Delta Air Lines’ (DAL) Q3 2017 Earnings Call

Ed Bastian – CEO

Recovered quickly from hurricane irma

“We generates 6% topline growth, a 16% operating margin and $1.6 billion of operating cash flow while facing pressure from rising fuel prices and $120 million headwind from Hurricane Irma. We rebounded quickly from Irma and were the first airline to resume service in most of the key airports in Florida”

Glen Hauenstein – President

Businesses expected to increase corporate travel

“Based on advance bookings, leisure yield, and demand strength continues and we are seeing further improvements in business fares. Indeed our last survey of corporate travel managers showed more than 85% project their spend will be maintained or increased in the fourth quarter and into 2018. This is a 9 point improvement from last year’s numbers and the best fourth quarter result since our survey debuted in 2011. It is also consistent with the trend we’ve seen in our corporate contracted revenues where fares and volumes have recently been in positive territory concurrently for the first time in three years”.

Business and leisure travel outlook

“I think the transatlantic has been on the strength of business demand and really that plays to our strong suit, given our concentration in the business centers in Europe. Leisure has been a different story. It’s been more about incremental traffic and lower yields and I think that will continue through the fall and winter….Europe is coming out of a multi-year recession. US economy is strong and people are traveling for business, which plays to the strength of carrier that’s embracing the business model as opposed to the leisure model.”

Delta 2Q17 Earnings Call Notes

Ed Bastian

Opposed to the privatization of air traffic control

“There’s been a lot of work that’s being done in Washington around the ATC reform topic and yes, we at the table. We are working constructively with Chairman Shuster. We’re not philosophically opposed to privatization for privatization sake. What we want to do is make certain that we have the proper governance, transparency and cost efficiency to drive the reforms needed in the next air traffic control system that gets modernized and we’re in full support of the President’s agenda to invest and modernize the systems.”

Glen Hauenstein

Business fares remain below historical levels

“Business Fares, while improving, remain well below historical levels.”

Seeing European business sector picking up

“So we read a lot about European business sector picking up and we’re seeing that in the travel to and from Europe. So we have a couple of things that are developing that are positive for us. The euro is at a multiyear high here. We have business demand and a very, very solid position.”

Delta Air Lines 1Q17 Earnings Call Notes

Ed Bastian – Chief Executive Officer

Glen Hauenstein

Pace of recovery a little slower than anticipated but seeing improvement

” while the pace of the revenue recovery was a bit slower than what we had originally anticipated, we are continuing to see improvement in revenue trends across our network. Quickly recapping our top line performance, we reported total revenues down 1% on slight declines in passenger and cargo revenues. Our passenger revenue declined $74 million, including $20 million of lower hedge gains. Passenger unit revenues for the quarter came in essentially flat and we were better sequentially each month. In March, system PRASM turned positive marking the first year-over-year improvement since November 2015″

British economy has held up better than anticipated post-Brexit

“And as you know, the British economy so far has held up better than anticipated post-Brexit. While we have heard a lot of noise about people moving and we respond to the demand, and I think we have a lot of levers should we actually see that materialize, but given that we haven’t really seen demand declines yet, I think it would be premature for us to announce what we might do if demand declined. And I think what we have seen is, it’s never been a better time to go to the UK or it’s never been a better time to go to Europe for U.S. travelers. And we have seen an offset of UK point of origin, the U.S. point of origin has more than offset the decline in the existing UK weakness.”

Robust US demand to Europe

“we are seeing very robust U.S. point of sale demand to Europe for the peak summer. And we are believing that for at least from our perspective that most of that will be absorbed by that higher demand. I can’t speak for other carriers.”

Robust leisure demand could lead to capacity growth in excess of GDP

“This cycle we have seen really robust leisure demand. So I think what you will see in the industry, this is just a forecast of when you get to third and fourth quarter, you will see that it’s actually probably going a little bit faster than GDP, because the customers are – the customer base has grown and the fares required to now translate that into RASM are very nominal.”

Paul Jacobson

Fuel presenting a challenge

fuel presented us with our greatest challenge in the March quarter as our fuel expense increased by 26% or $325 million from the prior year. Our all-in fuel price of $1.71 per gallon was up almost 30% as crude prices climbed roughly $20 per barrel from the first quarter ‘16 low levels. Our fuel price also includes $0.09 per gallon of losses from our legacy hedge book during the quarter.

