Company Notes Digest 10.27.17

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.

It’s increasingly obvious from conference calls that inflation pressures are building in the economy. Management teams in a wide variety of industries are talking about rising input costs and a “very, very positive pricing environment” in 2018. For whatever reason, securities prices suggest that most people don’t believe that the inflation will sustain itself, but at some point the weight of the anecdotal evidence should make its way into economic figures. If that surprises the market and policy makers, there could be a very significant reaction.

Note: raw quotes are now being posted to a streaming feed on tumblr and twitter (@avondaleam)

The Macro Outlook:

The global industrial economy is enjoying a broad based boom

“we’re seeing broad-based sales increases across a number of industries in all regions. We continue to see strength in China construction. Onshore oil and gas in North America is also strong. Construction activity in North America was up compared to last year, and we’re seeing increased order activity by mining customers.” —Caterpillar (Construction Equipment)

“Industrial demand remains strong…I would say that certainly the demand was broad based. If you look across our product lines, we’ve got 65 to 70 different product lines, and the demand was very strong across those as well as strong across the region. So we had revenue up in three of the four regions year on year in Europe, Asia and the U.S., and it was about even in Japan.” —Texas Instruments (Semiconductors)

“clearly we’re seeing clients starting more new projects. They’re spending more money. They have more sense of urgency. Their existing staff has a lean because they’ve held a line so far during this recovery. So, there’s some pent up demand that results from that.” —Robert Half (Temp Staffing)

Even the mining cycle has started to turn

“As we have stated previously, the mining cycle has started to turn. The parked fleet has come down from its peak and stabilized for several months” —Caterpillar (Industrial Equipment)

But commodity inflation is becoming more obvious

“I mean obviously we’re in a bit of an inflationary environment for some of the commodities…overall we’ve probably been more challenged on the cost side this year than we’ve seen in a while.” —Honeywell (Industrial)

“The core underlying market we’re facing for raw materials is certainly toughening.” —3M (Industrial)

“our commodity inflation estimate has increased somewhat from 3 months ago… In terms of the inflationary pressures that we see…it is stronger inflation than we were expecting” —Kimberly Clark (CPG)

“Lumber was on an upward trend even before some of the catastrophic natural disaster events that we’ve seen over the last 60 to 90 days. So that’s the one that I think we all need to be paying attention to for 2018. I think the premiums that are being paid for labor in Houston and Florida that will subside in time. the lumber impacts could be longer lasting.” —Pulte Home (Homebuilder)

“We knew we’d see higher pulp cost going into year, these costs have continue to increase beyond initial forecast ranges. Ethylene, propylene, kerosene, and the polyethylene and polypropylene resins have increased recently” –Procter and Gamble (CPG)

Even oil prices could start to rise

“the reduction in global oil inventories in the third quarter clearly demonstrates that the oil market is now in balance, which is creating the required foundation for a further increase in the oil price and the inevitable growth in global E&P investments.” —Schlumberger (Oil Service)

Wages too?

“There is some commodity inflation, but the biggest drag that we’re facing right now is related to the labor investments that are being made.” —McDonald’s (Restaurants)

“The labor market in the U.S. is extremely tight, hard to find people.” —Manpower (Temp Staffing)

For now, higher input costs are being absorbed by margins

“we’re now estimating about a $300 million profit hit from higher commodity costs.” —Procter and Gamble (CPG)

“scrap price has moved up and we were unable to move plate prices up with scrap prices. So we started to see a margin compression and that’s where we live now. We’re living in a margin-compressed world today.” —Nucor (Steel)

But those prices will start to get passed on to customers

“we continue to have a positive view on domestic steel consumption…This will be a solid foundation for a strong pricing environment as the macro market drivers continue to be persuasive…These dynamics could create a tight market and lead to significant price appreciation as we saw at the end of last year…I just see it setting up a very, very positive pricing environment for the first quarter of 2018 and all the way through 2018.” —Steel Dynamics (Steel)

