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 7.30.18

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.

The Optimism in the US economy is evident and some say that fundamentals are strengthening, not softening. Many companies are battling inflation, but there are some signs that the pressure may have peaked. Fears of trade wars are probably more bark than bite and the outlook for 2019 appears bright. Are there risks building in the economy? No one seems to be focused on them.

The Macro Outlook:

Optimism is evident

“optimism is evident in our conversations with our clients, indicating resilience of employer confidence…Our Q3 ManpowerGroup Employment Outlook Survey…showed favorable hiring intent in 43 out of 44 countries surveyed.” –Manpower CEO Jonas Prising (Temp Staffing)

“I will tell you that consumer sentiment, consumer confidence is increasing an awful lot.” –Group 1 Automotive Earl Hesterberg (Auto Dealer)

The middle market economy is doing well

“the middle market economy is doing well. Customers feel good about their prospects going forward and are investing in their businesses through increased hiring and capital investments.” –Brown & Brown CEO Powell Brown (Insurance Broker)

Fundamentals seem to be strengthening, not softening

“Fundamentals in our markets are strengthening, not softening…we and the brokerage community predict continued rent increases in all of our markets over the next few years.” –Kilroy Realty CEO John Kilroy (REIT)

Many companies are struggling with inflation though

“Topic number one is inflation…you can’t pick up a newspaper without reading about it or turn on the news and hearing about it.” –WR Berkley CEO Robert Berkley (Insurance)

“We began this year expecting pressure from raw material prices and foreign exchange rates…The challenge has become significantly greater than we originally expected, and we believe it will continue in the second half of the year.” –General Motors CEO Mary Barra (Auto)

“freight, yes; plastic resins, yes; metal in all its various forms for many reasons, including tariffs. So there is some broad-based push on input costs that have kind of come in and affected us and many other industries as well. ” –Coca Cola CEO James Quincey (Beverage)

But inflation may have peaked

“on the price raw materials, we are likely seeing that our commodity prices and the increases we’re seeing there likely at a peak level.” –3M CFO Nick Gangestad (Conglomerate)

Wage inflation is still muted

“I think the overall wage environment in the U.S. in terms of wage inflation is still reasonably muted, I mean it somewhere between 2% and 3%.” –Manpower CEO Jonas Prising (Temp Staffing)

Overall the economy doesn’t seem to be running that hot yet

“Well, if you just look at objective data and you would look at wage inflation and bill rate increases…we’re nowhere near where we were. And so by that measure, we’re hardly – it’s hardly – it’s not running as hot as it ran during [2007], which gives us optimism that this has some legs.” –Robert Half CFO Keith Waddell (Temp Staffing)

And 2019 looks like it will be humming

“I do know with certainty that 2019 is going to be humming. I mean, we’re looking at demand that’s already on the books.” –Halliburton CEO Jeff Miller (Oil Service)

Risk? What’s Risk?

“My view is right now we don’t see anything on the horizon, but kind of given where we are both in the length of the cycle, given where we are on the funds flow of capital into the industry and just what’s happening around, I think anyone that doesn’t have a little bit of a caution to say that things are moving really well, I would say probably not being that thoughtful about the real risk in their business.” –SVB Financial CEO Greg Becker (Bank)

Politics:

Most CEOs don’t want to see a trade war

“free and open trade environment and good relations between China and the U.S. is not only beneficial to the aerospace business, but in turn the aerospace business is beneficial to the economies and jobs of both countries.” –Boeing CEO Dennis Muilenburg (Aerospace)

Unless you’re in the steel industry

“Countries are no longer taking advantage of the United States in trade thanks to…Peter Navarro, this guy that has been expanding United States out there, and we appreciate that. And I appreciate what President Trump did as far as supporting trade.” –Cleveland Cliffs CEO Laurenco Goncalves (Iron Ore)

Tariffs are only a concern to the extent that they damage psychology

“I don’t think yet we’re having specific discussions or we’ve got specific concerns about tariffs per se. I think it’s the second order impacts potentially on sentiment and optimism that concern us more. But at least to this point, there’s very little, if any, impact on that.” –Robert Half CFO Keith Waddell (Temp Staffing)

“at the end of the day, we don’t see a major event or any direct impact other than some minimal impact [from tariffs]” –Texas Instruments (Semiconductors)

Trump is the new normal

“I just got back from a trip to Europe…And what was interesting to me is from a year-ago where I spent a lot of time trying to explain Trump to Germany…Nobody even bothered to ask anymore.” –Moelis & Co CEO Ken Moelis

International:

The French economy has slowed

“When we speak to our clients what they say is that, the French economy is growing very quickly and their manufacturing output and activity was very high at the end of 2017 and coming into 2018. But as they saw a little bit of a slowdown.” –Manpower CEO Jonas Prising (Temp Staffing)

Brexit continues to hang over the British economy

“we do remain concerned about the potential impacts of Brexit. Consumer confidence in the UK has been declining, and we are seeing some deceleration in UK retail sales growth rates year over year, according to our SpendingPulse data.” –Mastercard CEO Ajay Banga (Payments)

At some point Brexit will be clarified

“At some point, late this year and early next year, Brexit has to be clarified. It is a confusing subject to everyone, even people who follow it. But at some point, the UK is going to leave the EU and life will get back to normal” –Group 1 Automotive Earl Hesterberg (Auto Dealer)

Financials:

Effective tax rates are very low

“Our corporate effective tax rate was 12.8% for the second quarter and 8% for the first half.” –Moelis & Co CEO Ken Moelis

Verizon is using tax benefits to pay down its balance sheet

“As we stated at the beginning of the year, we intend to use the majority of the benefits from tax reform in 2018 to strengthen the balance sheet.” –Verizon CFO Matt Ellis (Telecom)

Commercial Real Estate supply and demand is not out of balance

“supply remains largely in balance with demand relative to previous economic cycles.” -HFF CEO Mark Gibson (CRE Broker)

“Currently, there’s only one Class A contiguous block of space greater than 100,000 square feet remaining in the south of market [San Francisco] area today, and brokers are reporting that there are currently 24 companies looking for at least that much space in the city.” –Kilroy CEO John Kilroy (REIT)

Insurance rates are flat (despite a bad loss year last year)

“Rates for most lines continue to be flat with the exception of automobile…Cat property rates are flattish with some downward pressure on the best accounts” –Brown & Brown CEO Powell Brown (Insurance Broker)

The litigation funding industry is a concern for insurance companies

“litigation funding is, and I think we may have talked about this a little bit last quarter is certainly somewhat of a concern, I think, to the industry. They are sophisticated and they have a lot of money.” –W.R. Berkley CEO Robert Berkley (Insurance)

Technology:

Venture capital investments are on pace to break their former record

“Venture capital funds invested $57.5 billion in the first half of 2018 which puts investing on pace to potentially exceed $100 billion for the first time since 2000.” –SVB Financial CEO Greg Becker (Bank)

Industrial and automotive are the fastest growing semiconductor markets

“Industrial and automotive demand remains strong due to broad based growth…Personal electronics grew low single digits…Communication equipment declined from a year ago…we continue to focus our strategy on the industrial and automotive markets…This is based on a belief that industrial and automotive will be the fastest growing semiconductor markets.” –Texas Instruments (Semiconductors)

Healthcare:

More small employers are offering health insurance to their workers

“now even smaller employers, employers with businesses with 50 to 500 workers, are now offering a greater share of their employees than the year before offering health insurance” –HCA CEO Milton Johnson (Hospitals)

Materials, Energy:

Oil prices aren’t high enough to spark renewed interest in deepwater exploration

“Deepwater, as I’ve always said is sort of the last to come back into the frame. And I think deepwater still is push to the right as far as widespread recovery…the exploration that we’re seeing so far has been certainly more focused around sort of step outs and things that are near to existing infrastructure, generally speaking” –Halliburton CEO Jeff Miller (Oil Service)

Oilfield CapEx is still 40% below peak levels

“Projected 2018 U.S.-related CapEx is still running approximately 40% below 2014 peak levels when record amounts of capital was being destroyed” –Core Labs CEO Dave Demshur (Oil Service)

Miscellaneous Nuggets of Wisdom:

Great products win

“one thing that is certain that we’ve learned over our 20-some-year history as a company is that great product wins.” –Under Armour CEO Kevin Plank (Apparel)

Full transcripts can be found at www.seekingalpha.com

2017 Year in Review

This will be our last full post for 2017, so we decided to do a year end wrap-up.  The work below draws from all of the posts that we made this year and uses quotes from management to tell the story of 2017.  Click here to join our weekly email list.

