DR Horton 4Q14 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

Big increase in volume

“In the first quarter, our homes sold and closed increased by 35% and 29% respectively, and we had another solid quarter of profitability with $220.7 million of pretax income on $2.3 billion of revenue.”

Texas operations holding up fine

“We saw our Texas operations perform in line with the company and our expectations for the first quarter and into the first few weeks of January so far. So, while we would expect that there could be some general slowdown in Texas at some point, specifically perhaps Houston and Midland, we haven’t exactly seen it yet, and we’re very encouraged seeing the results inline with the expectations right now.”

Spring selling season not here yet, but it’s approaching

“Spring is not even really here yet. But we’re in line with our expectations and we would expect that we’re going to get every margin of dollar that every dollar of margin we can as we move to the spring and as our pace and absorptions stay on track.”

We do expect our land costs to increase

“No, doubt, our land costs are a components that we do expect to increase. We have seen our land as a percentage of our overall revenues or on a per square foot basis, similar to how it look at stick and brick.”

When we underwrite a purchase, we assume everything stays the same

“As we look forward will underwrite a land purchase, we assume flat pricing on the homes as well as flat pricing on the cost develop if it’s a land parcel to be developed as well and stick and brick. It just too hard to start predicting, this is going to go up by this percent, these costs to go up by that percent. It’s much for us controllable underwriting process to look at pricing on a flat basis and then understand what that performance we expected to be to make the investment decision.”

Weather has been a little better this year

“I think weather patterns have been better this year and last year, I mean, we didn’t gave a weather report last year, but I do think that weather impacted people’s ability to get out and buy else. I think the FHA conversation has got people thinking about buying a house and going into models.”

Microsoft FY 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

PC refresh boost has trailed off

“We also saw some challenges this quarter. As expected, the one-time benefit of Windows XP end-of-life PC refresh cycle has now tailed off. Additionally, we ran into unexpected issues in select geographies.”

Weakness in Japan

“our results in China and Japan fell short of our expectations. In Japan, the PC market lagged due to the macroeconomic environment along with the combined impact of XP end of support and the VAT increase last year.”

FX will be a 4% impact to revenue growth

“in Q3 we will start to recognize a higher percentage of revenue from periods with a stronger U.S. dollar than the prior-year comparison. In total, we expect that FX will negatively impact revenue growth by approximately four points in Q3.”

Issues in China

“We have in China currently a set of geopolitical issues that we are working through. We’re very committed to China as a market. We have in fact pockets of good growth in China with our cloud doing fairly well, but at the same time we’re grounded that in the fact that we need more work to do and we’re working through them and then as and when they will work out, we will let you know.”

PC Units about flat, some improvement in the consumer side of the business

“I actually think we agree with most of the benchmarks in terms of PC unit health across business, which has been stable since FY ’13 and across consumer where we see meaningful progress made in unit growth both last quarter and especially this one.”

Windows 10 is to span screens

“The core idea of Windows 10 is to build a device operating system that spans the gamut from no screens to small screens, to PCs and even large screens.”

Cultural change, we do things faster now

“while I think many people want to see it as a finance concept, it’s not. It’s a senior leadership team concept and the leadership environment that I think we’re making collective decisions faster.

I think we are applying our resources to opportunities when we see them. I think we have a freedom to make those choices quickly and I feel very good those about the decisiveness that comes with it, but also the empowerment that we give to people within our organizations to make those calls, to increase our performance without waiting to an annual budget process.”

The new windows upgrade is free because we want everyone to upgrade

“at the highest level, our strategy here is to make sure that the Microsoft Services i.e. cloud services be it Azure, Office 365, CRM Online or Enterprise Mobility suite are covering all the devices out there in the marketplace.

So that, that way we maximize the opportunity we have for each of these subscription and capacity based services. So that’s the core rational for why we are doing cross platform.'”

Kimberly Clark 4Q14 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

We’re facing significant currency headwinds, like other multi-nationals

“Like other multinational companies, we’re facing significant currency headwinds. Including the rate change in Venezuela, we expect that translation effects will reduce our sales by 8% to 9% and reduce earnings by 9% to 10%. Adding in transaction effects, currency is likely to hurt our bottom line by more than 15% in 2015.”

