WR Berkley 2Q17 Earnings Call Notes

Robert Berkley

A ground swell of competition

“Without a doubt there is a grown ground swell of competition. You can see it manifesting itself in a couple of difference ways. A couple of macro observations will be the standard markets, particularly national carrier seems to be expanding their appetite and spilling over into what a while had been viewed as specialty market exposure. We also are seeing a state-assigned risk plan beginning to depopulate, again as carriers are I guess expanding their appetite if you will.”

Insurance Tech has become the flavor of the day

“Few other macro comments from my perspective on the marketplace, overall. Certainly over the past several years we have seen more and more progress and to a certain extent chatter and buzz around data and analytics. More recently there have been new technologies that are developed and Ensure Tech has become sort of the flavor of the day to a certain extent. Having said this, we think all of these tools have great value and we are users of them and quite frankly we are investors in some Ensure Tech opportunities. Having said that for our perspective, when the day is all done these are just tools and ultimately how effective they are, how helpful they are will be determined by the people who are using them and the expertise that they have”

W.R. Berkley 4Q16 Earnings Call Notes

Robert Berkeley

There are some markets that are exceedingly attractive, reinsurance remains irrational

“Having said that, there are some parts of the professional market that are exceedingly attractive and there are other parts where people need to be quite cautious. Commercial auto, while it does continue down a path of improvement from our perspective, much of that marketplace still has a way to go. Casualty remains the bright bulb, at least for the moment. And finally, the reinsurance market remains as irrational as ever from our perspective. And quite frankly, it’s a bit disappointing because every now and then, you see some green shoots popping through and in relatively short order, it would seem as though somebody comes along and stops those out.”

Continue to be surprised at industry resistance to change

“we continue to be quite surprised by what one might refer to as the resistance that the insurance industry, particularly the commercial lines, P&C space continues to have towards change. Specifically, the struggles around embracing analytics and technology as well as what would seem to be a lack of recognition for the change in consumer behavior.”

Tax reform could impact offshore insurance companies

“I think the other component which is perhaps in some ways a little less clear is what is the impact going to be as a result of tax reform on companies in the marketplace that are not domiciled in the United States. Many companies that participate in the US P&C market have benefited from being outside of the United States and the question will be whether that benefit will continue going forward or whether that is something that perhaps may change or be impacted by decisions and actions coming out of Washington.”

Commercial auto has touched bottom but it’s not a hard market

“As far as the market goes and apologies if I gave the wrong impression, our view is that it has finally touched bottom and it is moving in the right direction. We certainly do not believe that by and large, the commercial auto space is a hard market or anything approaching that. Having said that, it is one of the few lines where it seems like rate increases are outpacing trend as opposed to some other lines of business, where rate increases are treading water with trend or maybe in some cases, the product line is losing altitude.”

There are a lot of organizations that have gotten over-extended

” Clearly if you look at the accident year loss ratio, there are a lot of challenges that exist in the market. We have and continue to believe there are a lot of pain but this hasn’t come into focus potentially. And if you actually backed out or normalize for Cat activity and people stop living off of prior year development which eventually it would seem as though they’re going to need to, there are a lot of issues. So do I think this is going to turn into a situation like the late 90s in to 2000, no. But do I think that there are some organizations that got a little ahead of themselves, yes. And I think that there’s some pain and some of those companies that have some pain, I don’t think that there’s a lot of patience for volatility amongst their shareholders”

Bill Berkeley

Current tax law benefits offshore insurance

I think the answer is we have a President and a legislature who is very conscious of the fact that we shouldn’t have a tax law that gives preference to non-US entities and that is what insurance tax laws do at the present time. So two companies who write US business one offshore and one domestic, the company offshore pays substantially less to no tax. So we think that will benefit us because we think this President and his legislature will recognize that sometime over the next 12 months and level the playing field. So that will not lower – likely not – that part will not lower our tax but will raise tax – raise the tax of our competition. So, overall US tax rate we think will go down, which we’ll benefit. So we would expect there will be probably a continuing same amount of competition at a lower tax rate.

WR Berkley 3Q16 Earnings Call Notes

W.R. Berkley’s (WRB) CEO Rob Berkley on Q3 2016 Results

The marketplace is more of the same

“as far as the market goes, generally speaking a continuation of what we’ve seen over the past few quarters. The marketplace overall is becoming incrementally more competitive. Reinsurance remains somewhat consistent as it seems to bounce along the bottom in search of a catalyst for change. One of the interesting things about the reinsurance market is putting aside property tax and peel back a few layers of the situation there, the loss ratios by and large are not particularly problematic, what’s is really driving is the seeding submissions that are creating a challenge for their economic model, from our perspective.”

Cyber insurance is a growing category

“And as we see in the development of cyber insurance coming around and wait to see – here in that is the beginning to scratch the surface, the fact is that intellectual assets are going to become a growing class and we as an industry need to find ways to grapple with that and help society figure out how they will manage that exposure. And again, I think there is a great deal of room in that area for growth and a lot of opportunity.”

We did have some exposure to SpaceX

“We experienced what I would just define as some meaningful as I suggested short-tail losses that are not normal. An example of that would be a couple of good-sized by our scale property losses not overwhelming but good size, but perhaps even more noteworthy, we had some exposure to SpaceX which was the [indiscernible] that didn’t get very airborne.”

Commercial auto product is in a very deep hole

“I think the fact is that commercial auto found itself, as a product line, in a very deep hole. And the idea that a certain just one-off percent rate increase is going to fix that, I think is a pipe dream. And we can all read in places like the Wall Street Journal about trucking whinging over rate increases, but the fact is, most folks that are writing their insurance haven’t been making any money, in fact they haven’t been getting paid appropriately for the risk, whatsoever. So, do I think that the situation is improving? Yes. Do I think that it is still challenged? Without a doubt. But it is heading hopefully – well, it is heading in a better direction. And again that’s why we’re getting meaningful rate increases, but you see the line still shrinking as far as premium, because our account or exposure is going down dramatically, in spite of the rate increases we’re getting.”

Bill Berkley

I’m concerned about inflation because it’s the only solution to the repayment of deficits

“I think that clearly, we have a country divided by extremes and views that are in conflict. And I think there’s loss of stresses and pressures. But there’s also beginning to be a recognition that there’s no free lunch. That someone is going to pay for everything that comes about. I think the last time we had runaway juries, there was a general sense that this was free money and it all came from heaven. I think there’s now a reality, reinforced by the issues of increased premiums from the Affordable Care Act, that someone pays somehow or another for everything. So I’m not particularly worried about runaway juries.

