Company Notes Digest 11.05.18

Each week we read dozens of transcripts from earnings calls and presentations as part of our investment process. Below is a weekly post which contains some of the most important quotes about the economy and industry trends from those transcripts. Click here to receive these posts weekly via email.

Many are concerned that growth will slow but current US economic fundamentals are strong with high business and consumer confidence. Inflation pressures have mounted and some of those price increases are making their way to consumer goods. There’s more anxiety in the global economy, especially emerging markets.

The Macro Outlook:

Many are concerned that growth will slow

“I think the economy is slowing from the very strong growth what we had earlier. It’s still an above trend growth rate” – Cleveland Fed President Loretta Mester

“a bit more subdued, a bit more subdued” –  Sotheby’s (BID) CEO Tad Smith

“we are seeing some clients transacting less, deleveraging and generally adopting a slightly risk-off attitude” – HSBC Holdings PLC (HSBC) CEO John Flint

But fundamentals have not yet weakened

“the macro backdrop is not showing signs of material fundamental weakening”- Goldman Sachs BDC (GSBD) COO Jon Yoder

“a lot of the leading indicators on a macro basis that you see and I see, we see them together, would suggest that things are still healthy.” – Wesco International(WCC) CEO John Engel

” In the U.S., economic growth remains positive. Low unemployment, healthy consumer confidence helped…retail sales remained strong…businesses are investing, ” – Mastercard (MA)  CEO Ajaypal S. Banga

“Conditions in the U.S. industrial market remain strong. While sentiment indices, such as the MBI have moderated a bit in recent months, they remain at high levels.” – MSC Industrial Direct (MSM)   CEO Erik David Gershwind

“So we can all see the robustness of the U.S economy, the strong GDP trend for this quarter. So the real underlying demand indicators are very positive.” – ArcelorMittal SA (MT) VP Daniel Fairclough

Business confidence is high in middle markets

“During the third quarter, we saw very strong deal activity in the middle markets…We believe the deal flow continues to be driven by significant fundraising activity in the private equity sector in recent years combined with high levels of business confident by U.S.-based companies. The fundamentals appear to justify this confidence as job creation and unemployment trends are favorable while growth in gross domestic product is near multi-year highs. These factors tend to resonate more strongly in the middle market segment of the U.S. economy where businesses are generally more focused on domestic customers.” – Goldman Sachs BDC (GSBD) CEO, Brendan McGovern

The economic expansion is now in its 10th year

“The U.S. economic expansion, now in its 10th year, is marked by strong growth in the gross domestic product (GDP) and a job market that has been surprising on the upside for nearly two years.” – Fed Vice Chairman Richard H. Clarida

Still, inflation stress is rising

“We are seeing some more inflation stress than perhaps one or two years ago….we’re going to have to work harder to offset that inflation – Royal Dutch Shell Plc (RDS.A)  CFO Jessica Uhl

A strong economy makes markets more receptive to increasing prices

“the market has been receptive to increased pricing as an offset to higher input costs.” – SPX Corporation (SPXC) CEO Gene Lowe

Price increases are hitting consumer goods

we’ve taken some price increases this year in the U.S. marketplace, whether that be in the juice category by changes in the packaging, in soft drinks, in the number of channels – The Coca-Cola (KO) CEO James Quincey

And tariffs would likely stimulate inflation across the broader economy

“tariffs would likely stimulate inflation across the broader economy” – MSC Industrial Direct (MSM) CEO Erik David Gershwind

Interest rates are rising

“with the reversal of quantitative easing and the gentle, some would say not quite as gentle, but it seems fairly gentle to me, rising interest rates. By the way, those rising interest rates are coming because the growth is so strong and the picture is very strong”  – Sotheby’s (BID) CEO Tad Smith

International:

The global economy is experiencing more anxiety than the US

“there’s a growing anxiety about slowing down of the economy globally, when the credit cycle in the United States will come to an end. That is of course of anxiety. And so far, geopolitical risks are affecting the market sentiment and what will happen with the Brexit deal.”  – Nomura Holdings(NMR)   CFO Takumi Kitamura

“global macroeconomic conditions have become more uncertain. People wonder about potential reverberations from the global economic slowdown, the threat of rising interest rates and political and debt turmoil in Europe. In the case of China, we see reports of decelerating GDP growth” – Alibaba Group Holding (BABA) VC Joseph C. Tsai

“customers are a little bit more aware, strong anxious of the issues, so it’s top of the conversations…Geopolitical concerns have softened the customer confidence slightly-. – HSBC Holdings PLC (HSBC) CEO John Flint

Emerging markets are the most pressured

“the rising interest rates do put a little touch of pressure on some emerging markets.” – Sotheby’s (BID) CEO Tad Smith

“there was a outflow – significant outflow of funds from emerging countries and emerging currencies declined sharply and interest rose sharply” – Nomura Holdings(NMR) CFO Takumi Kitamura

“The emerging markets that we’re seeing pressure in are markets like Turkey, India, Brazil, Russia. These are markets where currencies have weakened over the recent period. In some cases, that resulted in us raising prices and those markets are not growing the way we would like to see” – Apple (AAPL)  CEO Tim Cook.

“In some of the emerging and developing markets like Turkey and the Middle East, the macroeconomic environment is tough” – The Coca-Cola (KO) CEO James Quincey

“We’ve seen a genuine economic slowdown in many of our African markets and across the Middle East displayed higher commodity prices….that has an affected sentiment across emerging markets to some degree. And of course, this translated through to currency weakness in a number of our markets and a broader sense of malaise in emerging markets.” – Standard Chartered PLC (SCBFF) CEO William Winters

Chinese consumers are cutting back on durable goods purchases

“The NBS data shows weakness in large-ticket items, such as home appliances and autos, which is consistent with the view that consumers see uncertainty in the future and are cutting back on durable goods purchases. However, on Alibaba’s China retail marketplaces, we see continued robust growth in consumer staples, cosmetics, and apparels.”  – Alibaba Group Holding (BABA)  VC Joseph C. Tsai

Industrials:

Steel prices have come down some

“what happened during the third quarter is obviously steel pricing started to come down and when steel pricing comes down in the U.S market, where possible, buy as well sit on their hands, step to the side and allow the price to drop and reduce their inventories and look to come in at a lower price point and replenish their inventories then.” – ArcelorMittal SA (MT) VP Daniel Fairclough

Shipping lines have never really recovered from recession

the shipping lines are under a lot of financial stress. The business has been characterized by excess vessel capacity and freight rates that aren’t providing a real return on their invested capital and that has been true for a long time.
Triton International Limited (TRTN) VP John O’Callaghan

Airline fundamentals are solid

The industry fundamentals remain solid. You see it in the traffic numbers that they remain overall good, airline profitability remains healthy. And in terms of financing, there’s a high level of liquidity available to support the financing of commercial aircraft. I mean, the backlog is at around 7,400 aircraft. You know it’s solid.
Airbus SE ADR (EADSY) CFO Harald Wilhelm

Materials, Energy:

Energy and mining CEOs are becoming more optimistic

“I think there’s a longer tail on this cycle for both mining and oil and gas. So I’m pretty bullish about mining over the longer term and these projects are three, four, five years” – Fluor (FLR)  CEO David T. Seaton

Oil inventory levels have normalized

“given oil price stock levels have now drifted down towards below the five-year average, oil is now more prone to oil price movements and potential oil price major movements in either direction…We expect the oil market to remain volatile in the near term, characterized by lower stock levels and ongoing geopolitical factors” – BP (BP) CFO Brian Gilvary

Demand remains strong. Supply side dynamics may set the marginal price.

