Loews 2Q17 Earnings Call Notes

James S. Tisch – Loews Corp.

We haven’t been buying back shares because the market is high even though relative value is good

“As I’m sure you know, we are well aware of Loews’ sum of the parts valuation. In fact, it’s something that I track constantly. Judging by the increase in our stock price over the past nine months, it certainly seems that we should have been more active repurchasing our stock. What’s held us back is that while Loews almost only seems relatively cheap and even more so now, given the widening discount, the market still seems very high to us. We’ve been nervous about the equity market for a while and we’ve been struggling to reconcile our view of the market’s absolute level with the relative value of Loews’ stock. As you know we take a long-term view on share repurchases. We look for opportunities to repurchase Loews’ stock when both its relative and absolute values are attractive. We know that if the stock market declines, our share price will likely move in the same direction. So, given our nervousness about the stock market, we’ve been waiting for a time to repurchase shares at a more advantageous price. Some of you may think we maybe too cautious. You may be right, only time will tell. Historically though, we have shown that once we are comfortable buying back shares, we buy back a lot of them.”

Underinvestment in oil exploration will take its toll

“Our guess is that the underinvestment in oil exploration and production over the past three years is going to start to take its toll as projects that were completed before that period start to come online and start to deplete. And it’s our view that in the coming years there will be a significant need for the offshore oil that has provided up to 30% of the worldwide oil supply. So I would say that we feel that right now, even though you didn’t ask about it, we feel that right now we’re bouncing along at the bottom with respect to offshore oil drilling. But we believe that there are, as I said, a few greenshoots, and we think that in the coming months and years, there will be more.”

The fact is that there is a lot of complacency

“we think about absolute value versus relative value. I don’t think that Loews in any way is overpriced versus the stock market. But the stock market trading at 17x, 18x, or 19x earnings, the fact that interest rates are still as low as they are when we’re seeing economic growth of 2.5%. The fact that there is a lot of complacency in all markets, not just the equity markets, leads me and I’m pleased to say a significant number of other market commentators, to the view that this complacency that we’re seeing in the markets can lead to a decline in equity values.”

Loews 4Q16 Earnings Call Notes

James S. Tisch

There is a disconnect between markets and the current landscape and that concerns me

” I’ve been around long enough to have lived through all sorts of markets. I’ve learned to respect markets, while at the same time being skeptical of conventional wisdom. I’ve lived through a bond bare market and a gargantuan bond bull market. I’ve seen bond yields above 15% and below 2%. I’ve seen inflationary spirals, I’ve seen deflationary threats, I’ve seen deregulation and reregulation. I’ve seen the S&P 500 trade as high as 30 times earnings and I’ve seen the S&P trade as low as 7 times earnings. With all this experience, that comes with age I might add, here is what I’m seeing in the markets today. In the credit markets, spreads on the high yield securities are approaching historically tight levels, while key credit metrics such as leverage and coverage ratios are showing signs of weakening. The leverage loan market has been overrun by such massive inflows of capital that you could probably get alone to buy a fleet of zeppelins at this point in time. With respect to rates, the 10-year treasury note is currently trading at around 2.5%, up from its recent lows, but still well below historic norms. In my view, the mood of these markets is in stark contrast with the many unknown from our current economic and political landscape, both here and abroad. For me, it’s a major disconnect, and it concerns me.”

Valuations make me uncomfortable

“The optimism in the rates and credit markets is likewise reflected in the public equity and merger markets. The S&P 500 is trading at roughly 19 times earnings, 3 turns higher than the 50-year average of 2016. These valuations make me uncomfortable, especially given the unknowns in taxation, foreign trade, regulation and more.”

Markets are priced for perfection but they wont stay that way indefinitely

“To sum up, in my opinion, the markets are priced for perfection, and they have been that way for quite some time, complacency reign supreme. However, my experience has shown me that this state of affairs won’t go on indefinitely. So why am I sharing these thoughts with you? Because I know that some of you have wondered why we brought back relatively few Loews shares in 2016 or why Loews hasn’t made an acquisition.”

Foot is getting sore from kicking so many tires

“As for the second question about adding another leg to the stool, we continue to kick tires looking for the right company at the right price. One of our shareholders recently asked, if my foot is getting sore and I have to admit it is. Valuations in the merger markets have made our acquisition search difficult and frustrating. We always try to invest only when all the pieces of a transaction from valuation to potential cash flow to future industry dynamics add up to a solid idea. And while I won’t comment in detail, last year, we did get pretty far down the road towards making an acquisition. In the end, however, the pieces did not all fit together the way we’d hoped they would.”

It’s a tough market in which to be a disciplined buyer

“It’s a tough market in which to be a disciplined buyer. I assure you that we remain committed to our longstanding philosophy of creating value for all shareholders through prudent capital allocation. Sometimes we accomplish this through share repurchases, sometimes by acquiring a new business, sometimes through an investment in one of our existing subsidiaries, or sometimes we choose to take the action of taking no action.”

It’s too early to tell on Trump

“I think it’s too early to tell. Well, we’ve seen from some of his statements and some of the executive orders is a push towards reducing cumbersome rules and regulations. And I think that is positive. But what we’re really going to have to wait to see is what happens with the major economic legislation that comes before Congress. There’s only so much that a President can do and then there’s a lot that Congress can do. So we’ve got to wait and see what happens to fiscal spending. We’ve got to wait and see what happens to taxation. We’ve got to wait and see what happens to healthcare and a whole bunch of other legislation. So I would say that I am hopeful, but I think also it’s too early to tell.”

