Company Notes Digest 10.30.15

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:

The industrial demand environment has been difficult and deteriorating

“I’ll begin by covering the deteriorating and quite difficult demand environment…indicators confirm a considerable slowdown in metal working activity as the quarter progressed.” —MSC Industrial Direct (Industrial Distributor)

Companies planned for a weak environment and it was worse than expected

“we had set our plan not expecting a whole bunch of improvements in those markets…And in fact, what’s happened is they have gone down further…We thought we had [bottomed] and we have not and where the bottom is, we are not exactly sure, but it doesn’t look like we have reached it.” —Cummins (Truck Engines)

The decline may be broadening too

“I would say the answer is more about where it’s not getting worse. It’d be easier to find where it’s not getting worse than where it is. Seriously, I think, we’re seeing pretty much, with the exception of a couple of pockets that I mentioned, it’s pretty broad based.” —MSC Industrial Direct (Industrial Distributor)

Corning saw a slowdown in television and smartphone demand

“Our businesses were slowed by the weakening global economy, the unexpected devaluation of the Chinese currency, and the softening in television [demand]…IT and mobile demand is weaker” —Corning (Glass)

UPS saw B2B business fade

“we have seen some softness in the U.S. economy and in the third quarter B2B faded a little bit and really we are just seeing mixed signals.” —UPS (Package Delivery)

Demand for cranes has weakened

“deteriorating demand for tower cranes…contributed to the shortfall in revenues…The current global economic environment affecting customer demand is unlike any cycle we’ve seen in the recent past.” —Manitowoc (Cranes)

There are some rumblings of layoffs

“visibility remains extremely low. We’re now beginning to hear of layoffs for the first time in quite a while.” —MSC Industrial Direct (Industrial Distributor)

Other companies were more optimistic though

Dupont said that things are soft but it’s not a disaster, just a zero growth environment

“look, things have clearly softened up, just look at every industrial company that’s reported this quarter. Having said that, I don’t think things are in any draconian situation…I don’t see a disaster out there by any means. But I think we’re in a kind of zero growth environment…and that’s fine.” —Dupont (Chemicals)

Outside of the Energy industry, Reliance Steel said that demand isn’t too bad

“customer demand across our business is relatively healthy outside of the energy industry…there were like 170 of our managers [at our national conference], there really wasn’t a lot of sniffling…about demand other than the guys in our energy business, they were all at the bar for quite most of the evening.” —Reliance Steel (Steel Distributor)

Ford sees the US auto industry as stronger for longer

“We would characterize the U.S. industry as healthy…We do see industry sales staying well supported at the current levels through the next few years or in other words we expected to be stronger for longer.” —Ford (Automobiles)

We may have seen the worst of the inventory cycle too

Companies are managing their inventory levels pretty conservatively

“I think inventories are average at best, maybe below average in the value chain. We see buyers only buying what they need. We don’t see them buying ahead.” —Lyondell Basell (Plastics)

The Chinese may have liquidated their lumber inventories. How about other commodities?

“Chinese log decks now are down 30% from where they were earlier in the year. I think they’re starting to purchase wood. They really had a slow purchase rate in the third quarter as they were trying to rebalance it. So even though their fundamental demand isn’t picking up, I think their log purchase activity will start picking up and will feel a little bit better. We’ve seen prices in the Chinese markets firm in the last month or two and turn upwards” —Plum Creek Timber (Timber REIT)

International:

The weaker Euro has made European industry more competitive

“in the power gen segment we have now seen some pricing competition come in, primarily as a result of low Euro. So there is just a number of competitors in the European area that are Euro based costs and so areas where Eurozone exporters can compete with us, we are seeing some price competition” —Cummins (Truck Engines)

As a result, the European economy is a relative bright spot

“GDP growth is also accelerating on the continent…We expect the strong market conditions to extend into next year.” —PACCAR (Trucks)

“I would tell you where we are seen the strongest growth is in Europe. You saw the results this quarter, we expect that continue” —CB Richard Ellis (CRE Broker)

Are there green shoots appearing in China?

“Our view on China is that the government overshot as it worked to slow the country’s economy in 2013-14 and then responded by re-stimulating it this year. We see the effects of those moves kicking in next year and finally with 2016 GDP growth projected to be near 6%” —Jones Lang LaSalle (CRE Broker)

Ford sees a rebound in China

“just a couple comments on the China industry, we are seeing stabilization and as Bob mentioned we do expect to lift from the stimulus package. And as he mentioned we are seeing showroom traffic improve, we are seeing closing ratios improve and unquestionably we see this as a really good opportunity, because 70% of our sales have the engines that are eligible for the stimulus.” —Ford (Automobiles)

Delphi is also seeing an uptick in orders in China

“when we look at sequentially third to fourth quarter, we are starting to see a pickup in orders, a strengthening in the market, sequential growth in vehicle production” —Delphi (Auto Parts)

A lot of companies had negative things to say about China though

“The change in our sales growth guidance is primarily related to two things. The impact of weaker than expected market conditions in China on our business and weak commercial vehicle markets around the world.’ —BorgWarner (Auto Parts)

“weakening economies, particularly in China, and the stronger dollar impacted our businesses…China’s auto and heavy-duty truck production has slowed through the year. China’s auto production is now expected to be flat year-over-year, and heavy-duty truck production is down 34% year to date.” —Corning (Glass)

“China has been slower in terms of market events than we expected” —Whirlpool (Appliances)

The Chinese are trying to move their economy to a “consumption led economy”

“You have a Chinese economy that is only 37% penetrated in terms of consumption relative to more developed countries, you’re looking at – over 60% of their economy is consumption. So there is definitely a secular tailwind driving consumption growth.” —Alibaba (e-commerce)

The Chinese consumer has plenty of savings

“When you look at the individual Chinese consumer, they’re very liquid, they have a lot of liquid cash deposits in their bank accounts. Over the last several years, wage growth has been growing over 10% year-on-year and there is a high savings rate. So people have lots of savings, lots of liquidity and we expect that this is not, so a temporary setback in the macro economy is not going to affect their consumption pattern and in a fundamental way.” —Alibaba (e-commerce)

Chinese consumers are already getting the message. Luxury goods companies have not seen a slowdown

“if I were to shut off my web and shut off the TV and just look how many customers are coming in our stores…I wouldn’t know if there was any economic issue at all in China. And so I don’t know how unusual we are with that…I mean, you really can’t tell the difference, if you look at sort of our daily and weekly numbers.” —Apple (Consumer Electronics)

“In terms of China, as you mentioned, we’re really pleased to be bucking the trends that many of our traditional competitors are reporting” —Coach (Handbags)

“we have not fully accessed the opportunity that the market is presenting in terms of growth in the premium price tiers as consumers look for better, more differentiated solutions, and frankly, higher product quality.” —Procter and Gamble (CPG)

Beware that consumption trends may only carry wealthier parts of the population though

“commercial real estate activity has remained steady in the country’s tier one cities…The shift in growth to services is producing some challenges in tier 2 and more so tier 3 cities.” —Jones Lang LaSalle (CRE Broker)

Financials:

The big question: What is the state of capital markets after the last two months?

