Donald Trump Joint Congress Address 2.28.17

Loves the higher stock market

“Since my election, Ford, Fiat-Chrysler, General Motors, Sprint, Softbank, Lockheed, Intel, Walmart, and many others, have announced that they will invest billions of dollars in the United States and will create tens of thousands of new American jobs. The stock market has gained almost three trillion dollars in value since the election on November 8th, a record.”

reduce tax rate on our companies

“Right now, American companies are taxed at one of the highest rates anywhere in the world. My economic team is developing historic tax reform that will reduce the tax rate on our companies so they can compete and thrive anywhere and with anyone. At the same time, we will provide massive tax relief for the middle class. We must create a level playing field for American companies and workers.”

$1T infrastructure program

“Another Republican President, Dwight D. Eisenhower, initiated the last truly great national infrastructure program –- the building of the interstate highway system. The time has come for a new program of national rebuilding. America has spent approximately six trillion dollars in the Middle East, all this while our infrastructure at home is crumbling. With this six trillion dollars we could have rebuilt our country –- twice. And maybe even three times if we had people who had the ability to negotiate. To launch our national rebuilding, I will be asking the Congress to approve legislation that produces a $1 trillion investment in the infrastructure of the United States — financed through both public and private capital –- creating millions of new jobs. This effort will be guided by two core principles: Buy American, and Hire American”

Competitive national marketplace

“First, we should ensure that Americans with pre-existing conditions have access to coverage, and that we have a stable transition for Americans currently enrolled in the healthcare exchanges. Secondly, we should help Americans purchase their own coverage, through the use of tax credits and expanded Health Savings Accounts –- but it must be the plan they want, not the plan forced on them by the Government. Thirdly, we should give our great State Governors the resources and flexibility they need with Medicaid to make sure no one is left out. Fourthly, we should implement legal reforms that protect patients and doctors from unnecessary costs that drive up the price of insurance – and work to bring down the artificially high price of drugs and bring them down immediately. Finally, the time has come to give Americans the freedom to purchase health insurance across State lines –- creating a truly competitive national marketplace that will bring cost way down and provide far better care.”

Eliminate the Defense sequester

“I am sending the Congress a budget that rebuilds the military, eliminates the Defense sequester, and calls for one of the largest increases in national defense spending in American history.”

Autozone FY 2Q17 Earnings Call Notes

William C. Rhodes

Weather and tax refunds were headwinds

“After Christmas, the weather was much more mild with minimal snow and ice in the Midwest, Northeast and Mid-Atlantic. During this period, our sales growth moderated. Then, as noted above, in the last three weeks when we began lapping the beginning of last year’s tax refund season, our same-store sales declined fairly significantly. Late last year, the IRS announced that, in an effort to combat fraudulent tax refund filings, they would be delaying the issuance of refunds associated with returns claiming the earned income tax credit. Unfortunately, the timing of refunds typically begins in the last two or three weeks of our second quarter, and this year most of the refunds were delayed until after our quarter concluded.”

Rising operating costs

“Thank you, Bill. This quarter, our sales and profitability performance were not up to our standard. Much of the challenge was macro in terms of delayed IRS refunds, but we have also incurred rising operating costs, which include our initiatives. At the end of the day, we have had a remarkable track record of success and we will continue to focus on optimizing both short and long-term performance.”

No border adjustment

“First, following the election, the border-adjustable tax has become a hot topic. As I’m sure many of you know, I was part of a contingent of Retail Industry Leaders Association CEOs who went to Washington, D.C. and met with President Trump, members of his administration, and various members of Congress to share our perspective on the potential harmful effects of this proposal. While we are concerned about the impact on retail business models, we are more concerned about the ramifications for hard working American families due to likely significant inflation that would ensue. Our key message is that we certainly support a pro-growth agenda, including corporate and individual tax reform, but we stress the importance of a thoughtful approach to tax reform to avoid any unintended consequences.”

