Loews 2Q17 Earnings Call Notes

James S. Tisch – Loews Corp.

We haven’t been buying back shares because the market is high even though relative value is good

“As I’m sure you know, we are well aware of Loews’ sum of the parts valuation. In fact, it’s something that I track constantly. Judging by the increase in our stock price over the past nine months, it certainly seems that we should have been more active repurchasing our stock. What’s held us back is that while Loews almost only seems relatively cheap and even more so now, given the widening discount, the market still seems very high to us. We’ve been nervous about the equity market for a while and we’ve been struggling to reconcile our view of the market’s absolute level with the relative value of Loews’ stock. As you know we take a long-term view on share repurchases. We look for opportunities to repurchase Loews’ stock when both its relative and absolute values are attractive. We know that if the stock market declines, our share price will likely move in the same direction. So, given our nervousness about the stock market, we’ve been waiting for a time to repurchase shares at a more advantageous price. Some of you may think we maybe too cautious. You may be right, only time will tell. Historically though, we have shown that once we are comfortable buying back shares, we buy back a lot of them.”

Underinvestment in oil exploration will take its toll

“Our guess is that the underinvestment in oil exploration and production over the past three years is going to start to take its toll as projects that were completed before that period start to come online and start to deplete. And it’s our view that in the coming years there will be a significant need for the offshore oil that has provided up to 30% of the worldwide oil supply. So I would say that we feel that right now, even though you didn’t ask about it, we feel that right now we’re bouncing along at the bottom with respect to offshore oil drilling. But we believe that there are, as I said, a few greenshoots, and we think that in the coming months and years, there will be more.”

The fact is that there is a lot of complacency

“we think about absolute value versus relative value. I don’t think that Loews in any way is overpriced versus the stock market. But the stock market trading at 17x, 18x, or 19x earnings, the fact that interest rates are still as low as they are when we’re seeing economic growth of 2.5%. The fact that there is a lot of complacency in all markets, not just the equity markets, leads me and I’m pleased to say a significant number of other market commentators, to the view that this complacency that we’re seeing in the markets can lead to a decline in equity values.”

General Electric 2Q17 Earnings Call Notes

Jeff Immelt – Chairman and CEO


” Let me give you a few themes that describe the environment. U.S. is stable on a slow growth rate, global growth is accelerating, and resource markets remain challenging.”

Bigger picture view of the company

“Let’s take a bigger picture view of the Company. We have created a very strong position in power, healthcare, transport and resources, big industrial segments. We don’t like the current on a gas cycle but our business is significantly improved and will prosper as the cycle recovers. We are gaining share in most of our markets with $327 billion of backlog. We have a leadership position in the industrial internet and additive manufacturing, two growth areas and drivers of industrial productivity.”

No benefit to being overly bullish about prospects for natural gas industry

“I think Andrew, if you look at a micro study like IEA, which or EPE [ph] study of the industry things like that. These would show slow but steady increases in the evolution around natural gas really for the next 20 years, right, in terms of additions to capacity and things like that. And you can triangulate that against whatever your assumptions might be on accelerating penetration of solar, reduction of nuclear. There is a whole series of things over the next five years or 10 years or 20 years. But I think what’s clear is with the ongoing outlook for the cost of natural gas, gas turbans and gas power generation are going to be one of the staples of the future of the industry. Now, does that mean 50 gigawatts, instead of 40 gigawatts in the short-term, I don’t think any of are that smart. You’ve got places like Saudi Arabia that used to be the biggest gas turbine market that have been slower over the last couple of years; they’re going to need capacity; there is — what does China do, vis-à-vis their environmental issue. There is probably five markets that matter that would make it more on the upside, but I actually think there is a fit for the gas market going forward. That being said, I don’t think there is benefit to Jeff or John or to Russell now to be overly bullish about the near-term kind of dynamics around the industry. But at the same time, I think somewhere in the 40ish area is pretty much where I would think about the industry going forward.”

John Flannery – Next Chairman and CEO

Doing a full review and will get back to investors in the fall

“As you know, my official start date is August 1st. And we’d indicated earlier that I’d be doing a full review of the Company and be back to investors in the fall with my views. We are on track with this process. I am in the middle of a series of deep dives into each of the businesses, looking at everything you would expect. What is the market outlook, where can we grow, where can we improve margins, how is the cash conversion, what returns are we getting on investment? For example, next week, we will be visiting our power and aviation businesses. We are also taking a hard look at our corporate spending, going through a zero base budget exercise on all of our functions and making sure 100% of our GE store outlays are accretive to the overall results of the Company.”

