Company Notes Digest 8.26.18

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 the dog days of summer and so it’s relatively quiet out there. This week’s post pulls quotes from earnings calls over the last two weeks. The most noteworthy insight is that inflationary pressures may be abating.

The Macro Outlook:

The macroeconomic trends continue to be positive

“The overall macroeconomic trends continue to be positive in the United States and the underlying economic picture remains encouraging, including a strong employment market. This has resulted in a healthy consumer that is driving a positive trend in restaurant sales.” –Sysco CEO Thomas Bene

Even brick and mortar retailers are benefiting

“certainly the trend of the business in the first half was buoyed with a strong consumer sentiment and good spending across all of our retail” –Macy’s CEO Jeff Gennette

Inflation is abating

“inflation in the U.S., it has gotten less throughout the year. So the beginning of the year, we talked it was a couple, 2 to 3 points. It has slowed to kind of 1 to 1.5. So it is slowing. We don’t necessarily believe that’s going to go deflationary, but you’re right in assuming that it’s mitigating some.” –Sysco CEO Thomas Bene

“Of course the best news we have of late is that, lumber prices are coming down…it’s obviously major component on the material side of the home.” –Toll Brothers CEO Doug Yearly

Can things get even better?

“if there is a bias in our forecast based on the economic environment and our August performance to date, the bias is to the up.” –Home Depot CFO Carol Tome

International:

Tariffs are causing foreign manufacturers to produce in the US

“there are some categories, and laundry [machines] being the most specific where you had up to 25 and 50% tariff if get over certain volumes of imports, for sure that elasticity showed up…you did see some unit falloff there; but as the Korean manufacturers get their facilities up and running in Tennessee and South Carolina respectively, that tariff pressure will mitigate because they will be producing all their machines here domestically.” –Home Depot CEO Craig Menear

Consumer:

Fashion winds are blowing in retailers’ favor

“Economic and fashion winds continue to blow in our favor.” –Urban Outfitters CEO Richard Hayne

More and more homebuyers want brand new homes

“We have buyers that will only shop new. Some buyers will shop used and new but there are more and more buyers that want it new, they don’t want anyone else to have lived in the home, and they want to design it their way.” –Toll Brothers CEO Doug Yearly

Technology:

AI holds the promise of massive productivity gains

“The automation that’s going to be brought about by AI, is going to bring productivity gains to industries like nobody has ever seen before.” –NVIDIA CEO Jensen Huang

AI could touch every industry

“AI, the adoption continues to seep from one industry to another industry…Companies and sectors ranging from oil and gas to financial services to transportation are harnessing the power of AI and our accelerated computing platform to turn data into actionable insights.” –NVIDIA CEO Jensen Huang

“we are increasingly optimistic about the future impact of precision technologies as the inclusion of machine learning, computer vision and robotics holds potential to unlock billions of dollars and in agricultural value.” –Deere

Industrials:

There is a real issue in transportation markets

“We, like the rest of the nation, are facing higher transportation and fuel costs…We’re doing our best to manage through it, but there is a real issue in the transportation markets in our country.” –Home Depot CFO Carol Tome

One solution to the trucker shortage is to expand the fleet of small trucks

“We talked about small vehicle initiative…one of the things we’re also learning is that because those trucks don’t require a certain class driver, that we – the pool of potential candidates to fill those routes is larger” –Sysco CEO Thomas Bene

Materials, Energy:

Farm economics should improve next year

“the farm economics picture for next year may actually be stronger than realized because of improving commodity market fundamentals worldwide with little change in farm costs.”

Full transcripts can be found at www.seekingalpha.com

Company Notes Digest 8.13.18

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.

We only read a handful of calls this week but there were three pretty important takeaways worth highlighting:

1) Industrial confidence is leading to high capacity utilization and higher inventories. High capacity is a precursor to higher inflation. Meanwhile higher inventories create the pre-conditions for recession if inventories need to be liquidated.

2) Redfin warned about a “significant change” in the housing market. Buyers are not able to absorb even low inventories at these high prices. The housing market is very sensitive to interest rates and is usually a leading economic indicator. It may be a sign that we’re inching closer to recession.

3) The New York Times mentioned that it’s expanding its digital ad purchases beyond just the “big two” (Google and Facebook). If digital marketers are ready to branch out to other sites, it means that growth could slow for Google and Facebook and could accelerate for the second tier of the internet (e.g. Twitter, Snapchat).