Bill Giles

Macro driving trends

“Switching over to macro trends, during the quarter, nationally unleaded gas prices started out at $2.16 a gallon and ended the quarter at $2.31 a gallon, a slight increase. Last year, gas prices decreased per gallon during the second quarter starting out at $2.09 and ending at $1.72. While prices at the pump are higher today than they were last year at this time, we continue to feel the absolute price of $2.31 a gallon is not high enough amount to change the driving behavior of Americans as we continue to see miles driven increasing. We also recognize that the impact of miles driven on cars over seven years old, the current average, is much different than on newer cars in terms of wear and tear. Miles driven increased 1.6% in October, 4.2% in November, and 0.5% in December. And for all of 2016, miles driven were up 2.8%. The other statistic we highlight is the number of seven-year-old and older vehicles on the road, which continues to trend at our industry’s favor”

Apache 4Q16 Earnings Call Notes

John J. Christmann

Stephen Riney

Hedged oil price at $50

“Over the past several weeks, we have entered into put option contracts providing a floor of $50 WTI and $51 Brent for most of our second half 2017 oil production. With this protection in place, we will move forward with our Permian Basin capital program knowing that any price weakness will not cause a funding shortfall. We chose to use put options to mitigate the risk, while maintaining full exposure to upside price potential.”

JC Penney 4Q16 Earnings Call Notes

Marvin R. Ellison

Elements of the retail environment remain uncertain

” While we were very optimistic on our growth initiatives on 2017 plans, our 2017 guidance is conservative as we expect elements of the retail environment to remain uncertain. Clearly, if we see improvement in the environment relative to our current expectations, we’d expect to beat our sales guidance. But we want to plan the business conservatively based on what we saw in 2016.”

Able to talk about earnings again

” In the past, because we did not have positive earnings, EBITDA was really the only measurement we could track toward. But because we expect to deliver positive earnings for 2017, we’ll continue to talk about earnings as our key guidepost, but EBITDA remains important.”

We were slow to react to the casualization of America

“But I think we were slow to really adjust to some of the trend changes in the – I call it the casualization of America. And we were one of the last retailers to really get into the activewear trend in a big way. We feel great about the changes we’ve made specifically in activewear with Nike and adidas. And also our Xersion private brand activewear category is performing exceptionally well. So, it’s all about transitioning to a good balance between career and casual. It’s also about looking at the fact that we said we were over-assorted.”

No reasons why the consumer should be pulling back

” on more of a big picture perspective on kind of where we are in this industry, I’ll give you my thoughts. I think the state of the consumer from every measurement we look at, I mean, that there are no red flags out there why the consumers should be pulling back. Unemployment is stable. Wages are relatively up. And so, we don’t see anything from a macro standpoint that gives us any concern. There’s been some noise about delayed tax returns in February, but we know that those things will balance itself out throughout this quarter. So, it’s not something we’re spending a ton of time on.”

Third Point Reinsurance 4Q16 Earnings Call Notes

Daniel Loeb

Moved to financials and industrials after the election

“The Third Point equity portfolio was down 3.1% on average exposure during the fourth quarter. We shifted exposures meaningfully following the election, decreasing exposure to TMT and consumer and ramping up investments in financials, industrials and other cyclicals. Despite these moves, gains in financials and industrials were offset by losses in consumer and healthcare investments.”

Excited about the opportunity set

“We are excited about the opportunity set presented by the current market environment. We expect the combination of accelerating growth and fiscal stimulus and U.S. will create a reflationary market which is favourable for Third Point’s investment strategies including event driven and value investing, risk arbitrage and activism”

We see plenty of opportunities

“Yes. I mean, look, market levels are important. I’m not sure that given the increase in S&P earnings that we expect due to changes in policy as well as tax reform that it’s as overvalued as people think, but no we don’t invest in markets, we invest in individual companies and we are seeing – we’re seeing plenty of good valuation, situations particularly those in which companies are involved in some sort of corporate transaction and the complexity is obscuring the earnings power of the company or companies that are going through financial or operational restructuring. So, we’re not really fazed by that. And don’t forget we’re long short fund to the extent certain companies get ahead of themselves that provides a good hedging opportunity or short-selling opportunity for us as well, so we are not really fazed by that way of thinking.”