Costs not falling as fast as currency headwinds

“On the commodity front, the outlook has improved some in the past three months, but at this point we are not planning for a big commodity windfall. Oil-based costs have started to fall recently, but not nearly as much as the drop in oil prices. We expect pulp costs, including secondary fiber, to be similar to last year or even up slightly. We’re also assuming that local inflation will continue in some of our international markets”

Try to offset currency headwinds where possible

“Adding it all up, our plan assumes cost deflation in 2015 of zero to $150 million. At the midpoint, that’s only a two point benefit to the bottom line, so the primary ways that we’ll offset currency headwinds will be by raising selling prices where we can, delivering cost savings, and controlling our overhead spending.”

Changed the conversion rate for Venezuela operations to reflect economic reality

“We’re still getting foreign exchange at the 6-3 rate, but translating in our U.S. dollar results felt like we should use a rate that was a little closer to the economic reality, so something that we spent a lot of time thinking about and talking about in the fourth quarter. But the drop in oil prices certainly made a difference.”

The greater the currency move, the easier it is to take price

“Where you’ve seen big currency moves, like Russia, Argentina, you’ll see a disproportionate amount of pricing in markets like that. If you see a market like Australia where you’ve had currency weakness, or the euro zone where you’ve seen currency weakness, it will be much tougher to get pricing in those markets, and I think the commodity factor that you mentioned as well will make it more difficult. But in a market like Russia, you could see double-digit, mid-teens kinds of pricing in Russia and Eastern Europe, just because of the shock that you’ve seen to currencies in those markets.”

polymer pricing hasn’t really followed oil quite yet

“n the polymer side, we would say that over time it generally follows oil. It seems to be a little slower at this point in time, and there’s been some supply constraints on polypropylene, which we use a lot of, that has held pricing up a little bit more than maybe you would expect.’

Cost savings are not going to flow through in the first half

“eah, you would expect that over time if oil stays at this level for an extended period of time, that you’ll see more of that flow through, but it’s not going to happen at this point in the first half. We may get a little bit more as the year progresses – we’ll see, but at this point based on what we know, we’re not calling for that windfall to flow through at the same level as our traditional rules of thumb would have indicated.”

GE 4Q14 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

Global environment strong w/ volatility

” Look, we still see the global environment as generally positive with a lot of volatility.”

11b fCF

“Free cash flow for the year was $11.2 billion, up 6%, and the GE Capital dividend was $3 billion, below the $6 billion they delivered in 2013”

The GE world remains balanced

“the GE world remains balanced. There are always puts and takes in the global economy. For instance, the US is quite strong which has a positive impact in businesses like healthcare and aviation and the price of oil has declined even further since December. Our job is to manage the company through volatility and while we see the potential for risk to oil and gas based on current oil prices, we are aggressively working offsets through cost actions and positive opportunities elsewhere in GE’

Oil and gas is a small part of our portfolio

“I think you got to step back and look at it – oil and gas is 15% of our segment earnings in industrial being down beyond 5% I think is manageable within the context of the industrial portfolio. ”

Very little impact on orders from currency so far

“I would in the short run here we’ve seen very little that I am aware of, very little impact on our order performance as a result of currency. That may play out more in 2015 but through fourth quarter of this year we’ve seen very little of that.”

US is best since financial crisis

“I would always start by reminding people that actually the US is the best we’ve seen since the financial crisis and then what we call rising Asia, Nigel, which is really China, India, ASEAN, stuff like that, those are actually quite positive for us right now from a order standpoint.”

The national oil companies are going to continue to produce

“I think clearly the national oil companies look differently at this cycle than some of the integrated oil companies do. So I would just say in the case of a company like Saudi Aramco they are going to continue to produce ”

More certainty in medicine now than in the last few years

“as I see hospital CEOs when I travel the circuit, you just get a lot more positive in terms of their ability to know what the next few years are going to be like to do their planning, to do their growth plans and things like that and that didn’t exist let’s say 24 months ago. So we’re guardedly optimistic but it’s too early to call it a trend I would say.”

McDonald’s 4Q14 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

Operating income down 15%

“In constant currencies, operating income was down 15% for the fourth quarter and 8% for the year. Earnings per share was down 14% for the quarter and 11% for the full year, both in constant currencies.”

Negative trends are beginning to moderate in Germany

“over to Germany; negative trends are beginning to moderate with the month of December marking the highest comparable sales performance in more than two years. ‘”

China recovering after supplier issue

“Fourth quarter comparable sales in China were negative 6.7% due to the lingering impact of the supplier issue. Each month of the quarter showed sequential improvements, reflecting the positive impact of our ongoing customer recovery efforts in the market.”

