Autonation (AN) Q2 2016 Earnings Call

Autonation (AN) President Will Berman said manufacturers are offering a high level of vehicle incentives in order to sell automobiles 

“Industry retail sales were down 2% while incentives were up 13%, and new vehicle leasing penetration, again, was over 30%.  Manufacturer volume-based incentive programs with high sales’ target should continue to create irrational behavior in the marketplace.”

Used vehicle prices are starting to soften

“Used vehicle retail sales were 52,300, down 6%. Used vehicle gross profit was $1,548 on a per retail basis, a decrease of $150 or 9%. As of June 30th, 6,900 units or roughly 20% of our total used vehicle inventory was on hold.”

Autonation (AN) CEO Mike Jackson complimented GM and dissed Ford 

“There is a diversion in manufacturer behavior. For instance, I would compliment General Motors, and you certainly look at their results, and you see if you find the right balance between supply and demand with a good disciplined approach and really marketing that’s focused on the long-term, you can be quite successful. On the other hand, we have other manufacturers who are still very aggressive in their plans, and if you want to look at Ford Motor Company, where we have targets for the third quarter, that a significant number of our stores have targets that are 15%, 20%, 25%, up to 40% higher than prior year. Well, that’s just not going to happen, it’s totally unrealistic and we’re not going to chase it, but it is disruptive in the marketplace and causes irrational behavior, and there’s a price tag for that. And if you look at Ford’s total incentives being up 28% in the second quarter, I don’t think they got a return on that approach.”

Autonation (AN) CEO Mike Jackson sees the industry selling 16-17 million cars for the next couple of years

“If something else happens in the world that hammers the US with recession, I suppose that can happen, but I don’t see a significant recession that would decline sales by 10% to 15%. So, my outlook is high industry sales, high 16 million, or just over 17 million for the next several years.”

Such a high percentage of leased vehicles is dangerous and causes a day of reckoning when the vehicle comes off of lease

“I agree with you, leasing is the same thing. You’re selling the seeds of a day of reckoning that you really don’t want, namely, that you have so many vehicles coming back that are based on a residual value that’s going to be higher than what the marketplace can handle. Now, that – all those risks are at the OEM level not at the retail level, but we all know if you’re basically pulling business forward now, that means that when the day of reckoning comes, the disruption is great. And I’d just rather see the business manage more rationally with stability now so that this plateau period is more sustainable.”

Autonation (AN) CEO Mike Jackson on the millenials generation 

“My view is that millennials will buy cars, I think. I have to check, but I think they could have bought more cars than any other generation. They, the millennials, came of age with the great recession. They went back to school and doubled down on education and student debt. They’re now entering the workforce. They have to pay down that student debt. But their fundamental desires to marry, have children, have a home, have a car are there. You have to do business with them differently. You have to communicate with them differently. You have to know how to market to them differently. But those drivers are there. That’s in principle are what we believe.”

Autonation (AN) Q1 2016 Earnings Call

Autonation (AN) CEO Mike Jackson said premium car sales hasn’t performed up to expectations.  Maybe Tesla’s Model S successful model launch and large number of pre-orders has impaired the luxury segment for the next couple of years
We continue to see declines in our premium luxury business, which represents roughly 20% of our new vehicle unit sales compared to an industry at 9%. The same-store basis, our premium luxury profits declined 13% year-over-year.”