I am concerned about inflation, because ultimately, the only solution to repayment of deficits for governments is inflation. And inflation in the short-run will put pressure on insurance pricing. Although with property casualty insurance companies have done better in times of inflation than in non-inflationary times. So overall I’m okay with where we’re going. And I – in the short run, there may be some pressures as we change over to probably a more inflationary time. But in the intermediate term, I think that’s probably good for the business.”

WR Berkley (WRB) Q2 2016 Earnings Call

WR Berkley (WRB) CEO Robert Berkley said low interest makes sometimes make him feel like crying

“Continued dislocation in the marketplace amongst some very large carriers as some of them were managing through a merger or acquisition and others were just going through a meaningful restructuring. And then finally, we have continued low interest rate environment around the world and it’s really gotten to the point that it could almost make your eyes tear.”

And the sector is becoming more competitive 

“The insurance market seems to march to a similar beat to what it did in the first quarter. The reinsurance market continues to flirt with the bottom. On the other hand, the insurance market is becoming incrementally more competitive though it can vary greatly by product line or clients.  A couple of general comments around some of the product lines in the insurance space. Properties, particularly cat exposed properties, remains surprisingly competitive to a certain extent. My speculation would be this is a result of the reinsurance market empowering the insurance market to be less than responsible in many situations.”

Looking more and more to the alternative investment space for returns in their investment portfolio as a result of low interest rates

“As you have heard our Chairman talk about for some number of years now, given the interest rate environment, we had to look for alternatives, hence the building out of our alternative investment portfolio and gains have become a more meaningful part of our strategy.”

WR Berkley (WRB) Chairman Bill Berkley on whether Brexit will affect their business

“First of all, we in fact had set up a company in Liechtenstein well in advance being cautious and wanting to take no chances. So we are equipped to do business in the EU in domicile other than the UK. So from a legal point of view, it won’t have an impact on us if we did that some time ago. Clearly, that impact that’s based in the London market continues to be there. We don’t see it disappearing, so we think London will continue to be the center of the insurance business in that part of the world. And from a regulatory point of view, we think we can protect ourselves, so we don’t really see a major change or a significant impact.”

All returns are not created equally

“We focus on risk-adjusted returns. All returns are not created equally and we try and evaluate the risk that we are taking on and what is an appropriate return is associated with that. Ultimately, we are focused on obviously we are going hand-in-hand with risk-adjusted return, ROE.”

WR Berkley (WRB) Chairman Bill Berkley on whether we will get tax reform

“Tax reform, I don’t know who is going to be elected President. Probably, either of the above will be a good outcome. I have no idea whether we are going to get tax reform or not. I think that the reality is that the tax system is not working, not just for the insurance industry, but for lots of parts of corporate America and how people behave or what people do. Will we get tax reform? We sure should. We need it. I spent last time in Washington as I become less enthusiastic about something happening. Last week, I spent time with our lobbyists and talked about it. It was more optimistic, because as they don’t have much choice. So, I am slightly more positive than I was 2 years ago, but you surely can’t bet on it.”

WR Berkley 1Q16 Earnings Call Notes

Robert Berkley

Insurance marketplace more competitive but reinsurance slightly less

“The insurance marketplace continues to become incrementally more competitive while the reinsurance marketplace seems to be coming gradually a little less intensely competitive, though that is a very incremental change.”

Large purchasers of reinsurance started to come back to the market as they realized losses

“finally, we’re seeing a bit of a change in the reinsurance marketplace and if there was ever a part of the industry that deserved a break, it was probably the reinsurance market these days. And that is, a few years ago we started to see a change in buying habits of some of the largest purchasers of reinsurance. Ultimately they ended up increasing their intentions and reduced the amount of reinsurance they bought in a pretty dramatic way. Loss activity has come through and as a result of that it would seem as though they are yet again changing their habits and they are reentering the marketplace as customers.”

There are a lot of organizations that have become inwardly focused

“I think the answer is in some ways the period that we’re going through now is somewhat reminiscent of 2008, 2009, 2010 for different reasons and that is there is a lot of dislocation in the market, there are a lot of people or large organizations that for one reason or another are a very inwardly focused and that creates opportunity for organizations like ours to try and continue to find opportunities and to build and enhance the value of our franchise for our shareholders both organically through expanding our existing businesses as well as starting new operations. ”

There’s a battle for distribution going on between distribution and carriers

“our general observation is this, that the companies are trying to maintain or perhaps grow their margins, the distribution is trying to do the same thing. At the same time if you look at the insurance marketplace, rates are plateaued in all likelihood are gradually going to decrease and that creates tension and pressure and ultimately it would seem as though everyone is so focused on how they maintain their margins and how they keep the world happy every 90 days that is getting the way of distribution and carriers, finding ways to work together to bring more value to the customer.”

If price moves away from us we’re prepared to shrink

” we’re in business to make money not necessarily just to issue insurance policies for the sake of issuing insurance policies. We’re in the market every day trying to provide product and provide continuity to the marketplace in our offering. Having said that ultimately if there are parts of the market that move away from our pricing then we’re prepared to shrink. So yes, the answer is there are parts of our business that are shrinking right now, auto would be an example of that, again that’s just the reality of operating in a cyclical business when you’re focused on profitability and return.”

Ultimately the relationship between distribution and carriers is a partnership. Who is the senior partner shifts

“as my father reminds me and reminds others, that ultimately it’s a partnerships. There are moments in time when the carriers are the senior partner and there are moments in time when the distribution is the senior partner, but ultimately in the long run for us all to survive one needs to be conscious of their obligation to their partnership and their need to survive as well.”

We have grown our Florid exposure, but with significant caps

” first of all yes we have grown our Florida homeowners product and this is through our reinsurance, having said that, there are meaningful event caps and significant exclusions as far as coverage when it comes to natural catastrophes. So I think that while there is a modest amount of cat exposure that comes with it, I would encourage you to think of that less as a cat play. I know that – it shows up in the yellow books and in other filings where it could be misinterpreted so hopefully we been able to rectify the understanding.”

