Miscellaneous Earnings Call Notes 11.19.15

El Pollo’s (LOCO) CEO Steve Sather on Q3 2015 Results

We’ve seen reduced visits from some of our more price conscious consumers

“it was reduced the visits from some of our more price conscious consumers.”

It’s going to take some time for consumers to come back in and see these value initiatives

“I think it’s going to take some time to as consumers come in and see these value initiatives that are on the menu now as well as the service improvements that we’re making. And I think that’s just going to take more time to bring those consumers back. Let them experience that both on the price side and the service side and regain those customers.”

We’re fortunate that minimum wage headwind is being offset by lower commodity prices

“In terms of then managing pricing versus margins, I’m not ready to get into a full discussion about 2016 margins. One thing I will highlight is obviously we do have a minimum wage impact. Fortunate thing is on the commodity side, as we highlighted it worked 3% to 4% deflation, which were actually offset the minimum wage impact on our business”

Value conscious consumer is trading down

“when we did the research what we found is that we saw that the fact — the frequency has declined in our business, especially among we call more value conscious consumers. And we ask them where do you go instead of El Pollo Loco, it was pretty clear where they’re going, which was down to the lower end called the Taco Bells, In-N-Out Burgers and McDonalds.”


Burberry Group’s (BURBY) CEO Christopher Bailey on Q2 2015 Results

Impacted by weaker Chinese Consumer

“given the importance of the Chinese consumer to the luxury sector, our retail sales were affected by a slowdown in total Chinese spending. This reflected weakening consumer sentiment following the stock market turbulence and economic uncertainty over this summer.”

The US slowed markedly in the second quarter

“the U.S. slowed markedly in the second quarter. This reflected uneven demand from both the domestic and tourist consumer. The drivers here remain hard to read against a backdrop of a generally positive economic picture. However, we believe recent stock market volatility may have influenced local sentiment, and that the strong dollar discouraged tourist spend.”

The fundamentals of the luxury industry are changing. Growth is slowing

“current macroeconomic uncertainty, notwithstanding, there is no doubt that the fundamentals of the luxury industry are changing. Growth in Chinese luxury spending is moderating, competition in digital is intensifying, pricing leverage and space growth are tempering and customer behavior is rapidly evolving. For these reasons and more, sector growth is now forecast at just 1% to 2% in 2015 compared with 7% just a couple of years ago.”


Xinyuan Real Estate (XIN) Q3 2015 Results

Xinyuan Real Estate says that Chinese government policies continue to favorably impact business

“With respect to our operational effort on the government policies to continue to favorably impact our business. In the fourth quarter, we remain committed to driving performance of our shareholders with our quarterly cash dividend program. We will execute our sales purchase program as appropriate based on valuation.”


Bancolombia (CIB) Q3 2015 Results

Saw a significant depreciation of the Colombian peso against the US dollar

“During this period, we saw a significant depreciation of the Colombian peso against the U.S. dollar, which caused Bancolombia balance sheet to grow faster when presented in pesos. Let’s remember that the depreciation on an annual basis, it is 53%; and in a quarterly basis, it is 19%.”

Minimal impact though because operations are dollarized

“Nevertheless, despite every expression of assets and abilities into Colombian pesos, the impact in shareholders’ tangible equity is very small. This is due to the fact that all of our operations in Central America are dollarized and the assets that we have in U.S. dollars in Colombia are funded with liabilities in U.S. dollars as well.”

NIM was impacted by a raise in rates by the central bank

“A third topic that drove, and is driving the business environment today is of the monetary policy in Colombia. The Central Bank increased rates by 75 basis points over the last couple of months, which currently proceeds at a level of 5.25%. These increase coupled with our lower growth in deposits in the Colombian system and the higher stock of long-term debt caused the cost of funds to increase during the third quarter. As a result, we experienced a compression in the net interest margin during the quarter.”


Cresud’s (CRESY) CEO Alejandro Elsztain on Q1 2016 Results

Low commodity prices affecting our portfolios

“The low commodity prices are affecting all of our portfolio in all the region and there was a big drop that we saw on the prices mainly on the corn and soybean is effecting margins in all region too. ”

Good weather conditions for crops

“we can see how good weather condition in the region allows a positive start during this planting moment. Rainfall for this summer is above average as we’re going through a New Year. As we can see in the map Argentina presents good weather conditions in general particularly good in the Northeast of the country. In Brazil, even though the rainy season got delayed, the rains went back to the average levels along the normal soybean and corn productions.”


Copa Holdings SA (CPA) Pedro Heilbron on Q3 2015 Results

Latin America continues to be affected by slower economic growth

“Financial results for the quarter were in line with expectations, as Latin America continues to be affected by slower economic growth and weaker currencies. We expect the situation to continue in the short to medium term.”

We expect things to stabilize next year, but not expecting dramatic improvement

“we’re not building into our guidance an economic – an improvement in the economics of our region, we are expecting currencies to be stable, to stabilize, but we’re not building in a dramatic improvement to the economies.”


The Coca-Cola’s (KO) Management Discusses on Morgan Stanley Global Consumer & Retail
Sandy Douglas – President-Coca-Cola North America

Now expecting 4 point worse headwind from FX than expected on 3Q call

“Since our third quarter earnings call, the U.S. dollar has continued to strengthen. So while our business results are on track, we now expect a greater headwind from currency. After considering our hedge positions, current spot rates, and the cycling of our prior year rate, we now expect a seven point headwinds on net revenue and 11 point headwind on income before taxes for the quarter. Now, this is a four percentage point worse than the guidance that we provided.”

Consumers are moving to smaller packages which is higher revenue per volume

“The consumer is now changing. The consumer is moving to smaller packages. A 12-ounce can traded to a 7-ounce can is a 30% reduction in volume, but it’s an increase in revenue.”


TJX Companies’ (TJX) CEO Carol Meyrowitz on Q3 2016 Results

Carol Meyrowitz – Chairman and Chief Executive Officer

We like competition

“there is always competition and our job is to be outrageous value every day and have a very unique eclectic mix and that’s what we strive for. We don’t harp on we move forward, we don’t harp on the competition, we like competition, we like when we are next two, I won’t name certain stores, but we’re fine with it, it brings traffic and our job is to do a better job.”


JPMorgan Chase’s (JPM) Management Presents at the Bank of America Merrill Lynch
Daniel Pinto – Chief Executive Officer, Corporate and Investment Bank

IN fixed income trading you need to have scale and diversification

“when I look at the fixed income business, I think that, in my view the key of success in fixed income is scale. It’s a relatively expensive business to run and if you have scale, you can make it profitable. The other component that is important to me is to have diversification because when you look at what has happened for the last couple of years, two, three years, one of the challenges in business was the rate business. This year is doing very well. So credit has done very well in the last few years even though the climate this year has a bit more challenge than before.”

I do believe the Fed will move in December

“I do believe that the Fed will move in December. I think that, as you look at where the market is pricing today, is probably pricing 75% probability of that were to happen. So I think that the impact in trading will be not very relevant at all. I think that the Fed is starting to cycle.”

M&A is still healthy. Companies have to show growth somehow

“The M&A process is still very healthy and will continue to be so in the sense that companies will – the S&P earnings growth this year is zero when you look at the evaluation. So you would argue that companies need to demonstrate some growth. At this level of growth, in the United States for the economy, there will have to be a bit more inorganic than organic, so therefore the M&A will continue as long as funding and capital is available. I think that funding and capital is available. I think that the risk appetite overall has dropped recently.”


Walgreens Boots Alliance’s (WBA) Management Presents at Morgan Stanley Global Consumer & Retail Brokers Conference
George Fairweather – Chief Financial Officer

This whole industry is going to see reimbursement pressure

“I think specialty like other parts of market will continue to come under reimbursement pressures. I don’t think there is any part of the market that’s going to escape. And this is just the way of – the way of our industry. The healthcare expenditure here in the United States is still a high proportion of GDP versus perhaps what you might see in Europe where I come from. And I believe that what we are going to see in our market is continued pressure on growth in healthcare expenditure. We will see pressures in various reimbursements and then what we have got to do is continue to drive efficiency, drive the front-end profitability.”


