AB Inbev (BUD) Q2 2016 Earnings Call

AB Inbev (BUD) CEO Carlos Briton on dealing with the volatile Brazil economy

“In terms of Brazil, we’ve been doing business there for 27 years and net/net it has always been a great market for us. So we continue to be bullish on Brazil, but we know that it’s not a straight line up, but it’s up. But every five years or so, you have one or two years where things go sideways or backwards, but then that’s when you have to take advantage and look for those silver linings.  So, again, we’ve been through tough times before, but it’s a great time when some of our competitor sometimes take a pause, that we accelerate and do the things we need to do, because we’ve always been bullish and there are many reasons to believe on that, that I just mentioned. That’s Brazil. But you’re right, this year is going to be a tough one and as the political macro situation gets cleared up, consumers, of course, will get more confident and go back to their normal behaviors. If you look at the financial markets in Brazil, currency and stock markets and all that, they tend to signal that first and that’s where they are at this point.”

Importing beer from the US into Mexico

“We have to bring Bud Light from the U.S. into Mexico because we do not have enough capacity to produce Bud Light locally and that of course also puts more strain on our logistics costs.”

Focusing on selling premium beers into the Chinese market

“in terms of China, we’re very happy with the business we have there. We made, many years ago, made a decision to go high-end in China. When we got together with them, 2008, we kept that very smart decision they made in China. Today, we lead the premium segment in China, we lead the super-premium segment in China and we’re very well positioned in the core-plus segment. That’s where we put most of our investments and that’s where the growth is coming from. We’re very happy with it because we see our business continuously gain share, margin continuing to be accretive and to continue to go up and it’s very healthy and it’s organic.  It would make no sense for us to grow in the opposite direction, trying to add more core and value brands to our business.”

AB Inbev (BUD) CEO Carlos Briton on the company emphasizing the non-alcoholic beverage space

“We put out there 10-year commitment on our side of having 20% of our volume in 10 years, checked, of course, every year, in non-alcohol and low alcohol beers. This is a great opportunity, not only because there is a consumer trends there from some groups of consumers going to that direction, but also because our brands can extend in that domain. If you look at some markets in Europe, for example, where the beer industry has declined, the segment that’s growing the most, even in Brazil, that can also be said, is the low alcohol, no alcohol beer. Our brands can do it, our asset base can manufacture those beer brands and it’s something that can be very interesting in terms of enlarging the pie of consumers that connect and stay within our franchise.”

 

3G Capital Founder Jorge Paolo Lemann Interview

Jorge Paolo Lemann, Founder of 3G Capital, which is responsible for the takeover and ownership of Budweiser, Burger King, Kraft, Tim Hortons, Heinz, explained his strength is assembling teams

“I’m no financial genius.  What I do best, which is sort of a surprise to me, is put teams of people together, finding great people, incentivizing them, working together with them, giving them a chance to shine, enabling them.  That’s the most important thing that I did.  That’s what I’ve found I do well.  And that’s not a skill that I knew I had.  You have to attract the best possible team.”

Jorge Paolo Lemann, Founder of 3G Capital, on attracting talent

“The people factor is something that you really have to work hard at.  Most people think of business as selling a product and you have a very good product to sell or you have a special strategy and after I found out that attracting good people to work with me, I found out that it was more powerful than what you were doing or what the product was.  As a team, you will find something interesting to do.”

 

 

Source: Jorge Paolo Lemann Interview, April 27, 2016

 

AB Inbev (BUD) Q1 2016 Earnings

AB Inbev (BUD) CEO Carlos Brito said Mexico enjoyed robust results while the Brazil region struggled mostly due to political turmoil

“The first quarter saw a strong performance in Mexico as well as improving volume trends in the U.S. and Europe. However, Brazil faced one of its most challenging quarters in many years due to the weakening macroeconomic conditions in the country and a tough comparable. The industry in China was also soft due to economic headwinds.  Volumes were significantly impacted by results in Brazil, as expected, where our beer volumes fell by 10%, although our volume trends in Brazil in April were significantly better than the first quarter.  Brazil is facing a tough macroeconomic environment with continuing pressure on consumer disposable income.”

Brand perception of their Bud Light offering is improving

“Our business in Mexico is doing great, and we’re excited about the prospects going forward. In the U.S., industry volumes returned to growth, and we’re seeing very good volume growth with our Above Premium brands. Bud Light volume trends are also heading in the right direction. In Brazil, our brands enjoy high consumer preference, and the premium category continues to grow.”

Have had to divest a large number of brands in order to gain regulatory approval for their acquisition of SAB Miller 

“I’d like to give you an update on the proposed combination with SABMiller. When we made the initial announcement in November last year, we said we would be proactive in addressing any potential regulatory considerations and we have made good progress in all four of the markets where regulatory clearance is a precondition to making the formal offer to shareholders. We have announced the sale of SABMiller’s interest in MillerCoors in the U.S. and in CR Snow in China, as well as the disposal of certain of SABMiller’s premium brands and related businesses in Europe, including Peroni and Grolsch. Also, last week, we announced our decision to divest of SABMiller’s Central and Eastern Europe business and brands. Of course, all of the disposals are subject to the closing of the main transaction.”

China beer volume growth slowed but the company took market share from competitors 

“oving now to China, China beer industry volumes declined by around 4% in the first quarter due to economic headwinds. Our own volumes were down just over 1% in the quarter versus the tough first quarter last year, wherein our volumes grew by 4.7%. We estimate we gained approximately 45 bps of market share in the quarter, reaching a level of 19% market share.  We believe the Core+, Premium and Super Premium segments have the greatest long-term growth potential within the industry. Our brands in these segments represent more than 50% of our total China volumes and are well positioned with strong brand health metrics.”

AB Inbev (BUD) CFO Luis Dutra said the company was able to issue debt at an average rate of 3.2% in order to fund their SAB Miller acquisition 

“As Brito mentioned earlier, we have made good progress with the prefunding of the SABMiller transaction, with three bond issuances in the first quarter. Slide 23 contains a summary of these issuances, which resulted in net proceeds of $61.6 billion and an average coupon of 3.2%.”

AB Inbev (BUD) CFO Luis Dutra said they recognize they have strong integration abilities after doing dozens of acquisitions over the last few decades

“M&A remains a core competency, and we’ll always be ready to look at opportunities when and if they arise, subject to our strict financial discipline. Surplus cash flow should be returned to shareholders. Our goal is for a dividend to be a growing flow, consistent with the non-cyclical nature of our business; and dividend yield, the earnings payout, free cash flow payout, will always remain references in determining the amount of the appropriate dividend payment.”

AB Inbev (BUD) CEO Carlos Brito explained how they are viewing the exploding craft brewery segment

“In terms of craft, ]we think we made a lot of progress. The idea that we have on craft is a simple one. I mean, we are the market leader in the U.S. Craft is a growing and very profitable segment. It is one where we are under-represented. So it’s a two-fold strategy. First, we have crafts of our own, like, for example, Shock Top, just to give one example. Second, we acquired some.  If you think that there are 4,000 craft brewers in the U.S. and we acquired less than 10, if you put it all together. But it’s important to have some of those because, first, you bring some amazing craft partners to join us and to continue to help our brewers to continue to create the very best beers and styles in the marketplace. So that has been great. We’re very happy with our craft development in the U.S.”

Corporate Annual Reports And CEO Interviews 3.24.16

Source: John Deere Annual Report

John Deere (DE) CEO Sam Allen said the farm equipment recession of the last few years has been the worst in nearly a century

“In relation to the farm economy’s robust years earlier in the decade, the current downturn has been quite dramatic. Since peaking in 2013, industry sales of large agricultural equipment in the United States have fallen more than 60 percent. Deere’s total equipment sales have declined more than 25 percent from their high. Last year’s sales decline was the company’s largest in percentage terms since the 1930’s.”


Source: Richemont (owner of luxury jewelry brands such as Cartier, Van Cleef & Arpels) CEO Youtube Interview= https://www.youtube.com/watch?v=-MvyTHPueKI

Richemont CEO Johann Rupert said the true price of capital is obscured in today’s economic environment

“We have a lot more competition, especially from ridiculously mispriced capital. When people misprice something, it is abused. In England, water is free, it rains all the time yet there is a drought. Now, if you misprice capital, people will abuse it and will regret it, unfortunately in our business as well.”


Richemont CEO Johann Rupert stated you should always be improving your business whether we are in an economic expansion or economic recession

“Never waste a good recession. Never waste an opportunity to fine tune your business.