Gene Ballard

Technology is moving to disintermediate the current distribution system

“The long and the short of the situation is the big picture is technology is moving to dis-intermediate the current distribution system to some extent. The fact is that that’s a long term problem and at the same time as we’re moving in that direction, the existing distribution system instead of working with companies to try and find ways to deliver value to the customer is more focused on how to improve their margins and at the same time insurance companies are faced with the need for more underwriting margin because their investment margins are declining. So you have a natural crisis. Everyone wants a bigger piece of a shrinking pie.”

JS Earnings Call Notes – Lazard, WR Berkley, Potash, Cimpress, Autonation, Hershey, Mead Johnson, Las Vegas Sands, Visa, Rollins

Lazard (LAZ) CEO Ken Jacobs said the company benefited from a robust Mergers & Acquisitions environment

“In advisory, we had our best year ever with broad-based activity across practices and regions, and record annual M&A operating revenue. Lazard advised or continues to advise on six of the 10 largest M&A transactions announced globally in 2015.”

At the same time, they are seeing increased deal flow in the bankruptcy area particularly in the energy sector

“And while the restructuring market continues to operate at historically low levels, an exception is the energy sector where we have taken a commanding market share representing distressed companies. Lazard was the top advisor in 2015 for completed restructurings globally.”

And that one of their key competitive advantages is their relationships

“Our leadership and the largest transformative transactions across industry sectors worldwide highlights one of Lazard’s key competitive strengths, our unrivalled global network of relationships with key decision makers in businesses, governments, and investment institutions. Almost half of our announced M&A assignments in 2015 were cross border.”

Lazard (LAZ) CEO Ken Jacobs said the sluggish start to the calendar year may affect near-term performance and deal flow

The long-term transfer of business remained favorable. That said, the volatile market conditions at the start of this year could affect our 2016 performance. In asset management, we begin the year with lower AUM. In our M&A business, while we’re off to a good start, it’ll be several months before we know whether volatility has affected deal announcements for the year.”

Lazard (LAZ) CEO Ken Jacobs said corporates are now having a harder time generating revenue growth

An additional catalyst driving the current M&A cycle is the disinflationary/deflationary back drop. This continues unabated. For most companies, achieving sustainable organic growth in a period of low inflation or declining prices is challenging. Since the financial crisis, virtually all companies have undergone a steady pace of restructuring to drive earnings growth, yet additional savings are becoming more difficult to find. M&A remains an important tool for driving top line growth and also for driving additional efficiencies to propel earnings growth.”

Surprisingly, they’ve seen investor emerging market inflows during the month of the year even in this difficult environment

And then with regard to year-to-date, actually overall for Lazard we’ve seen inflows of about $700 million.”

Lazard (LAZ) CEO Ken Jacobs thinks we’re in for a significant restructuring cycle

So first, I think you’re going to see the pickup in revenue and restructuring in 2016 wasn’t much reflected in 2015, and it is concentrated in a couple of sectors. That’s the oil and gas, commodities, natural resources arena. I don’t think you’re going to see the full restructuring cycle unless you start to see a turndown in the economy. Hopefully, what we’re going to see is a constructive M&A environment with some pick up in restructuring, which would be kind of a nice combination for us.”

Lazard (LAZ) CFO Mattieu Bucaille said their investors are primarily institutional which allows for a more stable asset base

And the one other point I would like to sort of get across is our primary business is institutional. That’s why we haven’t sort of dealt with the flow that some of the retail funds have. And for institutions, this is a strategic allocation, runs in the tactical allocation. So what you’re likely to see is as markets stabilize, more money come in than go out because people are underweights their strategic allocation at this point.”

 

 

 

 

WR Berkley (WRB) CEO Robert Berkley said the pace of pricing erosion in the reinsurance market seems to be slowing
 
By and large, market conditions were consistent with what we’ve seen over the past several quarters. The reinsurance marketplace remained seriously competitive, though the pace of the erosion seems to be slowing, particularly on the domestic market. We’re also seeing a slowing in the entry of new alternative capital providers in the reinsurance space. And having said that, we’ll have to see if that trend continues.”
 
WR Berkley (WRB) CEO Robert Berkley said M&A in their sector is creating opportunities 
 
The fact of the matter is, by and large, whenever there is a meaningful merger or acquisition, that creates a degree of overlaps or uncertainty or potential dislocation, that impacts both the people within the organization and it also can honestly impact people outside of the organization such as the distribution system and customers. So we certainly have seen opportunities as a result of the M&A activity. We expect we will see more.”
And they said insurance remains a people business
“From our perspective, as we’ve suggested to some in the past, insurance business is fundamentally two things. It’s capital and it’s people. We believe capital is ever more a commodity and people are what makes the difference. So the opportunity to attract talented people from other organizations is certainly something that we are focused on.”
They’re looking for niche opportunities to underwrite insurance
“We are trying to find niche opportunities in other markets where it makes sense outside of the United States to achieve reasonable risk-adjusted returns. In several markets that we participate in, Latin America would be an example, I think we have achieved that consistently for more than a decade.”
 
 

Potash (POT) CEO Jochen Tilk said the global agricultural nutrient market remained strong yet pricing of the product slumped

“Global shipments of approximately 60 million tonnes were the second highest total on record, a reminder that even with less than ideal economic conditions, food production and soil fertility remain a priority for farmers.  While demand was strong, prices were less resilient. The decline was most visible in granular markets with prices declining more than 30% over the course of the year.”

Yet he cited China as the swing market
 
The market that garners most attention this time of the year is China. While current inventory levels are expected to reduce annual shipments from 2015’s record levels, we continue to see strong consumption trends and the need for contract settlements to meet spring planting requirements.”
Potash (POT) CEO Jochen Tilk said they reduced the company’s dividend yet remain bullish on the long term prospects of agricultural nutrient demand
 
We have decided to reduce our quarterly dividend by 34%. We believe this level, which represents a payout ratio of close to 100% of 2016 earnings remains highly competitive, but also protecting the long-term financial health and financial flexibility of the company.  Looking forward, it can be difficult to look beyond near-term headwinds that may continue in 2016, but our long-term confidence is underpinned by food demand, the quality of our assets and strong market position. This global mandate will largely be met in the coming years by improvements in crop productivity, a challenge to that can’t be achieved without the products we produce. We believe that we’re uniquely positioned to respond in any market conditions.”
Potash (POT) President Stephen Dowdle said demand from Brazil resilient despite the geopolitical turmoil in the region 
 
When you look at what happened in Brazil last year, it was a second best year in terms of just looking at, let’s say from potash imports and if you look at all the turmoil that that country was going through and the agricultural sector was really a bit of a shining light in the country.”
Cimpress (CMPR) reminded the investment community that they focus on growing their business for the long-term
 
 Even as we report results on a quarterly basis it is important for investors to understand that we manage to a much longer-term time horizon and that we explicitly forgo short-term actions and metrics except to the extent those short-term actions and metrics support our long-term goals.”  
 
