Chicago Bridge & Iron (CBI) Q1 2016 Earnings Call

Chicago Bridge & Iron (CBI) CEO Philip Asherman said customers aren’t canceling already existing energy infrastructure projects but are delaying future commitments 

 
Now year-to-date, we’ve already seen improvement in new work bookings early in the second quarter, countering what is at a continuing delay and final capital decision most of our markets. We’re not seeing cancellations but the continuing weakness in commodity prices is delaying commitments.”
A minority of their construction projects product a majority of the company’s profits
 
I think, again, although we focus some on the fabrication jobs, in their entirety, they’re fairly – they’re much smaller in terms of how they move the needle, as you could imagine, but certainly important. So it’s always important to remember, as you so readily point out, that we’re kind of an 80/20 company where 20% of our backlog drives about 80% of our profitability. So obviously, how these jobs are performing, particularly Freeport and Cameron, are absolutely critical. They’re progressing well. We’re right on plan for the completion dates.”
You’ve got to be selective about the counter parties you’re working with
 
While there’s instability in the oil and gas prices, companies like ours are going to be have to be very careful and very selective in terms of where they are working and what kind of terms they are willing to accept.  And it’s not just a fixed price versus reimbursable because reimbursable is subject to margin compression and fixed price is a very competitive environment out there as well. So, I think all companies in our industry – as well as other suppliers, I mean it affects us just like it affects GE. So, all the suppliers are feeling this pressure and are being very careful I think in terms of what they commit to going forward.”
The percentage of coal fired power plants will continue to decrease 
 
As we all know, not long ago, coal was accounted for over 40% of our baseload capacity in the U.S.  Today, that number is probably closer to 30% and all projections have a going to 20% over the next five years. So that baseload has to get replaced with something and I think the common belief is majority of that replacement is going to come from natural gas with the balance coming from alternative sources.”

Miscellaneous Earnings Call Notes

PepsiCo (PEP) Indra K. Nooyi on Q1 2016 Results

It’s a difficult environment indeed

“Most of the developed world outside the United States is grappling with slow growth. GDP growth in developing and emerging markets is also challenged with many D&E markets experiencing significant political unrest and high unemployment. Key energy-producing countries are dealing with significant budgetary gaps; and high levels of local inflation in many of these markets are eroding disposable income and dampening consumer spending. It’s a difficult environment indeed.”

Hugh F. Johnston – Vice Chairman, Chief Financial Officer & EVP

Incrementally less optimistic in South America and Eastern Europe

“I think the two places where we’re probably incrementally less optimistic, number one is South America, not Mexico. Mexico, I think, we’re quite positive on, but the balance of South America obviously is a challenge. And then number two is Eastern Europe. Eastern Europe is obviously continuing to be challenged from a GDP perspective and that flows through to disposable income and therefore to consumer spending on our products. The balance I think were probably roughly in line with where we’ve been.””


Hasbro’s (HAS) CEO Brian Goldner on Q1 2016 Results

Seeing impact from ongoing economic challenges

“While consumer demand remains robust, we are beginning to see an impact on some retailers from the ongoing economic challenges.”

Retailers are excited about toy category

“I would say this is the second year of strong growth year-to-date; we are seeing high single digit growth rates, both in developed economies like U.S. and also throughout Europe. Retailers are very excited about the category, as we continue to have more story driven brands, more integrated play brands and more innovation in the category. Overall, POS was very strong, as I said, but as we’ve noted before, online POS was even stronger, and many additional retailers that have been historically brick retailers are doing a very good job in omni-channel.”


Morgan Stanley (MS) James Patrick Gorman on Q1 2016 Results

Seeing a better turn in markets now

“where are we now? Though it’s impossible to predict the future, we’re seeing a slightly better turn in markets, certainly, in comparison to what was evident at the start of the first quarter, leading into the early days of February. The M&A pipeline is strong and some green shoots suggest the equity underwriting calendar may open up. The S&P level at the end of the first quarter will help with asset pricing in our Wealth Management business, where we continue to grow our lending book and see flows into managed accounts. ”


Brinker International’s (EAT) CEO Wyman Roberts on Q3 2016 Results

QSR is taking share with promotions

“I mean there’s just such a strong value proposition being played out there. And we don’t think that that’s sustainable or it’s a long term issue, I think it’s more of those are limited time offers, but they also are interesting that the QSR category is kind of showing us that they’re rethinking how they deliver value and their value propositions ”


The Coca-Cola (KO) Ahmet Muhtar Kent on Q1 2016 Results

James Quincey – President & Chief Operating Officer

The degree to which our industry was affected by the slowdown in China was worse than expected

“In China, we are adjusting our plans to reflect these realities. China’s macro environment was challenging in 2015, and that continued to be so in the first quarter. While the economic slowdown is not new, the degree to which the NARTD industry was impacted this past quarter was worse than expected.”


