posted in: Notes | 0

Jeremy S., an investment analyst here in Southern California, has started to contribute to Avondale’s company notes database. Below are quotes from some of the calls that Jeremy has read this week.

Expeditors International (EXPD – freight logistics) stated in their 8-K filing that airlines are starting to replace their older planes with more fuel efficient planes which could boost airplane manufacturers

“Over the past several years, as passenger demand has continued to increase, airlines began a process to put more environmentally-friendly, fuel-efficient wide-body aircraft into the air. This has given rise to more Boeing 777-type aircraft, or their Airbus competitor, A-330-A-350 types aircraft being flown…twin-engine fuel efficient, with both passenger capability and belly-space freight capacity. The more wide-spread deployment of these planes has changed how scheduled carriers manage their airfreight business. Prior to 2010, again in our opinion, airlines undervalued the asset that properly managed belly-space on passenger carriers could be…when properly managed. Airlines are looking to use “their metal” more comprehensively, thereby optimizing asset utilization.  Ultimately, this is a much more efficient and economical way to manage freight capacity and we’ve adapted well to that new development in the airfreight markets”

Expeditors International (EXPD – freight logistics) stated in their 8-K that both the supply chain as well as the size and shape of their customer’s goods being shipped have ultimately changed form factor over the last decade

“From the mid-1980’s when PC’s and other hi-tech products first started being assembled in Asia, in places like Taiwan, Hong Kong, Singapore, Thailand and Malaysia, through 2010, after China had achieved the dominant manufacturing position it holds, the airfreight markets became increasingly reliant on the market for getting hi-tech goods built and assembled in Asia to North America and also to Europe. The explosion of the internet and the constant enhancements in technology drove the number of PC’s being produced and shipped higher and higher each year. As the need for greater computing mobility skyrocketed, and the concurrent need for increased access to ever-improving and sophisticated internet applications expanded, desktop PC’s became progressively smaller laptops, which gave way to even smaller notebooks, which ultimately gave rise to the smart phones and tablets everyone uses today. The airfreight markets in particular and the freight markets in general became a very visible example of what ripple-on effects subsidiary industries can experience when the dominant industry they support fall victim to Harvard Business professor Clayton Christensen’s disruption theories. While the size of the computers started to shrink, other products, enabled by the intense R&D the tech market was driving, began to show up in alternative devices such as the smartphones and smaller and thinner tablets we referenced above. These devices were themselves drastically different in character from notebooks, laptops and desktops and other items the carriers have come very used to carrying. The iPads and other Android-based and Windows-devices both usurped and combined many of the functions previously reserved for the PC platform or other dedicated electronic devices.  Emerging from the Great Recession, these increasingly smaller, more powerful, alternative devices with their myriads of “apps” began to offer multiple capabilities on one platform that delivered capabilities which had previously taken multiple devices to deliver. This factor also significantly changed the dynamics of the airfreight markets.”

Expeditors International (EXPD – freight logistics) stated in their 8-K that the company maintains a strict focus on profitability over market share

“Paying customers to move their freight never seemed to make a lot of sense to us and to our people. Our focus has always been on retaining and expanding operating income. That is how our model works. That’s how we all get paid. More importantly, because those things re-enforce our culture, we had the discipline to continue profitable operations when the market was demanding commitments that would allow the top-line to grow at the expense of the bottom line. Given those options, our people focused on the kinds of good business opportunities where we could maintain our tried and proven long-term business model and that allowed us to take care of our people and generate solid cash flow for our shareholders. To us this is an example of going through the tough times without tough times going through you. We’re stronger for what we went through, we’ve bent but not broken, and we’re tempered but not changed.”

Expeditors International (EXPD – freight logistics) said their custom services are cheaper and more efficient than when their end customers try to do customs services in house

“Customers typically will look to Expeditors to provide brokerage services in a manner that turns what is a fixed cost to them, in to a variable cost. Given our economies of scale and broad expertise, it is, in most cases, very difficult for a customer to be able to provide a more cost-effective internal solution than an external solution we could provide. Just like any professional service, expertise, attitude and technological capabilities as well as proper relationships and trust with governments and other government agencies that can be integral to the customs clearance process are critical.”

Expeditors International (EXPD – freight logistics) mentioned how some of their customers make the decision on whether to ship their final goods utilizing air or ocean transportation

“We think airfreight demand will actually be driven more by consumer demand for high-value, time definite products that seem to be in higher demand when the economy is strong and there is more disposable income to pay for them. Simply put, the demand to get high value goods, which are typically time-definite, to the destination securely and quickly is the prime driver of airfreight demand. If the demand for the product, either as a stand-alone product or as necessary component of another product which shares that value doesn’t justify the expenditure for airfreight it will typically go by ocean.”

Expeditors International (EXPD – freight logistics) remains skeptical of how the Trans-Pacific Partnership (TPP) will ultimately affect global trade 

“While global trade agreements have typically increased the interdependencies of global economies, they have also created their share of “unintended consequences.” So, those unintended impacts’ must also be factored into everyone’s perceptions of what the TPP will mean, again assuming it’s ever enacted and implemented. Just being humble freight forwarders allows us the luxury of watching those who are much smarter than we are deal with these weighty matters. We’ll concentrate on the more mundane issues of providing exceptional customer service every day and formulating working solutions to ensure the viability of our customers’ supply chains if and when the TPP becomes a reality.”





Precision Castparts (PCP) CEO Mark Donegan says the company’s customers remain cautious in their buying habit

“If you look at Q4, certainly it was dominated by very challenging oil and gas pipe market is primarily centered in our Forged Products segment. We had sharp declines in volume, price and mix. All three in the same quarter, and this was related to our customers’ very cautious buying due to their uncertainties and their outlook and demand.  As you would expect, in response to these dynamic we address not only today’s tough market conditions, but a cautious future outlook.”

And Donegan sees demand staying weak through next year

“Given the weakness in global oil and gas demand, which capture about 6% of our sales, we are anticipating volume and price pressures and see declines in excess of 30% in this market for fiscal 2016.”

Precision Castparts (PCP) CEO Mark Donegan says the company’s main growth avenue remains M&A transactions

“M&A will continue to remain our top priority. We are actively pursuing today strategic acquisitions both, large and small. We will continue to be a disciplined buy, but we are targeting $3 billion to $5 billion over the next two years.”