The Macro Outlook:

The pace of business is not slowing down

“overall, I feel very good about the momentum, the pace of business is not slowing down, our growth and opportunities are out there, and we’re seeing our customers continue to spend…I’ve been around this stuff for a long time. So this is my best feel at this, okay? It’s a different cycle. I think we’re in early stage of the cycle.” –Emerson CEO Dave Farr

Industrial output is hitting old peaks

“Many of [our] businesses right now in North America are actually getting back to peak performance in last cycle in its actual sales. So, what that means is we’re having to get our plants geared up, we’re having to get the people geared up.” –Emerson CEO Dave Farr

Customers are comfortable taking on inventory risk

“a lot of our customers are starting to level load more production…versus where they used to try to cycle. We’re starting to see more and more customers to try to keep things level, which smooths us out more. So, we’re not seasonal. It’s a different view than we – we’re starting to see some different habits from our customers now.” –Emerson CEO Dave Farr

It’s becoming time to add new capacity

“[We] keep having the debate back and forth what’s the right balance of adding new people, adding new capacity.” –Emerson CEO Dave Farr

But something has changed in the housing market

“We are seeing a significant change…It is definitely changing. We’re hearing things from our real estate agents that we haven’t heard in 3 years about homebuyers stepping back from high prices” –Redfin CEO Glenn Kelman

Redfin agents are reporting that homes are getting harder to sell

“reports are now coming in from Washington D.C., Boston, Virginia and parts of Chicago as well, that homes there are getting harder to sell…for the first time in years, we are getting reports from managers of some market that homebuyer demand is waning…real estate agents saying, I put a home on that normally would have sold in a week, and it’s still on the market a month later. I expected to get eight competing offers, I got one and it was below the asking price” –Redfin CEO Glenn Kelman

Buyers have had enough of high prices

“What’s striking about this change is that it seems to have been driven by dissident demand from homebuyers, not just a low supply of homes for sale…As U.S. home prices have increased faster than wages for 70 straight months, buyers in markets like these have finally had enough, at least for now.” –Redfin CEO Glenn Kelman

Sales growth will likely slow if not reverse in August or September

“Year-over-year U.S. home sales declined in June. We expect U.S. home sales growth to have improved slightly in July, then to weaken again in August and September…we think that there is probably going to be a slowdown in U.S. sales growth, if not a reversal in August or September.” –Redfin CEO Glenn Kelman

…Just in time for midterm elections

“to state the obvious, there is intense interest already in this year’s midterms.” –New York Times CEO Mark Thompson

Consumer:

Disney will own 60% of Hulu after the Fox deal closes

“Obviously, after the deal closes for 21st Century Fox, we’ll own 60% of Hulu. So that will fit in very significantly to our app strategy.” –Disney CEO Bob Iger

35% of marriages in the US are the result of dating apps

“in this country 35% of marriages are the result of dating apps and people don’t mind paying 20, 30, 40 bucks a month for the hope of finding someone that they can fall in love to marry.” –Match Group CEO Mandy Ginsberg

Technology:

Digital marketers are expanding beyond just Google and Facebook

“we’re getting more aggressive at testing channels beyond the big two, Google and Facebook. So you saw us start marketing more aggressively in the second quarter on other social platforms. You’re seeing us experiment more aggressively with different kinds of display.” –New York Times COO Meredith Levien

Technology helps offset wage inflation

“we have to offset the pressures we have on the employee side…by using always the optimal technology within our organization to drive productivity.” –Jones Lang LaSalle CEO Christian Ulbrich

Miscellaneous Nuggets of Wisdom:

You have to mix brand advertising with direct response

“Many technical folks really have a crush on direct marketing, because Facebook and Google put a pixel on somebody’s browser, they show up on Redfin site. You can directly attribute that sale. And people like that kind of assurance.But for an emotional purchase like this, when your brand awareness is in the low-single-digits, you really need to invest in making sure that people understand who you are.” –Redfin CEO Glenn Kelman

Full transcripts can be found at www.seekingalpha.com

Company Notes Digest 08.05.18


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.

Optimism abounds as the boom times in the economy persist. As a result, companies have lots of positive commentary and reasons to be excited. Despite this, talk of trade war hangs over the markets.  Few people talk about risk, but history dictates that markets are cyclical. 

