Procter and Gamble at Deutsche Bank Conference Notes

Jon Moeller – Vice Chairman and Chief Financial Officer

Digitizing/automating manufacturing operations

“We are digitizing our manufacturing operations and automating with robotics. We see opportunity for an additional $1 billion of savings from transportation, warehousing and other costs of goods sold. These savings will come from work to improve warehouse productivity by as much as 25%, digitized algorithmic planning that reduces inventory and optimizes vehicle fuel rates and by rebidding regional transportation alliance based on our optimized manufacturing site and mixing standard locations.”

We want to be positioned wherever consumer want to shop

“We want to be positioned, as I said earlier to win wherever consumers want to shop. We don’t want to make that call for them, and we feel we’re in a fairly good place today. Two things we look at assure we remain on that place. One is where the market share online versus offline, in aggregate, a difference like category market as you would expect. But in aggregate, we’re about equal. In some of the markets online shares are a little bit ahead of offline share, I guess, more a function of the demographic of the shopper online than anything else, but we’re in a good place there.”

Procter & Gamble (PG) Q3 2017

Jon R. Moeller

In sum

“In the U.S., our largest and most profitable market, categories in which we compete, grew roughly 2% in the first half but were up less than a point in the March quarter. Several factors contributed to this dynamic including delayed tax returns, higher gas prices, bad weather, and what appears to be a drawdown of at-home inventory during the quarter….Foreign exchange created a three point headwind on third quarter earnings growth”

Challenges ahead unlikely to change

“Now looking forward, the external challenges we face: slow market growth, geopolitical and economic instability, foreign exchange impacts from a stronger U.S. dollar, rising commodity costs and retail trade transformation are all very real and aren’t likely to do meaningfully better in the near-term. ”


Reduced retail inventory in first quarter not systemic

“Retail inventory reductions had nearly a full point impact on third quarter organic sales growth…We think that the reduction in retail inventory levels was driven primarily by the consumer pattern that…occurred in January and February, and we have seen a rebuild of some of those inventory levels as the consumer came back a little bit more strongly in March. April frankly is slowing a little bit. I don’t know what that means. And you know, you have to realize we’re talking about pretty small changes on the margins. They have a big impact on our results in any one quarter, but it’s hard to look  at that and understand therefore what the future looks like. There’s nothing systemic that makes intellectual sense which would indicate why inventories should contract dramatically. Both retailers and ourselves still have significant out-of-stock opportunities to address. The last thing a retailer wants is a customer, once they’ve finally attracted her or him to their store, to not find the product that they want to buy….I expect that volatility to continue but I don’t see a systemic trend one way or the other.”

Increased online sales

“…organic sales grew 30% online in the quarter. It’s now 5% of our business, maybe it’s about a $3 billion business. It’s primarily focused, but not exclusively, in the U.S., China, and in Northeast Asia, particularly Korea..There has been a lot of talk though about…what happens to big brands, businesses like P&G in an e-commerce context, and is that good or bad? And we actually believe that it’s good, “

Side note: A new way to check product performance

“In deprivation testing, we ask consumers to score the product they currently use, say out of 100 points. We replace the product they’re currently using, typically a competitive product, with the product we’re testing and have consumers use it for several weeks. Then we give them back their original product and ask them to score it again. If their score of the original product has not changed appreciably after use of the new product, we’ve not made a significant difference in expectation or delight and therefore wouldn’t rate the new product as irresistibly superior. If they rate their old product significantly lower after use of the new product, we know the new product has elevated the level of performance they expect in the category.”

Procter and Gamble FY 3Q17 Earnings Call Notes

Jon R. Moeller – Procter & Gamble Co.

Emerging markets contracting

“India de-monetization continued to impact consumption in that market. In Saudi Arabia, one of our 15 largest markets, a prototypical household has endured a 20% income reduction, while utility prices have doubled and will more than double again by July as government subsidies are reduced. Economic crises in Egypt and Nigeria are dramatically impacting category size and markets in Russia, Argentina and Brazil are also contracting. ”

Deprivation testing

“In deprivation testing, we ask consumers to score the product they currently use, say out of 100 points. We replace the product they’re currently using, typically a competitive product, with the product we’re testing and have consumers use it for several weeks. Then we give them back their original product and ask them to score it again. If their score of the original product has not changed appreciably after use of the new product, we’ve not made a significant difference in expectation or delight and therefore wouldn’t rate the new product as irresistibly superior. If they rate their old product significantly lower after use of the new product, we know the new product has elevated the level of performance they expect in the category.”

