Company Notes Digest 10.30.15

Each week we read dozens of transcripts from earnings calls and presentations as part of our investment process. Below is a weekly post which contains some of the most important quotes about the economy and industry trends from those transcripts. Click here to receive these posts weekly via email.

The Macro Outlook:

The industrial demand environment has been difficult and deteriorating

“I’ll begin by covering the deteriorating and quite difficult demand environment…indicators confirm a considerable slowdown in metal working activity as the quarter progressed.” —MSC Industrial Direct (Industrial Distributor)

Companies planned for a weak environment and it was worse than expected

“we had set our plan not expecting a whole bunch of improvements in those markets…And in fact, what’s happened is they have gone down further…We thought we had [bottomed] and we have not and where the bottom is, we are not exactly sure, but it doesn’t look like we have reached it.” —Cummins (Truck Engines)

The decline may be broadening too

“I would say the answer is more about where it’s not getting worse. It’d be easier to find where it’s not getting worse than where it is. Seriously, I think, we’re seeing pretty much, with the exception of a couple of pockets that I mentioned, it’s pretty broad based.” —MSC Industrial Direct (Industrial Distributor)

Corning saw a slowdown in television and smartphone demand

“Our businesses were slowed by the weakening global economy, the unexpected devaluation of the Chinese currency, and the softening in television [demand]…IT and mobile demand is weaker” —Corning (Glass)

UPS saw B2B business fade

“we have seen some softness in the U.S. economy and in the third quarter B2B faded a little bit and really we are just seeing mixed signals.” —UPS (Package Delivery)

Demand for cranes has weakened

“deteriorating demand for tower cranes…contributed to the shortfall in revenues…The current global economic environment affecting customer demand is unlike any cycle we’ve seen in the recent past.” —Manitowoc (Cranes)

There are some rumblings of layoffs

“visibility remains extremely low. We’re now beginning to hear of layoffs for the first time in quite a while.” —MSC Industrial Direct (Industrial Distributor)

Other companies were more optimistic though

Dupont said that things are soft but it’s not a disaster, just a zero growth environment

“look, things have clearly softened up, just look at every industrial company that’s reported this quarter. Having said that, I don’t think things are in any draconian situation…I don’t see a disaster out there by any means. But I think we’re in a kind of zero growth environment…and that’s fine.” —Dupont (Chemicals)

Outside of the Energy industry, Reliance Steel said that demand isn’t too bad

“customer demand across our business is relatively healthy outside of the energy industry…there were like 170 of our managers [at our national conference], there really wasn’t a lot of sniffling…about demand other than the guys in our energy business, they were all at the bar for quite most of the evening.” —Reliance Steel (Steel Distributor)

Ford sees the US auto industry as stronger for longer

“We would characterize the U.S. industry as healthy…We do see industry sales staying well supported at the current levels through the next few years or in other words we expected to be stronger for longer.” —Ford (Automobiles)

We may have seen the worst of the inventory cycle too

Companies are managing their inventory levels pretty conservatively

“I think inventories are average at best, maybe below average in the value chain. We see buyers only buying what they need. We don’t see them buying ahead.” —Lyondell Basell (Plastics)

The Chinese may have liquidated their lumber inventories. How about other commodities?

“Chinese log decks now are down 30% from where they were earlier in the year. I think they’re starting to purchase wood. They really had a slow purchase rate in the third quarter as they were trying to rebalance it. So even though their fundamental demand isn’t picking up, I think their log purchase activity will start picking up and will feel a little bit better. We’ve seen prices in the Chinese markets firm in the last month or two and turn upwards” —Plum Creek Timber (Timber REIT)


The weaker Euro has made European industry more competitive

“in the power gen segment we have now seen some pricing competition come in, primarily as a result of low Euro. So there is just a number of competitors in the European area that are Euro based costs and so areas where Eurozone exporters can compete with us, we are seeing some price competition” —Cummins (Truck Engines)

As a result, the European economy is a relative bright spot

“GDP growth is also accelerating on the continent…We expect the strong market conditions to extend into next year.” —PACCAR (Trucks)

“I would tell you where we are seen the strongest growth is in Europe. You saw the results this quarter, we expect that continue” —CB Richard Ellis (CRE Broker)

Are there green shoots appearing in China?

“Our view on China is that the government overshot as it worked to slow the country’s economy in 2013-14 and then responded by re-stimulating it this year. We see the effects of those moves kicking in next year and finally with 2016 GDP growth projected to be near 6%” —Jones Lang LaSalle (CRE Broker)

Ford sees a rebound in China

“just a couple comments on the China industry, we are seeing stabilization and as Bob mentioned we do expect to lift from the stimulus package. And as he mentioned we are seeing showroom traffic improve, we are seeing closing ratios improve and unquestionably we see this as a really good opportunity, because 70% of our sales have the engines that are eligible for the stimulus.” —Ford (Automobiles)

Delphi is also seeing an uptick in orders in China

“when we look at sequentially third to fourth quarter, we are starting to see a pickup in orders, a strengthening in the market, sequential growth in vehicle production” —Delphi (Auto Parts)

A lot of companies had negative things to say about China though

“The change in our sales growth guidance is primarily related to two things. The impact of weaker than expected market conditions in China on our business and weak commercial vehicle markets around the world.’ —BorgWarner (Auto Parts)

“weakening economies, particularly in China, and the stronger dollar impacted our businesses…China’s auto and heavy-duty truck production has slowed through the year. China’s auto production is now expected to be flat year-over-year, and heavy-duty truck production is down 34% year to date.” —Corning (Glass)

“China has been slower in terms of market events than we expected” —Whirlpool (Appliances)

The Chinese are trying to move their economy to a “consumption led economy”

“You have a Chinese economy that is only 37% penetrated in terms of consumption relative to more developed countries, you’re looking at – over 60% of their economy is consumption. So there is definitely a secular tailwind driving consumption growth.” —Alibaba (e-commerce)

The Chinese consumer has plenty of savings

“When you look at the individual Chinese consumer, they’re very liquid, they have a lot of liquid cash deposits in their bank accounts. Over the last several years, wage growth has been growing over 10% year-on-year and there is a high savings rate. So people have lots of savings, lots of liquidity and we expect that this is not, so a temporary setback in the macro economy is not going to affect their consumption pattern and in a fundamental way.” —Alibaba (e-commerce)

Chinese consumers are already getting the message. Luxury goods companies have not seen a slowdown

“if I were to shut off my web and shut off the TV and just look how many customers are coming in our stores…I wouldn’t know if there was any economic issue at all in China. And so I don’t know how unusual we are with that…I mean, you really can’t tell the difference, if you look at sort of our daily and weekly numbers.” —Apple (Consumer Electronics)

“In terms of China, as you mentioned, we’re really pleased to be bucking the trends that many of our traditional competitors are reporting” —Coach (Handbags)

“we have not fully accessed the opportunity that the market is presenting in terms of growth in the premium price tiers as consumers look for better, more differentiated solutions, and frankly, higher product quality.” —Procter and Gamble (CPG)

Beware that consumption trends may only carry wealthier parts of the population though

“commercial real estate activity has remained steady in the country’s tier one cities…The shift in growth to services is producing some challenges in tier 2 and more so tier 3 cities.” —Jones Lang LaSalle (CRE Broker)


The big question: What is the state of capital markets after the last two months?

It’s certainly positive that markets have rebounded in October

“it’s certainly a positive that markets have rebounded month-to-date here in October…I’d hesitate to try to claim any kind of victory based on the first three weeks of October, and obviously we’ve got another couple months to go. But I would agree with you that it’s certainly been helpful to see the equity market positive news on the first three weeks of the month.” —State Street (Trust Bank)

But Silicon Valley has clearly felt some lingering effects

There has been a notable slowdown in VC funding

“we can see a slowdown clearly, but we don’t expect anything what I’ll call dramatic.” —Silicon Valley Bank (Bank)

The weakest companies are feeling the impact first

“Although we haven’t seen a trend yet, at some point, companies with more challenging business models, less differentiation or poor traction will have more difficulty raising funds…when I think about the level of the series A or seed round, again it’s slow.” —Silicon Valley Bank (Bank)

There are hints of a flight to quality

“the best companies are getting more attention. They’re raising larger rounds of equity and are staying private longer.” —Silicon Valley Bank (Bank)

Startups are having to re-evaluate their spending plans as capital raising becomes less certain

“[decreased spending is] being talked about. Have we really seen it a whole lot? The answer is no. Yeah, I’d just say we just haven’t seen it yet. Do I expect it to occur? Yes. I do expect that companies are going to be more disciplined as they go into 2016.” —Silicon Valley Bank (Bank)

Private Equity is also getting a little nervous about when to exit their investments, but many still have lots of capital to deploy

“I think everybody is wondering about what their exit time ought to be, if it should be moved up. But boy, the guys that we work with and talk to all the time, I mean, they are still deploying capital like crazy.” —Roper (Technology)

There’s just so much capital looking to invest

“It’s just that there is so much capital that still is keen to invest and it’s not skittish…if you look at the inflows into private equity this year…$130 billion this year. And that money hasn’t yet been put to work. So that will be going into the markets in 2016 and beyond…nothing yet suggests that any of this is slowing up.” —Jones Lang LaSalle (CRE Broker)

And there’s a sense that Silicon Valley will always be more resilient than the rest of the economy

“we’re paying attention to these potential issues and we do not see them having a material impact at this point…Our experience suggests these negative impacts will be short-lived if they occurred, as the innovation economy has repeatedly proven to be more resilient and has shown higher growth over time than the broader economy.” —Silicon Valley Bank (Bank)

These dynamics are making private investments the frothiest areas of this cycle

“that’s one of the benefits of the Fed keeping interest rates low forever is they are creating some other bubbles. You know where they are, in hedge funds, and all kinds of private equity investments.” —Cullen Frost (Bank)


Mall REIT Macerich is anticipating an uptick in retail bankruptcies this year

“Looking towards the end of the year, we are anticipating that bankruptcies are likely to be comparable or higher than in previous years. Many of these retailers are public companies and based on their current stock prices the markets are pricing in a significant risk of bankruptcy.” —Macerich (Mall REIT)


Apple is a Behemoth

“we are proud to report revenue of $234 billion, an increase of 28% and $51 billion over 2014. This is our largest absolute revenue growth ever. To put that into some context, our growth in one year was greater than the full year revenue of almost 90% of the companies in the Fortune 500” —Apple (Consumer Electronics)

Google says that the progress in machine learning has been pretty dramatic in the last two years

“Machine learning is core transformative way by which we are rethinking everything we are doing. We’ve been investing in this area for a while. We believe we are state-of-the-art here. And the progress particularly in the last two years has been pretty dramatic.” —Alphabet (Technology Conglomerate)

Jack Dorsey is focused on making Twitter easier to understand and to use

“what you’ll see from us is against two themes and this is going forward, which is really how do we make Twitter even easier to understand for more people…But also how do we get more power to people who are using it to tweet. And that’s not just Twitter but also our properties like Vine and Periscope. How we giving creators more tools to be more creative and to express themselves in a different way” —Twitter (Social Network)

There are only two enterprise cloud platforms built for massive scale: Amazon and Microsoft

“While many companies are developing commercial cloud offerings, there are really only two driving enterprise cloud platform innovations at massive scale, Amazon and Microsoft.” —Microsoft (Enterprise Technology)

There’s no problem too big for Amazon

“India is a different market and does not have a lot of the same ready fulfillment options that some other countries did. We see that as an opportunity, an opportunity that we can build and we can bring to sellers.” —Amazon (The Everything Store)

UPS thinks that it will be tough for Amazon, or anyone else, to match its delivery network

“I think we have been successful because of our integrated network that creates the efficiencies and the value proposition. It’s very difficult to match. And you have got to keep in mind, that that’s from pickup through delivery, right, where we are almost making a million pickup today a day and obviously delivering millions of packages a day.” —UPS (Package Delivery)

John Legere said that the next 6-12 months will be fascinating for the wireless industry as new competitors likely enter the market

“This is one of several industry structure question that I find fascinating things that are going to make the next 6 to 12 months just a really fascinating time period…If we really believe that that structure will be managed by four wireless carriers vertically integrating and reverse and horizontally moving into the rest of these industry. It’s crazy.” —T-Mobile (Telecom)

Comcast could be the big new entrant

“we believe that wireless obviously is an important area for consumers and how they are in the future…We had told everybody that before, we were going to trial some things and test some things…and we’ll update people as that progresses” —Comcast (Media Conglomerate)


The healthcare industry is undergoing massive consolidation

“There’s no doubt our industry is going through a period of dynamic change. I’ve been CEO of this company for 15 years and in healthcare my entire career.” —McKesson (Pharmaceutical Distributor)

The Walgreens-Boots Alliance is leading the charge

“The global healthcare markets, and perhaps the U.S. market more than any, are ready for change, and open to new ideas and new approaches that throughout provide scale. As the leading global healthcare company, we have the potential to play a defining role in this evolution.” Walgreens (Pharmacy)

Walgreens claims that the Rite Aid acquisition is not about giving it leverage over reimbursements

“Well, we have not done this to increase our negotiating power with payer and PBM. We have done this because we believe that we can extract a lot of synergies, rationalizing the combined company for, I would say, from internal sources and the harmonization of prices” —Walgreens (Pharmacy)

Hospital chain HCA had its margins squeezed by rising drug costs

“The second area that impacted our results in the quarter is the continued increases in pharmaceutical costs. Our pharmacy cost in the third quarter of 2015 were up in total just under 13%” —HCA (Hospital)

But McKesson argues that drugs are the cheapest and most effective way to treat patients

“pharmaceutical pricing trends have become the frequent subject of news headlines as we get deeper into this presidential election cycle. The observation I would make is that this pharmaceutical pricing discussions tend to ebb and flow over time. However, what remains clear is that pharmaceuticals are still the most effective and affordable way to treat patients.” —McKesson (Pharmaceutical Distributor)

Materials, Industrials, Energy:

We may only be in the third or fourth inning of the oil down cycle

“people out there tell us that it historically when they go a down cycle there it usually takes 80 months to get through it and you can pick your starting point of this down cycle but we’re certainly in that I would say probably in the first three or four innings of that cycle.” —Cullen Frost (Bank)

