Company Notes Digest 8.11.17

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.

Earnings season began to slow back down this week. Most of the important companies have now reported, so this week’s post draws heavily from a handful of calls. The economic picture remains unchanged. There’s still a lot of optimism, but fundamentally GDP growth has been anemic and policymakers haven’t come through on promises.

Among the quotes are two interesting blocks. One is from Charlie Ergen of Dish. He implies that internet companies are seeing more than their fair share of profits from connectivity and that telecom companies (the distributors that make the internet possible) will fight back. Ergen has an ulterior motive in saying this. He owns a large chunk of wireless spectrum and may be trying to get one of those internet companies (Amazon?) to think about buying him.

The other interesting block is from David Seaton of Fluor. He points out that construction markets have never really gotten back to prior peaks. He is optimistic about infrastructure spending though. Even without a large stimulus bill, American infrastructure is probably overdue for some heavy investment.

The Macro Outlook:

Most people are feeling pretty good

“I feel pretty good about the global economy right now. We’ve already experienced, as you’ve seen in our orders the last couple of quarters, this is pretty good activity right now and we look for it to continue.” –Parker Hannifin CEO Tom Williams (Industrial Components)

The original reasons for optimism haven’t materialized but it’s better to be lucky than right

“I guess this is a case of better lucky than right. We expected the market to go up but for different reasons. We thought it would be based on generally positive growth oriented policies enacted by the administration, lower taxes, infrastructure spending, healthcare, reform et cetera, none of these things transpired. But what has transpired has been kind of global synchronized economic growth and a very accommodative global monetary structure. So, I’m happy with the outcome the reason for it was different from what we anticipated, but we’ll take it.” –Third Point CEO Dan Loeb (Hedge Fund)

Profits have rebounded but GDP growth has been anemic

“I think GDP probably is still a better reference point for assessing demand than corporate profits are. Obviously, they’re both averages of lots of economic activity and lots of participants in the economy. But GDP is a broader measure. Obviously, GDP has been quite anemic.” –Marriott CEO Arne Sorenson (Hotels)

Washington is gridlocked

“So one of the frustrations I see, and this is kind of a political commentary…there’s 2,200…candidates have to go through Senate approval. I think the last count was 55. And you’ve got people like Elaine Chao in transportation. You’ve got Rick Perry in energy, Rex in State. These people that we know and know well are sitting there twiddling their thumbs, so to speak, because we haven’t been able – the government hasn’t been able to give their team. So I think that is why you saw things screech to a halt. And I don’t see a whole lot of improvement until that phenomenon is behind us and the efforts that the administration are putting forth in terms of the regulatory reform actually see light of day. A lot of good intent, a lot of good thought and strategies to people that I’ve talked to, including the folks I just mentioned, but until we get those things, done you’re not going to see these permits that are absolutely necessary to go forward actually awarded.” –Fluor CEO David Seaton (Engineering)

But don’t under-estimate the optimism

“Don’t under-appreciate the optimism, which still seems to exist in the market and in corporate America these days. And compare it to the point of view last August, September, and October, you’re talking about a pre-election time. I think there was not a sort of robust optimism. Economy seemed to be producing, again, fairly anemic GDP growth. And I think in some respects, while that fairly anemic GDP growth has continued into 2017, there is still some optimism. You can see it reflected in certainly the equities markets and other places.” –Marriott CEO Arne Sorenson (Hotels)

Inventories are still low

“we are continuing to see a very strong business environment for our products worldwide…Our bookings rate in the June quarter was extremely strong. Our inventories at Microchip as well as at the distributors are towards the low end of the normal range.” –Microchip CEO Steve Sanghi (Semiconductors)

There’s some modest restocking taking place

“On the distribution level, I would say there is some modest restock taking place. There’s been a surge in activity and I have North America mostly in mind when I make that comment.” –Parker Hannifin COO Lee Banks (Industrial Components)

Radical price transparency makes it harder to have inflation

” we’re nearly 80% [occupied] for the full quarter, which is a pretty impressive kind of number. And so, you would expect a little bit more pricing movement. But…you’ve got to remember that we have thousands of franchisees who are pricing their own hotels on a day-to-day basis. And it is a market with radical transparency in pricing. And that may have some impact on our ability to move rates in this cycle compared to prior cycles.” –Marriott CEO Arne Sorenson (Hotels)


Disney is ready to go head to head with Netflix

“It’s been clear to us for a while with the future of this industry will be forged by direct relationships between content creators and consumers…we’re accelerating our strategy to be at the forefront of this transformation…With this strategic shift, we’ll end our distribution agreement with Netflix for subscription streaming of new releases beginning with the 2019 calendar-year theatrical slate.” –Disney CEO Bob Iger (Media)

No other studio gets Netflix’s multiple

“we have Netflix envy, and we try to present our results in a way to give you the ability to value us on an equivalent metric. So we’ll leave the valuation to you guys. We’ll post the results and you tell us what it’s worth.” –CBS CFO Joseph Ianniello (Media)

Food companies are struggling

“clearly not everything went our way in the first half. Canada, India and commodity cost in United States are just a few examples” –Kraft Heinz CEO Bernardo Hees (Packaged Food)

“we’re experiencing a decline in our base volume greater than our previous expectations…Volume softness continues to weigh on the broader food industry.” –Dean Foods CEO Ralph Scozzafava (Dairy)


Charlie Ergen made a good point about the relative strength of telecom and internet companies

The $500B tech companies all depend on connectivity

“I think Amazon is one of those $500 billion companies that probably have to think about connectivity in their future…their cloud business doesn’t work unless it’s connected.” –Dish CEO Charlie Ergen (Wireless Spectrum Owner)

That connectivity may not always be as cheap as it is today

“I think everybody in – the really big companies have always assumed there’s going to be a connectivity network out there that they can piggyback off of. And I think that if net neutrality rules get more define…you’re not going to be quite as confident of that in the future.” –Dish CEO Charlie Ergen (Wireless Spectrum Owner)

The telecom companies aren’t going to let the internet companies make all the money

“You can’t have all the profits going to three or four companies and have the guys that are – the companies that are providing them the raw material to make that money, not get wake up one day and get a little smarter…at some point, all the money going one direction, a lot of people are enabling that.” –Dish CEO Charlie Ergen (Wireless Spectrum Owner)

The balance of power always shifts between content and distribution

“They’re going to wake up and say maybe they should get – I’ve been through this business long enough to know that the money ebbs and flows between distribution and content. It’s probably going to continue to do that today. And a lot of the content companies, probably the distribution guys, probably are going to be in position to get a more of it. Then it may go the other direction.” –Dish CEO Charlie Ergen (Wireless Spectrum Owner)


Construction markets have never fully rebounded

“the current market environment is perhaps the worst I’ve seen in my 30-plus years. The market has contracted since 2014. The good news is that we’re starting to see prospects come back in some of our end markets including mining” –Fluor CEO David Seaton (Engineering)

Infrastructure spending is one brightening spot

“I feel pretty good about infrastructure and what’s going to happen. I would caution though…there is no such thing as a shovel-ready project. But what I’m very eager to see is that at least the dialogue is around…toll roads, bridges, ports, airports…But I believe that our infrastructure group will continue to be a bright spot” –Fluor CEO David Seaton (Engineering)

Infrastructure projects definitely suffer from the regulatory environment

“I think the capital is there. I agree with you 100%. I think the problem is, you got to look at the Purple Line in Baltimore. Project passed all the hurdles environmentally, financially, everything else and then the regulatory environment slowed it down and actually stopped it for a while. So even though the capital is ready, some of the projects, I think, are at least to a point where you get to that next stage. I think the regulatory reform that the government is talking about has to come through before the timing of those things actually improve. And I’d put pipelines in that category.” –Fluor CEO David Seaton (Engineering)

Full transcripts can be found at

Company Notes Digest 8.4.17

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 Dow hit 22,000 this week but the commentary that we’re reading is less exuberant than the market would suggest. Many CEOs are relatively subdued about the environment. Considering that nominal GDP growth is below 4%, maybe that shouldn’t be too surprising.

A lot has been made of earnings growth this quarter, but it’s worth remembering that when the final results are in it’s very possible that S&P 500 earnings won’t break the quarterly record set in 3Q 2014, almost three years ago. So far earnings have only rebounded from a significant decline. However the S&P 500 has climbed 20% since then.

The Macro Outlook:

If you cut through the noise, US growth is a little softer

“If we look at the macro environment, the economies around the world we’d say are mixed but in aggregate, are okay to good. FX headwinds have subsided. Energy markets have recovered some and certainly stabilized. Raw materials, though, are rising and creating some short-term margin pressure but we believe are manageable over the year…If you cut through the noise, U.S. growth is a little softer.” —Ecolab CEO Doug Baker (Business Services)

Activity remains mixed

“Overall, I’d say industrial activity remains weak with mixed activity across the remainder of what we call nonresidential construction segments…growth rates for most construction markets are slowing, and growth in the office construction is also beginning to moderate somewhat. Large industrial project activity continues to be weak. The manufacturing category, as a key indicator of the C-30 report showed through April and May, down some 8.5%. We’re also seeing somewhat slowing growth in housing starts” —Eaton CEO Craig Arnold (Industrial)

Expectations have declined

“Industrial production and retail are still growing, although at a slower pace than originally projected…the forecast for B2B, if you go back earlier in the year to today, is not quite as strong because of retail sales and also because industrial production forecasts were higher even three months ago to where they are today.” —UPS (Package Delivery)

Office leasing has been a little weaker than CBRE expected

“Even though the economy is generally doing nicely, there is a couple of things going on. In general, corporations are being very careful about costs. We are doing it and so are the other big corporations around the U.S. and around the world. And secondly, in a few markets, there have been limited circumstances where leases would have otherwise gotten done, but there was inadequate big blocks of space to get them done” —CBRE CEO Bob Sulentic (CRE Broker)

Restaurant spending has been decelerating

“in the U.S. and just about any other market we’ve studied, there’s been a decades-long trend for growth away from home, food and beverage consumption…However, in the past year, we’ve seen some pullback from that trendline.” —Starbucks CSO Matthew Ryan (Restaurants)

Not everyone is gloomy though

“Global demand conditions strengthened versus the second quarter. Emerging markets were up low single digits and mature markets grew mid-single digits. Growth was supported by improving end markets in the U.S. and Asia and early signs of improving demand conditions in Canada. Growth in Asia accelerated during the quarter, led by China. Excluding China, the rest of the region also improved, growing at low single digits in the quarter…We’re seeing some improvement from Middle East. If you remember the last call, I was somewhat concerned about the Middle East, but that’s turning right now. Investments are starting to happen.” —Emerson CEO David Farr (Industrial Conglomerate)