Also had pressure from non-fuel costs

“While fuel was the biggest headwind in the first quarter, we also faced some pressures in non-fuel costs, which drove our CASM ex-fuel up 3.6% higher year-on-year. This was driven by the timing of our maintenance spend, various products investments, employee pay increases as well as pressure from lower capacity during the quarter. “

Delta 4Q16 Earnings Call Note

Delta Air Lines’ (DAL) CEO Ed Bastian on Q4 2016 Results

$7 billion of operating cash flow in 2016

“Financially, we produced $6.1 billion of pretax profits, 16.5% operating margin and a 26% pretax return on invested capital. It looks like we will be the only major to have grown its operating margin in 2016. We generated $7 billion in operating cash flow and nearly $4 billion of pretax [loans] [ph] we used to reduce our adjusted net debt to $6.1 billion, achieved an investment grade credit rating and returned over $3 billion to our owners.”

Excited about infrastructure investment possibility

“Hi Duane, this is Ed. There’s a number of things we are excited about. One of the things we are very excited about is the potential investment opportunities of the new administration, talk a lot about improving in airport facilities we have been doing, a considerable amount of investment alongside our public partners in LaGuardia, LA, Seattle, Salt Lake, Atlanta, but the ability to continue to work with the federal government to drive improvements to the infrastructure is clearly a big deal for us”

Glen Hauenstein

Business yields were weak in 2016 but picked up after the election

“While total demand remained strong throughout 2016, weak business yields were prevalent and drove RASM declines. To address this, in the December quarter, we adjusted our revenue management approach and capped our capacity growth below 1%. Following the election in November, we began seeing improvements in business demand and the firming of business yields. These trends continued into December, which was the first month in over two years that yields improved on a year-over-year basis. As a result, our fourth quarter unit revenues were down 2.7%, better than both our initial guidance and the updated outlook we gave at Investor Day.”

We are substantially capacity constrained at LAX today

“We are substantially constrained at LAX today. We have, I believe, 15 gates currently in terminals five and six and when we get to terminals two and three, we have the possibility to come close to doubling the gate pods but it is going to take some time as we redevelop terminals two and three. That’s not overnight. And it will also take a little bit of the pressure off of the turns on the gate today. We turned terminals five and six to highest levels in the system and once we get a better gate pod, we will be able to reduce some of the congestion at the airport. So, we will have more gates but that doesn’t necessarily mean more direct flights as a result. But net net, we absolutely will be increasing our footprint and our capacity in LAX over the next few years.”

Should be opportunity to increase fares

“I think if you look at the travel spend on a lot of corporates, particularly in major lane segments of domestic U.S., they are considered to be the primary business segments, that the fares were down 30%, 40% on historical basis. And I don’t think we have to get a significant, we are not expecting them to go back to the historical levels in our current plan. This is a journey. It’s not a race. And so I do think that if the economy holds out, which we are forecasting today that it will and business continues to travel which we are forecasting it will, that the opportunity to raise fares in that environment with a lower level of capacity offering from the industry is significant and it gets better as we move throughout the year because the fare has got to be so low for business travel by midyear last year. If you take one of the primary business markets in Atlanta to City X, that used to be $750 for a day trip, it got down to $119 for a day trip today. It is sitting at $350 for a day trip. Could it go to $400? Could it go to $450? We see no propensity to decrease travel going from $750 to $100 and I don’t think we will see it our way back.”

Continued appreciation of the dollar would pressure foreign routes

“If I had one issue that I would be a bit of a cautionary issue is if the dollar continues to appreciate, that would put a little bit more pressure on foreign point-of-sale. But core demand as strong and capacity levels seems to be generally in a better spot this year than they were last year looking forward. So I am cautiously optimistic that absent of another run in the dollar, another significant run in the dollar, that this is, as we have said, in the Pacific, that the fourth quarter would be our low point and that we would move forward from there and that summer in the Transatlantic with heavy point of sale U.S. would be a very good summer.”

