Wells Fargo (WFC) Q2 2016 Earnings Call

Wells Fargo (WFC) CEO John Stumpf said the bank remains consistently profitable in the face of massive macro headwinds

“Our diversified business model and continued focus on meeting our customer’s financial needs drove our performance in the second quarter, our 15th consecutive quarter of generating earnings greater than $5 billion. We produced strong performance during a period that has included persistent low rates, market volatility and economic volatility.”

Loan losses remain low by historical standards

“Net charge offs remained near historical lows at 39 basis points annualized reflecting the benefit of our diversified loan portfolio and continued underwriting discipline.”

Expecting rates to remain lower for longer

“urning to the economic environment, Brexit has added to global economic uncertainty and could result in rates remaining lower for even longer than expected putting pressure on reinvestment opportunities. However, compared to our large bank peers, it should have a much lower direct impact on our long-term business drivers because as you know we are largely a US centric company and many indicators point to continued relative strength in the US economy.”

GDP growth accelerated in Q2

“After a couple of lackluster quarters, we estimate real GDP grew at 2.5% rate in the second quarter, up from 1.1% in the first quarter. Most of the improvement came from consumers where drivers were broad-based. Spending on big ticket items was especially robust and sentiment survey showed that consumer confidence remains strong. Home sales continue to rise with the second quarter on pace set the strongest quarterly sales volume since 2007. Price appreciation remained steady at the 5% to 6% rate nationally and appreciation isn’t just restricted to coastal states, every state and 90% of all metro areas have experienced an increase during the past year. And job gains remains solid with 69 consecutive monthly increases, the longest on record including the strong June report released just last week.”

Wells Fargo (WFC) CFO John Shrewsberry highlighted robust loan growth during the quarter with particular strength in consumer and real estate

“We had continued strong loan growth in the second quarter, up 8% from a year ago and 1% from the first quarter.  Consumer loans increased $3.6 billion linked quarter as growth in first mortgage loans, auto, credit card and securities-based lending was partially offset by declines in junior lean mortgages and seasonally lower student lending.  Commercial real estate loans grew $10.7 billion or 8% primarily in our real estate mortgage portfolio. Real estate one-to-four family first mortgage loans grew $9.3 billion or 3% with strong growth and high quality non-conforming mortgage loans.”

Oil and gas loans make up a very small portion of the overall loan portfolio

“Our oil and gas loans outstanding declined 4% from the first quarter and were down 2% from a year ago. Oil and gas loans of $17.1 billion are less than 2% of total loans outstanding. Our oil and gas loan exposure which includes unfunded commitments and loans outstanding was also down 4% from first quarter and down 10% from a year ago, primarily driven by borrowing base reductions.”

Wells Fargo (WFC) CEO John Stumpf said Brexit’s biggest impact what it’s effect on long term rates

“The biggest influence that Brexit had on our company was not on, frankly, a direct impact on the way we do business or customer strengthen like that, it really was the big move down in long-term rates.”

Wells Fargo (WFC) CEO John Stumpf on how he prioritizes investing in the future of the business and other expenses

“ere is how we look at expenses. We look at this company, in fact, on Wednesday, we had our 164th birthday and we look at this company from a long-term perspective, we’ve always been thoughtful about how we spend our shareholders money. We’re the stewards of your capital and their capital and surely a longer — lower for longer scenario puts pressure on everything that we do, but we’re going to continue to make those investments that we believe are good long-term investments to help customers succeed financially.  That being said, I do think we’re at a point in time where there are some opportunities that because of changing customer behaviors, so we will, but we’re not going to do something that’s going to be short-term bright and long-term dull if you will, just because of pressure on the revenue side or the earnings side. Just assume that we’re going to continue to work really hard on making investments and also maturing systems, taking out costs that don’t add value. In other words, think of maximizing or monetizing our scale.”


Wells Fargo 2Q16 Earnings Call Notes

Wells Fargo & Co.’s (WFC) CEO John Stumpf on Q2 2016 Results

Average loans grew 9% vs last year

“Average loans grew over $80 billion or 9% from a year ago. Average deposits increased $51.4 billion or 4% from year ago and we grew the primary – the number of primary consumer checking customers by 4.7%. Net charge offs remained near historical lows at 39 basis points annualized reflecting the benefit of our diversified loan portfolio and continued underwriting discipline.”

Brexit has added global uncertainty

“Turning to the economic environment, Brexit has added to global economic uncertainty and could result in rates remaining lower for even longer than expected putting pressure on reinvestment opportunities. However, compared to our large bank peers, it should have a much lower direct impact on our long-term business drivers because as you know we are largely a US centric company and many indicators point to continued relative strength in the US economy. ”

The consumer is leading stronger economic growth

“After a couple of lackluster quarters, we estimate real GDP grew at 2.5% rate in the second quarter, up from 1.1% in the first quarter. Most of the improvement came from consumers where drivers were broad-based. Spending on big ticket items was especially robust and sentiment survey showed that consumer confidence remains strong. Home sales continue to rise with the second quarter on pace set the strongest quarterly sales volume since 2007. Price appreciation remained steady at the 5% to 6% rate nationally and appreciation isn’t just restricted to coastal states, every state and 90% of all metro areas have experienced an increase during the past year.”

Trying to balance lower for longer against potential capital impacts of rising rates

“We’re balancing the capital sensitivity and what happens when you meaningfully add duration at what might be a cyclically low point in rates, we’re saying we think it’s going to be lower for longer but we have to sensitize ourselves to what happens if we get much more invested here and rates move up and that destroys capital. So that’s a limiter in some sense.”

As you know housing is getting better everywhere

“as you know housing is getting better everywhere and that hugely benefits us. So while there might be some more normalization in one part of the consumer, it might be offset by another part of the consumer.”

The biggest impact of Brexit has been on rates

“the biggest influence that Brexit had on our company was not on, frankly, a direct impact on the way we do business or customer strengthen like that, it really was the big move down in long-term rates.”

John Shrewsberry

Grew investment securities portfolio with expectation of lower for longer

” With the expectation of rates remaining lower-for-longer, we grew our investment securities portfolio by $18.5 billion, with $38 billion of gross purchases in the second quarter significantly higher than the $5 billion repurchases last quarter and higher than the $26 billion of average quarterly purchases last year. ”

If rates are going to remain lower we will work hard for loan growth

” if rates are going to remain lower, we will work hard at earning asset growth. And the first call on our capital and liquidity is to serve customers, so we’ll be looking for loan growth and we’ve had great success in organic loan growth in commercial categories as well as in consumer categories.”

There doesn’t seem to be too much competition for deposits

” funding never really seems to be a problem. We’ve imagined frankly since LCR was first proposed that people would be competing for deposits, especially smaller firms who have less of a value proposition for customers and they really have to pay for deposits in order to attract them. And it really hasn’t seem to come to pass. I don’t know whether aggregate credit creation is outstripping aggregate deposit generation by so much that it’s going to cause firms at the margin to raise prices, compete for deposits and drive up the cost for the rest of us, it could happen, we haven’t seen it.”

A lot of loan growth is driven by assets changing hands

“What we’re seeing among assets is a lot more things changing hands, so a big part of our loan growth are loans coming out of GE and coming onto our books and loans coming off of other people’s books and onto our books and as opposed to the aggregates being impacted in the way that you describe.”

Interest rate moves make it harder to grow NII

“Well, it is harder to grow net interest income in a lower rate environment than otherwise, which is obvious. The short end of the curve is one thing, but this move down in seven years and out, is just as hard and just as meaningful because of the redeployment. So it’s still our plan and our goal and what we’re telling you is that we intend to grow net interest income, even if there are no rate moves and we’re doing it by adding — by redeploying cash into HQLA and other earning assets, by looking everywhere for customers where we can make quality loans and those are the big items. So it’s our plan, it’s our effort, it’s what we’re all working toward, but it’s harder.”

It’s a great time to be a borrower

” it’s a great time to be a borrower, it’s a great time to be one of our customers. The mortgage business is one obvious place to look for the origination fee generation or gain generation, but across the board, I would expect more, everything is more affordable on a finance basis.”

Wells Fargo at Deutsche Bank Conference

John Shrewsberry – Senior EVP & CFO

Enormous growth potential in card

“We have talked about the card business and the fact that there is an enormous amount of growth space for us there. We have — a lot of execution goes into making that work but we are a modest number six or so player in the U.S. there, so a lot of growth possibility there.”

