Cliffs Natural Resources 3Q16 Earnings Call Notes

C. Lourenco Goncalves

No more race to the bottom in iron ore prices

” In the third quarter, we witnessed some remarkable stability in iron ore pricing with the index trading within a tight range for the entire quarter. Once again, the analysts who predicted that iron ore prices would fall off a cliff were wrong. Wrong again. As I always say, iron ore is not your typical commodity as the vast majority of the supply is controlled by a small number of producers. For some time, iron ore prices were going down because a few executives in positions of power with the major iron ore producers were working very hard to drive these iron ore prices down. However, after the Boards of Directors of the Australian producers took action and all but one of these executives were let go from their respective jobs, these companies under new management are now generating better margins and more decent returns for their shareholders. No more race to the bottom. The Australian-Brazilian championship of stupidity is over. Check the box.”

Steel distributors are keeping their inventories dangerously low

“Back in our domestic U.S. market, the price of steel was not exciting during the quarter. We believe the recent weakness in steel prices is demand driven rather than supply driven. Our customers, the blast furnace steel mills, have remained disciplined. Unfortunately, the steel buyers, particularly the service centers, have decided to keep their inventories dangerously low, and as such their steel mill order books were weak. This being said, the illegally dumped steel from other countries no longer represent the type of threat we were worried about a few months ago.”

DRI fed EAFs are the future of steelmaking in this country

“Now with the steel industry in the United States readily moving toward a different method of production, we need to evolve again. I believe that DRI-fed EAFs is the future of steelmaking in this country, and Cliffs will play an active part on this process as well. We have made great progress on this so far, as at our Northshore mine, we have reduced and continue to produce DR-grade pellets for shipment to our client in Trinidad.”

Dumped steel is illegal stuff. We’re going to get the slowest guys

“At this point, dumped steel is illegal stuff. If you are a service center, your business model is based on buying illegal stuff, you are putting yourself in a situation that can be very, very dangerous for you, for your business and for yourself as an individual. We are getting evidence, and of course we are not going to hit a lot of people, we’re going to hit just two or three. You don’t need to – when you are running from a lion, you don’t need to be the fastest you just need to be faster than the other guys. So we’re going to get the slowest guy, one more or two, but this is coming.”

Service center inventories too low

” I see a lot of service centers working with inventories below two years. That’s crazy – two months, I’m sorry, two months. You can’t operate a service center business with inventories that low. Service centers are in the business of carrying inventory. If they don’t want to carry inventory, they’re in the wrong business. So as prices start to go back up, even the guys that are not doing anything illegal, they are exposing themselves to price appreciation that can be extremely bad. So these are the main things about the current situation in service centers. Service centers provoked the weakness of prices one more time.”

Don’t get distracted by this temporary weakness in prices in the US

“So don’t get distracted by this temporary weakness in prices in the US domestic market because these service centers that are working with less than three months of inventory, two months of inventory on hand, they will have to restock and I don’t see them to be able to even get all this – they need to restock all of them altogether, let alone to accommodate their typical double order, triple order that they do in situations like that. So we are going to see a price movement up here in the United States, and this price movement up can be pretty significant, pretty aggressive. And then things will slow down a little bit and then they will stabilize.”

Imported dumped steel is over, forget about it

“What we are now going to see next year in this domestic market is imported steel. Forget about it. That thing is over. That thing is over. Illegal dumped imported steel in this country is over for 2017. It doesn’t mean that prices will go to $1000 per ton, that’s not what I’m saying. But they will go back to the high $500, $600 mark. ”

You can be bullish but I can’t, because if I’m bullish and wrong I lose a lot of people a lot of money

“All right. So just one thing. I’m not bullish. You can be bullish. I can’t. Because if I’m bullish and I’m wrong, we are going to hurt a lot of people, a lot of investors. A lot of money will be lost, money that’s mine, money that’s not mine, from my investors. So I’m never bullish. I’m always very, very, very protective over our thing. That’s the reason we have been so successful because I play with a lot of caution – with a lot of cushion in our forecasts.”

Oaktree 3Q16 Earnings Call Notes

Oaktree Capital Group LLC (OAK) Q3 2016 Results

Bruce Karsh

The market may be leaning the wrong way assuming capital flows into US assets will remain strong

” Among the risks is the chance that the market is leaning the wrong way by assuming capital flows into U.S. assets will remain strong. Those flows could reverse, of course, if central banks outside the U.S. begin tapering asset purchases or, in other ways, start trimming their monetary stimulus.”

The insatiable thirst for yield may cushion against any prolonged sell off

“Other risks center on around possible economic weakening in Europe post-Brexit or in China where ongoing currency devaluation could trigger another downturn in commodities. Conversely, even if these or other downside risks materialize, the insatiable thirst for yield may continue to cushion the market against any prolonged sell-off. Thus our mantra remains the one Jay mentioned, move forward but with caution. ”

There’s a lot of cash out there looking for yield

“there’s a lot of cash out there looking for yield. And so it’s possible that buying opportunities may be shorter than had been the case in earlier times, and that’s one thing that we’ve thought about and we saw that earlier this year where there was a brief period of a real opportunity, but the environment changed very rapidly in February and March of 2016.”