It’s certainly positive that markets have rebounded in October

“it’s certainly a positive that markets have rebounded month-to-date here in October…I’d hesitate to try to claim any kind of victory based on the first three weeks of October, and obviously we’ve got another couple months to go. But I would agree with you that it’s certainly been helpful to see the equity market positive news on the first three weeks of the month.” —State Street (Trust Bank)

But Silicon Valley has clearly felt some lingering effects

There has been a notable slowdown in VC funding

“we can see a slowdown clearly, but we don’t expect anything what I’ll call dramatic.” —Silicon Valley Bank (Bank)

The weakest companies are feeling the impact first

“Although we haven’t seen a trend yet, at some point, companies with more challenging business models, less differentiation or poor traction will have more difficulty raising funds…when I think about the level of the series A or seed round, again it’s slow.” —Silicon Valley Bank (Bank)

There are hints of a flight to quality

“the best companies are getting more attention. They’re raising larger rounds of equity and are staying private longer.” —Silicon Valley Bank (Bank)

Startups are having to re-evaluate their spending plans as capital raising becomes less certain

“[decreased spending is] being talked about. Have we really seen it a whole lot? The answer is no. Yeah, I’d just say we just haven’t seen it yet. Do I expect it to occur? Yes. I do expect that companies are going to be more disciplined as they go into 2016.” —Silicon Valley Bank (Bank)

Private Equity is also getting a little nervous about when to exit their investments, but many still have lots of capital to deploy

“I think everybody is wondering about what their exit time ought to be, if it should be moved up. But boy, the guys that we work with and talk to all the time, I mean, they are still deploying capital like crazy.” —Roper (Technology)

There’s just so much capital looking to invest

“It’s just that there is so much capital that still is keen to invest and it’s not skittish…if you look at the inflows into private equity this year…$130 billion this year. And that money hasn’t yet been put to work. So that will be going into the markets in 2016 and beyond…nothing yet suggests that any of this is slowing up.” —Jones Lang LaSalle (CRE Broker)

And there’s a sense that Silicon Valley will always be more resilient than the rest of the economy

“we’re paying attention to these potential issues and we do not see them having a material impact at this point…Our experience suggests these negative impacts will be short-lived if they occurred, as the innovation economy has repeatedly proven to be more resilient and has shown higher growth over time than the broader economy.” —Silicon Valley Bank (Bank)

These dynamics are making private investments the frothiest areas of this cycle

“that’s one of the benefits of the Fed keeping interest rates low forever is they are creating some other bubbles. You know where they are, in hedge funds, and all kinds of private equity investments.” —Cullen Frost (Bank)

Consumer:

Mall REIT Macerich is anticipating an uptick in retail bankruptcies this year

“Looking towards the end of the year, we are anticipating that bankruptcies are likely to be comparable or higher than in previous years. Many of these retailers are public companies and based on their current stock prices the markets are pricing in a significant risk of bankruptcy.” —Macerich (Mall REIT)

Technology:

Apple is a Behemoth

“we are proud to report revenue of $234 billion, an increase of 28% and $51 billion over 2014. This is our largest absolute revenue growth ever. To put that into some context, our growth in one year was greater than the full year revenue of almost 90% of the companies in the Fortune 500” —Apple (Consumer Electronics)

Google says that the progress in machine learning has been pretty dramatic in the last two years

“Machine learning is core transformative way by which we are rethinking everything we are doing. We’ve been investing in this area for a while. We believe we are state-of-the-art here. And the progress particularly in the last two years has been pretty dramatic.” —Alphabet (Technology Conglomerate)

Jack Dorsey is focused on making Twitter easier to understand and to use

“what you’ll see from us is against two themes and this is going forward, which is really how do we make Twitter even easier to understand for more people…But also how do we get more power to people who are using it to tweet. And that’s not just Twitter but also our properties like Vine and Periscope. How we giving creators more tools to be more creative and to express themselves in a different way” —Twitter (Social Network)

There are only two enterprise cloud platforms built for massive scale: Amazon and Microsoft

“While many companies are developing commercial cloud offerings, there are really only two driving enterprise cloud platform innovations at massive scale, Amazon and Microsoft.” —Microsoft (Enterprise Technology)

There’s no problem too big for Amazon

“India is a different market and does not have a lot of the same ready fulfillment options that some other countries did. We see that as an opportunity, an opportunity that we can build and we can bring to sellers.” —Amazon (The Everything Store)

UPS thinks that it will be tough for Amazon, or anyone else, to match its delivery network

“I think we have been successful because of our integrated network that creates the efficiencies and the value proposition. It’s very difficult to match. And you have got to keep in mind, that that’s from pickup through delivery, right, where we are almost making a million pickup today a day and obviously delivering millions of packages a day.” —UPS (Package Delivery)

John Legere said that the next 6-12 months will be fascinating for the wireless industry as new competitors likely enter the market

“This is one of several industry structure question that I find fascinating things that are going to make the next 6 to 12 months just a really fascinating time period…If we really believe that that structure will be managed by four wireless carriers vertically integrating and reverse and horizontally moving into the rest of these industry. It’s crazy.” —T-Mobile (Telecom)

Comcast could be the big new entrant

“we believe that wireless obviously is an important area for consumers and how they are in the future…We had told everybody that before, we were going to trial some things and test some things…and we’ll update people as that progresses” —Comcast (Media Conglomerate)

Healthcare:

The healthcare industry is undergoing massive consolidation

“There’s no doubt our industry is going through a period of dynamic change. I’ve been CEO of this company for 15 years and in healthcare my entire career.” —McKesson (Pharmaceutical Distributor)

The Walgreens-Boots Alliance is leading the charge

“The global healthcare markets, and perhaps the U.S. market more than any, are ready for change, and open to new ideas and new approaches that throughout provide scale. As the leading global healthcare company, we have the potential to play a defining role in this evolution.” Walgreens (Pharmacy)

Walgreens claims that the Rite Aid acquisition is not about giving it leverage over reimbursements

“Well, we have not done this to increase our negotiating power with payer and PBM. We have done this because we believe that we can extract a lot of synergies, rationalizing the combined company for, I would say, from internal sources and the harmonization of prices” —Walgreens (Pharmacy)

Hospital chain HCA had its margins squeezed by rising drug costs

“The second area that impacted our results in the quarter is the continued increases in pharmaceutical costs. Our pharmacy cost in the third quarter of 2015 were up in total just under 13%” —HCA (Hospital)

But McKesson argues that drugs are the cheapest and most effective way to treat patients

