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.


Amazon (AMZN) CEO Jeff Bezos highlights several characteristics of what makes an attractive business in the company’s annual report

“A dreamy business offering has at least four characteristics. Customers love it, it can grow to very large size, it has strong returns on capital, and it’s durable in time – with the potential to endure for decades. When you find one of these, don’t just swipe right, get married.”

Bezos cites Amazon’s unique culture as one reason it has been able to excel in the cut throat competitive landscape of retail

“We’ll approach the job with our usual tools: customer obsession rather than competitor focus, heartfelt passion for invention, commitment to operational excellence, and a willingness to think long-term.”

Bezos believes the Amazon Web Services cloud computing unit has decades of growth ahead of it

“Similar to the way I think about Amazon retail, for all practical purposes, I believe AWS is market-size unconstrained.   its current leadership position (which is significant) is a strong ongoing advantage.”




Chicago Bridge & Iron (CBI) CEO Phillip Asherman on how the decline in oil is affecting their energy infrastructure construction business 

“The volatility in the oil prices as we said at the end of last year when analyzing our potential pipeline of new awards we saw, I think at that time we said less than 5% of those new prospects that could be affected by changes in the oil pricing and that’s still our position.  We still see the petrochemical projects going forward.”

Chicago Bridge & Iron (CBI) CEO Phillip Asherman says the company, along with its construction partner Chioyda, is involved in about half of all the liquid natal gas (LNG) capacity build outs in the world

“As far as LNG, we’re well positioned to that particularly well with our collaboration with Chiyoda between the two of us we’ve probably been involved in probably 40% to 50% of the LNG capacity in the world.”

Chicago Bridge & Iron (CBI) CEO Phillip Asherman says the firm has benefitted in the labor market from the downturn in oil prices as they have been able to hire a large number of skilled workers 

“We are actually benefited from some of the changes in oil services and some of the offshore production platforms with reduction in force from much of that workforce. For example, many of the people that are involved in offshore production whether they be welders or engineers or other skilled crafts, the difference in rates are very nominal. The skill sets are same, so we’ve actually benefited from hiring those.”




Google (GOOGL) Chief Business Officer Omid Kordestani says 90% of commerce still takes place “off-line” which is an ongoing opportunity for e-commerce to capture additional market share 

“Mobile also enables us to help drive the 90% of commerce that still takes place off-line, which is a massive opportunity that are partners are really excited about.”

Google (GOOGL) Chief Financial Officer Patrick Pichette says ads served up on the Youtube platform offer a terrific return on investment for advertisers

“We’re just seeing a real acceleration at YouTube, and that’s why we thought it was important because we saw this change.  We tuned these ads to make sure that people want to watch them so that they are very effective, and when they do, then people watch a lot more of them. And so over the last quarter, over the last couple of quarters, we’ve seen the real takeoff.  The number [of advertisers] grew 45% in 2014. And all of the top 100 global brands have run TrueView ads over the past year.”




Colfax (CFX) CEO Steve Simms believes the company has a huge growth opportunity in front of it as China tries to clean up its air and pollution

“The passage of environmental legislation in China to take on the issues of particulate emissions throughout the country. As we’ve said before, those standards are to be passed at the very end of 2015, or early 2016. Our teams are now beginning to see inquiries on our response plan to that impending opportunity or pending opportunities.”




Mead Johnson (MJN) CEO Kasper Jakobsen says approximately 25% of the firm’s overall revenue is based in US dollars  

70% of our business is in emerging markets and more than 75% of sales in non U.S. currencies. Any change in exchange rates has a significant impact on our top line.”

Mead Johnson (MJN) CFO Charles Urbain sells the company is benefitting from a weaker Euro as a large percentage of their manufacturing base resides in the region

“A weaker euro helps to reduce the impact on our earnings. We have a large manufacturing operation in Europe that when combined with the relatively low local revenue base makes us a net beneficiary of euro weakness.”




Graco (GGG) Pat McHale sees strong growth for their products in the home and paint supply stores 

“In the first quarter both paint stores and home centers grew strong double digit. Our outlook for in the Americas for both of those segments is strong and we think that we’ll do better in the regions in the next nine months than we did in the last nine months.  The construction market in the U.S. is continuing to strengthen and we are riding that wave.”




Hershey (CEO) John Bilrey said his company saw growth slowing significantly in China

“Chocolate was one of the few categories in Chinese that grew in the first quarter although less than last year. In China, Hershey’s slightly outpaced the category and gained market share. However, the pace of growth slowed significantly.  Some of this softness is most likely due to government policy related to gifting, however macroeconomic news indicates things have significantly slowed and this could be impacting overall consumer confidence.”

