Andrew Sohn Notes: GIS, SBLK, NKE, ISCA

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Andrew Sohn, a junior at Columbia University, has started to contribute to Avondale’s company notes database. Below are quotes from some of the calls that Andrew has read this week.

 

GIS

GIS shifting and focusing on the core of the business-Ken Powell CEO

We have four clear priorities for U.S. retail in 2016. They are, first and foremost to grow our cereal business, second to accelerate our performance in better-for-you snacking, which includes both our yogurt and snacks operating units within U.S. retail, third to drive double-digit growth on our natural and organic portfolio by leveraging the combination of Annie’s and our heritage natural and organic brands and finally to deliver Consumer First value on select brands in a way that generates positive returns for our business.

GIS cautious about growth and penetration into Chinese markets-Ken Powell CEO

The products are on the shelf in retail stores in Shanghai. We are offering a couple of traditional spoonable varieties. These are very, very high quality building on the French heritage of Yoplait. We are also offering a drinkable product. So there will be basically three platforms. They are on the shelf. They look great. We are really excited by it. We are going to do what we have always done in China, which is to really learn about the business model in Shanghai and then as we success we fully intend to expand that business into other major cities in China.

GIS’s growth predicated on sustained expansion in markets with plenty of runway left for growth-Ken Powell CEO

As you know, our convenience and foodservice business is very, very targeted to the channels that we think have longer term growth potential and so we are highly focused in schools and universities and healthcare and all of those channels are growing anywhere from 2% to 4%. So a part of it is that we are just seeing there is a little bit of a tail wind there and I would say the second part is that our innovation has just worked terrifically well in those channels.

GIS intends to ramp down media based advertising and focusing more on a marketing tactic predicated on sampling-Don Mulligan CFO

Media is down and what I said is our total consumer will be up. And just let me parcel that out. So media is obviously what you see on air, what you see in digital or in print. It will be slightly down, essentially I think about it as flat on a 52 to 52 week basis. So we lose a week obviously this year. Importantly it’s going to be up on key growth platforms where we have clear ideas. Ken just talked about cereal in U.S. and internationally, our snacks business in the U.S., yogurt in the U.S., natural and organic in the U.S. Internationally, we see it in Old El Paso in addition to the cereal businesses and in emerging markets. So we will have media up on platforms where we have strong growth ideas.

And then total consumer will be up low-single digit. So when I talk about total consumer, that takes into things like in-store events. We have many of those in the emerging markets. We are doing Häagen-Dazs in-store displays in Southeast Asia markets. Obviously Yoplait displays in China, Yoki in Brazil. So a lot of opportunity to get more exposure in the store itself. And then sampling falls into it as well. Again think about Yoplait in China as we are launching that brand. We are going to see a lot of our natural and organic businesses getting supported by increased sampling this year in the U.S. So there is a number of vehicles that don’t hit media nor a consumer vehicles that don’t hit media that we will be increasing or invested on this year.

GIS going hard for sampling driven marketing-Ken Powell CEO

Sampling is perhaps the most powerful penetration driver that we have and many of our natural and organic businesses are not really driven in the traditional media. They are in fact driven almost entirely by getting the products into people’s mouths. So that’s a growing part of our marketing mix and one that is not really counted in the media thing. So that’s an important highlight for you.

STRBLK

Its been rough for dry bulk shipping-Petros Pappas CEO

The first quarter has been the worst dry bulk market on record, with the all-time low Baltic Dry Index, set on February 18th. Our financial results have therefore been disappointing, but we’re continuing to pursue a number of actions that will increase our liquidity while also reducing our breakeven levels.

Cost cutting via exploitation of economies of scale has proven to be valuable in a tough environment-Petros Pappas CEO

We have been able to reduce our cost. OpEx for Q1 was $4,439 per day down 7% from a figure for calendar 2014. Our net cash G&A expense for the quarter was cut by 22% to $1,130 per day per vessel. This makes us one of the lowest cost operators in the dry bulk space. We are seeing a direct effect of our economies of scale and strong relationships with key suppliers on our bottom line.

STRBLK using adjustments to ship manufacturing schedule to time capacity for an upswing in the market-Petros Pappas CEO

These agreements increased the liquidity of the Company in the near term and enable us to take delivery of our vessels at the time when we expect trades will have improved. The vessels that have been moved into 2016 will also have a high resale value as they will be one year younger. We raised proceeds of $405 million from equity offerings in January and May 2015. These funds should allow us to outlast this market downturn and benefit from an eventual recovery.

Recent macroeconomic headwinds have caused reshuffling in assets in shipping industry-Petros Pappas CEO

The low straight environment during Q1 is the result of an unprecedented negative demand growth during a period that the market had already been dealing with over supplier. Vessel demand became even more challenging as the continuing fall of commodity prices affected by activity and lead destocking of all major dry bulk commodities with a significant negative effect on seaborne traded volumes. This recent market shock could prove to be a blessing in disguise for the dry bulk market as it has forced owners to take action.
During the first months of 2015 we have experienced record high levels of demolition and significant delays in scheduled deliveries. Furthermore orders have been running at record low level since October ‘14. In fact also after we adjust for conversions and cancellations we can say with confidence that we have practically experienced negative contracting of vessels. The above adjustments have put a ceiling for medium term fit growth and as a consequence the fundamental requirements for a sustainable recovery are slowly being built.