Consumers usually don’t love higher prices

“we are seeing a little bit of resistance at the higher price points because of affordability and I think that’s a broader concern that affects the entire business.” —Pulte Home (Homebuilder)

Except when it comes to the stock market

“fairly broad based retail engagement overall commensurate with literally everybody seems to like new highs” —TD Ameritrade (Broker)

International:

China’s economy is also booming

“This revision includes a higher demand forecast in China, driven by strong growth in ultra-high voltage electrical applications, as well as growth in China’s two largest aluminum consuming sectors, transportation and construction.” —Alcoa (Aluminum)

Wealthier Chinese consumers are demanding higher quality goods

“I think what is happening as we speak is that the consumers in there and the OEMs, they’re becoming more demanding on performance, on quality, and functionality and brands” —3M (Industrial)

But higher standards lead to a higher cost of doing business

“China has started to really fight pollution as we have said several times that they would do…once the Chinese start to control pollution, one of their most unfair competitive advantages goes away.” —Cleveland Cliffs (Iron Ore)

Brexit has made Britain a global laggard

“When we say that we don’t think Brexit is a good idea, in this world of – in this future of work, having access to skilled talent is what’s going to define the competitive advantage for nations and organizations alike, and any country that appears to give the impression that they’re not really interested in people coming to their country and contributing to the growth of their economy and prosperity, that’s not a great sign.” —Manpower (Temp Staffing)

Financials:

The credit cycle began to soften at one point, but then recovered

“We saw trends actually flagging over the last year-and-a-half…Since then, we’ve subsequently seen some pullback…So, it feels like it’s settled out a little bit and something that would be consistent more with the middle of the cycle” —Capital One (Bank)

New regulations could lead to a significant contraction in sell side research

“I think the effects [of MiFID II] are going to be a significant contraction and sell-side research providers…We think that especially for some of our larger teams it’s going to end up being a competitive advantage as the amount of information and the amount of sell-side research declines.” —Cohen and Steers (Investment Management)

Insurance companies aren’t earning their cost of capital

“Loss trend has outpaced rate and exposure for a few years now to a degree that many others in the industry are probably not earning their cost of capital.” —Travelers (Insurance)

Disasters should lead to some firming of insurance prices

“given the level of destruction of capital give or take $100 billion vaporizing in a relatively short period of time…it is hard for us to imagine that given the loss activity it is not going to be a definitive wake-up call for market participants and capital providers to focus more deeply or to revisit what is an appropriate risk-adjusted return.” —WR Berkley (Insurance)

Consumer:

Consumer packaged goods companies are struggling to find growth in developed markets

“overall demand in Europe remains flat as it has been in for the past few years. And in North America, market growth slowed at the start of this year and has not yet improved” —Unilever (CPG)

“Overall, it’s challenging to find growth right now in several of our large markets.” —Kimberly Clark (CPG)

It’s hard to get consistent returns on digital ad spend

“The ROIs on traditional media TV advertising are what they are – this narrow band is quite predictable, the ROIs on today’s landscape of search investment, social investments, video, et cetera are – it’s much, much more wide.” —Unilever (CPG)

Technology:

Cord cutting isn’t really cord cutting

“we are not surprised by what we are seeing around the TV, but I would tell…when you move to over-the-top for your video entertainment, the quality of that broadband connection becomes more important than ever” —Verizon (Telecom)

Smartphone units are still growing 6% worldwide

“We forecast world smartphone long-term unit growth to be 6% compound annual growth rate from 2016 to 2021.” —Taiwan Semiconductor (Semiconductors)

But upgrades have slowed

“Revenues continue to be pressured by slow equipment sales and what were legacy services. We’ve had about 2 million fewer phone upgrades so far this year when compared to a year ago” —AT&T (Telecom)

AI is moving to the edge of the network

“AI and ubiquitous computing will be important drivers for long-term world semiconductor growth…AI will continue to proliferate from the cloud to broad based client devices such as smartphones and ADAS in cars, DTVs, set-top box, gaming, surveillance, robot and drone.” —Taiwan Semiconductor (Semiconductors)