Paul Jacobson

Cost escalation in 4Q

“That said, fourth quarter saw a bit more cost escalation than we have been seeing so far this year. In addition to the impact of wage increases related to the ratified pilot agreement, there were timing issues in light items such as maintenance, contracted services and rents and landing fees that drove expense pressure in 4Q after having provided benefits in earlier quarters. ”

Low crude crack spreads have helped keep jet fuel prices in check

“Turning to fuel. Our total fuel expense declined by $240 million or about 15% despite higher crude oil prices, as we lapped hedge losses from 2015. While crude has moved higher, crack spreads have remained low, which has helped keep jet fuel prices relatively in check for the airline with pressures result at the refinery which lost $40 million for the quarter as expected. For 2017, we expect our fuel cost pressures will be weighted for the first half of the year. As you remember, during the first quarter of last year crude prices averaged $35 a barrel and hit a low of $26 in late January before they began to increase steadily from there.”

Delta Air Lines 3Q16 Earnings Call Notes

Delta Air Lines’ (DAL) CEO Ed Bastian on Q3 2016 Results

We have had a few incidents with exploding phones

“Well Doug, it is a challenge but I don’t want it to be blown out of proportion either. We’ve had a very few single digit number of incidents occur. We’re certainly reminding our passengers of the requirements, we’re educating our crews, we’re putting some additional safety elements on board the cabin to help mitigate a smoke situation. But it’s not fundamentally different than challenges that we’ve had for some time. We’re aware of the concerns around lithium batteries and we’re very mindful of that, safety is always our most important concern…So what we’ve done is of course really the target training with our flight crews along with equipment. There are some other modifications that we’re adding with containment bags as an example, that with any device that did experience a lithium battery fire you can put it in a containment bag that would certainly contain any possible scenario. ”

Glen Hauenstein

Biggest problem is persistent decline of unit revenues

Thanks, Ed and good morning, everyone. I’d also like to start by thanking the Delta people for their perseverance through a challenging quarter. It is your hard work and dedication that sets Delta apart in our customers’ eyes. And that translates into the revenue premium we realize to the industry. As Ed mentioned, the biggest challenge we face as a company is the persistent decline of unit revenues. This quarter our RASM was down 6.8%, including roughly 1 point of impact on the August outage and an additional point of headwind as we lapped the yen hedge gains from last year. Excluding our outage, our unit revenues were at the bottom end of our initial guidance range and we attribute that shortfall primarily to two factors.”

Reasons: weak transatlantic and weaker than expected close in yield environment

First, the Transatlantic proved more challenging than we expected, given the supply/demand imbalance in the region, caused by multiple terrorist events, low-cost carrier growth and Brexit which we’re primarily seeing in the devaluation of the British pound. Second, the domestic close-in yield environment was weaker than expected in the first half of the quarter, particularly in early August. Overall, domestic unit revenues declined 7% on 4% capacity growth in the September quarter, with nearly 2 points of the decline attributable to the August outage. While this result was weaker than we initially anticipated, we did see improvement as we went through the quarter, particularly as we lowered our capacity levels with our fall schedule in mid-August and adjusted some revenue management strategies.

Transatlantic hit by overcapacity

“And finally we get to the Transatlantic. September quarter unit revenues were down 9.7%, driven by overcapacity, particularly from LCCs and Middle East carriers, while terrorism concerns, sluggish economies and Brexit all weighed on the demand side. While the revenue environment was probably the most challenging, we also had a solidly profitable summer because of lower fuel. That said, as we go into the seasonally weaker period, we will reduce our capacity offering by three to four points starting in November to address the unit revenue challenges we’re facing.”

It takes a few months to ratchet up or down capacity

Hunter, that’s a great question and of course there are a lot of elements that go into those decisions, including the market sizes, the relevant positions of the carrier, the long term sustainability and profitability potential of the market. But we adjust on a monthly basis, as you know and at about 3 to 4 months out, the less we touch the schedule, the better it is for our customers, because customers once they buy a ticket want you to fulfill that commitment of applying what they’ve purchased from you. So that’s why it does take us a few months to ratchet up or ratchet down capacity in advance, once we see the trends developing.

Paul Jacobson

Fuel prices have been trending higher for a while now

“We’ve known for a while now that fuel prices were trending higher and as we’ve talked about for multiple quarters, we’re here. And that is fully expected and we believe the steps that we’re taking are the necessary ones to preserve the foundation that we’ve created.”