Have a lot of dry powder

” we certainly have a lot of dry powder, and we’re ready for an outsized opportunity if it were to materialize. Otherwise we’re plugging along at a fairly decent pace of deployment, where our various investment strategies and groups are finding interesting things to do even in this environment, investments that we feel very comfortable about from a risk-adjusted basis. And as I said earlier, we’re not reaching for return in this environment, but this past quarter we deployed about $2 billion in the closed-end funds, and we’re very, very happy with some of the investments that we’ve made in some of our groups”

Jay Wintrob

We don’t raise more capital than we need to

“As you know, one of our hallmarks at Oaktree, again, is to try to raise capital commensurate with what we think the investment opportunities are. And so we aren’t troubled, or flipside we don’t celebrate simply because the subsequent fund is bigger or smaller than the last one. We feel best when we’re raising funds in a timely way that are commensurate with the pipeline of investment opportunities and have a lot of confidence that if we underestimate the amount of demand that we can go back to our good clients and partners and raise funds relatively quickly again. That’s been our history.”

Mastercard 3Q16 Earnings Call Notes

Mastercard’s (MA) CEO Ajay Banga on Q3 2016 Results

Perspective on the economy largely unchanged

“Our prospective of the economy remains largely unchanged since last quarter you’ve all seen the U.S. GDP growth report this morning. We’ve continued to believe like we said in the previous quarters that the U.S. is on a steady growth path with consumer confidence, unemployment, and wages holding firm. Of course, unless something unforeseen our growth coming out of the upcoming elections, but basically the U.S. had a steady growth path.”

Markets across Europe showing gradual recovery

“Many markets across Europe are showing a gradual recovery, led by Germany, as economic sentiment hold steady, unemployment rates are continuing to decline. Although uncertainties from Brexit and its impact on Europe remain a concern, I think it will take a few years to understand the full implications. ”

Picture is still mixed in Asia, Brazil seems to be bottoming out

“In the Asia the picture is still mix. In China, both exports and imports were down sharply. And you all know the concerns over inflated asset values. In Australia, however, business confidence is up, and India continues its relatively strong growth trajectory. In Latin America, Brazil even though is expected to remain in a recession for the near future seems to be bottoming out. And the political environment seems to be stabilizing, which should hopefully improve economic condition over the next six to twelve months. In Venezuela, the political and fiscal crisis is deepening. In Mexico, the economy continues to expand, but with increasing dependence on consumer spending growth.”

China outbound increasingly going to other Asia

“So the first part, the second part, which is actually a transactional piece of information on outbound China. I think you’ll find growth to certain parts of the world, but not to others. It’s not coming into the U.S. and Europe as it used to. It’s actually going much more to the Asian markets, so Australia through Japan, so those parts of the world. That’s actually similar to what I may have said at Investor Day, but I don’t fully recall if that question came up. But that’s kind of what we’ve seen on the China part of it.”

No one has figured out safety and security

” anybody who will tell you that they figured it out of safety and security. It’s probably somebody you should run a mile from, because there is no such right answer. There is a continuous effort of people break into everyone systems. You read that all the time. So you only have as good in safety and security as the efforts you keep putting into it to keep your clients having products and capabilities that keep them — keeping their promise to their consumers. So we recently launched a series of products that use our official intelligence and machine learning in the safety and security phase. We are going to keep doing that.”

My IR person gets nervous when I speak because I don’t stick to the script

“So first of all I’m glad you called them prepared remarks, Barbara’s, also nervous when I’m speaking because she’s tracking all that I’ve said. I don’t always follow the script. But I will use your comment as proof of my being relatively helpful. The second part is the UK, so to the other question, I’m just cracking up a little. I’ve taken it out on Barbara for 10 years of this. So the UK, be careful about assuming that a lower currency will necessarily lead to inbound travel, either tourist related or business related. It works in a place like the UK because it is one of the world’s most attractive tourism destinations.”

Outward US travel strong still, inward weak

“Kind of shopping destinations, the U.S. right now inward tourist traffic is down with the dollar being strong whereas outdoor travel by Americans is quite strong. And so those are just natural things that we ought to do as well.”

McKesson FY 2Q17 Earnings Call Notes

McKesson (MCK) Q2 2017 Results

Lowering outlook due to moderating branded pharma inflation trends

“we now provide an update to our expectation of a lower profit contribution, resulting from recent customer pricing activities, and lower operating profit as a result of further moderating branded pharmaceutical inflation trends, compared to previous expectations, both of which affect our U.S. pharmaceutical business within Distribution Solutions.”