Lyondell Basel’s ethylene crackers are operating at 98% of capacity

“with operating rates of 98% of nameplate capacity across our U.S. and European ethylene crackers. Our polyethylene production operated at 95% of capacity…at our Houston refinery…crude throughput rates increased to an average of 99% of capacity during the second quarter.” —Lyondell Basel CEO Bhavesh Patel (Chemicals)

High capacity utilization usually leads to cost pressures

“We do continue to experience commodity cost pressures as we move into the second half…if you take a look at the basket of commodities that are important to our company and you go commodity by commodity, and I’d say almost every commodity today that we purchase is at a higher level than what we originally anticipated. And so I think it’s a pretty broad-based commodity challenge across most of the baskets of commodities that we buy as a company. So it’s pretty broad-based.” —Eaton CEO Craig Arnold (Industrial Conglomerate)

It’s a low return high risk world

“Markets normally respond to elevated uncertainty with lower asset prices and compensatorily higher returns. But that’s not what we are encountering today. We are living in a low-return, high risk world and an environment where most investors are happy to bear risk.” —Oaktree CEO Jay Steven Wintrob (Investment Management)

Complacency leads to surprises

“But the stock market trading at 17x, 18x, or 19x earnings, the fact that interest rates are still as low as they are when we’re seeing economic growth of 2.5%. The fact that there is a lot of complacency in all markets, not just the equity markets, leads me…to the view that this complacency that we’re seeing in the markets can lead to a decline in equity values.” —Loews CEO James Tisch (Conglomerate)


Europe’s economy is strong

“our economists are reasonably positive on the next 12 to 18 months’ economic outlook. And may I say in particular, in Europe, you have seen the Q2 figures and provided that there is not any extraordinary event, I would say, the economy should carry on doing pretty well on the back of a high level of confidence with more clarity on the political side, et cetera.” —SocGen CEO Frederic Oudea (Bank)

Could Europe see inflation?

“In terms of raw materials, they’re biting us in Europe. No doubt about it. We have the same story there. It takes us a while to recover via pricing, but we’re starting to get pricing in Europe as well.” —Ecolab CEO Doug Baker (Business Services)


Debt markets are as liquid as we have ever seen

“Debt market for New York assets are as liquid and strong as we have ever seen…Given the relative strength in the debt markets, many owners are choosing to refinance rather than to sell.” —Vornado CEO Steven Roth (REIT)

Banks feel confident

“The banks feel more confident in their ability to syndicate paper. That is an environment that we’re experiencing now. I think as a result you have seen some smaller — not as many big deals from us because the banks can easily underwrite and distribute paper. We’re hopeful that its slows…banks I think are more careful going into September than perhaps they are going into April” —Ares Capital CEO Kipp deVeer (BDC)


Retailers see the Whole Foods acquisition as a validation of omni-channel

“what we’ve seen over the last few months with Walmart and and PetSmart and Chewy and most recently Amazon and Whole Foods, I think this is just, we’re in the nascent stage of these kinds of commercial relationships that are going to elevate the experience of a brick-and-mortar retail company.” —Starbucks Chairman Howard Schultz (Restaurants)

Amazon is open to multiple solutions

“we are excited about that acquisition and looking forward to working with the team at Whole Foods…On your larger question about what the place of Amazon Fresh, likely Prime Now and some of our other efforts, I would say we believe there’ll be no one solution, so we’re experimenting with a number of the formats from physical pickup points in Amazon Go to online ordering and delivery to your door through Prime Now and Amazon Fresh.” —Amazon CFO Brian Olsavsky (E-Commerce)


The shift to the cloud is going to continue

“look, enterprise is going to continue to decline…it’s going be lumpy as we see this shift, but the overall macro shift of enterprise to cloud or traditional on-prem systems to cloud is going to continue.” —Intel CEO Brian Krzanich (Semiconductors)

Industrial companies have lots of data they want to harvest

“We’ve got, I don’t know, some 2 million customer sites nearly if you add up all the restaurants, probably collecting data 90%. But we only have a small fraction of it currently connected to the cloud. So, in most instances, our people have to walk into the unit, download via an RF port, and then they have the data to start analyzing how they can further improve the customer’s operation. We know that if we take that and send it to the cloud, do the analytics, send it to our person in advance of them arriving at the front door that we’re going to improve their productivity significantly and improve the amount of time they have for up-selling and for doing other things, even handling more accounts. So, technology, I would say in all industries, we have not yet pushed boundaries in these areas we are going to.” —Ecolab CEO Doug Baker (Business Services)

When tech meets old industries there can be a culture clash

“We, like a lot of people, are starting to look at the Insurtech space…It’s a clash of cultures there, I would say. The Insurtech folks are used to things happening lightening fast and with minimal regulatory issues and all that and that’s not insurance. So there almost needs to be a translator between Insurtech folks and standard insurance folks.” —Markel CEO Richard Whitt (Insurance)

Apple has created 2 million jobs in the US if you include App developers

“We’ve created 2 million jobs in the U.S., and we’re incredibly proud of that. We do view that we have a responsibility in the U.S. to increase economic activity, including increasing jobs, because Apple could have only been created here…About three-quarters of the 2 million are app developers.” —Apple CEO Tim Cook (Consumer Electronics)


The auto market is heading towards continued electrification

“These statements by Volvo by 2025 in the U.K., by 2040, those just seemed to be statements of strategic intent and very much in tune with the consumer psychology at the moment. It’s driven by all this negative press about diesels. But clearly, things are headed that direction and as there is more offerings from the powerful OEMs, I think it will continue to head toward materiality in our business.” —Group 1 Automotive CEO Earl Hesterberg (Auto Dealer)

China is likely to lead the world in electrification

“China’s forecasted to lead the global trend in Powertrain electrification, representing over 50% of unit production in 2025, reflecting a 40 fold increase over today’s levels. We remain optimistic about the China market as a result of the underlying macro trends which include increased government focus on emissions regulations, which are increasing demand for China’s new energy vehicles” —Delphi CEO Kevin Clark (Auto Parts)

Musk is confident that Tesla will produce 10k cars per week by the end of next year

“I’m very confident that we will be able to reach a production rate of 10,000 vehicles per week towards the end of next year…what people should absolutely have zero concern about is that Tesla will achieve a 10,000 unit production week by the end of next year” —Tesla CEO Elon Musk (Automobiles)

Materials, Energy:

Oil drillers need to replace their equipment eventually

“As two-and-a-half plus years of this downturn have gone on, the stuff that we’ve had out in the marketplace is slowly getting consumed. Those inventories are diminished and depleted and folks have to step back to the table and start ordering more of our products, even at very low activity rates. So we’re seeing some positive signs that give us some optimism in some sustainability of those businesses even in a flattening rig count environment.” —National Oilwell Varco CEO Clay Williams (Oil Service)

Australian Iron Ore is being sold to traders, not users

“what these guys are doing, these guys mean, for abundance of clarity, Fortescue, BHP and Rio Tinto, Vale and even the midget, Roy Hill, they sell to traders. And these traders do not have blast furnaces. They buy because it’s cheap to borrow money in Chinese banks. Then they put that iron ore in the ground, not in a blast furnace, at the port. And then they go back to the banks, and say, hey, I have collateral, can I borrow more? And the banker say, yes, and they borrow more, and they buy more for the same idiots…That’s my problem with the business in Australia. Then comes the question, will this be happening forever? Yes or no? Of course, the answer is no. One day, this bubble will burst. And on that day, people will say, oh, we are surprised that we are not seeing iron ore inventories going up.” —Cliffs Natural Resources CEO Lourenco Goncalves (Iron Ore)

Miscellaneous Nuggets of Wisdom:

Building a brand requires consistency and saturation

“While the intersection of digital, social, and traditional continues to blur lines, success is now measured in terms of months, weeks and even days. Engagement and intimacy requires consistency, saturation and showing up whenever and wherever a consumer engages our brand.” —Under Armour CEO Kevin Plank (Apparel)

Full transcripts can be found at

Earnings Call Digest 7.20.17

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 first week of earnings season showed a continued abundance of optimism.  Expectations have definitely risen for the economy.  Curiously though, expectations have not risen for interest rates.  Citigroup’s CEO mentioned that he only expects one rate hike per year through 2020.  Banks were prominent this week and credit quality remains strong, but CRE is an area where there appears to be a growing mismatch between risk and reward.

The Macro Outlook:

Optimism abounds

“Main Street continues to rebound. Our confidence is up. I’ve been in 23 of our 26 regions in the last few months…everyone is talking about increased optimism on the part of small- and medium-sized businesses…I’ve had 23 lunches where I’m sitting and talking to six to eight business people over the last few months. I’ve gotten this across our entire footprint…All of that is very, very positive.” —BB&T CEO Kelly King (Bank)

CEOs are confident

“I would say the CEOs are confident, the conversations are happening all the time and strategic M&A in the U.S. those discussions are occurring especially in technology and consumer retail and natural resources.” —Goldman Sachs CFO Martin Chavez (Investment Bank)

Consumers and investors are bullish on America

“across all the years since the crisis there has been ebbs and flows in customers’ views about where they want to invest and the cash portion of our balances has come up and down. But I think the consumer and the investor are very bullish on America and they continue investing” —Bank of America CFO Paul Donofrio (Bank)

Retail investors are highly engaged with the market

“We are seeing this quarter very broad-based engagement in the market, so everyone from brand-new customers opening their first account to very active traders seem to be engaged in the market. We saw a good activity across pretty much all of our products…So on the other end, the conundrum part is, as we said, we’re at multi-decade lows in the VIX, which tends to drive more trading activity.” —TD Ameritrade CEO Tim Hockey (Broker)

Voices of warning are few and far between

“…don’t be mesmerized by the blue skies created by central bank QE and near perpetually low interest rates. All markets are increasingly at risk….Strategies involving risk reduction should ultimately outperform “faux” surefire winners generated by central bank printing of money. It’s the real economy that counts and global real economic growth is and should continue to be below par.” —Janus Portfolio Manager Bill Gross (Investment Management)

