple of things and were bid or rather were outbid by 2X. So to Bob’s comment, it seems to be a seller’s market” —Anadarko (Oil E&P)

Arch Coal says that a lot of smaller mines in Central Appalachia are probably closing for good

“From what I’ve seen in Central App, a lot of these mines that are closing, particularly the smaller ones, I think are going for good. And the cost to reopen them, I think, is going to be very difficult when you look at regional natural gas pricing.” —Arch Coal (Coal)

Cliffs’ CEO doesn’t seem to have the highest opinion of investment analysts

“Spreadsheet specialists and computer screen wizards do not know a good pellet from a bad one and have never built a pellet plant within a realistic budget and against a real tight timetable.” —Cliffs Natural Resources (Iron Ore)

He is pretty entertaining though

“I know it’s a tough battle here; I knew coming in. I wasn’t even invited to come in. I came in because I wanted and the shareholders elected me to come here. But a difficult war like that will take a lot of difficult decisions and I’m ready to take them at the right time…You’re going to have to sit still, sit tight, and continue to see Lourenço in action, as you have seen for a long time at Metals USA and you are seeing for a year here. It will be fun to watch…Lots of people are looking forward to my – for Lourenço to crash to the ground. It’s not going to happen. Any other questions, Tony?” —Cliffs Natural Resources (Iron Ore)

Miscellaneous Nuggets of Wisdom:

Let your winners run

“when we see a positive surprise we double down on it. That’s kind of our policy” —Amazon (E-Commerce)

Only 2 out of 3 people check their smartphones first thing in the morning

“Two out of three smartphone users check their phone as soon as they wake up in the morning.” —Facebook (Social Media)

No matter how big you get, it pays to maintain a local feel

“I think the thing we have done really, really well and it’s quite a challenge is, how do you get big and stay small? How do you maintain intimacy and trust with your customers and your brand when you are as ubiquitous as Starbucks has become? And the way you do that is through local relevancy and the kind of product design and experience that we’ve now been able to create around the world.” —Starbucks (Coffee)

There’s no reason to be big just for the sake of being big

“our objective is to get better not bigger, and if getting bigger allows us to get better then that’s okay” —Anadarko (Oil E&P)

“big for the sake of big is not a thing that I subscribe to” —Wynn (Casinos)

Pay attention to the performance of the underlying company, not the stock price

“We don’t pay very much attention to our stock price per se, we pay attention to the underlying performance of the company, and those factors associated with performance that are within our control, which is why every week we grind on everything in this building from the use of every square foot of our real estate and our structures, to our plans for the future.” —Wynn (Casinos)

You can buy anything for a price, but 2+2 had better equal 5

“M&A is the kind of option that of course always exists. I mean for a price you can buy anything, I suppose, and some people find it in their mutual best interests to join up from time to time, because the net result is that two and two equals five. But really it has to be two and two equals five. If two and two equals four, it seems to me a lot of trouble for nothing. I’d rather build our own stuff.” —Wynn (Casinos)

Look forward, not backward

“I’m more interested about tomorrow’s newspaper than yesterday’s newspaper.” —Wynn (Casinos)

Full transcripts can be found at www.seekingalpha.com

Deustsche Bank 2Q15 Earnings Call Notes

New CEO and CFO

“I have the pleasure to be joined by our new Co-CEO, John Cryan, and our new CFO, Marcus Schenck.”

We have a structural cost problem

“We have a structural cost problem. That’s obvious to all of you who’ve followed the Bank for some time. We will not succeed on our own terms until we simplify our overly complex operating model. It stifles efficiency and it frustrates and delays decision-making. I believe we understand the principal root causes of our inefficiency. We must overhaul our antiquated, fragmented and incomplete technology platform. We have to wean ourselves off an over-reliance on manual processes, and we have to rectify our poor record of managing significant infrastructure investments.”

We have too large and complex a balance sheet

“We also have too large and complex a balance sheet, currently earning returns that do not fund our levies or generate an acceptable risk-adjusted return on leverage-based capital. This is particularly true for long-dated contracts. Although we’ve made some progress, we need to tackle the balance sheet more proactively and more aggressively.”

