Company Notes Digest 6.28.13

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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

KB Homes says that housing is still strong even with rising rates:

“The positive factors underpinning the current housing recovery remain fully in place and will continue to drive favorable market fundamentals…consumer confidence is far more important to home sales than interest rates are.” (KB Home)

Perversely, rising rates could actually stoke demand for housing:

“I think with all the noise that you’re reading in the media and the press and everything else on interest rates and what it’s doing, in my opinion, at least in the short term, I think it’s going to create more urgency; and buyers that want to get to the table and get to the closing table quicker” (KB Home)

The lower end consumer is still hurting:

“We also continue to face a soft economy, especially in our lower income communities, where our stores, on a comp basis, are performing on average below our stores in middle or higher income neighborhoods.” (Walgreen)

But there are some signs that consumers are trading up:

“What we’re actually seeing, which is an interesting dynamic in the data, is some customers moving away from opening price point, really deep discount products, at least in our category, and there’s a bit of a trade-up happening from that opening price point to private label and then up to brand.” (McCormick)

Inflation expectations are muted:

“prices are stable. Inflation is moderate, and we think will be quite manageable for us” (General Mills)

‘merica = #1, nuff said:

“I love the U.S. I love that market, and I love the U.S. for Accenture…the overall economic environment in the U.S. is better than in the rest of the world…U.S. companies are more than any other companies in the world early adopters of new technologies” (Accenture)

“The MVP for the quarter and the year really had to be North America.” (Nike)

Accenture sees weak business confidence:

“Consulting is more about building for the future, if you will, for clients. And building for the future is requiring confidence, confidence in the economic outlook, confidence in the business… The level of confidence is not at the level we expected. And there is an eroding economic conditions in some parts of the world…particularly in Europe and Brazil.” (Accenture)

And Europe is a really negative environment:

“The situation in Europe is not even slightly better. It’s probably slightly worse…the environment is moving from an economic standpoint to recession.” (Accenture)

Restaurant dining is slow in China–not necessarily because of the economy, but because of bird flu. Improvement seen in 4Q13:

“we had lower demand from quick service restaurant customers in…China, where certain quick service restaurants have reported high-double digit declines in same-store sales. These declines are a result of consumers in China who are avoiding poultry in their diet due to bird flu concerns…Based on our customers’ outlook, we expect the situation in China to improve in the fourth quarter of 2013.” (McCormick)

At least wages are growing somewhere:

“Well, as far as acceleration, yes, we have definitely seen some fairly significant increases in wage rates in a couple of countries. I think the one in Indonesia certainly was pretty well publicized.” (Nike)

Financials

Banks are still tighter than they could be:

“it is nowhere near more normal underwriting standards today…If the economy continues to expand like it is, I think you’ll see the banks loosen up.” (KB Home)

Consumer

Who would have thought that there’s room for innovation in shoes and cereal?:

“there has never been more opportunity to innovate than there is today…we need to edit against [an] incredible list of opportunities” (Nike)

“We have high levels of innovation planned across our portfolio…Innovation will be the key driver of this growth.” (General Mills–the word “innovation” appeared 29 times in the transcript)

Technology

A few companies specifically highlight interest in digital marketing (especially via Facebook):

“I mentioned the Digital Marketing as a fast-growing area is where we have been deploying our capital into acquisitions.” (Accenture)

“We’re connecting directly with consumers through digital marketing and social media. In the U.S., we increased site recipe searches for our Gourmet dinner party program 32%, increased Facebook fans by 25% and achieved a 47% increase in unique visitors to our mccormick.com website” (McCormick)

“when you’re carrying 4.5 million passengers…and 99% of them are coming back happy and telling their friends and getting on Facebook and Twitter and then telling people what a great time they’ve had. That is powerful” (Carnival)

Barnes and Noble is having to make a big strategy shift in e-readers:

“we are adjusting our hardware and device strategy to de-risk the NOOK business plan. The company is…moving away from independently building our own tablets and intends to partner on future tablet programs with partners to design co-branded tablets with NOOK content…the tablet market, especially in the area we competed in which is sub-8-inch, got extremely competitive, and it was very capital-intensive to build our own tablet.” (Barnes and Noble)

Blackberry sounds a little defensive:

“how do we feel about Blackberry 10 and the launch, I think I said this in my script. We’re doing what we said we would do…we are performing…sometimes you guys look at, you know, where is this one product that kills everything else? I tell you, it’s not out there…This a marathon…we’re ready to run that marathon. And that’s what we’re doing. So I’m not looking at the short term…I love my board, but it’s the C levels in Blackberry that run the operations…We’re executing as we speak. And, you know, whatever’s being discussed in the board room, I probably wouldn’t discuss that on public earnings call…But I can tell you that we are in sync with our board. We all know what we’re up for here. We’re all together in this fight. And you know, we’re executing, and the last quarter has shown that we execute against what we say we would do in that very quarter. And that’s the only thing that matters at the moment to the board and to the executive management of Blackberry.” (Blackberry)

Healthcare

The pharmaceutical industry could double just if people stayed compliant with the regimen that their doctors prescribed:

“We think the pharmaceutical distribution businesses could close — could come close to doubling over the next decade as people become compliant to the pharmaceutical regimens that have been prescribed by their physicians” (McKesson)

It’s a really difficult environment to be a physician:

“[there’s] a lot of pressure on physicians. It’s not an easy place to be whether a 2-person practice or a 50-person practice. That is an environment where they need help” (McKesson)

The wave of generic drugs is on pause for a bit:

“we expect margins to be negatively impacted by a trough in the generic wave, expected to continue until the latter half of fiscal year 2014, when we expect to experience another peak in the wave, albeit smaller than the fiscal year ’13 peak.” (Walgreen)

Materials, Industrials, Energy

Room for growth in the steel industry in Latin America:

“the steel intensity of Latin America is less than half of the one in USA and Canada, one fifth of the one in China and one third of the one in the European community though that makes us an interesting opportunity for growth through the intensity of use of steel.” (Ternium)

Miscellaneous Nuggets of Wisdom

It takes consumers two to three years to forget a PR nightmare (probably a good proxy for memory of market panics too):

“our consultants have basically used an analogy of two other non-industry events…In terms of consumer perception, we’re tracking the same way…that the recovery will be gradual, and it will take 2 to 3 years for the Carnival brand to fully recover…[from] the incidents back in March.” (Carnival Cruises)

Relationships are built on consistent, high quality service. A strong relationship opens the door to opportunity:

“the quality and efficiency that we’re able to deliver to this customer allowed us to have a different conversation about we could become more of a business partner for them. So over the course of the greater-than-20-year relationship that we’ve had with this customer…we continue to innovate with them to again help them solve their business problems, and the key being here is we want to be a valuable business partner to our customers. Not just a distributor, but a valuable business partner.” (McKesson)

Take your destiny into your own hands:

“when we get the message right, when we get the innovation right, these brands respond…we’re not victims here. If we get the innovation right, we’ll do just fine. It’s on us” (General Mills)

Be aggressive, B-E Aggressive:

“we are on the offense, always” (Nike)

Charlie Denson, president of the Nike brand is retiring. Let’s all hope someday such nice things can be said about us by our colleagues:

“what I know about Charlie is that he is a brilliant and affable man, easy to respect and easy to like…Charlie is more than a colleague, He’s a friend, a mentor…he leaves some huge shoes to fill but luckily that’s the business we are in, filling shoes” (Nike)