Fastenal 2Q17 Earnings Call Notes

Daniel Florness – President and CEO

Able to take a little more advantage with price

” if we continue to see demand get better and the environment remains somewhat inflationary, then a window would probably open for us to take advantage of a little bit of pricing if the market affords. And we sort of deemed the second quarter to be consistent with those themes”

Holden Lewis

Growth accelerated

Great. Thank you, Dan, and good morning, everybody. Thanks for joining the call. So just to hit on what Dan covered on Slide 3, our total and daily sales in the second quarter were up 10.6%, that’s an acceleration from up 6.2% in the first quarter. The timing of the Good Friday shift into April from March this year did cost the quarter about 50 basis points. But on the other hand, we included Mansco this quarter, which we acquired on March 31, and that added about 130 basis points. If you adjust those 2 factors, the second quarter daily sales rate was around 9.7%. Either way, growth accelerated to the quarter. And even better than that, in June, the daily sales were up 13% or up 11.6%, excluding Mansco.

*Benefiting from macro strength

“some of our improvement clearly reflects a favorable macro backdrop. The Purchasing Managers Index in the U.S., it represents 88% of our revenue, that averaged a healthy 55.8 reading. Industrial production growth was still modest in the quarter, but did speed up a bit over the prior quarter. These metrics underpin the improvement in our industrial and construction end markets in the second quarter as well as acceleration in both our fastener and non-fastener lines, as you can see from the charts in the presentation. In fact, it’s difficult to identify a major market that is acting particularly poorly at this point. And the feedback that we’re getting from our RVPs remains overall very favorable.”

MSC Industrial Direct FY 1Q17 Earnings Call Notes

Erik Gershwind – President and CEO

Environment stabilizing

” I’ll begin this morning’s discussion by covering the environment which is showing potential signs of stabilizing. We’ve also seen increased optimism from our customers over the past couple of months.”

Return to growth in December

“While conditions remain difficult throughout the quarter we did see a better than expected November as well as a return to growth in December, the start of our second quarter. The improvement in growth rate was across all of our customer types. MDI readings that had risen above 48 back in August continued above the 48 level through October and then ticked up to 49.7 in November and 49.8 in December bringing the rolling 12 month average to 47.2. The most current readings imply essentially stable metal working end markets, and are a significant improvement over the trends of the past year. Remember that December of last year was at a reading of 44.”

Marked improvement in optimism driven by

” there is also a market improvement in optimism about what the future may bring. This optimism is being driven by a couple of things, first there is an expectation that increases in infrastructure spending, lower corporate tax rates, and a more business friendly regulatory environment will provide a stimulus to the industrial econom”

Still need to see sustained increased optimism

” All of that said we caution that these are not yet sustained trends and increased optimism will need to translate into sustained increases in demand and order activity before we declare that the environment has turned.”

Price activity is not yet broad based

“I’ll now turn to the pricing environment where it remained soft in the fiscal first quarter and continues to be so. Commodity prices are still fairly low relative to historical levels despite improving over the past year. While we have seen some supplier price increase activity, we characterize it as selective and not broad based. That said any activity at all is more than we’ve seen over the past couple of years. If we continue to see increases we anticipate taking a very modest price increase sometime in the next month or two.”

Potential for a spring loaded effect when the economy returns to a stronger foot

“Many of our customers businesses have been depressed by the difficult environment. And this has created the potential for a spring loaded effect when the industrial economy returns to stronger foot. ”

If the recovery comes we have a great earnings leverage story

” we are now seeing signs that a potential recovery could be coming. If in fact it becomes a reality we will benefit from a tremendous earnings leverage story.”

Distribution is winning in the marketplace

“. I would say we are seeing a trend among some of our suppliers with many already do all or virtually all of their sales through distribution. I would say there is more of a trend of laid towards putting more of sales through distribution. And I think the reason that’s the case is because distribution is winning as a channel in the marketplace. So I think it’s a response to what’s happening with customers making choices about where they want to buy and that’s through well performing distributors. ”

We are seeing a clear improvement in growth rate

“look no question when you hold back. We are seeing an improvement in the growth rate in the business, okay plain and simple because you’re right you point to its start in November being better than expectations, December certainly better. What we wanted to do though is give you a realistic picture that I would say in terms of December it was a pretty strong month across the Board obviously.”