Hershey (CEO) John Bilrey added that his company is likely to benefit from the urbanization trend in China 

“I think the structural changes favor CPG categories in terms of urbanization as well as a more consumer oriented economy versus exports, so I do see given to see that evolution, we’re structural, I think helps us.”




Starbucks (SBUX) CEO Howard Schulz says the company intends on launching a new, super premium coffee brand 

“Our intent with the roastery from day one was to create and build a new ultra-premium coffee brand and business unit. The additional small batch coffee roasting capacity provided by the roasteries enabling us to source roast blend and market spectacular limited availability, microlot coffees from around the world and to meaningfully elevate the super-premium coffee experience we deliver to our customers.”

Starbucks (SBUX) COO Kevin Johnson believes the company has reached the point in economies of scale in which the firm’s size and mobile offerings are a significant competitive advantage 

“Enhancing our in-store experience with customer focused digital experiences like mobile order and pay creates a positive flywheel effect on our business and attracts more My Starbucks Rewards (MSR) members. Each new MSR member represents a deeper more personalized customer relationship and more personalized customer relationships allow us to better serve customers and grow our business as evidenced by the significant increase in the number of active MSR members we are serving.”

Starbucks (SBUX) Chief Digital Officer says the new mobile order and pay platform is bringing in brand new customers 

“The answer is yes, we are seeing new customers coming in are using mobile app and also use mobile order and pay. So this is not just leveraging the strong base and you already have in our mobile commerce platform.”




Lazard (LAZ) CEO Ken Jacobs says the firm has seen strength in mergers and acquisitions activity for transactions valued over $10 billion

“We continue to be leader in a large, strategic, complex and multinational transaction that characterize the current M&A cycle.  We are advising on almost a third of global announced transaction valued at $10 billion and over. And we are the sole advisor to H J Heinz on its combination with Kraft Foods, the largest transaction of the quarter.”

Lazard (LAZ) CEO Ken Jacobs says the confidence level from CEO’s in Europe is improving

“QE is in a positive from the standpoint of obviously the cost of financing and valuation in Europe. And generally speaking the European economic outlook has improved mildly overall since before QE, generally speaking I would say our sense is that confidence is improving at the decision maker level in Europe CEOs.”




Verisign (VRSN) CEO James Bidzos expects new generic top level domains (such as “.business” or “.shopping”) to drive growth in the next couple of years

“Gaining more momentum, we do have dot realtor and dot jobs as backend, .realtor is a good performing name but those names are available for the first year for free to all, all of accredited realtors. So we’re seeing some good growth there and we hope that will continue.”

Amazon 1Q15 Earnings Call Notes

Wide growth range

“For Q2, 2015 we expect net sales of between $20.6 billion and $22.8 billion or growth of between 7% and 18%. This guidance anticipates approximately 750 basis points of unfavorable impact from foreign exchange rates.”

Dont have specific metrics on Prime Now…

” On Prime Now, we don’t have specific metrics we want to share today. But we have expanded to seven cities with more on the way. Customers are really enjoying the one hour and two delivery of tens of thousands of daily essential products. So the response has been great.”

You’re going to see a lot of invention from us in China

“Yes, let me start with China. So, I think you’ll see a lot invention, you’re seeing a lot of invention from us in China right now. Amazon is trusted source of authentic [ph] international products and that’s really what we’re doubling down on now with a Amazon global store on our own site, which gives Chinese customers access to over 1 million Amazon products globally.”

Investments for the long term

“the way you should think about it is, we are making some great investments for the long-term and that’s really what’s reflected in the operating results that you are seeing in terms of – so it is certainly impacting the operating margins both for North American and International.

So it’s the things that we – both Brian and I talked about that we’re doing globally to support Prime platform all of those things that we mentioned, video content, original content, Prime Now, category expansion, investing on behalf of FBA, which also helps Prime devices. ”

Spent $1 B on content. Higher prime retention from those who stream

“We mentioned last call that we spent approximately $1.3 billion on content globally for Prime customers and what we’ve seen and to date is was certainly still an investment for us, its certainly impacting our operating results, but we like what we see. We see customers who come in through our free trial pipeline if you will for video content. They convert it at a higher rate. We see – we have a great retention of Prime members, but those who stream actually, we retain those at a higher rate and we bring in new customers through our video pipeline.”

Video customers will buy other things from us

” this video content that we’re spending is helping us customers who buy consumable from us, they will buy clothing from us, they will buy shoes from us, they will buy electronics, they will buy media items.”

AWS is obviously growing extremely fast

“In terms of web services, it’s obviously growing extremely fast. We saw some acceleration of growth from a revenue perspective. Over the last few quarters here, usage is growing faster than that, so we will be deploying more capital as we go there.