We have set ourselves up not to be too reliant on the next rate move

“we have set ourselves up not to be too reliant on the prospect of the next move. We have got more invested last year at the long-end of the curve to create earning assets and gave up asset sensitivity but with an expectation that was worth it to generate income because who knows how long it takes before we have a normalization of policy rates.”

I don’t know why there would be a move down in the long end if the Fed raises rates

“So if the curve flattens or inverts or at least, not in a full sense but if there is downward movement at the long-end. And I don’t know why there would be — we had a mini-market crisis in January but you could attribute, I suppose, some of the reason for it to the fed’s decision to move in December but not necessarily. I certainly wouldn’t imagine that that’s going to happen again.”

$50 oil isn’t a game changer for oil credit but M&A activity is a good sign

“I don’t think it’s a game changer. When we spoke earlier I mentioned that the litmus test for — or the sign that we have been looking for in energy is the unfreezing of the asset level M&A activity that’s going on in the oil field among people who are bringing new risk capital and looking to take advantage of some of the weakness that’s occurred. That had not been happening in size through at least the end of the first quarter. It feels like it’s happening more naturally now and I think that will help people figure out where value is. It will help to speed up resolutions or restructurings either in or out of the workout group in or out of the bankruptcy but just in the normal course, and that will help people to understand how far there is to go in this cycle before it’s over.”

There may be some opportunity to gain share in the wholesale mortgage channel

“Well, primarily from a retail perspective under the theory that these are our customers, retail originations are more valuable originations to us. There may still be more to do in the wholesale channel. That’s where we have lost a lot of share because so many of our wholesale relationships have been able to go straight to the agencies and sell paper. Sell mortgages indirectly rather than in the old days where they would sort of have to come through a bundler like Wells Fargo. But owning the customer experience being there for the origination is definitely a path that we are attempting to take and the sense if that’s where we could make the most differenced and those originations are more valuable.”

Wells Fargo 1Q16 Earnings Call Notes

John Stumpf

The rest of the portfolio looks good besides oil and gas

“While deterioration in the oil and gas portfolio drove a $200 million reserve build, the rest of our loan portfolio continued to have strong credit results with our total net charge-off rate remaining near historical lows at 38 basis points annualized, reflecting the benefit of our diversified loan portfolio.”

The US economy continues to be resilient

“While signs of economic uncertainty remain in the global economy as well as volatility in the capital markets, the U.S. economy, which is the primary driver of Wells Fargo’s results, continues to be resilient. For example, while low energy prices have negatively impacted the oil and gas industry, the U.S. is still a net energy importer and the benefits of falling prices have outweighed the costs for consumers and most businesses.”

Texas feels like a much more diversified economy

“I lived in Texas for six years in the mid to late 90’s, so 20 years ago and there was a period of time there — there was volatility in the oil and gas space. And there was some challenges. And I’ve been back, I was just in Houston last week. And I’ve been back a number of times in the last year and things do feel different 20 years later. It’s a much more diverse economy. And if you take Texas generally but Houston specifically and it feels different this time around. Downturns are always heard. Volatile markets always have an impact. But this feels different this time because of what the state has done to diversify their economy.”

Consumers have been saving, not spending gas savings

” we’re still a net importer of energy and what’s interesting, Mike, is that much of that savings at the consumer level have been saved, if you will, and have not yet been spent. So not all the savings at the pump. What consumers have done and that not exclusively but they’re saving more of that what’s happening at the pump as opposed to spending it.”

Consumers have never been in better shape

“I have long stopped trying to figure out the market and why bank stocks or stocks seem to move in concert with commodity prices especially oil prices but be that as it may, the consumer, much of this economy, 60%, 70% is consumer based and in retail and the consumers have never been in better shape. I mentioned in my comments just the debt service requirements is 15% of their earnings and wage is certain of up a little that and we’re seeing savings rates go up. These are some of the strongest savings rates we’ve seen in some time. I don’t know if that’s a statement about confidence or whatever but there is — consumers are benefiting from filling your tank at the dollar something a gallon or two dollars a gallon versus three or four and not all of it has been spent.”

If we weren’t innovators, we’d have stagecoaches on the freeway

“I think our company specifically and our industry generally have been innovators for a whole long time. So if we weren’t we’d have stagecoaches on the freeway right now.”

John Shrewsberry

Loan growth was 10%

“we had continued strong loan growth in the first quarter, up 10% from a year ago and 3% from the fourth quarter.”

Allowance is 9% of total oil and gas loans outstanding

“our allocated allowance for the oil and gas portfolio increased $504 million to $1.7 billion. This portion of the allowance was 9.3% of total oil and gas loans outstanding. But as I’ve noted before, the entire $12.7 billion allowance is available to absorb credit losses inherent in the total loan portfolio.”

Are seeing some weakness in Houston

“In commercial real estate, which is where we have a big presence, we’ve recently done a deep dive in Texas in particular. And office vacancies are somewhat higher in the Houston area, no surprise, I think about 20% including sublease space. Multifamily is a little bit weaker. And so we’re looking at that first and foremost frankly with respect to what it means to our risk, to our own portfolio and we feel fine about what our exposures are there. ”

It still feels like we’re in a 2% environment

“More broadly speaking, I think we still feel we’re in a 2% environment. There are obvious pockets of strength around the country but when you move out of oil and gas, we’re in the same low growth, better consumer, strong employment environment that we’ve been operating in for a couple of years, not enough to make it feel like rates are going to move as a result of it but not enough to feel like we’re stalling either.”

The abrupt market volatility made us think twice about redeploying our liquidity

“But it was really the abrupt market volatility that happened after the first of the year that caused us to say, let’s take a pause here and figure out where this is going to settle out. It’s happened to have settled out not much above the low points, at least again on a ten-year from January, early February. But that is an earnings lever when and if we redeploy.”

Corporate Annual Reports And CEO Interviews 3.24.16

Source: John Deere Annual Report

John Deere (DE) CEO Sam Allen said the farm equipment recession of the last few years has been the worst in nearly a century

“In relation to the farm economy’s robust years earlier in the decade, the current downturn has been quite dramatic. Since peaking in 2013, industry sales of large agricultural equipment in the United States have fallen more than 60 percent. Deere’s total equipment sales have declined more than 25 percent from their high. Last year’s sales decline was the company’s largest in percentage terms since the 1930’s.”

Source: Richemont (owner of luxury jewelry brands such as Cartier, Van Cleef & Arpels) CEO Youtube Interview= https://www.youtube.com/watch?v=-MvyTHPueKI

Richemont CEO Johann Rupert said the true price of capital is obscured in today’s economic environment

“We have a lot more competition, especially from ridiculously mispriced capital. When people misprice something, it is abused. In England, water is free, it rains all the time yet there is a drought. Now, if you misprice capital, people will abuse it and will regret it, unfortunately in our business as well.”

Richemont CEO Johann Rupert stated you should always be improving your business whether we are in an economic expansion or economic recession

“Never waste a good recession. Never waste an opportunity to fine tune your business.

Source: Schlumberger Annual Report

Schlumberger (SLB) CEO Paal Kibsgaard remains constructive on both the supply and demand of the oil markets ultimately coming into equilibrium in the medium term

“We remain constructive in our view of the market outlook in the medium term and continue to believe that the underlying balance of supply and demand will tighten. This will be driven by growth in demand, weakening supply as the massive E&P investment cuts take effect, and the size of the annual supply replacement challenge. In continuing to accelerate the benefits of our transformation program across both our Technologies and GeoMarket regions in 2016, we believe that we will emerge as a stronger company once the price of oil and the market conditions in our industry improve.”

Source: Autozone Annual Report

Autozone (AZO) CEO William Rhodes said the company is prioritizing their E-commerce auto parts websites in order to get their products to consumers quicker

“We are expanding our fast-growing internet offerings. Utilizing our autozone.com, autozonepro.com and autoanything.com websites, we believe we are well positioned to serve our customers however they elect to interact with us. In 2016, we will continue our focus on both expanding our online product offerings and improving the shopping experience. While this business is growing at a faster pace than our “brick and mortar” business, it remains small in absolute terms. However, over time, as mobile shopping intensifies, it will only expand. We have to stay out in front in this sector of our industry. Our customers expect us to offer this shopping convenience and additional avenues for trustworthy advice to maintain, enhance or repair their vehicle.”

Source: Leucadia Annual Report

Leucadia (LUK) CEO Richard Handler said his company is undervalued and prepared to weather the stormy economic environment

“As we write, there is continuing volatility in the fixed income and equity trading markets, as well as in energy prices. Scratches and dents seem inevitable and we won’t dare make predictions for the rest of the year, but based on the actions we have taken to date, our businesses are prepared to weather the storm, and several are doing quite well. We are both aligned long-term investors in Leucadia stock and will continue to work our hardest to deliver good results in the coming years. There remains significant long-term upside in the value of Leucadia, which exists in the intrinsic value of our businesses and is not fully reflected in our current dismal stock price. We will discuss all of our businesses later in this letter.”