Micron Technology Presents at UBS Global Technology Brokers Conference
Ernie Maddock – Chief Financial Officer and Vice President, Finance

It would be pretty silly for the Chinese to try to compete in DRAM

“I would tell you that if you aren’t in the DRAM space, it’s kind of tough to imagine finding that a particularly appealing space to want to deploy a lot of capital and a lot of effort in and certainly as has been released in the press over the last couple of days, I think there’s been some commentary made about at least one particular Chinese entity having not being interested in DRAM per se. But it’s a business that is quite mature. It’s hard to envision that capacity expansion will be required based upon what we know of bit growth and where we think folks would be on the technology curve. And I think whether your perspective is that DRAM technology is very near the end of its technical capability or not quite to near the end. I think there is at least some amount of finite lifetime that certainly [indiscernible] if I were thinking about a rational economic investment in an industry, it wouldn’t be one that is in this state of maturity, because I think the opportunities for success there would be pretty low.”

Still in the very early stages of understanding the potential of 3D X Point

“because it is arguably the first new memory technology in 20 years, we’re having to learn how that market is going to develop. And of course, there is a relationship between how quickly the market develops, how quickly output ramps up and what happens to cost as a result of that. So there are still a lot of variables at pay that are quite different than the visibility, the understanding and comprehension we have of the NAND business or the DRAM business. So we are at the very early stages of learning here”


E-House’s (EJ) CEO Xin Zhou on Q3 2015 Results

Next year’s real estate market wont be much different from this year’s in China

“Overall, we don’t think next year’s real estate market will be very different from this year’s. The main theme is still efforts encouraged by the government to reduce inventory, reduce the overall level of inventory. And we continue to believe the Tier 1 and Tier 2 market overall will be healthier relative to the Tier 3 and Tier 4 business, which will continue to experience difficulties.”


Staples’ (SPLS) CEO Ron Sargent on Q3 2015 Results
Ron Sargent – Chairman and CEO

Markets softened across all categories early in the quarter

“Early in the quarter, the markets softened across all categories relative to the trends we had seen during the first half of 2015. We also saw deceleration in our contract print business as we cycled a couple of large customer wins from last year and continue to feel pressure from the ongoing digitization of our forms business.”

I don’t know if there’s been a lot of change in corporate spending behavior

“from my perspective, I don’t know if there’s been a lot of change or differences in corporate spending behavior. I know in general, technology has been weak and we have had great success in selling products beyond office supplies.”

Office supplies down to only 45% of sales mix

“You look at the total company mix, gosh, it wasn’t that long ago, we were probably 75% to 80% office supplies and today I think that number for the whole company is probably about 55% office supplies and 45% BOS or beyond office supplies, and obviously, as BOS continues to grow, at some time point those lines will cross and will be more non-office supplies than we are office supplies.”


Macy’s Management Presents at Morgan Stanley Global Consumer and Retail Broker Conference
Karen Hoguet – Chief Financial Officer

Clearly the consumer isn’t doing as badly as our industry

“clearly the consumer isn’t doing as badly as what my industry, our industry is doing, because of some of the shifting in spending patterns of the customer. But that didn’t change between Q2 and Q3.”

Top malls are still going to be fabulous shopping experiences

“one of the thought from the industry that I hear most often is what is the future of malls? And we kept hearing ourselves saying, we have absolutely no doubt that the top malls are going to continue to fabulous shopping experiences.”


Wells Fargo’s (WFC) Management at BAML conference
David Carroll – Senior EVP, Wealth and Investment Management

I’m bullish on financials

“Personally, I’m very overweight financials; I have it for a long time. But seriously, I’m pretty bullish on the sector. I think institutions are very positively positioned relative to raising rates. I think if we do get any kind of economic expansion, financials are going to be the beneficiary of it. But, we are better capitalized more liquid than we have been in a decade. I think in our case, given the breadth of our business mix, whatever parts of the economy, you are experiencing growth we are going to benefit from it.”

DOL proposals on fiduciary standard have unclear impact

“Again we don’t know. There is speculation that this could be the catalyst for the demise of 12b-1 fees and other types of network — networking fees. We don’t know. So it’s kind of pointless to speculate on it. At the end of the day, we have enough confidence in our platform and in our client relationships. We think we’ll be successful.”


Tractor Supply Company’s (TSCO) CEO Gregory Sandfort Presents at Morgan Stanley Global Consumer and Retail Brokers Conference

There’s a lot of things that can’t be delivered to a customer via drone

“Omnichannel for us is a growing business but there are a lot of things that can’t be sold on omnichannel and delivered to the customer through a drone or through an easy methodology. And some of these things are things that are unique to Tractor and we have to find ways to get it to our customer.”


Philip Morris International (PM) Management Presents at Morgan Stanley Global Consumer and Retail Brokers Conference
Jacek Olczak – Chief Financial Officer

Russian market responding to price increases reasonably well

“So far the total industry volumes are responding to the price increases within the sort of acceptable elasticity ranges, but we’ll have to – I think Russia will remain one of the least of the countries to watch the next year. I mean so far everything seems to be working well. There is some down trading, but with the price increases which we are taking there, I mean obviously you will have some down trading.”

No Macro environment that really concerns me

“Nothing today stands in the least which would worry me. There are few places to watch, but I think it’s pretty manageable going forward.”


General Motors’ (GM) CEO Mary Barra Presents at Barclays 2015 Global Automotive Conference

More change in this industry in the next 5 years than we’ve seen in the last 50

“I believe that we’ll see more change in this industry in the next five to 10 years than we’ve seen in the last 50, but we are not waiting to follow, we are not waiting to be disrupted, we are disrupting ourselves because with all these changes and challenges there is also opportunity whether it’s the strength in the U.S. market whether it’s the growth potential in China although China is moderating and even with the non-traditional entrants coming in the space when you look at the assets that we have and I’ll cover them as we go through the presentation, we feel we are well positioned.”

Will be launching the Bolt 200 mile range

“And we’re very excited about the next generation Volt which is the foundational technology that enables us to be able to be launching the Bolt, and the Bolt will go 200 miles on a charge, this really starts to change the equation in all electric, remember the Bolt is extended range electric vehicle because once you get to 200 miles you really get to a point for most drivers most days even with unexpected, you’re not going to create range anxiety”

You could make the argument that sharing cars will expand the market

“”when you look at sharing you can look at it and say, hi that’s going to be less cars sold. But you can also say it’s going to enable people either the use or people who have some impairment or at an age where they are not able to drive. And so I think it expands the market.”


JS Earnings Call Notes 10.22.2015 – Halliburton, RLI, United Technologies, Bank of New York, Travelers, Pentair, iRobot, General Motors

Halliburton (HAL) President Jeff Miller says their business remains pressured but they ultimately expect a recovery in their end markets

“The pumping business in North America is clearly the most stressed segment of the market today, but it’s also the market that we know the best. We know our approach works when the market turns, and it will. This is the segment that we expect to rebound the most sharply.”

They expect oil drilling activity will remain tepid for the rest of the year

“We believe these prices are clearly unsustainable, but as we have been saying all along, pricing cannot stabilize until activity stabilizes. Looking ahead to the fourth quarter, visibility is murky at best. Based on current feedback, we believe most operators have exhausted their 2015 budgets, and will take extended breaks, starting as early as thanksgiving. Therefore our activity levels could drop substantially in the last five weeks of the year.”

They remain in active negotiations with the Department of Justice to gain regulatory approval to complete their Baker Hughes acquisition

During the quarter, we announced the second tranche of businesses to be marketed for sale in connection with the acquisition of Baker Hughes, and we expect that marketing process to begin shortly. On the first tranche of divestitures, we have now moved into the negotiation process. On the regulatory front, during the quarter, the timing agreement with the DoJ was extended by three weeks, and accordingly, Halliburton and Baker Hughes agreed to extend the closing date to December 16th.”

Halliburton (HAL) CEO David Lesar said their customers always want to drill 

And I think one of the things that our customers demonstrate, and believe me, we love all our customers. If they have cash they are going to spend it.”

Over half of the equipment is idled right now

If we look at the amount of horsepower that’s idled right now, just on the side lines, about half of it is on the sidelines today in terms of stacked equipment. And that’s equipment that’s not getting any maintenance, and it’s being cannibalized for parts.  The other factor that we see now, service intensity continues to increase actually on a per well basis. And so, that’s yet again harder on the equipment that is working. So if we look at what’s stacked today, we think about half of that equipment stacked today will not be ultimately serviceable. So that maybe in their estimates four to six million horsepower out of the market in ’16.”

