JS Conference Call Notes: FDX, WFC, IBM, GM

posted in: Notes | 0

FedEx (FDX) Chairman Fred Smith said the company is performing well given the economic landscape

“FedEx Corporation is performing solidly given somewhat weaker than expected global economic conditions, especially in manufacturing in global trade.  Weather foreclosures, lower oil CapEx and weak export from the strong dollar, slow production early in the year due to the strong imports we saw and inventory buildup in the first half of calendar ‘15 which will be a drag on IP in the near-term.”

And they’re raising prices with an emphasis on charging more for packages with odd dimensions

“As we announced yesterday, we’ll be raising rates at FedEx Express, Ground and Freight by an average of 4.9% on January 4, 2016.  In addition to the rate changes, FedEx is also increasing surcharges for unauthorized packages in the FedEx Ground network that exceed the size and weight limits as outlined in the FedEx service guide. And we’re also updating certain fuel surcharge tables at FedEx Express and Ground effective November 2, 2015.”

They’re starting to see wage pressure which hurt the company’s bottom line

“Looking at Freight, operating results declined in the first quarter as salaries and employee benefits expense outpaced lower than anticipated volume. Salaries and employee benefits increased 10% from planned initiative and increase staffing levels to handle higher than realized shipments.”

FedEx (FDX) CEO David Bronczk highlighted the customer’s flexible network which is able to adjust to rising or falling parcel volumes

“Our network around the world are base powerful network we have in place is balanced around the world. We adjusted our networks several quarters ago. So right now, we have a very flexible network that when the volumes go up, we can add cost. When the volumes go down, we take out cost, which is why we’ve done so well in our profit improvement program.”

 

 

 

 

Wells Fargo (WFC) CFO John Shrewsberry reminded investors of the bank’s unique culture

“Our vision is built around this unwavering focus on our customers. We want to help them in every way that we can. It’s the heart of our culture, which is the most important part of our success and it’s a significant contributor to our long-term performance and stability.  Banking is necessary, but banks or not. That’s a tough thing to say in the room full of bank investors.”

And he said the company continues to adapt and position itself for a low interest rate environment

Obviously, the subject of interest rates remains very topical and in our own view it has evolved over the last year to more of a lower for longer expectation than in prior periods for both short-term and for long-term rates. As a result, we’ve been adding duration to our balance sheet. Over the last few quarters, both through the purchase of securities as well as the use of interest rate swaps and some of our floating rate portfolios. We still remain asset sensitive and we’ll benefit from higher rates, but we stopped waiting for higher rates in order to grow net interest income.”

Their customer default rate is at a multi-decade low

Our net charge-off rate declined to 32 basis points for the first half of 2015 and with 30 basis points in the second quarter, our lowest level in at least 20 years.  Non-performing assets have declined for 11 consecutive quarters and are down $17 billion or 54% from their peak in 2010. Our performance has benefited from the significant improvement in residential real estate.”

While their oil & gas loans remain a small fraction of total loans outstanding

“Since energy remains top of mind with some investors, let me remind you that our oil and gas business or that loan portfolio accounts for 2% of our total loan portfolio, slightly more than half of these loans are to businesses in the exploration and production sector driven by the drop in energy prices and the results of our spring re-determinations.”

The firm continues to benefit from low funding costs on their customers deposits   

Turning to deposits, growth has remained very strong over the past five years. Average deposits were – are $1.2 trillion up $83.8 billion or 8% in the second quarter. We’ve been able to continue to reduce average deposit costs to 8 basis points down 2 basis points from a year ago and down 20 basis points from five years ago.”

Wells Fargo (WFC) CFO John Shrewsberry highlighted some of the firms competitive advantages

We believe that our strong distribution, leading market share, diversified revenue sources, low cost deposit base, strong risk culture and experienced management team are very durable advantages for Wells Fargo.”

 

 

 

 

IBM’s Senior Vice President of Analytics, Bob Picciano, cited helping companies scale their operations globally as one of his firm’s greatest strengths

“For the programmatic era of computing, it was very clear that IT created value for businesses by helping them codify their business processes.  What does it means to open an account, to process a claim, what does it mean to manage the case, what does it mean to create an electronic medical record. Those sorts of things were codified processes that allowed an organization to scale the way they did business in a unique way and really move from individual operations to regional, to national, to multinational, to globally integrated and the essence of those brands formed up through a set of applications. And that was incredibly valuable and IBM enjoyed a great deal of success in helping our clients really scale that environment.”

IBM’s Senior Vice President of Analytics, Bob Picciano, said his company is increasingly coming into competition in the analytics space with other IT giants such as Microsoft & Oracle

“There are some folks that have been in this competitive space with us for some time. You see some traditional data providers in this space like an Oracle or a Microsoft that are trying to use their data capabilities to branch into other aspects of business intelligence and analytics.”

 

 

 

 

GM North American Chief Financial Officer John Stapleton said they have dramatically reduced fixed costs in the business

“Right now, our breakeven is between 10 million and 11 million units. So, we have taken a considerable amount of fixed cost out.”

And the company has been able to raise prices over the last few years

“From a new model perspective, when we launch a new vehicle, we are fortunate to be able to take price. I think everybody realizes that.  When you get a brand new product, you can actually take price.”

They continue to believe their OnStar platform will be an incremental revenue opportunity

So, insurance companies would love to have more data on the car, how the customer is driving the vehicle. If the customer permits it, we could actually give the insurance company data that would say this customer is a very safe driver. It’s a benefit for the insurance company. It could be a benefit for the customer and a benefit for General Motors, because we will sell the data.”

GM North American Chief Financial Officer John Stapleton said one of the biggest areas of cost savings has been materials costs

Material cost optimization, in 2015, we have been fortunate and we publicly disclosed material cost optimization for the company globally of about $2 billion.   We are generating it by bringing suppliers in very early into our vehicle development process. We are actually working hard to take mass out of the vehicle and talk is interesting, but on the Chevy Malibu, we pulled 300 pounds old Malibu to new Malibu out, less weight, in most cases, equals less cost. We are reducing our build combinations. In the past, we had a lot of options and a lot of part numbers. If you reduce build combinations to what actually sells at the highest rate, you improve the terms for the dealers you reduce our number of part numbers, and ultimately, improve the scale of buy.”

GM North American Chief Financial Officer John Stapleton mentioned that the company dominates the SUV segment

And finally large SUVs, again this is a great contributor to General Motors relative to profit. Chevy and GMC, we dominate this segment.  We have 72% market share, so Chevy alone has 50% market share.  Our average transaction price has increased roughly $2,400 from an MSRP perspective.”