Source: Bank of New York Mellon Annual Report

Bank of New York Mellon (BK) CEO Gerald Hassell reiterated the company’s new mission statement

“We play an important role in the financial marketplace and describe ourselves as the Investments Company for the World. Our mission is to help people realize their full potential by leveraging our distinctive expertise to power investment success. In doing so, we seek to improve the lives of countless people globally – a goal that motivates us to be the very best at what we do.”

Bank of New York Mellon (BK) CEO Gerald Hassell said the company remains the dominant vendor for central banks and pension funds

“Our clients include three-quarters of the Fortune 500, central banks that hold approximately 90 percent of all capital and more than two-thirds of the top 1,000 pension funds.”

Source: Moody’s Annual Reports

Moody’s (MCO) CEO Ray McDaniel said the company is benefiting from several tailwinds in the financial markets

“We manage through cyclical conditions, while focusing on and investing around the deeper pull of structural market evolution: phenomena such as the disintermediation of credit, the demand for enhanced risk management techniques, the need to curate increasingly vast quantities of financial information and data and the development of emerging economies. These are powerful dynamics and they reveal an open road beyond the rubbernecking that often surrounds day-to-day market sentiment.”

Moody’s (MCO) CEO Ray McDaniel noted a choppy economic environment is creating uncertain buying patterns across their customer base
“Financial markets continue to be buffeted by volatility stemming from, among other things, uncertain global economic conditions, diverging monetary policies and geopolitical events. These dynamics (and their inter-relationship) create cross-currents and choppiness that unsettle market participants. This in turn impacts both the short- and long-term outlook for Moody’s.”

He elaborated that markets getting harder to interpret

“Markets are becoming more complex, not less, and are moving more quickly and featuring more choices. The need for products and services that illuminate and enhance the understanding of risk is essential to market confidence, and that confidence is essential to the sound management and efficient movement of global capital. Moody’s focus and opportunity involves filling the gaps that complexity, volume and information inefficiencies create.”

Source: Potash Annual Report

Potash (POT) CEO Jochen Tilk said increased global demand for protein will benefit his agricultural nutrient focused company

“By 2050, the world’s population is expected to grow by another 2.3 billion, reaching 9.7 billion. At the same time, diets are improving in many regions. These facts add up to greater demand for food, which will require increased crop production even as the amount of arable land per person is declining. With the world counting on increased yields from farmers, fertilizers will continue to be essential in keeping soils healthy. The role of fertilizers cannot be overestimated: they are responsible for half of all crop yields and without them, we believe the world would be incapable of feeding itself. ”

Source: Wells Fargo Annual Report

Wells Fargo (WFC) CEO John Stumpf said the company is still a relationship oriented business

“The most powerful expression of our heritage isn’t in documents or artifacts or even our stagecoach. It is in any of the millions of relationships we have formed over generations with customers, team members, communities, and shareholders. Relationships define Wells Fargo. Earning lifelong relationships, one customer at a time, is fundamental to achieving our vision.”

Source: Mark Fields Business Insider Interview http://www.businessinsider.com/ford-ceo-mark-fields-interview-2016-3

Ford (F) CEO Mark Fields said cars on the road today are lasting longer than ever, suppressing demand for their products

“We have worked very hard at quality over the last number of years, and our quality is in the top echelons of the industry. So part of it is vehicles are lasting longer. When I was growing up, when you saw a 20-year-old car it was like, Oh my gosh — that thing’s on its last legs. Now you see a 20-year-old vehicle and in many cases it looks pretty good. So part of it is that, but the other part is when we went through the downturn, clearly there were a lot of deferrals of people replacing vehicles.”

Ford (F) CEO Mark Fields noted that economic volatility and currency wars are making the automobile manufacturing business a more competitive landscape

“For us the main policy is making sure that currency is not used as a weapon, if you will, to manipulate the cost of products, whether they’re imported or exported. We can compete with anybody around the world. We can’t compete with central banks.”


Blackrock (BLK) CFO Gary Shedlin said the the company remains the #1 global provider of ETF’s, followed closely by Vanguard

“Global iShares generated $60 billion of net new business in the fourth quarter and record flows of $130 billion for the year; representing full-year organic growth of 13%. iShares captured the number one share of global, U.S., and European ETF industry flows for both the fourth quarter and the full-year. For the quarter and for the year, iShares captured the number one share of flows in the U.S., Europe globally with 37% global market share for the full-year.”

Blackrock (BLK) CEO Larry Fink mentioned the company’s wide breadth of product offerings as a key competitive strength

“In a more fragmented investment landscape impacted by continual low rate, modest beta driven returns, investors will search for income, they will search for capital appreciation, through a combination of both active and alternative investments, factors, smart beta strategies, and hybrid solutions. No other firm in the world can provide all of these capabilities on a single platform, supported by superior risk management, technology, and investment performance.”

Blackrock (BLK) CEO Larry Fink said their insurance clients have been adding to their fixed income exposure

“Well, the widening in spreads is a blessing for our insurance clients. That’s first and foremost. Insurance companies are adding to their fixed income exposures now. And so, as spreads widen, we expect to see more demand institutionally.”

Blackrock (BLK) CEO Larry Fink said he thinks some companies may have to lower their dividend but he is adamant that they will maintain theirs

“If you look at some of the high paying dividend stocks today, I think you’re going to see quite a few companies are going to have to lower their dividends. One of the histories of our platform, we never lowered our dividends ever even in the financial crisis. And so, to me it’s about a discipline, it’s a commitment. We are always committed of having a proposed dividend rate of somewhere between the 40% and 50% level.”

Wells Fargo (WFC) CEO John Stumpf reminded investors of the magnitude of loans the company made during Fiscal 2015

“Our contribution to the real economy in 2015 was broad-based and included originating $213 billion in residential mortgage loans, $31 billion of auto loans, almost in $19 billion in new loan commitments to our small business customers who primarily have less than $20 million in annual revenue, $34 billion of middle market loans and $29 billion of commercial real estate loans.”

Wells Fargo generates a large majority of its revenue in the U.S. so it is less affected by turmoil in other countries than some of its peers

“Turning to the economic environment, while parts of the global economy have continued to experience stress and the markets have reacted negatively in the early weeks of 2016, domestic economic conditions remain generally favorable. As you know, Wells Fargo is a U.S.-centric company and the strength and diversity of the U.S. economy benefited our results in 2015.”

Automobiles remain a particular area of strength

“While falling energy prices have hurt certain sectors of the U.S. economy, most consumers and many businesses are benefiting from lower power costs which results in more discretionary cash that can be used for other purposes. Auto vehicle sales were the best ever in 2015 and Wells Fargo originated a record number of auto loans during the year. If gas prices continue to remain low, 2016 should be another strong year for the auto market.”

Wells Fargo (WFC) CEO John Stumpf said housing had its best year in nearly a decade and they expect broad real estate prices to remain firm

“The housing market also continued its steady improvement, with price appreciation of 6% helping homeowners build equity and improving the credit quality of our consumer real estate portfolio where net charge-offs were down 44% from a year ago. While December housing data is not yet available, 2015 appears to be the best year for home sales and housing starts since 2007.”

They are able to fund their business with very low cost deposits

“We had $1.2 trillion of average deposits in the fourth quarter, up $67 billion or 6% from a year ago. Our average deposit cost was 8 basis points, down 1 basis point from a year ago and stable with third quarter.”

Wells Fargo (WFC) CEO John Stumpf said he is prepared to operate and adapt to the rate environment regardless of how many times the Federal Reserve hikes interest rates this year

“So we’ve got a one hike, two hike, three hike and four hike scenario that we’re operating with because like you we can’t say for sure what’s going to happen we work very hard to produce the type of net interest income growth that we have in a no hike environment for the last several years so we’ll see what the future holds because it feels a little bit different every day.”

Fastental (FAST) CEO Dan Florness sounded the industrial recession alarm bells when he said a majority of their top customers are seeing a slowdown in their business

“In the first quarter of this year, 72 of our top 100 customers grew. In the second quarter, that dropped to 63. In the third quarter that dropped to 56. In the fourth quarter, that dropped to 49. So in the fourth quarter, half of our top 100 customers grew and half contracted. In the month of December to amplify that a little bit, 41 of our top 100 customers grew and 59 contracted.”