Biggest opportunity for saving is in raw packaging materials

“Within this strategy, the largest opportunity, about $4.5 billion of the $7 billion, is raw packaging materials. These savings will come from strategic supplier partnerships, supplier consolidation and through an overarching simplification of our SKU lineups and manufacturing platforms. We’ve established joint business plans with our top suppliers focused on end to end supply network synchronization with a goal of reducing product cost year-on-year.”

Digitizing manufacturing

“We’re digitizing our manufacturing operations and automating with robotics using, for example, collaborative robots to automate activities like palletizing, and autonomous vehicles to move materials and pallets within our operations. We see an opportunity for additional $1 billion of savings from transportation, warehousing and other cost of goods sold.”

Packaging still important even in e-commerce

“the increase in the amount of business that’s done through e-commerce does not decrease the need for superior packaging. In fact, in some ways it increases it. There are product integrity challenges that are created by the e-commerce logistics channel that we need to address. And that’s the Air Assist packaging I was talking about. That’s one of the things that it’s designed to address. There’s also kind of a new moment of truth, if you think about it, in an e-commerce purchase. There’s the first moment of truth which is on the site. There’s the second moment of truth when you open that brown box and what’s inside of it and how is that packaged. And that can be a delighter or that can be a detractor and we want that to be a delighter. And then of course there continues to be the next moment of truth which is the use of that product and it needs to perform in an irresistibly superior way. So also, 95% of the business that continues to be in bricks and mortars retail stores, that packaging is very important in terms of informing brand choice, educating, communicating with consumers, attracting her to the shelf. So I don’t see packaging as being an area that should receive less attention going forward. If anything, it should receive more.”

April is slowing a bit I don’t know what that means

“April frankly is slowing a little bit. I don’t know what that means. And you know, you have to realize we’re talking about pretty small changes on the margins. They have a big impact on our results in any one quarter, but it’s hard to look at that and understand therefore what the future looks like. ”

E-commerce 5% of business total but 40% in Korea

“That’s a very interesting question. First, let me just comment on the progress on e-commerce. I mentioned earlier, organic sales grew 30% online in the quarter. It’s now 5% of our business, maybe it’s about a $3 billion business. It’s primarily focused, but not exclusively, in the U.S., China, and in Northeast Asia, particularly Korea. China is about a $1 billion business online currently. I would expect that’ll be 20% to even as high as 30% of our business within the next 12 to 18 months, so that’s moving very quickly. Korea, it’s 40% of the business today. ”

E-commerce in US skewed to bulky items

“The U.S. development in e-commerce is very different by category, with some of the bulkier and heavier products appealing to people online, so they’re not having to fill up their shopping carts with those items, baby diapers, as an example, but also items were more specialized attention. Skin care, for example, is seen as a benefit.”

Share is just as high online

“There has been a lot of talk though about kind of the other side of your question, which is what happens to big brands, businesses like P&G in an e-commerce context, and is that good or bad? And we actually believe that it’s good, that we can be very effective in an e-commerce world, and our market shares currently bear that out. Our online shares, on an aggregate basis globally, about equal to our offline shares, and as I said, the growth rates, not just from a growth standpoint but also from a share growth standpoint, are currently higher online than they are offline.”

Consumers actually expose themselves to fewer brands online

“There are two kind of discussions that occur relative to the online environment, and people who prognosticate the demise of big brands in that environment refer to lower barriers to entry, and they refer to what I’ll call the land of endless assortment. And clearly, there are lower barriers to entry, which is a threat to our business but is also something we can benefit from if we’re proactive about it just as well as anybody else can. From an assortment standpoint, if you actually look at shopping behavior, a typical shopper exposes themselves to a lower, smaller assortment online than they do offline. When they go to the store, they’re exposed to what’s ever there. Very few shoppers click through to the third or fourth page of a search, and what typically shows up on the first page of a search are the more popular offerings, the larger offerings. And then there are tools, whether it’s subscription or other tools that allow us to increase the loyalty of those consumers to our brands.”

Significant decline in growth rates in Jan and Feb, rebound in March, slow in April

“What we saw, and that I do know, was significant decline in category growth rates, I’m talk about the U.S. now, in January and more significant in February with a rebound in March. And April is, by all indications, relatively soft. And I don’t know what all the drivers are of that. And we’re just going to have to see as we go forward. And as I said, that’s going to have an impact, hopefully a positive one, but it will have an impact on our results both this year and next.”