“demand continues to be strong and I think the volatility is probably more a factor of supply and geopolitics than one around demand, so we expect demand to continue.. it’s more the supply side and how that might play out that is less certain and can lead to different outcomes from an oil price perspective.” – Royal Dutch Shell Plc (RDS.A) CFO Jessica Uhl

Full transcripts can be found at www.seekingalpha.com

Company Notes Digest 10.29.18

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.

Recent volatility has people concerned and some are starting to model in recessions. However the real economy is still strong and the outlook is positive. Securities markets are leading indicators though, especially when driven by Fed tightening. If the Fed doesn’t bow to political pressure, volatility is likely to persist. International markets have already been in bear markets for some time.

The Macro Outlook:

It’s a little too early to say if recent volatility is having an impact on the economy

“As you point out, it has been a more recent phenomena and here the volatility that we have seen over the last few weeks. I think it’s just too early to kind of make any generalizations about, the impact of the volatility on deal making.” Moelis & Company (MC) Co-President Navid Mahmoodzadegan

Generally, the economy is still strong

“Bank balance sheets are strong. Economic growth is strong.”- CME Group (CME) CFO Scan Tully

The underlying US economy is quite strong, particularly for small to midsize businesses”.- Robert Half International (RHI) CEO Max Messmer

And the US consumer is alive and well and the outlook is positive

“I also want to say that the U.S. consumer is alive and well… the wage rates are up and people are spending. Consumer confidence is off the charts, new records. So I think the – retail sales may have slowed slightly, but it’s not like, all of a sudden, we have a vacuum in the demand.”
Stanley Black & Decker (SWK) CEO James M. Loree

“favorable commodity prices, strong economic growth, and the global need for infrastructure will continue to drive strong end user demand across many of our end markets.” – Caterpillar (CAT) CEO Jim Umpleby

But people are getting concerned

“From a macro perspective, the ongoing tariff fight between the U.S. and China growing anxiety about rising interest rates, market volatility and potentially slowing global economies are all a concern.” –  SVB Financial Group (SIVB) CEO Greg Becker

Many are starting to model recessions

“look you are starting to hear about private equity firms and prognosticators start to model in recessions in their base cases on deals, et cetera, et cetera, et cetera. So I think there’s an acknowledgement that at some point the economy will slow down.” – Moelis & Company (MC) Co-President Navid Mahmoodzadegan

“we do believe in economic cycles and we do believe that there will be another economic cycle” – Barclays (BCS) CEO James Staley

It’s already been a bear market outside the US

“outside the U.S. we’ve already been in bear market territory. So the euro stock’s 50%, down about 13% in the last 12 months. China is down about 20%…to the question on exits or kind of the overall environment, we’ve actually been operating in an environment in Europe and Asia where we’ve already seen the stock market pullback probably over the last several quarters in a lot of those markets.” – KKR & Co. (KKR) co-COO Scott Nuttall

And the Fed is getting too tight for some people’s comfort

“He was supposed to be a low-interest-rate guy. It’s turned out that he’s not….My instinct is that he’s raising it too much…To me, the Fed is the biggest risk because I think that—I think interest rates are being raised too quickly”- US President Donald Trump

Lots of companies are talking about tariffs

“we’re monitoring the tariff situation very closely. There’s a lot of activity around that. I would say from what we see today, we don’t see anything material as it relates to the tariffs, whether it’s pull-ins or just the overall impact of tariffs. But we are doing quite a bit to adjust our supply chain, as I’m sure many others are.” – Advanced Micro Devices (AMD) CEO Lisa T. Su

“From a macro perspective, the ongoing tariff fight between the U.S. and China growing anxiety about rising interest rates, market volatility and potentially slowing global economies are all a concern.” –  SVB Financial Group (SIVB) CEO Greg Becker

Tariffs drive inflation

“as part of our ongoing initiatives to respond to external factors, including raw material tariff and currency headwinds, we have recently announced new cost base price increase” – Whirlpool (WHR) CEO Marc Robert Bitzer

“We will continue to put price into the market related to the tariffs that are coming in January for List 3. And we will also continue to monitor the elasticity of how the volume responds to those price increases” – Stanley Black & Decker (SWK) CFO Donald Allan, Jr.

But are tariffs just an excuse?

“We don’t even have tariffs. I’m using tariffs to negotiate. I mean, other than some tariffs on steel—which is actually small, what do we have?…I read that today: We’re worried about the tariffs. You know what happens? A business that’s doing badly always likes to blame Trump and the tariffs because it’s a good excuse for some incompetent guy that’s making $25 million a year.” – US President Donald Trump

International:

Inflation in the EU expected to pick up soon

“While measures of underlying inflation remain generally muted, they have been increasing from earlier lows. Looking ahead, underlying inflation is expected to pick up towards the end of the year and to increase further over the medium term” – ECB President Mario Draghi

On Brexit, things will be sorted out

“It’s very hard to imagine that Brexit won’t be sorted out in some reasonable manner that will enable life to go on economically. Both the UK and the EU need each other” – Group 1 Automotive (GPI) CEO Earl Julius Hesterberg

No stress in the UK consumer

“we are not seeing yet any concerning signs of stress among our U.K. consumers or business customers” – Barclays (BCS) CEO James Staley

Financials:

There’s still plenty of liquidity out there

“The abundant liquidity in markets is another challenge… Venture capital and private equity investments are to near record levels, fund raising remains strong with a lot of dry powder on the sidelines and the ex-environment is relatively healthy. – SVB Financial Group (SIVB) CEO Greg Becker

Fear in the public markets negatively impacts exits in private markets

“if fear in the public market starts to effect – exit the private funding in a meaningful way or our late stage clients would likely be the first to feel the negative impacts of that” – SVB Financial Group (SIVB) CEO Greg Becker

Housing markets are slowing but demand fundamentals are still very strong

“we are now seeing a scenario where slowdown of home price appreciation and a slight increase in inventory will meet strong demand fundamentals, including favorable demographics, a homeownership rate at a 52 year low and a strong need for rental homes and apartments.” – Whirlpool (WHR) CEO Marc Robert Bitzer

Consumer:

Auto inventories are fairly balanced

“we’re seeing an aggressive market. Inventories are fairly balanced car to truck for the – that’s the second quarter in a row”  – Group 1 Automotive (GPI) President, U.S. Operations Daryl Kenningham

Technology:

PCs are alive and kicking

“As it relates to the current supply environment, we did see some pockets of constraints in the supply chain around PCs. We saw that towards the end of the third quarter. We are increasing our production such that we can satisfy some of that demand. And I think that’s a short-term statement.” – Advanced Micro Devices (AMD) CEO lisa T. Su

“Supply is tightest at the entry level of the PC market and in our IoTG business. Within our CPU product lines, we’re prioritizing the production of our Xeon and Core processors so that we and our customers can serve the high-performance segments of the market. Our biggest challenge in Q4 will be meeting any additional PC and IoTG demand beyond our guidance, and we do expect fourth quarter upside from here will be limited.” – Intel (INTC) CEO Robert Holmes Swan