Fastental (FAST) CEO Dan Florness blamed himself for the company’s poor quarter

“This quarter was largely under my watch and I think from an expense standpoint, we frankly did a mediocre job and I put that squarely on my shoulders.”

Fastental (FAST) CEO Dan Florness believes that their tightly knit relationships with their customers is one of their competitive advantages

“Fastenal is uniquely situated, to go after those businesses unlike any other company out there because one of the things that I always tell our folks internally and I try to remember myself is I am world where everybody is talking about building the last mile in this online world, we’re a company that’s built the last mile already. It’s a very efficient last mile and how can we take that last mile, take our employees at the store, take our employees that are supporting the store and together growth a great business and that’s what we focus on.”

Simulations Plus (SLP) CEO Walt Woltosz said the company remains heavily linked to their pharmaceutical customer’s research and development budgets

“So overall we are a major provider of software and consulting services for pharma R&D, all the way from the very earliest drug discovery when a chemist first sits down maybe with MedChem Designer or some other software and draws a molecule or uses a computer program to generate a million molecules automatically that never existed before. We work all the way from there through the preclinical development and laboratory experiments, and animal experiments into – first in human trials and then into phase two and phase three clinical trials, and then even beyond that when a patent expires supporting quite a number of now generic companies.”

And their pharmaceutical consulting business is done on a project by project basis

“As of the end of the first quarter of this year we are working with 19 companies on 32 different drugs and for those products we have a total of 56 projects. 15 of those projects actually started in this first quarter. We’ve expanded the scope of projects with three companies and that happens when as we perform analyses we discover new factors that need to be explored and clients approve the additional expenditures or revenue to delve with some of those questions and issues to address them for regulatory submissions, for example.

And if the consulting project continues to progress, they may end up meeting with the FDA to seek regulatory approval on behalf of their clients

“The most common therapeutic area that we work in now is oncology and that’s followed by neurology and drugs for immunologic disorders. On average, every year about 25 of the work that we do on projects results directly in regulatory interactions and these are either the submissions of new drug applications to regulatory agencies or meetings with the FDA to resolve certain issues or questions that either the FDA or the pharmaceutical companies have about advancing the drug and securing approval.”

Simulations Plus (SLP) CEO Walt Woltosz emphasized their customers high renewal rate of their software products

“Our software renewal rates of 89% based on the number of accounts and 94% based on the fees that those accounts bring in.”

Rocky Mountain Chocolate Factory (RMCF) COO Bryan Merryman cited higher input costs as a reason for the company’s recent poor financial performance

“Also we had higher commodity cost specifically cocoa nuts and dairy. We’re near historical highs during the first six months of year.”

Rocky Mountain Chocolate Factory (RMCF) President Frank Crail said they are selling many of their products outside of their store base

“The sales to customers outside of our system of franchised stores consists of a variety of customers, the bulk of the sales that we have are sold to partners that primarily sell their product over the Internet and that’s what most of our sales are now. Our biggest customer is ProFlowers and we also sell to other companies who feature our product on their websites and recently we’ve started to sell into the food & drug markets as well and we also sell products over our Internet site rmcf.com. So that’s sort of the customer make up of our outside of our system. We also have master licensees, international master licensees that we sell products to and we have co-branded stores that are licensed to sell Rocky Mountain Chocolate Factory, our biggest partner in that area is Cold Stone Creamery and then we also co-brand with a number of our frozen yogurt stores.”

And they expect this channel to remain a growth driver going forward

“That in the future will be we believe most of the growth in the company will come from that area, we think our domestic franchise system right now looks like it all be about the same number of units going forward maybe declined slightly just depending on the economic environment and the availability and financing.”

Rocky Mountain Chocolate Factory (RMCF) President Frank Crail said they do not compete against See’s Candy

“We don’t really compete against See’s Candy, except for during the holiday season. Rocky Mountain Chocolate Factory is an everyday chocolatier, See’s is primarily given as a gift, 90% of their volume during holidays. We’re way, way less seasonal of a concept, we co-exist nicely with See’s in California. See’s is definitely the gift of choice and chocolate in the West Coast less so in the rest of the country and so we have many customers that will buy a gift of See’s to give away as a gift and buy our product for themselves at our stores in California. So we’ve coexisted with See’s, we have more stores in California than in any other state that’s where See’s is strongest. We’ve coexisted with See’s for really the whole 35 year history of Rocky Mountain Chocolate Factory.”

Wells Fargo 4Q15 Earnings Call Notes

John Stumpf

Domestic economic conditions remain generally favorable

“while parts of the global economy have continued to experience stress and the markets have reacted negatively in the early weeks of 2016, domestic economic conditions remain generally favorable.”

I’m not going to call the economy robust, but we’re happy with where we’re at

“So far, Joe, with respect to consumers, they have not spent a lot of their gas savings so far. I think you’ll start to spend some more — and the thing for Wells Fargo is 97% of what we do is in the U.S.. And virtually everything we do in the U.S. is involved in the real economy. And there are pockets of strengths. You think of autos, you think of commercial real estate, you think of residential real estate, parts of ag, some middle market. And I don’t — I’m not going to say it’s robust, but we’re really happy we’re all-in in the U.S.. Let’s put it that way.”

Fastenal is a great company, but some companies are more impacted than others

“you’re going to have some companies because of what they are doing are going to be impacted more than others. And I can surely see where Fastenal, who — it’s a Midwestern company, I know that company, it’s a great company — will have some issues or would be saying the things they’re saying. That makes sense to me, given their product mix.”

Economy is more diversified than it’s been in past energy cycles and companies were more aggressive than in the past

“this one is different in a couple of respects. First of all, the economy in the U.S. is more diversified, so the communities in which energy plays a role is more diversified. Not true in every community but and we look at that. Secondly, companies this time around reacted much more quickly. I think in past recessions — in past corrections, there was more hope and prayer going on, for higher prices or a rebound. And so, they reacted quickly.”

John Shrewsberry

Credit quality remained strong

“Credit quality remained strong, with net charge-offs of 36 basis points of average loans and we continued to have strong liquidity and capital levels.”

$17B of exposure to energy lending

“Yes. I would — of the $17 billion — actually the first cut I would give you is upstream, midstream services, because I think that’s germane. And I’d tell you that’s about one-half upstream and one quarter services and one quarter midstream. And I think for that cut, we’ve separated out our investment grade component. So that what we’re focused on are really the — call it the BB and down, middle market, private clients.”

Outlook for housing is actually pretty strong

“our outlook for housing in 2016 is actually pretty strong. We’ve got a little bit more supply coming in. You’ve got more household formation. We’re going to have a four handle on unemployment before you know it and we’ve got low rates. So if that continues to be true, that’s probably a continued tailwind, in terms of some of the drivers of the estimation of embedded loss on the consumer real estate side of the loan portfolio.’

Criticized assets in the oil portfolio are 38% of outstandings. We’re stressing the portfolio for very low prices

“criticized assets today or at the end of the quarter in that portfolio are about 38% of outstandings. And there isn’t a simple way to dimension what the change would be in losses, based on some other future price income. As I mentioned to Betsy, we’re sensitizing our portfolio based on a continuation of very, very, very low oil prices, the context of where we’re today, rather than an upward sloping curve, in addition to scenarios that include an upward sloping curve and we’re comfortable with the amount of coverage that we have today. ”

We’re still in a time of elevated spend on several categories

“we’re still in an elevated time for what I would describe as compliance risk management, technology including cyber-related spend. We’re still in an elevated time of product development and sort of offensive related spend. And so, I think that that’s part of what guides us to this higher end for the time being.”

We spend a lot of time talking to regulators about what’s going on in the energy business

“it won’t surprise you that we’re very transparent, spend a lot of time talking with the regulatory community about what’s going on in energy. They are fully aware of how our portfolio works. But as you mentioned, at the beginning of that statement, it’s important to remember that we’re talking about 2% of a $920 billion loan portfolio. So they know that.”

MBA is calling for a decline in mortgage originations

“I think the MBA is calling for a $1.5 trillion or $1.6 trillion, down to $1.4 trillion mortgage market in 2016 versus 2015 and our folks seem to be in sync with that.”