Broad based challenges in the US

“he underperformance of our U.S. business; throughout 2014, our results reflect the impact of ongoing broad-based challenges, including operating in an increasingly competitive marketplace and the sluggish industry growth.”

This is a market share game, it’s always going to be a market share game

“In the near-term, this is a market share game; it’s always going to be a market share game. So we trust and we expect to see a more customized approach from our owner operators in terms of owner operator-driven business plan locally, it’s based on the customer insights and the unique competitive sets in the marketplace.”

Low inflation plus higher min wage, healthcare expense going to hit operating margins by 20 bps

“Having said that, we are in a relatively low inflation environment, so pricing as I noted in my commentary, pricing will still be probably below our average if you assume the low inflationary environment continues. At the same time, multiple states are increasing minimum wages. We’ve got National Healthcare impacting 2015 for the first time. That’s going to hit the McOpCo margin for about 20 basis points.’

Margin pressure as variables don’t head in the right direction in 2015

“historically we’ve talked about a 2% to 3% — I’m sorry, 2% to 3% comp needed to maintain margins in the U.S., and again that’s been modeled in what we called a normal year. So when you have normal commodity inflation, normal price elasticity and ability to raise prices normal wage inflation et cetera. So a lot of those variables are a little bit out of whack for 2015. So the prices I already addressed we don’t see getting to our historical levels. Wages will probably grow a little faster than normal, especially if you throw in the healthcare impact of that. So again as we think about it, especially in this first half of the year U.S. margin will continue to be a little bit under pressure.’

Localization of relevant products, enhancing chefs

” we’re seeing this localization of what more locally relevant products that are being drawn or pulled from the marketplace as they get into the customer insights. We’re looking at building our culinary talent to support our talented U.S. chefs. We’re including our supplier team of chefs. We got some outside consultants who will bring a fresh and forward thinking perspective on our menu vision”

We have to make sure our definition of quality matches with our consumers

“We have to make sure that our quality aligns with the consumers’ definition of quality moving forward. So we’re going to be very aggressive in that area looking at — we’re working with our own operators to revise our product vision for a very different future, as led by the consumer from the provenance to the label ingredients, to the processes we use to bring the food from farm to table. We’ve opportunities to clean up our ingredient list and enhance the taste.”

SVB Financial 4Q14 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

Grew loans by 23%!

“We grew average loans by 23% or $2.1 billion, to $11.5 billion.”

Regulatory burden grows at 50b in assets

“the regulatory burden continues to grow, particularly as we approach $50 billion in assets. But as we have said before, we’ve been preparing for this eventuality, though we expect to have some time before reaching that threshold.”

The loan growth is a bit of an anomaly

“The growth was we’ve seen the spike as we have in prior quarter — Q4s, but this was a more significant jump than we’ve seen in the past. Again, thinking about the utilization rates, kind of going from a 28% to a 38%, that’s substantial across a portfolio like that. We just believe it was a complement [ph] of events where we’ve added new clients over the years and the activity levels at the end of the year was just very strong.

As Mike pointed out though, we did see a — we’ve already seen a decline in those balances so far in the first part of the year, and we could even see period-end, at the end of Q1, period-end balances be lower as we’ve had in some prior years than we did at the end of the year. So it’s somewhat of an anomaly but it also has been an area of focus for us as you pointed out.”

Volatility in equity valuation is different from credit risk

“here’s kind of two aspects when you think about valuations. There’s the credit aspect of it. And I think sometimes people think about that valuations — if a valuation — company goes from $100 million to $250 million or $300 million and it goes back from $300 million back to $100 million, that all of a sudden the credits — there’s a risk to the credit. And for the most part, that’s actually not true. So we look at credit, and as Marc has articulated, we feel very good about where we are from a credit perspective of keeping with our underwriting standards, et cetera.”

Valuations have increased, but growth is strong

“As I said, valuations have absolutely increased. And some of the valuations are, I’ll use the words, very specifically priced for perfection. That being said, we have, in my history, have never seen the growth rates — revenue growth rates of these companies and the market opportunities they’re going after.”

