Reckitt Benckiser Group’s (RBGPF) Q3 2017

Rakesh Kapoor – CEO and Executive Director

The cyber attack in June to impact full year fuidance

“On June 27th, many companies, some 30 companies as we understand it, including RB, were impacted by an unprecedented and sophisticated global cyberattack….To give you a measure of the scale, nearly 500 systems and 2,000 servers, which are reliant upon certain operating systems, were affected and rendered inoperable…., I think we have at this stage, we have rolled everything into the full year guidance of 2% topline growth rate, and we believe that some of the big impacts of cyber, which is going to flow into Q3, will mean that the acceleration of growth will be more back end weighted by that simple logic.”

Pricing pressure in Europe and emerging markets

“We are certainly in very volatile and unpredictable markets…. let’s start with Europe, the pricing environment is tough because you can see the amount of pressure there is in the retail space…there is a flow into this competitive pricing across European markets….So you see some of those normal inflationary markets which were building pricing in the past are not so doing so at this point in time. And clearly, in emerging markets, where, again, we would normally expect material inflation and pricing, you are seeing that market like Brazil and India for very different reasons, actually are also very volatile. So I would say that when you add it all together, the pricing environment is tougher.”

Procter & Gamble (PG) Q3 2017

Jon R. Moeller

In sum

“In the U.S., our largest and most profitable market, categories in which we compete, grew roughly 2% in the first half but were up less than a point in the March quarter. Several factors contributed to this dynamic including delayed tax returns, higher gas prices, bad weather, and what appears to be a drawdown of at-home inventory during the quarter….Foreign exchange created a three point headwind on third quarter earnings growth”

Challenges ahead unlikely to change

“Now looking forward, the external challenges we face: slow market growth, geopolitical and economic instability, foreign exchange impacts from a stronger U.S. dollar, rising commodity costs and retail trade transformation are all very real and aren’t likely to do meaningfully better in the near-term. ”


Reduced retail inventory in first quarter not systemic

“Retail inventory reductions had nearly a full point impact on third quarter organic sales growth…We think that the reduction in retail inventory levels was driven primarily by the consumer pattern that…occurred in January and February, and we have seen a rebuild of some of those inventory levels as the consumer came back a little bit more strongly in March. April frankly is slowing a little bit. I don’t know what that means. And you know, you have to realize we’re talking about pretty small changes on the margins. They have a big impact on our results in any one quarter, but it’s hard to look  at that and understand therefore what the future looks like. There’s nothing systemic that makes intellectual sense which would indicate why inventories should contract dramatically. Both retailers and ourselves still have significant out-of-stock opportunities to address. The last thing a retailer wants is a customer, once they’ve finally attracted her or him to their store, to not find the product that they want to buy….I expect that volatility to continue but I don’t see a systemic trend one way or the other.”

Increased online sales

“…organic sales grew 30% online in the quarter. It’s now 5% of our business, maybe it’s about a $3 billion business. It’s primarily focused, but not exclusively, in the U.S., China, and in Northeast Asia, particularly Korea..There has been a lot of talk though about…what happens to big brands, businesses like P&G in an e-commerce context, and is that good or bad? And we actually believe that it’s good, “

Side note: A new way to check product performance

“In deprivation testing, we ask consumers to score the product they currently use, say out of 100 points. We replace the product they’re currently using, typically a competitive product, with the product we’re testing and have consumers use it for several weeks. Then we give them back their original product and ask them to score it again. If their score of the original product has not changed appreciably after use of the new product, we’ve not made a significant difference in expectation or delight and therefore wouldn’t rate the new product as irresistibly superior. If they rate their old product significantly lower after use of the new product, we know the new product has elevated the level of performance they expect in the category.”

Kraft Heinz (KHC) 3Q16 Earnings Call Notes

KHC plans to modernize its meat business like it did its cheese business

“What we’re trying to do, we’re trying to get two things at once. One, modernize the manufacturing capability and the technology to be able to make the products of the future rather than the products of the past. And two, try to get a cost advantage compared to anyone in the marketplace and we believe we are in a strong position to do so. It’s just going to take a little bit of time for us to complete that project, and once we’re out of it, no different to the model we did in cheese when we modernized and reduced our costs and we became world-class, cost effective in it. The meat business would be in a similar situation.” George Zoghbi – The Kraft Heinz Co.


Investment is across the board, not just in meat

“It’s a very good question. Yes, there are. Actually, meat, while meat has taken the lion’s share of our footprint investment, there are a number of other manufacturing sites where we are making investments. As a matter of fact, about 15% of our active lines are affected between transfers, decommissioning old lines and installing new ones. What we’re also doing, we are outsourcing a number of non-core low volume SKUs across the board, and we are in-sourcing some higher volume SKUs, again across the board, not exclusive to meat. And we’re also reducing the number of warehouses and distribution centers. So all together, it’s a very large investment across the entire network. The meat happened to have the larger portion of it, but we’re doing it across the board.”  George Zoghbi – The Kraft Heinz Co.