GPU channels are working through over-supply

“the weakness in the GPU channel or primarily in the sell-in, is, let’s call it, for – we might see that for the next quarter or two. But as you look through the overall business, I think gamers are still buying GPUs, and so this is really a matter of just absorbing some of the first half let’s call it oversupply as it relates to GPUs. And that’s translating into a bit weaker sell-in. But we are still tracking the sell-out and the sell-through through the – to the end customers.” – Advanced Micro Devices (AMD) CEO Lisa T. Su

Google is increasingly investing in data centers

“we’re very focused on ensuring that we have the needed compute capacity to support growth. And that’s what you’re really seeing with the uptick in investment.To give you a bit of a breakdown, the largest component continues to be machines. But relative to last year, it’s important to note that datacenter construction is an increasing percentage of our CapEx investment.” –  Alphabet (GOOG) CEO Sundar Pichai

Industrials:

China still needs a lot more airplanes

“In China, from a macro standpoint one of the fastest growing commercial aviation markets in the world. Over the next 20 years we said a world that needs 43,000 new airplanes; about 7,700 of those are in China. Traffic growth patterns are very strong in China and the rising middle-class population is a tremendous driver there, well beyond normal, I’ll say GDP metrics, so about 150 million new passengers every year in Asia are fueling that growth. So China is very interested in a healthy growing aerospace industry” – Boeing (BA) CEO Dennis Muilenburg

Metal prices are not increasing

“there’s certainly not a strong growth in metal prices in the cards right now.”- Alfa-Laval AB (ALFVF) CEO Tom Erixon

Materials, Energy:

The energy industry remains in a survival mode

“Industry remains stuck in a sub-survival mode with minimal industry reinvestment, which is now leading to reduction in available equipment. We’re seeing signs of customers of being recognized how difficult this is as some are now accepting rate increases and accrue labor premiums to help us manage through these issues.”-  Precision Drilling Corporation (PDS) CEO Kevin Neveu

There’s high demand for efficient rigs

“Now turning to the United States, as our customers prepare for 2019 drilling programs, the drive to the most efficient rig seems to be accelerating even as the market volatility is tampering our customers’ risk appetite. We are experiencing a surge in demand for the most efficient rigs…he industry drive and customer preference for the most efficient rig is not going to slow down anytime soon. I don’t see – obviously, day rate aren’t going to keep on going up. There’ll be a plateau at some point. I think that’s real. But we see just very strong demand kind of across the basins and across the customer base right now for no question for pad walking rigs that can deliver consistent and predictable results.”- Precision Drilling Corporation (PDS) CEO Kevin Neveu

Saudi Arabia’s political decisions could impact energy prices

“I think that political decisions related to Saudi Arabia needs to be very much thought through. The implications are that they destabilize the Middle East with sanctions against the two major oil exporters of Iran and Saudi Arabia in parallel is raising the stakes in the game significantly…to the degree the world decides to go on the sanction basis against Saudi Arabia, we will see a major impact on the energy prices, and we will see a major investment boom in other geographies” – Alfa-Laval AB (ALFVF) CEO Tom Erixon

Full transcripts can be found at www.seekingalpha.com

Company Notes Digest 10.22.18

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 earnings season again and the overall outlook of the US and global economy is positive though laced with a layer uncertainty because of concern over tariffs.  Strong positive growth is expected to continue into 2019 despite the prevailing uncertainty. 

The Macro Outlook:

The economy is in great shape 

“the US economy remains in great shape by nearly any measure. Growth is strong, confidence is high and there aren’t any signs of the excess we saw ahead of the last down cycle” – The Blackstone Group (BX) CEO Steve Schwarzman

“The continued strength of the U.S. economy is the primary catalyst for our earnings growth. Tax and regulatory reform, along with a robust domestic energy sector, are driving this economy.” – Nucor Corp (NUE) CEO John Ferriola

“The economy is really strong, consumers are in great financial shape and companies are optimistic and growing.” – The PNC Financial Services Group (PNC) CEO Bill Demchak

“The economy is strong still, two days in the market notwithstanding” – First Republic Bank (FRC) CEO Jim Herbert

Credit quality has never been better

“overall what we are seeing is that because of the economic growth here in the U.S., in particular, but around the world, the credit quality for our customers in the commercial, corporate world has never been better. Their balance sheets are strong. They have extended their maturities. Their interest coverage is higher than it’s ever been, because their debt service is lower”. – Wells Fargo (WFC) CEO Tim Sloan

Above-trend growth is expected to continue

“The economy could be strong for a while…wage is going up, participation is going up, credit has been written as pristine. Housing is in short supply. Confidence, both small business, consumer is extraordinarily high. And that could drive a lot of growth for a while..as we look at the economy, we don’t see it slowing down. It seems to be continuing to grow pretty solidl.” – JPMorgan Chase (JPM) CEO Jamie Dimon

“Participants noted a number of favorable economic factors that were supporting above-trend GDP growth; these included strong labor market conditions, stimulative federal tax and spending policies, accommodative financial conditions, solid household balance sheets, and continued high levels of household and business confidence.” – The Fed

“that’s a snapshot of our markets, healthy and growing. And if you ask our customers they’ll tell you that things look good and our branches feel the same way. We’re confident about the fourth quarter and believe the cycle has plenty of gas left in the tank..” – United Rentals (URI) President Matt Flannery

But uncertainty remains

“considerable uncertainty remains in our markets, driven by supply disruptions and policy and trade actions taken by governments in the United States, China and elsewhere. These dynamic conditions could have impact in the last quarter of 2018 and into 2019.” – Alcoa Corporation (AA) CEO Roy Harvey

“The market backdrop has become more turbulent recently as everyone knows, with risk assets around the world impacted by growing concerns around macro issues. These include rising interest rates in the United States, trade tensions, emerging markets weakness and geopolitical risks in Europe. Taken together, these issues add up to more uncertainty and volatility in an already complex investment environment.” – The Blackstone Group (BX) CEO Steve Schwarzman

“there’s a great deal of uncertainty around the tariffs and around the Brexits of the world which we are seeing some impacts of that” – Textron (TXT) CEO Scott Donnelly

“a number of contacts cited factors that were causing them to forego production or investment opportunities in some cases, including labor shortages and uncertainty regarding trade policy” – The Fed

Tariffs are are impacting prices

“the tariffs are having their intended impact by curbing unfairly traded imports…The tariffs are providing leverage to get other countries to the table to negotiate fairer trade agreements for the U.S.” – Nucor Corp (NUE) CEO John Ferriola

“several participants reported that firms in their Districts that were facing higher input prices because of tariffs perceived that they had an increased ability to raise the prices of their products. – The Fed

The labour market is tight

“Contacts in many Districts reported tight labor markets, with difficulty finding qualified workers…recent data suggested some acceleration in labor costs, but that wage growth remained moderate by historical standards, which was due in part to tepid productivity growth.”- The Fed

“I think labor is tight in any business in the US today. And we were certainly no exception of that with unemployment now under 4% for a while… labor pressures are certainly on the minds of our franchisees.On the flip side of that, the one of the things that yes, or the thing that drives sales of pizza as much as anything is having people gainfully employed and earning good wages out in the marketplace. So as the number one player in the pizza business, we also get a nice top size benefit from a strong labor market.” – Domino Pizza (DPZ) CEO Ritch Allison

Rising interest rates are impacting valuations

“cap rates are beginning to adjust a little bit for the rising rates. And that is slowing down, the velocity of turnover. And that’s really what I was getting at. Commercial real estate, per se, from the cash flow point of view is still quite strong” – First Republic Bank (FRC) CEO Jim Herbert

