Company Notes Digest 11.15.13

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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

Macy’s was extremely positive about the consumer:

“We saw broad-based strengthening across all major categories of business. There are lots of good news stories and only a few weaker ones…we are very excited about what we see for the holiday season” ($M)

Especially important, October closed out strong. The government shutdown didn’t carry over:

“there’s a lot of focus on October. I’m not quite sure why. The whole quarter was very strong and October did get stronger.” ($M)

Other retailers were perhaps slightly less positive than Macy’s, but still pretty bullish:

“I continue to be impressed by the resilience of our customers in the face of economic headwinds and fiscal uncertainty” ($WMT)

Even Kohl’s seemed to blame its own execution for a mediocre quarter:

“It’s primarily all about traffic, didn’t drive good traffic consistently throughout the quarter. ($KSS)

While painting a positive macro picture:

“We had a relatively good start. We had a phenomenally good ending, but the middle was weak…October actually was a very strong month, particularly the last few weeks of October, and we actually exceeded our plan by quite a bit…the strength we saw in October has continued into November thus far.” ($KSS)

Surprisingly, Nordstrom sounded the most cautious:

“As we’ve commented in previous quarters, we’ve experienced softness in our full-line store sales, with third quarter results consistent with recent trends but lower than what we anticipated as we started the year.” ($JWN)

The consumer may have been strong through October, but business spending may not have gotten the message:

“the shutdown, debt ceiling negotiations and delayed key decisions exacerbated the lack of confidence among business leaders we had highlighted over the past few quarters.” ($CSCO)

Housing is still experiencing a bit of a hangover:

“Our fourth quarter sales reflect a moderation in demand that started in mid-May and lasted through September, as economic conditions remained sluggish and potential homebuyers adjusted to both higher mortgage rates and increasing home prices. However, we saw improved sales trends in October as our net sales orders and dollar value increased year-over-year and were higher than any month in the September quarter.” ($DHI)

But it’s tough to get a true read on housing this time of year:

“We are now in the slowest seasonal sales period of the year, so our next good read on sales demand will be after the traditional spring selling season begins in February. We believe the housing market remains in a period of recovery…We have seen a significant increase in housing demand during the past 2 years, but demand still remains below normal historical levels across most of our markets, which leaves opportunity for further improvement.” ($DHI)

Cisco saw emerging markets spending fall off a cliff:

“Across every geography, the impact of emerging market weakness was pronounced and accelerated to the backend of the quarter. Our top five emerging markets declined 21% with Brazil down 25%, Mexico down 18%, India down 18%, China down 18% and Russia down 30%.” ($CSCO)

And doesn’t think it’s the only company that’s seeing the same trend:

“You look around the world, the emerging markets, I have never seen that fast a move in emerging markets and that is something that when I talk with our industry peers, while there are exceptions, most of my CEO counterparts can almost finish my sentence in terms of what’s occurring. It’s also occurring with many of our customers where if you were to talk about Brazil as an example, they can finish each other’s comments to CIOs about their business whether it’s the consumer business or whether it’s the manufacturing segment in terms of the direction” ($CSCO)

Financials

A generation of Americans don’t know anything other than super low rates:

“I think one of the factors that we are dealing with, quite frankly, is most analysts and most young buyers, especially first-time homebuyers in the market today, are — have been accustomed to low rates for all their lives.” ($DHI)

D.R. Horton gave some stats about who’s currently buying their homes:

“Borrowers originating loans with our mortgage company during the quarter had an average FICO score of 723 and an average loan-to-value ratio of 89%. First-time homebuyers represented 43% of the closings handled by our mortgage company this quarter compared to 53% in the year-ago quarter.” ($DHI)

40% is a pretty typical share of first time home-buyers:

“historically, our normal percentage of our business that was first-time buyers was around 40%, 35% to 40% range.” ($DHI)

Homebuilders are staying well behaved:

“generally speaking, I think people are acting rational…I think everybody in the industry should be glad to be back to decent demand and decent margin and decent pretax income possibilities on a go-forward basis. So right now, everybody’s playing in the sandbox pretty well.” ($DHI)

So are banks, which are tight on land based lending:

