JC Penney 4Q15 Earnings Call Notes

J. C. Penney (JCP) Marvin R. Ellison on Q4 2015 Results

4.1% comp

“Comparable sales were up 4.1% in the quarter and accelerated to a two-year stack of 8.5%. In fact, this represents our ninth consecutive quarter of growth, when you take into account that our flat comp from Q3 of last year was positive.”

Regaining market share lost form 2011 through 2013

“we’re regaining market share from that was lost from 2011 through 2013. Our intense focus on value is bringing these customers back to JCPenney.”

Have invested in better data processes

“And fifth, we’re using data to our advantage. Although many results will cite big data as a growth vehicle, I would argue that no modern retailer was as far behind with using data as JCPenney between 2011 and 2014. In the first half of 2015: our store assortments and pricing were not localized; our credit penetration was at an industry low; and our marketing strategy was outdated, which resulted in a low return on ad spend. Therefore, we recruited talented leaders in 2015 and began taking steps in the fall season to modernize our approach to customer and pricing data.”

Mid tier consumer has continued growth possibilities

“Before discussing 2016, I’d like to take a moment to discuss the moderate and mid-tier consumer. This is the U.S. consumer with a household income of approximately $60,000 per year, and a very important customer to JCPenney. Contrary to some of the negative macro data that’s been discussed in the marketplace, our data shows that this mid-tier consumer has continued growth possibilities in 2016.”

In the process of localization

“we are in the early stages of what I call localization, from a true assortment plan that is customized from a pricing and from a locale. We put some structure in place. We have leaders on board that’s kind of been there, done it before, that will work for our existing team.’

Digital is more efficient way to communicate with customers

“Mary Beth West and her team have done a really nice job of taking us from a more traditional, not very modern, view of how we market and talk to customers to shifting to more one-to-one communication with more digital advertising, more focus on social media, paid search, direct mail, et cetera. And, as we all know, that a more efficient way to communicate and it’s less costly than traditional print or TV.”

Price competition online is very competitive

“I think you are very well aware that the most aggressive pricing environment in retail exists online, because of all the dynamic price scraping that exists and the numerous times, specifically pure-play e-commerce sites can change prices throughout the day. ”

We think private brands gives us an advantage online

“The good news for us is that, as we talk about private brands and the importance of private brands, we believe that it gives us a tremendous advantage of going up against pure-play e-commerce competition because we are going to be exclusive sellers of certain categories. And as we ramp that up, and we are aggressive online, we’re not going to face the same pricing pressure that other retailers will face. So we’re excited about it. We have a lot of work to do, and we’re going to be really focused on that.”

Edward J. Record – Chief Financial Officer & Executive Vice President

Don’t need to pay Visa or Mastercard for our credit customer

“Credit is a huge driver of both profitability and sales for us. As I mentioned, our credit customer spends about two and a half times more than our non-credit customer. They attrite half as much. They like us twice as much as the non-credit customer. And obviously, we get revenue from it and we don’t have to pay Visa or MasterCard for that transaction. So it is really a win-win-win for us, so we continue to be focused on driving our penetration. We know we lag the industry. We’re slightly under 40% and the industry is high 40%s to low 50%s, depending on who you want to benchmark.”

EOG Resources 4Q15 Earnings Call Notes

EOG Resources (EOG) William R. Thomas

Slammed on the brakes in 2015

“After four years of 40% compound annual oil growth, we slammed on the brakes and decided to defer production growth. It was an easy decision. Outspending cash flow to grow oil into an oversupplied market makes no sense.”

Can no longer be just a low cost producer in shale, must be low cost producer in global market

“2015 changed how we think about EOG’s position in the industry long term. It’s no longer enough to be the low-cost producer in U.S. horizontal shale. EOG’s goal is to be a competitive low-cost oil producer in the global market.”

Can find 2B barrels that produce 30% ROI at $40 oil

“Premium inventory is defined as wells that generate direct after-tax rates of return of at least 30% at $40 oil. We have identified over 2 billion barrels of equivalent of net resource potential and 3,200 net drilling locations that meet this hurdle. ”

This is a permanent upgrade for future drilling

“EOG’s shift to premium drilling in 2016 is not just simple high-grading. It is a permanent upgrade for all our future drilling.”