Procter and Gamble FY 2Q17 Earnings Call Notes

The Procter & Gamble’s (PG) Management on Q2 2017 Results

Jon Moeller – Chief Financial Officer

Continue to deal with macro disruption

“We continue to deal with an unprecedented amount of geopolitical disruption and uncertainty, which is affecting market growth, currency and commodities. We are not immune from these macro dynamics. We are aggressively driving cost savings to mitigate these impacts, but we’re protecting investments in the business to accelerate organic sales growth in a sustainable long-term market constructive and value accretive way”

Problems around the world

“Economic crises in Egypt and Nigeria are dramatically impacting category size; market contractions in Russia, Argentina, and Turkey pose real challenges and we’ve had to manage the market impacts of politically-related currency devaluation in places like the UK and Mexico. Our organic topline for the first half of the year has been affected by the portfolio work we’re doing in the ten ongoing categories and by loss sales to our Venezuelan subsidiaries.”

E-commerce sales are $3 billion

“P& G eCommerce sales are now $3 billion. I was with David and the team last week in China. While we have more work to do, our eCommerce business there will reach 20% of sales and will exceed $1 billion this year. With an aggregate eCommerce share larger than the next three largest competitors in our categories combined. In Korea, eCommerce is now 40% of our business. We’re building a full toolkit of capabilities we can put to work where relevant. For diapers, subscription can provide convenience and increase loyalty. For SK-II super premium skin care, direct-to-consumer counseling either in-store or online can help inform the benefits of regimen usage.”

Why we don’t hedge remaining FX exposures

“We’re sometimes asked why we don’t simply hedge away the remaining FX exposures. It’s a good question and something we look at internally and with a different set of outside eyes every year as we prepare our financial plan. The three reasons we typically don’t end up choosing to hedge the majority of the exposure. Up to two-thirds of our foreign exchange losses and a significant amount of our forward exposure is in currencies that are either non-deliverable or are very difficult to hedge. The Argentinian Peso, the Egyptian Pound, the Russian Ruble, Nigerian Naira are some examples. Second, hedging is neither free nor necessarily cheap. Currency volatility increases this cost. The last shortfall as having as the answer is it solves nothing longer term. It does nothing to help us restore the fundamental margin structure of a business.”

We produce 85% of our products in the US domestically

“there are few facts that might be helpful. P&G produces 85% of the products themselves in the U.S. domestically, and we export about 10%. So a net import balance of only about 5% of U.S. sales. The majority of the small amount of imported product is produced in Canada. We estimate that over 90% of the materials we use to manufacture products in the U.S. are sourced domestically.”

There’s no reason that cost of acquisition should be higher today than 5 years ago

“There are actually more options available to us to attract customers to our brand and more tools than there probably were five years ago, so done right. There’s no reason that the cost of acquisition of a customer should be hire today than it was five years ago. Having said that, there’s a lot more complexity in the shopping environment, in the media environment and done wrong, you can’t increase pretty significantly and efficiencies in the cost of customer acquisition. I really can’t give you a more specific answer than that Joe, but I don’t see customer acquisition cost has been significantly increased or inflated as we go forward. We can reach consumers and shoppers today and much richer, more direct ways than we ever could.”

China continues to be a great opportunity

“I want to step back in China first and then I’ll get to your specific questions. I think it’s very important that we understand that China continues to be a very attractive opportunity. This is a market that is among the highest growth rates across the world on a sustained basis and that really hasn’t changed. It’s a market that as we’ve talked before, premiumizing significantly customers are trading up to better performing products across categories. As we move out of the one trial policy, there’s certainly only upside that exist there, as the economy transitions from more of a manufacturing based company to – economy to a degree of a more consumption-based economy. That’s significant upside and we have a market position there and capabilities that, that allows us to take advantage and participate in all of those upsides. So China continues to be – as you know it’s our second largest market both in terms of sales and profits. So it’s also a big focus area for us.”

Procter and Gamble FY 1Q17 Earnings Call Notes

Procter & Gamble (PG) Q1 2017 Results

Jon R. Moeller – Procter & Gamble Co.

