Company Notes Digest 12.8.17

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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.

Our focus this week was on tax reform. A bill is now expected to be passed before the end of the year and corporate America is excited. Companies will certainly benefit, but how will they spend their extra cash and will it boost the economy? Average Americans don’t get quite as big of a windfall.

The Macro Outlook:

Corporate America is excited about tax reform

“we’re very excited about where the tax reform is headed, we’re especially excited about the house version because it starts almost immediately where the Senate is the later year.” —Kroger (Grocery)

Most companies are well positioned

“I would say overall we feel we’re well positioned for the things that are being talked about – almost all of our cash is outside of the U.S., so any sort of repatriation that will be a positive for us.” —Donaldson (Industrial products)

Some companies will benefit more than others

“we don’t expect tax reform to have an impact on us for quite sometime. We have over $1 billion worth of net operating losses that we can burn going forward…So we will have a – some slight balance sheet adjustments as we revalue our tax assets and tax liabilities” —Workday (SaaS)

Domestic companies will benefit most

“We are entirely a domestic company. 98% of our revenues are here in the U.S. We are not a capital-intensive company. So…we will pay tax at close to the statutory rate. So, a reduction from 35% to what’s currently being discussed at 20%, very significant for us, even if it drifts up a little bit from 20%. ” —HD Supply (Distributor)

How will companies use the extra cash?

“you’ve heard some people now say they’ll increase their capital expenditures and that will accelerate. So, I think that’s what our corporate clients are telling us…So, I think it will unleash some activity. No question.” —Bank of America (Bank)

“We believe it will also influence us to continue to invest in our business which will grow jobs and I think what will end up happening is you will see us do a balance of everything together, some of it our shareholders will benefit from, some of it our associates will benefit from and our customers will benefit from it as well” —Kroger (Grocery)

“I think we don’t have any particular direction for that incremental cash other than to put it in the general coffers that I spoke about on the first question” —Toll Brothers (Homebuilder)

Will it boost the economy?

“our expectation is that…tax reform…will create a little bit more momentum. Exactly how much momentum? I am not 100% sure but could you imagine that increasing whatever the run rate GDP is by half a percent, I think that’s a reasonable assumption, may be not happen on January 1 but this could happen overtime.” —Wells Fargo (Bank)

Economic activity is already pretty strong

“If we look at what we’re seeing in our customer behaviors…I would say consumers are spending…the spend patterns were really quite strong and pretty broad across categories…Loan demand…is still pretty solid…so we’re really quite optimistic actually…it doesn’t feel like there is a meaningful point of fragility out there.” —JP Morgan (Bank)

“consumers are spending. They’re spending well. The unemployment is low. They’re getting paid…When we talk to our corporate customers, the commercial customers – small businesses, medium-sized businesses – they’re all making money. They’re seeing good, decent final demand, but it’s consistent with that 2% growth economy.” —Bank of America (Bank)

“feedback that we’re getting from our customers in terms of looking at customer activity on the consumer and the commercial side is that there it seems as if that there is some reasonable momentum.” —Wells Fargo (Bank)

The tax bill’s impact on consumers is less certain

“On the corporate side, we are encouraged by the potential reduction in the corporate tax rate as it will help our earnings and cash generation. On the personal side, while the potential reduction in the MID, real estate tax and self-deduction not being helpful to buyers, especially in our coastal regions, we believe they may be offset by a lower stated tax rate, the doubling of the standard deduction, the potentially removal of AMC, lower pass-through tax rates, and the elimination of the phase-out of itemized deductions.” —Toll Brothers (Homebuilder)

It’s likely to be a wash

“If SALT passes where there is limited or no deductibility of state and local taxes, and obviously, California, New York, New Jersey are impacted with higher state tax rates. But I’ll reiterate what I said before, we don’t think our buyers, that our price point are driven by the taxes they pay when it comes to purchasing our homes…We’ve also studied in some detail, a typical buyer in eastern states and also in California, and again without knowing exactly where the new bill comes out…it appears as a wash or very close to a wash.” —Toll Brothers (Homebuilder)

