Third Point Re 2Q17 Earnings Call Notes

Dan Loeb

10.6% return in 1H 2017

“he Third Point Reinsurance investment portfolio managed by Third Point LLC returned 4.5% in the second quarter of 2017, net of fees and expenses versus returns for the S&P and CS event-driven indices of 3.1% and 1.1% respectively for the quarter. The account has returned 10.6% for the first half of 2017 net of fees and expenses. The Third Point Reinsurance account represents approximately 14% of assets managed by Third Point LLC.”

Prospects for change in policies have dimmed but synchronized global growth has kept us positive

“Prospects for a significant near-term change in U.S. healthcare trade and tax policies have dimmed and reflation trade we expect to drive markets higher this year has not materialized. However, synchronized global economic growth has given us a continued reason to be positive on markets and to maintain significant long-term equity exposure to more defensive sectors in Europe, and in constructive investments.”

Found more opportunities to take short positions

“We have found more opportunities to take short positions and single names in companies that we think are overvalued at this peak markets and in sectors undergoing structural declines. ”

We will be carefully watching central bank activity

“We will be carefully watching central bank activity as we approach year end as we expect this will be the major driver of market sentiment. In the interim, we remain excited about our well balanced equity portfolio and its mix of event-driven situations higher multiple defensive companies and activist opportunities.”

Better lucky than right

“I think what I said obviously there’s always downside risk to the market at any time for a number of reasons. Outside of our control and also outside of what’s going on economically. So it’s always something we think about. I think, what I was saying was that, we better – I guess in case of better lucky than right. We expected the market to go up but for different reasons. We thought it would be based on generally positive growth oriented policies in acted by the administration, lower taxes, infrastructure spending, healthcare, reform et cetera, none of these things transpired. But what has transpired has been kind of global synchronized economic growth and a very accommodative global monetary structure. So, I’m happy with the outcome the reason for it was different from what we anticipated, but we’ll take it. And we expect evaluations are getting a little more stretched. We’re still finding lots – really good things to do in the areas of the market that we participate in, which is constructive investments where there’s a lot of upside potential in the companies that we’re invested in. Some of the higher growth companies that are way out growing the economy. And some of the special situations as well as the short – our short book is performing very well.”

Focusing on structurally challenged companies

“Yes, certainly. We wrote about our fracs and that which have gone very well for us. So really what we’re focusing on is, structurally challenged companies that are just going to have a much more – that are having a very difficult time in the current environment. So a lot of these are retail, retailers, consumer brands, I mentioned the energy related companies. And companies – and just some companies we think are have very low quality earnings, who we think might be playing accounting games to achieve their results.”

A lot of respect for Nestle CEO

“Yes. I think that’s a good point that you just made. I think anytime you go into a different geography with a different set of securities laws and rules and different shareholder base and other social conditions you have to be really sensitive to the culture and society that you’re investing into the context. I wouldn’t necessarily call Nestlé as an activist investment per se.

I think we have a lot of respect for Mark Schneider the CEO. This is more a case of a company that we hope is going in the right direction, we think it is. But we’ve articulated we would like them to articulate margin targets and to explore better capital allocation – better capital allocation plans along the lines of what we described in our letter.

And we have very high hopes for their Investor Day on September 26. They just reported earnings, which were I think had to be disappointing to them, they sounded disappointing. But we’re hopeful that in September, they will articulate more specific goals around margin improvement, portfolio optimization and hopefully address the L’Oreal stake.”

Third Point Re 1Q17 Earnings Call Notes

Daniel Loeb – CEO of Third Point LLC

We see the recovery continuing for the time being

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

Access to the investment strategy

“Sure, well for one thing, anyone as a stockbroker can buy shares in TPRE and have access to our investment strategy, so the biggest distinguishing factor is the daily liquidity that you get in investing in a public security where the underlying investment portfolio is virtually the same as our main hedge fund. So as you probably know, if you want to invest directly you have to be a qualified investor and you can – there are liquidity restrictions around redemptions, so that’s the biggest difference. Obviously we are – if you are investing in Third Point via TP Re, you own an equity – security which is also an insurance company, so you’re getting whatever the advantages are or disadvantages of owning an insurance company and we believe that over the long run as John and team bring down the combined ratios, you’ll have two opportunities to win. You’ll get some positive return from the insurance company added to the investment returns. I think the reason for the discount is that it’s been a very difficult environment for reinsurance, but as that reality and perception changes I think you’ll see that discount shrink”

Third Point Reinsurance 4Q16 Earnings Call Notes

Daniel Loeb

Moved to financials and industrials after the election

“The Third Point equity portfolio was down 3.1% on average exposure during the fourth quarter. We shifted exposures meaningfully following the election, decreasing exposure to TMT and consumer and ramping up investments in financials, industrials and other cyclicals. Despite these moves, gains in financials and industrials were offset by losses in consumer and healthcare investments.”