Willingness to provide capital to energy companies has gone away

“Yes. So in terms of pullback and credit availability, I would expand the description to say, not just bank credit, but capital markets were actually, as you know, were quite open for energy companies very early in this. And that has gone away. My understanding is that smaller banks, regional banks, have only recently begun to really pull back from a willingness to provide credit. Maybe it’s this incremental leg down to where we’re on crude prices that has people generally believing that this could be where we’re for a longer time”

We’re being appropriately tough, but trying to help the customer work through this too

“I’d say, we’re all being as appropriately tough, to make sure that we protect the interests of the bank. We’re very — we’re working with each customer to help them work through this. It doesn’t do us any good to accelerate an issue or two, to end up as the holder of a number of oil leases as a bank.”

Services companies are either in business or not in business

” Services companies I think are different than E&P companies, because for some of them it’s really not about a $5 band of oil prices or a $10 band of oil prices. They’re either in business or they’re not in business.”

It’s not robust, but it doesn’t feel like a manufacturing recession to me

“it’s as John described, right? It’s not robust. People aren’t super enthusiastic. But you’ve seen the growth in our commercial loan portfolios which reflects people doing business. And some — a lot of that is us taking business from other people, but in a significant portion of those cases, that’s folks borrowing money to do things, to buy things. And it doesn’t feel like a manufacturing recession to me.”

Lower oil prices are a net benefit to non energy companies

“certainly plenty of opportunity for a market-related contagion when one industry is suffering and other industries are starting — are trying to borrow. But in this instance, cheap oil is a net stimulative impact on U.S. growth. A WorldCom fraud was not beneficial for everybody else in the U.S. Telecom didn’t get cheaper. But fuel has gotten cheaper which is good for consumers”

Mike Mayo (Analyst)

~10% losses on energy portfolio if oil stays at $30 for the next year

“And just to clarify what you said before, if oil stays at $30 for the next year, you still feel that the $1.2 billion of reserves on the oil and gas portfolio is sufficient? Is that correct?”

Wells Fargo at Goldman Sachs Conference Notes

Wells Fargo’s (WFC) CEO John Stumpf Presents at 2015 Goldman Sachs Financial Services Conference

It’s surprising that consumers haven’t spent gas savings

“one of the things that I think has been a bit surprising is the big reduction in the price of the pump, in other words, it’s almost like a tax cut for consumers, has not yet been spent. Some of it’s been spent, but more of it’s been saved or used to pay down debt in the small business area and I think part of that’s confidence.”

There’s a big debate about what happens to deposits when rates increase and nobody really knows

“There is probably no bigger debate today than this very issue and the frank, the honest answer is none of us know. Some of us have been around a long time and I remember running the retail business during the last, we call it a backup, backup in rates, they’re going back up almost like a perfect stair step.”

A lot of competitors aren’t around anymore

“And things are different this time. So the last time I was involved in this, if we go to California, Bernanke was raising rates every quarter and we had big competitors for deposits those days. We had the WaMus and World Savings and Countrywides and IndyMacs, who were using those deposits as just-in-time capital to fund their mortgage business, acquisition to sell. None of those folks are around this time.”

Most people were at 100% loan to deposit ratio then too. We don’t have those liquidity needs today

“Secondly, most banks at that time, competitors were at 100% loan-to-deposit. If you want to make a new loan, you had to get a deposit unless you want to go to the debt markets of course. And there were good enough asset yields to pay up for deposits. If you look at today’s environment, it’s very different. I am not saying it will react differently, but it’s very different. We don’t have that just-in-time capital need by those companies. Most of us have excess liquidity today. The biggest challenge I have every day when I get up is not growing deposits, it’s growing earning assets.”

The way in which the Fed raises matters

“it matters if there is a belief that the Fed will increase every meeting. That says something to depositors and says something to the psyche versus if there is careful language about it’s going to be very data driven and so. I mean, the expectation is that there will not be a steady increase, I think that says something different.”

I think high yield was mispriced going in and now spreads have blown out but I don’t know if that’s a precursor to something

“let’s first start with the high-yield or junk bond market, I think that – clearly those spreads have blown out. I think it was mispriced going in. I mean, I think there is probably a realization that we need to price this properly. I don’t know if that’s a precursor to being concerned about what’s in a loan portfolio.”

Oil service companies are most challenged in energy space

“there is E&P, and there is midstream and there is services companies. The services companies are the most challenge in that group. We have been downgrading those and putting reserves up and so forth and re-risk rating those.”

I don’t see a lot of issues, but there are issues, for instance low cap rates on real estate

“I don’t see a lot of issues today that cause me a lot of concern. That does not mean that there is not issues. You look at some of the cap rates on real estate, you scratch your head, you look at threes and fours and you don’t know how they make the numbers work.”

There is frothiness in auto, but auto is not a long dated asset. The main way you get hurt is in estimating residual value of leases

“I know there is frothiness, but this is not a long-dated asset, they typically have a life of 20 to 30 months. The biggest risk in the auto business is what I call being in the used car futures business, also known as a car leasing business. That’s where you can get hurt in a big way pretty quickly as those residuals; you try to understand what that residual risk is.”

Miscellaneous Earnings Call Notes 11.19.15

El Pollo’s (LOCO) CEO Steve Sather on Q3 2015 Results

We’ve seen reduced visits from some of our more price conscious consumers

“it was reduced the visits from some of our more price conscious consumers.”

It’s going to take some time for consumers to come back in and see these value initiatives

“I think it’s going to take some time to as consumers come in and see these value initiatives that are on the menu now as well as the service improvements that we’re making. And I think that’s just going to take more time to bring those consumers back. Let them experience that both on the price side and the service side and regain those customers.”

We’re fortunate that minimum wage headwind is being offset by lower commodity prices

“In terms of then managing pricing versus margins, I’m not ready to get into a full discussion about 2016 margins. One thing I will highlight is obviously we do have a minimum wage impact. Fortunate thing is on the commodity side, as we highlighted it worked 3% to 4% deflation, which were actually offset the minimum wage impact on our business”

Value conscious consumer is trading down

“when we did the research what we found is that we saw that the fact — the frequency has declined in our business, especially among we call more value conscious consumers. And we ask them where do you go instead of El Pollo Loco, it was pretty clear where they’re going, which was down to the lower end called the Taco Bells, In-N-Out Burgers and McDonalds.”

Burberry Group’s (BURBY) CEO Christopher Bailey on Q2 2015 Results

Impacted by weaker Chinese Consumer

“given the importance of the Chinese consumer to the luxury sector, our retail sales were affected by a slowdown in total Chinese spending. This reflected weakening consumer sentiment following the stock market turbulence and economic uncertainty over this summer.”

The US slowed markedly in the second quarter

“the U.S. slowed markedly in the second quarter. This reflected uneven demand from both the domestic and tourist consumer. The drivers here remain hard to read against a backdrop of a generally positive economic picture. However, we believe recent stock market volatility may have influenced local sentiment, and that the strong dollar discouraged tourist spend.”

The fundamentals of the luxury industry are changing. Growth is slowing

“current macroeconomic uncertainty, notwithstanding, there is no doubt that the fundamentals of the luxury industry are changing. Growth in Chinese luxury spending is moderating, competition in digital is intensifying, pricing leverage and space growth are tempering and customer behavior is rapidly evolving. For these reasons and more, sector growth is now forecast at just 1% to 2% in 2015 compared with 7% just a couple of years ago.”

Xinyuan Real Estate (XIN) Q3 2015 Results

Xinyuan Real Estate says that Chinese government policies continue to favorably impact business

“With respect to our operational effort on the government policies to continue to favorably impact our business. In the fourth quarter, we remain committed to driving performance of our shareholders with our quarterly cash dividend program. We will execute our sales purchase program as appropriate based on valuation.”

Bancolombia (CIB) Q3 2015 Results

Saw a significant depreciation of the Colombian peso against the US dollar

“During this period, we saw a significant depreciation of the Colombian peso against the U.S. dollar, which caused Bancolombia balance sheet to grow faster when presented in pesos. Let’s remember that the depreciation on an annual basis, it is 53%; and in a quarterly basis, it is 19%.”

Minimal impact though because operations are dollarized

“Nevertheless, despite every expression of assets and abilities into Colombian pesos, the impact in shareholders’ tangible equity is very small. This is due to the fact that all of our operations in Central America are dollarized and the assets that we have in U.S. dollars in Colombia are funded with liabilities in U.S. dollars as well.”

NIM was impacted by a raise in rates by the central bank

“A third topic that drove, and is driving the business environment today is of the monetary policy in Colombia. The Central Bank increased rates by 75 basis points over the last couple of months, which currently proceeds at a level of 5.25%. These increase coupled with our lower growth in deposits in the Colombian system and the higher stock of long-term debt caused the cost of funds to increase during the third quarter. As a result, we experienced a compression in the net interest margin during the quarter.”