Auto recalls are leaving them with higher than expected inventory on the lots
The safety of our customers is a top priority for AutoNation. We will not retail any vehicle with an open recall. Approximately 15% of our used vehicle units are on hold of which 60% have been on hold for more than 30 days.  I will further note, over 60% of our used inventory on hold is related to Takata airbags. The Takata airbag issue is in its early innings of what will be an ongoing issue that the industry faces.  As of March 31, approximately 5% of our inventory was not available for sale due to the open recalls. The held inventory represents approximately 1% of our new vehicle inventory and roughly 15% of our used vehicle inventory.”
Autonation (AN) Chief Operating Officer Bill Berman thinks new car sales are plateauing
New vehicles sales leasing penetration was over 30% for the quarter. Industry inventories were elevated with retail day supply outstanding at approximately 80 days. As we indicated earlier this year, the new vehicle market is plateauing.”
Autonation (AN) CEO Mike Jackson expects above 17 million in annual vehicle sales for 2016
We continue to expect total new vehicle sales for the industry for 2016 to be above 17 million. Within that though, we fully expect retail sales to be relatively flat. We believe we have the right strategy and the right tools in place to perform in this plateauing environment.  I think when I say I expect the total market to be over 17 million, because I believe the manufacturer are going to get it there one way or the other. In my mind, the 17 million is etched in stone so to speak. And either through incentive activity or fleet, the total industry number will break through 17 million. So I think that’s a safe statement.”
Autonation (AN) CEO Mike Jackson said the auto industry is in far better shape than during the financial crisis
So everybody wants to focus on the call at on the challenges, but I think it is important to speak plainly. Now the facts are, the industry is in far better shape than it was in ’08, ’09, from OEM supplier and a retailer point of view. There is absolutely no comparison.  So much productive capacity has been taken out and so many structural cost issues have been addressed and we have this benefited $2 gasoline that shifted to mix towards trucks, which is of some benefit to us, but is of tremendous benefit at the OEM and the supplier level. So all that goes in the plus column.”
Autonation (AN) CEO Mike Jackson said consumers may delay big ticket purchases in an election year
I would also point out I have concerns going into an election year. I’ve observed in the past on this very controversial election. And it looks like we are on the road to have one of those this year that consumers sometimes hesitate around big purchases. Usually pick it up after the election, but leading up to election it can be a little bit soft.”


JS Earnings Call Notes – Lazard, WR Berkley, Potash, Cimpress, Autonation, Hershey, Mead Johnson, Las Vegas Sands, Visa, Rollins

Lazard (LAZ) CEO Ken Jacobs said the company benefited from a robust Mergers & Acquisitions environment

“In advisory, we had our best year ever with broad-based activity across practices and regions, and record annual M&A operating revenue. Lazard advised or continues to advise on six of the 10 largest M&A transactions announced globally in 2015.”

At the same time, they are seeing increased deal flow in the bankruptcy area particularly in the energy sector

“And while the restructuring market continues to operate at historically low levels, an exception is the energy sector where we have taken a commanding market share representing distressed companies. Lazard was the top advisor in 2015 for completed restructurings globally.”

And that one of their key competitive advantages is their relationships

“Our leadership and the largest transformative transactions across industry sectors worldwide highlights one of Lazard’s key competitive strengths, our unrivalled global network of relationships with key decision makers in businesses, governments, and investment institutions. Almost half of our announced M&A assignments in 2015 were cross border.”

Lazard (LAZ) CEO Ken Jacobs said the sluggish start to the calendar year may affect near-term performance and deal flow

The long-term transfer of business remained favorable. That said, the volatile market conditions at the start of this year could affect our 2016 performance. In asset management, we begin the year with lower AUM. In our M&A business, while we’re off to a good start, it’ll be several months before we know whether volatility has affected deal announcements for the year.”

Lazard (LAZ) CEO Ken Jacobs said corporates are now having a harder time generating revenue growth

An additional catalyst driving the current M&A cycle is the disinflationary/deflationary back drop. This continues unabated. For most companies, achieving sustainable organic growth in a period of low inflation or declining prices is challenging. Since the financial crisis, virtually all companies have undergone a steady pace of restructuring to drive earnings growth, yet additional savings are becoming more difficult to find. M&A remains an important tool for driving top line growth and also for driving additional efficiencies to propel earnings growth.”

Surprisingly, they’ve seen investor emerging market inflows during the month of the year even in this difficult environment

And then with regard to year-to-date, actually overall for Lazard we’ve seen inflows of about $700 million.”

Lazard (LAZ) CEO Ken Jacobs thinks we’re in for a significant restructuring cycle

So first, I think you’re going to see the pickup in revenue and restructuring in 2016 wasn’t much reflected in 2015, and it is concentrated in a couple of sectors. That’s the oil and gas, commodities, natural resources arena. I don’t think you’re going to see the full restructuring cycle unless you start to see a turndown in the economy. Hopefully, what we’re going to see is a constructive M&A environment with some pick up in restructuring, which would be kind of a nice combination for us.”