Don’t need to raise capital

“In this context, let me address specifically the issue of capital adequacy. I am aware that there has been some speculation that we might be considering raising additional capital. It’s my firm opinion that raising additional capital would not solve our core problem of reversing our low financial returns and our poor organic capital generation.”

This is all obvious stuff, but it will take a long time to deliver

All that I’ve just described to you is obvious. Addressing these challenges, however, will not be easy and will take years to deliver, but I’m determined that we will get this done. I fully understand this is no longer about words but deeds”

Why the new CEO came here

“Let me at least take the first one, given that it was addressed to me. I think you know that I’ve been on the Supervisory Board at the Bank for a couple of years, and I was in the position of Chairing the Audit Committee and I sat on the Risk Committee. So the transition into the management team was reasonably logical when an opening came up. And I do feel that although as a non-executive director you get an exposure to the Bank and sitting on the Audit Committee you never get much good news, it was nevertheless fairly logical and seamless in the transition from Supervisory Board to the management.

Why the Supervisory Board? Well after I’d left UBS I spent some time, not literally, on the beach and thought that I’d gained some experience that might be helpful elsewhere, and the opportunity at Deutsche Bank came up and I took it. So there was nothing untoward, and it all was very seamless and took place over two or three years. On the other points, Marcus, do you want to take the one on leverage?”

Kilroy Realty 2Q15 Earnings Call Notes

San Francisco’s CRE leasing market is hot

“San Francisco Bay area is once again on pace to outperform most U.S. real estate markets in 2015. In San Francisco, rental growth remains strong. The supply of large blocks of space is very limited and demand continues to grow. JLL reports that there are now more than 35 tenants in the market for office space greater than 50,000 square feet and only three available blocks of space of that size.”

“In the Silicon Valley venture capital funding continues fuel growth as the Bay area accounted for approximately 55% of total U.S. high tech venture funding. This ongoing tech expansion has driven Class A vacancy rates in the region down to 4.2%, the lowest in almost a decade. We are currently 98.9% leased in the Bay area.”

Seattle attracts tech companies too

“Greater Seattle continues to attract technology companies and workers, Oracle, Twitter and Facebook continue to aggressively grow the local headcount as technology accounted for more than 40% of Seattle’s tenant requirements in the second quarter.”

LA continues to grow thanks to entertainment industries and limited construction

“Los Angeles continues to strengthen the strong rent growth in the key submarkets of Santa Monica, West LA, Beverly Hills and Hollywood. Most of the demand is driven by the creative and entertainment industries and new construction remains limited. Google, Verizon and Snapchat have grown organically in the region and have been key drivers of office absorption.”

People are trying to get there office space needs right. It’s intense because there’s so little space coming through the pipelines

“people keep changing the amount of square footage. We have one tenant that want 300 and then they wanted 150, now they want 200, 250. There’re all trying to figure out what their long term needs are and that has become more intense because of the — due to some space available the tenants are really worried about getting it right because there is so little space coming through in the pipeline.”

Analysts always ask where we are in the cycle, I say we don’t see any signs of deterioration

“in the last couple of years you and other analysts, investors and so forth have asked the questions, that same question, where are we? And I’ve been probably wrong, I don’t know if it’s wrong or right but I said we don’t see any signs of deterioration, we’re not seeing signs of deterioration in fact we are seeing acceleration of tenants moving into the area.”

Who the heck knows where we are in the cycle?

“in terms of the bigger, in terms of where we are on the cycle who the heck knows? I mean it’s one of the reason why we operate with such a conservative balance sheet if you are going to do the development and so forth that we do, you want to make sure you are well insulated.”

San Francisco is small and tough to develop. Supply and demand says rents are probably going higher

“In terms of the question of how much in San Francisco, one thing about San Francisco remember it’s 45 square miles, a share less than 10% can be developed for non-residential and there is a [indiscernible] of development size that are good, and there’s increasing demand.

So you this incredible kind of economics 101 of supply demand imbalance, we like that. I am not a fan of the policy [indiscernible] because a bad policy but it is the law and it’s reality and we’re the recipients I think of that supply imbalance. So rents I think are going to continue to go up, where they’re seeing some non-essential users in San Francisco sort of smaller companies or older companies that have profit margins occasionally you see them move over to Oakland or somewhere else.”