We’ll have to wait for the final details

“our tax team is anxiously awaiting any final laws that are adopted…I know the guys are studying everyday and we’re just kind of waiting for what the final revolution will be.” —Donaldson (Industrial products)


This bull market has been relatively unexciting

“volatility has remained pretty low across the spectrum…I wouldn’t use the word challenging, I would use the word that it hasn’t been – there haven’t been that many catalysts [for trading activity] it hasn’t been that exciting” —JP Morgan (Bank)


The holiday shopping season is off to a strong start

“We have seen a strong start to the North American holiday season with improvements in both traffic and sales trends” —PVH (Apparel)

Retail traffic has improved

“Traffic has improved and we see business just in general improved. And the other big benefits that I think everyone will see is inventories under real tight control. So I think it feels like again we’ve got a month ahead of us of this holiday selling, but it feels like we’re going into December with a lot of momentum, tighter inventories. I think it will be promotional, but probably not as promotional as last year there’ll be less goods to clear on January, if these trends continues. So we are very positive in all that we’re seeing throughout North America across all of our businesses and across the various different channels of distribution with our key customers.” —PVH (Apparel)

But that doesn’t mean that retail is out of the woods

“I’m not ready to say that everything is great in North America retail overall. I think we’re going to continue to see downsizing of businesses and store closings…I think that our retail partners have done a terrific job of managing into the fourth quarter…But it doesn’t mean that the ills that are impacting retail in North America…is over…And I think we’re going to have to deal and manage through some probably bankruptcy situations with some of our smaller accounts as we move forward. But I think that’s just the nature of the North America retail business.” —PVH (Apparel)


There’s also a bit of a bubble in blockchain development

“The underlying technology of blockchain is definitely very interesting. We have been interested from the very beginning. I would say there’s a little bit of a bubble in blockchain technology too because…Every CEO who goes to a meeting is asked about cryptocurrencies and blockchain as they go back to their office and say hey what are we doing about blockchain. So, there’s a lot of experiments going on in blockchain. But there isn’t to the best of my knowledge a real industrial quality use of blockchain that is up and running today.” —Visa (Payments)

Blockchain is not yet suitable for high volume transactions

“our view right now at least based on the technology as it stands today is that it’s applicable in let’s call it high ticket low volume kinds of situations, not our kinds of low ticket extremely high-volume situation, because the technology is not set up for that, maybe it will someday.” —Visa (Payments)

We won’t really know what cryptocurrencies are worth until they are tested

“My own view on cryptocurrencies is until there is a – until we have a crisis we won’t know much about them, right. They have never been tested. And I think we are getting to a point where they will be tested and then we will know what they are all about” —Visa (Payments)

Steve Ballmer deserves some credit for Microsoft’s renaissance

“Some decisions were made when Steve was still the CEO, like investing in Azure, for example, was the decision that was made originally under Steve’s watch…Steve was there when we started the move to Office 365. Steve was there when we decided to get into CRM online business. And so a lot of that stuff was started many years ago. And I think what Satya did is really to step on the gas.” —Microsoft (Enterprise Tech)

The cloud still only handles 10% of compute workloads

“I would say some of the numbers I’ve seen is that like 10% of the workloads are in the cloud. I would make an argument that that might even be optimistically, we might not even be there yet. And so, I think we still have lots of opportunity to move workloads to the cloud. And so, I think that will take place not over the next year or two years but more like over the next 5 to 10 years” —Microsoft (Enterprise Tech)

Deep pockets will be needed to win the AI race

“I think the folks who win in AI will be the ones that are willing to make the big investment and who are willing to innovate both on the hardware and the software side. And we’re making investments in both those. We’re also seeing some companies out of China that are leaning in heavy on AI. And so, I think it will be – I do think it will be a bit of a deep pockets race.” —Microsoft (Enterprise Tech)

Full transcripts can be found at