Company Notes Digest 9.19.14

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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

One more Fed meeting until the end of QE

“If incoming information broadly supports the Committee’s expectation of ongoing improvement in the labor market and inflation moving back over time toward its longer-run objective, the Committee will end this program at our next meeting.” ($FED)

The focus turns to when rates will rise:

“considerable time” is more an economic forecast than a calendar forecast

“I know “considerable time” sounds like it’s a calendar concept, but it is highly conditional and it’s linked to the Committee’s assessment of the economy.” ($FED)

Yellen’s language seems to suggest that she might be starting to think rates have been low for long enough

“Well, you know, we stayed low for a very long time. We have been at zero for a very long time and below the levels that some common policy rules would now be suggesting, given the level of unemployment and inflation. So the recovery has been very slow. We’ve also been doing unconventional policies, of course, buying assets. And in the general sense, I think we have been lower for longer than–if you complete that sentence–then many standard policy rules would suggest. So in a sense, that is a policy that we have had.” ($FED)

There are at least two governors applying pressure to the FOMC to normalize policy

“Presidents Plosser and Fisher have been quite clear in all of their speeches recently in stating that they think the time has come to begin normalizing policy. I think they perhaps have some concerns that if we don’t begin to do so soon that inflation will pick up above levels we–that they would consider it desirable, or that they have some financial stability concerns. But the committee adapted today’s statement by an overwhelming majority, and I don’t consider the level of dissent to be surprising or very abnormal.’ ($FED)

The FOMC is going to have to think about what’s the best pace to raise rates

“I don’t think by any means measured pace and the very predictable pace of 25 basis points per meeting explains why we had a financial crisis, but it may have diminished volatility and been a small contributing factor, and the Committee will have to think about how to do this.’ ($FED)

Meanwhile in the real economy…

FedEx almost gives an unqualified positive view of the world economy

“The global economy has improved, although it certainly remains a multi-speed world. The US is leading the way and emerging markets are picking up. We expect global growth of 2.6% in calendar 2014 and 3.1% for calendar 2015…With private sector demand accelerating and fiscal austerity winding down, our expectation for real GDP growth is to average around 3% for the remainder of this year and next.” ($FDX)

Seasonal hires will stick around this year

“We expect more than 50,000 seasonal positions to be added for the upcoming peak across the FedEx operating companies. This includes package handler, helpers, drivers and other support positions. Based upon our growth expectations and network expansion, the majority of those seasonal workers will have the opportunity to continue working for us after the holiday season.” ($FDX)

The housing acceleration just hasn’t materialized though

“This recovery has been a decidedly different experience as the slope of recovery has been shallow and the expected acceleration has not materialized.’ ($LEN)

Financials

There are three barriers keeping first time home buyers out of the market

“there are really three barriers to the first-time buyer coming back. First, it’s the down payment. Then it’s the very stiff underwriting and the bank overlays relative to accessing mortgage credit. And then finally the process itself has become fairly invasive, at least as far as people see the process and feel the process…So the process is almost designed to scare people away” ($LEN)

As rents rise, more people want to buy though

“We stay very close to the customer in the field, we see who is coming in, we see what their commentary is. Remember that the rental market has accelerated in terms of its monthly payment requirement, it’s cost of living and that’s really driving people to say, I want to buy a home, I’d like to fix my cost, I’d like to find access to the mortgage market.’ ($LEN)

And they find a way to make it happen

“over time the market adjust to those barriers. People start saving, more down payment. They find a way; they get help from family. They start focusing on credit statistics…People become ignited to get their credit credentials buffed and polished and ready for underwriting. They take a deep breath and they prepare themselves to go through the mortgage process.” ($LEN)

Large home builders have been able to take share from small ones

“I think there is a reality right now and that is the credit landscape is tight. It’s not just tight for the purchaser looking to gain access to the mortgage market but it’s also been very tight for smaller builders and for traditional land developers to get back in the market and to do the things that they do. So I think the larger, well-capitalized builders with access to the land market in a more comprehensive way have been able to pick up market share and that is something that seems like it’s continuing going forward.’ ($LEN)