EOG 4Q16 Earnings Call Notes

William Thomas

Starting to see some encouraging signs on inventory drawdown

“Scott, I think we’re watching the oil market, particularly inventory levels. And I think just in the last week or so, we’re starting to see very encouraging signs on inventory drawdown, and I think we’re getting close. It won’t be in the next month or two. I think we’re going to know a lot about how the OPEC cuts have affected supply/demand dynamics and the drawdown of that inventory. So we’re about there, but we just need a little bit more time on that. I think the other thing is, with the rapid ramp-up of drilling rigs in the U.S., we don’t want to ramp up too rapidly to decrease the capital efficiency. So we’re very committed to keeping the capital efficiency of the company extremely high, and we really only want to increase the capital efficiency. So part of our ramp-up strategy will be certainly to stay very disciplined, to allocate the capital to obviously the highest return investments that we have, and then do it in a systematic manner where we’re bringing in really good equipment, really good people, and we don’t lose performance there.”

Nordstrom 4Q16 Earnings Call Notes

James Nordstrom

Move from things to experiences

“On the flipside, the fourth or fifth or sixth store in a market, we might look at differently today than we did in the past in terms of the role that it plays in driving business. So you’ve got two sides of the coin there. We think we have an opportunity to invest in those best stores in those malls that the developers are investing in and are creating better experiences, they’re doing great. In the malls that are not being invested in, are not, and those are some of the stores that you might see close. But overall, to the first part of your question, yeah, people said there’s a shift away from buying things to experiences, and I think you can see that around a lot of different parts of our industry and it’s debatable whether that’s a secular thing or a cyclical thing. We’re focused on having something new for the customer that they didn’t know they wanted to buy. And if we think we can stick to our knitting and focus on being that place of discovery, being that place where you come to find something new that that’s a winning strategy over the long-term.”

Peter Nordstrom

Some move to more of a seasonless thing

“Yeah, I think it’s true that customers are much more interested in buying now, wearing now. The idea that they would buy something and then put it in their closet for a couple months until the weather changed is not – I mean that’s changed a lot over the years. That’s just not a great scenario for us. So we talk a lot about making sure we got the product in the store at the right time for customers. I would also say that there is more a movement around season-less kinds of product, things that can be worn all year long. And we find – particularly since we do a lot of business in southern states with warmer climates that that’s where you see that happen to a greater degree. I mean you still have – weather drives a lot of business in colder-weather markets around coats and what have you, and that’s fairly predictable.”

Shopping happening in a more concentrated timeframe

“In terms of the shopping happening at specific times of the year, that is true. Events, holidays, what have you, drive a lot of business. And I would say most recent example of holiday – and we’ve seen this for the last several years – it continues to get more and more contracted where we still do a lot of business over a six-week timeframe. It gets concentrated increasingly into that last week. And so, we might feel like, well, the holiday season isn’t going very well. Then that last few days, it’s amazing, kind of how we make up for it. So the net of all that is we’re still doing the business; it’s just happening in a more concentrated timeframe.”

Sotheby’s 4Q16 Earnings Call Notes

Thomas Smith

Collectors responded enthusiastically

“we were cautiously optimistic in November, but as it turns out, the weight in that statement should have been on optimism as collectors responded enthusiastically to the great collections and works we secured for sale. Second, greater pricing discipline and intelligent deal-making contributed to yet another quarter of improved auction commission margins. Third and most importantly, this quarter demonstrated that when the market stabilizes, let alone when it returns to its secular growth trajectory, our Company is poised to capitalize on the upturn and do very well for our shareholders.”