2017 began and ended with excitement about tax reform.  In between, equity markets climbed to new peaks as optimism boomed and the economy posted solid growth. 

Even though stocks posted one of their better performances in history, 2017 felt like a strangely boring year.  Not much happened except for unwavering optimism.  Although the fundamentals were positive, the stock market really felt like it was going up “just because.” 

Nothing exemplified the zeitgeist of 2017 better than Bitcoin, which rose 1,642% between January and December 15.  Stock prices diverged from fundamentals many years ago, but at least they have fundamentals.  Bitcoin is an asset with zero intrinsic value.  It rose only because buyers believed that it would go up.

This type of thinking is typically a hallmark of the extreme late innings of an economic cycle.  Rising inflationary pressures and a tightening Federal Reserve are also hallmarks of the end of an economic cycle.  We saw both in 2017.  Of course, this has not been a typical economic cycle, so anything is possible, but 2018 is unlikely to look like 2017.

January 13

We started the year excited about tax reform

“I could spend all day on tax reform.…the lowering of the corporate tax rate would be a good thing…And then the other one is obviously what they’re talking about relative to overseas earnings and repatriation…For us, this is potentially a really big positive” –Pfizer

But Congress decided to focus on healthcare reform first

“our legislators have been telling us [that] the first thing that’s going to happen in Congress…is Obamacare…So Congress has a lot on its plate right now. And to work through all of the details and get [tax] legislation like that passed, well, Congress is telling us it’s going to be a while in any event.” –Constellation Brands

January 20

Still, the optimism was palpable

“The optimism for positive change here at Bank of America and among our customers is palpable and has driven bank stock prices higher. We will have to see how these topics play out, but we are optimistic.” —Bank of America

January 27

Capital markets loved the idea of a pro-business administration

“Obviously our new administration is pro-business, but there’s a lot of moving parts in that…I think we’re all waiting to see if there’s a tax reform package that would allow us the ability to access overseas cash and repatriate cash…I think that would make a big difference for a lot of multinationals” —Abbott Labs CEO Miles White (Healthcare)

“I think all of us recognized we’ve got a new administration in Washington which has an agenda to be friendly to business and I think, we’re anxious to see how all of that will play out certainly tax reform is the biggest single item that we’re focused on this year.” —United Technologies CEO Greg Hayes (Conglomerate)

And that helped give businesses confidence to invest in growth

“As I have gone around the state, visiting all our locations during the month of December, one thing it was a consistent message was how many customers particular I would say mid and small customers are moving forward with plans that they had, had delayed, right? Somebody had a piece of equipment they want to put in and they can wait for six months, after they got the clarity from the political situation, the word was let’s move forward, let’s move forward now. So I think you are definitely seeing just general optimism in the market moving forward…I think we are seeing momentum increase. I would expect loan growth to be better than 2016 for sure.” —Cullen Frost CEO Phillip Green (Bank)

February 3

Animal spirits had been unlocked

“the animal spirits are real, there is no doubt about it…when you have the whole herds thinking about slow global growth and that’s just the way it is and that’s just the way it’s going to work, well, it becomes self-reinforcing because we all act that way…but right now the feelings are better than I’ve seen them in long time and that could be enough to get the herd moving in the direction of saying, I’d better not miss this moment as oppose to just hunker down and keep waiting it out.” —Honeywell CEO Dave Cote (Conglomerate)

But the hard data wasn’t keeping up with the soft data

“client sentiment has clearly and markedly improved. With that said when you look at their actual activity levels…There is a little sense of urgency…they are waiting to see more activity in their business before their hiring activity reflects that.” —Robert Half CEO Harold Messmer (Temp Staffing)

February 10

There were risks, but markets didn’t seem to care

“The S&P 500 is trading at roughly 19 times earnings, 3 turns higher than the 50-year average of 2016. These valuations make me uncomfortable, especially given the unknowns in taxation, foreign trade, regulation and more…To sum up, in my opinion, the markets are priced for perfection, and they have been that way for quite some time, complacency reign supreme. However, my experience has shown me that this state of affairs won’t go on indefinitely…It’s a tough market in which to be a disciplined buyer.” –Loews

February 17

The President was the stock market’s biggest cheerleader

“The stock market has hit record numbers, as you know, and there’s been a tremendous surge of optimism in the business world, which means something different than it used to. Now it means it’s good for jobs. Very different. Plants and factories are already starting to move back into the United States, big league, Ford, General Motors.” —President Donald Trump (Government)

February 24

And optimism continued to grow

“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)

March 3

Markets loved Trump

“Well, there’s no question that animal spirits have been unleashed a bit post the election. Stock market is up a lot. Household and business confidence have increased significantly…there’s no question that sentiment has improved quite markedly post the election.” —Federal Reserve Bank of NY President Bill Dudley (Central Bank)

March 10

Retailers were just about the only industry that was struggling

“Our industry is the midst of a seismic shift, and, of course, you read the headlines. In fact, many of you write the reports, we’re operating in an incredibly challenging environment. All across the retail industry, many of our competitors are aggressively rationalizing their assets. They are closing stores, exiting markets. They’re cutting costs just to keep their heads above water. We’ve not seen this number of distressed retailers since 2009 in the Great Recession.” —Target CEO Brian Cornell (Retail)

March 17

Even the Fed noticed the change in sentiment

“I think it’s fair to say that many of my colleagues and I note a much more optimistic frame of mind among many, many businesses in recent months…the shift in sentiment is obvious and notable.” —Fed Chair Janet Yellen (Central Bank)

They raised rates in March, but continued to take an accommodative stance

“Even after this increase, monetary policy remains accommodative…the data have not notably strengthened…we haven’t changed our view of the outlook. We think we’re on the same path; not, we haven’t boosted the outlook projected faster growth. We think we’re moving along the same course we’ve been on” —Fed Chair Janet Yellen (Central Bank)

March 24

Consumer confidence boomed with the stock market

“There’s clearly a sense of general optimism in the market. There’s a perception that jobs are being created and that wages are actually starting to move upward. There’s a solidifying sense that the government has adopted a business-friendly posture and that will result in real changes to tax rates and to the regulatory environment.” —Lennar CEO Stuart Miller (Homebuilder)

April 20

But as the administration stumbled, optimism began to wane

“The first quarter was an interesting one, as we entered it with a lot of optimism about what the new administration might do to further improve the economy. As the quarter continued, some of this optimism has slowed and now companies are more cautious or skeptical about what shape some of the programs, including tax reform, infrastructure projects and ACA reform will take and when they might actually take effect, if at all.” —Brown and Brown CEO Powell Brown (Insurance Broker)

The yield curve fell along with expectations

“So, because that stimulus hasn’t occurred, it still may, but certainly is lower probability today than it was in November and December. They were back down in lower 10-year rates, lower mortgage rates than we were there for a while. And now we have to ask ourselves again, are we going to be lower for a while, lower for longer or are we still awaiting for a shoe to drop in for there to be a big backup in rates?” —Wells Fargo CFO John Shrewsberry (Bank)

Companies said that they were waiting for more clarity on policy

“In general, when we talk to our RMs and talk to the customers, I think the general sentiment is one of optimism, but they’re in kind of a wait-and-see mode. And they’re just waiting, I think, for more certainty about which direction the administration is going to go” —M&T Bank CFO Darren King (Regional Bank)

April 27

Growth turned out to be fairly anemic in Q1

“You had a fairly anemic GDP growth rate this first quarter. The projections are for great improvement coming up and we hope that’s the case…you read almost every day and you see in the press virtually every day…the gap between hard data and soft data, sentiment optimism on the one hand and actual levels of activity on the other.” —Robert Half CEO Harold Messmer (Temp Staffing)

May 5

But market participants stayed optimistic anyways

“Information received since the Federal Open Market Committee met in March indicates that the labor market has continued to strengthen even as growth in economic activity slowed….The Committee views the slowing in growth during the first quarter as likely to be transitory” —The Federal Reserve

Global growth began to kick in

“When the US economy, which is approximately 20 trillion, does well much of the world does well. To us this means our concerns of China or Europe precipitating a worldwide recession depression have been significantly reduced, but not delaminated. Also the trade policies of the US could precipitate a collapse in world trade.” – Fairfax Financial Holdings CEO Prem Watsa (Insurance)

