FactSet Research Systems (FDS) Q4 2016 Earnings Call

Scott Miller – Director, Global Sales

They are growing internationally outside the US

“The international business is growing very well. It tends to be fairly diverse as it is in the U.S., in the Americas, in general. In Asia-Pac, we are – we have good workstation growth, but also great growth in our multi-asset class risk and analytics. And our fee business is doing very well throughout Asia-Pac as well and that’s echoed throughout EMEA. We get into some larger buy side markets like the UK market. We tend to see more coming in the portfolio analytics and spaces like that. But it’s fairly broad and it’s been consistent growth and we really like the international market.”

…with mixed results in US markets.

“{In} the U.S. market, the story for us was two fold. We had a record growth in new client acquisitions, so we brought on a bunch of brand new clients, which was terrific and that was across predominantly buy side, hedge fund, middle market buy side and the wealth area, but it was mixed with an increased cancellation rate that was what I would call market related. So, it was clients going out of business, hedge funds going out of business, some of the smaller buy side where they have been shedding employees. So, that was really the story was it was great growth sales, mixed with increased market related cancellation.”

Increased cancellations

“We definitely saw an increase in the quarter of the market-related cancellations in that buy side sector. It feels like the worst of it’s over and it feels like we have come through and I would talk to the sales force and look at the pipeline and get a sense of what they are feeling out there and it feels like it’s feeling healthier.”

Phil Snow – Chief Executive Officer

Brexit and Post-Brexit

“There was a slight slowdown in the sales cycle in the UK when Brexit came out. People were sitting and sort of contemplating a little bit. We saw that and we see that picking up now. .”

Underperforming active managers feeling the pressure

“if you look at the net new fund flows, active versus passive, there has definitely been on out-flowing from active equity. So I would say that we have been feeling some of that pressure, particularly for the active managers that are underperforming.”

CNBC Interview of Elvira Nabiullina, Governor of the Central Bank of Russia.

Interview by Geoff Cutmore

Signal that rates will not be reduced further this year taken up by the markets

“…through the signal stating that this year that we will not be reducing the rate, and unlikely to be reducing it before the start of next year, we wanted to tell market players about our position that the trajectory of the reduction of the key rate is going to aimed precisely at achieving our inflation target. Therefore, we were able to see after our decision that market players were able to adjust their expectations slightly and the yield curve moved upwards slightly and inflationary expectations subsided.”

…but circumstances can force their hand

“We have been saying that a reduction in the rate is very unlikely. But of course if any extraordinary events occur. For example if there is a much higher oil price because of certain other circumstances or drivers which suggest that the overall economic dynamics and inflationary dynamics will be better than those used for our base scenario, which of course can happen. However, we do not see a high probability of these sorts of events unfolding.”

On inflation in Russia

“It is indeed true that inflationary expectations remain fairly high, they are in decline, but they remain above the level that would meet our inflation targets. In many ways this can be explained by the psychological factor because people in Russia have grown used to living in a high inflation environment. ”

Recovering wages with consumption expected to follow

“…we see that wages are recovering, but real income growth remains fairly low and the population is continuing to demonstrate a model of behaviour inclined towards saving. Consumption will doubtless gradually recover and start to grow but it is very important for us that these economic dynamics for consumption growth are not stimulated by inflation but are accompanied by an expansion of production that won’t lead to a growth in prices.”

They expect slower economic growth and high volatility

“We are proceeding from the premise that the global economy is going to grow at a low tempo. And at the same time there will be quite high volatility, the risk of high volatility in the financial markets. The era of cheap money has indeed has led to the kind of situation where financing and investment was put into projects with low productivity, which all things being equal and under tougher monetary conditions would not have been financed. And this has led to a situation whereby almost throughout the whole world we see a very low rise in labour productivity in the leading economies. And this is a reason behind the risk of economic growth becoming very slow.”

Cautious moves from central banks because of sensitive markets

“…the central banks of many leading economies seeing the response of the market and their very high level of sensitivity, do try to follow a very moderate, cautious policy, trying to manage expectations and to create as few surprises for the markets as possible…it’s very important that there aren’t any surprises because the response from the markets could be very sensitive.”

The situation in Russia is different from the rest of the developed world’s

“…as far as the Russian economy is concerned, we find ourselves in a totally different situation. Unlike many other countries we have high inflation, we have high interest rates, we still have the option of lowering them…the task facing the Central Bank of Russia is different.”