Some of these companies will fail, but there is fantastic demand behind it

“We’ve always said, there is going to be some failures, the nature of — it’s just like baseball. Not everybody gets up and it’s a homerun and not every team with a winning season wins every game. I don’t mean to be queue here, except for there are going to be companies that fail, this is the nature of it. What is very important is that there are — it’s that there is just strong demand, just fantastic demand. So what happens is some of these companies reduce their footprint if they do they generally get snapped up by somebody else. So I think if anybody thought that all these companies are going to survive, they’d be smoked at some point.”

Companies that you would have called Unicorns have gotten stronger

“I think the quality is improved because you end up with some of the big name companies that have come in and with companies like Airbnb, or a couple of years ago you would have called those companies probably unicorns and today’s there’s real cash flow of big companies that have really strong financial wherewithal so that’s the other side of the evolution, the nature of evolution is some of them don’t make it and some of them become strong.”

Valero 2Q15 Earnings Call Notes

Plenty of pent up demand for gasoline is supporting the price?

“we certainly expected some price demand elasticity for gasoline with the fall in flat price. And we’ve seen that, and we didn’t really know exactly what the magnitude of the pent-up demand would be. And it’s been a very pleasant surprise, and I think we do expect that that response will continue into the future.”

We’re running all of our gasoline producing units at max utilization

“We’re certainly running all of our gasoline producing units at max utilization. We’ve seen good utilization in Europe. And as you’ve mentioned, we’re having trouble keeping up with gasoline inventories. So I think it will be here for an extended period.”

Growth and return of cash aren’t mutually exclusive

“we believe that growth and return of cash to shareholders aren’t mutually exclusive, and I think that we’ve been demonstrating that.”

Production has held up even with the decline in rig count

“I think we’ve been surprised with the decline in rig count, production still seems to be holding. I don’t really know that I can give you much insight whether that will continue or not.”

As the Brent/TI spread narrows, people start importing crude

“The Brent/TI [WTI] spread comes in and incentivizes people to start importing foreign light sweet. As we talked about in the past, the first place we tend to do that is our Quebec refinery, which we did in the second quarter. In fact, the Brent/TI spread got narrow enough that we even took some foreign light sweet into St. James.”

There are a lot of crude inventories and we’re headed into a refiner maintenance period, so you’d expect that to pressure prices

“We’re sitting on a pretty good overhang of crude oil inventory here in the U.S. We’re 90 million barrels above where we were last year. So with that overhang and then heading into a typical maintenance period where refiner demand is down, you would think that that would add pressure on the price of crude oil.”

Export volumes were down a little because domestic markets strong

“Our export volumes of gasoline were down a little bit in the second quarter, and it was primarily just due to the strength of the domestic markets. We exported 76,000 barrels a day of gasoline. Most all of that volume went to Mexico and Latin America.”

More gasoline demand at this lower price

“I think that the big driver for gasoline demand has just been the lower flat price and demand elasticity and the response to the lower flat price. And so I think as long as we’re in this lower price environment, we’ll see good gasoline demand moving forward.”

Strength of west coast will be driven by supply

“Certainly, as you know, as we head out of driving season, demand weakens a little bit, and then you get more butane blending into the pool. That will swell production some. So to me, a lot of what happens on the West Coast will be supply-driven. And some of these refinery outages that we’ve been seeing, will they continue or not will really determine how strong the West Coast market will be.”

Marriott 2Q15 Earnings Call Notes

Now offering Netflix in room

“Speaking of entertainment, as of the second quarter, we were the first hotel company to offer Netflix programming in our guest rooms. Our collaboration with Netflix reflects changing consumer preferences in how guests want to access and watch content while they travel. ”

Don’t see RevPAR growth slowing any time soon

“there’s been a lot of discussion about the strength of demand and the pace of RevPAR growth. Undoubtedly a slower pace of RevPAR growth is likely to occur at some point in North America as economic growth matures. Trees don’t grow to the sky. In fact, you may recall, at our Analyst Meeting last year that we started our four year RevPAR growth rate scenarios with a 4% handle. While this slower pace is likely at some point, we think it is premature to call it today. Based on our data, we believe North American industry RevPAR growth will be solid for the foreseeable future”

Group bookings are very strong

“Recent group bookings are very strong. North American Full-Service Group business booked in the second quarter for all future periods rose over 8% year-over-year. In fact, meeting planners are worried about securing availability more than negotiating hard on rate.”