Loews (L) Q2 Earnings Call

Loews (L) CEO Jim Tisch said weakness in the oil rig equipment market hampered results

“First, let’s turn to Diamond Offshore. I want to start out by addressing the proverbial elephant in the room. Diamond’s results this quarter were severely impacted by the rig impairment charges David mentioned earlier in the call. Keep in mind that the severe downturn in the offshore drilling market, combined with the difficulty in predicting the timing and degree of this inevitable recovery precipitated these impairments. It’s important to note however, that Diamond is scrapping only two of the eight rigs being impaired today. Having been in the offshore drilling business for nearly 30 years and the supertanker business for seven years prior to that, I’ve seen cyclical downturns before. I’m hopeful that in this case, and similar to prior cases, the rigs being stacked today will work again and earn an attractive rate of return in the future.”

Loews (L) CEO Jim Tisch believes we are under-investing in finding new sources of petroleum

“As I’ve said before, if there is a silver lining to this oil price downturn, it’s that the lack of drilling activity today will only help speed the recovery of oil prices tomorrow. The effects of the current underinvestment in oil drilling are already starting to be evident, and will play out in the coming years. Demand for oil is still growing and remains quite healthy. While today the situation may seem bleak, we’ve seen this movie’s prequel before and remember well how it ended.”

Loews (L) CFO Dave Edelson said energy customers are canceling existing contracts regarding their deepwater oil rigs

“The offshore drilling market continues to be extremely challenged with limited new drilling opportunities and an oversupply of rigs. In addition, customers are choosing not to extend current contracts and in some cases, seeking ways to early terminate existing contracts.”

Writing down the value of their rigs

“Diamond assessed its rig fleet for impairment at the end of the quarter and in light of the difficult market environment and Diamond management’s evolving view of the length and severity of the downturn, eight rigs have been written down to substantially lower net book values. These rigs are a mix of third generation, fourth generation and fifth generation semi-submersibles. Four of the eight rigs being impaired are stacked, two are still on contract and two are being scrapped.”

Loews 2Q16 Earnings Call Notes

Loews (L) James S. Tisch on Q2 2016 Results

One silver lining of the oil downturn is that lack of activity will speed recovery

“Diamond’s innovative strategies, along with its financial strength and conservative capital management should enable the company to emerge from this turbulent market cycle stronger than any of its competitors. As I’ve said before, if there is a silver lining to this oil price downturn, it’s that the lack of drilling activity today will only help speed the recovery of oil prices tomorrow. The effects of the current underinvestment in oil drilling are already starting to be evident, and will play out in the coming years. Demand for oil is still growing and remains quite healthy.”

We did not anticipate that the decline in offshore would be as bad as it has been

” When we bought back the shares of Diamond, I think that, we did not anticipate that the decline in offshore drilling would be as bad as it has been. We didn’t anticipate that oil prices would go into the $20s, we didn’t anticipate that oil companies would cut back their capital budget so dramatically. And we certainly didn’t anticipate that utilization today of drilling rigs would be at the levels that they’re at. So, I think we were surprised and I daresay that the rest of the market was surprised by what’s happened in the offshore drilling industry. But now, I think, we recognized very clearly exactly where we are in that business.”

My primary job is as capital allocator

“when I think about what I do, the primary – I think my primary job is that of capital allocator. We allocate capital to Loews share repurchases to purchases of subsidiary shares. We allocate capital from time-to-time to our subsidiaries to the extent that they might need capital from Loews and it represents a good return to Loews. And then, we also allocate capital to – less often, but in bigger amounts to repurchase – to purchase, sorry, new businesses. So, these are just the types of capital allocation issues that we have the competition for our capital. And from my perspective and the Loews Corporation perspective, we are constantly making judgments every day, what is the best place for our capital, and the times when we bought CNA shares and the times when we bought Diamond shares, at those points in time, without the benefit of rearview mirror today, we decided to purchase those shares.”

Oil companies are dramatically underinvesting. Oil prices will be significantly higher in 2018 than my previous forecasts

” I think oil companies in the world in general are dramatically under-investing in oil production capacity, I think that – I think, I believe, I know that depletion is real that oil wells do not continue producing forever, some of them decline at 70% a year, some of them decline at 5% a year, but all of them decline. And to the extent that the world is not reinvesting in new productive capacity, those declines in production will be felt in the coming years. Combined with that even though some say that oil demand growth is sluggish, oil demand is still continuing to increase every year generally on the order by about 1 million barrels a day or about 1%. So, as you add a few years together of underinvestment, combined with continued demand growth, I think you can see that in a few years time, prices will have to go up in order to provide the investment returns needed by oil companies in order to make the investment in more productive capacity. And I think that in two years’ time, that will certainly happen. I recall – I – in prior calls, I’ve said that $65 was my fearless forecast, for year-end 2018 oil, I think there is a good chance that oil will be significantly higher than that on the order of, say, $10 a barrel.”

L Brands 1Q16 Earnings Call Notes

L Brands’ (LB) Q1 2016 Results

Stuart Burgdoerfer

Decline at Victoria’s Secret

“Although we delivered first quarter results above our initial expectations, we were not satisfied with our overall results, as adjusted operating income declined to 4% compared to last year, primarily driven by a decline at Victoria’s Secret.”

Did experience a deceleration in macro trends

“From a macro perspective, we did experience a deceleration in trends through the quarter but we are focused on what we can control and we have opportunities to improve our execution.”