Chicago Bridge & Iron NV (CBI) Philip K. Asherman on Q1 2016

Customers aren’t canceling work, just delaying

“I would have to say if there’s customer impact in today’s environment, it has to do with just again a delay in making financial commitments and we’ve seen that. However, we haven’t seen any cancellations in current backlog or in prospective work. So, that’s good. It just seems to be pushing out a little further.”


Knight Transportation (KNX) CEO Dave Jackson on Q1 2016 Results

April has been better y/y

“if I were to look into April thus far, we would say what we have seen so far in April has been more of the same where we’re seen our trucks run a little bit better in terms of miles’ year-over-year and we’re seeing — so therefore we’re seeing decent volumes on a year-over-year basis.”


PulteGroup (PHM) Richard J. Dugas, Jr. on Q1 2016 Results

No V-shaped rebound

“We have believed since the outset of this housing recovery that it would be more gradual than the V-shaped rebound, typical of most housing cycles. Our thesis is unchanged as we expect an extended recovery will continue to unfold for the next several years supported by improving economy, favorable demographics, years of relative under-building and a supportive mortgage rate environment.”

Inventory of available homes remains tight

“The inventory of homes available for sale remains tight in most of our markets; and at least on the new home side it will likely remain that way for a while given the limited supply of finished lots available. ”


Fifth Third Bancorp (FITB) Gregory D. Carmichael

Would grow investment portfolio at slightly higher rates

“So, frankly, if rates were to stay at these pretty low levels, you could expect from us just to reinvest cash flows because the entry points don’t look real good. But if rates were to have a little bit of a sell-up here and present more opportunity, then you would expect our investment portfolio to grow in line with earning assets. But I don’t think you’ll see a lot of movement in the book one way or the other throughout 2016.”


Cohen & Steers’ (CNS) CEO Bob Steers on Q1 2016 Results

The asset management industry is no longer a growth industry

“The simplest takeaway from the letter is that the asset management industry in its current form is no longer a growth industry for a majority of traditional active asset managers. Overcapacity, chronically poor investment performance, high fees, competition from passive strategies, growing barriers to entry for access to distribution and the rapidly growing cost of regulatory compliance, taken together will challenge future growth and profitability for most legacy investment managers. However, we’re convinced that asset managers who are focused on a limited number of historically inefficient markets, with strong brands and track records of consistent outperformance, will be among the relatively small number of big winners.”

Real estate is under-allocated in retirement plans but not among institutional investors

“I would say that large institutions are not under-allocated to real assets. The largest endowments in sovereign wealth funds have had a 10% to 30% allocation to real-assets for some time. However, most of those allocations have been executed to private equity strategies. Where the under-allocation is more pronounced is both in the wealth and what I would call the retirement channel, the fine contribution channel which as you know we’ve been adding to our DCIO team because there’s virtually no representation in the 401(k) market in real assets.”


Reliance Steel & Aluminum (RS) Gregg Mollins on Q1 2016

Rising steel prices for the first time in over a year thanks to positive trade case filings

“for the first time in well over a year, we’ve begun to experience rising metal pricing for carbon steel products as well as stainless steel flat-rolled products. This pricing improvement, which accelerated towards the end of first quarter, was mainly result of the recent trade case filings by U.S. steel producers. We continued to support these trade actions which seem to be having a positive impact on reducing the overall level of imports in the United States marketplace and on metal prices.”

Not seeing anyone build inventory in anticipation of higher prices

“You have to realize that our average order size is about $1,600, so we are dealing with a lot of small to mid-size job shops. That’s probably the vast majority of our businesses is not with large OEMs, and so therefore they are really not buying in advance. We have not seen or heard from our guys in the field that anybody is building inventory in anticipation of higher prices. So I’d have to say basically its business as usual with our customer base and we don’t see anybody really trying to build inventories ahead of price increases.”


