United Technologies 2Q17 Earnings Call Notes

Gregory Hayes

China is still a growing market

“So let me just add perhaps the more bullish view on China. It is still a growing market. The GDP there will grow more than 6.5%. Property prices remain strong. The long-term outlook is very good. Look, we’re suffering this year through really the remnants of what were a tough two years where pricing was very, very difficult. But I think to Akhil’s point, it’s encouraging what we’re seeing here in the quarter. And while we won’t see these in actual results play out until early next year, it’s still encouraging to see the Chinese market growing.”

Akhil Jori

Some talk of inflation in Europe

“The other aspect I would say is for Europe service, inflation is starting to at least be talked a little bit, even though at very small levels. But for many years, there was no discussion of inflation at all. And now at least there is some talk about potentially a little bit of inflation coming through, which will ultimately show up in our pricing and will relieve some of the price pressure we have seen in Europe, but still a long way to go, I would say.”

Government can move China much more than other markets

“of all the markets that we play in, China is probably the one where it’s most difficult to call in terms of exactly how it will play out. The government there has abilities to move the markets much more than other markets. And so my crystal ball is not that clear on Otis China.”

United Technologies 4Q16 Earnings Call Notes

United Technologies’ (UTX) CEO Greg Hayes Q4 2016 Results

Tax reform is biggest item we’re focused on this year

“Okay, thanks Carroll. So overall 2016 no drama, at the end of the day. Lot of challenges throughout the year but good execution by the entire team as a result we were able to meet all the commitments that we laid out for the year, so that’s 2016. Let’s focus now on 2017 for just a second. Lot of challenges ahead of us. I think all of us recognized we’ve got a new administration in Washington which has an agenda to be friendly to business and I think, we’re anxious to see how all of that will play out certainly tax reform is the biggest single item that we’re focused on this year.”

FX continues to be an issue

“On top of that, however there is always the issue of FX. We recall we’ve pegged the Euro at 1.05 to the $1, we’re little bit better than that today. I think it’s 107 but FX remains a watch item for the year especially with the impacts of tax reform potentially impacting the exchange rates. We are also of course closely watching the economic environments on both China and Europe our second and third largest markets. Also of course what happens with BREXIT and also the elections in France and Germany will create some uncertainty as we move through the year.”

Looks like we’re going to be following the Brady blueprint for tax reform

“Sure, Lucy. Well first of all, we obviously have been following the Trump administration closely in terms of what you’re talking about on tax reform and it looks like we’re going to be following the Chairman Brady blueprint out of Ways of Means which would lower the top rate to somewhere around 20% eliminate the deductibility of interest but also provide for immediate expensing of capital, also provide for a territorial system which is really good news for us because as you know we’ve got about $6 billion of cash sitting overseas that we can’t bring back to the US, very cost effectively, so we look at this as a huge opportunity to again drive growth in the business and growth here in the US by being able to bring cash back. There is still some question mark around border adjustability and we are net exporter, so if that were to remain in place probably a positive for us, but again there is a lot of moving pieces in tax reform and we will be actively involved in the debate. Again the good news is, if it does happen this year it’s going to be a net positive for the US economy.”

Expect tax reform to be a net positive

“Well I would like to say it’s going to be a net positive but as you know Lucy, the devil is always in the detail around taxes. Our reflective tax rate is about 28%, if they drop the rate to 20% or even 15% obviously that would be helpful. Lose the deductibility on interest which you know we’ve got about $1 billion of interest expense a year so that would hurt. Again it will all be what happens in the transition rules too and how do you transition in the lower rate, how do you transition in the border adjustability. But net-net I think it’s positive even if our effective tax rate doesn’t drop all the way down to 20% just having access to foreign in cash to territorial system is a very, very positive net for the US economy.”