And the lifetime value of a customer using their services continues to increase
 
This quarter we saw continued traction in gross profit per customer as we continue to acquire higher-value customers and our repeat rates improve. We also saw good year-over-year growth in Net Promoter Score. We draw the conclusion from the combination of these trends that our business continues to strengthen as a result of the many changes and investments we have made over the past several years.”  

Similar to Amazon, the company is willing to forsake near-term profitability of certain transactions in order to create a positive customer experience

In that specific example is that we have begun to test shipping prices within the Vistaprint business unit and we have been very pleased with the early results. Now those results definitely reduced near term revenues and near term profits, but when we look at the change in customer satisfaction and loyalty improvements driven by that, we have a strong hypothesis which we’re continuing to test around that it pays off in a financial sense from a DCF perspective because of the future cash flows or the gross profits from those happier customers.”

Cimpress (CMPR) CEO Robert Keane mentioned their new partnership with Amazon but said he has no idea what it may lead to

Amazon is very much in a small test phase right now. You can see that on the site.  It is not something that is doing anything material this year in revenues. We do think that the opportunity there is material, but we do not plan for that right now. The way Amazon works which is quite impressive, is a very rapid iteration of new ideas. It’s very hard for us to say where that’s going to go.

 

 

 

 

Autonation (AN) CEO Mike Jackson said the firm’s profitability per vehicle sold decreased during the quarter

The fourth quarter industry sales environment was more push than pull resulting in significant new and used vehicle margin declines on a combined basis of $217 per vehicle retail, which is 11% lower than the fourth quarter of 2014. During the quarter we experienced particular weakness in Premium Luxury, which had a significant impact on our fourth quarter financial results.”

The company called out the Texas region as having relatively weak sales

Coupled with the margin pressure in the fourth quarter we also began to see a slowdown in Texas, due to collapsing energy prices which are hurting the local economy. In Texas the new and used unit sales were down compared to the fourth quarter of 2014.  I think Texas is about 24% of our business so that’s a significant overweight.”

Autonation (AN) Executive Vice President Jon Ferrando reviewed the company’s acquisition strategy

As of today our store portfolio number 342 franchises and 254 stores in 15 states, representing 35 manufacturer brands. We are one third domestic, one third Asian and one third Premium Luxury. Looking forward we will continue to actively pursue acquisitions and new store opportunities with a focus on enhancing brand representation within our existing markets and markets that can be supported by our existing management infrastructure.”

Autonation (AN) CEO Mike Jackson cautioned automobile manufacturers from overproducing which could put additional pressure on car prices

Well I think any time the industry moves from a period of exceptional growth secures of it to beginning to plateau and we see significantly higher inventories year-over-year that’s going to put pressure on front end gross. So we’ve taken steps to begin to bring our inventories.  But even after we do that if the industry overproduces and keeps inventory at a high level that means the overall environment is still very difficult.”

Autonation (AN) CEO Mike Jackson remains optimistic about truck sales in 2016 due to lower gas prices

I think domestic [auto manufacturers] are very well positioned to exceed in 2016, almost all the excess inventories is in cars, not in trucks, to the stand that you have strength in trucks and can produce more trucks you want to drive in 2016. I think Sergio’s decision to switch over factories from our production to truck production shows you the sense that the consumer has that they are totally committed to cheap gas and to trucks it’s really become a strategic question not a tactical question. So wherever you stand on trucks is your position of strength in the marketplace.

Autonation (AN) CEO Mike Jackson wants auto manufacturers to remain disciplined on price incentives and not chase market share at the expense of profitability

I really would not want to see incentives go beyond on the manufacture level they are about 10% suggested retail price at the moment. So we’re approaching double digits and I really hope we don’t go beyond that.”

Autonation (AN) CEO Mike Jackson is excited about their digital storefront 

We now generate fully 25% of our business from AutoNation site, which is a spectacular success, the customers like the ability to be able to transact on the site. We still have capabilities that we’re adding step-by-step that continue to roll out I think the most difficult piece remains the documentation that may push into 2017.”

 

 

 

 

Hershey (HSY) CEO John Bilbrey said the company continues to take market share from competitors

Hershey U.S. CMG retail takeaway sequentially improved from Q3 to Q4, and increased plus 2.5%, although market share was up about 0.2 point. Seasonal performance was good and we gained market share in both Halloween and holiday.  Hershey U.S. market share was an industry-leading 31.3%.”

Much like others in the retail food space, the company’s products continued to be impacted by shifting consumer trends

As we previously discussed the category is being impacted by many of the same issues facing other food categories, including changing shopping habits like channel shifting, increased competitive activity and some retailers adjusting their merchandising practices, and a proliferation of broader snack SKUs.”

Their China chocolate business remains challenged

Our China Chocolate fourth quarter net sales results were less than our expectations.  Similar to what we discussed over the last year, category performance is being impacted by macro economic issues and the related impact it’s having on consumer shopping behavior and confidence.”

Transitioning their products to more natural ingredients has increased their expenses

Competition for this space in the store is robust. And we continue to listen to the consumer and invest in simple ingredients, which were currently purchasing at a slight premium to traditional ingredients.”

Hershey (HSY) CFO Patricia Little said some of their chocolate sales are a seasonal business that centers around holidays

We also know chocolate is really a destination for the seasons, during the seasonal periods, and that will continue. So I think, we kind of think about it, that’s a solid foundation and base that consumers are looking for chocolate in particular around those times.”

 

 

 

 

Mead Johnson (MJN) CEO Kasper Jacobsen said the slowing of several international economies hurt volume growth

We were challenged by a strengthening dollar and the general weakness in many economies throughout Asia and Latin America. GDP growth across Asia and Latin America was lower than prior year, and this affected both consumer and retailer confidence.”