Higher fuel should lead to higher fares

“if you look back at history, significantly lower fuel ultimately translates into lower fares. That’s kind of a very high correlation over a long period of time, higher fuel turns into higher fares. The exact lag can vary, but it’s usually in the 3 to 5 month category and as Paul says, we’re facing higher fuel. And so we would expect seeing what we’re seeing in the events and what we know, based on history of how long it takes for that to work its way back into the pricing structure, that it is right around the corner, we feel.”

Fare realization inside of 21 days are improving

“I think that the fares that we’re realizing inside of 21 days are improving generally and the question is they are improving at different rates, corporate managed versus unmanaged and I think they are at slightly different rates, with managed being slightly below unmanaged. But the general trends are that inside the month now, we’re seeing a more robust fare.”

Delta Air Lines 2Q16 Earnings Call Notes

Delta Air Lines’ (DAL) CEO Ed Bastian on Q2 2016 Results

Taking out capacity to fight unit revenue headwinds

“Despite our strong results, we continue to face persistent headwinds on our unit revenues on a number of fronts that we are working hard to combat. Capacity is one of the biggest levers we have to move the needle on our unit revenue performance. In May, we announced that we plan to take one point of capacity out of the fourth quarter. That brought our second half capacity growth plan to below 2%. Now, with the foreign currency pressure from the steep drop in the pound, the economic uncertainty from Brexit and continuing yield pressures in the North Atlantic, we have decided to take an additional 6 points of capacity out of the UK for the winter IATA season. ”

The large fuel savings are now behind us

” the reality is that the large year-on-year savings driven by lower fuel are now behind us, market prices are essentially flat for the third quarter and look to be higher year-over-year in the fourth quarter for the first time since 2012.”

Third quarter is the peak of the year

” I think the third quarter is the peak of the year. Candidly, it’s this June, July and August, right? So, that continues to be our – that’s our sweet spot.”

Currency putting pressure on purchases to the US from Britain

“The currency certainly has impacted the booking point of sale. And we have seen some strength in the U.S. point of sale to the UK as the talent has deteriorated. Likewise, we have seen some reduction in our UK point of sale coming to the U.S. And that’s why we are making certain of the capacity adjustments combined with overall high levels of capacity in the North Atlantic, which is putting pressure on yields even before Brexit.”

Paul Jacobson

Potentially is some impact on pension from low rates

“Well, I think it’s a little bit too soon to tell. Obviously, our balance sheet liability is impacted by rates. We have talked about that in the past. So, assuming rates don’t revert back higher, we could see a higher balance sheet liability, but keep in mind that, that has little impact on expense and little impact – no impact at all on our minimum funding requirements for our strategy going forward, which is much longer term based.

Glen Hauenstein

We are not trying to forecast any turn in the cycle, we’re just saying where we are

“Jamie, you asked a lot in that question and I have not gone back to check to 2008. 2008 to me is a blur going back in time. Listen, our guide is our best estimate to where we sit now. We do not think that we are at a – trying to forecast any type of inflection on the cycle or the margins if that’s your question. It’s really where we are. Fuel prices have bounced around a fair bit and fuel prices are up a bit in Q3 versus Q2, hedge aside. And we realized that we do have unit revenue weakness, particularly in the first half of Q3 that we are recognizing. So, I think that if you look at Q3 year-on-year, I think we are about flat, 20% pre-tax margin and I think that’s a – that’s about all I can draw from that.”

Strength in Mexico

“I think we have mentioned in the prepared remarks that the Latin unit revenues were up in the month of June for the first time in 26 months. So those green shoots that we saw last quarter are actually coming in and again being driven by strength in Mexico and a lot of that strength may be related to the presence of Delta and Aeromexico together because it seems that we are getting a much higher share of some of the corporate travel to and from Mexico.

London represents 35% of total business between the US and Europe

“London has – is the biggest market in the UK. But London has a very, very high business component. As a matter of fact, London represents about 35% of the total business to and from the U.S. between U.S. and Europe. So what we are doing is we are taking potentially down frequencies in off peak days. We are down-gauging equipment into the regional cities. Manchester tends to be a perfect example of much higher UK point of origin market and that one because there is a lot of leisure travel coming out of Manchester. And those would be the types of markets that we would look at to reduce.”