Miscellaneous Earnings Call Notes 11.12.15

Chicago Bridge & Iron NV (CBI) Philip K. Asherman on Q3 2015 Results

Technology group turning around after slow start to this year

“In our Technology Group, after a slow start this year due to economic headwinds in China and a strong dollar elsewhere, the technology market is turning around.”


The Kraft Heinz (KHC) Bernardo Vieira Hees on Q3 2015 Results

ZBB is more than just a one time event

“The way we like to think ZBB, to be honest, is much less as a one-time event and much more as a systematic approach of doing business. It’s really fighting for the penny in the terms of capturing all the opportunities that allows us to be in a position that you can reinvest more behind working dollars, behind our people, behind our products, behind our brands and so on. So it’s not only a program, but it is really a business tool that we apply in different ways.”


USA Trucks’ (USAK) CEO Tom Glaser on Q3 2015 Results

Environment has been ok, holding up well

“I think it’s holding up well, to be honest with you. The volume hasn’t been exciting like it was last year but it’s consistent, it’s okay volume. As far as pricing, and probably not going to be as aggressive as some of our competitors in saying they are looking at 3% to 5%. We’re looking at probably 2% to 3%, and that’s pretty aggressive given the fact that our last two years”


AP Moeller-Maersk’s (AMKAF) CEO Nils Andersen on Q3 2015 Results

Container shipping rates have deteriorated in 2H

“Essentially, what is basically driving the change in our forecast is that the fundamentals in the container shipping have deteriorated in the second half of Q3; the rates have dropped quite significantly. So on average, the rates are or were 20% or 19.3% to be exact I believe, below last year’s and that became worse during the quarter. So September and October did not give any hopes for an immediate recovery and that’s why we adjusted downwards.’

Capacity has grown faster than demand

“So the challenge in the container business is not new. We’re struggling with all capacity; capacity has grown approximately 9% compared to Q3 last year and the market has only grown 1%. I think the low growth has taken everybody by surprise. At least it was below what we expected and definitely did not meet our hopes for the peak season.”


ArcelorMittal’s (MT) CEO Lakshmi Mittal on Q3 2015 Results

Expecting global steel consumption to decline by 1.5-2%

“This shortfall in volumes reflects the exceptionally challenging market we have faced so far in the second-half of this year. With the exception of Europe, all major markets have seen apparent demand contract in 2015. We are now forecasting global apparent steel consumption to decline by between 1.5% up to 2% this year. China, the ongoing weakness in real estate and machinery end-markets has caused a contraction of real demand by around 3% up to 4% this year.”

Chinese production is sticky but they have no structural cost advantage

“Chinese steel production is sticky, so exports have increased. Here the volumes, price, excluding China have declined to less than $300 per tonne. But this is not a profitable business model for Chinese mills as they have no structural cost advantages. This is highlighted by Sesa reports that mills lost an average of $35 per tonne in the third quarter.”

Customers are holding off on buying while prices are falling

“My view is that this is unsustainable. In order to arrest these losses, steel prices in China need to increase, either as a result of improved demand or as a result of production curtailment. The weak international price environment is eroding prices in our core domestic markets, also prompting customers to hold off on their order and their inventories down, so apparent demand has been running below real demand. And expected stabilization of prices will bring steel buyers back to the table. There is already some indication of this happening at the margin. ”


Hertz Global Holdings (HTZ) John P. Tague on Q3 2015 Results

Rise sharing impact has been less than “logical worriers” might expect

“As it relates to ride-sharing, we’ll talk a little bit about that next week. I think if you look at the highest concentration of ride-sharing markets, New York, San Francisco, and LA, in New York, you’d see an impact or at least what appears to be an impact. I think it would be hard in Los Angeles and San Francisco, given the overall industry trends, to draw a conclusion that there has been much of an impact, although obviously growth would have been higher for the industry without it. So, look, I think the impact continues to be less than the logical worriers might expect.”


The Priceline Group (PCLN) Darren Richard Huston on Q3 2015 Results

Travel is an inherently non-local business

“The case of China is a good reminder that travel is inherently a non-local business. It’s a global scale combined with win-win partnerships like we have with Ctrip, are critical for our mutual success.”