Lazard (LAZ) CFO Mattieu Bucaille said their investors are primarily institutional which allows for a more stable asset base

And the one other point I would like to sort of get across is our primary business is institutional. That’s why we haven’t sort of dealt with the flow that some of the retail funds have. And for institutions, this is a strategic allocation, runs in the tactical allocation. So what you’re likely to see is as markets stabilize, more money come in than go out because people are underweights their strategic allocation at this point.”





WR Berkley (WRB) CEO Robert Berkley said the pace of pricing erosion in the reinsurance market seems to be slowing
By and large, market conditions were consistent with what we’ve seen over the past several quarters. The reinsurance marketplace remained seriously competitive, though the pace of the erosion seems to be slowing, particularly on the domestic market. We’re also seeing a slowing in the entry of new alternative capital providers in the reinsurance space. And having said that, we’ll have to see if that trend continues.”
WR Berkley (WRB) CEO Robert Berkley said M&A in their sector is creating opportunities 
The fact of the matter is, by and large, whenever there is a meaningful merger or acquisition, that creates a degree of overlaps or uncertainty or potential dislocation, that impacts both the people within the organization and it also can honestly impact people outside of the organization such as the distribution system and customers. So we certainly have seen opportunities as a result of the M&A activity. We expect we will see more.”
And they said insurance remains a people business
“From our perspective, as we’ve suggested to some in the past, insurance business is fundamentally two things. It’s capital and it’s people. We believe capital is ever more a commodity and people are what makes the difference. So the opportunity to attract talented people from other organizations is certainly something that we are focused on.”
They’re looking for niche opportunities to underwrite insurance
“We are trying to find niche opportunities in other markets where it makes sense outside of the United States to achieve reasonable risk-adjusted returns. In several markets that we participate in, Latin America would be an example, I think we have achieved that consistently for more than a decade.”

Potash (POT) CEO Jochen Tilk said the global agricultural nutrient market remained strong yet pricing of the product slumped

“Global shipments of approximately 60 million tonnes were the second highest total on record, a reminder that even with less than ideal economic conditions, food production and soil fertility remain a priority for farmers.  While demand was strong, prices were less resilient. The decline was most visible in granular markets with prices declining more than 30% over the course of the year.”

Yet he cited China as the swing market
The market that garners most attention this time of the year is China. While current inventory levels are expected to reduce annual shipments from 2015’s record levels, we continue to see strong consumption trends and the need for contract settlements to meet spring planting requirements.”
Potash (POT) CEO Jochen Tilk said they reduced the company’s dividend yet remain bullish on the long term prospects of agricultural nutrient demand
We have decided to reduce our quarterly dividend by 34%. We believe this level, which represents a payout ratio of close to 100% of 2016 earnings remains highly competitive, but also protecting the long-term financial health and financial flexibility of the company.  Looking forward, it can be difficult to look beyond near-term headwinds that may continue in 2016, but our long-term confidence is underpinned by food demand, the quality of our assets and strong market position. This global mandate will largely be met in the coming years by improvements in crop productivity, a challenge to that can’t be achieved without the products we produce. We believe that we’re uniquely positioned to respond in any market conditions.”
Potash (POT) President Stephen Dowdle said demand from Brazil resilient despite the geopolitical turmoil in the region 
When you look at what happened in Brazil last year, it was a second best year in terms of just looking at, let’s say from potash imports and if you look at all the turmoil that that country was going through and the agricultural sector was really a bit of a shining light in the country.”
Cimpress (CMPR) reminded the investment community that they focus on growing their business for the long-term
 Even as we report results on a quarterly basis it is important for investors to understand that we manage to a much longer-term time horizon and that we explicitly forgo short-term actions and metrics except to the extent those short-term actions and metrics support our long-term goals.”  
And the lifetime value of a customer using their services continues to increase
This quarter we saw continued traction in gross profit per customer as we continue to acquire higher-value customers and our repeat rates improve. We also saw good year-over-year growth in Net Promoter Score. We draw the conclusion from the combination of these trends that our business continues to strengthen as a result of the many changes and investments we have made over the past several years.”  