“Right now, the banks are reluctant to lend on a very favorable basis to private developers to the extent that many of them are requiring 50% equity in the deal to develop the lots. So for a large builder like ourselves, well capitalized, we’re in a preeminent position to be able to be a developer and provide ourselves lots at a cost-effective and timely basis.” ($DHI)

There’s a lot of money chasing mortgage originations though:

“there’s a lot of capacity in the market origination business right now. Refis have dwindled as rates moved up. And so there’s more competition for the business that’s still available.” ($DHI)

Consumer

Retailers feeling pretty good about inventory levels (sorry bargain hunters):

“our inventories have been in really good shape all year long is probably the best indicator of optimism for us coming into the holiday season because we have a lot of newness. We’re not bogged down with a bunch of clearance” ($JWN)

“the biggest, biggest, biggest positive by far for us is that our inventories going into the fourth quarter, even considering lower-than-expected sales, are exactly where we planned them to be” ($KSS)

E-commerce platforms are maturing:

“the online business, as we said, when we stopped reporting it separately, is getting just so hard to measure because so many customers are shopping online, going in the store to buy and vice versa.” ($M)

“we have our fourth E-Commerce fulfillment center up and running and automated this year. Last year, it was mostly manual. And that should help us. It’s the optimal number of ECs you need to minimize your transportation costs, so that will help on the shipping cost…as we get more scale, I think we should start to do a little bit better on the operating margin line. But I think it will be difficult for it to be the same operating margin as brick and mortar.” ($KSS)

“burberry.com is really the largest flagships store because it can carry eightfold what the number of styles are in Region Street and Region is huge” ($BRBY)

And they are getting more savvy about advertising on new platforms:

“What is lacking is more customer engagement. We’re not gaining enough new customers. And I think that has everything to do with reaching them in a different way, evolving our message, which we’re just beginning to do, and I would expect it to evolve a lot as we go into 2014, and reaching them on new platforms more aggressively.” ($KSS)

“Extensive use of outdoor advertising in iconic locations in flagship markets an innovation around Brit Rhythm for men, our first ever direct fragrance launch. Leveraging Burberry’s capabilities across music, social media, compelling content and of course digital activation all shot and produced by our in house creative media team.” ($BRBY)

Technology

A couple of old world industries specifically calling out the way in which mobile has led to productivity gains:

Trucking:

“where we’re going to spend our CapEx dollars, it will be more focused on the technology side. I mean, we’re going to continue to do what we can from the revenue equipment in terms of the total fleet…I think, our biggest bang for the buck, not only in the near term but in the long term, is going to be along the lines of our handheld technology, actually getting that to being more of a partner in how we operate the dimensioning units” ($YRCW)

Oil Services:

“now with a smartphone like the one I have in my hand as a district manager I had access to key pieces of information. For example, I can see when a crew arrived on location and even see what roads they took to get there. I can see which crew is on site and how many hours that they have logged and manage overtime. I could monitor jobs, I can see what frac stage that they are on, even see if the crew is performing maintenance on a certain piece of equipment. And I could review individual customer details and invoices. In total, I could see the daily utilization, revenue and costs to make better decisions about my business everyday.” ($HAL)

Materials, Industrials, Energy

Deepwater is really what will drive major incremental oil production going forward:

“Deepwater remains a critical component for many of our customers to access world class reserves and deliver on the production growth targets. According to Wood Mackenzie in the last five years, about 60% of all discoveries in terms of volume were made in deepwater.” ($HAL)

“About 60% of all wells drilled in the next five years will be drilled in the Golden Triangle.” ($HAL)

Conventional assets are in decline:

“60% of IOC’s portfolio fields are in decline with the average decline rates being more than 8% per annum” ($HAL)

Liquids are changing the cyclical landscape for oil service companies in North America:

“I said this before my 35 years in the industry in North America, I’ve always worried about the natural gas market and the weather that drove it.Now those traditional pronounced boom and bust cycles are a different story altogether. Gas will still come and go, but it won’t necessarily be the market driver…the reality is [North America] today is all about liquids and that’s why we are focused. A more stable price, steady rig count, mega pads, more service intensity, tailored chemistry, drilling and completion efficiencies.” ($HAL)

Miscellaneous Nuggets of Wisdom

Ride your winners, cut your losers:

“that’s what you do. You feed the businesses that are working well, and you cut back on the ones that aren’t.” ($KSS)