Texas Instruments 4Q16 Earnings Call Notes

Texas Instruments (TXN) Q4 2016 Results

David Pahl – VP and Head of IR

Industrial improvement continued

“Revenue for the fourth quarter increased 7% from a year-ago, as demand for our products remained strong in the automotive market. The improvement we saw in the third quarter in the industrial market continues. Demand in personal electronics market was down slightly from a year-ago. ”

revenue segment overview

“Specifically, in 2016, industrial comprised 33% of our revenue, up 2 points from 2015. Automotive was 18% of our revenue, up 3 points. Personal electronics was 26%, down 4 points. Communications equipment and enterprise systems were 13% and 6% respectively, both year and to last year, while other was about 4%. We did not have a customer that was more than 10% of our revenue in 2016.”

Kevin March – SVP, CFO

We have been intentional about directing investments towards auto and industrial

“Joe, this isn’t — as you know and you have been tracking our revenues inside of that market for some time. It’s not something that is capping this quarter, right. We have been having very strong growth inside of automotive and that is a result of how we allocate capital. We have for some time been directing investments and increases both in automotive and industrial. And that’s because we think that those are the two markets that are going to provide growth, not just for us but in our industry. So — and as you know, these are long tail type of design wins and revenue strength. And we are very intentional as I mentioned earlier trying to direct our investments, so we are not just seeing growth in one sector or at one customer.”

Not a lot has changed in the overall environment

“Yes. So, first Vivek, I’ll just point out that when we look at the overall microenvironment, we really don’t see something that has significantly changed in sometime. So, we continue to believe that we’re operating in a very similar microenvironment that we have, that we haven’t been If you look at inside of the quarter, demand came in stronger, really across most markets in businesses. The only notable exception as I talked about before was personal electronic came in about as we expected. And to your point, we are seeing choppiness in particular markets. Some of that more recently has been driven by one large customer. You can go back to clock not too long ago into last year we saw some choppiness in comps equipment before that we had a PC, XP refresh cycle that came to an end. And none of those were really tighter the overall economy, there was just very specific things going on within specific market. So, that’s really the environment that we thing that we’re operating in now.”

Rafael Lizardi – Co-CFO

Texas Instruments 3Q16 Earnings Call Notes

Texas Instruments’ (TXN) on Q3 2016 Results
David Pahl

Overview of demand

“the automotive market remained strong. We’ve got five sectors inside of that market and most of them had grown double-digit. Industrial demand improved and encouraging part of that was it was very, very broad-based and we had most of the sectors growing. Inside the personal electronics that was even and that was despite continued year-over-year declines in demand from one customer, but I think that speaking to the diversity of our product portfolio and our customer base, we were able to offset that with growth elsewhere inside of personal electronics. And then communications equipment grew from a year ago was even sequentially. And lastly, we did see growth in enterprise systems as well. ”

Personal electronics doing well outside of one customer

“Yes, at that level we’ve had PCs come in year-over-year about even which is an improvement from what we saw. I think that outside of that one customer we’ve actually seen really broad based growth. And so I think that all the classical areas inside a Personal Electronics are doing well.”

Improvement in industrial demand

” I think as we talked about last quarter we did see an improvement in industrial demand it actually had been flat for several quarters year-on-year, so we were encouraged by that. This quarter we’ve built on that a little bit and like last quarter it was very, very broad-based. I won’t try to go in and try to predict how long that will last or carryforward, but I definitely would say that we were encouraged as we saw most of those sectors growing.”

Inventories lean but stable lead times

“So if we look into the distribution channel inventory is actually decreased by about a half a week and it’s currently very, very low levels at about four weeks and that’s pretty similar to what we saw a year-ago. So again, we just we believe that that inventory level just reflects an environment of really good product availability and we’ve got you know good inventories on our books available to be able to ship. We continue to have very stable lead times and those things kind of taken together just drive very high customer service metrics. So customers in general are getting products when they want to have them. So and I’ll just make the reminder too that four weeks of inventory is just structurally lower because of the consignment programs that we have at our major distributors.”