Halliburton (HAL) CEO David Lesar ultimately expects the pricing of their services to recover

There are some key customers as Jeff said in key basins that have been very loyal to us, and we want to stay loyal to them. We know they are going to survive. We know they have good assets. We know they are going to get a budget reload, and we know that they want to take advantage of the services pricing that’s out there today, even if I don’t like that service pricing, it is there. It’s a fact of the market. This is a long-term game we are in. These are long-term customers we have. We typically make good money from them in good times, and I’m not going to walk away from them in the kind of times we are in today because it will pay off in the long run, and I think that’s in my view the smart way to approach this.”

 

 

  

 

RLI Executive Vice President Craig Kliethermes said the firm’s superior underwriting continues to shine

RLI was founded on the promise of finding really smart disciplined insurance professionals and aligning their interest with shareholders. The culture of underwriting excellence will continue to be the focal point of our organization.  We posted an 81 combined ratio for the quarter which leaves us at 83 year-to-date. All of our segments came in under a 90 combined ratio.”

And they have been able to slightly increase rates  

Rates overall have been slightly up about 1% to 2% for the quarter and year-to-date mostly led by rate increases on all wheels based businesses.”

One of the strongest sectors of their business has been automobiles and trucks where they have an excellent reputation 

In casualty we continue to be led by our transportation business. We grew over 40% in the quarter and are up over 20% year-to-date while margins remain good. Rates were up nearly 10% for the quarter driven mostly by the public auto sector. While many have suffered terrible fates in the wheels business our results have evidenced, our underwriting discipline, and that relationships and expertise really do matter in this business. We had several large customers return to us this quarter as a result of poor service and claim handling by our competition.”

Catastrophe pricing remains weak  

Cat pricing continues to be down double-digits, went down a little more than quake. A very challenging environment to write much new business, the focus is to keep the best renewal accounts.  The broader market in general does not seem rational and disciplined to us.”

RLI Executive Vice President Craig Kliethermes reiterated what separates his company from the competition

We regularly see flights to markets that appear to produce exceptional underwriting results. It isn’t that easy, whether it be surety or more generally to specialty space, it isn’t the title specialty business that automatically earns you good underwriting results. You can’t get specialty results without specialists. That is what we have at RLI, specialists with a narrow and deep expertise and underwriting and handling claims that in a particular niche market that should differentiate us in all market cycles particularly in the more difficult troughs.”

 

 

 

 

United Technologies (UTX) CEO Greg Hayes said the sale of the Sikorsky helicopter unit reduces the company’s overall reliance on government spending

“When the Sikorsky sale is complete, the UTC portfolio will be focused on its core businesses, and that is supplying innovative game-changing technologies for the buildings and aerospace systems industries. Going forward, UTC will have a better organic growth profile, along with higher operating margins and a stronger, more predictable cash flow. And defense exposure for UTC goes from 19% to 13% on Sikorsky.”

United Technologies (UTX) CEO Greg Hayes highlighted some of the secular growth trends which will fuel their end markets 

“Thinking about Buildings and Aerospace portfolios, we’re very well positioned. Otis is the best elevator business in the world. And I say that because we’ve got 1,800 branch offices, we’ve got 3 million unit installed base and we service over 1.9 million elevators on a daily basis.  Our Aero backlogs are at their highest levels ever, giving us confidence that Pratt and UTAS can deliver the strong revenue growth goals that they’ve laid out.  The long-term outlook remains solid, innovative products, industry-leading franchises, global scale and solid market fundamentals in our core businesses, driven by revenue passenger mile growth and the global expansion and continued urbanization of the middle class.”

While China continues to decelerate  

In Asia, we continue to see the China market weakening. Growth in fixed investments has slowed considerably. Otis new equipment orders in China were down 19% in the quarter after being down 11% in the first half of 2015.”

And they expect next year will remain a challenging sales environment as well for the entire company

“Net-net, as Greg said last month, 2016 will likely be another challenging year. Earnings in three of the four segments – Otis, Pratt, and UTAS – will be flat to down even with the pension benefit.”

United Technologies (UTX) CFO Akhil Johri said almost half their revenue is recurring

Also we have a significant base of recurring revenues, which today account for about 45% of UTC sales.”

United Technologies (UTX) CEO Greg Hayes said the company operates with a 30 year time horizon

It’s simply a recognition that while we have to make investments in the short run, this is really a 30-year time horizon. We’re investing in engines today, we’re investing in elevators today that we’re going to service for 30 and 40 years.”

United Technologies (UTX) CEO Greg Hayes acknowledged they have lost market share to elevator competitors, such as Kone

And so to your point, KONE has gained share on us in China. We’re not happy, we’re going to go after that and not just China, really it’s globally.  It’s about having great product and a great service team and great leadership and we’ve got that across-the-board in Otis today and I’m confident we’re going to be able to regain share without sacrificing a lot of margin.  The loss in China market share, to some extent, was driven by a conscious decision on our part not to play in certain segments.”

And they are remaining disciplined when evaluating potential acquisition opportunities 

“We have not seen or found an asset of quality that we like quite yet, but we continue to look. And it ultimately comes down to, can we buy a business and create real value for the shareowners without having to give all of that value to their shareowners in the firm  in the form of a very high takeover premium.  I think what’s off the table today is the bigger deal. We’ll do deals in kind of that $1 billion to $5 billion range, things that we can finance with existing cash or cash flows or what we have on the balance sheet.  So over time, as the UTC share price recovers back to towards where intrinsic value is, we may think of a bigger deal.  We’ve closed on a couple of deals and we’ve walked away because the value wasn’t there at the end of the day after we did due diligence and we did the right thing.”

 

 

 

 

Bank of New York Mellon (BK) CEO Gerald Hassell said the firm is finding it a difficult environment to grow revenue so they are focusing on what they can control which is namely operating expenses

Our priority is executing on our business improvement process that leverage our scale and expertise to deliver efficiency benefits to clients, while reducing our structural costs. Our success on this approach is reflected not only in lower expenses in nearly all categories, but in our industry leading market positions across all of our businesses.  And we have also been analyzing our current real estate portfolio to reduce cost. And we are selecting locations and workplace standards that enable collaboration and innovation.”

Bank of New York Mellon (BK) CFO Todd Gibbons said due to negative interest rates in Europe, the bank is charging some of its customers to hold their deposits

There is a slight decline, in deposits since we initiated that strategy, but not much. We did up the charge for some of those deposits in the third quarter, late in the third quarter. And I would say just seeing a modest decline, if any.”

And they plan on improving their advisor retail offering

“Absolutely, what I would point you to is that while we are the sixth largest asset management in the world, in terms of U.S. mutual fund families, we are currently 37th. So we have all of the investment capabilities or a large majority of the investment capabilities in-house that is used by investors that use mutual funds, financial advisors and individuals, ultimately as the end users. But our platform to reach advisors is below where we think it should be or where it could be to really improve our distribution of our investment capabilities through that channel.”

 

 

 

 

Travelers (TRV) CEO Jay Fishman said analytics and pricing policies appropriately have been a huge competitive edge for the company

But as I reflected on this quarter’s earnings as well as the string of quarters that we put together over the recent past, my hypothesis is that the competitive advantage of analytics, risk selection and pricing management have had a meaningful effect, particularly cumulatively. I can’t prove it to you because I don’t know what our results would have been if we weren’t just good as we are. But I do believe that one of the important factors that has led us to produce industry-leading returns is the fact that we have managed the changing rate environment over the last five years as effectively as we have.  I am certain that it has mattered and you should know that the commitment to analytical insight that produces these advantages is very much a part of the DNA of this place.”

Travelers (TRV) CEO Jay Fishman said their customers tend to be some of the older demographics

And we know that for example from our experience of being the GEICO partner for as many years as we have been, the customers that buy directly are on average, now it doesn’t mean that we are on lots of exceptions but on average they are younger, more single, more single cars, more minimum limits, they are a different driver than a higher end older, importantly older driver, the sort of type that was typically been a Travelers customer. So you can speculate and it’s all it is, is it possible that distracted driving is impacting that younger group disproportionately relative to the older drivers.”