We continue to see a major step change in productivity that will return us to triple digit capital rates of return

“It’s important to realize that this is much more than a small incremental shift in our drilling program. It’s a major step change in terms of per well productivity. For the average 2016 well, we estimate a 50% increase in the first 120 days of production per foot of treated lateral versus wells we completed in 2015. Our shift to premium drilling allows EOG to quickly return to triple-digit, and I’ll say this again, to quickly return to triple-digit capital rates of return as oil prices improve to modest levels.”

Non premium inventory will either be turned premium through technology or sold

“So the next logical question is what becomes of the remaining inventory? Our non-premium inventory is still very high-quality. By any industry standard, it is Tier 1 quality with tremendous value. Due to the quality, a large percentage of this inventory will be converted to premium through technology and efficiency gains over time. The remaining high-quality inventory will add value to property sales or trades as part of our ongoing upgrading process.”

Encouraged by the discipline that operators are demonstrating around the world

“As we start 2016, we are encouraged by the discipline operators are demonstrating around the world. This disciplined capital reduction is rapidly slowing U.S. oil drilling and reducing significant amounts of future supply worldwide. We believe the pace of market correction is increasing in 2016.”

We believe we’ve captured the premium acreage in the US

“The quality of the rock is the most important factor in the productivity of the well. So we made extremely strong technical advancements in identifying the best rock in the best plays over the years, and certainly we believe we’ve captured the premier acreage in the premier plays in the U.S.”

No current plans to issue equity

“EOG has no current plans to issue equity at this time. Certainly we entered the year, we came into the downturn with a strong balance sheet, and we’ve been disciplined throughout the process.”

Premium wells would have >450 MBOE EUR

“That is for an average Eagle Ford well, and that is not a premium well. Premium wells would be quite a bit better than that. And then that number is stale. So we haven’t updated that 450 net MBoe per well for several years, and we’ve made quite a bit of advancements since then in the high-density frac technology, and now we’re making advancements in targeting also.”

No intention of expanding international efforts

“Brian, we have no intention of expanding international efforts, so we are going to be very much U.S. driven. We see tremendous opportunity in the U.S. And so this whole direction towards being not only the low-cost producer in the U.S. horizontal, we think we’re clearly there. And our sight now is really set on being one of the lowest-cost producers in the world market. ”

We don’t want to be fooled again on an uptick in oil prices

“When the oil prices begin to recover, we’re going to be disciplined going forward. We don’t – obviously don’t want to be fooled again, like the industry was fooled last year by a little bit of an uptick in oil price and it is not sustainable. So, we’re going to be disciplined and cautious going forward on ramping up capital until we’re very much convinced that this is not a short-term uptick in the price, and that the market is more in balance, and that the price is more sustainable.”

Third Point Reinsurance 4Q15 Earnings Call Notes

Third Point Reinsurance’s Daniel Loeb

See a lot of alert, but not really seeing signs of recession

“we have hedges in place, but we’ve actually increased our net exposure over the course of the month, as some of these sellouts have created silly prices for securities and we’ve either added some existing positions or established a couple of new positions. So as your question about recession, look, along with the other things like China oil prices, Fed policy, et cetera, I mean, that’s kind on the top of people’s list as far as concerns go. We are looking at economic data. We are serving companies that are economically sensitive, and what we do see is weakness in companies with cyclical exposure. And we see the obvious things, overleveraged companies in cyclical businesses that are also maybe in some peril. But as far as industrial companies, consumer companies, certainly healthcare companies, we are not seeing any sign of a recession. We see a lot of people that are on alert, but there haven’t really been any signs of recession from either the economic data, the surveys or individual conversations with companies.”

You don’t have as many activist opportunities because you don’t have as many blatantly underperforming companies

“It’s an interesting question. We have not undertaken any new activist opportunities, but I think what’s happening actually is a lot of companies have undertaken the sorts of operational improvements and more rational capital structure moves, that is making it — I think that’s making it more difficult for activists, because you don’t have as many blatantly underperforming companies, because boards are holding the management teams more accountable, they’re getting lot of pitches from bankers.”

We’re more focused on undervalued securities right now

“So we’re not seeing — that that’s not really what we’re focusing on. We’re really focusing on securities that are under-valued where we can make investments in the constructive and not have to take any kind of confrontational role with management teams.”