Some older industries are adopting leading edge technologies

Travelers used drones to evaluate insurance claims

“We conducted more than a thousand inspections with drones, which significantly accelerates the speed and reduces the cost of handling those claims. Again, a better outcome for our customers and more efficient outcome for us” —Travelers (Insurance)

TD Ameritrade is launching AI chatbots

“We launched an AI powered Chatbot on Facebook’s Messenger, a first in our space. Initially the bot was an extension of our client’s service capabilities but this week we’ve enhanced it to include equity and ETF trading, account deposits and additional education capabilities as well…just yesterday I bought 100 shares of Apple on Facebook Messenger” —TD Ameritrade (Broker)

Healthcare:

Illumina expects to be able to map a genome for $100

“From a $100 a genome perspective, we continue to believe that that is attainable with the architecture that we have in NovaSeq.” —Illumina (Genetics)

Materials, Energy:

The oil industry may be stabilizing

“Oil and Gas end markets are beginning to stabilize and we expect them to return to growth over the medium term.” —Baker Hughes (Oil service)

Production companies are ready to drill again

“the only people that probably talk to more customers than me is my BD group and I talk to the BD group every day. And so, we’re having constructive conversations about 2018 and encouraging discussions. I think the $50 oil through the planning cycle is a great thing…And so, they are absolutely planning to work next year, hedges are getting in place.” —Halliburton (Oil Service)

Oil demand continues to be strong

“the growth in oil demand continues to be very strong and importantly the upward growth revisions in 2017 were primarily seen in the OECD countries. The demand growth outlook for 2018 is again expected to be north of 1.4 million barrels per day” —Schlumberger (Oil Service)

What are the long term prospects though?

“we are committed to an all-electric future, and we have announced plans for at least 20 new all-electric vehicles by 2023, including two in the next 18 months.” —General Motors (Automobiles)

Miscellaneous Nuggets of Wisdom:

Just keep growing

“In this business, you are growing or you are dying” —BB&T (Bank)

Small returns compound over a long time

“you can be a lot richer if you hold an asset for 10 years earning 12% than if you hold an asset for four years earnings 25%.” —Blackstone (Private Equity)

Spend on product over promotion

“As you know, we’d rather spend a dollar on innovation or equity every day the week before we spend money on promotion….And the reason is very simple is because there is nothing proprietary and promotion whereas we can build proprietary advantage with those innovation and equity investments.” —Procter and Gamble (CPG)

Full transcripts can be found at www.seekingalpha.com

Company Notes Digest 10.20.17

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.

Earnings season began to pick back up this week led by banks. The economic story remains the same as it has been: growth and optimism.

The story line that caught my eye in the banking sector is that there is increasing focus on “deposit beta,” which is the rate at which deposits move given increases in interest rates. It looks like large customers are starting to optimize for higher yield on deposits.

This is important because it’s the first time in ~10 years that anyone has noticed what their deposits are paying them. It could mark the first rumblings of the end of a ZIRP mentality. If investors begin to believe that there is time value to money again, it would mark a seismic shift for capital markets.

The Macro Outlook:

Consumers are spending

“Consumers are spending, whether it is checks written, cash taken out of the ATM’s, P2P payments, and all the debit and credit cards, 5% more through the first nine months of 2017 than they did in the first nine months of 2016. That’s a faster growth rate than it has been in prior years.” –Bank of America CEO Brian Moynihan (Bank)

Companies are optimistic

“Our commercial clients continue to perform well. They continue to remain optimistic. They continue to look forward to continue implementation of a pro-growth agenda, particularly focused on meaningful tax reform.” –Bank of America CEO Brian Moynihan (Bank)

It’s a solid atmosphere with no signs of change

“Housing starts home prices continue to remain on positive trends. Employment is strong and employers continue to search for skilled workers. So that leads to a solid atmosphere and we see no near-term indications of any change to it.” –Bank of America CEO Brian Moynihan (Bank)

