JS Earnings Call Notes – Unilever & Bank of America

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Unilever (UL) CEO Paul Polman said they actually saw strength in its emerging markets business

“Underlying sales growth returned to a solid 4.1% which was ahead of the markets. It was driven by emerging markets where we grew a strong 7.1%, with 2.7% of this coming from volume despite the challenging environments there as well.”

They are increasingly focused on return on invested capital

“Free cash flow was particularly strong at €4.8 billion that is up from €3.8 billion in 2014 if we adjust for the tax on disposals in that year. And return on invested capital, something we said we would focus on increasingly so, improved to nearly 19%.”

Unilever (UL) CEO Paul Polman said the global macroeconomic environment will remain challenging

“The consistencies of this sustained profitable growth contract sharply with the increased volatility and challenging market conditions that we see. The downturn in the global economy has been more prolonged than I suspected which is saying something. At the beginning of last year I said that we were starting to see more tailwinds than headwinds, but unfortunately the tailwinds proved short-lived.

Unilever (UL) CEO Paul Polman is seeing deflation in certain segments of the business

In developed markets consumer demand for our categories remains weak and prices are still falling in Europe. In the U.S. our market are now growing at around 1% to 2% but this time it’s offset by ongoing customer destocking making them effectively flat. At the same time the level of uncertainty has never been higher. Geopolitical instability has intensified in many places, not least in the Middle East.”

But he also believes they are gaining market share

Now the good news is that our business model is not much more resilient and better able to withstand the external shocks and 2015 once more was a proof of that. We see that in market shares which are picking up, especially volume shares and our performance compares very well to others in our peer set.  At the same time, as I mentioned before, we need to continue to keep a close watch on local competition. Our consistent and competitive growth is driven by stepped-up innovations as well as renewed focus on the core.  In the U.S. we exited the year with over 65% of our business building share. In China we’re growing well ahead of, China as a country itself, well ahead of the economic numbers that were just reported on the growth rate, so our market shares are healthy there as well.”

Unilever (UL) CFO Graeme Pikethly said they raised prices in certain emerging markets which had high cost inflation

“Growth accelerated towards the end of the year as we implemented price increases in countries that have seen high levels of cost inflation, particularly in Latin America. As we flagged last quarter, volumes in Latin America were strong in Q3 ahead of these increases and we saw the corresponding decline in volumes during Q4.  Now this may sound a little counterintuitive, but commodity costs in local currencies actually increased in 2015 by low-to-mid-single-digits. This was entirely driven by currency devaluation, especially in Latin America which more than offset falls in most commodities in U.S. dollars.”

Unilever (UL) CFO Graeme Pikethly said they are reviewing the legacy methodology with which they are pricing their products

In a relatively low growth environment we need to work harder on all of the opportunities to grow revenue in the core of our business, so we’ve been piloting a net revenue management program. Now you could call this the art of pricing, but it simply means having the right packs at the right price in the right channel for every shopping occasion. It helps us optimize pricing and realize new growth opportunities.  So net revenue management in some parts could be seen as back to basics, it’s  really about understanding a consumer’s perception of your brand and your product value and aligning that around product pricing, placement and availability which is nothing new, it’s basics, but it’s a refocus back on those basics.”

Unilever (UL) CFO Graeme Pikethly mentioned they are spending ¼ of their advertising budget on digital initiatives

Brand and marketing investment was up by 20 basis points. Within this digital advertising again increased as a proportion of turnover and now sits at 24% of our total advertising spend.”

Unilever (UL) CEO Paul Polman aims to make the company a more agile competitor that is able to bring products to market quicker

We’ve set aggressive internal targets for reducing cycle times including new country rollouts. And obviously digital marketing we will be driving to the next level by putting mobile first with an emphasis on engaging effectively with consumers wherever they are. By moving from mass marketing to individual marketing through our people data centers and by developing pioneering new models through the Unilever Foundry, like using artificial intelligence for instant and personalized conversations with consumers.  But the general environment is changing rapidly so we will continue our rapid capability building in ecommerce. “   

Certain countries in Europe are performing better than others

On Europe, without going into all of the countries, we obviously have some challenges, but fortunately the challenges are in the smaller parts of Europe. Greece, as you can imagine, is very challenging and will continue to be. The Nordic countries are actually challenging. But if you look at Italy, France, Germany, the UK and Spain, we’re performing well and we’re actually growing share there on more of our businesses than not. So the core of it is healthy. You’ve actually seen a strong volume component in Europe, offset by a slight negative on pricing, but still an overall positive.”