Watching energy markets closely but think debt is more interesting than equity

“We’re watching the energy markets very, very closely. We think that the better opportunities are on the credit side than on equities. As far as discounting, potential bad news ahead, we think the equities reflect more optimism about the price. I mean, they’ve come in over the last weak or two, but there is two things going on equities at this point; debt, low oil prices and now the threat of equity offerings to shore up the balance sheets. So we think the more interesting way to play energy is through fulcrum securities of E&P companies, and in some of the distribution companies”

We aren’t investing in China

“We aren’t really investing in China. We’re obviously tracking what’s going in China in terms of the local economy, in terms of it being an end market for many of our companies including young brands. There is serious implication for materials and for luxury companies and other companies that have end markets there, but we aren’t investing directly in China. It’s hard for us not having a local presence and local knowledge to invest in Chinese securities.”

Baidu 4Q15 Earnings Call Notes

Robin Li – Co-Founder, Chairman and Chief Executive Officer

Service and domestic consumption are growing faster in China

“Even as China’s overall gross slows, service and domestic consumption are growing faster. This growth in service is outpacing overall GDP in 2015. Providing an additional tailwind is the Chinese government’s Internet Plus initiative, which is pushing traditional industries to work more closely with Internet companies, bringing structural change to those sectors.”

Baidu largely services these growing sectors

“Baidu largely services these growing sectors. With our top revenue verticals by broad classification including retail ecommerce, local services, healthcare, financial services and education. We are confident in our outlook for Baidu and China’s growing sectors. Baidu plays a vital role as the platform to connect users and merchants in these verticals. ”

Investing in autonomous driving

“We see a very bright future for autonomous driving, especially here in China where we face severe pollution, frequent traffic jams and high mortality rates from traffic accidents. Baidu believes, we can transform transportation as we know it. We’ll keep you updated with new divestments from this exciting area.”

Search algorithm is pretty much all machine learning today

“Our machine learning is a fundamental technology to (40:20). Five years ago, search was pretty much based on statistical tactics. These days, the search algorithm itself is pretty much machine learning. So far, a lot of our existing products and services including the algorithmic search, pay search, the query side based on voice, based on images, those are all very heavily driven by machine learning, especially deep learning technologies. And I’m actually very proud of our speech recognition capability.”

Self driving car can probably become a commercial product within five years

I think self-driving car can become a commercial product probably within the next five years. So that is very dependent on our machine learning and artificial intelligence capabilities.”

Company Notes Digest 2.26.16

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.

This Week’s Post: Glass Half Full

Everyone is watching the market’s volatility, but most CEOs continue to say that the market isn’t reflecting the reality that they’re seeing.  Consumers appear to be especially healthy and aren’t showing signs of slowing down.  Credit markets are troublesome though.  Defaults are certain to rise among energy companies and more and more credit focused firms are citing concerns in unrelated industries like restaurants and retail.

The Macro Outlook:

Everyone is focused on the volatility but no one is frozen by it

“We are all like you looking at the opening of 2016 and seeing the volatility…we find in our client dialogue that while everyone is focused on it, no one is frozen by it” —Heidrich and Struggles CEO Tracy Wolstencroft (Executive Search)

In fact, most CEOs seem to disagree with the market’s perception of reality

“The reality sometimes of what’s going on versus the market’s perception are completely different. This is one of those times.” —Stifel CEO Ronald Kruszewski (Investment Bank)

They don’t see the doom and gloom that others do

“I guess there’s a bit of a bearish tone…coming from the press…I’m pretty bullish about our position in the marketplace…So the glass is half full, and I don’t see the doom and gloom that a lot of people are and I guess your question kind of leads us towards.” —Fluor CEO David Seaton (Engineering and Construction)

Many are seeing positive momentum in their businesses

“The stock market seems to be pricing in a steep decline in the economy, and along with it, our sector. We on the other hand, are seeing signs that reflects strength and positive momentum in our business” —Toll Brothers Chairman Bob Toll (Homebuilder)

Consumers have a similar outlook. They see their own finances as stable but perception of the economy has declined

“the results of our most recent consumer sentiment survey [showed] favorable perceptions around personal finances remains stable even though respondent’s assessment of the national economy declined slightly.” —Lowes CEO Robert Niblock (Home Improvement)

Consumers are actually pretty healthy

“On the bright side, the U.S. consumer may come to the rescue as we are nearing full employment, wages are slowly rising and there is an effective tax cut in the form of low energy prices.” —Greenlight Capital Re Chairman David Einhorn (Reinsurance)

Which is probably why consumers continue to spend

“Peter, we’re not seeing [consumers pull back]. Our business was good and continues to be good.” –Home Depot CFO Carol B. Tomé (Home Improvement)

“Yeah, the U.S. consumer, we could spend the next 30 minutes on that. We are pleased with the mind and the spirit of the U.S. consumer, certainly compared to many other geographies outside of the U.S.” —Best Buy CEO Hubert Jolie (Electronics Retail)

So is it time to take advantage of nervousness?