Investors are fully invested

“we saw more cash go into the markets, particularly the equity markets as those markets rose around the world. And we’ve seen cash in our clients’ accounts at its lowest level.” –Morgan Stanley CEO James Gorman (Broker)

Inventories are tight

“when we look at shipments versus retail sales next year, there is an opportunity to ship in at a little bit higher rate just because of the way we’re taking the inventory out this year…..overall inventory levels will remain tight through the fourth quarter and into 2018.” –Harley Davidson CFO John Olin (Motorcycles)

M&A pipelines are strong

“The pipeline…is strong also in our conversations with clients on the advisory side. There’s no sense of slowdown. We’re seeing a pickup in client dialogue, particularly I would note in technology, media, telecom, as well as industrials and natural resources. And so, it’s strong for all of the reasons that you would expect that CEOs are confident, equity market support valuations and acquisition currencies, the financing markets are open, the overall levels of financing costs are relatively low by historical standards.” –Goldman Sachs CFO Marty Chavez (Broker)

Companies are excited about lower taxes

“To level the playing field with other industrialized countries, tax reforms should include three fundamental elements, a lower corporate income tax rate in line with other industrialized countries, the adoption of a modern, globally competitive International tax system allowing U.S. companies to manage their cash without tax penalty and of course greater incentives for innovation in the U.S” –Johnson and Johnson CFO Dominic Caruso (Healthcare)

But they aren’t waiting on tax reform to move forward

“That’s all constructive on tax reform which you also mentioned, that is certainly a part of our engagement with clients. And I will also note however that clients, it seems to us, have moved towards saying, well, tax reform would be a good thing but it’s not stopping us from considering strategic acquisitions and sales right now.” –Goldman Sachs CFO Marty Chavez (Broker)

How would the stock market react if tax reform fell through?

“There is no question that the rally in the stock market has baked into it reasonably high expectations of us getting tax cuts and tax reform done…To the extent we get the tax deal done, the stock market will go up higher. But there’s no question in my mind that if we don’t get it done, you’re going to see a reversal of a significant amount of these gains” –Treasury Secretary Steve Mnuchin (Government)

This environment wont last forever

“I don’t think it’s structural. I think it’s cyclical at this point. At some point, there will be catalysts to change the direction of the trading environment, and whether that’s tax policy, whether that’s better inflation data. But there will be something. And so this has been a sort of a subdued environment. I don’t think it persists forever. But when and how that catalyst appears is clearly a question mark.” –Morgan Stanley CEO James Gorman (Broker)

There is inflation in out there

“Now, we are starting to see inflationary pressures a little bit more than we’ve seen in the last few years of course. But so far, we have that is not shown up in our COGS line” –Grainger CEO D. G. Macpherson (Industrial Distributor)

Margin pressure is building

“Margins were softer than usual this quarter primarily due to a significant impact from copper prices. In the third quarter of last year, copper averaged $2.16 per pound but increased 35% over the past year to average $2.91 per pound during the third quarter” –Badger Meter CEO Rich Meeusen (Water Meters)

“Absent any unanticipated moves by the Fed, we expect some of the margin pressures we are seeing to be more apparent in the coming quarter.” –M&T Bank CFO Darren King (Bank)

And the Fed is unwinding QE

“there’s a positive backdrop, so the U.S. economy is performing…And at the same time, all of this unwinding quantitative easing is unprecedented territory, never happened before. So, you could see volatility and spikes showing up in this process, simply because it’s never happened before. We don’t see duly unwind risk priced into the markets. ” –Goldman Sachs CFO Marty Chavez (Broker)

International:

FX headwinds are starting to turn into a tailwind

“I’d like to thank you for pointing out that we have had a pretty dramatic [FX] headwind. In fact, I think from the time I’ve been in this job now, this is my 15th call. I think I’ve only had one other call where it was a small tailwind. And this was a small tailwind as well in the quarter, and hopefully, we’ve wrapped on some of the big, more profound effect” –IBM CFO Martin Schroeter (Enterprise Tech)