We’re doing a lot more business with Facebook. But Goog still the leader in intent based marketing

“we have been doing more and more business with Facebook. Most of it though is in the category or re-messaging or re-targeting. It’s not really in the big sweet spot which is intent-based marketing. That’s really what search gives you is intent-based marketing. Somebody types in, I want a hotel in New York, and then you are responding to that request. But the folks at Facebook very much understand this. They’re working to try to win that kind of businesses. It’s direct response business, it’s a big prize for any marketing channel, and we’re also trying to work with other large audience versus in Silicon Valley to try to get out that Holy Grail of intent-based marketing.”


Dean Foods (DF) Gregg A. Tanner on Q3 2015 Results

Milk supply is expanding faster than demand

“The EU is a leading contributor as their milk production has increased year-over-year by more than 2.5%, largely due to the elimination of the milk quotas at the end of March. This is particularly meaningful when one considers that the overall size of the European dairy production is approximately seven times larger than that of New Zealand and over one-and-a-half times larger than that of the U.S. Moreover, we see China’s milk supply expanding faster than their weaker consumption and a continuation of the Russian import ban. In the U.S., we continue to see ongoing domestic supply momentum due to a slightly larger herd and productivity growth more than offsetting the impact of the continued drought in California. These supply and demand factors should contribute to a relatively benign dairy environment over the short term.”

The health of the dairy category is as good as it’s been

“The health of the dairy category is probably as good as it’s been in my career at Dean Foods and while lower priced milk in terms of both cost and prices at retail is helping support that, I also believe that the abatement of certain secular headwinds, which we discussed in depth last quarter, is contributing. ”


D.R. Horton (DHI) David V. Auld on Q4 2015 Results

No question labor is tight

“Stephen, David. No question; labor is tight. The reports coming out of other builders – I mean, we’re not immune to it. I think we have mitigated it by having the best operating team in the industry. And the relationships that our people have with vendors, suppliers put us at the front of the line. So it flows back to the time with a company, time in a market.”

Controlling costs is really about people

“You guys are going to get tired of me saying this, but it really is the people. We got the – one of the toughest markets, toughest weather conditions, toughest labor markets, is our Dallas-Fort Worth area. And those two guys, because they have been in the market for 20-plus years, because they have a direct relationship with the vendors and suppliers, make a call and get people to show up. And you just can’t put a – you can’t quantify that and put it into a model.”

We still think there’s legs left in this cycle

“I would say we still think that there’s legs left in this cycle. I mean, we’re not even close to what is a historical demand. So we’re trying to be very judicious and value the capital we have.”


The WhiteWave Foods (WWAV) Gregg L. Engles on Q3 2015 Results

Almond milk sales growth has slowed but is still strong

“These are category growths that are very strong, they’re certainly not what we saw last year where we saw growth, where we still had the expansion of Almond, but it has been mid single-digits over the past several quarters, and we now have a category here that’s approaching $1.4 billion in overall retail sales.”

New distribution channel creates new manufacturing challenges

“I will add to that Ken, that this move into the immediately consumable beverage in the away-from-home market requires some slightly different manufacturing capabilities than we have. So we’re going to have build those – up those products, really want to be aseptic, so they can be distributed in a non-refrigerated way. You can make it work – refrigerated, but it’s somewhat more challenging.”


Energizer Holdings (ENR) Alan R. Hoskins on Q4 2015 Results

Seeing signs of stabilization in the battery category

“First, we continue to see signs of stabilization within the battery category. Value and volumes were essentially flat over the latest 12 weeks and 52 weeks. This is an improvement over the trends we’ve seen in prior years”

TV is still the best ROI for us on advertising dollars

“We were able to understand the return we get on each of those particular mediums. I can tell you that today, given both the effectiveness of our copy, the strength of our brand and the fact that we have global icons, TV is still the best ROI for us. But you will see us over time continue to migrate to shifts in mix of how we approach consumers and shoppers depending on what it is we’re launching, the marketing news that we’re bringing to the market and, again, continued ROI rates on each of those individual investments depending on what’s in the mix. ”


JS Earnings Call Notes 7.26.2015 – UNP, CFX, CNI, CLB, CBI

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.

 

Union Pacific (UNP) CEO Lance Fritz said the shipment of coal remains a weak spot for railroads

“Solid core pricing gains were not enough to overcome a significant decrease in demand. Total volumes in the second quarter were down 6%, led by a sharp decline in coal. Industrial products and agricultural products also posted significant volume decreases.”