In terms of the amounts, specific amounts, we’re not giving guidance on that today and one of the reasons it is growing so fast that we wan to make sure we put the right amount of capital in place and the teams has done a great job doing all the planning and the execution around that, so that’s what we’re doing there.”

Retailer Inventory Comparison

There have been a few comments on retail/apparel earnings calls suggesting that retailers are currently managing their inventories relatively tightly.  Fossil, for instance, said this:

What we discovered or what we experienced in the second quarter was that both with department stores and some of our boutiques, they were really focusing on managing their inventories tightly. And relative to our expectations, we saw some compression on sales because they were reducing their inventory level.”

TJX echoed that sentiment on its call yesterday

we are very clean in the stores. In fact, our inventory, well, it’s been lean off season and, given the second quarter with sales picking up, our clearance levels are very under control. No real liabilities there.”

If this is true, it’s a good sign for retail that inventories are under control.  Lean inventories are not only more efficient from a working capital standpoint, but also could help signal that the highly promotional environment that retailers have been complaining about is about to let up. If retailers are more conservative with their inventories, they don’t have to take as many markdowns to clear it.

If retailers are running their ships more tightly it’s not really showing up in financial statements quite yet though.  Below is a chart of a few important retailers’ days of inventory on hand (365/COGS/Inventory) since 2000.  If anything it looks like retail inventories have been trending slightly higher as of late.  For what it’s worth, the Census Bureau’s data shows that retailers’ inventory to sales ratio is above its recession low, but below where it was at the beginning of the year.

WMT AMZN TGT Inventory

M TJX KSS Inventory

Source: Factset

Amazon’s Market Value is Approaching Walmart’s

Amazon’s market cap is currently $178 Billion which puts the company 71% of the way to Walmart’s $251 B market cap.  That price implies that $AMZN is not too far from unseating $WMT as the king of retail, but looking at the facts Walmart is still by far the largest retailer in the world and Amazon trails by some distance.

Amazon only generates 15% as much revenue as Walmart does and only 2% of Walmart’s operating income.  Even if Amazon grew its revenue at 25% per year (an acceleration from its current pace) it would take 8.5 more years for Amazon’s revenue to match Walmart’s current revenue.

Assuming that Amazon’s operations do eventually match Walmart’s 8.5 years from now, and also assuming that Amazon is able to expand its operating margin to match Walmart’s, then at that point perhaps even a value investor could be comfortable with Amazon matching Walmart’s $250 B market cap.  If the stock does appreciate by that much it would work out to a 41% gain.  That’s 4.1% annualized over an 8.5 year time frame.

Amazon vs Walmart

Amazon 2Q13 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

“Trailing 12-month operating cash flow increased 41% to $4.53 billion. Trailing 12-month free cash flow decreased 76% to $265 million. Trailing-12 month capital expenditures were $4.27 billion. This amount includes $1.4 billion in purchases of our previously leased corporate office space, as well as property for development of additional corporate office space located in Seattle”

“The increase in capital expenditures reflects additional investments in support of continued business growth consisting of investments in technology, infrastructure including Amazon Web Services and additional capacity to support our fulfillment operations.”

“For Q3, 2013 we expect net sales of between $15.45 billion and $17.15 billion, a growth between 12% and 24%.”

“And it’s very early there, we’re still in the trial period, its good customer experience and we like what we see so far, but it’s very, very early. And so, it’s something that we’ll continue to work on and both from a customer experience and from an economic standpoint. And there is not much more I can add to that right now, so you have to stay tuned and see where that ends up.”

“In terms of AWS, the business is growing very, very strongly. We’ve got a great team that’s innovating on behalf of customers, launching the services, becoming more productive, which allows us to be able to lower prices”

“what we will do is, we want to make sure that we try to maximize free cash flow, that’s something that we’ve always said. So, our strategy hasn’t changed, our outlook hasn’t changed in that regard. Frequently we’d be asked historically is, double-digit operating margins are possible. And I still think it’s possible, but also if it means if a good high single-digit operating margin gets us to better, higher free cash flow over time, that’s fine too. So, again our goal is to, we don’t focus on individual margins. Our goal is to make sure that we generate free cash flow, large monthly free cash flow and use that capital efficiently, and so those are goals that we have and we certainly think that opportunity is there in each of the business that we operate in.”

“In terms of Spain, we’re very excited about what we see. It’s growing very fast. We’re in investment mode and it’s an exciting geography for us”

” the infrastructure related to our very fast growing web services business is included in tech and content, so certainly as we ramp up that business and it’s becoming more sizable and growing very fast you’re seeing that impacting that line item.”