Travelers (TRV) CEO Jay Fishman reiterated the company’s acquisition strategy 

And I would just add that in the context of acquisitions, we’ve been actively engaged with anything that’s transpired, we’ve established views of value and where value can be created, and points at which it can be and if we would have find the transaction, that would fit strategically, that would enable us to either reduce the volatility of our own returns or potentially even improve them and of course, that’s hard being the highest return competitor in the industry, but if we can find that, we’re not uncomfortable moving ahead, where we have done a few transactions in our lives and feel that we have got the skill base to execute and so we will always keep looking.  

 

 

 

  

Pentair (PNR) CEO Randall Hogan said customers are delaying their purchases and deferring maintenance

“Core sales in all four Valves & Controls sub-verticals were down double digits with the steepest declines in mining. We also saw weakness in our short cycle business, which is further evidence that customers will not only cut capital expenditures this year but are also deferring some maintenance turnarounds and operational expenses.”

Pentair (PNR) CFO John Stauch elaborated on 2 distinct distribution strategies for the company

Our customer buys from us either in a short cycle, I need it quickly, I want it for a installed based or MRO aftermarket application, or I’m seeking an engineer to order application or a project. So, our sales force has been working to meet those customer needs in that regard.  So, what we’ve done is we’ve aligned the two value streams to support that within the business around those two buying proposals, which starts to identify the needs to serve the short cycle, which means I need local inventory, I need to get it to you in 24 to 48 hours, I have to have service centers to be able to give you the service you need. And then on longer projects, I can generally ship that from anywhere in the world, and I can begin to work and then engineer the order to the customers’ needs.  The standard is obviously a higher margin, and you’re buying something that you need on a like-for-like basis.”

 

 

 

 

iRobot (IRBT) CEO Colin Angle said the business saw weak sales in Japan

Q3 revenue met our expectations, due to continued strong growth in the United States and China, partially offset by softness in Japan. Third quarter earnings exceeded expectations, primarily because we decided to curtail the planned incremental Japan marketing investment, as the overall economic climate in the region was dampening its impact.  While we are experiencing weakness in a few isolated international markets, we expect the macro impact to be temporary.”

Despite increased competition into the robot vacuuming category, they claim they are still leading the category

While we are experiencing weakness in a few isolated international markets, we expect the macro impact to be temporary. Global spending in robot vacuum cleaners continue to grow, and we are maintaining our leadership position in the market, despite several recent entrants in the category.  As the vacuuming market continues to grow, there are new entrants, but they have not impacted our share, and so I think that that’s the key message that we have been able to successfully raise our performance bar swiftly enough that, we feel like we are increasing our performance lead over the competition, and the market share figures support that confidence and the performance of our products.”

iRobot (IRBT) CEO Colin Angle referenced one of their products high ratings on Amazon as a validation of the quality of the end product

And the performance of the robot has been outstanding, and it is a huge amount of technology that we just put on the marketplace, so that the fact that we are getting very high ratings on Amazon, suggest that the tremendous amount of work we went into ensuring that connecting the app and the ease of use of the app and the navigation technology ability to function in real world environments, is all proving out in a very positive fashion.”

And they are collecting data direct from their robots on how and when the products are being used

We actually feed back to our customers, the ability to monitor when the robot came out, and how much area that it covered. Those are things that we also can collect and understand. So just plain usage data and run time data are two of the earliest things. Also if you call our customer service line, with an issue on the robot, the robot will be able to give us some information, as to its own state. And so, those are all very-very helpful in order to improve customer confidence and customer experience.”

 

 

 

 

General Motors (GM) CEO Marry Barra cited the company’s improved emphasis on investment returns as opposed to the old strategy of sales volume

“Adjusted automotive free cash flow of $0.8 billion reflects seasonality and the settlement of several uncertainties, and our 26% return on invested capital based on a trailing fourth-quarter average demonstrates that our disciplined capital allocation is paying off. It had $3.3 billion in EBIT adjusted with an 11.8% EBIT-adjusted margin. These are both records for North America.”

Truck & SUV sales were strong and they picked up additional market share

“Clearly, trucks, crossovers and SUVs drove strong sales gains. U.S. retail market share in Q3 was up nearly 1 percentage point from a year ago, 16.5% compared to 15.6% in 2014. GM’s share of the entire retail full-size pickup segment is approximately 40%, up 2 percentage points from a year ago.”

General Motors (GM) CEO Marry Barra intends to use their scale to drive further efficiencies and higher profitability

We’re leveraging our scale across the value chain to develop this new vehicle family that will require less capital, generate more volume, and drive more profitability.  And as we look at cost efficiencies, we continue working across the entire value chain to make sure that we are as efficient as possible so we can enhance the customer experience and also drive shareholder value.  As we talked about in the Global Business Conference, we have identified $5.5 billion of savings from the 2015 to 2018 timeframe. And that’s from purchasing initiatives, manufacturing, driving for efficiencies and reducing administration expenses.”

General Motors (GM) CEO Marry Barra said the company continues to focus on selling vehicles in smaller Chinese cities as opposed to competing in the hyper competitive large urban marketplaces

And despite the slower growth, there is still significant growth potential for China. Much of the growth will be in the Tier 2 to 4 cities and that currently represents 85% of GM’s volume. We will continue to focus on sustaining strong margins between 9% and 10% through the sales growth that is afforded by MPVs, SUVs, and Cadillac.”

General Motors (GM) CFO Chuck Stevens said they are combatting the slowing growth in China by managing their mix

And as we’ve talked about on a number of occasions, we’ve been able to generate these results specifically because the team in China has been proactively managing the market risk with several actions such as optimizing mix – and you saw the results with the September sales being up significantly from an SUV perspective – aggressively reducing cost by rolling out cost-down-efficiency-up initiatives and really working to manage our inventory levels and ensure that we’re aligning supply and demand.”

And they’ve been able to generate a substantial amount of savings by altering their material cost

But if you look just one of the components of that, this year we’ve talked about non-raw-material performance of $2 billion. We’re very, very much on track to deliver that.”

General Motors (GM) CFO Chuck Stevens said the entire car industry is acting more rationally than in the past by utilizing less discounting of end products

Overall, the dynamics in the industry remain reasonably rational.  One of the things that we talked about and if you look at the share performance year-to-date is our real focus on shifting our volumes out of fleet and into retail because retail is more profitable than fleet.”

JS Conference Call Notes: FDX, WFC, IBM, GM

FedEx (FDX) Chairman Fred Smith said the company is performing well given the economic landscape

“FedEx Corporation is performing solidly given somewhat weaker than expected global economic conditions, especially in manufacturing in global trade.  Weather foreclosures, lower oil CapEx and weak export from the strong dollar, slow production early in the year due to the strong imports we saw and inventory buildup in the first half of calendar ‘15 which will be a drag on IP in the near-term.”

And they’re raising prices with an emphasis on charging more for packages with odd dimensions

“As we announced yesterday, we’ll be raising rates at FedEx Express, Ground and Freight by an average of 4.9% on January 4, 2016.  In addition to the rate changes, FedEx is also increasing surcharges for unauthorized packages in the FedEx Ground network that exceed the size and weight limits as outlined in the FedEx service guide. And we’re also updating certain fuel surcharge tables at FedEx Express and Ground effective November 2, 2015.”

They’re starting to see wage pressure which hurt the company’s bottom line

“Looking at Freight, operating results declined in the first quarter as salaries and employee benefits expense outpaced lower than anticipated volume. Salaries and employee benefits increased 10% from planned initiative and increase staffing levels to handle higher than realized shipments.”

FedEx (FDX) CEO David Bronczk highlighted the customer’s flexible network which is able to adjust to rising or falling parcel volumes

“Our network around the world are base powerful network we have in place is balanced around the world. We adjusted our networks several quarters ago. So right now, we have a very flexible network that when the volumes go up, we can add cost. When the volumes go down, we take out cost, which is why we’ve done so well in our profit improvement program.”

 

 

 

 

Wells Fargo (WFC) CFO John Shrewsberry reminded investors of the bank’s unique culture

“Our vision is built around this unwavering focus on our customers. We want to help them in every way that we can. It’s the heart of our culture, which is the most important part of our success and it’s a significant contributor to our long-term performance and stability.  Banking is necessary, but banks or not. That’s a tough thing to say in the room full of bank investors.”