And they ran into increased price competition and execution issues 

Additionally, in China, we saw increased price-based competition and channel shifts that adversely impacted sales growth and required us to boost investment to protect our competitiveness. Combined with some company-specific executional issues, this resulted in lower volumes through the year.”

Mead Johnson (MJN) CEO Kasper Jacobsen said they signed partnership agreements with Chinese company Tencent & JD.com to expand distribution 

In a sign of our commitment to strengthening our presence in web and app-based commerce, we recently signed joint business partnership agreement with Jingdong, owner of leading e-commerce like JD.com and Tencent, owner of WeChat, the leading social app in China.

Mead Johnson (MJN) CEO Kasper Jacobsen highlighted the most important factors that will affect company performance in the coming year

Through last year, I repeatedly pointed to four important factors that critically influenced company performance. To remind you all, I’m referring to currency movements, dairy cost evolution, our ability to evolve our strategy and portfolio in China, and our momentum in North America, particularly in the United States. All of these four variables remain as relevant in 2016 as they were to our performance in 2015. But I should add pricing to the list. Our ability to offset partially or in full foreign exchange weakness with price increases will be very important. I’d add that I see some encouraging signs that price increases will become easier as we move through the year.”

Mead Johnson (MJN) CEO Kasper Jacobsen discussed raising prices in Asia

I think the pricing environment will become somewhat more friendly. What we saw in 2015 was that there were still – particularly, I would say, in Asia, there were still governments in Asia that were very resistant to price increases in our sector as they still focused very much on kind of inflationary pressure or perceived inflationary pressure, which I think we all know was really a threat that evaporated some time back in 2014. And they would repeatedly point to the fact that we were seeing significant upside from dairy costs coming down as we discussed price increases.  I think now that dairy prices have stabilized, I believe that as both us and our competitors lap the low-dairy costs, it will become a little bit more straightforward to raise prices. But we obviously have to do that in a responsible manner.”

 

 

 

 

Las Vegas Sands (LVS) CEO Sheldon Adelson said the company increased its market share in certain geographical zones such as Singapore

In Singapore, our share of EBITDA of the duopoly market increased to 68% in the first nine months of 2015, up from 65% in 2014. Because of industry leading investments in Macau and Singapore, we are unique in the absolute scale of our cash flow as well as our dominant share of the industry’s cash flow.

Las Vegas Sands (LVS) CEO Sheldon Adelson mentioned that their employees base is now predominately locals as opposed to hired hands from other countries

 And no less important is the decade-long effort we have made in developing to promoting the local talent that is necessary to operate and grow our business over the long term. In 2004, only 7% of 900 or so managerial staff were locals. Today, 86% of our 2,700 or so managerial staff are locals.  In summary, we regard it as a privilege to contribute to Macau’s success in realizing its objectives of diversifying its economy, supporting the growth of local businesses, providing meaningful career development opportunities for its citizens and reaching its full potential as Asia’s leading business and leisure tourism destination.”

Las Vegas Sands (LVS) Senior Vice President Patrick Dumont says its tough to tell what impact a devalued Chinese yuan currency may have on the company’s performance

I think long term, it’s really hard to call. I think it’s hard for anyone to figure out exactly what the impact will be and how the currency may continue to devalue. The only thing is we’re looking at hedging programs, we’re speaking to economists and doing our best to evaluate the impact to the business. But in terms of long-term impact on our customers, it’s hard to say. A devaluation of currency could impact manufacturing economy there and drive further growth in the economy. Other people have different views. So now we’re just studying it and hopefully we’ll continue to grow our business in the face of any currency changes that may occur.”

 

 

 

 

Visa (V) CEO Charles Scharf said consumer spending patterns are changing

Ecommerce continue to grow at a much higher rate than the spending at physical stores. We saw mid teens eCommerce growth during the holiday period versus mid single digits growth in the physical world. More than 25% of all spending on Visa Cards during November and December was online up from less than 20% just three years ago.”

And people are delaying their shopping until later in the holiday season

Also the pattern of spending during the holidays has changed, while Black Friday and Cyber Monday remain important shopping days, less spending is consolidated on these two days than recent years and more people delay their spending to later in the season this year.”

Visa (V) CEO Charles Scharf said their Visa Checkout product has better online completion rates than some of its competitors 

Visa Checkout customers completed 86% of transactions compared to 73% for PayPal Express Checkout and 57% for the traditional merchant checkout. Visa Checkout customers are more active online shoppers in general, completing 30% more transactions per person than the overall population of online shoppers and 95% of Visa checkout customers say sign up was easy and 96% feel secure making purchases with Visa Checkout.”

Slightly less than one half of all Visa credit cards now have EMV chips which greatly enhance security of the network

43% of all credit cards representing 72% of purchase volume, 21% of all debit cards representing 45% of purchase volume, over 750,000 merchant locations have enabled EMV representing 17% of the total face to face locations in the U.S. Based on our recent client survey we expect 50% of locations to be enabled by the end of this year.”

Visa (V) CFO Vasant Prahbu said they were able to issue low cost debt to fund their Visa Europe acquisition 

In December we issued $16 billion in debt with maturities ranging from 2 to 30 years. The weighted average interest rate was 3.08% with the weighted average maturity of 13.1 years. This is the low end of the 3% to 3.5% interest rate range we indicted last year.”

Visa (V) CEO Charles Scharf discussed the intensifying competitive landscape

Domestically, across the world there are local networks that we compete with. And there are emerging global competitors such as Chinese Union Pay in the traditional space as well as a series of people in the eCom whose names you know that we continue to compete with.  I think when we think about what we have at Visa in the quality of the network, the safety, the security, the global acceptance and now the capabilities that we built in the world of digital commerce and the value-added services, we feel terrific about our ability to continue to compete.”

 

 

 

 

Rollins (ROL) CEO Gary Rollins said the company could see increased sales from a more substantial outbreak in the Zika virus

Although Zika was first diagnosed in Brazil in May, it is been linked to more than 3500 cases of infant deformity. The leading experts predict that the USA needs to be prepared for a similar scenario. This situation is unfortunate. However based on our experience with the West Nile outbreak, publicity concerning mosquitoes risk will accelerate.”