Even though oil producers aren’t drilling, they’re still producing existing fields at close to maximum levels

“We believe many, if not most, North American producers and OPEC countries are producing existing fields close to maximum levels, trying to offset lower revenues due to oil price declines with higher volumes while sharply reducing drilling activity. OPEC and non-OPEC production are up year-over-year. This is not sustainable.” —National Oilwell Varco (Oil Service)

Don’t expect recovery any time soon

“However, with swollen inventories, moderating demand growth with economic weakness in Asia and elsewhere around the globe and an uncertain trajectory for incremental oil exports from Iran, we don’t expect recovery any time soon. Nevertheless, it will come.” —National Oilwell Varco (Oil Service)

Acquisition opportunities should begin to open up as the downturn lengthens

“As the downturn has lengthens, we believe values of potential target companies will become more and more compelling. Thus far, it has been challenging to bring the bid and the ask on potential acquisitions into alignment, but we remain patient and disciplined in these discussions…As we move into 2016, we believe sellers are likely to reduce their expectations and better capital returns on M&A will follow.” —National Oilwell Varco (Oil Service)

But there’s a huge amount of Private Equity money that’s been raised to go after opportunities in oil

“I think, like most people, we still see this extraordinarily large amount of private equity that’s been raised. And most people seem to gravitate around $100 billion as the number that’s been raised and prepared to be committed to the sector over the next couple of years for investment if the right opportunities present themselves.” —Anadarko (Oil E&P)

Operators are getting outbid by PE backed management teams

“unlike the public markets, where you have a little bit different dynamic at work, where we see ourselves today trying to bid on properties in markets where we have interest, we are being pretty consistently outbid. And most oftentimes, we’re being outbid by private equity-backed management teams. And so I’m not sure I’d call that a seller’s market quite like I did previously, but I would say it’s a healthy bid-ask in terms of exactly what’s happening with properties when they come into the market and the receptivity they’re getting.” —Anadarko (Oil E&P)

Farmers are getting hit by another year of robust harvests

“Another year of robust global harvest is putting pressure on commodity prices, and more challenging farm economics has reduced demand for agricultural machinery, especially for larger models.” —AGCO (Agricultural Machinery)

Ag companies are looking to consolidate

“but you’ve seen all the activity in the last six months and one of the other ag players just this week saying they are looking at what they would do with their ag business and I’d also say one of them said everyone’s talking to everyone. That’s a true statement and we’re also — I am personally talking to the CEOs of some of the other companies. Something will give here on the ag side and I would say just looking at it consolidation should happen.” —Dupont (Chemicals)

Miscellaneous Nuggets of Wisdom:

Different industries move at different speeds

“sometimes we forget that different industries move at different speeds. So not everything moves like tech, not everything moves like consumer electronics and mobile consumer electronics. Matter of fact, few things do. So for instance, it is frustrating how long it’s taking us to get widespread adoption of lightweight glazing in automotive. It’s a heck of a good idea, good for consumers, it’s good for the environment, it’s good for safety, it’s good for almost everything. But the industry, even when you’re a highly-valued supplier, as we are, it just takes time.” —Corning (Glass)

Time is our scarcest commodity

“everyone wants to get more out of every moment of their life. After all, time is our scarcest commodity.” —Microsoft (Technology)

Hire people who are team players and not looking for instant gratification

“We look to people who are looking to be part of the team and operate as a team. And it comes out pretty directly when you’re talking about message of compensation et cetera. People elect to either be part of a team or they want to operate individually and we can tell that pretty quickly…we also avoid people who are looking for immediacy. I have a big believe that the value in hiring people is the duration of which you keep those people. There is very I would say it’s a I would say there is very little value and short-term employee no matter how productive they are” —Moelis and Co (Investment Bank)

Exceptional buying opportunities come along once a decade

“I think you could probably measure in decades the number of times a business comes along with such a good business and a market leading position where that can be obtained at a reasonable price.” —Capital One (Bank)

Full transcripts can be found at

Company Notes Digest 10.23.15

Each week we read dozens of transcripts from earnings calls and presentations as part of our investment process. Below is a weekly post which contains some of the most important quotes about the economy and industry trends from those transcripts. Click here to receive these posts weekly via email.

The Macro Outlook:

The industrial economy probably slowed further in Q3

“what really changed during the quarter was order entry levels weakened more than we anticipated and September was much more worse than we had expected…September is always a key month…it’s a really good indicator for what the rest of the year potentially is going to look like.” —Parker Hannifin (Industrial Equipment)

“North America [construction]…This year we’ve kind of seen it slow down a bit as the year wears on.” —Caterpillar (Construction Equipment)

“Overall, we have seen some incremental slowing in the macro.” —Danaher (Industrial Equipment)

“We saw parts of the U.S. economy soften further, notably in the manufacturing sector.” —Manpower (Temp Staffing)

“we’re ending out the year I will say at the lower global growth rate in the economy versus what all of us anticipated as we went into the year” —3M (Conglomerate)

More importantly though, many companies are looking for continued weakness in 2016 and beyond

“we have to factor in that the likely recovery in our activity levels now seems to be a 2017 event.” —Schlumberger (Oil Services)

“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 (Conglomerate)

“We think 2016 is going to be about 5% below 2015. Now this would be our fourth consecutive down year and that’s never happened to Caterpillar in the history of the company.” —Caterpillar (Construction Equipment)

“Overall, the ag market continues to be challenged…We do expect ongoing weakness to continue over the next 12 to 24 months” —Dow Chemical (Chemicals)

A negative outlook could affect 2016 CapEx budgets and exacerbate underlying weakness

“Given the uncertain environment, we are taking a hard look at our capital spending for next year…we do currently expect that it will be somewhat less than this year” —Union Pacific (Railroad)

“Most of our customers haven’t completed or just barely started our budgeting process for 2016. But the general feedback is very consistent. And that is, they expect, the vast of them that spend will be lower.” —Schlumberger (Oil Services)

“I for one have a concern that we may find ourselves set [ph] into another downturn before we see the economy strengthen a great deal again, I mean. So we’re trying to be very careful.” —Zion (Bank)

Not all companies were so gloomy though

Honeywell’s CEO doesn’t think there’s a chance of recession because we never really had a recovery

“At least from my perspective, it feels like markets really think there is a chance of a recession here…I really don’t see that. This feels a lot different than it did in 2001 or 2008 to me, just because after a great recession we’ve never really had a recovery.” —Honeywell (Industrial Conglomerate)

Texas Instruments saw weak demand, but not as weak as expected

“our revenue declined 2% from a year ago, and we obviously would describe that as a weak demand…But, inside of that, certainly it was stronger than what we had expected.” —Texas Instruments (Semiconductors)

Kansas City Southern said business demand still feels good

“business demand still feels very good to us, with the obvious caveat about the uncertainty in energy markets, which you have seen across the entire rail sector, have made it more difficult to forecast demand and provide guidance.” —Kansas City Southern (Railroad)

GE says it’s seeing as much activity as ever

“On balance, Scott, we see as much activity as we’ve ever seen. The quoting activity, the deal activity, things like that, is still quite robust. Business for us in China is still pretty good, which is a big market.” —GE (Conglomerate)

Labor markets may actually be one of the strongest areas of the economy

“I guess we would observe it’s still a candidate short market. The wage rate inflation is accelerating not decelerating in the U.S. and we think that speaks volumes about the health of the labor markets as it relates to the white-collar professions where we specialize….from where we stand the labor markets are still solid they are very solid.” —Robert Half (Temp Staffing)

Hasbro sees labor inflation is in the double digit range

“The single biggest cost input to our cost of goods is labor. And we continue to see labor inflation rates in the double-digit range.” —Hasbro (Toys)

There was some foreshadowing of potential layoffs though

“there are some questions regarding potential outlook due to the recent news about companies reducing their workforces and cutting costs. We’ve seen some slight impact already and will continue to monitor our customer base closely.” —Brown and Brown (Insurance Agency)

“We have therefore decided to proceed with a further round of capacity and overhead reductions, which will result in a restructuring charge in the fourth quarter.” —Schlumberger (Oil Services)

One piece of good news is that currency headwinds will start to go away in Q1

” the major headwind we have experienced all this year from currency will go away in the first quarter if exchange rates remain where they are today” —Manpower (Temp Staffing)

However hedges will also roll off next year

“Depending on how you hedge, if you hedge your currencies at all, it’s good for one year. It’s not necessarily so great the following year as your hedges expire and so on.” —Abbott Labs (Healthcare)

Another piece of good news is that eventually excess inventories will be liquidated

“We do continue to see destocking in the channel. Our best bet is we’ll continue to see that destock through [Q4].” —Parker Hannifin (Industrial Equipment)


Europe may actually be doing better than the rest of the world

“Europe is actually kind of stable and positive…the news is no longer totally doom and gloom…Our numbers don’t reflect all of that yet. But I’d say…QE now I think [is] finally starting to kick in there.” —Caterpillar (Heavy Machinery)

The French manufacturing sector is rebounding

“We’re seeing some nice recovery in the French market in September after little bit more lackluster in August. And it isn’t – we can see that the manufacturing is coming back and if you followed the French PMI, you saw that that’s actually moved up a little bit as well.” —Manpower (Temp Staffing)

Brazil is seeing a profound slowdown though

“I was just in Brazil two weeks ago. It’s a profound slowdown there.” —Caterpillar (Heavy Machinery)

It may be challenged for the next two years

“Brazil today will still, in my view and I think in most of our views, be a challenge maybe for the next two years.” —3M (Industrial Conglomerate)

The Brazilian Real was devalued by 22% last quarter

“There are not too many months you have a 22% devaluation in the currency anywhere in the world and that’s certainly what happened in Brazil, in the third quarter.” —Caterpillar (Heavy Machinery)

RMB devaluation probably hasn’t been enough to move the needle on the Chinese economy

“the movement in the renminbi has been fairly modest. We’re not seeing a movement on that…we do see it as a positive development for that portion of the business, but minor at this point.” —3M (Industrial Conglomerate)


The global economy has slowed but valuations have not changed

“in general, I think there’s been a slowing, but not so much a change in valuation expectations in some of the businesses out there.” —Abbott Labs (Healthcare)

With stable markets, investment banks have another opportunity to bring deals to market

“I think things will get done more this quarter than they did last quarter if things stay stable. And based upon what I see in terms of our pipeline, I feel good about our pipeline” —Suntrust (Bank)

Comerica has seen elevated chargeoffs in loans to VC/PE backed tech companies

“its unusual for us to see all bigger charge-offs in technology and life sciences, they have been up for the last couple of quarters, they’re above where we’d like to see them frankly. But we’re not seeing any systemic issues there, we’re not seeing any patterns to the charge-offs. I really don’t think we’re going to see further deterioration in the portfolio. But we felt it made sense to increase our reserves and we’re watching it carefully.” —Comerica (Bank)

Insurance markets continue to grow more competitive

“I want to now say a few words about current commercial P&C market conditions. The underwriting environment continued to grow more competitive in the quarter for our commercial P&C business globally. With some exceptions, price declines accelerated modestly. They were varied by class of business and geography.” —ACE (Insurance)


McDonalds attributes its turnaround to efficient operations

“we are running better restaurants than we were a year ago…and that is ultimately what customers respond to…as we innovate around the menu and have promotional activity and have fun with that, that would increment the sales, but…any market that’s successful around the world is because they are focusing on the day-to-day operation and just delivering at that moment of truth for the customer.” —McDonald’s (Restaurants)

2/3 of Chipotle’s meals are taken out, but only 7% are ordered before hand

“about two-thirds of our business is eaten outside of a restaurant, but only 7% of our business is ordered outside of a restaurant…So kind of makes sense for us to provide the convenience to order outside of a restaurant.” —Chipotle (Burritos)


Verizon says that consumers are not adopting phone leasing programs

“I am not interested in a rental program. We are not seeing any impact from those programs from the competitors in our base…f you speak to the rating agencies, they are becoming very concerned with the balance sheet risk of some of the industry on putting up rental phones on the balance sheet with what the residual value will be with those rental phones.” —Verizon (Telecom)

IBM is seeing the storage market shift rapidly to flash

“The growth in our high end servers was more than offset by a double-digit decline in storage hardware driven by weakness in the high end disc and tape. This market is shifting rapidly to flash where we again had very strong growth.” —IBM (Enterprise Technology)

Products are being electrified that never were before

“the amount of electrification in the world, the amount of smart products in the world that are going into what’s not typically electronic products that are now moving forward, whether it’s anything from a shoe to a shirt to a door lock is tremendous.” —Flextronics (Electronics Manufacturer)

Materials, Industrials, Energy:

Oil prices may start to rebound as supply and demand balance

“we believe that the worldwide crude oil supply and demand markets are well on their way to balance by year-end or in early 2016….Core continues to see a V-shaped recovery getting underway in 2016.” —Core Labs (Oil Services)

However, exploration & production companies have been significantly weakened by a year of low oil prices

“four quarters into very low oil prices, the financial strength of many of our customers has significantly weakened and their appetite to invest is also a bit down.” —Schlumberger (oil services)

Activity will probably drop substantially towards the end of the year

“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” —Halliburton (Oil Service)

Even if the situation improves E&Ps will likely have to recover strength before they can start investing again

“Any I think – any improvement in oil prices, I think will be to initially – is going to go towards the strength in the balance sheet and then the oil companies will likely assess how sustainable are these increases in oil prices before they start investing.” —Schlumberger (Oil services)

But they are facing a drill or die circumstance

“with the high decline curves that exist on these unconventional plays. They are really are in drill or die mode. So if you go a year without drilling a well, and your production starts to turnover, you are going to have to start drilling or you are going to have to take your infrastructure apart that you’ve built up as a company.” —Halliburton (Oil Service)

And, like good wildcatters, if they have cash they are going to spend it

“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.” —Halliburton (Oil Service)

Miscellaneous Nuggets of Wisdom:

When you hire fresh college grads you will have to train them in more than just job skills

“When you hire somebody right out of college, you are teaching them not only insurance, but about life.” —Brown and Brown (Insurance Agency)

Different people have different trajectories of success

“It’s not as easy as saying, we hire somebody and one year later you have X. It’s not that easy. And I know you’d like that, there’d be more like manufacturing, but it’s not like that. You hire a new person and some people are successful more quickly, some people, it takes a little longer for them to launch in their career.” —Brown and Brown (Insurance Agency)

Don’t fight what your competition is today. Prepare to fight what your competition could be tomorrow

“our team is preparing for isn’t what’s the next shoe coming from one of our current competitors, what we’re thinking about is what are we going to do if Apple or Samsung decided to make a shoe, how are we going to answer that. So that’s the type of I think leapfrog mentality and that moon-shot thinking that we are challenging our team with, let’s not fight with where people are today, let’s think about where they’re going in the future and what we can do to be great” —Under Armour (Apparel)

Full transcripts can be found at

Company Notes Digest 10.16.15

Each week we read dozens of transcripts from earnings calls and presentations as part of our investment process. Below is a weekly post which contains some of the most important quotes about the economy and industry trends from those transcripts. Click here to receive these posts weekly via email.