We did see capital related purchases

“Now our belief there Matt is we did see a spike in what we call Capital related purchases. So these — it could be a machine. It could be a tool holder, it could be a tooling package, let’s think of that like a start up kit of cutting tools when a customer purchases a machine. Or all of those things tend to imply optimism about the future obviously if they are investing in the business.”

Optimistic end of year buying probably wont continue into January and February

“Our assumption right now and again Rustom mentioned limited visibility, we’re sitting here very early in the month of January is that a lot of what we saw was end of the year buying because customers are more optimistic and that won’t continue in January and February. Which kind of gets us to more or less flatter January and February.”

It’s been at least three years since we’ve seen anything resembling this

” it is at least three years because the last two years there’s been really low confidence among our customer base. It has been at least three years since we’ve seen anything resembling this””

The stabilization has been pretty broad based

” This stabilization has been pretty broad based Adam. So across most of our core customer types that we referred to was our typical core customer types of the machine and equipment folks, primary metals, metal fabrication. All of those are seeing an improvement over the last couple of months. I think some of that is driven by oil and gas, no question Adam because we’ve said the indirect effect on all these job shops. And again what we’re hearing is more stabilization than it is a strong rebound even with oil and gas

Rustom Jilla

Probaby 40% of our goods are ultimately foreign sourced

“Look, I mean yes, our federal tax rate is pretty much we pay our full federal tax so any reduction whether it’s 20% to 25% to 15% any reduction will be a positive for us, right. The ultimate EPS benefit to us and we definitely expect it will depend on what the offsets are and whether there are any offsets. I mean that could be with foreign tariff, cross border taxes, interest, a whole bunch of different factors which might or might not come into play. So it’s hard to quantify. I mean since you did ask the question it was foreign tax related but I will sort of make the point on the — on our cost of goods sold as well in there and that is that remember that about 12% to 15% of our cost of goods sold comes directly from outside the U.S. And we believe that — and we believe, we don’t have the exact number with the U.S. purchases that are actually foreign source it’s roughly about 40%.”

We are ultimately expecting a net benefit

“So remember many suppliers have multiple countries of origin and alternatives as we do also. And in any case inflation is historically good for distributors but it’s a bunch of different factors here that mean it’s hard to quantify exactly how much of the benefit will flow through but we clearly are expecting a benefit. ”

What we would do with extra cash: dividends and M&A

” Now part B of your question is what will we do with that. So I mean, look I mean in general we believe in steadily increasing our ongoing ordinary dividends. I mean we’re very, very Erik and I have been very consistent in terms of communicating that. There’s no reason to think that will change. And we have also demonstrated over the years that if we do have excess cash flow over and above requirements, we are balanced and opportunistic in terms of capital management and if we do have excess cash at the end of the day that we can’t deploy in the business, that we can’t deploy you know for ordinary dividend increases, and if we don’t have attractive M&A we are absolutely not averse to returning it by way of open market by banks or even tender type things.”

Fastenal 1Q16 Earnings Call Notes

Daniel Florness CEO

Benefit of extra business day and buybacks

“In the quarter, we grew our sales about 3.5%. We had the benefit of additional business day during the quarter. So on a daily basis, we grew about two. Our earnings per share grew just over 2%, primarily driven by the fact we had bought a considerable amount of our stock in the last 15 months, because our actual earnings were down slightly from a year ago.”

January and Feb were fine but March was weak

“But when I look at March, we’re a little disappointed in the month. The month weakened as we got through it. Easter is part of it. The calendar is part of it, but the month did weaken a little bit and so, it was a soft finish to the quarter. ”

Lower costs starting to show up as inventories have turned

“what we were seeing through most of last year is deflation somewhere in that 1.5% to 2% neighborhood. We are still operating in that zone. As far as the cost coming through, we are starting to see some lower cost now. Our overall inventory turns about twice a year. The fastener piece of our inventory turns slower than that. The non-fastener piece turns faster than that and so some of the lower cost we are starting to see come through our cost of goods now.”

