Company Notes Digest 11.1.13

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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

Cullen Frost (Regional Bank in Texas) has seen some lost momentum in loan growth:

“we expect loan growth — still expect loan growth, but we’ve lost some momentum.” ($CFR)

Unprecedented liquidity hoarding from corporate clients, can’t give money away:

we’re in a time that in 45 years I’ve never seen before, and I’ve talked about this in previous calls, to where commitments, people are preparing to borrow money, but they are not yet ready…commitments are growing. You can lead a horse to water and there’s plenty of water in the trough. We’ve got tons of liquidity, but I can’t make them drink. I can’t make them advance on the line, but we are growing our relationships.” ($CFR)

Companies sitting on their hands:

Cummins’ says customers only replacing, not growing their fleets:

“business confidence is not very high for major investments. Basically people are making small investments and conservative investments…nobody was getting ahead of themselves, they’re all kind of just staying within their – within the fairway here about what they think they can afford, they’ll buy trucks when they have a new route, they’ll replace trucks that look like their past and that’s what they’re going to do” ($CMI)

TD Ameritrade returning capital “as aggressively as we can”:

“we don’t normally — don’t comment too much on M&A. But I think it’s suffice it to say, we’ve always kept an eye open for entering the mix in strategic and financial sense. And I think, as evidenced by our returning capital as aggressively as we can, we really don’t see anything on the near-term horizon that would make financial sense.” ($AMTD)

Applied Industrial Technology (industrial equipment distributor) says customers not willing to extend beyond productivity improvement:

“I think U.S., in particular, I think it’s steady and stable. People are looking to continue to operate. They will serve their customers. They will make modest investments, if it’s got productivity attached to it and most are still doing pretty well from their own cash standpoint. But I don’t think they’re looking to make the most significant investments right now.” ($ATI)

Cullen Frost blames Washington:

“companies are sitting on the sideline wanting to buy a company, wanting to expand, but they’re scared to do it when you’ve got such a dysfunctional state of affairs in Washington.” ($CFR)

There are some industries that are investing for growth though:

Fluor is scaling up to service the oil and gas industries:

“we feel pretty good about our ability to scale this thing up quite a bit in the near term and over the long term to serve as the Oil & Gas boom.” ($FLR)

CBRE escalating expenses on people and technology:

“In general, I think that you should expect to see us on kind of an ongoing basis escalate our investments in technology and people relative to where we’ve been…we are, with regard to technology, and certain targeted expenses with people, we are escalating our expenses.” ($CBG)

Capital flowing back into Europe:

“the level of investment in capital coming into the European market has materially increased. Whilst it was originally focused on London and some of the German cities, it is now much more broadly based. The U.K. regional markets have improved. There is much better demand for the southern European markets, Italy and Spain. And we do foresee that, with the weight of capital coming in, that there’s — every prospect of that will continue.” ($CBG)

Brazil, Argentina and India are the global laggards. Rest of Asia recovering:

“I think Brazil and Argentina are the only places that feel like they’re going the other way — India as well. But that excepted, China, the Southeast Asian countries are all showing increases in forecasts for economic growth for next year.” ($JLL)

Cummins saw India fall off a cliff in Q3:

“The biggest negative impact in this quarter was India where it was not doing well up until now, but it really fell off a lot in Q3 much more than we expected as it seemed like the economy just kind of hit a tipping point. All of a sudden people started to say we have to reduce orders and we have to preserve cash now and that was frankly a surprise to us how quickly that happened.” ($CMI)

Jones Lang LaSalle following its clients into Africa:

“we are looking at ways of servicing our corporate clients across Africa because we just cannot avoid the fact that there is a demand there for real estate services in Africa, and the big corporations are now moving into Africa with some resolution.” ($JLL)

Financials

Commercial rents are moving higher:

“The fact of the matter is, there’s — rates are coming up, occupancies are coming up and sophisticated users, and we advise a lot of them, are attuned to that. And they believe that the space is going to get more expensive, particularly the better space. And there’s some aggressive action to secure space in the environment we’re in today.” ($CBG)

Real Estate investors moving out the risk curve towards development:

“because the move of the investment community has had into quality assets means that finding stable cash-producing core assets is getting harder and harder. So we, in common with many other investors, are moving out to a little bit along the risk curve to development of work, to work to assets where more value needs to be added in order to produce interesting investment returns and
the investment returns we’re targeting. ($JLL)