The Macro Outlook:

Fastenal was definitive that the industrial economy is in recession

“The industrial environment is in a recession – I don’t care what anybody says, because nobody knows that market better than we do.” —Fastenal (Industrial Distributor)

They’re not expecting that it’s going to bounce back quickly either

“We’re not economists; we don’t know what the economy will do over the next two to three quarters, but we’re not real optimistic that it’s going to bounce back quickly” —Fastenal (Industrial Distributor)

Colfax said that its markets may not recover until 2017

“we’re seeing tough trends in the market and we think we need to presume that 2017 would be the earliest market base recovery” —Colfax (Manufacturing/Engineering)

Blackstone did not see a recession, but did see slowing in certain regions

“From our prospective, we do not see a recession, but we are seeing slowing in certain regions and sectors with some excess coming out of markets.” —Blackstone (Private Equity)

CSX saw “vibrancy” in core segments, but also expects volumes to decline in Q4

“I think that if you look at some of the core tenants of our economy, such as the housing and the automotive side, you continue to see good vibrancy…Looking forward, we expect volumes to decline in the fourth quarter. Although we are projecting stable to favorable conditions for several key markets, this will be more than offset by unfavorable conditions for the remainder of the portfolio.” —CSX (Railroad)

John Stumpf and Richard Davis were two CEOs that had always skewed positive on the economy, but sounded a little more tempered this quarter

“I think – we think it’s getting better, but only incrementally better.” —Wells Fargo (Bank)

“I would say just more of the same which is not pessimistic but it’s not uber optimistic either…Undeniably it’s not getting worse. I mean things aren’t going backwards…I’ll call it a tortuously slow improvement over the course of time” —US Bank (Bank)

In other economic eras we probably would have called this an “inventory recession”

One analyst suggested that inventories are still elevated from the west coast port strike

“Just on the economy, again, there has been some talk that what we are seeing, at least in part, is an inventory correction that’s related to the West Coast port disruption. Because, in effect, shippers over ordered when they weren’t sure how quickly inventory could move through the supply chain.” —Analyst Comment on CSX call (Railroad)

The good news is that inventory recessions usually work themselves out relatively quickly

“Customers and distributors are taking down inventory, right? So people are producing below consumption, and that gives me some confidence…we think the most likely scenario, assuming there’s not another leg down on the China economy…is that this will be a two-quarter phenomenon. And that most of the inventory correction will be done by the fourth quarter” —Fairchild Semicondutor (Semiconductors)

In fact, inventories may already be normalizing in some industries

“We exited Q3 with healthy worldwide supply chain inventories. We actually think we probably undershipped the market a little bit in Q3” —Intel (Semiconductors)

At least the US has been more resilient than the rest of the global economy

“the global economy showed some signs of weakness in the third quarter, primarily in China and other emerging markets… the U.S. economy while not immune to these developments has proven quite resilient.” —Wells Fargo (Bank)


Larry Fink seemed to suggest that volatility in Asian markets may have been driven by three or four large institutions

“We have seen some clients because of cash needs have been selling products. So I think Asia-Pac has been dominated more by three or four large institutions moving around. I think I’m talking about the whole ecosystem of the markets.” —Blackrock (Asset Management)

Chinese spending on home appliances has been hit with the housing market

“I would characterize it is that the industrial and appliance businesses is normal all around the world, except for the combination of Korea and China…white goods are at the epicenter of it, very tied to housing. Housing is in a big correction. There’s no surprise there.’ —Fairchild Semiconductor (Semiconductors)

One reason that consumption is weak is that Xi is running an anti-corruption campaign

“President Xi discovered that the people of China felt that government officials were corrupt and feathering their own nest. And he thought that that was very malignant for the health of his party and the future of his country and made a decision to correct that and have a campaign against corruption.’ —Wynn (Casinos)

The corruption probe has made businessmen think twice about conspicuous consumption

“every businessman in that country dealt in one way or another with a government official because the government controls so many aspects of public policy and business interface…So businessmen who had nothing to hide as well as those who might have had something to hide all went into the fox holes..And it has caused across the board, a contraction of all VIP consumer spending at the higher level” —Wynn (Casinos)


It’s tough for banks to grow in this environment

“revenue growth remains challenging in this interest rate environment. We are focused on those things we can control and drive, these includes delivering for our clients and customers within our risk framework and driving those things we know will result in sustainable profits and returns.” —Bank of America (Bank)

It’s no fun for them to look at interest rate futures

“I looked at the futures this morning for the 30-day LIBOR as they go out the end of 2016, the end of 2017 and they are not fun to look at.” —Private Bancorp (Bank)

Everyone is ratcheting down their expectations for a rate hike

“we will be sitting here a year from now we think with one, two or three, 25 basis point moves under our belt at probably best case with respect to how far things might move” —Wells Fargo (Bank)

“we’re going to put into our plan an expectation for very, very nominal number and size of rate increases which much less we’ve had in the years past” —US Bank (Bank)

“we’ve called this wrong, we continue to expect that interest rates would be going up, say 12 months down the road and we haven’t seen that yet. And so we’ll continue to reassess and we have the flexibility to manage that overall rate risk position fairly quickly with the change in interest rate swap position.” —Keybanc (Bank)

This is a generational low in terms of charge offs

“we’re already had a generational low in terms of charge-offs which means that credit performance can’t really improve meaningful from where we are today. It’s already that good.’ —Wells Fargo (Bank)

Credit quality should turn at some point

“the spreads in the marketplace continue to tighten. I keep asking our lending folks when is it going to get better and they say, well, as of yesterday it hadn’t gotten better…I mean that market, I keep waiting for it to turn…but it hasn’t turned yet” —BB&T (Bank)

Big banks are getting more aggressive in mortgage lending

“Yes, Erika, they are getting more aggressive. They are cutting both pricing and to a modest extent, standards. Their loan-to-value advanced ratios up to $2 million or $3 million have climbed into the 80% range. We are not following them. And that’s the cause for us losing some business.” First Republic (Bank)

We may be in the later stages of the real estate cycle

“we think we are getting in the later stages of a real estate credit cycle here, so we are being very defensive in what we are doing.” —Bank of the Ozarks (Bank)

Will there be growth to match the increase in capacity?

“there are some places that I could name where you had a lot of apartments constructed and one has to ask if the demand and employment growth or population growth are there to absorb that supply.” —Bank of the Ozarks (Bank)


Netflix has a lot of competition racing to make their own apps

“everybody has got to get into streaming. It’s been our main message for several years, that what is known as channels is going to become apps…the next couple years, when you have this new phase of the market, I think everyone is just racing to make a great app like Netflix, like HBO Now, those things.’ —Netflix (SVOD)

Consumer taste in media is relatively the same around the world

“it turns out that tastes are rather global too. So it’s actually really well lined up.” —Netflix (SVOD)


A couple of companies were singing the praises of Amazon Web Services

“We added new capabilities including Natural Language Processing and others. And we have great partnerships including Amazon with IIP running on Amazon Web Services.” —Infosys (Business Process Outsourcing)

“AWS has been a great supplier to us. They demonstrated again and again strong market leadership, strong attentiveness to our account. We could not be happier with AWS. And they’ve always kept that separate from Amazon retail.” —Netflix (SVOD)


5 billion people lack access to safe surgical care

“The World Health Organization estimates that nearly a third of the world’s global disease burden could be addressed through surgery. Yet nearly 5 billion people continue to lack access to safe, timely and affordable surgical care.” —Johnson and Johnson (Healthcare)

Johnson and Johnson addressed political scrutiny on pharmaceutical companies

“I think every time we talk about drug pricing, we unfortunately miss the balance of the other side of the coin which is of course the innovation that comes from the pharmaceutical industry and the improvement in the health and well being lives of many people around the world.” —Johnson and Johnson (Healthcare)

United Health is raising rates on health insurance exchanges because buyers have required more medical services than originally expected

“Like others we observe market-wide data this past spring that suggested the risk pool served by public exchanges would require more medical services than original expectations. Rather than wait for our own experience with our new members to fully developed, we increased rates and repositioned certain products market by market for 2016, and we expect improved performance next year…Average increases across the country are in the double-digits” —United Health (Insurance)


Alcoa continues to see strong demand from aircraft manufacturers

“Aerospace we continue to see an 8% to 9% growth rate for this year and that of commercial aircraft growth of 8.3%, strong demand continues.” —Alcoa (Aluminum)

But Delta seems to believe that markets are over-supplied with aircraft

“we’re seeing a huge bubble in excess wide-body airplanes around the world…we think that that weakness in that aircraft bubble in wide-bodies is going to spread to narrow-bodies and that there will be some huge buying opportunities because low interest rates really have created a huge wide-body bubble in the world…we get calls all the time. There is no deal. Prices are going to get lower; you wouldn’t strike a deal now.” —Delta (Airline)

Short term trucking rates are down

“There is no doubt, though, that at least on a spot basis right now that the truck rates have come down. But on the contractual side continues to have, as far as we can see, a pretty good rate increase on the contractual side, because I think people are cognizant of what will happen longer term, both in terms of driver retention and some of the negative productivity initiatives that the trucking industry is facing.” —CSX (Railroad)

Materials, Energy:

Blackstone does not believe that spot energy prices reflect long term prices

“our conviction that as I say that this is not – today’s spot prices are not long-term energy prices ‘ —Blackstone (Private Equity)

Most banks sounded like they had their energy exposure under control

“I’m not saying that there may not be any net incremental reserve build, but we’re not expecting them to be significant. A lot of companies have tried to adjust their expense basis and otherwise help their position. So if energy prices stay around these levels and recover slowly, we’re expecting net not to have material incremental reserves in the next quarter. We may see some.” —JP Morgan (Bank)

More challenges may lie ahead though

“the fall redeterminations and reserve-based energy loans are performing as expected. We believe the energy services sector will incur greater challenges in the near term as it adjusts to lower commodity prices and this view was reflected in our reserving process.” —Wells Fargo (Bank)

Infosys saw energy sector spending take another step down during the quarter

“if you look at Energy segment, now, given the oil price and the volatility, we are also now started seeing the second wave of price cuts and cost reductions, postponements and so on. So we will see some impact there as well.” —Infosys (Business Process Outsourcing)

Miscellaneous Nuggets of Wisdom:

A good bank must be prepared to lend to clients in tough times

“That’s what we’re here for, to lend to clients, particularly in tough times. You can’t be a bank that every time something goes wrong you run away from your client.” —JP Morgan (Bank)

Our perception of the present is heavily influenced by our expectations of the future

“our present state of mind, our happiness, our sense of security is fundamentally a function of how we view tomorrow or the future.” —Wynn (Casinos)

The job of a leader is to create a positive and stable outlook for his or her constituencies

“My job is to create a stable environment in terms of human resources, job security and a better future for people..And the job leaders are to do everything and anything in their power to create a happy and positive outlook to the future for their constituencies” —Wynn (Casinos)

Leaders have to have vision

“whether you’re a CEO of a company or you’re the head of a government, you have to have a little bit of ability to look around the corner and see what’s coming ahead of you. And if that’s not good, turn away from it, amend your policies, learn from experience and come to a more sound conclusion.’ —Wynn (Casinos)

Full transcripts can be found at

Company Notes Digest 10.8.15

Each week we read dozens of transcripts from earnings calls and presentations as part of our investment process. Below is a weekly post which contains some of the most important quotes about the economy and industry trends from those transcripts. Click here to receive these posts weekly via email.