Cresud’s (CRESY) CEO Alejandro Elsztain on Q1 2016 Results

Low commodity prices affecting our portfolios

“The low commodity prices are affecting all of our portfolio in all the region and there was a big drop that we saw on the prices mainly on the corn and soybean is effecting margins in all region too. ”

Good weather conditions for crops

“we can see how good weather condition in the region allows a positive start during this planting moment. Rainfall for this summer is above average as we’re going through a New Year. As we can see in the map Argentina presents good weather conditions in general particularly good in the Northeast of the country. In Brazil, even though the rainy season got delayed, the rains went back to the average levels along the normal soybean and corn productions.”

Copa Holdings SA (CPA) Pedro Heilbron on Q3 2015 Results

Latin America continues to be affected by slower economic growth

“Financial results for the quarter were in line with expectations, as Latin America continues to be affected by slower economic growth and weaker currencies. We expect the situation to continue in the short to medium term.”

We expect things to stabilize next year, but not expecting dramatic improvement

“we’re not building into our guidance an economic – an improvement in the economics of our region, we are expecting currencies to be stable, to stabilize, but we’re not building in a dramatic improvement to the economies.”

The Coca-Cola’s (KO) Management Discusses on Morgan Stanley Global Consumer & Retail
Sandy Douglas – President-Coca-Cola North America

Now expecting 4 point worse headwind from FX than expected on 3Q call

“Since our third quarter earnings call, the U.S. dollar has continued to strengthen. So while our business results are on track, we now expect a greater headwind from currency. After considering our hedge positions, current spot rates, and the cycling of our prior year rate, we now expect a seven point headwinds on net revenue and 11 point headwind on income before taxes for the quarter. Now, this is a four percentage point worse than the guidance that we provided.”

Consumers are moving to smaller packages which is higher revenue per volume

“The consumer is now changing. The consumer is moving to smaller packages. A 12-ounce can traded to a 7-ounce can is a 30% reduction in volume, but it’s an increase in revenue.”

TJX Companies’ (TJX) CEO Carol Meyrowitz on Q3 2016 Results

Carol Meyrowitz – Chairman and Chief Executive Officer

We like competition

“there is always competition and our job is to be outrageous value every day and have a very unique eclectic mix and that’s what we strive for. We don’t harp on we move forward, we don’t harp on the competition, we like competition, we like when we are next two, I won’t name certain stores, but we’re fine with it, it brings traffic and our job is to do a better job.”

JPMorgan Chase’s (JPM) Management Presents at the Bank of America Merrill Lynch
Daniel Pinto – Chief Executive Officer, Corporate and Investment Bank

IN fixed income trading you need to have scale and diversification

“when I look at the fixed income business, I think that, in my view the key of success in fixed income is scale. It’s a relatively expensive business to run and if you have scale, you can make it profitable. The other component that is important to me is to have diversification because when you look at what has happened for the last couple of years, two, three years, one of the challenges in business was the rate business. This year is doing very well. So credit has done very well in the last few years even though the climate this year has a bit more challenge than before.”

I do believe the Fed will move in December

“I do believe that the Fed will move in December. I think that, as you look at where the market is pricing today, is probably pricing 75% probability of that were to happen. So I think that the impact in trading will be not very relevant at all. I think that the Fed is starting to cycle.”

M&A is still healthy. Companies have to show growth somehow

“The M&A process is still very healthy and will continue to be so in the sense that companies will – the S&P earnings growth this year is zero when you look at the evaluation. So you would argue that companies need to demonstrate some growth. At this level of growth, in the United States for the economy, there will have to be a bit more inorganic than organic, so therefore the M&A will continue as long as funding and capital is available. I think that funding and capital is available. I think that the risk appetite overall has dropped recently.”

Walgreens Boots Alliance’s (WBA) Management Presents at Morgan Stanley Global Consumer & Retail Brokers Conference
George Fairweather – Chief Financial Officer

This whole industry is going to see reimbursement pressure

“I think specialty like other parts of market will continue to come under reimbursement pressures. I don’t think there is any part of the market that’s going to escape. And this is just the way of – the way of our industry. The healthcare expenditure here in the United States is still a high proportion of GDP versus perhaps what you might see in Europe where I come from. And I believe that what we are going to see in our market is continued pressure on growth in healthcare expenditure. We will see pressures in various reimbursements and then what we have got to do is continue to drive efficiency, drive the front-end profitability.”

Micron Technology Presents at UBS Global Technology Brokers Conference
Ernie Maddock – Chief Financial Officer and Vice President, Finance

It would be pretty silly for the Chinese to try to compete in DRAM

“I would tell you that if you aren’t in the DRAM space, it’s kind of tough to imagine finding that a particularly appealing space to want to deploy a lot of capital and a lot of effort in and certainly as has been released in the press over the last couple of days, I think there’s been some commentary made about at least one particular Chinese entity having not being interested in DRAM per se. But it’s a business that is quite mature. It’s hard to envision that capacity expansion will be required based upon what we know of bit growth and where we think folks would be on the technology curve. And I think whether your perspective is that DRAM technology is very near the end of its technical capability or not quite to near the end. I think there is at least some amount of finite lifetime that certainly [indiscernible] if I were thinking about a rational economic investment in an industry, it wouldn’t be one that is in this state of maturity, because I think the opportunities for success there would be pretty low.”

Still in the very early stages of understanding the potential of 3D X Point

“because it is arguably the first new memory technology in 20 years, we’re having to learn how that market is going to develop. And of course, there is a relationship between how quickly the market develops, how quickly output ramps up and what happens to cost as a result of that. So there are still a lot of variables at pay that are quite different than the visibility, the understanding and comprehension we have of the NAND business or the DRAM business. So we are at the very early stages of learning here”

E-House’s (EJ) CEO Xin Zhou on Q3 2015 Results

Next year’s real estate market wont be much different from this year’s in China

“Overall, we don’t think next year’s real estate market will be very different from this year’s. The main theme is still efforts encouraged by the government to reduce inventory, reduce the overall level of inventory. And we continue to believe the Tier 1 and Tier 2 market overall will be healthier relative to the Tier 3 and Tier 4 business, which will continue to experience difficulties.”

Staples’ (SPLS) CEO Ron Sargent on Q3 2015 Results
Ron Sargent – Chairman and CEO

Markets softened across all categories early in the quarter

“Early in the quarter, the markets softened across all categories relative to the trends we had seen during the first half of 2015. We also saw deceleration in our contract print business as we cycled a couple of large customer wins from last year and continue to feel pressure from the ongoing digitization of our forms business.”

I don’t know if there’s been a lot of change in corporate spending behavior

“from my perspective, I don’t know if there’s been a lot of change or differences in corporate spending behavior. I know in general, technology has been weak and we have had great success in selling products beyond office supplies.”

Office supplies down to only 45% of sales mix

“You look at the total company mix, gosh, it wasn’t that long ago, we were probably 75% to 80% office supplies and today I think that number for the whole company is probably about 55% office supplies and 45% BOS or beyond office supplies, and obviously, as BOS continues to grow, at some time point those lines will cross and will be more non-office supplies than we are office supplies.”

Macy’s Management Presents at Morgan Stanley Global Consumer and Retail Broker Conference
Karen Hoguet – Chief Financial Officer

Clearly the consumer isn’t doing as badly as our industry

“clearly the consumer isn’t doing as badly as what my industry, our industry is doing, because of some of the shifting in spending patterns of the customer. But that didn’t change between Q2 and Q3.”

Top malls are still going to be fabulous shopping experiences

“one of the thought from the industry that I hear most often is what is the future of malls? And we kept hearing ourselves saying, we have absolutely no doubt that the top malls are going to continue to fabulous shopping experiences.”

Wells Fargo’s (WFC) Management at BAML conference
David Carroll – Senior EVP, Wealth and Investment Management

I’m bullish on financials

“Personally, I’m very overweight financials; I have it for a long time. But seriously, I’m pretty bullish on the sector. I think institutions are very positively positioned relative to raising rates. I think if we do get any kind of economic expansion, financials are going to be the beneficiary of it. But, we are better capitalized more liquid than we have been in a decade. I think in our case, given the breadth of our business mix, whatever parts of the economy, you are experiencing growth we are going to benefit from it.”

DOL proposals on fiduciary standard have unclear impact

“Again we don’t know. There is speculation that this could be the catalyst for the demise of 12b-1 fees and other types of network — networking fees. We don’t know. So it’s kind of pointless to speculate on it. At the end of the day, we have enough confidence in our platform and in our client relationships. We think we’ll be successful.”