Financials:

Loan growth is a little slower than expected

” While we did see modest growth in the quarter consistent with industry data, our corporate loan growth came in below our own expectations. We attribute the shortfall to a combination of several factors, including elevated competition, meaningfully higher payoffs this quarter and paydowns and overall lower line utilization.” – The PNC Financial Services Group,(PNC) CEO Bill Demchak

“So, I think the fact that we have got very buoyant capital markets, very liquid capital markets and we have high credit quality for our customers means that loan growth is a little bit slower than we would have all imagined in an economic growth level that we are seeing right now”. – Wells Fargo (WFC) CEO Tim Sloan

Companies are finding alternative funding sources

“Alternative funding sources such as the capital markets and companies own cash balances are limiting the clients’ need to access the loan markets, but to a lesser extent, than during the last several quarters. we expect commercial loan growth to continue to improve.” – U.S. Bancorp (USB) CFO Terrance Dolan

Corporates are flush thanks to tax reform and so they’re not borrowing as much

“corporates are flush. The lower tax rate has basically increased cash flow in companies. And all else equal, they’re not spending the incremental difference in totality on CapEx. And so they’re dropping their line utilization” – The PNC Financial Services Group (PNC) CEO Bill Demchak

As the Fed shrinks its balance sheet, that’s going to come out of deposits 

“I’ll just make a macro point too. As the Fed reduces balance sheet – just say by $1 trillion over the next 18 months or whatever, which they indicated they’re going to do, that’s $1 trillion out of deposits. That will have an effect kind of macro competition and stuff like that.” – JPMorgan Chase (JPM) CEO Jamie Dimon

Now that some banks are not subject to CCAR, they can return more capital to shareholders

“Now that we are no longer subject to CCAR, our board is able to more efficiently and effectively take capital actions with a focus on reducing our robust capital ratios to a level that is reflective of our business strategy.” – Comerica Inc. (CMA) CEO Ralph Babb

Industrials:

Caution in global auto OEMs, soft OEM market

“there is just caution right now in the global auto OEMs. And that’s coupled with I think just an overall softening a bit of the global auto OEM manufacturing. And I say Q3 is always the most susceptible because most of the guys do shutdowns during the summer months anyway and so one of the ways they – easy for them to regulate output is to extend some of these shutdowns and again that’s something that generally manifest itself in Q3 and we certainly saw that at Caltech. So it’s not a huge reduction in volume but there had been some modest declines” – Textron (TXT) CEO Scott Donnelly

Steel demand to continue to grow

“Based on strong underlying domestic steel demand fundamentals and customer optimisms throughout all market sectors we believe steel consumption will continue to be seasonally strong and grow into 2019” – Steel Dynamics (STLD) CFO Theresa Wagler

we still see strong demand. There is strength in the marketplace…so the 24 end markets that we serve, 23 of them are either stable or on the uptick”.- Nucor Corp (NUE) CEO John Ferriola

Materials, Energy:

Aluminium supply is likely to reduce

“you’re at a point where half of smelters outside of China are now cash negative and under water. And that simply means that there is very little incentive to continue to operate many of those plants and certainly no incentive to invest… there really isn’t a lot of room unless aluminum prices to go up for raw materials to continue to increase without starting to see a significant supply reduction. Because plants can’t continue to operate at these types of cash losses.” – Alcoa Corporation (AA) CEO Roy Harvey

and the high prices may not persist

“the current dynamics, which have pushed world ex-China alumina prices above Chinese alumina prices may not persist..” – Alcoa Corporation (AA) CEO Roy Harvey

Delta expects to be able to pass higher fuel costs along

“I can tell you that the economy is healthy, demand is very healthy for the Delta product and to the extent oil prices were to continue to rise, we expect to be able to pass along the cost of that.” – Delta Air Lines (DAL) President Glen Hauenstei

Miscellaneous Nuggets of Wisdom:

Better to have a failed idea than none

“the great tragedy for an entrepreneur is NOT a failed idea. You will have other ideas! No, the great tragedy for an entrepreneur is a zombie idea, a business that has no chance of growth and vibrancy, but is kept alive through some witch’s brew of too much friendly capital and too much misplaced hope”  –  Second Foundation Partners CEO Ben Hunt

Spotting great opportunities 

“the focus is on where is there a large scale opportunity. And when you look in the life science area, what we’re seeing is there is a very large pipeline of drugs that it costs an awful lot of money and resources to bring them to market, particularly as they get towards the phase 3 trials later on in their process. So, we said, gosh, wouldn’t it be terrific, if we had more operating capability. So, we identified the opportunity, we talked to a lot of people in the space, we found a world class organization in Clarus that has terrific people, expertise and a great track record.” – The Blackstone Group (BX) CEO Steve Schwarzman

Full transcripts can be found at www.seekingalpha.com

Company Notes Digest 8.26.18

Each week we read dozens of transcripts from earnings calls and presentations as part of our investment process. Below is a weekly post which contains some of the most important quotes about the economy and industry trends from those transcripts. Click here to receive these posts weekly via email.

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

The Macro Outlook:

The macroeconomic trends continue to be positive

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

Even brick and mortar retailers are benefiting

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

Inflation is abating

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

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

Can things get even better?

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

International:

Tariffs are causing foreign manufacturers to produce in the US

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

Consumer:

Fashion winds are blowing in retailers’ favor

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

More and more homebuyers want brand new homes

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

Technology:

AI holds the promise of massive productivity gains

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

AI could touch every industry

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

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

Industrials:

There is a real issue in transportation markets

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

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

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

Materials, Energy:

Farm economics should improve next year

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

Full transcripts can be found at www.seekingalpha.com

Company Notes Digest 8.13.18

Each week we read dozens of transcripts from earnings calls and presentations as part of our investment process. Below is a weekly post which contains some of the most important quotes about the economy and industry trends from those transcripts. Click here to receive these posts weekly via email.

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

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

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

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

The Macro Outlook:

The pace of business is not slowing down

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

Industrial output is hitting old peaks

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

Customers are comfortable taking on inventory risk

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

It’s becoming time to add new capacity

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

But something has changed in the housing market

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

Redfin agents are reporting that homes are getting harder to sell

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

Buyers have had enough of high prices

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

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

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

…Just in time for midterm elections

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

Consumer:

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

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

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

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

Technology:

Digital marketers are expanding beyond just Google and Facebook

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

Technology helps offset wage inflation

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

Miscellaneous Nuggets of Wisdom:

You have to mix brand advertising with direct response

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

Full transcripts can be found at www.seekingalpha.com

Company Notes Digest 08.05.18


Each week we read dozens of transcripts from earnings calls and presentations as part of our investment process. Below is a weekly post which contains some of the most important quotes about the economy and industry trends from those transcripts. Click here to receive these posts weekly via email.