Source: Schlumberger Annual Report

Schlumberger (SLB) CEO Paal Kibsgaard remains constructive on both the supply and demand of the oil markets ultimately coming into equilibrium in the medium term

“We remain constructive in our view of the market outlook in the medium term and continue to believe that the underlying balance of supply and demand will tighten. This will be driven by growth in demand, weakening supply as the massive E&P investment cuts take effect, and the size of the annual supply replacement challenge. In continuing to accelerate the benefits of our transformation program across both our Technologies and GeoMarket regions in 2016, we believe that we will emerge as a stronger company once the price of oil and the market conditions in our industry improve.”


Source: Autozone Annual Report

Autozone (AZO) CEO William Rhodes said the company is prioritizing their E-commerce auto parts websites in order to get their products to consumers quicker

“We are expanding our fast-growing internet offerings. Utilizing our autozone.com, autozonepro.com and autoanything.com websites, we believe we are well positioned to serve our customers however they elect to interact with us. In 2016, we will continue our focus on both expanding our online product offerings and improving the shopping experience. While this business is growing at a faster pace than our “brick and mortar” business, it remains small in absolute terms. However, over time, as mobile shopping intensifies, it will only expand. We have to stay out in front in this sector of our industry. Our customers expect us to offer this shopping convenience and additional avenues for trustworthy advice to maintain, enhance or repair their vehicle.”


Source: Leucadia Annual Report

Leucadia (LUK) CEO Richard Handler said his company is undervalued and prepared to weather the stormy economic environment

“As we write, there is continuing volatility in the fixed income and equity trading markets, as well as in energy prices. Scratches and dents seem inevitable and we won’t dare make predictions for the rest of the year, but based on the actions we have taken to date, our businesses are prepared to weather the storm, and several are doing quite well. We are both aligned long-term investors in Leucadia stock and will continue to work our hardest to deliver good results in the coming years. There remains significant long-term upside in the value of Leucadia, which exists in the intrinsic value of our businesses and is not fully reflected in our current dismal stock price. We will discuss all of our businesses later in this letter.”


Source: Bank of New York Mellon Annual Report

Bank of New York Mellon (BK) CEO Gerald Hassell reiterated the company’s new mission statement

“We play an important role in the financial marketplace and describe ourselves as the Investments Company for the World. Our mission is to help people realize their full potential by leveraging our distinctive expertise to power investment success. In doing so, we seek to improve the lives of countless people globally – a goal that motivates us to be the very best at what we do.”

Bank of New York Mellon (BK) CEO Gerald Hassell said the company remains the dominant vendor for central banks and pension funds

“Our clients include three-quarters of the Fortune 500, central banks that hold approximately 90 percent of all capital and more than two-thirds of the top 1,000 pension funds.”


Source: Moody’s Annual Reports

Moody’s (MCO) CEO Ray McDaniel said the company is benefiting from several tailwinds in the financial markets

“We manage through cyclical conditions, while focusing on and investing around the deeper pull of structural market evolution: phenomena such as the disintermediation of credit, the demand for enhanced risk management techniques, the need to curate increasingly vast quantities of financial information and data and the development of emerging economies. These are powerful dynamics and they reveal an open road beyond the rubbernecking that often surrounds day-to-day market sentiment.”

Moody’s (MCO) CEO Ray McDaniel noted a choppy economic environment is creating uncertain buying patterns across their customer base
“Financial markets continue to be buffeted by volatility stemming from, among other things, uncertain global economic conditions, diverging monetary policies and geopolitical events. These dynamics (and their inter-relationship) create cross-currents and choppiness that unsettle market participants. This in turn impacts both the short- and long-term outlook for Moody’s.”

He elaborated that markets getting harder to interpret

“Markets are becoming more complex, not less, and are moving more quickly and featuring more choices. The need for products and services that illuminate and enhance the understanding of risk is essential to market confidence, and that confidence is essential to the sound management and efficient movement of global capital. Moody’s focus and opportunity involves filling the gaps that complexity, volume and information inefficiencies create.”


Source: Potash Annual Report

Potash (POT) CEO Jochen Tilk said increased global demand for protein will benefit his agricultural nutrient focused company

“By 2050, the world’s population is expected to grow by another 2.3 billion, reaching 9.7 billion. At the same time, diets are improving in many regions. These facts add up to greater demand for food, which will require increased crop production even as the amount of arable land per person is declining. With the world counting on increased yields from farmers, fertilizers will continue to be essential in keeping soils healthy. The role of fertilizers cannot be overestimated: they are responsible for half of all crop yields and without them, we believe the world would be incapable of feeding itself. ”


Source: Wells Fargo Annual Report


Wells Fargo (WFC) CEO John Stumpf said the company is still a relationship oriented business

“The most powerful expression of our heritage isn’t in documents or artifacts or even our stagecoach. It is in any of the millions of relationships we have formed over generations with customers, team members, communities, and shareholders. Relationships define Wells Fargo. Earning lifelong relationships, one customer at a time, is fundamental to achieving our vision.”


Source: Mark Fields Business Insider Interview http://www.businessinsider.com/ford-ceo-mark-fields-interview-2016-3

Ford (F) CEO Mark Fields said cars on the road today are lasting longer than ever, suppressing demand for their products

“We have worked very hard at quality over the last number of years, and our quality is in the top echelons of the industry. So part of it is vehicles are lasting longer. When I was growing up, when you saw a 20-year-old car it was like, Oh my gosh — that thing’s on its last legs. Now you see a 20-year-old vehicle and in many cases it looks pretty good. So part of it is that, but the other part is when we went through the downturn, clearly there were a lot of deferrals of people replacing vehicles.”

Ford (F) CEO Mark Fields noted that economic volatility and currency wars are making the automobile manufacturing business a more competitive landscape

“For us the main policy is making sure that currency is not used as a weapon, if you will, to manipulate the cost of products, whether they’re imported or exported. We can compete with anybody around the world. We can’t compete with central banks.”

AB Inbev Annual Report Notes

Source: AB Inbev Annual Report

AB Inbev (BUD) CEO Carlos Brito says they are building a company which they expect to last 100 years

“At Anheuser-Busch InBev, our ambition is to build a great, enduring company for the long term, not just for a decade, but for the next 100 years. In 2015, we not only took significant steps towards building a company that will stand the test of time.”

AB Inbev (BUD) CEO Carlos Brito explained the rationale for the $107 billion SAB Miller acquisition

“We believe that a combination of our two companies would build the first truly global brewer. Both companies have deep roots in some of the most historic beer cultures around the world and share a strong passion for brewing as well as an enduring tradition of quality. By bringing together our rich heritage, brands and people, we aim to provide more opportunities for consumers to taste and enjoy the world’s best beers. We believe this combination would generate significant growth opportunities and create enhanced value to benefit all stakeholders. In particular, the combination would strengthen our position in emerging regions with strong growth prospects, such as Asia, Central and South America and Africa.”

AB Inbev (BUD) CEO Carlos Brito explained the company’s entry into the craft beer space

“Our passion for brewing quality beer is reflected in our investments in the craft category. We know — as do consumers — that a brewer’s passion, care and skill must be evident in every glass. This has sparked an increasing interest among consumers in the craft beer experience, and led AB InBev to build a growing portfolio of exceptional craft beers, enabling more consumers to enjoy them. Our entry into the craft space comes at a time when many craft brewers themselves are wondering how they can bring the beers they are passionate about to an ever-expanding audience and are asking, “What’s next?” We are able to provide an answer by bringing together the resources to grow craft brands in the right way, with each brewer’s passion and commitment. We contribute capital, brewing expertise, distribution capabilities and talent — along with a deep respect for the craft brewing culture.”

Even AB InBev (BUD) is getting into the startup craze of having employees involved in hackathons

“With the creation of our Disruptive Growth team, we are seeking team members with skills more typically associated with start-up, entrepreneurial companies. One approach to finding such employees with a creative, curious, challenge-the-status-quo mindset, has been to invite students to participate in hackathons where they are encouraged to tackle real business problems.”

AB Inbev (BUD) CEO Carlos Brito says the company expanded their partnership with the NFL

“Sports sponsorships enable our brands to “team up” with loyal fans. One of our strongest sports connections is the long- running Bud Light NFL Sponsorship. In 2015, we had a strong integrated commercial plan for the NFL season, with exciting team cans and Super Bowl 50 cans that reinforce Bud Light as the beer of the fan. We just renewed our NFL contract for another six years, gaining additional marketing rights in the US as well as the ability to utilize NFL marks internationally. Bud Light will display highlight clips from NFL games on its website, Facebook page and other digital media, with features such as Bud Light “PlayeroftheGame”and“PlayoftheDay”. Moreover, Bud Light will be the exclusive sponsor of Thursday night football, allowing the brand to activate its 28 team partnerships outside the team city limits and connect with more fans nationally.”