May 19

French elections helped ease political risk in Europe

“It’s nice to hear people talking about Europe in a positive way. We’re really seeing growth in a broad way you haven’t seen in 5 or 10 years. The political risk in Europe is coming down. Europe is in the 3rd inning of a recovery. The US, depending on Trump, is somewhere between the 7th and 9th inning.” – Polygon Global Partners LLP Founder Reade Griffith

June 9

By mid year it was clear that relatively little change would actually be coming from Washington

“You’ll probably get some tax reform and it will more likely resemble a tax cut as opposed to broad-based reform” – PIMCO Global Chief investment officer Dan Ivascyn

But investors kept buying anyways

“The level of complacency about where markets are today is pretty scary. People are just sort of assuming it’s OK, that it is what it is, and I have to say that I’m a little bit concerned about it.” – TPG Co-CEO Jon Winkelried

June 15

Volatility was abnormally low

“We’re on increasing watch for volatility…there is a massive amount of money that is being short VIX. It’s a trade that’s made a lot of money and its very very crowded, which suggests to me the days of low volatility are numbered…If you’re a trader or a speculator I think you should be raising cash today, literally today. If you’re an investor you can easily sit through a seasonally weak period” —Doubleline CIO Jeff Gundlach (Asset Management)

June 29

Animal spirits were driving the economy

“a lot of what’s driving people to the market is a sense of confidence, it’s animal spirits…the confidence that people bring with them to the table about whether their job is stable and whether there’s going to be a wage increase or there is opportunity for them to move and be mobile to the next job opportunity.” —Lennar CEO Stuart Miller (Homebuilder)

After years of slow growth, a simple return to normal felt euphoric

“The slow and steady though sometimes erratic market improvement that we have seen for the entirety of this recovery continues to seem to be giving way to a more definitive reversion to normal.” —Lennar CEO Stuart Miller (Homebuilder)

July 14

Central Bankers began to feel like they could begin to unwind accommodative policies

“for the first time in many years, the global economy is experiencing synchronous growth, and authorities in the euro area and the United Kingdom are beginning to discuss the time when the need for monetary accommodation will diminish.” —Federal Reserve Governor Lael Brainard (Central Bank)

The Fed started to talk about shrinking its balance sheet

“If the economy continues to evolve in line with our expectations, it is something we should begin to do this year. To my mind, I would say relatively soon. The exact timing of this, I do not think matters a great deal. It is something we have long been preparing to undertake.” —Federal Reserve Chair Janet Yellen (Central Bank)

July 20

At the same, time retail investors started to pour back into investment markets

“We are seeing this quarter very broad-based engagement in the market, so everyone from brand-new customers opening their first account to very active traders seem to be engaged in the market. We saw a good activity across pretty much all of our products.” —TD Ameritrade CEO Tim Hockey (Broker)

Voices of warning were few and far between

“…don’t be mesmerized by the blue skies created by central bank QE and near perpetually low interest rates. All markets are increasingly at risk….Strategies involving risk reduction should ultimately outperform “faux” surefire winners generated by central bank printing of money. It’s the real economy that counts and global real economic growth is and should continue to be below par.” —Janus Portfolio Manager Bill Gross (Investment Management)

August 11

The original reasons for optimism never really materialized but it’s better to be lucky than right

“I guess this is a case of better lucky than right. We expected the market to go up but for different reasons. We thought it would be based on generally positive growth oriented policies enacted by the administration, lower taxes, infrastructure spending, healthcare, reform et cetera, none of these things transpired. But what has transpired has been kind of global synchronized economic growth and a very accommodative global monetary structure. So, I’m happy with the outcome the reason for it was different from what we anticipated, but we’ll take it.” –Third Point CEO Dan Loeb (Hedge Fund)

September 14

People who know market history knew that cycles go both ways

“It’s definitely cyclical folks, I mean you will have a volatile market…people panic. People panicked in 2008 and 2009, they panicked in the 1989, they panicked in 1994, they panicked in Asia in 1997, they panicked in the Internet thing in 2000, the people will panic, you will panic. You will all be running through the door like everybody else and regulators will panic and – come on, and I just said, the government support $12 trillion securities that has to have some effect on depressing volatility…so the market will become more normal again one day” —JP Morgan CEO Jamie Dimon (Bank)

And warned against chasing the hot dot

“it will eventually blow up. It’s a fraud okay. And honestly I’m just shocked anyone can’t see it for what it is.” —JP Morgan CEO Jamie Dimon (Bank)

September 22

Cycles usually end when Central Banks tighten

“in October we will begin the balance sheet normalization program that we outlined in June. This program will reduce our securities holdings in a gradual and predictable manner.” —Fed Chair Janet Yellen (Central Bank)

October 6

But the economic momentum was still strong

“I think we are absolutely seeing that continued momentum, particularly in the upper end of the economy” —Vail CEO Rob Katz (Ski Resorts)

Labor markets became particularly robust

“The often discussed labor shortage in many sectors of the economy is translating into wage growth. And while much of the data collected by the government doesn’t seem to reflect significant wage growth, the customers visiting our Welcome Home Centers are reflecting an optimistic sentiment and an ability to afford today’s more expensive homes.” —Lennar CEO Stuart Miller (Homebuilder)

October 12

Consumers were healthy

“not just in the U.S. but as we look around the world we would rate the health of the consumer right now is pretty good…as you look across the world unemployment is low, employment is high. Probably the bigger challenge to the consumer or to the worker has been the lack of wage growth…And we’re beginning to see some of that and again that’s helping to the consumer.” —Citigroup CFO John Gerspach (Bank)

October 20

Optimism built

“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)

Investors continued to chase rising markets

“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)

October 27

The environment began to resemble a boom

“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)

Booms come with inflationary pressures

“I mean obviously we’re in a bit of an inflationary environment for some of the commodities…” —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… ” —Kimberly Clark (CPG)

“We knew we’d see higher pulp cost going into year, these costs have continue to increase beyond initial forecast ranges.” –Procter and Gamble (CPG)

November 3

Yet investors seemed indifferent to risk

“It’s an environment where the uncertainties are unusual in terms of number, scale and insolubility, where prospective returns are just about the lowest they have ever been, where asset prices are high across the board and where pro-risk behavior is commonplace. It’s impossible for us to predict what will catalyze the market’s correction, how severe it might be and when it will occur…We do not believe this is a time in the cycle for reaching for return” —Oaktree (Investment Management)

November 10

It was hard to see any reason that the cycle wouldn’t last into 2019

“I fundamentally believe the recovery is going to spread out over two years. I think the recovery is going to be spread out over 2018 and 2019….I fundamentally don’t believe the bigger projects will start happening…until late 2018 early 2019. ” —Emerson (Industrials)

November 17

There were some signs that consumer credit quality may be fraying

“there has been an increase in bad debt expense driven in part by the growth in uninsured revenue.” —Tenet (Hospitals)

“As it relates to credit…we are seeing a little bit more of a normalization as we move forward…we actually have seen a little higher level of reserves that need to be put in place, as well as some financing charges that have been recognized” —JC Penney (Retail)

December 1

But consumers continued to spend

“People are spending more, in some cases, they’re earning more.” —Wells Fargo (Bank)

Consumption was fueled by optimism

“Our third quarter Consumer Sentiment Survey highlighted that consumers have an increasingly positive view of the national economy and continue to view their personal financial situation favorably. Given that over half of homeowners believe their home values are increasing, intent to engage in discretionary home improvement projects remains strong.” —Lowes (Home Improvement)

December 8

Congress finally made progress on tax reform at year end

“we’re very excited about where the tax reform is headed, we’re especially excited about the house version because it starts almost immediately where the Senate is the later year.” —Kroger (Grocery)

That put the cherry on top of 2017

“our expectation is that…tax reform…will create a little bit more momentum. Exactly how much momentum? I am not 100% sure but could you imagine that increasing whatever the run rate GDP is by half a percent, I think that’s a reasonable assumption, may be not happen on January 1 but this could happen overtime.” —Wells Fargo (Bank)

December 15

The year ended with one last increase in interest rates

“Today, the Federal Open Market Committee (FOMC) decided to raise the target range for the federal funds rate by 1/4 percentage point, bringing it to 1-1/4 to 1-1/2 percent.” –FOMC

And Janet Yellen said goodbye

“Finally, I’d like to note that, although I have one more FOMC meeting to attend in the New Year, this will be my last scheduled news conference. Over the next month and a half, I will do my utmost to ensure a smooth transition to my designated successor, Jay Powell. I am confident that he is as deeply committed as I have been to the Federal Reserve’s vital public mission. Thank you for being such an attentive audience these past four years.” –FOMC