“pharmaceutical pricing trends have become the frequent subject of news headlines as we get deeper into this presidential election cycle. The observation I would make is that this pharmaceutical pricing discussions tend to ebb and flow over time. However, what remains clear is that pharmaceuticals are still the most effective and affordable way to treat patients.” —McKesson (Pharmaceutical Distributor)

Materials, Industrials, Energy:

We may only be in the third or fourth inning of the oil down cycle

“people out there tell us that it historically when they go a down cycle there it usually takes 80 months to get through it and you can pick your starting point of this down cycle but we’re certainly in that I would say probably in the first three or four innings of that cycle.” —Cullen Frost (Bank)

Even though oil producers aren’t drilling, they’re still producing existing fields at close to maximum levels

“We believe many, if not most, North American producers and OPEC countries are producing existing fields close to maximum levels, trying to offset lower revenues due to oil price declines with higher volumes while sharply reducing drilling activity. OPEC and non-OPEC production are up year-over-year. This is not sustainable.” —National Oilwell Varco (Oil Service)

Don’t expect recovery any time soon

“However, with swollen inventories, moderating demand growth with economic weakness in Asia and elsewhere around the globe and an uncertain trajectory for incremental oil exports from Iran, we don’t expect recovery any time soon. Nevertheless, it will come.” —National Oilwell Varco (Oil Service)

Acquisition opportunities should begin to open up as the downturn lengthens

“As the downturn has lengthens, we believe values of potential target companies will become more and more compelling. Thus far, it has been challenging to bring the bid and the ask on potential acquisitions into alignment, but we remain patient and disciplined in these discussions…As we move into 2016, we believe sellers are likely to reduce their expectations and better capital returns on M&A will follow.” —National Oilwell Varco (Oil Service)

But there’s a huge amount of Private Equity money that’s been raised to go after opportunities in oil

“I think, like most people, we still see this extraordinarily large amount of private equity that’s been raised. And most people seem to gravitate around $100 billion as the number that’s been raised and prepared to be committed to the sector over the next couple of years for investment if the right opportunities present themselves.” —Anadarko (Oil E&P)

Operators are getting outbid by PE backed management teams

“unlike the public markets, where you have a little bit different dynamic at work, where we see ourselves today trying to bid on properties in markets where we have interest, we are being pretty consistently outbid. And most oftentimes, we’re being outbid by private equity-backed management teams. And so I’m not sure I’d call that a seller’s market quite like I did previously, but I would say it’s a healthy bid-ask in terms of exactly what’s happening with properties when they come into the market and the receptivity they’re getting.” —Anadarko (Oil E&P)

Farmers are getting hit by another year of robust harvests

“Another year of robust global harvest is putting pressure on commodity prices, and more challenging farm economics has reduced demand for agricultural machinery, especially for larger models.” —AGCO (Agricultural Machinery)

Ag companies are looking to consolidate

“but you’ve seen all the activity in the last six months and one of the other ag players just this week saying they are looking at what they would do with their ag business and I’d also say one of them said everyone’s talking to everyone. That’s a true statement and we’re also — I am personally talking to the CEOs of some of the other companies. Something will give here on the ag side and I would say just looking at it consolidation should happen.” —Dupont (Chemicals)

Miscellaneous Nuggets of Wisdom:

Different industries move at different speeds

“sometimes we forget that different industries move at different speeds. So not everything moves like tech, not everything moves like consumer electronics and mobile consumer electronics. Matter of fact, few things do. So for instance, it is frustrating how long it’s taking us to get widespread adoption of lightweight glazing in automotive. It’s a heck of a good idea, good for consumers, it’s good for the environment, it’s good for safety, it’s good for almost everything. But the industry, even when you’re a highly-valued supplier, as we are, it just takes time.” —Corning (Glass)

Time is our scarcest commodity

“everyone wants to get more out of every moment of their life. After all, time is our scarcest commodity.” —Microsoft (Technology)

Hire people who are team players and not looking for instant gratification

“We look to people who are looking to be part of the team and operate as a team. And it comes out pretty directly when you’re talking about message of compensation et cetera. People elect to either be part of a team or they want to operate individually and we can tell that pretty quickly…we also avoid people who are looking for immediacy. I have a big believe that the value in hiring people is the duration of which you keep those people. There is very I would say it’s a I would say there is very little value and short-term employee no matter how productive they are” —Moelis and Co (Investment Bank)

Exceptional buying opportunities come along once a decade

“I think you could probably measure in decades the number of times a business comes along with such a good business and a market leading position where that can be obtained at a reasonable price.” —Capital One (Bank)

Full transcripts can be found at www.seekingalpha.com

Miscellaneous Earnings Call Notes 10.29.15

E*TRADE Financial (ETFC) Paul Thomas Idzik on Q3 2015 Results

There’s a big penalty for a bank when it crosses $50B in assets in the form of greater regulatory spending

“as I said many times in previous calls when this topic comes up, none of our owners are going to reward us by tiptoeing over $50 billion and incurring all the costs and distraction. If we go over $50 billion, it will be when Mr. Pizzi and I and the rest of the team are confident that it’s going to make sense for our owners.”


Volvo’s (VOLVY) CEO Martin Lundstedt on Q3 2015 Results

We see a strong year for trucks in North America

“Trucks North America, we can say that North America – when we start with the macroeconomic view on North America, I think we see the same thing as many other people see. It is a solid growth also for next year, so we don’t see any kind of other things in North America compared to what most, I would say, macroeconomic people see.”

Brazil is probably not coming back for two years

“I think that also one should recognize that Brazil is most probably not going to come back into some kind of high growth or anything like that for – I would say don’t anticipate that for the next coming two years at least because Brazil has to go through quite a lot of things. We don’t see the boom in terms of raw material prices. And not only prices, also the demand is actually coming down and that was very much what fueled the economy in Brazil.”


Whirlpool’s (WHR) CEO Jeff Fettig on Q3 2015 Results

Currencies have experienced a global reset

“Given the significant economic shocks this year, we believe that currencies have experienced a global reset, and we are prepared to operate this changed environment going forward.”

Europe is a split market

“On Europe, again it’s a split market, if you want to say. But Eastern European market demand continues to be very slow and very much down, which is driven by Russia and Ukraine…The western side, on the other side, I would say its stronger than anticipated. The most markets are in a very healthy and robust phase.”

China -4% right now

“China has been slower in terms of market events than we expected, kind of coming into the year. Its at around minus 4% right now, and for that market, it’s a big decline, although in general terms its not and we don’t think that it should have a significant impact on our business”


State Street (STT) Joseph L. Hooley on Q3 2015 Results

It’s certainly a positive that markets have rebounded month to date

” it’s certainly a positive that markets have rebounded month-to-date here in October. I would point out just for completeness that emerging markets now are pretty close on a month-to-date basis back to the third quarter average. They had really dipped in late September, and what’s particularly important to us is the average over the whole quarter. So I would – I’d hesitate to try to claim any kind of victory based on the first three weeks of October, and obviously we’ve got another couple months to go. But I would agree with you that it’s certainly been helpful to see the equity market positive news on the first three weeks of the month.”