“I go back to what Buffett says…he’s nervous when people are greedy, and he’s greedy when people are nervous. Well, right now people are nervous.” —Fluor CEO David Seaton (Engineering and Construction)

“in terms of crisis in some countries, that’s when we feel even more excited about investing, because that’s when competition normally takes the foot off the pedal.” —AB Inbev CEO Carlos Brito (Beverage)

Valuations are still high

“I would say, the market is fairly richly valued at this point in tim…Ultimately, we want to do deals that we know we can get very good returns on long term…We’ve seen this cycle before. It does come and go, and we’re going to be very, very careful while we’re in a frothy environment.” —Ecolab CEO Doug Baker (Sanitation Services)

And deflationary pressures could make it tough to generate returns

“And deflation is a very difficult environment to make a return in. You’re seeing interest rates in Japan, ten year rates are negative. German rates are below – ten year German rates are below 0.3%…in that environment it’s very difficult to make a return…with interest rates at zero for sometime and in many case, it’s going negative and a ton of debt in the system, we think that the possibilities on the downside are significant.” —Fairfax Financial CEO Prem Watsa (Insurance)


Credit markets are showing signs of distress

“I, for one, but I think, we as a team, have a pretty strong view that 2016 is a transition year for the credit markets. We see a lot more stress and distress just as we look across credit business” —Ares Capital Corp CEO Kipp deVeer (Business Development Company)

The problems that energy companies pose for the high yield markets are not fully appreciated

“I think that the problems that the oil and gas markets in particular are going to present…for the high yield market is misunderstood…We expect defaults will go up this year. They’re already going up.” —Ares Capital Corp CEO Kipp deVeer (Business Development Company)

And credit markets are increasingly spooked by industries other than just oil and gas

“markets continue to be spooked…by oil and gas, by mining and metals, and increasingly by industries that are cyclical, whether it’s retail, restaurants, manufacturing, specialty chemicals, et cetera.” —Ares Capital Corp CEO Kipp deVeer (Business Development Company)

There are some indications that loan delinquencies are turning very slightly in the wrong direction

Macys is closely monitoring a rise in delinquency levels

“we are closely monitoring a rise in delinquency levels that could generate some increase in losses in 2016.” —Macys CFO Karen Hoguet (Department Store)

TD said losses are normalizing from unsustainably low levels

“U.S. portfolio losses have largely normalized from unsustainably low levels in 2015” —TD CRO Mark Chauvin (Bank)

BMO saw delinquencies tick up but it may just be because the quarter ended on a Sunday

“the difference between this quarter and the last quarter was that this quarter was on a Sunday…And that explains the difference, because right after the weekend, the delinquency rate did go back to normal levels.” —BMO CRO Surjit Rajpal (Bank)

Toll Brothers is seeing encouraging traffic early in the spring selling season

“I think we’re very encouraged by the increase in traffic, in numbers and even more importantly in quality…It’s early in the spring season, we’re about three weeks in. And so we’re encouraged by the traffic numbers and the quality of that traffic.” —Toll Brothers CEO Douglas Yearley (Homebuilder)

Americans still believe that their homes are great investments

“Roughly half of homeowners believe the value of their home has increased…we saw a significant increase in future home value expectations. And while most homeowners indicated their spending levels are saying the same, they’re more likely to allocate funds to home improvement compared to other areas.” —Lowes CEO Robert Niblock (Home Improvement)


Retailers are struggling to adjust to a fundamental change in their business models

“I think one of our slides indicated by the end of this decade that we’re going to have a large proportion of our business about 30% being done online. That’s all the way from 5% that it was back in 2005 and that is a model that behaves enormously different than the mall-based model. And so we have a lot to learn about that and we have to keep our lens on as it relates to how the customer sees us and how the customer wants to be served, but at the same time, we have to do it effectively.” —Nordstrom CFO Michael G. Koppel (Department Store)

“It’s clear, though, that we need to move at greater speed and agility, accelerate plan changes in our business model more quickly, and focus our resources on the most productive assets and projects while moving away from those that are not delivering results. We need to embrace the evolving behaviors of our customers and take actions to support the long-term health and success of our business.” —Kohls CEO Kevin Mansell (Department Store)