The Macro Outlook:

I seem to be the only person who thinks that the Fed is signaling that it will raise rates soon unless something goes really, really wrong:

The Fed was not concerned about the decline in stock prices

“equity prices fell, on balance, amid significant volatility, and risk spreads for businesses widened. Many participants judged that the effects of these developments on domestic economic activity were likely to be small” —Federal Reserve (Central Bank)

They did not let the market decline factor into their policy choice

“participants indicated that they did not see the changes in asset prices during the intermeeting period as bearing significantly on their policy choice” —Federal Reserve (Central Bank)

The Fed recognized that valuations were relatively high

“Some participants commented that the recent decline in equity prices needed to be viewed in the context of overall valuation levels, which they saw as relatively high, and a couple noted that volatility had begun to subside.” —Federal Reserve (Central Bank)

Some are concerned that if they wait to raise rates it could lead to financial market instability

“Some other participants, however, expressed concerns about delaying the start of normalizing the target range for the federal funds rate much longer. For example, a significant delay risked an undesired buildup of inflationary pressures or economic and financial imbalances that would be costly to unwind and that eventually could have adverse consequences for economic growth.” —Federal Reserve (Central Bank)

Most agreed that the conditions for firming have been met

“Most participants continued to anticipate that, based on their assessment of current economic conditions and their outlook for economic activity, the labor market, and inflation, the conditions for policy firming had been met or would likely be met by the end of the year” —Federal Reserve (Central Bank)

A quick read on the economy from Dominos: the inflation picture is mixed

On one hand this isn’t the type of economy that you can take price easily

“But in terms of is there significant pricing power for us, no, there is not. I don’t think you can take aggressive price in this economy right now and not expect that’s it’s going to hit your order counts.” —Dominos (Pizza)

On the other hand Dominos has seen an uptick in labor rates

“on labor rates specifically around our company-owned store first, we saw a little bit of an uptake in that line. Some of it wage rate, some of it just higher bonuses…I’d say is kind of despite any wage inflation, we haven’t seen a ton of wage inflation” —Dominos (Pizza)

Indra Nooyi’s message was to get used to the volatility

“the macro volatility is here to stay” —Pepsi (Beverages)


Yum saw the environment in China decline “very rapidly and without much warning”

“the deceleration in China sales was led by Pizza Hut and the drivers behind that decline emerged very rapidly and without much warning. In today’s volatile environment with the recent macro and competitive pressures we mentioned, it continues to be difficult to forecast sales in China for both brands.” —Yum (Restaurants)

Financial markets are weighing very heavily on the Chinese economy

“extraordinary volatility in financial markets, the surprise currency devaluation and overall softer economic conditions are weighing more heavily on the higher ticket casual dining sector in China.” —Yum (Restaurants)

Companies in China are cutting back on entertainment expenses

“in recent weeks, we’ve seen companies cut back on parties, dinners and entertaining.” —Yum (Restaurants)

Pepsi expects Forex to impact EPS by 10-11 points

“We now expect foreign exchange translation to negatively impact net revenue and core earnings per share growth by approximately 10 and 11 percentage points respectively based on current market consensus rates.” —Pepsi (Beverages)


Dominos has taken on quite a bit of leverage

“the company intends to issue approximately $1.5 billion of new fixed rate notes in the fourth quarter…would bring our total debt to EBITDA leverage ratio from approximately 3.6 times at the end of Q3 to approximately 5.8 times at closing.” —Dominos (Pizza)


Zero Based Budgeting is so hot right now

“we have also embarked on our version of zero-based budgeting, something we call smart spending.” —Pepsi (Beverages)

Companies have been relying on price to drive top line as volumes are under pressure

” I would say that the CSD market continues to be under pressure from a volume perspective. From a value perspective, because of good revenue management and good pricing in the industry, the value numbers are way better than the volume numbers’ —Pepsi (Beverages)

“the industry is definitively premiumizing, while volume remains sort of flat so that there is a shift internally towards more premium products.” —Constellation Brands (Alcoholic Beverages)

Startups are finding out that it’s not so easy to move packages around profitably

“clearly we are kind of the world leaders in real time delivery…there are a lot of people who have gotten into the space. My understanding is that as it relates to moving packages and food, very few if any of them are today making money doing that. There are folks that are doing pretty well out there moving people around, but I think people are learning that you know moving packages around and the scale that you need to do that it’s not easy.” —Dominos (Pizza)

Food delivery services are in a “savage battle for supremacy” in China

“there is definitely what we call a savage battle for supremacy going on about — around the aggregators who are obviously heavily discounting…we don’t believe that the economics will sustain all the people that are currently in the market playing at these discounted prices…China is not the only place where this is occurring, what tends to happen is they are all fighting for market share dropping the prices but then eventually the prices have to go up.” —Yum (Restaurants)


Technology is spreading to all industries, including agriculture

“As we look at the next decade for digital agriculture, one thing is clear. This platform will change the way farmers manage their operation; it will change who we are as a company; and it will transform the industry. In fact, we are targeting expansion of the platform into new crops in the next three to five years, including, but not limited to, soybeans, wheat and canola.” —Monsanto (Agriculture)

And pizza delivery…

“Switching to technology, the story continues to be about investing in innovation. Technology is now an absolutely critical part of our brand and an undeniable element of what Domino stands for. We don’t just talk about innovating, it’s generating real results. And for the second time this year we are using national television to promote a technology driven message.” —Dominos (Pizza)

And Finance…

“There are 160 steps and processes a company must do from the time leadership decides they want to do an IPO to the time the company starts trading on an exchange. We are working on automating that entire process and making it more efficient with software” —Goldman Sachs (Investment Bank)

CPG companies are being disrupted by technology too

“with digital technologies disrupting many aspects of our business, productivity has never been more important” —Pepsi (Beverages)

Technology makes it easier for small brands to establish themselves, so it’s critical to have control of manufacturing and distribution

“Innovation is becoming more fragmented and the life cycle of innovation is being shorter and the trade becoming more and more complex. Having control of the manufacturing and distribution systems becomes critical.” —Pepsi (Beverages)

Materials, Industrials, Energy:

These are tough times in agriculture

“We fully recognize that these are tough times in agriculture” —Monsanto (Agriculture/Chemicals)

Demand is growing to meet oversupply though

“the world is consuming the current oversupply at a record pace with demand for corn growing by an average of 1.3 billion bushels per year over the past three years. More than 90% of this growth in demand over this timeframe has been driven by feed and underpinned by middle-class protein consumption, which we expect to continue.” —Monsanto (Agriculture)

Eventually a lack of investment should lead to a rebound for mining companies

“Right now, everybody is focused on hunkering down and cutting costs and no new investment…Exploration spending is significantly down and there hasn’t been a major discovery in over four years. Gold production has peaked and it will continue to decline in the coming years. Without major gold deposits like Donlin, the industry cannot sustain itself.” —Novagold (Gold Mine)

Full transcripts can be found at

Company Notes Digest 10.2.15

Each week we read dozens of transcripts from earnings calls and presentations as part of our investment process. Below is a weekly post which contains some of the most important quotes about the economy and industry trends from those transcripts. Click here to receive these posts weekly via email.

The Macro Outlook:

The auto industry had another strong month

“industry SAAR that we would expect to be around 18 million…This would mean that then the total vehicle industry…was likely up about 13% in September…We view the September’s industry performance as another strong sales month…it was good from beginning to end one of those really special strong months.” —Ford (Automobiles)

Vail Resorts isn’t seeing any softening of demand

“I mean again at this point, we are not seeing any softening in consumer interest…we are not seeing that in our bookings or in our pass sales.” —Vail Resorts (Ski Resorts)

Paychex is still seeing steady hiring among small businesses

“we’re seeing continued — particularly in the small business under 50, we’re seeing continued better employment growth than prerecession levels of 2004 and so — and it’s down a little bit from last year, but it’s consistently above that level. So we’re feeling like a steady improvement in small business formation and employment hiring” —Paychex (Payroll Processing)

Valuations are still high, but maybe this correction will help create acquisition targets

“I think it’s a tough market. I think everybody says that, it’s a tough market. Valuations are high but maybe that could change with this current ongoing correction, who knows but I think it is a difficult market but we are looking for things that fit our profile.” —Diamond Foods (Packaged Foods)

Inventory cycles eventually work themselves out

“I think the buying side of the market has been a little conservative in terms of how they procured PC parts over the last three to six months and I think it’s at this point, this could be interesting to watch how the next three or four months plays out in terms of the consumer and corporate behavior, because at some point they are going to start to replenish.” —Micron (Electronic Components)


Companies will probably revise FX impact higher this quarter

“FX obviously is a large headwind on a reported basis…it’s gotten slightly worse on the operating income line as we’ve upped the negative impact on the total company to 4% versus the prior three.” —McCormick (Spices)

Putin assured the UN that Russia has no ambitions for world domination

“I must note that such an honest and frank approach of Russia has been recently used as a pretext to accuse it of its growing ambitions, as if those who say it have no ambitions at all. However, it’s not about Russia’s ambitions, dear colleagues, but about the recognition of the fact that we can no longer tolerate the current state of affairs in the world. What we actually propose is to be guided by common values and common interests, rather than ambitions.” —Vladimir Putin (President of Russia)


Some parts of the lodging industry may be battling over-supply

“I think one of the benefits that we have obviously is other parts of the travel industry one of the things they are struggling with is not just the demand side, but the supply side. And so as people build new rooms obviously that starts to bring down some of their metrics and one of the benefits we have right now is that there has not been any new supply added to the mountain resort industry” —Vail Resorts (Ski Resorts)


Organic ingredients are fundamentally more expensive to produce

“raw material themselves are undeniably more expensive than regular spices and that’s reflected in the premium price that organic products command in the market place. It’s not just a scarcity issue, it costs more money to produce organic ingredients and products” —McCormick (Spices)

Retail has gotten increasingly competitive in the last five years

“you’re absolutely right the competition is certainly more intense than it was four or five years ago with some smaller chains rolling out nationally and the pure e-com players that you referenced…So listen you’ve got to be – in this sort of environment you got to be on your game all the time. Your product has to be spot on, your marketing has to be spot on” —Pier One (Home Furnishing)

Established retailers really want to believe that physical stores are a competitive advantage

“the physical stores remain central to serving our customers and provide us a tremendous opportunity to be close to them. The ability to consult with our knowledgeable and solutions-oriented sales associates coupled with our in-store services, encourage customers to visit and spend time in our stores. Options such as reserve online, pickup in-store, buy online and return to store and online appointment scheduling highlight various points of interactions we have with our customers across our channels.” –-Bed Bath and Beyond (Home Furnishing)

Pier One said that its operating-level margins from e-commerce sales are higher than in store sales

“I think what we have said consistently Denise, is that the contribution from operations level or fulfilled sales has a higher margin than the store sale” —Pier One (Home Furnishing)

Costco hopes that there’s room for everyone

“There is room for all of us. We’ve got to keep, it’s a big play out there in terms of market share and we think that we’ll be able to take our share of that. Some little departments you lose a little, others you make a little, certainly we want people to still come into our warehouses.” —Costco (Warehouse Retail)


PC Markets are weak, but a recovery wouldn’t take much

“Well I think the PC is about where it’s been. I can’t advertise there’s been a major uptick in PC demand. The only data point that I would say that is new for us is that as we sit today the relative channel inventory in PCs is not a huge burden to a recovery.” —Micron (Electronic Components)

Blackberry’s CEO feels like he has stabilized the company but now needs to stabilize revenue

“Remember, we all said about a year ago, we were talking about stabilizing the company, the business, and focusing on cash flow from operation. I think we have accomplished that. This year, as we said, we’re going to stabilize the revenue, and unfortunately, we have a really low point here.” —Blackberry (Feature-phones)

Materials, Industrials, Energy:

IHS expects energy customers to make modest budget cuts in 2016

“There are some smaller players in the U.S. upstream that will be under pressure, but we do think most of the big companies have made most of their cost reductions and the IOCs and major independents are in the process, while they’re in the process of deciding their capital budgets for 2016 and we expect some modest trimming.” —IHS (Consultant)

Electric utilities have not added much capacity this cycle

“The electric utility market in the U.S. remains sluggish but we have benefited from strong international opportunities and a solid backlog.” —AZZ (Electrical Equipment)

It is really difficult to be a small manufacturer in a down cycle

“We are still noticing that the dealers are struggling as well and they are definitely not wanting to stock any of our inventory. So we do anticipate that the sales that we have, we need to have inventory on hand in order to capitalize on those sales.” —Arts Way Manufacturing (Farm Equipment)

Miscellaneous Nuggets of Wisdom:

Be mindful of economic volatility, but focus on what you can control

“we’re very mindful of the macroeconomic volatility in the marketplace. But we continue to really focus on the things that we can control” —Nike (Apparel)

Never underestimate someone who you are negotiating with

“no doubt you are dealing with rough and cruel people, but they’re in no way primitive or silly. They are just as clever as you are, and you never know who is manipulating whom” —Vladimir Putin (Ex-KGB)

Full transcripts can be found at

Company Notes Digest 9.25.15

Each week we read dozens of transcripts from earnings calls and presentations as part of our investment process. Below is a weekly post which contains some of the most important quotes about the economy and industry trends from those transcripts. Click here to receive these posts weekly via email.

The Macro Outlook:

Jamie Dimon doesn’t want to talk about the Fed

“It’s a lot of chatter about nothing. I don’t want to add to that chatter. Let the Fed decide when they want to raise rates and wherever I go I ask businesses, consumers, small business, large business, will it affect you if rates go 25 basis points? I haven’t found anyone who says, Oh my god… it’s a psychological thing, folks. It’s not a economic thing” —JP Morgan (Bank)

This isn’t even a real tightening

“it’s not really in my opinion tightening. They could raise rates – tightening in the old days meant you’re taking cash out of the system…The reserve banking doesn’t exist anymore because all those reserves bank…are not required under old reserve requirements, they required an LCR…they can set IOER, which the rate they pay us if rates go immediately there and it’s not necessarily taking money out.” —JP Morgan (Bank)

While Dimon has a point, we’re still going to parse what Yellen said this week:

The Fed gets that there’s uncertainty and they could wait to raise rates

“Given the highly uncertain nature of the outlook, one might ask: Why not hold off raising the federal funds rate until the economy has reached full employment and inflation is actually back at 2 percent?” —Federal Reserve (Central Bank)

But monetary policy affects the economy with a lag and they don’t want to have to slam on the brakes

“The difficulty with this strategy is that monetary policy affects real activity and inflation with a substantial lag. If the FOMC were to delay the start of the policy normalization process for too long, we would likely end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of our goals. Such an abrupt tightening would risk disrupting financial markets and perhaps even inadvertently push the economy into recession” —Federal Reserve (Central Bank)

They also don’t want to encourage excessive risk taking in financial markets

“In addition, continuing to hold short-term interest rates near zero well after real activity has returned to normal and headwinds have faded could encourage excessive leverage and other forms of inappropriate risk-taking that might undermine financial stability.” —Federal Reserve (Central Bank)

So they are going to raise rates this year

“For these reasons, the more prudent strategy is to begin tightening in a timely fashion and at a gradual pace, adjusting policy as needed in light of incoming data.” —Federal Reserve (Central Bank)

Listening to companies, there is evidence to support the Fed’s position

Homebuilders are facing a very tight labor market

“labor has also become a limiting factor. The slow and steady recovery in housing did not signal to the labor market that it was time to come back to work in the sector, and many found work elsewhere. Today, the entire labor market has tightened and rapid growth in housing production will be limited by available labor.” —Lennar (Homebuilder)

Darden cited wage pressure as well

“Wage pressure continues to be a problem. We will continue to monitor it, as we monitor the different states and the different cities and what they are doing with minimum wage. The job market is improving. We are seeing in certain markets today, becoming a little bit more difficult to hire help. So that will eventually put some pressure on our average wage. But right now, I believe that we are managing this very-very effectively.” —Darden (Restaurants)

There are also signs of excessive risk taking: US Bank’s CEO called out some “remarkably bad behavior” in CRE markets

“There is some remarkably bad behavior in long term 10 year deal and in some of the non-recourse deals and I’m telling you, I’m calling it out it’s a worry and I’m saying commercial real estate in certain markets” —US Bank (Bank)