Delta 1Q16 Earnings Call Notes

Ed Bastian


“I’ve been asked many times over the last couple of months as I take over as CEO as to what my priorities will be as we look to the future. Our goal as a team will be to continue to invest in the initiatives that are producing adorable, sustainable and industry leading foundation at Delta.”

Domestic fleet renewal is a medium term need

“The focus we’re in the midst of currently is the domestic fleet renewal over the next five years. It’s not a short-term need. It’s a medium term need, because MD-88s do need to retire. We have roughly 115 of them currently. And we also need to continue to up gauge our regional flying to the main line which we’ve had a lot of success in and there is much more to go. And I think we can do it cost effectively.”

Paul Jacobson

Lower fuel costs providing huge benefits, but a lot of uncertainty

“While lower fuel cost are providing huge benefits for our business, there is a lot of uncertainty in the global environment and we know fuel won’t stay low permanently. As a result, we remained focussed on staying disciplined with our cost.

Glen Hauenstein

The industry needs to fill capacity in order to maintain margins

I think those are always are concerns. I think that the demand that is strong particularly ex U.S. and it’s been little bit weaker ex Europe. But if these elevated level stay and fuel goes up and economies don’t grow, I think that would be an indication that industry would need to full capacity in order to maintain margins.”

Miscellaneous Earnings Call Notes 1.21.16

Delta Air Lines’ (DAL) CEO Richard Anderson on Q4 2015 Results

Lower crude prices put pressure on ability to drive revenue growth

“it certainly push additional pressure on getting to a positive RASM result and we made those comments this morning based on where the four sit today, but clearly crude were to fall another 15%, 20% and some people are calling for over the next few month that will put incremental pressure. These are good trades and we’re happy about crude continuing to fall, but we want to make sure our investor base understands that we appreciate the importance of getting the positive RASM”

But we’re pretty optimistic on the demand environment

“We’re pretty optimistic relative to what you read on CNBC or Wall Street Journal or some of the thunders out there that are predicting the future. We are booked ahead in terms of load factor for each of the months for February, March, April and really add into early summer, in case of early summer, its little bit early to call that, but we see demand is very strong”

Ed Bastian

Corporate Demand is also strong

“Let me add to that, because we also see as I’ve said in the remarks, continued strength in corporate demand. Our corporate demand in the fourth quarter was up 3% across the Board. Obviously, internationally it was down a bit in Europe given some of the effects of the Paris attacks. But broadly speaking our corporates continue to tell us that they expect growth in 2016 over 2015 level.”

Morgan Stanley’s (MS) CEO James Gorman on Q4 2015 Results

Significantly restructuring the FICC business

“we give more details on the FIC restructuring. Given the cyclical, and in some cases structural challenges facing fixed income, driven by the work ” and Ted did at the end of last year, we took the decision to downside headcount by 25%, along with our ongoing balance sheet and capital focus. We took this action alongside the recent installation of a new management team with the objective of credibly sizing of the business going forward.”

We’ll sell the assets opportunistically

“On the exact timing of year-end and the trajectory year-end 2017, I can’t really help you. We’re going to do it opportunistically. We’ll do with sort of minimum damage. We don’t want to get rid of assets on a distressed basis. We have some natural roll off. So we feel very comfortable with these targets. And it’s fair to say we haven’t disappointed in the last few years. That hasn’t been an issue in FIC.”

Our balance sheet was too big in the business

“As it relates to the capital with just arithmetically, if you run these numbers through the models, it does actually free up that much capital. It just means the business doesn’t need that capital. Our view is that we were overcapitalized that our balance sheet was too big in the business given the revenue and business opportunity.”

Interactive Brokers Group’s (IBKR) CEO Thomas Peterffy on Q4 2015 Results

Discussing some funky dynamics in treasury markets leading to short term treasury yields below fed funds

“in this quarter, we booked unfavorable marks in our treasury portfolio. Unlike most of our peers, we do not own or are we owned by a brand, and as a broker, we must mark our treasury portfolio to market, while they do not. This quarter, the negative marks amounted to $52 million. For the entire year, the marks were negative $33 million. Our treasury portfolio is $16 billion and its duration is about one year, the longest instrument being just less than two years. The yields on the two year averaged 1.06% on the last day of the year. It reversed from there to 87 basis points as of today. The safest way to secure our customers’ cash is to hold treasuries. It is also our understanding that according to the new banking regulation, these type of financial deposits this year will have to be secured by treasuries even of the banks which may result in a squeeze on treasuries. Indeed, we see treasuries maturing within three months currently being traded well under the fed fund rates.”