Verizon Communications at Goldman Sachs 2016 Notes

Consumer wallet spend on telecommunications has not changed for 20 years

“So, if you look at consumer wallet spend, consumer wallet spend on telecommunications products, and telecommunications products includes cable, wireless, and telephone. It really, the percentage of spend by the consumer has not changed for 20 years. It’s around 4% to 5%.” Fran Shammo – EVP & Chief Financial Officer


Working advertisers into the consumer-data consumption model is key for VZ

“in the wireless world, we know the consumer is going to hit a certain peak, where they say, I just can’t pay for the consumption of data anymore. So we created this model that said we need to be able to deliver data through the network and have someone else pay for it other than the end consumer… That’s why we purchased AOL. That’s why we looked at Yahoo, because at the end of the day in order to make that model work, you need to have the viewership in order for the advertisers to sell to.” Fran Shammo – EVP & Chief Financial Officer


Free iPhone 7 promo may or may not continue past the end of the month

The question, though is, when those promos end, and of course, the market right now is saying, they’re going to end at the end of the month, does that continue? And quite honestly, I don’t know the answer to that yet. Fran Shammo – EVP & Chief Financial Officer


Because the iPhone 7 promo deal doesn’t apply to the secondary market, it has minimal to no impact on VZ

“the trading is only on the iPhone 6 and the 6 Plus. And those phones really have not been available in the secondary market. So, as we collect these phones and we go to the secondary market, that value of that phone, I will tell you on average is somewhere between $320 to $400… now you’re down to a $250 number… So for us at Verizon, I will tell you, this will have no impact in our margins for – especially for the third quarter. I can’t really talk to the fourth quarter, because I’m not quite sure yet what volume is and what other promotional activity will come out. But here sitting at the third quarter, this will really have no impact on our profitability for the quarter. So from this perspective, this is just another promotion. It’s to stimulate the marketplace, but from a mathematical perspective, it really has no impact to us.” Fran Shammo – EVP & Chief Financial Officer


No company has more than a single-digit share of the IoT market

If you look at the industry itself, I mean, from a market share standpoint, there really no one owns the market at this point, it’s all single-digit market shares… It also sets you up down the road when you have smart city, autonomous cars, it sets us in a premier environment to be able to deliver those solutions. Once they’re solidified, which I think will take a couple more years before we get there. So it puts us in a really great position in that segment of the IoT marketplace. Fran Shammo – EVP & Chief Financial Officer


VZ’s brand rests upon having the best network

I’m going to speed into the 5G world in 2017, and it’ll be just similar to LTE as far as I’m concerned, where we get a leap on all of our competitors. So we’re moving forward. I mean, at least, two of our competitors are still trying to deal with building out their LTE network. I mean, that’s like five years ago already… They’re still dealing in the LTE world. I’m dealing in the IoT world, smart city world, telematics. So I’m moving ahead and they’re still talking about how great their network is in LTE So, look, every drive test proves it, Verizon Wireless has the best network. We’ve built our brand on that. We’re not going to lose that and we’ll continue to move forward. Fran Shammo – EVP & Chief Financial Officer

Vail 4Q16 Earnings Call Notes

Vail Resorts’ (MTN) CEO Rob Katz on Q4 2016 Results

Season pass sales up 24% in units

“Turning now to our 2016-2017 season pass sales for our US resorts; we are extremely pleased with our season pass sales to date. Through September 18, 2016, US ski season pass sales increased approximately 24% in units and 29% in sales dollars, compared to the prior year period ended September 20, 2015.”

Growth driven by “increasingly sophisticated marketing”

“Our growth continues to be driven by our increasingly sophisticated and targeted marketing efforts to move destination guests in to our season pass products, with this segment representing over half of this year’s growth. As always, we do expect our season pass growth rates to decline through the end of our selling season, given that some of the increase is driven by our efforts to encourage guests to purchase their passes earlier in the year.”

Goal is to get people to buy season passes and increase renewal rate

“And so for us our goal is really to move people from buying daily (inaudible) to buying season passes because we know that the renewal rate or the return rate on a season pass is much higher than if they are just buying a (inaudible). And then our goal once they are in the season pass program is to get them to renew that first year and second year, and one of our top priorities for this year has been to increase that first year renewal rate because obviously we are adding so many people to the program and we’ve been very successful with that.”

Renewal rate goes way up in second or third year

“The key obviously is, once you see a second year or a third year, all of a sudden the renewal rate goes way up. So one of the things that is driving our growth is increasing that renewal rate and a big part of that is us being smarter and more sophisticate in terms of how we talk to people, the message we send and how we get them to come back in to the program.”

Stable dollar should help international sales but will be tough to get to where it was 2 or 3 years ago

“I think as we go in to this year, we are seeing a better stability, one the currency having (inaudible) to the US dollar remained strong, but if you think about a year ago it was really in the middle of especially we think about a year ago last summer or spring, the US dollar was strengthening dramatically causing some instability there. I think now with the currency having stabilized we feel like that positions us pretty well going in to this year in terms of really for those countries where we did see some decline to really kind of moderate those declines if not eliminate them in some cases. We are also quite hopeful to be able to continue to drive growth from Australia. That said, with the strong US dollar, I don’t think we can necessarily get back to where we were 2.5, 3 years ago without seeing some shift in currency. ”

We have not seen a slowdown in the high end consumer

” I think we – what I’d say is that we have not seen a slowdown in the high end consumer. I don’t know that our confidence is any higher today than it was a year ago in the high end guest and their discretionary spending. Obviously there have been some wild wolves or whatever in high end consumer spending seen in some parts of travel, some parts of retail in particular. But what we are seeing is, it feels like vacation spending in particular has so far been strong and certainly over the summer we didn’t see any signs of some kind of slow down. I think people are still booking trips and may be this trend towards buying experiences, spending money on experiences versus buying luxury goods. Obviously that would help us.”

