Company Notes Digest 3.25.16

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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.

This Week’s Post: Getting Back on Track

It was a holiday shortened week, so there weren’t a lot of companies talking.  It is annual report season though, so a lot of this week’s quotes come from shareholder letters.  Commentary continues to be positive.  Optimism has rebounded with the markets.  However, beware the temptation to think that the business cycle has been conquered.

The Macro Outlook:

The economy seems to be getting back on track

“There’s nothing that would suggest that we’re imminently ready to go into a recession here in the U.S…I think the market is starting to recognize as well. So, things seem to be getting back on track in terms of even a market perception. So, I think that everything is being set up of for the type of year that we had thought it would be, in terms of the U.S.” —Ford CFO Bob Shanks (Automobiles)

We saw some slowing down, but now we’re seeing a resurgence of confidence

“we saw some signs of a slowing down in our industry over the last several quarters, particularly as we got into December and January, but now we are feeling some resurgence of confidence, at least a flattening out of that trend. So hopefully that was a moment and hopefully we’ll see some growth develop in the quarters to come.” —Steelcase CEO James Keane (Office Furniture)

Americans have more important things to worry about than a little stock market volatility

“As I shared, we ended February with some good momentum and that’s the month that there was all the volatility in the marketplace. And I think if you look at a couple who are both gainfully employed and you now have a child and you have the need to get out of your apartment and move into a home. You are not worried about Wall Street volatility you are worried about the second bedroom or third bedroom that you need and on the street, out on main street the consumer right now is favorably looking at home ownership.” —KB Home CEO Jeff Mezger (Homebuilder)

However, when people start questioning the existence of the economic cycle, it’s usually time to seek safety

“we were circulating a piece internally here over the last few weeks by somebody outside the Company who wrote about how maybe the idea that the economy follows a certain cycle of seven years…when you go back and you actually test it, it’s not so clear that it’s seven years. Sometimes it’s shorter, sometime it’s longer, and it’s always because of some factor. So maybe the whole idea of it being kind of an inevitable time-based cycle isn’t really as relevant as will we have another financial crisis, will we have a political crisis, will we have something else that could cause uncertainty and therefore growth to slow down.” —Steelcase CEO James Keane (Office Furniture)

International:

European tourism could get hit this year by the perception of terrorism risk

“because of what’s going on in Europe has a combination of Brexit in the U.K., migrants in continental Europe and in the U.K. and risk of terrorism or perception of risk of terrorism, we believe that the tourist business in Europe that is a main driver of sales for this region will be very significantly down.” —Tiffany CEO Frederic Cumenal (Jewelry)

Ford said that China looks really really good

“China started off very strongly. Little hard to tell in the first two months because of the impact of the Chinese New Year but it looks really, really good. Pricing there is starting to stabilize. We still expect it to be negative year-over-year but certainly we’re starting to see pricing stabilize, if we look at it on a sequential basis, which is a good sign.” —Ford CFO Bob Shanks (Autmobiles)

China has never been stronger for Nike

“Finally, Greater China, which continues to see strong marketplace momentum and very healthy growth despite macroeconomic uncertainty. China grew an incredible 27% this quarter…Demand during the Chinese New Year surpassed anything we’ve ever seen before…Our brand and business in China have never been stronger. And we continue to build momentum.” —Nike President Trevor Edwards (Apparel)

Tiffany said that China is solid but Hong Kong is a nightmare

“frankly we are quite pleased with mainland China and all performance in China. We have had very solid performances in ’15 in China, and we have no reason to think that our performance won’t be good in mainland China in ’16. Truth is that greater China because of Hong Kong continues to be a nightmare. There is no other word, and I believe this is the same for all of us, all the luxury players.” —Tiffany CEO Frederic Cumenal (Jewelry)

Brazil has to solve its political crisis before its economy can turn around

“It is entirely externally driven; it’s — an economic downturn is driven by the commodity cycle, but it’s also overlaid I think by all the political issues that we see in Brazil and read about every day. Frankly, the turnaround is going to require the cycle to turn. And I think resolution to some extent of the political crisis that we see because – for Brazil to unleash its potential is really going to require some structural changes to the economy, which is going to take government just have the ability and the will to do that. So, I think it’s dependent in part on that.” —Ford CFO Bob Shanks (Automobiles)

Financials:

KB Home still sees pressure on labor costs but thinks the worst may be over

“there definitely still is a shortage of labor…I think the worst of it’s over. It was pretty tight and we had a lot of cost pressures in the fourth quarter, there is still out there but they don’t seem as impactful as they were in the fourth quarter…we think it’s getting better right now in the labor front.” —KB Home CEO Jeff Mezger (Homebuilder)

