Pentair 2016 Outlook Call Notes

Easy to get lost in negatives but have positives too. Residential and commercial should grow again next year, but maybe a little less than in 2015

“As we reviewed in our investor meeting last month several of our businesses face a number of economic challenges, it’s easy to get lost in all the negative headlines these days. We also have a few positives to highlight. Starting with our largest vertical Residential & Commercial we’re expecting another year of growth, albeit maybe a little less bullish than we experienced in 2015.”

Industrial is the biggest wildcard next year

“Industrial is perhaps the biggest wildcard next year, following a yearlong capital spending freeze in 2015. The recent rating in the ISM index suggest that there’s no near term recovery in sight but similar to energy we’ll watch closely to see if maintenance spending returns”

2015 ending with another sharp drop in oil

“2015 is ending like last year, with a sharp drop in the price of oil, which will undoubtedly cause more trepidation in our customer’s plans.”

We saw industrial down in 4Q worse than we anticipated

“we’ve seen short cycle certainly in Valves & Controls within energy generally, but then we saw it in industrial being down low single digits. The fourth quarter was considerably worse than that, and we think it’s — we did anticipate some of it, but it is worse than we anticipated.’

John Stauch

We’ve seen energy customers cutting back on more short cycle projects now

“If we said what’s new and we label it there on page six, it’s the fact that we’ve now seen short cycle really pull back. So what was a capital spending cuts of our customers on the longer cycle projects we’ve seen now a fairly significant pullback in the short cycle orders here in the end of 2015.

The fall in oil has led to an industrial challenge that we were fearing and now we know

” mean oil has fallen even further than what most people thought was the bottom, that is now having a significant impact into what we’re seeing into the electrical distribution channel around industrial especially with Canada being a really weak point. And so if you take a look at our customer’s forecast, our distributor — the electrical distribution forecast out there and you take a look at current order rates and you extrapolate those in the next year, we now have an industrial challenge that we were fearing and now we know. So that’s the way I would described it. As Randy said the residential commercial side of the business is still in growth mode, it’s the industrial and energy that are really starting to pull down the overall growth rates.’

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

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

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

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

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

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

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

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

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

Over half of the equipment is idled right now

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

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

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





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

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

And they have been able to slightly increase rates  

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

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

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

Catastrophe pricing remains weak  

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

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

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





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

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

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

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

While China continues to decelerate  

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

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

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

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

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

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

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

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

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

And they are remaining disciplined when evaluating potential acquisition opportunities 

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





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

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

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

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

And they plan on improving their advisor retail offering

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





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

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

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

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

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

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





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

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

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

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





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

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

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

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

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

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

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

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





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

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

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

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

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

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

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

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

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

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

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

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

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

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

JS Earnings Call Notes 7.21.2015 – Bank of New York Mellon, IBM, Halliburton, Pentair, Travelers, United Technologies

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



Bank of New York (BNY) CFO Todd Gibbons said the firm was able to increase revenue while reducing firmwide expenses for the first time in many years

Expenses were down 1% year-over-year and 1% sequentially as our business improvement process and the stronger US dollar are driving lower expenses in almost every category. Our ability to grow revenue and control expenses resulted in more than 460 basis points of positive operating leverage year-over-year.”

Bank of New York (BNY) CEO Gerald Hassell said the firm won a large back-office contract with T Rowe Price during the quarter and elaborated on the trend of asset managers outsourcing their back office functions

We do actually see it as a long term trend where investment managers in general are really trying to focus on their investment management process and less focused on providing — doing the mid-office and back office services internally. We do see it as a long term trend. We want to be very thoughtful about which clients we take on and make sure we’re leveraging our platforms and driving profitable revenue growth for ourselves rather than just taking on any one at any time. T. Rowe is a fantastic client. It’s a great partnership. We worked on this together for well over a year and we think we have a good rapport with them and a very similar culture. We feel good about this one.”