Most retailers believe that their store base is a competitive advantage

“I think is our talent in the whole fashion arena, from picking, editing the assortments, presenting it, and the vendor relationships. I think that is a huge competitive advantage to date, vis-à-vis, Amazon. But I think it starts with the store base, and our understanding of the fashion customer, which is different.” —Macys CFO Karen Hoguet (Department Store)

TJX argued that there’s plenty of room for off price retailers to expand

“sometimes there’s a concern, there’s going to be a lack of goods as we continue to growing out all these stores. It just, as you know – I think I said it like 20 minutes ago. We actually have to hold the merchants back still. There’s so much merchandise out there. We’ve never not had it be that way.” —TJX Cos CEO Ernie Herrman (Off Price Retail)


Mobileye said that an open architecture system makes sense for autonomous vehicles

“when you talk about autonomous driving, it’s really a multi-player game. It’s very, very hard to think about it in terms of a closed system. Sensing alone, it’s okay to think about it as a closed system, but once you start adding mapping, you start adding your driver policy, you start adding differentiation between different players; an open architecture makes more sense.” —Mobileye CEO Ziv Aviram (Auto Supplier)

Mobileye also said that it thinks consumer electronics companies are underestimating how difficult it is to make a car

“our belief is that consumer electronics companies today underestimate the challenge of automotive…when you look at consumer electronics, the kind of product that we are used to have lots of imperfection…We are not tolerant to imperfection with cars…And when you think about autonomous driving, where there is safety involved, the level of perfection is really foreign and unparallel to the consumer electronics world.” —Mobileye CEO Ziv Aviram (Auto Supplier)

Materials, Energy:

This energy downturn is about as tough as they come

“This particular downturn, which will be about the fifth of my career, makes others pale in comparison both in severity and longevity.” —DistributionNow CEO Robert Workman (Distributor)

Apache’s 2016 CapEx will be down 80% from 2014

“With this in mind, we announced in this morning’s press release a 2016 capital budget of $1.4 billion to $1.8 billion, the midpoint of which represents over a 60% decrease from 2015 and over an 80% decrease from 2014 levels.” —Apache CEO John Christmann (Oil and Gas Exploration)

Apache still expects well costs to come down even further this year

“In terms of our Permian well cost, we see things coming down and even further this year. As a rule, we’re looking at mile-and-a-half laterals. We have seen the intensity of the frac concentrations going up. So those are the types of parameters we’re going to use or using in those estimates.” —Apache CEO John Christmann (Oil and Gas Exploration)

BHP Billiton says that buying assets has now become more attractive than building them

“this is an environment where in many respects buy rather than build is more attractive and I think doubly so, one because buy is potentially cheap and Peter referred to that a little bit and saying it’s not quite a war chest, but who knows what might come under distress in this sort of environment. ” —BHP Billiton CEO Andrew Mackenzie (Mining)

Investment opportunities are good but may get even better

“we believe that, especially in North America, the opportunities for investment are going to be better in the future than they are now. There are some good ones now, but we believe they’re going to be even better.” —Apache CEO John Christmann (Oil and Gas Exploration)

Full transcripts can be found at www.seekingalpha.com

Miscellaneous Earnings Call Notes 2.26.16

Dean Foods FY 1Q16 Earnings Call

Gregg Tanner

Global milk production continues to increase

“We expect global dairy fundamentals to continue to be overall supportive to our business as production growth continues to outpace demand. Year-over-year, total milk production from the top seven exporters continues to increase, albeit at a much slower pace compared to the initial robust expansion experienced in 2014.”

Export volumes continue to decline

“I think the other thing that wasn’t in our prepared remarks is that we’re seeing export volumes continue to decline, so it’s leaving more milk in the U.S., which I think will help us longer term to kind of keep the prices more manageable as well.”

Greenlight Capital Re’s (GLRE) David Einhorn on Q4 2015

Entered 2016 with lowest short exposure ever

We entered 2016 with 16% net exposure, the lowest we’ve entered any year. The Greenlight Re investment portfolio returned 1.2% in January while the S&P 500 fell about 5%. Our shorts have been helpful and returned 7% in January. We started to see some reversion in the market in January and February as the markets have sold off we become a little more net long as our shorts have fallen in value and we found a few things to buy.”