Yet the expectation of low yields persists

“while markets have started to anticipate a normalization, a policy in the environment of sustained expansion, negative yields remain a reality in some countries and expectations for a continued low yield environment persists.” —Blackrock CEO Larry Fink (Investment Management)

Central banks aren’t very hawkish

“The incoming information confirms a continued strengthening of the economic expansion in the euro area, which has been broadening across sectors and regions…While the ongoing economic expansion provides confidence that inflation will gradually head to levels in line with our inflation aim, it has yet to translate into stronger inflation dynamics.” —ECB President Mario Draghi (Central Bank)

Citigroup is only expecting four more rate hikes through 2020

“we’ve got one more rate hike for the US built in and its December of this year. And quite frankly we’re assuming one more rate hike in ’18, one more rate hike in ’19 and one more rate hike in ’20.” —Citigroup CEO Miles Corbat (Bank)

A lot is still riding on a tax cut

“And can I guarantee that all the craziness in Washington will not derail that? No. But I’ll be honest with you as I’ve talked to business people out there, they’re not worried about all this craziness going on in Washington. They’re just focusing on growing their business. Now I will say I think they are expecting a tax reduction deal and, to a lesser degree, they’re counting on infrastructure. But if we get the tax reduction deal, they’ll continue” —BB&T CEO Kelly King (Bank)


Emerging markets have been weak for a long time

“since the financial crises, interest rates, currencies etcetera, we’ve had a prolonged period of about eight, nine years now where we have seen significant weakening of emerging market currencies…you actually see the volume component of these emerging markets continuing to be very, very low, while historically it was all volume-driven growth. I am convinced that that is coming back now.” —Unilever CEO Paul Polman (Packaged Goods)

China may be stabilizing

“China for example is actually much more stable than the last 12 to 18 months. I like what I’m seeing in China right now.” —Abbott CEO Miles White (Medical Device)

Chinese are still buying international assets

“we’re still seeing the trend of Chinese buying and international assets. ” —Goldman Sachs CFO Martin Chavez (Investment Bank)


The Fed should start shrinking its balance sheet in September

“So on the balance sheet, it is still the case that we expect to start seeing normalization in the balance sheet, in September, if not in September by the end of this year with the actually calling for the next rate hike in December the market is calling for March of next year.” —JP Morgan CFO Marianne Lake

No one knows how it will affect banks

“I mean the Fed has never had a balance sheet of this size. We’ve never been through a situation where they’re talking about reducing a balance sheet. We can talk about history all day long, but since we’ve never been through that, nobody knows exactly what’s going to happen.” —Wells Fargo CEO Tim Sloan (Bank)

There will likely be an increase in competition for deposits

“we think as excess liquidity comes out of the market you could expect to see and you will expect to see more competition with respect to deposits, I would also expect that the long end of the curve on a relative basis would be a little bit higher” —US Bancorp CFO Terry Dolan (Bank)

Consumers may not shift deposits until rates are higher

“I think we are a couple of moves away from the Fed before you start really seeing the positive beta shift on the consumer side.” —PNC CEO Bill Demchak (Bank)

CRE lenders see unfavorable risk and return

“there’s a fair amount of competition in stabilized commercial real estate projects, I mean there’s lots of liquidity out there. And so this quarter there just happen to be more transactions that we’ve looked at where we said, gosh, another risk return it just isn’t there” —Wells Fargo CEO Tim Sloan (Bank)

“[we] remain cautious in commercial mortgage markets where the competitive environment has created unfavorable conditions from a risk and return standpoint.” —US Bancorp CFO Terry Dolan (Bank)

So far credit quality in CRE has remained pristine

“As far as the credit quality within commercial real estate has been pristine…as far as the strength of our commercial real estate portfolios, it’s performing extremely well.” —Comerica CCO Pete Guilfoile (Bank)


AI is becoming ubiquitous

“AI is going into every segment of our growth sectors. AI is getting to mobile. AI is getting to high-performance computing like deep learning. AI will go into automotive…And AI will go to simple IoT, MCU also…it is ubiquitous.” —Taiwan Semiconductor Co-CEO Mark Liu (Semiconductors)

Financial service companies are adopting it

“Technology will impact all aspects of our business…Our investment teams are combining big data and machine learning with traditional fundamental human analysis to generate better sustainable alpha for our clients.” —Blackrock CEO Larry Fink (Investment Management)

“We are focused on our digital agenda on advancing the way we leverage data on exploring and piloting smart investments and things like AI and robotics on setting the standard in terms of the experience for our customers and distribution partners and as always on being as productive and efficient as possible.” —Travelers CEO Alan Schnitzer (Insurance)

“We have a number of expense initiatives. We are using, for example, artificial intelligence, AI, robotics…we will be going enterprise-wide in terms of finding ways to take these repetitious activities and apply good digitization and artificial intelligence to find more efficient and effective ways to reduce our cost.” —BB&T CEO Kelly King (Bank)

Robots are not necessarily that much cheaper than people

“If you look at the average basis points paid from the various robo platforms, they range in general like things from something like 20 to 40 basis points. If you look at the average basis points for a full service advisory like us, just divide our revenue into our assets including everything, you get somewhere in the 70s, low 70 basis points. So the value added of the financial advice and the institutions behind it and the research, the product offering, the new issued calendar you could argue is being put out there for 30 to 40 basis points. It’s not clear to me that, that is such an expensive gap that that’s going to lead to the cannibalization issues” —Morgan Stanley CEO James Gorman (Investment Bank)

80% of the world’s data isn’t public

“80% of the worlds data is owned by enterprises, it’s not searchable on the worldwide web, it’s customer data, and patient data, clinical data, supply chain data, transaction data and companies want to unlock and exploit that data.” —IBM CFO Martin Schroeter (Technology)

John Legere had nice things to say about Masayoshi Son. Trying to butter him up?

“let’s remember that [Masa] is one of the richest, biggest dealmakers in the world and his moves are significantly tracked and I dare any of you to dissect when he is working on vision fund and when he is working on, the guy is one of the biggest players in the world. And what he has been doing makes sense. That’s Masa. Sprint is very lucky to have him as an owner.” —T-Mobile CEO John Legere (Telecom)

3G/4G market growth is now just 6%

“For calendar 2017 3G, 4G device shipments, we continue to estimate shipment of 1.75 billion to 1.85 billion devices globally, up approximately 6% year-over-year at the midpoint.” —Qualcomm CEO Steve Mollenkopf (Semiconductors)


Manufacturers are trying to increase prices

“we are increasing our price that we are realizing out there in the marketplace…so we are seeing improved pricing versus where we were last year when we said sort of said hey guys enough is enough, we need to start getting some price back into the market…I think it’s moving in the right direction.” —Textron CEO Scott Donnelly (Conglomerate)

Transportation markets seem sluggish

“a few of our markets will experience year-over-year volume declines in the third quarter due to market specific headwinds you’re very familiar with. Auto shipments will be impacted by softening production.” —CSX CFO Frank Lonegro (Railroad)

“Truckload volume growth has slowed from the second quarter. The holiday timing makes precise comparisons difficult this early in the month but truckload volume growth has been in the low single digits.” —CH Robinson CEO John P. Wiehoff (Trucking Logistics)

Miscellaneous Nuggets of Wisdom:

It’s ok to fail. It means you’re trying.

“Failure is not such a bad thing and if you’re not failing maybe you’re not trying hard enough…you want to be introspective and look at that and say, are we being adventurous enough?” —Netflix CCO Ted Sarandos

Press your winners

“You ask about how we prioritize? Generally, when we see success, we try to add on to that until we reach a point of diminishing returns. And so, if we’re going to see success in some markets, we may up the content budget in those markets.” —Netflix CEO Reed Hastings (SVOD)

Full transcripts can be found at

Earnings Call Digest 7.14.17

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.

Earnings season started this week, but only with a few reports. Many more companies will report next week. A couple of industrial distributors, MSC and Fastenal, confirmed that the industrial economy is holding strong. Prices haven’t moved yet, but probably will if the economy continues to improve.

While there weren’t a lot of companies speaking, a lot of central bankers were. Yellen spoke about balance sheet normalization with Congress, and other central banks around the world are likely to begin normalizing soon too.

Bank of the Ozarks made a comment about commercial construction markets that bears watching though. The regional bank said it expects markets to slow because of high costs of labor, increasing interest rates and satisfaction of pent up demand. If this is true, it’s an interest rate sensitive market that is showing signs of sluggishness. This is a classic late cycle event. We will watch what other bank CEOs say next week for confirmation.

The Macro Outlook:

The industrial economy is showing continued and steady improvement

“Feedback from customers is consistent with the theme of continued and steady improvement…From an end market perspective, aerospace, fabricated metals and machine jobs continued to improve as did oil and gas related business…end markets like heavy truck and agriculture have appeared to bottom and showed some improvement.” —MSC Industrial Direct CEO Erik Gershwind (Industrial Distributor)

Pretty much all markets are performing well

“In fact, it’s difficult to identify a major market that is acting particularly poorly at this point. And the feedback that we’re getting from our RVPs remains overall very favorable.” —Fastenal CFO Holden Lewis (Industrial Distributor)

Prices still haven’t moved, but that could change

“…even if the commodities have moved and to be honest that’s something that surprised a bit over the last call it 6 months to 12 months these commodities certainly for a while have firmed up and there wasn’t as much manufacturer movement. Now, that could change. We are hearing bits and pieces that that could change as capacity starts to get fueled out by the manufacturers. But really for us the trigger is seeing a manufacturer move their list prices.” —MSC Industrial Direct CEO Erik Gershwind (Industrial Distributor)

A better economy will eventually allow companies to take price

“if we continue to see demand get better and the environment remains somewhat inflationary, then a window would probably open for us to take advantage of a little bit of pricing if the market affords.” —Fastenal CEO Daniel Florness (Industrial Distributor)

But the Fed continues to expect that interest rates will remain low for the longer run

“the Committee continues to anticipate that the longer-run neutral level of the federal funds rate is likely to remain below levels that prevailed in previous decades.” —Federal Reserve Chair Janet Yellen (Central Bank)


The global economy is strong and central banks are noticing

“for the first time in many years, the global economy is experiencing synchronous growth, and authorities in the euro area and the United Kingdom are beginning to discuss the time when the need for monetary accommodation will diminish.” —Federal Reserve Governor Lael Brainard (Central Bank)

If the Fed keeps hiking, the ECB will have to follow

“If the U.S. hikes more than once or two times it is going to be very difficult for the ECB to stay on hold for too long. I think that you don’t want to create too much of an interest rate gap between the between the euro and the dollar.” —UBS CEO Sergio Ermotti (Bank)