In commercial real estate, a lot of money chasing too few assets in 2014:

“So the investment pace is going to be a challenge in the course of 2014. You heard the numbers, in terms of the total markets for investment sales. So far this year, will cap — will top $500 billion for the year as a whole. That demand is only going to get stronger, so it will be a lot of money chasing assets in 2014.” ($JLL)

Long term trend toward less office space per employee:

“in the U.S., Europe, in particular this trend of densification…less square foot per person, smaller cubes…All these trends…they’ve been one of the reasons why the demand for leased office space has been comparatively slow to pick up in this post recovery…one of the aspects, not the only driver.” ($JLL)

Consumer

Facebook is an mobile internet Goliath:

“In the United States, Facebook including Instagram, just one in eight minutes people spend on the desktop, but one in five minutes on mobile” ($FB)

More time spent on its sites that many of its largest competitors combined:

“According to comScore, Facebook and Instagram have more mobile time spent than many of the next largest services including YouTube, Pandora, Yahoo, Twitter, Pinterest, Tumblr, AOL, Snapchat and LinkedIn combined.” ($FB)

But what makes the company so formidable is that it has pivoted. It knows its customers are its advertisers, not its users:

“We have been able to deliver better content and grow business for our customers and ourselves.” ($FB)

And as a result Facebook’s efforts are now directed toward serving its customers, not its users:

The company has learned to speak the language of its customers:

“Before we were asking marketers to come in and choose what ad products they were buying…I think that move of moving more towards using their language and focusing on their business needs is a simpler product for them. It will help gain us more marketers and it helps us work with them in a more efficient way.” ($FB)

The value prop in this statement is clear for the customer, but is this really providing value to the user?:

“The key to building the knowledge economy is building tools for everyone to use information to do their jobs better…The way businesses will experience this effort is that we will keep building better services for them to reach their customers with higher quality ads, more efficient leads with better targeting, better analytics and using richer formats. The way people will experience this effort is that the ads they see will become more and more relevant to their lives” ($FB)

Technology

A massive amount of Apple’s cash horde is not in the US:

“$111.3 billion or 76% of our total cash was offshore at the end of the September quarter” ($AAPL)

Which means that the company is actually distributing all of its domestic cash flow:

“given that our capital return program must be funded from domestic cash, and as a result of our payments to date, the cash that we can net domestically and return to shareholders to stop accumulating. In fact we give return to shareholders who invested essentially all of the increase in available net cash generated since the beginning of our capital return program in 2012” ($AAPL)

We are all digital pack rats:

“we shipped a record 48.7 Exabyte’s of storage up 14% year-over-year and averaged a record 875 gigabytes per drive across our portfolio up 19% over last year.” ($STX)

Materials, Industrials, Energy

Are mining companies done cutting capex?  Fluor seeing developing opportunities in mining:

“mining is not dead, regardless of what people say. So there’s a lot of opportunity there…the [infrastructure] group is pursuing…several developing opportunities in Mining & Metals” ($FLR)

Thermal coal prices may be on the upswing:

“PRB coal is competitively positioned versus natural gas…customer coal stockpiles could end the year around 150 million tons. That’s more than 30 million ton drawdown during the course of 2013. US coal demand is exceeding production and supply curtailments, particularly in Central App are accelerating. Looking ahead, even if we play at a scenario where coal demand is flat in 2014, we are on pace for another 30 million ton drawdown of stockpiles next year all else equal. With such a drop inventories will fall to levels not seen since 2005. That’s why we believe coal markets could become much more dynamic next year as compared to what we have seen during the last 18 months.” ($ACI)

Even though commodity prices down, Farmers still doing well:

“Obviously, the commodity prices are down, but also you have to keep in mind that farm income levels are projected to be very strong in North America and South America. And in many cases, in Europe, we’re seeing good harvest and farm income should be very good there as well. So we’re expecting the activity levels in our dealerships and retail demand to be strong for the balance of the year” ($AGCO)

Miscellaneous Nuggets of Wisdom

Brilliant quote on liquidity and crisis management:

“the only liquidity you have in a crisis is the liquidity you brought into the crisis.” ($CFR)