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

The Macro Outlook:

It’s booming times out there

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

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

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

This cycle can extend longer than many think 

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

But don’t lose sight of cyclicality

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

There was evidence of increasing market volatility this quarter

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

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

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

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

Some people are hedging

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

International:

The possibility of a no-deal Brexit is uncomfortably high

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

Certain softness in the Chinese economy

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

Politics:

The Trump administration views itself as free traders

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

Tariffs are a tax on consumers

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

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

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

Financials:

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

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

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

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

Consumer:

Consumers are more skeptical of private label brands in emerging economies

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

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

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

Brick and Mortar isn’t dead just yet

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

Technology:

Shortages of passive components are expected to persist into 2019

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

Tesla is designing its own chips to run neural networks

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

Slow moving industries are finally entering the digital age

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

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

Industrials:

Shipping container utilization rates are high

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

Materials, Energy:

Many factors are driving oil capacity down, prices up

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

Miscellaneous Nuggets of Wisdom:

There’s no excuse for bad manners

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

Get one thing right first

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

Full transcripts can be found at www.seekingalpha.com

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

Company Notes Digest 07.23.18

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’re back again for earnings season!  The general economic outlook remains positive. CEOs and consumers are extremely confident and don’t see any clouds on the horizon.  However, the yield curve tells a different story.

There was a lot of talk about inflation and tariffs on this week’s calls. Companies are raising prices to offset increasing input costs. The impact of tariffs has been minimal so far but companies continue to monitor the situation.

The Macro Outlook:

There are not a lot of potholes in the economy

“The consumer balance sheet is in good shape, capital expenditure is going up, household formation is going up, home building is in short supply, the banking system is very, very healthy compared to the past. Consumer confidence and business confidence are very high, albeit off their highs, probably because of some of our trade. So, if you’re looking for potholes out there, there are not a lot of things out there, and growth is accelerating.”- JP Morgan Chase & Co. (JPM) CEO Jamie Dimon

The consumer is in very good shape 

“our consumer activity is the highest it’s been in many years here. Payments by consumers are up 9% for the first half of the year versus last year, so everything shows as the consumer driven U.S. economy is in very good shape” – Bank of America Corporation (BAC) CFO Paul Donofrio

“I think, frankly the United States economy is in a good place from a cyclical standpoint close to our maximum employment and stable prices target “- Federal Reserve Chairman Jerome Powell

Optimism abounds

“When I talk to business CEOs, they are very optimistic, they are spending and planning the spend on CapEx” – BB&T Corporation (BBT) CEO Kelly King

“We talk to our leaders and our lenders and they’re talking to their customers. Things are very positive…The consumer spend numbers are high. Corporate payment spend activity is high, payables and T&E. So there’s a lot of confidence out there, and I think, actually, loan growth will accelerate.” – U.S. Bancorp (USB) CEO Andrew Cecere

talking to our CEOs and other companies we interact with tax reform has increased, in many cases, their cash flows and has made them more confident…So I would say what we’re seeing on the ground is positive” – The Blackstone Group (BX) President Jonathan Gray

“our customers seem to be — continue to be very optimistic about the future” – CSX Corporation (CSX) CEO Jim Foote

No one sees fragility despite the long business cycle

“while this cycle is older than potentially typically cycles have been, growth over the last decade has been lower through the recovery. So, there is plenty potentially of room to play. And as we look at all the economic data, not just here in the U.S. but also globally, there are no real signs of fragility” – JP Morgan Chase (JPM) CFO Marianne Lake

“The economic backdrop is quite healthy, despite the recent turbulence in markets” – The Blackstone Group (BX) CEO Steve Schwarzman

But the yield curve is telling a different story

“The yield curve does say something different today and there could be other components to that that’s driving that differential. And Terry – from a positioning standpoint, we’re not assuming that there’s going to be a steepening in the short-term” – U.S. Bancorp (USB) CEO Andrew Cecere

Higher inflation is expected

“commodity inflation has picked up a bit. Certainly, we have seen a bit more in oil and in addition to that in aluminum; second, transport costs have also been under some pressure with the driver shortage in the United States; and then third, in international markets, as you know where we have seen some inflation – PepsiCo (PEP) CEO Indra Nooyi

“facing intense wage pressure and difficulty in finding the people that they need…. we can expect higher inflation and higher rates” – BB&T Corporation (BBT) CEO Kelly King

“We continue to see elevated commodity prices and as a result now expect inflation headwinds” – Stanley Black & Decker (SWK) CFO Don Allan

“the key issue is that inflation continues to run very quickly…it is inflationary for products and that inflation has not stopped.” – Fastenal (FAST) CFO Holden Lewis

Inflation begets more inflation

“we already implemented an initial set of price increases in June, with an additional set of actions planned for the third quarter…we are acting with agility to implement price and cost actions to offset these transitory [tariff] headwind.” – Stanley Black & Decker (SWK) CFO Don Allan

“we are seeing more headwinds on cost inflation…And we are raising prices to offset that” – Electrolux (ELUXF) CEO Jonas Samuelson

“It’s hard to imagine that the current cost pressures could sustain a whole lot longer before manufacturers have to move much more significantly” – MSC Industrial Direct (MSM) CEO Erik Gershwind

Labour markets are very tight

“with unemployment at the level that it is in the U.S. and some of the international markets, it is a very competitive market for labor” – Domino’s Pizza (DPZ) CEO Richard Allison

Construction activity is slowing due to shortage of labor

“we’ve seen a decline in construction opportunities. That’s not atypical at this point in a cycle, that’s for sure. There’s a real constraint in terms of, candidly, availability of labor and underlying commodity prices have increased. So that’s affected the pace of new home construction. That’s a little bit different than in prior cycles at this time.” – Wells Fargo (WFC) CEO Timothy Sloan

Tariffs and trade rhetoric have had little impact so far but companies are watching closely

“You can read in the papers, the specific companies that maybe impacted, but we have not seen that in any kind of – even that in the industry level” – U.S. Bancorp (USB) Chief Risk Officer Bill Parker

“we anticipate a minimal impact to our overall business results in 2018…this is a very dynamic situation that changes by the day…and we’re giving it substantial focus.”- Honeywell International (HON) CFO Greg Lewis

“when we look at the trade rhetoric, it certainly introduced volatility, but we haven’t yet really started to see any significant changes in behavior….the markets have the fears of what that rhetoric leads to.”- Citigroup (C) CFO John Gerspach

“We have not yet seen tariffs impacting customer demand. Although, they are now top of mind for both customers and suppliers, and are beginning to impact manufacturing input costs. We are just beginning to see cost pass-throughs from some suppliers.” – MSC Industrial Direct Co. (MSM) CEO Erik Gershwind

“if this escalates, is protracted, spills into the broader economy, it could have a broader impact and we’re obviously watching that”- The Blackstone Group (BX) CEO Steve Schwarzman

International:

It’s still deflationary in Europe

“Pricing in Europe, it remains a fundamentally quite deflationary environment…over the longer term, that you’ve got to assume that Europe remains a difficult place to take pricing” – Unilever (UL) Graeme Pitkethly

A transportation strike in Brazil had a negative impact last quarter

“growth was negatively impacted by the 11-day transportation strike that broadly disrupted commerce in Brazil.” – PepsiCo (PEP) CEO Indra Nooyi

Financials:

The markets are lacking breadth

“If you strip out a handful of outperforming tech stocks, the lack of breadth in the equity markets is troubling…companies are using excess capital to make acquisitions and more aggressively repurchasing shares at levels not seen since 2007, and the pool of investable equities is shrinking” – BlackRock (BLK) CEO Laurence D. Fink

Cash isn’t just safe anymore, it’s also profitable

“Short term rates have now surpassed 2%, a level not seen in almost 10 years. These rising rates and a flattening curve have made cash not a safe place but now also a more profitable place for investors to stand by and wait.”- BlackRock (BLK) CEO Laurence D. Fink