There’s been limited supply growth

“Supply is another common question about our industry. In the U.S., the modest pace of economic growth combined with lender caution has constrained lodging supply growth for the past five years. While construction starts are picking up, STR doesn’t expect U.S. supply will reach even the historical average growth rate until 2017”

I think we see apprehension because people are wondering how long can this upswing last, but we don’t see anything that says it shouldn’t keep going

“I think we’ve got some apprehension as a marketplace, in part maybe driven by the fact that we’re in the sixth year of a strong lodging recovery. I think all of us kind of wonder how long can it last and we’re constantly looking for clues that maybe we’re reaching a point where we can somehow say that we’re transitioning to a different phase, and I understand that. In many respects we look at the same questions and we ask the same questions here. We don’t see evidence that would suggest that we’re entering a different phase of the cycle. We see supply growth continuing to be low. We see demand growth continuing to be high. When you look at group business, when you look at pricing power, all of those things look good.”

We have a lot of respect for trip advisor and have been in a mating dance for some time

“We’ve got a lot of respect for TripAdvisor. They have built a platform for customer reviews that has tremendous strength and obviously a broad application for hotels around the world. And we have been in a bit of a mating dance with them for some period of time, sort of feeling each other out and trying to figure out how the partnership would work between us”

Overwhelmingly for airbnb you’re talking about leisure travel at lower rates than you would pay for a hotel

“Overwhelmingly in this space you’re talking about leisure travel, overwhelmingly you’re talking about travel which is at relatively lower rates than would be available in a traditional hotel. And so while there are some business travelers, probably particularly younger business travelers who use these kinds of platforms for their business travel, they are still the exception rather than the rule.”

Corporate customers area little more concerned about risk involved in staying at an airbnb

“When we listen to our special corporate and significant corporate customers, I think usually what we hear is that they would like to make sure that their people when they’re traveling are taken care of and that the risk profile is acceptable to them, and there are attractive features of hotels when it comes to those kinds of considerations”

Procter and Gamble FY 4Q15 Earnings Call Notes

New CEO effective Nov 1

“As you know, earlier this week, we announced that David Taylor had been elected and appointed as the new Chief Financial Officer of the company, which becomes effective November 1. And sorry, Chief Executive Officer.”

1% organic sales growth, but 6 point hit from currency

“For the fiscal year, organic sales grew 1%. Excluding the businesses we’re in the process of exiting, organic sales grew 2%. All in sales were down 5%, including the 6 point headwind from foreign exchange. ”

EPS down 2% y/y. 13 point hit from forex

“Core earnings per share for the year were $4.02, down 2% versus the prior year. This includes a 13 point headwind from foreign exchange, over $1.5 billion after tax. On a constant currency basis, core earnings per share grew at a double digit 11% rate. ”

Cutting costs at advertising agencies

“Marketing spending is another area where we are delivering more, greater reach, higher frequency, more advertising for less overall cost. The savings are coming primarily from non-working marketing spend. One example are the fees and production costs for agencies we use for advertising, media, public relations, package design, and development of in-store materials. We’re simplifying and reducing the number of agency relationships while upgrading agency capability to improve creative quality and communication effectiveness all at a lower cost. Our overall agency costs in fiscal 2015 were down about 15% versus the prior year.”

Essentially completed portfolio reshaping

“With the beauty brands merger with Coty announced earlier this month, we have essentially completed the strategic portfolio reshaping. We’ve completed the decision making, negotiation and contracting work on businesses that represent 95% of in scope sales and essentially all of the in scope profit. ”

Gillette has an online shave club too

“Gillette’s online Shave Club is off to a very good start. We’re building partnerships with e-tailers and retailers who are offering their shoppers subscription tie-ins for the Gillette Shave Club.”