And he said the company continues to adapt and position itself for a low interest rate environment

Obviously, the subject of interest rates remains very topical and in our own view it has evolved over the last year to more of a lower for longer expectation than in prior periods for both short-term and for long-term rates. As a result, we’ve been adding duration to our balance sheet. Over the last few quarters, both through the purchase of securities as well as the use of interest rate swaps and some of our floating rate portfolios. We still remain asset sensitive and we’ll benefit from higher rates, but we stopped waiting for higher rates in order to grow net interest income.”

Their customer default rate is at a multi-decade low

Our net charge-off rate declined to 32 basis points for the first half of 2015 and with 30 basis points in the second quarter, our lowest level in at least 20 years.  Non-performing assets have declined for 11 consecutive quarters and are down $17 billion or 54% from their peak in 2010. Our performance has benefited from the significant improvement in residential real estate.”

While their oil & gas loans remain a small fraction of total loans outstanding

“Since energy remains top of mind with some investors, let me remind you that our oil and gas business or that loan portfolio accounts for 2% of our total loan portfolio, slightly more than half of these loans are to businesses in the exploration and production sector driven by the drop in energy prices and the results of our spring re-determinations.”

The firm continues to benefit from low funding costs on their customers deposits   

Turning to deposits, growth has remained very strong over the past five years. Average deposits were – are $1.2 trillion up $83.8 billion or 8% in the second quarter. We’ve been able to continue to reduce average deposit costs to 8 basis points down 2 basis points from a year ago and down 20 basis points from five years ago.”

Wells Fargo (WFC) CFO John Shrewsberry highlighted some of the firms competitive advantages

We believe that our strong distribution, leading market share, diversified revenue sources, low cost deposit base, strong risk culture and experienced management team are very durable advantages for Wells Fargo.”

 

 

 

 

IBM’s Senior Vice President of Analytics, Bob Picciano, cited helping companies scale their operations globally as one of his firm’s greatest strengths

“For the programmatic era of computing, it was very clear that IT created value for businesses by helping them codify their business processes.  What does it means to open an account, to process a claim, what does it mean to manage the case, what does it mean to create an electronic medical record. Those sorts of things were codified processes that allowed an organization to scale the way they did business in a unique way and really move from individual operations to regional, to national, to multinational, to globally integrated and the essence of those brands formed up through a set of applications. And that was incredibly valuable and IBM enjoyed a great deal of success in helping our clients really scale that environment.”

IBM’s Senior Vice President of Analytics, Bob Picciano, said his company is increasingly coming into competition in the analytics space with other IT giants such as Microsoft & Oracle

“There are some folks that have been in this competitive space with us for some time. You see some traditional data providers in this space like an Oracle or a Microsoft that are trying to use their data capabilities to branch into other aspects of business intelligence and analytics.”

 

 

 

 

GM North American Chief Financial Officer John Stapleton said they have dramatically reduced fixed costs in the business

“Right now, our breakeven is between 10 million and 11 million units. So, we have taken a considerable amount of fixed cost out.”

And the company has been able to raise prices over the last few years

“From a new model perspective, when we launch a new vehicle, we are fortunate to be able to take price. I think everybody realizes that.  When you get a brand new product, you can actually take price.”

They continue to believe their OnStar platform will be an incremental revenue opportunity

So, insurance companies would love to have more data on the car, how the customer is driving the vehicle. If the customer permits it, we could actually give the insurance company data that would say this customer is a very safe driver. It’s a benefit for the insurance company. It could be a benefit for the customer and a benefit for General Motors, because we will sell the data.”

GM North American Chief Financial Officer John Stapleton said one of the biggest areas of cost savings has been materials costs

Material cost optimization, in 2015, we have been fortunate and we publicly disclosed material cost optimization for the company globally of about $2 billion.   We are generating it by bringing suppliers in very early into our vehicle development process. We are actually working hard to take mass out of the vehicle and talk is interesting, but on the Chevy Malibu, we pulled 300 pounds old Malibu to new Malibu out, less weight, in most cases, equals less cost. We are reducing our build combinations. In the past, we had a lot of options and a lot of part numbers. If you reduce build combinations to what actually sells at the highest rate, you improve the terms for the dealers you reduce our number of part numbers, and ultimately, improve the scale of buy.”

GM North American Chief Financial Officer John Stapleton mentioned that the company dominates the SUV segment

And finally large SUVs, again this is a great contributor to General Motors relative to profit. Chevy and GMC, we dominate this segment.  We have 72% market share, so Chevy alone has 50% market share.  Our average transaction price has increased roughly $2,400 from an MSRP perspective.”

 

GM at Citi Tech Conference

GM at Citi conference

Mike Ableson – VP of Global Planning and Program Management

I’m not so focused on how old the buyer is or the customer or whether they fit into the millennial generation or a different generation. But it is true that there’s a growing number of consumers out there who have a very different view of what cars should be and what they should do and what their ownership models might be than the traditional model we’ve been in for over 100 years. So, again, not so much focused on that specific demographic but that attitude towards cars.

The other thing that’s pretty inescapable and I’m sure all of you understand is this move towards cities, and we see this happening globally

we also see this growing idea that the ownership model is going to change. The model that we’ve been in where one person buys one car maybe different in the future going forward.

Autonomous vehicles, in the long term I think this will change the entire industry, right. When you can have a car that you get in and say this is where I want to go, take me there and you can do something else while you’re in transit, that’s a very different experience than what we have today. And in the company, we continue to move aggressively in this space. In the 2017 model year, we will introduce what we call SuperCruise, which is the ability on freeways to be hands-free, feet of the pedals. You still have to pay attention to what’s going on, but the car will drive itself. And as I said that’s coming in model year ’17.

if you go out and do market research right now, you’ll get a fair number of customers that say, oh, well, I don’t know if I want that autonomous. I think it will be one of the things that people once they start experiencing it, will get used to very quickly.

And so to your point, I see us moving from SuperCruise and we’ll just keep expanding the capability whether it’s the types of weather it can handle, the environments it can operate in. I think everybody understands that trying to operate in urban environment is much tougher than operating in a freeway environment where in an urban environment, anybody can step out between two cars at any time and there are all sorts of things that happen that are hard to predict.

our experience has been people may initially be reluctant or anxious about this technology but then they tend to swing very quickly from now being sure about it to being maybe overconfident about it.

You started your question with how do we think about electric vehicles, clearly electric vehicles are going to become our bigger and bigger component of the industry. I don’t personally think we’re going to take over the entire industry. There’s some used cases that battery aren’t ideally suited for. They’re very good for driving in the city where you’re capturing the energy of regen braking and putting it back into battery. But if you’re driving long distances on the highway it’s not necessarily the best answer.

I think everybody gets that the end stage is autonomous vehicles, call them robo taxis that will take you from where you are to where you want to be, and then there are all sorts of interesting questions around who owns them, how many do you own.

We run our own simulations internally and we see a whole range of outcomes that are hard to predict because some of the factors like will people downsize their fleet because autonomous vehicles – if they have two cars today, will they go to one autonomous vehicle. Some people say yes. On the other hand, autonomous vehicles – even if the vehicle is autonomous, it can’t be in two places at the same time. So if and my wife want to be somewhere at the same time, we still have to have two autonomous vehicles.

It’s widely quoted that the vehicle as an asset just from an economic standpoint is very inefficient because it’s only actually used people say 4% or 5% of the time and the rest of the time it’s sitting there parked. So obviously there’s opportunity to make more efficient use of that asset. And some of these sharing models I think are going to be the answer especially in areas with high population density and so on.

JS Earnings Call Notes 7.23.2015 – Las Vegas Sands, American Express, Nasdaq, Graco, General Motors

Jeremy S., an investment analyst here in Southern California, has started to contribute to Avondale’s company notes database. Below are quotes from some of the calls that Jeremy has read this week.

Las Vegas Sands (LVS) CEO Sheldon Adelson said the company saw its market share of the Macao casino market increase during the quarter

“In addition our gaming revenue market share in Macao reached 24.6 for the quarter, our highest market share in any quarter since quarter one of 2009.”

And the firm continues to try to secure the first mover advantage in various geographies

“At the heart of our company’s success, is having the right strategy at the outset. We have the courage of our convictions to build early and aggressively. We developed critical mass to scale and diversification and we offer products and amenities that are best positioned to capture long-term tourism and consumption growth in Asia  I remained steadfast to my belief that we will grow and prosper in the long-term, while continuing to contribute to the economic development of our host jurisdictions.