Excited about the opportunity set

“We are excited about the opportunity set presented by the current market environment. We expect the combination of accelerating growth and fiscal stimulus and U.S. will create a reflationary market which is favourable for Third Point’s investment strategies including event driven and value investing, risk arbitrage and activism”

We see plenty of opportunities

“Yes. I mean, look, market levels are important. I’m not sure that given the increase in S&P earnings that we expect due to changes in policy as well as tax reform that it’s as overvalued as people think, but no we don’t invest in markets, we invest in individual companies and we are seeing – we’re seeing plenty of good valuation, situations particularly those in which companies are involved in some sort of corporate transaction and the complexity is obscuring the earnings power of the company or companies that are going through financial or operational restructuring. So, we’re not really fazed by that. And don’t forget we’re long short fund to the extent certain companies get ahead of themselves that provides a good hedging opportunity or short-selling opportunity for us as well, so we are not really fazed by that way of thinking.”

Third Point Reinsurance 3Q16 Earnings Call Notes

Third Point Reinsurance’s (TPRE) CEO John Berger on Q3 2016 Results

Third quarter took advantage of dips

“In the third quarter we took advantage of dips in the market to reload our portfolio, especially in equities. We had positive performance in each sub-strategy and geographic region in which we invest and generated alpha during each month of the quarter.”

Reloaded on energy credits

“During the quarter we were able to reload on performing energy credits, which we entered and exited profitably earlier I the year. Year-to-date, our corporate credit portfolio performance has been nearly tripled that of the high yield index and other strategy posted modest gains driven by strong performance from some positions in our private portfolio.”

Congress more important anyways, but we’ve hedged

“It wouldn’t be a surprise if I predicted it, but it isn’t just about Election Day. We generally reduce both our gross and net exposure in part because of concerns about potential volatility. So we clearly didn’t predict the outcome of Brexit, but we definitely saw that as a point in time that would, you had described some percentage to a scenario where there was surprise. So we have done the same thing here. We have reduced our exposures; we cut some positions and increased some hedges. So that’s basically where we stand and it isn’t just about the president obviously who wins is going to impact the part I think equally important is what happens in the house in Senate. So we will be looking at both congress and the race for president to determine what kind of actions we take after the election.”

Don’t think there’s anything structural to prevent strong returns going forward

“it has been a challenging period I don’t use that as an excuse but there is I don’t think there has been any fundamental change in the world that will prevent us from generating very good returns going forward.”

Third Point Reinsurance 2Q16 Earnings Call Notes

Third Point Reinsurance’s (TPRE) Dan Loeb on Q2 2016 Results

Not sure you can draw a direct connection between Brexit and US election

“Yes, I think people are understably drawing comparisons between Brexit and the US Presidential election and obviously US Presidential election is consequential. But Brexit was a – was a referendum on participation in the EU. This is very different, we’re talking about the leaders of United States. So I think there is – people want to draw comparisons between the sort of populous backlash that promoted Brexit and which I think you could go through and analyze and discuss what the – and asses what the merits were or not for Brexit. I mean, this is very different. We have some very unusual personalities involved in this election. I think they are giving people some concern. I am not going to predict the outcome. But you know, we’re obviously watching the polling very closely. And I think that the election is important, but I think the polling would suggest that we will be in reasonable shape in this election. I just want to leave at that, I don’t want to get too much into the election discussion.”

Unfortunately the poor performance of a couple of hedge funds has hurt the industry

“No, I mean, unfortunately due to the poor performance of a couple hedge funds out there, it’s caused some institutions to rethink their hedge fund strategy and some of them are just completely gone out of the market. We had some exposure to those firms, but the ones that we did have exposure to we’ve have already – that’s already behind us”

Miscellaneous Notes 5.12.16

Third Point Reinsurance’s (TPRE) Dan Loeb on Q1 2016 Results

We’re seeing some opportunities in distressed debt

“we’re seeing opportunities in distressed debt. So I want to stress. We’re not in a credit cycle where I think there’s going to be massive opportunities due to a slowing economy and large defaults. But we are seeing a lot of dislocations in various credits and we have been scooping up some very attractive names in – we’ve talked about this in the past, some fulcrum securities in energy companies. On the sovereign debt front, we’ve talked about Argentina. And there are a couple of distressed situations out there that we have been buying. I think structured credit is also – it was really off only for liquidity reasons, not for fundamental reasons. So we feel good about that portfolio. And I think the most interesting space right now is just in equities that are getting oversold or just underappreciated and under-owned that are in the industrial sector.”