Canada is already beginning to raise rates

“Recognizing the lag between monetary policy actions and future inflation, Governing Council considers it appropriate to raise its overnight rate target at this time” —Bank of Canada

Central bank actions could impact currency markets

“the pace and timing of how central banks around the world proceed with normalization, and the importance of balance sheet policy relative to changes in short term rates in these normalization plans, could have important implications for exchange rates and financial conditions globally.” —Federal Reserve Governor Lael Brainard (Central Bank)

British consumer confidence is currently quite volatile

“the customer is quite volatile and what do I mean by that, they are shopping very much for today…we’re seeing fluctuations on a weekly basis in departments like men’s knitwear from sort of plus 50 to minus 20 on a weekly basis, depending on weathers. So, they’re really are shopping for today…consumer confidence overall, how they feel about themselves, is actually reasonably robust albeit it came down by about 5 or 6% over the last few weeks…In terms of how they feel about the economic environment though, they still feel less robust about that as we move forward” —Marks and Spencer CEO Steve Rowe (Retail)


Yellen expects to start winding down the balance sheet “relatively soon”

“If the economy continues to evolve in line with our expectations, it is something we should begin to do this year. To my mind, I would say relatively soon. The exact timing of this, I do not think matters a great deal. It is something we have long been preparing to undertake.” —Federal Reserve Chair Janet Yellen (Central Bank)

Caps will start at $10B per month and rise to $50B over the course of a year

“The cap will initially start at low levels, $6 billion a month for treasuries and $4 billion a month for mortgage backed securities. And over the space of a year we will ramp that up to $20 billion for mortgage backed securities and $30 billion for treasuries.” —Federal Reserve Chair Janet Yellen (Central Bank)

This process could go on until 2022

“I would say this process will play out probably to around 2022, when our balance sheet will probably be shrinking to normal levels…Our balance sheet will end up substantially larger than it was before the crisis, but appreciably lower than it is now.” —Federal Reserve Chair Janet Yellen (Central Bank)

It sounds like the Fed will focus on the Fed Funds rate if the economy deteriorates while normalization is under way

“the Federal Open Market Committee (FOMC) decided to delay balance sheet normalization until the federal funds rate had reached a high enough level to enable it to be cut materially if economic conditions deteriorate, thus guarding against the risk of returning to the effective lower bound (ELB) in an environment with a historically low neutral interest rate.” —Federal Reserve Governor Lael Brainard (Central Bank)

This is the end of an era

“we are at a) the end of that nine-year era of continuous pressings down on interest rates and pushing out of money that created the liquidity-fueled moves in the economies and markets, and b) the beginning of the late-cycle phase of the business/short-term debt cycle, in which central bankers try to tighten at paces that are exactly right in order to keep growth and inflation neither too hot nor too cold, until they don’t get it right and we have our next downturn. Recognizing that, our responsibility now is to keep dancing but closer to the exit and with a sharp eye on the tea leaves.” —Bridgewater Chairman Ray Dalio (Hedge Fund)

The risks may be greater than people think

“We’ve never had QE like this before, we’ve never had unwinding like this before. Obviously that should say something to you about the risk that might mean, because we’ve never lived with it before….When that happens of size or substance, it could be a little more disruptive than people think. We act like we know exactly how it’s going to happen and we don’t.” —JP Morgan CEO Jamie Dimon (Bank)


Consumers want less carbonation and less sugar in their diets

“we continue to transform our beverage portfolio to offer more non-carbonated options and reducing sugar levels across the portfolio.” —Pepsi CEO Indra Nooyi (Beverage)

QSR dining looks much different in China

“If you now come to China and visit a KFC you will be surprised of the number of people not standing in line but actually ordering on their phone just like you would at an airport where you check in at a machine. And also Alipay, WeChat have been very good at expanding their networks and promoting it well. As a result of that we believe China is far ahead of anybody else in terms of mobile payment.” —Yum China CEO Micky Pant (Restaurant)


The Youtube Generation still prefers printed textbooks

“Printed textbooks are still the format of choice for most students…While the evolution toward digital solutions has been slower than some originally anticipated, we saw an increasing shift toward a broader adoption of digital solutions in fiscal 2017” —Barnes and Noble Education CEO Max Roberts (Books)


Construction may be starting to slow

“We do have the expectation that construction nationally across all product types and all markets across country is likely to pullback a little bit and whether that number is 10% or 20% I don’t know, but in talking with our customers…they are passing that feedback along to me, cost of labor and materials in some markets are going up significantly. Cost of construction financing is going up…So, it’s costing more…to build things and we are working against a period of years coming out of the great recession, where supply did not keep pace with demand and supply of product and lot of product types has caught up with demand now and lot of submarkets. So, there are lot of markets around the country where you might have had 5 projects coming to market a year ago, but there is really only a need for two more projects coming to market this year and that is slowing the volume to some extent.” —Bank of the Ozarks CEO George Gleason (Bank)

Manufacturers are paying up for productivity

“most of our customers right now they are facing competitive threats, they need more productivity, they need to get product to markets faster, etcetera, etcetera. They are starving for productivity…so what’s actually…happening like if you take our cutting tool portfolio, it’s actually migrating up in quality of products, because in a lot of cases they are going to spend more for the product if they are going to get a much better length of cutter, the length of the tool life and the productivity coming out of the tool. And it’s actually moving the other way towards high performance. So I think our core customers anyway the big lever for them is productivity and getting more output for less dollars” —MSC Industrial Direct CEO Erik Gershwind (Industrial Distributor)

Materials, Energy:

One oil company CEO says we could see $60 oil by the end of the year

“my personal view is we will probably edge back in the $60 range by the end of calendar 2017. I think it will be in the high 50s, low 60s….the amount of capital that’s actually come out of spending programs, globally depends on who you read, but its on the order of $1 trillion to $2 trillion, and that capital is not being reinvested in. It will start to cause declines with some point. So while we do have production growth in the Permian and it’s a fantastic resource, I do believe that the supply and other things will have a supply crunch at some point and we’ll see high oil prices.” —TAG Oil CEO Toby Pierce (Energy)

Miscellaneous Nuggets of Wisdom:

It’s better to go slow in the right direction than fast in the wrong one

“I would like to share with you a quote from Simon Sinek, it’s better to go slow in the right direction than to go fast in the wrong direction” —WD-40 CEO Garry Ridge (Industrial supplies)

Full transcripts can be found at

Company Notes Digest 6.29.17

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.

This was a light week for earnings reports since it’s the last week of the quarter and next week is a holiday. Homebuilders sound very positive on housing markets, but office furniture supplier Steelcase saw hesitation from its large customers. In retail, it’s Amazon’s world and everyone else is just living in it.

The Macro Outlook:

We’re seeing a “definitive reversion to normal” in the housing market

“Overall, the attitude of our customers continues to confirm the sense that we have as business operators that the economic environment in general is strong and stable and improving. The slow and steady though sometimes erratic market improvement that we have seen for the entirety of this recovery continues to seem to be giving way to a more definitive reversion to normal.” —Lennar CEO Stuart Miller (Homebuilder)

Animal spirits and confidence have returned

“a lot of what’s driving people to the market is a sense of confidence, it’s animal spirits…the confidence that people bring with them to the table about whether their job is stable and whether there’s going to be a wage increase or there is opportunity for them to move and be mobile to the next job opportunity.” —Lennar CEO Stuart Miller (Homebuilder)

Millenials are forming homes after all

“I think for the longest time it was in great debate. What will this generation do in terms of homeownership. You could certainly see a trend at the time where rental, the household formation…it wasn’t happening. Where was this generation, this millennial going to set their roots. And what we’ve seen is that the cycle essentially was delayed about 6 to 7 years. And right now it’s really starting to come to fruition. And that fruition is as they are now moving into the jobs that they have secured as they are now forming families, as they are now getting their feet underneath them, we’re seeing that formation happen. And we are seeing them move into the homebuying market just as every other generation has.” —Home Depot VP Paul Deveno (Home Improvement)

There’s relatively low inventory

“What remains especially striking is the extremely low levels of resale inventory available. At 4.2 months nationally, and well below that in many of our submarkets, resale inventory is insufficient to meet demand. It is one of the key factors underlying pricing power in most of our markets, and we plan to continue maintaining pace…while increasing price when appropriate.” —KB Home CEO Jeff Mezger (Homebuilder)

And so homebuilders have pricing power

“We continue to feel that limited supply and production deficits from the past years are now intersecting with land and labor shortage and we started to see some pricing power as we have moved through the selling season, somewhat offset however by construction costs increases. Additionally the economic realities of a constrained and supply of housing options and the economic realities of higher rental rates are beginning to have a rational impact on decision making for the first time home buyer as millennials are continuing to come to the housing market.” —Lennar CEO Stuart Miller (Homebuilder)

Business investment may not be as robust as anticipated though

“Our analysis of our orders reveals a significant decline in large projects and large customers…Yet we don’t see any evidence of a broader slowdown in the economy…So, then as we think about it, we say well, what’s going on in our industry, what’s going on with our customers. It could be that some are just pausing, hesitating and we have some anecdotal stories around that. The customers are waiting to see what happens with healthcare reform for example…If you are interested in growing and you need to hire workers in the U.S. you might be interested in immigration reform..So, we have heard anecdotal stories like that.” —Steelcase CEO Jim Keane (Office Furniture)

If Washington doesn’t pass any legislation it could impact confidence

“Not yet, but if this continues to go like this where no major legislation is passed. It will impact confidence, there is no question about that.” —Korn Ferry CEO Gary Burnison (Executive Search)

Wage inflation pressures are mounting

“Labor, we continue to see some pretty good inflationary pressure…there’s 3% to 4% wage inflation in our labor number, right now; we’re able to offset some of that with productivity enhancements. But labor continues to be something that we’re focused on” —Darden CEO Gene Lee (Restaurants)

Is the Fed starting to get concerned about high asset prices?