Royal Caribbean Cruises’ (RCL) CEO Richard Fain on Q3 2015 Results

Bookings are strong even in China

“The Caribbean and China which makes up approximately two thirds of capacity are significantly more booked than last year at higher rates. The strength of these two products is more than offsetting continued pressure in Latin America.”

Our feelings are good about China

” our feelings are good about how we see China. We think the opportunity is still very, very strong. So that’s kind of our perspective on China.”


Bank of Hawaii’s (BOH) CEO Peter Ho on Q3 2015 Results

CRE has been the headliner for loan growth but we are pretty mature in the cycle, and our core relationships will probably begin to pull back

“all of our lending categories are performing very well right now. So CRE has been the headliner for a good amount of time. It continues to be through the third quarter and we think we still have some space left in this cycle for continued growth. Having said that, we are pretty mature in both the commercial and in particular the commercial real estate cycle and really what you are likely to see is as our core relationships begin to pull back in light of pricing in the marketplace, you will likely see us doing the same.”

Consumer lending strong

“on the other consumer side, home-equity and indirect and installment and credit card, those portfolios are growing very nicely for us. And really, I think a reflection of what’s happening with the economy here in town.”


Comcast’s (CMCSA) CEO Brian Roberts on Q3 2015 Results

Comcast venturing into wireless service

“we believe that wireless obviously is an important area for consumers and how they are in the future. And today, we have incredible success with our Wi-Fi network, which is the largest in-home Wi-Fi network, as well as a terrific out of home Wi-Fi, we’re seeing a majority of bits travel over the Wi-Fi network. But it takes about six months to activate the MVNO. We’ve had told everybody that before, we were going to trial some things and test some things after we activate and we’ll update people as that progresses.”


Ford Motor’s (F) CEO Mark Fields on Q3 2015 Results

We are seeing stabilization in China

“just a couple comments on the China industry, we are seeing stabilization and as Bob mentioned we do expect to lift from the stimulus package. And as he mentioned we are seeing showroom traffic improve, we are seeing closing ratios improve and unquestionably we see this as a really good opportunity, because 70% of our sales have the engines that are eligible for the stimulus.”

Expect stronger for longer in the US

“We would characterize the U.S. industry as healthy and borrowing any type of shock whether it would be economic or policy related. We do see industry sales staying well supported at the current levels through the next few years or in other words we expected to be stronger for longer.”

The industry is going to have to do a lot of work to increase fuel efficiency by the end of the decade

“if you look 2019 and 2020 I mean I think there’s a lot of work the whole industry is got to do at that point in time in response to your compliance particularly around the machines and fuel economy, but I think we feel good about where we are up until 2019, but then there is a sort of a step level increase and we are all going to have to continue to work on particularly with more electrification that’s going to be required in that timeframe.”


Coach (COH) Victor Luis on Q1 2016 Results

We’re bucking the trend of a weak environment in China

“In terms of China, as you mentioned, we’re really pleased to be bucking the trends that many of our traditional competitors are reporting…our team is managing our brand incredibly well in what is of course a very turbulent environment, not only with the exchange rate fluctuations and the impact on traffic into Hong Kong and Macau, but also the domestic stock market gyrations which are now very well-publicized.”


PACCAR’s (PCAR) CEO Ron Armstrong on Q3 2015 Results

European outlook continues to improve

“The European economic and truck market outlook continues to improve. GDP growth expectations for this year are 2.6% in the UK, which is PACCAR’s strongest market in the region, GDP growth is also accelerating on the continent…We expect the strong market conditions to extend into next year.”


Simon Property Group’s (SPG) CEO David Simon on Q3 2015 Results

Bankruptcies in 2015 but better comps than expected

“We are obviously had a lot more bankruptcies in ’15 than we did in ’14 and the other impact we’ve had on the negative side is that we’ve lost certain amount of percentage rent from the outlet business because of the fact that the strong dollar has also heard tourism shopping and we’ve seen that impacted more in the outlet business, the outlet tourists centers then we had in the mall business. The mall comp sales have been a better than our expectations and our leading portfolio in terms of that.”


Applied Industrial Technologies (AIT) Neil A. Schrimsher on Q1 2016 Results

October declined from September

“I mean we had a weakness in July, some expected. That continued through August. And off of that lower base, September probably came in modestly positive. As we look month-to-date through October, I’d say sequentially, it’s around 2% decline that we would see off that period”


CBRE Group’s (CBG) CEO Bob Sulentic on Q3 2015 Results

Our strongest growth is in Europe

“we are not seeing a lot of pressure. I would tell you where we are seen the strongest growth is in Europe. You saw the results this quarter, we expect that continue, but we saw good growth in places where people did not necessarily expected. In Greater China, we had nice growth. In Australia, we did, so we have not felt a lot of meaningful pressure at this point and the backlogs of business we have suggest that year should finish out nicely for us.”

Not seeing any deals die because of lack of capital

“From what we have seen, there is sufficient capital from other sources to step in. As I mentioned earlier, we have been anticipating that the rate of growth in sales will come down to a more sustainable level and we still believe that that is likely to be the case, but we are not seeing deals die basically because of a lack of capital”


Mondelez International (MDLZ) Irene B. Rosenfeld on Q3 2015 Results

13 percentage point currency headwind

” Based on current spot rates, we estimate currency to have a negative 13 percentage point impact for the year, a little more than our previous estimate of a 12-point impact”

The European retail environment is challenging

“the European retail environment is challenging. And I think we have been able to hold our own quite well. They’re interested in some of the very same things that our retailers around the world are interested in: what’s happening in health and wellness, what’s happening on the innovation front. And as long as we continue to drive traffic to their stores, we’re an important partner.”


AGCO (AGCO) Martin H. Richenhagen on Q3 2015 Results

Another robust harvest putting pressure on farm economics

“Another year of robust global harvest is putting pressure on commodity prices, and more challenging farm economics has reduced demand for agricultural machinery, especially for larger models.”

Argentina has increased import allowances

“the biggest export market outside of Brazil, or the market that we ship the equipment from Brazil to, is Argentina. And as you’re aware, the last few years they’ve had import restrictions that has really reduced sales in that market. This year, though, there has been some increase to those import and import allowances.”


Walgreens Boots Alliance (WBA) Stefano Pessina on Q4 2015 Results

Global healthcare markets are ready for change through scale

“The global healthcare markets, and perhaps the U.S. market more than any, are ready for change, and open to new ideas and new approaches that throughout provide scale. As the leading global healthcare company, we have the potential to play a defining role in this evolution.”