GE at JP Morgan Conference Notes

Richard Laxer – GE Capital President & CEO

Running a year ahead of schedule in financial wind down

“So, first on the highlights, from GE Capital Exit Plan April, 2015, we are basically a year ahead of plan, 93% of our transactions are closed. Last June we got out of third supervision, so we lost specific designation. We expect to get out of regulations in Europe in the first half of the year. Now, we’ve got some trailing activities that I’ll talk about that we need to wind down.”

US economy feels strong

“Yeah, avoid the political commentary, I think when you look at the different markets, the U.S. economy feels strong and you see that and we see that in terms of the activity that’s coming across. In Europe things were better particularly in Germany and Spain driving Europe and then secondly I think actually we’ve seen some improvement in France and Italy, so I think it’s market-by-market, but we are seeing in general strong economy that’s driving equipment sale.”

Eaton 4Q16 Earnings Call Notes

Richard H. Fearon

Impact of border adjustment tax would not be significant

“But let me just say this: Without knowing the exact policy changes, if the policy that came in was something along the lines of a border adjustment tax, we believe the impact on us would not be significant, since we are balanced if you total up our imports. And we’ve recently been looking in some detail at this just to make sure we fully understand the numbers. But we’re balanced when you total up the imports versus our direct and indirect exports. When I say indirect, we make a lot of parts that go into other assemblies, other people’s products that are then exported. And so we believe the way it would come out, we would likely be able to get an offset for all of those exports. So we should be neutral.”

Craig Arnold

Not expecting a V shaped recovery in hydraulics

“we’re very comfortable saying that we think we’ll see very slight growth in Hydraulics during the course of the year. But at this point, we’re not forecasting kind of the V-shaped recoveries that we have historically seen in this business. You never know. When these markets turn, they tend to turn hard and fast, but we’re not yet in a position to call that turn.”

Optimism but haven’t seen the turn yet

“And we do think, as we take a look at the oil and gas assumption for 2017, yes, rig counts have increased nicely, and that’s a good indicator, but we’ve not yet seen a significant turn in orders. And we think in our harsh and hazardous business that we talked about in Electrical Systems and Services, we think it’s another down year. We could be wrong. We hope we’re wrong, that a lot of the enthusiasm today that’s built into a number of expectations, we hope that translates into orders and sales, but we’ve just not yet seen it. ”

Commodity prices have been very volatile, not sure whether we can pass them into the marketplace yet

“What we are really dealing with, we think, today is a lot of speculation built into the expectations of global growth, and hence the demand for commodities or the price of commodities have really been fluctuating quite significantly. Just to give you, as a point of quantification, post the U.S. elections, our commodity prices on the basket of commodities that Eaton acquires are up 7%, making this issue obviously a bit more difficult to manage and to pass on quickly in the marketplace. We’re seeing also large swings in volatility. To give you maybe another couple of data points that will maybe be helpful, bar steel prices over the last 12 months have been as low as $185 a ton, and they hit a high at the end of the year of $303 a ton. And today, they’re $265 a ton. Copper prices over the last 30 days have been as low as $2.49 a pound. Today they’re $2.73 a pound. So a 10% change over a 30-day period. And so this period of volatility is really going to have to work its way through the system before we can really understand exactly where commodity prices are going to settle out and where we can put plans in place to either offset them or pass it on in the marketplace.”

Automotive still doing very well

“I’d say today, the global auto markets around the world continue to do extremely well. Even if we got the January numbers for the U.S. market and down from the fourth quarter kind of record levels but still north of 17 million cars and about flat with prior year, which is largely what our forecast is for North America. So we think North America continues to run at flat at very high levels. We think Europe is maybe some modest slight growth, and we think China continues to be kind of a standout performer. I mean, China really posted very large numbers during the course of 2016, and we think it moderates a bit, but we think it’s still positive.”

For the most part we’ve seen commodity costs go up over the last 90 days

” most of the commodities, certainly the two that you mentioned, are up, whether it’s bar steel or flat steel or hot roller beam. So really it’s almost across the board where we’ve seen commodity inflation creep into the system. And so it’s – I mean, there are a few commodities, like silver and the like, that have perhaps come down slightly. But, for the most part, we’ve seen most of our commodity input costs go up over the last 90 days or so.”

Improvement in hydraulics was not just a December surge

“Yeah, in our case, Andy, the simple – short answer to the question is no, it was not a December surge, as we also have heard others articulate, spending budgets at the end of the year. We really did see the strength largely play out throughout the quarter. And so far in January, I’d say that we’re encouraged that some of the strength that we’ve seen in Q4 has continued.”