China’s economy has done better than most people expected

“I’d say we’ve seen a stabilizing of China, it hasn’t been as choppy as it was in the last two years…We were more conservative on market growth than recent data we’ve seen. The market growth is better than we indicated or better than we believed or better than we thought ” –Abbott Labs CEO Miles White (Med Device)

Financials:

Bank deposits are starting to be more fluid

“I think we are starting to see a little more fluidity with deposits” –Comerica CFO David Duprey (Bank)

Larger customers are more price sensitive

“our larger commercial customers, they tend to be the most price sensitive and we are working with each of those customers on an individual basis, to work through deposit pricing. And the other place where we see a little bit more activity and sensitivity, is with the larger balanced consumer customers, which are typically affluent or private banking types of customers, where because again, the size of the balances are a little bit bigger, they are a little more sensitive to rate. When we look through the rest of the portfolio, in general, on the consumer side and the rest of the smaller and the commercial, including small business; there still seems to be somewhat less of a focus on rate in those customers…Customers in the consumer and small business area are tending to stay short-dated” –M&T Bank CEO Darren King (Bank)

Rising rates are troublesome for real estate markets

“Rising rates to the real estate market are troublesome. They impact cap rates, they — if — as rates go up in the front end, since most of the borrowings on the projects are floating rate, you expose coverage ratios in those loans…at the margin, I would expect higher rates are going to cause greater delinquencies in real estate, and it’s one of the reasons we have at the margin, dialed back our growth.” –PNC CEO Bill Demchack (Bank)

Insurance companies have been hit by catastrophes, but that doesn’t mean a hard market is on its way

“In summary, there continues to be a lot of capital across the insurance market place. However the recent storms, fires and earthquakes may have implications on pricing in 2018. At the present time, we don’t have a clear view on the potential impact for next year. But there are a lot of discussions about rate increases for coastal properties. If there are proposed increases which we think there will be, the question really is will they stick. Certain markets are testing that philosophy right now…Right now I hear and what everybody else is hearing out there about the market place and what people are speculating on…I am guardedly optimistic…But if anybody is telling you they are getting ramped up for a hard market, I believe that’s a little premature” –Brown and Brown CEO Powell Brown (Insurance Broker)

Consumer:

We’ve heard this before from other retailers:

“I think grocery shopping remains for many a sensory experience, with the vibrant colors, sounds, and aromas of prepared foods and helpful human interaction enhance the shopping trip and help solve the issue of what’s to eat for me and my loved ones now, tonight, and later this week. I believe that retailers that do this well will continue to succeed.” –Supervalu CEO Mark Gross (Grocery)

Technology:

VCs seem to be investing more money in fewer deals

“what we’re seeing is that the venture capital firms have become a little bit more selective. They’re investing more money in fewer deals…a lot of competition is chasing a lot of the same transactions” –Comerica President Curtis Farmer (Bank)

Cyber security is top of mind for most executives

“This new mainframe addresses what is probably top of mind in every board discussion. It is top of mind for every CEO and it’s top of mind for the whole C-suite, which is the problem of cybersecurity.” –IBM CFO Martin Schroeter (Enterprise Tech)

Central bankers have an eye on crypto currencies

“With anything that’s new, people have great expectations and also great uncertainty. Right now we think that especially as far as bitcoins and cryptocurrencies are concerned, we don’t think the technology is mature for our consideration… One of the lessons of the great financial crisis is that financial innovation, in this case it’s financial and technology innovation… should be embraced with lots of attention to its potential risks” –ECB President Mario Draghi (Central Bank)

Industrials:

There may have been a softening in utility spending

“Although utility metering sales were relatively flat, we have seen an overall softening in the utility market over the past six months” –Badger Meter CEO Rich Meeusen (Water Meters)

Full transcripts can be found at www.seekingalpha.com

Harley-Davidson’s (HOG) 3Q17

Matthew Levatich – President, Chief Executive Officer

Little residual tarnishing crossover between brand USA and American products

“…there’s actually a lot of really good research on this very topic generally that suggests that the connection between brand U.S.A., if you will, or political or foreign policy interpretations around the world versus American product brands and whether there is any sort of residual tarnishing crossing over, or whatever you might think, there doesn’t seem to be, and there’s some really very smart research on the topic that we’re paying a lot of attention to because clearly the Harley brand is inextricably linked with the ideals of America, which are freedom, independence and strength.

