Company Notes Digest 2.13.15

Each week I read dozens of transcripts from earnings calls and presentations as part of my investment process. Below are some of the most important quotes about the economy and industry trends from the transcripts that I read this week. Full notes can be found here.

The Macro Outlook:

If you’re a company with international exposure, it’s likely that 2015 will be a “challenging” year

“As we look ahead to 2015, we anticipate continued challenging macroeconomic conditions in many markets around the world’ ($KO)

“We expected challenging macroeconomic environment in 2015. And the devaluation of foreign currencies also presents both translational and transactional foreign currency headwinds.” ($K)

Many companies continue to forecast big hits from currency swings

“Based on January 30th spot rates, we estimate currency would be about 11% — 11 percentage point headwind to our revenue growth…Obviously that’s a big number’ ($MDLZ)

“we now expect an approximate five-point currency headwind on net revenues with a seven to eight-point headwind on profit before tax for the full year 2015.” ($KO)

With currencies moving the wrong way, companies are focused on reporting currency adjusted growth

“while we anticipate our reported revenue will decline due to the significant currency translation impact, we expect to deliver solid organic growth in a challenging macroeconomic environment.’ ($MDLZ)

“Excluding currency…our message is that our organic growth, we’re still very comfortable with that guidance that we gave back in January, but there other variables at work here” ($BWA)

Domestically focused businesses are more upbeat though

“the macro environment should position the industry favorably in 2015. The combination of steadily improving job market, along with lower gasoline prices, should help provide a positive impact over the course of the year.” ($AAP)

Office REIT Douglas Emmett is the most leased it’s been since the recession

“At year end, our office assets were 92.5% leased, our highest since the recession. Occupancy at the properties we own throughout the fourth quarter increased 93 basis points to 90.6%.’ ($DEI)

Starwood says that the North American recovery should continue for some time

“Against the backdrop of low oil prices and low interest rates, we see potential for the North America recovery cycle to continue to for some time.” ($HOT)

Those expecting a consumer spending boost from lower oil prices may need to be patient. It takes time for lower gas prices to work their way through the system

“it takes a number of months before the consumer fully spends back the so called benefit from lower gas prices. I think you’re going to see that over the course of six months to eight months rather than an immediate change in consumer behavior. It just sort of assimilates over time.” ($PEP)

Something to keep an eye on: while market traded commodities are flashing deflationary signals, there may be signs of inflation in non-market traded commodities

” I believe our expected inflation rate is a bit higher than what a number of you have modeled and this is because we are seeing more pronounced inflation in our non-market traded commodities, including certain packaging and agricultural raw materials.’ ($PEP)

“We are seeing increases in our factory costs and wages and in benefits and in higher logistics cost as well. Not so much around fuel.” ($K)

Financials:

High sales prices have brought commercial real estate sellers to market

“I would say that look 2014 was better than 2013. And there were some transactions that had some pretty eye-popping dollars per square foot. And that always brings up more sellers who want to take advantage of that market. ‘ ($DEI)

Consumer:

Whole Foods still has low market share in most of its markets

“I mean, in almost all of our markets but maybe a few, we are, our market share is relatively low.We’re not, I mean, we, the point of it is, is we’re not a big threat to a major supermarket who dominates the market.” ($WFM)

Old packaged foods companies had a rough 2014

“I think you’d agree that 2014 for Kraft, and for that matter, the broader food industry, was both difficult and disappointing.’ ($KRFT)

Kraft claims it’s not a fundamental problem, just a matter of execution

“[we] don’t view the changes in this marketplace to be daunting or problematic particularly for company like Kraft with its incredible trademarks. We just need to execute better.’ ($KRFT)

Time Warner argues that television is still the best way to advertise

‘we still see very strong consumer demand for multichannel TV and increasing viewing across all the platforms. And we think that TV and video remains the best platform for reaching a mass audience for advertisers.’ ($TWX)

Content is king

“we’re more confident than ever in our position. That confidence stems from our belief that the very best video content is becoming more valuable to both consumers and to our advertising and distribution partners.” ($TWX)

LA is a great city for tech, media and advertising to converge

“Most of you have seen the headlines about the impact of the convergence of the technology, media and advertising industries in Silicon Beach and about Los Angeles emerging as the world’s leading producer of digital content’ ($DEI)

2014 was the warmest year on record here. (SK note: It’s been 80 all week)

“2014 was the warmest year on record in Los Angeles County.’ ($DEI)

Technology:

Apple Pay now makes up 2% of Whole Food’s sales

“With, the largest Apple Pay retailer in terms of both transactions and sales, further reinforcing the notion that our customer base wants to take advantage of the latest digital technologies. This payment option has grown quickly to 2% of sales which we expect will continue to increase especially after the Apple Watch launches this year.’ ($WFM)

John Chambers is very excited about what he’s got going on at Cisco

“Mel told me not to be too enthusiastic on the call. I went out and ran 4 miles this morning. I had my best time. And as the last year lifted weight successor and I am sorry, Mel, just full of energy, it is exciting what’s in front of us.’ ($CSCO)

Healthcare:

CVS’ PBM customers are focused on controlling specialty pharma costs

“many of you have asked what our clients are focused on, and the number one priority centers on controlling their rapidly rising specialty costs.’ ($CVS)

Materials, Industrials, Energy:

After a nasty couple years of capex cuts, it sounds like Rio Tinto may finally feel like it’s trimmed down enough

“We’re now in a position to strength, which allows us to not only meet our commitment to materially increase cash returns to shareholders, but also to be robust against low prices, to be in a position to take advantage of opportunities, which may present in the future.’ ($RIO)

There’s still too much iron ore coming to market though

“If you look at 2015, we’re expecting that about 100 million tonnes of new capacity will come on. There will be growth in demand of about 20 million tonnes.’ ($RIO)

There is no OPEC for iron ore

“So whether you like it or not, there is no OPEC in iron ore.” ($RIO)

Mining is a cyclical industry

“our people need to realize that the mining industry is cyclical. It goes through cycles. It’s supply and demand. It’s seasons. It’s a whole raft of things.” ($RIO)

If oil producers can cut production quickly, they can ramp back up quickly too

” mean its easy to ramp up after you’ve been there before, I mean we’ve got great capabilities in the Permian and our other regions and it will not be hard to ramp up.” ($APA)

When commodities producers don’t invest, it leads to shortages

“the question is becoming we think will supply be able to keep up when the market turns. Continued low uranium prices means there is no incentive to invest in new productions” ($CCJ)

There are still a fair number of nuclear reactors set to come online over the next 10 years

“There are around 70 continuing constructions today and we expect about 80 net new reactors to come online over the next 10 years…So the growth story for nuclear over the long-term has not changed, it remains incredibly strong.” ($CCJ)

Miscellaneous Nuggets of Wisdom:

Time flies

It’s already been four years since Fukushima

“we’re coming up next month on four year post Fukushima.’ ($CCJ)

China’s economy is twice as big as it was in 2007

“China’s economy is more than two times as big in 2014 as when I joined in 2007 and by 2018 its economy is projected to be another 40% larger’ ($HOT)

It’s been 50 Years since Frito-Lay and Pepsi merged

“this year marks the 50th anniversary of the coming together of PepsiCo and Frito-Lay in 1965.’ ($PEP)

Markets over-react. It’s easier to get things done as a private company

“e’re a public company. So we’ve got to juggle a lot of things, meaning that we, I mean, suppose if Whole Foods was a private company, we would act a lot faster. But it’s been our experience that market often times overreacts to anything we do.’ ($WFM)

Competition is good

“In fact, competition, it is your ally. It’s your ally that helps you to get better. It knocks you out of your complacency. It keeps you from being lazy, it forces you to evolve. ($WFM)

Compete, and have fun doing it

“VMware is a competitor. We view them as a competitor. We are going to beat them as a competitor and we will beat them and have fun doing it. I wish I was a better person, but I am not.” ($CSCO)

Good companies don’t just sit still. They keep evolving

“I think that’s something people have never understood about Whole Foods Market. They think we’re going to sit still and let people catch us. But we’re not going to sit still. We’re going to rapidly innovate and improve, that’s what we’ve done for over 35 years and that’s what we’re going to do going forward.’ ($WFM)

The oil price decline just goes to show that nobody knows anything about the future

“I mean this is the biggest, the most liquid, the most important commodities which is trading in the world. And the fact that it could sell for over $100 bucks and then less than half of that within six months tells me that nobody knows anything about anything when it comes to the future.’ ($MKL)

There are always things you can worry about. Focus on building value anyways.

“All of those concerns I just mentioned at the beginning were valid a year ago, and most, but not all of them, remain relevant today. When we look back at each year, there always seems to be some reason why things are going to get worse.Fortunately, the people in this organization always seem to find a way to meet the challenges and keep building the value and values of this company. I expect that to continue to be the case over time.’ ($MKL)

Full transcripts can be found at www.seekingalpha.com