“…elevated valuation pressures, especially when combined with high leverage, can lead to excessive credit growth. When asset prices are appreciating rapidly and expected to continue to do so, borrowers and lenders are more willing to accept higher degrees of risk and leverage” —Federal Reserve Vice Chair Stanley Fischer (Central Bank)


Europe is doing ok, but there’s uncertainty in the UK

“I met with many-many business leaders in Europe last week actually, I think there’s a great hope in France…and in the UK specifically I think there’s uncertainty…so I would say it’s kind of hopeful in France, steady-as-she-goes in Germany and uncertainty in the UK.” —Korn Ferry CEO Gary Burnison (Executive Search)

Mark Carney is talking about removing stimulus

“Some removal of monetary stimulus is likely to become necessary if the trade-off facing the MPC continues to lessen and the policy decision accordingly becomes more conventional.” —BOE Governor Mark Carney (Central Bank)


Open floor plan offices need quiet spaces

“as people move towards open plan there is also a counterforce which is that people are seeking privacy and they are seeking spaces they can create that are flexible as well as reconfigurable that can create rooms for people to – in which they meet or places where people can kind of get away and concentrate for a bit.” —Steelcase CEO Jim Keane (Office Furniture)


Retailers are investing heavily just to tread water

“So it’s unfortunately from a bottom line perspective is that as the world evolves these investments aren’t producing growing earnings but they are sustaining our relative position in the landscape… but these investments need to be made. If we didn’t make these things, we won’t exist today.” —Bed Bath and Beyond CEO Steven Temares (Retail)

Consumers want more heavy packages shipped to them

“We also continue to experience growth in demand for large, heavy package delivery as a growing array of items are now being sold online. Furniture, mattresses, sports and exercise equipment are increasingly moving to the FedEx Ground network for residential delivery. This trend has accelerated over the past 12 months, and we have made adjustments to facilities and investments in sortation technology that enable outstanding service for these larger packages. We’re continuing to analyze pricing and surcharges for oversized packages to ensure that we have appropriate pricing for the service provided.” —FedEx EVP Rajesh Subramaniam (Shipping)

There (probably) wont be just one winner in e-commerce

“there is not just going to be one customer, even though that lot of talk about the Amazon and Whole Foods deal, I mean, all of our major customers have e-commerce components. As we have experienced around the world, there are variety of customers who participate in e-commerce and so it’s not going to be just one winner.” —General Mills CEO Jeff Harmening (Packaged Food)

There (probably) are still some segments of retail that Amazon won’t play in

“the only way Amazon’s in our world right now is through Amazon Prime delivery…Our research tells us that guests still want to come to restaurants. Believe it or not, millennials still want to come to restaurants.” —Darden CEO Gene Lee (Restaurants)


Mobile video consumption is growing by 75% per year

“last year we saw video growth grow by 75% as measured by gigabytes on the network. So as an industry, we always hear that 75% to 80% of video, of the data on the network in the next five years is going to be video and we’re seeing it play out.” —AT&T SVP Scott Mair (Telecom)

Miscellaneous Nuggets of Wisdom:

Strive for simplicity

“Don’t underestimate how simplifying our business has helped us improve execution…the key to our guest count growth is better execution through simplicity.” —Darden CEO Gene Lee (Restaurants)

Full transcripts can be found at

Company Notes Digest 6.9.2017

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.

Global growth is firming up despite the fact that inflation has not picked up broadly. Deflation is therefore a headwind heading into the second half of the year. Still, US Steel users are facing rising materials prices that are compressing margins. Stock prices are very high and there’s a lot of complacency in the market.  High prices and low volatility mean low returns. —Erick Mokaya (@probinginvestor)

The Macro and International Outlook:

The global economy has momentum

“Global activity is firming broadly as expected. Manufacturing and trade are picking up, confidence is improving, and international financing conditions remain benign.” —World Bank

“…a stronger momentum in the euro area economy, which is projected to expand at a somewhat faster pace than previously expected….Incoming data, notably survey results, continue to point to solid, broad-based growth in the period ahead. ” —ECB President Mario Draghi

“Asia continues to be the world leader in growth helped by stronger demand and accommodative policies.” —IMF Deputy Managing Director Mitsuhiro Furusawa

Europe has turned into a bright spot

“the glass is half full I think as it relates to Visa in Europe….So there is an enormous amount of opportunity in Europe….I think we’re off to a good start.” – Visa CEO Alfred Kelly, Jr

Many companies are still fighting deflation

“We continue to experience deflation….The general lack of inflation also caused what we believe to be a short-term pressure on gross margin dollars”  –  United Natural Foods CEO Steve Spinner

“…when I look across our whole portfolio today and I compare 80% of our capital is going internationally into areas that are deflating….if we see persistent inflation that starts to erode the margins, we will allocate capital, the lowest cost to supply highest margin opportunities in the portfolio.” – ConocoPhillips CEO Ryan Lance  

“the economic expansion has yet to translate into stronger inflation dynamics. So far, measures of underlying inflation continue to remain subdued…”  – ECB President Mario Draghi

But there are also areas of inflation (note the impact of trade policy)

“…we are now beginning to feel the impact of rising material costs. The biggest impact is coming from lumber…you can see the spike in January of ‘17 when the previous trade agreement with Canada expired. This put upward pressure on lumber prices” – Hovnanian CEO Ara Hovnanian

“The new administration is being extremely tough on imported steel products and has instituted from anti-dumping tariffs on imports…And so as a result, much of the lower cost source of steel and steel Rebar coming into the country has ceased and so we’re seeing a significant escalation in our cost for steel Rebar.” – HD Supply CFO Evan Levitt

“our margins continue to reflect the near-term headwind of rising steel prices” – NCI Building Systems CFO Mark Johnson

Expectations for new legislation are much lower

“You’ll probably get some tax reform and it will more likely resemble a tax cut as opposed to broad-based reform” – PIMCO Global Chief investment officer Dan Ivascyn

“…I am not expecting some quantum change in the amount of people that are active in healthcare. I do expect quantum change at how they are reimbursed and what” – GE Healthcare CEO John Flannery

There is a very high level of complacency in the markets

“The level of complacency about where markets are today is pretty scary. People are just sort of assuming it’s OK, that it is what it is, and I have to say that I’m a little bit concerned about it.” – TPG Co-CEO Jon Winkelried

Low volatility means low returns

“Instead of buying low and selling high, you’re buying high and crossing your fingers….tell your investors that it’s a changed world, that returns are going to be lower and that if you want to sleep at night, to accept the market as it is. Low volatility requires low returns.” —Janus Bond Fund Manager Bill Gross


Financial companies can go broke in a day

“when I started in finance, I asked someone, “Why do A-rated financial institutions trade at big premiums, in terms of their debt interest rates, compared to a similarly rated industrial company?” He said to me, “Steve, financial institutions go broke in a day. It takes years for an industrial company to lose its market position and finally give up the ghost.”” —Blackstone CEO Steve Schwarzman

The DOL fiduciary rule was positive for big broker dealers

“The DOL rule by and large is a positive for us, and it sped the movement to fee-based accounts. We agree with the principals of the rule, and frankly from a pure [profit-and-loss] standpoint, we find it to be relatively positive.” —Morgan Stanley Wealth Management co-head Andy Saperstein

Consumer, Retail

When old retailers close their doors, they create new real estate opportunities

“we are continuing to see a lot of flow in terms of things that are being shown to us, if you will, from the fact that Sears, Macy’s, JCPenney, Sports Authority, all these guys are putting space, if you will, on the market.” – Dave and Busters CEO Stephen King

“There is a whole lot of news out there about closures and so that creates great opportunities for us….I like the quality of the pipeline and deeper the pipeline the more picky you can be against it…the deeper the pipeline gives you more flexibility against landlord” – At Home Group CEO Lee Bird


Amazon may be the world’s most admired company

“I think first and foremost, what Amazon has done is nothing short of extraordinary. I mean they have set a standard in terms of e-commerce that is just phenomenal….they are very customer centric and they believe in consumer choice and they are not trying to steer people in certain directions.….we’re best served by just making sure that we stay close to them and we’re serving them well.” –  Visa CEO Alfred Kelly, Jr

“So I think that Amazon, first of all AWS is incredible, we use AWS at Cisco, we use a bunch of the other cloud offerings as well. And what you’ll find is they built an incredible sort of APIs, for customers to take advantage of” —Cisco SVP David Ulevitch


The US healthcare market is in a soft spot

“It’s been soft in the first few months of the year….I am looking at sort of a flattish market in the U.S. There is definitely some uncertainty and wait and watch about the legislative process and proposals and how that might affect us.” – GE Healthcare CEO John Flannery

Healthcare makes up 20% of the US economy

“healthcare now makes up almost 20% of the economy in the U.S.; about 10% in a lot of the other major economies around the world…we got about 40 million people who are at the age of 65. That number is going to go to 80 million over the next 20 or 30 years; and if you look at every age category, from 70 to 80, 80 to 90, you see very similar statistics…the corresponding increase in medical and healthcare consumption with that aging, it’s pretty remarkable.” – Johnson and Johnson CEO Alex Gorsky


Boeing says the global aerospace market has become less cyclical

“…the global marketplace is a much less cyclical market, passenger traffic patterns today are much different than they have been in the past. We have a backlog of seven years instead of two years, a backlog that’s geographically diversified” – Boeing CEO Dennis Muilenburg

Materials, Energy:

There has been a lot of oil found in the US and it’s not going away

“back about 4 years, 5 years ago I was invited to the Vienna meeting. I was on the stage like this in front of all the big OPEC crowd with at the time, Ali Naimi, who is the Minister of Saudi Arabia, the Venezuelan oil minister, the Iranian and I got up and I told them that U.S. would surpass Saudi Arabia in production in 5 years. And I got laughed off the stage…So to put it in perspective, our industry has found over 400 billion barrels of resource in the last 10 years, 400 billion. That’s 10 crude oil days in the last 10 years in this business. And so I think the recognition that’s now coming is one that it’s real, that it is competitive at a $50 barrel price deck and it ain’t going away.” – ConocoPhillips CEO Ryan Lance

Company Notes 6.2.2017

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.

Optimism and confidence run high around the world and the economic recovery in the US and Eurozone is expected to continue, but there is less confidence that the Trump administration will execute on its agenda. There are assurances  from the new administration that the reform agenda will continue undeterred and companies are hopeful this will materialize soon but they are adopting a wait and see attitude. We still have a month or so to go before companies report on Q2 but initial assessments indicate a lower Q2 performance in financials.

