Company Notes Digest 10.30.14

Each week I read dozens of transcripts from earnings calls and presentations as part of my investment process. Below are some of the most important quotes about the economy and industry trends from the transcripts that I read this week.Full notes can be found here.

The Macro Outlook:

The Fed has pulled out. Will things remain calm?

“I have said before that basically when the fed starts to pull out, there is no way that they do that and everything is nice and calm.” ($AMTD)

Capital markets were spooked, but seem to be healing now

“For investment grade we have had a very good settling of the market since last week. Last week did see in the U.S. reduced investment grade issuance of only $6 billion. This week and I just checked before I came upstairs it’s probably going to be a $20 billion week, a little bit better.” ($MCO)

There are mixed signals coming from the economy

Mastercard saw deceleration in spending in September

“the monthly growth trend showed some deceleration with several sectors lodging, furniture furnishings, grocery experiencing some noticeable slowdowns in September. So these are mixed trends in the US but overall the underlying indications [have been] positive. In October, the consumer confidence index is up over September as well’ ($MA)

Kraft says it would be hard to call this a great first nine months

“Against the backdrop of a challenging consumer and customer environment and some executional missteps, it would be difficult to call this a great quarter or an outstanding first nine months in absolute terms.” ($KRFT)

Agco is responding to a weak agriculture environment by aggressively cutting costs

“In response to weaker industry conditions, we are executing our plan to reduce inventory and aggressively control costs. Our team is analyzing all aspects of the business to identify cost savings and to better align our operations with the current market environment…we decided to make severe radical cuts very early, and therefore, we might — I hope that we are a little bit ahead of the events.’ ($AGCO)

Kennametal is having to cut costs to match the environment too (primarily driven by Europe)

“Due to a more modest growth environment, we are taking some cost reduction actions for the current fiscal year. For example, those measures include hiring freezes, as well as limiting certain expenses.” ($KMT)

On the other hand, there are plenty of companies who see business as usual

Polyethelene demand at Lyondell Basell has remained strong

“We have seen very strong demand, order books are full, so supply-demand in America seems pretty tight. In Europe is that same tightness seems to be there. We haven’t seen cancellation of orders on the fall in crude prices like sometimes happens. It’s seems to be pretty solid.’ ($LYB)

Tech manufacturer Flextronics hasn’t seen any big pullback in the technology industry

“We have not seen a big pull back across the industry. I know some company has made a lot of noise about it. We just haven’t seen that evidence, don’t know if we are going to see that later or not but just based on what we can see and our expectations, we continue to see a very stable environment and we just don’t see the evidence of any kind of major pullback.” ($FLEX)

Four financial services companies all say that pipelines remain solid:

“our pipelines looking forward…do look to be very solid pretty much across the board, and we came into the end of the quarter with a significant momentum. So that, combined with the kind of anecdotal, on-the-ground input that we get from our clients every day…the trends continue to look good as we look to the end of this year.” ($CYN)

“What we are seeing now is that pipelines are robust. The pipelines are quite strong. We are expecting a heavy fourth quarter in investment grade [bond issuance]” ($MCO)

“When you look at the markets themselves, we can see pipelines, as we mentioned, which are full. Those generally give us an indication 3- to 6-months ahead and there’s no slacking up in that picture either. And then after that…all those factors together give us confidence in the numbers that we have forecast.” ($JLL)

“it slowed down a little bit. But what I’m very comfortable with is how strong the pipeline is.” ($CFR)

While we sort these issues out…Santa Claus waits to see what December will bring

“UPS has been preparing for peak season 2014 since December 26th last year…Our people have been working hard to get everything ready for the holiday volume surge that typically starts during Thanksgiving week” ($UPS)


The lending environment may be moving into unsafe territory

“there’s a lot of crazy stuff going on right now.” ($CFR)

Lenders are getting aggressive in price, size and structure

“When I think of the competitive landscape and we compete on a debt basis, you’re looking at price, size and structure being the 3 components. As I’ve said in prior calls, you can look at all 3 of those components, and we’re seeing a very aggressiveness in all 3 of those areas.’ ($SIVB)

The longer things stay competitive the more dangerous the environment becomes

“Has anything changed dramatically? No, but the longer you see that intense competition at a certain level, that’s just — it becomes more challenging to figure out where you want to play and where you don’t want to play.” ($SIVB)