And that they’re using iPhones to make their technicians more efficient

This time last year we discussed that one of the important advantages of BOSS was the feature of issuing iPhones to our technicians to help them better complete their customer administrative requirements.  At the end of this past year, 2600 of our technicians were using our iPhones to provide customer better communication and acknowledgment of their service, while improving our branch administrative productivity.”

Rollins (ROL) CEO Gary Rollins said they are in the “people business”

The service business is first and foremost a people business and our employees are our most important asset. A major priority for us every year is to prove on the retention of our employees. Our employee retention rate again improved in 2015. We continue to work with our employees to ensure that they are receiving the very best training if they need to be successful and to advance their career.”

Rollins (ROL) CEO Gary Rollins said they are using data and an in house analytics team to change pricing dynamically

Well we are learning more about our business, I mean we have the capability now of better utilizing our data. We have the capability now of experimenting more. We have a wonderful laboratory with our call center because virtually we can change the prices just almost instantaneously and look at our closure to see if our closure is improving or not and seeing if we’re selling more units to the extent that to offset the price reduction.”

JS Earnings Call Notes 10.27.2015 – Roper, Comcast, IAC, Dupont, Waste Management, WR Berkley

Roper (ROP) CEO Brian Jellison said it may not look like it from the outside but under the surface, the company is moving very quickly

“if you look at the income statement, we are sort of laughing, because it’s the old story about the ducks on the pond and they are moving along nicely, but underneath, these are moving wildly.”

Roper (ROP) CEO Brian Jellison reminded investors of the company’s emphasis on cash flow

“The compounding of cash flow, if there is any theme around here, it would be that. We are in base, a compounder.”

Seeing strength in nuclear test business after several years of lackluster revenue in the segment

We had strong growth in our nuclear test business on improving market conditions. There is a good deal of activity that’s emerging, both in China and Korea based opportunity in the Middle East, and startups again in Japan for their nuclear activity. So that’s going to be a material improvement for us in the fourth quarter, and into 2016.“   

Roper (ROP) CEO Brian Jellison is excited about their acquisition of a software company called Aderant

Aderant has a really end-to-end platform of mission critical software, that primarily goes to law firms now, but could be expanded to other professional services organizations.  It has 3,000 of the world’s largest law firms and professional services organizations, and they really do a full suite of activity, all the way from time capturing and billing to docketing.  If you look at our acquisition criteria on the right, you will see it has got an excellent management team. In fact, we are retaining everyone.  Over 95% customer retention, strong cash flow characteristics, asset life, well once again, negative working capital, so people pay us in advance for work that we are going to eventually perform.”

Roper (ROP) CEO Brian Jellison said they are seeing heavy competition from Private Equity firms for deal flow 

There has been a lot of stuff for sale, but there is always a lot of stuff in the pipeline.  People are going to start to worry about their exit multiples versus what their entrance multiples order. So I think everybody is wondering about what their exit time ought to be, if it should be moved up. But boy, the guys that we work with and talk to all the time, I mean, they are still deploying capital like crazy.  So you see them making big bets with very high trailing multiples at least, for what they hope will be able to grow into.”

 

 

 

 

Comcast (CMCSA) CEO Brian Roberts said the movie segment of the media conglomerate had an excellent quarter  

At film, the third quarter was remarkable in many ways and continued the terrific run we’ve had this year. Minions and Jurassic world sustained our box office streak into the third quarter.  On August 5, we surpassed the prior record for the highest grossing year ever for a movie studio in worldwide box office. And this is the first time any studio has had three films crossed the $1 billion mark and theatrical receipts in the same year.”

Comcast (CMCSA) CFO Michael Cavanagh said the company is experimenting with cable & internet packages at different price points

A final comment on video, we are responding to different customer preferences, segmenting the market effectively with a variety of video packages and offers, like our Internet Plus offering to appeal to customers that might otherwise choose to purchase only broadband from us. Providing the right introduction to our products allows us to better retain our customers and potentially migrate them to higher end packages over time, improving our customer lifetime value.”

As you might expect in an era of emphasis on the digital age, broadband internet customer acquisition was strong

“The strong momentum in our high-speed data business continued. Revenue increased 10.2% during the quarter, making it again the leading contributor to overall cable revenue growth, driven by impressive growth in our customer base, as well as rate adjustments, and an increasing number of customers taking higher-speed services. We added a combined 320,000 data customers during the quarter with 73% of our customers now receiving speeds of 50 megabits per second or greater.”

Their venture capital arm has made investments in next generation content platforms

As we talked about the millennials, we talk also about NBC and investments in Vox and BuzzFeed and the ability to now hopefully have advertising that can take some of our content and their content and bring it to advertisers.”

 

 

 

 

IAC (IACI) CEO Joey Levin said ad blockers aren’t affecting the companies advertising business as much as many had feared

“On mobile it has been negligible. I think, we would see less than 1%-type impact. On desktop, we see an impact maybe measuring something in the teens, not accelerating, but the probably somewhere in the teens impact.  I think, we under indexed towards relative to the general internet on ad blocking. I think partially, because we drive lot of traffic through advertising. By definition if we acquire the user through an app, then they are going to see an ad when they get to our site, also because just our demographic is less likely to be adopting ad blockers.  The industry has to pay a lot of attention to and the solution is going to be adjustments in ads, better ads.”

And their video site, Vimeo, continues to gain subscribers

On Vimeo, the business today is substantially weighted toward subscription, but VOD business is growing much faster and growing very nicely. It is still small, but it is growing very nicely. If I look at many years, I see VOD being a, whether it is transactional VOD or subscription VOD, I see VOD being a huge portion of that business if we are doing things right over time. It is just a massive market and I think given our structure we ought to be able to take a piece of that.”

With the upcoming IPO of subsidiary Match.com, CEO Joey Levin explained the company’s stance on spinning off companies

Most companies, when they have a business like Match.com, and or businesses like we have had in the past which are leaders and their categories and doing very well, they hold on to those businesses. Our philosophy is when you get those businesses and when they reach that level of scale and when they have that sort of independence that we give them their own currency and set them up on their own and because we think that generally best for shareholders.”

 

 

 

 

 

 

New Dupont (DD) CEO Ed Breen, who broke up Tyco last decade, comes to Dupont with a mindset to improve the company’s focus and returns while potentially reducing capital expenditures

“I think we can have a better rigor around our return metrics across all of our products and platforms and programs that we’re working on. So we’re clearly on instituting that. So I don’t just highlight that to R&D. I think that’s across the board on how we spend on CapEx and certainly R&D is a big piece of that, but it’s across the board. I think more rigor around R&D is needed. Having said that, R&D is one of the great strength this company, but more rigor around that and that process I think could be very helpful for us and we’re starting to put some more of that in place.”