United Technologies 4Q16 Earnings Call Notes

United Technologies’ (UTX) CEO Greg Hayes Q4 2016 Results

Tax reform is biggest item we’re focused on this year

“Okay, thanks Carroll. So overall 2016 no drama, at the end of the day. Lot of challenges throughout the year but good execution by the entire team as a result we were able to meet all the commitments that we laid out for the year, so that’s 2016. Let’s focus now on 2017 for just a second. Lot of challenges ahead of us. I think all of us recognized we’ve got a new administration in Washington which has an agenda to be friendly to business and I think, we’re anxious to see how all of that will play out certainly tax reform is the biggest single item that we’re focused on this year.”

FX continues to be an issue

“On top of that, however there is always the issue of FX. We recall we’ve pegged the Euro at 1.05 to the $1, we’re little bit better than that today. I think it’s 107 but FX remains a watch item for the year especially with the impacts of tax reform potentially impacting the exchange rates. We are also of course closely watching the economic environments on both China and Europe our second and third largest markets. Also of course what happens with BREXIT and also the elections in France and Germany will create some uncertainty as we move through the year.”

Looks like we’re going to be following the Brady blueprint for tax reform

“Sure, Lucy. Well first of all, we obviously have been following the Trump administration closely in terms of what you’re talking about on tax reform and it looks like we’re going to be following the Chairman Brady blueprint out of Ways of Means which would lower the top rate to somewhere around 20% eliminate the deductibility of interest but also provide for immediate expensing of capital, also provide for a territorial system which is really good news for us because as you know we’ve got about $6 billion of cash sitting overseas that we can’t bring back to the US, very cost effectively, so we look at this as a huge opportunity to again drive growth in the business and growth here in the US by being able to bring cash back. There is still some question mark around border adjustability and we are net exporter, so if that were to remain in place probably a positive for us, but again there is a lot of moving pieces in tax reform and we will be actively involved in the debate. Again the good news is, if it does happen this year it’s going to be a net positive for the US economy.”

Expect tax reform to be a net positive

“Well I would like to say it’s going to be a net positive but as you know Lucy, the devil is always in the detail around taxes. Our reflective tax rate is about 28%, if they drop the rate to 20% or even 15% obviously that would be helpful. Lose the deductibility on interest which you know we’ve got about $1 billion of interest expense a year so that would hurt. Again it will all be what happens in the transition rules too and how do you transition in the lower rate, how do you transition in the border adjustability. But net-net I think it’s positive even if our effective tax rate doesn’t drop all the way down to 20% just having access to foreign in cash to territorial system is a very, very positive net for the US economy.”

Berkshire Hathaway (BRK) CEO Warren Buffett Interview

Berkshire Hathaway (BRK) CEO Warren Buffett on American productivity

“If you don’t improve productivity, you don’t go anyplace. And fortunately, we have a system — we’re in the early innings of it, but we have a system where lots and lots and lots of people who are very smart are thinking about ways to both come up with new products, and to increase productivity and that’s the way we move ahead. And America is wonderfully positioned for that. Aside from the problem of weapons of mass destruction, which unfortunately is going to be with us forever, aside from that, the luckiest person born in history is the baby being born in the United States today.”

Berkshire Hathaway (BRK) CEO Warren Buffett is bearish on newspapers still

“Newspapers are going to go downhill. Most newspapers, the transition to the internet so far hasn’t worked in digital. The revenues don’t come in. There are a couple of exceptions for national newspapers — The Wall Street Journal and The New York Times are in a different category. That doesn’t mean it necessarily works brilliantly for them, but they are a different business than a local newspaper. But local newspapers continue to decline at a very significant rate. And even with the economy improving, circulation goes down, advertising goes down, and it goes down in prosperous cities, it goes down in areas that are having urban troubles, it goes down in small towns – that’s what amazes me. A town of 10 or 20,000, where there’s no local TV station obviously, and really there’s nothing on the internet that tells you what’s going on in a town like that, but the circulation just goes down every month. And when circulation goes down, advertising is gonna go down, and what used to be a virtuous circle turns into a vicious circle. I still love newspapers! You’re talking to the last guy in the world. Someday you’ll come out and interview me, and you’ll see a guy with a landline phone, reading a print newspaper.”