John Olin – Senior Vice President, Chief Financial Officer

The impact of hurricanes

“…the hurricanes adversely impacted the industry in Q3. While it is very difficult to isolate, we estimate the impact of the hurricanes accounted for approximately 1.5 to 2 percentage points of Harley Davidson’s retail sales decline during the quarter.”

Tight inventory levels

“when we look at shipments versus retail sales next year, there is an opportunity to ship in at a little bit higher rate just because of the way we’re taking the inventory out this year…..overall inventory levels will remain tight through the fourth quarter and into 2018.”

Calling the industry has been difficult

“I don’t know anyone that has called the industry right at this point. It’s an industry that has grown 28 out of 33 years, and there’s only been two periods in three decades where it’s been down – one was in the recession in 2009 and ’10, and then over the last two years here, so we’re doing our best to forecast it.”

Johnson & Johnson (JNJ) Q3 2017

Dominic Caruso – EVP and Chief Financial Officer

They want a reform of the tax system

“To level the playing field with other industrialized countries, tax reforms should include three fundamental elements, a lower corporate income tax rate in line with other industrialized countries, the adoption of a modern, globally competitive International tax system allowing U.S. companies to manage their cash without tax penalty and of course greater incentives for innovation in the U.S”

Miscellaneous Quotes for Week to 10.20.2017

Janet Yellen, Fed Chair at the G30 summit 

US growing moderately 

“Economic activity in the United States has been growing moderately so far this year, and the labor market has continued to strengthen…

Hurricanes to have modest long-term effect

“While the effects of the hurricanes on the U.S. economy are quite noticeable in the short term, history suggests that the longer-term effects will be modest and that aggregate economic activity will recover quickly…The hurricanes will likely result in some hit to GDP growth in the third quarter but a rebound thereafter, and smoothing through those movements, I’m expecting growth that continues to exceed potential in the second half of the year.”

Soft Inflation

“Inflation readings over the past several months have been surprisingly soft, however, and the 12-month change in core PCE prices has fallen to 1.3 percent….this year’s low inflation could reflect something more persistent than is reflected in our baseline projections. ”

 

Office of National statistics. UK

UK inflation at record high

“The Consumer Prices Index including owner occupiers’ housing costs (CPIH) 12-month rate was 2.8% in September 2017, up from 2.7% in August 2017….All else being equal, the depreciation of sterling seen in 2016 and particularly following the outcome of the EU referendum would increase the prices producers pay for imported goods….The inflation rate for a range of goods has, however, picked up since the start of the year and the overall rate in the UK is higher than in most other EU countries, including all of the larger western European nations.”

 

Mark Carney, Bank of England Governor on CNBC

It´s an adjustment period

“Its a period of adjustment, and we have been willing to tolerate inflation being an over the target, where in a relatively rare economy with having inflation higher than target among the major central banks, we are tolerating inflation being over target for longer in order to crowd in unemployment during a time of big adjustment in the uk economy.”

The world economy is growing

“The big picture here right now is the global economy is firing on most cylinders. We have 75% of the world economy growing above potential. The quality of that growth has gone up.”