Witnessed some evidence of inflation and pricing softness in line with original assumptions

“In our first quarter, we witnessed some evidence of inflation and pricing softness in line with our original assumptions. However, this softness became much more pronounced in our second quarter, first around brand inflation and later, around customer pricing. While we generally do not provide specific assumptions around customer pricing activity, we do operate in a competitive environment. And though competitive, we’ve always been focused on delivering value to our customers, value not just defined by price, but by service, innovation that helps our customers partner, manage, and run their operations, and manage their capital more effectively, and innovation that helps our customers connect with patients in a more informed and intimate way.”

Average price increases don’t necessarily capture price change dynamics

“branded inflation, it’s plus or minus what you’ll see from published sources of inflation. But it is also important to point out that those averages sometimes don’t necessarily tell the whole story, because of the mix, or the relationship, or the individual products that are going up or going down in the portfolios can be materially different. And so I do think the economics aren’t always necessarily driven with the direct correlation to the average price increases that everybody talks about.”

Pricing wont improve market share because our customers don’t want to change

“And that’s where we plan to stay. And I know at McKesson, at least, we think growing market share through a price-oriented approach ultimately will not be successful, because customers don’t want a change. Our customers, when they get a better deal, come to us and say, hey, listen, can you match this deal because I’d like to stay with you. And so that customer pressure to remain with us because they like us always provides McKesson an advantage when we’re in these discussions.”

Amazon 3Q16 Earnings Call Notes

Brian Olsavsky


“First, video content and marketing associated with that is nearly doubling year-over-year in the second half of the year. And it continues to be a large increase both Q3 and Q4. In the quarter, in Q3 we added 18 fulfillment centers and we’ve added five more in October. For the year we’ll add 26. Most of those are in North America but that compares to 14 last year and I would look, looking back the last time we had double-digit increase in fulfillment centers was in 2012 when we added 11 in the third quarter.”

Initial fulfillment center costs include fixed and variable costs

“So those will dissipate as as they burn in. We’ve talked about fulfillment centers’ initial startup costs include increase in fixed costs but also variable cost as we train workers and also bring in inventory. And there’s a number of transportation costs also related to the startup of a new fulfillment center, both inbound and outbound. And they’re inherently less efficient than more established mature buildings, so there will be a cycle where those will be more productive next year than they are this year and more productive in 2018 than they are in 2017.”

$15 add on to Prime for fresh

“So yes, this quarter we launched in Northern Virginia, Maryland, Dallas and Chicago. We also launched a new pricing plan which is a monthly $14.99 add-on to Prime in the U.S. and we’ve expanded, as you know, previously into London. We’re very happy with the progression, both in the geographies that we’ve been in for a long time where we’re at, continuing to add zip codes and additional neighborhoods and also in these new cities. Certainly a business where we continue to work on costs and profitability, but we are finding it’s a very attractive service to our customers, which is what we’re after.”

Seeing a step up in investment

“The investment that we are seeing is a step-up versus what we have experienced in particularly the first half of this year and the last half, the second half of last year which I mentioned. But we have said investments are going to be lumpy. They are going to be high sometimes and they’ll be moderated at other times. We are right now, the second half of this year looks like a big step-up compared to the first half and it is. But again, it’s all areas that we will continue to invest in, some of which I just actually went through the laundry list. So I would not characterize it as a cycle. I would characterize it as continued investments. We make investments with the idea that they are going to pay off and they pay off in either directly in the business they’re in or in their contribution to the total business many times as a part of the Prime program.”

Blackstone 3Q16 Earnings Call Notes

The Blackstone Group LP (BX) Q3 2016 Results
Stephen A. Schwarzman

Real estate remains an attractive asset class

“Real Estate remains an attractive asset class globally, although there is less distress today. We expect fundamentals to remain solid for the foreseeable future. In most markets, supply remains constrained. Demand for high-quality real estate is strong. Debt levels are not excessive and bank competition is diminished.”

Continue to invest capital at discounts to replacement cost

“We’ve been expecting interest rates to increase for some time and have baked that into our underwriting assumptions for new deals. Historically, when rates have increased, it’s generally been reflective of greater economic activity which in that scenario is good for our business. Against this backdrop, we continue to invest large-scale capital at discounts to physical replacement cost.”

Michael S. Chae – The Blackstone Group LP

There are some big winners in the hedge fund space

I guess, I’ll take that one. There’s a lot of activity in hedge funds and – but it’s not so much like the whole industry is under duress despite what you might read is, there are some big winners. There’re some sectors losing but there’re some big winners too. And what you’re really seeing is you’re seeing assets flowing from the sectors that have struggled to or distinguish themselves on returns to the sectors that are actually doing quite well. And I think your pricing power is kind of a function of where you are in that equation.”