Similar to Amazon, the company is willing to forsake near-term profitability of certain transactions in order to create a positive customer experience

In that specific example is that we have begun to test shipping prices within the Vistaprint business unit and we have been very pleased with the early results. Now those results definitely reduced near term revenues and near term profits, but when we look at the change in customer satisfaction and loyalty improvements driven by that, we have a strong hypothesis which we’re continuing to test around that it pays off in a financial sense from a DCF perspective because of the future cash flows or the gross profits from those happier customers.”

Cimpress (CMPR) CEO Robert Keane mentioned their new partnership with Amazon but said he has no idea what it may lead to

Amazon is very much in a small test phase right now. You can see that on the site.  It is not something that is doing anything material this year in revenues. We do think that the opportunity there is material, but we do not plan for that right now. The way Amazon works which is quite impressive, is a very rapid iteration of new ideas. It’s very hard for us to say where that’s going to go.





Autonation (AN) CEO Mike Jackson said the firm’s profitability per vehicle sold decreased during the quarter

The fourth quarter industry sales environment was more push than pull resulting in significant new and used vehicle margin declines on a combined basis of $217 per vehicle retail, which is 11% lower than the fourth quarter of 2014. During the quarter we experienced particular weakness in Premium Luxury, which had a significant impact on our fourth quarter financial results.”

The company called out the Texas region as having relatively weak sales

Coupled with the margin pressure in the fourth quarter we also began to see a slowdown in Texas, due to collapsing energy prices which are hurting the local economy. In Texas the new and used unit sales were down compared to the fourth quarter of 2014.  I think Texas is about 24% of our business so that’s a significant overweight.”

Autonation (AN) Executive Vice President Jon Ferrando reviewed the company’s acquisition strategy

As of today our store portfolio number 342 franchises and 254 stores in 15 states, representing 35 manufacturer brands. We are one third domestic, one third Asian and one third Premium Luxury. Looking forward we will continue to actively pursue acquisitions and new store opportunities with a focus on enhancing brand representation within our existing markets and markets that can be supported by our existing management infrastructure.”

Autonation (AN) CEO Mike Jackson cautioned automobile manufacturers from overproducing which could put additional pressure on car prices

Well I think any time the industry moves from a period of exceptional growth secures of it to beginning to plateau and we see significantly higher inventories year-over-year that’s going to put pressure on front end gross. So we’ve taken steps to begin to bring our inventories.  But even after we do that if the industry overproduces and keeps inventory at a high level that means the overall environment is still very difficult.”

Autonation (AN) CEO Mike Jackson remains optimistic about truck sales in 2016 due to lower gas prices

I think domestic [auto manufacturers] are very well positioned to exceed in 2016, almost all the excess inventories is in cars, not in trucks, to the stand that you have strength in trucks and can produce more trucks you want to drive in 2016. I think Sergio’s decision to switch over factories from our production to truck production shows you the sense that the consumer has that they are totally committed to cheap gas and to trucks it’s really become a strategic question not a tactical question. So wherever you stand on trucks is your position of strength in the marketplace.

Autonation (AN) CEO Mike Jackson wants auto manufacturers to remain disciplined on price incentives and not chase market share at the expense of profitability

I really would not want to see incentives go beyond on the manufacture level they are about 10% suggested retail price at the moment. So we’re approaching double digits and I really hope we don’t go beyond that.”

Autonation (AN) CEO Mike Jackson is excited about their digital storefront 

We now generate fully 25% of our business from AutoNation site, which is a spectacular success, the customers like the ability to be able to transact on the site. We still have capabilities that we’re adding step-by-step that continue to roll out I think the most difficult piece remains the documentation that may push into 2017.”





Hershey (HSY) CEO John Bilbrey said the company continues to take market share from competitors

Hershey U.S. CMG retail takeaway sequentially improved from Q3 to Q4, and increased plus 2.5%, although market share was up about 0.2 point. Seasonal performance was good and we gained market share in both Halloween and holiday.  Hershey U.S. market share was an industry-leading 31.3%.”

Much like others in the retail food space, the company’s products continued to be impacted by shifting consumer trends

As we previously discussed the category is being impacted by many of the same issues facing other food categories, including changing shopping habits like channel shifting, increased competitive activity and some retailers adjusting their merchandising practices, and a proliferation of broader snack SKUs.”