Consumer

Retailers are starting to try to fight back against the promotional environment

“when things got tough last fall, we joined the pack and started promoting differently and more heavily than we had in recent years…With the benefit of hindsight, I wish we had not followed the pack and stuck with what works for us. Our beautiful unique and fashion right products are well priced, we do not need across-the-board discounts.” ($PIR)

Promotions don’t drive enough incremental sales to justify the lost margin

“We’ve tried this approach for over three quarters now and we’ve proved once more that for Pier 1 Imports coupons do not generate incremental merchandise margin dollars, neither do coupons do anything for our brand.’ ($PIR)

Brick and mortar plays an evolving role in omnichannel retailing

“our stores are becoming sales and customer experience centers.” ($PIR)

Multichannel customers are a retailers’ best customers

“what we know is that in terms of the spend our most profitable customers are our multichannel customers.” ($PIR)

Can industrial food companies buy and maintain an organic grass roots brand?

People trust Annie’s

“Consumers know and trust Annie’s purpose-driven culture and authentic brand.” ($GIS)

But then General Mills is going to rework its supply chain

“There are numerous margin expansion opportunities for — with Annie’s, everything, can from the sourcing and how ingredients are brought in to the logistics and how we reach customers, all of the other internal supply chain, HMM things.” ($GIS)

Technology

The end of an era at Oracle as Larry Ellison moves to the chairman role

“As you’ve seen in the last few minutes we announced that Larry was elected Executive Chairman and appointed Chief Technology Officer; Mark and I have been appointed CEO. Other than Mark and I reporting to the Board of Directors of which Larry will be Executive Chairman instead of to Larry directly no other reporting relationships will change at the company.’ ($ORCL)

The good news is that he’ll still be on the conference call

“you’re going to have to wait a little while longer before you get me off the call. I apologize to everyone for that.” ($ORCL)

The cloud is just about providing more services to customers

“we are going to be doing more for our customers than we did before. So before we use to sell them software and they would have to provide their own datacenters and their own machines and their own labor and their own network to run all of that. And now we are going to put a lot of that in our datacenter, we are going to buy the machines, we are going to provide both the skilled labor, whether you are buying the infrastructure-as-a-service, we will be maintaining the operating system and the virtual machine for you along with the hardware and storage, processing and storage.’ ($ORCL)

Technology companies are changing the way they ship new products, staging the inventory more gradually to cut shipping costs

“Over the last couple of years, there has been a change in the strategy regarding product launches…More of these companies are electing to build time into their product launch planning to allow them to take advantage of more traditional freight networks” ($FDX)

Healthcare

Rite Aid is getting squeezed by a challenging reimbursement rate environment

“I would say the reimbursement rate environment seems a little tougher in the back half than we expected…I think it’s a competitive marketplace out there. I think there are some probably dynamics at work in the PBM marketplace as well as in federal and state governments that are also playing in to some of the activity that we see from a reimbursement rate perspective” ($RAD)

They seem to be hoping that a deal with McKesson is the answer to these problems

“The thing with McKesson was really a timing issue in terms of just getting the thing implemented. And it’s important to understand that it was a massive transition for our company. I mean we put in a huge amount of effort and so did McKesson to get this thing done in the timeframe that we did. Really, I believe strategically we are headed in the right direction here. I mean I think our combined purchasing power is going to help us get the lowest cost over time.” ($RAD)

Miscellaneous Nuggets of Wisdom

If you acquire a good business, let the people who are running it continue to do their thing

“we learned a tremendous amount from these various natural and organic companies that we’ve acquired over the years. We’ve been very good. I think about leaving them alone. Let them do that thing. We will retain Annie’s headquarters in Berkeley. These are very talented people.” (GIS)

Stock price goes up, dividend yield goes down

“We understand our dividend yield is sub par. Part of that is because of the outstanding stock performance.” ($FDX)

Sales are vanity, profits are sanity

“when I first started in retail, they used to teach us on day one that sales were vanity and profits a sanity, and although that is a simplistic view of the world, there is an element of truth to it” ($PIR)

Full transcripts can be found at www.seekingalpha.com