Commodity demand, specifically in steel has been a major cause of the headwinds in the industry-Petros Pappas CEO

Dry bulk trade growth during the first half of 2015 experienced a sharp slowdown mainly as a result of the ongoing commodity price correction that began in the second half of 2014. The steel industry is the most important sector for dry bulk trade. The recent steel consumption slowdown affected demand for raw materials related to the production of steel products, consequently it has also led to a slowdown in energy consumption and impacted thermal coal requirements.

Consumption in China has also caused problems too-Petros Pappas CEO

Furthermore dry bulk trade received additional negative pressure from higher consumption of stocks. For example, China iron ore stocks at ports are currently down 30% year-over-year while thermal coal stocks at major power plants have decreased 4% during the last seven months. As a result during the first five months of 2015 Chinese imports of iron ore and coal decreased by 1% and 38% respectively. On the other hand the Chinese mining industry has been negatively affected from the correction of raw material prices. Between January and May 2015 China domestic production of iron ore and coal have decreased by 10% and 8.5% respectively. We believe that China’s depletion of stocks and domestic production cutbacks will inevitably lead to higher import requirements in the near future and we view 2015 to be a transition year for trade growth.

Scraping has become a key tool to surviving the drought-Petros Pappas CEO

Absence of ordering and increased demolition has slowly put a cap for fleet growth for the next couple of years. Scraping is the single most effective commercial defensive weapon ship owners have in their arsenal apart from laying up. If we stop scraping the market will commensurately delay improving.

NKE

Even with headwinds, 2015 has been great for Nike-Mark Parker CEO

Fiscal ’15 was a great year for nike.com. We delivered 51% revenue growth in Q4 with 55% growth for the full year. We saw increases in both traffic and conversion, fueled by our investments in critical infrastructure to improve the consumer experience on both desktop and mobile. And as I mentioned last quarter, our traffic on mobile has exceeded traffic on desktop, making it a very sharp point for consumer engagement going forward. I’m proud to say our e-commerce business surpassed $1 billion in revenue this past year, a fantastic achievement from all of our teams. But really we’re just scratching the surface of our potential in this area. Global consumer spending through e-commerce exceeds $1 trillion, a significant portion of which is done on mobile devices, tremendous opportunity ahead for us in e-commerce.

While other struggle, Nike has done well in internationally-Trevor Edwards CEO

Now let’s turn to Western Europe where we’ve seen broad-based demand with growth of 17% in the quarter and 21% for the year. Growth in the quarter and throughout the year was fueled by our continued efforts to transform the marketplace in line with the category offense. We saw strong growth across most key categories led by sportswear, running, women’s training and basketball and in the territories, particularly in AGS, that’s Austria, Germany and Switzerland as well as in the U.K. and Ireland.
And finally in China, our Q4 revenue grew 20% and we posted a full year growth of 19%. Our strong growth in the quarter was driven primarily by running, basketball and sportswear. For our wholesale partners, those that have been retrofired continue to outperform the rest of the fleet and in DTC, we saw a growth of 52% with continued strong growth in our stores as well as online.

In China, the NIKE Brand is incredibly strong, which provided the foundation to reset the market in line with the Category Offense. Our strong results throughout fiscal year ’15 demonstrate that our strategy has paid off. We’ve returned to strong revenue growth, we’ve improved profitability and productivity for ourselves and our wholesale partners and inventory in the marketplace is healthy. Going forward, we will leverage the momentum from fiscal year ‘15 and continue to execute this consumer-led strategy to drive sustainable profitable growth in this key geography

ISCA

ISCA has done well, price and volume have both increased-John Saunders ISCA

We’re pleased to report our second quarter results, again exceeding our expectations. The attendance upturn that started with Talladega in the Contender round of last year’s Championship Chase continues to build, and this is the third consecutive quarter we have seen an increase in average ticket price for comparable events, demonstrating a solid trend in the resurgence of our core business.

The average ticket price for comparable events, held during the quarter, was approximately $55.22, an increase of 2.6% as compared to the same period in 2014. For fiscal 2015, the average ticket price for all events held year-to-date is approximately $69.67, an increase of 2%.

NASCAR has been doing well-John Saunders ISCA
NASCAR Sprint Cup has been the number one or number two sport of the weekend for 10 of 15 events in 2015 and the sport is continuing to experience positive trends in social and digital metrics to-date. On the corporate sales front, again a year-over-year increase helped drive results for the quarter. We continue to see favorable trends including robust ad sales for MRN. We have sold all but one of our NASCAR Sprint Cup entitlements and our sales team is well into discussions for a strong partner for this remaining fall cup race at Talladega. We have secured 97% of our total 2015 corporate sales target compared to 94% at this time in 2014.

Casinos at racetracks has proven to be quite profitable-John Saunders ISCA

Our Hollywood casino at Kansas Speedway joint venture is once again a strong contributor to earnings and cash flow during the quarter. Our share of equity earnings increased over 60% compared to last year’s second quarter, driven mainly by continued growth of market share. Our cash distributions from the casino totaled $19.5 million since December 1, 2014 through the end of June and we expect that total of $30 million to $31 million for fiscal 2015. This compares to $22 million received in fiscal 2014. Approximately $4.5 million of the increase is non-recurring and a result of transitioning from quarterly to monthly distributions in 2015, the balance resulting from improvement in operating results