And he’s predicting consolidation in the sector

“Having said that, I’m not naive about what’s going on in the ag space right now. I do think at some point there’s consolidation here that will occur. You saw some other announcements just this week from others. And so we need to be very cognizant of that.  I am personally talking to the CEOs of some of the other companies. Something will give here on the ag side and I would say just looking at it consolidation should happen.”

New Dupont (DD) CEO Ed Breen cited some key characteristics as to what sets the company apart

here are so many great things here and I told the employees that were really working off a very solid foundation. First of all I’ve been in many companies and the one thing I can say is the employees are really dedicated. As I said in my prepared comments, they want to win. So there is a great spirit here and a great drive and you can’t make up for that.  Obviously this is a great science and R&D company and a lot of great things come through that. And this company is also very focused on its customers with an extensive global sales force that really is very impressive. So that’s a great foundation to have. The areas where I think there’s improvement needed are more operational. At this point time anyway especially with the environment we’re in, I think there’s a nice opportunity on the cost side.”

And he wants to make the company significantly more competitive and agile by reducing costs

also think from a CapEx standpoint we’ve been spending around $1.5 billion a year. I think that number is too high. We’ve pretty much zeroed in on what our numbers going to be for 2016.  that gets back to a rigor around returns on invested capital and what programs really makes sense which ones are marginal. And we’re going to do a lot that have great returns with them. And I’d say the other area where there’s improvement needed is working capital.”

 

 

 

 

Waste Management (WM) CEO David Steiner likened the switching dynamics in the waste disposal industry to the cable industry

And so, I always liken it to the cable companies. We all get a flyer every week that offers us lower price for cable. There’s probably a lot of people that accept that and say, let’s take it every time we can get it. But 90% of the folks say, you know what, the cost of changing out is too high, so I’ll accept the fact that this price might be a little bit higher, but I’ll accept it because the pain of switching is too high, until the cable starts going out or the satellite dish starts going out. And then all of a sudden, that price offer looks pretty attractive.”

And they put computers on each of their trucks which will help improve efficiency and route optimization

“over the last few years, we put on-board computers in all of these trucks. And I would tell you, we’re only kind of at halftime with respect to using the onboard computer to its fullest capability. For example, we can route our trucks dynamically. But that doesn’t do any good unless the driver follows the route that the computer generates, and we’re only following that route – if you think about best-in-class, a FedEx or a UPS probably follows the route 95% or 97% of the time. We’re kind of about 80% of the time. So, while that may seem like, pretty good, and it is okay, that last 15 to 20 percentage points is worth a lot of money.”

Waste Management (WM) CEO David Steiner said they are open to an energy waste deal if the prices is right even though they aren’t currently actively looking for a deal in the space 

On the energy services side, I’d tell you that if we were to do a deal in energy services, we’d do an opportunistic deal. We are not actively looking to go out and expand our footprint dramatically in the energy services businesses like we have been in the past. But if we can find some deals that are opportunistic and at the right price, we certainly think that long-term, energy services is going to be a good line of business. It’s not going to be a good line of business for the next year or two. So we’ve got to see something on the long-term horizon at an opportunistic price, if we’re going to invest in energy services.”

They have had to give price concessions to some of their customers in the energy space

Yeah. I mean they’ve come back to us over the last, probably 12 months, and asked for the price concessions. In some cases we’ve made some price concessions, in some cases we haven’t. It’s as much of as anything a function of where our assets are relative to the drilling that’s taking place. But certainly there has been some real pressure in that business, and that’s why our revenue will be down probably 30% for the year.”

 

 

 

 

Incoming W.R. Berkley CEO (WRB) Robert Berkley described where they are finding attractive places to deploy capital and places they are staying away from 

“As far as the domestic insurance market goes, as we’ve said over the past couple of quarters, workers’ compensation, general liability and many of the professional lines remain very attractive and we think are sensible places to be deploying additional capital. On the other hand, aviation, much of the marine market, cat-exposed property as well as offshore energy are product lines that we are increasingly concerned about and do not see a lot of rational behavior in those parts of the market.”
And they’re finding more competition in their international markets 
“Moving onto the international market, it is a bit more competitive; no different that it’s been in the past few quarters. One of the things that we’ve seen over the past few years has been many organizations have been looking to increase their footprints in some of the international markets that we have been operating in have become more and more crowded.  And the international insurance markets tend to be a bit more dependent on the reinsurance markets and that is due to the fact that much of the international market uses much larger limits on a day to day basis than we typically see in the middle and small commercial market in this country.”
The reinsurance market is extremely competitive 
“On the topic of reinsurance, certainly again a topic we’ve discussed with you all in the past, the marketplace remains exceptionally competitive. Having said that, it would seem as though the pace of competition seems to be not moving or increasing as quickly as it has over the past several quarters. I don’t think that we’ve necessarily touched bottom, but it would seem as though we continue to get closer as again the pace of erosion is slowing.  we do believe that capacity is becoming more and more commodity with every passing day and ultimately it boils down to the expertise that you can bring from a value perspective to your clients and focusing on clients that actually do value expertise and don’t just deal with commodity.”
Lower interest rates on their bonds hurt their investment income
“Turning to investment income, our investment income was $133 million this quarter, compared with $179 million in the third quarter of 2014. Earnings from our core portfolio including arbitrage trading declined 8% to $110 million, due primarily to lower reinvestment rates available for maturing bonds. The average bond yield for the first nine months of 2015 was 3.3%, down 0.2% from 3.5% in 2014.”
They don’t focus on GAAP accounting results but rather risk adjusted returns 
“These are especially interesting times. We really do focus on risk adjusted return. It means, we do some things that some of our competitors don’t do. We don’t focus truly on accounting results, because we’re focused on creating shareholder value more than reported earnings per se. That means, we start businesses instead of buying them, because that’s a better economic return; it’s not a better accounting statement return.”