The outflow of tax payments was unusually high this year

“the outflow of tax payments was unusually high this year, which was not as much of a surprise as all that given the tax planning that people did in the face of the tax bill that happened” – First Republic Bank (FRC) CEO Jim Herbert

Consumer:

Consumers are traveling for leisure

“it is a relatively robust business environment and very, very strong leisure demand…We see very robust demand and continued strength into the third quarter and the early results for fall” – Delta Air Lines (DAL) CEO Ed Bastian

Unilever is seeing a different consumer environment than other companies

“If we go to North America itself, there is no question that the markets remain turbulent there. Nielsen actually shows the market was being more or less flattish. And we think that including ecommerce, that market might be up 1% to 2% maximum. Price growth has dropped off in the U.S. also. There, it’s not entirely surprising, in my opinion, because we’ve had several years of good price growth in that market” – Unilever (UL) CEO Paul Polman

Technology:

GDPR is having minimal impact on advertising spend

“we are seeing minimal disruption to date from GDPR to our third party advertising revenue in Europe” – eBay (EBAY) CEO Devin Wenig

Industrials:

Companies aren’t spending on traditional CapEx

“middle market customers remain cautious, probably the greatest source of caution right now relates to the what may or may not have happened on the tariff side of the house…we are not yet seeing what I would call a lot of like traditional CapEx spending occurring” – Comerica Inc. (CMA) President Curtis Farmer

The domestic steel industry is benefiting from tariffs

“Our steel mill capacity utilization in the second quarter of 2018 was an impressive 95%…The U.S. steel market is…benefiting from a reduction in unfairly traded imports entering our country.” – Nucor Corporation (NUE) CEO John Ferriola

Aerospace markets continue to be strong

“So based on what we’re seeing right now, based on the orders, long cycle, short cycle that we’re seeing, there’s every reason for me to continue to be bullish on our growth” – Honeywell International (HON) CEO Darius Adamczyk

Materials, Energy:

Oil demand is strong

“The fundamentals of the global oil market continue to evolve favorably…as the balance of crude oil supply and demand tightens further. Global GDP growth remains robust and oil demand growth was strong in the first half of this year, helped by cold weather in the northern hemisphere” – Schlumberger Limited (SLB) CEO Paal Kibsgaard

The supply base is weakening

“In spite OPEC’s recent decision to increase oil production, the supply base continues to weaken, with growing geopolitical pressure to remove Iranian barrels from the market, with no apparent resolution to the falling production in Venezuela, and with Libyan exports continuing to be volatile.” – Schlumberger Limited (SLB) CEO Paal Kibsgaard

Exploration spend is turning a corner

“But we are starting to see that exploration spend appears to be turning a corner as well…both deepwater and exploration is starting to show kind of double-digit growth already in 2018. And I can only see that accelerating going into 2019.” – Schlumberger Limited (SLB) CEO Paal Kibsgaard

Miscellaneous Nuggets of Wisdom

A lot can change in a year

“There is a lot of things that change, as you know, over the course of the year. And the year never goes quite like you expect it to go.” – Abbott Labs (ABT) CEO Miles White

Full transcripts can be found at www.seekingalpha.com

Company Notes Digest 05.13.18

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.

As the earnings season fades into the horizon, the assessment is that corporate earnings growth has been strong mostly driven by the tax reform. Tax reform has also boosted optimism though and that has translated into real economic activity. Heading into Q2 and Q3, the general macro outlook remains positive even as rising component prices and costs, especially freight, are expected to reflected in increased prices. 

The Macro Outlook:

The macro outlook is great and is expected to remain so

“On a macro level, positive economic growth is a tailwind, with leading economic indicators remaining high” — Duke Energy (DUK) CFO Steven K. Young

“We do expect the macroeconomic environment to remain positive.” — Siemens (SIEGY) CEO Joe Kaeser

“The overall trends continue to be generally favorable in the United States” — Sysco (SYY) CEO Tom Bené

Our hopes have been realized

“As you may recall last quarter, we were hopeful we would see a pickup in North America economic growth. Our hopes have been realized. It’s time to take the numbers up a bit.” —Marriott International (MAR) CEO Arne Sorenson

Tax reform drove a lot of corporate earnings growth last quarter

“You look at earnings growth across the industry, look at the first quarter results across the U.S. corporate sector and you see great earnings growth.  A big chunk of that is tax and people are paying less in tax and therefore their earnings are moving. But…more often than not you’re also seeing companies report revenue growth. And that’s something that has been missing from the last few years of our economic recovery. “—Marriott International (MAR) CEO Arne Sorenson

But it’s also creating optimism that is leading to real activity

“From the time Tax Reform Act was passed you’ve seen a step up in optimism.  And the query we often give to our customers is, is it just optimism or are you actually seeing improved business conditions? And it’s a majority that say, no, no, no we’re actually seeing improved business conditions.  And we are actually making decisions which are the effect of our more bullish impact. It is not simply about attitude but it’s about things that are actually happening.”—Marriott International (MAR) CEO Arne Sorenson

There was an underinvestment in new capacity this cycle

“we have too much delay, really the slowdown in investments, and we can arrive at a situation where we will have a cycle without strong investment impulse in the private sector. lack of increase in private investment means that corporates work at the top of their production capacities”—ING Bank Slaski (ING) CIO Brunon Bartkiewicz

Tight capacity leads to margin and pricing pressure

“The freight environment obviously continues to be somewhat challenging out there…The more freight on the road obviously creates pressure for everybody. There is driver challenges and there is obviously just capacity challenges.” —Sysco (SYY) CEO Tom Bené

“The labor market is tight, and wages are rising in many markets. This is pressuring hotel operating margins and lengthening new hotel construction timelines”—Marriott International (MAR) CEO Arne Sorenson

Even the oil bogeyman is creeping back into the picture

“Fuel obviously is also up and we know that and we are dealing with the impacts of fuel and the operating expense.” —Sysco (SYY) CEO Tom Bené

Raw material price increases may work their way into consumer prices in Q3

“We are anticipating some significant, meaningful increases [in steel prices] in the back half of the year. We do think that we can offset that with price. We are working on instituting price increases”— The Middleby (MIDD) CFO Tim Fitzgerald

Investors are starting to expect higher yields

“We’re also seeing investor yield expectations increase as interest rates have rise.” —Lending Club (LC) CFO Tom Casey

We’ve been hunting for yield for a long time

“the search for yield will continue.” —Jones Lang LaSalle (JLL) CEO Christian Ulbrich

International:

Regulation has been a headwind in the UK

“The impact of regulation is a continued headwind for our business…The expected cumulative impact over the next three years could be more than £1 billion if we include the potential indirect impacts as well” — BT Group Plc (BT) CEO Gavin E. Patterson

Inflation is rising in Europe too

“We continued to experience acute product inflation in the mid to high single digits across the European business” — Sysco (SYY) CEO Tom Bené

Financials:

In real estate, sellers have high price expectations while buyers are cautious

“Some of the buildings…come with incredibly high expectations with regard to price from the seller side…people are really keen to hold on to their buildings and only if pricing really exceeds their expectations they are a willing seller…they wouldn’t sell because they wouldn’t know what to do with the money otherwise.” — Jones Lang LaSalle (JLL) CEO Christian Ulbrich

