Company Notes Digest 3.21.14

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

QE set to end in the fall, but rates wont rise for a while thereafter

“the committee has endorsed the view that it anticipates it will be a considerable period after the asset purchase program ends before it will be appropriate to begin to raise rates. And of course, on our present path, that’s not utterly pre‐set, we would be looking at next ‐‐ next fall. So I think that’s important guidance.” ($FED)

At least 6 months

“the language that we use in this statement is considerable, period. So, I ‐‐ I, you know, this is the kind of term it’s hard to define, but, you know, it probably means something on the order of around six months or that type of thing. But, you know, it depends ‐‐ what the statement is saying is it depends what conditions are like” ($FED)

The Fed still sees slack in the labor markets and no inflation

“inflation is running well below our objective, and by any measure there remains substantial slack in the labor market, so trade‐ offs and worrying about doing more or less because we have conflicting objectives, this really has not been an element in our discussions about how to be conducting policy now” ($FED)

And Yellen seems focused on fighting the ghosts of the financial crisis

“I think the short answer is that we’ve lived through a devastating financial crisis that has taken an exceptional toll on the economy in many different ways…no one wants to live through a financial crisis like the last one. And we want to be extremely cognizant of emerging threats to the financial system.” ($FED)

Monetary policy has tried to do what it can, but Yellen admits the linkages aren’t that strong

“monetary policy has tried to do what we can to offset [tight fiscal policy]. But, you know, the linkages aren’t as strong and aren’t as quick as we might ideally like them to be.” ($FED)

One thing that the Fed can’t control is weather. This was the worst winter ever

“Now as we all know, historically severe winter weather has been a factor in all of our lives these last several months and it has significantly affected our third quarter earnings. In fact, it’s been the toughest winter in which FedEx has ever operated.” ($FDX)

Apparently it can’t control inflation either…still no sign even in food

“For the fourth quarter, we expect input inflation will be well below year ago levels, and that will help drive strong expansion in our underlying gross margin. Our full year estimate for input cost inflation continues to be 3%. That’s despite the higher dairy inflation we’re seeing” ($GIS)

Mortgage markets still tight too

“Mortgage underwriting standards remain tight which does the limit the number of qualified buyers in the market. Meanwhile Dodd-Frank continues to be clarified and adopted and proposals in Congress for GSE reform are creating additional uncertainty for the mortgage industry” ($KBH)

But mortgage conditions are loosening some

“Underwriting does seem to losing up some, FICO scores are coming down and many large lenders have announced that it’s still early in that process but we haven’t seen a material impact with our concerns.” ($KBH)

A full housing recovery depends on getting the traditional buyer back

“In my view in order to have a full sustained typical housing recovery we have to get the traditional buyer back. It will take job growth and it will take fulsome mortgage underwriting, when that occurs if the demand is there and things pencil we can quickly go right back to meeting the demands of that buyer” ($KBH)

Financials

Bulge bracket banks still cautious, not materially investing in growth

“So the sell side is characterized really by two clients, they are the large bulge bracket firms and the middle-market firms. The areas that we are seeing the best growth though by no means spectacular growth is in the middle-market area. In the big firms, they continued to be very cost focused spending lot of effort rationalizing their spend. They have not yet turned into the point where they are investing materially in the business. So we are not seeing any sort of material growth in the bulge bracket firms” ($FDS)

Consumer

E-commerce is back to the future. There have always been catalogues

“you got to remember about e-commerce, in certain ways its back to the future. There was a very large business of catalogue, shopping a long time before there was e-commerce, it’s just the order entry system was a piece of paper or telephone versus a mobile iPhone or a wonderful app or excellent software by an e-commerce provider” ($FDX)

Two big logistical issues for e-commerce delivery

1) Delivering lightweight packages to residences is the postal service’s specialty

“So, the real challenge about the e-commerce role is delivering those lightweight items to residences and Amazon talks about this constantly, the postal services getting a lot of business from various sources because of e-commerce” ($FDX)

2) Volume spikes in the holidays. You can’t build your network for two or three weeks of the year

probably the biggest challenge is the fact that so much of the business comes in such a short period of time. And obviously it is not possible to make these enormous capital investments for two or three weeks out of the year” ($FDX)

At one point, shipping revenue generated income, but not anymore

“if you go back seven, eight years ago, net delivery expense was actually income. And I think those days are essentially gone, as most brands are free over threshold or offer a fair amount of promotion throughout the course of the year.” ($URBN)

Stores are billboards for brands

“We believe our stores are billboards for our brands and that they are the face of our brand and that the great service. And the in-store experience really supports our e-commerce sales and makes our customer confident in ordering from us, because they’ve been to our stores and they see our stores in their mind as they place the goods online, the orders online.” ($WSM)

Digital spending is 1/3 of General Mills’ baking division’s total media spend

“Since 2008, our U.S. media spending has grown nearly 50%, and the mix has changed. TV advertising is still the largest part of our advertising budget, but we’ve significantly increased our use of digital media…our use of digital media is growing at a strong double digit rate, and it now represents more than a third of our total media spending.” ($GIS)

Technology

Nike calls 3D printing a transformative technology

“As we do with all of our innovations, we plan to expand the transformative benefits of 3D printing across multiple areas of our business” ($NKE)

A manufacturing revolution

“this manufacturing revolution is going to be both impactful from a consumer standpoint in terms of the products and innovations we deliver to the market and how responsive we are as well as the cost.” ($NKE)

Enabling breakthroughs in performance innovation

“3D printing as you mentioned, processes that allow us to do things that conventional shoemaking or product manufacturing process won’t allow us to do. So there is breakthroughs in performance innovation that come.” ($NKE)

Oracle’s commodity hardware business has shrunk to almost nothing

“The x86 commodity business which used to be a big business when we bought Sun has now shrunk to almost nothing. So our hardware business has gone through the transition where we got neither the commodity storage business, we got neither the commodity server business and replaced it with computing systems with a lot of our own intellectual property.” ($ORCL)

The big data movement is enabled by new technology which enables huge databases

“The fact that our Exadata Machines have multiple periods of cashing, we now not only have DRAM and rotating storage, we have a lot of flash memory that we have to manage. It allows us to manage huge databases, multi-petabyte databases and deliver very high performance.” ($ORCL)

Example of big data in practice

“So our telecommunications billing systems which has to manage huge amount of transactions with millions and millions of customers, be able to figure out whether to cut-off a phone call when someone exceeds their bill and do all of that real-time. That’s real-time processing of huge amounts of data by a phone company those are the kind of applications we provide that almost no one else can provide” ($ORCL)

Miscellaneous Nuggets of Wisdom

Business is an art and a science, but in the heat of battle it’s an always art

“So, it’s an art, it’s not a science, there is a lot of science built into it but when you actually get into the battle, it becomes an art” ($FDX)

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.