Saltzberg Miscellaneous Notes 3.31.2016

Source: United Technologies 2015 Annual Report

United Technologies (UTX) CEO Greg Hayes said the company benefits from the global trend of urbanization towards the cities

“We are well-positioned to benefit from three megatrends that are shaping the world— urbanization, an expanding middle class and extraordinary growth in commercial aviation. Every day 180,000 people move to urban areas. By 2050 cities will be home to 2.5 billion more people than today, generating a need for more apartment buildings, airports and mass-transit systems —all of which will be equipped with elevators and escalators, climate systems, and fire and security systems.”

Source: Aflac 2015 Annual Report

Aflac (AFL) CEO Dan Amos explains the power of the company’s brand

“Maintaining our powerful and respected brand is essential because it represents who we are – the spirit of our people in Japan and the United States who represent the face of our products and who build trust with businesses, policyholders, consumers, our field force and brokers. We’re pleased that the Aflac brand is also both well known and well respected. Having a trusted and compassionate brand has opened many doors for Aflac. Our brand represents who we are as a company and reflects how our constituents see us, so we’re very protective of maintaining our reputation.”

Source: ABB 2015 Annual Report

Swedish Industrical congolmerate ABB CEO Ulrich Speishoffer highlighted several trends in renewable energy affecting his industry

“There is a shift towards renewables, which is accelerating despite the low oil price – 2015 was a strong year for investment in renewables, with 121 gigawatts of capacity added. This results in unprecedented demands to manage the complexity of the “digital grid” of the future. In power generation, renewables are transforming the energy mix, putting pressure on traditional producers to rethink their business models while lessening environmental impact and dramatically increasing grid complexity. The future grid will be far more complex with multiple feed-in points from traditional power plants to large-scale renewables on the supply side, and a coexistence of traditional demand patterns and microgrids and nanogrids on the demand side. Managing this complexity will require intelligently automated, digital power grids that can anticipate demand and supply patterns, while routing and transporting power to the ever-increasing number of consumption points of electricity.”

Geographically, he expects India to be a driver of growth

“Our markets remain challenging, with slower growth in China and steady conditions in Europe and the United States. We expect India to invest in power infrastructure and industrial development, but see continuing weakness in other emerging markets.”

Source: Markel 2015 Annual Report

Markel (MKL) Co-CEO Tom Gaynor explains the company’s flexible culture and ability to adapt to the operating environment

“We are encouraged to look for a better way to do things…to challenge management. We have the ability to make decisions or alter a course quickly. The Markel approach is one of spontaneity and flexibility. This requires a respect for authority but a disdain of bureaucracy.”

Big data and analytics continue to be an area of increased emphasis to drive improved decision making in their insurance operations

“The tools and techniques of big data continue to increase in affordability and utility. Simply put, information is king. Every transaction and data point continues to become more robust and informative about what the ultimate risk and outcome will be. Technology and digitization change the tools used in the task, not the task itself.”

Source: Accenture 2015 Annual Report

Accenture (ACN) CEO Pierre Nanterme said they have long term relationships with their top clients so they focus on making the business relationship mutually beneficial

“We serve more than 80 percent of the Fortune Global 500 and 94 of the top 100. We also continue to build strong and enduring client relationships. All of our top 100 clients have been clients for at least five years, and 97 have been clients for at least 10 years. Quite simply, our client relationships are second to none, and our continued success underscores our ability to address our clients’ most complex and strategic issues.”

Source: Suncor 2015 Annual Report

Suncor (SU) CEO Steve Williams said 2915 will be the year that energy companies focused on reducing their costs in order to be able to survive the downturn in the oil sector

“Without question, 2015 was one of the most dramatic years in recent memory. It was a year of managing challenges and capturing opportunities. We were well positioned to take immediate action as oil prices fell to their lowest levels in over a decade. We responded swiftly to reduce capital and operating costs. We looked for efficiencies in every corner of our organization.”

Suncor (SU) CEO Steve Williams said the best companies are often strengthened through downturns in the industry

“The market downturn may continue to present opportunities – ones that we’re able to take advantage of because of the strong foundation we’ve built in recent years. Seeking these types of opportunities are strategic and another way we’re building shareholder value for the long term. In fact, I believe that strong companies are often built during downturns and our approach is to view this difficult period as an opportunity and a challenge.”

Source: Campbell 2015 Annual Report

Campbell (CPB) CEO Denise Morrison wants consumers to know exactly what goes into all of their products

“Our purpose has created the conditions for Campbell to become increasingly open about our food with the goal of setting the standard for transparency in the food industry. In fiscal 2015, we initiated an important project to increase consumer trust by providing greater access to information about our products, especially in our core U.S. soups, sauces and beverages.”

Intend to grow their online presence meaningfully

“Over the past several years, we have built stronger digital, social and mobile capabilities and have steadily increased our digital budget. In fiscal 2016, we plan to spend nearly 40 percent of our overall media budget on digital media. We also remain focused on growing our e-commerce capabilities, as this is becoming increasingly important to our consumers and our customers.”