The Macro Outlook:

It’s booming times out there

“In terms of strength, I mean it’s booming times out there. So whenever you want to look: construction cranes, trying to hire somebody, looking at labor markets, trying to get a hold. Was there any one of those measures that you want to look at? The conditions are about running as hot as I could remember in a long, long time” – Markel Corporation (MKL) CEO Thomas Gayner

“The economy looks quite strong. Consumers are in good shape. Balances are in good shape. There are no potholes out there, lending has been pristine. Capital expenditures have been going up. More people are going back to work, unemployment may hit a post-war low at one point this year. Those are all positives” – JPMorgan Chase (JPM) CEO Jamie Dimon

“On the positive side, it’s a very long list…about everything we do is in the positive bucket.” – Parker-Hannifin (PH) CEO Thomas Williams

This cycle can extend longer than many think 

“the cycle can extend longer than many people think as companies are in good shape, particularly in the U.S. and the consumer is strong while carrying only modest debt levels…the risk of recession in the next year remains low” – Third Point Reinsurance (TPRE) Founder Dan Loeb

But don’t lose sight of cyclicality

“notwithstanding the positive environment that we are currently experiencing, we do not lose sight of the fact that economies will cycle, rates will cycle, rates will move and markets will fluctuate.” – Goldman Sachs BDC (GSBD) COO Jon Yoder

There was evidence of increasing market volatility this quarter

“Despite these challenging conditions for investing, we did see evidence of increasing market volatility in the liquid credit market beginning in late June, and has continued.Under the weight of strong new supply and deal activity, investors began to push back on both pricing and terms in the liquid loan markets” – Ares Capital Corporation (ARCC) CEO Kipp deVeer

“There’s been increased volatility in the markets, as everyone is aware, and that’s sidelined some issuers. Just to put some color around the increase of volatility, the average VIX for all of 2017 was 11. The average so far for 2018 has been 16. So, 2018 has been 16, so pretty significant move up just in terms of the total market environment volatility there.” – Moody’s Corporation (MCO) VP Stephen Marie

Sometimes there’s anxiety over rising interest rates but that seems short lived 

“There’s a little bit of anxiety that kind of comes in from time to time as the ten year moves around and touches 3% but that in the end doesn’t seem to – hasn’t seem to have had much impact and when there is an impact it seems to be relatively mild and relatively short. And then overall I would say there’s just – there’s as much or more dry powder targeting commercial real estate at this time than at any time that we can remember. So it feels like pretty healthy dynamics” – CBRE Group (CBRE) CFO Jim Groch

Some people are hedging

“With stock prices largely recovering from their February lows, and the ever-present threat of a global trade war, we are seeing growing demand for market hedges” – Cboe Global Markets (CBOE) CEO Ed Tilly

International:

The possibility of a no-deal Brexit is uncomfortably high

“I think the possibility of a no-deal is uncomfortably high at this point. It is highly undesirable. Parties should do all things to avoid it.” – Bank of England Governor Mark Carney

Certain softness in the Chinese economy

“the customer want more value right now or in the anticipation that there’s certain softness in economy that we need to respond to or prepare for.” – Yum China Holdings (YUMC) CEO Joey Wat

Politics:

The Trump administration views itself as free traders

“President Trump is an ardent free trader. Zero tariffs, zero subsidies, zero barriers. He’s looking to rebalance these relationships….perhaps it’s a multilateral arrangement. But more likely, it will be a series of bilateral arrangements. They tend to prove more effective, better for the American people. And they’ll get the outcome that President Trump is demanding. He’s simply looking for fair and open and reciprocal trade” – U.S. Secretary of State Mike Pompeo

Tariffs are a tax on consumers

“our view on tariffs is that they show up as a tax on the consumer and wind up resulting in lower economic growth and sometimes can bring about significant risk of unintended consequences.” – Apple (AAPL) CEO Tim Cook

The tariffs have had little impact so far but have created uncertainty

“in the conversations that I’ve had with our customers, their sentiments are…that they’ve seen so far very limited impact on volumes in their business or either the total amount of the volume or the origination and destinations for the volumes… there is uncertainty, that they feel just about what – ultimately how these tariffs are going to play out and what does it mean over time…it’s adding uncertainty, but everyone really is taking a wait-and-see attitude” – Triton International Limited (TRTN) CEO Brian Sondey

Financials:

In easy money times the advantage of public companies is non-existent

“in easy money times such as this, which may be coming to an end but may not be, the advantage that the public companies have access to capital does not exist. Private companies have as much access to capital, if not more.” – Vornado Realty Trust (VNO) CEO Steven Roth