Amie Preston

Significantly reduced catalog spend

“Great, okay. So with respect to catalog, we did test the elimination of catalog into significant markets for a year, and saw a relatively small to no impact on sales. And if one does simple math on it, need to get a lot of sales or meaningful amount of sales to take for the catalog. And round numbers, we were spending $125 million to $150 million a year on the catalog and we ran it again for a year and two significant markets, and didn’t see a significant change in sales. ”

Nick Coe

The consumer is staying consistent, is prepared to act when there’s a good story told

“Hi, Lindsay. I think she is behaving pretty consistently actually in an odd way. I think she continues to want to be excited. I think she continues to want to have a story or a compelling story telling to her, even though she has remains value oriented, but if she sees something that she likes or if she’s engaged, clearly that value price fluctuates and we can see it in both ways. We see it fluctuates to really important when a compelling story isn’t told, but we can also see it become significantly less important when the product is good. So from that perspective I think it’s actually pretty consistent behavior. There’s lot of talk about where is the customer, what’s she doing. But from our perspective I think it’s a pretty consistent story. And I think that also ties itself to traffic where we have been — we’ve seen pretty consistent levels of traffic. Now we’re having to work very hard to maintain the traffic, given the modest assets, but my overall point of view is that the traffic is there, we’re working hard to get it and her behavior is consistent.”

Loews 1Q16 Earnings Call Notes

Lowe’s Companies’s (LOW) CEO Robert Niblock on Q1 2016 Results

Housing remains a bright spot

“Turning to the economic landscape for the balance of year, the outlook for the home improvement industry remains positive. Shifting gains in the job market as well as disposal income growth is expected to outpace growth in the economy; should contribute to solid growth in consumer spending. And housing remains a bright spot — remains first on effort.”

Consumer survey continues to be strong

“Chris this is Robert. As I outlined in my comments have we seen the consumer we look through our consumer segment survey what their intentions are around spending what their intentions are around investing in the home as we are seeing continued improvement in the job market we are seeing continued improvement in wages we are seeing continued improvement in home values this driving continued improvement in their intentions for discretionary spending which I think the best evidence of that is in the 5.1% increase that we saw on top transactions during the quarter and that’s we have seen in our surveys has let us to be believe that the consumer when they risk high — six months out with regarding purchase nothing shows any change in their intentions as we survey them today”

Ricky Damron

Consumers continue to invest in their homes

“And as Robert shared with you, we delivered positive accounts across all regions and product categories, as we continue to capitalize on a favorable macro backdrop and consumers increasing desire to invest in their homes. ”

Loews (L) Q1 2016 Earnings Call

Loews (L) CEO James Tisch said their has been an influx of capital into the insurance industry in search of return 

“Over the last several years, there’s been a significant increase in third-party capital coming into the insurance and the reinsurance market, and this capital is increasing competition for the more generic insurance and reinsurance providers. It’s having less of effect on CNA’s book of business, however, because of the company’s extensive and well-established nationwide agency network. This network is a tremendous asset, and CNA is one of only a handful of industry players with this type of distribution channel. This web of distributed offices with local underwriters working with local agents is remarkably expensive to duplicate, creating high barriers to entry for new players.”

Much like other insurance companies, Loews is investing in analytics which should give a boost to the information technology sector

“CNA has consciously increased investments in information technology, analytics and talent with a goal of becoming a top-quartile underwriter. While these investments put pressure on margins today, we believe they will have a favorable impact on CNA’s long-term profitability.”

Loews (L) CEO James Tisch said US shale oil producers are unprofitable at today’s prices

“Since I often get asked about my outlook for oil, I thought I’d beat you to the punch today. One of my favorite sayings is he who lives by the crystal ball must learn to eat ground glass. And while I’m not a fan of ground glass, I’ll share with you what I’m seeing and forecasting with respect to oil.  First, it is now abundantly clear that in the absence of OPEC intervention, U.S. shale oil is the world’s swing producer. Shale production can come on quickly and relatively cheaply, and is largely developed by nimble independent producers who have the incentive to quickly respond to changing prices. The second point that’s becoming clear is that U.S. shale producers are unlikely to experience any time soon, the growth they enjoyed several years ago. In order to simply maintain production using internally generated cash, our guess is that the U.S. shale industry needs oil prices to be about $50 per barrel to $60 per barrel. With current prices at around $45 per barrel, U.S. production will continue to decline.”

Oil industry is dramatically under investing which may cause a supply crunch

“Today, the world is dramatically underinvesting in oil exploration and production, and the effects of this underinvestment will start to by evident over the next two years to five years. Oil price declines have largely been driven by the strength of supply, not the weakness of demand. In fact, demand for oil is still growing and remains quite healthy.”

Loews (L) CEO James Tisch predicted $65 oil by 2018

“I’d rather predict where oil prices will be two years from now than two months from now. And now that I brought it up, my fearless forecast is that oil will be $65 per barrel or higher by the end of 2018. That’s the price that I believe will be required for E&P companies to invest in productive capacity necessary to satisfy demand. It certainly won’t happen at $45 per barrel, when you compare today’s oil prices with the recent low of $27 per barrel reached in January of 2016, it looks like we could be halfway to my fearless forecast.”

Returns in their hedge fund portfolio have come down

“In the past number of years and especially more recently, the returns haven’t been there. So we’ve reduced our investment in hedge funds. What we’re doing is that, we’re holding those proceeds for a time when other risk assets seemed to be very attractive in the marketplace.”