Miscellaneous Earnings Call Notes 10.28.16

SunTrust Banks’ (STI) CEO Bill Rogers on Q3 2016 Results

Regulatory and compliance costs are not likely to abate

“But in terms of overall regulatory and compliance costs, if I look forward, John, I don’t think that in the short- to medium term I would think of regulatory costs in general abating or declining. I think we’re in an environment, where we would expect regulatory and compliance costs to be generally stable or increasing over time. And just the environment that we’re in, I don’t see realistically that anybody in the industry is going to see regulatory and compliance costs fall off.”


Potlatch Corporation’s (PCH) CEO Michael Covey on Q3 2016 Results

Eric Cremers

No rollover in land pricing

” Pricing remains firm. There is a lot of money on the sidelines looking to invest in the asset class. People have an expectation that prices will move higher over the next several years as we continue with this housing recovery that generally gets built into the models that are used to value timberland. And in a low interest rate environment high timberland prices are supported. So we’ve not seen a rollover in timberland pricing at all.”

Lumber prices well supported here. Moving from mid to upper 80s capacity utilization”

” As I think Jerry mentioned in his opening remarks, we might see a real slight rollover in lumber pricing in Q4, and that’s consistent with what the external pundits are forecasting maybe 1% or 2% rollover in pricing. You know generally speaking markets are well balanced, our order book is solid. As you know we sell forward our lumber production. So we’re out into the first or second week of November at this stage. And so we feel very good about where lumber markets are at, at this stage of the game. Just the general backdrop here, if you think about it, we’ve got demand, which has remained strong. Of course the housing market data, there is starts data is volatile from month-to-month. But generally we’re seeing starts increase, we’re seeing strong R&R repair in the model activity, and we’re seeing strong commercial and industrial activity as well. And with industry wide capacity utilization now moving up from the mid to the upper 80s and supply-chain inventories as Mike had mentioned remained very well, we think, lumber prices are well supported here.”


Brown & Brown’s (BRO) CEO Powell Brown on Q3 2016 Results

Hurricane Matthew will have little impact on rates

“We believe Hurricane Matthew will have limited impact on rates, if any. There will be more discussions around flood and wind deductibles, rate for cat property continued downward affecting retail, wholesale, and national programs, and that will continue into Q4 and into 2017.”


Honeywell International’s (HON) CEO Dave Cote on Q3 2016 Results

A favorable setup for 2017

” Darius and Tom will provide more details about 2017 during our annual outlook call in December, but we have a favorable setup. The fourth quarter momentum continues, our long cycle businesses are improving and our inflections start to kick in.”

Tom Szlosek/Dave Cote

A salesperson isn’t productive in his first year on the job

“A salesperson really isn’t productive enough in his first year on the job, so we have to ensure we have enough sales employees in place today to support tomorrow’s business… when you hire salespeople there’s training and familiarization that has to go on. So they’re not immediately productive. It’s the sort of thing that shows up in the future.”


Heidrick & Struggles International’s (HSII) CEO Tracy Wolstencroft on Q3 2016 Results

Rich Pehlke

Improvement in September/October

“we can’t really point to one thing because as we saw July and August kind of soft we really did worry a little bit about was it a sign of some kind of a cyclical trend or a movement but you know September bounced back pretty well and so – and as we talk to our folks and see what’s out there and see how October is progressing. You know there is nothing we can really point to that says that you know there is one – there is one driving factor. So whether or not it could have been client decision caused by things like Brexit et cetera certainly is certainly one of the factors that would have fallen into play but there isn’t any one thing that we can put to, and I don’t know if you want to leverage.”


Zions Bancorp. (ZION) Q3 2016 Results

Harris Simmons

It was a softer quarter for C&I loan demand than we would have hoped for

“I think that’s consistent with what we saw during the third quarter. The third quarter has generally been a softer quarter. You get kind of the summer vacations and everything else baked into it, but this was softer than I think we would have expected. And so we’ll see what happens through the remainder of the year. But it was a softer quarter in C&I than we would have hoped for.”


Brinker International (EAT) Q1 2017 Results Wyman T. Roberts – Brinker International, Inc.