“Buyers are looking at the stage of the cycle and say well we..don’t want to be caught as the ones who are buying right at the end of the cycle and pay top prices. So that cautious behavior which we see from some of the buyers, we believe is very healthy….Buyers are very disciplined.” —Jones Lang LaSalle (JLL) CEO Christian Ulbrich

The national housing market has become solely a function of inventory

“The national market is thus become simple to understand, regardless of interest rate increases, stock market volatility, wage growth and consumer confidence, we now view U.S. home sales volume almost purely as a function of inventory. So unless significantly more listings reach the market, we expect U.S. total home sales to be flat at best in 2018.”— Redfin (RDFN) CEO Glenn Kelman

Home buyers are angry

“The people who are buying homes right now are really mad. They’re mad about the market. They’re mad about feeling poor when the economy is doing so well.” —Redfin (RDFN) CEO Glenn Kelman

Rates on credit cards are rising

“Borrowers are starting to see the increased cost of credit as most credit card debt is indexed to prime, which has moved up 75 basis points from a year ago…We have observed a number of lenders increase rates to borrowers…We know that consumers are feeling the increase in rates. Their amounts are repriced.” —Lending Club (LC) CFO Tom Casey

Consumer:

There is weakness in large retailers, strength in leisure and hospitality

“We continue to see some weakness in large retailers as they compete with online offerings. Yet, strength in leisure and hospitality businesses have offset this to some degree. Small business confidence remains high, providing optimism for future growth in this sector.” — Duke Energy (DUK) CFO Steven K. Young

Retail is still trying to adjust to a new world

“How the consumer shops is also changing quickly. The vast majority now engage in an omni-channel journey, mixing online, retail and wholesale channels as they consider a watch purchase.” —Fossil Group (FOSL) CEO Kosta N. Kartsotis

Sales at restaurants are rising despite lower traffic trends

“Improved spend for the Retail and Food Services sectors and somewhat favorable conditions for Food Service operators as sales at restaurants continue to rise offsetting somewhat lower traffic counts.” —Sysco (SYY) CEO Tom Bené

The World Cup should be a boon for pizza deliveries

“with the World Cup happening this year that we do have some high expectations around some activations associated with the World Cup to move the overall business forward there” —Papa John’s International (PZZA) CEO Steve M. Ritchie

Technology:

Capacity constraints may be easing for tech components

“in general, the foundry lead times are normal. We’re able to get the capacity we need from our foundries. We’re able to get the assembly/test equipment that we’re acquiring.” —Microchip Technology (MCHP) CEO Steve Sanghi

But long term deflation in the price of components may be coming to an end

“We’ve been saying for quite a while that the historic industry practice where the prices went down every year, we are really no longer following that trend…We are winning a lot more often at customers not giving them year-to-year price reduction. Five years ago, we’ll succeed some of the time; today we succeed most of the time.” —Microchip Technology (MCHP) CEO Steve Sanghi

NVIDIA seems to benefit from every hot trend–even Fortnite

“The success of Fortnite and PUBG are just beyond comprehension, really…the overall gaming market is just really, is super healthy.”—NVIDIA (NVDA) CEO Jen Hsun Huang

“Cryptocurrency demand was again stronger than expected, but we were able to fulfill most of it with crypto-specific GPUs” — NVIDIA (NVDA) CFO Colette M. Kress

There has been robust demand for midrange smartphones in china

“the whole industry were caught a bit off guard when we saw this big uptick in the China smartphone market 30 days ago or so…we’re seeing a nice pick-up in the phones…fairly robust demand appearing, that’s starting now, and we believe will carry through the balance of the calendar year.”—Synaptics (SYNA) Richard A. Bergman

Industrials:

It’s better to incentivize a sales force to sell through rather than sell in

“[I am] philosophically against sell-in because in sell-in, your relationship with distributors is built on commercial making the deals with the buyers in distribution to stuff the channel essentially. Hey, buy more of my parts, buy more of my parts. In a sell-through, the incentivization of the sales force to your effort is in driving design wins to revenue, so that the parts are going out from distributor shelves to the end customer, and that’s the main difference…[in a sell through model] the amount of managing the quarter that goes on at the end of the quarter by giving distribution deals, from pricing concessions to payment terms to buddy-buddy distribution, please take another $10 million from me, all that happens is really bad behavior, and it doesn’t represent demand.” —Microchip Technology (MCHP) CEO Steve Sanghi

Materials, Energy:

Oil and gas companies are feeling better

“Underlying oil and gas industry demand has been improving.  We looked at the RevPAR performance of our hotels in 40 energy submarkets in the U.S. in places such as Oklahoma, North Dakota and Louisiana to name a few. Excluding Houston, we note that RevPAR for our hotels in these U.S. markets rose 6% in the fourth quarter of 2017 and 8% in the first quarter of 2018. Canadian energy markets were even stronger.” — Marriott International (MAR) CEO Arne Sorenson

Miscellaneous Nuggets of Wisdom:

CEOs don’t have all the answers

“We normally think of CEOs as the people who have the answers, right? I think CEOs are the ones that have the questions. If you can provide the right framework and questions, the consumers, clients, customers, factory managers, supply chain -they have the answers.The important piece is to recognize and learn fast.” —Kraft Heinz CEO Bernardo Hees

Full transcripts can be found at www.seekingalpha.com

Company Notes Digest 05.06.18

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.

Companies express optimism and project a multi year, multi industry upturn. Further, the global outlook remains positive.  Still, most companies are feeling the heat of increasing costs especially on freight which they re seeking to pass on to consumers. 

The Macro Outlook:

CEOs expect this cycle to continue for another several years

“2019 is going to be another great year. And it’s on the back of refining, petrochemicals, gas, LNG. It’s on copper. There’s lot of work that’s coming this year in the mining sector…we’re in a multi-industry multiyear upturn”- Fluor (FLR) CEO David Seaton

“The cycle has not peaked…we’re seeing positive orders on a global basis. I’ve been around a while and I’ve been through three cycles. This cycle has not ended…my visibility in the cycle is solid at least three to four years” – Emerson Electric (EMR) CEO David Farr

Global growth remains strong

“We expect the global economy to remain positive absent any significant impact from geopolitics or trade risks” – Mastercard (MA) CEO Ajay Banga

“the U.S. economy is still on a good growth trajectory” –  San Francisco Fed Chair President John Williams

The labor market is also solid

“If you look at the job growth, it’s been very solid over the last three or four months. Unemployment did come down…Wage growth is still I think on an upward trend, but it’s not picking up fast…Labor market is still very strong and getting stronger” – San Francisco Fed Chair President John Williams

“The labor market has continued to strengthen and that economic activity has been rising at a moderate rate. Job gains have been strong, on average, in recent months, and the unemployment rate has stayed low” – FOMC

Commercial real estate demand is robust

“We are experiencing robust demand from all matter of industries in all of our submarkets. Our tenants are optimistic, aggressive, growing and up keyed about New York” – Vornado Realty Trust (VNO) CEO David Roth

And companies love tax reform

“the new tax legislation enacted in December gives us increased financial and operational flexibility from the access to our global cash” – Apple (AAPL) CEO Tim Cook

On the other hand, companies are experiencing some cost pressures especially on freight

“On the cost pressures, where we’re seeing it most acutely is on freight, like many other companies” – Kellogg (K) CFO Fareed A. Khan

“Our inflationary pressures are really coming from freight and sort of the wage and benefits…freight costs have increased for every company that puts anything on a truck and we are expecting these costs to remain elevated throughout the year…freight costs are up industry-wide” – B&G Foods (BGS) CEO Robert C. Cantwell