Energy was weak

“the oil and gas areas did continue to weaken when I look at it on a sequential basis and time will tell if some of the recent pricing influence is that positive in the upcoming months, but it continue to weaken.””

It was a weak finish to March

“But setting that aside, the month finished very poorly with five days, six days, seven days, eight days, less than a month, I felt we’d be closer to 2% and the month really deteriorated late. And that’s probably a function – that’s probably described some things that we saw in the patterns of our larger account base, because they tend to be somewhat loaded little bit towards the back end of the month. But, frankly a weak finish.”

Only April and May will start to answer for us what happened in March

“January, February and I can’t quite say that for March, but in January, February, felt more like where we were in October and I think if I look at the last five or six months, I really think the outliers was the extreme weakness we saw in November and December and I think that was a function of companies that’s shutting down around the holidays more extensively than normal. March, only April and May will start to answer for us what really happened in March.”

Sheryl Lisowski

MSC Industrial Direct FY 4Q15 Earnings Call Notes

MSC Industrial Direct (MSM) Erik David Gershwind on Q4 2015 Results

Deteriorating and quite difficult demand environment

“I’ll begin by covering the deteriorating and quite difficult demand environment.”

Conditions worsened as the quarter progressed

“We remain in a difficult environment where conditions worsened as the quarter progressed. The root causes for the slowdown remain the same. The prolonged impact of the rapid drop in oil prices, the strong U.S. dollar and its impact on export demand, and foreign exchange headwinds, all of which are negatively impacting broader manufacturing activity.”

Outside of aerospace and automotive, customers have seen significant slowdowns

“indicators confirm a considerable slowdown in metal working activity as the quarter progressed. They’re also very much in line with what we heard from customers and other industry participants. With the exception of pockets like Aerospace and Automotive, customers have seen significant slowdowns in their volumes, their backlogs and their quoting activity.”

We’re beginning to hear about layoffs for the first time in a while

“visibility remains extremely low. We’re now beginning to hear of layoffs for the first time in quite a while. We also believe that some of the slowdown can be attributed to destocking of customer inventory levels, although this is very difficult to quantify.”

Pricing remains extremely soft

“With respect to the pricing environment, conditions remain extremely soft, due primarily to the lack of commodities inflation. Supplier or manufacturer pricing activity, which is the primary driver of distributor pricing movement, remains well below historical levels.”

Economic slowdowns are a time for us to take share

“economic slowdowns are the times when MSC makes its greatest strides and we expect to do the same this time. While the 70% of the market that’s made up of local and regional distributors is on its heels, we are on our toes. While others are cutting inventories and receivables to preserve cash, our strong free cash flow generation allows us to invest and to provide customers with industry leading service.”

It’s be easir to find where it’s not getting worse than where it is

“I would say the answer is more about where it’s not getting worse. It’d be easier to find where it’s not getting worse than where it is. Seriously, I think, we’re seeing pretty much, with the exception of a couple of pockets that I mentioned, it’s pretty broad based. It’s particularly acute within our core metalworking-related markets, heavy equipment and machinery, primary metals guys, machine shops, and I would say, it’s also more acute in the mid-size and small customers than it is at the larger customers. But, it’s pretty broad-based everywhere. And it’s just more acute in pockets.”

Visibility is really low

“our visibility is really low. So, it’s tough for us to look out beyond a month, let alone a year.”

Non-manufacturing has slowed more than manufacturing

“let me talk customer segment, first, manufacturing, non-manufacturing. What I would say there is both have slowed, but in terms of the absolute growth delta, you are right. Non-manufacturing slowed more. ”

An exciting thing about a downturn is the opportunity to acquire strong talent

“one of the most exciting things, if you could call it exciting, about a downturn is the opportunity to acquire some great talent, to make some great investments that really juice the returns coming out of the recession, and we’ve said this time will be no different.”