 

WR Berkly 3Q15 Earnings Call Notes

Competition modestly on the rise, but hard to find any catalyst that would shift that

“Yes, competition is modestly on the rise, but truly is at its incremental rate. And in spite of some of the recent headlines that we heard about cat or cat-like events occurring and affecting the industry, the impact has really been quite modest and one that that’s hard-pressed to find any type of catalyst out on the horizon that is going to shift the direction or I should say the overall market climate.”

Cheap reinsurance has empowered less responsible behavior

“cheap reinsurance has perhaps empowered less responsible behavior. And to that point, both domestically and internationally, we have seen increasing correlation between areas of the industries that are under the greatest pressure and those that are most dependent on reinsurance.”

Pace of erosion in reinsurance may be slowing

“On the topic of reinsurance, certainly again a topic we’ve discussed with you all in the past, the marketplace remains exceptionally competitive. Having said that, it would seem as though the pace of competition seems to be not moving or increasing as quickly as it has over the past several quarters. I don’t think that we’ve necessarily touched bottom, but it would seem as though we continue to get closer as again the pace of erosion is slowing.”

Insurance companies are double hit by inflation

“We’re maintaining the quality of our investment portfolio and keeping a short duration, because the risks of an insurance company are doubling down if inflation comes. You get hurt with your loss reserves and if you extend the maturity and duration of your investment portfolio, you’re effectively doubling down. So we’ve chosen to reduce that risk, the one that we can control.”

(Only 1 analyst on the call)

WR Berkley 2Q15 Earnings Call Notes

There’s been a lot of industry change but conditions have remained pretty consistent

“The second quarter, as suggested a moment ago, has been a period of significant change for the industry, but much of that change stem from the level of M&A activity that persisted through the quarter. Having said that, while it has given people something to talk about, the reality is that the underlying market conditions have been reasonably consistent, though in some cases perhaps incrementally more competitive.”

Global reinsurance remains painfully competitive

“the global reinsurance market that remains painfully competitive as well. Having said that, the pace of erosion seems to be slowing, which is giving reason for perhaps guarded optimism that we are approaching the bottom.”

Capital markets are so flexible that there is not as much need for permanent capital

“We also think capital management reflects a different view that we have than many of our competitors, where they think getting bigger and having more permanent capital is a good solution. We think, if anything, capital markets are more opportunistic, more flexible, and there are things to do to have capital that’s available to you. And therefore maintaining ever-increasing permanent capital can be more like an anchor than a sail of the winds that helps you move ahead.”

There’s so much uncertainty out there, particularly with regards to inflation

“The global economy has never been as uncertain in my recollection. Not that there’s a huge crisis here, but there’s lots of uncertainty. The spread between the duration of our bond portfolio and the duration of our liabilities is as great as it’s ever been, being a year, because we’re worried about inflation. We don’t know what’s around the corner but we know it’s out there given economic activities and economic policies.”

Ultimately the system of taxation has to be universal

“I think that ultimately the system of taxation in our country only can work when business done in the United States pays tax on a universal basis. Otherwise, everyone will find ways to do business here and move their incomes offshore. That is not how it works in the insurance business at the present time. So that being said, I think there will be someone, something done to address the tax issues.”

We don’t see that we’re going to grow the business that much, if we did, we would tap sources of external capital

“for a couple of years we’ve tried to maintain our capital levels at roughly the same level because external capital is available at very low costs, much lower costs than our average cost of capital. So we’re not going to reduce our capital, but we also don’t see that we’re going to be able to grow our business a huge amount. So if we can grow our business 5% or 7%, there’s external capital that we can find ways of obtaining for that amount of growth. ”

William stepping down as CEO October 31

“on October 31st I will step down as Chief Executive and Rob is going to take over. So it will be not five decades but I’ll be out of this box at that point and he’ll take care of it, then I’ll be Chairman.”

Regulatory pressure makes it important not to stay small. We have to do what’s right for our shareholders

“I think consolidation serves a purpose. In the case of our business, regulators and regulatory pressures makes it important not to stay small. We’re big enough that we can deal with it. We’ve always had the same view. We’re here to do what’s right for our shareholders. We’ll always do what’s right for our shareholders. But that being said, we can continue to generate great returns over the long run for our shareholders, and if somebody comes up and says, “Hey, we’d like to talk to you about something,” we’re always willing to talk. If it’s good for our shareholders, it’s good for us.”

I think the consolidation that’s happening is more about ego

“I think that the consolidation that’s happening now is frequently about management ego or management rewards and less amount — less than it is about what you need to run your business.”

We think there will be an opportunity to do something with capital in the next two or three years

“We think we can always find capital which we will do on an opportunistic basis when we see reason or need. And we’re not — if I was talking about three, five, seven years, I wouldn’t be talking about it. This is something we see in the next year or two or three, where we think there’ll be an opportunity to do something.”

The tax system is a long run competitive disadvantage

“we’re always willing to do what we think is in the best interest of our shareholders. We think we have some level of obligation to this country. We just think at the moment, the way the taxes are, we won’t be able to compete in the long run when we’re paying taxes at 30-plus percent and we have many competitors who are paying very low tax rates. And they do it, forget about what they show on their statements, they do it in many ways, through loss portfolio, transfers, because then they don’t pay tax on the discounted value of their reserves, through all kinds of vehicles, some of which they feel are justified and some of which they don’t. But the bottom line is, how much cash taxes do you pay? And it’s a competitive disadvantage that in the long run you can’t continue with.”

WR Berkley 3Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Domestic insurance market offers the most promise

“The domestic insurance market continues to offer the greatest promise from our perspective. Casualty and workers’ comp continue to standout as particularly attractive. Non-cat exposed property also offers some opportunity and we are seeing the ability to get additional rate there. Having said that, cat exposed property is a bit of a different story.”

Global reinsurance market continues to concern us

“The big question mark or concern from our perspective continues to be the global reinsurance market. We’ve talked about this over the past several quarters and it continues to be front and center on our radar screen.”

Building our investment portfolio in alternative sorts of investments

“we continue to build our investments portfolio in alternative kinds of things, our private equity portfolio which is where we own large percentages of companies.”

Reinsurance market is a buyers market right now

“I think, stating the obvious, it’s a better moment to be a buyer than a seller. I think as far as long-term goes, it’s still a bit unclear as to the permanence of this alternative capital. It hasn’t fundamentally been tested from a loss perspective where a lot of the decisions and judgments, which are based on models, proved to be wrong as a result of some type of unforeseen or unfortunate events.”