Company Notes Digest 2.28.14

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

The question on everyone’s mind is whether this is all about the weather:

“is the U.S. in a pause right now, or did it just have bad weather? I think we come down that it’s not in a pause. It just had bad weather, and that fundamentally, the U.S. recovery is going there, but there is a question on that…my view is I think the United States has got, now got take-off momentum” ($TD)

Macy’s says January weakness was more than just the weather, but things seem to have picked up after Valentine’s day:

“There was some weaker business in the non-weather impacted areas, that’s why I said during the call that I don’t think its all weather in January but the good news is starting in Valentines Day our boats are rising and so we’re feeling very good about the trend.” ($M)

The big test for the economy will be housing’s spring selling season:

“[mortgage] originations were down 58% year-over-year, and the refi boom has clearly ended. So it’ll be interesting to see what happens in the spring selling season and after the winter weather” ($TD)

For what it’s worth, Toll Brothers is optimistic:

“While it is still too early to draw conclusions about the spring selling season, we remain optimistic…during this time traffic has actually been up of 8% per community which is encouraging especially given the weather in many of our markets” ($TOL)

And the poor weather may have created some pent up demand at Home Depot:

“I will also note that the extreme winter weather in February hasn’t been our friend, but our February comps are positive and we know firsthand that many homeowners have some major repairs ahead of them, which suggest we should have a great spring selling season.” ($HD)

But even if the weather thaws, businesses may find it difficult to keep growing the top-line.

Comps are becoming tougher:

“I think the premise is we are projecting the 1% to 2% comp. Obviously, we did the 3% last year, but we’re up against 5% comp over the last 5 years on a compound basis. So that presents a challenge…over 5 years, we’ve averaged to 5% comp. I don’t think it’s realistic to expect that we can sustain that kind of comp level.” ($ROST)

Still no signs of #inflationaccelerating:

“I don’t think we’re expecting inflation in terms of apparel. We haven’t seen that lately. So that won’t be our expectation for the first quarter.” ($ROST)

“In 2013, we enjoyed commodity inflation, not thinking that’s going to happen this year. In fact, we are going to have some pressure from commodity price deflation.” ($HD)

Questions about China are a little more significant than the weather:

“Can China manage this transition? Because it is often the case in economies like China and emerging markets where you can get to one level of GDP and you find it hard to get to the next level because it requires fairly significant institutional shifts in your economy and in your political structure.” ($TD)

Hilton says real estate development in China still feels good though:

“China is clearly been trying to make sure that they don’t end up with a real estate bubble. It’s clearly still generally pretty positive. There was a period of time I would say sort of in the first half of last year where China development really slowed down. It picked up pretty materially, it didn’t get back to the peak levels but it picked up pretty materially in the second half of last year, and what we see so far in China in the beginning of this year…It feels — it still feels pretty good.” ($HLT)

Financials

Commercial banking clients up-beat but mortgage origination has slowed:

“I’ve seen a lot of clients in the last quarter right through our footprint, Maine to Florida, and there is improving sentiment when I talk to commercial and business clients. The one area where I would say there’s obviously a slowdown is mortgages.” ($TD)

Mortgage standards are loosening up in an effort to generate growth:

“We thought all along that credit availability was the big driver of the housing recovery and the shape of the recovery curve. We are very encouraged by what we have seen at Wells Fargo. Wells Fargo has announced that they are taking the FICO scores for FHA loans, down from what was 640 to now 600″ ($HD)

Weak mortgage growth means that even with the taper, the Fed will still soak up net mortgage supply:

“think when we look at what actual net supply or growth of the agency MBS market will be this year, most estimates have it ranging from about $100 billion to $150 billion in net supply. The Fed even with the taper will absorb that much supply in the first four to five months of this year” ($NLY)

Auto loan market still hyper-competitive:

“As far as the auto loan market in the U.S., it is still hypercompetitive. We’ve actually scaled back a little bit on both our numbers of dealers as well as our originations in the last quarter.” ($TD)

Not a lot of money for hotel development:

“So at least over the next sort of two to three years we think it’s very muted. We think really in terms of what we see going on, there is quite a bit of discipline in the market. There is money to develop but there’s not a lot and it’s only with the best developers that it’s really getting done and the best brands.” ($HLT)

Bank branches going from service locations to sales locations:

“There is no question that the average square footage of a branch will be declining over time, and they will also changed in the nature of the transactions that happen. They’ll move much more to sales transactions versus service transactions.” ($TD)

Consumer

Retail will finally get some positive seasonality in Spring with a late Easter:

“I do think the later Easter is good for retail, so that could be helpful. And I had said earlier, we do expect the second quarter comp to be higher than the first quarter. Beyond that I think that really is all I can say.” ($M)

Still a promotional environment:

“I would say, based on how business conditions have been, I would expect it to be fairly promotional.” ($ROST)

Very hard for an off-price retailer to make money in e-commerce:

“Our assessment is that it’s very hard for an off-price business to make money in e-commerce at the price points that we operate at.” ($ROST)

JC Penney claims that it is past the first two phases of its turnaround:

“We also realized this turnaround would come in three phases, the immediate stabilization phase, followed by a phase rebuilding and then the go forward phase positioned JCPenney for long-term growth. Over the last 10 months, we completed the first two phases of our turnaround in a very tough and highly competitive environment” ($JCP)

Technology

AT&T and Verizon are responding to T-Mobile’s aggressive tactics:

“you’re right, it is a highly competitive environment, players are responding. I would say we haven’t seen much impact to us on the Q4 price changes that AT&T made nor based on their program targeting our users. And then in Q1, we’ve seen both Verizon and AT&T respond.” ($TMUS)

T-Mobile doesn’t think it’s started a price war though:

“I think all of the players are trying to protect their base, find their way amongst some of the new — remember the changes in the industry have been as much about structure of how we’re serving customers as it has been about price and flexibility. So no, I don’t feel it is a price war, I don’t believe it will become a price war. I think it’s good, healthy competition and choice for customers, and I think it will continue.” ($TMUS)

Materials, Industrials, Energy

Growth of US oil production likely to slow in 2014:

“it looks like the rate of growth in 2013 slowed compared to 2012 and we expect this trend to continue in subsequent years…We are still bullish regarding U.S. oil process because of slowing domestic oil growth and we are not particularly concerned about a surplus of U.S. light sweet oil.” ($EOG)

Natural gas prices $4.50 in 2014 and 2015:

“Regarding North American natural gas prices, our long-term view hasn’t changed. We have obviously seen some relief this year due to the multiple shifts in the polar vortex this winter. We think natural gas prices will stay around the $4.50 level in 2014 and ’15″ ($EOG)

Miscellaneous Nuggets of Wisdom

Give your customers what they want:

“2013 was a transformational year for us as we turned a declining business into a growth one. How did we do it? By listening to customers and then offering them what they told us they really want: A great service on a nationwide, lightning-fast 4G LTE network; devices when and how they want them; and plans that are simple, affordable and without the restrictions the other guys placed on. We changed the way this industry operates and customers responded.” ($TMUS)

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.