Carnival Cruises FY 1Q15 Earnings Call Notes

Capacity up 2%

“Our capacity increased almost 2%. The North American brands were up 3%, while the European, Australia and Asian brands also known as our EAA brands, were flat. Our total net revenue yields in the first quarter were up 2%.’

Fuel hedges can go against you too

“Your point about the fuel, yes, the fuel price did move. But one of the things the fuel collars or the fuel derivatives offset a big chunk of the fuel price movement. And the reason that that happened was while the brent fell, our fuel price did not fall by as much as brent because when we did our December guidance, the [crack] [ph] spread was 75%, roughly speaking and at this point in time it’s 81%. So brent fell by far more, 6% or so more, than the price of the fuel that we purchase and so that’s why it wasn’t a perfect 50% offset there.”

It’s tough to measure advertising’s direct impact

“the reality is that following advertising’s direct impact is always a difficult challenge. What we can measure is the level of communication. Web site hits, impressions, conversations around the brand. That we can measure. And so we know we had a lot more conversations generated about cruising. There is no question about that. We would hope that over time that translates to greater demand and ultimately bookings and higher yield”

If you give your customer what they want they’ll buy it

“t’s not so much change in consumer behavior as much as us listening to our guests and giving them more of what they want. And if you give them what they want, they will buy it.”

Restoration Hardware 4Q14 Earnings Call Notes

2015 is a bridge year

The way we think about our 2015 revenues and why they should accelerate in 2016 is twofold. One, all of the new real estate opened in the back half of this year. So while 2015 will only receive a partial benefit from those new galleries, 2016 will have a much greater benefit as they roll into the next year. And then two, our development accelerates, our store development pipeline accelerates in 2016 with current plans to open 7 new next-generation galleries in the following year.

So really 2016 gets the benefit from the new stores. And if you think about the stores that opened this year that roll into 2015, we really only had one of these big stores, Atlanta, that opened this year, right, that rolls into 2016 – rolls into 2015. So that’s why we see this as a bridge year.”

Launching two new businesses this year. One is a game changer

But the two new businesses that we are launching, I think I mentioned on the last call, one of them I believe represents our finest work ever, and might represent one of the biggest market potentials that we’ve addressed with a new category, a new business. So – and the second one I think is also significantly incremental. But one I think is a game changer.”

Constructing something durable and lasting value

“The right way to think about our business is are we constructing something that’s durable and is lasting value that will dominate its marketplace and win ”

Put mitigation measures in place on the ports a year ago already

I mean, back in April of 2014, almost a year ago we put mitigation plans in place. So we were not that heavily, of course being slowed down, but we diverted a lot of our goods through the East Coast ports. We took that reliance from over 80% on the West Coast down below or around 50% and increased our weeks supply to kind of manage through that.”

You’ve got to serve the customer wherever they want to shop

I mean, I think the fallacy you hear today and it kind of surprises me as all these companies want to talk about, well their direct business is growing faster and this is happening and their direct channel is their most profitable channel.

Well, it all depends on how you’re allocating cost. I don’t know how you make more money when sales shift from retail to direct, right, because your occupancy cost doesn’t go down. Your overhead doesn’t go down. So I think there is a lot of companies that are out there.

In fact it goes up in some cases, you’re seeing in certain people that are now just getting into the direct business and everybody is all excited because they are growing their direct business and they are missing their earnings, right, because they are finding out that it’s expensive to handle the goods, to ship the goods and so on and so forth and fulfill the goods.

And so, its – honestly, I think there is a lot of old math and old thinking that’s in the industry. At the end of the day, you’ve got to build a platform that can serve the customer wherever they want to shop that presents your brand better than anybody else and it should matter where the customer transacts at the end of the day.”

A Rare Y/Y Decline for CPI

Last week the BLS reported that headline CPI fell from one year ago.  This is primarily because energy prices have fallen.  Core CPI (which excludes food and energy) has not registered the same slowdown.

Even though food and energy prices are volatile, it’s rare that a decline in either of those categories will pull CPI changes into negative territory.  This is only the 4th period since World War II that consumer prices have fallen vs. where they were a year earlier.

The other times were: the financial crisis (2009), the aftermath of World War II (1949), and a period in 1955–I’m not sure what happened there.

