Cummins 3Q13 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. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

“weakness in global mining and power generation demand offsetting higher revenues in truck markets in North America and Brazil.”

“Power Generation revenues declined 13% year-over-year, as continued weakness in most international markets offset higher demand in North America. Third quarter revenues and new order intake were well below our expectations as demand fell sharply in India due to declining business confidence.”

“For the full year we are adjusting our forecast for the market size to 223,000 units, down from our previous forecast of 229,000 units. Demand for the new trucks — demand for new trucks has not grown as much in the second half as we expected.”

“The biggest negative impact in this quarter was India where it was not doing well up until now, but it really fell off a lot in Q3 much more than we expected as it seemed like the economy just kind of hit a tipping point. All of a sudden people started to say we have to reduce orders and we have to preserve cash now and that was frankly a surprise to us how quickly that happened and so a whole bunch of orders were cut or pushed out towards the second half of the quarter and it looks like we’ll extent into Q4, so that also impacted us.”

“there’s a whole bunch of stuff going on for Cummins which is not related to the economy that we think drives some level of growth next year. For example Euro 6 and Tier 4 Final both emissions regulations hit next year. That will have a positive impact on our components business significantly positive.”

“I think India is a big factor in us taking a more prudent position in the fourth quarter than what we may have done in the past. The drop off really in the last couple of months in the third quarter did catch us by surprise and there’s no signs that those markets are going to recover anytime soon. The other area I would throw into the mix here would be the North American truck market, the heavy duty truck market which we’re seeing weaker demand than what we envisaged three months ago.”

“right now it appears and we talked to the same people you do to the fleets, I mean the bigger fleets are kind of in a replacement mode and generally folks are not expanding fleets despite some pretty positive things if you look macro at the market, used truck prices look good, the ages of fleets, freights up.”

“the only thing I would add, broadly speaking in the truck market I think we’re seeing the same thing we’re seeing in most business-to-business environments in the U.S. If conditions are okay and they’re growing slowly, but business confidence is not very high for major investments. Basically people are making small investments and conservative investments, they’re not hiring that much. So it’s not that they’re not doing anything, but it’s pretty conservative and pretty slow versus as you know we see in the consumer economy is a little bit more robust. But business-to-business is not”

” nobody was getting ahead of themselves, they’re all kind of just staying within their – within the fairway here about what they think they can afford, they’ll buy trucks when they have a new route, they’ll replace trucks that look like their past and that’s what they’re going to do.”

“I mean it’s a tough economy and you got to figure out where you think the opportunities are. But we are getting more positions at more OEMs than ever. Why is that? Because we’ve got global scale especially in our mid range business. We make more mid range engines than anybody by 10 times. I mean we are so much larger and we’re in every market with every technology. Plus because we’re launching all these new emission products that means when you buy one of our engines at any size range, you can launch it in Brazil, you can launch an earlier version in China,”

Agco 3Q13 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. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

“In North America, farmers’ strong financial positions and the expectation of near-record farm income in 2013 are expected to support healthy retail demand, especially in the professional farming sector, through the end of the year. Strong farm fundamentals are expected to continue in Brazil in 2013 and the attractive terms for the government financing programs are in place through the end of the year are expected to stimulate growth in excess of 15% compared to the same levels in — compared to the levels in 2012. We are expecting softer demand in Western Europe, with weakness in the U.K. and Central and Eastern Europe. Solid demand across France and Germany is expected to mitigate some of the weakness in other areas. We are continuing to expect 2013 demand in Western Europe market to be down between 0% and 5% compared to 2012.”

“I don’t think anything has really changed too much over the course of a quarter. Obviously, the commodity prices are down, but also you have to keep in mind that farm income levels are projected to be very strong in North America and South America. And in many cases, in Europe, we’re seeing good harvest and farm income should be very good there as well. So we’re expecting the activity levels in our dealerships and retail demand to be strong for the balance of the year, and that’s what we’re for focused on right now.”

” in November, we will have the biggest farm show in the world with — it’s in Hanover, Germany, called Agritechnica. It’s a very global, very international show. All dealers go, all importers go, a lot of customers go. And so it, therefore, typically, before Agritechnica, orders slow down a little bit. And the real picture we will have when we come towards this in December. So it’s actually too early to talk about what’s really going on and to talk about 2014″

“we have seen a pickup in the midsize tractors for some of those dairy and livestock guys and also with that, we would expect to see heavier orders or continued heavy orders for the hay products. So that’s balers, windrowers, those kinds of things. So there is some offset then as you see maybe a slowdown if you do on the row crop guys, the dairy and livestock and the protein producers typically see their margins go up and that’s when we would expect to see stronger sales of those products that we just talked about.”

“especially in the U.S. with some expiring tax benefits and the farmers have had a very good year, a good harvest in most cases and commodity prices have been okay, so farm income is going to be good.”