Applied Industrial Technologies FY 4Q15 Earnings Call Notes

Deceleration in demand as moved through the year

“As we moved through fiscal 2015, we experienced deceleration in industrial demand, headwinds from energy markets, and the unfavorable impact of foreign currency translation. While the combination of these factors kept us from realizing our initial expectations for the year, we did achieve the highest level of sales and earnings per share in company history.”

Modest positive progressions month to month throughout the quarter

“if we look back at the quarter, I think month-to-month throughout the quarter, we saw modest positive progressions. I think Mark talked about the traditional core being up. I think from an oil and gas side, we’d say sequentially down in the teens. I think that’s perhaps consistent with the rig count movement.”

The greatest pressure in oil and gas are doing better

“The greatest pressure, the volatilities around the upstream drilling and completion, the businesses that are upstream production service-focused are doing better.”

Internal plans are higher than external guidance

“clearly, our internal plans are going to be higher than external guidance.”

18 product categories

” We say we represent 18 product categories across, and we’re intent on expanding those with current and new customers.

Seeing some improvement in August

“July year-over-year total, that would be mid-single digits from that July standpoint, right, because obviously, we know when it’s in the books. And then, we would see kind of improvements as we move from there. It’s early in August, but we would see improvement. So for us, maybe not all surprising as it go from closing of fiscal year into a new one, but that’s the year-over-year metric.”

Breakdown of industry performance

“our kind of top 30, 13 of them were up. I think increases would be in the expected categories like automotive, utility, food, and some of the construction-related ones like lumber, wood, aggregate, and so forth. Declines, as you would expect, in oil and gas. And I think mining may be stable off of a lower base and then some of the machinery manufacturers, but a large group or category and I think that varies to where they play in market. So if they’re into some of those that are down or a little more global participation, I think those are the ones that we would see being down. Others that are serving some of the more – the earlier segments that we talked about are faring better right now.”

Sysco FY 4Q15 Earnings Call Notes

$1B FCF on $49B in revenue

“For the year, we achieved record sales of $49 billion, an increase of 5%. We grew our adjusted operating income and earnings per share by 3% and 5%, respectively. We generated $1 billion in free cash flow. We earned a return on invested capital of 13% on an adjusted basis. We increased our dividend for the 46th time in our history and distributed nearly $700 million in dividends to our shareholders.”

Food Service Operators confidence has slipped somewhat in the summer months

“Moving to market and economic trends, as I speak to you today, the data is mixed. Consumer confidence and the outlook of food service operators are at historically high levels, but have slipped somewhat in the summer months. Fuel prices at the pump remain at historically attractive levels, which should support higher consumer spending moving forward. Restaurant spend is up, but traffic is generally flat.”

2-3% inflation is the best zone for us

“we have for years said and truly believe that the optimal range of inflation for our customers, and for us, is probably in the 2% to maybe 3% range. That’s a level that typically our customers can pass on and do pass on, and generally that’s a level that the consumer will accept. So, when we’re in those levels we’re able to have the best of both worlds, if you will, in terms of a little bit of a tailwind on inflation at the same time. It doesn’t hurt demand to any large extent. We very seldom find ourselves in that zone, and right now, we find ourselves in a zone where there’s little to no inflation”

Tough to raise price with costs in 5-6% inflation environment

“when we have inflation, let’s say higher than normal inflation like we saw, particularly in the first half of the year, that’s where it’s very difficult to – and at times not even appropriate – to raise your prices as fast as your costs are going up. And so, when you have an inflation environment of 5% or 6%, it’s highly unlikely that your gross margin is going to keep pace on a year-over-year basis there.”

Growing local cases is very very important

“Growing local cases is very, very important in this business. I don’t think I can say that enough.”

Fastenal 2Q15 Earnings Call Notes

Tough economy tough environment but solid execution

“when I say that it’s a tough economy in a tough environment, I’m really centering it around five areas for us: It’s non-res; it’s oil and gas; ag; manufacturing; and of course the currency. And so tough environment but when I look at it given this quarter, I think it’s a solid quarter of execution given the revenue number.”