Tractor Supply Company’s (TSCO) CEO Gregory Sandfort Presents at Morgan Stanley Global Consumer and Retail Brokers Conference

There’s a lot of things that can’t be delivered to a customer via drone

“Omnichannel for us is a growing business but there are a lot of things that can’t be sold on omnichannel and delivered to the customer through a drone or through an easy methodology. And some of these things are things that are unique to Tractor and we have to find ways to get it to our customer.”

Philip Morris International (PM) Management Presents at Morgan Stanley Global Consumer and Retail Brokers Conference
Jacek Olczak – Chief Financial Officer

Russian market responding to price increases reasonably well

“So far the total industry volumes are responding to the price increases within the sort of acceptable elasticity ranges, but we’ll have to – I think Russia will remain one of the least of the countries to watch the next year. I mean so far everything seems to be working well. There is some down trading, but with the price increases which we are taking there, I mean obviously you will have some down trading.”

No Macro environment that really concerns me

“Nothing today stands in the least which would worry me. There are few places to watch, but I think it’s pretty manageable going forward.”

General Motors’ (GM) CEO Mary Barra Presents at Barclays 2015 Global Automotive Conference

More change in this industry in the next 5 years than we’ve seen in the last 50

“I believe that we’ll see more change in this industry in the next five to 10 years than we’ve seen in the last 50, but we are not waiting to follow, we are not waiting to be disrupted, we are disrupting ourselves because with all these changes and challenges there is also opportunity whether it’s the strength in the U.S. market whether it’s the growth potential in China although China is moderating and even with the non-traditional entrants coming in the space when you look at the assets that we have and I’ll cover them as we go through the presentation, we feel we are well positioned.”

Will be launching the Bolt 200 mile range

“And we’re very excited about the next generation Volt which is the foundational technology that enables us to be able to be launching the Bolt, and the Bolt will go 200 miles on a charge, this really starts to change the equation in all electric, remember the Bolt is extended range electric vehicle because once you get to 200 miles you really get to a point for most drivers most days even with unexpected, you’re not going to create range anxiety”

You could make the argument that sharing cars will expand the market

“”when you look at sharing you can look at it and say, hi that’s going to be less cars sold. But you can also say it’s going to enable people either the use or people who have some impairment or at an age where they are not able to drive. And so I think it expands the market.”

JS Earnings Call Notes 10/15/2015 – Colfax, Fastenal, Johnson & Johnson, CSX, Blackrock, Bank of America, Wells Fargo, Winnebago

Colfax (CFX) CEO Matt Trerotola doesn’t expect a recovery in his industrial end markets until 2017 

We must be more aggressive at managing our cost structure in the short-term as we work through the down cycles in several of our important end markets, especially oil and gas, and marine. Through our strategic planning process, we believe these downturns are cyclical, not structural but the timing of recovery in these markets is uncertain and may not be seen before 2017.”

And they will cut costs to remain lean 

“We’ve identified additional cost structure actions that we can take without limiting our operational capacity to accelerate growth. These actions are broad based across all three of our businesses and address manufacturing, operating and corporate expenses.”

Colfax (CFX) CEO Matt Trerotola said the company is actively looking for acquisitions as prices have come down in the cyclical sector

And as far as the acquisition pipeline, we continue to have an active acquisition pipeline. As I mentioned, we did a small one recently. We have some others in the pipeline as well. And the rate at which we complete any of those will be related to the deal processes but also will be connected to our ability to be comfortable with the value in light of the current dynamic situation in the economy.”

Colfax (CFX) CEO Matt Trerotola said the Chinese government is balancing environmental reform and economic growth challenges

I was over in China a few times earlier this year and there’s a significant amount of tension there right now between a real commitment from the government to make substantial progress quickly on the environmental front or at least a commitment from that portion of the government, at the same time as they’re having the industrial growth challenges and have other parts of the government wanting and needing to work very proactively on those. And so, our challenge is how do we figure out a way to work with customers to get these investments, further up the priority scheme and ideally maybe make them not just about environmental but have some productivity benefits.”





Fastenal (FAST) CFO Daniel Forness said their industrial customers are in a recession

Right now in the third quarter, 44 of our top 100 customers are negative. We have not lost any business with that group. They are negative in their spend. In some cases, they are negative because their business is very negative and they are somewhat negative with us. In some case, their business is treading water and they decided to tighten their belt.  The industrial environment is in a recession – I don’t care what anybody says, because nobody knows that market better than we do. You know, we touch 250,000 active customers a month.”

Fastenal (FAST) said the slowdown in the oil & gas sector continues to affect their business

“The first nine months of 2015 were hit hard by a slowdown in our business with customers connected to the oil and gas industry. This connection includes direct industry participants as well as those with a geographic connection.  Our end markets remain choppy, as demonstrated by our weak sequential patterns.”

And they are selectively choosing to open stores again

“After several years of holding back on store openings and even contracting our total store base, we plan to expand our pace of store openings in 2016 with a goal of opening 60 to 75 new stores.”

Fastenal said it would be difficult for their fastener customers to switch to another provider as it would be a time consuming process 

“We have strong capabilities at sourcing and procurement, at quality control, at logistics, and at local customer service. Each of these capabilities is focused on the customer at the end of the supply chain. This business is split about 50% production/construction needs and about 50% maintenance needs. The former is a great business, but it can be cyclical because about 75% of our manufacturing customer base is engaged in some type of heavy manufacturing. The sale of production fasteners is also a sticky business in the short-term as it is expensive and time consuming for our customers to change their supplier relationships.”

Weakness in some of their larger accounts hurt profitability

“The relationship between sales and gross profit depends on our success within our large account business (an area that is still under-represented in our customer mix). The large account end market produces a below company average gross profit; however, as demonstrated in recent quarters, it leverages our existing network of capabilities and allows us to enjoy strong incremental operating income growth. Given the sequential weakness with our largest customers, we saw a sequential improvement in our gross profit. Our gross profit is also impacted by supplier incentives. With weaker net sales growth and our tight management of inventory levels, the growth of spending with our suppliers is lower; hence, our supplier incentives are reduced.”

And they spent some time discussing how they view capital allocation

“Finally, some thoughts on capital allocation: During the latter half of 2014 and the first nine months of 2015, we have been modifying our capital allocation by buying back some stock. This is in response to several factors. The first centers on our external valuation. Our relative stock valuation has weakened over the last several years, which prompted us to reassess our cash deployment.  We are mindful of our shareholders expectations relative to our dividend paying history and have primarily funded this buyback with debt. Over the last three to four years, we had dramatically increased our capital expenditures, relative to our net earnings, for the rapid deployment of distribution automation and industrial vending.”

The company highlighted what makes the economics of the industrial fastener business compelling

“It is helpful to appreciate several aspects of our marketplace: (1) it’s big, the North American marketplace for industrial supplies is estimated to be in excess of $160 billion per year (and we have expanded beyond North America), (2) no company has a significant portion of this market, (3) many of the products we sell are individually inexpensive, (4) when our customer needs something quickly or unexpectedly our local store is a quick source, (5) the cost and time to manage and procure these products is meaningful, (6) the cost to move these products, many of which are bulky, can be significant, (7) many customers would prefer to reduce their number of suppliers to simplify their business, and (8) many customers would prefer to utilize various technologies to improve availability and reduce waste.”

And they view their geographic proximity to their customer base as a competitive advantage

“We believe our ability to grow is amplified if we can service our customers at the closest economic point of contact. For us, this ‘closest economic point of contact’ is the local store; therefore, our focus centers on understanding our customers’ day, their opportunities, and their obstacles.”





Johnson & Johnson (JNJ) Chairmen of Medical Devices reiterated the company’s goal of being a market leader in their 

We have a companywide premise that we should be number one or number two in the categories where we’re committed and have a clear technology path to getting through either a number one or number two position.”

And he expects an accelerated pace of acquisitions going forward

“So I think in a disciplined focused approach where we divest we will also look at opportunities to acquire. I think certainly accelerating our pace of tuck-in deals would be a good opportunity for medical device we seek, considering our scale in the market, especially in surgery and orthopaedics is large, and we anticipate accelerating that pace over the next 12 to 18 months.”





CSX Chief Financial Officer Frank Lonegro said the company is increasing train length to improve cost & labor efficiency

“To illustrate our progress, in the third quarter we increased overall train length by about 10% versus the prior year, which drove a significant reduction in crew starts.”