Source: August 11th, 2016 – Politico Newspaper Interview

General Electric (GE) CEO Jeff Immelt Interview

General Electric (GE) CEO Jeff Immelt on whether the company company was too big when he took over the helm as CEO

“Most companies are both a fit of core competency and the times they’re in. In the 80s and 90s, the economy was kinder. There was no inflation, G.D.P. growth was 3 or 4 percent. The economy was leveraging. If I would go out today and say, “Guess what? I have a great idea. We’re going to buy a media company,” I’d get shot. Or if I were to say to you, “Hey, look, I was really great at picking jet engines and picking TV shows”—that’s complete bull, really. In the world of 4 percent G.D.P. growth you could do it. In a world of 2 percent G.D.P. growth, you really have to be good at everything you do.”

General Electric (GE) CEO Jeff Immelt on the company’s focus on software

“Picture a jet engine. A jet engine in a Boeing 737 probably has 30 to 50 sensors on it. It’s taking multiple readings on a continuous basis—fuel efficiency, wear of the blade, heat of the engine, altitude. We today have the ability to take that data and go to an airline and say, “If you did these three things, your fuel performance could improve by 1 percent. If you take your planes off differently in Chicago than Dubai, you can get more cycles on that plane between the times when you have to take it in the repair shop.” That sounds mundane, but its worth tens of millions of dollars. The experience of buying books on Amazon is now coming to the industrial world.  That throws all of the advances of data and software from the consumer world into the industrial world. We look at that and say, “Why not us?” We think we can be a viable competitor against software companies because we have the assets.”

They now want all their college graduate hires to be able to code

“Manufacturing is important for the company today. It’ll be important for the company in the future. Those are people making $65,000, $70,000 a year. Those jobs in our world will continue to grow, but they won’t grow as quickly. The new middle-class job is a programmer, a data scientist. A lot of people who work in factories have college degrees, but many of them have associates degrees. I think it’s much harder to find a really great middle-class job that somebody can find with an associate’s degree today. Those are few and far between. Everybody who joins G.E. is going to learn to code. We hire 4,000 to 5,000 college grads every year, and whether they join in finance or I.T. or marketing, they’re going to code.”

General Electric (GE) CEO Jeff Immelt on what he skills he wants to see in his successor

“In some ways we are working on succession all the time. You don’t become C.E.O. for what you know, you become C.E.O. for how fast we think you can learn. There’s a whole bunch of things that go into it. How fast can they learn? How resilient are they? How competitive are they? And those are things that really put you in good stead.”



Source: Vanity Fair Interview August 3, 2016 http://www.vanityfair.com/news/2016/08/the-competitor-amazon-never-saw-coming 

Loews (L) Q2 Earnings Call

Loews (L) CEO Jim Tisch said weakness in the oil rig equipment market hampered results

“First, let’s turn to Diamond Offshore. I want to start out by addressing the proverbial elephant in the room. Diamond’s results this quarter were severely impacted by the rig impairment charges David mentioned earlier in the call. Keep in mind that the severe downturn in the offshore drilling market, combined with the difficulty in predicting the timing and degree of this inevitable recovery precipitated these impairments. It’s important to note however, that Diamond is scrapping only two of the eight rigs being impaired today. Having been in the offshore drilling business for nearly 30 years and the supertanker business for seven years prior to that, I’ve seen cyclical downturns before. I’m hopeful that in this case, and similar to prior cases, the rigs being stacked today will work again and earn an attractive rate of return in the future.”

Loews (L) CEO Jim Tisch believes we are under-investing in finding new sources of petroleum

“As I’ve said before, if there is a silver lining to this oil price downturn, it’s that the lack of drilling activity today will only help speed the recovery of oil prices tomorrow. The effects of the current underinvestment in oil drilling are already starting to be evident, and will play out in the coming years. Demand for oil is still growing and remains quite healthy. While today the situation may seem bleak, we’ve seen this movie’s prequel before and remember well how it ended.”

Loews (L) CFO Dave Edelson said energy customers are canceling existing contracts regarding their deepwater oil rigs

“The offshore drilling market continues to be extremely challenged with limited new drilling opportunities and an oversupply of rigs. In addition, customers are choosing not to extend current contracts and in some cases, seeking ways to early terminate existing contracts.”

Writing down the value of their rigs

“Diamond assessed its rig fleet for impairment at the end of the quarter and in light of the difficult market environment and Diamond management’s evolving view of the length and severity of the downturn, eight rigs have been written down to substantially lower net book values. These rigs are a mix of third generation, fourth generation and fifth generation semi-submersibles. Four of the eight rigs being impaired are stacked, two are still on contract and two are being scrapped.”