We’ve been hit hard by oil and currencies this year

“we’ve been hit hard this year by a number of factors. In here, I talk about oil and gas. I don’t think there is any surprise by that. Our customers have been hit hard by the strength of the U.S. dollar. Most of our business is in the U.S. and anything that impairs the manufacturing output of this country, impacts us and the strong dollar has done some of that.”

Trends are starting to move closer to normal

“our year-over-year numbers are pretty weak right now but sequentially the trends are starting to move closer to normal and that makes me feel better about what it means for third quarter and fourth quarter and going into next year as far as the health of that underlying business.”

Fasteners and MRO are really two different businesses

“we’re really two distributors in one. We’re this fastener distributor that has built up a book of business over the last 50 years; and we’re an MRO distributor, really built up that business in the last 20 years. We really started to expand our product lines beyond fasteners in the early, the mid 1990s and have grown that non-fastener business now to [ph] 60% of our sales and that’s 40% fasteners and 60% non-fasteners are really different businesses, different end markets going through a common channel.”

Fasteners are sticky, but directly tied to production

I look at that fastener business, a lot of production business in there. The beauty of that business is incredibly sticky. It’s really invasive and complicated and painful to switch a fastener supplier. Because that’s a very tight relationship because I’m supplying you the stuff you need in what your producing and the quality, the source supply, all those things we bring to the table are critical and it’s very, very disrupted to change your supplier. That’s the good news of that business. The bad news of that business is linked directly to production.”

11 of 25 top fastener customers were down in June

“If I look at our top 25 customers, and I took a good hard look at that group of business, 11 of those 25 customers were negative in June; 7 of those 11 were negative double-digit; and 5 of those 11 were negative in excess of 25%. That’s a negative of being directly linked to their business.”

June was disappointing, no question

“June was disappointing, there is no question and even at the 1% on the extra day it was not where we wanted it. And when you look at and you talk about outside of the oil and gas, some bright spots for us I look at some things that are happening taking place within the business in Florida and California in some of our Midwest regions, we’re starting to see Canada when you really factor in the native currency is actually performing well. And so this oil and gas thing as we’ve talked before Ryan, it’s just got such a ripple effect through the economy and through the business that it’s just waiting astound. But if you look at non-res, that’s we think and when we look at our information, we believe that’s heavily tied to oil and gas. So that’s a factor. We look at ag and heavy manufacturing, all headwinds right now for us.”

MSC Industrial Direct 3Q15 Earnings Call Notes

Tough environment but earnings exceeded expectations

“growth rates were in line with guidance, reflecting the challenging demand environment. Second, that gross margin stabilization continued, despite the extremely soft pricing conditions. And third, that strong expense management led to earnings exceeding expectations.”

Drop in oil prices, softening export demand, foreign exchange headwinds

“Root causes for the slowdown included the impact of the rapid drop in oil prices, softening export demand, and foreign exchange headwinds all of which were impacting broader manufacturing activity. At the time, I said that it was unclear as to whether we had moved out of a moderate demand environment and into a low one.”

Low demand environment

“With another few months under our belts and with the same headwinds persisting, it’s now clear that we are in a low demand environment. In speaking with customers, while things have not continued to deteriorate, they have essentially remained at low levels in what is a sluggish environment.”

Activity has at least leveled

“However, most customers are suggesting that their activity has at least leveled, meaning they’ve not seen further significant declines. The macro indices we track confirm what we’re hearing from customers.”

Significant slowdown in metalworking activity

“The ISM has generally trended downward over the past six months, despite a slight improvement in May and June. It remains well below October’s peak, as well as below the 12 month average.

As for the MBI, after an up-tick in March, the index fell below 50 in April, and continued to tick down below 48 in both May and June, suggesting a considerable slowdown in metalworking activity.”

Pricing conditions extremely soft

“With respect to the pricing environment, conditions remain extremely soft, due primarily to the lack of commodities inflation. Supplier pricing activity, which is the primary driver of distribution pricing movement, remains well below historical levels.”

