Company Notes Digest 10.8.15

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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.

The Macro Outlook:

I seem to be the only person who thinks that the Fed is signaling that it will raise rates soon unless something goes really, really wrong:

The Fed was not concerned about the decline in stock prices

“equity prices fell, on balance, amid significant volatility, and risk spreads for businesses widened. Many participants judged that the effects of these developments on domestic economic activity were likely to be small” —Federal Reserve (Central Bank)

They did not let the market decline factor into their policy choice

“participants indicated that they did not see the changes in asset prices during the intermeeting period as bearing significantly on their policy choice” —Federal Reserve (Central Bank)

The Fed recognized that valuations were relatively high

“Some participants commented that the recent decline in equity prices needed to be viewed in the context of overall valuation levels, which they saw as relatively high, and a couple noted that volatility had begun to subside.” —Federal Reserve (Central Bank)

Some are concerned that if they wait to raise rates it could lead to financial market instability

“Some other participants, however, expressed concerns about delaying the start of normalizing the target range for the federal funds rate much longer. For example, a significant delay risked an undesired buildup of inflationary pressures or economic and financial imbalances that would be costly to unwind and that eventually could have adverse consequences for economic growth.” —Federal Reserve (Central Bank)

Most agreed that the conditions for firming have been met

“Most participants continued to anticipate that, based on their assessment of current economic conditions and their outlook for economic activity, the labor market, and inflation, the conditions for policy firming had been met or would likely be met by the end of the year” —Federal Reserve (Central Bank)

A quick read on the economy from Dominos: the inflation picture is mixed

On one hand this isn’t the type of economy that you can take price easily

“But in terms of is there significant pricing power for us, no, there is not. I don’t think you can take aggressive price in this economy right now and not expect that’s it’s going to hit your order counts.” —Dominos (Pizza)

On the other hand Dominos has seen an uptick in labor rates

“on labor rates specifically around our company-owned store first, we saw a little bit of an uptake in that line. Some of it wage rate, some of it just higher bonuses…I’d say is kind of despite any wage inflation, we haven’t seen a ton of wage inflation” —Dominos (Pizza)

Indra Nooyi’s message was to get used to the volatility

“the macro volatility is here to stay” —Pepsi (Beverages)


Yum saw the environment in China decline “very rapidly and without much warning”

“the deceleration in China sales was led by Pizza Hut and the drivers behind that decline emerged very rapidly and without much warning. In today’s volatile environment with the recent macro and competitive pressures we mentioned, it continues to be difficult to forecast sales in China for both brands.” —Yum (Restaurants)

Financial markets are weighing very heavily on the Chinese economy

“extraordinary volatility in financial markets, the surprise currency devaluation and overall softer economic conditions are weighing more heavily on the higher ticket casual dining sector in China.” —Yum (Restaurants)

Companies in China are cutting back on entertainment expenses

“in recent weeks, we’ve seen companies cut back on parties, dinners and entertaining.” —Yum (Restaurants)

Pepsi expects Forex to impact EPS by 10-11 points

“We now expect foreign exchange translation to negatively impact net revenue and core earnings per share growth by approximately 10 and 11 percentage points respectively based on current market consensus rates.” —Pepsi (Beverages)


Dominos has taken on quite a bit of leverage

“the company intends to issue approximately $1.5 billion of new fixed rate notes in the fourth quarter…would bring our total debt to EBITDA leverage ratio from approximately 3.6 times at the end of Q3 to approximately 5.8 times at closing.” —Dominos (Pizza)


Zero Based Budgeting is so hot right now

“we have also embarked on our version of zero-based budgeting, something we call smart spending.” —Pepsi (Beverages)

Companies have been relying on price to drive top line as volumes are under pressure

” I would say that the CSD market continues to be under pressure from a volume perspective. From a value perspective, because of good revenue management and good pricing in the industry, the value numbers are way better than the volume numbers’ —Pepsi (Beverages)

“the industry is definitively premiumizing, while volume remains sort of flat so that there is a shift internally towards more premium products.” —Constellation Brands (Alcoholic Beverages)

Startups are finding out that it’s not so easy to move packages around profitably

“clearly we are kind of the world leaders in real time delivery…there are a lot of people who have gotten into the space. My understanding is that as it relates to moving packages and food, very few if any of them are today making money doing that. There are folks that are doing pretty well out there moving people around, but I think people are learning that you know moving packages around and the scale that you need to do that it’s not easy.” —Dominos (Pizza)

Food delivery services are in a “savage battle for supremacy” in China

“there is definitely what we call a savage battle for supremacy going on about — around the aggregators who are obviously heavily discounting…we don’t believe that the economics will sustain all the people that are currently in the market playing at these discounted prices…China is not the only place where this is occurring, what tends to happen is they are all fighting for market share dropping the prices but then eventually the prices have to go up.” —Yum (Restaurants)


Technology is spreading to all industries, including agriculture

“As we look at the next decade for digital agriculture, one thing is clear. This platform will change the way farmers manage their operation; it will change who we are as a company; and it will transform the industry. In fact, we are targeting expansion of the platform into new crops in the next three to five years, including, but not limited to, soybeans, wheat and canola.” —Monsanto (Agriculture)

And pizza delivery…

“Switching to technology, the story continues to be about investing in innovation. Technology is now an absolutely critical part of our brand and an undeniable element of what Domino stands for. We don’t just talk about innovating, it’s generating real results. And for the second time this year we are using national television to promote a technology driven message.” —Dominos (Pizza)

And Finance…

“There are 160 steps and processes a company must do from the time leadership decides they want to do an IPO to the time the company starts trading on an exchange. We are working on automating that entire process and making it more efficient with software” —Goldman Sachs (Investment Bank)

CPG companies are being disrupted by technology too

“with digital technologies disrupting many aspects of our business, productivity has never been more important” —Pepsi (Beverages)

Technology makes it easier for small brands to establish themselves, so it’s critical to have control of manufacturing and distribution

“Innovation is becoming more fragmented and the life cycle of innovation is being shorter and the trade becoming more and more complex. Having control of the manufacturing and distribution systems becomes critical.” —Pepsi (Beverages)

Materials, Industrials, Energy:

These are tough times in agriculture

“We fully recognize that these are tough times in agriculture” —Monsanto (Agriculture/Chemicals)

Demand is growing to meet oversupply though

“the world is consuming the current oversupply at a record pace with demand for corn growing by an average of 1.3 billion bushels per year over the past three years. More than 90% of this growth in demand over this timeframe has been driven by feed and underpinned by middle-class protein consumption, which we expect to continue.” —Monsanto (Agriculture)

Eventually a lack of investment should lead to a rebound for mining companies

“Right now, everybody is focused on hunkering down and cutting costs and no new investment…Exploration spending is significantly down and there hasn’t been a major discovery in over four years. Gold production has peaked and it will continue to decline in the coming years. Without major gold deposits like Donlin, the industry cannot sustain itself.” —Novagold (Gold Mine)

Full transcripts can be found at