Editor’s Note: Great work again this week by @probinginvestor, who did most of the heavy lifting

The Macro and International Outlook:

Confidence remains high around the world

“Our most recent Consumer Sentiment Survey revealed that homeowners have an increasingly favorable view of the national economy and their personal financial situation.”  — Lowes CEO Robert Niblock (Home Improvement)

“The mood among German business was euphoric in May….Companies upwardly revised assessments of both their current business situation and their business expectations significantly. Economic activity in Germany remains very brisk.”  – Ifo Institute President Clemens Fuest (NGO)

Central bankers share in the optimism

“The U.S. economy has fully recovered from the global financial crisis and the ensuing recession. In fact, the U.S. economy is about as close to the Fed’s dual mandate goals as we’ve ever been.” – Federal Reserve Bank of San Francisco President John Williams

“There are good reasons to believe that the improvement in real economic activity will continue.” – US Federal Reserve Governor Lael Brainard

“The economic upswing is becoming increasingly solid and continues to broaden across sectors and countries.”  – ECB President Mario Draghi

Some of the optimism may be excessive

“I think a lot of people, maybe stock market investors and others, have counted up all the positives and kind of ignored how do you pay for that and the negatives. I think there may be some excessive optimism in the U.S. around how this will affect the economy.” – Federal Reserve Bank of San Francisco President John Williams

But optimism has faded slightly from pre-election highs

“The levels of optimism are still high…They may be off slightly from their peak, but I think generally people are still feeling that the pro–growth agenda is real.”  – JP Morgan CFO Chase Marianne Lake

Businesses have less confidence that government reforms are going to actually happen

“as a result of no real forward momentum on any of those fronts and frankly a little bit more of a sense of paralysis in terms of getting that legislative agenda through, my sense is that people are waiting and seeing. There still is a lot of optimism, especially at the small business end of things, but I think confidence is lower that these signature policy initiatives are going to come through.” —Wells Fargo CFO John Shrewsberry

“in the U.S., we’ve decidedly seen a lot of our commercial clients sitting on the sidelines for the last couple of quarters with a wait and see attitude with everything from decisions on taxes to infrastructure spend and the rules of the road in the U.S. with the new administration” – Toronto Dominon CEO Bharat Masrani CEO (Bank)

Companies have to keep moving anyways

“…you don’t get a number of years to sit around waiting for policy changes to kind of move their growth trajectory forward. And so CEOs by nature has to act they have to move forward, they don’t spent a lot of time waiting, they take the current environment and they figure out how to do what they need to do strategically in that current environment.” – Goldman Sachs COO David Solomon

If you look at it objectively, the US economy is doing fine, not great, but fine

“If you look at it objectively, the U.S. economy is doing fine, not great, but fine.”  – Morgan Stanley CEO James Gorman

But markets are fully valued

“I think the U.S. market is fully valued right now” —Vanguard CEO William McNabb

“I’d say the second quarter is going to be disappointing in terms of earnings and growth. It’d tell me markets are probably fully priced at this moment” – BlackRock CEO Larry Fink

The downside risk is probably outweighing the upside risk

“There is enormous uncertainty which typically would breed tremendous volatility and it’s not…It’s this very passive perspective that investors have and I think the downside risk at this point is outweighing the upside risk.”  – Morgan Stanley CEO James Gorman

But Central Bankers don’t see much risk

“…risks to the U.S. financial system do not appear to be flashing red in the way they did in the run–up to previous downturns….In recent quarters, the balance of risks has become more favorable, the global outlook has brightened, and financial conditions have eased on net.” – Federal Reserve Governor Lael Brainard

They’re going to continue to move very slowly

“When you’re docking a boat, you don’t run it in fast towards shore and hope you can reverse the engine hard later on. That looks cool in a James Bond movie, but in the real world it relies on everything going perfectly and can easily run afoul. Instead, the cardinal rule of docking is: Never approach a dock any faster than you’re willing to hit it. Similarly, in achieving sustainable growth, it is better to close in on the target carefully and avoid substantial overshooting.” – Fed Reserve Bank of San Francisco CEO John Williams


Financial services companies have had a weak second quarter

“I will tell you that quarter to date across our markets businesses, we are down about 15% year-on-year”  – JP Morgan CFO Marianne Lake

“…volatility, client activities which were more subdued in the first quarter kind of in these first two months have continued in a comparable fashion in the second quarter  – Goldman Sachs President David Solomon

Banks will probably start to be able to return more capital though

“I do think that, in general, that this is probably true, that there will be banks this year – banks who haven’t been big returners of capital over the last few years who have earned their way into – built their capital level to a full level, gotten to something like a stable run rate of profitability. There’s probably an opportunity for some of those banks to have gotten more aggressive in their ask for return of capital this year.” —Wells Fargo CFO John Shrewsberry

The housing market is strong

“Solid and improving demand and the financial strength of our affluent buyer base are driving our growth. This was the best spring selling season we have had in over 10 years.” – Toll Brothers CEO Douglas Yearley (Homebuilder)


Consumers have deleveraged a lot in this cycle

“…consumers are in very good shape. Their balance sheets are repaired, they’re pretty liquid, their debt to income ratios are pretty low, debt service burdens are pretty well insulated from interest rate hikes because interest rates have been low forever, and they’ve been able to refinance debt at low rates“  – JP Morgan CFO Chase Marianne Lake

“I don’t think that we believe that today that the U.S. consumer is overburdened with debt, either with respect to cash flow in terms of the ability to service it, or with respect to the value of their assets given what’s gone on in home price appreciation over the time frame that you described” – Wells Fargo CFO John Shrewsberry

Amazon is gunning for a piece of the furniture market

“There is more competition coming in, particularly at the low end and there is still the big box retailers who have been offering furniture for a lot of years and we’ve just learned that Amazon is going to come into the furniture business. We believe that actually Amazon will take more market share from the mass retailers than anyone else” – Williams Sonoma CEO Laura Alber


Electronics components are in short supply

“…we continue to see competitive pricing and a challenging commodities environment.The pricing environment was also increasingly difficult and hindered our ability to raise prices as an offset. We anticipate the impact from commodities will remain significant in the near–term” – Hewlett Packard Enterprise CEO Meg Whitman

VR has not been very successful

“it’s been very interesting to see the inflow and the regular inflow of a variety of technologies, VR being one of them…The impact of VR specifically is small, but we like the proliferation of innovation across our sectors.” – Best Buy CEO Hubert Joly

Real Estate, Transport and Energy:

Two Dry Bulk shippers have somewhat conflicting views of the market

“this might be the first quarter where we can say with a degree of certainty that we are at the point where demand and supply have reached balance.” – Diana Shipping CFO Stasi Margaronis

“Continued absence of ordering and acceleration of demolition are required to place a cap on fleet growth for 2019, as 2018 is already almost closed at low prospective delivery levels.” – Star Bulk Carriers CEO Petros Pappas

Oil and gas have stabilized

“the oil and gas market stabilized. We see orders improving, but it’s off a low base.” – General Electric CEO Jeffrey Immelt  

International energy production is probably going to be slower to recover

“Look, I think international is going to unfortunately tread water for a bit. I don’t know that it needs to come back…Some may never come back just given the producing power of the Middle East, North America and probably Russia will likely be more dominant. So there are some marginal markets that may not come back.” —Halliburton CEO Dave Lesar (Oil Service)

Company Notes Digest 5.19.17

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.

It´s been a light week for earnings as the Q2 earnings season winds down with a whimper. There has been growing and glowing interest in Europe as an investment hub this week. Retail customers are blending the online and in-store experiences companies commit to being omnichannel retailers. Meanwhile, after the Wannacry cyber attack last weekend, we have been reminded that cyber security threats loom large and we all need to be wary.

Editor’s note: Thanks again to Erick Mokaya (@probinginvestor) for his great work in writing this week’s piece.

Macro and International Outlook

Europe is attracting renewed interest

“It’s nice to hear people talking about Europe in a positive way. We’re really seeing growth in a broad way you haven’t seen in 5 or 10 years. The political risk in Europe is coming down. Europe is in the 3rd inning of a recovery. The US, depending on Trump, is somewhere between the 7th and 9th inning.” – Polygon Global Partners LLP Founder Reade Griffith

“All of a sudden we have stability in France, in Germany, in the Netherlands—and more political uncertainty in the United States. Europe is the place to invest, because it’s been very much underinvested.” – Marathon Asset Management CEO Bruce Richards

“Europe has been a long stretch of either disaster or disappointment….You’ve finally got attractive growth, better inflation data, reasonable valuations and much better earnings prospects” – Skybridge Capital Partner Troy Gayeski

The global economy is growing moderately

“Global recovery is gaining momentum, yet growth remains moderate and GDP is still below potential in many countries, with the balance of risks tilted to the downside.” – G7 Finance Ministers and Central Bank Governors Communique

US Inflation has been below target

“The reflation trade was probably overdone…Inflation has been below target for a while. It’s been unexpectedly difficult to get inflation up.” –  Former Fed Chair Ben Benanke

The Swedish Central Bank is considering  a variable inflation target

“The Riksbank is considering changing the target variable for the inflation target to the CPIF. As inflation will always vary around 2 per cent, a variation band of +/- 1 percentage point is being also considered to illustrate this uncertainty.” – The Swedish Central Bank

Markets are underestimating political risk

“It always puzzles me a little bit that markets are very blase about political risk until the last moment….I’m not counting on major changes in the tax code or infrastructure.” – Ben Benanke Former Fed Chair


The art and luxury goods market is showing signs of strengthening

“So, what is the state of the market for the art and luxury goods that Sotheby’s sells? In short, the market is starting to show signs of strengthening….East and Southeast Asia’s buyers were prepared to pay top prices for excellent quality art and jewelry.” – Sothebys CEO Thomas Smith

The IASB released IFRS 17 on insurance contracts and it´s a big deal

“The International Accounting Standards Board … issued IFRS 17 Insurance Contracts…{to} help investors and others better understand insurers’ risk exposure, profitability and financial position.” IASB

“It’s a big deal as it means accounting policies will change for all contracts, and profits could be more volatile than today…More of the profit from a contract will be deferred over the contract period, which could mean increased volatility in earnings.” EY Partner Kevin Griffith


Accelerated merchandise growth at Wal-Mart in the quarter

“The U.S. e-commerce GMV growth accelerated significantly, up approximately 69%. Through the lens of strong, efficient growth, I’m pleased with the results.”  – Wal-Mart EVP and CFO Brett Biggs

Trends in retail are secular

“these changes that we’re seeing are secular and not cyclical. On the consumer side, we see continuing shifts in shopping trends, driven by the rapid adoption of technology, and for some of our customer segments, a greater emphasis on value and on experience. As for the retail industry overall, we’ve known for some time that the United States is over-retailed compared to other markets, so it’s not surprising to see the contraction in retail square footage.” Macy’s CEO Jeffrey Gennette