Data analytics are being used to determine promotional activity

“What we’re finding though, it’s not just the promotional activities or the sales generated from promotional activities, rather than the return that we get from promotional activity. We have become, through data analytics, lot more competent in the ability to select which promotion and which category with which account. And we’re finding very, very different returns. And that, by itself, is allowing us to actually do more with that.” George Zoghbi – The Kraft Heinz Co.

Unilever (UN) Q3 2016 Earnings Call

Unilever (UN) CFO Graeme Pitkethly said global growth remains anemic with Latin America being a notable laggard

“Overall, it is fair to say that the economic fundamentals remain weak and volatile. Since the start of the year, we’ve been flagging that we expect market conditions in Latin America to worsen. And that’s what we have been seeing. Just as in past cycles when currency is weaken the cost of living goes up faster than income and people either cut back on purchases or they down trade. Latin American markets are growing in local currencies through pricing. But consumer demand measured by market volume contracted by 10% in Brazil last quarter and fell by 7% in Argentina.”

Volume growth down in Asia

“In Asia, we’ve had a few quarters of very low price growth as commodity costs have been benign. This is now turning. Palm oil is up almost 70 percentage points over the last nine months and Brent crude is back over $50 per barrel. In categories like skin cleansing and laundry, this means a rebalancing of the growth mix with more pricing and less volume as the increases are put through. All these mean that for the moment aggregate market volumes in emerging countries are now slightly down on the same period last year.”

Benefitting from the trend of urbanization

“In Foods, our biggest opportunity is to develop the emerging markets. Already a €5 billion business for us that has been growing at more than 7%. Demand for our categories will only continue to increase as populations become more urban with more kitchens and with more women moving into paid employment. We are particularly well placed to meet this demand with the broad distribution reach we can command with our portfolio.”

Their Chinese e-commerce business has tripled in the last 2 years

“In China, sales were flat in the first half year but were slightly down in the third quarter. The market channel structure is shifting rapidly to e-commerce. Two years ago, this was just 3% of our sales, today it’s over 10%. By cutting out intermediaries like wholesalers this shift results in a structural reduction in trade stock levels. And this is likely to continue for some time to come.”

Not expecting the market conditions in the 4th quarter to look any different

“We are not expecting improvement in market conditions in the fourth quarter and indeed markets are likely to remain volatile and hence challenging for a while yet.”

Unilever’s (UL) Q3 2016 Earnings Call

Graeme Pitkethly – CFO & Executive Director

On the overall economic fundamentals

“ Overall, it is fair to say that the economic fundamentals remain weak and volatile.”

Deflation in Europe, Inflation expected in the UK

“Turning to Europe. There is still price deflation across most of the region. But in the UK which is about 5% of our global turnover, prices should start to increase to recover higher cost of imported materials from the weaker sterling. ”

Normalcy returning in Pricing

“Elsewhere pricing has been low or negative for the past few years as a result of the benign commodity cost environment in hard currencies. As commodities have stabilized and start to turn up, we are seeing a return to more normal price inflation or in the case of Europe reduce deflation in some markets. However, the price increases are landing against the background of weak consumer demand, dampening volumes and categories like skin cleansing and laundry in Asia.”

No expectations for improved market conditions

“We are not expecting improvement in market conditions in the fourth quarter and indeed markets are likely to remain volatile and hence challenging for a while yet.”

The impact of currencies

“…commodity cycles will come and go of course. But it really is the combination of commodity and currency that give rise to the cost landscape in an individual market…Just to give you sense of the scale of that combination of currency and underlying commodity prices for this year. There has been about €600 million of foreign exchange impact on our commodity days during the course of this year. So far 75% in five countries alone, Argentina, Brazil, South Africa, Mexico and India.”

Price increases to offset rising costs are normal

“We are taking price increases in the UK and that is a normal devaluation-led cycle… But as I just said we care deeply about customer affordability of our brands. And as a consequence the increases we are taking are substantially less than we would need to cover the impact on our profitability….I should say the price increases have landed with most of our customers and in the particular situation that has been covered so much in the press this morning. We are confident that this situation will be resolved pretty quickly.”

La-Z-Boy (LZB) 1Q17 Earnings Call Notes

Despite possibility of some cannibalization, opening more stores in certain markets will grow sales and profitibility

“There are a number of markets where we need more stores based on the demographics of that particular market. When we have a store to satisfy that demand, the existing store or stores in the market may lose some sales but net-net, the market overall is performing better and contributing to sales and profitability at both the wholesale and the retail level.” Kurt Darrow – Chairman, President and CEO


Marketing is not just increasing promotional activity, it’s about using different channels to reach the consumer

“Well, I answer that question very similarly all the time when the industry’s on sale 365 days a year, when there’s free delivery, when there’s 70% off merchandise, I don’t think the promotional activity can get much stronger. A lot of it is about how you find the customer today. So the traditional newsprint and TV, which was so prevalent in the industry, now all of us are doing marketing in 10 or 15 different channels and I think that’s the thing that we need to continue to work on is, where does our customer want to be reached and how do we most effectively reach her?” Kurt Darrow – Chairman, President and CEO