She will be sleeping well

“I mean of course the stock market has gone up a great deal this year, and we have in recent months characterized the general level of asset valuations as elevated. What that reflects is simply the assessment that looking at price earnings, ratios, and comparable metrics for other assets other than equities, we see ratios that are in the high end of historical ranges. And so that’s worth pointing out. But economists are not great at knowing what appropriate valuations are. We don’t have a terrific record, and the fact that those valuations are high doesn’t mean that they are necessarily overvalued. We are in a, I’ve mentioned this in my opening statement, and we’ve talked about this repeatedly, likely, a low interest rate environment lower than we’ve had in past decades, and if that turns out to be the case, that’s a factor that supports higher valuations. We’re enjoying solid economic growth with low inflation, and the risks in the global economy look more balanced than they have in many years. I think what we need to and are trying to think through is if there were an adjustment in asset valuations with the stock market, what impact would that have on the economy and would it provoke financial stability concerns. And I think when we look at other indicators of financial stability risks, there’s nothing flashing red there or possibly even orange…look, at the moment the U.S. economy is performing well. The growth that we’re seeing, it’s not based on, for example, an unsustainable, build-up of debt as we had in the run-up to the financial crisis. The global economy is doing well. We’re in a synchronized expansion. This is the first time in many years that we’ve seen this. Inflation around the world is generally low. So I think the risks are balanced, and there’s less to lose sleep about now than has been true for quite some time, so I feel good about the economic outlook.” –FOMC

FOMC Press Conference Notes

The Fed raised rates again

“Today, the Federal Open Market Committee (FOMC) decided to raise the target range for the federal funds rate by 1/4 percentage point, bringing it to 1-1/4 to 1-1/2 percent. Our decision reflects our assessment that a gradual removal of monetary policy accommodation will sustain a strong labor market while fostering a return of inflation to 2 percent, consistent with the maximum employment and price stability objectives assigned to us by law”

Expect the labor market to remain strong

“You may have noticed that we altered the statement language about the labor market outlook. This change highlights that the Committee expects the labor market to remain strong, with sustained job creation, ample opportunities for workers, and rising wages. ”

Inflation measures remained below 2%

“Even with a firming of economic growth and a stronger labor market, inflation has continued to run below the FOMC’s 2 percent longer-run objective. The 12-month change in the price index for personal consumption expenditures was 1.6 percent in October, up a bit from the summer but still below rates seen earlier in the year. Core inflation–which excludes the volatile food and energy categories–has followed a similar pattern and was 1.4 percent in October.

Yellen out

“Finally, I’d like to note that, although I have one more FOMC meeting to attend in the New Year, this will be my last scheduled news conference. Over the next month and a half, I will do my utmost to ensure a smooth transition to my designated successor, Jay Powell. I am confident that he is as deeply committed as I have been to the Federal Reserve’s vital public mission. Thank you for being such an attentive audience these past four years.”

Of course the stock market has gone up a lot this year

“I mean of course the stock market has gone up a great deal this year, and we have in recent months characterized the general level of asset valuations as elevated. What that reflects is simply the assessment that looking at price earnings, ratios, and comparable metrics for other assets other than equities, we see ratios that are in the high end of historical ranges. And so that’s worth pointing out. But economists are not great at knowing what appropriate valuations are. We don’t have a terrific record, and the fact that those valuations are high doesn’t mean that they are necessarily overvalued. We are in a, I’ve mentioned this in my opening statement, and we’ve talked about this repeatedly, likely, a low interest rate environment lower than we’ve had in past decades, and if that turns out to be the case, that’s a factor that supports higher valuations. We’re enjoying solid economic growth with low inflation, and the risks in the global economy look more balanced than they have in many years. I think what we need to and are trying to think through is if there were an adjustment in asset valuations with the stock market, what impact would that have on the economy and would it provoke financial stability concerns. And I think when we look at other indicators of financial stability risks, there’s nothing flashing red there or possibly even orange.”

There’s a lot less to lose sleep over

” look, at the moment the U.S. economy is performing well. The growth that we’re seeing, it’s not based on, for example, an unsustainable, build-up of debt as we had in the run-up to the financial crisis. The global economy is doing well. We’re in a synchronized expansion. This is the first time in many years that we’ve seen this. Inflation around the world is generally low. So I think the risks are balanced, and there’s less to lose sleep about now than has been true for quite some time, so I feel good about the economic outlook. “

Company Notes Digest 12.8.17

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.

Our focus this week was on tax reform. A bill is now expected to be passed before the end of the year and corporate America is excited. Companies will certainly benefit, but how will they spend their extra cash and will it boost the economy? Average Americans don’t get quite as big of a windfall.

The Macro Outlook:

Corporate America is excited about tax reform

“we’re very excited about where the tax reform is headed, we’re especially excited about the house version because it starts almost immediately where the Senate is the later year.” —Kroger (Grocery)

Most companies are well positioned

“I would say overall we feel we’re well positioned for the things that are being talked about – almost all of our cash is outside of the U.S., so any sort of repatriation that will be a positive for us.” —Donaldson (Industrial products)

Some companies will benefit more than others

“we don’t expect tax reform to have an impact on us for quite sometime. We have over $1 billion worth of net operating losses that we can burn going forward…So we will have a – some slight balance sheet adjustments as we revalue our tax assets and tax liabilities” —Workday (SaaS)

Domestic companies will benefit most

“We are entirely a domestic company. 98% of our revenues are here in the U.S. We are not a capital-intensive company. So…we will pay tax at close to the statutory rate. So, a reduction from 35% to what’s currently being discussed at 20%, very significant for us, even if it drifts up a little bit from 20%. ” —HD Supply (Distributor)

How will companies use the extra cash?

“you’ve heard some people now say they’ll increase their capital expenditures and that will accelerate. So, I think that’s what our corporate clients are telling us…So, I think it will unleash some activity. No question.” —Bank of America (Bank)

“We believe it will also influence us to continue to invest in our business which will grow jobs and I think what will end up happening is you will see us do a balance of everything together, some of it our shareholders will benefit from, some of it our associates will benefit from and our customers will benefit from it as well” —Kroger (Grocery)

“I think we don’t have any particular direction for that incremental cash other than to put it in the general coffers that I spoke about on the first question” —Toll Brothers (Homebuilder)

Will it boost the economy?

“our expectation is that…tax reform…will create a little bit more momentum. Exactly how much momentum? I am not 100% sure but could you imagine that increasing whatever the run rate GDP is by half a percent, I think that’s a reasonable assumption, may be not happen on January 1 but this could happen overtime.” —Wells Fargo (Bank)

Economic activity is already pretty strong

“If we look at what we’re seeing in our customer behaviors…I would say consumers are spending…the spend patterns were really quite strong and pretty broad across categories…Loan demand…is still pretty solid…so we’re really quite optimistic actually…it doesn’t feel like there is a meaningful point of fragility out there.” —JP Morgan (Bank)

“consumers are spending. They’re spending well. The unemployment is low. They’re getting paid…When we talk to our corporate customers, the commercial customers – small businesses, medium-sized businesses – they’re all making money. They’re seeing good, decent final demand, but it’s consistent with that 2% growth economy.” —Bank of America (Bank)

“feedback that we’re getting from our customers in terms of looking at customer activity on the consumer and the commercial side is that there it seems as if that there is some reasonable momentum.” —Wells Fargo (Bank)

The tax bill’s impact on consumers is less certain

“On the corporate side, we are encouraged by the potential reduction in the corporate tax rate as it will help our earnings and cash generation. On the personal side, while the potential reduction in the MID, real estate tax and self-deduction not being helpful to buyers, especially in our coastal regions, we believe they may be offset by a lower stated tax rate, the doubling of the standard deduction, the potentially removal of AMC, lower pass-through tax rates, and the elimination of the phase-out of itemized deductions.” —Toll Brothers (Homebuilder)

It’s likely to be a wash

“If SALT passes where there is limited or no deductibility of state and local taxes, and obviously, California, New York, New Jersey are impacted with higher state tax rates. But I’ll reiterate what I said before, we don’t think our buyers, that our price point are driven by the taxes they pay when it comes to purchasing our homes…We’ve also studied in some detail, a typical buyer in eastern states and also in California, and again without knowing exactly where the new bill comes out…it appears as a wash or very close to a wash.” —Toll Brothers (Homebuilder)

