Company Notes Digest 8.16.13

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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

Retail’s quarter was poor, but was it because of shifting consumer spending?

“We believe that much of our weakness is due to the health of the consumer and the fact that consumers seem to be choosing to make purchases in non-department store categories such as cars, housing and home improvement.” ($M)

Nordstrom implied that retailers may be entering a soft spot within the industry’s cycle:

“if you step back even further than the period of time that you suggested, we’re in a business that tends to travel in cycles. And we did — we have had a very strong last 3 years coming off the recession. We’re up against 3 very strong stack years. We think that’s a piece of it.” ($JWN)

Walmart highlighted that weak inflation is a headwind:

“The lack of meaningful inflation and the 2 percent increase in payroll taxes impacted our results” ($WMT)

And according to Sysco, consumers aren’t eating out either:

“Today’s consumers are more actively allocating their disposable income, and eating out has been deprioritized from some consumers’ personal budgets” ($SYY)

Still, most said early August trends are slightly improved:

“we’re very pleased with our start to back-to-school, especially in the back-to-school categories” ($KSS)

And, for those planning ahead, the weather could be more favorable (for retailers) this fall:

“the weather forecast is looking favorable for the fall. It’s not going to be dramatically colder than it was last year, but it’s going to be slightly colder…colder in the fall always helps a little.” ($KSS)

Not encouraging to see that Cisco is cutting its workforce:

“we are rebalancing our resources with a workforce reduction, which will impact approximately 4,000 employees or 5% of our global workforce.” ($CSCO)

This comment from Estee Lauder made me feel a little better about China:

“we are pretty happy of our trends in China and pretty satisfied for the fiscal year that we are closing, meaning fiscal year ’13. We grew 20-plus percent in China, again, at retail, and our same-door grew 5% at retail. So China is doing pretty well.” ($EL)

Conversely Wal-Mart sounds like it has had a tough go in the people’s republic:

“Our EDLP journey in China continues to move forward…Last year, we discussed our decision to moderate our growth in China” ($WMT)

Checking in on Chile. Growth has slowed and rate cut likely:

“After three years of strong growth of around 6% per year, the Chilean economy has showed signs of deceleration in the activity during the first semester of this year posting a GDP of about 4% year-on-year…This decrease in economic activity is mainly due to…a drop in corporate confidence due to lower commodity prices, higher operational costs and more cautious outlook regarding the social and political scenario…the current deceleration in the activity has increased the probability for a downward adjustments in the policy rate…an option that was confirmed by the Central Bank in its last monetary policy meeting.” ($BCH)

Consumer

Consumers continue to want to eat more healthily:

“consumer spending trends in our space are gradually shifting more to fresh, natural and sustainably produced products. We continue to focus on ways to respond to and capitalize on those trends in our own business, as well as in partnership with our customers and suppliers.” ($SYY)

Jewelry demand has been weak. (I’d argue gold prices have something to do with this):

“I think the jewelry business, generally, broadly — this isn’t a statement necessarily uniquely about Kohl’s. It has been a tougher category, for sure. I don’t think we’re unique in that.” ($KSS)

Big opportunity to get Chinese women to wear make-up:

“Long term, we see good potential to build up makeup, which is only used by 16% of Chinese women regularly today, and also fragrance, which 47% of Chinese women use only occasionally.” ($EL)

Technology

Advertisers seem to continue to become more comfortable with digital:

“Our marketing dollars have shifted towards channels that we believe will maximize our marketing dollars. This includes increased TV and digital exposures.” ($KSS)

“We continue to improve our social media skills and find exciting ways to engage consumers.” ($EL)

Probably because consumers are watching less traditional TV:

“Within electronics, we’re disappointed at the performance of the TV category” ($WMT)

“Our problem in service providers was in the cable set-top boxes and the cable companies.” ($CSCO)

Expect delays when a company decides to roll out SAP:

“Another significant challenge during the year was the unanticipated delay in deploying our SAP technology platform.” ($SYY)

Materials, Industrials, Energy

Like in all great bull markets, risk controls at Rio Tinto became lax in the commodity boom:

“we have strengthened investment committee process and the inputs into that process from business evaluation group and our technical evaluation group. Quite frankly during the growth period, we had relaxed some of the checks and balances that those groups provided to our investment committee.” ($RIO)

Some utilities get automatic re-pricing of regulator allowed ROEs with rising interest rates:

“Since many of you have asked me what happens in a rising interest rate environment, I wanted to remind you that both our utilities have a trigger mechanism, which allows our CPUC-authorized ROEs to be reset if the annual average Moody’s A utility bond index rate move 100 basis points above or below the benchmark level, which is currently 4.24%.” ($SRE)

Miscellaneous Nuggets of Wisdom

Experts win:

“You need the subject matter experts. The investment community can’t make decisions as to whether there has been enough infill drilling. They can’t make decisions as to whether the hydrology model rather the geo-technology. They’ve really got to rely on the middle level experts to do that.” ($RIO)

Know-how and experience is integral to leveraging technology:

“I have learned in my career, if you want to transfer technology, if you want to transfer knowledge, the best way to do it is actually to transfer people.” ($RIO)

In tech you have to be fast:

“Now if we’re going to lead in this industry the one thing I have learned over the years is you’re the first mover. We have to very quickly reallocate the resources.” ($CSCO)

Advertising is a weapon. Loved this language:

“[today we have] the added advantage of having greater advertising firepower to ignite our brands” ($EL)

Listen to your customers, and focus on serving them.:

“we will be successful if we deliver a great experience for our customers. And as we talk to customers more and more, and that’s what we’re doing a lot of, we’re doing a lot of listening, what we hear more than any other thing is bring us a great Nordstrom store” ($JWN)

You cannot control the tide:

“Customers — they want to shop how they want to shop. Our job isn’t to dictate how they want to shop. Our job is to serve them as best as we possibly can” ($JWN)