Sotheby’s (BID) CEO Tad Smith on Q1 2016 Results

Do not expect art markets to return to 2014 or 2015 levels this year

“On our last earnings call, we said that we did not expect sale levels for the full year 2016 to reach the annual held levels of 2014 or 2015. And as of right now our view remains unchanged. However as I just outlined, recently, we observed the number of positive indicators most notably our Hong Kong sales series which was up 17% year-over-year. Of course our most significant data points for the second quarter kicked off tonight, with a number of important auctions to follow in the coming days so the next two weeks should provide all of us with a lot of good market intelligence. Until then we will remain cautiously optimistic.”

Dean Foods (DF) Gregg A. Tanner on Q1 2016 Results

See favorable supply/demand dynamics in dairy with supply outgrowing demand

“We expect global dairy fundamentals to continue to be overall supportive to our business as production growth continues to outpace demand. In the U.S., we continue to see domestic supply growth. Total U.S. milk production increased 1.8% year-over-year in March with production in the Midwest, Northeast and Northwest more than offsetting the continued decline in California. In addition, dairy herd continues to grow both sequentially and year-over-year. The current USDA forecast calls for 2016 milk production to increase 1.5% year-over-year. On the global supply front, the EU remains a leading contributor as their milk production has increased more 5% year-over-year. In contrast, we look at the continued decline of production in New Zealand. It has had minimal to no impact on the global markets. With U.S. butter and cheese prices remaining uncompetitive versus the international market, we continue to see a decline in overall U.S. dairy exports. Despite the temporary increase we saw in exports in January and February, the USDA published March data showing a decline of over 21% with the major drop in non-fed dry milk driving the decline. These supply and demand factors should continue to contribute to a relatively benign dairy commodity environment over the short term.“

Tyson Foods (TSN) Donald J. Smith on Q2 2016 Results

Low grain costs have helped us outperform

“ Obviously, our grain position is favorable this year with the low end of what we expect the five-year range of grain to be, and that helps over-deliver a bit.
And if you look going forward at what might cause any dip, it’s that level of fundamentals, primarily driven around the grain. But I tell you, we’ve done a very good job of utilizing the price discovery mechanisms afforded to us to be able to take a lot of the grain volatility out of our business. We’ve priced much more of our products off in some kind of a grain-based mechanism

Third Point Reinsurance 4Q15 Earnings Call Notes

Third Point Reinsurance’s Daniel Loeb

See a lot of alert, but not really seeing signs of recession

“we have hedges in place, but we’ve actually increased our net exposure over the course of the month, as some of these sellouts have created silly prices for securities and we’ve either added some existing positions or established a couple of new positions. So as your question about recession, look, along with the other things like China oil prices, Fed policy, et cetera, I mean, that’s kind on the top of people’s list as far as concerns go. We are looking at economic data. We are serving companies that are economically sensitive, and what we do see is weakness in companies with cyclical exposure. And we see the obvious things, overleveraged companies in cyclical businesses that are also maybe in some peril. But as far as industrial companies, consumer companies, certainly healthcare companies, we are not seeing any sign of a recession. We see a lot of people that are on alert, but there haven’t really been any signs of recession from either the economic data, the surveys or individual conversations with companies.”

You don’t have as many activist opportunities because you don’t have as many blatantly underperforming companies

“It’s an interesting question. We have not undertaken any new activist opportunities, but I think what’s happening actually is a lot of companies have undertaken the sorts of operational improvements and more rational capital structure moves, that is making it — I think that’s making it more difficult for activists, because you don’t have as many blatantly underperforming companies, because boards are holding the management teams more accountable, they’re getting lot of pitches from bankers.”

We’re more focused on undervalued securities right now

“So we’re not seeing — that that’s not really what we’re focusing on. We’re really focusing on securities that are under-valued where we can make investments in the constructive and not have to take any kind of confrontational role with management teams.”