Brinker International’s (EAT) CEO Wyman Roberts on Q2 2016 Results

Saw considerable regional variability

“It is important to note, we saw considerably more regional variability during the quarter than we’ve seen traditionally. Some parts of the country performed significantly better than others, though none as strong as we’d like. Chili’s is deeply penetrated in areas like Texas and Louisiana, they’re dealing with economic pressures linked to declining oil prices.”

Tom Edwards

California, Florida and Midwest did relatively well

“In contrast, two of our largest states, California and Florida perform relatively well for the quarter, as did our more Midwest focused franchisees highlighting some of the regional variability we have been seeing.”

Logitech International’s (LOGI) CEO Bracken Darrell on Q3 2016 Results

Demand exceeded supply for iPad Pro accessory

“The bright spot for us in Q3 was the strong sales of our CREATE keyboard for the iPad Pro. Demand exceeded supply during the quarter due to the strong initial reception.”

Even though the PC market is shrinking, PC usage is not declining

“even though the PC – the PC market continues to decline 11% this quarter, if you look in front of you, most of you – if you’re in your offices probably have a PC. So the PC usage actually is not declining like that at all. And so as a result, people are still using PCs.”

Delta Airlines 3Q15 Earnings Call Notes

Our performance puts us along side companies like 3M and Lockheed

“These types of results investors expect from a high quality industrial company like Delta, our metrics rank among the top 10% of S&P Industrials. Our free cash flow performance puts Delta in the company of companies like 3M and Lockheed Martin.'”

Opportunity from low fuel prices

“We have a significant opportunity ahead, as fuel prices remained low, and we continue to push forward to achieve positive RASM. RASM growth remains a key component of how we drive margin improvement over time and we remain committed to improving our unit revenue trajectory. ”

Corporate demand remains solid

“Corporate demand remains solid with volume growth of 5%. In the domestic entity, corporate growth was notably strong in the Transcons and West Coast markets as we successfully leverage our investments in New York, LA, and Seattle. We saw meaningful improvements in our healthcare, financial services, and media sectors, offsetting declines in energy and manufacturing.”

Cargo/passenger businesses have domestic performing well but international headwinds

“Our cargo business is facing a similar dynamic to our passenger business with domestic performing well, while the international business is facing significant currency and related demand headwinds.”

The stock price does reflect our performance vs our peers, but not relative to industrials broadly

“our market cap does reflect it and our stock price does reflect it against the industry. I think our next closest domestic peer has a market cap it’s $10 billion lower. And when you look at where the P — the forward P is where our opportunity is, is to continue to derisk the balance sheet, derisk our business model, have the best employee relations in the industry, investment grade balance sheet, and continue to move our P/E up to match our performance versus the S&P Industrials and we’re going to quietly continue to do that.”

We can move rapidly to adjust capacity

“I think the thing that people don’t have a full appreciation for just how rapidly we adjust to markets. And if you even just think out about 2015 and what we said we were going to do in December of ’14, in fourth quarter 2015, situations change, currencies got weak in Brazil, currency got weak in Japan, fuel surcharges ran off, sanctions in Russia, and we’ve responded very quickly. And that’s the wonderful thing about what these assets are. If you own a hotel in Manhattan and something doesn’t go well in Manhattan and you can’t move the hotel? Right. But we can take our frequencies in Venezuela down to one a week and we could take Russia down to one a week and you don’t see all those moves, but the reason why we have ever expanding margins is at some point the Street just needs to understand that we’re going to continue to manage the business to drive margin and free cash flow and we have a lot of leverage to do that.”

There is a huge wide body bubble in the world

“we’re seeing a huge bubble in excess wide-body airplanes around the world and we’ve been approached by more than one party. I mean the market appears to be the 777-200s about 9 to 10 years old the price is about $10 million. And on A330-200 the lease rate is about a fifth of what it would be new.

So we do think that the aircraft market is going to be right for Delta and over the course of the next 12 to 36 months and we think that that weakness in that aircraft bubble in wide-bodies is going to spread to narrow-bodies and that there will be some huge buying opportunities because low interest rates really have created a huge wide-body bubble in the world.”

