JS Earnings Call Notes 8.25.2015 – Intuit, John Deere, Ross Stores

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Jeremy S., an investment analyst who contributes to Avondale’s company notes database. Below are quotes from some of the calls that Jeremy has read this week.

 

Intuit (INTU) CEO Brad Smith has decided to divest all businesses not correlated to the company’s core mission of helping customers organize their financial lives

“We’re focusing our attention and investments on assets that accelerate our ability to deliver our two strategic goals, first, to be the operating system behind small business success, and second, to do the nations’ taxes. With this focus, we have decided to divest Demandforce, QuickBase and Quicken.  Let me provide some context about why we made these decisions. Demandforce and QuickBase are great businesses, but they do not support the QuickBooks Online Ecosystem and both serve customers that are up-market from our core small business customers.  Quicken is a desktop-centric business and it doesn’t strengthen the small business or tax ecosystems. Our strategy is focused on building ecosystems and platforms in the cloud.”

Already being the category leader in helping individuals file their taxes, Quickbooks continues to gain market share versus competitors

“Within the software category, we estimate that TurboTax Online gained about a point-and-a-half of share, translating into four points of share gains over the past two seasons.”

Intuit (INTU) CEO Brad Smith reiterated their $5 per share earnings target for 2017 even though they are selling non-core businesses.  Earnings targets are dangerous because they cause management to focus on “meeting the number” as opposed to building the business for the long term 

“We still see a path to achieve a $5 EPS target in 2017.”

Management reminded the investors that Intuit has a 15% return on capital hurdle whenever they are making a business decision

We invest in things that we can see a 15% rate of return and whether those are internal investments to expand R&D or new market or they are stock repurchases or acquisitions we’re going to continue to use our capital judiciously, so we get the best return on that capital.”

Intuit (INTU) CEO Brad Smith said the firm has a process where they go back and look at their own tracked record of acquisitions

I have learned a lot of lessons from our M&A track record, but during my time here, as well as those that were done before us and we do a rigorous study of those and we sit down with the Board once a year and we do a 10-year look back. We compare those to the business cases. We put together for the Board, as well as what we share with the street and the pattern recognition increasingly clear.  We have a mixed record in terms of bolt-on businesses, new businesses that may not plug-in directly with QuickBooks or tax businesses and those are the things that we’ve now got a new set of patterns that we’ve defined as printable and we are saying, if we are going to look in the space going forward these are the criteria that these acquisitions have to meet.”

 

 

 

 

 

Ross Stores (ROST) CEO Barbara Rentler sees macroeconomic conditions taking a toll on the business  

“The macroeconomic environment remains uncertain, and we expect the retail landscape to be highly promotional during the fall season, especially given the recent results from other retailers. Based on these factors, while we hope to do better, we believe it is prudent to remain cautious in forecasting our business for the second half of 2015.”

Ross Stores (ROST) CEO Barbara Rentler says she isn’t concerned about some of the department store competitors (such as Macy’s & Nordstrom’s) business plans to go down market

What I would say about that is, we’re clearly operating in a very promotional and competitive environment. And that’s really true across the entire retail landscape including our biggest competitor. But our focus really is on our own business. So our top priority really remains providing the best compelling bargains possible to the customers and that’s really not going to change.”

Ross Stores (ROST) CEO Barbara Rentler says they aren’t seeing any weakness in economic regions tied to energy such as Texas

Texas, overall, has consistently been a good performer for us. In the second quarter and year-to-date, it’s performed above the chain average for us. So it continues to be one of our best-performing regions.”

 

 

 

 

 

Deere’s (DE) Susan Karlix said lower crop prices are hurting demand for their products

“Lower commodity prices and falling farm income are continuing to pressure demand for farm equipment, especially larger models.”

Deere’s (DE) Susan Karlix said energy price weakness is starting to dampen their order book

In spite of these encouraging economic indicators and positive dealer and customer sentiment, we are seeing weakening in our order books. Some contributing factors to the slowdown in demand are the conditions in the energy sector and energy producing regions, wet weather that slowed construction activities this spring and summer, the decline in rental utilization rates and sluggish economic growth outside the United States.”

Deere (DE) says their equipment continues to sell at a premium versus their competitors 

“Pricing is holding in okay, its, if you look at it kind of from a two-year average, we would be slightly below that. But believe we continue to maintain a healthy premium versus our competition.”