Miscellaneous Earnings Call Notes 10.28.16

SunTrust Banks’ (STI) CEO Bill Rogers on Q3 2016 Results

Regulatory and compliance costs are not likely to abate

“But in terms of overall regulatory and compliance costs, if I look forward, John, I don’t think that in the short- to medium term I would think of regulatory costs in general abating or declining. I think we’re in an environment, where we would expect regulatory and compliance costs to be generally stable or increasing over time. And just the environment that we’re in, I don’t see realistically that anybody in the industry is going to see regulatory and compliance costs fall off.”


Potlatch Corporation’s (PCH) CEO Michael Covey on Q3 2016 Results

Eric Cremers

No rollover in land pricing

” Pricing remains firm. There is a lot of money on the sidelines looking to invest in the asset class. People have an expectation that prices will move higher over the next several years as we continue with this housing recovery that generally gets built into the models that are used to value timberland. And in a low interest rate environment high timberland prices are supported. So we’ve not seen a rollover in timberland pricing at all.”

Lumber prices well supported here. Moving from mid to upper 80s capacity utilization”

” As I think Jerry mentioned in his opening remarks, we might see a real slight rollover in lumber pricing in Q4, and that’s consistent with what the external pundits are forecasting maybe 1% or 2% rollover in pricing. You know generally speaking markets are well balanced, our order book is solid. As you know we sell forward our lumber production. So we’re out into the first or second week of November at this stage. And so we feel very good about where lumber markets are at, at this stage of the game. Just the general backdrop here, if you think about it, we’ve got demand, which has remained strong. Of course the housing market data, there is starts data is volatile from month-to-month. But generally we’re seeing starts increase, we’re seeing strong R&R repair in the model activity, and we’re seeing strong commercial and industrial activity as well. And with industry wide capacity utilization now moving up from the mid to the upper 80s and supply-chain inventories as Mike had mentioned remained very well, we think, lumber prices are well supported here.”


Brown & Brown’s (BRO) CEO Powell Brown on Q3 2016 Results

Hurricane Matthew will have little impact on rates

“We believe Hurricane Matthew will have limited impact on rates, if any. There will be more discussions around flood and wind deductibles, rate for cat property continued downward affecting retail, wholesale, and national programs, and that will continue into Q4 and into 2017.”


Honeywell International’s (HON) CEO Dave Cote on Q3 2016 Results

A favorable setup for 2017

” Darius and Tom will provide more details about 2017 during our annual outlook call in December, but we have a favorable setup. The fourth quarter momentum continues, our long cycle businesses are improving and our inflections start to kick in.”

Tom Szlosek/Dave Cote

A salesperson isn’t productive in his first year on the job

“A salesperson really isn’t productive enough in his first year on the job, so we have to ensure we have enough sales employees in place today to support tomorrow’s business… when you hire salespeople there’s training and familiarization that has to go on. So they’re not immediately productive. It’s the sort of thing that shows up in the future.”


Heidrick & Struggles International’s (HSII) CEO Tracy Wolstencroft on Q3 2016 Results

Rich Pehlke

Improvement in September/October

“we can’t really point to one thing because as we saw July and August kind of soft we really did worry a little bit about was it a sign of some kind of a cyclical trend or a movement but you know September bounced back pretty well and so – and as we talk to our folks and see what’s out there and see how October is progressing. You know there is nothing we can really point to that says that you know there is one – there is one driving factor. So whether or not it could have been client decision caused by things like Brexit et cetera certainly is certainly one of the factors that would have fallen into play but there isn’t any one thing that we can put to, and I don’t know if you want to leverage.”


Zions Bancorp. (ZION) Q3 2016 Results

Harris Simmons

It was a softer quarter for C&I loan demand than we would have hoped for

“I think that’s consistent with what we saw during the third quarter. The third quarter has generally been a softer quarter. You get kind of the summer vacations and everything else baked into it, but this was softer than I think we would have expected. And so we’ll see what happens through the remainder of the year. But it was a softer quarter in C&I than we would have hoped for.”


Brinker International (EAT) Q1 2017 Results Wyman T. Roberts – Brinker International, Inc.

Challenging times across casual dining

“Just as we said last quarter, these continue to be challenging times across casual dining. We’re already seeing some of the weaker players struggle with their viability in this choppy environment. ”

There are some examples of concepts that are shrinking

“We don’t have great metrics around capital spending in the category. But there are some examples of concepts that are shrinking. And in some numbers that are reasonable, we’re talking now in tens and hundreds. So that does make a difference. We’re also hearing from some competitors a dial back, which I think is again encouraging that people are starting to say, hey, listen let’s address the overcapacity and slow things down a little bit. And I heard something recently from a competitor that the expectation was that would also maybe take some of the steam off some of the real estate market, which has not really come back in our opinion kind of represented the softer overall economic situations out there. Still paying a pretty good premium in this environment we think for real estate. So all of those things I think bode well for getting the economics right and getting the supply and demand situation more in line”


United Technologies (UTX) Q3 2016 Results Gregory J. Hayes

China Otis sales down 10%

“We also continue to make good progress at Otis. Our China new equipment orders and units were up 2% in the third quarter and 3% year-to-date. This is in the face of an overall market, which is down more than 5%. I would remind you though, the pricing pressure remains intense, so despite unit orders being up, new equipment orders on a sales basis in China were actually down 10% in the quarter. A tough market right now, but we remain focused on increasing our installed base and converting those units into our service portfolio, which will deliver recurring revenue for decades to come.”