Challenging times across casual dining

“Just as we said last quarter, these continue to be challenging times across casual dining. We’re already seeing some of the weaker players struggle with their viability in this choppy environment. ”

There are some examples of concepts that are shrinking

“We don’t have great metrics around capital spending in the category. But there are some examples of concepts that are shrinking. And in some numbers that are reasonable, we’re talking now in tens and hundreds. So that does make a difference. We’re also hearing from some competitors a dial back, which I think is again encouraging that people are starting to say, hey, listen let’s address the overcapacity and slow things down a little bit. And I heard something recently from a competitor that the expectation was that would also maybe take some of the steam off some of the real estate market, which has not really come back in our opinion kind of represented the softer overall economic situations out there. Still paying a pretty good premium in this environment we think for real estate. So all of those things I think bode well for getting the economics right and getting the supply and demand situation more in line”


United Technologies (UTX) Q3 2016 Results Gregory J. Hayes

China Otis sales down 10%

“We also continue to make good progress at Otis. Our China new equipment orders and units were up 2% in the third quarter and 3% year-to-date. This is in the face of an overall market, which is down more than 5%. I would remind you though, the pricing pressure remains intense, so despite unit orders being up, new equipment orders on a sales basis in China were actually down 10% in the quarter. A tough market right now, but we remain focused on increasing our installed base and converting those units into our service portfolio, which will deliver recurring revenue for decades to come.”

Have seen a slowdown in construction activity in UK

“In Europe, we have seen a slowdown in construction activity in the U.K., we think as a result of the Brexit vote, but the rest of Europe appears to be improving slowly, more than compensating for the slowdown in the U.K.”


Freeport-McMoRan (FCX) Q3 2016 Results
Richard C. Adkerson

It’s clear there’s going to be a need for copper

“Is just, unless you see the world really turning upside down economically, it’s clear that there is going to be a need for copper that’s going to require a significant price increase to justify the spending, and that’s why we feel very good about our long-term strategy.”]


C.H. Robinson Worldwide (CHRW) Q3 2016 Results Andrew Clarke

Carriers raised rates when Hanjin filed for bankruptcy

“Hanjin filed on August 31 and what happened shortly thereafter is the other carriers that remained in the Trans-Pacific eastbound lane began to raise rates. I think what happened then shortly thereafter was that they doubled them. They were up as high as $750 as I mentioned earlier, $750 to $900 a box. Now, we weren’t able to immediately pass those rate increases along to our customers. As I mentioned, our account managers are out there right now having those discussions with our customers to reflect the rates that are now in place in that trade lane. We would expect the impact to trickle into the fourth quarter, but not much beyond that.”


Applied Industrial Technologies (AIT) Q1 2017 Results
Neil A. Schrimsher

October a little softer than September

” I’d say on our sales per day trends – did include expected seasonal softness in July with improvements then in August and even stronger in September. Order trends for October, as expected, developing a little softer than September. However, we still have a handful of days to go. And I’d say year-over-year October is just kind of down low single-digits, which, again, is what we expected looking at the comparables. And, again, that’s got still a handful of days for us to positively impact it.”

Mark Eisele

Foreign exchange rate impact down to zero

” That’s exactly the expectation. If you look at foreign exchange rates, let’s say, for September and if those would stay relatively stable through December, when we look at our overall sales, we would expect to have a 0% impact of currency translation in the December quarter. Then if you keep going on through the rest of the fiscal year, you’d actually see a small positive impact probably in the March quarter and then more flattish in the June quarter. So, our view is, for the entire year, we may end up at virtually zero on FX. Obviously, it depends upon how the rates move from today forward, but that’s our perspective. We’re seeing some stability.”