Union Pacific (UNP) CFO Rob Knight said the company was able to raise prices above inflation

“A 4% core price increase was a positive contributor to freight revenue in the quarter.  Core pricing continued at levels that are above inflation and reflects the value proposition that we offer in the marketplace. Of the 4% this quarter, just under a half percent can be attributed to the benefit of the legacy business we renewed earlier this year, and this includes both the 2015 and 2016 legacy contract renewals.”

Union Pacific (UNP) CFO Rob Knight said the company will increase its buyback when its share price is weak

“To your point on the share buyback, if you look at the first half of this year compared to last year’s first half, we’re up about 10% in terms of our share buyback, and we will continue to be opportunistic, and at the prices that we’re seeing right now, we think those are nice entry points. So we will – we are certainly, as we always have, buy more when it’s down, less when it’s up.”

Union Pacific (UNP) Vice President Eric Butler discussed their primary competitor, Burlington Northern Railroad, and competing with trucks

“Not only is the Burlington a tough competitor, but we compete with other railroads and other markets. We also compete with trucks. Trucks are also a tough competitor, and lower fuel prices are helping them.  It’s our goal to have the best service and value proposition in the industry. If we do that, we think we’ll be able to price appropriately for our value.  Clearly lower fuel prices will incrementally make truckers more competitive, and clearly as the shale play has gone down, there appears to be what we think is a temporary alleviation with some of the driver shortages or a temporary reduction, I should say. There still are long-term driver shortages out there, but some of the move of labor from that to truck drivers has alleviated some of the shortage. So trucks continue to be a competitive option.”

Union Pacific (UNP) Vice President Eric Butler thinks the U.S. is now a relatively low cost place of production

But long term, North America is still kind of a strong, productive, secure, relatively low cost place of production. It’s also a huge consumption market. Those things will continue to drive us being in the sweet spot for our transportation services, whether it’s export or import. “

 

 

 

 

Colfax (CFX) CEO Steve Simms says he wants to focus the company more on the profitable after-market

Despite the lower short-term CapEx cycle in several of our end markets, one of our key growth initiatives is to capture higher aftermarket content from our growing installed base. And we’ve seen encouraging traction in several areas of our business.

And he sees the global economy continuing to decelerate 

“As we look at it, I think that we have seen an industry which has softened further beyond what we anticipated in quarter one and we see that softening occurring really on a global basis. The softening that we have seen is driven by really two factors, one, virtually any end market that’s tied to oil and gas, the oil pipeline work, offshore oil wells, OSV, we’ve seen significant further deterioration in those trends and accelerated in to second quarter.”

 

 

 

 

 

Canadian National Railway (CNI) CEO Claude Mongeau said the firm is adjusting efficiently to lower volume

“We’re recalibrating our resources to drive efficiency. As Jim will describe to you, all of our core metrics are in line or better than last year, and that’s very important because that’s all we can do when the environment is a little tougher from a volume standpoint. It’s how fast and how efficient you are at reacting that makes the difference.  We responded quickly to the lower workload by decreasing dwell, cutting back on active cars, rightsizing our locomotive, increasing our end-to-end velocity; key that we didn’t concentrate on one piece but end-to-end and nice to see that again.”

But the pricing of their services held up well  

“Solid same-store pricing came in at 3.9%.  In short, the deceleration in carload and fuel surcharge revenue was wholly offset by solid pricing and by gain in foreign exchange.”

While “crude-by-rail” has slowed dramatically for all rails during the quarter, many of the rails are including Canadian National Railway are seeing a pickup in natural gas by rail shipments

Industry-wide, crude by rail economics were challenged by narrowing crude spread and by improved pipeline supply/demand balance. NGL volume grew nicely, reflecting ongoing opportunity to sell stranded Alberta NGL as merchant liquid in tank car into better-paying market than leaving it in the natural gas.

Canadian National Railway (CNI) CFO Luc Jobin said the company said a quarterly performance record in a tough volume environment

Our operating ratio was 56.4%, a record level for a second quarter. This represents a 320 basis points improvement over last year.  Our Q2 operating ratio was a record all-time, not just for CN, but for the industry.”

Canadian National Railway (CNI) Chief Marketing Officer Jean-Jacques Ruest discussed how the company thinks about pricing

So, we’re into a long term and we like compounding effect of inflation plus pricing. And you look at our chart for the last 10 years that Janet has, it shows the effort and the mindset of compounding effect. And so, we try to stay away from the commodity type approach of commoditizing rail freight as you would tend sometime to do in export coal or crude by rail because of the downside of that midterm, right? So what we have, 3% to 4% above inflation, steady Eddie. That’s the game plan for 2015 and 2016.”