We’re not doing the RAD deal to increase our negotiating power with the payer and PBM

“Well, we have not done this to increase our negotiating power with payer and PBM. We have done this because we believe that we can extract a lot of synergies, rationalizing the combined company for, I would say, from internal sources and the harmonization of prices”

This deal will not reduce competition because we’re in an environment with lots of competition

“at the end of the day we are in an environment where the margins are decreasing. So it was decreasing. We are in an environment where there is a lot of competition. And the fact that we put together two companies will not reduce the competition – not just the competition among pharmacies.”


Macerich’s (MAC) Management on Q3 2015 Results

Apparel sales are struggling with lack of a distinct fashion trend

“On the negative side, apparel sales are only showing modest sales per square foot gains, if they struggle with a lack of a distinct fashion trend increasing competition from large format retailers and sluggish consumer settlement”

We anticipate bankruptcies will likely be comparable or higher than in previous years

“Looking towards the end of the year, we are anticipating that bankruptcies are likely to be comparable or higher than in previous years. Many of these retailers are public companies and based on their current stock prices the markets are pricing in a significant risk of bankruptcy. Contrary to the previous year, we are expecting less store closing as part of the bankruptcies as many of the retailers are prime candidates for restructuring with a smaller store base. Again, we believe the lower quality centers will be disproportionately impacted.”

Chains will use bankruptcy to their advantage to reduce store count

‘these chains will use bankruptcy potentially to reduce their store count.Outside of bankruptcy it’s more difficult, because the landlords will typically require some buyout or compensation and many of the companies have not – there’s been very few examples where companies have been successful doing that.”


Manitowoc (MTW) Kenneth W. Krueger on Q3 2015 Results

Deteriorating demand for tower cranes

“our third quarter results were disappointing, as deteriorating demand for tower cranes in the Middle East and Asia coupled with lower than anticipated all-terrain and crawler crane shipments, all contributed to the shortfall in revenues. The current global economic environment affecting customer demand is unlike any cycle we’ve seen in the recent past. Uncertainty among our customers is mounting due to emerging market peers, ongoing question over Chinese growth outlook, persistent depressed oil prices and slowing domestic growth. ”

The third quarter was one of the most difficult operating environments in recent memory

“The third quarter proved to be one of the most volatile and difficult operating environments in recent memory. Manitowoc has weathered many economic cycles and our team has proven its ability to manage the business without compromising our competitive position in the marketplace. This cycle should be no different.”


Delphi Automotive Plc (DLPH) Q3 2015 Results

China was significantly weaker than expected, but we are now starting to see a pickup in orders

“we’re real optimistic. We’re still optimistic about China. For the third quarter, it was significantly weaker than what we originally estimated. If you recall, our outlook was China up about 3.5% or 4% in the third quarter; ended up actually being down 9%. So it was very fluid. For the fourth quarter, our original outlook was China volume up roughly 5%. Current outlook is basically down a point. However, when we look at sequentially third to fourth quarter, we are starting to see a pickup in orders, a strengthening in the market, sequential growth in vehicle production”


The New York Times (NYT) Mark J. T. Thompson on Q3 2015

NYT exploring ways to deal with ad blockers

“Now ad blockers have been much in the news perhaps this is a good moment to give our perspective on that topic. As you know the Times’ digital subscription revenue stream means that we are significantly less expose the most publishers to the impact of ad blockers. Nonetheless, let me make it clear that we oppose ad blocking. The creation of quality news content is expensive and digital advertising is an important way in which we and other high-quality news providers fund news gathering operations. We are exploring a number of options including but not limited to technical solutions to mitigate the impact of ad blockers should the threat increase.”

Strength in luxury, technology advertising

“We’ve seen in Q3, and I think this will continue in Q4 real briskness in the luxury business. We saw real briskness in Q3 in the technology business. I think that will continue. And then there are other categories like retail where we just have less visibility and where there tends to be more volatility.”

We are a journalism play

“we are a journalism play. We are a news and features and opinion provider with multiple platforms, and we’re very interested in the synergies between the platforms. ”


BorgWarner’s (BWA) CEO James Verrier on Q3 2015 Results

Lowering sales guidance thanks to weakness in China and global commercial vehicle markets

“Our reported sales growth is now expected to be between minus 6% at the low end and minus 5% at the high end. This is compared with minus 5.5% to minus 2.5% previously. The change in our sales growth guidance is primarily related to two things. The impact of weaker than expected market conditions in China on our business and weak commercial vehicle markets around the world.”


Mastercard 3Q15 Earninsg Call Notes

MasterCard (MA) Ajay Banga on Q3 2015 Results

US Economy remains most solid

“So now let’s take a quick look at what’s going on in the global economy. And it’s been challenged in recent months, and while the U.S. recovery remains among the most solid – job gains have steadily lowered the unemployment rate to just over 5% – but job and wage growth are starting to slow. Consumer confidence is only moderately up, and as you know, given yesterday’s announcement, uncertainty about rising interest rates remain. So when moving beyond the U.S., the economic picture is more mixed”

Mexico is the lone bright spot in LatAm

“The lone bright spot there appears to be Mexico, where the economic recovery continues, led by relatively strong consumer spending and the lowest levels of inflation in almost 50 years.”

We remain cautious about the global economy, but our business remains strong

“overall we remain cautious about the outlook for the global economy. Now, in saying (4:33) all of this, our business continues to grow; our fundamentals remain strong. We’re seeing double-digit volume and transaction growth across most of our markets as a result of our efforts to drive the shift from cash to electronic payments, but also as well as our continued business growth.”

Working to be ready to process domestic chinese transactions by the end of 2016

“I want to say a few words about the opening of the Chinese domestic market. Since the final Chinese regulations have not yet been released, we have no new insights to add beyond what we all told you at our recent Investor Day last month. We continue to execute against our plans to be technically ready to process domestic Chinese transactions by the end of 2016, and we’re working on expanding issuance and acceptance in that market while we wait for clarity on the regulations.”

Business drivers flat compared to the third quarter so far in October

“let’s discuss what we have seen in October through the 21st. Our business drivers are similar or just a bit lower compared to the third quarter, so the numbers through October 21 are as follows: Starting with processed volume, we saw global growth of 12%, which is unchanged from the third quarter. In the U.S., our processed volume grew 7%. That is also unchanged from what we saw in the last quarter. Processed volume outside the U.S. grew 17%. That’s about 1 ppt lower than the third quarter, with similar growth in Europe and slightly lower growth in the other regions. ”

McKesson FY 2Q16 Earnings Call Notes

McKesson (MCK) John H. Hammergren on Q2 2016 Results

Our industry is going through a period of dynamic change

“There’s no doubt our industry is going through a period of dynamic change. I’ve been CEO of this company for 15 years and in healthcare my entire career.”