Texas Instruments 2Q16 Earnings Call Notes

Texas Instruments, Incorporated. (TXN) Q2 2016 Results

British economy is only a small part of global GDP

“I would say that we really – it’s pretty much impossible for us to be able to make a comment directly on that. Indications I’ve seen, the British economy is probably about 4% of the global GDP, so even if there’s a wobble inside that economy, it’s going to be really hard for us to be able to detect it.”

David Pahl – Vice President & Head of Investor Relations

Demand continued to be strong in auto and grew in industrial and communications

“Revenue and earnings per share for the quarter were solidly in the upper half of our expected range. Compared with the year ago, demand for our products continued to be strong in the automotive market and grew in industrial and communications equipment markets. Despite sequential growth, demand in the personal electronics market was down from a year ago.”

Auto segment is benefiting from content gains

“Yes. Clearly, what’s driving the market today, we believe, is content gains. And if you have visited an auto showroom any time in the last year, that’s pretty obvious to see with the new models that are coming out. Our belief is that the automotive sales will fluctuate much like they have in the past and into the future. But certainly, overall, the content gain is what’s growing things.”

Macro environment is ok not really strong not really weak

“Well, I would just say, Tore, overall I think that we’re operating in a similar macro environment to what we’ve seen in actually recent years, and that’s just an environment that I’d say that it’s okay, if I used one word to describe it. It’s not really strong. It’s not really weak, and we’re operating in that type of environment.”

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.”

Texas Instruments 4Q15 Earnings Call Notes

Texas Instruments, Incorporated. (TXN) Q4 2015 Results

David Pahl – Vice President and Head of Investor Relations

Saw weakness in mobile phones

“The sector where we saw the weaknesses you were guessing is mobile phones and we did see that sector weaken late in the quarter, in the back half of the month of December. If I just take and look at for the year how our end markets did, I’ll put that into perspective. I’ll start with an area of strength in automotive. That grew in the mid teens. Most of the sectors inside of that growing, growing double-digits…Communications equipment was down 20%. And that was primarily driven by wireless infrastructure and that was down around 30% for the year. ”

We haven’t seen any sign posts that this is a traditional cycle

“We’ve had some people ask us if we think a semiconductor cycle is underlying what we’re seeing and we just haven’t seen those signs of a traditional cycle. So there are things like our lead times continue to remain short. Our cancellations remain very low. Our distribution inventory continues to hold around 4 weeks. And we continue to deliver our products on time to our customers when they’re asking at very, very high service levels. So those are some of the bigger ones that come to mind, that you would see some movement if you were moving through a bottom or a top of the cycle, and we just haven’t seen that in quite some time.”

Our industrial exposure is very different than most might expect

” just want to remind those that may not be as familiar with us, when we talk about our industrial market, it’s something that’s very broad and different than what a typical investor would look from an industrial screen. So we’ve got 14 sectors that makes up industrial and they’ll include things like factory automation, medical and healthcare, building automation, grid infrastructure, test measurement, motor drives, electronic point of sale, space and avionics, display power delivery, appliances, lighting, industrial transportation and then a bucket of everything else that goes into it. So slightly or very different than what most people would think of in industrials.”

We think there’s more semiconductor content going into the industrial market and we’re being buoyed by that

“typically a lot of people ask us, hey, we hear the rumors in China. We see the stocks that they follow maybe in the industrial segment are seeing very, very, very weak demand. But we turned in revenue that was consistent with what we saw after a very strong year. And fundamentally what we think’s going on inside of that is that there’s more semiconductor content going into the industrial market and we think we’re in the very early stages of that.”

Kevin P. March – Senior Vice President, Chief Financial Officer, Finance & Operations

Weak macro economy, but aside from personal electronics, the balance is pretty flat

“I think that at the highest level, we think we’re continuing to operate in a relatively weak macro economy as we have been for the last couple of years. So nothing terribly exciting in the economy as a whole. If we kind of look at the comparison we’re talking about, recall that a year ago, we were seeing sharp declines occurring in communications infrastructure and we’re also seeing some pretty stiff headwinds in the form of foreign exchange where if the rate of exchange moving against us from the US dollar strength standpoint. So despite that, when you take a look at all that, we actually see aside from this one sector of personal electronics, the balance of it’s going to be about even on a year-over-year basis.”