So far financial market volatility doesn’t seem to be impacting the real economy

Factset hasn’t seen financial services companies pull back on hiring

“We haven’t really seen any of that indication we clearly stay close to our clients throughout this volatility. It is felt still fairly healthy as we look at the sell-side graduating classes that we just saw were reasonably healthy, and attrition rates were nothing of know so, we haven’t seen anything that alarms us in that space so far.” —Factset (Financial Data)

Carnival hasn’t seen order rates impacted by the stock market

“We did not see any falloff in demand related to stock market or general economic fluctuations, none whatsoever.” —Carnival (Cruise Line)

Still, Accenture feels like the macro risk has clicked up a notch or two recently

“I think, when we look at the macro environment in general, relative to where we were 90 days ago, I would say, relative to where we were at this time last year, the volatility and risk in the macro environment has clicked up a notch or two, and so that’s a factor then.” —Accenture (Enterprise Tech)

And this kind of story makes markets sound very unhealthy:

“in April of 2015, we moved our $3 billion student loan portfolio…into the held for sale with the intent to sell the portfolio…in the early months of our being out to bid…one of the largest rating agencies started downgrade a couple of the FFELP portfolios and then others started to follow. The pricing margin started to gap and in the very two weeks we’re in the market getting the bids, I even use a phrase that isn’t official but the market broke, there literally wasn’t bids” —US Bank (Bank)


Companies are forecasting continued earnings impact from currency

“For the full fiscal year ’16, based upon how the rates have been trending over the last few weeks, we currently assume the impact of FX on our results in USD will be negative 4% compared to fiscal ’15.” —Accenture (Enterprise Tech)

“obviously the U.S. dollar strengthens, the Canadian dollars, the A dollars, the Euro, the Brazilian Real. So yeah we see more of a headwind on our reported results from currency.” —General Mills (Packaged Food)


On the whole, commercial banks have been very well behaved this cycle

“The last crisis obviously the heart of it, the nucleus, was mortgages in the banking system…that was the corruption that caused the whole crisis. I don’t see anything like that in banks, zero, nada, nothing, zilch.” —JP Morgan (Bank)

That makes most bankers optimistic about credit quality

“credit hasn’t been talked about for a while and frankly won’t be for a while.” —US Bank (Bank)

The one thing that Jamie Dimon worries about a little is treasury markets

“the one thing I do worry about a little bit by the way is treasuries…Anyone into this business since 2006 has never seen interest rates go up…And the biggest buyers of treasuries were central banks, foreign exchange managers effectively and banks. And all three of those are going to reverse. So I wouldn’t be shocked to see 10-year treasury rates…go up much faster than people think. I’m not predicting that, I’m simply saying in the back of mind, I think that’s a possibility and we will be prepared for that” —JP Morgan (Bank)

Bank of America is now focused on growth

“The good news is [litigation] is largely behind us and we’re pivoted to focus solely on responsible growth…We have to grow, no excuses. We’ve had hundreds of billions of dollars of run off of assets, businesses risk that we’ve taken out of this company, but the reality is now we got to grow through all that.” —Bank of America (Bank)


Consumers are increasingly shopping online for items that you may not have expected, like cars and food

“We’ve definitely seen the sentiment shift where customers are looking to do more and more research, more and more pieces of the transaction from home, and in some cases the entire transaction from home” —Carmax (Used Cars)

“U.S. food sales that are going through online are between 1% and 2%. Now that’s changing pretty quickly, meaning moving from 1% to 2%. If you said what does it look like out four or five years ahead, all the projections I’ve seen are in the 5% to 6% range. So it’s going to be a high growth area.” —General Mills (Packaged Food)

People don’t even want to interact with waiters anymore

“We also continued the roll out of our table-top tablets. The tablets are now on more than half of our restaurants, with 80% of the tables choosing to interact with the devices in those restaurants. We continue to see the same benefits, as we saw during the tests, higher add-on sales, faster dining times, and overall higher guest satisfaction scores. We are pleased with the progress of the rollout, and we expect to complete it by the end of the second quarter.” —Darden (Olive Garden)

Kids are reading more books than adults

“According to a study released this June by the Association of American Publishers…the size of the children and young adult market surpassed the adult market for the first time, with children’s and YA selling at 843 million units to 746 million units for adults” —Scholastic (Publishing)

At least low gas prices are getting Americans out of the house

“As new vehicle sales are reaching all-time highs and gas prices on average are down year-over-year, vehicle miles driven continue to increase. This trend is encouraging.” —Autozone (Auto Parts Retail)


Sprint says that it is disrupting the way telecom networks are constructed

“the way we’re building our network is not a traditional way it’s a disruptive way. We are not buying equipment from your traditional OEM and we’re not going to a traditional tower companies so which both are quite expensive. We have found a combination of newer vendors…It’s a disruptive way. It’s a very different way” —Sprint (Telecom)

Materials, Industrials, Energy:

Houston’s housing market is starting to show signs of deterioration at the high end

“I would say that the Houston market is still overall a pretty decent market… if you look at that, it hasn’t been across all price points. The lower price points, let’s say, sub-$300,000, $350,000 are performing pretty well. It’s just when you get up in that $350,000-plus, the price point sales has been impacted and have slowed.” —Lennar (Homebuilder)

“We are seeing some softening at higher price points in Houston above 350,000.” —KB Home (Homebuilder)

Carnival doesn’t have any plans to change its fuel hedging strategy amid lower oil prices

“at this point wouldn’t have any particular plans to change but we review it constantly” —Carnival (Cruise Line)

The mining industry can only recover once supply and demand come into balance

“The bearish tone was the reality. So, if we look out to the markets that we’re seeing prices are resultant of the supply and demand situation. So, if we have to wait for a pricing to move something has got to happen with the supply or the demand…looking at our various commodities around the world, there is an oversupply of the commodities through this huge ramp-up in commodities in the previous cycle. That’s got to be worked through.” —Joy Global (Mining Equipment)

Dry Bulk fleets are finally shrinking

“a very high demolition rate is further reflecting ship supply. More specially, in 2015, the Capesize scrapping activity has exceeded 2013 and 2014 combined, which is almost 13 million deadweight tons year-to-date. The substantial reduction of the order book as well as the accelerated scrapping activity has finally led to negative fleet growth year-to-date in 2015.” —Seanergy (Dry Bulk Shipping)

Miscellaneous Nuggets of Wisdom:

Don’t run your business focusing on expenses

“We don’t run the business that way and they are not expense initiatives. We run the business that you think the way you want to do, you invest what you got to invest, you built the systems you need, you open the branches you need.” —JP Morgan (Bank)

“We never focused on efficiency [ratio] as a goal…It’s never been a goal but it’s an outcome. It’s an outcome that usually gets better because we grow revenue faster than expenses” —US Bank (Bank)

Good execution beats good strategy

“While we study the external environment and react where appropriate, we must stay committed to executing day-in and day-out on our game plan. Success will be achieved with an attention to detail and exceptional execution.” —Autozone (Auto Parts Retailer)

Full transcripts can be found at

Company Notes Digest 9.18.15

Each week we read dozens of transcripts from earnings calls and presentations as part of our investment process. Below is a weekly post which contains some of the most important quotes about the economy and industry trends from those transcripts. Click here to receive these posts weekly via email.

The Macro Outlook:

We talked it over, and we decided not to raise rates

“The recovery from the Great Recession has advanced sufficiently far, and domestic spending appears sufficiently robust, that an argument can be made for a rise in interest rates at this time. We discussed this possibility at our meeting. However, in light of the heightened uncertainties abroad and a slightly softer expected path for inflation, the Committee judged it appropriate to wait for more evidence” —Federal Reserve (Central Bank)

This doesn’t mean we’ve changed our outlook

“Now, I do not want to overplay the implications of these recent developments, which have not fundamentally altered our outlook. The economy has been performing well, and we expect it to continue to do so.” —Federal Reserve (Central Bank)

We just would feel a lot more comfortable if we saw 2% inflation

“I think our credibility hinges on defending our inflation target..So let be clear. 2% is our objective. We want to see inflation go back to 2%.” —Federal Reserve (Central Bank)

But we don’t want to push the economy so far that it gets overheated either

“But there are lags in the impact of monetary policy on our economy. And if we waited until inflation is back to two…we might be faced within having to tighten policy in a way that could be disruptive to the real economy. And I don’t think that’s a desirable way to conduct policy… eventually we will find ourselves with a substantial overshoot of our inflation objective. And then we’ll be forced into a kind of stop-go policy. We will have pushed the economy so far it will have become overheated…I don’t think it’s good policy to then have to slam on the brakes and risk a downturn in the economy.” —Federal Reserve (Central Bank)

So we’re still hoping to start raising rates this year

“I think you can see from the SEP projections that most participants continue to think that economic conditions will call for or make appropriate an increase in the Federal funds rate by the end of this year” —Federal Reserve (Central Bank)

I know everyone is hanging on our every word, and I’m sorry for that

“we’re well aware that there’s been a huge focus on the decision today…I do understand that during this intermeeting period, that every word that an FOMC member has said has been parsed for its potential implications for what our decision will be. I think that’s an unfortunate state of affairs.” —Federal Reserve (Central Bank)

But we’re doing the best we can

“I would ask you to appreciate that there are a lot of cross currents in economic and financial developments that we need to take into account in deciding on what the appropriate course of policy is. And we don’t make continuous decisions every single day about our policy. We meet periodically. We do our darnedest to pull together the best analysis we can.” —Federal Reserve (Central Bank)

Meanwhile in the real economy…

Wells Fargo has given up on waiting for higher interest rates

“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…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.” —Wells Fargo (Banking)

The Fed’s indecision is inducing real uncertainty for companies

“I think the thing we worry about like everybody worries about is, market instability. What happens with interest rates? What happens with the market? The high end of the food chain you’ve got people heavily invested in the markets. And if markets are in stable, I think that that’s something we’ll worry about. And not a lot we can do about it, just be prepared to deal with it and what’s going to be the effect of rising interest rates? Will it effect big ticket? Will it expect the home buying? We don’t know” —Restoration Hardware (Home Furnishing)

FedEx saw weaker than expected economic conditions

“FedEx Corporation is performing solidly given somewhat weaker than expected global economic conditions, especially in manufacturing in global trade.” —FedEx (Delivery)

Citi is increasing loan loss provisions due to the macro environment

“we do expect cost of credit to be higher versus last quarter driven by additional loan loss reserve bills given the macro environment, although we do not expect to see an increase in net credit losses.” —Citigroup (Bank)

Kroger saw inflation turn slightly higher at the end of the quarter

“actually if you were to look at the very end of the quarter was a slight bit of inflation in the last several weeks. Nothing to write home about. But it was deflationary for the quarter but got less and actually turned a bit towards the end of the quarter.” —Kroger (Grocery)


The Fed is keeping a close eye on China

“with respect to global developments we reviewed developments in all important areas of the world but we have focused particularly on China and emerge markets…The question is whether or not there might be a risk of a more abrupt slowdown than most analysts expect.” —Federal Reserve (Central Bank)

United Technologies isn’t expecting China to improve in 2016

“China, it’s a challenge. I think next year you could China — business in China could be down 10%. Now that’s a big number” —United Technologies (Industrial Conglomerate)


There’s a lot of risk taking going on in the banking industry right now

“frankly there’s a lot of risk taking going on in the industry today and we’re trying to be very, very careful…the one area that I’m particularly concerned about is multifamily. We don’t have a bubble yet but we have an impending bubble…there has been too much risk taking and my view would regard to leverage lending.” —BB&T (Bank)

The riskiest financing is happening outside of regulated banks

“in leverage lending, I think the – the regulatory impact has been that fewer of us in the regulated banking community both Fed and OCC regulated banks are participating in the most aggressive activity.” —Wells Fargo (Bank)

This cycle has seen its fair share of financial engineering

“I think we’ve been rather than creating new cash flows mainly new factories and new products and services, we’ve been spending a lot of time recapitalizing businesses through levered buyouts and that’s long term – that’s not the healthiest thing for the country” —BB&T (Bank)

The Fed is well aware of the effect it could have on housing markets

“of course we recognize that the housing market is sensitive to mortgage rates it is an important factor” —Federal Reserve (Central Bank)

Mortgage credit is just finally opening up again

“So the purchase market has improved, jobs picture has improved, availability has improved, credit I think is widely available” —Wells Fargo (Bank)


It’s really hard to be a CMO today as audiences have fragmented

“There’s so many ways to address marketing spend today. And I’d say that the hardest job in America today, and in any company is probably going to be the Chief Marketing Officer. It’s probably why we don’t have one.” —Restoration Hardware (Home Furnishing)

40% of millenials do not have TV and another 20% are thinking of cutting the cord

“40% of millennials do not and have never had a TV in their home and another 20% have said they have got it, but they don’t use it that much and they are considering cutting it.” –Verizon (Telecom)

Disney’s COO thinks the market has overreacted to disruption in the media space though

“I think the short answer to your question is yes, I think the market overreacted. We are confident in our programming services ability to thrive” —Disney (Media)

Ford is repositioning it’s European branding to have more emotional appeal as features become less of a differentiator

“On the brand side, we want to really move to brand much more to emotional space. In the past, we’ve been trying to compete on technology. And although that’s very important for customers in Europe, it’s become less of a differentiator in the space that is unique to Ford.” —Ford (Auto)


Cable companies will be able to increase internet speeds as bandwidth is repurposed from TV to broadband

“There is a roadmap as television goes more IP. And you reclaim analog and digital bandwidth and apply it to broadband. We have a roadmap where we recently have announced we are going to go to 2 gigabits a second in certain locations.” —Comcast (Media)


States are more likely to expand medicaid coverage after 2016 once the issue isn’t so politically charged

“I don’t see much movement until post-2016 election, once we have someone else as President and the office maybe Medicaid expansion becomes something that’s more state-driven rather than considered Obama Care.” –HCA (Hospitals)


GM is taking costs out of production by reducing material use

“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.” —General Motors (Auto)

A manufacturer is only as good as its worst supplier

“People always ask what’s the one thing that keeps you up at night, it’s the ramp. The technology, I’m very confident we’ve got that right but you’re only as good as your worst supplier. When you got 8,000 parts in an engine, one of those aren’t there, you’re not building the engine.” —United Technologies (Industrial Conglomerate)

A recent NLRB decision could affect small businesses all over the US

“I have to say the recent actions by the NLRB are concerned and should be of concern to every business in America, whether it’s a large business or small business…The BFI decision if it stands will discourage companies from contracting with many small and minority owned businesses. And these are the businesses that are the very heart of the U.S. economy.” —FedEx (Delivery)

Materials & Energy:

There are a lot of investors searching for bargains in basic materials companies

[analyst comment] “Yesterday was a big day for us actually for what it’s worth, those keeping track, I mean, the rooms are certainly more full than we’ve seen them actually. We are – attendance was up about 45% for our first day, yesterday. So apologize if there are logistical issues, because it’s a bigger crowd than even we had expected, but it’s a nice problem to have.” –Credit Suisse (Investment Bank)

Miscellaneous Nuggets of Wisdom:

There is no single magic metric that you can use to manage a business

“I think if you get overweigh to only managing your business on one metric or another you are going to run into trouble.” —Citigroup (Bank)

Devote yourself to a pursuit in which you will either succeed or die trying

“If we do one thing or die trying what would we do, we debate a hell out of that and then we pick one, and we align on that as an organization, as a team.” —Restoration Hardware (Home Furnishing)

Full transcripts can be found at

Company Notes Digest 8.27.15

Each week we read dozens of transcripts from earnings calls and presentations as part of our investment process. Below is a weekly post which contains some of the most important quotes about the economy and industry trends from those transcripts. Click here to receive these posts weekly via email.