Hamilton James

Drop in base rates was never fully passed on through cap rates

As rates rise, obviously, cap rates will sneak up but the drop in rates was not fully passed through on cap rates. In other words, a spread over base rates came up. So as rates rise, some of that will be absorbed we think by a return to more normal spreads. And we are not really in the business of betting on cap rates staying where they are. Usually, we buy something and we expect on exit cap rates to be higher anyway. That’s what we underwrite to. So that’s our premise and we think that as long as the environment stays healthy, it doesn’t have to be hot by any means. It just has to stay healthy the way it is today then rising rates are what we are expecting and we’re going to get our return

Working on applications of tech to drive new products

“we’re working on some interesting applications of technology to drive new products, and I think those would be some interesting products there which will probably be lower fee products per dollar of AUM, but quite profitable because of the cost structures, and could be very, very large in terms of AUM.”

Alphabet (GOOG) Q3 2016 Earnings Call

Ruth Porat, CFO & Senior VP.

Mobile search is leading Google growth

“Our revenue of $22.5 billion in the third quarter underscores the terrific performance of our businesses globally. For the quarter, our consolidated revenue grew 23% in constant currency versus last year, notwithstanding a challenging year-on-year comparison. Once again, the primary driver was Mobile Search, with ongoing strength in YouTube and important contributions from programmatic advertising and Play.”

The decline in the British Pound is having an effect

“UK revenue was up 5% year over year to $1.9 billion, reflecting the meaningful impact of the decline in the British pound relative to last year. In fixed FX terms, the UK grew 18% year over year. Rest-of-world revenue was up 22% versus last year to $9.9 billion. In fixed FX terms, revenues were up 25% year over year.”

A move to the clouds

“Most notably, Google Cloud is generating substantial revenue growth, reflecting the ongoing momentum in the business as well as the enormous opportunity in this area…the largest percentage growth year on year in our other revenue line, actually even across all of our revenue lines, was in our Google Cloud platform, and that reflects significant momentum in compute and storage.”

Sundar Pichai – CEO, Google, Inc

Elections-related Youtube searches at an all-time high

“…the three {US Presidential} debates ranked as the three most viewed political live streams of all time on YouTube, with over 8.5 million hours watched live, a 5X increase from the 2012 debates. Elections-related searches on YouTube are also at an all-time high, with searches for U.S. election content up almost 550% compared to this time in the last election..”

SK Additions:

Kilroy Realty 3Q16 Earnings Call Notes

Kilroy Realty’s (KRC) CEO John Kilroy on Q3 2016 Results

Found it very difficult to make the math work, but now pursuing a few transactions

“Before wrapping up, let me comment on the acquisitions market. While over the last few years, we have found it very difficult to make the math work on high quality acquisition opportunities in our markets. We are now pursuing a few transactions that not may need our investment criteria. They have value creation elements and superior locations near transit and amenities, more to come on this.”

Will see some significant transactions in the coming quarters of tech and life science space

“I think you’ll see a lot of good news over the next could of quarters from Kilroy on some pretty significant transactions involve both life science and involve technology up and down the platform but there – just to put in connection with demand, you are also you of all have heard me at various conference calls or at the NAREITs or other conferences that are held talk about the kind of product that the users of the market want.”

We’re not buying coupons because cap rates aren’t attractive but we’ll buy things that we can fix up

“Well we’re not thinking of buying core product that’s leased and buttoned up because the cap rates are not compelling to us, the things that we’re looking at our products where they’re drastically under market in their rents and so we think there’s some big up side and or they’re screwed up. Think up 60 to 55 which we call Sunset media center in Hollywood. It was totally messed up, and now it’s become a terrific asset, because we had the imagination and then they capital and whatnot the straight it out. So it’s kind of a combination of those things. Manny you’re not going to see us by coupons.”

Have only seen cap rates compress further

“we haven’t seen cap rates back up in any of our markets, if anything we’ve seen added cap rate compression, because of what’s going on now there are good number of assets that are being bought by companies that are poor and there aren’t real estate companies, because they in their host countries they can borrow at 1% and then get a 3.5% coupon on the lease transaction or the sale transactions that they buy and that’s a massive spread. So if anything for great stuff, I think cap rates could compress further, but I don’t know about the tertiary stuff I just don’t follow it.”

Robert Paratte

Tech continues to lead SF market

Hi, Nick, sorry. We’re looking at demand in San Francisco currently – third quarter, it’s approximately 8.7 million and we see that continuing to track going forward. And I think it’s interesting, tech continues to lead the market but it’s significant also that there is about close to 650,000 feet of fire category tenants that are in various stages of documentation. So we are comfortable on what we are tracking that fourth quarter will show some significant executed transactions.