Miscellaneous Earnings Call Notes 10.22.15

Advanced Micro Devices’ (AMD) CEO Lisa T. Su on Q3 2015 Results

Not anticipating that Windows 10 will drive PC refresh

“While we are not anticipating Windows 10 will drive a dramatic near-term PC refresh cycle the continued adoption of Windows 10 which has already been installed on more than 110 million PCs to date, provides a great opportunity for AMD over the coming year based on a semi-consumer and commercial refresh cycle environment”

Suntrust Banks’ (STI) CEO Bill Rogers on Q3 2015 Results

We’ve been in the lower for longer camp for a long time and think it stays that way in ’16

” We, as you know in our case, we have sort have been in the lower for longer camp for some time and set ourselves up appropriately for that type of an approach. As we look forward into ‘16, I think also lower for longer stays, I think if there are Fed increases, they will be very deliberate and the pace of rate rise will probably be slower now than the market had been thinking six months ago.”

Capital Markets activity should be better this quarter

“M&A had another really good quarter and pipelines are still good there. The volatility numbers are in sort of high yield bonds and the equity sales and trading and that’s better. Spreads have come in. I think things will get done more this quarter than they did last quarter if things stay stable. And based upon what I see in terms of our pipeline, I feel good about our pipeline”

CCAR has changed the way that the whole banking industry is thinking about risk

“I think one of the other benefits also that you see for SunTrust and perhaps for the industry overall is the benefit of CCAR. The CCAR has changed the way that companies think about their overall risk. They apply a stress test to all their portfolios now and think about how portfolios would behave during a stress test.”

Kansas City Southern’s (KSU) CEO David Starling on Q3 2015 Results

Volume continues to improve in October

“volume so far in October continue to improve. And subject to ongoing uncertainty in energy markets, we feel good about the trajectory of demand as we head into the end of 2015. Through the close of business, Wednesday, average daily carloads for October were running about 1% higher than September and 1% higher than October of last year as well.”

Business demand still feels very good to us

“business demand still feels very good to us, with the obvious caveat about the uncertainty in energy markets, which you have seen across the entire rail sector, have made it more difficult to forecast demand and provide guidance.”

Mexico is probably linked to the US, but they’ve done a good job managing their inflation and unemployment rates

“I think, Mexico ends up being fairly tightly linked with the U.S. economy, given the amount of goods that end up going north into the U.S. But they’ve done a really good job managing their overall inflation rate, which is now running below 2%, unemployment is below 5%.”

Hasbro’s (HAS) CEO Brian Goldner on Q3 2015 Results

Toy industry growth is strong ytd

“The trends that we see and the data that we have would indicate that the Toy industry year-to-date is up high-single digits, and we see that as boding well as we get into the holiday season and continues our trends.”

Labor is the biggest cost input to our COGS and it’s up in the double digit range

“The single biggest cost input to our cost of goods is labor. And we continue to see labor inflation rates in the double-digit range. We have seen a slight decrease in the cost of certain types of resins over the period since the end of 2014. But they tend to be more nominal and they run in arrears to whatever the petroleum or gasoline costs prices are out there as you know.”

Flextronics International’s (FLEX) Mike McNamara on Q2 2016 Results

Partnering with Nike for connected products

“Last week, during NIKE’s Investor Day, NIKE announced a partnership with Flex to accelerate the introduction of advanced innovation to NIKE’s manufacturing supply chain. Working together, NIKE and Flex will deliver innovation that enables product to reach consumers more quickly with customized solutions and increased performance innovations.”

There’s an electrification of the world going on and we can help mechanical companies adopt that

“the amount of electrification in the world, the amount of smart products in the world that are going into what’s not typically electronic products that are now moving forward, whether it’s anything from a shoe to a shirt to a door lock is tremendous. So you’re getting a tremendous amount of this electrification of the business. And as we look forward, the value to us is if we can create more value for these customers whether it’s automation or engineering or making a non-connected product connected or providing electrification where they’re more traditionally a mechanical type company”

Zions Bancorporation’s (ZION) CEO Harris Simmons on Q3 2015 Results

Energy chargeoffs are from borrowers that were already weak in the last cycle

“the charge-offs have fundamentally been borrowers that were weak in the last cycle, they’ve been kind of limping along, and for whatever reason, you know, we have not been able to get totally out, and this recent downturn was just kind of another very difficult blow to them.”

