Company Notes Digest 11.13.15

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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:

The retail industry is going through a tough period

“We believe that the retail industry is going through a tough period that we seem to experience something like this every five years to seven years or so, and this one feels familiar in that regard.” —Macys (Apparel Retail)

It is not nearly as bad as 2008

“Someone asked me just earlier this morning, is this similar to 2008 and 2009, and my answer is absolutely no…This is what we’ve seen, a slowdown, as you said, in transactions particularly in this last quarter. We also here can see that the fundamentals of the economy are in much better shape than they were in 2008 and 2009.” —Macys (Apparel Retail)

But it is an across the board slowdown

“We’re not economists, we’re merchants…all we can tell you is in our business, we saw a slowdown. And it was across the board, as Jamie talked about. It wasn’t regionally or a merchandise region or a channel.” —Nordstrom (Apparel Retail)

It’s not weather either.  It’s a demand issue

“I would reiterate that there’s really not a seasonal component to where we’ve seen transactions slow down. Our coat business has been really strong having big increases. It’s just a traffic thing. We’ve got less people buying clothes this quarter than we expected and there’s really nothing else to point to” —Nordstrom (Apparel Retail)

The holiday season is approaching and there’s no sign of a change in trend

“As we head into holiday, we don’t anticipate a measurable change in current trends and we’ve made appropriate adjustments to our operating plans, including our inventory levels.” —Nordstrom (Apparel Retail)

Inventory levels are elevated

“less inventory is better than more inventory. So we’re working hard to try to turn our inventory more quickly. And so going into the holiday with more inventory than last year, we’d like to be going in with the same or less inventory.” —Kohls (Apparel Retail)

The environment will be extremely competitive

“I don’t want to minimize at all…we expect the holiday season to be very promotional, very competitive. Wes mentioned to you that we’ve baked into our assumptions a really pretty significant increase in our marketing expenditures, probably the biggest one we’ve had in a long time, and part of the backdrop to that is that we have an expectation that if we’re going to win, we’re going to have to drive traffic” —Kohls (Apparel Retail)

There could be heavy markdowns

“Retailers who are in the fashion business like us, we’re not selling lumber, so I can’t carry the lumber over to 2016 and sell it at the same price next year. We’re selling fashion apparel and so we’re going to mark that inventory down. That will be good for consumers, but it will obviously put pressure on our own margins in the fourth quarter” —Macys (Apparel Retail)

But you have to shoot when the ducks are flying

“you have to shoot when the ducks are flying, and they’re flying in November and December. That’s when the traffic is there.” —Macys (Apparel Retail)


Chinese steel demand has contracted by 3-4% this year

“With the exception of Europe, all major markets have seen apparent demand contract in 2015. We are now forecasting global apparent steel consumption to decline by between 1.5% up to 2% this year. China, the ongoing weakness in real estate and machinery end-markets has caused a contraction of real demand by around 3% up to 4% this year.” —Arcelor Mittal (Steel)

Chinese mills have turned to exports, but they do not have any inherent cost advantage

“Chinese steel production is sticky, so exports have increased. Here the volumes, price, excluding China have declined to less than $300 per tonne. But this is not a profitable business model for Chinese mills as they have no structural cost advantages. This is highlighted by Sesa reports that mills lost an average of $35 per tonne in the third quarter.” —Arcelor Mittal (Steel)


Stanley Fischer said the economy is withstanding the shock of a stronger dollar “reasonably well” thanks to the Fed’s delay in raising rates

“while the dollar’s appreciation and foreign weakness have been a sizable shock, the U.S. economy appears to be weathering them reasonably well, notwithstanding their large effects on certain sectors of the economy heavily exposed to international trade. Monetary policy has played a key role in achieving these outcomes through deferring liftoff relative to what was expected a little over a year ago.” —Federal Reserve (Philosopher Kings)

The art market sounds like an echo of equity markets

“the buyers are getting more discerning.” —Sothebys (Art Broker)

Buyers are crowding into the highest quality merchandise while mid tier assets are struggling

“with respect to the high-end, the folks who are buying things of more than $1 million, that group is getting…very discerning and quality oriented in their purchases…When you talk about folks that are a much larger pool that are invariably going to be a little bit more sensitive to macroeconomic uncertainties…it’s little bit sluggish” —Sothebys (Art Broker)

The headlines aren’t telling the whole picture because the highest quality merchandise is distorting the averages

“by the way quality sells for enormous prices…it’s hard to talk about average price because that’s not what’s happening, honestly, in the auction room. What you are seeing is the prices of very high quality objects are going very strongly against the estimates and the prices of everything else are soft.” —Sothebys (Art Broker)

Insurance companies are staying conservative because of low investment returns

“while everything is competitive, I don’t think anybody is under the delusion that they can operate on a sloppy fashion on the underwriting side and make it up on investments. So the nature and tone of competition and where that bar is set in terms of underwriting profitability is lower this time around than what it would have been in previous cycles, so that’s somewhat good news.” —Markel (Insurance)

It’s been a while since a big hurricane made landfall

“For the 10th consecutive year latest news to report in the third quarter is what didn’t happen. Specifically there wasn’t a U.S. land falling major hurricane or any U.S. land falling hurricane for that matter. The odds of this long of a lucky streak occurring is less than 1% and in fact it’s statistically more remote than odds of the 2004 or the 2005 storm years.” —Renaissance Re (Reinsurance)