The Macro Outlook:

We’re all watching the market’s gyrations

“we are not immune to a further deterioration in the global economy. So, like all I view, we are anxiously watching the market gyrations over the last two weeks, particularly in the emerging markets.” —Brown Forman (Liquor)

There’s more uncertainty than there was a couple of weeks ago

“I think it’s more the uncertainty around…what might occur going forward as a result of just the skittishness that we have seen over the last, I mean, literally week to ten days we are acting a little bit more I think to just the recency of some of these market sell-off.” —Brown Forman (Liquor)

It’s way too early to tell if there’s been any impact on the real economy

“What’s going on lately, it’s too early to tell. It’s too early to read anything into it over the last couple of weeks. We’re obviously keeping a very close eye on it, but most of our international buyers are Asian-American, been here for generations, not impacted by their home country economy…And that buyer seems quite confident and ready and able to buy. But we’re obviously, as everyone is, keeping a very close eye on it. But right now it’s just too early to tell you much more than that.” —Toll Brothers (Homebuilder)

And it’s impossible to quantify any impact anyways

“With regard to recent news from China in the same way that it’s not possible to quantify the positive wealth effect from a rising stock market on our sales growth there in the past couple of years. It’s similarly difficult to predict any potential negative effect on sales in magnitude or duration from their recent stock market correction or currency devaluation.” —Tiffany’s (Jewelry)

But you can’t help but be a little more conservative about how you run your business

“The challenge is – trying to operate that business is, trying to get beyond a lot of the noise that’s going on from the stock market point of view and where we see the business moving and going. So you can’t help, but look at that business and be a little bit more conservative about how we project that business out both through the balance of this year and then moving into 2016 and beyond. So it just gives us pause.” —PVH (Apparel)

Alternatively, you could just try to tune out the noise

“I would just like to address the fact that there is a lot of noise really out there right now around the apparel sector. And just so you know my perspective, I shut it out because from where I sit across all of our businesses, our job is to deliver regardless of the noise that’s out there today and what I see is, I see a consumer who has confidence, I see dollars being spent and I see an opportunity for us to continue to get more than our fair share, as I look forward and I am very optimistic” —Gap (Apparel)

But people are concerned about deflation

“We’re looking at continued deflationary pressures, as those have mounted as we progress through the year. We’re looking at a more challenging macro environment.” —The Fresh Market (Grocery)

And deflation makes it hard to drive revenue growth

“the challenge, the biggest challenge we’re looking at is, how aggressive to raise prices particularly in a world, as you look out there that is facing extraordinary deflationary pressure in just general terms across a – the ways most economists speak, the biggest concern is deflation, not inflation” —PVH (Apparel)

On top of that, as we enter the final third of the year hedges are rolling off, which will impact earnings

“The six point gap between as-reported and constant currency revenue performance is wider than prior quarters, as the financial hedges are rolling off.” —Hewlett Packard (Technology)


The Bank of Canada has cut interest rates twice this year

“in the recent months, we have seen mixed economic data and weaker than anticipated growth which led The Bank of Canada to cut interest rates for a second time this year.” —Royal Bank of Canada (Bank)

A weak Euro is boosting European tourism

“our Chinese consumer or Asia consumer instead of being in the United States is more so in Europe. And as you – I was in Paris and I was in Amsterdam this last month, you could see the tourism boom that’s going on there and helping their economy.” —PVH (Apparel)

It may be boosting the whole economy

“Europe. It has gone through some macro issues, but we’re actually seeing positive sales trends in Europe. We believe that economy is coming back and that consumer is re-engaging.” —PVH (Apparel)

For what it’s worth, a Chinese Real Estate broker says that the property market is warming up

“As expected the overall Chinese property market started to warm up since the end of March driven in part by the governments loosened credit policies and purchasing restrictions in certain cities. Despite recent Chinese Stock Market volatility the real estate sector has stayed relatively stable so far.” —E House (Chinese Real Estate Broker)


Brokerage firms are probably cleaning up in this environment

“In the equities trading side of the business, it’s really just agency trading. We are not really putting capital to work for to offer liquidity. So the equities trading business has actually been as you might imagine reasonably robust especially over the last several days” —Royal Bank of Canada (Bank)

These markets make it harder for high yield companies to issue debt

“I can start with the trading conditions currently. I think starting with fixed income, we are seeing because of the recent market volatility high yield for instance in the U.S. new issue flows is down, investment grade credit is steady but down a little bit, and in rates trading I would say it hasn’t changed.” —Royal Bank of Canada (Bank)

It sounds like mortgage markets have opened up though

“Our buyers remain to be strong. We have on the margin, a few people that struggle to qualify, but overall, we’re able to get the vast majority of our people into a mortgage if they want one. We’re not seeing any issue at all, really, on a macro sense with qualifying for loans…Actually, today, the jumbo rate is below the conforming rate, which is pretty astounding.” —Toll Brothers (Homebuilder)

Insurance companies are getting into mortgage underwriting

“We believe we’re going to introduce a, for the first time in our history, direct sales to a major insurance company, which will be huge. So – and that also, by the way, is going to open up financing for foreign nationals but to a greater degree than we have today. So, I don’t see any issues at the moment in terms of availability or liquidity in either the conforming or the jumbo market.” —Toll Brothers (Homebuilder)

America’s Car Mart saw an increase in credit losses, but blamed their own execution

“Bottom line results for this quarter were obviously disappointing. Sales were very solid and we’re pleased with that aspect. Credit losses however were not. And we’re not pleased with our results…it is apparent to us that for these stores, this was primarily an execution issue.” —America’s Car Mart (Used Car Dealer)

Royal Bank of Canada has seen a slight uptick in delinquencies in oil exposed provinces

“Delinquencies remain near historical lows and we have not seen an increase in delinquencies for Canada as a whole but have noticed a slight uptick this quarter in oil exposed provinces. This increase is insignificant at this point and it’s too early to say that this is a trend.” —Royal Bank of Canada (Bank)

The Texas economy still seems to be holding up though

“Texas, overall, has consistently been a good performer for us. In the second quarter and year-to-date, it’s performed above the chain average for us. So it continues to be one of our best-performing regions.” —Ross Stores (Off Price Retail)


A late labor day is making it difficult to get a clean read on consumer spending

“the calendar shift has caused a little angst probably out there with the consumer, only from the standpoint that Labor Day has been pushed back a week, as you know. And most states with schools, they sort of key off of that Labor Day date. So in a lot of cases what we’ve seen is that the back-to-school has been pushed back in the calendar a little bit.” —Dollar General (Retail)

Poor results from retailers could lead to a more promotional environment

“we expect the retail landscape to be highly promotional during the fall season, especially given the recent results from other retailers…mixed results and – actually weak results from the department stores forces us to think that the environment which is already fairly promotional will continue to be pretty promotional in the back half…some retailers are going in to fall with high inventory levels. ” —Ross Stores (Off-Price Retail)

Gap is introducing some fast-fashion capabilities to its stores

“For the first time, we will be going to in season open in some of our key product programs and therefore able to get back in after we read the business in season with significant quantities of units. This is obviously an important capability for us. We are building this across the entire company” —Gap (Apparel)

Denim may have hit bottom

“we are pretty confident that the Denim cycle has hit bottom and it has been coming back over the last several months.” —Gap (Apparel)

Williams Sonoma is still working out kinks from the port disruption earlier this year

“while the port disruption was extremely difficult, the good news is that, it caused us to reexamine every single element of our supply chain. And we have identified significant opportunities to improve service levels and over time drive down costs.” —Williams Sonoma (Home Goods)


Best Buy sees continued strong demand for consumer electronics

“Our first observation is that overall consumer demand for technology products and services including appliances and mobile phones is growing. This growth is driven by technology and product innovation and by micro factors such as population growth, the housing recovery and healthy living trends that are driving momentum in our appliance, home theater, connected homes and health and wearables business, which, we believe, will remain positive catalyst in quarters to come.” —Best Buy (Electronics Retailer)

The cadence of the Windows 10 rollout posed challenges for PC OEMs

“We did anticipate a challenging operating system transition to Windows 10 on two dimensions. One was a free upgrade that was of course offered. And the second was the very short transition time, which is normally about three months, which was compressed to under one month. And what that drove was fairly high Windows 8 channel inventory levels, and that will take a little bit of time to flush.” —Hewlett Packard (Technology)

Materials, Industrials, Energy:

Distressed assets still aren’t for sale yet in the energy space

“Well, there will be M&As and there will be distressed assets and what have you. I don’t see it come right now, it will come and, I think, well we will talk again in the quarter, and nothing will happen now in the quarter.” —Seadrill (Offshore Driller)

John Deere is expecting farm receipts to be down again next year

“Looking ahead to next year, based on our expectation of above trend yield – above trend-line yields for 2015 and declining livestock prices, our very early forecast calls for total cash receipts to be down slightly in 2016.” —John Deere (Farm Equipment)

El Nino could cause some swings in growing conditions around the world

“Keep in mind as we go into 2016, we did have some favorable weather conditions, El Nino actually strengthened through the summer. And that certainly bodes well normally for U.S. market or growing areas. But keep in mind that can have some more negative and dry impact on other parts of the world.” —Deere (Farm Equipment)

Miscellaneous Nuggets of Wisdom:

The best marketing is a good product

“I feel pretty strongly about which is the best marketing is good product.” —Gap (Apparel)

It’s easier to train people than to retrain them

“as everyone knows, retraining can sometimes be more challenging than training” —America’s Car Mart (Used Car Dealer)

They call it Mad Money for a reason

“when you’re on that show with Jim Cramer, it does get a little crazy at times.” —PVH (Apparel)

When you say you’re going to do something, follow through

“our best sales tool is to give a potential company that we want to acquire a list of 10 or 15 names of people from whom we have acquired companies and we say just call them up and ask them. And that’s really the best sales tool because they do that and they find out that HEICO does what it says it’s going to do. If they promise you something that’s exactly what will happen. So that’s our formula and it works.” —HEICO (Aerospace Parts)

Full transcripts can be found at

Company Notes Digest 7.31.15

Each week we read dozens of transcripts from earnings calls and presentations as part of our investment process. Below is a weekly post which contains some of the most important quotes about the economy and industry trends from those transcripts. Click here to receive these posts weekly via email.

The Macro Outlook:

Who the heck knows where we are in the cycle?

“in terms of the bigger, in terms of where we are in the cycle, who the heck knows?” —Kilroy (Commercial Real Estate REIT)

There’s lots of uncertainty out there

“The global economy has never been as uncertain in my recollection. Not that there’s a huge crisis here, but there’s lots of uncertainty” —WR Berkley (P&C Insurance)

There is plenty to worry about

“this relative tranquility belies the fact that there’s still plenty to worry about. The U.S. economic recovery remains tepid. Interest rates are poised to rise sometime in the coming year, and the global economic environment is quite unsettled with the overhang of the Greek debt crisis and a slowing Chinese economy.” —Oaktree (Asset Management)

UPS saw softening in the US economy

“The U.S. Domestic business is on track with its revenue management and efficiency gains; however, we are seeing some softening in the economy…We think the economy was certainly slower for sure.” —UPS (logistics)

Visa sees very little improvement in the US Consumer

“we continue to see very little change in the overall global economy, with a few exceptions. We are hopeful, but not counting on an improvement in the US economy, but we see very little improvement with the US consumer in our numbers thus far, if any.” —Visa (Payments Processing)

But Mastercard sees a healthy environment

“Overall, the environments in the U.S. and Europe have continued to improve, as key economic indicators remained healthy. But the U.S. consumer is still not spending all of their gas savings….in July through the 21st. Most of our business drivers are showing a higher growth rate compared to what we saw in the second quarter.” —Mastercard (Payments Processing)

Demand for polyolefins has been strong

“I mean at this point we still see demand as being relatively strong…demand has grown through the first half year over year in polyolefins globally in the 3% to 4% range. And the U.S. demand growth has been quite strong as has Asia” —Lyondell Basel (Chemicals)

PACCAR saw strong demand for trucks

“PACCAR delivered 41,600 trucks during the second quarter, an 8% increase versus the first quarter this year and slightly ahead of our expectations. The improvement reflects increased truck deliveries in North America and Europe due to economic growth and strong freight demand.” —PACCAR (Truck Manufacturer)

Marriott says that it doesn’t see RevPAR growth slowing any time soon

“Undoubtedly a slower pace of RevPAR growth is likely to occur at some point in North America as economic growth matures. Trees don’t grow to the sky…While this slower pace is likely at some point, we think it is premature to call it today. Based on our data, we believe North American industry RevPAR growth will be solid for the foreseeable future” —Marriott (Hotels)

Last quarter Steve Wynn warned about Las Vegas, but now says it’s “comfortable”

“In Las Vegas, we’re enjoying a comfortable business, I think is the right word for it. It’s not an aggressive growth by any means, but we are enjoying non-casino revenue that is acceptable.” —Wynn (Casinos)

Labor markets are tight, especially for skilled professionals

“revenue growth rates were the strongest in the United States, where skilled professional talent is currently at a premium as a result of the tightening labor market.” —Robert Half (Temp Staffing)

We’re starting to see the development lights come back on

“we’re starting to see the development lights come back on. If you look at the Urban Land Institute at their most recent meeting, there were a lot of developers there starting to talk about opportunities, growing their business, capital flows coming into their businesses and that sort of thing.” —Plum Creek (Timberland)

We’re six years into the recovery, but can it last longer?