The average outcome in the US is higher, but there’s also more risk

“In terms of – I’d like to separate tax reform and set that aside for just one second, and I’ll come back to it, Oliver – in terms of how people are feeling, if you look at the stock market, if you look at generally the growth profile in the United States, I think on average people are feeling noticeably better about it. I think if you look at Europe, they are feeling a little bit better about that. At the same time, the probability of an unusual outcome has gently gone up. So in other words, the distribution of outcomes has become on average much more favorable but the distribution of outcomes has become a bit flatter, which is to say that everyone is feeling better but there’s a higher probability, very gently higher probability, that there is some risk around it. And that is a good segue into what are the kinds of risks. One thing is that at least in the United States there is a high degree of enthusiasm for some pro-growth policies, including regulation changes and also particularly tax reform. With respect to tax reform, it has lots of positives. If the corporate rates become more favorable and there’s repatriation, that’s definitely better for investment. The stock market is already probably benefiting from that. And if more money gets put into our pockets and we’re feeling better about things, that will definitely have a positive impact going forward. If either the prospects for either legislation in the United States dim or people get a look at what the legislation is and they decide they don’t like it quite as much, I said a minute ago, the distribution of outcomes would be a bit flatter even though the average goes up. Well, that would be an example of a situation where they may not be as enthusiastic and that would be a risk to the marketplace. I have to tell you, I feel quite good about it and I’m thinking things are going to go rather well.”

Company Notes Digest 2.24.17

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.

Everyone is optimistic except for retailers. The data still hasn’t reflected the optimism quite yet, but it should eventually. Inflation will likely follow.  Still, some early inflation indicators aren’t flashing warning signs.

The Macro Outlook:

Companies are doing better than they would have thought

“I think everybody is optimistic…it’s really not specific to one particular industry, okay. It’s really across the board and it’s across the country, whether it be if you’re on the East Coast, West Coast, the mid chapters, what have you, all of our companies are all simultaneously doing better than, frankly, we would have thought.” —Reliance Steel CEO Gregg Mollins (Steel Distributor)

Fluor thinks were at the beginning of a sustained up-cycle

“we think we’re at the absolute bottom of the cycle and what we see is an improving slate of things to chase… I think we’re kind of in the beginning stages of what I would argue would be a sustained positive capital cycle” —Fluor CEO David Seton (Engineering & Construction)

The optimism still hasn’t fully filtered into the data quite yet though

“do we feel more optimistic about 2017 than we did a quarter ago? The short answer is yes. There is considerable data that shows broad expectations for stronger GDP growth in 2017…A somewhat longer answer to the question starts with our data. Looking at group booking trends and special corporate negotiations…we do not yet have clear enough proof that GDP is in fact growing at a higher rate, or that the greater prevailing optimism is impacting our business” —Marriott CEO Arne Sorenson (Hotels)

Customers are more eager, but still acting carefully

“even though the customers are a little more eager to get some of these things done, they’re still going through what I would argue is a more detailed gating process than they’ve gone through maybe in that last boom. And I think prudently so…I think it’s just a matter of good, prudent gating processes. But as I said, we’re seeing an increase in activity.” —Fluor CEO David Seton (Engineering & Construction)

Inventories are ready to be rebuilt

“the real difference this year is, we aren’t seeing a significant decline in that retail environment year-over-year…And as a result of that we’re able to produce largely to retail demand…In a year where you start to see the retail environment improving, that’s when we would consider starting to lift that inventory level in line with that.” —Deere IR Tony Huegel (Agriculture Equipment)

Inflation should start showing up soon

“We would expect that you’re going to see a change. We already started to see it in the fourth quarter in some of the businesses. The price lag usually is several quarters for us…we’re going to have some margin pressure from inflation in the first couple of quarters…there are certain markets where we’ve clearly seen wage inflation driven by the low unemployment” —Ecolab CEO Doug Baker (Business Services)

But not all inflation indicators are flashing warning signs

Companies aren’t stockpiling inventories

“It happens all the time when price increases go up, some of the companies, the end users, they buy ahead of it. But we don’t see huge buys ahead of it that’s going to impact our inventories and then future purchases. So, I think it’s going to – it’s nothing unusual. I think it’s pretty much business as usual.” —Reliance Steel CEO Gregg Mollins (Steel Distributor)

“Bid validity” hasn’t shortened

“I would have thought that some of the pressures would have already started to creep up in terms of cost of commodities, cost of engineered equipment items and the like. But we’re in a middle of a couple of significant mid-cycles and we haven’t seen any dramatic increase or expectation of increase in terms of the bid validity from some of these vendors. In lot of cases, when you start to see inflationary pressures, you’ll start to see the bid validity on some of these things shorten. And we have not seen that phenomenon yet in the marketplace.” —Fluor CEO David Seton (Engineering & Construction)