 

Mario Draghi, ECB President via CNBC

On cryptocurrencies

“With anything that’s new, people have great expectations and also great uncertainty. Right now we think that especially as far as bitcoins and cryptocurrencies are concerned, we don’t think the technology is mature for our consideration… One of the lessons of the great financial crisis is that financial innovation, in this case it’s financial and technology innovation… should be embraced with lots of attention to its potential risks”

 

Steve Mnuchin, Treasury Secretary via Fortune

On Tax reform

“There is no question that the rally in the stock market has baked into it reasonably high expectations of us getting tax cuts and tax reform done…To the extent we get the tax deal done, the stock market will go up higher. But there’s no question in my mind that if we don’t get it done, you’re going to see a reversal of a significant amount of these gains.”

Wells Fargo’s (WFC) 3Q17

Tim Sloan – President and Chief Executive Officer

The scandal continues to have an impact

“There is a little bit of impact on some municipalities they have put us on probation or just said they are not going to use as much for a period of time. Though we had some municipalities that have taken us off that because we’ve executed on everything we said we are going to execute over the last year….I can’t commit to you Matt that we’ve finished everything because things are still in progress but we are very far along but I think it’s also important to reinforce — our review of all of our policies, procedures, practices is going to continue for a long time meaning that we got to continue to ask more of ourselves everyday”

John Shrewsberry – Chief Financial Officer

On rates

“…the benefit from higher rates increased average loan yields 5 basis points in the quarter, the seventh consecutive quarter of increasing loan yields…We’ve not made material changes in rates paid on consumer and small business banking deposits within our retail bank with the majority of our peers also holding these rates steady. We have implemented some incremental deposits repricing for commercial and wealth and investment management customers as market rates have increased.”

Grainger 3Q17

D. G. Macpherson – Chairman and Chief Executive Officer

Modest tailwinds

So, we’ve experienced modest tailwinds that continued to increase throughout the year, I’d say. So it’s little better it seems at the quarter. In terms of the large customers, both the spot buy and large non-contract customers, which effectively are all spot buy, showed some growth for the first time in a long time, and that helps. And our contract customers continue to grow similarly to what we’ve seen, continue to improve slightly. So that’s no real change there in terms of the path that we’ve been on.

Hurricane volume to midsize customers

So the way that works is we have a hurricane. Our branches we typically load the branches with hurricane type products and they skew more to midsize customers. So we see more midsize customer hurricane volume than we would see with large customers. We see a lot of it everywhere of course.

Seeing inflation but not in COGS

So, our COGS inflation this year is going to be very slightly negative. And so we are seeing inflation. Now, we are starting to see inflationary pressures a little bit more than we’ve seen in the last few years of course. But so far, we have that is not shown up in our COGS line.

Programs keeping a lid on inflation

Yes, we do. We think we’ll keep a lid on inflation. I think if we didn’t have that program, we would be seeing some inflation for sure. But that program helps us to offset that inflation.

Comerica 3Q17

Ralph Babb – Chairman and CEO

Pete Guilfoile – Chief Credit Officer

David Duprey

Clients subdued but optimistic

Our loan pipeline remained solid in the third quarter and our commitments to commit are up significantly. We believe this reflects improving sentiment over the past month of so; however, overall customers remain subdued, yet optimistic given slow progress in DC and geopolitical tensions.

More fluidity in deposits

There has been a bit of a shift that as you saw the shifting out of some of the money market into the noninterest bearing which actually is beneficial for us. So I think we are starting to see a little more fluidity with deposit

Curtis Farmer

VCs investing more money in fewer deals

On the technology and life sciences, as was mentioned earlier, where we are seeing growth in 2017 has been more in the equity fund services component of that. That’s why we’re providing capital call and subscription lines to venture capital firms and that has been a nice growth part of the business for us overall. We really like the technology and life sciences space. We feel like we’ve got a lot of great relationships there and great expertise. But what we’re seeing is that the venture capital firms have become a little bit more selective. They’re investing more money in fewer deals. So a lot of competition – one, there’s more competition out there, but a lot of competition is chasing a lot of the same transactions

Brown and Brown 3Q17

Powell Brown – President and CEO

Still a lot of capital in insurance

In summary, there continues to be a lot of capital across the insurance market place. However the recent storms, fires and earthquakes may have implications on pricing in 2018. At the present time, we don’t have a clear view on the potential impact for next year. But there are a lot of discussions about rate increases for coastal properties. If there are proposed increases which we think there will be, the question really is will they stick. Certain markets are testing that philosophy right now.