National Oilwell Varco 3Q16 Earnings Call Notes

National Oilwell Varco (NOV) Q3 2016 Results
Clay C. Williams

OPEC producing near maximum levels

“The 2.2 million barrel per day decline in non-OPEC production since 2014 has been fully offset by rising OPEC production which achieved record levels this summer along with Russian production which achieved record levels in September. Overall, we believe OPEC to be producing at near maximum levels with little remaining excess capacity cushion which has delayed the inevitable rebalancing of the world oil markets.”

OPEC faces rising challenges to grow production further

“Nevertheless, time is on our side as OPEC faces rising challenges to grow production further and as dwindling oil field expenditures accelerate production declines through the rest of the world. Faced with extraordinary revenue declines and significant price discounting in all areas of our business, we’ve aggressively reduced costs and improved efficiency, enabling NOV to manage EBITDA decremental leverage to only 28% since the end of 2014.”

Seeing a shift in mix away from offshore but more optimism in onshore

“we are seeing a shift in our mix away from offshore, which really dominated our order book for the last decade plus, to land in 2017, 2018. And as we mention in our remarks, I think cause for some optimism there. Conversations are beginning. Tenders for land equipment are starting to be let. And it’s very early days, but that’s certainly a good and welcome relief. And that showed up in our orders in the third quarter, which grew off of some pretty low levels of orders in the preceding quarter.”

International headwinds offsetting US

‘Well, we expect U.S. to grow. What I would tell you, though, is we are continuing to suffer from international headwinds in certain markets. So international will partly offset U.S. growth. But the big move sequentially is going to be drillpipe sales and then the coating of drillpipe within our Tuboscope unit.”

Plenty of inventory, scarcest resource in an upturn is people

“With regards to your inventory comment, what I would tell you is that, frankly, our inventory is – we still have too much. And so we have ample inventory, I think to respond to our customers’ needs. And so that’s not really the issue. What the upturn will look like, the scarcest resource in every upturn pretty quickly becomes people. ”

Company Notes Digest 10.28.16

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.

When I first sat down to compile this week’s quotes, I thought that the picture was going to be a positive one.  However, as I assembled the piece, I realized that the commentary from this week was mixed at best.  In particular, comments from consumer facing businesses are somewhat troubling.  Robert Half’s commentary about temp staffing trends is also not encouraging (you should click through on that post, there’s more there).

Capital markets CEOs are optimistic for next year though.  After the election, some uncertainty may be lifted and activity could pick back up.  Capital markets do tend to lead the rest of the economy, so one would expect these CEOs to have the most forward looking commentary.  If that’s true then 2017 should be an improvement on 2016.

The Macro Outlook:

Global growth remains modest

“global growth has continued to be modest. In the U.S., consumer fundamentals remain healthy and account for most of the economic expansion while the outlook for industrial production remains weak..” —UPS (Logistics)

2% GDP growth would be an improvement

“if the world believes we’re going to get 2% plus GDP in 2017, we would see that as an improvement not a decline”  —Robert Half (Temp Staffing)

There was some troubling commentary about the consumer

Visa said that the global economy is not improving

“On the negative side, the global economy is not improving. Geopolitical tensions are high. The U.S. election is a wild card, and we continue to watch the impact of Brexit. ” —Visa (Payments)

McDonald’s also sees weak consumer confidence

“I think there are broader macroeconomic issues of consumer confidence and just uncertainty of wage increases, the slight squeeze on discretionary spend with gas prices aging back up and healthcare costs going back up. So, I think those are sort of things that we see affecting customers and basically the spare cash they have in their pocket” —Mcdonald’s (Fast Food)

The casual dining segment is broadly challenged

“Just as we said last quarter, these continue to be challenging times across casual dining. We’re already seeing some of the weaker players struggle with their viability in this choppy environment… there are some examples of concepts that are shrinking.” —Brinker (Chili’s (Baby Back Ribs))

Du Pont sees slightly slower housing and auto markets next year

“I mean, it looks like all forecasts say that housing is dropping off…not significant, but it looks like there’s a little bit of a rollover off of kind of that 1.1 million to 1.2 million starts…And then on the auto side of the business, it looks like auto builds are going to be down in the couple percent range going into next year.” —DuPont (Chemicals)

Caterpillar still sees weakness for its construction equipment

“the decline for construction is particularly North America…The problem we find ourselves in, I think, is the larger projects, the infrastructure, the infrastructure spending is maybe not quite as robust as housing would be right now, and that’s a bigger sweet spot for us.” —Carterpillar (Construction Equipment)

Robert Half waved a red flag for the service sector

“in September, we didn’t see the lift we typically get, instead, it was sequentially about flat. And then again, traditionally we get even more lift yet again in October and we didn’t see that lift either…clearly [clients] remain cautious with little sense of urgency. It’s in part due to macro uncertainty, in part due to election uncertainty. They cite budget pressures, they cite cost control measures… the general trends that I described also apply to tech…which is where we had seen most of our growth, that’s now where our growth is most under pressure…I’d say Accountemps we saw more softness in the accounting operations positions and those are the ones that are typically more client demand sensitive, more client volume sensitive. So it’s consistent that if you were to see softness in accounting due to macro conditions you’d see it in accounting operations” —Robert Half (Temp Staffing)