This quarter was down for the industry as a whole, not just LZB

“Well, I wish I could give you a – I wish we could pinpoint exactly why, because we’re seeing the slowdown which we don’t think is going to continue forever but we’re seeing it across all channels, across all geography. So it’s not like the West Coast was strong and the East Coast was poor, anything like that…So it was a myriad of things and it was with a multitude of customers, and we’re digging into it. But there’s no silver bullet that shows up that this is our core issue.” Kurt Darrow – Chairman, President and CEO


Canadian acquisitions took advantage of a downturn

“And we worked on what is a fair arrangement given the downturn in his business and he was agreeable to that. And we’re thrilled to have this business.” Kurt Darrow – Chairman, President and CEO

J.M. Smucker (SJM) 1Q17 Earnings Call Notes

SJM expects top line weakness to be short-term and has not changed long-term guidance

“In closing, we anticipate the challenges to revenue growth in certain categories will persist in the near-term, as reflected in our revived sales guidance. However, our long-term expectations remain intact. As Mark indicated, we’re executing on plans and initiatives to improve top line trends, while investing in our capabilities to enhance future growth. At the same time, we’re pleased with the earnings and cash flow performance of the company.” Mark Belgya – Vice Chair and Chief Financial Officer


Pricing may be an option should coffee bean price rise

“So if we had to look at pricing changes, if that happened it would be much later in the year… And given the fact that we’ve gone down twice over the last 12 months, I think, we’ve got room if we had to absorb some of that even if we had to do pricing” Steven Oakland – Vice Chair and President, U.S. Food and Beverage


Weakness in pet food segment causes SJM to focus on stabilizing the segment before focusing on growth again

“I just think it’s just going to take us a little longer to stabilize the business. We – it’s just – I think just a little more time to get that stabilization. And once we stabilize the business then we can get it growing again. I just think our performance the first quarter was not what we expected. And based on a combination of both Kibbles and Meow Mix and the softness in the first quarter is what really drove us to be more conservative on the back-half of the year.” Barry Dunaway – President, Pet Food and Pet Snacks


In anticipation of very favorable commodity tailwinds in the pet food segment, SJM is keeping an eye on competitor prices

“As far as pricing begins, we have to front and center competitive with our – the other two primary competitors that we compete with. So as a third player in that category we’ll continue just to be competitive with the other two primary competitors. So that will be our focus. We’ll manage our commodities in our Pet business just like we do in our other businesses, and that will be part of our pricing strategy.”  Mark Smucker – President and Chief Executive Officer


Despite a possible premiumization trend in pet foods, SJM intends to stay in all categories because it sees the broader segment as a long-term opportunity

“Our snack brands cut across all the segments as well and our great brands… We think for long-term, it’s definitely the right business for us to be in. So we’re going to leverage the scale and capabilities of broader $8 billion company that continue to grow the pet business.” Barry Dunaway – President, Pet Food and Pet Snacks


Unilever (UN) CEO Paul Polman Interview

Unilever (UN) CEO Paul Polman on how to inspire a team to rally around a mission

“In many companies there are cost savings programs, and frankly they are not very motivating because, you know, you do them and then they come back at you with another one, you never see the money back, and your group’s budget ultimately gets cut again.  It’s about the worst thing you can imagine.  In 1979, my first job in the company was about cost savings, it was like a scene out of the movie with ‘Office Space.’  In our company, just to give you an example, 800 million people go to bed everyday not knowing if they’re going to wake up the next day due to hunger and not having access to food.  Yet, we have the audacity to waste 30% of our food in the value chain.  If we have a program in the company of attacking our food waste, people are not attacking this as a cost savings program, they’re attacking this because people go to bed hungry and I can tell you that that unlocks an energy that I’ve never seen anywhere else.  When people work on any of our brands that we have, our bar soap brand, we’re not in the business of selling bar soap, we’re in the business of helping a child reach the age of 5 by teaching them how to do hand washing and promoting hygiene.  Our toilet cleaner brand, not a pleasant topic to talk toilet cleaners, but their mission is to fight open defecation, over a billion people in this world don’t have access to toilets and with all the hygiene risks associated with that.  People are fighting to work on a brand like that because they want to make a difference.  So if you can link everything you do in a company, which is my basic philosophy, to explain how you’re making a positive impact on society, than you have a reason for being.  And then society welcomes you and because of this, more people want to work with you, our growth has accelerated, and our share price has done extremely well.”

Unilever (UN) CEO Paul Polman on the meaning of life
“What is a meaningful life?  The main thing in life is leaving this world a little bit better than you found it.  And if you say in that process, you positively influence some other people, that’s already a good start to living a meaningful life.  What is true leadership?  True leadership is putting the interest of others ahead of your own, knowing very well that by doing so, your own true interests will be better served.  It’s a very selfish thing.  I work a lot with the blind and deaf in Africa for different reasons, but by working with these people, I become very humbled and I actually get more satisfaction by what we do to find the solution than you probably provide to these people in the first place.  It’s a very selfish thing, but leadership is all about giving and knowing, that by doing so, you are better off in the end yourself.  If you come at that point in your career, you will have a very balanced life.”