And they were able to combat the slowdown in volume by lowering their employee expenses and fuel expenses

“Looking at labor and fringe, we expect the fourth quarter head count to be down approximately 2% on a sequential basis, which reflects about a 6% reduction from the prior year.  Fuel expense in the fourth quarter will be driven by lower cost per gallon, reflecting the current price environment, volume-related savings, and continued focus on fuel efficiency.”

And oil shipments by rail, which was a huge growth segment for the railroads just a few years ago, is down substantially 

“In addition, we expect headwinds in our coal and crude oil markets to increase in the fourth quarter, driven by sustained low commodity prices. As I mentioned earlier, domestic coal volume is expected to be down around 20% versus the prior year. And crude oil volume is expected to decline at least 25% sequentially.”

Intermodal has been an area of strength 

On the domestic side, we are seeing the benefit of the investment and the service product that we are seeing. We have been able to grow that business somewhere between 5 and 10% over last several years. We are seeing a little bit of an enhanced growth here this quarter, as we know one of our customers who has the contractual ability to further diversify their portfolio is doing just that here in the quarter. So we are seeing a little bit of an uptick in the growth with that customer right now, beyond what we would normally see. But we feel good about that business, feel good about the ability to continue to grow that at a multiple economic output for a period of time here going forward.”    

CSX Fredrik Eliasson Executive VP said there is an opportunity to re-price legacy contracts in the coming years

So, I think you know that in our merchandise business, only about half of our business is up on the annual basis. And most of our other businesses, they are mostly 3 to 5 year contracts. We do feel that we will have good opportunities to reflect what the value we have in the marketplace, and with improving service on top of that, we do feel good about our pricing opportunities going forward as well.”






Blackrock (BLK) CFO Gary Shedlin said the company saw lower fees during the quarter as clients shifted money out of higher fee based products, such as emerging markets & commodities, into lower fee based products, like index funds 

“Sequentially, base fees were down 3% due to lower quarterly average AUM, a seasonal decline in security’s lending activity and the impact of divergent data on our fee rate as emerging and commodities market underperformed developed market.”

Blackrock (BLK) CEO Larry Fink said Blackrock maintains the #1 global market share of ETF’s with 38% of the market

iShares captured the number one market share of the net new business globally in the U.S. and in Europe and in the third quarter year-to-date. iShares flows were driven by fixed income as investors utilized fixed income ETF as an effective tool for diversification and liquidity.  Equity flows were driven by $5 billion into European listed iShares and we saw positive inflows in Canada and Asia Pacific as well.”

Blackrock (BLK) President Robert Kapito said the lower price of ETF’s when compared to traditional funds is only one component of what makes the offering compelling 

But just to step back on the price, please keep in mind that prices are only one reason why people buy ETF. They are looking for precision or what you’re discussing a new approach in smart beta or factored investing, they’re certainly looking for liquidity, which means, you have to have a fund and have some sort of size depending upon the type investor they could get core investor which we call it buy and hold or they are looking to be more active. So, price is important but its only one aspect.”

Blackrock (BLK) President Robert Kapito said ETF’s are now being used as an alternative to futures contracts

So, this is the beauty of ETFs that we constantly have been finding new uses for the products, so as futures becomes more expensive to use than ETFs had opened up a whole new world that we didn’t even think about because of the collateral cost behind futures contracts.  So as you know now ETFs are being use as a surrogate for futures across many institutional accounts, so we think that’s going to continue, how big that can be, just think about the size of the futures markets and certainly regulation is going to play a big role in that as well.”

Blackrock (BLK) CEO Larry Fink said the company could potentially benefit from Department of Labor regulation which may potentially emphasize ETF’s in retirement accounts

I think one thing is very clear how this outplays that it means greater emphasis on beta products and ETFs.  I would also say that if investors feel more confident because of however the DOL reform plays out that if investors feel more confident that they can invest fairly, securely we are all benefited by that. Now, I’m not sure how that will play out, but we’ve always believed that we could have a market place where our clients feel more secure that they have an opportunity to earn a fair return over a long cycle everyone will be benefited by that.”

And their active equity unit, which has been a poor performer over the last several years, is starting to perform 

So where we are starting to see the biggest turnaround is from the fundamental equity business. We spent a lot of time and money I should know in trying to rebuild our efforts there and the teams. And I feel very good about this, certainly in Europe our team there has been together longer. Their record across the board is now very strong and now we are starting to see the same efforts in the U.S. through our capital appreciation fund, our equity dividend fund. So the performance is actually really good.  So when you see better performance it translates directly into flow and we are starting to see those flows or having much better dialogue with our consultants who are now putting us in the mix for proposals and we’re also internally very focused on building out the equity effort and you are going to hear a lot more from us, from our marketing teams and the rest of the teams across the firm, because we are going to be much bigger in the active equity space and we are very happy to have the performance to back that up, so very important part and we’re still adding people but we are getting results at the same time, good positive feedback from our clients.”





Bank of America (BAC) CEO Brian Moynihan said the bank’s performance is improving in a tough economic environment

the key message is we continued to make good progress in a tough revenue environment due to low interest rates and a sluggish economic recovery. In addition with the late summer’s volatility, especially the fixed income trading markets are remaining challenging. So with that we produced another good quarter of progress in all the businesses.  We continued to make progress towards our full earnings capacity here at Bank of America, and this quarter represents the fourth consecutive quarter of solid results following the resolution of our large legacy exposures in the third quarter of last year.”

Bank of America (BAC) CEO Brian Moynihan emphasized the evolving nature that the retail bank has with its customers as it seeks to right size their banking branching

As a reminder, our consumer franchise is the largest retail bank in the United States. In our consumer banking business, as you can see, we grew revenue and earnings year-over-year despite the low interest rate environment. We have been restructuring our branch structure, selling some branches, closing some branches, and changing account structures, and with that this quarter our core consumer checking accounts continued to grow. We grew those accounts and improved the percentage of those customers who use us as a primary bank, and importantly the average balance per account continues to grow.”

And mobile banking is becoming a larger and larger component of the customers banking experience

When you go to the change in our financial services business for mobile and digital banking, we now have 18.4 million active mobile customers and 31 million active online customers.  More customers are using mobile device to deposit checks and access their accounts, and now are starting to buy products as well as book appointments. To get a sense of that, we are now booking 15,000 appointments a week off of our mobile devices.”

And mobile banking is more cost efficient for the bank as well 

“Mobile processing is better for us and it is better for our customers. It is one-tenth the cost relative to processing of financial centers and more convenient for customers.”

Bank of America (BAC) Paul Donofrio said the company’s retirement solutions business is gaining momentum from its ability to cross sell products 

The last thing I would note that’s not shown here is referral rates across the company remained strong. For example, our retirement solutions business continues to win in the marketplace. We have won more than 1200 retirement plans year-to-date, many of which were referred from global banking. On a year-to-date basis, this is up more than 40% from 2014.”





Wells Fargo (WFC) CFO John Shrewsberry reminded investors that the bank is positioned for interest rates remaining “lower for longer” than most anticipate

As I have discussed previously our view on interest rates has evolved over the past year to be more of a lower for longer expectation for both short term and long term rates. As a result, we’ve been adding duration to our balance sheet, however our balance sheet remains asset sensitive and we are positioned to benefit from higher rates and we expect to be able to grow net interest income over the long term even if the rate environment continues to be challenging.”

Like many of the other banks, they continue investing in their IT infrastructure and effectiveness

We continued to invest in our businesses with particular focus on risk, cyber and technology projects. These investments partially reflected in higher outside professional services expense in the quarter.  Our new and existing customers are increasingly using our digital offerings with active online customers up 8% and active mobile customers up 17% from a year ago.”





Winnebago (WGO) CFO Sarah Nielson said the company has decided to exit the bus business

“We made the decision to enter the bus business as announced earlier this week and have sold the related inventory and tooling to our distributor partner at cost. In light of the labor constraints that we have experienced this past year, we determine that our resources were better used to focus on the design and manufacturing of our motor homes. Also, we had not achieved profitability within this operation since the interception. We’ve recorded 1 million in operating losses in fiscal 2015.”  

Winnebago (WGO) CFO Sarah Nielson wants the company to be reactive, as opposed to proactive, in terms of figuring out which RV models the customer wants

We’re going to have to kind of monitor kind of quarter by quarter, what makes the most sense from a production plans. When we plan in an aggregate for the year we’re looking a lot at the labor resources we have to allocate and assuming a certain mix, but it’s a market where we want to be very reactive to what the deals want, what the consumers want. So, we want to be able to change as needed in them, so it potentially could but its hard to predict how all that will play out as we set today for the whole fiscal year for 2016.”