Company Notes Digest 04.23.17

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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.

Avondale’s digest of earnings calls is back for earnings season! We’ve been on an extended hiatus because Scott has been working on outside projects that have taken priority over our weekly newsletter.  Still, we’ve heard from a lot of readers that they miss this piece and so we’ve been working to bring it back.

With the return there will be some format changes though.  The newsletter will now be released on Mondays instead of Fridays and most of the heavy lifting will now be carried by Erick Mokaya.  Scott will still serve as editor for the time being but Erick (along with a growing team of contributors) will be responsible for an increasing amount of the content.

I (Scott) am excited to be able to bring this piece back and hope that we will be able to maintain our high standards and frequency of publishing.  I’m confident that Erick will be a great steward of this project. 

With this transition in mind, I wanted to highlight a particularly salient quote from our miscellaneous nuggets of wisdom section about scaling content production.  If you want to scale, it’s about picking great people and letting them go to work.  With Erick we’re in good hands.

The Macro Outlook:

Things look good

“Conditions remained healthy, sentiment in the field remains constructive and the good demand of the past few quarters appears to be carrying into the second quarter of 2018.” –Fastenal (FAST)

“Things look awfully good and it feels like awfully good in a way in which there could be a bit of a runway here for things to remain pretty good…I think we will go forward here on a playbook that involves optimism with a kind of healthy state of anxiety” –Goldman Sachs (GS)

The economy is in full employment with a tight labour market

“it’s affecting everybody, all businesses in our footprint, very tight job market, it’s facing a full employment economy type of situation.” –Mercantile Bank’s (MBWM)

“The labor market is tight, and wage growth continues to improve.” –Citigroup (C)

Confidence is high

“There is clearly something going on with increased confidence and increased spending.” –American Express’ (AXP)

“business confidence is strong. People are looking to invest.” –Textron (TXT)

“confidence is high and that should be a benefit generally speaking. So, overall, we still feel pretty good and it’s showing a little bit in our sort of consumer spend data where we’re seeing that confidence continues to sort of a spur a bit in spending” –JPMorgan Chase (JPM)

The Impact of lower tax rates is being felt

“our first quarter results reflect the new U.S. corporate tax rate, which resulted in a significant reduction in our tax provision. And like many U.S. companies, we expect to see some modest adjustments related to the Tax Act throughout the year.” –American Express’ (AXP)

“U.S. corporations are starting to see the benefits of tax reform.” –Citigroup (C)

Which is showing up in increased actual demand

“Some of the things that we’re feeling from a macro and micro economic perspective out there is starting to expand some into actual demand from our clients.” –Comerica (CMA)

Businesses are investing in expansion

“we are starting to hear more and more discussion about going out and buying some new equipment and becoming more productive, more efficient.” –Mercantile Bank’s (MBWM)

“we’re starting to have some conversations with clients about CapEx and expansion opportunities…” –Comerica (CMA)

International:

Some companies welcome the new tariffs

“So certainly the language or the rhetoric that we are hearing would be positive to allow U.S. companies to compete in that space, but that remains to be seen. The rhetoric sounds good. But it’s been a huge hindrance to the business” –Textron (TXT)

but most wonder if they will implemented

“Whether that actually turns into policy and execution that allows us to compete in those international marks is still to be determined.” –Textron (TXT)

“The real question that comes down is how are those tariffs enforced, really, what countries are accepted and then are quotas actually placed? ” –Alcoa (AA)

Financials:

There’s a lot of idle cash

“We estimate there is over $50 trillion of cash that’s sitting in bank accounts earning less than 1%, some places negative. So as rates go up especially in the short end that is going to attract a lot of this cash into the fixed income markets ” –BlackRock (BLK)

But investors are getting more comfortable deploying it

“Our clients are deploying more cash into the markets and then putting it into different types of investments. ” –Morgan Stanley (MS)

Industrials:

Tariffs have not affected demand yet

“We take a pretty close look at demand as you can imagine, and we’ve not seen any impacts yet. ” –Alcoa (AA)

Steel prices are up but not due to impending tariffs

“The price increases we have seen so far are a function of production cost increases and that includes commodities inflation.” –MSC Industrial Direct (MSM)

Materials, Energy:

Crude oil markets have stabilized

“Market fundamentals are supportive of growth as crude oil prices have remained relatively range bound, providing stability for customers to more effectively evaluate projects.” –General Electric (GE)

Alumina markets are tight

“we’re experiencing considerable price volatility as illustrated here with spikes in both aluminum and alumina markets… in the near-term, the alumina market is tight…our global forecast is for a deficit market with competition among consumers for available alumina tons” –Alcoa (AA)

Miscellaneous Nuggets of Wisdom:

Greatness takes time

“Often, when a memo isn’t great, it’s not the writer’s inability to recognize the high standard, but instead a wrong expectation on scope: they mistakenly believe a high-standards, six-page memo can be written in one or two days or even a few hours, when really it might take a week or more!…The great memos are written and re-written, shared with colleagues who are asked to improve the work, set aside for a couple of days, and then edited again with a fresh mind. They simply can’t be done in a day or two ” –Amazon (AMZN)

Scaling is about picking great people and letting them go to work

“I think, in terms of scaling the original production and the licensing of content around the world, it’s mostly about picking great people, giving them a great place to work, trusting their – trusting them and empowering them to continue to make great choices” –Netflix (NFLX)

Full transcripts can be found at www.seekingalpha.com