Commodities were a hurt to gross margin

“Commodities were a modest hurt to gross margin in the quarter. Feedstock costs for propylene, ethylene, and tropical oils are up as much as mid-teens since we set our initial budgets for the year. Wage inflation is also an increasing challenge in many developing markets.”

Sampling has longer term benefits

“In terms of payout on sampling, I’m glad you asked that question. This is something that is typically – if you can sample consumers at point of market entry or point of market change with noticeably superior products in categories where brand loyalty is relatively higher, the lifetime benefit from that relatively modest investment can be significant, but it is a lifetime benefit. A consumer will take a period of time just to use the product that you’ve sampled them with. And so that’s not an investment endeavor that we typically see immediate returns in. That’s why, unfortunately, we got into a practice of reducing that spending because it wasn’t producing – it never produces immediate short-term result. But it’s really the area of spending that should be the last that we cut because of its importance in building users for potentially a lifetime of consumption”

Harder for us to recoup pricing because our competitors benefited from weakening currencies

“There are real differences between, call it the last year and the years prior to that in the FX dynamics, which drive different decisions. You may recall, when we headed into the most recent round of big FX impacts, which was last year, we said that while historically we’ve been able to regain about 2/3 of the impact through pricing, we didn’t feel we were going to be able to do that this time around. And that was driven in large part simply by a divergence in what was happening to the dollar and what was happening to the functional currencies for some of our significant competitors, namely the euro, the pound, and the yen. And those currencies were weakening over that period of time, and so there was less need for competitors who were reporting results in those currencies to price. And as much as anything, that’s what you’re seeing being reflected in the actuals.”

We are a dollar functional currency company

“In terms of how people are compensated, we are a U.S. dollar functional currency company. We pay dividends in dollars. We repurchase shares in dollars. And our investor base, as you well know, really doesn’t care how many rubles we have or pesos we have. What they care about is how many dollars we have. And so the primary compensation lens is through all-in performance on dollar terms. We do, though, also have a look, because we don’t want to incent behavior that’s too short-term oriented, at constant currency. But over periods of time, we’re going to measure our success or failure based on earnings per share and earnings growth and importantly, cash growth in dollars.”

Procter and Gamble FY 4Q16 Earnings Call Notes

Procter & Gamble (PG) David S. Taylor on Q4 2016 Results

We see China sequentially improving

“on China. We see it sequentially improving. We are not done yet with hitting our portfolio right in China. That will take time. There are several categories that we are still losing share. And we’re not positioned with the appropriate portfolio in the premium and super premium segments.”

Chinese ecommerce has accelerated

“Having said that, the online portion has accelerated and is certainly in the double- digit, but you see many categories, 130%, 140%, 150%. And what is encouraging to me is our online business is starting to accelerate. We’re growing share the past 6 months. And we’ve at least now got a couple of our categories where our online share is higher than our off-line share, which bodes well for the future, given the choice Chinese consumers are making.”

Thoughts on the dollar shave club acquisition

“I do understand and certainly it is very real that the cost to enter a category has changed dramatically today versus 5 years and 10 years ago. And part of what we are doing by category again is looking to see how do we leverage the capability that exists. I expect we’ll continue to see competitors that can pop up. But generally to sustain and grow a business, you have to have a product and a product experience that meets the consumer’s need. There are many, many examples of Internet-based competitors that have been popping up, both here and China. Tremendous number of those that get trial. Repurchase though is another story. And repurchase and a profitable business model is the highest bar. And that’s the one that we’re working against, which is to have a substantive product that meets the consumers’ need, to have communication programs that meet consumers when and where they’re receptive to the message, and understand they want less to be sold and less to be – and more to be part of their life. And we’re adjusting our marketing and communication programs to do just that. And I think that’s the right way by category to win.”

Jon R. Moeller – Chief Financial Officer

Moving away from trend driven businesses

“We’re moving away from businesses that are more trend driven, where fashion, fragrance, and flavor drive consumer purchase decisions. We’re focusing on businesses where product and performance drive purchase decisions, where there are clear consumer jobs to be done and clear objective measures of performance. These are products that consumers purchase and use on a daily basis. And they’re in structurally attractive categories.”