Loews 1Q16 Earnings Call Notes

Loews (L) James S. Tisch on Q1 2016 Results

Agency distribution has helped keep us insulated from third party capital

“Over the last several years, there’s been a significant increase in third-party capital coming into the insurance and the reinsurance market, and this capital is increasing competition for the more generic insurance and reinsurance providers. It’s having less of effect on CNA’s book of business, however, because of the company’s extensive and well-established nationwide agency network. This network is a tremendous asset, and CNA is one of only a handful of industry players with this type of distribution channel. This web of distributed offices with local underwriters working with local agents is remarkably expensive to duplicate, creating high barriers to entry for new players.”

He who lives by the crystal ball…

“One of my favorite sayings is he who lives by the crystal ball must learn to eat ground glass. And while I’m not a fan of ground glass, I’ll share with you what I’m seeing and forecasting with respect to oil.”

US shale is now the worlds swing producer and it can come on quickly and cheaply

” it is now abundantly clear that in the absence of OPEC intervention, U.S. shale oil is the world’s swing producer. Shale production can come on quickly and relatively cheaply, and is largely developed by nimble independent producers who have the incentive to quickly respond to changing prices.”

US crude production should continue to decline

“The second point that’s becoming clear is that U.S. shale producers are unlikely to experience any time soon, the growth they enjoyed several years ago. In order to simply maintain production using internally generated cash, our guess is that the U.S. shale industry needs oil prices to be about $50 per barrel to $60 per barrel. With current prices at around $45 per barrel, U.S. production will continue to decline.”

The hedge fund space has become very crowded

“we’ve been reducing our hedge fund investments over the past year or year-and-a-half. But I would say – I have a slightly different take on it than Buffett. I would say that the space has become very crowded and returns have been competed away. When 20-years-ago, there were one or two or 10 payers (30:52) traders, market neutral hedge funds could earn very, very attractive returns. Now that there are hundreds of them, the rate of return that those hedge funds can earn has come down rather dramatically.”

Loews 4Q15 Earnings Call Notes

Jim Tisch

Chaos continues to reign over energy markets

“unfortunately, that elephant has not gone away and chaos continues to reign over the energy markets.”

Oil prices have not been driven by weakness of demand

“Oil price declines have largely been driven by the exceptional strength of supply, not by the weakness of demand. In fact, demand for oil is still growing and remains quite healthy. If there is any bright spots on which to focus is that the lack of drilling activity today will only help speed up the recovery in the oil market tomorrow. As I say in the oil business, the best cure for low prices is low prices.”

Offshore drilling will come back

“By some estimates, offshore oil production supplies up to 30% of the world’s oil, a significant percentage that cannot be replaced by conventional onshore drilling or shale production. ”

We aren’t seeing assets come on to the market maybe if this continued for another several quarters

“We look at what’s available to buy. A lot of the assets that become – companies that become available to buy, especially in the strike zone that we are looking at are owned by private equity firms. And those companies, those firms have the ability to time when they want to sell their assets. So, one would think that right now prices of our companies that private equity firms might want to sell are coming down, because the financing markets have become so much more expensive. But in fact, what we are seeing is not too much that on the market. In fact because now it’s not a particularly attractive time to be selling those businesses. If the financial markets that we have today continue for another several quarters, then it’s entirely possible that we could see assets that come on the market that could be attractively priced.’

The more equities go down, the more attractive they get

“listen, from my own personal point of view, the more equities go down, the more attractive they get. So at Loews, as the stock market has been going down, we have been modestly increasing our exposure to equities.’

Wont change forecast for 2% growth

” I am doing better than a stopped clock. A stopped clock is right twice a day. My 2% forecast for the economy has been right for 5 years, so why I change it now?

When you step back from Wall street things don’t look so bad

“There is a lot to be worried about in the world. But I also think that those of us that are on Wall Street can sometimes be overwhelmed by the problems that we see on the horizon. And I think from time-to-time, it’s important to step back, take off your Wall Street glasses and put on industrial America glasses. And I think things don’t look as bad when you look that – with that lens.”

Oil prices are too damn low

“We are sort of like the guy who ran for mayor, he said the rent is too damn low or too damn high, we say oil prices are too damn low. And so I believe that in a number of years, I am not making a prediction for the next number of months, but in the next number of years, we think that oil prices will be significantly higher than the levels we are at today.”

JS Earnings Call Notes 11.3.2015 – Potash, Varian, AIG, Loews, Discovery Communications, McGraw Hill Financial, AB Inbev, Starbucks, Novo Nordisk, LKQ, Ellie Mae, & DistributionNow

Potash (POT) CEO Jochen Tilk said the agricultural chemicals market remains weak

“Looking ahead, macroeconomic headwinds, including lower GDP growth in emerging markets and the erosion of many currencies relative to the US dollar, contributed to a weaker commodity environment in 2015 that affected our sector as well. In light of these broader factors, we have lowered our expectation for 2015 global potash shipments to approximately 59 million tonnes and our sales volumes to a range of 9 million to 9.2 million tonnes. While potash demand held up relatively well in the face of emerging market uncertainty, prices have been less resilient.”

He said they continue to rebalance the portfolio and take costs out of the business to stay competitive

“First, our focus is on striking the right balance between flexibility and cost. We have some of the best, most efficient potash assets in the world and we continue to take steps to even further improve efficiencies and lower our costs. We began with operation workforce reductions in 2013 when we reduced our potash operating capability by approximately 3.5 million tonnes or 30%. This was central to marrying our capability with expected market conditions.”