AB Inbev (BUD) 4th Quarter 2015 Earnings Call Notes

AB Inbev (BUD) CEO Carlos Brito explained his strategic priorities 

In order to continue to accelerate top line growth, we have developed a deep understanding of consumer’s needs and occasions. These insights have enabled us to identify four commercial priorities, which are relevant across the whole of our business.  First, growing our global brands involves leveraging the potential of Budweiser, Stella Artois and Corona. Second, premiumizing and invigorating beer is all about creating excitement and aspiration in beer, especially with millennials by bringing new energy and variety to the beer experience.  Third, elevating the core is about raising the perception and relevance of our major core brands through differentiated messaging and large scale activations. And finally, developing the near beer segment gives us an opportunity to compete for a greater share of total alcohol.”

AB Inbev (BUD) CEO Carlos Brito talked about what’s ailing the Bud Light brand

“I think in a market as fragmented as the U.S. to have a brand with 18%, 19% market share is already an amazing thing in itself. On the other hand, I mean people want to grow. Of course they all target the big guy with the most of the shares. So that’s one thing. I think the second thing is that for a number of years, the past few years, we have not afforded the brand. We have not given the brand to support an 18%, 19% share brand in the U.S. market, fragmented U.S. and competitive fragmented U.S. market deserves and I think now we’re beginning to rebuild that.  So for example, Budweiser has always been very connected to culture and fun in a smart way. At some point it becomes fun, but maybe in a more not so smart way. So we’re trying to recover that because when we go back and see what made the brand what it is today, we’re trying to recover not only the packaging and cues and communication, trying to recover a little bit of the, let’s say, the founders’ spirit of the brand of 20-plus years ago.”

AB Inbev (BUD) CEO Carlos Brito spoke about investing in some emerging market countries in which growth is slowing

“And in terms of crisis in some countries, that’s when we feel even more excited about investing, because that’s when competition normally takes the foot off the pedal. And in our history we’ve seen many times when we’ve either penetrated or acquired businesses during tough times in some countries where everybody was exiting, or whether – or when we press the pedal harder when everybody was taking their foot off the accelerator.”

AB Inbev (BUD) CEO Carlos Brito said their company has controlled about 2/3’s of the Brazilian beer market for the last 15 years

Our market share in the year was 67.5% according to Nielsen. That’s within our 67% to 69% range. And as you said, last year was a year of margins and profitabilities. So nothing strange in having the share more towards the bottom of the range. We’ve had this range now for, I don’t know, over 15 years, and it’s always the same story.”

Miscellaneous Earnings Call Notes 11.5.15

Colgate-Palmolive’s (CL) CEO Ian Cook on Q3 2015 Results

Have seen a decline in private label

“At the same time, we’ve seen a decline in private label shares in many of our categories indicating the consumers preference for branded products and respect of our equities.”


Anheuser-Busch InBev’s (BUD) CEO Carlos Brito on Q3 2015 Results

Big change in the Chinese economy towards consumption

“I think what’s happening in China at this point is that there is a big change from an economy that was all lead by exports and heavy investments in fixed assets, okay that generates a lot of blue-collar work or jobs to now an economy that’s much more service and domestic oriented economy. So more consumption, more consumer spending. So that of course, in the midst of this change, we see that in the Southeast, where some years ago there was lack of blue-collar workers and now there is too many of them. So there is a shift in there and I think that’s what the segments are showing us. But the segments that are more high priced are growing ahead of the ones that are lower price. And that’s exactly where we have most of our business and most of our brands position. So I think this change, while it may be bad for the industry, is not bad for us.”


PriceSmart’s (PSMT) CEO Jose Luis Laparte on Q4 2015 Results

We do have a soft economy in Columbia right now

“We do have a little bit of a soft economy right now, driven by the devaluation and other factors in the country. But we still are pretty optimistic about Columbia, and we haven’t reduced our efforts.”


Phillips 66’s (PSX) CEO Greg Garland on Q3 2015 Results

We see that the consumer side of China is doing very well

“we’re continuing to see good demand in Asia and across the system globally. So I think our view is demand is good. China is particular interest I think largely because of the reported numbers that what we see on both fuels and chemicals tells us that the consumer side of China is doing very well.””

By 2017/18 we’d expect not to be in a $50 crude environment any longer

“I mean our view consistently remains by 2017 and 2018 that really sort itself out and we are probably not $50 crude environment but we are probably not $100 but somewhere $60, $70, $80 in that range.”


Greenlight Capital Re’ (GLRE) CEO Bart Hedges on Q3 2015 Results

-16.9% through October

“The Greenlight Re investment portfolio lost 14.2% in the third quarter, bringing the year-to-date return to minus 16.9%.”

Brought next exposure up slightly during market sell off in August

“We reduced our gross exposure by 30 points in the quarter. Our net exposure increased slightly from 21% to 26% as we covered several shorts during the market sell-off in August. We continue to hold macro positions including gold, short Asian currencies and short French sovereign bonds. Overall, it’s been a challenging environment. We’re optimistic that we should get some recovery from our beaten down long portfolio.”


The Sherwin-Williams Company’s (SHW) CEO Chris Connor on Q3 2015 Results

Volume demand lagged initial expectations in virtually ever market we serve

“Volume demand lagged our initial expectations for the quarter in virtually every market we serve, but we remain focused on delivering positive results regardless of the demand environment.”

Continue to see deteriorating demand outside of NA

“We continue to see deteriorating demand for our product outside of North America.”


Banco Santander-Chile (BSAC) Q3 2015 Results

Economy has done better than most regional peers

“Segment [ph] in the corporate sectors continue to contract, but given the diversity of Chile’s economy and the fact that the average GDP growth of Chile’s main trading partners is relatively high, the economy has done better than other regional peers.”

No deterioration in asset quality

“In terms of evolution of asset quality, we think that the aligned trends are generally positive, especially in the consumer side, in the mortgage side and in the mid-size market. We haven’t seen any deterioration. ”


CBS (CBS) Leslie Moonves on Q3 2015 Results

Advertising is coming back in a big way

“advertising is coming back in a big way at CBS. Underlying network advertising was up 8% in the third quarter with strong growth in primetime, double-digit growth in sports and daytime and huge growth in late night, which was up 42%.’

The dire predictions of cord-cutting are overblown

“I think we’re all seeing that the dire predictions of cord-cutting are overblown, but the good news for CBS is, no matter where distribution goes, no matter how or where you want your content, we are in a perfect position. ”

There can never be too much content

“we are a content company, we believe the world can have more content, we don’t believe the guy who says oh, there’s too much content. There never can be too much content and we want more of it.”


Activision Blizzard (ATVI) Robert A. Kotick on Q3 2015 Results

Comparing King to Blizzard

“When we merged with Blizzard Entertainment, we found the right partner with extraordinary leadership. And when others dismissed the sustainability of Blizzard’s incredible capacity for innovation, we were certain patience would be rewarded. And it has. We see a lot of the same characteristics today in King. We think now is the right time to enter mobile gaming in a meaningful way. ”


Third Point Reinsurance’s (TPRE) CEO John Berger on Q3 2015 Results

Third Point owns Argentine debt

“Sovereign credit was up 3.1% on average exposure during the quarter, due to strength in Argentinean government debt the largest position in our credit portfolio. We’re looking forward to the run off Argentinean presidential election next month and we’ll be pleased with the victory from either candidate.’


Michael Kors Holdings (KORS) John D. Idol on Q2 2016 Results

Warm weather bad for seasonal items. Watch business still under pressure

“We saw accelerated growth in footwear, although the warm weather tempered boot sales in the quarter. The watch business continues to remain under pressure in retail and wholesale. ‘

Trend has been towards smaller handbags

” the idea that people are not buying handbags, I do not believe is a correct concept. They happen to be the fashion trend of smaller bags, so if we were selling x percent of $350, $400 and $500 handbags at this time last year we were selling less of those because we were selling a lot more in particular across bodies and large wallets. And that is what the consumer in particular the millennial is viewing as a fashion trend.’

All of us are now being impacted in parts of Texas because of oil prices

“all of us are now being impacted in parts of Texas because of oil prices there, that’s a little bit less tourist, but some of it’s related to the Mexicans shopping cross-border with the peso to the dollar.”


Time Warner (TWX) Jeff L. Bewkes on Q3 2015 Results

Programming is the most significant area of investment for the company

“Programming remains by far the most significant area of investment for the company. As you all know, we have plans to invest aggressively in content in 2016 and beyond.’