Loews 2Q16 Earnings Call Notes

Loews (L) James S. Tisch on Q2 2016 Results

One silver lining of the oil downturn is that lack of activity will speed recovery

“Diamond’s innovative strategies, along with its financial strength and conservative capital management should enable the company to emerge from this turbulent market cycle stronger than any of its competitors. As I’ve said before, if there is a silver lining to this oil price downturn, it’s that the lack of drilling activity today will only help speed the recovery of oil prices tomorrow. The effects of the current underinvestment in oil drilling are already starting to be evident, and will play out in the coming years. Demand for oil is still growing and remains quite healthy.”

We did not anticipate that the decline in offshore would be as bad as it has been

” When we bought back the shares of Diamond, I think that, we did not anticipate that the decline in offshore drilling would be as bad as it has been. We didn’t anticipate that oil prices would go into the $20s, we didn’t anticipate that oil companies would cut back their capital budget so dramatically. And we certainly didn’t anticipate that utilization today of drilling rigs would be at the levels that they’re at. So, I think we were surprised and I daresay that the rest of the market was surprised by what’s happened in the offshore drilling industry. But now, I think, we recognized very clearly exactly where we are in that business.”

My primary job is as capital allocator

“when I think about what I do, the primary – I think my primary job is that of capital allocator. We allocate capital to Loews share repurchases to purchases of subsidiary shares. We allocate capital from time-to-time to our subsidiaries to the extent that they might need capital from Loews and it represents a good return to Loews. And then, we also allocate capital to – less often, but in bigger amounts to repurchase – to purchase, sorry, new businesses. So, these are just the types of capital allocation issues that we have the competition for our capital. And from my perspective and the Loews Corporation perspective, we are constantly making judgments every day, what is the best place for our capital, and the times when we bought CNA shares and the times when we bought Diamond shares, at those points in time, without the benefit of rearview mirror today, we decided to purchase those shares.”

Oil companies are dramatically underinvesting. Oil prices will be significantly higher in 2018 than my previous forecasts

” I think oil companies in the world in general are dramatically under-investing in oil production capacity, I think that – I think, I believe, I know that depletion is real that oil wells do not continue producing forever, some of them decline at 70% a year, some of them decline at 5% a year, but all of them decline. And to the extent that the world is not reinvesting in new productive capacity, those declines in production will be felt in the coming years. Combined with that even though some say that oil demand growth is sluggish, oil demand is still continuing to increase every year generally on the order by about 1 million barrels a day or about 1%. So, as you add a few years together of underinvestment, combined with continued demand growth, I think you can see that in a few years time, prices will have to go up in order to provide the investment returns needed by oil companies in order to make the investment in more productive capacity. And I think that in two years’ time, that will certainly happen. I recall – I – in prior calls, I’ve said that $65 was my fearless forecast, for year-end 2018 oil, I think there is a good chance that oil will be significantly higher than that on the order of, say, $10 a barrel.”

Roper Technologies (ROP) Q2 2016 Earnings Call

Roper Technologies (ROP) CEO Brian Jellison said they saw massive weakness in the oil and gas sector

“We had really terrific growth in medical and in software, and water, we’ll talk more about that within those respective segments. But the oil and gas declines were actually worse than we expected. We went into the year thinking that we’d be down maybe in the high-teens to 20%. In the quarter, we were down 25%, but in the upstream areas, we were down dramatically more, 44%, 51%, 52% numbers that really were amazing for us.”

In the process of potentially acquiring more software companies

“We’ve got a very active pipeline. And really most of the numerous acquisitions that we’re involved with now in late stages are application software companies and it’s likely we’ll be doing something soon.”

Roper Technologies (ROP) CEO Brian Jellison commented on the general mergers and acquisitions environment

“There are as many things available in the acquisition market as I’ve ever seen. We have looked at billions of dollars of transactions this year, and we’re directly engaged with a couple now that have a higher likelihood of closing, I think than the ones that we were looking at earlier in the year because of the quality of the business. Lot of the people that are running these private companies aren’t interested in becoming public. They would much rather join our firm – at the public equity in our firm that and not have the quarterly calls and all of the things that you have to do with investors and banks. So we remain a very attractive home for people. And I think that the acquisitions we’ve made in the last couple of years give us a wider variety of things that we can look at. Application software has a huge number of potential verticals and there are lot of niches within them that the largest people that are, roll-up people aren’t going to be interested in, so it’s still a very favorable hunting ground for us.”

Roper Technologies (ROP) CEO Brian Jellison said oil & gas companies are driving all their equipment in to the ground before they even think about buying new equipment

“This year, all year along anybody who’s in the upstream business would know that people are cannibalizing what they’ve got, nobody is buying anything, rental fleets are in distress. But there’re an increasing number of signals that would say that the cannibalization of all the stacked horsepower business out there, at some point will turn into new orders in revenue. We just have no idea where it will be.”