Union Pacific 4Q14 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

Worldwide grain inventories are relatively high

” In ag products the strong corn and soybean crop and competitive corn prices should sustain domestic demand while worldwide grain inventories are relatively high creating a potential headwind for exports”

Velocity got a little better, but still not where it needs to be

“While our velocity in December was more than a mile an hour faster in November, and the best since January, our service performance still fell short during the fourth quarter. As reported to the AAR, fourth quarter velocity was down 8% and freight car dwell up 11% when compared to 2013. Our performance in December was a step in the right direction, but we are still not where we need to be.”

4-5% labor inflation in 2015

“Labor inflation for 2015 is expected to come in between 4% and 5% for the full year. This is driven primarily by agreement wage inflation.”

7.4B in operating cash last year

“in 2014 cash from operations increased to almost $7.4 billion, up 8% compared to 2013. After dividends our free cash flow totaled $1.5 billion for the year.”

Even if fuel prices fall, intermodal volume may continue to hold up

“I think the factors that we’ve been talking about are still there or even growing. The factors being driver shortages, I think that is still a factor that is going to drive conversions. If you look at the experience that we’ve had, we’ve had another year of record domestic intermodal volumes. You can look at our fourth quarter volumes and we’ve had new products and services.”

Federal mediation is happening at the ports, that’s about all we know

“I think you probably know that both sides did ask for federal mediation so that mediator was appointed I think, last week or so and they’re going through the process. I don’t think we have any unique knowledge of how that process is going. We’re hopeful that the issue does get resolved.”

Once the port stuff is cleared up, LA and Long Beach are in our sweet spot

“Long term the port of LA, Long Beach, is in a sweet spot in terms of the connectivity with the rail network, our network, our competitor network. Long term the expectation is once these things are behind that will be the preferred option for shippers.”

Rundown of some capital projects

“We’ve been increasing our capital investment in Texas, Louisiana, up into Oklahoma and Kansas both in our north/south routes and in the Texas area. That’ll continue and pay very big dividends for a multitude of commodities that use those routes. We have added about 40 miles of double track on the Sunset. We’re going to continue to add double track there. We’re at a point now we’re about 80% double tracked on that route so that will be good. We’re adding some capacity in the P&W for our critical bulk and premium routes. We’re adding capacity in Chicago. We have a public/private partnership project on our primary corridor in and out of Chicago which is the Geneva Sub, to triple track a critical portion of that’s shared with a metro service and that will be very, very helpful.

We’ve also announced a Hearne new network terminal in the middle of Texas ”

No one seems to think this is a sustainable trend in energy

“I think one of the things as we look at this and as we talk to our customers, first of all this is still a relatively early phenomena in terms of the dramatic reduction in oil prices that we’ve seen. Nobody that I can find expects that this is going to be a long term trend and certainly no one at this point in time has made any decisions to alter long term capital, facility expansions, or things like that. I think it’s just way too early to see if this is sustainable trend in energy prices.”

Example of the benefits of one capital project

” the investments that you outlined have helped us in terms of velocity and service performance. You take just a little snapshot like Fort Worth and Tower 55, we increased speed through that facility on both the north/south and east/west route. We increased capacity adding the ability to run an incremental 20 trains a day through the facility and we reduced the complexity of the facility itself and simplified it’s signal systems which is a safety enhancement.”

Capital One 4Q14 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

Loan growth will pressure charge-off rates

“In addition to seasonality, we continue to expect that loan growth will impact the charge-off rates. As new loan balances season, they put upward pressure on losses. While this impact on the charge-off rate will be modest at first, we expect that the impact will grow throughout 2015 and beyond.”

Competition is intense but rational

“the competitive environment in the card business, I would describe as – intense, but consistent and fairly rationale.”

We’re a fanatical information based company

“As you know we’re a fanatical information based company and across all the segments and sub-segments we’re in. We are reading the data that is coming back and readjusting constantly our choices and so on.”

Technology is going to revolutionize banking

“while digital is a big opportunity across consumer and commercial, certainly on a relative basis, I think, the revolution is going to be greater on the consumer side and it’s literally going to transform all aspects of how banking is done, it’s going to transform not only if people often think through the lens of the customer experience, but really the whole way – the way retail distribution works, the way operations, marketing, servicing and even something that’s very, very core to how Capital One works, which is information-based strategies itself. So this is a big deal on the commercial side, its pretty much a revolutionary deal on the consumer side.”

There hasn’t been huge risk expansion in auto underwriting

“On the underwriting side, the most noteworthy place that there has been any risk expansion has been in terms of and there’s been significant growth of the over 72 month loans. But still things likes LTVs, which is probably the single most important variable, have remained certainly on the prime side stable and healthy on the sub-prime side moderately increasing, but well below sort of pre-recession levels.”