And CFO Todd Gibbons discussed what’s driving that trend of outsourcing

“But there is a fundamental trend where asset managers, just like other financial institutions in a high regulatory change, lower growth environment, are getting back to basics and fundamentally focusing on the investment process as their value proposition and relying more on firms like us to verbalize their middle office costs and actually their front office technology cost.”

The firm’s various alternative investment offerings continue to garner fund flows from investors

“We’ve had eight straight quarters of growth in alternatives and those have been strategies where clients are either getting uncorrelated exposures or they are getting absolute returns on asset allocations strategies that give them better diversified portfolios exposure.”




IBM CFO Martin Schroeter said the BRIC (Brazil, Russia, India, China) countries, who were the darling of the investment world just a few years ago due to their higher structural growth rates, saw decelerating growth during the quarter 

“The BRICs impacted IBM’s overall revenue growth rate by 2 points in the second quarter or said another way our revenue excluding the BRICs would have been up 1%. So let me start there, within the BRICS only India had modest growth building on improved operational performance and services. The other three countries were down at a double-digit rate. Brazil was down 16% though our revenue in Brazil last year was up over 20%, so was a very tough compare. The volatility of our results in Russia continued and our revenue in China was down 25% with fewer large transactions in the quarter.”
IBM CFO Martin Schroeter reminded investors that IBM is deeply embedded in some of the world’s largest companies 
“Nine of the top 10 U.S. retailers and each of the top 10 global banks run an IBM’s commerce solutions. IBM commerce now powers 30,000 organizations globally.”

Halliburton (HAL) CEO David Lesar believes a significant portion of the industry is operating unprofitably 

“We believe many of the smaller service companies are now operating below cash breakeven levels, which leads to the conclusion that pricing cannot stay at these levels for an extended period.”

And, much like their closest peer Schlumberger, they don’t expect the oil services market to recover until 2016

“We are not expecting a meaningful activity increase until sometime in 2016, depending on the pace of production declines and where commodity prices settle out in the coming quarters. Therefore, what we are continuing to do is manage our cost, service our customers that are engaged in this flight to quality, and prepare for the Baker transaction.”




Pentair (PNR) CEO Randall Hogan said he sees customers buying patterns as more cautious than last quarter

“While second quarter results came in close to our expectations, with Technical Solutions and Water Quality Systems delivering strong organic growth, we exited the quarter with increased concerns about our Valves & Controls segment. We now have a more cautious outlook on spending in energy and industrial and the ability of our Valves & Controls segment to navigate this more difficult environment in 2015.”

With particular weakness in certain geographies 

In particular, we saw a continued slowdown in spending, including MRO [maintenance, repair, operations] in chemical and petrochemical in Europe and Asia. We also saw a further pause in buying decisions in North American chemical and petrochemicals. The projects in the backlog, while delayed, still appear to be moving forward.”

Pentair (PNR) CEO Randall Hogan said he hopes his company can do several M&A transactions in order to drive consolidation in the sector

“So we are logically the right consolidator. It was part of the vision as we looked at it to build the company and get scale and have this advantaged structure. And we want to put it to work. We want to put it to work across the segments in a way that creates shareholder value going forward. We think we are aligned with shareholders on creating shareholder value. We’re not happy. We’re not satisfied at all with recent performance, and we’re open to all kinds of ideas. And we believe we’ve earned the right to be a consolidator, and we want to be.”




Travelers (TRV) CEO Jay Fishman reiterated his thesis that the insurance industry is acting less cyclical than previous decades due to rational participants

“We continue to believe that the amplitude of the cyclicality that our industry will deal with is much less than would have been the case historically and you can trace that comment back to our Investor Day in May of 2007; and of course while things can change, so far so good.”

Travelers (TRV) CEO Jay Fishman said that the insurance industry participants are acting more rational in pricing their policies 

“So the simple arithmetic of taking a lower rate on a large book in the hope of driving revenue synergies is often a fool’s errand. Now it isn’t always. Some people can do perhaps elegantly, but there haven’t been too many of them. So I suspect that the market will continue to think about interest rates and weather and the cost of capital and all of it seems to be incorporating as it prices its product with an unknown cost of goods sold. I don’t expect a lot of change. Could be dead wrong, but that’s one person’s view.”