Consumer could come to the rescue

“On the bright side, the U.S. consumer may come to the rescue as we are nearing full employment, wages are slowly rising and there is an effective tax cut in the form of low energy prices. It remains to be seen whether the U.S. consumer will provide support for corporate earnings and if not at least we hope they buy iPhones, GM cars, and Michael Kors bags particularly at Macy’s.”

Heidrick & Struggles International’s (HSII) CEO Tracy Wolstencroft on Q4 2015 Results

Everyone is focused on the volatility but no one is frozen by it

“We are all like you looking at the opening of 2016 and seeing the volatility, whether it would be how it emanates from Asia, from the energy markets, consequent knock-down effects in financial services, etcetera. We find in our client dialogue that while everyone is focused on it, no one is frozen by it. That may – does that that evolve? We will see. But I would say that every – certainly myself in meetings with clients as well as in meetings with our consultants, we are trying to get a barometer on what you are asking every single day. And it would be very difficult for us to give a broader trend line to what I just described.”

Rich Pehlke

Certainly seeing volatility in economic conditions affect client decisions

“We certainly are seeing the current volatility in the economic conditions factoring the client decisions about what they are doing and what they are thinking about the growth of their business and how they are going to deploy capital. The good news is as we have said many times is that talent is the hot agenda item for most leaderships and boards today. But at the same time, capital deployment certainly has an impact on driving our business. Where we have probably seen the most is as is consistent with what you have read in the news, where we probably see the biggest volatility right now is in the APAC region, simply because of the impact of China and what you see going on there in terms of people thinking about the region itself. And then certainly from a sector standpoint, we have seen more discussions and commentary in areas like financial services, which really are driven by large financial institutions from larger banks and obviously they moved and certainly have an influence on some of that. ”

Edison International (EIX) Theodore F. Craver, Jr. on Q4 2015 Results

SCE is a “wires focused business”

“We have positioned SCE as a wires-focused business, consistent with our views on industry transformation and in alignment with California’s public policy objectives to move the state to a low carbon economy.’

Bank of Montreal (BMO) William A. Downe on Q1 2016 Results

Surjit Rajpal – Chief Risk Officer, BMO Financial Group

Delinquency tick ups because the quarter ended on a Sunday?

“The question that you asked relates to the fact that this quarter again was on a weekend. And the difference between this quarter and the last quarter was that this quarter was on a Sunday, as opposed to ending on a Saturday, which really means that two days of payments that you would normally receive had to be deferred to the Monday following. And that explains the difference, because right after the weekend, the delinquency rate did go back to normal levels. So, I wouldn’t read too much into the early-stage delinquencies that you see in the chart there.”

90 day delinquencies have increased in Alberta

“So, when I look at the 90 days, you did notice that there was a quarterly increase of 14 basis points year-over-year, and that is telling in some ways. And we looked at Alberta in that respect as well, because your question if it’s more related to what’s going on in Alberta. In Alberta, year-over-year, there has been an increase of 34 basis points, which is actually much more telling. ”

Stifel Financial (SF) Ronald J. Kruszewski on Q4 2015 Results

IPOs were down 65% in 2015

“The number of priced U.S. IPOs in the fourth quarter of 2015 decreased to 32 from 68 during the same time period. That’s really down 53%. For the full year of 2015, the overall U.S. IPO market was down in terms of both number of transactions, which were down 41%, and dollars raised, down 65%. Certainly a difficult year in the IPO market and not starting off particularly strong this year.”

The reality versus the market’s perception are completely different

“The reality sometimes of what’s going on versus the market’s perception are completely different. This is one of those times.”

Target (TGT) Q4 2015 Results John J. Mulligan – Chief Operating Officer

Customers trust that you’re in stock

“What I think is much more important, when you talk about essential categories, ultimately this is about the guests trusting that you will have the merchandise they want when they come in our stores. If a new mom takes her baby out in 10-degree weather for diapers and formula, you better have diapers and formula in your store.”

HP (HPQ) Dion J. Weisler on Q1 2016 Results

Haven’t seen stimulation of demand from Windows 10

“I would say that Windows 10, whilst I still believe it’s a tremendous operating system platform and universal apps and continuing computing make devices like the Elite x3 a reality, we have not yet seen the anticipated Windows 10 stimulation of demand that we would have hoped for, and we’re carefully monitoring any sort of price developments that could further weaken demand. ”

Campbell Soup (CPB) Denise M. Morrison on Q2 2016 Results

Weather had some impact

“Finally, weather is not something we control and it’s certainly not the main reason for the decline in our soup business, but we believe the unusually warm winter had a negative impact on the entire category in the first half. ”

John Deere (DE) 4th Quarter 2015 Earnings Call Notes

Deere’s (DE) Josh Jepsen said the global agricultural economy and parts of the construction sector remain on uneven ground

“Our results were lower than last year reflecting the continuing impact of the downturn in the global farm economy and weakness in construction equipment markets.”