Stratasys (SSYS) David Reis on Q3 2015 Results

Excess capacity created by extraordinary expansion in 2014

“We also believe the situation has been worsened by the negative impact of excess capacity that followed the two-year period of extraordinary industry expansion that ended in 2014. Reflecting the low visibility of the current market environment, expected orders did not materialize as expected at the end of the quarter.’

Focused on adjusting the cost structure of the company to fit customer demand

“what I can tell is that we are taking very seriously the change in the business volume that we see in front of us and we are dealing with adjusting the cost structure of the company, the entire cost structure of the company not only MakerBot, to fit through what we see today in the market in terms of customer demand.”


Douglas Emmett’s (DEI) CEO Jordan Kaplan on Q3 2015 Results

Seems like occupancy is being driven by much stronger tenants

“I would say that, what’s driving — what’s going on here right now is a much stronger and wider base than what was driving the run up in ’04, ’05, ’06 and ’07. It’s way more comfortable, a way better percentage of kind of expenses for the tenants. The tenants are very — we’re seeing strong balance sheet and good credit. We’re seeing a good diversity of industries. You’re not seeing like a heavy lean on, I remember before, it was the mortgage — these mortgage guys were taking huge chunks of space”

“the strength in this market, all seems really healthy going to just literally more functional space for our tenants, as opposed to some of the tenants before that were literally just space grabbing and whether it be a big dotcom guy that didn’t exist a year ago and all of a sudden now needs 50,000 feet, 100,000 feet. What’s going on now seems a lot more comfortable and it’s backed by much stronger, more established tenants.”


Annaly Capital Management’s (NLY) CEO Kevin Keyes on Q3 2015 Results

Continued improvement in CRE fundamentals in the US

“The third quarter saw continued improved in U.S. commercial real estate fundamentals with healthy demand across all property types. Vacancy rates across all asset types declined compared to last quarter, with office and industrial continuing a trend of 22 consecutive quarters of positive demand.”

While the pace of CRE asset sales has slowed, we don’t see this as a weakening trend

“While the pace of sales has more recently begun to slow down 10% in September, we don’t see this as a weakening trend, as large take-private transactions continue to be announced with private equity taking advantage of the discount between listed markets and asset values.”

CMBS spreads have moved wider, but cap rates have not yet moved higher

“Spreads, however, have a continued widening that started this summer, with AAAs now at about 120 basis points, 32 basis points wider than at the beginning of the year and 34 basis points wider than this time last year. In addition, BBBs are almost 200 basis points wider than this time last year. While, this type of rate expansion is significant, we have not yet seen cap rates move higher. ”


JS Earnings Call Notes 11.3.2015 – Potash, Varian, AIG, Loews, Discovery Communications, McGraw Hill Financial, AB Inbev, Starbucks, Novo Nordisk, LKQ, Ellie Mae, & DistributionNow

Potash (POT) CEO Jochen Tilk said the agricultural chemicals market remains weak

“Looking ahead, macroeconomic headwinds, including lower GDP growth in emerging markets and the erosion of many currencies relative to the US dollar, contributed to a weaker commodity environment in 2015 that affected our sector as well. In light of these broader factors, we have lowered our expectation for 2015 global potash shipments to approximately 59 million tonnes and our sales volumes to a range of 9 million to 9.2 million tonnes. While potash demand held up relatively well in the face of emerging market uncertainty, prices have been less resilient.”

He said they continue to rebalance the portfolio and take costs out of the business to stay competitive

“First, our focus is on striking the right balance between flexibility and cost. We have some of the best, most efficient potash assets in the world and we continue to take steps to even further improve efficiencies and lower our costs. We began with operation workforce reductions in 2013 when we reduced our potash operating capability by approximately 3.5 million tonnes or 30%. This was central to marrying our capability with expected market conditions.”

Potash (POT) CEO Jochen Tilk said they will continue to maintain the high dividend even though it means they are paying out a significant percentage of their net profit

“our objective is to maintain our dividend. When we raise the dividend over recent years, we did this both thoughtfully and cautiously. The value of the dividend, $1.2 billion annually, was stress tested in a number of downside scenarios and we remain comfortable that even amidst a more challenging macro environment, it is very well-supported and can be sustained at current payout level.”

With new Potash supply coming online soon from mines that were built a few years ago when prices were higher, they continue to believe the supply demand balance remains tight

“So the question on our expectation of supply and demand going forward in next year and the year thereafter, we continue to believe that supply/demand is actually relatively tight and we think we understand new production coming online.

Even though the microeconomic environment is challenging, demand for the end product continues to grow

“The one thing that, even in spite of these difficult conditions, potash demand, globally, has remained pretty resilient. Our estimate for this calendar year on global demand in that 58 million to 60 million tonnes will represent the second best year of potash demand globally and that doesn’t go unnoticed by us.”

Given the recent weakness in the share price of Potash, CEO Jochen Tilk said he is still not comfortable buying back his own stock

“If you contemplate a share repurchase program, it has to be meaningful, it has to be significant. I don’t think leveraging the balance sheet up at this point, at this stage, with those concerns that have been raised would make sense.”

 

 

 

 

Varian (VAR) CEO Dow Wilson said they gained market share against all of the competitors during the year

“We gained share against the competition in all three regions of the world for the year. In North America alone, we estimate that we generated over $150 million in orders during the year to replace hardware and software products from our competitors.”

Varian (VAR) CFO Elisha Finney said currency movement had a massive impact across both reported revenues and how their competitors are behaving

“Before I walk you through the numbers, let me just say that exchange rates wreaked havoc on our 2015 results. Currency driven price erosion had a huge impact on our imaging components
business.”

When asked if he would divest the struggling image component segment of the business, CEO Down Wilson said there is significant synergies with the oncology equipment business thus he is not currently interested in divesting

“The profitability of that business hasn’t changed, but it’s very cyclical. We like the fact that we’re the leader in digital imaging technology. And so, we’ve got both a strong product portfolio as well as scale in the business. And there are synergies with our oncology business. The oncology is the second largest customer of that business. About 10%-12% of the product cost of our oncology business comes from our components business; over 1500 tubes and panels a year. So, there is some vertical integration that we look at.”

Varian (VAR) CEO Dow Wilson said the company’s equipment provides the lowest total cost of ownership

“As we go into an environment that’s uncertain from a reimbursement point of view, total cost to ownership is everything, and Varian’s advantage is there. There is nobody close to us with that. There will be some niche products out there that probably get some play in some segments, but I think people are still going to be looking at value for money and how to stretch their capital dollars.”

 

 

 

 

AIG CEO Peter Hancock responded first thing in the company’s earnings conference call to a public letter from Carl Icahn to split up the company

“But before I do I’d like to comment on the recent letter we received from Carl Icahn. The letter outlines a plan that includes separation of Life and P&C. Management and the board have carefully reviewed such a separation on many occasions including in the recent past and have concluded it did not make financial sense. We of course will meet with him to further share our conclusions and give him an opportunity to elaborate on his views.”

AIG CEO Peter Hancock highlighted some technology trends which are affecting the insurance business

“We’ve been investing, and we’ll continue to make investments that will give us a competitive advantage in an ever changing landscape. The current mega trend that we see in artificial intelligence, digital, the Internet of Things, and Big Data require us to make these investments with a constant eye on innovation in order to be relevant.”

AIG CEO Peter Hancock said their mortgage insurance business is a strong contributor to the company

“So UGC is a business which was for sale for virtually nothing back in the crisis days. And since then we’ve invested in it, modernized it, and taken it from number five to number one in its industry, and it’s performing very well today. We’ve kept it as a very modular unit, so it gives us strategic flexibility. But today it is a core business making a significant contribution to the company.”

AIG CEO Peter Hancock said he sees the company having a lower headcount in the next few years due to increased automation

“I think that there will be fewer people, because a lot of those jobs will eventually be replaced by automation. We also, beyond the head count numbers that you see, have a very substantial number of contractors. And that number will also decline. So between contractors and head count in total we’d expect that number to be substantially lower. And our technology would be a bigger part of the spend and the scalable infrastructure that gives us, will lower our unit costs substantially.”

AIG CFO David Herzog said the S&P rating agency gives them a diversification benefit for being in multiple non-correlated lines of insurance

“I think the S&P – the explicit diversification benefits, I don’t know that we have disclosed publicly, but it is quite substantial. It’s north of $5 billion in diversification benefits.”