Card is still very strong too

“let me just talk a little about the credit situation in the card business. First of all, it feels to us as pretty much exactly the same as when we talked about this a quarter ago. But just to put this in perspective, card credit has been exceptionally strong over the past few years. And our portfolio has benefited from the improving economy and a generally more disciplined consumer.”

It’s hard to measure the digital savings, but they are there

” lot of the impacts of digital are really sort of hard to measure and it really relates to the way we work, but things like going paperless, driving people away from some of the more expensive channels into the digital channels and some of the transformation in terms of marketing to be more online and so on. These have facts that that we measure and they – the numbers are starting to grow.”

Digital banking is transformative

” I haven’t seen anything remotely like this in terms of the ability to transform how a business works. The only parallel is the thing that led me to go out and build Capital One in the first place, was looking at how information and technology we’re going to transform starting with the card business and ultimately banking.”

Company Notes Digest 1.23.15

Each week I read dozens of transcripts from earnings calls and presentations as part of my investment process. Below are some of the most important quotes about the economy and industry trends from the transcripts that I read this week. Full notes can be found here.

The Macro Outlook:

Larry Fink spells it out: global markets are hooked on accommodative monetary policy

“Anemic global growth has led to an over-dependence on politicians to implement reforms to rebuild the global economies. But we have seen limited action globally from politicians and as a result, we continue to rely on accommodative Central Bank policies whether we’re talking about Europe, China, Japan, and even at this moment even the United States.” ($BLK)

Central banks are in uncharted territory

“The Fed and the Fed equivalent across the globe, they’ve done some behaviors that are certainly not [orthodox] and they are not things that we all learned in school.” ($USB)

Other than that the economy is back to a non-new normal

“it’s really back to normal, not a new normal” ($JCI)

Retail investors are generally bullish

“retail investors right now are generally bullish…trades are up and logins are up…whether it’s margin loans, net buying, everything continues to say our client base is pretty A, engaged and B relatively bullish.” ($AMTD)

TD Ameritrade’s clients are 85% invested

“Client cash balances ended the quarter at 14.4% as our clients remained invested in the markets.” ($AMTD)

Credit quality is still very strong for banks

“the stability of our credit portfolio right now is the strongest I’ve ever seen” ($USB)

“credit quality continued to be strong.” ($CMA)

“Our credit quality remains extremely strong.” ($MTB)

“I think what’s going on the books today is some of the most pristine credit quality we’ve had in a long time” ($RF)

Credit quality is even still strong in the energy space, but banks are making provisions just in case

“Specifically related to energy, while we have not yet seen adverse trends in our portfolio, our allowance now contains an allocation to reflect the recent fall in oil and gas prices.” ($CMA)

Lower oil prices will hurt some but help others

“I have to believe that over the course of the year we’ll see the most positive side for us arching much more towards the consumer side than the risk on the energy side” ($STI)

Larry Fink thinks that people are underestimating how much the energy revolution is going to change the world

“[The decline in oil prices] is leading to a global redistribution of wealth, which people underestimate how this is going to transform the world.” ($BLK)

Still, the benefit to the consumer may be somewhat overstated. The stimulus from the oil decline will be about the same as a tax refund to the consumer

“our consumers will see sort of that increase in tax refund equivalent of fall in oil prices.” ($STI)

Is it possible that the international economy is bottoming out?

Europe started out weak for JNJ but then got better

“in Europe we saw contraction initially then Europe actually performed better’ ($JNJ)

IBM saw some improvement in China

“In fact, four of our five largest banking clients in China added substantial new mainframe capacity. Overall BRIC performance was consistent with last quarter with the improvement in China offset by weaker performance in Brazil.’ ($IBM)

The strong dollar is a material headwind for international companies

“The dramatic dollar strengthening started in September and has continued at a rapid pace…At current spot rates, we would expect a significant impact to revenue and profit in 2015.” ($IBM)


The working assumption is still that rates will rise mid year

“I think like a lot of our peers, we’ve adopted the Fed’s interest-rate scenario which starts to move up in the middle of the year. If that happens, that’s awesome.” ($USB)

Rising rates will give banks a chance to shine

“The next opportunity for us to perform is when the rates pick up because the markets picked up and to show that the Bank is repositioned now to be as strong as it ever was when it was on defense and be better than anyone else on offense’ ($USB)