“This year we are seeing a more difficult cost environment, particularly we’re still dealing with about 70 basis points of impact from the memory pricing environment that we’re working through.” – Apple (AAPL) CFO Luca Maestri

Which are being passed on to consumers

“We have communicated price increases across the majority of our portfolio to all of our customers….our strategy does not appear to be different than the majority of our competitors who are also wrestling with costs.” – B&G Foods (BGS) CEO Robert C. Cantwell

“Pricing will continue to accelerate as we go through this. But at the end of the day, pricing is going to rise we think throughout the balance of the year” – Ecolab (ECL) CEO Doug Baker

Interest rates should keep rising

“While geopolitical uncertainty and the prospect of a trade war could drive down interest rates, we believe the economic fundamentals point toward rising rates, although not to pre financial crisis levels.” – MetLife (MET) CEO Steven Kandarian

International:

Trade wars aren’t good for anybody

“I think my own view is that China and the U.S. have this unavoidable mutuality where China only wins if the U.S. wins and the U.S. only wins if China wins and the world only wins if China and the U.S. win. And so I think there’s lots of things that bind the countries together and I’m actually very optimistic.” – Apple (AAPL) CEO Tim Cook

“a trade war is not good for anybody…the trade war actually will hurt small businesses in the United States.” – Alibaba Group Holding (BABA) Executive VC Joseph C. Tsai

Emerging market growth should pick up in ‘19, ‘20

“We’re going to see the emerging markets come in and drive faster growth versus the mature markets as we get into 2019 and 2020.”  Emerson Electric (EMR) CEO David N. Farr

Brexit has been less disruptive than expected

“There seems to be a little bit of calm has entered the markets after the kind of shock from the Brexit decision maybe a couple of years back. But it doesn’t appear to be quite as disruptive as perhaps people feared”- McDonald (MCD) CEO Steve Easterbrook

Financials:

Volatility has normalized

“Volatility is alive and well…that scenario of flat volatility doesn’t last long historically. It’s unusual in this instance, but we believe history is what we look back to and we’ll go to a normal upward sloping curve in vol…the market is still in adjustment mode or flat” – CBOE Global Markets (CBOE) CEO Ed Tilly

“Although April market conditions dip below the Q1 trend line, realized volatility remains consistent with a more normal environment”- Virtu Financial (VIRT) CFO Joseph Molluso

Some companies are dipping toes in crypto currencies

“we’ve dipped a toe in, but it’s a very, very small toe… It’s a new asset class we’re excited about it if and when it becomes more regular, regulate and essentially cleared, certainly we will put a big toe and all the little toes will follow and we’ll be a big market maker there.” –Virtu Financial (VIRT) CEO Douglas Cifu

But there’s less interest than there was

“there’s a little less interest than there was in the latter part of the fourth quarter and the first quarter.” – Mastercard (MA) CEO Ajay Banga

Office Reits are selling at substantial discounts to NAV 

“The office companies and all of our brethren are selling at a very substantial discount NAV. Everybody is complaining about it.” – Vornado Realty Trust (VNO) CEO Steven Roth

Consumer:

Millennials are beginning to dominate the economy

“Millennials are expected to become a huge economic force in the coming years that already dominating lot of buying decisions.” – Snap (SNAP) CEO Evan Spiegel

Millennials like frozen foods

“Frozen foods categories are outpacing grocery overall, especially with millennials, who consider frozen closest to fresh and who prize its convenience and value”- Kellogg (K) CEO Steven A. Cahillane

Retailers are still investing in omnichannel

“We keep rolling out the omnichannel capabilities…it’s a new business model, not just for us but also for our partners and that needs to be optimize, that needs to be nurtured as well” – Adidas (ADDYY) CEO Kasper Rorsted

“We are in course of the rollout of our omnichannel services, this means click and collect and order from store.” – Hugo Boss’ (BOSSY) CFO Yves Müller

Restaurants are investing in delivery

“Restaurants are still testing the waters and trying to understand how online ordering and online delivery support their overall growth…every boardroom is asking the management team, what are we doing about online ordering”  – GrubHub (GRUB) Matthew M. Maloney

Technology:

Cloud computing has significantly decreased the cost of starting a tech company

“What also happened in cloud computing is, after this was all said and done, a lot of tiny startups said, hey, like suddenly, I don’t actually need to spend a godly amount of money for service and I can get my product to market at the end of – just using my laptop in a coffee shop. And so the creation of startups became cheaper and therefore, there were more startups.” – Shopify (SHOP) CEO Tobi Lütke

But can tech decrease the cost of creating good content?

“Netflix has demonstrated an ability to turn cash into subscribers but not the ability to turn subscribers into cash” – Greenlight Capital Re (GLRE) Chairman David Einhorn

Humans are better than machines at some things

“So, we had fluffer bot, which was really an incredibly difficult machine to make work. Machines are not good at picking up pieces of fluff. Human hands are way better at doing that” – Tesla (TSLA) CEO

Industrials:

The market for business jets is strong

“I would say we’re seeing this pretty much across all segment of the business as small medium and large, very strong in medium and large. And from a region standpoint, U.S. is good. It’s solid, but we’re seeing also order picking up and increasing steadily…our used inventory level is at the lowest point in over about 10 years. So it gives us confidence now that we are really trending in the right way” – Bombardier (BDRBF) CEO Alain Bellemare

Same with the automotive market

“automotive continues to look very strong” – Cognex Corporation (CGNX) CEO Robert Willett

Materials, Energy:

The price of oil is being supported by balanced supply and demand and geopolitical risk

“What we’re seeing in oil is balance in terms of supply and demand and a lot of political risk most of which everybody suspects is baked into the price”  – Ecolab (ECL) CEO Doug Baker

LNG Supplies are down

“supplies around the world are down. There’s a lot of maintenance activity up in Europe and in other places” – Cheniere Energy (LNG) CEO Jack A. Fusco

Expect some modest price increases on shallow rigs 

“we believe rates for shallow rigs need to increase further and by several thousand dollars per day. If our customers expect industry segments to deliver on the safety and performance they need, rates must increase…The industry is suffering right now.” – Precision Drilling (PDS) CEO Kevin Neveu

Miscellaneous Nuggets of Wisdom:

Two views on moats:

Moats are lame, what matters is the pace of innovation

“I think moats are lame. It’s nice sort of quaint in a vestigial way. If your only defense against invading armies is a moat, you will not last long. What matters is the pace of innovation. That is the fundamental determinant of competitiveness…Whichever company has the highest rate of innovation, unless that company is actively killed by its competitors in some way that’s nefarious, or shoots itself in the foot, it will at some point exceed those competitors” – Tesla (TSLA) CEO Elon Musk

No one ever said you shouldn’t improve your moat

“Certainly you should be working on improving your own moat and defending your own moat all the time. And Elon may turn things upside down in some areas…There are some pretty good moats around…I don’t think he’d want to take us on in candy.” – Berkshire Hathaway CEO Warren Buffett

But moats may not be enough to stop new competitors

“I’m starting a candy company & it’s going to be amazing…I am super super serious…Then I’m going to build a moat & fill it w candy. Warren B will not be able to resist investing! Berkshire Hathaway kryptonite.” – Tesla (TSLA) CEO Elon Musk (via Twitter)

Full transcripts can be found at www.seekingalpha.com