Banks blow up because people think nothing can go wrong

” I tell you what the way you blow a bank up is making bad loans…I don’t want to be talking to you 3 years from now about all the problems we created when everybody was just going crazy and you got a little bit of — not a little bit, you got a lot of just everybody thinking you can make any deal and it’ll work out.” ($CFR)

Big traditional asset managers are getting involved in funding late stage startups

“you see additional dollars flowing in from later-stage companies as the T. Rowe Prices and Fidelities get more active in putting more money at the later stage” ($SIVB)

Wirehouses may have gotten a little better at retaining their brokers

“I do think the wirehouse has gotten better at retaining their better brokers and producers” ($AMTD)

WR Berkeley is worried about hedge funds dabbling in the Reinsurance market

“The big question mark or concern from our perspective continues to be the global reinsurance market. We’ve talked about this over the past several quarters and it continues to be front and center on our radar screen…it’s still a bit unclear as to the permanence of this alternative capital. It hasn’t fundamentally been tested from a loss perspective where a lot of the decisions and judgments, which are based on models, proved to be wrong as a result of some type of unforeseen or unfortunate events.” ($WRB)


At least at the super-market, the promotional retail environment may be easing a bit

“I think the industry behavior has moderated somewhat, but we’re still up a bit in quarter three.” ($KRFT)

Interesting to think about the distinction between the perimeter vs. the center of a grocery store

“our protein offerings like meat, cheese, nuts are doing quite well. There is a wind at the back in those categories. They are in the perimeter of the store…we have an obligation to the center of the store and the great brands we have in them to execute the playbook equally well. And we think we can contemporize our offerings in meals and desserts to address the center of the store lack of traffic.” ($KRFT)

Local next day delivery is probably more important than same day delivery

“There are some markets where that same day is an important element…But we think that the majority of Internet shopping anyway happens late afternoon and evening and that the real hotspot is going to be local next day delivery” ($UPS)

TRW is skeptical that we’ll have fully autonomous cars on the road by 2020

“I am not yet convinced that we will see a fully autonomous vehicle on the road by 2020, which has been a date thrown out there by some commentators. Basically, because I think there are many things, which are yet to be overcome in terms of the legal, insurance, liability management issues.’ ($TRW)


Early stage startups are still finding it easy to get funding

“So when you look at where [deposit growth] came from…early stage is the biggest driver of that…It’s driven by corporate venturing, even angel investing in that category, which was, for the third quarter, was incredibly strong.” ($SIVB)

Azure is the backbone of the new cloud-centric Microsoft

“you should think of Azure as the common fabric of all our applications…we have a very diverse set of workload. We have Xbox LIVE; we have Office 365; we have Dynamics and Bing and that diversity is what allows us to build in fact for our own needs a cloud architecture that then can meet many more workloads” ($MSFT)

This was Twitter’s explanation for why timeline views per user were down

“The year-over-year decline primarily reflects the changes we’ve been making to allow users to more efficiently access to our content.” ($TWTR)

Almost 1/3 of Facebook’s employees have joined within the last year

“We ended Q3 with 8,348 employees, up 44% from last year…Overall we are pleased with our ability to attract and retain talented people who enable us to make strong progress against our mission.’ ($FB)

Advertising measurement technologies need to improve for a multi-device world

“We think measurement really, really needs to evolve for the world we’re in today in many ways…The current measurement systems don’t work on mobile, because they are largely cookie based…They really work well for one person with one device…The world we live in today, I bet you, everyone on this phone call has multiple devices and people look at ads online and then purchase offline” ($FB)

AT&T and VZ aren’t going to get out of the telecom wars unscathed

“there’s a fallacy in the industry that AT&T and Verizon are going to sit where they are and T-Mobile and Sprint are going bash each other over the head and exchange customers. It’s highly likely that what you’re going to find is that’s not what’s going on.” ($TMUS)