Watching energy markets closely but think debt is more interesting than equity

“We’re watching the energy markets very, very closely. We think that the better opportunities are on the credit side than on equities. As far as discounting, potential bad news ahead, we think the equities reflect more optimism about the price. I mean, they’ve come in over the last weak or two, but there is two things going on equities at this point; debt, low oil prices and now the threat of equity offerings to shore up the balance sheets. So we think the more interesting way to play energy is through fulcrum securities of E&P companies, and in some of the distribution companies”

We aren’t investing in China

“We aren’t really investing in China. We’re obviously tracking what’s going in China in terms of the local economy, in terms of it being an end market for many of our companies including young brands. There is serious implication for materials and for luxury companies and other companies that have end markets there, but we aren’t investing directly in China. It’s hard for us not having a local presence and local knowledge to invest in Chinese securities.”

Miscellaneous Earnings Call Notes 11.5.15

Colgate-Palmolive’s (CL) CEO Ian Cook on Q3 2015 Results

Have seen a decline in private label

“At the same time, we’ve seen a decline in private label shares in many of our categories indicating the consumers preference for branded products and respect of our equities.”

Anheuser-Busch InBev’s (BUD) CEO Carlos Brito on Q3 2015 Results

Big change in the Chinese economy towards consumption

“I think what’s happening in China at this point is that there is a big change from an economy that was all lead by exports and heavy investments in fixed assets, okay that generates a lot of blue-collar work or jobs to now an economy that’s much more service and domestic oriented economy. So more consumption, more consumer spending. So that of course, in the midst of this change, we see that in the Southeast, where some years ago there was lack of blue-collar workers and now there is too many of them. So there is a shift in there and I think that’s what the segments are showing us. But the segments that are more high priced are growing ahead of the ones that are lower price. And that’s exactly where we have most of our business and most of our brands position. So I think this change, while it may be bad for the industry, is not bad for us.”

PriceSmart’s (PSMT) CEO Jose Luis Laparte on Q4 2015 Results

We do have a soft economy in Columbia right now

“We do have a little bit of a soft economy right now, driven by the devaluation and other factors in the country. But we still are pretty optimistic about Columbia, and we haven’t reduced our efforts.”

Phillips 66’s (PSX) CEO Greg Garland on Q3 2015 Results

We see that the consumer side of China is doing very well

“we’re continuing to see good demand in Asia and across the system globally. So I think our view is demand is good. China is particular interest I think largely because of the reported numbers that what we see on both fuels and chemicals tells us that the consumer side of China is doing very well.””

By 2017/18 we’d expect not to be in a $50 crude environment any longer

“I mean our view consistently remains by 2017 and 2018 that really sort itself out and we are probably not $50 crude environment but we are probably not $100 but somewhere $60, $70, $80 in that range.”

Greenlight Capital Re’ (GLRE) CEO Bart Hedges on Q3 2015 Results

-16.9% through October

“The Greenlight Re investment portfolio lost 14.2% in the third quarter, bringing the year-to-date return to minus 16.9%.”

Brought next exposure up slightly during market sell off in August

“We reduced our gross exposure by 30 points in the quarter. Our net exposure increased slightly from 21% to 26% as we covered several shorts during the market sell-off in August. We continue to hold macro positions including gold, short Asian currencies and short French sovereign bonds. Overall, it’s been a challenging environment. We’re optimistic that we should get some recovery from our beaten down long portfolio.”

The Sherwin-Williams Company’s (SHW) CEO Chris Connor on Q3 2015 Results

Volume demand lagged initial expectations in virtually ever market we serve

“Volume demand lagged our initial expectations for the quarter in virtually every market we serve, but we remain focused on delivering positive results regardless of the demand environment.”

Continue to see deteriorating demand outside of NA

“We continue to see deteriorating demand for our product outside of North America.”

Banco Santander-Chile (BSAC) Q3 2015 Results

Economy has done better than most regional peers

“Segment [ph] in the corporate sectors continue to contract, but given the diversity of Chile’s economy and the fact that the average GDP growth of Chile’s main trading partners is relatively high, the economy has done better than other regional peers.”

No deterioration in asset quality

“In terms of evolution of asset quality, we think that the aligned trends are generally positive, especially in the consumer side, in the mortgage side and in the mid-size market. We haven’t seen any deterioration. ”

CBS (CBS) Leslie Moonves on Q3 2015 Results

Advertising is coming back in a big way

“advertising is coming back in a big way at CBS. Underlying network advertising was up 8% in the third quarter with strong growth in primetime, double-digit growth in sports and daytime and huge growth in late night, which was up 42%.’

The dire predictions of cord-cutting are overblown

“I think we’re all seeing that the dire predictions of cord-cutting are overblown, but the good news for CBS is, no matter where distribution goes, no matter how or where you want your content, we are in a perfect position. ”

There can never be too much content

“we are a content company, we believe the world can have more content, we don’t believe the guy who says oh, there’s too much content. There never can be too much content and we want more of it.”