Customers are blending the online and in-store experience

“I think the interesting thing for us is over 45% of our orders on the customer is actually choosing to pick up into our stores….this whole customer engagement is becoming a blended element between online and in-store, and the customer is choosing in some cases, they start the shopping experience online, they finish in-store or…vice-versa”  – Home Depot CEO Craig Menear

Retailers are making a stronger commitment to omnichannel

“we’re all in on being a meaningful omnichannel retailer. We have a massive brick-and-mortar presence…our challenge is, of course, on the product side, to make the product offering in those stores more relevant and more effective, and then to leverage, as an omnichannel retailer, those store assets, our people, our inventory, our physical facilities, for customers who prefer to buy online.” – Kohl’s Corp CEO Kevin Mansell

“And third, we remain committed to becoming a world-class omnichannel retailer.” – J. C. Penney CEO Marvin R. Ellison

More chains are turning to automation to resolve labour costs issues

“We have more and more chains coming to us looking at how to resolve labor issue, how do we offset the higher cost of labor through automation.” – Middleby CEO Selim A. Bassoul

Sales improved in March and April compared to February

“while sales results for the quarter in total didn’t meet our expectations…sales in February were down high single digits and improved to down 1% in the March/April combined period. April sales and traffic metrics were both positive mid-single digits, and traffic metrics actually led sales during that month.” – Kohl’s Corp CEO Kevin Mansell

There’s an ongoing casualization trend

“there’s a continuing trend around casualization that we need to be mindful of really kind of across the board.” – Nordstrom Co-President Peter E. Nordstrom


Cyber threats are growing and are having devastating effects

“We recognise that cyber incidents represent a growing threat for our economies and that appropriate economy-wide policy responses are needed. No point of cyberspace can be absolutely secure as long as cyber threats persist in the surrounding environment.” – G7 Finance Ministers and Central Bank Governors Communique

“Last week’s WannaCry ransomware attack was another example of the devastating impact cybercrime can inflict on individuals, companies and countries around the world….It’s important that the tech industry and customers work together to defend against these attacks from cyber criminals.” – Cisco Systems CEO Charles Robbins

Seasonality impacted ad revenues for Tencent

“For the first quarter, for the first time our digital subscription video revenue exceeded our video advertising revenue that’s partly a seasonal factor because the first quarter is seasonally weak for advertising and seasonally strong for consumer digital spend, so we wouldn’t necessarily expect that to be the case in subsequent quarter.” Tencent Holdings CFO John Lo

Cisco is focusing more on software and subscriptions

“We set out 18 months ago to transition the business to one of more software and subscription. At the time, 8 quarters ago, it was $2 billion on our balance sheet. Today, we’ve more than doubled that, up 57% this quarter to $4.4 billion and accelerating.” –  Cisco Systems CEO Charles Robbins

Even Kohls is touting machine learning

“while we increased fulfillment levels from our stores, our overall fulfillment costs remain nearly constant as a percent of digital sales….by using machine learning to improve the algorithms that determine how to optimally fill orders with our network of stores and EFCs” – Kohl’s Corp CEO Kevin Mansell


Winning in autonomous is going to take scale and know-how

“You’ve got to be able to make these vehicles at scale and you’ve got to have the manufacturing know how to put thousands and tens of thousands of vehicles out in the field.” – General motors VP of Global Strategy Michael Abelson

Materials, Energy:

Contango in spring makes for a stronger summer in the freight market

“The product market is normally more in Contango when we come to the spring market…If the contango is very strong this spring and summer, it’s quite likely that we might see a stronger freight market in the summer.” – Avance Hodings President Christian Andersen

China is driving the world demand in the bauxite market

“the vast majority of bauxite demand sits in China. There is some third-party demand outside, but for the most part it’s a China story….there’s an insatiable appetite in China to bring that in-country in either stockpile or use.” Alcoa CEO Roy Harvey

Company Notes Digest 5.12.17

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.

Editor’s Note: This week’s Digest was compiled by Erick Mokaya @ProbingInvestor

Consumption was weak in Q1 but the global economic recovery is expected to continue in Q2. Some signs indicate that we may be in a bubble but rest assured nobody knows when it will burst. All in all, companies and customers alike are positive.

The Macro Outlook:

Although the first quarter was weak, signs still suggest that the industrial economy is improving

“While first quarter economic data has been relatively soft, we continue to believe a gradual recovery of our markets is underway, driven by improvements in the global economic activity…all indications are that this unprecedented contraction in the capital spending of our customers is coming to a close and optimism is there. Our industry has always been a late cycle industry and this cycle is no different.” —Fluor Corp. CEO David Thomas Seaton

Inventories are low, lead times are extending and capacity is narrowing

“inventories at Microchip as well as at our distributors are towards the low-end of the normal range, therefore we are starting to see some lengthening of our lead times. We’re starting to see challenges in fab, foundry, probe, assembly and test capacity. We have increased wafer starts in our three internal fabs and we’re adding capacity in our three back-end facilities. Despite all this, we are seeing significant business that we’re not able to support by the customer requested dates.” —Microchip CEO Steve Sanghi

This recovery is long in the tooth, but most see it continuing

“we’re comfortable with US growth and European growth and even though it does – even though this recovery is long in the tooth, we see it continuing for the time being.” – Third Point LLC CEO Daniel Loeb

Still, it’s not a good sign that the consumer appears to be a laggard around the world

“Aggregate demand slowed markedly in 2017 Q1…The slowdown appears to be concentrated in consumer-facing sectors….consumption growth will be slower in the near term than previously anticipated before recovering in the latter part of the forecast period as real income picks up.” Bank of England

“Private consumption, the main growth driver in recent years, expanded at its fastest pace in 10 years in 2016 but is set to moderate this year as inflation partly erodes gains in the purchasing power of households.” European Commission

“One reason is that much of the weakness in the first quarter was related to consumption, yet personal income and wealth have continued to rise, and consumer confidence indices remain quite positive. So my expectation is that consumption will re-emerge in the second quarter and we will continue to have a consumption-led recovery.” – Federal Reserve Bank of Boston President Eric Rosengren

And there are some signs we are in a bubble

“The enthusiasm for Tesla and other bubble basket stocks is reminiscent of the March 2000 dot-com bubble as of the case then, the bulls have rejected conventional valuation methods for a handful of stocks that seemingly can only go up. While we don’t know exactly when the bubble will pop, it eventually will.” David Einhorn – Chairman Greenlight Capital Re

Low volatility periods like this historically precede a shake up

“The low volatility itself might be a kind of bubble of confidence, but we won’t know until we know…Every time I get accustomed to low volatility like we were towards the end of the Greenspan era, and we think we have all the levers under the control and there’s low risk in the world and the world is awash with liquidity that pounces on every aberration in the market so things go in. Something erupts to remind us of our – that that idea that anybody is in control of anything is hubris and the world doesn’t perform like that for long periods of time….this is not a normal resting state.” Goldman Sachs Chairman and CEO Lloyd Blankfein

Valuations should be at a discount, not a premium

“The Fed has borrowed more from future consumption than ever before. If we have borrowed more from our future than any time in history and markets value the future, we should be selling at a discount, not a premium to historic valuations.”  – Stan Druckenmiller of Duquese Family Office


Japan is no longer in deflation

“We are not in a deflationary situation anymore….two factors – output gap, inflation expectations – both of them would converge and contribute to raising wages and prices.” Haruhiko Kuroda, Governor, Bank of Japan on CNBC

And business is good in China and India

“We were obviously very, very happy with our business in China and India….our activities in China are really, really strong, people are upbeat. And the same applies to India.” Christian Ulbrich – Jones Lang LaSalle, Inc.

Uncertainties are expected to persist as elections are held

“there is going to be a level of anxiety around each of these elections throughout the year and they are spaced out throughout the year…we’re going to be having periods of relative optimism and then periods where market participants pull back, awaiting the outcome of these various elections.” Mark E. Almeida – Moody’s Corp

The French president-elect has a pro-globalization agenda though

“I’ll work to rebuild the link between Europe and the people it is made up of, between Europe and citizens.” Emmanuel Macron – French president-elect

Some see potential in emerging markets.

“The valuation of emerging markets is half the valuation of the S&P 500…I just think EM has more potential upside than ever.” Jeffrey Gundlach Doubleline Capital


Loan origination is up

“Another sign of good commercial activities is, of course, the loan origination…The production is up by 28% compared with last year. Production on housing loan also is very variant. The production turned that volume up of €5.9 million, an increase of 63% on a year-on-year basis…” Philippe Heim – Chief Financial Officer Societe Generale

It is a good time to issue and refinance debt

“it is a good opportunity for issuers to be in the market, whether it’s refinancing or new money or upping their outstanding debt. These are attractive conditions and looking ahead to potential interest rate increases going forward.” Raymond W. McDaniel, Jr. – Moody’s Corp.

Even Valeant was able to refinance

“By refinancing the debt, we now have a very manageable debt paydown schedule for the next several years. We shifted to about 75% fixed versus floating rate debt and, finally, we substantially improved our covenant position” Paul S. Herendeen – Valeant Pharmaceuticals International, Inc.

GSE reform could have a big impact on real estate markets

“A potential and significant shock to this sector of the commercial real estate market could occur if proposals require the GSEs to reduce their holdings of multi-family loans.” Eric Rosengren, president and CEO of the Federal Reserve Bank of Boston


AI may represent a radical shift in software

“AI is going to infuse all of software. AI is going to eat software. Whereas Marc [Andreessen] said that software is going to eat the world, AI is going to eat software, and it’s going to be in every aspect of software. Every single software developer has to learn deep learning. Every single software developer has to apply machine learning. Every software developer will have to learn AI. Every single company will use AI. AI is the automation of automation”  Jen-Hsun Huang – NVIDIA Corp.

Mobile continues to take market share in media consumption

“Almost 80% of the people who connect with ESPN each month access the content on mobile devices. In Q2, ESPN’s suite of mobile apps reached a monthly audience of almost 23 million unique users who collectively spent more than 5.2 billion minutes engaging with ESPN on those platforms during the quarter. Mobile is clearly going to play a major role in the future of media Robert A. Iger – The Walt Disney Co.

