Company Notes Digest 5.10.13

posted in: Notes | 0

A digest of some of the top insights that I’ve gathered from this week’s earnings calls. Full notes can be found here.

Macro

The macro outlook is generally pretty bright:

“the U.S. economy feels to us to be underlying, pretty strong and headed for continued momentum perhaps increased momentum.” (Jones Lang LaSalle)

“what we’re seeing specific to the United States is [customers] need to get ahead of the curve because of cheap gas and, frankly, the resurging of manufacturing in the United States, which are both really good stories…I look at it as almost a perfect storm for us” (Fluor Construction)

“we have been pleasantly surprised with the resilience of the travel and consumer that we serve, really in all our markets where in times of economic uncertainty…people are traveling and booking hotel rooms, and of course airline tickets, in some really shaky economic circumstances.” (Priceline)

“So let me summarize everything what’s happening. Very difficult start of the year for our customers [restaurants] because of weather, because of economic pressure on payroll tax. Today, April, it all changed. Very strong optimism across all the segments for the rest of the year and we’re starting to see April come through a lot better, including for our April.” (Middleby)

Although there are those who are not so convinced:

“it’s clear from the decline in restaurant traffic in January and February that going out to eat has not been a high priority of late…February was just ugly. And so we just saw a significant falloff as you see in some of the restaurant publications in February. So I’d say it’s still been somewhat soft here in March and April, but the trends are better than what we saw in February.” (Sysco)

“While most customers point to a better second half, we have not yet seen these in our orders except for consumer customers…what we don’t see is networking, server storage, computing, the industrial business, any of the telecom entity, all of these categories, which I’d call a big core part of our business” (Flextronics)

Signs of Improvement in Europe.  This Deutsche Bank quote is huge:

“Today, we can say that the so-called hunger march is over. We can now accelerate the process of taking advantage of growth opportunities and simultaneously look forward to the day when we can return more capital to shareholders.” (Deutsche Bank)

“We are, for example, seeing the opportunistic funds, private equity funds, looking at Spain closely now, which we haven’t seen before.” (Jones Lang LaSalle)

Better economy means that governments are feeling a little more flush too:

“states are feeling like they’ve reached the bottom on the deficits…And now that they’ve stabilized and now are seeing some increases in revenues…they feel comfortable to go ahead and move forward on some of these decisions. So yes, I’d say the tone has modestly improved.” (Corrections Corp of America)

Signs of an improving labor market in two different hard hit industries: Financial Services and Construction

“I would say one of the things that we’ve seen dramatically change in the marketplace is the ability to recruit…we’re actually seeing our ability to attract and hire, open up again…I mean, there’s always pressure on compensation, but I think we have good discipline around that.” (Jones Lang LaSalle)

“we’re already seeing people coming to us from 3 and 4 and 5 states away. They were ready to come to the Gulf Coast and work.” (Fluor)

Financial Sector

Asset prices are rising faster than fundamentals:

“The other big issue in real estate markets is the disconnect between leasing and capital market activity in the broader markets…In capital markets, global investment volumes had a strong start to the year…leasing…Markets were down 2% in Europe as a whole and 17% lower in the principal Asia-Pacific markets with big falls in major Chinese and Australian cities…Vacancy rates across 98 global markets stood at 13.3% in the first quarter” (Jones Lang LaSalle)

Technology Sector

Google is cooking up something big for this year. Is it Glass? Is Flextronics supposed to be talking about this?

“We do have other programs that will begin to kick in at the end of the year. I would expect those to start hitting in the December quarter and actually carry on into the March quarter. And then of course, we have the big Google thing, which hard to say exactly what that’s going to be…You got some products like Xbox that has a refresh that’s going to kick up some incremental seasonality for us.” (Flextronics)

Energy, Mining and Materials Sector

Another vote from a management team that the collapse in mining is temporary:

“I think this is more of a structural deep breath [in the mining sector], driven by the commodity markets but also driven by the change in leadership. And even when I — I mean, it was seamless when I took over from Alan, but even at that, I took some time to think about where we were headed and the things that we needed to do and what those priorities were. And my expectation is the folks at Rio and the folks at BHP and the like are doing the same thing. So I think that just adds to the deepness of the breath, so to speak. But I don’t, by any means, think that there’s a long-term structural change in the market nor a significant long-term delay in capital spending.” (Fluor)

$4 Nat Gas not spurring more investment from Anadarko at least:

“in spite the current strengthening in the natural gas prices, Anadarko will need to see a sustained prices, well above the current spot for dry gas opportunities to compete for capital in our portfolio” (Anadarko Petroleum)

Agriculture

Even though we’re getting a late start to planting because of the weather, don’t write off this year’s crop:

“I would remind you that we have the technology in this country to rapidly plant our crop in a very, very short period of time. And I still believe there’s more than adequate time to get the acres planted that we expected to get planted. The good news is the subsoil moisture that we lost last year has been replenished. And once we do get the crop into the ground, we’re optimistic that we’re going to have a really good corn crop this year.” (Pilgrim’s Pride)

Could be the best environment for Chicken prices in the last 9 or 10 years:

“I think the industry is doing an admirable job in being disciplined on the supply side. And I think we’ve got a combination where we’ve combined that discipline with strong demand for product…we’re starting from a very, very strong base. As I said earlier, we haven’t seen the type of strength in pricing and demand, probably in the last 9 to 10 years.” (Pilgrim’s Pride)

Consumer Sector

Mix shift in restaurant spend showing consumer feeling better?

“one interesting indicator that is fascinating for me as I watch all those numbers in this data compiled, for the first time in 22 months, casual dining restaurants outperformed quick serve in March.” (Middleby)

Whole foods feels pretty good about their competitive position:

“the food retailing industry is undergoing a sea change of transformation. You have got strong regional players consolidating their positions and lots of smaller independence are basically either closing their doors or looking to get out.” (Whole Foods)

The market for super-incredible awesomeness machines from the future is about 10m households with financing at these prices:

“if our car was exclusively available for purchase and not via financing I think that maybe accessible to 1% or roughly 1 million U.S. households. As a financed product with the right financing, sort of fully optimized financing product I think it’s probably accessible to the top 10 million households.” (Tesla)

Healthcare Sector

The generic drug wave is not going to be as strong this year:

“we have anticipated the challenge of the low level of new generic launches in our industry and its affect on McKesson in fiscal 2014. In fiscal 2013, we experienced the largest number of brand-to-generic conversions our industry has ever seen” (McKesson)

Hospitals are in a difficult operating environment:

“Being a hospital CEO right now has got to be one of the tougher jobs out there…They’ve got a shifting revenue line. They’re running multiple business models at the same time. They’re looking at the effects of external factors on their business. And quite frankly, it’s just led them to be a bit cautious in their approach…They’re trying to understand how they can drive out costs, how they can get control of their costs, how they can increase visibility of their operations, how they can reduce variability in their service lines, and do it in a way that’s profitable and do it in a way that helps improve patient safety…they’re focused on efficiencies. They know that to succeed, they have to drive operational simplicity within their operations.” (Carefusion)

Miscellaneous Nuggets of Wisdom

It can take up to 10 years for a retail location to truly mature, but when you spend 30 years building a strong brand/relationship with your customer new locations aren’t so new:

“As these stores get a little bit older, they are still comping very strongly and ROICs are going up…As their sales continue to climb, increasing leverage less spoilage they just become more and more efficient, so it’s going to be very interesting to watch the larger stores as they reach their maturation phase and we starting to move 10-plus years old…Our new stores are performing extremely well relative to any historical time period in over 30-years…there used to be a lot of holes in the boat. [Before] [new] stores would be losing money and have negative EBITDA…And we are seeing very few stores in that category, so overall we are very pleased with our new store performance.” (Whole Foods)

Getting someone else to spend money on proof of concept is a great business strategy:

“the advantage of having perpetual mineral positions is, you can let others prove up the play” (Anadarko Petroleum)

Seems simple enough:

“The price of chicken is going to be driven by the balance of supply and demand for chicken, and not necessarily the price of corn.” (Pilgrim’s Pride)

Good businesses focus on finding problems and solving them:

“We’re a science company focused on addressing some the world’s toughest challenges including feeding the world, decreasing the dependence on fossil fuel and protecting people and the environment.” (Dupont Analyst Day)

Taking pride in my home state (Yikes!):

“[the courts are] requiring that [California] operate its 33 public [prisons] at 137.5% of design capacity. Currently, the state is operating at approximately 150%. The three-judge panel denied the state’s claim to vacate its capacity order, and has ordered compliance by December of 2013…[California] has to reduce their population within those facilities by about 10,000 inmates” (Corrections Corp of America)