And the industry’s emphasis on data analytics has helped insurance underwriters better price the various risks in their policies

“Any one company if it’s large enough and is willing to accept subpar returns over time can affect the marketplace from a pricing perspective, that’s not been the case, it’s not been the case for a long time. Now why that is, I actually think a lot of it is data and analytics and the fact that people actually understand their returns better than they did 10 years ago. No one would open knowingly say, well I’m pricing this to produce subpar returns, I think that happened to some extent accidentally, not intentionally and so I think the data is different than the business, it’s been different for some time. I get asked all the time, are we pleased or not that other people seem to be getting good at it? I think it is great. I think the more people understand the cost of goods sold in our business and the risks associated with it, the more we look like a normal financial services business and less of one that’s operating in the dark. So, I think that we may have led this and I’m sure we did, but the fact is that you see it in virtually everyone’s reporting, greater reliance on analytics and return focus and that’s I think what’s causing it. We’re allowing it to happen perhaps is a better expression.”




United Technologies (UTX) CEO Greg Hayes said the Otis elevator business has lost significant market share and needs to shift strategies

“The key for Otis really, is to regain market share. Over the last 10 years or 15 years, we’ve seen a continued erosion of Otis market share as we have pursued margin expansion, and I think we have taken margin expansion to the point now where we’re not terribly competitive based on new equipment pricing. And quite frankly, you’ve got to feed the service business with new equipment orders. There’s also the issue of course, of service in Europe, and that is probably the biggest issue. Otis has 1.9 million elevators under service, about 1.1 million of those are in Europe. And that’s where we’ve seen the biggest pricing pressure, and we’ve seen no growth in that market for the last couple of years. So we’ve got to return to growth on new equipment, and we’ve got to stem the service degradation and pricing that we’ve seen in Europe as well.”


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


White Mountain (Ticker: WTM) CEO Ray Barette says book value and share price have grown at nearly the same rate since the firm’s IPO 30 years ago

“2015 marks the thirtieth anniversary of the Company’s IPO. Since then, we have grown book value per share and share price by 14% and 13% per year, respectively, including dividends.”

White Mountains thinks about the insurance business in a way that’s materially different than a majority of their insurance peers

We have achieved these results by remaining focused on creating shareholder value per share, often giving up short term upside to avoid big downside. Our results have been lumpy, often disappointing, for extended periods of time. The key to success in the insurance business is to avoid big mistakes.”

Nonetheless, they have made some strategic mistakes along the way

“We made three big mistakes in the last ten years that have significantly reduced our overall performance.  We have learned from those lessons, and I believe we have improved our approach to managing those and other major risks. The challenge has been in not becoming overly risk averse. In practice, we have substantially de-risked your Company.”

They are still experiencing soft pricing in some insurance lines

“The influx of capital from peers and alternative markets is putting pressure on prices and terms and conditions, mostly in peak cat zones and some specialty areas.”

A large portion of their investment portfolio is in conservative, short duration bonds which has hurt their investment returns 

“The short duration positioning of the fixed income portfolio left money on the table but protected our capital position from what we continue to perceive as an asymmetrical risk to rate movements.”

The company has nearly $1 billion of cash sitting on the balance sheet and is no hurry to put it to work given current valuations 

“Intellectually, we really don’t care much about leaving our capital lying fallow for years at a time. Better to leave it fallow and to wait for the occasional high-return opportunity. Frankly, sometimes shareholders would be better off if we all just went to play golf.”

The firm prioritizes underwriting for profitability rather than underwriting in order to grow revenues

“An insurance enterprise must respect the fundamentals of insurance. There must be a realistic expectation of underwriting profit on all business written, and demonstrated fulfillment of that expectation over time, with focused attention to the loss ratio and to all the professional insurance disciplines of pricing, underwriting and claims management.”