Despite the political headlines, pharmaceuticals are still the most effective and affordable way to treat patients

“Coming back to the broader industry environment, pharmaceutical pricing trends have become the frequent subject of news headlines as we get deeper into this presidential election cycle. The observation I would make is that this pharmaceutical pricing discussions tend to ebb and flow over time. However, what remains clear is that pharmaceuticals are still the most effective and affordable way to treat patients. And innovation and drug development and the trend toward higher levels of generic penetration continue to deliver real value and cost savings through the healthcare industry.”

Clearly there is more media attention on price inflation, but we don’t expect manufacturers to change their strategy

“clearly there is more media attention and there is more discussion about price inflation in the market. But I happen to believe that the manufacturers that we work with at least will largely retain their current strategy. And there may be some outliers that begin to change their perspective slightly, but overall I think we expect the trends to continue.”

We’ll do everything we can to help RAD with this transition

“Clearly we’ve had a longstanding relationship with Rite Aid and we’ll do everything we can to help them in this transition. And we have a great deal of respect for Mr. Pessina and his team at Walgreens and the kind of value they’ve delivered over a long time.”

Our job is to deploy capital intelligently

“our job is to find ways to grow our business and to do it intelligently and to do it in a risk-bounded way and to deploy capital intelligently. So I think our number one priority is to deploy capital in places where we have a base and an expertise and where it’s not a completely new leg of the stool, but it’s something that’s additive to what we’re currently doing.”

This is clearly a period of dynamic change

“Our industry experiences periods of dynamic change, and this is certainly one of them. And I’m confident that we will continue to participate in that change in an extremely positive way. We remain extremely well positioned to deliver the best service and value in the industry on behalf of our customers.”

Jones Lang LaSalle 3Q15 Earnings Call Notes

High investor demand continued to compress yields

“High investor demand for real estate continued to compress yields or cap rates for core office assets in primary markets. Brussels, Paris, Stockholm and Sydney, all saw yields reduce by 25 basis points in the quarter”

Corporate occupiers are generally optimistic about near term prospects

“Worldwide, corporate occupiers are generally optimistic about near term prospects and many are actively planning for growth.”

Forecasting investment volumes at $750B for 2015

” For 2015, we are maintaining our full year forecast for overall investment market volumes at $750 billion and the market could surpass that to set new records.”

Leasing demand is increasingly being driven by growth plans

“Demand is increasingly being driven by growth plans rather than cost containment consolidation and just lease renewals. The deal pipeline is full, particularly in the U.S. And what had previously been a technology-led story, 2016 will see demand across a much broader spectrum of industry sectors, finance, professional services and insurance, just a few examples.’

CRE activity has remained steady in China’s tier one cities

“Let me make a few comments about China since it’s captured a lot of headlines recently. Despite currency and stock market volatility, commercial real estate activity has remained steady in the country’s tier one cities.”

The shift from a manufacturing to consumer economy plays to our strengths

“In addition, the shift from a manufacturing to a consumer and services-based economy plays to our strength in the service sector and our strength in tier one cities.”

The shift is producing challenges in tier 2 and 3 cities

“The shift in growth to services is producing some challenges in tier 2 and more so tier 3 cities. ”

Our view on China is that the government overshot slowing, and is now restimulating

“Our view on China is that the government overshot as it worked to slow the country’s economy in 2013-14 and then responded by re-stimulating it this year. We see the effects of those moves kicking in next year and finally with 2016 GDP growth projected to be near 6%”

In Europe the business environment is much more intense than overall GDP would suggest

“both Europe as a whole and France have been performing particularly well, even in an environment where economic growth is 1%, tops. And so it didn’t ought to be but it is. And I think what’s going on in Europe is that actually within the business environment and in particular within the real estate environment, activity is actually much more intense than the overall GDP numbers would suggest.”

The capital markets picture in Europe has been anomalous relative to GDP because it’s viewed as a safe haven for international capital

“The capital markets picture which was I think the focus of your question, again has been anomalous to what you might expect from the market, the overall economic growth picture, again, since 2010. And the reason is that the European environment as a whole and in particular the major gateway cities, are seen as being safe havens for international capital and offering solid returns and generally deep liquid markets should investors wish to sell their assets at sometime in the future. And against that background of attractive investment markets we’ve seen then this global upwelling of investment of equity capital trying to find its way into quality real estate. So you’ve got a huge volume of equity, adequate debt availability at sensible levels of underwriting against a relatively limited supply of quality space in the major European cities. And the two together have just driven these year-after-year record levels of activity.”

There’s so much capital that is keen to invest and it’s not skittish. There’s no signs that this is slowing up

“It’s just that there is so much capital that still is keen to invest and it’s not skittish. Let’s call the international geopolitical issues and security issues, some of the noise around what was in the Chinese domestic markets, do not seem to have impacted this tremendous, people call it a wall of equity, this tremendous level of demand for capital. And if you look at the inflows into private equity this year, by quarter in Q2 they rose from $80 billion last year to something like $130 billion this year. And that money hasn’t yet been put to work. So that will be going into the markets in 2016 and beyond. Then again, nothing that suggests that this is about to — I mean we are watching it very carefully, obviously. We’re watching the velocity of transactions, we’re watching the speed of transactions and the number of bidders. But nothing yet suggests that any of this is slowing up.”

The large sums of money are looking for major assets in major cities

“the real equity, the real large sums have been looking for major assets in major cities. And that’s our sweet spot… So it’s about concentration of large assets and quality buildings”

There’s a low level of supply compared to demand

“So the level of development work, speculative or built for purpose, is very low by historical and indeed global standards. So against that relatively low level of supply, you’ve got increasing levels of demand as companies clearly are ramping up their expansion plans. And so that suggests that there will be sustained rental increases across large swaths of the U.S. office market”

Moelis and Company FY 2Q15 Earnings Call Notes

Moelis & Company’s (MC) CEO Ken Moelis on Q2 2015 Results

Mega deals were up but general activity was actually down

“We continue to see strong completion activity for deals greater than 10 billion. Mega deals were four times greater in number of transactions for both the quarter and the year-to-date 2015 periods. However the number of global M&A completions greater than 100 million in value which is how we look at sort of general market activity was actually down 20% for the third quarter and 6% for the year-to-date.”

October has felt more stable

“While September’s volatility in the equity markets was not conducive to deal activity our momentum hasn’t been disrupted and October has felt more stable. However I do want to prolong volatility of that nature could make the deal environment more challenging and is probably the number one risk for deal making activity.”