Activity in commercial real estate is down

“I would say around the world…There is significant activity, but against the backdrop from last year where we and the market grew dramatically. It seems fairly muted…there is uncertainty in the marketplace which is putting pressure on the results relative to what they were a year ago.” —CBRE (Real Estate Broker)

But advertisers are still spending

“So let me just start by saying the advertising market remains very strong. Scatter is as strong as it’s been really in a long time, and that’s a continuation. Really, we’ve had quarter-after-quarter of very strong scatter, and we had a super strong upfront in May.” —Comcast (Media Conglomerate)

And capital markets CEOs are optimistic

Venture Capital markets are regaining health

“Overall, the markets for us and our clients are healthy, despite some lingering impact from the VC market recalibration in the first half of 2016. Venture capital continues to perform strongly, although activity remains concentrated on larger funds and larger later-stage investments…In spite of an emphasis on later-stage companies, early-stage investing is alive and well, although it has been dominated for the last few quarters by a growing group of angels and micro-funds making seed investments.” —Silicon Valley Bank (Bank)

Moody’s expects that debt issuance will be strong next year

“Looking out into 2017, we think that issuing conditions are probably going to be attractive and that may encourage pull forward from 2018 and beyond. Part of the reason why we are optimistic about the current outlook for issuance conditions is driven by the fact that we think the default rate in the speculative grade arena is probably peaking right about now over the next month or so…So even if official rates are moving up somewhat, we think there is an opportunity for spread tightening and an attractive issuance environment.” —Moody’s (Credit Ratings)

Slow growth is helping M&A

“My commentary on the market is similar to what we discussed last quarter. While there have been declines in M&A volumes across the board, our M&A dialogue remains healthy. Fundamentals remain in place for continued activity and the current steady low growth environment is actually very conducive to M&A.” —Moelis & Co (Investment Bank)

The industrial economy is still weak but recovering

“we saw a decelerating rate of decline in sales on a year-over-year basis…North America is still weak but slowly recovering…order rates reinforced our previously communicated view that we’re progressing towards stabilization in many of our key markets.” —Parker Hannifin (Industrial Components)

“I’m very positive that we, now we start to see Industrial turning the corner as we move forward. And we will see the first quarter happen here in Q4.” —3M (Diversified Industrial)

Inventories are running leaner

“So if we look into the distribution channel inventory is actually decreased by about a half a week and it’s currently very, very low levels at about four weeks and that’s pretty similar to what we saw a year-ago.” —Texas Instruments (Semiconductors)

Capacity utilization is rising

“with industry wide capacity utilization now moving up from the mid to the upper 80s and supply-chain inventories as Mike had mentioned remained very well, we think, lumber prices are well supported here.” —Potlatch (Lumber)

That should lead to price increases

Rising commodity prices will be passed through to end customers

“Well, we’re still working those price increases…but for sure we’ve talked with our marketing teams about monitoring the steel price increases, and understanding that we need to make sure our pricing offsets that completely next year.” —AGCO (Agriculture Equipment)

If not then they eat away at companies’ gross margins

“Commodities were a modest hurt to gross margin in the quarter. Feedstock costs for propylene, ethylene, and tropical oils are up as much as mid-teens since we set our initial budgets for the year. Wage inflation is also an increasing challenge in many developing markets.” —Procter and Gamble (Consumer Products)

Eventually we will have to get inflation because it’s the only real way to repay our debt

“I am concerned about inflation, because ultimately, the only solution to repayment of deficits for governments is inflation.” —WR Berkley (Insurance)

This election will probably impact on how fast we get there

“Yes. I’d just add that I spend a lot of time talking to executives of other companies and many of our clients and the elephant in the room probably is the election. Nobody really knows exactly what the impact is. They just know it is much different.” —Robert Half (Temp Staffing)


The strong dollar eventually becomes the new normal

” we’re a company that generates two thirds of our revenues outside the United States…at some point, the strong dollar becomes the new normal and we need to work with that”  —Apple (Consumer Electronics)

Brexit has had little impact on the UK economy

“In terms of our business trend see the referendum, there has been no significant impact in any of our consumer markets. In the corporate sector, we have seen some impact as businesses have deferred elements of their investment and borrowing both pre-and post-referendum, given the uncertainty. However, the aggregate volume effect has been relatively limited.” —Lloyds Banking Group (British Bank)

British companies feel that the government is communicating adequately

“in terms of the UK government position, I think first of all there is a very good dialogue going on between the industry and government. Of course, the overall strategic framework of the UK’s exit from Europe is not clear or defined, so inevitably there is an absence of black and white decisions and clarity if I can put it that way.” —GlaxoSmithKline (Pharmaceuticals)