Arch Coal 3Q13 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. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

“PRB coal is competitively positioned versus natural gas. PRB coal plants have been running all year with gas prices averaging in the 365 range. Days of supply at PRB serve plants declined to 60 days at the end of September and are likely to fall below this, this winter. On the national level, customer coal stockpiles could end the year around 150 million tons. That’s more than 30 million ton drawdown during the course of 2013. US coal demand is exceeding production and supply curtailments, particularly in Central App are accelerating. Looking ahead, even if we play at a scenario where coal demand is flat in 2014, we are on pace for another 30 million ton drawdown of stockpiles next year all else equal. With such a drop inventories will fall to levels not seen since 2005. That’s why we believe coal markets could become much more dynamic next year as compared to what we have seen during the last 18 months.”

“Brandon we are certainly seeing some positive signs in the PRB, inventories are coming down, we like where natural gas prices are right now, with normalized weather the balance of the year we think we really could be setting ourself up for a much better 2014 where PRB is concerned.”

“I think we would need to see a little bit more improvement on the met side, certainly inventories get down a little bit more in the PRB, activity pick-up in the PRB, see some price appreciation out there – those two things would help us.”

“My sense, across the industry and not just in the peer that, you know, equipment replacements have slowed and clearly there has been maintenance deferrals. And those are going to ultimately eat into any reaction we’re going to see. What’s more, as I’ve said in the past, this isn’t the basin I left 7, 8, 10 years ago. It’s not quite as easy to turn up the production as it was then.”

“we think there’s quite a bit more coal that needs to be purchased in 2014. You could start seeing some price appreciation as we move into next calendar year.”

“our [met coal] domestic customers continue to run their plants at pretty high capacity factors. They have been in the mid to high 70s most of the year. So, we think that the demand will be there. We’ve enjoyed a long-term relationship with our domestic customers I think.”

Sluggish Retail Sales Growth

Retail sales reported this morning showed that spending grew 3.2% year over year in September, which is a less than robust growth rate.  The growth rate is pretty consistent with what one might expect to see in the late innings of an economic cycle.  The recovery phase is long over, and so growth now needs to be driven by productivity, population, credit and (on a nominal basis) inflation.

The retail sales data shown here is nominal (not adjusted for inflation) meaning that it should have a reasonably strong correlation to top-line growth at many S&P 500 companies.  It will probably be tough to get high single digit earnings growth with low single digit revenue growth.  Retail sales data captures about 30% of GDP.

Retail Sales September 2013

Seagate 3Q13 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. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

“we shipped a record 48.7 Exabyte’s of storage up 14% year-over-year and averaged a record 875 gigabytes per drive across our portfolio up 19% over last year.”

“Looking out to 20-20 we believe that data growth and demand for storage is continuing out of pace that is higher than what the drive industry, infrastructure is capable to produce and we estimate that approximately 60% of this data will be stored in both home and enterprise cloud environments.”

“We are pretty confident in our cloud near line portfolio right now. And we look forward to the product launches that are coming next year”

” we are starting to focus a lot more in revenue market share and exabyte market share and we feel that in certain segments it just didn’t make sense to participate given the rather lackluster revenue boast up would have provided us maybe margin pressure.”

“the purchases by the call service providers or internet service providers or any of the big web based companies that are they are very choppy and we expect that you know over the last several quarters so that these large volume orders that they can they come and go in big blocks and sometimes those companies are buying from our traditional OEMs and sometimes they shift their purchasing to direct kind of depending on what type of architectures they are deploying. So I think it’s a bit early to kind of get a read on how that’s going to play out consistently in fact it’s my personal belief that the traditional OEMs are probably going to reestablish themselves pretty effectively in this marketplace just because their go to market capability.”

“we talked a few quarters ago about estimating our cloud business at somewhere around 10% to 12% and now it continued to escalate, and probably 15% to 20% because some of its direct and some of its indirect”

“we think unit TAM probably trends as it has over the last several quarters, which seems to be this kind of 140 give or take like we said I think the last call and the call before that whether or not when you are within 10 million units of either side of that type of TAM for the drive industry, now that’s the things that the industry can manage pretty easily given the way we are producing.”

“I think that just the architectural trends that we see one is the continued advancement of mobile technologies and then the network effect that, that has on where data is created and stored doesn’t seem to us there would be any trend to break away from that. Hopefully, we are some of the new mobile products. You get an even greater network effect, because maybe there is more endpoints of people sharing which content”

“we don’t really see any big macro changes negative or positive and we don’t really see any shifts away from the mobile and cloud future that we have been pretty solid on speaking to. So I think you are going to see relatively flat TAMs with the shift to increasing capacity per drive, which of course were the vertically integrated drive companies means absorption in heads and disc, which is good for us. And then the higher capacity drives of course are higher value-add technology as they are harder drives to making harder drives to test.”