Procter and Gamble at Deutsche Bank Conference Notes

Jon Moeller – Chief Financial Officer

Restructuring will focus on 10 core business units

“Going forward, we are anchoring our portfolio on 10 category-based business units and 65 brands. These are categories where P&G has leading market positions and where product technologies deliver performance differences that matter to consumers. These 10 businesses have historically grown faster with higher margins than the balance of the company. We are moving away from businesses that are more trend-driven, where fashion, fragrance and flavor drive consumer preference. We are staying in businesses where the product and its performance is the hero, where there are clear consumer jobs to be done and clear objective measures of performance. The products that consumers – these are products that consumers use on a daily basis and they are in structurally attractive categories.”

4 largest are baby care, fabric care, hair care and grooming

‘We expect to make progress in all 10 product categories, but we are putting a specific emphasis against the four largest categories: Baby Care, Fabric Care, Hair Care and Grooming and the two largest markets, the U.S. and China. Combined, these four categories and two countries represent over 80% of sales and profit.”

We are increasing sampling, a key point of entry and change for consumerst

“We are increasing sampling in new washing machines, a key point of category entry and change for consumers. Last year, we distributed 5 million samples in washing machines globally. This fiscal year, we will distribute about 17 million, and calendar year 2016, we will distribute 30 million samples of our best performing products.”

Transforming organization and culture

“Importantly, we are transforming our organization and culture. We are making many changes that by themselves may seem small and obvious, but together, they are significant and important. As an example, we have made several important changes in how we go to market. We eliminated overlapping resources and duplicative structures and responsibilities of marketing and sales professionals in the global business units and market developing organizations, clarifying responsibilities and strengthening accountability.”

Online shares slightly higher than offline because online skews more premium

“e-commerce point broadly – on an aggregate global basis, our online shares are slightly ahead of our offline shares, which is a good starting place. I don’t get too excited about that, because the demographics of the online shopper currently skews more premium in our portfolios, more premium, so it should be the case, but we have a slightly higher share which we do. ”

China moved to premium products very quickly

“China, there were really three things that happened. One was a rapid premiumization of the market. So, I lived and worked in China in the mid-90s and probably 2% of the category was transacted at premium or super premium priced tiers. Today, that’s over 50%. It’s one of the most premium markets in the world. Those two price tiers that represent more than 50% of consumption in the market are growing at double-digit rates. The balance of the market is flat to declining.”

Price became a proxy for quality in China

” I think although this is a bit of a hypothesis by significant quality contamination issues that occurred particularly in the food chain and in the beverage chain, the infant formula issues, the milk [ph] issues, etcetera. And understandably, Chinese families responded by looking for the highest quality products they could find. And in many cases, price became a proxy for quality, rightly or wrongly. So, that drove this change very, very quickly.”

Proctor and Gamble (PG) former CEO A.G. Lafley Interview

Proctor & Gamble (PG) former CEO A.G. Lafley on why he agreed to come out of retirement and run the company

“The short answer was duty and unfinished business.”

Proctor & Gamble (PG) current CEO David Taylor on why they failed in China

“We looked at it too much like a developing market as opposed to the most discerning customers in the world.”




Source: Fortune Interview June 9th, 2016

Miscellaneous Earnings Call Notes 4.28.16

General Electric (GE) Jeffrey R. Immelt on Q1 2016 Results

Saw improvements in our business in China

” We’re in the midst of a challenging Oil & Gas market. However, we are things sustained strength in Aviation and Power markets. Healthcare is rebounding. I was in China last week and saw improvements in our business. Most of the portfolios are strong and we’re delivering. There’s plenty of business out there to achieve our goals.”

McDonald’s (MCD) Stephen J. Easterbrook on Q1 2016

All Day Breakfast came out hard and then settled but is still exceeding expectations even at the settled stage

“we clearly came out of the tracks hard with All Day Breakfast. It exceeded our expectations through the launch phase, and then hit a more settled rate. Frankly, it’s still exceeding our expectations through the settled stage as well. So we’re incredibly encouraged.”

Honeywell International (HON) David M. Cote on Q1 2016 Results

I’m hopeful for a rebound but we’re not going to count on it. Europe did better than expected

“I’m hopeful that there is a global economic rebound, but we’re certainly not going to count on it. If there was any region that surprised me in this past quarter, it was Europe did a lot better than I expected. I don’t know if this is just a one-time bounce or something that’s going to stay consistent, but I was quite encouraged by seeing that. It was a nice surprise. I mean, we’ll see how much that turns into something. But right now, we’re going to stay with this whole idea that this is a slow growth global environment and it’s just the smart way to plan. And you see that reflected in how we are forecasting the second quarter and how we’re forecasting the total year. I just don’t think there’s any percentage right now on being bullish about it. If it happens, great. I think there’s a greater chance it happens than there is that it doesn’t. But that being said, I don’t see any percentage in being bullish about it.”