Their China chocolate business remains challenged

Our China Chocolate fourth quarter net sales results were less than our expectations.  Similar to what we discussed over the last year, category performance is being impacted by macro economic issues and the related impact it’s having on consumer shopping behavior and confidence.”

Transitioning their products to more natural ingredients has increased their expenses

Competition for this space in the store is robust. And we continue to listen to the consumer and invest in simple ingredients, which were currently purchasing at a slight premium to traditional ingredients.”

Hershey (HSY) CFO Patricia Little said some of their chocolate sales are a seasonal business that centers around holidays

We also know chocolate is really a destination for the seasons, during the seasonal periods, and that will continue. So I think, we kind of think about it, that’s a solid foundation and base that consumers are looking for chocolate in particular around those times.”





Mead Johnson (MJN) CEO Kasper Jacobsen said the slowing of several international economies hurt volume growth

We were challenged by a strengthening dollar and the general weakness in many economies throughout Asia and Latin America. GDP growth across Asia and Latin America was lower than prior year, and this affected both consumer and retailer confidence.”

And they ran into increased price competition and execution issues 

Additionally, in China, we saw increased price-based competition and channel shifts that adversely impacted sales growth and required us to boost investment to protect our competitiveness. Combined with some company-specific executional issues, this resulted in lower volumes through the year.”

Mead Johnson (MJN) CEO Kasper Jacobsen said they signed partnership agreements with Chinese company Tencent & to expand distribution 

In a sign of our commitment to strengthening our presence in web and app-based commerce, we recently signed joint business partnership agreement with Jingdong, owner of leading e-commerce like and Tencent, owner of WeChat, the leading social app in China.

Mead Johnson (MJN) CEO Kasper Jacobsen highlighted the most important factors that will affect company performance in the coming year

Through last year, I repeatedly pointed to four important factors that critically influenced company performance. To remind you all, I’m referring to currency movements, dairy cost evolution, our ability to evolve our strategy and portfolio in China, and our momentum in North America, particularly in the United States. All of these four variables remain as relevant in 2016 as they were to our performance in 2015. But I should add pricing to the list. Our ability to offset partially or in full foreign exchange weakness with price increases will be very important. I’d add that I see some encouraging signs that price increases will become easier as we move through the year.”

Mead Johnson (MJN) CEO Kasper Jacobsen discussed raising prices in Asia

I think the pricing environment will become somewhat more friendly. What we saw in 2015 was that there were still – particularly, I would say, in Asia, there were still governments in Asia that were very resistant to price increases in our sector as they still focused very much on kind of inflationary pressure or perceived inflationary pressure, which I think we all know was really a threat that evaporated some time back in 2014. And they would repeatedly point to the fact that we were seeing significant upside from dairy costs coming down as we discussed price increases.  I think now that dairy prices have stabilized, I believe that as both us and our competitors lap the low-dairy costs, it will become a little bit more straightforward to raise prices. But we obviously have to do that in a responsible manner.”





Las Vegas Sands (LVS) CEO Sheldon Adelson said the company increased its market share in certain geographical zones such as Singapore

In Singapore, our share of EBITDA of the duopoly market increased to 68% in the first nine months of 2015, up from 65% in 2014. Because of industry leading investments in Macau and Singapore, we are unique in the absolute scale of our cash flow as well as our dominant share of the industry’s cash flow.

Las Vegas Sands (LVS) CEO Sheldon Adelson mentioned that their employees base is now predominately locals as opposed to hired hands from other countries

 And no less important is the decade-long effort we have made in developing to promoting the local talent that is necessary to operate and grow our business over the long term. In 2004, only 7% of 900 or so managerial staff were locals. Today, 86% of our 2,700 or so managerial staff are locals.  In summary, we regard it as a privilege to contribute to Macau’s success in realizing its objectives of diversifying its economy, supporting the growth of local businesses, providing meaningful career development opportunities for its citizens and reaching its full potential as Asia’s leading business and leisure tourism destination.”