 

 

 

 

 

Loews (L) CEO James Tisch began the call by focusing on the recent decline in the company’s stock price and their plans to buyback a significant amount of shares

“Since I’m not in the habit of ignoring the elephant in the room, I want to start today’s discussion by focusing on the stock prices of Loews and our subsidiaries. You certainly don’t need me to tell you that the stock market performed terribly in the third quarter. In general, we believe that the stock market is undervaluing our shares and those of our subsidiaries. Despite being frustrated, rather than complain, we look at this as an opportunity to create value for Loews’ shareholders by buying back our stock, and we did.”

Loews (L) CEO James Tisch discussed his thinking process on buying a hotel outright versus partnering with an operator

“Listen, I like capital light. So, management is always number one, but with management, you don’t control the asset, and in some ways, you don’t control your own fate. A partnership is the next best thing because that’s not capital light, but it’s capital lighter, so that we don’t have to put up all the money for the hotel. And the third alternative is for us to buy a 100% of the hotel, which we have done a number of times. What we look to do when we buy a 100% of our hotel is that over the next one year to two years we look to sell down a percentage interest in that hotel so we don’t have as much as cash invested in the property.”

Loews (L) CEO James Tisch said he sees a lot of value being produced by its hotel subsidiary even though it currently isn’t generating large earnings

“I’d say that with respect to Loews Hotels, it doesn’t have a lot of earnings, but it does have a lot of value. The hotels in our portfolio, many of them are the envy of a lot of people in the hotel business. And the goal of Loews Hotels is to continue building the value of the company. As I said, it may be difficult for you to see in the form of net income. We do show adjusted EBITDA as a measure to help give you some ability to get value of the business. But I’d simply end by saying that – as I’ve said before, I love all my children, I love all our businesses, and I think each one of them is doing well within the context of their industry.”

 

 

 

 

 

 

Discovery (DISCA) CEO David Zaslav says they were able to raise their prices even in a challenged environment for TV content companies

“On the affiliate side, revenues rose 12% in the third quarter. We continue to see the benefits of the strong price increases we have secured through the current renewal cycle, of which we are now 80% complete here in the U.S. The price escalators are locked in for years to come.”

Advertising growth showed particular strength

“Turning now to the operating units, despite all the talk about domestic secular concerns, our U.S. Networks grew revenues an impressive 8% this quarter, as we benefited from another quarter of strong distribution growth of 12% and a significant acceleration in advertising growth to up 6% year-over-year. We are extremely pleased with our third quarter ad sales performance. As David mentioned, our ratings outperformed the industry and this outperformance helped us benefit from robust scatter pricing and volume as well as stronger overall demand.”

And they are seeing increased viewership in international market

“At our Investor Day, I also said that our leading global distribution platform is Discovery’s secret sauce. That’s once again true in the third quarter. International viewership grew mid-single-digit overall with ID, TLC and Eurosport up double-digit or better. Our ability to increase share of viewership internationally helped drive strong organic advertising and affiliate growth. Organic ad sales rose 12% and organic distribution growth also was strong, up 8%. These figures demonstrate our strong international growth profile and best-in-class platform.”

Discovery (DISCA) CFO Andrew Warren said the company is adjusting its view on repurchasing its own shares

“On our last earnings call, we stated that we were unlikely to repurchase additional shares through the end of 2015 in an effort to retain capital allocation flexibility for strategic transactions as well as to pay down debt to lower our leverage ratios. But given our solid and better-than-expected third quarter revenues and bottom-line results, the successful Comcast renewal, our significant higher level of confidence in our ability to drive accelerating free cash flow, our high and growing cash flow-to-total debt yield, the continued favorable interest rate environment, and finally, that we find the return of buying our shares at these levels to be extremely attractive, we have adjusted our view on leverage. After very careful consideration, we are now comfortable with increasing our gross debt to adjusted OIBDA ratio to the 3.25 times to 3.4 times range versus the 2.75 times target we previously outlined, all while being highly committed to remaining an investment-grade debt issuer.”

Discovery (DISCA) CEO David Zaslav says they’re starting to take their content direct to consumer

“The direct-to-consumer business is something we’re just getting started with, but we have invested over the last year and a half primarily through our Eurosport partnership and in Northern Europe with the Eurosport app and with Dplay. We’re learning a lot. Both of those platforms are growing meaningfully. We do have a target in place which we’re calling March to a Million. We have 200,000 subscribers right now. And if we can get to a million at the $6 to $8 a month, we could generate close to $100 million in revenue.”

Discovery (DISCA) CFO Andrew Warren said they are making it a point of emphasis to have the highest debt load in the industry

“To answer your question on the leverage, we expect to kind of accrete our leverage up to the 3.25, 3.4 times by year-end 2016. It’s just so important to highlight that even at that level, our free cash flow to debt yield is still going to be mid teens to high teens, the highest in the industry. Our interest coverage ratio is going to be the highest in the industry. And we feel extremely comfortable given our growth profile of cash flow, that’s the right leverage target and capital structure for us.”

Discovery (DISCA) CFO Andrew Warren said he’s seeing pockets of growth across various geographies

“We still see aggressive growth, meaningful growth in Latin America, particularly Brazil and Mexico, although Brazil has slowed down a little bit with the economy, and India, we’re seeing meaningful growth in Eastern Europe.”

 

 

 

 

 

McGraw Hill Financial (MHFI) CEO Doug Peterson said with the recent intention to divest the J.D. Power business, the company is now focused on global and scalable businesses

“Our portfolio is now increasingly focused on businesses with a common set of attributes. The businesses are scalable; they are global; all have market-leading positions and fantastic brands; and serve growing markets. These businesses are increasingly interrelated and serving the capital and commodities markets. Together, it’s this unique collection of great assets with these world-class brands that distinguishes McGraw Hill Financial.”

McGraw Hill Financial (MHFI) CEO Doug Peterson said ratings services were weak during the quarter as customers turned cautious amid macroeconomic uncertainty

“Now, let me turn to Standard & Poor’s Ratings Services. Issuance outside the U.S. was weak as concerns related to China’s declining growth, falling commodity prices, and the Fed’s impending interest rate hike hindered issuance activity.”

With very specific weakness in global issuance in Asia & Latin America

“Asia and Latin America issuance decreased by 58% and 72%, respectively. This led to a 20% decline in global issuance overall. To put that in perspective, both Asia and Latin America had their lowest quarterly issuance since 2008. Due to the turmoil in the Asian markets and the devaluation of the Chinese yuan, year-over-year quarterly revenue from China experienced a decline for the first time in the last five years. In addition, this was Europe’s lowest issuance quarter since the third quarter of 2013.”

 

 

 

AB Inbev (BUD) CEO Carlos Brito admits they have mismanaged the Bud Light brand and they plan to refresh the image of the brand

“We are going to have what we think is going to be revolution in terms of trying to understand where the brand came from and trying to learn from its amazing 20 plus years history from zero to a market leader in the U.S. and playing that back in a more contemporary way playing back to some of these rituals. There will be also some packaging refresh and visual identity. So, I mean, lots of things that’s only fair for a brand of this size. So we think we have been unfair for the brand, so our fault, not the brand’s fault. We don’t believe in anything about brand having cycle. We believe in brands that are well managed and brands that could be better managed. And Bud Light is one of those that could be better managed and that’s what we have for next year.”

He added that the structure of the beer market is very regionalized

“We believe beer has been a very local brand, local business, different than any other consumer goods you look out there. So I think there is an amazing opportunity for us to drive these three global brands and really capture what consumers in all markets today want in some occasions, which is more of a global citizen type brand.”

Their Chinese operations outperformed their peers during the quarter and gained market share

“Moving now to China, in China economic headwinds and poor weather led to decline in industry volumes in the quarter. We estimate industry volumes were down almost 7% in the quarter and down over 5% year-to-date with most of the impact being felt in the value and core segments. Our own beer volumes declined by 1.3% in the quarter and were up 0.5% year-to-date with our focus on the faster growing core plus and premium segments leading to an estimated market share gain of 104 bps to 18.7% in the quarter.”

And they continue to focus on certain segments of the market such as women drinkers

“In China, we are outperforming the industry and gaining share based on our strategy of focusing on the women’s segments and channels.

AB Inbev (BUD) CEO Carlos Brito said their partnership with the NFL which allows them to put team logos on bottles continues to be beneficial

“We are very happy with NFL’s agreement that we have in the sponsorship. Of course, as consumer change, the media habits and the way they interact with sports and the NFL. We are also changing together with the league on properties and things we can activate. And the NFL has been a very good partner in agreeing with us on changes that we need to do to continue to be relevant with that consumer base. So again, a great partnership, we respect them a lot. They have a great business. And again, the number one sports in the country could all be associated with the number one beer in the country. ”

And he continues to see a lot of room to grow the business in Mexico

“So, I think the other fact in Mexico will be like in any other market of ours, a function of three things, revenue management initiatives, premiumization, and in Mexico specifically like Brazil if we increase our own distribution. I mean, premium in Mexico is only 3% of the industry volume.”