Guiding to low to mid single digit decline in revenue next year

“Against this volatile backdrop, we think it’s prudent to start fiscal 2016 from a guidance standpoint with relatively modest, relatively wide target ranges. We’re projecting organic sales growth in line to up low single digits versus fiscal 2015. We’ve recently delivered towards the low end of this range. We certainly aim to improve, but it’s unlikely that growth acceleration will happen immediately or in a straight line.”

“The headwind from foreign exchange will have a 4% to 5 percentage point impact on all-in sales growth. Also, minor brand divestitures will have a modest drag on all-in sales growth. Taken together, we expect all-in sales growth to be down low to mid single digits versus restated fiscal 2015 results.”

A lot of our markets are challenged, for instance we had to take price in Russia to protect gross margin

“we’re the market leader in a lot of the countries that are difficult right now, Russia’s an example, and as I mentioned, we’ve made a very deliberate choice. The choice we had in Russia was very simple. We could accept negative gross margins in perpetuity, or we could price to restore structural economics so that future growth would be worth something. And that’s the choice we’ve taken there as in other markets. And it’s had a significant impact as we expected. So if you look at the month of June for example, our sales in Russia were down 57%, and we’ve got to work our way through these things. But we’re taking an approach that we’re convinced is the right approach for the long term.”

Clearly we’re over expanded

“this isn’t a continuation of what we were doing and I don’t want to belabor that. But we were clearly over-expanded, okay, into developing markets and even into frontier developing markets, and you know what’s happened there in terms of growth slowdown, economic and political volatility and the FX issue which Jon has mentioned a couple of times is real, and will continue through the end of this calendar year, okay.”

You have to follow the shopper into the channels that are growing

“When you choose to follow the shopper, you obviously have to commit coverage and resources to growing channels, and we’ve done that. So we’re in a much better position for example in e-commerce than we were three years ago. E-commerce is growing 30% to 40%. We’re pretty competitive. There’s still upside opportunities and there’s more to come with subscription and auto-replenishment, okay. So yes. Follow the shopper into the channels that are growing. E-commerce is one. Drug is obviously another one. Small box discounters. I could go on.”

This analyst seems not happy

“So you sound very different than I would have hoped on the call today or on CNBC this morning. There’s still a lot of defiance. There’s still a lot of confidence, it feels like. And look, all the frustration we’re all feeling, I feel as well probably times 10. You’re kind of brushing off the tough questions and maintaining this trust us, it’ll turn, it’ll turn. But just let me offer you a look through the lens of a shareholder, right, who you are as well. And you see what the stock price has done, and you look at organic sales growth and it’s dismal and it’s getting worse, and you admit that….Well I think plan B, which is seriously think about breaking up the company. That’s very complex, is a viable option. It sounds like you guys have looked at it and I don’t understand why it hasn’t worked. … there’s another, bigger solution here, right? Which is it’s just too big to run…Maybe perhaps you’re not even a growth company anymore and you have to think about it differently from just being growth.”

Arch Coal 2Q15 Earnings Call Notes

Expect thermal coal demand to fall by 80m tons

“While the summer has been a bit warmer than some may have expected, natural gas prices continue to trade in the $2.75 to $2.85 range, a level low enough to displace even PRB coal in some regions. As we noted before, the MATS regulations are expected to drive the closures of around 20-gigawatts of coal-based generating capacity this year, which will take a toll on coal consumption as well. As a result Arch continues to expect domestic thermal coal demand to fall by around 80 million tons in 2015 when compared to 2014”

Supreme court took exception to MATS rule, but generators already put their strategies into place a long time ago

“Of course as most of you know, the Supreme Court took exception to the MATS rule during the quarter, scolding the EPA for failing to consider the significant cost of the rule against its relatively modest benefits; however, the reality is that most generators forged their MATS compliance strategies long ago, so we don’t expect a significant change of the course in terms of the coal plant retirements. In a broader sense though, the ruling could have significant impact on the timing and structure of the coming Clean Power Plant rules.”

On a positive note, supply rationalization is happening more quickly than expected

“On a positive note and in a sign that low prices are bringing the market into better balance, supply rationalization is happening quicker than expected. ”

Longer term should be a buildout of generation internationally, but US coal not as competitive

“On the international side the picture is mixed. Longer-term we continue to see build-out of coal-based generation, particularly in China, India and Southeast Asia. Unfortunately currency rates and oversupply have eroded U.S. competitiveness in many markets”

Steel mill utilization reasonably strong

“Domestically, the strengthening U.S. economy has kept steel mill utilization reasonably strong, as near record levels of auto sales and a strong construction environment have helped compensate for a sharply lower demand from the drilling industry.”