The short end is what matters to banks

“The long rate is less impactful to us. We’re most impactful at the very short end’ ($USB)

It’s all just a matter of “patience”

“if Fed with their announcement in March takes the word patience out, you’re going to see LIBOR rates start to increase in the second quarter. What you’re going to see that starting to flow through in the net interest income in the second quarter just by LIBOR rates increasing.’ ($BBT)

Banks are still highlighting a competitive environment

“as I look at this quarter, talking to every single region, the one thing that’s become common is that there is consistent competitive pressure’ ($MTB)

Community banks have been particularly aggressive

“a lot of pressure that we’re seeing is coming from the smaller community banks ‘ ($MTB)

The economy isn’t quite ready for 8-10% loan growth quite yet

“tempting as it might be to tell you guys we’re going to move to 1.5% to 2% linked quarter or 8% to 10% year-over-year, the economy doesn’t warrant that yet” ($USB)

It’s a big deal that mortgage volume is growing again

“We should have had the applause because that is a long anticipated moment where we’re starting to grow mortgage again on a year-over-year basis.’ ($USB)

As M&A in banking starts to pick up, it’s imperative that acquirers have the right systems in place or regulators wont let deals go through

“I think ensuring that you have all of your key processes in order to participate in acquisitions is important.” ($RF)

There was a lot of pressure on credit markets in 4Q

“When you see that much pressure on credit markets, in terms of the ability as a market maker on the course of the quarter, to manage liquidity, I don’t think its particularly surprising, particularly the stress that came under high-yield as a result of the energy decline.” ($GS)

Clearly liquidity was an issue in credit markets last quarter, but it’s tough to say if that’s due to structural changes

“clearly liquidity played a role in terms of the degree of price movement. But I wouldn’t say at this stage you could draw any firm conclusions from that in terms of any long-term structural changes.” ($GS)

A big question for asset managers is how to manage a portfolio for an income oriented investor

“How does an income oriented investor whether its an insurance company, a retiree who is struggling to meet the income needs of the – this is where we are in much greater dialogue.” ($BLK)

Asset allocators are pairing low cost beta strategies with higher conviction alpha strategies

“Barbelling continues to be a key theme, as institutional clients pair cost effective beta exposure with alternatives and other high conviction alpha solutions, to achieve uncorrelated returns.” ($BLK)

Many companies are taking the opportunity provided by high asset prices to defease their defined benefit plans

“why have we seen elevated pension closeouts because you’ve had significant rallies in U.S. equities over the last five years. Companies have been closer to meeting their liabilities…Some of the firms have used annuities and working with insurance companies.” ($BLK)

Travelers thinks the insurance cycle has permanently flattened

“Advanced analytics and a more demanding regulatory and oversight environment have also meaningfully contributed…we continue to believe that the amplitude of the cycle has narrowed substantially.’ ($TRV)


Reed Hastings sees internet video in every US home

“if you step back and you say is Internet video going to be in every home in America in 10 years, that’s a pretty clear yes. So, tons of potential there and we’re very excited about just continuing to improve our service.’ ($NFLX)

About 30-40% of Netflix is consumed on personal devices, the rest still on TVs

“We’ve said personal devices PC, tablet phone that varies by market some sort of 30%-40% of viewing and TV based viewing being the large screen share doing being the majority of it.’ ($NFLX)

We appear to be on the verge of regulating broadband as a utility, which would be good for Netflix

“what’s been great for Netflix is the general idea of the Internet as a utility open to all not for discriminatory use, as it really take whole…we appear to be on the edge of enacting Title II and generally codifying the idea that at least in the U.S. the Internet is a utility for broad social good and wide open access.’ ($NFLX)

Verizon threatens that Title II classification will affect network investment

“first of all, this is not of an issue about Internet rules. It’s about an issue of FCC reclassifying Broadband to Title II service. And this will absolutely affect us and the industry on long-term investment in our networks…that can be seen factually as to what happened in the rest of the world where you have high regulation, the networks are not invested in” ($VZ)

Verizon: Title II is an extreme and risky path

“Title II is an extreme and risky path that will jeopardize our investment and the development of innovation in Broadband Internet and related services.” ($VZ)