Before WWII, from 1914-1947, CPI only decreased in four additional periods:  early WWI (1915), the aftermath of WWI (1921), the Depression (1930-1933) and Depression II (1938).

Since it began measurement in 1958, core CPI has never fallen y/y.  It did increase at rates below today’s levels between 1960-1966 though.

Negative CPI

Company Notes Digest 3.27.15

Each week I read dozens of transcripts from earnings calls and presentations as part of my investment process. Below is a weekly post which contains some of the most important quotes about the economy and industry trends from those transcripts. Click here to receive these posts weekly via email.

The Macro Outlook:

By most metrics, the economy has continued to strengthen

“By most metrics, the national economy is continuing to strengthen, whether you consider job growth, the unemployment rate, GDP growth or consumer confidence” ($KBH)

Housing’s spring selling season has gotten off to an encouraging start

“The early signs of spring selling season have been very encouraging” ($KBH)

More first time buyers are coming out

“We are certainly seeing, with the traffic increase, a lot of people that are out for the first time, looking around. I don’t know that we can share that we have seen a big swell in sales to the first time home buyers yet but it’s an encouraging trend.’ ($KBH)

There’s incredible pent up demand

“it’s an incredible pent up demand that seems to be starting to get unlocked.’ ($KBH)

Darden is seeing consumers act a little less tight

“And the one thing that we’re seeing from the consumer today is we are seeing the consumer’s willingness to buy less on deal and actually for the first time in a very long time, we’re seeing alcoholic beverage sales growth, we are seeing add-on sales growth, we are seeing more dessert sales…we are seeing a little bit healthier of a consumer.” ($DRI)

There’s not even a slowdown in Houston

“There has been a lot of new coverage on the impact of declining oil prices on jobs and housing in Texas. At this time, we are not seeing any evidence of a slowdown in demand. While the central region was up a solid 15% in net orders, Houston’s results actually exceeded the region’s average.” ($KBH)

Steelcase doesn’t see a slowdown among its office furniture buyers either

“We have a normal level of uncertainty in the U.S. economy driven by the strong dollar and other factors that affect our customers. But we are not seeing signs of a broader slowdown in the Americas” ($SCS)

Large projects, which are more geared to new construction, showed the greatest strength

“Regarding project business, the growth in orders was driven by large projects from some of our largest customers, which is different than the trend we saw over the last two quarters when many small to midsize projects drove the growth.” ($SCS)

We’re seeing mixed signals on inflation:

The cost of building a new home went up faster than price

“you have a combination of — in many of our markets our cost of build went up faster frankly, than we could move price. So we have some margin erosion on the cost of build.” ($KBH)

Darden saw food inflation y/y but the inflation moderated versus last quarter

“Food and beverage costs as a percentage of sales this quarter were higher than last year, driven by continued elevated beef inflation. Dairy costs are also higher on a year-over-year basis, but have moderated significantly from the [fiscal] second quarter.” ($DRI)

HD Supply is dealing with outright deflation

“we are getting impacted by deflation, the same as everyone else, particularly where we have the commodities that you mentioned – you know, steel rebar, that sort of thing is going down.” ($HDS)

International:

Steelcase thinks that Western Europe has bottomed

“we continue to believe we have seen the bottom of the recession in Western Europe.” ($SCS)

Not surprisingly, credit quality declined in Greece, but there may be some early signs that deterioration is slowing

“Unsurprisingly the asset quality [delinquency] rate has picked up in the first quarter of 2015…that clearly reflects the uncertainty and perhaps more hazard in Q1. Its only saving grace is the latest weekly data shows perhaps a slowdown in that change in direction.” ($NBG)

Tiffany saw soft sales in Macau and Hong Kong

“Tiffany has seen a mark softening in sales results in Hong Kong and we’re also experiencing weakness in Macau. We believe that some tourists may be diverting their travels to other markets or perhaps increasing their spending locally.” ($TIF)

Financials:

Many companies continue to return more capital than they generate in free cash flow

“free cash flow now to be in the range of 3.4 billion to 3.7 billion. Finally, we continue to expect to return at least 3.8 billion through dividends and share repurchases” ($ACN)

That means they’re probably borrowing to fund repurchases…It’s a little curious when a company has to slow repurchases in order to manage debt metrics