Las Vegas Sands (LVS) CEO Sheldon Adelson stated the company’s hotels remain a highly desirable destination for Asian tourists

“The scale of our hotel room inventory remains one of our key strategic advantages. It allows us to target higher value overnight visitors from Greater China and the rest of Asia and to grow the base of high value visitors from Macao.”

Las Vegas Sands (LVS) CEO Sheldon Adelson called out the weaknesses of his main competitors in the casino environment

“Take for instance Galaxy, they have little experience in their executive ranks.  SJM, I don’t see that they have the ability, they’re not used to living in a competitive environment all over.  And Wynn is used to competing but he is specialized as we all know, he has specialized and done an excellent job in the high end of the market.  And what’s the last one MGM, MGM the only thing they have ever developed was City Center and for those of us in the United States, particularly those of us who live here in Vegas it doesn’t need any further comments. So from our standpoint, we are very pleased we’ve worked in competitive environments all of our life. We have been never, not worked in a competitive environment.  But other people are making mistakes we’re not making the same mistakes.”

Las Vegas Sands (LVS) CEO Sheldon Adelson thinks there will be another opportunity to build a casino in a new country in Asia

“There’s a lot of conjecture about what a new development opportunity in an emerging market like Japan or somewhere else in the Far East, keeping our powder dry so we can go after that aggressively and we could build, what it takes to build to win the day, to win the competition. We are keeping our powder dry in our borrowing capacity.  We as I said earlier, we’re beginning to feel vibrations that a development opportunity is hopefully around the corner.”

 

 

 

 

American Express (AXP) CFO Jeff Campbell said a number of headwinds are impeding profitability and the company won’t return to earnings per share growth until 2017

“We also believe our outlook to return to positive earnings per share growth in 2016 and to be within our target range of 12% to 15% earnings per share growth in 2017 remains appropriate. As you recall this outlook does not contemplate the impact of any restructuring charges or other contingencies.”

The company’s termination of the Costco deal is starting to impact the business

“Another driver of the sequential change in billings growth the U.S. CS segment was our Costco US portfolio. Historically, Costco billings have tended to generally grow in line with the U.S. CS average growth rate, but in the quarter, while still positive, Costco co brand car growth rates slowed to well below the segment average. The slower growth is in part due to a decrease in new card acquisitions. As you would expect during a wind down period, we have agreed with Costco to reduce our joint marketing efforts.”

In contrast to competitors Visa & Mastercard, American Express makes loans to its customers and CFO Jeff Campbell said defaults are at historically low levels 

“you can see that our lending credit metrics remain at or near historically low levels with our write-off offering declining slightly versus last quarter and our delinquency rate remaining flat. As you can see on Slide 11, the steady lending credit performance as well as lower write-off and our charge card portfolio and benefits from FX helps drive a 4% decline in provision versus the prior year.  Moreover, as we discussed at Investor Day we did build into our multiyear financial outlook and assumption that we would see some steady upward tick in write-off and a modest build in reserves over the outlook period.”

American Express (AXP) CFO Jeff Campbell said the company is unique compared to other financials in that a rising rate environment is overall negative for the company

We of course are unusual in that raising rate environment in isolation if you hold everything out steady, is a negative for us and we put a number in our 10-K just use round numbers that says all else being equal, 100 basis point rise and all interest rates will cost us around $200 million a year, when you look at the outlook we provided, we built it, we’re trying to be realistic in that outlook and so we built a steadily rising rate environment into that outlook for that matter I remind you we also built a little bit of steady uptick in some of the provision costs as well.  In terms of how we think about offsetting the impact of those rising interest costs, if you look historically there is hugely some natural hedge here because as a general matter Central banks and the Fed tend to raise rates more when there is a little bit stronger economic environment and raise little less when the economic environment is not so strong and obviously the rest of our business benefits tremendously when there is a little bit stronger economic environment.”

American Express (AXP) CFO Jeff Campbell said the competitive environment with respect to cardholder rewards has increased and the company will have to spend more on rewards which will hurt profitability

The rewards environment in general has always been competitive and is pretty competitive right now, what we really try to focus on sure are a couple of things. Number one, ultimately this is about broad customer value proposition rewards is one component of that. We have a brand, we have a reputation for security and trust and service and try to leverage those things.”   

 

 

 

 

 

Nasdaq CEO (NDAQ) Bob Greifeld said that the company’s private company marketplace continues to gain traction as companies are staying private longer for a variety of reasons 

“Another good example of where our strong commitment to our clients has enabled us to drive new opportunities is Nasdaq Private Market. While we continue to experience one of the most robust IPO and listings environments in recent memory and we are the leading venue for IPOs with a 70% win rate, we also in addition to our continued strong progress in Nasdaq Private Market during the quarter, we added 25 companies to NPM in the second quarter expanding the user base by one-third. NPM now has over 100 customers worldwide, including leading companies such as Pinterest, DocuSign and Business Insider to name a few. And it is still very early days.”

Nasdaq CEO (NDAQ) Bob Greifeld reiterated that his firm plans to stand disciplined on acquisitions given what they see as currently high valuations 

“So one is we continue to see a deal market where the valuations are frothy. Some could argue are irrational, so we’re not going to participate at that level. But there is a lot of deals that we do look at. We have a firm discipline in place in terms of how we evaluate these transactions.”

Nasdaq CEO (NDAQ) Bob Greifeld said the exchange listing business is seeing momentum as more companies are going public more than just a few years ago

“With respect to the U.S., we are here at the market site today and it’s been a wonderful week. We had the PayPal spinout happen and then yesterday Blue Buffalo had obviously a very successful IPO. And we’re also very happy to win Pure Storage a week or so ago and as we said before, we have a 70% win rate. So we have a high degree of issuance. We have an increased win rate and that certainly is contributing to our performance.

 And they switched their listing pricing model to an “all in fee”

The most notable change really is at the top end of our fees where we are now allowing issuers to opt into an all-inclusive fee, which means that they will no longer be subject to any listing of additional shares fees or any other administrative fees and there is a maximum charge for a listing based on their shares outstanding is $155,000 a year.  And frankly a lot of support for that all-in all-inclusive fee.”

 

 

 

 

Graco (GGG) CEO Patrick McHale said China remains a weak geography

“We continue to experience difficulties in Asia Pacific in the Contractor business, with the region down high-single digits in Q2. This is driven by ongoing underperformance in China. We recently made some leadership changes in the region to try to get to back on track. We believe that the remainder of 2015 will continue to be challenging.”

 

 

 

 

GM CEO Marry Barra highlighted the firm’s intense focus on financial discipline and return on capital based metrics going forward

“We have also committed that each quarterly broadcast or earnings broadcast we will talk about our return on invested capital. Our trailing fourth-quarter average is 23.4% and I think it demonstrates our disciplined capital allocation is paying off as we look across the globe on how we invest.”

GM CEO Marry Barra said you can now connect any Android or iOS mobile phone to your car

I think another important area in this space is with our GM smartphone integration technology. It allows your smartphone, whether it be Apple or Android, to project certain things that you are very used to using on your phone on to the car, not everything, but some key areas. This is really listening to customers and putting them at the center. And you are going to see us expand this to global markets very quickly.”

GM CEO Mary Barra emphasized the importance of cyber security in cars

“Really when you look at cyber security you’ve got to look at levels of security, because you look at vehicles on the road today, they are on the road for 11 years.  And so as we move into a world that has more connectivity you’ve got to make sure not only do you have many layers of protection in the design of the vehicle, but then also what’s very important is our over-the-air capability as well. That if something happens you are able to quickly go in and prevent and correct if that’s necessary.”

Much like many other companies that reported this earnings season, GM has seen a materially slow down in their China sales 

“At the beginning of the year, we had a really planned for some industry moderation and increased price competition. Our initial assumptions as we entered 2015 were 6% to 8% industry growth overall and 3% price deterioration on a year-over-year basis. It has been clear to us for some time that the moderation is stronger and the pricing environment more challenging than we anticipated.”

General Motors 2Q15 Earnings Call Notes

Net income of $1.1B

“we’ve posted a net income of $1.1 billion and an EBIT adjusted of $2.9 billion. And if you look across our regions from North America, it was strong year-over-year performance in the quarter that was anchored by a record $2.8 billion EBIT adjusted and a 10.5% EBIT adjusted margin.”