Manpower saw pickup in Northern Europe

“in Northern Europe, there is some slight acceleration on an organic constant currency basis into the fourth quarter…we are anticipating underlying growth to pickup” —Manpower (Temp Staffing)

Tax credits are boosting the Chinese auto industry, but they may expire next year

“Obviously, this year the industry is running stronger than we expected, because of some uncertainty around the purchase tax incentive, if that was to end and the government was to announce an end to that, our planning assumption would be that – there could be some volatility in maybe the first quarter and second quarter of next year” —General Motors (Autos)

Elevator sales for Otis are down 10% in China

“new equipment orders on a sales basis in China were actually down 10% in the quarter. A tough market right now” —United Technologies (Conglomerate)

Things change quickly there

“To give you one example, a very small example, but it’s symptomatic of how fast China can change. If you go to the cafe channel in China, there are all the noodle shops up and down the streets. People go there at lunchtime. Last year, they were packed with people. This year, you go, they’re a third empty. You go, okay, maybe the economy has slowed down. No, that’s not what’s happening. The explosion of online to offline ordering and the availability of lots of people on motorbikes to deliver stuff” —Coca Cola (Soft Drinks)

Brazil and Argentina’s economies may be gaining steam

“Market conditions in South America have been difficult during the first nine months of 2016. More recently demand is starting to stabilize in Brazil where solid farm fundamentals are beginning to overcome previous weakness caused by political and economic challenges. More supportive government policies in Argentina have also contributed to higher sales in that market”  —AGCO (Agriculture Equipment)

Emerging markets in general may be picking up pace

“emerging markets are doing significantly better than mature markets. In those markets we are seeing a stronger growth, mainly high interest rates that allow us to generate a better revenue stream or growing revenue stream that is much more difficult to get in what we so call mature markets.” —Banco Santander (Bank)


Legal battles are still materializing eight years after the financial crisis

“As we disclosed in today’s earnings release, on September 29 we received a letter from the Department of Justice indicating that it is preparing a civil complaint against Moody’s alleging violations of the Financial Institutions Reform, Recovery and Enforcement Act in connection with ratings MIS assigned to RMBS and CDOs leading up to the 2008 financial crisis.” —Moody’s (Credit Ratings)

Those legal battles are causing big problems for some companies

“the quarter was clearly overshadowed by the attention paid to our negotiations concerning the US Department of Justice’s initial settlement proposal relating to RMBS matters. This has created uncertainty. Uncertainty that affects the market’s view of Deutsche Bank as an investment. Uncertainty that affected some clients’ view of Deutsche Bank as a counterparty” —Deutsche Bank (Bank)

Compliance costs are not likely to abate

“But in terms of overall regulatory and compliance costs, if I look forward, John, I don’t think that in the short- to medium term I would think of regulatory costs in general abating or declining…I don’t see realistically that anybody in the industry is going to see regulatory and compliance costs fall off.” —Suntrust (Bank)

Credit card lenders are re-entering subprime markets

“So, at times I think you hear from some players, subprime we don’t do that. Well, all I’m saying is 31% of all the growth is subprime, and somebody is doing it. And so, yeah, that has our attention.” —Capital One (Bank)


Many retailers chased e-commerce at the expense of their brick and mortar locations

“I think what unfortunately what I think a number of retailers, they’ve not invested in their product, okay. Or they’ve chased the holy-grail of internet sales to the determent of what they should be doing with the physical product, as still people want to go physical shopping. And when they go physical shopping, you’ve got to have a nice physical environment.” —Simon Property Group (Mall REIT)

Returns are bad for e-commerce retailers, but good for UPS

“when you look at the ecommerce market, it could be one in five or one out of every six packages that are shipped to a consumer get returned…Those packages are highly profitable. First of all, many of those packages get dropped off and don’t have to be picked up because the consumer finds it more convenient to drop them off at UPS stores or UPS Access Points or hand them to a UPS driver. So there’s very little cost when it comes to pick-up. And then obviously, the deliveries are going back to businesses, and we could be delivering tens or hundreds of packages back to these businesses. So it’s a highly profitable B2B delivery with very little pick-up cost.” —UPS (Logistics)

90% of Canadian McDonald’s have self service kiosks

“In Canada…We now have dual point service and self-order kiosks in almost 90% of our traditional restaurants” —McDonald’s (Fast Food)

Twitter now thinks of itself as a news network

“we’re focused on building the most useful open and comprehensive news network on the planet” —Twitter (News)


John Legere trolled AT&T’s purchase of Time Warner

“if you look and you compare and contrast their earnings and what’s happening, for example, with ours, you understand why they are trying to do a vertical integration…An interesting factoid for you, which is when they announced in Q2 of 2014 the DIRECTV acquisition, they have not added a postpaid phone customer ever since. So one of the things pertinent to T-Mobile is, I would say, the great news is that they’re going to be further defocused than they are now, and the upside opportunity to continue to acquire business in this space for us is tremendous.” —T-Mobile (Telecom)