Flight hours is the most important driver of the aerospace cycle

“I’d say it comes back to flight hours again. They fly a lot. And that’s really – I’ve said many times the biggest Aerospace driver we have is flight hours. And it’s not tied to OEM schedules or airline profitability or any of that generally. The long-term trend is going to be driven by flight hours. If they’re flying, everything ends up working out. Whatever short-term disruptions or benefits, whatever you’re seeing, over time flight hours ends up being the driver. Flight hours continue to climb, and that’s a good phenomenon for us.”

LyondellBasell Industries’ (LYB) CEO Bob Patel on Q1 2016 Results

Olefin and polyolefin markets are tight

“Looking forward, we see olefins and polyolefins markets remaining tight during the near-term. There are heavy turnaround schedules in both the US and Asia. The recent rise in crude oil prices provides tailwinds for both pricing and demand, as customers no longer feel incentives to delay purchases, in hopes of future declines in product prices.”

Procter & Gamble’s (PG) Q3 2016 Results

Jon Moeller

It’s not enough just to gain market share

“The reason that we’ve talked a little bit about not following share out the window, we can be gaining shares in categories that are declining, and that’s not going to grow our top line. What we need to be doing as innovation leaders in our categories is getting the market growing through that innovation and gaining a share of that growth.”

Twitter’s (TWTR) CEO Jack Dorsey on Q1 2016 Results

Acquisitions have been critical in creating value for the internet sector for two decades

“The first point I would make is that acquisitions have been critical in creating value for the Internet sector, consumer Internet sector over the last two decades. Many of our competitive peers have bought assets at very early stages that have resulted in billions of dollars of value and Twitter has been the same”

Goal is to be one stop shop for advertising

” At end of the day, our goal is to be a one-stop shop for advertising. And having both owned and operated inventory, third party inventory and ad text stock that can serve both of those constituencies is really critical.”

United States Steel’s (X) CEO Mario Longhi on Q1 2016 Results

Favorable trade case results are boosting the domestic steel industry

“Last year, we successfully advocated for the passage of the Level Playing Field Act in the trade adjustment assistance bill. This represents the first time in decade that U.S. trade laws were revised and clarified to align with the original congressional intent. The interpretation and enforcement of these new laws has already been reflected in preliminary determinations in the three major trade cases we elected to pursue with other steel companies in 2015. Yesterday, we announced another step in our efforts to have the rule of law enforced. We filed a complaint with the U.S. international trade commission to initiate an investigation under section (337) of Tariff act of 1930 against the largest Chinese steel producers and their distributors. The 337 complaint alleges illegal unfair methods of competition and seeks the exclusion of all unfairly traded Chinese steel products from the U.S. market. I would like to emphasize that the remedy under section (337) is not a tariff, it is an exclusion of products from the U.S. market. Our complaint alleges three clauses of action, the illegal conspiracy to fix prices, the theft of trade secrets and the circumvention of trade duties by false labeling.”

Third Point 2Q16 Investor Letter Dan Loeb

One of the most catastrophic periods of hedge fund performance since this fund’s inception

“Unfortunately, many managers lost sight of the fact that low net does not mean low risk and so, when positioning reversed, market neutral became a hedge fund killing field. Finally, the Valeant debacle in mid-March decimated some hedge fund portfolios and the termination of the Pfizer-Allergan deal in early April dealt a further blow to many other investors. The result of all of this was one of the most catastrophic periods of hedge fund performance that we can remember since the inception of this fund”

Volatility is bringing excellent opportunities

“As most investors have been caught offsides at some or multiple points over the past eight months, the impulse to do little is understandable. We are of a contrary view that volatility is bringing excellent opportunities, some of which we discuss below. We believe that the past few months of increasing complexity are here to stay and now is a more important time than ever to employ active portfolio management to take advantage of this volatility. There is no doubt that we are in the first innings of a washout in hedge funds and certain strategies. ”

Texas Instruments’ (TXN) Management on Q1 2016 Results

Kevin March

Inventories were up because we expect higher shipments

“We expect that material is going to ship over the balance of the year. And between the increased shipments in 2Q and the shipments of that personal electronics material, we’ll see the days of inventory drift back down comfortably inside our model, very similar to what we saw last year. If you go back and take a look last year, we were also a little bit higher in the first quarter, anticipation of second quarter growth, and then days drifted down as we came through the year.”