There’s a lot of pressure on higher cost production in the East, Powder River Basin is a little better positioned

“as we sit here today we think there’s a lot of pressure on higher cost production, particularly in the east; and we think our position in the Powder River Basin places us very well for not only the domestic markets but we see improvements in the international markets with additional access off the West Coast, we do think that we’re well placed to take advantage of both of those markets.”

A lot of smaller mines in Central App will probably be closed for good

“From what I’ve seen in Central App, a lot of these mines that are closing, particularly the smaller ones, I think are going for good. And the cost to reopen them, I think, is going to be very difficult when you look at terms (26:09) of regional natural gas pricing.”

National Oilwell Varco 2Q15 Earnings Call Notes

Most NA business units reporting stabilizing pricing

“Generally, we still see some pricing pressures in certain products, mostly in international markets, but most North American business units are reporting that pricing is stabilizing at new lower levels as the rig count flattens. Consolidated revenues for the U.S. declined 29% sequentially.”

As companies run their fleets, they will eventually have to restock

“As oilfield service companies gradually destock, they will eventually run out of opportunities to cannibalize their existing fleets and we expect orders to begin to flow again to NOV, given that oil and gas remains a highly capital intensive undertaking and that NOV is one of its largest capital manufacturers and suppliers of technology.”

Customers are doing the bare minimum to keep their fleets running

“Customers are doing the absolute bare minimum in terms of maintenance and repair, only what’s necessary to keep their fleets running. ”

Pricing and rig count appears to have stabilized

Pricing appears to have stabilized across North American markets as the rig count has more or less stabilized and has ranged from low-single digits and on up. ‘

It’s a buyers’ market, but companies don’t want to sell at the bottom

“in a cyclical downturn, and this is one of many we’ve been through, our view is that it becomes much more of a buyer’s market. The risk, I think, in transactions tends to go down a little bit, but it can be a challenging market to get deals done because most companies don’t particularly want to sell at the bottom. And so it’s a challenge making bids and the asks come together and to reach a price that all parties view as fair and move forward.”

Land rig customers are more optimistic about recovering commodity prices

“There’s a lot of conversations underway around land rigs. And I think generally, our land rig customers are much more optimistic about recovering commodity prices driving higher levels of activity.”

“Hallibaker” obviously changes the strategic picture somewhat

“It’s obviously a large merger. It spans a number of different subsectors in oilfield services. And so there’s implications for specific spaces within the industry, specific marketplaces, specific geographies. And so, we’re watching very closely how that comes together. And so, I would tell you strategically, certainly it’s shaded our thinking and what we always try to do is think out three or four moves into the chess game.

So, what are the perhaps non-obvious implications of the Halliburton-Baker merger. So, yeah, it’s – the short answer is yes, it’s certainly shaded our strategic thinking. And we’re – but they’re both customers, we wish them well and we’ll see what happens.”

Cliffs Natural Resources 2Q15 Earnings Call Notes

Let me state that we have ample liquidity

“Let me state right out of the gate that Cliffs has ample liquidity, as we ended the quarter with cash and available capacity on our ABL facility in excess of $600 million, net of existing letters of credit commitments.”

As the absurdly high rate of imported steel reverts back to normal levels..

“Bottom line, as the absurdly high rate of imported steel penetration reverts back to normal levels and our clients’ blast furnaces return to normal operating levels, we expect to be able to adjust our production and our sales volume accordingly.”

China does not need low iron content iron ore and we don’t need subsidized imported steel fed by that ore

“China does not need any more low iron content iron ore as a major source of pollution, and our U.S. market does not need any more subsidized imported steel fed by that ore.”

This could be a painful few years for those who bet heavily on China. Luckily we bet on the US

“As this unfolds, the next year or even the next two years or three years could be very painful for those that bet their farm on China. Luckily, we have the ability to separate ourselves from this catastrophe before it is too late and focus on a U.S. market whose worst days are likely behind us.”