 

 

 

 

 

Starbucks (SBUX) CEO Howard Schulz highlighted the shift away from brick and motor retailing

“We are delivering quarter after quarter of record-breaking financial results despite the accelerating shift in consumer behavior away from traditional bricks-and-mortar retailing and despite difficult macroeconomic retail and consumer headwinds that continue to challenge traditional retailers.”

Starbucks (SBUX) CEO Howard Schulz emphasized that by investing in their employees, via increased salary & benefits, it leads to a better customer experience and lower employee turnover

“And the investments we make in our partners pay tangible dividends in the form of more satisfied and engaged partners, deeper connections among partners, and with customers and improved in-store efficiency, all of which contribute to an elevated in-store Starbucks experience for everyone, partners and customers alike. Noteworthy is that today we are seeing improvements in partner attrition, a direct result of our partner investments at a time when the industry overall is actually moving in the opposite direction. And we are seeing a direct correlation between reduced partner attrition and our business results. Our comp results are strongest where we are having our greatest success in reducing turnover. ”

Starbucks (SBUX) CEO Howard Schulz highlighted their customers loyalty to the brand

“Our customers trust us and reward us with unparalleled frequency and loyalty, as demonstrated by the robustness of our business, the unprecedented increases in global traffic we are seeing, and the amount of currency preloaded on our customers’ mobile devices. We continue to leverage all these assets in ways that are accretive to our business and to the heritage of our company. Never in our 23 years as a public company has the Starbucks brand or our business been more relevant or been stronger.”

Mobile pay accounts for nearly 1/4 of all store transactions

“Mobile payment now accounts for 21% of all transactions in our U.S. company-owned stores, and although we only completed the rollout of Mobile Order & Pay across our system 7500 U.S. company-owned store portfolio in September, we were already operating at a run rate of over five million transactions per month.”

Starbucks (SBUX) COO Kevin Johnsaid 1 out of every 7 Americans received a Starbucks gift certificate last year

“You may recall that last year, one in seven Americans received a Starbucks Gift Card over the holidays, generating over $1.6 billion in card loads in our first quarter of fiscal year 2015.”

Starbucks (SBUX) CEO Howard Schulz said they are in the business of creating experiences

Well, I think the equity of the Starbucks brand throughout our public life has been defined by the culture and values and guiding principles. I said from day one that we are in the experience business, and our brand is defined by the people who wear the green apron. The entire DNA of the company goes back to equity in the form of stock options, comprehensive health insurance, 25 years ahead of the Affordable Care Act, and this year alone groundbreaking benefit of college achievement of providing all of our people with a four-year education.

Starbucks (SBUX) CEO Howard Schulz emphasized the importance of how important mobile is to the business

“I think we also believe very strongly that we had to seamlessly integrate the Starbucks experience with all things mobile. And as I said in my prepared remarks, we are living in a mobile-first global economy and we’re witnessing that kind of change.”

The China business accelerated during the quarter

“we went back to work on that and I think we also believe very strongly that we had to seamlessly integrate the Starbucks experience with all things mobile. And as I said in my prepared remarks, we are living in a mobile-first global economy and we’re witnessing that kind of change. In addition, what we saw during the quarter was that comps actually accelerated month to month. And in China, we see that comps are continuing to accelerate into the month of October, which is great news for us.”

 

 

 

 

 

Novo Nordisk (NVO) CFO Jesper Brandgaard said robust performance of certain drugs are being offset by macroeconomic conditions

“We are seeing intensifying competition within both diabetes and biopharmaceuticals and challenging market access as well as macroeconomic conditions in China and a number of markets in International Operations.”

Novo Nordisk (NVO) CEO Lars Sorensen expects their China business to remain challenged

“In regards to China, we are impacted by increasing local competition. And we are impacted by a segment shift, much like we have historically experienced the same in Japan, where we have a strong position in premix market, China used to be a premix market. The only real solution to this is of course that we get Tresiba into the Chinese market, so that is a couple of years out. So, I think we will be facing relatively tough market conditions in China for a couple of years. We expect China to come back. But here in the immediate future, we expect lower growth.”

 

 

 

 

 

LKQ (LKQ) CEO Robert Wagman said increased vehicle miles driven is providing a tailwind to their business

“New vehicle sales increased the size of the car park, which equates to more insured cars on the road, the likelihood of increased accidents and more repairs. These trends help drive North American organic growth for parts and services.”

The declining prices the company received for various scrap materials hurt their earnings

“While we have been dealing with falling scrap steel prices for a while, during Q3, we also experienced a material decline in the prices received from other metals that are a residual of our recycling activities, including aluminum, copper, platinum, palladium and rhodium, which were down materially compared to the third quarter of last year.”

LKQ (LKQ) CEO Robert Wagman reminded the investor community of the firm’s mission statement and core competency

“We’re laser-focused on our mission statement of being the leading global value-added distributor of vehicle parts and accessories by offering our customers the most comprehensive available and cost-effective selection of parts solutions, while building strong partnerships with our employees and the communities in which we operate. I am encouraged by the trends in miles driven, the continued growth in the average number of parts per claim, the increase in the per unit share of APU, the increased costs of repairs pushing carriers to seek alternative parts to lower their costs and the consistent pipeline of acquisition opportunities we’re witnessing across all of our business lines.”

The average age of cars on the road in Europe is increasing which benefits LKQ

“The average age of the car part in the UK is 7.8 years old, but it’s expanding. And on the continent, it’s 8.6 years old and expanding. So we think as these cars get older, it’s going to provide a nice tailwind.”

 

 

 

 

 

Ellie Mae (ELLI) CEO Jonathan Corr said his company continues to benefit from the increased regulation and compliance associated with mortgages

“Shortly after the close the Respa Tila Integrated Mortgage Disclosure rule became effective. We’ve received positive feedback on the comprehensive solutions support and training our team provided customers as they significantly reengineered their business processes to meet these new requirements. The services and education we provided through our readiness initiatives further distinguished Ellie Mae from our competitors and helped build our pipeline of expected customers. With these new regulations in effect and more expect to become over the next couple of years the need for an all-in-one mortgage solution and a team that excels in compliance is greater than ever, and we’re seeing that reflected in the sustained demand for Encompass.”

And they’ve now partnered with both Fannie Mae & Freddie Mac directly

“We’re excited to announce a strategic partnership with Freddie Mac to further integrate their risk management tools into Encompass. These integrations will allow Ellie Mae customers to more easily originate loans within Freddie Mac guideline. You’ll recall that we also announced the strategic partnership with Fannie Mae in July. By partnering with both GSEs we’re making the entire loan process even easier for our lenders from application to post-closing.”

Ellie Mae (ELLI) CEO Jonathan Corr discussed how he thinks about when to raise prices on his software

“Historically, we have raised prices on base fees and loan fees, over time as we’ve added more and more value to the platform. We don’t take a position, although obviously we have a big position in the market and a big market share. We don’t use that to just raise the prices based on our market pie, we really look to as we’re adding more value to the platform, raise those fees over time and over last four years the base fee has just gone from 50 to 60 to 70 it was up to 75 for new customers as of — earlier in 2015. And we’ll keep doing that and the idea is again adding greater value rather than using our pricing power, is our approach.”

 

 

 

Distribution Now (DNOW) CEO Robert Workman says many of their manufacturers of steel pipe are in distress after steel prices went below their 2009 low

“We have begun to see some bankruptcies from the pipe mills and further shutdowns. I would like to think that we are near the lows regarding steel prices, but the factors previously mentioned make it difficult to predict our manufacturers’ price bottom or their input costs.”

“Regarding the market environment, we are in a decline like no other I have experienced, not only in my 24 years in this business, but also as a kid growing up in the energy industry. I was born and raised in a small town in the Permian Basin where my parents owned an oilfield service company. I never thought the market could decline again as sharply and severely as it did in the 1980s while I watched my parents struggle to make payroll, but I have clearly been proven wrong. We continue to see rig counts being reduced, projects being canceled, budgets being slashed, and inventory being cannibalized.”

JS Notes: CHRW, MHFI, AET, L, SCTY, ICE, CHK, BUD, NOV, MKL

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.

 

C.H. Robinson (CHRW) CEO John Wiehoff says the company played a critical role to helping customers ship their goods effectively and efficiently given the West Coast port shutdown 

“Unlike intermodal, we do believe that the port delays on the West Coast probably helped our global forwarding business a little bit. We do know that several of our customers had difficult opportunities that we were able to help them with, and in some cases where customers were unable to get direct access to ocean capacity, we were able to help them with our capacity. So we do know of examples and believe that our global forwarding results probably were helped somewhat by the West Coast port delays.”