KB Home’s CEO says he doesn’t think we’re anywhere near a bubble price for homes in San Francisco

“I don’t think you are anywhere near a bubble price, certainly not at the price points we are playing out. Hate to say, but $1.5 million is an affordable in Bay area right now or the City of San Francisco” —KB Home CEO Jeff Mezger (Homebuilder)

Consumer:

Consumers have been moving towards leasing cars and used car prices are falling

“What we have seen is a continued shift…to longer and longer terms. We’ve also seen more and more leasing in the industry…We’re seeing the auction value of cars decline and pretty sharply” —Ford CFO Bob Shanks (Automobiles)

Technology:

Everyone wants to be more digitally savvy

AB Inbev has hackathons

“With the creation of our Disruptive Growth team, we are seeking team members with skills more typically associated with start-up, entrepreneurial companies. One approach to finding such employees with a creative, curious, challenge-the-status-quo mindset, has been to invite students to participate in hackathons where they are encouraged to tackle real business problems.” —AB Inbev CEO Carlos Brito (Beverages)

Retailers know it’s imperative that they develop e-commerce expertise

“We are expanding our fast-growing internet offerings…We have to stay out in front in this sector of our industry. Our customers expect us to offer this shopping convenience and additional avenues for trustworthy advice to maintain, enhance or repair their vehicle.” —Autzone CEO William Rhodes (Auto Parts Retail)

Even utilities tout their social media strategies

“We are reaching out to our customers in new ways. PSEG has more than 90,000 Twitter followers and a considerable Facebook presence as well.” —PSEG CEO Ralph Izzo (Electric Utility)

But no matter how much traditional companies spend on digital they struggle to be state of the art

“And lastly on digital, we are spending, we have been spending and we are trying to be state of the art on digital. Are we? No. Will we ever be? No, because always someone will do better than the ones after” —Tiffany CEO Frederic Cumenal (Jewelry)

Industrials:

Deere’s CEO said last year’s sales decline was the largest since the 1930s

“In relation to the farm economy’s robust years earlier in the decade, the current downturn has been quite dramatic. Since peaking in 2013, industry sales of large agricultural equipment in the United States have fallen more than 60 percent. Deere’s total equipment sales have declined more than 25 percent from their high. Last year’s sales decline was the company’s largest in percentage terms since the 1930’s.” —John Deere CEO Sam Allen (Farm Equipment)

Materials, Energy:

Schlumberger’s CEO is optimistic that oil supply and demand will tighten in the medium term

“We remain constructive in our view of the market outlook in the medium term and continue to believe that the underlying balance of supply and demand will tighten. This will be driven by growth in demand, weakening supply as the massive E&P investment cuts take effect, and the size of the annual supply replacement challenge.” —Schlumberger CEO Paal Kibsgaard (Oil Services)

Potash’s CEO said that world population growth depends on fertilizers

“By 2050, the world’s population is expected to grow by another 2.3 billion, reaching 9.7 billion. At the same time, diets are improving in many regions. These facts add up to greater demand for food, which will require increased crop production even as the amount of arable land per person is declining. With the world counting on increased yields from farmers, fertilizers will continue to be essential in keeping soils healthy. The role of fertilizers cannot be overestimated: they are responsible for half of all crop yields and without them, we believe the world would be incapable of feeding itself.” —Potash CEO Jochen Tilk (Potash)

Miscellaneous Nuggets of Wisdom:

Talent has overtaken capital as the key strategic differentiator

“In the Human Age–an era where talent overtakes capital as the key strategic and economic differentiator for organizations and countries alike–changes in the world of work are accelerating at a rapid pace and scale.” —Manpower CEO Jonas Prising (Temp Staffing)

When resources are mispriced, they get abused

“We have a lot more competition, especially from ridiculously mispriced capital. When people misprice something, it is abused. In England, water is free, it rains all the time yet there is a drought. Now, if you misprice capital, people will abuse it and will regret it, unfortunately in our business as well.” —Richemont CEO Johann Rupert (Luxury Goods)

Never let a crisis go to waste

“Never waste a good recession. Never waste an opportunity to fine tune your business.” —Richemont CEO Johann Rupert (Luxury Goods)

Business is about relationships

“The most powerful expression of our heritage isn’t in documents or artifacts or even our stagecoach. It is in any of the millions of relationships we have formed over generations with customers, team members, communities, and shareholders. Relationships define Wells Fargo. Earning lifelong relationships, one customer at a time, is fundamental to achieving our vision.” —Wells Fargo CEO John Stumpf (Banking)

Full transcripts can be found at www.seekingalpha.com