Range Resources (RRC) Q3 2016 Results
Jeff Ventura

Supply and demand for gas could be more balanced into 2017

“On a macro level, there are signs that later this year and into 2017, supply and demand will be more balanced and pricing could improve. We expect natural gas production in the U.S. to continue declining for the remainder of the year. Based on available data, it appears 2016 will be the first time that natural gas production will decline on the year-over-year basis since 2005. This supply decline is happening while demand for natural gas is increasing, driven by Mexican exports, power generation and LNG exports. Looking towards 2017, the NYMEX Strip has moved above $3 and we think it can continue to climb. Based on where strip pricing is today, we believe that we can grow the combined company at 33% to 35% for 2017. This equates to an organic growth rate of 11% to 13% for 2017, coupled with the full year of the North Louisiana division versus roughly a quarter in 2016. Importantly, this preliminary plan for 2017 also results in strong growth for 2018, assuming a $3.25 per mcf and $60 per barrel, we are projecting that we should achieve organic growth for 2018 of approximately 20%


United Technologies (UTX) Q2 2016 Earnings

United Technologies (UTX) CFO Akhil Joori said recent data on the US economy is encouraging for their business

“Most recent data on the U.S. economy continues to be encouraging. Consumer spending remains strong and job creation, wage growth and unemployment trends point to a steady growth environment, although more likely in the 2% GDP growth range as opposed to the 3% plus that we would all like to see.”

Yet macroeconomic uncertainty and pension liability has the potential to weigh on their profits  going forward

“Looking beyond 2016, we continue to see macroeconomic uncertainty and pressures. Two watch items that have recently come on the radar screen after Brexit. One, general strengthening of the U.S. dollar, and second, lower yields on both long and short bonds. As you know, lower discount rates could have a significant impact on our pension expense for 2017 and beyond. While it is still too early, as a reminder, every 10 basis points change in the discount rate is around a $30 million profit impact.”

United Technologies (UTX) CEO Greg Hayes said they’ve sunk a ton of capital into developing their new jet engine but they hope to earn patiently earn a good return on their investment in the subsequent decades in the services aftermarket

“it’s an expensive game in the commercial engines business. And I’ve said before we’re going to invest or we have invested about $10 billion in CapEx and R&D over the last dozen years or so to bring the products to market. The good news is, at the end of the year, we should have all of the aircraft engines certified. Even though production rates will increase, costs will come down but that is a significant investment.  The good news of course is the aftermarket will come. As we saw this quarter on the V, when the engines get out there, that six-year, seven-year, eight-year timeframe, the engines do need to be overhauled. We will see the returns. But this is not a – it’s not a short-term gain. These are 30-year programs. The returns remain on track to what we had expected which is well in excess of our cost of capital. But it’s not for the faint of heart either, as you know, Howard. And we’re in for the long-term. We’ve got great engines. The performance has been phenomenal out of the box. Right now, our focus is just on delivering engines and then servicing them for the next 25 years or 30 years.”

 

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 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.”

United Technologies at Morgan Stanley Conference Notes

Greg Hayes – President & CEO

UTX moves the world’s population every four days on Otis equipment

“The scale of Otis is unprecedented. We move the world’s population every four days on Otis equipment. It’s a big, big number. It’s a huge franchise and it’s had its challenges and we’ll talk about that in just a minute, but I would say unprecedented in our ability to leverage the scale of Otis.’ –United Technologies (Industrial Conglomerate)

Sequestration is still law of the land

“Sequestration is still a law of the land. We’ll see a little pressure next year because the C17 production is ending this year, that’s primarily at Pratt and there is well some uncertainty around the aftermarket, just depending upon what Congress does relative to sequestration.” –United Technologies

China is likely to remain a challenge next year

“China, it’s a challenge. I think next year you could China — business in China could be down 10%. Now that’s a big number, but not in the context of the UTC.” –United Technologies

You’re only as good as your worst supplier

“People always ask what’s the one thing that keeps you up at night, it’s the ramp. The technology, I’m very confident we’ve got that right but you’re only as good as your worst supplier. When you got 8,000 parts in an engine, one of those aren’t there, you’re not building the engine.”

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.”