C.H. Robinson (CHRW) CEO John Wiehoff says he would like to do an acquisition in the intermodal or contract logistics space, the firm remains disciplined on finding the right candidate

“With all of the services that we offer, our belief is that our long-term competitive advantage is in the quality of our service and the quality of our people. And when we look at the acquisition opportunities, we want to make certain that we’re not disrupting any of that service capability or continuity and that we have the time and focus to make sure that we improve our competitive position in the marketplace while doing it. So while we’ve been looking at opportunities in both intermodal and contract logistics, we haven’t found what we thought was the right blend of value and integration capabilities to really improve our competitive positioning in the marketplace.”

C.H. Robinson (CHRW) CEO John Wiehoff says he still believes firm’s “asset light” business model is a differentiator versus many of its competitors

“In the longer run, we have belief that our third-party model of separating the capacity ownership and the capital investment from the customer service and go-to-market strategies can be a very effective way and the most effective way to serve a large part of the marketplace.”

But he conceeds more competitors have entered the space in the last few years

“As others continue to invest in that business model and more of the marketplace gets served by a third-party or a logistics-type business model, we think that that just reflects some of the secular changes in how we’re all competing. So the market is more competitive, we’re adapting to how things are changing and with regards to the business model that each of our competitors pursues around a blend of capital and logistics type stuff, we’ll just have to factor that in to how we sell and how we grow in the marketplace.”

Their customer base continues to be diversified 

“From an enterprise standpoint, we have a lot of customers that are around the 1% net revenue, and we’ve shared before from an enterprise standpoint that our top 100 customers are around a third of the business and that our top 300 or 400 customers make up around half of the business.  That’s part of that customer diversification that we feel is the strength of our business model.”

 

 

 

 

McGraw Hill Financial (MHFI) CEO Doug Peterson says the firm’s bond rating unit has benefited from a large number of corporations refinancing before the oncoming Federal Reserve rate hike

“If we turn to issuance, the recent trends in US and European issuance did benefit our businesses. First-quarter issuance in the US was quite strong across all sectors. Investment grade increased 24%.  In the US the improvement in corporate issuance was largely due to a 45% increase in industrials issuance.  Large debt financed M&A transactions also contributed to the lift in issuance.  In addition, a continued thirst for yield has enabled corporate issuers across the rating spectrum to tap the capital market, extending maturities at beneficial pricing and terms. High yield increased 39%, public finance was up 61% over an unusually weak first-quarter in 2014.”

Additionally, the firm remains competitively positioned with its S&P ETF business

“If we turn to the key business drivers, the ETF industry experienced record first quarter inflows of $97 billion.  We believe that once investors place funds into passive investment, these funds tend to stay in passive investment and then they shift between various ETFs based on asset allocation models and decisions.  ETF AUMs associated with our indices increased 22% to $810 billion versus the end of first-quarter 2014 with approximately three quarters of this growth coming from inflows.”

The company’s Platts commodity business continued to grow revenue during the quarter even though client interest in commodity investments remains muted

“During the quarter, Platts continued to grow revenue despite low commodity prices. As we have seen in recent quarters the newer areas of metals and agriculture had the highest revenue growth rate.  Global trading services revenue increased primarily due to license revenue from the steel index derivative activity at the Singapore Exchange.”

The firm continues to benefit from some of the large U.S. banks shedding non-core assets

“We are also encouraged by the facts that banks are probably struggling after the LIBOR scandals with their ability to continue to manage benchmarks inside of their businesses. They might be non-core or they might not really be a business that it makes a lot of sense for them to be in.”

 

 

 

 

Aetna (AET) CEO Mark Bertolini says value based medical care reimbursement as opposed to quantity based reimbursement is now a substantial portion of the business

“Value based contracting now represents approximately 30% of Aetna’s medical spend with a goal to achieve 75% by the end of the decade.”

The firm benefitted from having lower medical insurance claims than expected

“Our commercial medical benefit ratio was 77.4% for the quarter, an excellent result that benefited from higher premiums, moderate cost trends and strong prior year’s reserve development.”

 

 

 

 

Loews (L) CEO Jim Tisch says the company is positioned opportunistically to deploy its large cash balance

“I want to start today by looking at Loews $5.5 billion of cash and investments.  As we have said before, money doesn’t burn a hole in our pockets. While we acknowledge that cash can be a drag on Loews short term returns, we feel that having the flexibility to be opportunistic and not rely on financing markets has served our shareholders very well over the long term.”

Loews (L) CEO Jim Tisch says the market is priced for perfection and he is having a hard time finding undervalued assets

“I think that after all these years of low interest rates and quantitative easing, what we have is markets both fixed income and equity markets that are priced for perfection.  So, my guess is that for the time being businesses look like they’re priced too high for us.  Now one of the things that I always remember is that the world is cyclical. And it’s easy to lose sight of that because we’re now in – firmly in year six of an upcycle for equity prices.  But at some point in time something will happen, people will lose all the confidence that they have and my guess is that opportunities will present itself.  I’d rather be patient and get a good business at an attractive price rather than lose patience and buy a business at too higher price.”

Loews (L) CEO Jim Tisch says that one of it’s oil rig subsidiaries, Diamond Offshore, performed poorly during the quarter but still sees further downside for the industry ahead which he hopes will ultimately lead to a buying opportunity

“I think right now the conditions are bad enough for rig valuations to go down. The problem is they haven’t been bad enough for long enough.  In the next two, three or four quarters, I think we could see that some fifth and six generation rig assets become available for sale.

 

 

 

 

Solarcity (SCTY) Chief Technology Officer Peter Rive says solar installation costs are falling at a dramatic pace which is allowing solar energy distribution to be competitive to electric utilities

“On the residential side, our fully installed solar battery system costs are about one-third of what they were a year ago. We expect cost to decline further at manufacturing sales and over the next five to 10 years these costs reductions will make it feasible to deploy the battery by default with all of our solar power systems.”

Solarcity (SCTY) Chief Financial Officer Brad Buss says access to the capital markets for the solar capital markets is gaining momentum as investors becoming increasingly confident in the business model

“Every six months I only see our credit spread shrinking as we continue to perform as the paper continues to perform. So I am very happy where things are going from that perspective and then obviously on a cost spend of it. It is really is the cost of capital and the cost that’s really driving our success and where I think we will continue to outdistance and be cost efficient.”

 

 

 

 

 

Intercontinental Exchange (ICE) Chief Financial Officer Scott Hill says the company has seen increased volume in its oil contracts and is benefitting from increased volatility in the commodity sector

“This was enabled by an 11% increase in commodity revenues on the strength of our global oil markets.  Brent crude contact revenue  grew 51% year-to-year to a record $74 million. Brent continues to expand its lead as the global benchmark for pricing crude and refined oil products, with open interest up 15% from year-end to a record 4.4 million contracts. Notably, Brent open interest is up 49% from last March, with strong growth due to the ongoing shift of Brent in commodity indexes and longer-term secular trends.”

Intercontinental Exchange (ICE) CEO Jeff Sprecher says he expects to see continued growth in their Asian products over the coming years

Similarly, Asia’s markets are expanding due to greater demand for the type of products we currently offer through our Western exchanges and clearinghouses.  Our work there is foundational, and we will launch ICE Futures Singapore and ICE Clear Singapore this year. We’re seeing a good deal of interest in our newly announced Asian market products and for the increased access to central clearing.  The other interesting thing is there’s also a lot of capital moving towards Asia.  You see it in the demand right now for the linkage between the Hong Kong Exchange and the Shanghai Stock Exchange in equities.”

Intercontinental Exchange (ICE) CEO Jeff Sprecher is optimistic about taking over the LIBOR and gold price benchmark administration from what used to be a consortium of banks that set those price levels 

At ICE Benchmark Administration, in March, the ICE Swap Rate replaced the ISDAFIX, and we successfully launched the gold price with record-level participation. We’ve also undertaken market consultations for both LIBOR and the LBMA Gold Prices to evolve the best practices for determining these prices.”

Intercontinental Exchange (ICE) CEO Jeff Sprecher says the New York Stock Exchange continues to be the global leader in IPO’s and capital raising

The New York Stock Exchange continued to lead in global capital raising, with $50 billion in total proceeds raised in the first quarter. This is more than the next 2 largest exchanges combined. And we continue to attract companies of all sectors and market capitalizations because of our unique market model, combined with our unparalleled visibility and service.”