Activision Blizzard (ATVI) Robert A. Kotick on Q3 2015 Results

Comparing King to Blizzard

“When we merged with Blizzard Entertainment, we found the right partner with extraordinary leadership. And when others dismissed the sustainability of Blizzard’s incredible capacity for innovation, we were certain patience would be rewarded. And it has. We see a lot of the same characteristics today in King. We think now is the right time to enter mobile gaming in a meaningful way. ”

Third Point Reinsurance’s (TPRE) CEO John Berger on Q3 2015 Results

Third Point owns Argentine debt

“Sovereign credit was up 3.1% on average exposure during the quarter, due to strength in Argentinean government debt the largest position in our credit portfolio. We’re looking forward to the run off Argentinean presidential election next month and we’ll be pleased with the victory from either candidate.’

Michael Kors Holdings (KORS) John D. Idol on Q2 2016 Results

Warm weather bad for seasonal items. Watch business still under pressure

“We saw accelerated growth in footwear, although the warm weather tempered boot sales in the quarter. The watch business continues to remain under pressure in retail and wholesale. ‘

Trend has been towards smaller handbags

” the idea that people are not buying handbags, I do not believe is a correct concept. They happen to be the fashion trend of smaller bags, so if we were selling x percent of $350, $400 and $500 handbags at this time last year we were selling less of those because we were selling a lot more in particular across bodies and large wallets. And that is what the consumer in particular the millennial is viewing as a fashion trend.’

All of us are now being impacted in parts of Texas because of oil prices

“all of us are now being impacted in parts of Texas because of oil prices there, that’s a little bit less tourist, but some of it’s related to the Mexicans shopping cross-border with the peso to the dollar.”

Time Warner (TWX) Jeff L. Bewkes on Q3 2015 Results

Programming is the most significant area of investment for the company

“Programming remains by far the most significant area of investment for the company. As you all know, we have plans to invest aggressively in content in 2016 and beyond.’

Stratasys (SSYS) David Reis on Q3 2015 Results

Excess capacity created by extraordinary expansion in 2014

“We also believe the situation has been worsened by the negative impact of excess capacity that followed the two-year period of extraordinary industry expansion that ended in 2014. Reflecting the low visibility of the current market environment, expected orders did not materialize as expected at the end of the quarter.’

Focused on adjusting the cost structure of the company to fit customer demand

“what I can tell is that we are taking very seriously the change in the business volume that we see in front of us and we are dealing with adjusting the cost structure of the company, the entire cost structure of the company not only MakerBot, to fit through what we see today in the market in terms of customer demand.”

Douglas Emmett’s (DEI) CEO Jordan Kaplan on Q3 2015 Results

Seems like occupancy is being driven by much stronger tenants

“I would say that, what’s driving — what’s going on here right now is a much stronger and wider base than what was driving the run up in ’04, ’05, ’06 and ’07. It’s way more comfortable, a way better percentage of kind of expenses for the tenants. The tenants are very — we’re seeing strong balance sheet and good credit. We’re seeing a good diversity of industries. You’re not seeing like a heavy lean on, I remember before, it was the mortgage — these mortgage guys were taking huge chunks of space”

“the strength in this market, all seems really healthy going to just literally more functional space for our tenants, as opposed to some of the tenants before that were literally just space grabbing and whether it be a big dotcom guy that didn’t exist a year ago and all of a sudden now needs 50,000 feet, 100,000 feet. What’s going on now seems a lot more comfortable and it’s backed by much stronger, more established tenants.”

Annaly Capital Management’s (NLY) CEO Kevin Keyes on Q3 2015 Results

Continued improvement in CRE fundamentals in the US

“The third quarter saw continued improved in U.S. commercial real estate fundamentals with healthy demand across all property types. Vacancy rates across all asset types declined compared to last quarter, with office and industrial continuing a trend of 22 consecutive quarters of positive demand.”

While the pace of CRE asset sales has slowed, we don’t see this as a weakening trend

“While the pace of sales has more recently begun to slow down 10% in September, we don’t see this as a weakening trend, as large take-private transactions continue to be announced with private equity taking advantage of the discount between listed markets and asset values.”

CMBS spreads have moved wider, but cap rates have not yet moved higher

“Spreads, however, have a continued widening that started this summer, with AAAs now at about 120 basis points, 32 basis points wider than at the beginning of the year and 34 basis points wider than this time last year. In addition, BBBs are almost 200 basis points wider than this time last year. While, this type of rate expansion is significant, we have not yet seen cap rates move higher. ”