Canadian National Railway (CNI) Chief Marketing Officer Jean-Jacques Ruest discussed how they incentivize their sales force to optimize for profitability

By the way, our salespeople, one-third of their sales bonus is related to pricing, so it’s not just about top-line revenue. It’s one-third top-line revenue, one-third pricing and one-third other initiative and that’s the balance that we like to have going forward.

Canadian National Railway (CNI) Chief Marketing Officer Jean-Jacques Ruest discussed why the firm is not willing to cut pricing on their “crude by rail” shipments in order to gain volume

“Regarding crude by rail pricing, there’s always some pressure on pricing from customers. And the crude by rail is an example where the spread is all over the map. The crude producers are under financial distress. Of course, they want something better. And these are big volume that sometime they’re more like the mirage because they’re big, but you never quite get there. As you get closer to them, you find that there was really no lake, it’s just another pile of sand.”

Canadian National Railway (CNI) CEO Claude Mongeau acknowledged the Canadian economy has slowed materially in the first half of the year

“The general economy in Canada has been more sluggish than what we’ve seen in the U.S.  I think what Canada is facing, is people probably understated the impact of the energy complex cutback on capital expenditure.  But we don’t see Canada in a recession. We see Canada in a technical slowdown that happened to take place for the first six months of the year.”

Canadian National Railway (CNI) Chief Marketing Officer Jean-Jacques Ruest discussed the cost competitiveness of trucking vs railroads

So, the cheaper energy makes the trucking a little more competitive versus rail. The spread – the cost between the two is obviously narrowing. Then you get back down to the basic of how many drivers there is being the number one bottleneck of our growth for the trucking side.  I think the future of intermodal long haul is extremely viable.”

 

 

 

 

 

Core Labs (CLB) CEO David Demshur sees a V-shaped recovery

“Core sees the V-shape recovery, led by higher commodity prices and followed by worldwide drilling activities, starting to increase in early 2016.”

Core Labs (CLB) Chief Accounting Officer Chris Hill said they have increased their share buyback to such a pace that their shareholders equity could go negative

Depending on our share buyback activity in the coming quarter, we may actually see book equity go to zero, below zero.  Clearly, book equity does not represent the solvency of a company. And, we note that several S&P 500 Companies who generate significant levels of free cash, also have negative book equity, because, they return that free cash to their owners, just as we have done. We do not have debt or contracts compliance requirements, to report positive net worth.”

Core Labs (CLB) CEO David Demshur discussed the notion that oil companies are re-directing capital expenditures to producing more from discoveries already made rather than exploring for new oil

“If you look at some of the comments made by the major operating companies in the deepwater, Conoco being the most recent, they talked about creating value from discoveries that have already been made.  So, as opposed to looking at CapEx for drilling exploratory wells, CapEx is now being focused on development. We’re seeing a lot of the CapEx dollars that were going for exploration which as you know from Core, really is not of a high interest to us, going right into our wheelhouse in the development of these discoveries that have been made, over the last 3 years to 5 years.”

 

 

 

 

Chicago Bridge & Iron (CBI) CFO Michael Taff said the company took advantage of favorable debt markets and borrowed heavily to buyback shares 