A border adjusted tax would be a big bet with unknown consequences

“Let’s say the Brady Plan with the border adjustability provision was passed. It would be favorable for us…we don’t think that’s ultimately what’s going to probably get through, but who knows? I think the bigger question is what’s its impact on the overall economy…I’m not totally comfortable with the border adjustability just as a big, big bet on a big piece of our economy and nobody knows exactly how it plays out and that seems to us unwarranted because the other parts of the proposal, we think, are almost guaranteed wins.” —Ecolab CEO Doug Baker (Business Services)


The financial world is excited for regulatory relief

“with respect to finance, matters are changing so quickly, almost on a day-to-day basis, but it’s really the first of the year where you start to get this building momentum that there will be strong regulatory relief in the financial world and the optimism that is in some respects derived from that.” —Marriott CEO Arne Sorenson (Hotel)

The housing market is strong, especially in California

“Home buyers are beginning to realize gains on the sales of their homes, which gives them the confidence, flexibility and down payment money to trade up into one of our homes. This increased home equity, gains in the stock market, the prospects of potentially lower tax rates and less sensitivity towards mortgage interest rates, due to generally larger down payments and stronger personal balance sheets, seems to be contributing to increased demand for our homes…With respect to California, yes, hot is the right word to describe it.” —Toll Brothers CEO Douglas Yearly (Homebuilder)

Home Depot believes that 7% mortgage rates wouldn’t change much

“our analysis would show that for every 25-basis point increase in mortgage rates, it costs the homeowner who’s applied for a mortgage $40 more per month. So that helps sort of dimensionalize the pressure associated with rising rates. With the median home price in the country of $250,000, mortgage rates could go up to 7-ish percent before the Affordability Index would fall at 100 or below. So there’s a way to go before we’d be concerned. And you know what, mortgage rates stand today at 4.2%, 4.3%, something like that, the historical mean is 5.8%. So even if a return to the mean, you’re still below that inflection point.” —Home Depot CFO Carol Tome (Home Goods)


Macy’s sounded defeated

“we were not able to overcome the secular changes in the industry related to shopping habits. These changes appear to have had a bigger impact on our store business than we had expected. We recognize we need to make dramatic changes in how we operate the business.” —Macy’s CFO Karen Hoguet (Retail)

Older retailers want to believe that brick and mortar still has a purpose

“The Supercenter remains the best retail format in the world, and going forward, we will continue to leverage these unique assets, even more with initiatives like online grocery, in-store pickup and others. Rapid advances in technology mean we need to become more of a digital enterprise – and that’s what we’re doing.” —Wal-Mart CEO Doug McMillon (Retail)

“Our overall perspective though and the importance of our store portfolio remains the same. We believe stores are very important and critical component of our future success, and we’re committed to leverage them to their full extent. There’s great power in stores in an omnichannel world.” —Kohls CEO Kevin Mansell (retail

“I’ve said this before, if the department store did not exist today, there’d be a group of smart people sitting in Silicon Valley inventing the department store today, because it will serve a purpose.” —Macy’s CEO Terry Lundgren (Retail)

Retail lenders are getting concerned

“We are nervous about retail and restaurants frankly these days because we’ve seen a weak consumer, and in retail in particular we’ve seen real changes in the way people buy things, i.e., online versus in stores and in malls in particular.” —Ares Capital Corp CEO Kip deVeer (Business Development Co)


Ecolab sees a big opportunity to monetize customer data

“I think the opportunity to use the information that we already capture within customers much more effectively to drive value, merchandise the value we create, develop new opportunities and ways to help customers obviously with their full partnership represents a huge opportunity for the company. Whether it’s specifically monetizing the information, i.e. charging for it or it’s instead used as a means of us better helping customers and being more valuable, I think it’s probably the latter. It’s my guess as we move forward. We’re in early innings. We certainly do it in many instances today, but I think our ability to up our game there is fairly dramatic…So the hard part is capturing the data. Connecting to the cloud isn’t technically very complicated, and that’s the work that we’re doing. And then synthesizing it, rationalizing it, making it valuable for customers is, like, real work, and we’re partnering with some great partners to learn how to do this and improve our capabilities there, which I think we’ve talked about. I mean Microsoft is a company that we’ve been leveraging there in many ways, sales force and other parts of our business, and we’ll continue to do that as we move forward. So I think it’s going to be huge for the company. It will not impact material 2017. I’m not even sure it will materially impact 2018, but in the not too distant future it’s going to be a core way of us doing business.” —Ecolab CEO Doug Baker (Business Services)