Yet despite the deceleration of equipment sold, they were able to remain profitable

“All of Deere’s businesses remained solidly profitable for the quarter. This shows our continuing progress, managing costs and creating a more flexible responsive cost structure.”

Deere’s (DE) Josh Jepsen said the amount of equipment sold into China remains an uncertainty

Because of the economic slowdown in China, we continue to anticipate lower industry sales. While government support of mechanization is helping the sector, changes in government subsidies are causing uncertainty.  In Asia, sales are expected to be flat to down slightly due in part to weakness in China.

Deere is seeing the most pronounced weakness in their most expensive equipment products

Low commodity prices and stagnant farm incomes in the U.S. and Canada are continuing to pressure demand for farm equipment with the decline being most pronounced in the sale of high horsepower models.”

Pricing for their equipment remains challenged 

Certainly, the price environment is very challenging, especially for construction. We have a large competitor who’s been pretty open about some negative pricing for their business. And so far, our business has been able to hold the line and keep pricing on a positive plan.”

Deere discussed their thinking on the trade off between market share and maintaining price

Pricing continues to be important to us. We continue to, in most cases, trade at a premium to our competition and certainly we would continue to be focused on price realization in small Ag. Now, where we’ve really increased our focus is on innovation in that area and we brought in some very attractive product. So in that case, quite often, it’s not so much about discounting but making sure you have the right features on that product the customers are willing to pay for, and not having excessive amounts of features that they aren’t willing to pay for, if you will. So that tends to be our focus. It’s making sure we really understand that market that we’re delivering the product that customer is looking for and that we can do that with positive pricing.”

Fairfax Financial (FRFHF) 4th Quarter 2015 Earnings Call Notes

Fairfax Financial (FRFHF) CEO Prem Watsa said the company posted its most profitable insurance underwriting year in its 30 year history

Our underwriting results in 2015 were the best in our 30-year history, with record underwriting profit of $705 and net earnings of $568 million. We had a record low combined ratio of 89.9% with OdysseyRe at 84.7% and all our major insurance companies having combined ratios less than 100%.”

Fairfax Financial (FRFHF) CEO Prem Watsa said the investment portfolio remains conservatively positioned (their equities are hedged and they own primarily US Treasury bonds) in light of what they believe to be a deflationary environment

We are maintaining our defensive equity hedges and deflation protection, as we remain concerned about the financial markets and the economic outlook in this global deflationary environment.  Our common stock portfolios continued to be hedged at approximately 90%. Early in 2016, we increased the hedge to 100%.”  

Fairfax Financial (FRFHF) CEO Prem Watsa said they are seeing evidence of deflation

CPI inflation continues to be at or below 1% in the United States and Europe, levels that we have not seen since the 1950s. In fact, it may surprise many of you to know that in the second-half of 2015, the U.S. had deflation of 0.9% at an annualized rate of 1.8%, and Europe at a 0.5% or an annual rate of 1%, that’s deflation. This is to say prices went down in the second-half of 2015, at an annualized rate of 1.8% in the United States and 1% in Europe.  This is in spite of QE 1, 2, and 3. Long bond – long-term government bond rates in Europe are making record lows, quite often the lowest in 200 years. In Germany, more than half of the German government bond market is yielding negative interest rates. Also, eight countries in Europe already experiencing deflation. 30-year loan German bond rates are currently below 1%. In Japan, 10-year government bond rates are below 0%, that is negative yields.”

Fairfax Financial (FRFHF) CEO Prem Watsa is worried about the unintended consequences of Central Bank policy

We continued to be concerned about the prospects of the financial markets and the economies of North America and Western Europe. Accentuated as we have said many times before by the potential weakness in China. Early in 2016, these concerns are being reflected in the marketplace with the Russell 2000 being down more than 10%. We see the potential for major dislocations in the marketplace with many significant unintended consequences, and we want to protect our company from them.”