Verizon activated an “unprecedented” number of smartphones in Q4

“Total postpaid device activations in the fourth quarter were unprecedented, totaling 15.3 million, up nearly 34% over last year. More than 13 million were phones, driven by iconic smartphone launches from both Apple and Samsung…In total about 9.8% of our retail postpaid base upgraded to a new device in the fourth quarter.” ($VZ)

Verizon sees Google as just another competitor in mobile

“listen MVNOs or resellers or people leasing the network from carriers has been around for 15 years. It’s a complex issue. You have to deal directly with the consumer. There is a whole infrastructure that’s needed to do that…it’s just another competitor as we look at it.” ($VZ)

x86 is likely to dominate the server market for a long time to come

“So when we look at ARM and x86, I would say, you know, the majority of the — the majority of the [server] market will still be x86 for quite some time because of all of the legacy applications that exist. ARM offers a new opportunity in some of the dense server markets, and so we continue to look at that as a growth opportunity where new business will grow.” ($AMD)


United Healthcare isn’t seeing any material changes in utilization trends

“with December behind us and the majority of January behind us as well, we’re not seeing any indication or evidence of an increase in utilization.’ ($UNH)

Healthcare is expected to be 21% of US GDP by 2020

“healthcare, which by 2020 is expected to account for 21% of the GDP in the United States, nearly 11% in the European Union and 6% in China.’ ($JNJ)

So far exchanges haven’t eaten into small group business

“I think the growth in the exchanges both in ’14 and in ’15 are really driven by the uninsured and that expansion through the subsidy. So we have not seen a significant erosion of our small group business” ($UNH)

Materials, Industrials, Energy:

Oil companies clearly have a difficult year in front of them

“we clearly have a challenging year in front of us” ($SLB)

E&P Capex budgets are forecast to be down 25-30%

“I think if you look at 2015 activity in North America and you look at the third party spend surveys, it indicates about 25%, 30% reduction.” ($SLB)

“Capital expenditure budgets from our customers remain fluid, but so far an average have been reduced 25% to 30%” ($HAL)

“[customers] are telling us that at this time CapEx plans for 2015 are being cut, in some cases as small as 20% and some cases as large as 50%” ($CMA)

Oil down cycles happen once or twice a decade

“our industry is clearly in the early stages of a down cycle. The same sort of cycle we enter once or twice a decade.” ($BHI)

The first quarter of a downturn is the hardest to predict

“The first quarter of any severe downturn is almost always the most challenging quarter to predict, because pricing concessions usually impact our results in real time.” ($HAL)

TD Ameritrade’s clients started to rotate into oil and gas stocks last quarter, maybe early?

“Our client base – we’ll have an orientation towards the tech and growth stocks, but also there’s been a huge – they tend to be contrarians and they moved into the oil and gas stocks with the big dividend yields and lots of capital to do dividends and buyback shares, they moved into them pretty good” ($AMTD)

It could take until the second half of the year to see US production decline

“Depending on the ultimate trajectory of the rig count declines and the backlog of well completions, we believe that North America crude production could begin to respond during the back half of the year.’ ($HAL)

Don’t expect prices to firm until there are clear signs of supply contraction

“we don’t expect the oil prices to improve significantly until there are signs of weakening supply, and the weakening supply will either first come from North America or from international.” ($SLB)

Are oil markets really out of balance though?

From a capacity standpoint, oil supply and demand are still relatively well balanced

“Looking at the supply side, the growth in global oil production capacity of around 1 million barrels per day over the past year matches the growth in demand. So the overall oil market is still relatively well balanced from a capacity standpoint…the significant drop in oil prices is not driven by over capacity” ($SLB)

The fall in oil prices is about higher “marketed” supply (SK note: I’m not sure what that means)

“The dramatic fall in oil prices is instead a result of higher marketed supply in the second half of 2014 from North America and also from OPEC who have shifted focus from protecting oil prices to protecting oil prices to protecting market share.” ($SLB)

Because capacity is still relatively balanced, if investment is put on hold we could see a large increase in oil prices

“Consequently, we believe that any sustained period of under investment due to reduced operator spending could lead to an increase in commodity prices. And this largely ignores the possibility of short-term disruptions due to geopolitical issues.” ($HAL)

Delta thinks it can generate an extra $2 B in cash next year from fuel savings

“There’s a tremendous opportunity in front of us from lower fuel prices. We will drive these savings to the bottom line with strong revenue growth and yield preservation regardless of fuel prices. At current fuel prices, we expect to capture over $2 billion in fuel savings benefit in 2015 net of our hedges.” ($DAL)

Lower fuel costs do create an element of headwind to revenue though, since competitors will likely lower airfare

“there’s no question there’s a correlation as fuel prices come down there’s an industry supply macro that you need to think about so we weren’t talking about any specific headwinds other than the fact that as fuel prices come down you can expect to see some pricing pressure broadly.’ ($DAL)

Miscellaneous Nuggets of Wisdom:

Stay true to your margin requirements. Don’t give away business.