Snapchat’s core users can’t be reached by television

“…Nielsen found that 45% of 18- to 34-year-olds in the U.S. are reached by Snapchat on any given day. This is nine times more than the average daily reach of the top 15 TV networks and nearly 5 times more than the top TV network. 87% of our U.S. daily active users between the ages of 18 and 34 cannot be reached by any top 15 TV network.” Imran Khan – Chief Strategy Officer Snap

Miscellaneous Nuggets of Wisdom

There’s a difference between forecasting and risk management

“I always differentiate forecasting what do you think will happen from the exercise of risk management. In risk management, I don’t care what anybody thinks. I don’t care what I think. I’m just preparing for contingencies. On the other hand, in our trading businesses and trying to anticipate flows and what clients want to accomplish, there I have to try to guess the future and where thing are going. So those are two different exercises.” Goldman Sachs Chairman and CEO Lloyd Blankfein

Company Notes Digest 5.5.17

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.

Editor’s note: Please note that this week’s post was compiled by Erick Mokaya.  Erick has been helping out on our weekly piece for about a year now and has consistently done excellent work.  He’s an incredibly strong young analyst and we feel very fortunate to have him working with us.

The US and the global economy are both experiencing gradual improvement. The US economy in particular is seen as resilient and in good shape even though the last quarter experienced slow economic growth. The energy sector is bouncing back as rig counts increase but we may have to wait awhile before new ones can be built. Meanwhile, car inventories are building up as sales slowdown and AI and machine learning are increasingly playing a bigger role in the development of tech companies.

The Macro Outlook:

Nothing much has changed in the economy

“broadly speaking, not much has changed since the last quarter. We’ve seen modest pickup in global growth, in part due to market-specific fiscal stimulus, although uncertainty about the direction of trade policies continues to be a concern.” —Mastercard CEO Ajay Banga (Financials)

Any economic weakness is likely transitory

“Information received since the Federal Open Market Committee met in March indicates that the labor market has continued to strengthen even as growth in economic activity slowed….The Committee views the slowing in growth during the first quarter as likely to be transitory” —The Federal Reserve

US industrial sectors are in “good shape”

“The part of the world that you should be focused on at this point is the United States of America, because our economy is growing. All sectors are in good shape. Some sectors are surprisingly strong at this point like agriculture, like non-residential construction. Automotive has not come down. Actually, we are seeing automotive turning back up. And we have a limited amount of domestically generated steel available for all these uses.”—Cliffs Natural Resources CEO C. Lourenco Goncalves (Iron Ore)

Inflation is likely to rise

“We are seeing increases from suppliers. So I think as we work through calendar 2017, we will see a few more supplier increases, and likely have some moderate inflation as we go forward.” — Applied Industrial Technologies CEO Neil Schrimsher (Industrials)

“… for the full year we still see overall inflation in that 3% range which is obviously higher than what we ended up with last year.” — Union Pacific Corp CEO Lance M. Fritz.

“… just as people start to talk about rates potentially moving up and inflation maybe starting to move a little bit, you’re starting to see loss cost trend, which makes sense.” —Markel Co-CEO Thomas Gayner

But there are also pockets of deflation

“…If I look at our spending year-to-date where we track this every month, we are still net deflation year-to-date as a company. So we’ve certainly experienced more deflation in our costs after the first quarter in 2017 versus 2016 and there is a mix there.” —ConocoPhillips Vice President Alan J. Hirshberg

Optimism is still running high

“…the new US administration’s proposed policies of reducing corporate taxes to 15% rolling back regulation…and significant infrastructure spending has the potential of boosting economic growth significantly in the United States. Already sentiment among small businesses has improved dramatically and animal spirits in the United States are being revived.” – Fairfax Financial Holdings CEO Prem Watsa (Insurance)

But conviction has ticked lower

“This quarter it feels like conviction for tax and regulatory reform is more muted…. This was a quarter that was defined by low volatility, a lack of conviction with our clients. One of the things I would say is our business is definitely weighted, or levered, to times when our clients have a lot of conviction. One of the things that happened is that conviction sort of ebbed.” — Goldman Sachs President David Solomon

The administration is trying to manage expectations. Stronger growth is still two years away.

“In our projections it will probably take two years to get up to three percent growth and then we can have a sustained level.…” —U.S. Treasury Secretary Stephen Mnuchin.


A strong US economy means a strong global economy

“When the US economy, which is approximately 20 trillion, does well much of the world does well. To us this means our concerns of China or Europe precipitating a worldwide recession depression have been significantly reduced, but not delaminated. Also the trade policies of the US could precipitate a collapse in world trade.” – Fairfax Financial Holdings CEO Prem Watsa (Insurance)

Economic growth in the Eurozone is solid

“growth is improving. Things are going better. And you remember in 2013 we were speaking of a recovery which was fragile and uneven, and now it’s solid and broad.” —ECB President Mario Draghi.

The UK is bouncing back

“in general the UK is making a nice comeback. I mean we are seeing good activity there. I think we had a recent survey of clients that showed that London once again was the favored destination for international capital among all major markets around the world.” —CBRE President Robert Sulentic

But companies are still keeping watch for the impact of Brexit

“Brexit is not over yet, so I would say everyone is still waiting to figure out what the actual rules will be and there’s no question it will put some pressure on both the manufacturers and the retailers and, I think, that’s a piece of the uncertainty there.” —Mondelez International CEO Irene B. Rosenfeld (Packaged Food)

Companies are seeing opportunities in China

“continued growth opportunities for us do exist in China…. just 40% of the Chinese customers do finance their cars. That is, I think pretty good snapshot number for the market…this number with a 40% has come up significantly over the last five, six, seven years, so the market is normalizing and this is certainly other than the growth of our brands are expecting in China a huge opportunity—Volkswagen Head of Group Sales Fred Kappler

Brazil is looking up as it recovers from a recession

“Brazil is showing signs of emerging from its two-year recession… the international markets have in the last, I would say not just this quarter, over the last six to nine months, things have been moving up in the international markets…Brazil is turning the corner.” —Mastercard CEO Ajay Banga (Financials)

“….we talked briefly about Brazil, a market which has almost collapsed. We expect the market to recover over time maybe starting as early as the second half, but slowly but surely from very low levels.” —Volkswagen Head of Group Sales Fred Kappler

Things still have not normalized in India since demonetization

“if you spoke to consumer product companies that are large in India, a Unilever kind of company, they would tell you they still see an impact on total consumer volumes and downsizing of inventory in the retail system because of some non-availability of adequate cash for transaction capability….You’re seeing more electronic. You’re seeing a little more cash, still not back to where it was, but it’s headed in the right direction.” —Mastercard CEO Ajay Banga (Financials)


Startup capital has become more scarce

“Raising money was the top challenge identified by startup executives in our recent annual Startup Outlook Survey. Fortunately, there is continued investor appetite and capital for good companies, especially those that can demonstrate growth….we believe there is sufficient capital to fuel the innovation ecosystem and that good companies will continue to get funding.” —SVB Financial CEO Gregory Becker

Investors are still allocating capital to commercial real estate though

“capital rising has been very, very strong for us and I would say continues to be on a fairly consistent basis. We are seeing maybe as that investor just being careful and thinking about where they’re investing in aware of the fact that were we’ve been in a slow but longer economic recovery than prior cycles that this cycle feels a bit different, but the flows of capital into our investment management business have continued quite strong.” CBRE CEO Robert Sulentic (Commercial Real Estate)


Artificial Intelligence is of increasing importance

“our testing platform now employs artificial intelligence, where we crawl through the claims and look for anything that’s unusual. And so that has resulted in what I think have been very successful welcome seasons over the last several years.” —CVS Health Corp CEO Larry J. Merlo (Health Care).

“I’m really happy with how we are transitioning to an AI-first company. The Google Assistant is one of our first steps towards that future…Advances in machine learning are helping us make many Google products better.”—Google CEO Sundar Pichai

“Over time, the AI tools will get better. Right now there are certain things that AI can do in terms of understanding text and understanding what’s in a photo and what’s in a video. That will get better over time. That will take a period of years, though, to really reach the quality level that we want.” —Facebook CEO Mark Zuckerberg

Microsoft says that what’s happening at the edge is the most exciting part of cloud

“when everyone’s talking about the cloud, the most interesting part is the edge of the cloud. Whether it’s IoT, whether it’s the auto industry, whether it’s what’s happening in retail, essentially compute is going where the data gets generated, and increasingly data is getting generated at the volumes in which it’s drawing compute to it, which is the edge.”—Microsoft CEO Satya Nadella

Too much demand is bad if you don’t have inventory to meet it

“one of the things that we did not get right was the mix between the iPhone 7 and the iPhone 7 Plus. It wound up that demand was much stronger to the iPhone 7 Plus than we had predicted. And so it took us a little while to adjust all the way back through the supply chain and to bring iPhone 7 Plus into balance” —Apple CEO Timothy Cook

Mobile ad revenue is now 85% of Facebook’s ad revenue

“Mobile ad revenue was $6.7 billion, up 58% year over year, and was approximately 85% of total ad revenue… More businesses around the world are shifting to marketing on mobile…. I think increasingly, the question is not if you can do without TV, but it’s if you can do without mobile” —Facebook CFO Sheryl Sandberg


Car inventories are piling up and need to be reduced

“U.S. new vehicle inventory stood at 29,800 units, which equates to a supply of 86 days, consistent with a year ago but far too high…. we must adjust our inventory level downward in the second quarter…we’re not the only dealers in these oil patch markets who have found themselves with too much inventory based on a further slowdown of sales.” —Group 1 Automotive CEO Earl J. Hesterberg (Car Dealer)

“passenger car inventory remains heavy and we have been working to bring that down to more appropriate levels by cutting production, and we remain committed to match supply and demand. We expect to end…with significantly reduced passenger car levels.” —General Motors CFO Chuck Stevens

Materials, Energy:

Oil companies are putting rigs back to work at an “astonishing” rate

“our North American customers are demonstrating that their economics work even at current oil prices in many North American basins by putting rigs back to work at an astonishing rate —National Oilwell Varco CEO Clay C. Williams

The steel industry is in good hands with Wilbur Ross

“Just to give an idea, Mr. Wilbur Ross was the guy that put together Bethlehem Steel and LTV Steel just after the debacle of the two companies around 2001, 2002. And that was a result of trade case. So, Wilbur Ross knows trade cases very well. So, I don’t know what you’re concerned about”
Cliffs Natural Resources CEO C. Lourenco Goncalves

Full transcripts can be found at