Intercontinental Exchange (ICE) CEO Jeff Sprecher focuses on profit per share of the company rather than market share

We have, in a very disciplined way, decided to not participate in options volume that does not earn a return for the company.  So the fact that we send uncompetitive business to our competitors is to not concern our shareholders.  And let’s let those competitors have the bragging rights if they have a lot of market share, but there isn’t a lot of income to go along with some of that business.”

 

 

 

Chesapeake Energy (CHK) Executive VP Chris Doyle says the firm is using big data techniques to analyze how to drill the most effective well

“The Operational Support Center (OSC) is manned by 100 industry experts, drilling superintendents, geosteerers, geologists, engineers, lease operators and analysts. OSC is Chesapeake’s central command center. It’s like NORAD in Oklahoma City. But more than just monitoring and supporting, the OSC links our teams executing out in the field with real-time data analytics, industrial analytics and tactical performance-enhancing adjustments.  y identifying optimal drilling parameters based on historical drilling data, every single well had a well plan based on what it took to drill the fastest, best, most competitive well. And any and all trouble time was analyzed, evaluated, all events in the past and so the OSC was able to forewarn our drilling organization, including the drillers on the rig floor, when they were either outside the optimal drilling window or they were headed for a potential issue. The result was optimized drilling performance and elimination of downtime events. That’s how you reduce cycle times from 26 days to 12 days.”

Chesapeake Energy (CHK) Chief Financial Officer Domenic Dell’osso stated that the company has reduced it’s rig count dramatically which will likely hurt oil rig manufacturers

“We started 2015 with around 70 rigs running, including a few spud rig, and averaged 54 rigs during the first quarter. Today, we’re running 26 rigs in total and we’re forecasting to drop to 14 rigs during the third quarter.”

 

 

 

 

Anheuser Busch Inbev (BUD) CEO Carlos Brito said that the Bud Light brand continues to struggle in its attempt to resonate with the U.S. consumer

“We estimate the Bud Light brand was down approximately 20 bps in terms of total market share.  We have a long way to go in stabilizing the share of Budweiser.”

Anheuser Busch Inbev (BUD) CEO Carlos Brito said the company continues to gain market share in China and its various brands now represent almost 1/5 of all beer consumed in China

“We estimate our market share in the quarter reached 18.5% when including our recent acquisitions.”

Anheuser Busch Inbev (BUD) CEO Carlos Brito on how he thinks about the craft brewing movement in the U.S.

“We’re adopting the strategy very clearly of having more regional relevant brands. So that’s the case when we joined with Goose Island, Blue Point, 10 Barrel, Elysian, but also developing our own like Shock Top, and also trying to focus in a few that could be nationally expanded.  In other markets, what we’re trying to do is get the U.S. learnings over to other markets and try to be, of course, ahead of the curve, especially markets where we lead, like Brazil.”

Anheuser Busch Inbev (BUD) CEO Carlos Brito on how they are incorporating social media into their marketing

Social media continues to grow within our mix of media spend between social and traditional. We are learning every day by connecting more with consumers and making our contents relevant. Of course, it’s a very fast paced type interaction with consumers, and we don’t intend to get everything right all the time.”

Anheuser Busch Inbev (BUD) CEO Carlos Brito expects the company to compete effectively in the Vietnamese beer market

So in terms of Vietnam, yes, we’re building a brewery there. We expect to ship beer in May. So this month in Vietnam. We’re very excited about Vietnam. It’s a country, again, demographics, weather, beer culture, 90 million people, a very extensive or a very big high-end segment. And that’s where we want to play with Budweiser, Stella and Corona, also Hoegaarden. So very exciting market, we’re very committed to it, and learning from our experience in China to do a lot of what we did with Budweiser in China in Vietnam.”

 

 

 

 

National Oilwell Varco (NOV) CEO Clay Williams says the pace of the decline in the oil rig count is unprecedented in history

The rate of decline of active rigs, most acute across North America is breathtaking and unequaled in prior downturns. NOV saw activities and orders slow in just about all areas of our business and all of our units are experiencing pricing pressure.”

And the company is under serious pricing pressure to reduce their selling price to customers

“We are also under pricing pressure and requests to cancel work, which we are vigorously opposing. We are seeking to structure discounts around volume-related rebates tied to payments and expanded product purchases, in effect picking our points, to try and win greater share, defend volumes, and improve absorption in our plants. We don’t want our customers to get out of the habit of buying from us, to maximize our market position when the inevitable recovery comes.  We closed three facilities within the unit during the first quarter and continued to reduce costs within our supply chain. North America was hit hardest, but the Middle East and other international markets are more stable.”

 

 

 

 

Markel (MKL) CFO Anne Waleski says the firm remains disciplined on price and will not write insurance in which it cannot earn a reasonable rate of return

“Market conditions remain very competitive, consistent with our historical practices we will not rate business when we believe prevailing market rates will not support our underwriting profit targets.”

Marke (MKL) President Rich Crowley says the reinsurance sector remains ultra competitive with capital as a result of low interest rates

“In the reinsurance segment we saw pressure in terms and rates during the January 1 renewal process. As the year moves forward, while still extremely competitive it does appear that the decrease in rates and terms has slowed to some extent.  In summary and we stated it many times, we’re not going to chase premium when we feel the rates are inadequate. We continue to reinforce this message with our underwriting teams as is reflected in our first quarter’s gross premium numbers.”

Markel (MKL) Chief Investment Officer Tom Gaynor says even though they are earning very little on their short duration bond portfolio due to the low interest rate environment, they think today’s economic and financial climate warrants conservatism

“I’m sure that if we were really smart and clever we could find some alternative investment approach that would increase the yield on our short term portfolio from essentially nothing to something more than that. We’re not that clever or smart, so we won’t try to perform that sort of alchemy. We’ve seen enough of those experiments end badly to dissuade us from going down that path.”

Anheuser Busch InBev 1Q15 Earnings Call Notes

Craft strategy is regional

” in terms of crafts or specialties, the strategy in different places, of course, in different countries are slightly different because they are at different stages of development. In the U.S., for example, the segment is more developed than in other countries, of course. And here, we’re adopting the strategy very clearly of having more regional relevant brands.”

We’re outperforming in Brazil because we made the decision not to get caught up in the gloomy mood

“our guys in Brazil, which has been through tough years before, at the beginning of this year, they decided they were not going to be part of the bad mood or whatever that was in some other industries in Brazil. They decided that we would focus on the things we could control. We felt we had good plans in our hands. So we decided to keep our head down, focus on execution and out-execute competition in the marketplace, at least have that intent. I like to remind people that despite the bad mood or some poor macro indicators, the fundamentals in Brazil remain the same. So demographics, the fact that LDA is growing at a healthy pace, it’ll be a plus. The weather, the beer culture, the regional differences, middle class, all those things are there.”

Bud Light didn’t have support during the summer because it advertised so heavily with Football

“you have to remember that Bud Light for many years didn’t have much support as a brand during the summer because most of its investments was tied to sports and NFL, which in the summer doesn’t really take place. So it was a very low support season for Bud Light. Last year, we decided to — as you saw, we upped our investments in the U.S., one of the reasons being we decided to support Bud Light during the summer. And the results were quite impressive. So this year, we’re doing that again. So that’s one thing.”

Brand fragmentation is a reality

“brand fragmentation is a reality. It has to be managed, though. One of the ways to manage it is with technology. So for example, by increasing the use of smartphones with our sales reps, which is something we do, and using more algorithms, you can be better at your offer being tailored by a customer when you have a bigger portfolio. You also have to be smarter about how you split your market money and sales money in support of those brands. So we’re developing better models to check return on investment on both traditional and social media. So we are sharper on how to allocate resources behind brands”

You have to have salepeople who can help customers with assortments

“you also have to have better training of our people, so they can talk to customers and also try to tell customers and get insights to customers on how they should build their assortment because what we see these days is that some customers that went too wild on assortment lost business on a relative basis. And they keep asking themselves, “Why, if I’m offering more assortment, which is what consumers seem to want, how come I’m losing share of business to my competitor, my neighbor?” And what we — the insights we bring is that there is a point at which more assortment becomes like overwhelming to consumers. ‘

Some craft brews don’t turn very quickly creates challenges for the retailer that we need to help solve

“if you have some of those craft brands, for example, in the U.S., we’ve been proven. Data proves that some of them should sit outside of the cold box because they turn 1 six pack per month. And that, of course, doesn’t compare to a Bud Light that turns 6 packs in a day, right? So those are the things that with increased fragmentation, we need to do — we need to be smart about technology in our production, sales and distribution facilities. ‘