Potash (POT) CEO Jochen Tilk said they will continue to maintain the high dividend even though it means they are paying out a significant percentage of their net profit

“our objective is to maintain our dividend. When we raise the dividend over recent years, we did this both thoughtfully and cautiously. The value of the dividend, $1.2 billion annually, was stress tested in a number of downside scenarios and we remain comfortable that even amidst a more challenging macro environment, it is very well-supported and can be sustained at current payout level.”

With new Potash supply coming online soon from mines that were built a few years ago when prices were higher, they continue to believe the supply demand balance remains tight

“So the question on our expectation of supply and demand going forward in next year and the year thereafter, we continue to believe that supply/demand is actually relatively tight and we think we understand new production coming online.

Even though the microeconomic environment is challenging, demand for the end product continues to grow

“The one thing that, even in spite of these difficult conditions, potash demand, globally, has remained pretty resilient. Our estimate for this calendar year on global demand in that 58 million to 60 million tonnes will represent the second best year of potash demand globally and that doesn’t go unnoticed by us.”

Given the recent weakness in the share price of Potash, CEO Jochen Tilk said he is still not comfortable buying back his own stock

“If you contemplate a share repurchase program, it has to be meaningful, it has to be significant. I don’t think leveraging the balance sheet up at this point, at this stage, with those concerns that have been raised would make sense.”





Varian (VAR) CEO Dow Wilson said they gained market share against all of the competitors during the year

“We gained share against the competition in all three regions of the world for the year. In North America alone, we estimate that we generated over $150 million in orders during the year to replace hardware and software products from our competitors.”

Varian (VAR) CFO Elisha Finney said currency movement had a massive impact across both reported revenues and how their competitors are behaving

“Before I walk you through the numbers, let me just say that exchange rates wreaked havoc on our 2015 results. Currency driven price erosion had a huge impact on our imaging components

When asked if he would divest the struggling image component segment of the business, CEO Down Wilson said there is significant synergies with the oncology equipment business thus he is not currently interested in divesting

“The profitability of that business hasn’t changed, but it’s very cyclical. We like the fact that we’re the leader in digital imaging technology. And so, we’ve got both a strong product portfolio as well as scale in the business. And there are synergies with our oncology business. The oncology is the second largest customer of that business. About 10%-12% of the product cost of our oncology business comes from our components business; over 1500 tubes and panels a year. So, there is some vertical integration that we look at.”

Varian (VAR) CEO Dow Wilson said the company’s equipment provides the lowest total cost of ownership

“As we go into an environment that’s uncertain from a reimbursement point of view, total cost to ownership is everything, and Varian’s advantage is there. There is nobody close to us with that. There will be some niche products out there that probably get some play in some segments, but I think people are still going to be looking at value for money and how to stretch their capital dollars.”





AIG CEO Peter Hancock responded first thing in the company’s earnings conference call to a public letter from Carl Icahn to split up the company

“But before I do I’d like to comment on the recent letter we received from Carl Icahn. The letter outlines a plan that includes separation of Life and P&C. Management and the board have carefully reviewed such a separation on many occasions including in the recent past and have concluded it did not make financial sense. We of course will meet with him to further share our conclusions and give him an opportunity to elaborate on his views.”

AIG CEO Peter Hancock highlighted some technology trends which are affecting the insurance business

“We’ve been investing, and we’ll continue to make investments that will give us a competitive advantage in an ever changing landscape. The current mega trend that we see in artificial intelligence, digital, the Internet of Things, and Big Data require us to make these investments with a constant eye on innovation in order to be relevant.”

AIG CEO Peter Hancock said their mortgage insurance business is a strong contributor to the company

“So UGC is a business which was for sale for virtually nothing back in the crisis days. And since then we’ve invested in it, modernized it, and taken it from number five to number one in its industry, and it’s performing very well today. We’ve kept it as a very modular unit, so it gives us strategic flexibility. But today it is a core business making a significant contribution to the company.”

AIG CEO Peter Hancock said he sees the company having a lower headcount in the next few years due to increased automation

“I think that there will be fewer people, because a lot of those jobs will eventually be replaced by automation. We also, beyond the head count numbers that you see, have a very substantial number of contractors. And that number will also decline. So between contractors and head count in total we’d expect that number to be substantially lower. And our technology would be a bigger part of the spend and the scalable infrastructure that gives us, will lower our unit costs substantially.”

AIG CFO David Herzog said the S&P rating agency gives them a diversification benefit for being in multiple non-correlated lines of insurance

“I think the S&P – the explicit diversification benefits, I don’t know that we have disclosed publicly, but it is quite substantial. It’s north of $5 billion in diversification benefits.”






Loews (L) CEO James Tisch began the call by focusing on the recent decline in the company’s stock price and their plans to buyback a significant amount of shares

“Since I’m not in the habit of ignoring the elephant in the room, I want to start today’s discussion by focusing on the stock prices of Loews and our subsidiaries. You certainly don’t need me to tell you that the stock market performed terribly in the third quarter. In general, we believe that the stock market is undervaluing our shares and those of our subsidiaries. Despite being frustrated, rather than complain, we look at this as an opportunity to create value for Loews’ shareholders by buying back our stock, and we did.”