IBM CFO Martin Schroeter reminded the financial community of the mission critical work & transaction data that are run using IBM’s servers

“Let me give you a real example of what we’re talking about. If you are UPS, one of the largest logistics companies in the world, you have to manage nearly 5 billion deliveries a year with highly seasonal changes in demand. Your customers expect their packages to arrive on time, and they expect to schedule, manage and track shipments anywhere, anytime, and increasingly through their mobile devices.  These mobile transactions can lead to dramatic increases in overall traffic as customers complete transactions at will. This requires a system that can handle the growth and scale seamlessly when activity spikes, maintaining a secure system that’s always available. That’s why UPS chose to upgrade to the IBM z13 mainframe because it could meet the expanding demands of the mobile economy.  I don’t think that mainframe is fully appreciated for the essential nature of the work it does.”

“Financial services sector is obviously one where the mainframe plays a pretty vital role in how the world banks run and when you get a new mainframe, particularly when so relevant to them shifting their business into mobile, particularly one where counter fraud is such an important part of what they have to think about every day.  And again you need scalability, you need reliability. You have to run all the time.”




Verizon (VZ) CFO Frank Shammo says the company is willing to let the most price sensitive customers defect to other carriers

“If the customer who is just price-sensitive and does not care about the quality of the network, or is sufficient with just paying a lower price, that’s probably the customer we’re not going to be able to keep”



Travelers (TRV) CEO Jay Fishman on the firm’s insurance underwriting pricing discipline 

“We don’t pressure underwriters for volume, we don’t. If you do, you will get volume; you won’t like what you get; that’s been our philosophy but you will get it. We let them run their business with tremendous amounts of data like adults making thoughtful decisions managing it for the long-term.”

Travelers CEO Jay Fishman says that low interest rates require clients to pay higher premiums than usual in order for Travelers to earn a decent return on capital

“Fixed income returns remain at historical lows and as a consequence, we must continue to be mindful that this challenging environment has already lasted far longer than most would have assumed and we will continue to factor that environment into our pricing strategies.”



Pentair (PNR) CEO Randall Hogan says the company saw  a significant slowdown in all parts of their business  

“We do not see this to be a Pentair specific issue as this broad-based decline was across virtually every business, every geography and every market.”

Pentair CFO John Stauch says he sees deflation in his sector

“I think clearly global commodity prices are not increasing.  We don’t want to use the word deflation yet but it feels like we are heading a little bit more into deflation area environment and so we are put our main suppliers on notice that we all have to work competitively to reduce our cost structures.”



iRobot (IRBT) CEO Colin Angle says robot vacuuming is becoming more of a substitution to traditional vacuuming 

“I think that one of the driving factors is the demand for robot vacuuming is showing very strong continued signs of growth, so that we have an underlying improvement in demand for our products. The robot vacuuming is becoming more and more mainstream. The skepticism, barriers to purchase continue to be reduced. And I think that our marketing programs continue to improve and as we more efficiently learn how to speak to our customers.  We believe that we’re approaching a mainstreaming of robot vacuuming, where our household penetration is still quite low relative to where we believe it’s going.”



MarketAxxess (MKTX) CEO Rick McVey says his firm is taking market share from clients who traditionally call a banks sales & trading desk to buy or sell bonds   

“Accelerating market share gains across high-grade, high-yield emerging market and euro bond products drove our record results. Our estimated adjusted U.S. high-grade market share was 15.6% for the quarter up from 13.4% a year ago.”



Bank of New York Mellon (BK) CEO Curtis Farrell says the firm is leveraging technology to increase efficiency on a profit per employee basis    

“Our goal as part of our business improvement process is to drive down the labor component of our company and use technology as the strategic asset. So, one of our goals is to get to revenue per employee up, the employee expense down and use technology as a strategic asset to get there. So clearly part of our plan is to reduce that employee headcount per revenue.”