You can expect us to be aggressive with technology

“I think you can expect to continue to see General Motors be very aggressive when we look at the technology and innovation we’re bringing into the vehicle and for the whole ownership experience.”

Potential to achieve 10% EBIT margin

“our potential for achieving a 10% EBIT adjusted margin in 2016 is evidenced not only by what we did in Q2, but with eight straight quarters now of year-over-year margin expansion”

Expecting low single digit growth for the industry in China this year

“based on the current environment, we now expect the industry in China to grow for the full year in low single-digit range versus 2014. And despite somewhat anemic growth in the first half of the year, from an industry perspective around 1%, our low to mid single-digit growth forecast is underpinned by several factors.”

Clearly there have been some headwinds in June and July in China

” the potential recovery from the current reaction to the volatilities in the stock market. Clearly, June and thus far in July there’s been pretty significant headwinds on a year-over-year basis. We don’t anticipate that that is going to continue through the year, but that is something we’re going to have to monitor.”

We haven’t changed our long term expectations of China

“we continue to expect China to grow. We haven’t changed our long-term view of China to be somewhere in the range of 35 million and we’re not the only ones that do that.”

We can add capacity pretty quickly in China

” adding capacity in China is something that we can do quite quickly. So we will continue to monitor the situation and look at, as we have our plans to add capacity, to do it prudently with a daily read on where the market is and then looking over that horizon from a trend of where it’s going. So we will be monitoring that closely and we will only do when we think it’s prudent to do.”

Add capacity through line rate or new plants

“I think there is a lot of different ways to add capacity. You can add capacity by increasing line rate which is more equipment changes or smaller expansions, all the way to an all-new plan and each of those have different timelines. But I would also say China is one of the quickest across all of those aspects of being able to add capacity. Again, those are all the levers we have.”

JS Notes: CLB, GM, UNP

Corelabs (CLB) CEO David Demshur believes 2015 will be a trough year for oil production and that growth in oil producer capital expenditures will resume in 2016

“Core’s operations have positioned the company for increased activity levels in early 2016, but we know significant challenges stills await in 2015.”

Corelabs COO Monty Davis says the company’s business model is more stable than other sub-sectors of the oil field services companies due to the capital light nature of their business

“Our prices don’t zoom up as things get tight, because we are not a commodity and so we didn’t have that huge increase, we don’t have the huge decrease either.”

 

 

 

GM CEO Marry Barra says they are cutting back spending in Latin America after the economy has weakened

“Looking at all aspects of our cross-structure, there’ll be production cuts.  I would say it’s really a detailed approach of looking at every single cost, a zero-based budget approach looking at indirect purchasing initiatives where everything is questioned. So, they have really gone to, I say, a very austerity approach in the region.”

GM CFO Chuck Stevens says the company plans on competing in new product categories 

“The biggest drivers in 2015 to 2016 will be launching products and segments that we had not historically competed in like the mid-size trucks, like Chevrolet trucks and other products that we haven’t announced yet plus the improved passenger car profitability.

GM CFO Chuck Stevens says Cadillac is the company’s most profitable brand 

And our expectations are that we’re going to drive better than 20% returns on Cadillac products as we should. They are more profitable than some of our mainstream products.”

GM CEO Marry Barra thinks the “connected car” could be a revenue driver for the company 

“And then as it relates to content, I mean, especially if you look at connectivity. There’s also revenue opportunity associated with the connectivity, and I think we are just starting to scratch the surface as we look at additional functions that can be accomplished now that we’ve got the pipe into the car and that ability to communicate. And we have several initiatives of new features and functions that we’re going to be putting that utilize that. So, I think there’s a revenue opportunity there.”

 

 

 

Union Pacific (UNP) CEO Lance Fritz said his railroad saw a substantial decline in volume during the quarter 

“Solid core pricing gains in the quarter were partially offset by a sharp drop in volume. While we took actions during the quarter to adjust for the volume decline, we did not run an efficient operation.  Over the last few months, volume has shifted negative. As a result, our operation is in catch-up mode and not as efficient as it should be.”

Union Pacific CEO Lance Fritz said weak demand for coal and oil drove declines in volume 

“Lower crude oil prices and unfavorable price spreads continue to impact our crude oil shipments, which were down 38% for the first quarter.  Coal revenue declined 5% in the first quarter. Coal volumes were down 7%.”

While Union Pacific struggles with various commodities, they are seeing continued strength in the transportation of cyclical goods

“Plastics business really ties pretty closely to construction and automotive and all of those and even on consumer side and retail side of house call plastics business was up in first quarter as we mentioned. We think that all of those trends indicate the strengthening North American economy.  We feel pretty good about some of the underlying strength of the economy.”

General Motors 1Q15 Earnings Call Notes

Robust demand for pickups and SUVs

“demand for the full-size pickups and SUVs remained very robust. The strong demand for the pickups full-size SUVs and our mid-sized truck help GMNA achieve its seventh consecutive quarter of year-over-year EBITDA margin improvement. ”

China auto industry remains strong

“If I look at China, the industry does remain strong and we expect the auto industry in China to grow about 6% to 8% in 2016.”

Profitability in relation to size

“trucks and full-sized SUVs are always going to be most profitable, crossovers are going to be close to the average. And passenger cars, on a relative basis, are going to be least profitable just because you have all the small and compact vehicles in there.”

Catalyst of earnings improvement will be new products not mix

“trong mix in the first quarter, expect that to moderate as we go through the rest of the year. The real driver of catalyst for earnings improvement in our product perspective will be products that we have not sold before plus the replacement of some of our core Chevrolet portfolio.”

Tremendous opportunity within the business for more efficiency

“we think there’s tremendous opportunity for us within the business as we look at efficiency measures, as we look at truly achieving the scale that we should have, because we’re already in that top tier of the auto industry among the largest OEMs. So, we have a very well-articulated plan. We’re in the middle of the executing that and we’re not going to entertain anything that distracts us from accomplishing that. So, that is the way we look at it and that’s how we’re executing.”

GM at Merrill Lynch Conference Notes

These seem to be shareholders’ major concerns

“Here are the major recurring themes that we took away from our recent discussions with the number of our shareholders. First, concerns about our ability to lead from a technology and innovation standpoint going forward. Second, our perceived inconsistency in delivering the results. Really some concerns about seeing how earnings are going to get better going forward at this point in the cycle. Concern over the potential financial distress GM could face in the downturn and the overall overhang related to our pension under-funded position. Those were the concerns that were raised through our owners over the past couple of months.”

We see a number of catalysts to drive earnings higher

“we see a number of catalysts that will drive earnings higher, importantly catalysts that are largely under our control. For example material cost supplier optimization, I’ll talk more about that later. That is a continuing focus for our organization, continuing to drive efficiencies and overhead. New product launches and the contribution from a product profit perspective on new products. The growth in GM Financial and taking full advantage of 4G LTE. These are all going to drive improved earnings and we are not discounting the market risks.'”

New product cycle coming much more profitable

“the product cycle story for General Motors is just the beginning. In the next five years our launch volumes and recently launched vehicles will average 36% on an annual basis versus 23% over the prior five year period. And similar to past launches we expect next generation products like the new Malibu, like the new Cruze, the new Equinox, to be more profitable significantly more profitable than the vehicles that they replaced, through both price improvement and cost efficiencies. ”

Feel strongly about GM financial

“One bet that we feel very strongly about is GM Financial. Growing and positioning GM Financials as a full captive is key to driving returns across the enterprise of both the finance company and the car company and through the cycle. Over the past several years GM Financial has substantially broadened its product capability, helping drive increased customer retention which in turn drives increased sales which in turn drives increased profitability of the car company.”

We can break even at 11m SAAR

“Specific to North America, we have maintained our breakeven specific to North America we have maintained our breakeven point at a U.S. industry level of between 10 million and 11 million units, that’s the commitment that I made, that we made, during the IPO in 2010 and we’ve maintained that commitment’

We’ve got 61 B less in obligations since the ’07 downturn

“Simply put, our balance sheet is now at strength as opposed to a significant weakness which it was prior to the last downturn. In 2007 prior to the downturn, we had debt like obligations, automotive debt, post-employment obligations and a net U.S. pension liability of $88 billion. We’ve reduced that by $61 billion, from 88 to 27.’