Dave Pahl

Weakness came in as expected but broad based strength in other areas

” that portion of demand where we saw weakness came in about as we expected. The strength was more broad-based, and we continue to, obviously, to see strength in automotive and then the improvement in industrial and comms equipment. So, very, very broad-based strength that we saw. So the second part of your question was sequentially. What we saw from the trends there, no surprise that automotive remained very strong, and it was driven by infotainment as well as the hybrid electric and powertrain systems. Industrial, again we had growth across almost every sector inside of industrial. Personal electronics down, with most sectors declining”

Group 1 Automotive’s (GPI) CEO Earl Hesterberg on Q1 2016 Results

Vehicle inventory stood at 85 days vs 69 days in 1Q15

“The U.S. new vehicle inventories stood at 31,400 units which equates to an 85 day supply compared to a 69 day supply for the first quarter of 2015. Luxury brand inventories drove much of the year-over-year increase. We have adjusted orders and expect to bring inventory closer to our target level of 60 days by the end of the second quarter. ”

Oil companies still have a long way to go in restructuring their balance sheets for what’s happened to oil prices

“our new vehicle sales in Houston, we held a 1% decrease for the quarter, so we’re fighting it pretty well, but I attend a lot of meetings and I’m various Boards with these oil company executives and they still have quite a way to go in restructuring their balance sheet and that’s what happening now.”

Hasn’t been a big consumer confidence problem outside of energy impacted markets

“No, I don’t really see weakness outside of the energy belt. David I’d say people are reacting to the fact just not growing as significantly as it had been in recent years. So when it’s flat without it only grow 1% or 2% or 3%, I think it feels for a lot of people like it’s just very slow. But I wouldn’t say I have seen any big consumer confidence crisis anywhere outside of the energy impacted market.’

AGCO (AGCO) Martin H. Richenhagen on Q1 2016 Results

2016 farm income expected to remain below 2015 levels

“estimates call for 2016 farm income to remain below 2015 levels. In North America, relatively young machinery fleet and dealer efforts to reduce inventory levels have contributed to continued decline in industry sales through the first quarter. Weaker demand from the row crop sector resulted in significantly lower industry retail sales of high-horsepower tractors, combines and sprayers.”

JS Earnings Call Notes – RLI, PG

RLI Chief Coperating Officer Craig Kliethermes thinks their competitors are selling insurance policies at prices that they will regret in the future

The construction industry continues its slow rebound with increasing competition in the space. Local knowledge and policy terms are a big differentiator when writing contractors and we’ve seen some lack of discipline and lack of knowledge from competitors. This will likely come back to bite them over time.”

Alternative capital continues to flood the reinsurance market, reducing prices across the industry

Primary pricing on cat continues to be challenging even after factoring the relatively cheap capital provided by reinsurers and alternative capital. Rates on cat are down about 15% year-to-date, the second straight year of double-digit decreases. When we see larger players writing accounts at a 100% of expected model loss providing three months of extra coverage for no charge and readily deploying $100 million policy limits, we have to wonder if discipline will return anytime soon.  Memories are short, the paybacks are long in this business. We continue to offer responsible terms and conditions and pick our spots.”

And that they’ve been able to hire away talent from competitors going through mergers

“We’ve invested both in additional people and product across our casualty portfolio as we have seen some fallout of people from the M&A activity between quality companies. As you know, we believe the quality underwriters and claim staff who buy into our model are the bedrock of RLI.”

They are having difficulty writing new insurance policies which adequately compensate them for the risk they are taking on

Overall, casualty rates have remained slightly positive, large accounts are consistently under pressure; new business is challenging to find at the right price as everyone is very defensive of their best accounts.  We continue to see stiff competition and a general lack of discipline with what appears to be cash flow underwriting mentality in the space.”







Proctor & Gamble (PG) CFO Jon Moeller reduced the company’s growth expectations

“We continue to operate, though, in a very challenging and volatile macro environment. Market growth rates on both a volume and value basis have decelerated due mainly to slower growth in developing markets. We entered the year expecting the market to grow close to 3% to 4% globally. We now expect 2% to 3%.”