Guardedly optimistic

Right now I hear and what everybody else is hearing out there about the market place and what people are speculating on. What people are speculating on and what the market will bear are two different things, until we start to see rate increases sticking. I am guardedly optimistic or just guarded in regards to what that would do to our organic growth…But if anybody is telling you they are getting ramped up for a hard market, I believe that’s a little premature.

Economy pretty good

And so I think the economy is pretty good. I think that we’re seeing our clients thinking about it in a manner where they are making investments in their businesses, so that’s a positive.

Reinsurance got pounded

I’m not a reinsurance broker so let met process this. Here’s what I understand and this is how I think this is going to play out. As you know retrocessional reinsurance is reinsurance for reinsurance companies. They got pounded in the storm, and a lot of that is in London, but it’s all over the world. So the retro market got pounded. So that’s going to have to react or try to recoup.

Then you have the reinsurance market, they got pounded. And the reinsurance market, as you know, one of the most damaging ones was actually Mariah. So it’s like keep hitting you when you’re down in that market. And so let’s just say that the rates are – they try to get significant rate in reinsurance. It really depends on the primary carrier and what they’re trying to do.

If everybody’s cat reinsurance program came up at the same time, then I think that there could be a higher potential for rate increases that could stick. Having said that, I know of several carriers which remain nameless who already have their property programs placed prior to the storm. So they’re going to operating from a positon of strength, not a position of weakness.

So, I think there’s a lot of moving parts that go in to it, and I know that there are some people out there that are frothing, because they think this is going to drive the market up. Like I said, I would rather create an expectation that we see flattening and we hear people talking about rate increases, but we’re not seeing any big rate increases sticking like, you might have heard, number one. And number two, really a lot of this change won’t happen until after the year. And the question is on some of these primary carriers, how quickly can the insurance carrier get the message from the head to the foot on what they want to do in executing a pricing strategy or increase.

So time will tell Mark and I wish I could be more definitive. But I do know that the restaurant market and the reinsurance took some severe losses and it will be interesting to see how they react and thus the primary season how they react as well. They will not pass through dollar-for-dollar or per percent increases in to the primary market, it just won’t happen.

Goldman Sachs 3Q17

Marty Chavez – CFO

M&A pipeline

The pipeline, as you noted in equity underwriting is strong also in our conversations with clients on the advisory side. There’s no sense of slowdown. We’re seeing a pickup in client dialogue, particularly I would note in technology, media, telecom, as well as industrials and natural resources. And so, it’s strong for all of the reasons that you would expect that CEOs are confident, equity market support valuations and acquisition currencies, the financing markets are open, the overall levels of financing costs are relatively low by historical standards. That’s all constructive on tax reform which you also mentioned, that is certainly a part of our engagement with clients. And I will also note however that clients, it seems to us, have moved towards saying, well, tax reform would be a good thing but it’s not stopping us from considering strategic acquisitions and sales right now.

Fed unprecedented but good backdrop 

note that there’s a positive backdrop, so the U.S. economy is performing, there’s improving GDP growth depending on who you talk to, the U.S. is at or perhaps even beyond full employment. And at the same time, all of this unwinding quantitative easing is unprecedented territory, never happened before. So, you could see volatility and spikes showing up in this process, simply because it’s never happened before. We don’t see duly unwind risk priced into the markets. You could imagine of all spikes that that client confidence make market making difficult, you could also imagine a positive scenario with modest fall, more conviction, more activity, all of these things could be catalysts for the FICC business, rising inflation, any changes in central bank policies against the expected trajectory, clarity on U.S. policies of all kinds, tax, obviously regulation, also infrastructure, all of these things you could see as better catalysts.