“As we’ve done in the past, we expect to slow the pace of our share repurchase activity in order to return to our target debt to adjusted EBITDA level of 1.5 to 1.8. Even at a slower pace, we still expect to lower our shares outstanding by 1% in 2015.” ($MKC)

Mortgage underwriting remains tight

“I certainly think the mortgage situation remains tight. And it is holding back the recovery. You know we have talked about things like the mortgage insurance premium came down and that’s a good thing. I do feel that the big banks still have overlays and are still conservative in their underwriting because of the rules and the impact of Dodd-Frank are still getting clarified. So you have a recovery that’s occurring and demand is growing. It’s still a top shelf borrower, I will say, in that FICO scores that five years ago you could get a loan on you still can’t get today.’ ($KBH)

Consumer:

As Lululemon talked about product “ambassadors,” it struck me that the power of celebrity has never been greater

“This ambassador-driven campaign launched alongside a news stream capsule illustrates how our brand is most powerful when our stories are inspired and generated by our local communities and our local heroes. And as I mentioned, our brand operating model comprised of product, guest experience and brand and community will be leveraged in an omnichannel manner across diverse geographies to achieve our growth targets.” ($LULU)

Technology:

The machines are coming to take our jobs

“looking at all the innovations we are bringing especially around automation, especially around robotics and especially around cognitive computing. And if you bring these three capabilities all together we have indeed a unique opportunity…to bring a level of productivity and efficiency in our business process operations where we start seeing this bifurcation between headcount growth and revenue growth and we might expect some acceleration in ’16 and beyond. So it’s still early days regarding the leading edge characteristics of these technologies. But I’m feeling extremely positive…that we have the tools and techniques to move to the next level of productivity.’ ($ACN)

Mastercard says that the days of the plastic card may be numbered

“We see consumers moving to device based commerce. We are getting out of the physical world where plastic card goes to a terminal and that is just an awesome opportunity for MasterCard” ($MA)

Apple pay was the catalyst

“I think Apple Pay really served to capture the imagination of consumers and served as a catalyst in the market.” ($MA)

Visa says that consumers are seeking out places to use Apple Pay

“consumers are delighted with the experience…they like the form factor, they like the experience. And so people are seeking out places to use Apple Pay.” ($V)

More merchants are getting on board with NFC

“So we’re starting to see merchants who have terminals that are NFC ready, turn them on, because they see that experience, they see the consumer demand, they see how it speeds up the line at the point of sale’ ($V)

The “acceptance gap” of NFC is narrowing. Once 30-40% of merchants adopt NFC that will be a tipping point

“we could see a significant ramp up in the acceptance gap. And once that happens, you can see it three out of every ten places you want to or four out of every ten places you want to, that tends to be the tipping point where you see these systems really take off.” ($V)

Google is in the payments business because they need the data to justify the ROI of search ads to advertisers

“it’s the reason why Google is into payments, they hate payments…they like the data…the only way for Google to connect what happens when you do that search…is if you use Google Pay, so they can connect what happens with that search and what happens at the point-of-sale.” ($V)

Materials, Industrials, Energy:

Dry Bulk shipping companies may be getting more proactive about scrapping capacity

“Ship owners have been very proactive when responding to negative demand developments. This year we are experiencing an encouraging strong response that has come in the form of vessel scrapping, converting, canceling and curtailing of the order. During the first two and a half months of 2015, we have identified almost 10 million deadweight that has already been scrapped and/or committed for demolition.” ($SBLK)

Orders may be falling too

“I think there is a realization that to be able to get there, we need to act and looking at 600,000 deadweight ordering for the first three months of this year is amazing, I have not seen this since 1990 happen” ($SBLK)

Miscellaneous Nuggets of Wisdom:

Control the controllables

” our markets and environment are not controllable, therefore our approach is to analyze the facts to understand risks and opportunities, respond accordingly, and stay focused on executing what we can control and strive to get better.” ($HDS)

A Munger-ism from the Daily Journal annual meeting:

“Other people are trying to act smarter. I’m just trying to be non-idiotic.” ($DJCO)