“we’re hopeful with the new design, the [PC] OEMs are coming out with well to stimulate consumer demand but it’s still just a pretty murky segment of the market and that’s why I think we’re very selective and cautious about how we continue to look at the client level of the marketplace.”

“I think for Seagate, certainly, we have always targeted the enterprise SAS market as one that we believe we have a competitive advantage in value-add as a result of our experience in the higher end compute market as it exist. Obviously, Hitachi has the same advantage. So I think relative to some of the other players that haven’t been as exposed to those enterprise workloads as we have, the drive industry has kind of a natural advantage and I could see that those shares reflect what we see in the mission-critical space.”

“I think the SATA space gets a little more confusing just because it’s currently under a lot of price pressure from the people that control media and then the PCI market space whether or not you call that storage or fast memory is also I think extremely challenged right now by a lot of competitors in the space. And while there is value-add to the software, the companies that are providing the media I think are making it difficult for anyone to really have an attractive margin there. So for us, we are really focused on enterprise SAS.”

Apple 3Q13 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. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

“[for the fiscal year] We generated record total company revenue of $171 billion, earnings of $37 billion and operating cash flow of $54 billion.”

“The smartphone category is expected to grow significantly in the next few years from about 1 billion units per year this year to over 1.7 billion in 2017. And the tablet market is growing at an even faster way from about 225 million units this year to over 400 million in 2017.”

“the number of unique listeners who have tried iTunes Radio is now 20 million and growing.”

“We are projecting a total of approximately 30 new store openings in fiscal year ’14, about two-thirds of which will be outside U.S”

“$111.3 billion or 76% of our total cash was offshore at the end of the September quarter”

“given that our capital return program must be funded from domestic cash, and as a result of our payments to date, the cash that we can net domestically and return to shareholders to stop accumulating. In fact we give return to shareholders who invested essentially all of the increase in available net cash generated since the beginning of our capital return program in 2012.”

“we’re pleased to be guiding gross margin about flat sequentially given all the new products that we have launched in the last few weeks. During the quarter we expect gross margin to benefit from the leverage on the substantial sequential increase in revenue. Offsetting these benefits we see a few factors including the higher deferred revenue relating to the software that I talked about in my prepared remarks. And as I said we expect the sequential increase in our deferral which is not only revenue but affects margin as well to be $900 million. Second, a richer mix of new iPad’s with higher cost structures and lower pricing. Third, FX headwinds primarily from the Yen and fourth, the new lower priced MacBook Pro and iMac which have higher cost structures and credit structures.”

“I realize that some people were reading rumors about that the entry phone would be the 5c, but that was never our intent obviously. Our entry iPhone is the iPhone 4s and as you know from comments that I’ve made previously we were selling the iPhone 4 in very good volumes and as we began to experiment in different regions at somewhat lower price points we saw a fair amount of price elasticity and so we’re hoping and thinking that, that will continue with the 4s.”

“I have said that you would see some exciting new products from us in the fall of this year and across 2014. And I obviously stand by that and you’ve seen a lot of things over the last couple of months.”

“we were able to launch in our first round this time in China and that was a big change in the result of a close work relationship with the carriers in China and the government”

“We have been deferring revenues for the sale of each iOS device and Mac given that we have been providing updates to software. Given the announcements that we made last week and that I went through it in my prepared remarks, we have actually increased those deferrals. iPhone and iPad, we are differing between $15 and $25. That’s up as much as $5 per device and Mac has been some $20 to $40, so up an additional $20…We will then record that revenue that we’ve deferred for iOS devices across a two year period of time ratably and for Max over a four year period of time.”

“I feel really good about the way the MacBook Pros have gotten off last week. They’ve gotten off to a huge start. I feel great about Mac growing year-over-year this quarter. I feel great about iPad growing year-over-year this quarter as well. You can tell that from the strong guidance numbers that Peter gave earlier.”

Company Notes Digest 10.25.13

A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

The Macro Outlook

Mall REIT Simon Property Group may be sounding the alarm on growth (surprised me to read this):

“clearly, clearly, the general economy has slowed…the fact is, we’re not denying that the world — the U.S. has actually slowed.” ($SPG)

The low end is certainly slow:

McDonald’s was cautious:

“In the U.S., we continue to experience a bifurcation of the consumer base. McDonald’s core customers skew towards those customers whose disposable income is not rising as much and are spending a little bit less in QSR…we believe that this fourth quarter is still going to be relatively challenged” ($MCD)

Pawn shop operator Cash America also noted extra caution in its customer base:

“the customers that we talk to, they were out in the field, in our shops and surveys just indicate there, they’re very cautious about getting extended right now…customers are not taking the full collateral value of the merchandise…Say $150 on a piece of jewelry…They’re going to take something less than that…that’s also reflected in our redemption rates. The jewelry the people have left, they want to hold on to it. And they’re not borrowing quite as heavily on it, and are not forfeiting it at the same rates that historically we’ve seen” ($CSH)

Alan Mullaly doesn’t think we’re going back to peak auto sales for a while:

“as we start to satisfy that pent up demand over this next couple of years, [auto sales] will come down to more of a normal growth rate based on demographics and discretionary income, and we think that it’s going to be in the 16 million to 17 million range. I think the peaks that we’ve seen in the past that were fueled by a lot of factors as you know, we don’t expect to see. And I think that nice, steady rate that reflects those fundamentals would be welcome by all. And I think that’s the way we’re looking at that right now.” ($F)

If consumers don’t show up for Christmas, at least retailers are lean:

“Retailers remain focused on tighter inventory management.” ($HAS)

Late cycle businesses doing well though:

Freeport was positive on construction:

“Construction, both residential and commercial, automobile activity is very positive and despite all of the political uncertainties associated with economy, our business and our customers’ business in the U.S. in the current conditions is progressing well.” ($FCX)

Ford sold a lot of pickup trucks:

“the full-size pickup segment is doing well this year, particularly versus last year. It’s up over a point, and obviously as you mentioned that’s driven a lot by the housing market.” ($F)

Despite being a defense contractor, Raytheon seems to be on track.  Size helps:

“Financially, the shutdown impact was minimal…we’re raising our guidance for sales, EPS and cash flow for the year…while a larger company such as Raytheon has the ability to mitigate the impact to our workforces, our industry supply base does not. These companies are often small and minority owned, don’t have the same resources or flexibility to weather these ongoing budget storms.” ($RTN)

Oil rig manufacturer National Oil Well Varco is doing so well it’s capacity constrained:

“Strong orders continue to load up our manufacturing plants filling up the capacity we have been adding aggressively, which requires we continue to outsource more and to spend a little more than we would like to expedite equipment” ($NOV)

If you’re in the right business, it’s a good time to invest in capacity in part because others have so much capacity:

“I mean, our customers are pretty busy…the fundamentals are very strong, day rigs are strong, financings available, the shipyard infrastructure is offering holes at very, very low cost. The risk around building these things is low. And so you are seeing drillers go after that opportunity and grow their businesses by investing in these assets.” ($NOV)

Inflation remains weak:

“Commodities, whether on a year over year basis or quarter to quarter, are pretty benign. So no, I don’t think commodities are anything to look at.” ($F)

“in the current more benign commodity environment that we have certainly seen this year and so far moving into next year, we’re going to continue to expect and see progress on the gross margin line” ($CL)

International economies are on the upswing:

Europe’s trajectory improving:

“we are beginning to see improved revenue trajectory across many of the geographies, particularly Europe…Europe is a major driver of the business as it makes up a large percent of our overall revenue.” ($MAN)

China continues to be a surprisingly strong consumer of copper:

“China remains, of course, the important global user of copper and the source of copper growth globally. The demand in China during this year has been stronger than many people expected. The Chinese are confident about their economy going forward, and all our indications from our business there is optimistic.” ($FCX)

And a strong consumer of automobiles too:

“The top line performance in China was really remarkable. Through the first nine months, wholesales were up 51%. The share was growing. Revenue strong, inventory’s in great shape. So the China story is an incredibly positive story” ($F)

Caterpillar is convinced that China will not implode (but I’m not sure how much I trust their forecasts lately…):

“China will not implode. It will continue to attract iron ore and some coal” ($CAT)

The rest of the emerging markets seem slower though:

“Asia looks more positive, led by China, but India will probably remain challenged until the next year’s election that are coming.” ($ABB)

Financials

Loan demand remains middling:

“The bottom line is, pipelines remain fairly strong, line utilization remains fairly weak. And it’s just really hard to figure out. There’s no compelling change in the direction either — certainly not getting dramatically weaker. But there’s no evidence that the sentiment in loan demand is growing stronger out there that we can see, either.” ($ZION)

But deposit growth is so strong that ZION wants to turn depositors away:

“we don’t want to drive deposits out by driving customers out. And it’s basically existing customers leaving more cash with us…we’re providing — let’s just say about as little an incentive for them to do that as we can conjure up.” ($ZION)

Regional banks are still trying to significantly change their loan exposures:

Decreasing exposure to construction loans:

“new construction commitments have been fairly strong for the last several quarters…[but] total new unfunded commitments increased only 1% sequentially as we’re hitting self-imposed concentration limits in some construction loan types in some markets.” ($ZION)

Trying to fill the gap with more consumer and C&I:

“Strategically, that is — we would like to grow consumer to a somewhat larger percentage of the total, and the 2 natural areas for us to do that are…resi mortgages, both first and equity lines, the other is credit card…So less CRE, more consumer and lots of C&I is what we’d like the portfolio to look like.” ($ZION)

And other specialty products:

“the specialty areas where we have been investing and expanding, where we have significant expertise…Some of these specialty areas that have been particularly strong for City National include, of course, our very strong entertainment division.” ($CYN)

Subprime customers still don’t have access to credit in bank channels:

“quite frankly, I’m not seeing a lot of available alternatives that work for our secured customer, secured loan customers out there. So I’m not aware of any new bank products that would compete with our secured loan products. And clearly, I guess, there is some movement in the subprime auto space. But basically, our demographic profile in our surveys with customers, I don’t really believe that’s having an impact on this consumer.” ($CSH)

The environment also doesn’t lend itself to a lot of M&A:

“Frankly, I like the position we’re in now, the base that we’ve got and the geographies we’re in and the businesses that we’re in. And we’re more focused really on organic growth…I do tend to think that sellers still overvalue the worth of their businesses. And I also think that you’re seeing activity, but you’re likely to see it kind of more amongst the smallest banks who I think are particularly challenged in this environment” ($CYN)

Financial capital is searching for returns in places it doesn’t belong, like P&C insurance:

“The securitization of non-tail risks is having an impact on cat business and those large property risks. There’s lots of people who have investment portfolios who are looking for non-related risk profiles, and therefore, you’re seeing an increase in cat bonds and other kinds of behaviors. That’s going to continue to impact back on the business.” ($WRB)

Ultimately these alternative capital suppliers don’t have the domain expertise and are going to get burned:

“I think these capital suppliers who are entering the business entirely based on models and forecasts are going to find out that human judgments actually are of value and important. And a number of them will get badly burned as they step away from the highly forecastable pieces of the business to other parts. So yes, they may step and put their toe in the water in other things, and I can assure you it will be extremely costly and short-lived.” ($WRB)

Low investment returns mean that underwriting profit is even more important:

“whereas historically, people would say, if you’re right at a 93%, 94%, 95%, [combined ratio] you’d get a good return, today, that number is 88%, 90% kind of a number to get a good return on your capital.” ($WRB)

Consumer

Consumers may have depleted their gold stock:

“we’ve seen some of those independent gold buying stores begin to close…it’s not so much what happens with price of gold, quite frankly, my belief is that there has been a significant amount of gold volume that has been scrapped over the last 5 or 6 years and people don’t have excess stuff to bring in. So even if gold went $2,000 an ounce…I don’t expect to see significant jump in overall gross profit…just because I don’t believe in volume of gold people would be willing to dispose of is anywhere near the level than it was in 2006 and ’07 when this process began.” ($CSH)

Companies continue to experiment with new forms of advertising:

McDonald’s stresses more digital engagement:

“Technology is going to be a big part of our future, particularly digital engagement with consumers. And so you’ll hear us and see us talk much more about digital engagement with consumers.” ($MCD)

Colgate sees opportunities at retail:

“even though it may not be popular because there’s still this feeling that if it goes to trade spending, it’s bad advertising. And if it comes below the line as we were all brought up, it is somehow good advertising. The fact of the matter is with the techniques available to you today, you can foster some incredible engagement that is brand building and trial generating with our consumers at the retail level.” ($CL)

Consumers want more transparency in what they’re eating:

“Customers want to hear more about transparency. They want to hear about provenance and where the food is from. So those things we’re very proud of at McDonald’s, and we’ll continue” ($MCD)

There are two tiers of fast food in China:

“the Chinese typically, in tougher economic times, they typically revert to what we would call CQSR, Chinese QSR, noodle shops, etc., than they do Western QSR-based companies.” ($MCD)

Technology

No signs that the PC decline is abating:

“this PC platform decline is deep enough and we don’t see anything underlying that that’s changing right now.” ($LOGI)

So Microsoft is focused on the cloud:

“the importance of our hybrid cloud. Within especially our server business, our ability to power the cloud whether you want to run it, you want a service provider to run it or you want to use ours, is really an incredibly powerful story” ($MSFT)

Healthcare

Too early to draw conclusions, but so far demand looks robust on the exchanges:

“given that we are just 3 weeks into the open enrollment period, it is really too early to draw any definitive conclusions…We can say that initial interest in exchange products appears robust. As a point of reference, during the first week of open enrollment, we received over 35,000 calls into our service centers, which is more than double our historical weekly volume for individual business. In the second week, this increased to nearly 45,000 inbound calls as consumer awareness began to ramp up across the regions.” ($WLP)

The tough launch for the exchanges wasn’t totally unexpected, and is under control:

“we’ve been working on this for a couple of years now. We knew that there would be some choppiness going in. We’ve hired bubble staff, we have a number of folks ready to assist our customers, working through the issues, and we’re not at all surprised by the initial activity” ($WLP)