“I think we’ve got some apprehension as a marketplace, in part maybe driven by the fact that we’re in the sixth year of a strong lodging recovery. I think all of us kind of wonder how long can it last and we’re constantly looking for clues that maybe we’re reaching a point where we can somehow say that we’re transitioning to a different phase, and I understand that.” —Marriott (Hotel)


The Canadian economy has slowed more than the American economy

“The general economy in Canada has been more sluggish than what we’ve seen in the U.S. I think what Canada is facing, is people probably understated the impact of the energy complex cutback on capital expenditure. But we don’t see Canada in a recession. We see Canada in a technical slowdown that happened to take place for the first six months of the year.” —Canadian National Railway (Railroad)

Don’t expect Chinese construction markets to rebound any time soon

“it’s obvious I think that the Chinese economy is going through a change and their governments are very serious about making this change. So, I don’t I’m not optimistic that we are going to see a big pump up in any of our end markets in a hurry because I think that Chinese government is going to try to keep going on this change of their focused in the government not so much on infrastructure and not so much on build and export a little bit more on consumer and a little bit more disciplined in the provinces” —Cummins (Heavy Duty Engines)

Most people seem to expect that the effects of the strong dollar are temporary

“The stronger dollar has slowed U.S. lumber and log exports, and more Canadian supply has been directed towards U.S. markets. This, combined with slow demand growth, put pressure on lumber prices. Our customers recognize these market forces as temporary and remain committed to their investment plans” —Plum Creek (Timberland)


Oaktree says that outside of commodities, high yield companies are doing fine

“apart from the weakening commodity and energy sectors, the credit fundamentals of the high yield bond market remain sound. Issuers of the bonds held in our funds in that strategy continue to post top line growth and solid EBITDA gains.” —Oaktree (Asset Management)

Moelis said that the restructuring market will eventually pick back up, we just don’t know when

“there’s certain sectors where you’re starting to see some volatility and that could help, but in general, very low interest rates, kind of a decent economy, I think is — I don’t see a short term reason why [the restructuring] market would pick up, but I know from being alive in Wall Street for 35 years, it will. I just don’t know when.” —Moelis and Co (Investment Bank)

One area of stress is in Taxi medallion loans

“We built allowance over the last three quarters in anticipation of increasing risk in oil and gas and taxi medallion loans.” —Capital One (Bank)


Whole Foods played the victim card on its conference call

“It’s just something that went viral in the media, and it has hurt our trust and yet, we do feel like we’re victims of – we don’t know exactly why the DCA went after Whole Foods like this, and we’re not sure why the media went crazy with it, but it did happen. We are taking steps to not give cause for this in the future.” —Whole Foods (Grocery)

This analyst was pretty unhappy with P&G’s management

[*Analyst Comment*] “So you sound very different than I would have hoped on the call today or on CNBC this morning. There’s still a lot of defiance. There’s still a lot of confidence, it feels like. And look, all the frustration we’re all feeling, I feel as well probably times 10. You’re kind of brushing off the tough questions and maintaining this trust us, it’ll turn, it’ll turn. But just let me offer you a look through the lens of a shareholder, right, who you are as well. And you see what the stock price has done, and you look at organic sales growth and it’s dismal and it’s getting worse” —Procter and Gamble (Consumer Packaged Goods)

There are a lot of new retail entrepreneurs and they are much more sophisticated than they used to be

“the amount of new concepts and new entrepreneurs coming into our environment is at a high… the new retailers we are dealing with is that they are substantially more sophisticated than the crop of new retailers we dealt with say 10 years ago, better financed, much more focused on their niche and it’s been much easier to deal this new crop of entrepreneurs than might have been the case.” —Simon Property Group (Mall REIT)

The pace of expansion in B2C shipping has slowed, but secular trends are still in place

“The pace of B2C expansion continued slowing, while B2B gains were due to omni-channel and return services in the retail sector…I think the secular trends are still in place” —UPS (Package Logistics)


Last quarter was the largest for venture funding since 2000

“This was the sixth consecutive quarter of more than $10 billion of venture capital invested in a single quarter and the highest quarter of investing since 2000.” —Silicon Valley Bank (Bank)

The competitive environment in the Bay is heated

“The competitive environment remains heated. Strong funding and exit markets have increased the amount of liquidity in the markets and borrowers have money options. As a result some vendors up here are willing to go to any length to win business regardless of whether that risk justifies that return.” —Silicon Valley Bank (Bank)

San Francisco is running out of office space

“San Francisco Bay area is once again on pace to outperform most U.S. real estate markets in 2015. In San Francisco, rental growth remains strong. The supply of large blocks of space is very limited and demand continues to grow. JLL reports that there are now more than 35 tenants in the market for office space greater than 50,000 square feet and only three available blocks of space of that size…one thing about San Francisco remember it’s 45 square miles, a share less than 10% can be developed for non-residential…you have this incredible kind of economics 101 of supply demand imbalance… So rents I think are going to continue to go up” —Kilroy (Commercial Real Estate REIT)

Amidst the fervor, two high profile internet stocks had tough quarters

It’s not a good sign that Yelp’s chairman is stepping down

“I would like to take a moment to thank Max Levchin, Chairman of Yelp who has decided to step down from the board to pursue other interests. Given the demands on his time, we have mutually agreed this is the right time for him to transition off the board. Max provided the seed capital to start Yelp and I am forever grateful for all of his contributions and wish him all the best going forward.” —Yelp (Small Business Reviews)

And it’s also a red flag when people don’t use your product because they don’t know why they need it

“The number one reason from our market research that users don’t use Twitter because they don’t understand why to use Twitter. They don’t understand the value that Jack and I both talked about and we need to clearly communicate what that value is.” —Twitter (Micro-Blogging)

Perhaps those are company specific, but even Facebook is expecting its revenue growth to slow

“Since the first quarter of 2014, we have seen year-over-year advertising revenue growth rates decline each subsequent quarter. We expect this trend to continue in Q3 and Q4 as we continue to grow off a much larger base and face currency headwinds due to the strong dollar.” —Facebook (Social Media)

Meanwhile, the “unicorn bubble” is driving up the cost of good engineers

“As to the unicorn bubble question and we certainly are feeling those impacts…the cost in a couple of these areas have gone up, in particular, product and development as a percentage of revenue continued to creep up and that’s a function of compensation in the marketplace.” —Yelp (Small Business Ratings)

What will happen if valuations fall and stock based compensation goes with it?

“We continue to expect stock-based compensation in 2015 to be in the range of $3 billion to $3.3 billion, approximately half of which is related to our prior acquisitions, most notably WhatsApp.” —Facebook (Social Media)

Not everyone is going to survive

“We’ve always said, there is going to be some failures, the nature of — it’s just like baseball. Not everybody gets up and it’s a homerun and not every team with a winning season wins every game. I don’t mean to be cute here, except for there are going to be companies that fail, this is the nature of it…I think if anybody thought that all these companies are going to survive, they’d be smoked at some point.” —Kilroy (Commercial Real Estate REIT)

People are consuming more and more data

“we continue to see data growth per handset to be significant. And it’s been running at kind of the 50% year-over-year increase for a while.” —AT&T (Telecom)

Data use could explode as more people move from linear TV to Over-the-top

“Typical subscribers watching OTT video delivered across the Akamai platform could consume 10 megabits per second or more of traffic while they’re watching. This means that an audience size of only 5 million users, which is the equivalent of about four Nielsen points, could generate 50 terabits per second of demand, far more than we deliver today for all of our customers combined.” —Akamai (Content Delivery Network)

Middle market companies have increasingly complex IT staffing needs

“Middle market accounts, we’re seeing more complex IT staffing needs that have been the case in the recent past and with that there is demand for mobility, cloud, security, app and web development, data analytics, the type of demand you typically have seen only at larger companies.” —Robert Half (Temp Staffing)

Materials, Industrials, Energy:

National Oilwell Varco sees energy markets stabilizing

“Pricing appears to have stabilized across North American markets as the rig count has more or less stabilized…There’s a lot of conversations underway around land rigs. And I think generally, our land rig customers are much more optimistic about recovering commodity prices driving higher levels of activity.” —National Oilwell Varco (Oil Services)

Lower prices are leading to better than expected gasoline demand

“we certainly expected some price demand elasticity for gasoline with the fall in flat price. And we’ve seen that, and we didn’t really know exactly what the magnitude of the pent-up demand would be. And it’s been a very pleasant surprise, and I think we do expect that that response will continue into the future.” —Valero (Oil Refinery)

But supply has been surprisingly resilient despite the drop in rig count

“I think we’ve been surprised with the decline in rig count, production still seems to be holding.” —Valero (Oil Refinery)

That’s partially because producers are using the rigs that they have more efficiently

“we’ve driven our drilling cost down in the Wattenberg field by almost 35% in the last six months and doubled our rig efficiency over the last year, drilling the same number of wells with half the rigs…I think there is a lot of things we’ve done that are permanent…it’s not just price reductions from various service vendors” —Anadarko (Oil E&P)

And there could be plenty of pent up supply as companies are drilling wells and waiting to complete them

“because we have drilled the wells, we are going to have a significant uplift in what we would call the DUCs, the drilled but uncompleted. We went in last quarter saying we’d probably carry over 125 into next year and as we see it now, we’re probably going to do – carry over around 200” —Anadarko (Oil E&P)

High inventories (coupled with refinery maintenance) could also keep pressure on oil prices in the back half of the year

“We’re sitting on a pretty good overhang of crude oil inventory here in the U.S. We’re 90 million barrels above where we were last year. So with that overhang and then heading into a typical maintenance period where refiner demand is down, you would think that that would add pressure on the price of crude oil.” —Valero (Oil Refinery)

Sentiment has turned negative in the oil and gas space, but not negative enough quite yet

“The psychology is starting to turn negative, but it’s just beginning and we haven’t dived in yet by any means. We have a lot of dry powder and we are right now accessing opportunities that again are structured to basically minimize the risk. But we also want to take advantage if now happens to be in retrospect the right time to step in for part of the opportunity. So our instinct is that it’s not time to dive into the water completely, but it is time to take advantage of low oil prices and gas prices.” —Oaktree (Asset Management)

Amazingly, it’s still a seller’s market for assets

“we see time and again, people coming in there and buying things at prices that surprise us. I will also say that we’ve been – we fought fairly aggressively on a couple of things and were bid or rather were outbid by 2X. So to Bob’s comment, it seems to be a seller’s market” —Anadarko (Oil E&P)

Arch Coal says that a lot of smaller mines in Central Appalachia are probably closing for good

“From what I’ve seen in Central App, a lot of these mines that are closing, particularly the smaller ones, I think are going for good. And the cost to reopen them, I think, is going to be very difficult when you look at regional natural gas pricing.” —Arch Coal (Coal)

Cliffs’ CEO doesn’t seem to have the highest opinion of investment analysts

“Spreadsheet specialists and computer screen wizards do not know a good pellet from a bad one and have never built a pellet plant within a realistic budget and against a real tight timetable.” —Cliffs Natural Resources (Iron Ore)

He is pretty entertaining though

“I know it’s a tough battle here; I knew coming in. I wasn’t even invited to come in. I came in because I wanted and the shareholders elected me to come here. But a difficult war like that will take a lot of difficult decisions and I’m ready to take them at the right time…You’re going to have to sit still, sit tight, and continue to see Lourenço in action, as you have seen for a long time at Metals USA and you are seeing for a year here. It will be fun to watch…Lots of people are looking forward to my – for Lourenço to crash to the ground. It’s not going to happen. Any other questions, Tony?” —Cliffs Natural Resources (Iron Ore)

Miscellaneous Nuggets of Wisdom:

Let your winners run

“when we see a positive surprise we double down on it. That’s kind of our policy” —Amazon (E-Commerce)

Only 2 out of 3 people check their smartphones first thing in the morning

“Two out of three smartphone users check their phone as soon as they wake up in the morning.” —Facebook (Social Media)

No matter how big you get, it pays to maintain a local feel

“I think the thing we have done really, really well and it’s quite a challenge is, how do you get big and stay small? How do you maintain intimacy and trust with your customers and your brand when you are as ubiquitous as Starbucks has become? And the way you do that is through local relevancy and the kind of product design and experience that we’ve now been able to create around the world.” —Starbucks (Coffee)

There’s no reason to be big just for the sake of being big

“our objective is to get better not bigger, and if getting bigger allows us to get better then that’s okay” —Anadarko (Oil E&P)

“big for the sake of big is not a thing that I subscribe to” —Wynn (Casinos)

Pay attention to the performance of the underlying company, not the stock price

“We don’t pay very much attention to our stock price per se, we pay attention to the underlying performance of the company, and those factors associated with performance that are within our control, which is why every week we grind on everything in this building from the use of every square foot of our real estate and our structures, to our plans for the future.” —Wynn (Casinos)

You can buy anything for a price, but 2+2 had better equal 5

“M&A is the kind of option that of course always exists. I mean for a price you can buy anything, I suppose, and some people find it in their mutual best interests to join up from time to time, because the net result is that two and two equals five. But really it has to be two and two equals five. If two and two equals four, it seems to me a lot of trouble for nothing. I’d rather build our own stuff.” —Wynn (Casinos)

Look forward, not backward

“I’m more interested about tomorrow’s newspaper than yesterday’s newspaper.” —Wynn (Casinos)

Full transcripts can be found at

Company Notes Digest 7.24.15

Each week we read dozens of transcripts from earnings calls and presentations as part of our investment process. Below is a weekly post which contains some of the most important quotes about the economy and industry trends from those transcripts. Click here to receive these posts weekly via email.