Source: Torchmark 2015 Annual Report

Torchmark (TMK) CEO Gary Coleman said they have been repurchasing their own shares for nearly 30 consecutive years now

“We have been conducting our share repurchase program for thirty years now. During that time, the only year we didn’t repurchase stock was in 1995 due to the acquisition of American Income. Since 1986 we have spent $6.5 billion to repurchase 78% of the outstanding shares of the Company.”

Torchmark (TMK) CEO Gary Coleman said that as a result of “industry experts,” they expect oil to rebound to $45 per barrel

“Based on a consensus of industry expert views, we believe oil is more likely to increase to over $45 a barrel during the next 12 to 24 months than remain at the $30 a barrel level we saw in 2015. We believe the companies in our portfolio can continue to operate for a very long time with oil prices at $45 to $50 a barrel. However, even if oil was around $30 a barrel for the next 12 to 24 months, we wouldn’t expect to have significant defaults during that period.”

Source: ICICI Bank Annual Report

ICICI Bank(IBN) CEO Chanda Kochhar reiterated India’s strong demographics and strengthening growth trajectory

“As I had mentioned last year, the decisive mandate in the general elections was a very positive development for the economy. The immediate impact was felt in the form of a strong improvement in sentiment. India’s inherent strengths are well-known – the demographic dividend and the vast potential for investment. It is these strengths that propelled us on a high growth path for several years.”

The Indian government is fostering a more pro-investment environment

“Over the last year, the Government has taken a number of important steps. There has been a focus on improving governance; enhancing the ease of doing business; creating a conducive environment for investment by both international and domestic participants; and adopting a stable and prudent fiscal policy. At the same time, the Government has sought to bring about the engagement of more and more people in the economic mainstream. While the impact of these measures will be seen over the medium term, the steps taken are clearly in the right direction.”

ICICI Bank(IBN) CEO Chanda Kochhar said effectively utilizing technology allows them to reduce their cost of serving customers

“ICICI Bank has been at the forefront in leveraging technology including the current and emerging transformational trends of mobility, digitisation and rapid growth of social media, to bring value to our customers. We have leveraged our technology capabilities to facilitate faster and convenient processes, create best-in-class technology platforms and reduce transaction costs. Over 50% of all banking transactions are now done over mobile phone or on the internet.”

JS Earnings Notes 2.11.2016 – Stericycle, MSCI, and Torchmark

Stericycle (SRCL) COO Brent Arnold said they are seeing growth in their pharmaceutical waste hauling compliance business

We continue to see strong growth in our pharmaceutical waste compliance program. Both our SQ and LQ adoption rates continue to increase, as customers look for a compliance solution for this waste stream. This program not only helps our customers manage their pharmaceutical waste, but it often paves the way for Stericycle to manage all of their hazardous waste.”

And they’re attempting to cross-sell their paper shredding services

The Cintas Shred-it synergies are on track, focusing on routing efficiencies and on-site to offsite conversion. The Stericycle Shred-it integration is gaining momentum and the team has kicked off a number of exciting cross-selling pilots. As a reminder, less than 20% of our existing Stericycle customers use Shred-it for secure information destruction. This represents a tremendous growth opportunity for Stericycle.”

With plans to grow the paper shredding business even further through acquisition

“Besides the Shred-it acquisition, we made four acquisitions of other secure information destruction companies. So we certainly – it’s part of our game plan. Shred-it obviously had a pipeline, and we were able to complete those deals in Q4.  From a geography line, certainly any country where we currently have operations, those have the best returns; and that’s where the focus will be. And then we’ll also look at countries that Stericycle is currently in on the waste side of the business and see if there are opportunities to enter into those secure information destruction markets as well.”

Stericycle (SRCL) CEO Charles Alutto said they did an acquisition last year to enter the automobile recall sector and this will likely be a growth area moving forward

We did that acquisition last year to get an entry into the auto recall space. There’s obviously a lot of heightened sensitivity to auto recalls. We can offer a turnkey solution to manufacturers. That helps them assist their customers with both notifications and increasing their response rate.”

Their sales pitch often involves going in and telling their clients about all their “compliance breaches”

And what they typically do is they go in and give them a compliance review, looking at how they manage all their secure information. Oftentimes when they do that audit, we can find compliance breaches. And it’s a great way for them to switch to an outsourced service. And, therefore, we’re selling multiple services.”






MSCI (MSCI) CEO Henry Fernandez said  they captured an increasing share of  the index investing market

ETFs based on our indexes, capture $88 billion of inflows in the year 2015, or 35% of the overall market, up from $49 billion a year earlier. Our development efforts have been focused on factor investing, where the estimated AUM linked to our factor indexes increased 17% to about $143 billion compared to $122 billion in 2014.”

And they are also benefiting from the trend of increased passive international index investing

“In 2016, we believe there are several growth levers in our Index products. The new product pipeline remains strong, and we continue our relentless effort on innovation to change the investment world. Factors and ESG continue to be incorporated into the mainstream investment process. The globalization and international investing trend is expanding.” 