Thousands of people are now getting their DNA sequenced:

“This quarter, we shipped more than 3,000 whole human genomes, close to a 90% increase from the 1,600 genomes in the prior year period. This quarter saw orders for more than 10,000 genomes, a new record.” ($ILMN)

More commercial buyers are entering the market for sequencing products:

“more than 50% of MiSeqs were ordered by nonacademic customers due to enthusiasm from pharmaceutical, translational and clinical segments…We certainly have seen increased demand for instrument purchases for the routine research going on in the biopharmaceutical industry and we get orders for the labs around the world on a routine basis.” ($ILMN)

Don’t get too excited yet though, there’s still a ways to go before mass adoption:

“there will be, if you fast forward a couple of years, an opportunity to develop technologies for doing screening of patients entering hospitals, as an example, triage. But no one can quite do that yet…we’re still probably a ways away from putting sequencers in community hospitals.” ($ILMN)

Materials, Industrials, Energy

20% Excess supply of pressure pumping equipment in North America:

“the North America market continues to have excess supply of pressure pumping equipment, and although this is improving, we anticipate pricing pressure will continue as contracts review during the next quarter or so…We are still in an oversupplied market today. With as much as 20% excess pressure pumping capacity. ” ($HAL)

But increased efficiency may help to alleviate the problem by opening previously uneconomic basins:

“I would add this rig efficiency phenomenon that everyone is being talking about we believe ultimately will grow the pie. It’s going to make some of the less economic basins now more attractive and more economic and so with ample financial resources and kind of growing opportunities perhaps in another basins you know we think that’s a pretty good backdrop to see expansion sometime out there in 2014.” ($NOV)

Shale exploration seems to be consolidating in the US:

“A few years ago dozens of speculative shale plays were being probed today these are coalescing down to a handful to a handful of the most profitable” ($NOV)

There’s still a lot of frontier abroad though (very interesting explanation of why shale production came to North America first):

“The second major shale market encompasses basically the rest of the world outside North America. Here is where infrastructure is less developed, we view this market as considerably less evolved with tremendous potential and work to be done that will likely span a generation. It is not coincidental that the shale revolution was born on the continent with 2/3rds of the world’s working rigs and the highest level of geologic understanding. Shale plays unconventional plays are by definition marginally economic requiring established efficient oil services infrastructure capable of earthing a well the cost of which is marginally exceeded by the value of the hydrocarbons produced from it at some reasonable expected commodity price.” ($NOV)

And if we tap out of opportunities on land, then take to the sea:

“you take all the floaters that were in existence prior to 2005 and you add all the floaters built since 2005 and you add all the floaters that are on order to be built. You are almost up to half of the rigs working in the state of Texas to go out and drill up the rest of the – two-thirds of the planet covered by deepwater. So we think that’s again a huge opportunity.” ($NOV)

Investors and CEOs have two different views of the mining sector:

“I was sort of struck by the two different views at LME, a lot of people with investors and who follow the investor community were really pessimistic about metals in general and about copper because of this expectations of supply coming on stream, then as I talk to end users and customers and traders and other company CEOs, you know, the theme that came back was, hey, demand is stronger in 2013 than we expected, premiums are strong.” ($FCX)

Freeport argues that copper markets are still relatively tight:

“even as the situation of where there’s as much concerns about the global economic market, about new supplies and we see a copper market in fundamental that’s relatively tight…My point is, that the longer-range story about the copper business is intact. Demand from global development and global economic growth over time will be strong and supplies will continue to be challenged.” ($FCX)

Mining companies are still producing, they’re just not investing in expansion:

“We’re still seeing strong mine production. In fact, some of the big mining companies are setting production records…in my discussions with these guys, it’s been pretty bullish in terms of what they see for existing mines in the scope of a very bearish situation for any expansion. Any expansion in the near-term is dead. It’s over. It’s not going to happen. But they are really focused on increasing productivity, getting a lot more mine production out with less resource. That’s one of the reasons I think we’ve seen fewer replacement sales and aftermarket sales frankly in the last few months.But they are all fairly optimistic on existing mine production” ($CAT)

They may also be holding back on maintenance in order to produce better near term results:

“We do think that mining customers are delaying some maintenance and repair. They’re working hard to improve for this year their results and we certainly understand that. We’re taking a lot of cost action that’s pretty short-term focus as well. But that kind of behavior can’t go on forever. So it’s probably increasing the likelihood that the further out you go, the needs for rebuild and repair are going to go up.” ($CAT)

Miscellaneous Nuggets of Wisdom

It’s tough to really know what your competitor is up to:

“trying to figure out what your competitors do is a Rubik’s Cube.” ($WRB)

In insurance you don’t know your cost of goods sold up front:

“The fact of the matter is that we are in a business where we do not know our cost of goods sold until after the sale has been made.” ($WRB)

Underwriting property casualty insurance is a lot like investing (I strongly believe all investors should study the property/casualty insurance industry):

“what I would suggest to you is that oftentimes where the market has gotten the ugliest is oftentimes where you will see the greatest or the most severe reaction and the pendulum will swing farthest going in the other direction, and you just need to make sure that you don’t jump back in prematurely.” ($WRB)

Cyclical business models necessitate flexible cost structures:

“I mean, this is an industry that goes up quickly, it goes down quickly. What you need to be able to do is flex your costs, and that we’ve worked pretty hard to do.” ($CAT)

Businesses can adapt to a lot of different environments, they just need confidence that the rules wont change:

“I just know that American industry really likes to have some finality in what we do. And if you give us a number, we know how to put our strategies and plans in place to make that happen.” ($RTN)

Short term discounting isn’t a sound long term strategy:

“our belief is that you build categories by building brands, which is a combination of building your base business and adding relevant innovation. We do not believe that the short-term pricing activity accomplishes that nor do we believe it is rational or sustainable.” ($CL)

Price is what you pay, value is what you get:

“In my experience, in price, when you buy that way, you don’t get all the capabilities you want, and so they’re going to have to deal with that…What people don’t realize is that life cycle costs really run into these decisions. And if you don’t take that into account, you’re going to be really sorry with some stuff you bought…you have to almost learn that lesson the hard way.” ($RTN)

Simon Property Group 3Q13 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. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

“For the malls and the Premium Outlets, comparable property NOI growth was 4.9% for the quarter, driven by tenant sales up 3% to $579 per square foot.”

“the thing that I am focused on in our mall business — and when I say mall business, I include the outlets, is that we have to make — we’ve always made retailer service a priority. So Rick and I are as good as sucking up to retailers as possible, okay? Sometimes, Rick is better than I am, but we both can suck up when required. The one thing we don’t do the way I would like us to, is I really want to — I want to provide better service to our consumers, the actual shoppers. And whether that’s — something we instituted last year was just surprising delights, come to the mall and we’re going to give you a free cup of coffee, we’re going to schlep your bags. We’re going to make your visit really better. ”

“September was a pretty bad month in terms of traffic and sales for all retailers. And we’re starting to hear and feel the traffic is bouncing back in October. But clearly, clearly, the general economy has slowed…But the fact is, we’re not denying that the world — the U.S. has actually slowed.”

City National Bank 3Q13 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. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

“In the quarter, City National grew its assets, loans and deposits by double digits to new record levels. For the first time, City National’s assets reached $29.1 billion, which is a very strong 11% increase from the year-ago.”

“the specialty areas where we have been investing and expanding, where we have significant expertise and where we provide a particularly strong value proposition to certain sectors of the economy that are more robust than the economy is at the moment as a whole.”

“Some of these specialty areas that have been particularly strong for City National include, of course, our very strong entertainment division, which as you know is not only in Beverly Hills and growing in New York, but also in Nashville and Atlanta.”

“the August unemployment rate for the entire state of California stood at 8.9%. But conditions are considerably better principally in the areas we are in. For example, the unemployment rate in the San Francisco Bay Area is just 5.6%. And in Orange County, which has 3 million people all by itself, unemployment is just 5.2%.”

“even Nevada is showing some improvement. But clearly, the economy there is lagging behind the other economies that we’re in. But it was interesting to see in Las Vegas yesterday, cranes up as there’s construction of some new offices, hotels even, and homes. ”

“Credit quality improved steadily through the first 9 months of 2013. City National has not recorded any provisions this year. And the company remains well-reserved.”

“We’re not — we don’t budget on or plan on making any acquisitions. And frankly, I like the position we’re in now, the base that we’ve got and the geographies we’re in and the businesses that we’re in. And we’re more focused really on organic growth”

“I do tend to think that sellers still overvalue the worth of their businesses. And I also think that you’re seeing activity, but you’re likely to see it kind of more amongst the smallest banks who I think are particularly challenged in this environment”

“in this rate environment, our earnings are still significantly compressed. ”

National Oilwell Varco 3Q13 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. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

“We have long discussed four big trends that we expect to continue to shape National Oilwell Varco’s destiny over the next decade. One, the build out of a fleet of floating drilling rigs to explore and develop deepwater frontiers open by technology developments of the past 20 years; two, the blossoming of floating production systems, which we expect to produce most deepwater discoveries; three, the replacement of old jack-up rigs with better shape or new jack-up rigs; and four, the steady progression of unconventional shale technologies into new onshore plays overseas, which will continue to drive steady retooling of land rigs and spur demand for other oilfield technologies.”