Unilever (UL) CEO Paul Polman said he doesn’t see a pickup in global growth coming in the near term

It’s tough out there. There’s no doubt about it. It would be irresponsible to assume that it’s getting better right now.  The year has certainly started more volatile. There are some major issues that need to be solved in the global economy to get the growth back. The low commodity prices are not helping for many of the emerging markets which have seen large capital outflows, increased financial market volatility, unfortunately and that is translating through in a very difficult environment to navigate.  If China cools down a little more, that some people expect, it will again affect other countries. And then you have the issues of the Russias, Brazils and Indonesias. These are major countries. Not to make you all cry, but just to be realistic, this is a tough environment that we’re facing.”

 

 

 

 

Bank of America (BAC) CEO Brian Moynihan said that in its current form, the bank’s revenue is more recurring in nature

What’s clear in these earnings despite the gyrations of markets especially at the end of the year last year is annuity nature that we get from our franchise by driving customer and client flows. That’s the power of our company is balancing the scope and a strong customer base and we aim to continue to improve it every day for our clients and customers and our shareholders. These results reflect the work we’ve done over the past several years to help to more straightforward and simplify our operating model and focus on responsible growth.”

Moynihan’s leadership has been centered around simplifying the bank

We began new BAC in 2011 and completed it in 2014. Since then we have been using our Simplify and Improve initiatives to find savings that more than offset increased compliance, merit and other inflationary costs.  Our strong organic growth is the result of hard work in improving the customer satisfaction in our franchise by making it easier for customers to do business with us.  All this has been done where we’ve optimized our delivery networks, reducing our financial standards, divesting certain markets and also expanding our award winning mobile capabilities in the customer base that uses them.”

Bank of America (BAC) CFO Paul Donofrio said the firm’s oil exposure amounts to less than 2% of their outstanding loans

“The pie chart breakdown or $21 billion of utilized exposure to the energy sector represents a little more than 2% of our total loan balances.  Less than 1% of the total loans is loans to borrowers in two subsectors, Exploration and Production as well as Oil Field Services. We consider these two subsectors to have significantly higher risk than the rest of the energy portfolio.”

Bank of America (BAC) CFO Paul Donofrio quantified the loss potential to their portfolio of energy loans

As an example, if we have oil around the current trading level for the next nine quarters. we estimate our potential losses on the energy portfolio would be roughly $700 million.

Bank of America (BAC) CFO Paul Donofrio quantified how much net interest income would increase if the Fed raised interest rates by 100 bps

As of 12/31 an instantaneous 100 basis points parallel increase in rates is estimated to increase NII by approximately $4.3 billion over the subsequent year.”

The bank has higher expenses than some of its peers but CFO Paul Donofrio said investors should expect improvement 

And then we are not satisfied in the mid-60s efficiency ratio of the company and we should be able to drive that down and it will come from both, its hard work as we say with the rate and stuff which affects we’re still affected a little bit more by the low rates structure and other people we should take it backup there.”

Bank of America (BAC) CEO Brian Moynihan revealed the firm’s loan exposure to mining company as well 

“We feel good about our metals and mining exposure. It is about $8 billion and but most of that exposure is much more short dated and much more collateral.

Bank of America (BAC) CEO Brian Moynihan wants his team to remain focused on expenses

“Expenses are on our mind every day at Bank of America. We have – everybody focuses on expense discipline that’s translating to our culture under our simplified and improved program where the teams are always coming up with ideas to make it simpler for our customers, to make it simple for our employees and improving expenses of the company that is how we’re going to achieve our objectives around core expenses that we talked about on this call. We’re all very focused on expenses.”