This is a small market with a handful of buyers. There is no deal at these prices, prices are going to go lower

“There’s no deal on the works we just — it’s a relatively small market in the world right there is not many people in the world that can take a dozen 777s, right, there’s a handful of customers. It’s a very small market, it’s a very transparent market, and we get calls all the time. There is no deal. Prices are going to get lower; you wouldn’t strike a deal now.”

Andrew Sohn Notes SKIS, DAL, YUM, NFLX, DPZ

Andrew Sohn, a junior at Columbia University, has started to contribute to Avondale’s company notes database. Below are quotes from some of the calls that Andrew has read this week.


SKIS- Timothy Boyd, President and CEO


Macroeconomic headwinds were balanced out with increased demand in discretionary spending

We still felt we could reach last year’s numbers due to the pent-up demand and the excellent conditions that existed at our areas. Well that’s in fact what happened. We finished pretty much in level on both revenue and EBITDA year-over-year, and we view EBITDA as the primary benchmark for the successful execution of our strategic plan. Our properties once again demonstrated their ability to perform despite some significant weather challenges. This performance illustrates these properties consistency year-in and year-out.


Acquisitions to come

In terms of our acquisition status, we continue to look at several different opportunities. They all vary in size, scope and strategic value. As I have described in the past, this process involves working through these deals in the summer months and ultimately closing in the fall prior to the ski season. We are currently in this process right now and we are optimistic that we will be able to complete one or more of these acquisitions this fall.


Day and overnight drive ski industry

I think it’s important to reiterate how this season again demonstrated how the day and the overnight drive segments of the ski industry, which our portfolio represents continue to be very consistent performers. Going forward we also believe these type of properties will continue to represent attractive investment opportunities.


Strong demand for skiing

In terms of some of the trends we are seeing for next season, we believe the outlook is very positive. Obviously, we can’t predict the weather, however, we are still seeing strong demand for our product. Clearly, last season’s strong performance in spite of some of the weather setbacks demonstrates that continued strong demand. Growth in our early season pass sales is another significant indicator of our strong demand.


Great discretionary spending

This past season, as Steve mentioned, we saw an uptick in revenue and retail, ski school and food and beverage. We believe at least partially this was attributable to the lower gasoline prices. Since almost all of our customers drive to our facilities, we see this additional disposable income as a very favorable trend for us going forward.



DAL-Richard Anderson CEO


Expansion into Latin America

Our stake in GOL will further this effort as the largest domestic carrier in Brazil and it will provide significant long term upside in the region for Delta particularly as we move toward open skies with Brazil, when we couple our investment in GOL with the significant investment we have in AeroMexico we have the foundation for the strongest network in Latin America.


Ed Bastian President


Reducing winter capacity in the pacific

As we’ve laid out previously, restructuring our Pacific network is one of our biggest opportunities for margin improvement going forward and the early results of these efforts are positive. As part of these efforts, we’ll be reducing our winter capacity into Pacific by 6% to 8% including retiring six of the 747s and cancelling the loss making Seattle Canada service.


YUM-Greg Creed, CEO


China recovery is a rocky road

There is no doubt in my mind that we will make a full recovery over the long term and return to historic average unit volumes. We have the two strongest brands in China by a wide margin, but frankly the recovery is taking longer than we would like. We need to be more aggressive, more innovative and much more disruptive to step change the business… In any event, our top priority is to get our China business back on track and we are making steady progress as evidenced by our first and second quarter results. As we’ve discussed, we expect to have a strong second half of the year based on continued progress in China and fully expect YUM! to deliver at least 10% EPS growth in 2015.



Growth in existing spaces is a key strategic play

Additionally we continue to rollout our premium coffee. As of quarter end we offered our coffee in over 2,000 stores, providing an incremental sales lift of about a point of the stores offering coffee. The key to success in this business is grow existing or create new sales layers to build on. We’re excited that premium coffee is already driving sales and profits, while giving us another platform to grow from going forward.



Pat Grismer, CFO


KFC doing well in foreign marktes

An important element of this is robust franchise led international development as KFC opened 122 new international restaurants in the quarter and is on pace to set a new record this year opening 700 new international restaurants outside of China and India, including a recent new market opening in Myanmar, demonstrating the strength and broad appeal of this iconic global brand.