Have seen a slowdown in construction activity in UK

“In Europe, we have seen a slowdown in construction activity in the U.K., we think as a result of the Brexit vote, but the rest of Europe appears to be improving slowly, more than compensating for the slowdown in the U.K.”


Freeport-McMoRan (FCX) Q3 2016 Results
Richard C. Adkerson

It’s clear there’s going to be a need for copper

“Is just, unless you see the world really turning upside down economically, it’s clear that there is going to be a need for copper that’s going to require a significant price increase to justify the spending, and that’s why we feel very good about our long-term strategy.”]


C.H. Robinson Worldwide (CHRW) Q3 2016 Results Andrew Clarke

Carriers raised rates when Hanjin filed for bankruptcy

“Hanjin filed on August 31 and what happened shortly thereafter is the other carriers that remained in the Trans-Pacific eastbound lane began to raise rates. I think what happened then shortly thereafter was that they doubled them. They were up as high as $750 as I mentioned earlier, $750 to $900 a box. Now, we weren’t able to immediately pass those rate increases along to our customers. As I mentioned, our account managers are out there right now having those discussions with our customers to reflect the rates that are now in place in that trade lane. We would expect the impact to trickle into the fourth quarter, but not much beyond that.”


Applied Industrial Technologies (AIT) Q1 2017 Results
Neil A. Schrimsher

October a little softer than September

” I’d say on our sales per day trends – did include expected seasonal softness in July with improvements then in August and even stronger in September. Order trends for October, as expected, developing a little softer than September. However, we still have a handful of days to go. And I’d say year-over-year October is just kind of down low single-digits, which, again, is what we expected looking at the comparables. And, again, that’s got still a handful of days for us to positively impact it.”

Mark Eisele

Foreign exchange rate impact down to zero

” That’s exactly the expectation. If you look at foreign exchange rates, let’s say, for September and if those would stay relatively stable through December, when we look at our overall sales, we would expect to have a 0% impact of currency translation in the December quarter. Then if you keep going on through the rest of the fiscal year, you’d actually see a small positive impact probably in the March quarter and then more flattish in the June quarter. So, our view is, for the entire year, we may end up at virtually zero on FX. Obviously, it depends upon how the rates move from today forward, but that’s our perspective. We’re seeing some stability.”


Range Resources (RRC) Q3 2016 Results
Jeff Ventura

Supply and demand for gas could be more balanced into 2017

“On a macro level, there are signs that later this year and into 2017, supply and demand will be more balanced and pricing could improve. We expect natural gas production in the U.S. to continue declining for the remainder of the year. Based on available data, it appears 2016 will be the first time that natural gas production will decline on the year-over-year basis since 2005. This supply decline is happening while demand for natural gas is increasing, driven by Mexican exports, power generation and LNG exports. Looking towards 2017, the NYMEX Strip has moved above $3 and we think it can continue to climb. Based on where strip pricing is today, we believe that we can grow the combined company at 33% to 35% for 2017. This equates to an organic growth rate of 11% to 13% for 2017, coupled with the full year of the North Louisiana division versus roughly a quarter in 2016. Importantly, this preliminary plan for 2017 also results in strong growth for 2018, assuming a $3.25 per mcf and $60 per barrel, we are projecting that we should achieve organic growth for 2018 of approximately 20%


Miscellaneous Earnings Call Notes

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

It’s a difficult environment indeed

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

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

Incrementally less optimistic in South America and Eastern Europe

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


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

Seeing impact from ongoing economic challenges

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

Retailers are excited about toy category

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


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

Seeing a better turn in markets now

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


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

QSR is taking share with promotions

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


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

James Quincey – President & Chief Operating Officer

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

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


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

Customers aren’t canceling work, just delaying

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


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

April has been better y/y

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


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

No V-shaped rebound

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

Inventory of available homes remains tight

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


Fifth Third Bancorp (FITB) Gregory D. Carmichael

Would grow investment portfolio at slightly higher rates

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


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

The asset management industry is no longer a growth industry

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

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

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


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

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

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

Not seeing anyone build inventory in anticipation of higher prices

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


Miscellaneous Earnings Call Notes 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.”