We look to hire people who want to be part of a team and aren’t looking for immediacy

“in the hiring process Ashley is we look to people who are looking to be part of the team and operate as a team. And it comes out pretty directly when you’re talking about message of compensation et cetera. People elect to either be part of a team or they want to operate individually and we can tell that pretty quickly. So I think what we avoid I’ll tell you two things we avoid. We avoid that and we also avoid people who are looking for immediacy. I have a big believe that the value in hiring people is the duration of which you keep those people. There is very I would say it’s a I would say there is very little value and short-term employee no matter how productive they are”

Restructuring is tough in Brazil

“restructuring mechanisms in Brazil are difficult. They don’t have a very clean chapter 11 procedure”

You could get more going private deals in small companies as valuations haven’t risen as much as large companies

“I think as you get down to small caps you’re not seeing quite the same recovery in valuations and so in mid the rest of the 2000, rest of 5000 index I don’t think it’s recovered quite as much and you could start to see a little more the going private-private equity deals that we saw prior the crisis really.”

September did not feel great but it’s gotten back to stable in October

“I think it got back to pretty stable in October. It was – if it gone on for a longer time it didn’t feel really great like on September I don’t know if it was second or third week. It did not feel great”

National Oilwell Varco 3Q15 Earnings Call Notes

We see further reductions in activity

“A second major decline in oil prices from the high $50 range back into the low to mid $40 range since June has increased financial stress and led to a second round of rig activity reductions, sending the U.S. rig count down by almost 60% since late 2014 peaks. We expect to see further activity reductions and pricing pressures continuing into the fourth quarter. Visibility is limited, but we believe most producers will further reduce their 2016 CapEx plans after cutting spending significantly in 2015. The industry has not seen two years of declining CapEx since the 1980s, signaling the severity of the downturn we find ourselves in.”

Producers are producing fields close to maximum levels

“We believe many, if not most, North American producers and OPEC countries are producing existing fields close to maximum levels, trying to offset lower revenues due to oil price declines with higher volumes while sharply reducing drilling activity. OPEC and non-OPEC production are up year-over-year. This is not sustainable. Production will begin to decline naturally, as it has begun to in the United States. And therein lies the seeds for our recovery.”

We don’t expect recovery any time soon

“However, with swollen inventories, moderating demand growth with economic weakness in Asia and elsewhere around the globe and an uncertain trajectory for incremental oil exports from Iran, we don’t expect recovery any time soon. Nevertheless, it will come.”

As the downturn lengthens company prices will come down

“As the downturn has lengthened, we believe values of potential target companies will become more and more compelling. Thus far, it has been challenging to bring the bid and the ask on potential acquisitions into alignment, but we remain patient and disciplined in these discussions.”

Sellers will likely reduce their expectations

“As we move into 2016, we believe sellers are likely to reduce their expectations and better capital returns on M&A will follow. Consequently, our capital deployment strategy is shifting from share buybacks to an external focus on potential acquisitions”

NOV is a portfolio of market leaders

“NOV represents a portfolio of market leaders with the deepest experience and the most expertise. Within these businesses, we have assembled discrete packages of equipment and services to drive higher efficiency in ways that our customers really want and in ways that really improve their businesses.”

Look for enterprises where we can be a better owner

“Our acquisitions are of enterprises where NOV can be a better owner, to accelerate growth, drive efficiency and fully unlock their potential to create value for our customers and our shareholders”

Grateful to our business leaders

“I’m extraordinarily grateful to these business leaders who are skillfully reducing our capacity, managing costs and leading our core team through this challenging time. They’re providing their teams with a vision of better days ahead to make sure that our folks see the prosperity that will follow for NOV. ”

Difficult conditions will persist

“Difficult market conditions will persist for the foreseeable future. We supply a highly capital intensive industry and have benefited from decade-plus period of retooling with improved levels of technology and automation. But the industrial transformation is far from over. Our view is that we are currently in a cyclical pause.”

Our customers are in a Darwinian quest to preserve cash

“During such a cyclical pause, our biggest competitor becomes the overhang of products and consumables and equipment that our customers cannibalize extremely effectively in their Darwinian quest to preserve cash.”

We came from PE roots

“both National Oilwell and Varco came out of private equity roots. And through the years, between our two organizations, we came together about 10 years ago, we’ve done probably in excess of 300 transactions. So this is becoming a buyer’s market and we’re pretty excited about that.”

Try to move more manufacturing in house in a slowdown to keep teams busy

“we do have sort of an outsourcing model. Basically we recognized all of the things that we manufacture serve cyclical industries, so demand rises and falls. So we’re trying to avoid scaling up to internally manage peak demand. And over the past few years, a number of our business units have done more outsourcing. So as you go with the other way and things sort of cycle down, we really try to bring more in house, keep our core teams busy.”

2016 is going to remain challenging

“I think the first part of 2016 is going to continue to be really challenging and, as I said in my prepared remarks, our expectation is activity is going to trend lower. I think like everybody in this industry that we remain hopeful we’ll get a little bit of commodity price help and relief and then maybe in the second half of the year we start to see maybe some activity pick up a little bit. But I don’t have a lot of data to point to this as to why that would happen.”

Producers want to get back to drilling as soon as they can

“producers come under a lot of pressure when they start facing production declines. And so I think there’ll be an impetus, at least across North America, to get back to drilling as soon as they can”

A little uptick in activity will require a lot of work from NOV in spare parts

“A lot of the equipment that’s out there has been depleted of spare parts and cannibalized. And so a little bit of uptick in activity is going to take a lot of work from NOV, so we’re looking forward to that time.”

Customers have been more aggressive about repositioning equipment to preserve cash

“We’re seeing customers be far more aggressive I think in this downturn with regards to cannibalizing their equipment, about repositioning it. If they have a particular piece of equipment in a different region, there’s a cost to repositioning that; there’s freight, there’s – they have to invest in that just to move it and maybe to get it back to working order. And we’re seeing customers go to more extraordinary lengths I think in this downturn than we have in the preceding couple of downturns with regards to cannibalization”

Customers still want to upgrade their rig fleets to AC technology

“I’m probably more optimistic about in terms of demand in Rig is we know a number of drilling contractors in North America and around the globe who are completely bought into the idea and the need to upgrade their fleets to AC technology. This is clearly where the market is going and so I think in terms of recovery, that’s where we would see it next.”

Cullen Frost 3Q15 Earnings Call Notes

Loan market remains competitive

“The loan market continues to be very competitive, our lost loan opportunities show more deals lost to structure the pricing we remain consistent in our underwriting standards and that credit discipline serves as well.”

Credit quality favorable but non performings up q/q

“I’m pleased to report that our credit quality remains favorable, traditional measures of credit quality are strong delinquencies continue to be well below 1% at 0.64%. Non-performing assets were $58.2 million down 8% from the $63 million reported in the third quarter of last year and up $5.8 million from the $52.4 million in the second quarter of 2015.”

Performing well in this oil environment because this is what was expected when we talked to our customers

“there’s a few key headlines and I think are very important they show why we are performing well in this significant decrease in oil price. We remain in close and continual contact with our energy customers. Current conditions align with what customers expected when we visited with them late last year and early this year. Customers are at executing their plans and strategies and are adjusting their business plans and cost structures in a prudent and practical manner.”