Full transcripts can be found at www.seekingalpha.com

HD Supply 4Q14 Earnings Call Notes

Thoughts on deflation

“First, deflationary environment. We have worked hard over the years to strategically exit profit pools largely impacted by commodity fluctuations. We sell relatively few pure commodity products, but we do sell PVC and ductile iron pipes at Waterworks, copper wire in power solutions, and steel rebar in construction and industrial. Our scale and deep supplier alignment give us the opportunity to understand price dynamics throughout the entire supply chain relatively early, which can better inform our sales and inventory actions. We are also focused on working capital [indiscernible], in particular disciplined inventory management to reduce any potential for depreciating inventory values. ”

Our markets are not controllable so we focus on executing what we can control

“In summary, as you hear from us often, our markets and environment are not controllable, therefore our approach is to analyze the facts to understand risks and opportunities, respond accordingly, and stay focused on executing what we can control and strive to get better.”

Impacted by deflation, same as everyone else

David, we are getting impacted by deflation, the same as everyone else, particularly where we have the commodities that you mentioned – you know, steel rebar, that sort of thing is going down. That is in our estimate, and our expectation is that we’ll spend the majority of our time on the things that are not in those categories so we can claim our value where we clearly have value-added products and we could book value-added services around them. So we have a headwind and we’re offsetting that headwind with our category management to mix up to the other stuff that adds value.

Starbulk Carriers 4Q14 Earnings Call Notes

16m in EBITDA in 4Q

“Against a backdrop of weakening market conditions in the fourth quarter of 2014, the company recorded an adjusted net loss of $5.5 million and adjusted EBITDA of $16.6 million on net revenues of $45.6 million”

66 ship fleet

“Our fleet currently consists of 66 vessels on the water. We have taken delivery of 33 out of the total 34 vessels we acquired from Excel Maritime and expect to have the last vessels delivered to us by the end of this month.”

1Q is usually the seasonal high point for vessel supply

“The first quarter is the seasonally high-point of the year in terms of vessel supply due to high January vessel deliveries and the low-point in terms of demand or cargo availability as a result of poor weather conditions in the Northern Hemisphere. The Chinese New Year and maintenance taking place in major port and steel mills.

The first quarter of 2015 has become even more challenging in terms of supply and demand fundamentals as the continuing fall of commodity prices affected buying activity.”

Ship owners have been proactive in scrapping

“Ship owners have been very proactive when responding to negative demand developments. This year we are experiencing an encouraging strong response that has come in the form of vessel scrapping, converting, canceling and curtailing of the order. During the first two and a half months of 2015, we have identified almost 10 million deadweight that has already been scrapped and/or committed for demolition.”

We don’t think collapsing sentiment should be extrapolated

“During 2014, a number of medium term negative dry bulk fundamental developments took place such as Indonesian bauxite and nickel ore export ban; China’s coal import regulations and strong hydropower contribution to energy generation; reduced grain congestion in Brazil; and iron ore congestion in China; acceleration of iron ore imports from Australia displacing long haul iron ore from Brazil and reducing ton miles.

The combination of all these factors lead to a previously unanticipated freight rate correction across all vessel sizes that began in early December and painted a negative picture for the short-term and a collapsing sentiment which in our opinion should not be extrapolated.”

Raised capital

“we proactively raise $245 million of equity in January 2015 to fully fund the equity portion of our newbuilding program. Through this transaction we were also able to strength our balance sheet as we raise more than $100 million of funds in addition to our CapEx needs to support the company through in the least low point of the cycle.

Our current set of institutional shareholders Oaktree, Monarch, Angelo Gordon as well as my family and associates all invest into these equity raise as they all believe in the value of the platform and the prospect of Star Bulk.”

Seasonally strong ties between March and May and October to December

“usually there is two periods where the market is stronger, one is between mid-March and end of May and the other one is between mid-October and mid-December. This part of the year usually the market gets stronger because people are back from vacation and there is also the grain trade that increases. And therefore, I don’t think we are coasting down the bottom. I think we might see a more meaningful upturn. But, I think it’s going to be cyclical potentially this summer will be a bit challenging as again.”

There’s been extremely light ordering

“I think there is a realization that to be able to get there, we need to act and looking at 600,000 deadweight ordering for the first three months of this year is amazing, I have not seen this since 1990 happen.”