Loews (L) CEO James Tisch discussed his thinking process on buying a hotel outright versus partnering with an operator

“Listen, I like capital light. So, management is always number one, but with management, you don’t control the asset, and in some ways, you don’t control your own fate. A partnership is the next best thing because that’s not capital light, but it’s capital lighter, so that we don’t have to put up all the money for the hotel. And the third alternative is for us to buy a 100% of the hotel, which we have done a number of times. What we look to do when we buy a 100% of our hotel is that over the next one year to two years we look to sell down a percentage interest in that hotel so we don’t have as much as cash invested in the property.”

Loews (L) CEO James Tisch said he sees a lot of value being produced by its hotel subsidiary even though it currently isn’t generating large earnings

“I’d say that with respect to Loews Hotels, it doesn’t have a lot of earnings, but it does have a lot of value. The hotels in our portfolio, many of them are the envy of a lot of people in the hotel business. And the goal of Loews Hotels is to continue building the value of the company. As I said, it may be difficult for you to see in the form of net income. We do show adjusted EBITDA as a measure to help give you some ability to get value of the business. But I’d simply end by saying that – as I’ve said before, I love all my children, I love all our businesses, and I think each one of them is doing well within the context of their industry.”







Discovery (DISCA) CEO David Zaslav says they were able to raise their prices even in a challenged environment for TV content companies

“On the affiliate side, revenues rose 12% in the third quarter. We continue to see the benefits of the strong price increases we have secured through the current renewal cycle, of which we are now 80% complete here in the U.S. The price escalators are locked in for years to come.”

Advertising growth showed particular strength

“Turning now to the operating units, despite all the talk about domestic secular concerns, our U.S. Networks grew revenues an impressive 8% this quarter, as we benefited from another quarter of strong distribution growth of 12% and a significant acceleration in advertising growth to up 6% year-over-year. We are extremely pleased with our third quarter ad sales performance. As David mentioned, our ratings outperformed the industry and this outperformance helped us benefit from robust scatter pricing and volume as well as stronger overall demand.”

And they are seeing increased viewership in international market

“At our Investor Day, I also said that our leading global distribution platform is Discovery’s secret sauce. That’s once again true in the third quarter. International viewership grew mid-single-digit overall with ID, TLC and Eurosport up double-digit or better. Our ability to increase share of viewership internationally helped drive strong organic advertising and affiliate growth. Organic ad sales rose 12% and organic distribution growth also was strong, up 8%. These figures demonstrate our strong international growth profile and best-in-class platform.”

Discovery (DISCA) CFO Andrew Warren said the company is adjusting its view on repurchasing its own shares

“On our last earnings call, we stated that we were unlikely to repurchase additional shares through the end of 2015 in an effort to retain capital allocation flexibility for strategic transactions as well as to pay down debt to lower our leverage ratios. But given our solid and better-than-expected third quarter revenues and bottom-line results, the successful Comcast renewal, our significant higher level of confidence in our ability to drive accelerating free cash flow, our high and growing cash flow-to-total debt yield, the continued favorable interest rate environment, and finally, that we find the return of buying our shares at these levels to be extremely attractive, we have adjusted our view on leverage. After very careful consideration, we are now comfortable with increasing our gross debt to adjusted OIBDA ratio to the 3.25 times to 3.4 times range versus the 2.75 times target we previously outlined, all while being highly committed to remaining an investment-grade debt issuer.”

Discovery (DISCA) CEO David Zaslav says they’re starting to take their content direct to consumer

“The direct-to-consumer business is something we’re just getting started with, but we have invested over the last year and a half primarily through our Eurosport partnership and in Northern Europe with the Eurosport app and with Dplay. We’re learning a lot. Both of those platforms are growing meaningfully. We do have a target in place which we’re calling March to a Million. We have 200,000 subscribers right now. And if we can get to a million at the $6 to $8 a month, we could generate close to $100 million in revenue.”

Discovery (DISCA) CFO Andrew Warren said they are making it a point of emphasis to have the highest debt load in the industry

“To answer your question on the leverage, we expect to kind of accrete our leverage up to the 3.25, 3.4 times by year-end 2016. It’s just so important to highlight that even at that level, our free cash flow to debt yield is still going to be mid teens to high teens, the highest in the industry. Our interest coverage ratio is going to be the highest in the industry. And we feel extremely comfortable given our growth profile of cash flow, that’s the right leverage target and capital structure for us.”

Discovery (DISCA) CFO Andrew Warren said he’s seeing pockets of growth across various geographies

“We still see aggressive growth, meaningful growth in Latin America, particularly Brazil and Mexico, although Brazil has slowed down a little bit with the economy, and India, we’re seeing meaningful growth in Eastern Europe.”






McGraw Hill Financial (MHFI) CEO Doug Peterson said with the recent intention to divest the J.D. Power business, the company is now focused on global and scalable businesses

“Our portfolio is now increasingly focused on businesses with a common set of attributes. The businesses are scalable; they are global; all have market-leading positions and fantastic brands; and serve growing markets. These businesses are increasingly interrelated and serving the capital and commodities markets. Together, it’s this unique collection of great assets with these world-class brands that distinguishes McGraw Hill Financial.”

McGraw Hill Financial (MHFI) CEO Doug Peterson said ratings services were weak during the quarter as customers turned cautious amid macroeconomic uncertainty

“Now, let me turn to Standard & Poor’s Ratings Services. Issuance outside the U.S. was weak as concerns related to China’s declining growth, falling commodity prices, and the Fed’s impending interest rate hike hindered issuance activity.”