Smartphone growth in India has been stifled by infrastructure, but that’s changing

“The smartphone has not done as well in India in general. However, one of the key reasons for that is the infrastructure hasn’t been there. But this year or this year and next year, there are enormous investments going in on 4G and we couldn’t be more excited about that.” —Apple (Consumer Electronics)

Ride share platforms will be the first home for autonomous vehicles because they can be geo-fenced

“As we look at launching autonomous into the marketplace, we believe it will first happen in a controlled environment, in a ride-sharing environment…that’s because it will be geo-fenced, you’re going to have limitations with speed and other limitations, and that’s why the ownership will stay with the company in these first models as we continue to learn.” —General Motors (Autos)

Don’t question Elon Musk’s autonomous driving solution

“First of all, I would separate what Tesla says from, say, some supplier of ours is issuing, bullshit. Okay? The blog that I wrote was very clear that radar is moving from a supplemental to also a primary sensor. It is not to the exclusion of vision, but it is also a primary sensor…Much as a person who might take action based on whether you hear something or you see something, but you don’t need to both hear it and see it…There are obviously skeptics out there. Well, I suggest that they do not bet against us.” —Tesla (Autos)


The election will impact Medicaid expansion

“Gary, I think most everyone would agree, if the Republicans gain control of the White House and what have you, there will be pressures and probably less opportunities for states to expand Medicaid. If the Democrats are in place there, I do believe that there will be consideration, hopefully. Maybe see some additional incentives, maybe a little more flexibility in bringing some states to bear.” —HCA (Hospitals)


Wide body aircraft orders are slow, but narrow-body orders are strong

“there’s hesitation in the wide body marketplace right now as we think through a number of factors around the world. Slow GDP growth around the world, hesitation in cargo traffic, geopolitical questions. There are a number of factors that are causing our customers to be somewhat hesitant in wide bodies in particular…while again it’s all in the context of some broad global economic concern, the ordering activity and the robustness of narrow body growth continues to be very clear, fueled by traffic growth” —Boeing (Aerospace)

The defense department is shifting to address “near peer” threats from counter-terrorism

“The third bucket is really coming directly from the Department of Defense, obviously for all regions in the global area to be able to essentially come up from 20 years of fighting wars of insurgency to now dealing with near-peer threats that potentially have capabilities that are at or potentially in some cases maybe better or perceived to be better than what the U.S. has, and so it’s a big catch up area there.” —Raytheon (Defense)

Materials, Energy:

Schlumberger is confident that we’ve reached the bottom of the energy cycle

“After seven quarters of unprecedented activity decline, the business environment stabilized as expected in the third quarter, confirming that we have indeed reached the bottom of the cycle… the period of oversupply and inventory build is over and that market segments should soon change, paving the way for an increase in oil prices and subsequently E&P investments. ” —Schlumberger (oil service)

A sustainable recovery requires mid to upper $50s oil though

“we continue to believe that oil prices in the mid to upper 50s are required for a sustainable recovery in North America. Our customers also need to be more confident on the durability of those oil prices before making any significant change to their spending patterns.” —Baker Hughes (Oil Service)

Other commodity markets are still weak

“we don’t think commodity prices are still quite good enough to drive substantial sales increases next year. We would like to see commodity prices rise more next year. And if that happens, that, we think, logically would be upside for the second half of next year; if that doesn’t happen, probably not upside then” —Carterpillar (Construction Equipment)

Miscellaneous Nuggets of Wisdom:

Your operating leverage is only as good as your top line

“Prior to last year’s issues, Chipotle had the strongest economic model in the industry. Of course, this model has been weakened due to lower sales volumes that we’ve seen this year. While it’s critical to fully restore sales volumes and keep improving them from there, we also know that we need to improve our economic model now so that we can provide healthy returns even at lower volumes.” —Chipotle (Burritos)

Businesses move up in weight class as they grow

“our growth now gives us opportunities to move up in weight class and we find ourselves well-positioned at this moment in time to compete for long-term relationships with athletes, teams and league affiliations that we previously could not justify.” —Under Armour (Apparel)

It takes time to realize the benefit of any investment

“In terms of payout on sampling…the lifetime benefit from that relatively modest investment can be significant, but it is a lifetime benefit. A consumer will take a period of time just to use the product that you’ve sampled them with. And so that’s not an investment endeavor that we typically see immediate returns in.” —Procter and Gamble (Consumer Products)

“A salesperson really isn’t productive enough in his first year on the job…when you hire salespeople there’s training and familiarization that has to go on. So they’re not immediately productive. It’s the sort of thing that shows up in the future.” —Honeywell (Conglomerate)

Full transcripts can be found at