We’re underwriting to $50 in 2016 and $70 in 2019

“Regarding our production based borrowers, which is 72% of our portfolio, it is important to note that our current price deck has oil at $50 a barrel for 2016 with some escalation through 2019 topping out at $70 a barrel.”

Texas has slowed but still lower unemployment than rest of the US

“Looking at the Texas economy, well Texas economy growth has slowed in 2015, it is still projected to produce positive growth for the year along with an unemployment rate almost 1% lower than the nation”

Capex budgets could be down 40% depending on how close your are to the drill bit

“as I mentioned to you we are about 10% or 15% down now. And it could be as much as 30% to 40% and this stuff moves around depending on, you know how close you are to the drill bit. How much service work, you got but I would say to you that in my opinion you know you squeezed a lemon about as much as you can.”

You can’t get blood out of a turnip

“I think the service industry has been very aggressive I think they’ve done a great job of cutting cost. But you can’t get blood out of a turnip.”

It’s tough for a bank under $1B to survive after Dodd Frank

“Bank M&A, you know those continues to be a lot of dating in the little banks under a billion dollars because you know regulation has made it or they can survive, which is a shame…I think you are going to see the little guys get together to try to get over $1 billion I don’t blame them their survivors and work hard but it’s a shame what Dodd Frank and all the stuff did to the industry in America.”

Redeterminations starting, but we’re so close to our customers that we’ve got a good idea of what’s going on

“It’s just starting, but from our standpoint I gave you some color which we believe what the results will be already because we spent, we are so close to our customers, we got pretty good understanding so we will know more by year end exactly what’s going on.”

Competition has increased from “stupid bankers.” The Fed is creating bubbles.

“It’s just stupid bankers, and there are both big and little ones. You get all this pressure, that’s one of the benefits of the Feds getting out of keeping interest rates low for ever as they are creating some other bubbles. You know where they are, and hedge funds, and all kinds of private equity investments. And so what happens, the math is pretty simple you’re sitting there want to go loans because the yield better and so you start doing stupid things and lowering your standards now.”

The Permian basin is one of the best honey hole in the world

“It’s surprising with oil down end up from 100 take a number 45, 43 wherever it is – one of the things that if you are out there, but people will kind observe is how much traffic and there are still lot of traffic. I think you know its going to slowdown a lot, its got to but what’s you can’t forget is that the Permian basin is one of the best honey holes that you’ve got for all in the world. And so you are going to continue to have some activity.”

Historically it takes 80 months to get through an energy cycle so we’re probably in the first 3-4 innings of this

“people out there tell us that it historically when they go a down cycle there it usually takes 80 months to get through it and you can pick your starting point of this down cycle but we’re certainly in that I would say probably in the first three or four innings of that cycle.”

CH Robinson 3Q15 Earnings Call Notes

C.H. Robinson Worldwide (CHRW) John P. Wiehoff on Q3 2015 Results

A little bit softer demand

“one of the things that we wanted to highlight, though is that the trucking industry continues to be a cyclical industry…a lot of our net revenue growth this year has been enabled by responding to a market that has a little bit softer demand and taking advantage of the marketplace from the standpoint of serving our customers in a more effective way.”

Trucking industry has had some underlying cost pressures with driver shortages and increased equipment regulation

“I think very consistent with what we, and maybe many others in the industry, have been saying that there is some underlying cost pressure increases around driver shortages and increased equipment and increased regulation that’s limiting productivity. So you put that all together, and over the last five years, think the industry and we have seen some above inflation cost increases due to a lot of the factors that have been talked about in the industry.”

Everybody is expecting a softer market. Margins will depend on whether or not that materializes.

“So everybody’s expecting a softer market and everybody is moving down towards the lower end of price changes in the range, and really whether net revenue margins on that committed business expand or contract probably has more to do with how next year compares to what everybody is expecting during these bids versus the absolute tightness of the market year-over-year. ”

Volumes are still up in October but the growth rate has decreased from where it was in 3Q

“They were pretty consistent throughout the quarter. It’s what we discussed. Towards the end, there was kind of a slowing of that growth rate towards the end of the quarter. In October, what we’re seeing is volumes are still up, but, again, it’s up – that growth rate has decreased from where it was in the third quarter.”

HCA 3Q15 Earnings Call Notes

Higher contract labor costs to fill vacancies and serve increased volume

“we carried more labor cost in the quarter compared to our plan. There are primarily two items that impacted our labor cost. We saw an increase in the use of contract labor during the quarter. Our contract labor expense was up $55 million or 36% as compared to the third quarter of 2014. We have seen growth throughout the year but it did accelerate during this quarter. This increased use of contract labor is used to fill in for staff vacancies that occur because of higher turnover rates and needs we have to serve the increased volume.”

Increases in Pharmaceutical costs also impacted results

“The second area that impacted our results in the quarter is the continued increases in pharmaceutical costs. Our pharmacy cost in the third quarter of 2015 were up in total just under 13%. When we adjust for borrowing growth, we estimate the company had about $15 million higher pharmacy cost due to price increases for certain classes drugs. We have seen multiple price increases for a small number of drugs which primarily relate to single manufactured pharmaceuticals.”

Also saw increase in uninsured admissions

“And the third area is we saw an increase in our uninsured borrowings in the quarter. Recall, we saw this developing in the second quarter. In Q3 of this year, our uninsured admissions were up 13.6% as compared to Q3 of 2014 and uninsured adjusted admissions were up 8.8% over the prior yea’

Saw insureds convert to self paid due to non-payment of premiums

“We also saw an increase in the number of people previously registered as insured that were converted to self-pay in the quarter. For instance, we saw 480 patients who were previously registered as health exchange convert over to self-pay in the quarter. We believe this is likely due to non-payment of premiums”

Volume growth was solid in 3Q

“As mentioned earlier, volume growth was solid in the third quarter. We believe this performance continues to reflect growing demand for healthcare services in HCA markets and further gains in market share for the company. ”

Improving economy is having some effects on labor equation

“we do have an improving economy as we have indicated across most of HCA’s markets and we think that is having some effect on our overall labor equation. It’s pocketed in some markets and more significant in others, but nonetheless it is having some effects we believe and we have been indicating that as a potential issue. ”

Significant supply competition in some service lines

“The other issue is, within certain service lines we have seen significant competition in new supply. And that’s especially relevant in the emergency room where we have seen difficulties in recruiting emergency room nurses and having to use contract labor to service our emergency room”

Texas economy so strong even with oil

“Clearly the oil economy have had some impact on Houston in particular and then some sprinkled impact across other Texas markets. However, the Texas economy is so strong that there still reported job growth even in Houston and obviously in the other markets and we are seeing that in the demand that we are studying within the Texas markets.”