With very specific weakness in global issuance in Asia & Latin America

“Asia and Latin America issuance decreased by 58% and 72%, respectively. This led to a 20% decline in global issuance overall. To put that in perspective, both Asia and Latin America had their lowest quarterly issuance since 2008. Due to the turmoil in the Asian markets and the devaluation of the Chinese yuan, year-over-year quarterly revenue from China experienced a decline for the first time in the last five years. In addition, this was Europe’s lowest issuance quarter since the third quarter of 2013.”




AB Inbev (BUD) CEO Carlos Brito admits they have mismanaged the Bud Light brand and they plan to refresh the image of the brand

“We are going to have what we think is going to be revolution in terms of trying to understand where the brand came from and trying to learn from its amazing 20 plus years history from zero to a market leader in the U.S. and playing that back in a more contemporary way playing back to some of these rituals. There will be also some packaging refresh and visual identity. So, I mean, lots of things that’s only fair for a brand of this size. So we think we have been unfair for the brand, so our fault, not the brand’s fault. We don’t believe in anything about brand having cycle. We believe in brands that are well managed and brands that could be better managed. And Bud Light is one of those that could be better managed and that’s what we have for next year.”

He added that the structure of the beer market is very regionalized

“We believe beer has been a very local brand, local business, different than any other consumer goods you look out there. So I think there is an amazing opportunity for us to drive these three global brands and really capture what consumers in all markets today want in some occasions, which is more of a global citizen type brand.”

Their Chinese operations outperformed their peers during the quarter and gained market share

“Moving now to China, in China economic headwinds and poor weather led to decline in industry volumes in the quarter. We estimate industry volumes were down almost 7% in the quarter and down over 5% year-to-date with most of the impact being felt in the value and core segments. Our own beer volumes declined by 1.3% in the quarter and were up 0.5% year-to-date with our focus on the faster growing core plus and premium segments leading to an estimated market share gain of 104 bps to 18.7% in the quarter.”

And they continue to focus on certain segments of the market such as women drinkers

“In China, we are outperforming the industry and gaining share based on our strategy of focusing on the women’s segments and channels.

AB Inbev (BUD) CEO Carlos Brito said their partnership with the NFL which allows them to put team logos on bottles continues to be beneficial

“We are very happy with NFL’s agreement that we have in the sponsorship. Of course, as consumer change, the media habits and the way they interact with sports and the NFL. We are also changing together with the league on properties and things we can activate. And the NFL has been a very good partner in agreeing with us on changes that we need to do to continue to be relevant with that consumer base. So again, a great partnership, we respect them a lot. They have a great business. And again, the number one sports in the country could all be associated with the number one beer in the country. ”

And he continues to see a lot of room to grow the business in Mexico

“So, I think the other fact in Mexico will be like in any other market of ours, a function of three things, revenue management initiatives, premiumization, and in Mexico specifically like Brazil if we increase our own distribution. I mean, premium in Mexico is only 3% of the industry volume.”






Starbucks (SBUX) CEO Howard Schulz highlighted the shift away from brick and motor retailing

“We are delivering quarter after quarter of record-breaking financial results despite the accelerating shift in consumer behavior away from traditional bricks-and-mortar retailing and despite difficult macroeconomic retail and consumer headwinds that continue to challenge traditional retailers.”

Starbucks (SBUX) CEO Howard Schulz emphasized that by investing in their employees, via increased salary & benefits, it leads to a better customer experience and lower employee turnover

“And the investments we make in our partners pay tangible dividends in the form of more satisfied and engaged partners, deeper connections among partners, and with customers and improved in-store efficiency, all of which contribute to an elevated in-store Starbucks experience for everyone, partners and customers alike. Noteworthy is that today we are seeing improvements in partner attrition, a direct result of our partner investments at a time when the industry overall is actually moving in the opposite direction. And we are seeing a direct correlation between reduced partner attrition and our business results. Our comp results are strongest where we are having our greatest success in reducing turnover. ”

Starbucks (SBUX) CEO Howard Schulz highlighted their customers loyalty to the brand

“Our customers trust us and reward us with unparalleled frequency and loyalty, as demonstrated by the robustness of our business, the unprecedented increases in global traffic we are seeing, and the amount of currency preloaded on our customers’ mobile devices. We continue to leverage all these assets in ways that are accretive to our business and to the heritage of our company. Never in our 23 years as a public company has the Starbucks brand or our business been more relevant or been stronger.”

Mobile pay accounts for nearly 1/4 of all store transactions

“Mobile payment now accounts for 21% of all transactions in our U.S. company-owned stores, and although we only completed the rollout of Mobile Order & Pay across our system 7500 U.S. company-owned store portfolio in September, we were already operating at a run rate of over five million transactions per month.”

Starbucks (SBUX) COO Kevin Johnsaid 1 out of every 7 Americans received a Starbucks gift certificate last year

“You may recall that last year, one in seven Americans received a Starbucks Gift Card over the holidays, generating over $1.6 billion in card loads in our first quarter of fiscal year 2015.”

Starbucks (SBUX) CEO Howard Schulz said they are in the business of creating experiences

Well, I think the equity of the Starbucks brand throughout our public life has been defined by the culture and values and guiding principles. I said from day one that we are in the experience business, and our brand is defined by the people who wear the green apron. The entire DNA of the company goes back to equity in the form of stock options, comprehensive health insurance, 25 years ahead of the Affordable Care Act, and this year alone groundbreaking benefit of college achievement of providing all of our people with a four-year education.