Las Vegas Sands (LVS) Senior Vice President Patrick Dumont says its tough to tell what impact a devalued Chinese yuan currency may have on the company’s performance

I think long term, it’s really hard to call. I think it’s hard for anyone to figure out exactly what the impact will be and how the currency may continue to devalue. The only thing is we’re looking at hedging programs, we’re speaking to economists and doing our best to evaluate the impact to the business. But in terms of long-term impact on our customers, it’s hard to say. A devaluation of currency could impact manufacturing economy there and drive further growth in the economy. Other people have different views. So now we’re just studying it and hopefully we’ll continue to grow our business in the face of any currency changes that may occur.”





Visa (V) CEO Charles Scharf said consumer spending patterns are changing

Ecommerce continue to grow at a much higher rate than the spending at physical stores. We saw mid teens eCommerce growth during the holiday period versus mid single digits growth in the physical world. More than 25% of all spending on Visa Cards during November and December was online up from less than 20% just three years ago.”

And people are delaying their shopping until later in the holiday season

Also the pattern of spending during the holidays has changed, while Black Friday and Cyber Monday remain important shopping days, less spending is consolidated on these two days than recent years and more people delay their spending to later in the season this year.”

Visa (V) CEO Charles Scharf said their Visa Checkout product has better online completion rates than some of its competitors 

Visa Checkout customers completed 86% of transactions compared to 73% for PayPal Express Checkout and 57% for the traditional merchant checkout. Visa Checkout customers are more active online shoppers in general, completing 30% more transactions per person than the overall population of online shoppers and 95% of Visa checkout customers say sign up was easy and 96% feel secure making purchases with Visa Checkout.”

Slightly less than one half of all Visa credit cards now have EMV chips which greatly enhance security of the network

43% of all credit cards representing 72% of purchase volume, 21% of all debit cards representing 45% of purchase volume, over 750,000 merchant locations have enabled EMV representing 17% of the total face to face locations in the U.S. Based on our recent client survey we expect 50% of locations to be enabled by the end of this year.”

Visa (V) CFO Vasant Prahbu said they were able to issue low cost debt to fund their Visa Europe acquisition 

In December we issued $16 billion in debt with maturities ranging from 2 to 30 years. The weighted average interest rate was 3.08% with the weighted average maturity of 13.1 years. This is the low end of the 3% to 3.5% interest rate range we indicted last year.”

Visa (V) CEO Charles Scharf discussed the intensifying competitive landscape

Domestically, across the world there are local networks that we compete with. And there are emerging global competitors such as Chinese Union Pay in the traditional space as well as a series of people in the eCom whose names you know that we continue to compete with.  I think when we think about what we have at Visa in the quality of the network, the safety, the security, the global acceptance and now the capabilities that we built in the world of digital commerce and the value-added services, we feel terrific about our ability to continue to compete.”





Rollins (ROL) CEO Gary Rollins said the company could see increased sales from a more substantial outbreak in the Zika virus

Although Zika was first diagnosed in Brazil in May, it is been linked to more than 3500 cases of infant deformity. The leading experts predict that the USA needs to be prepared for a similar scenario. This situation is unfortunate. However based on our experience with the West Nile outbreak, publicity concerning mosquitoes risk will accelerate.”

And that they’re using iPhones to make their technicians more efficient

This time last year we discussed that one of the important advantages of BOSS was the feature of issuing iPhones to our technicians to help them better complete their customer administrative requirements.  At the end of this past year, 2600 of our technicians were using our iPhones to provide customer better communication and acknowledgment of their service, while improving our branch administrative productivity.”

Rollins (ROL) CEO Gary Rollins said they are in the “people business”

The service business is first and foremost a people business and our employees are our most important asset. A major priority for us every year is to prove on the retention of our employees. Our employee retention rate again improved in 2015. We continue to work with our employees to ensure that they are receiving the very best training if they need to be successful and to advance their career.”

Rollins (ROL) CEO Gary Rollins said they are using data and an in house analytics team to change pricing dynamically

Well we are learning more about our business, I mean we have the capability now of better utilizing our data. We have the capability now of experimenting more. We have a wonderful laboratory with our call center because virtually we can change the prices just almost instantaneously and look at our closure to see if our closure is improving or not and seeing if we’re selling more units to the extent that to offset the price reduction.”