And currency continues to remain a headwind

“Currencies are weakening across the board, more than three-quarters of a billion dollars since the start of the fiscal and over a $1 billion after-tax versus year ago. This is on top of a $1.5 billion impact last fiscal year and nearly a $1 billion impact the year before. Across three years, FX has been a $3.5 billion impact over 30% of fiscal year 2013 core net earnings after-tax. Since the start of December, the current year FX headwind has increased by $300 million after-tax with a 40% devaluation in Argentina and additional 15% devaluation in Russia and nearly a 10% devaluation in Mexico.”

They expect these trends to continue for the forseeable future

“We expect these dynamics: slowing market growth, geopolitical hot spots, and a stronger dollar will continue to be part of our reality going forward.  Against this backdrop, we’re staying focused on big opportunities in our control, executing what is the largest transformation in our company’s history, without changing productivity, transforming our portfolio and strengthening category business models and innovation plans.”

And they’ve amended their marketing strategy in a substantial way

“Continued digitization has been and will be a big enabler of our overhead and manufacturing enrollment efficiencies. We’re reducing non-working marketing expenditures – costs that do not impact reach, do not impact frequency. Last year we reduced the number of agencies we worked with by nearly 40% and cut agency and production spending by about $370 million. We’re aiming for an additional $200 million of agency-related savings this year. These are non-working savings that enable us to invest in advertising and in trial of consumer-preferred products. We’re strengthening our working marketing programs — greater reach, higher frequency, greater effectiveness, at less overall marketing costs.”

They’re also investing marketing dollars around their key brands

“Last fiscal year in the US we increased total marketing and merchandising support behind Pantene by 440 basis points, increased Tide brand spending by 220 basis points and invested an additional 150 basis points in Fusion behind the new FlexBall innovation. This year we’ve made similar increases to advertising programs in the US on Shave Care, Fabric Care; in Brazil on Baby Care and Fabric Care; in China on Fabric Care and Oral Care. In North America alone, we’ve added nearly 100 basis points to advertising and in-store merchanting budgets since we started the fiscal year.”

The US Laundry detergent segment was an area of strength 

The US laundry detergent category is continuing to grow, up more than 4 points on a value basis across all outlets over the last 3 to 6 month periods. Within this, our share is growing. P&G’s US laundry detergent value share was up a point last fiscal year and was up a half a point in the December quarter.”

And they are finally gaining traction in their online Gilette shaving offering

“We’re also innovating online. With more men purchasing their blades and razors through e-commerce, we’re establishing Gillette as the online leader. While we were admittedly late to build out our online offering, Gillette Shave Club launched in June and is off to a very good start. We’ve increased our e-commerce share of blades and razors more than six points and nearly double the online consumption since launching Gillette Shave Club.”

Proctor & Gamble (PG) CFO Jon Moeller did say he saw a slowdown in China

Our second largest market both sales and profits is China. Here Q2 organic sales were again down high single digits in line with the Q1 trend. We’ve gotten behind in premium innovation which has been a contributor to our soft top line trends over the last several quarters.”

Proctor & Gamble (PG) CFO Jon Moeller highlighted the firm’s thinking on of currency hedging

There are three reasons we typically don’t end up choosing to hedge. Up to two-thirds of our foreign-exchange losses and a significant amount of our forward exposure is in currencies that are either non-deliverable or are very difficult to hedge. The Argentinian peso, Venezuela bolivar and the Ukrainian hryvnia are three examples.  Second, hedging is neither free nor cheap. Currency volatility in itself increases in significant ways this cost. So when you want it most, it becomes difficult to afford.  The last shortfall of hedging as the answer is that it solves nothing longer term. It also does nothing to help restore the margin structure of the business. A hedge simply defers volatility. When the instrument expires, you have the same hit with the same margin impact you would have had, had you not hedged. While it takes time and there is a lag between the hurt and the help, we typically look to pricing, sizing, mix enhancement, sourcing choices and cost reduction to manage FX impacts. We’ve historically recovered about two-thirds of FX impacts with pricing over time.”

Proctor & Gamble (PG) CFO Jon Moeller explained how he thinks about the trade off between market share and profitability

In terms of market share, our objective is balanced growth and value creation with the growth objective being over time at to slightly ahead of markets. So market share does matter but particularly in a time when we need to restore structural economics and in response to currency moves we can get ourselves in big trouble, as that becomes the driving metric. And so as we’ve said we’re prepared to lose some share in two situations.”