Elon Musk wants to stay at Tesla forever

“I expect to remain with Tesla essentially forever, unless somebody kicks me out. So, that remains my intention.” —Tesla CEO Elon Musk (Automobiles)

Materials, Energy:

The energy industry is showing signs of life

“we are encouraged by early signs of life in the energy market. In regard to energy, the general consensus from our customer base throughout the country is more positive today than it was 90 days ago. We’ve been seeing improved quoting activity and order flows, though order sizes have been much smaller.” —Reliance Steel CEO Gregg Mollins (Steel Distributor)

“I mean I think there’re two energy markets right now. North America is clearly turning and the rest of the world has not yet turned and probably we won’t expect to see a turn there until the second half of this year. But with that said, I think our view on the Energy business is clearly more favorable than the last couple of years.” —Ecolab CEO Doug Baker (Business Services)

Even the mining industry may be turning

“I think mining improved dramatically throughout the year, but it was still down mid-single digits in the fourth quarter. We would expect mining to probably trip into positive territory, either Q1 or Q2 latest, as we go through this year.” —Ecolab CEO Doug Baker (Business Services)

Miscellaneous Nuggets of Wisdom:

Competition is good in a new market

“DIRECTV NOW launched at the end of November. And my take on what we saw is an expansion of the OTT market by their entry. So we didn’t see through the quarter any change in the momentum that we had on Sling TV including in the month of December after they launched. We know that they added a lot of subscribers in that month. So our hope, we’ve been expecting more competition for quite a while for Sling TV, and our expectation has been that as new entrants enter the market, the market just expands faster, which is typically what you see in early-stage markets like this.” —Dish Roger Lynch (Satellite TV)

Strike when your competitors are distracted

“I would say over the years in a number of instances we’ve had situations where competitors go through the distraction of either a large acquisition and/or being sold or bought or whatever you want to call it. In all cases, we do view that as an opportunity, and we try not to miss those opportunities as we move forward.” —Ecolab CEO Doug Baker (Business Services)

Full transcripts can be found at

Ares Capital 4Q16 Earnings Call Notes

Kipp deVeer

End of interest deduction would be a wash

“We have. It’s something that we got pretty significant and interesting ability to work through our portfolio management system with. It’s obviously a sea-change to the industry. I think as many of us have said, if you think about deductibility of interest and how it relates to leverage financing private equity, I think, not being a tax or policy expert, that the idea is that interest deductibility goes away in exchange for lower corporate tax rates, our view is that based on our portfolio and the work that we have done internally, it is generally a wash for us from a credit perspective and that we obviously have more cash flow from our companies paying less in taxes, and the impact of obviously the interest deductibility of leveraged companies impacts those companies negatively. But our early returns are that it’s generally a wash from a credit perspective, so long as I guess corporate taxes are reduced to kind of that 20% to 25% level, which is what we have heard bannered about down in DC.”

Demand for deals exceeds supply

“I think it’s reasonably busy I would say both in terms of new deals and refinancings. We’ve clearly come into a year here in the beginning of 2017 where the demand for new transactions exceeds the supply, which I think helps us frankly as a company that can really lead transactions in a meaningful way. We’ve been focused frankly as I mentioned in 2016, or rather in 2017, as we were in 2016, on a lot of activity in our existing portfolio. But new deals, we are finding some good interesting things to work on. Again, it’s just casting a really wide net and being selective. So, I don’t know if I have anything more to add than that.”

Do have concern about retail

“We are nervous about retail and restaurants frankly these days because we’ve seen a weak consumer, and in retail in particular we’ve seen real changes in the way people buy things, i.e., online versus in stores and in malls in particular.”