The infrastructure of the internet is under stress

“The accelerating growth of online usage and cloud services is placing significant stress on an Internet infrastructure that was not designed to accommodate the rapidly growing demands for scale, speed, reliability and security. As a result, congestion is increasing at major peering points, which degrades video quality and slows down Web applications. Performance is also hampered by the increasing complexity of Web applications. In the past 2 years, the typical size of a Web page has more than doubled. The number of third-party domains on a typical page is up 56%, and the average amount of JavaScript on a page has grown by 40%. The net result is that the average time to download a Web page from an origin has increased by more than 60% in just 2 years” ($AKAM)


Healthcare reform has provided a nice boost to hospitals

“The impact of reform has progressed favorably throughout the year, and we remain optimistic on the long-term benefits of health reform. And accordingly, we revised our full year health reform benefit guidance, where we now estimate a full year positive impact of approximately 4% versus our previous estimate of 2% to 3%.” ($HCA)

Affordable care act reforms are driving 1/3 of HCA’s growth

“Consistent with our second quarter, we believe approximately 2/3 of our adjusted EBITDA growth can be attributed to our core operations and approximately 1/3 to health care reform.’ ($HCA)

There are still many states that have yet to expand medicaid

“It appears Utah will be next, so we would expect Utah to come on. Indiana was in the mix, but it appears they have withdrawn their application. Tennessee, we would be hopeful going into next year, post the election, that there would be an opportunity here. Time will tell, but I think that would be maybe the next most likely to consider it. Florida, we’ll just have to wait post-election and see” ($HCA)

Generic drug price inflation may be softening a bit

“we believe that some of our second quarter inflation was pulled slightly ahead into the first quarter. Our outlook for the year remains unchanged, down slightly from the inflation rates we experienced last year but still pretty robust.’ ($MCK)

Materials, Industrials, Energy:

Anadarko isn’t changing anything about its exploration plan due to the current environment

“The current commodity price environment is going to have little to no impact on what we see over the next four to five years for things that we would be involved within ’15 with our exploration plan.” ($APC)

E&P companies are fine at $75, may have some pressure around $70

“Based on our conversation with our customers, cost of delivering finance production really needs around $75 a barrel you’re still receiving a good favorable return. If it gets to $70 a barrel, it would delay some projects not all projects, and you would also see some aggressive cuts and expenses.’ ($CFR)

Texas bank Cullen Frost underwrites energy loans assuming oil at $52 a barrel

“we also lend 65% of these amounts after you do all those calculations. And so 2015 oil would mean we’re loaning $52 a barrel and $2.40 on natural gas.” ($CFR)

No one ever said that commodity businesses weren’t cyclical

“anyone that think those types of multiples are permanent and sustained across commodity cycles, hadn’t been paying attention.” ($APC)

Utilities are still buying thermal coal even though it was a cool summer

“Even with the disappointing summer burn, we continue to see real interest from our customers and layering in significant tonnage for multiple years.” ($ACI)

Met coal markets may finally be bottoming out

“we believe met markets are in the process bottoming out. Benchmark prices are fallen below the cost for one-third or more of global producers and supply cuts are underway. Those cuts will help to offset new supply that is coming to the market over the last several years ($ACI)

At some point demand is going to cross over reduced supply

“At some point, the impact of the tons coming out and the demand for more tons have to cross. And I don’t think that’s going to take a long time to get there at this point” ($WLT)

Miscellaneous Nuggets of Wisdom:

Love competition

“every bone of my body just naturally wants to compete with anybody on anything” ($TMUS)

I’m not sure that relentless measurement is necessarily a good thing, but I appreciate the decisiveness in this statement

“This is a land of relentless measurement and continuous improvement.” ($KRFT)

Grow through cash flow, not through debt

“we have been pretty consistent in saying that we want to try to grow through cash flow. I think the ability to grow through cash flow and cash in this environment and not take on debt to be able to meet your needs makes our balance sheet and the way in which we run our company from a financial discipline perspective, consistently unique.’ ($APC)

Your brand is what your customers take away

“Even if people don’t understand every single move we’ve made or would fail our pop quiz, what they do understand is that we are the brand changing wireless for the better…and we think that’s contributing to our growth and, certainly, was one of the reasons why we had the biggest growth quarter in our company’s history” ($TMUS)

There are no mature brands as long as you have energetic people keeping them fresh

“There are no such things as mature brands and it’s all about energetic idea-driven marketers. It’s all about ideas and people” ($KRFT)

Full transcripts can be found at