MSCI (MSCI) CEO Henry Fernandez said the company, at its core, is a data and analytics company

I can tell you that at the core of our company, MSCI is a content company that leverages and shares content across the entire MSCI ecosystem to innovate new products and services. The generation of that content starts with understanding the investment problems of our client, designing a solution to them in the form of a model of some kind. We call them methodologies and Index and models in Analytics. And then that model can be then turned into either data or analytical calculators such as performance attribution calculators, repayment models, pricing libraries and so on and so forth.”

And their data is often at the core of their clients investment process

Our content sits at the very center of our client’s investment processes. It provides them with the insights and tools they need to build and manage their portfolios. A key part of my own job is to build senior-level relationship with our largest clients around the world. In my conversations with them, they tell me that the quality of our content is what sets MSCI apart. It is why they choose MSCI to help them with their biggest and most complex investment problems.”

Yet they seem to focus on the “quantity” of the product as opposed to the “quality”

As you all know, in your own businesses, outflows or inflows are the true measure of the health of an investment product, and therefore, we are pretty satisfied to see that we’re holding up very well there, despite the decline in valuations.

Currency hedged investment index products could be a large growth driver

We were also the Index leader for full-year 2015 in terms of net cash inflows to ETF based on currency-hedged indexes. Net cash flows in ETF linked to factor indexes, which increased almost three times compared to 2014 levels, and also our leadership position as number one in ETF.”

MSCI (MSCI) CEO Henry Fernandez said the company has tailwinds from the switch from active to passive investing

In an environment of significant volatility, it’s actually sometimes a positive environment for us, even though our clients are not feeling well because there’s a lot of focus on risk, there is a lot of focus on understanding the performance of portfolios, there is a meaningful amount of money that flows into passive investments from active that we benefit and the like. And obviously, on the other side, budget gets a little more tight, approvals get longer and the like, but on balance, it has not affected us.”

MSCI helps financial services clients reduce their costs

“A lot of our clients are under cost pressures and profit pressures and, therefore, they’re trying to reduce costs. So, a lot of what we do it creates transparency, efficiencies and therefore reduction of costs. So, many of our clients are tackling the issue of how do they deal with risk and how do they report risk and how do they manage risk.”






Torchmark (TMK) Co-CEO Gary Coleman said expenses were up

“Administrative expenses were $48 million for the quarter, up 9% from a year ago and in line with our expectations. As a percentage of premium from continuing operations, administrative expenses were 6.3% compared to 6.1% a year ago. The primary reasons for the increase in administrative expenses are higher information technology and pension costs.”

Torchmark (TMK) Co-CEO Gary Coleman said their investment portfolio saw losses in their energy bonds

To complete the investment portfolio discussion, I’d like to address our $1.6 billion of fixed maturities in the energy sector. As a result of spreads widening in the fourth quarter, the net unrealized loss of our energy portfolio increased by $142 million to a total of $165 million at December 31. However, we believe the risk of realizing any losses in the foreseeable future is minimal for the following reasons. $1.5 billion or 94% of our energy holdings are investment grade. Only a $143 million or 9% of our energy holdings are in the oil field service and drilling sector. Approximately 70% of these bonds are investment grade.”

Yet  they aren’t expecting any defaults

Also based on the consensus of expert views, our investment department believes that oil is more likely to increase to $45 a barrel or $50 a barrel during the next 12 to 24 months then to remain at current levels.  We believe the companies in our portfolio can continue to operate for a very long time with oil prices at $45 a barrel to $50 a barrel. Even if oil remains around $30 a barrel for the next 12 to 24 months, we would not expect to have any defaults during that period.”

They are hoping for higher interest rates

We continue to hope for higher interest rates. As discussed on previous analyst calls, rising new money rates will have a positive impact on operating income by driving up excess investment income. We’re not concerned about potential unrealized losses that are interest rate driven reflected on the balance sheet since we do not expect to convert them to realized losses.”

Torchmark (TMK) CFO Frank Svoboda said they are exiting their Medicare Part D business due to increased competition driving down profitability

This business has been changing rapidly over the past few years and the earnings had become much more volatile. Increased competition, industry consolidation, and preferred networks have reduced overall margins and made it more difficult for smaller players to compete in this market.  While we are still generating profits from the Part D operations, those profits have been shrinking in recent years due to higher drug cost and increased administrative and compliance cost. We believe this trend will likely continue and perhaps could even turn into significant losses in the future as drug costs, especially those on specialty drugs continue to escalate.  Overall, the risks and the administrative and compliance costs associated with the business are much greater than they once were and the business now demands an increasingly disproportionate amount of time and focus given its level of earnings.”

Torchmark (TMK) Co-CEO Gary Coleman said they don’t expect to sell any of their energy bonds

We feel confident in the bonds that we have and we expect them to be money good. So we don’t expect to sell any of those. In the last few years we have, I think done a good job of spreading the risk of we were a little overweight on financials a few years ago with.”