We’ll have to wait for the final details

“our tax team is anxiously awaiting any final laws that are adopted…I know the guys are studying everyday and we’re just kind of waiting for what the final revolution will be.” —Donaldson (Industrial products)

Financials:

This bull market has been relatively unexciting

“volatility has remained pretty low across the spectrum…I wouldn’t use the word challenging, I would use the word that it hasn’t been – there haven’t been that many catalysts [for trading activity] it hasn’t been that exciting” —JP Morgan (Bank)

Consumer:

The holiday shopping season is off to a strong start

“We have seen a strong start to the North American holiday season with improvements in both traffic and sales trends” —PVH (Apparel)

Retail traffic has improved

“Traffic has improved and we see business just in general improved. And the other big benefits that I think everyone will see is inventories under real tight control. So I think it feels like again we’ve got a month ahead of us of this holiday selling, but it feels like we’re going into December with a lot of momentum, tighter inventories. I think it will be promotional, but probably not as promotional as last year there’ll be less goods to clear on January, if these trends continues. So we are very positive in all that we’re seeing throughout North America across all of our businesses and across the various different channels of distribution with our key customers.” —PVH (Apparel)

But that doesn’t mean that retail is out of the woods

“I’m not ready to say that everything is great in North America retail overall. I think we’re going to continue to see downsizing of businesses and store closings…I think that our retail partners have done a terrific job of managing into the fourth quarter…But it doesn’t mean that the ills that are impacting retail in North America…is over…And I think we’re going to have to deal and manage through some probably bankruptcy situations with some of our smaller accounts as we move forward. But I think that’s just the nature of the North America retail business.” —PVH (Apparel)

Technology:

There’s also a bit of a bubble in blockchain development

“The underlying technology of blockchain is definitely very interesting. We have been interested from the very beginning. I would say there’s a little bit of a bubble in blockchain technology too because…Every CEO who goes to a meeting is asked about cryptocurrencies and blockchain as they go back to their office and say hey what are we doing about blockchain. So, there’s a lot of experiments going on in blockchain. But there isn’t to the best of my knowledge a real industrial quality use of blockchain that is up and running today.” —Visa (Payments)

Blockchain is not yet suitable for high volume transactions

“our view right now at least based on the technology as it stands today is that it’s applicable in let’s call it high ticket low volume kinds of situations, not our kinds of low ticket extremely high-volume situation, because the technology is not set up for that, maybe it will someday.” —Visa (Payments)

We won’t really know what cryptocurrencies are worth until they are tested

“My own view on cryptocurrencies is until there is a – until we have a crisis we won’t know much about them, right. They have never been tested. And I think we are getting to a point where they will be tested and then we will know what they are all about” —Visa (Payments)

Steve Ballmer deserves some credit for Microsoft’s renaissance

“Some decisions were made when Steve was still the CEO, like investing in Azure, for example, was the decision that was made originally under Steve’s watch…Steve was there when we started the move to Office 365. Steve was there when we decided to get into CRM online business. And so a lot of that stuff was started many years ago. And I think what Satya did is really to step on the gas.” —Microsoft (Enterprise Tech)

The cloud still only handles 10% of compute workloads

“I would say some of the numbers I’ve seen is that like 10% of the workloads are in the cloud. I would make an argument that that might even be optimistically, we might not even be there yet. And so, I think we still have lots of opportunity to move workloads to the cloud. And so, I think that will take place not over the next year or two years but more like over the next 5 to 10 years” —Microsoft (Enterprise Tech)

Deep pockets will be needed to win the AI race

“I think the folks who win in AI will be the ones that are willing to make the big investment and who are willing to innovate both on the hardware and the software side. And we’re making investments in both those. We’re also seeing some companies out of China that are leaning in heavy on AI. And so, I think it will be – I do think it will be a bit of a deep pockets race.” —Microsoft (Enterprise Tech)

Full transcripts can be found at www.seekingalpha.com

Company Notes Digest 12.1.17

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.

We were off last week for Thanksgiving, but did have some notes that we compiled, so this post incorporates the last couple of weeks of conference calls.  Earnings season is slow, but several companies spoke at conferences. 

From an economic perspective, the consumer is optimistic, but credit card debt is likely the next area where there is a little too much leverage.

The Macro Outlook:

The economy is strong

“The North American market is – remains extremely strong, even though there’s still a lot of uncertainty on the whole federal government infrastructure support bill and tax bill, et cetera. The demand is there. The economy’s strong.” —Jacobs Engineering (Engineering/Construction)

Consumers are optimistic

“as we survey consumers, we continue to see favorable trends. Our third quarter Consumer Sentiment Survey highlighted that consumers have an increasingly positive view of the national economy and continue to view their personal financial situation favorably. Given that over half of homeowners believe their home values are increasing, intent to engage in discretionary home improvement projects remains strong.” —Lowes (Home Improvement)

And they’re spending more

“mid to high single-digit growth rates in debit and credit card transactions that represents a lot going on out there among consumers. People are spending more, in some cases, they’re earning more.” —Wells Fargo (Bank)

Are they getting over-extended?

“there’s a lot of competition to provide credit to consumers. And that’s probably at the margin, where excess leverage will show up. I don’t think it’s happened yet, broadly speaking, even the loss rates are a little bit higher than they have been for the last few years.” —Wells Fargo (Bank)

International:

Caterpillar sees sustainable change in India

“India is growing well. Under the Modi government it’s really doing some things that seems like there is going to be sustainable change going forward in India as well.” —Caterpillar (Construction equipment)

Brazil is still tough though

“Brazil is tough, very tough. I mean, the industry has really dropped off, whether it’s corruption and the government trying to get their act together. It’s taking a long time and it’s still got some time to play out I think before you see that coming back out.” —Caterpillar (Construction equipment)

Financials:

Malls aren’t the only ones losing foot traffic

“So we’ve talked clearly about the first 450 branches that will be taken out…there still are very high-level of personal interactions in branches, but it was down 5% or 6% year-over-year. And almost all of that is attributable to people self-serving on their computer, on their phone, and of course, phone has now recently, in our case, overtaken online.” —Wells Fargo (Bank)

Consumer:

Advertisers need to figure out how to work with a new medium

“we need to develop 21st century storytelling…the media diet has changed. Those meals of 60 seconds or 30 seconds, nobody is eating those as the only meal they get; that’s still exists; but now they are eating a lot of bites; six seconds that’s all the span of attention they have” —Coca Cola (Beverage)

Success is critical

“You know, particularly for the Urban brands, our customer lives on social media. So, that presence is really critical…it’s really not driving a lot of sales just yet, but I think this is very, very early days and I would expect this to be a major strategy going forward.” —Urban Outfitters (Retail)

Walmart grew its e-commerce business at 50% last quarter

“Walmart U.S. eCommerce sales were up 50% this quarter, with the majority of the increase through Walmart.com. Existing customers have become advocates for popular initiatives like online grocery and free two-day shipping, and as a result, new customers, suppliers, and partnerships are coming to Walmart.” —Walmart (Retail)

They’re hanging out with Google

“We heavily invested in some of the relationships…take the Wal-Mart example, we all spent a lot of personal time…with the teams at Wal-Mart. We went there. We visited them. They visited us over many, many years and we got to a point where we thought we can create a great relationship here.” —Walmart (Retail)

Technology:

Walmart isn’t the only Fortune 500 company building strategic partnerships with Google and Facebook

“There are platforms like Google and Facebook. I was there 10 days ago; telling them listen, I don’t want to tell you – I don’t want to ask you tell me what is the best price for these words in Google Apps or for these in your platform; I want for you to sign a number a non-disclosure agreement; I want to tell you all my strategy; I want to you to poke all the holes in it; and I want you to bring insights; and we’re doing that in the December, because we are going to co-create our strategy with our partners.” —Coca Cola (Beverage)

Tech decisions are being made at higher levels of organizations

“Mark and I have seen this over the last 24 months, there is a very accelerated increase in CEO dialogue…the level of dialogue is up leveled significantly with respect to what levels in the organizations we are talking to and what our capabilities are. I mean just last week I was in Europe and met with over 50 CEOs and the topic was all about digital transformation and how these companies move.” —Salesforce (CRM)

“Over the last six months or so, I’ve seen a pretty dramatic shift to where enterprises realize the value of what they have in that data…we’re really moving from where we were traditionally in the back-office data processing now out into the line of business. So we maybe within the same company, but we’re talking to entirely different people. We’re not to talking to the CIO of a hospital. We’re talking to the Chief Medical Officer.” —IBM (Enterprise Tech)