History of the 80s cycle

“Okay, similarities over supply, what happened in 1981-1982 was that there was a big congestion in Nigeria and that congestion actually was skipping 100s of vessels at their road for months. And that was misperceived as – and that might have went up a consequence and that was perceived as strong demand. It wasn’t strong demand. It was just a lot of congestion. And therefore, people ordered’

“think is that banks panicked. And they started selling vessels without regards to price. And that actually made prices of vessels go down – got down the drain. This however is never happened again after 1985. The banks always kept their cool and this is what’s happening now as well. So I think that this being frugal and looking forwards and doing things early enough. I mean we saw the problem in the first week of January and we raised $245 million. That was a good move and we did it first.”

Lululemon 4Q14 Earnings Call Notes

350 store target in NA

“We continue to see significant demand across all geographies. From a store standpoint, we believe our long term goal of 350 stores in North America will allow us to have the right footprint without oversaturation. In addition to our established showroom model, we’re innovating and investing in different store formats that will vary in size and assortment. It is critical to note that we expect these alternative store formats to achieve a comparable level of four-wall profitability compared to the rest of our fleet after initial ramp-up is completed.”

Working with global ambassadors

“Working with our global ambassadors and educators, we aim to inspire, educate, connect and converse with our guests.”

“This ambassador-driven campaign launched alongside a news stream capsule illustrates how our brand is most powerful when our stories are inspired and generated by our local communities and our local heroes. And as I mentioned, our brand operating model comprised of product, guest experience and brand and community will be leveraged in an omnichannel manner across diverse geographies to achieve our growth targets.”

Founder stepped down from the board

“Before we begin our Q&A session, we would be remiss not to acknowledge the immense contribution of our founder, Chip Wilson, who stepped down from our Board last month. It goes without saying that we would not be here today discussing this tremendous business were it not for his vision back in 1998.”

New CFO too

“So it’s exciting to be here. I think that the business has incredible momentum. The investments that the company has been making over the last year seem to be putting the company on track for some explosive growth into the future. ‘

Continued to see strong traffic

“So on your traffic question, so we have continued to see strong traffic into Q1. So the traffic acceleration that we saw late in 2014 has continued into Q1. Conversion has improved sequentially. It has still been a headwind for us. We have seen some slight improvement in AUR as well, so we’re encouraged by the traffic and we look to that as an indicator of that. The momentum that we had in the fourth quarter is in fact extending into Q1 and we’re working through the inventory issues, as you mentioned which is really the bigger headwind for us currently. We feel the inventory will begin to rebalance likely in Q2 and the flows will hopefully more normalize into the second half of the year.”

Competition is a function of the strength of our markets

“I’ve answered that question many, many times. I think the overall market globally is growing and the strength and the number of competitors really validates the long term growth and size of the market, but we either compete against everybody or we compete against nobody. We own the market that we created and we have second to none products and guest experience and our vertical model really allows us to create experiences that are unique.”

Accenture FY 2Q15 Earnings Call Notes

Digitization and rationalization

“You have heard me mention two important trends, digitization and rationalization that are driving demand for our services and contributing to our growth. We invested ahead of the curve to build a capability that will help our clients respond to these trends. Digitization is all about helping our clients tap into new sources of value and new sources of revenue to create competitive advantage. We are helping clients capitalize on these trends to become the disrupters in the new digital world, not the disruptive.”

Helping one retailer quadruple revenue through multichannel

A great example is to what we are doing with a leading retailer helping them on vision on finding new ways to attract customers and achieve that goal of quadrupling revenue. We are bringing innovative digital technology to help them move beyond the traditional store model to a multichannel digital strategy.”

11% impact of FX on revenue in 3Q, 8% for whole year

“For the third quarter of fiscal ’15, we expect revenues to be in the range of 7.35 billion to 7.6 billion. This assumes the impact of foreign exchange will be a negative 11% compared to the third quarter of fiscal ’14.”

“based upon how the rates have been trending over the last few weeks, we now assume the impact of FX on our results in U.S. dollars will be negative 8% compared to fiscal ’14. For the full fiscal ’15, we now expect our net revenues to be in the range of 8% to 10% growth in local currency over fiscal ’14.”