Restraining loan growth because concerned that we may find ourselves in another downturn before things get better

“I think that, you know, I for one have a concern that we may find ourselves set [ph] into another downturn before we see the economy strengthen a great deal again, I mean. So we’re trying to be very careful.”

Hawaiian Holdings’ (HA) CEO Mark Dunkerley on Q3 2015 Results

Hawaiian airlines has had a tough time getting flights in on schedule

“It’s been a poor summer operationally as reflected in our having recently posted our worst monthly punctuality in over a decade. The culprits have been several; the combination of a burgeoning flight schedule of Honolulu and airport construction has meant that during the peak hours of the day there have been insufficient gates. This has been exacerbated by congestion in customs, resulting in our not being permitted to de-plane arriving international passengers promptly. And lastly, an abrupt change in the traffic control procedures at Honolulu gave us no opportunity to make schedule changes to address the lengthen block times that have resulted.”

Yahoo! (YHOO) Marissa A. Mayer on Q3 2015 Results

Experiencing continued revenue headwinds

“our Q4 outlook, which Ken will return to later, is not indicative of the performance we want. While there are some well-known headwinds, year over year and even quarter over quarter like the loss of the Alibaba TIPLA, we are also experiencing continued revenue headwinds in our core business, especially in the legacy portions”

ACE’s (ACE) CEO Evan Greenberg on Q3 2015 Results

Underwriting environment continued to grow more competitive

“I want to now say a few words about current commercial P&C market conditions. The underwriting environment continued to grow more competitive in the quarter for our commercial P&C business globally. With some exceptions, price declines accelerated modestly. They were varied by class of business and geography.’

Large account more competitive, wholesale and property

“Large account business, particularly shared and layered is more competitive than midsized. Wholesale is more competitive than retail and property more so than casualty related”

Kimberly-Clark’s (KMB) CEO Tom Falk on Q3 2015 Results

The rate of currency deterioration hasn’t been as severe as it was

“The rate of currency deterioration hasn’t been as severe as it was, say, a year ago. On the other hand, there’s still some opportunity for price in some markets.”

Not seeing trade down in EM

“so far we are not seeing as much as a trade down as you would think. And we are still seeing — we launched boy/girl diaper pants in some of the super premium kind of tiers. We are seeing good response and growth there… particularly the economies that are in recession like Brazil and Russia, we are watching that see how the consumer performs and make sure we got the right offer, but we are also seeing really good innovation. Mom still wants the best for her baby.”

Texas Instruments, Incorporated. (TXN) Q3 2015 Results

It’s a weak environment but some segments were stronger than we expected

“our revenue declined 2% from a year ago, and we obviously would describe that as a weak demand. That’s actually similar to what we saw last quarter. But, inside of that, certainly it was stronger than what we had expected. There were a couple of areas that were stronger than we had expected. Wireless infrastructure and industrial were both stronger than what we had expected. ”

Kinder Morgan’s (KMI) CEO Steve Kean on Q3 2015 Results

By 2030 gas should be 39% of electric generation mix

“Its projected increase from today’s level of 76 Bcf a day to about 110 Bcf a day by 2025, that’s an increase of 40%.”

” If you look at the 15 mix of generating output and this is according to the EIA, 32% is gas and 33% coal. For those of you who have been in this industry a long time or followed it you know that that represents a dramatic shift to the positive for natural gas. If you flash ahead again these are EIA numbers to 2030 their projection of the mix of generation is 39% gas, 18% coal’

Renewable energy will need natural gas facilities as backup

” reliable flexible natural gas facilities are absolutely necessary to back up wind and solar. So to sum up the idea that we could move directly from coal to renewables without increasing natural gas usage for electronic generation is an unrealistic pipe dream with the substance and the pipe being legal only in Colorado and Washington State.”

Danaher (DHR) Thomas Patrick Joyce on Q3 2015 Results

Seen some incremental slowing, but in pockets

“Overall, we have seen some incremental slowing in the macro. That being said, it’s in pockets. There’s some pockets regionally where we’ve seen some of that slowing, clearly, and in some of the more industrially oriented markets.”

China is still one of our better markets

“we’ve actually seen China, while slowing incrementally, it’s still one of the better markets where we play today. Our growth rates continue to be very good in a number of our businesses. ”