“Demand for floating rigs has remained high underpinned by we believe strong driller economics on these investments, good day rates, low cost rigs, quick delivery and available financing.”

“we see the opening of deepwater provinces by new technology as presenting an unprecedented opportunity to the oil and gas industry, one that requires the unique sophisticated drilling tools, National Oilwell Varco and our shipyard partners provide.”

“Once oil companies discover deepwater hydrocarbons, they will produce these and we believe floating production systems will emerge as a preferred method in most deepwater basins.”

“The third trend affecting National Oilwell Varco jack-up rig demand has been white hot lately as operators seek to replace aging fleets, 54% of the marketed jack-up fleet is more than 30 years old”

“A few years ago dozens of speculative shale plays were being probed today these are coal lessening down to a handful to a handful of the most profitable.”

“The second major shale market encompasses basically the rest of the world outside North America. Here is where infrastructure is less developed, we view this market as considerably less evolved with tremendous potential and work to be done that will likely span a generation. It is not coincidental that the shale revolution was born on the continent with 2/3rds of the world’s working rigs and the highest level of geologic understanding. Shale plays unconventional plays are by definition marginally economic requiring established efficient oil services infrastructure capable of earthing a well the cost of which is marginally exceeded by the value of the hydrocarbons produced from it at some reasonable expected commodity price.”

“I will submit that one of the most interesting economic opportunities in this scenario would be for a company that actually builds out oilfields services infrastructure.”

“Land rig sales jumped with more than two dozen sold in the quarter almost all overseas and most going into more sophisticated horizontal drilling applications and pulling unconventional techniques. In particular we saw strong demand from Latin America where Mexico seeking to add new modern land rigs and where Argentina has lifted duties on rig imports for the next several months. The Middle-East, Russia and the Fareast also saw strong demand for land rigs.”

“Strong orders continue to load up our manufacturing plants filling up the capacity we have been adding aggressively, which requires we continue to outsource more and to spend a little more than we would like to expedite equipment.”

“From a supply chain standpoint, everyone is working hard to bring our new manufacturing capacity online which will ultimately lead to operational efficiencies.”

“as you take a look at a catalyst that I think you’re going to project out over the next two or three years. You know I keep my eye on a couple of international plays I think number one will be Russia, I think the Russians are going to be very aggressively doing things in the next few years.”

“I think another area that’s going to very exciting, certainly you should keep your eye on it will be Mexico. You have the changeable laws down there, I think as we move into the rest of the year you will have a constitutional amendment hopefully and then you will have the laws that will come out in the first quarter.”

“You know Brazil is very important to us today but I think we’re going to move into another plateau or not plateau but another tier if you will which is going to be the production and FPSO and the flexibles. So as we bring our flexible plant online as we take a look at some of these different engineering ideas we have on FPSOs as Clay mentioned earlier I think Brazil is going to be a very, very positive area for us”

“the deliveries are going to be slower in Brazil…You got to get on that learning curve. And that’s going to happen in these yards.”

“the rigs that we are building today and the rigs that we are delivering now and through the next couple of quarters, really are new designs or new rig floor layouts.”

“As I mentioned in my comments increasingly we see North America become more and more competitive, this inventory overhang issue has been out there.”

“I would add this rig efficiency phenomenon that everyone is being talking about we believe ultimately will grow the pie. It’s going to make some of the less economic basins now more attractive and more economic and so with ample financial resources and kind of growing opportunities perhaps in another basins you know we think that’s a pretty good backdrop to see expansion sometime out there in 2014.”

“things like drill pipe and downhole tools as long as well count is high which it has been those products get consumed and they get consumed pretty quickly. So there was a definitely an inventory overhang for both of those types of products, the downhole tools, and drill pipe. We will work through that at some point in time next year and we will start to see more demand for those products. As you get into the more consumable type items like fluid end expendables, valve, seat liners, pistons. Those are probably going to be consumed as customers need them as opposed to really building up inventory levels, because there is ample supply out there”

“yes, I mean, our customers are pretty busy. They have ordered a lot of rigs. They have a lot of projects underway. Well, time will tell where we end up next year. But I think bigger picture and this is some of the part of the themes that I touched on in the opening comments where it’s an enormous opportunity out there. And with high commodity prices, we are seeing a lot of oil companies, lot of drillers avail themselves to these opportunities. And so we think again, the backdrop, the fundamentals are very strong, day rigs are strong, financings available, the shipyard infrastructure is offering holes at very, very low cost. The risk around building these things is low. And so you are seeing drillers go after that opportunity and grow their businesses by investing in these assets.”

“you take all the floaters that were in existence prior to 2005 and you add all the floaters built since 2005 and you add all the floaters that are on order to be built. You are almost up to half of the rigs working in the state of Texas to go out and drill up the rest of the – two-thirds of the planet covered by deepwater. So we think that’s again a huge opportunity.”