Moderating sales force expansion

“With respect to sales force expansion, we continued moderating as we had started to do last quarter. This is in response to the softening demand environment, as sales force paybacks lengthen when growth rates slow. We now anticipate sales force expansion to be roughly 2% for the fiscal year.”

Things have stabilized but at a very soft level

“I think what we would describe right now is, you hit it on the head. It’s a very sluggish environment, it’s soft demand. What we did want to get across in the prepared remarks is it’s not – we haven’t seen a continued dramatic deterioration within the last couple of months that things have sort of stabilized, but stabilized at a very soft level.”

We look at a few things and triangulate to try to get a sense of where we are in the market

“What we do is we triangulate a number of things. We look at the macro sentiment indices like ISM, like MBI. We look at some of the distribution surveys that are produced by your community. We talk to suppliers, which is a great source for us to get at point of sales growth for distribution, and then we triangulate. I think as we triangulate, the story continues to be that we’re growing well above market.”

Metalworking has been particularly hard hit

“I think you are right to call out the fact that our core business, metalworking, cutting tools, have been particularly hard hit. You could see that evidenced in a number of places, but most notably the MBI has been under 50, indicating contraction for three months in a row.”

You have seen inventory stabilize as a result of changing conditions

“You have since seen that inventory number stabilize. That is the result of certainly changing our approach. As a result, correlating you are seeing free cash flow generation really improve.”

Local distributors are fighting for survival

“what we’re seeing is very typical with what we’ve seen in past cycles, where guys like us, the national players, get hit certainly. We get affected when there’s a slowdown. The local distributors that make up the 70% of the market get disproportionately hit. And what we see in times of slowdown is competition. They will get very – the local distributors will get very competitive.

So I would say price competition is very high right now. And a lot of that, I mean, that’s really being driven off the local distributors doing what they do when things get slow, which is fight for survival. So that’s the biggest headline.”

MSC Industrial Direct FY 2Q15 Earnings Call Notes

We have seen a swift and significant change in demand conditions

“I will now turn to the environment. We’ve seen a significant and swift change in demand conditions since the start of the calendar year. We heard this in a change in tone from many of our customers and saw it in sentiment indicators like the ISM and MBI, both of which trended down through the quarter. Root causes included the impact of the rapid drop in oil prices and softening export demand. As you know, our business has very little direct exposure to the oil and gas sector. There is little doubt, however, that the dislocation in this sector and the resulting uncertainty is currently impacting broader manufacturing activity, particularly in energy producing states. Softening export demand is also impacting manufacturing and heavy manufacturing in particular as exchange rate headwinds have become more severe.”

Weather was a small factor but there was more going on

“In addition, while weather was certainly a factor in the quarter, we believe the broader weakness that we’re seen is more than a temporary disruption. With respective to the pricing environment, conditions remain quite soft due primarily to the lack of commodities inflation. A number of our suppliers did implement small price increases, and we were successful implementing a modest mid-year price adjustment of our own at the beginning of January.”

Growth rates dropped significantly in February

“Turning to our results, the slowing demand environment resulted in lower than expected organic growth which came in at 6.8% for the quarter. As you can see from our monthly numbers, growth rates were solid in December, improved in January, before dropping significantly in February as the environment deteriorated.”

We’re still adding headcount but at a slower pace than previously projected

“As of now, our trajectory is to increase sales headcount by around 6%, a bit below the 8% to 10% range we previously provided and that could change further either up or down as we assess changes to the environment.”

The indirect exposure to oil and gas is larger than we expected

“the direct exposure is 3% or less to the oil and gas sector. Where it gets trickier and what we’re now seeing where the impact is much broader based is all of the tiers of that supply chain and particularly in our core manufacturing base that are actually influenced by oil and gas. So we are seeing pretty pronounced changes in growth rates and in conditions in manufacturing, and particularly when we go to manufacturing and look at our numbers and look at manufacturing activity in states that have an oil and gas influence, it’s really pronounced. So it’s pretty clear to us that while the direct exposure is small, the indirect exposure is pretty broad based.”