Starbucks (SBUX) CEO Howard Schulz emphasized the importance of how important mobile is to the business

“I think we also believe very strongly that we had to seamlessly integrate the Starbucks experience with all things mobile. And as I said in my prepared remarks, we are living in a mobile-first global economy and we’re witnessing that kind of change.”

The China business accelerated during the quarter

“we went back to work on that and I think we also believe very strongly that we had to seamlessly integrate the Starbucks experience with all things mobile. And as I said in my prepared remarks, we are living in a mobile-first global economy and we’re witnessing that kind of change. In addition, what we saw during the quarter was that comps actually accelerated month to month. And in China, we see that comps are continuing to accelerate into the month of October, which is great news for us.”






Novo Nordisk (NVO) CFO Jesper Brandgaard said robust performance of certain drugs are being offset by macroeconomic conditions

“We are seeing intensifying competition within both diabetes and biopharmaceuticals and challenging market access as well as macroeconomic conditions in China and a number of markets in International Operations.”

Novo Nordisk (NVO) CEO Lars Sorensen expects their China business to remain challenged

“In regards to China, we are impacted by increasing local competition. And we are impacted by a segment shift, much like we have historically experienced the same in Japan, where we have a strong position in premix market, China used to be a premix market. The only real solution to this is of course that we get Tresiba into the Chinese market, so that is a couple of years out. So, I think we will be facing relatively tough market conditions in China for a couple of years. We expect China to come back. But here in the immediate future, we expect lower growth.”






LKQ (LKQ) CEO Robert Wagman said increased vehicle miles driven is providing a tailwind to their business

“New vehicle sales increased the size of the car park, which equates to more insured cars on the road, the likelihood of increased accidents and more repairs. These trends help drive North American organic growth for parts and services.”

The declining prices the company received for various scrap materials hurt their earnings

“While we have been dealing with falling scrap steel prices for a while, during Q3, we also experienced a material decline in the prices received from other metals that are a residual of our recycling activities, including aluminum, copper, platinum, palladium and rhodium, which were down materially compared to the third quarter of last year.”

LKQ (LKQ) CEO Robert Wagman reminded the investor community of the firm’s mission statement and core competency

“We’re laser-focused on our mission statement of being the leading global value-added distributor of vehicle parts and accessories by offering our customers the most comprehensive available and cost-effective selection of parts solutions, while building strong partnerships with our employees and the communities in which we operate. I am encouraged by the trends in miles driven, the continued growth in the average number of parts per claim, the increase in the per unit share of APU, the increased costs of repairs pushing carriers to seek alternative parts to lower their costs and the consistent pipeline of acquisition opportunities we’re witnessing across all of our business lines.”

The average age of cars on the road in Europe is increasing which benefits LKQ

“The average age of the car part in the UK is 7.8 years old, but it’s expanding. And on the continent, it’s 8.6 years old and expanding. So we think as these cars get older, it’s going to provide a nice tailwind.”






Ellie Mae (ELLI) CEO Jonathan Corr said his company continues to benefit from the increased regulation and compliance associated with mortgages

“Shortly after the close the Respa Tila Integrated Mortgage Disclosure rule became effective. We’ve received positive feedback on the comprehensive solutions support and training our team provided customers as they significantly reengineered their business processes to meet these new requirements. The services and education we provided through our readiness initiatives further distinguished Ellie Mae from our competitors and helped build our pipeline of expected customers. With these new regulations in effect and more expect to become over the next couple of years the need for an all-in-one mortgage solution and a team that excels in compliance is greater than ever, and we’re seeing that reflected in the sustained demand for Encompass.”

And they’ve now partnered with both Fannie Mae & Freddie Mac directly

“We’re excited to announce a strategic partnership with Freddie Mac to further integrate their risk management tools into Encompass. These integrations will allow Ellie Mae customers to more easily originate loans within Freddie Mac guideline. You’ll recall that we also announced the strategic partnership with Fannie Mae in July. By partnering with both GSEs we’re making the entire loan process even easier for our lenders from application to post-closing.”

Ellie Mae (ELLI) CEO Jonathan Corr discussed how he thinks about when to raise prices on his software

“Historically, we have raised prices on base fees and loan fees, over time as we’ve added more and more value to the platform. We don’t take a position, although obviously we have a big position in the market and a big market share. We don’t use that to just raise the prices based on our market pie, we really look to as we’re adding more value to the platform, raise those fees over time and over last four years the base fee has just gone from 50 to 60 to 70 it was up to 75 for new customers as of — earlier in 2015. And we’ll keep doing that and the idea is again adding greater value rather than using our pricing power, is our approach.”




Distribution Now (DNOW) CEO Robert Workman says many of their manufacturers of steel pipe are in distress after steel prices went below their 2009 low

“We have begun to see some bankruptcies from the pipe mills and further shutdowns. I would like to think that we are near the lows regarding steel prices, but the factors previously mentioned make it difficult to predict our manufacturers’ price bottom or their input costs.”

“Regarding the market environment, we are in a decline like no other I have experienced, not only in my 24 years in this business, but also as a kid growing up in the energy industry. I was born and raised in a small town in the Permian Basin where my parents owned an oilfield service company. I never thought the market could decline again as sharply and severely as it did in the 1980s while I watched my parents struggle to make payroll, but I have clearly been proven wrong. We continue to see rig counts being reduced, projects being canceled, budgets being slashed, and inventory being cannibalized.”