Company Notes Digest 10.9.14

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A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

The Macro Outlook

Indra Nooyi doesn’t see a very upbeat global macro picture

“We are pleased with our results for the quarter and year-to-date, particularly given the continued macro challenges we see across the globe. Specifically in developed markets, the consumer category demand continues to be sluggish and in developing and emerging markets, there is continued macro and political volatility, most notably in Eastern Europe, the Middle East and a number of markets in Latin America. In other key emerging markets, China, India and Brazil even though the political environments are relatively stable, GDP and consumer spending growth remains mixed.” ($PEP)

Klaus Kleinfeld points out that the IMF is expecting continued economic strength in the US though

“keep in mind that IMF just came out yesterday with the new projections for this year and next year. And interestingly, they’ve upped the U.S., and the U.S. is a very important market for us, and very important for the strong end markets. And so they upped the U.S. for this year, and actually also for next year.” ($AA)

The low income consumer continues to get beaten up, but Family Dollar sees reasons to be optimistic

“While discretionary purchases continued to be constrained by economic pressures facing our customers, we’re encouraged by the recent sales trends in all three discretionary categories and we’re confident that we will carry this momentum into fiscal ’15 and deliver a stronger holiday season.” ($FDO)

The North American market for trucks has bounced back

“if there’s one fascinating thing, the heavy trucks and trailer is fortunately back, and we are clearly, for North America, taking up our projection.’ ($AA)

Europe, however, has not

“European side, we are not optimistic. In fact, we are more pessimistic. We had it at minus 1 to minus 5 in the last quarter. We now take it down to minus 7 to minus 10.’ ($AA)

China is slower than it used to be but still growing fast

“frankly, in China, Asian, they might be a little slower, but still going very, very strong.’ ($AA)

Is the deflation boogeyman rearing his ugly head again?

“Regarding your broader question on commodities without a doubt the commodities numbers overall are coming down.” ($PEP)

Consumer

Organic food suppliers are growing supply to meet demand

“This year, organic ground beef sales were up dramatically because the supply is up dramatically.” ($COST)

It’s increasingly difficult for Costco to find good real estate

“we’ve got a lot more people in the real estate area over the last few years…Certainly, we also get some calls as you might expect from developers, but it’s probably an increasingly difficult effort and that’s why we’ve added more infrastructure to pursue that.” ($COST)

60-70% of a retailer’s earnings come in the fourth quarter

“Historically over 60% of our net income has been derived in the fourth quarter but this year because of last year’s weather we expected to derive approximately 70% of our reported net income for this year…We are little bit like a basketball game, how basketball game you don’t really pay attention to the fourth quarter.” ($TCS)

Loyalty programs can be a double edged sword

“the reason that we waited 35 years to introduce our frequency program was really because we felt like most people give away too much gross margin needlessly in their affinity program.” ($TCS)

There’s plenty of room for more QSR in China

“Yum! Currently has five restaurants per million people in China with a consuming class is expected to grow from 300 million people in 2012 to over 600 million people by 2020. This compares to or about 60 restaurants per million people in the United States where the consuming class is about 300 million people today” ($YUM)

Healthcare

Costco isn’t going to dump employees onto exchanges, but healthcare costs are expensive, and that is something they could do

“I think to the extent that the healthcare continues to be the inflationary aspects of healthcare in the US. And as you know, we haven’t done — aren’t going to make major changes, like sending a bunch of people out of it. That’s an expensive cost to us and we’re probably be able do that.” ($COST)

Materials, Industrials, Energy

Aerospace is a less cyclical industry than it used to be

“it used to be a cyclical industry. But I think that through the wisdom of the two major players, Airbus as well as Boeing, in terms of being moderate in their production expansion, they have accumulated this nine years of backlog…we said look, we don’t see that cyclicality in there at this point in time.” ($AA)

In 2007 people thought metallic planes would go away, but that hasn’t happened

“When I came into the operational role at Alcoa, [it was] end of 2007…there was pretty much the rhetoric that metallic planes are going to be a sign of the past…coming through this quarter, Boeing, the very Boeing that was very strong on the 787, has just given us a $1 billion plus contract, and it’s all metallic. And for their big planes, when they had to make a decision for the 737, are they going to renew it with the [max] as a nonmetallic or a metallic one, they decided they gotta go for a metallic version and just do a re-engining.’ ($AA)

Next year will be a challenging one for agriculture suppliers

“This year, the industry will certainly face the headwinds of a more challenging agricultural environment.” ($MON)

Monsanto’s assumption is that farmers will plant about the same amount of corn next year as they did this year

“our assumptions are on acres, who knows we’re sitting here in the fall and we don’t have the crop harvested yet but our plan and our operating assumptions are that acres will be about flat with last year.” ($MON)

Miscellaneous Nuggets of Wisdom

It takes 6-9 months to recover from a bad publicity event

“what we’ve learned over time it really doesn’t matter even almost a big, the issue there if there is a highly publicized event, it takes six to nine months to recover.” ($YUM)

Change can only happen so fast

“you have management changes like that coming from different retailers with different ideas and thoughts…I think we got caught up in that a bit much and what I learned is when you have change like that you have to pace it, you have to think it through a little bit” ($FDO)

Learn from adversity

“I would never be one to say that we could never have any incident like this again. And but I can tell you we get stronger from everything that we had– ever happens like this we get lot stronger and stronger from — we improve our processes that are already strong. Everything we can do to learn from and get better.” ($YUM)

Full transcripts can be found at www.seekingalpha.com