“we would rather stack the equipment than operate at [a margin] level that is unacceptable.” ($SLB)

You don’t have to be the biggest to be the best

“We are big enough, we do not need to be any bigger, but we are driven about returns, driven by them.” ($TRV)

When times are tough you have to keep investing in the things you can control

“Until we can see a stronger economy, we’ll add the compliance, operating risk areas, audit areas where we think we continue to need to make sure we’re at the right level of support” ($USB)

“I know on my experience that you have to invent through these things. You want to keep your business franchise strong.” ($HAL)

Reminder to the shorts: good management teams adjust course in negative environments

“Our customers are obviously aware of what’s going on. They are going to make the appropriate adjustments” ($CMA)

It’s damn hard to merge two companies together

“I’m not naïve how hard it is to put two companies together. It’s damn hard.” ($HAL)

People always underestimate the power of technology

“The technology revolution that most people always underestimate is so evident in the oil industry…” ($BLK)

Full transcripts can be found at www.seekingalpha.com

Travelers 4Q14 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

Returned $4 B to shareholders

“we returned over $4 billion in capital to our shareholders through dividends and buybacks, while still maintaining our significant balance sheet strength.”

Industry is much more stable than it used to be

“We remain optimistic about our ability to successfully execute these strategies. Our own observation is that the markets in which we do business remained fairly stable. For the last several years, we have shared with you that while we recognize that we could be wrong, we were skeptical of the concept of the old-fashioned severe insurance pricing cycle, where a bell to go off and it would be a few years of very high price increases and then another bell would go off and there would be significant price declines.”

Advanced analytics have contributed

“Advanced analytics and a more demanding regulatory and oversight environment have also meaningfully contributed. While there will always be changes in pricing both, increases and decreases in response to changes in loss costs, expense , interest rates or changes in real or perceived risk, as there are in many industries, we continue to believe that the amplitude of the cycle has narrowed substantially.”

Underwrite the account, don’t just blindly price to trend

“We have not issued an edict to the field that says get trend on every account. That would be a dumb thing to do. We say to them manage the long-term return given everything you know about the agent, the account, profile of that account and manage it thoughtfully and if that means that account is going to renew flat for a year or two, that is okay, so that is really the comment about stair step that I was speaking to.”

We really have no interest in the reinsurance business

“We really have no interest in the reinsurance business in the broadest sense, so to the extent that there are the things happening in the arena Bermuda or otherwise, we largely do not pay attention to it and I do not really have a view on the value that has created there. I am not knowledgeable I am not close enough to it to have a thoughtful view.”

We are a return driven organization

“We have always said about acquisitions and this hasn’t changed. It is very, very much the same. We are a return-driven organization, the principal view that we would take for looking at anything is what would it do to our return profile over time. Would it potentially improve our return dynamics and that could be either in magnitude or in volatility. To the extent there is diversification, geographic expansion and providing lower volatility returns that could meet the threshold also.”

We are big enough, we don’t need to be any bigger

“We are big enough, we do not need to be any bigger, but we are driven about returns, driven by them.”

If you tell your underwriters to grow, you’ll get growth

“Underwriters will do, good ones, will do with precision what you ask them to do, so you better be really good at knowing what you are asking of them….If you tell an underwriter grow, they will. We don’t tell them that, we tell them to find thoughtful ways to deploy capital. If they cannot, it is okay. It’s okay. No one will ever be asking you why they did not meet their volume budget, because first time you asked them that they will meet at the next quarter and all of us understand that you would never speak to loan officer that way at the back”

The feedback loop is so much faster than it was 20 years ago

“I can’t overstate how different that is than it was 20 years ago. It is just quite different. I think most importantly is that the feedback loop between what goes on in the field and what is really – knowledge at the home office to ways going on is stunningly shorter than it was 20 years ago, so the ability to act and react to changes not just cyclical big time changes, but local changes on offices, on market, on company in a local place is just that much better.”