Now expect EPS 3-5% growth vs. 2014

” For earnings per share on an adjusted basis, we now expect EPS for fiscal ’15 to be in the range of $4.66 to $4.76 or 3% to 5% growth over fiscal ’14 results. Absent the higher FX headwind which impacts EPS by $0.14 our EPS range would have increased $0.10 to $0.14 driven by high revenue growth.”

more capital return than FCF

“free cash flow now to be in the range of 3.4 billion to 3.7 billion. Finally, we continue to expect to return at least 3.8 billion through dividends and share repurchases”

Getting ready to drive the next bifurcation between headcount and revenues

“We continue working on this to create more bifurcation between headcount and revenues. I think we may continue some good progress even if we or we feel at the beginning of this journey if you will. But I’ve been recently in India as an illustration visiting our BPO practice and looking at all the innovations we are bringing especially around automation, especially around robotics and especially around cognitive computing. And if you bring these three capabilities all together we have indeed a unique opportunity it’s happening as we speak in our operations in India to bring a level of productivity and efficiency in our business process operations where we start seeing this bifurcation between headcount growth and revenue growth and we might expect some acceleration in ’16 and beyond. So it’s still early days regarding the leading edge characteristics of these technologies. But I’m feeling extremely positive and even more important Mike Salvino is leading our Accenture Operations business, is feeling extremely confident that we have the tools and techniques to move to the next level of productivity.”

Mastercard at Barclays Conference Notes

Consumers are moving to device based commerce

“We see consumers moving to device based commerce. We are getting out of the physical world where plastic card goes to a terminal and that is just an awesome opportunity for MasterCard”

Different card numbers in different places

“in order to enable that, when we developed the tokenization engine is the ability for every one of you that’s a MasterCard cardholder to be able to put unique MasterCard numbers in each of the devices you have. And since it is so iconic right now, just look at your mobile phone. So just like your debit card number is different from your underlying bank account number, what this means is I could have a special MasterCard number on my handset, maybe a different one on my game system.”

Apple pay was a catalyst

“I think Apple Pay really serve to capture the imagination of consumers and served as a catalyst in the market. And for — from MasterCard’s perspective I think one of the most important things and they were great to work with is one of the most consumer focused, experience focused, and accomplished technology companies in the world said the best way to serve their customers was by using MasterCard technology. Contactless transactions, extending the consumers account, not trying to replace it, all of those elements. So I think that really captured everyone’s attention.”

People want their devices to work with their existing Mastercard

“People get the idea that consumers tell us over and over they just want all of this to work together. They want all of their devices to work with the MasterCard they have. They want the rights and benefits of a genuine MasterCard transaction.”

We’re the best intermediary, so we shouldn’t be disintermediated

“But the key point, the word that is used all the time, I have never seen and never believed this movement to digital or lot of the new technologies come out to be about disintermediation anyway. What we always say is MasterCard is the best intermediary, that’s what we do, that’s what we are for. Consumers are looking not to replace their account but knowing better ways to use it.”

People are creating better ways to use the payments systems, not displace them

” If you look at a lot of the major disruptions in commerce, whether you go back to first wave e-commerce or something like an Amazon or something what an iTune did in the digital media goods or what Uber is doing today in mobility. That was all done by building great new businesses based on the payment systems, not by replacing the payment systems.”

National Bank of Greece 4Q14 Earnings Call Notes

Liquidity conditions tight

“Liquidity conditions tightened further in Q1 ’15 due to the continuation of uncertainty and they should very well lift up. At the same time our domestic deposit outflows peaked in January minus €2.7 billion but have been subsiding ever since dropping practically to zero levels in March. So in total 6.2 billion has been lost in the five month period from October to February, this is the lowest amongst our peers, both in absolute terms and as a percentage of September domestic deposits. Current LD ratios are 102% for the Group and 93% domestic.”

Asset quality has deteriorated some recently

“Unsurprisingly the asset quality run rate has picked up in the first quarter of 2015 compared to the what Nikos described in Q4 which was a continued improvements throughout the year quarter-to-quarter that clearly reflects the uncertainty and perhaps increase more hazard in Q1. It only saving grace is the latest weekly data shows perhaps a slowdown in that change in direction. So until the uncertainty is resolved, I don’t think we’ll get a clear picture of where this is going.”