Quantum computing could represent the next paradigm shift in computing power

“I said, 10-15 years ago I did not think I would see a quantum computer in my lifetime. And by the way, the quantum computer is not on that Moore’s law curve I showed you. It’s in a completely different curve of its own. Its orders of magnitude faster than anything built on Moore’s law. In fact, a robust quantum computer, when we build it in the fairly near future, will be a performance step equal to the last 50 years of Moore’s law. So this is not like a little – so this is disruptive…So I used to think I would never see one in my life. Five years ago, I said I’m going to see one in my life. I now see one in my career.” —IBM (Technology)

Industrials:

GM sees $1/mile as a magic number for ride sharing

“We think autonomous ride sharing opportunity will be very, very large from an addressable market perspective and today is only in its early phases. The true value will be unlocked when you can get the cost per mile to be less than $1. If we think about it today, ride sharing is between $2 and $3 and we see a path to get into below $1 in the medium term” —General Motors (Automobiles)

Global aviation market is robust

‘Turning to aviation. This market is robust due to continued passenger growth, especially in emerging economies, aging terminals in some geographies and improved profitability among major airlines.” —Jacobs Engineering (Engineering/Construction)

Materials, Energy:

Copper and Iron Ore companies are investing in replacement capacity

“The focus for us is copper and iron ore, and we’re seeing activity in both. A lot of activity in Australia and South America specifically…replenishing capacity as mine lives come closer to end” —Jacobs Engineering (Engineering/Construction)

Dry bulk shipping carriers are even showing signs of improvement

“The bulk carrier market conditions have shown clear signs of improvement this year compared to the historically depressed market environment seen in 2016.” —Diana Shipping (Dry Bulk)

Full transcripts can be found at www.seekingalpha.com

Company Notes Digest 11.17.17

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.

Ordinarily we would focus on retail in this week of the earnings cycle. There are a number of quotes in this week’s piece from traditional brick and mortar stores, but companies like Macys no longer feel relevant to the broader economic picture. It feels like that alone speaks volumes about the state of the industry.

Instead this week, the headline macro discussion is about housing. Following years of under-building we now find ourselves in a supply constrained environment. This is favorable for homebuilders and home-owners, but frustrating to anyone who hopes to buy. Political gridlock and rising prices are leading to a great migration of millennials from coastal markets to southern and midwestern cities with a lower cost of living.

The Macro Outlook:

Homebuilders are jacked up on housing markets

“I will tell you, Bob, the market feels really good. The positioning of this company with its people and its communities – never been better. So yes, we are pretty jacked up.” —DR Horton (Homebuilder)

There’s a lack of supply, especially on the coasts

“Especially in highly competitive coastal markets, it has become extraordinarily hard for customers to buy a home…even though buyer anxiety about rising home prices remains a concern, the number of homes for sale is once again the overwhelming issue” —Redfin (Online Broker)

Political gridlock makes it impossible to build

“There is so much political gridlock in a place like San Francisco around building new homes, especially high-density homes…So I don’t really see that inventory crunch getting much better in most of the coastal markets. I just see it starting to become a problem in markets where we never thought it would be. Hearing that there’s a bidding war in Pittsburgh, who would have thought?” —Redfin (Online Broker)

Housing markets could stay tight through 2020

“As we think about housing broadly and fears of slowdown, we don’t see that for 2018, 2019 and 2020 for a number of reasons. We’ve talked about an aging housing stock, household formation and home price appreciation, and you may say, well, home prices are really hot, haven’t they fully recovered peak to trough? Well, yes, they have, but on an inflation basis, they’re still down double digit.” —Home Depot (Retail)

Tax reform probably won’t have much impact

“candidly, we don’t subscribe to the fact that…the mortgage interest deduction elimination would have much of an impact…in large part because the majority of households wouldn’t have an impact from what’s described today…Our research shows that only 23% of tax filers actually use the deduction. And then of the people who have mortgages, only 5% have mortgages in excess of $500,000.” —Home Depot (Retail)

As a result there is a great migration of buyers

“The larger long-term trend is a great migration from expensive coastal markets to more affordable Midwestern and Southern cities. This has already happened in places like Austin, Denver and Portland, and it is now transforming places like Charleston, Detroit, Nashville and Salt Lake City.” —Redfin (Online Broker)

International:

Growth has accelerated in developing markets

“We do see some acceleration in growth in developing markets. I mentioned our results in China. Those were both market and share driven results. We see the categories in India moving past all of the policy interventions, the tax intervention and the demonetization intervention and resuming very nice growth. Russia is also getting better sequentially quarter by quarter. Brazil…in general some pick up in developing markets and to the extent that commodity cost continue to move which they have been I would expect that developing market dynamic to improve since many of those economies are commodity based and funded, Russia is an example.” —Procter and Gamble (Packaged Goods)

Activity in China has been better than people expected

“I think we are seeing signs of progress and in China…So domestic activity is being better and then anybody is really anticipated early in the year. And so there is a signs of progress and capacities identified has been removed again probably more than people anticipated earlier in the year.” —Arcelor Mittal (Steel)

Visa is bullish on India

“We definitely are bullish on India for a variety of reasons…We’ve had a good constructive conversations with the central bank and the government all the way through this demonetization. We really are 100% behind the government’s desire to move to more of a cashless society.” —Visa (Payments)

Financials:

Consumer credit may be deteriorating some

“there has been an increase in bad debt expense driven in part by the growth in uninsured revenue.” —Tenet (Hospitals)

“As it relates to credit…we are seeing a little bit more of a normalization as we move forward…we actually have seen a little higher level of reserves that need to be put in place, as well as some financing charges that have been recognized” —JC Penney (Retail)

Will reinsurance prices react to recent catastrophes?

“the million dollar question is, how will reinsurance market react to the recent losses…We believe the deterioration of pricing and terms and conditions has ended, but the magnitude of any improvement is uncertain… Historically it has taken up to two years for pricing to peak after big events.” —Third Point Reinsurance (Insurance)

Consumer:

No one is opening brick and mortar stores today

“People are not thinking about opening bricks-and-mortar stores if they don’t need to, right? So anybody who has a concept of being a merchant and selling your goods and services, initially, almost anywhere in the world today thinks about doing it in the digital world rather than in the physical world.” —Visa (Payments)

People want stuff delivered

“Delivery is one of those things that will grow over time, it doesn’t spike immediately. It’s a change in consumer behavior. So, it’s something that we’ll see grow over time…We’re excited about that business.” —McDonalds (Restaurants)

Particularly in concentrated urban environments

“If you look at the markets that have grown the fastest…one is Korea, one is China and they’re both…highly concentrated urban populations. And so, both from a consumer standpoint, traffic congestion, et cetera, e-commerce becomes a preferred shopping experience for some households, but also the economics work including the challenging dynamic of the last mile.” —Procter and Gamble (Packaged Goods)

Marketing is fundamentally changing to adapt

“I think that where we’re headed is mass one to one marketing. I mean historically our industry has been mass marketing, push a large volume of content out and hope it cuts through the clutter and I think we’re getting very close to a point…where the content is more pull versus push and again we refer to that as personal mass marketing and that, the return on that becomes much higher than a lot of very inefficient mass push.” —Procter and Gamble (Packaged Goods)

But price is really what matters most

“one thing we’ve learned this year is that price really matters to our customer. That sounds like an obvious statement, but it’s easy to convince yourself that other components of retail matter more” —JC Penney (Retail)

It should be another fiercely competitive holiday season

“In the fourth quarter, we expect the retail landscape to be fiercely competitive. With excess inventory still in the supply chain, broadened distribution strategies from some key vendors and a lack of newness and innovation, the fourth quarter and 2018 will continue to be promotional and pressure margins from last-year levels” —Dicks (Sporting Goods)

At least retailers feel like they are in a good inventory position

“We really entered the third quarter in a good inventory position…So, we are not anticipating having to liquidate a lot of unplanned inventory walking into the fourth quarter.” —Macy’s (Retail)

“For five straight quarters, sales growth outpaced inventory growth, and we exited the third quarter in a relatively clean inventory position.” —Nordstrom (Retail)

“We’re in really pretty good shape from an inventory standpoint… There’s still some stuff that needs to be cleaned through. But from an apparel standpoint, we’re really in very good shape” —Dicks (Sporting Goods)

Technology:

There’s tremendous competition in OTT television

“There is a tremendous amount of competition in the OTT space. I mean, there is probably approaching a dozen companies…And so what’s going to happen is that the market’s going to get more fragmented. And as a result, that’s consumers will have some choices. And not only will they have choices, but they can move between packages with a click of a button on the Internet.” —Dish (Television)

That could lead to more fragmentation and lower prices

“I can say that our plan on the Disney side is to price this substantially below where Netflix is. That is in part reflective of the fact that it will have substantially less volume…It is our goal to attract as many subs as possible as starting out.” —Disney (Media)

AI is a paradigm shift in computing

“AI is really one of these – once in a decade kind of transition. It is going to be a demand driver that really rises the entire market.” —Intel (Semiconductors)

Thousands of AI startups are cropping up

“There are thousands of startups now that are in – are startup because of AI. Everybody recognizes the importance of this new computing model. And as a result of this new tool, this new capability, all these unsolvable problems in the past are now interestingly solvable. And so you can see startups cropping up all over the west, all over the east and there’s just – there are thousands of them.” —NVIDIA (GPUs)

Miscellaneous Nuggets of Wisdom:

Stay focused on your product

“I remember, almost 10 years ago, when everybody went and invested in texting…And they took their eyes off the quality of the food. And I will tell you, many chains that I know, that became so tech savvy and then almost shrunk where they become irrelevant because they did not take care of the food consistency of the meals coming out quickly, and they neglected the kitchen. The kitchen at the end is the one that can keep a restaurant relevant. I don’t care what you – it’s about food” —Middleby (Restaurant Equipment)

Full transcripts can be found at www.seekingalpha.com

Company Notes Digest 11.10.17

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.

The macro story continues to be an industrial boom. There was also some focus on tax reform this week. I thought that the more interesting quotes were outside of the macro section though. I’d highlight a few areas of interest:

–Public markets are shrinking and private markets are growing
–Used car prices have stabilized
–Loyalty programs are an antidote to price transparency
–Higher deductibles have led to lower healthcare spending

The Macro Outlook:

The industrial economy has broad based momentum

“If I look at all of my end markets, if I look at all the key markets I serve, for oil and gas to powered to chemical to pharmaceutical, the mining – even mining is doing well for us right now… We’re seeing a pretty good momentum” —Emerson (Industrial)

Are companies ready to invest in new capacity?

“we are continuing to see good business environment for our products worldwide…Our inventories at Microchip as well as the distributors are towards the low end of our normal range. We are continuing to slowly add incremental capacity at various bottlenecks.” —Microchip (Semiconductors)

There have been false starts before

“I’m cautiously optimistic. I mean I’ve been bitten over the last five quarters on certain things continuing to be shifted right on the schedule. But this does kind of give us some optimism that the trough is the trough and we’re starting to come out of it.” —Fluor (Engineering & Construction)

But there could also be a feeding frenzy

“I’ve not seen the markets this low for this long in my career. And I do think that there is going to be a bit of a feeding frenzy with some of these projects that need to go forward if these companies are going to make the kind of numbers that they’re suggesting.” —Fluor (Engineering & Construction)

New investment could propel the industrial cycle into 2019

“I fundamentally believe the recovery is going to spread out over two years. I think the recovery is going to be spread out over 2018 and 2019….I fundamentally don’t believe the bigger projects will start happening…until late 2018 early 2019. ” —Emerson (Industrial)

Is the service economy booming in the same way?

“one of the questions we get often today, given the GDP numbers of the last two quarters, the optimism in the market, people ask, are you seeing more healthy demand today from your corporate customers than a year ago for example, and I think, generally, we would say no, it’s about the same. It feels to us like the economy is growing at more or less the same pace it was before” —Marriott (Hotels)

A lot of optimism has been contingent on political changes

“I believe a good portion of the reason for why the economy has gotten better is regulatory relief and there’s going to be more to come” —Wilbur Ross (Commerce Secretary)

But not much has happened yet

“we’re a year in and the situation, interestingly enough, is probably a bit more cautious on the political front because I think there is a point of view that a lot of those policies, other than things that can be done by executive order, haven’t come to – haven’t really made progress yet.” —Sotheby’s (Art Broker)

It’s not clear if tax reform will happen at all

“we’re not going to be brave enough to forecast an estimated tax rate for next year, yet.” —Moody’s (Credit Ratings)

Even if it does, will it boost earnings as much as expected?

“on tax reform, most of our income is domestic, so we’re not anticipating a whole lot of change, certainly in our book tax rate. Obviously, it’s a little higher, so that would go down a little bit. But then we’ve got to factor in what happens with state deductions or not. So we’re going to monitor this closely. We don’t think it’s again going to be a huge driver one way or the other for our cash flow or our GAAP earnings” —CBS (Television)

Some will be negatively impacted

“The thing that in the short term would likely have the greatest impact would be the repeal of 1031, the ability to do like-kind exchanges for art, which in the long term is a mild negative for the market…there is material activity at the high end of the market using 1031.” —Sotheby’s (Art Broker)

“the interest deductibility cap first of all should have essentially no impact on the investment grade sector, and should not have a significant impact for the higher rated portion of the speculative grade sector. So, it’s real, when you get more deeply into speculative grade that those was caps may make a difference.” —Moody’s (Credit Ratings)

It probably doesn’t move the needle on investment decisions

“If you wave a wand and say tax reform is done, and our tax – cash taxes and book taxes decline by a certain amount, I don’t think that, by itself, is going to change our capital availability, if you will. I think, the longer-term question would be whether or not that has the impact of reducing our cost of capital, which could – in some respects could go into a calculation about whether or not there are investments that make sense for us to do. But I think that’s a longer term, more theoretical question” —Marriott (Hotels)

International:

Britain will have to adjust to Brexit

“In the short term, without question, if we have materially less access (to the EU’s single market) than we have now, this economy is going to need to reorient and during that period of time it will weigh on growth.” —Mark Carney (BOE)

Negative interest rates have not impacted bank profitability

“We have also seen little evidence that negative interest rates are undermining bank profitability…In fact, net interest income has remained quite stable over the past two years, even as overnight rates have drifted lower.” —Mario Draghi (ECB)

Financials:

Public markets are shrinking

“if you go back and you look at the data, you’ll see that there are a lot fewer listed companies in the U.S. today than they were in years past and the size of those companies continues to get larger…the middle market size business is…not looking to do an IPO…I think in the past one of the main drivers of why you would go IPO was because you could oftentimes get a better valuation in the public markets than you could get in the private. But I think as has been widely reported, valuations on the private sale transactions have crept up over the years and so today the discount between a private sale and a public exit are really not necessarily all that significant. And so that’s the broader trend that I think is going on in the middle market, is that these companies are simply moving more to private equity ownership and away from public ownership” —Goldman Sachs BDC (BDC)

Private markets are growing

“we’re seeing new buyers coming in the market at lower price points, who are really interested in collecting, very interested in this both intellectual and somewhat financial exercise in their lives, and there’s no stemming the tide of people coming in…both in terms of the amount of collecting activity that we’re seeing and in terms of the number and range of artist that collectors are enthusiastically pursuing, we see an increase.” —Sotheby’s (Art Broker)

“There’s a lot of money on the sidelines for transactions in the U.S., particularly in the areas of industrial and multifamily…we’re having trouble keeping the buyers that we work with satisfied with the amount of product we’re delivering…It’s still a healthy market out there, and we’ve had nice growth in our investment sales business around the world.” —CBRE (CRE Broker)

That is making those markets more efficient

“the market is getting smarter and more efficient about finding its own level for different things. So there’s a sort of certain knowability or range of what particular work of art or markets are worth. And that’s helpful. It’s speeding up deals and probably increasing the flow of capital in the market because it’s smarter and more efficient.” —Sotheby’s (Art Broker)

Consumer:

Consumer debt is growing

“In the broader environment, the economy remains healthy with growth in GDP and continued low unemployment. At the same time, consumer debt levels have continued to increase as credit supply has returned to the market and losses have risen from their post-recession lows.” —Lendingclub (P2P Lending)

Loyalty programs are an antidote to radical price transparency

“we live in a world with radical transparency in pricing, where prices are available for essentially every hotel at an instant notice. We are doing everything we can. I mean, obviously, the core platform for us is the loyalty program…And that’s a powerful thing. Obviously, some of these other booking platforms are not conducive to loyalty members, because they will not earn points associated with them.” —Marriott (Hotels)

Technology:

Apple’s service business is the size of a Fortune 100 company

“In fiscal 2017, we reached $30 billion, making our Services business already the size of a Fortune 100 company.” —Apple (Technology)

Healthcare:

Patients are making different choices because of high deductibles

“there’s no doubt we continue to see a very soft volume environment…The fact is, consumers are making different choices with higher copays and deductibles” —Tenet (Hospitals)

Industrials:

Used car markets have stabilized

“the used car market stabilized compared to the first half of the year…residual values have really stabilized.” —Avis (Rental Car)

Materials, Energy:

Oil markets appear to be rebalancing

“we’re, I think, certainly encouraged by the improving market conditions as we look forward. The market, obviously, is continuing to rebalance nicely. Inventories are moving towards the five-year average, and we are watching the market closely for opportunities.” —EOG (Oil & Gas)

Oil service capacity is narrowing

“you mentioned pinch point, and pinch point would probably be in just thinking about the various services that are available. There’s been little equipment added over the last couple of years. And that’s one of the main reasons that we’ve increased our activity here with the additional 25 wells; it’s just to ensure that we have top-tier services available” —EOG (Oil & Gas)

Production companies could start producing free cash flow again

“The good news is…the price movement has gotten very constructive lately. And we…can see a price now where we could actually have some free cash flow next year pretty soon” —Apache (Oil & Gas)

Full transcripts can be found at www.seekingalpha.com

Company Notes Digest 11.3.17

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.

The economy is strong, capacity utilization is narrowing and inventories are growing.  It’s hard to find anyone who isn’t bullish.

The Macro Outlook:

The industrial economy is enjoying broad based growth

“From an end market perspective, virtually all improved during the quarter. Aerospace, fabricated metals and oil and gas continued to show strength while other end markets like heavy truck and agriculture which had bottomed out several quarters earlier are improving. In general, as customer sentiment remains positive and the industries hold the current levels, we should continue to see solid sales trends.” —MSC Industrial (Distributor)

“this is a broad-based growth…We’re really growing across the globe…better than we’ve seen in over five years. Really, really coming out of the recession was the only other time we saw this kind of growth number.” —UPS (Logistics)

Inventories are building

“The inventory destocking would seem to be behind us, and we’re building against the underlying growth in the categories going forward” —Colgate Palmolive (CPG)

Capacity is tightening

“the data that we see has the ocean utilization at over 97%. So you have a high, high, demand environment now with capacity really becoming tight…then you get up in the air, this is the fourth consecutive quarter where you really had demand outpacing capacity.” —UPS (Logistics)

“markets are still relatively tight and not all of the industry has returned to unconstrained operations because of some of the comonomer lingering outages that does impact some grades of polyethylene. ” —Lyondell Basel (Chemicals)

Price increases are on their way

“While competitive intensity remains high, several suppliers began taking prices up or signaling that price increases are likely in the coming months…what we are telegraphing here is a big bit firmer and more defined activity than what we have seen in past years at this point in time.” —MSC Industrial (Distributor)

What could go wrong?

“It’s an environment where the uncertainties are unusual in terms of number, scale and insolubility, where prospective returns are just about the lowest they have ever been, where asset prices are high across the board and where pro-risk behavior is commonplace. It’s impossible for us to predict what will catalyze the market’s correction, how severe it might be and when it will occur…We do not believe this is a time in the cycle for reaching for return” —Oaktree (Investment Management)

International:

Foreign exchange has become a tailwind

“We are also encouraged that on balance, foreign exchange turned favorable in the quarter, as we experienced a top line benefit from foreign exchange for the first time since the third quarter of 2011.” —Colgate-Palmolive (CPG)

Regulators have been more active in Europe

“In terms of regulation, we certainly recognize that there is more regulatory activity in Europe than the other regions.” —Visa (Payments)

Zuckerberg had some choice words for the Russians

“I’ve expressed how upset I am that the Russians tried to use our tools to sow mistrust. We built these tools to help people connect and to bring us closer together, and they used them to try to undermine our values. What they did is wrong, and we are not going to stand for it.” —Facebook (Social Media)

Financials:

The private funding market is still incredibly robust

“there hasn’t been as much, as we talked about, in the IPO market, but the private funding market is incredibly robust. And it’s impacted by the Sovereign Wealth Funds coming in, it’s impacted by the Vision Fund from SoftBank, it’s impacted by a lot of money that’s being invested by the Venture Capital Community. ” —Silicon Valley Bank (Bank)

CRE transaction volume has slowed

“Investment sales activity is down appreciably from last year, largely a function of buyer caution, lesser quality product being brought to market and owners electing to refinance rather than sell.” —Vornado (REIT)

Consumer:

The holiday spending outlook is bright

“We also remain confident about the holiday season, as consumer sentiment remains elevated” —UPS (Logistics)

But no one wants to invest in retail

“Because the retail industry is likely facing more structural than cyclical issues, we’re approaching it with extreme caution.” —Oaktree (Investment Management)

Mall operator Macerich says that sentiment is worse than reality

“As you can tell from the facts that our operating results, our company continues to perform at a very high level. However many folks tend to look at the glass as being half-empty instead of half full. Why is that? That’s because there is a major negative sentiment that we all know about retail, about our sector and about our company.” —Macerich (Mall REIT)

Technology:

Companies are getting more and more comfortable with the cloud

“the kinds of workloads now that are moving to the cloud has qualitatively changed. In the past we participated, but a lot of Tier 1 workloads were not on Microsoft stack, whereas now, a lot of Tier 1 workloads are in fact increasingly on Microsoft cloud.” —Microsoft (Enterprise Tech)

It’s tough to say how much companies are really using AI

“when somebody goes out and builds a rack…How much of its workload is really being used by AI? Anybody who tells you exactly what that number is, is just wrong, to be honest with you.So it’s very hard for us to say with precision that X percent of our units went into AI workloads because it’s rare that a rack is purely AI except for rare cases. But we know that it’s small, just by the type of interactions we have, but also fast-growing and one of the biggest areas of interest.” —Intel (Semiconductors)

Healthcare:

Healthcare markets have moderated

“this is just one of those years I believe where the market has been a bit overheated in the past and maybe it just moderated.” —HCA (Hospital)

Amazon won’t confirm or deny whether they are getting into pharmacy

“Yeah, I can’t confirm or deny any of the rumors related to pharmacy or anything else.” —Amazon (E-Commerce)

Industrials:

A lot of new cars were sold in Houston

“we’ve never seen anything like that before, and I don’t think we will ever see anything like that again. Our Houston stores on new vehicles basically doubled what they normally do.” —Group 1 Automotive (Auto Dealership)

A manufacturer can only move as fast as its weakest link

“there’s 10,000 unique parts, so to be more accurate, there’re tens of thousands of processes necessary to produce the car. We will move as fast as the least competent and least lucky elements of that mixture.” —Tesla (Automobiles)

Automation also makes it harder to ramp if a link is broken

“There’s vastly more automation with Model 3. Now the tricky thing is that when one automation doesn’t work, it’s really harder to make up for it with men and labor. So with S or X, because a lot less that was automated, we could scale up labor hours and achieve a high level of production. With Model 3, it tends to be either the machine works or it doesn’t or it’s limping along and we get short quite severely on output.” —Tesla (Automobiles)

Materials, Energy:

With Brent Crude back over $60, oil investment is likely to rebound

“In fact, Brent is already over $60. So as I like to say, I’m going to declare victory and retreat. In terms of what has to happen now for there to be increased investment, I think it’s going to happen…I think what’s going to happen – what’s happened is that there has been an enormous, enormous underinvestment in productive capacity worldwide. It’s breathtaking how big that underinvestment has been.” —Loews (Conglomerate)

There may be a limit to shale capacity in the US

“And it is my belief, based on study and research that shale oil produced in the United States, we’ll not be able to fully supply worldwide oil demand over the next 5 to 10 years that there is a limit to the shale productive capacity in the United States. I know that that statement maybe going against history and the trend so far, but I think that what you will see is that there is a limit to how much shale oil can be produced here.” —Loews (Conglomerate)

Miscellaneous Nuggets of Wisdom:

It’s not bad to be a little paranoid

“I think a good characteristic of any CEO is to be a bit paranoid” —Visa (Payments)

Love your customers

“We don’t comp people that don’t play, period…So maybe we have a little less business, but we send a lot of non-productive customers over to our neighbors. And because we love our customers, we send them over to our neighbor in a Rolls Royce.” —Wynn (Casinos)

Full transcripts can be found at www.seekingalpha.com