Way fewer cash obligations today than then

“Prior to the last downturn, the cash cost of those obligations was $5 billion a year straight out of operating cash flow. That’s been reduced by 80% to just around $1 billion and if you look from a liquidity perspective and this is based on year-end 2014, we have similar levels of liquidity now than we did prior to the last downturn on a business that is fundamentally much stronger with a lower breakeven point with lower obligations. The takeaway is what was once a very significant drag on cash flow and flexibility as we entered a downturn is now a strength.”

Most of the pension obligation is overseas

“it’s important to step back and look at the components of our current $24 billion under funded position. More than half of that obligation is outside the U.S. and the majority of that is on the pay as you go basis. We have absolutely no plans to contribute or fund these international pension plans, we will continue to take care of those on the pay as you go basis because it doesn’t make economic sense to contribute to these because we do not a tax feed option.”

Profitability will move to non SUVs

“It’s not a big leap to say okay probably most of our profits are being generated from truck and SUVs right? I think that’s a fair conclusion to draw. On a go forward basis if you look by 2018 and how the quality of earnings is going to improve where roughly one third of our earnings will come from outside of North America. That is fundamentally improvement in profitability on the passenger car side of the business. And if you look at the Corsa and the Astra that we’re launching in Europe today and it represents roughly 50% of their volume, the profitability of those vehicles will be a $1,000 more per unit roughly than the vehicles that they’re replacing. I talked about the Malibu, the Cruse. So I would say when you look at that portfolio cadence that I laid out, the big proportion of that up through the 2018 timeframe is really core passenger cars, compact crossovers, mid crossovers and that’s going to significantly improve our quality of earnings from a product perspective less reliance on trucks and SUVs but also from a geographic perspective because we don’t sell full size trucks and SUVs really any place besides North America and the Middle East.”

International operations are at loss to breakeven levels

“Europe absolutely number one priority to take what is a loss — a significant loss into a profit position — into a positive cash generating position, into earnings it’s weighted average cost of capital, Europe would be the first and foremost. International operations and South America is kind of breakeven business right now. So clearly there is upside opportunity”

General Motors at Barclays Conference 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

Johan de Nysschen – President, Cadillac & General Motors Executive Vice President

I’m going to be candid

“I’d like to do is to give you a very candid assessment, I suppose about the state of the Cadillac business. It may or may not be as frank as you are accustomed to hearing, but hopefully it’s what you want to hear.”

We have to really take stock of where we are

“I’m not here to try to sell anything to you. I am not here to try to impress you. But I think that unless we really take stock of where we are, we cannot implement and execute the strategies and tactics and operational measures to address the shortcomings and to begin to build the brand back to where we would like to take it.’

I’m a newcomer

“I’m a newcomer to the company and I kind of look at it with a fresh pair of eyes. ‘

I’m from Audi

” would like to make one small correction to the introduction, no Audi guy would ever want to be described as being from Volkswagen. I prefer to say my 20 years was spend at Audi, which probably gives you a bit of an insight into the way my brain in wired.’

GM is focused on the mainstream business, not the nuances of the luxury business

“there are lot of very smart people that I’m now proud to call my colleagues, but also a lot of people who – to be honest are more rooted in the needs and requirements for success in the mainstream business as opposed to understanding the finer nuances for success in the premium end of the business and the rule books are different.”

If you apply the same plays to the premium sector that you do to mainstream, it doesn’t work

“if you exercise the same plays in the premium sector as you would do in the mainstream sector, which are the requirements for the success there. I guess you do that for long enough and you take one of the greatest brands in the world and you turn it into one that have a great potential, but is no longer living up to that very high standard.’

You need to change the culture and systems completely

“it’s not just a matter of policy you also need systems, mindsets, even our dealer staff will need to come to terms with the new way of doing business.’

There’s really not a cadillac division within GM

“I’m referring today the reality that Cadillac is heavily matrixed within the General Motors organization and to be really candid with you – idea that there exists a Cadillac division, that’s not so.’

The company is organized by function

“the company is organized by function and the functions work across all brands.’

You end up with a lowest common denominator approach

“it works particularly well when you’ve got brand that are Chevrolet, Buick and GMC positioned more or less in the mainstream part of the business. But imagine, what we are asking the fine men and women of General Motors to do. We said to them, please start your product planning discussions, your marketing planning discussions and your network development discussions, your distribution discussions with a full agenda.

In the morning, you cover all the brands and somewhere about 3:10 in the afternoon, you get to Cadillac. And now, we expect them to do a 180 degree shift in terms of the insights and understanding of the competitive environment and in terms of the application of particular strategies that are appropriate for that environment.

It can’t happen and what does happen is that you end up with kind of a, lowest common denominator approach that really is rooted in predominantly meeting the needs of the maintain stream business.”

A problem with the number of stores too

“we have a massive legacy issue with our retail distribution network, 929 stores. This will lead to of course very strong dilution of the volume throughput per store. It means the dealer profitability is somewhat challenged. That means dealer can’t invest into facilities, into people, into creating an ownership experience that supports the positioning of the brand.’

The luxury segment of the auto industry does 10% of the volume but 50% of the profit

:The global luxury market accounts for, depending on how you define the luxury market, 10% to 12% of the total auto business globally, but generates about half the profit. :

GM is a titan

“General Motors is a titan corporation. Seriously, you know, I read a lot of negative press about the company, but as an outsider whether it was in the VW Group or whether it was at Nissan, we looked at General Motors with trepidation. It’s a powerful competitor. It’s a company with massive resources, with great expertise, with great depth of skill and financial things.’

We don’t want a cadillac in every driveway, we want it in the right driveways

“one of the issues for us that we see as an opportunity is to get back to the original concept of premium exclusive motoring. It used to be the domain of a few. You had to have a particular station in life to get to these high-end brands.

And we have to hand it to the three leading German brands, they have become so successful that they’ve almost become ubiquitous, everybody drive one, there is one in every driveway. And the opportunity for us to say we don’t want to park a Cadillac in every driveway, but in the right driveways. ”

Captains of industry make things aspirational

“if people see the captains of the industry arriving at the airport or parked outside the golf club, driving a particular brand of automobile, then to conformation, that kind of automobile is driven by successful people. Therefore, it’s aspirational.’

We’re separating Cadillac from the rest of GM

“it’s been discussed and agreed and announced, you will be aware that we are now effectively separating Cadillac from General Motors. We are setting up dedicated organization and we really want to focus on this notion of securing 100% mindshare on developing the Cadillac business.”

We can’t just go commando though or we’ll fail

“I will absolutely as a new comer to the company and with the strong support that I’m getting from all of my colleagues, if I try to go to war with General Motors and the organization and I want to tell it this is how the world will work, I will definitely, definitely fail. It’s clear.

And so, how we do business must be taking into account how General Motors does business. I have set up the top layer of functions that I believe need to be inside Cadillac. This has been done and it’s been agreed. However, the bottom up construction of the organization is being done on a consultative basis.’

Moving Cadillac HQ to NYC

“there is a lot of talk and discursion about the decision for us to relocate Cadillac global headquarters to here in New York.

Particularly, a lot of the Michigan people were unhappy about that and I need to explain. It’s not that we have a problem with Detroit, we don’t. What we need to do is to create geographic separation. It forces process changes, it forces us to do things in a different way.”

We want to use our American heritage

“We’re an American brand, we definitely don’t want to try to out German, the Germans. We want to use our American roots and heritage as a key differentiator. And America is still, I have to tell you despite what you might hear on CNN and read in USA Today, are an admired country around the world. I say that as a non-American. And American products are highly regarded.’

Ammmmericaaa

“Cadillac will present itself as a bold American brand, bold and confident. We are sophisticated, but a modern progressive contemporary kind of sophistication, not the old world grand chandeliers kind of sophistication. That’s not the lady in the ball gown, but in the seductive black cocktail dress.

And then, of course, being American, we also have this deep-rooted belief that the future will be even better than it is today. Yes, we are about a little bit of domestic [ph] behavior, the joy of life and enjoying life to its fullest everyday. But there’s a fundamental belief that tomorrow holds even better prospects. And that will be a little of the swagger that we will come to market with. And you’ll see it expressed in the design language of our cars, you will see it expressed in the marketing communication tone and manner, you’ll see it expressed in our behaviors at Cadillac.”