In one quarter things moved pretty quickly

“I would say in general if you look at what’s happened with the indices, the sentiment indices, I mean they’ve been trending down. So the drop you’re referencing in Chicago, the ISM in general what’s happened with the MBI I think is indicative of what’s happening on a broader base, less about one area like Chicago more about what’s happening across the board is — look, in one quarter this thing moved pretty quickly where you can tell our tone on this call is quite different from just a quarter ago we see that as pretty broad based and not specific to our region.”

Heavy manufacturing has been particularly hard hit

“manufacturing is a very broad umbrella. We have seen over the past quarter so the slowdown has been broad based on the factors we describe. If there is an area that we call out it would be heavy manufacturing, heavy durables. As you could imagine given our strong metal working position and but that’s a significant percentage of our total company sale, heavy manufacturing has a big influence on our growth rates and you are right, there has been a double whammy in heavy manufacturing because of oil and gas and then being particularly hit hard by the change in the export environment. ”

The inventory build is in fast moving stuff, also higher inventory can be acompetitive advantage if this is a sustained softness

“Few things on the inventory, number one is that, the build is in fast moving inventories that we can turn quickly. We’ve shown — I have complete confidence in our team that it’s been really changed, we can bring inventory levels down quickly. The other thing I’d say is, in times of — if this becomes some sort of sustained softness having inventory on the shelves customers are not going to want keep inventory what will distributors are going to be forced to bleed down inventory levels. This becomes a really big advantage for us and I talked in the prepared remarks about this. Times like this of dislocation being an opportunity for us to accelerate share gains having product in stock and getting it next day is absolutely critical. So I feel very good about our inventory investment.”

We do think long term lower oil prices are good

“whether it’s the back half of ’15 or not or it’s ’16 we don’t know, but longer term we think that what’s happening with energy prices actually bodes quite well for manufacturing in the US. Number one it makes us more competitive and then number two you’re right that lower oil prices that are going to put more dollars in consumers’ pockets and that’s more money, more disposable income to spend.”

We’re hearing more caution than excitement

“I would say the answer is right now no, we are not hearing that, I think we’re hearing more caution than we are excitement for the near term. That said I give a caveat that if I went back a quarter, a quarter and a half ago our customers also weren’t talking about what was coming with oil and gas. So certainly who knows, it’s possible but right now we’re not hearing a lot about a coiled spring for the back half of the calendar year.”

March did not bounce back

“I think the bigger story with March is the fact that growth rates did not bounce back which I think is more supportive of the case that the Q2 factors were a lot deeper than just weather”

Sysco FY 2Q15 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

Acute inflationary pressures in meat and dairy

“We generated nearly 4% case volume growth during the quarter and effectively managed acute inflationary pressures in our meat and dairy categories.”

Positive traffic growth for mid and casual dining for first time since ’08

“NPD, which tracks restaurant trends, recently reported positive traffic growth in the mid-scale and casual dining sectors for the first time since 2008.”

Food cost inflation was 6%

“Food cost inflation was 6%, driven mainly by double-digit inflation in the meat and dairy categories.”

Some of the truck driver shortage may be because those workers went into the energy business

“over the last few years, several of our markets are very much energy driven or intensive. There is a lot of good jobs out there on the energy side. Some of those jobs are very competitive or more competitive in terms of lifestyle and wages to what we offer. And so in those markets where energy has been strong, we struggled to some extent”

A little insight into an ERP implementation

“And the other thing we are doing more of, which we spoke to here today, is taking some of the other applications, whether they’re financial or HR, maintenance that type of thing, even for the SA — even for the non-SAP OpCos bring those into SPS, accelerating network to where SPS is now, supporting in certain areas, not just the 12 OpCos that run SAP, but these are the functional support software packages as well.

So to summarize, I think it’s a combination that we’re continuing to enhance the support around and the software that the 12 OpCos are using as well as beginning to leverage SPS in a different way and as I said. So, A, we’re providing better services to the 12 OpCos today, but also when we do begin to redeploy again, those future conversions can go more, more smoothly. And then we’re still — we’re going to defer any further deployments until we understand the timing of the merger a little bit better.”