Fairfax Financial (FRFHF) CEO Prem Watsa said he has the company positioned to survive worst case scenarios

What we’re trying to do is protect our company from worst-case events. And deflation is the very difficult environment to make a return in. You’re seeing interest rates in Japan, rates are negative. German rates are below 0.3% like below 0.3 like 30 basis points, for 10 years.  So in that environment it’s very difficult to make a return and we’re trying to protect, and there’s all sorts of unintended consequences and so we’re protecting our company from that.”

They are avoiding take any credit risk in the bond portfolio in favor of taking duration risk. 

“One of the things we don’t want to do in this environment is take credit risk. So when we acquired Brit one of the first things we did was to eliminate credit risk and invest in government bonds and in this case U.S. government bonds.  But we do take duration risk we, we buy a long U.S. government bonds.”

Fairfax Financial (FRFHF) CEO Prem Watsa is massively worried about macro events in China & Japan

China we’ve been worried about for many years and their foreign exchange reserves have come down by one whole billion or trillion dollars as you know.  And that the foreign exchange market, the stock market, the bond market, the residential housing market, so all of those markets that they’re trying to support. You got Japan with negative interest rates. And the effect on banks is very significant, so bank stocks have dropped 30% plus in Japan.”

DistributionNOW (DNOW) 4th Quarter 2015 Earnings Call Notes

DistributionNow (DNOW) CEO Robert Workman said this energy downturn is unparalleled

This particular downturn, which will be about the fifth of my career, makes others pale in comparison both in severity and longevity.”  

While prices for the products and materials they buy to ultimately distribute to energy companies are continuing to drop

A slowdown in China’s economic growth, coupled with increasing steel production levels, is pushing commodity prices lower as steel and metal input costs continue downward. More dumping suits are being filed in an effort to shore up prices in respective markets.  In the fourth quarter, we saw raw material prices for scrap, hot-rolled coil, and most commodities drop further.  As this downturn continues, we expect to see more closures, possible bankruptcies, consolidations and dumping suits.”

DistributionNow (DNOW) CEO Robert Workman said now is the best time to be buying distressed energy assets 

“The best time to consolidate is always going to be in a downturn as opposed to when the market’s really hot and you’re paying 50% to 100% more than you would otherwise. So we see it as an opportunity to make some strategic acquisitions that fit certain holes in our solutions offering or in certain geographies. We think now is the time to do it, especially with our runway of balance sheet room.”

DistributionNow (DNOW) CEO Robert Workman said the energy M&A landscape remains bifurcated 

That said, the bid-ask spread between buyers and sellers could widen in this uncertain market. Right now, we are seeing a broad spectrum of sellers from those who would rather wait for an upturn than sell and risk selling below what they value their businesses to be worth to sellers who are fire-selling to avoid declaring bankruptcy.”

TJX Companies 4th Quarter 2015 Earnings Call Notes

TJX Companies (TJX) CEO Ernie Hermann says they have a business model which works through regardless of economic cycle

Consumers are loving our stores and shopping as even more frequently. We are convinced we are gaining market share profitably around the world.  In our 39-year history, we have seen only one comp store sales decline.  Our 2015 performance once again demonstrates the power of our differentiated flexible business model to succeed across many different geographic, economic and retail environments.”

TJX Companies (TJX) CEO Ernie Hermann highlighted the firm’s competitive advantages

Now, I’d like to talk about the major strengths that differentiate TJX from so many other retailers. We’re convinced that the same elements of our business that differentiate us from other retailers are also key to our continued successful global growth. Further, we believe these elements would be extremely difficult for others to replicate. First, we have a world-class global buying organization that I believe is the best in retail.  Second, our global supply chain and distribution network have been developed and refined over nearly 40 years to support our highly integrated international business and opportunistic buying. There is no off-the-shelf, off-price inventory management software to support a global business model like ours, which is why our proprietary IT systems are designed specifically to handle our off-price buying. Our distribution network can process buys as small as 100 units to over 1 million units from any one of our thousands of vendors in a timely and efficient manner and then allocate that merchandise to the right stores at the right time.  I believe that it is often underestimated how difficult it would be for other retailers to try and replicate these strengths. “   

TJX Companies (TJX) CEO Ernie Hermann noted he feels good not closing many stores whereas many of his retail brethren are undergoing significant restructuring initiatives

It also feels great to say that even in today’s volatile retail environment, we closed only one store last year. That’s on a store base of over 3600 stores. All of this speaks to the fundamental strength of our business, our disciplined approach to real estate and our decades of operating expertise in the U.S. and internationally. I should note that while we are opportunistic in our real estate strategies as well and see volatility in the marketplace as an advantage for our business.”