KFC thriving, Pizza Hut and Taco Bell more of a challenge

Outside of China we expect KFC to have another solid year and Pizza Hut to fall well short of its ongoing growth target despite the improving results we expect in the balance of the year. For Taco Bell, although we expect solid performance in the balance of the year, we expect much more moderate profit growth as we overlap stronger sales and margin performance from last year.


NFLX-Wilmot Reed Hastings, CEO


Undergoing cautious expansion

Over the last year, we’ve raised ASP about 5%. We’d like to keep that moving. So we’re going to continue to have incentives for people to move up in the plans as suits their usage pattern, but we want to take it very slow. Things are going well. There’s no reason to be disruptive. We’re not planning anything in the U.S. this quarter. It’s really focused on going very steady, very slow; and over the next decade, I think, we’ll be able to have more and more content and add more value and then to be able to price that appropriately.


Why Hulu struggled in Japanese markets

Well, Hulu had a couple of missteps. But now, today, four years later, under new ownership, they’re actually growing and seeing some real success in Japan. But the initial missteps, where pricing was too high, it was ¥2,000 or about $20 at that time a month, had no local content. So it seems pretty substantial missteps. In contrast, our pricing will be more aggressive than theirs was. We’ll have a local content, we may have some local originals. And Japan is a unique market because it’s very brand sensitive. So Japan will probably be our slowest market to get to certain penetration threshold, but it may be one of our best markets in the long-term because when the Japanese society embraces a brand, it’s a very deep connection, very long-term.


Theodore A. Sarandos, CCO


Latin American expansion

Absolutely. We’ve recently expanded beyond our own original shows. The only way to watch those shows in Spanish in the U.S. is on Netflix with subtitles and dubs available that we’re making for Latin America. And now we’ve licensed a lot of programming from Latin America into the U.S. and are getting incredible viewing on shows that were successful for us in Mexico that are now drawing huge numbers in the U.S. And, again, that’s a very different demographic than we’ve targeted before and are just barely starting to touch them by getting hundreds of thousands of hours of days on single shows. So really, really impressed with the relatively quick take-up on these shows.



David B. Wells, CFO


Deeper expansion might require different content creation streategies

As we penetrate deeper into the markets, there might be a question in terms of do we have to add more of the local mix into that and that will have implications for our content spending in each market, but right now what we’re seeing is that our current mixture is working across the markets.


NFLX still very much in growth mode

The move towards the global right will be one that will take a couple of years, few years to really flow through. Similarly through our move towards exclusivity, and in terms of the P&L implications for international margins. It really is going to be more about the penetration growth and the rate of growth in that market to begin with.



DPZ-Mike Lawton, CFO


Growth in new store openings and existing stores was strong

Our domestic and international divisions posted very strong same-store sales growth. We opened a significant number of new stores and our EPS grew 20.9% over the prior year…The drivers of this growth included domestic same-store sales which rose by 12.8% in the quarter. The increase this quarter was comprised of franchisees same-store sales which were up 12.8% and company-owned stores which were up 12.5% and this was due primarily to strong order growth.


Growth in foreign markets is strong too

Our international division had another strong quarter as same-store sales grew 6.7% lapping a prior year quarter increase of 7.7%. Our international division also grew by 172 stores made up of 178 store openings and 6 closures.


Revenue drivers:

Turning to revenues, total revenues were up $38.2 million or 8.5% from the prior year. This increase was primarily a result of three factors. First, higher domestic same-store sales and store count growth which resulted in increased royalties from our franchise stores and higher revenues at our company-owned stores. Second, higher supply chain center food volumes as well as increased sales of equipment to stores in connection with our store reimaging program. These supply chain volume increases were partially offset by lower commodity prices. And third, higher international royalties again from increased same-store sales and store count growth, which were partially offset by the negative impact of foreign currency exchange rates.


Patrick Doyle, CEO


Digit sales huge part of growth

Markets outside of U.S. are doing about 40% of sales from digital channels and while there are markets showing high levels of experience and excellence on the digital front, the opportunity exist to introduce and grow technology within many others. We look forward to helping our master franchisees established a digital presence or reached full digital capability within their market.