Spreadsheet specialists and computer screen wizards…

“Spreadsheet specialists and computer screen wizards do not know a good pellet from a bad one and have never built a pellet plant within a realistic budget and against a real tight timetable.”

I know it’s a tough battle here

“I know it’s a tough battle here; I knew coming in. I wasn’t even invited to come in. I came in because I wanted and the shareholders elected me to come here. But a difficult war like that will take a lot of difficult decisions and I’m ready to take them at the right time.”

Minimills need to go toward iron based scrap substitutes

“it’s not just a matter of cost, it’s a matter of market, it’s a matter of the ability to do things that they can’t do or produce products that they can’t produce and address markets that they can’t address if they stay only with scrap, let alone the fact the availability and quality of good scrap has been deteriorating quickly in the United States. So going toward iron-based scrap substitutes is not only a matter of cost, even though cost will always be a factor”

The current situation for iron ore is not sustainable

“we need to really understand that the current situation for iron ore in the world is unsustainable. It’s not going to persist forever. You can argue that it’s going to last another year, another two years or another six months or just a quarter. But one thing we all know, the Australians and the Brazilians will not be able to continue to finance their business, their dividend policies, their political goals within their respective countries giving iron ore to the Chinese at $50 per ton.”

Everyone is waiting for my demise. It’s not going to happen

“You’re going to have to sit still, sit tight, and continue to see Lourenço in action, as you have seen for a long time at Metals USA and you are seeing for a year here. It will be fun to watch…Lots of people are looking forward to my – for Lourenço to crash to the ground. It’s not going to happen. Any other questions, Tony?”

Moelis and Company 2Q15 Earnings Call Notes

Paying dividends

“we looked at our cash flows and we’re very comfortable with this dividend. We think there’s substantial excess capital. We had no debt on our balance sheet, and we’re very comfortable. I think as we’ve experienced being a public company for a year and a quarter, we’ve gotten more and more comfortable and feel like we want to have a stronger dividend. Look, we do hope to grow the dividend. I think we’ve come to the conclusion that we did a $1 special dividend last year. We think it’d be better to continue to put those into regular dividends, return them — showing the strength of the franchise. ”

Are bulge brackets increasing share?

“I do think in some of the big cap transactions there is a need for large amounts of cash, credit, maybe some more capital markets in those types of transaction and maybe that’s the reason, but look I still feel like the trend toward independent advisors and the trend toward talent wanting to go to those independent advisors is in place ”

Strategic buyers have better options this cycle than financial buyers

“strategies have better currency in this cycle right now that outbids, so if you have an asset and it’s moving in a strategic, has an interest, they often have a better currency to use. ”

I don’t know why the restructuring market will pick up, but I know it will

“I would look at the default rate, that’s a general reason why they’re slowing down and there’s certain sectors where you’re starting to see some volatility and that could help, but in general, very low interest rates, kind of a decent economy, I think is — I don’t see a short term reason why that market would pick up, but I know from being alive in Wall Street for 35 years, it will. I just don’t know when.”

Strategics can pay a higher price than financial sponsors

“I still think that, there’s a price at which the finance sponsors kind of don’t go. They don’t want to pay and the strategics can, so there’s still going to be — it’s a good strategic market.”

Regulators stepped put a clamp on the market for financial transactions, but people are learning how to deal with that now

“What happened in the first quarter and earlier this year was processes and transactions in development were stopped or changed by regulatory changes in the way they were going to access financing…Now, what I sense is happening now and we see it in our processes, people learn. They are now planning. They understand the regulatory environment. Banks are forewarning them when they might have an issue. People know the leverage limits and they are structuring — we’re structuring the process”

We were surprised at how much capital went into energy in the first quarter

“we were I think surprised as — probably shouldn’t have been but the world was how much capital in the first quarter marshalled itself to go into energy and so really, stayed off default.”

You had a combination of capital and hedges protecting oil companies from taking pain

“you have two things, an enormous amount of capital was just marshalled to put it in, and secondly there were a lot of hedges that extend for at least, till June 30th natural operating hedges that people didn’t have to take the pain yet of the downturn, the full downturn in oil prices. So, I think that will over time, start to creep up on people.”