Bob Iger does not wish to retract what he said last quarter about softness at ESPN

“there is nothing that I would either retract or in any way change…we decided to be candid, I think maybe refreshingly so, about what the industry was experiencing in terms of sub losses during roughly the last period. And we feel that there certainly should be no reason to panic over comments like that. The fact remains that we’re in an environment today that’s definitely changing, it’s different than the environment before, there’s a lot more competition for people’s time.” —Disney (Magic Kingdom)

Viacom is trying to steer the SVOD market into viewing windows

“we have strategically developed and chosen windows for different types of programming down to specific shows and moved around distribution of some of these shows around the existing major SVOD players in the U.S. And for example, we’ve seen growth in our presence in Hulu and a diminishment of our presence on Netflix.” —Viacom (Media Conglomerate)

Clear Channel says that radio currently has the broadest reach out of any media form

“television is no longer the mass reach media. We’re at 93%. Television is at 87% or so. And then when you go to millennials, we’re still at 93% and television is like 75%, 74%, 75% out there. And I think that smartphones is at 80%.” —Clear Channel Outdoor (Out of Home Advertising)


The cable industry could become a serious competitor in the wireless industry

“I think the cable industry is potentially poised to be a serious competitor in the wireless industry.” —Dish (Satellite TV)

Priceline is spending more money with Facebook, but Google is still the leader in intent-based marketing

“we have been doing more and more business with Facebook. Most of it though is in the category or re-messaging or re-targeting. It’s not really in the big sweet spot which is intent-based marketing. That’s really what search gives you is intent-based marketing. Somebody types in, I want a hotel in New York, and then you are responding to that request. But the folks at Facebook very much understand this. They’re working to try to win that kind of businesses.” —Priceline (Travel Booking)


Rockwell doesn’t think we’ve seen the bottom of the industrial cycle yet

“we’re cautious about how we’re approaching this because we don’t believe we’ve seen the bottom.” —Rockwell Automation (Industrial Manufacturing)

The aerospace cycle may be softening

“most industry players were seeing significant changes in some of the end markets in which we operate. This is primarily lower demand within the corporate jets and regional jet market, reduced utilization of older wide-body Jets as well. And we’re also seeing a continued and even more severe deterioration in the offshore sector to which our Marine business is exposed.” —Rolls Royce (aerospace)

But the housing cycle may have a lot of legs left

“I would say we still think that there’s legs left in this cycle. I mean, we’re not even close to what is a historical demand. So we’re trying to be very judicious and value the capital we have.” —DR Horton (Homebuilder)

Materials, Energy:

Companies in the energy industry are just trying to survive

“For many, the major theme across the industry is survival. Service pricing continues to decline and this has led to sharp reductions in personnel, expenses and investments across the board.” —Helmerich and Payne (Contract Drilling)

People are hoping things will get better, but rig count will likely continue to decline into 2016

“our hope would be is that we would at least be able to maintain our activity set that we have today going into at least the first part of the first calendar quarter of 2016. But that’s – of course, that’s not what we’re hearing. We’re hearing that overall, the rig count, a lot of folks are expecting it to continue to decline.” —Helmerich and Payne (Contract Drilling)

The bottom will come when no one believes that there is a light at the end of the tunnel anymore

“What we keep saying is that people should realize that it has to take some time where you have people not believing that there is an end lies at the end of the tunnel. What we know based on past history and based on the cyclicality of our industry is there is a light at the end of the tunnel, but we cannot see. The people that will keep walking in that tunnel and they will be still alive they will reach that point.” —Diana Shipping (Dry Bulk)

When a market is at the bottom, people start to talk as if it will never get better, but then it does.

“whenever the market is down we are trying to find new words to describe the market. This time is different from the previous, but I can assure you is not, is exactly the same the supply and demand. And it will never change…the fact that people start talking like you about structural changes and things are different et cetera is a good starting point for the right forces to take effect and the market to turn. It goes with the psychology that we were saying earlier.” —Diana Shipping (Dry Bulk)

Miscellaneous Nuggets of Wisdom:

Controlling costs ultimately comes down to having good people

“You guys are going to get tired of me saying this, but it really is the people. We got the – one of the toughest markets, toughest weather conditions, toughest labor markets, is our Dallas-Fort Worth area. And those two guys, because they have been in the market for 20-plus years, because they have a direct relationship with the vendors and suppliers, make a call and get people to show up. And you just can’t put a – you can’t quantify that and put it into a model.” —DR Horton (Homebuilder)

Deals start slowly and end quickly

“My experience with deals are that people can sit around and talk about them, they’re just not going to happen, but when somebody decides to do something, they move pretty quick.” —Dish (Satellite Television)

Don’t make a lot of decisions, just make the right decisions

“we don’t make a lot of decisions, but the ones that you do make on the strategic side need to be – better have a good chance of success.” —Dish (Satellite Television)

Build great products by thinking about your customer first

“we’re starting with what we believe the consumer wants. Every one of those examples that you used, which sounds like a strategic initiative for the company is actually a strategic initiative for the consumer. It’s really that simple. And this is a company that has been consumer-facing from the start.” —Disney (Magic Kingdom)

Full transcripts can be found at