“Following the close of the quarter, we entered into financing agreements to amend or extend our existing credit facilities and establish additional financing capacity based on our assessment of an attractive lending environment, the ongoing growth in our end markets, and our strategic initiatives.  These changes strengthen our ability to execute our long-term backlog, return capital to shareholders, and pursue additional growth initiatives while maintaining adequate funds for our working capital needs. Moreover this is an important strategic step towards an efficient and optimal capital structure, allowing us to extend the maturities of our total debt and positioning us to implement a formal capital allocation policy in the near future that should be favorable to our shareholders. On that topic, as Phil mentioned, since the close of the second quarter, we have repurchased approximately 4 million shares of our stock.”
Chicago Bridge & Iron (CBI) CEO Phil Asherman said international turbulence is delaying some of their customers spending plans 
“Russia and China are a big part of our markets for many of our technologies. And of course with the foreign exchange and the ruble to the dollar as well as the sluggishness in the Chinese economy, many of those opportunities that we saw in the first half of the year seem to be shifting to the right.”
Chicago Bridge & Iron (CBI) CEO Phil Asherman said the international competitive environment is tougher than the domestic environment 
“We have a number of European and Japanese firms competing for that as well. So it’s a little bit tougher environment. You probably see more pricing pressure on that. So we’re very cautious on those jobs. We’re very selective in terms of locations. Most of work that we see are particularly in the Gulf region as opposed to other parts of the Middle East. So we’re seeing those. But again, there’s no indication that those won’t go forward.”
Chicago Bridge & Iron (CBI) CEO Phil Asherman is optimistic about winning construction projects outside of the U.S. 
“So we see some interesting opportunities in the Middle East and elsewhere. Again, East Africa I can’t talk enough about the impact it’s going to have on us long-term, but certainly we will see, I think some more LNG coming in this next year with some of the projects I mentioned as well as some additional combined cycle awards as well as everything outside the mix of work that we have, or the mix of businesses we have.”

 

Chicago Bridge and Iron 2Q15 Earnings Call Notes

A sample of new awards for the quarter

“New awards totaled $2.8 billion for the quarter and included a diverse mix of size, location, and end markets. Significant awards included a confidential client combined cycle gas turbine power project in the U.S. for $600 million, several maintenance services awards in North and South America, engineered products in Russia and Mexico, and in the U.S. scope increases for our large nuclear projects, as well as a variety of technology and fabrication awards globally. This mix underscores the benefits of our diversified offerings versus pure EPC models.”

Continue to believe that our stock is a great value

“We’re also pleased to report that we have repurchased over 4 million shares in the past few weeks, almost half the stock used for the Shaw transaction. And we’ll continue to be in the market with the expectation to spend up to our $200 million cap within the week. We continue to believe that our stock is a great value,”

Long term backlogs got boost from project with Anadarko in Mozambique

“our long-term backlog projections got a real boost this quarter when we were selected by Anadarko Petroleum Corporation along with our joint venture partners Chiyoda Corporation and Saipem to design and construct process and ancillary infrastructure associated with their LNG development program in Mozambique. In the fourth quarter, we expect to book around $3 billion, which represents our share of the initial phase of the project.”

Technology segment has been most impacted by volatile oil and gas prices

“when we first talked about where our company may be impacted by volatile oil and gas prices, we talked about Technology as certainly, in some parts of the world, being subjected to that softness. And that’s what we’ve seen. Russia and China are a big part of our markets for many of our technologies. And of course with the foreign exchange and the ruble to the dollar as well as the sluggishness in the Chinese economy, many of those opportunities that we saw in the first half of the year seem to be shifting to – are shifting to the right.”

JS Notes: AMZN, CBI, GOOG, CFX, MJN, GGG, HSY, SBUX, LAZ, VRSN

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

 

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

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

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

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

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

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

 

 

 

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

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

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

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

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

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

 

 

 

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

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

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

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

 

 

 

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

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

 

 

 

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

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

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

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

 

 

 

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

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

 

 

 

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

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

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

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

 

 

 

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

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

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

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

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

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

 

 

 

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

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

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

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

 

 

 

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

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

Chicago Bridge and Iron 3Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Backlog is 75% US compared to only 20% 3 years ago

“The mix of new work was predominately in the U.S., which now represents over 75% of our backlog compared with 50% last year and less than 20% only 3 years ago.”

Example projects

“More specifically, significant awards during the quarter included front-end engineering and design for an LNG export terminal in North America, additional defined scope work for our LNG export terminals on the Gulf Coast, technology and engineering awards for polypropylene, gasification units and on-purpose polypropylene in a variety of locations, storage awards in the Middle East and Asia, decommissioning and demolition work in North America and a variety of pipe fabrication contracts throughout the globe.”

I power, continue to show acceleration in pace of gas to replace coal

“Turning to Power. Markets in the United States continued to show acceleration in the pace of gas-fired projects to replace coal plant retirements, renewed interest in nuclear generation as well as nuclear decommissioning work. Outside the United States, we continue to see opportunities in new nuclear build-outs in a range of geographies, but little near-term activity.’

Positive outlook for the government side

“I think we have a positive outlook for the government side. We shouldn’t see any retreat from current levels, so I think that run rate should continue into the fourth quarter. We don’t see anything that would tell us otherwise. ”