The Macro Outlook:

Macroeconomic events continue to be a major theme in 2015

“macroeconomic events continue to be a major theme in 2015” —Abbott Labs (Healthcare)

The currency impact is as bad as anyone feared

“I think the impact on us from currency this quarter is probably as great as anything I’ve seen. It’s everything that everybody wrung their hands about back in December and January, as companies struggled to give guidance, and we wrung our hands too.” —Abbott Labs (Healthcare)

Energy and industrial companies are struggling the most

“We now have a more cautious outlook on spending in energy and industrial and the ability of our Valves & Controls segment to navigate this more difficult environment in 2015.” —Pentair (Industrial)

But retailers are de-stocking inventories too thanks to softer than expected sales

“we experienced a slowdown [in intermodal] later in the quarter due to relatively high retail inventory levels and softer than expected retail sales.” —Union Pacific (Railroad)

It certainly seems like we’re facing more deflationary pressure than inflation

“The entire industry has more than enough capacity. We’ve got a strong dollar to contend with…I’m quite happy with the fact we’ve been able to more or less beat or meet retail CPI around the world in price realization the last few years.” —Caterpillar (Heavy Machinery)

And deflation can reinforce weak demand trends

“[OEMs] have seen prices going down, so they’re being more conservative on their buys…we’re just seeing the OEMs reduce their buying patterns.” —Reliance Steel (Steel Distributor)

In North America it feels like there’s a step back for every step forward

“In North America, it feels as though every step that we make forward there is one step back.” —Unilever (Consumer Packaged Goods)

The rest of the world isn’t doing so great either.


The global economy remains uneven

“The global economic recovery remains uneven. Given the continued slowdown of the Chinese economy, the prospective U.S. tightening cycle…and the ongoing uncertainty surrounding Greece…Additionally, many emerging markets, large and small, remain challenged” —Coca Cola (Beverages)

Overall consumer demand is still weak

“Overall, consumer demand is still weak. And it is no surprise that the IMF recently once more lowered its global forecast. Emerging market growth continues to be below historic levels.” —Unilever (Consumer Packaged Goods)

Europe is a mixed picture

“Europe is still somewhat mixed picture, with some markets performing very well, and others struggling to make headway. On the whole, Europe is continuing on its path of slow and patchy progress, not unlike the recovery we saw in the U.S. following the Great Recession.” —Manpower (Temp Staffing)

Caterpillar’s construction business was down heavily in Latin America and Asia

“Construction Industries, which was down 18% and down in all regions. Latin America was the most significant decline, down 47%, and that was mostly a result of weak demand in general, and in particular Brazil…Asia-Pacific region was down 30%, with much of that decline in China and Japan.” —Caterpillar (Heavy Machinery)

Brazil is in its worst recession since 1990

“Brazil, I believe, is in the worst recession since 1990…the slowdown in Brazil is real. That country is in a recession.” —Unilever (Consumer Packaged Goods)

General Motors has seen lingering headwinds in China in June and July

“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.” —General Motors (Automotive)

But most people seem to agree that the Chinese stock market decline is contained to institutional investors

“What happened to the recent stock market…was a lot of institutional investors who had come in at the end of this enormous run…I think it will show up a little bit in consumer confidence in the months to come and…we’re building that into our plans.” —Unilever (Consumer Packaged Goods)

And in the long term, the rise in China’s middle class is continuing

“The rise of the middle class there is continuing, and it is transforming China….for all of us that travel there so much, with every trip you can see this occurring” —Apple (Consumer Electronics)


Against a soft economic backdrop, financial markets march to their own beat

The current market for acquisitions is frothy if not irrational

“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.” —Nasdaq (Exchange)

Prices are highly dependent on interest rates

“The opportunity to access capital in today’s historically low interest rate environment is another significant contributor to the rationale and value creation of the acquisition” —Lockheed Martin (Defense)

And true frothiness is probably being hidden from public markets. Nasdaq has a private marketplace that now lists 100 companies

“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 (Exchange)

The prices that Private Equity is paying for insurance agencies are comical to Brown and Brown

“we’re starting to see private equity buy private equity, which I think is many times an indication of a frothy environment…it’s very interesting, sometimes it’s challenging, sometimes comical, but we keep going…typically people buy emotionally and justify it intellectually” —Brown and Brown (Insurance Broker)

Meanwhile active traders, using derivatives and margin debt, are making up a higher and higher percentage of trade volume

“Margin loans are also at record levels and client cash as a percentage of total client assets remains near historic lows. In light of this low volatility in the equity markets, clients are increasingly turning to trading derivatives which were a record 44% of trades per day in the quarter and up 15% year over year.” —TD Ameritrade (Retail Brokerage)

There’s enough risk out there without having to worry about black swans like cyber attacks

“I think that security is a very-very big issue and I’m not as much worried about ourselves but I’m worried about the entire infrastructure…I’m afraid of what would happen if the whole Internet came down or if the banks operation got disrupted or all kinds of things can happen.” —Interactive Brokers (Broker)

Brown and Brown and Ace both saw a softening insurance market

“we, like the entire industry, continued to experience headwinds related to the rate declines. The downward pressure on rates continued to be driven by good overall loss experience, minimal weather related events and a significant amount of excess capital in the market chasing returns. We expect this trend to continue unless there is a material change in one or all of these factors.” —Brown and Brown (Insurance Broker)

“The underwriting environment continued to soften in the quarter for our commercial P&C business globally.” —ACE (Property and Casualty Insurance)

Investment managers are increasingly outsourcing their back offices

“We do actually see it as a long term trend where investment managers in general are really trying to focus on their investment management process and less focused on providing — doing the mid-office and back office services internally. We do see it as a long term trend.” Bank of New York Mellon (Trust Bank)

American Express is a rare financial company that is hurt in a rising rate environment

“We of course are unusual in that raising rate environment in isolation if you hold everything out steady, is a negative for us” —American Express (Payments)


McDonalds is trying to win customers back by getting the basics right

“we are enhancing the customer service experience. This starts with the basics. We have reduced the number of menu items in restaurants to make it easier for teams to deliver better service. We are improving the speed of our drive-throughs with simplified menu boards…I don’t want to lose sight of the fact that toasting of buns, better searing of beef, taking care of the dressings and the packaging and the rest of it, that gets noticed by customers.” —McDonalds (Restaurants)

Chinese consumers are moving online rapidly

“there’s obviously an enormous potential in total China still. But what you really see is a rapid shift away from traditional retail…moving rapidly to online” —Unilever (Consumer Packaged Goods)

Sheldon Adelson hinted that there may be a new opportunity for a casino in Japan

“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.  We’re keeping our powder dry so we can go after that aggressively.” —Las Vegas Sands (Casinos)


Apple didn’t release sales results for the watch but did say that 97% of customers are satisfied with it

“Market research from Wristly measured a 97% customer satisfaction rate for Apple Watch and we hear from people every day about the impact it’s having on their health, their daily routines, and how they communicate. Our own market research shows that 94% of Apple Watch owners wear and use it regularly, if not every day.” —Apple (Consumer Electronics)

Tim Cook thinks that the iPhone still has plenty of legs

“We think the phone has a lot of legs to it. I mean, many, many, many years. There’s tons of innovation left at the phone. I think we’re in the early innings of it, not in the late innings, and I think the market rate of growth over the long haul will also be impressive.” —Apple (Consumer Electronics)

Only 27% of the installed base has upgraded so far

“In terms of the percentage of customers that have upgraded to a 6 and 6 Plus versus that have not upgraded, it’s 73%, or meaning that 27% of the installed base of customers prior to the launch of 6 and 6 Plus have now upgraded.” —Apple (Consumer Electronics)

And the smartphone market is still growing

“Cumulative smartphone unit shipments are forecast to be more than 8.5 billion between 2015 and 2019, according to IDC” —Qualcomm (Semiconductors)

Apple is the only company making money in smartphones

“With respect to the low tier, I think the entire industry is actually challenged in terms of making money at the low tier.” —Qualcomm (Semiconductors)

However, Verizon doesn’t expect to see the same volume for mobile phones this 4th quarter as the last one

“I just don’t see that the next iconic device is going to be substantially different and therefore, I don’t see that – and this is just me speaking, I don’t see the volume there in the fourth quarter that we had last year from a total iconic change of the 6 and the 6 Plus.” —Verizon (Telecom)

Yahoo wants to participate in mobile search

“Mobile search is key to Yahoo!’s future. Search is half of our business. Users are more and more transitioning from desktop search to mobile search and we think it is fertile ground for innovation.” —Yahoo (Media)

But 30% of search on mobile phones is related to location

“when people search on their mobile phones, they’re looking for immediacy and action. In fact, 30% of mobile queries are related to location and our efforts around local search are helping consumers to find relevant information fast.” —Google (Internet)


A lot of small employers are still not prepared for ACA implementation

“relative to ACA, is I believe that many small employers are all over the board in terms of their preparation, some are behind and being – getting ready for next year, some are on their way and some are already there.” —Brown and Brown (Insurance Broker)

There will probably be price increases on public exchanges because of unfavorable loss experiences

“a number of those exchanges are experiencing rate increases and they will continue to experience rate increases, we believe, because of the unfavorable loss experience many of them have had over the last year due to the number of people in those pools.” —Brown and Brown (Insurance Broker)

Materials, Industrials, Energy:

This oil market is damn tough

“To sum things up, this is a damn tough market, one of the toughest ones that I have ever been through. And I don’t believe anyone on the call can accurately predict when commodity prices will rebound and rig counts will recover in the U.S. or the international markets, and neither can I.” —Halliburton (Oil services)

Schlumberger thinks that rig count has bottomed but recovery will be slow

“We do believe that the North American rig count has now reached bottom, but that we will only see a slow increase in drilling and completion activity in the second half of the year, which will not make any material dent in the massive overcapacity that has been created. This again means that there will be little to no improvement in pricing levels and, hence, the market will still remain very challenging for the foreseeable future.” —Schlumberger (Oil Service)

Core Labs sees a V shaped recovery as supply and demand balance out

“Core believes that worldwide crude oil supply and demand markets are well on their way to a balance at year-end, 2015…Core sees the V-shape recovery, led by higher commodity prices and followed by worldwide drilling activities, starting to increase in early 2016.” —Core Labs (Oil Service)

Demand is still growing

“global oil demand growth continues to strengthen, with the IEA having revised its 2015 estimate up to 1.4 million barrels per day during the second quarter. ” —Schlumberger (Oil Service)

On the supply side, OPEC is battling US producers for market share

“On the supply side of the oil markets, the global market share battle between OPEC and the high-cost producers is still playing out” —Schlumberger (Oil Service)

But Middle Eastern producers may be pushing supply as far as they can

“If we look at just production levels in the Middle East, you have all countries producing at, what we would think, would be maximum amounts of the amount that they can prove, very little spare capacity there. These are carbonate reservoirs. One of the dangers of producing maximum amounts, from carbonate reservoirs, is you start drawing larger amounts of water. And we would think, at the levels at which we see production throughout the Middle East, that they would be in danger if they continue with those levels, for producing larger amounts of water.” —Core Labs (Oil Service)

The biggest negative for oil may be that psychology is still not washed out. This analyst question shows that people are still modeling higher prices

“regarding the international outlook for 2016…if we are in a $65 Brent world, what would your preliminary thoughts…” —Schlumberger (analyst question)

Halliburton would also rather carry extra expenses than cut them. A sign that they haven’t capitulated?

“the cost to carry something ultimately outweighs the cost to have to replace it, go out and get people, retrain those people, rebuild your infrastructure and all of that. So it’s a decision I made. It’s on me if you disagree with it, but I think that it’s easily defendable” —Halliburton (Oil Service)

Miscellaneous Nuggets of Wisdom:

Focus on product

“we think if we do a great job with the product that people will be willing to spend more because they get so much more out of it. And I think you can look at the results on the iPhone and see that in action…We don’t do the MBA analysis of there’s only X people buying in a price band and therefore we can only get X minus Y percent. That’s not the way we’ve ever looked at it. If we did, we wouldn’t be shipping any products.” —Apple (The House that Jobs Built)

Solving problems will lead to sales

“Google’s goal is to develop great new services that significantly improves the lives of as many people as possible. Solving problems for users at scale ultimately results in monetization opportunities.” —Google (The Internet)

High gross margin businesses can end up overspending on sales and marketing

“one of the keys in business apps is you can always get into the trap of overspending in sales and marketing and not having long-term leverage at all. One of the things I feel very good about our position is how do you really build a long-term profitable business; that’s front and center to me. So we will not overspend there in sales and marketing because we do believe the products” —Microsoft (Enterprise Technology)

Even recurring revenue businesses will deteriorate over time without new equipment orders

“we’ve seen a continued erosion of Otis market share as we have pursued margin expansion, and I think we have taken margin expansion to the point now where we’re not terribly competitive based on new equipment pricing. And quite frankly, you’ve got to feed the service business with new equipment orders.” —United Technologies (Industrial Conglomerate)

Just because you have brand awareness doesn’t mean you’re going to be flooded with orders

“it’s not a one way ticket to all the sudden you’ve arrived but there is a lot of work for us to be done…one thing I learned a long time ago…the first time an Under Armour logo popped up on the front cover of USA Today’s sports page and I thought I was walking the office and the place to be flooded with orders it’s just not the way it goes.” —Under Armour (Sports Apparel)

First mover advantage isn’t that important if you know how to execute

“we used to pay a lot of attention to the first mover advantage theory. When we were partnered with McDonald’s, they were telling us how important it was in their development. Although, if you look at our history and our sales trends when we come into markets and we’re not the first mover, we definitely pass them, I mean, California is the best example where we had two big competitors, and we severely lagged behind them. Over time though, through great execution and through a great people culture and sharing with our customers what makes Chipotle food special, we quickly took the lead.” —Chipotle (Burritos)

Quotes of the week come from Kevin Plank:

“being aggressive, young and fearless can be a deadly combination.” —Under Armour (Sports Apparel)

“brands are built on consistency, consistency is built in trust and trust is built in drops and is lost in buckets.” —Under Armour (Sports Apparel)

Full transcripts can be found at