It’s been a tough few decades to be a value investor

“This has been a frustrating environment for us and for value investing styles. AllianceBernstein recently reported that value-investing strategies are performing in the bottom 1 percentile since 1990. Reality is that the market is cyclical and given the extreme anomaly reversions to the mean should happen sooner rather than later, we just can’t say when.” – Greenlight Capital Re (GLRE) President Einhorn

Consumer:

Consumers are more skeptical of private label brands in emerging economies

“We have seen private label development around the world, probably most developed in Europe, but still low single-digits negligible in the United States, and in the emerging markets almost a nonexistent because our consumers have serious doubts about quality of certain products in those marketplaces. So, we’re very attentive to it” – Colgate-Palmolive (CL) CEO Ian Cook

Someone will probably try to take Toys R Us’ old market

“it would shock me if there’s not a toy retailer that you know re-emerges from the Toys”R”Us debacle…I mean, that toys thing was a debacle of massive proportions, but there is no question and there’s a number of people that you know that are out there, that are thinking about how to create a new generational toy a physical toy retail experience” – Simon Property Group CEO David Simon

Brick and Mortar isn’t dead just yet

“While I am certainly not calling a bottom, there is noticeably increased retail activity in doors” – Vornado Realty Trust (VNO) CEO Steven Roth

Technology:

Shortages of passive components are expected to persist into 2019

“shortage of passive components has created major supply chain challenges…In addition, we are experiencing temporary price increases on certain components for our new cameras due to the shortages. As you may have read in other reports, the industry-wide shortage is expected to last into 2019” – GoPro (GPRO) CFO Brian McGee

Tesla is designing its own chips to run neural networks

“we did a survey of all of the solutions that were out there for running neural networks, including GPUs. We went and talked to other people like at ARM that were building embedded solutions for running neural networks. And pretty much everywhere we looked, if somebody had a hammer, whether it was a CPU or a GPU or whatever, they were adding something to accelerate neural networks. But nobody was doing a bottoms-up design from scratch, which is what we elected to do…I’m a big fan of NVIDIA, they do great stuff. But using a GPU, fundamentally it’s in emulation mode.” – Tesla (TSLA)

Slow moving industries are finally entering the digital age

“financial services institutions are increasingly using iPads to deploy digital signature solutions for customer consent, compliance requirements, new account openings and services transactions.” – Apple (AAPL) CEO Tim Cook

“we’re moving to online ordering. We’re creating a portal so our customers can do online ordering today. Frequently, they phone us or even still fax us. And let me just say, fax machines aren’t the most efficient way to take an order, as you can imagine.” – Ecolab (ECL) CEO Doug Baker

Industrials:

Shipping container utilization rates are high

“the higher utilization is coming from a few things, and none of them are extraordinary. It’s coming from solid trade growth and really just coming from the fact that our customers continue to rely more heavily on leasing and they’ve been reducing the container purchases themselves. Our view is that those things are likely to continue, that trade growth is going to remain solid, and that our customers are unlikely to start buying containers very aggressively. I think as long as those things remain true, utilization should remain very high… we do think utilization is going to remain strong for the foreseeable future” – Triton International (TRTN) CEO Brian Sondey

Materials, Energy:

Many factors are driving oil capacity down, prices up

“On the whole, we continue our steady march out of the worst oilfield downturn of a generation…We believe that 3.5 years of E&P underinvestment; depletion-driven well declines; strengthening, synchronized global economic growth; and geopolitical flashbang events are all conspiring to drive the world-wide excess production capacity cushion down, and oil prices up” – National Oilwell Varco (NOV) CEO Clay Williams

Miscellaneous Nuggets of Wisdom:

There’s no excuse for bad manners

“I’d like to apologize for being impolite on the prior call. Honestly, I think there’s really no excuse for bad manners and I was violating my own rule in that regard. Certainly, I have some excuse. There are reasons for it in that I’d gotten no sleep and been working sort of 110-hour, 120-hour weeks. But, nonetheless, there’s still no excuse. My apologies for not being polite on the prior call.” – Tesla (TSLA)) CEO Elon Musk

Get one thing right first

“I remind people of jeff bezos, when he started amazon, he may have had visions about the everything store, but he started with books and he spent ten years getting books right. So we may spend a bunch of time getting one piece of it right before we—and testing various things to see what works”.- JPMorgan Chase (JPM) CEO Jamie Dimon

Full transcripts can be found at www.seekingalpha.com