Carnival 3Q16 Earnings Call Notes

Carnival Corporation’s (CCL) CEO Arnold Donald on Q3 2016 Results

Industry cruise capacity in China to rise 31% next year

“Our capacity growth in China is expected to be 26% next year compared to 66% this year. Industrywide growth in china is expected to be 31% in 2017 compared to 100% this year. Those numbers sound big, but keep in mind that the large year-over-year percentage increase is over a very small base. So these growth rates are directionally equivalent to adding less than one 3,000-berth vessels to our China fleet and roughly two 4,000-berth vessels to the industry fleet overall in 2017 in China.”

Booking curves in US look strong

” So no real guidance yet for 2017 on that except what David shared in his comment about where the bookings were for Asia overall. In terms of the North America brands in Europe, again our booking curves look strong, and look good as do our pricings, but you’re asking about third quarter 2017, obviously that’s ways off.”

Ships sailing full in China

“Yes. Right now, our charter activity is strong in China. Our occupancies this year were very good. We anticipated as we said in the opening comments that we would see yield decline, but China is profitable, occupancy levels are high, which means the increased capacity was absorbed in terms of having guests on the ships. The ships are sailing full. And chartering for next year at this point is in process, but solid. We don’t see any consternation around occupancy for next year.”

The Chinese government sees the cruise industry as an important industry

“cruise is in the 5 year plan for China. So that means the government has committed to developing the Cruise industry. The reason for that is pretty self-evident. We’ll employ, overall with port development and infrastructure, and supply chain, and training as well as ship building that will employ millions, and millions, and millions of Chinese. So the government is very interested and they see cruise as an economic engine going forward. So you’ve got the support of the central government and the various provincial municipal governments, so that’s very important”

China is an embryonic market

“Beyond that clearly as we anticipated, as you guys have identified through your assessments and stuff that yields declined, we see China as a unit volume, a unit growth story as ultimately accretive to earnings, which it has been for us and overall helping us optimize yields across the global fleet and it’s working really well. Having said that, there is a gap with distribution. It’s an embryonic market. Distributors are finding their way for the first time in cruise. It is a charter market, a B2B market, so then it reduces possibilities of discontinuities that you might not see if you had a direct to consumer kind of a market.”

No material impact from Zika

“We’ve seen no material impact from Zika. We didn’t get any cancelations or they’re not enough to mention. We didn’t see any impact on booking volume or timing or anything. So we have not seen an impact from Zika. Having said that, you know, could there be a little bit of noise? That is just overwhelmed by the great demand that there is for the Caribbean would have been even greater and hypothetically you can say that, but we have seen nothing to suggest there was impact from Zika.”

Historically there’s an election slowdown

“Also, we’ve anticipated a bit of an election slowdown, as historically there’s always been a little fall off in booking volumes around election time. And so there could be some of that, but in our case again, right now we’re doing so well, and we’re so far ahead and the pricing is strong. We’ve got great close-in pricing right now and so it’s been very good. But relative to what the other companies, other cruise lines, I wouldn’t have a comment, but other than to say I’m sure it’s a combination of the relative moves they made in deployments and stuff, but I have no idea.”

There’s always something going on

” every year there’s geopolitical tensions. There’s some kind of disease consternation. There’s macroeconomic malaise. There’s isolated or concentrated over-capacity in the cruise industry. Every year in some markets around the world, those things happen and it’s part of our business. So we manage that. We anticipate it. We change deployments. We do good revenue management practices, manage around it and that’s basically it. So to us it’s normal business. I wish it wasn’t that way. Every now and then hopefully we’ll get lucky and there won’t be those incidents because we think we would do better”

Takeaways From Last Week’s Digest 9.26.16

We’re continuing our new experiment this week running a weekly post each Monday to expand upon the quotes that we gather in our weekly digest. The weekly digest is intended to be an unbiased view of what we are hearing from management teams, and our Monday piece will try to interpret those views and hopefully help steer readers towards insights that can have a real impact on investment decisions. This is a pilot project, so please give your feedback!  Click here to receive both posts weekly via email.

This week we’ll focus on takeaways from last week’s Fed meeting. By now there has been plenty written about the Fed, and we know that many readers suffer from Fed fatigue, but the Fed matters. Its actions are fundamental to the pricing of securities markets and changes in its policies have dictated economic cycles for nearly 100 years. Here were a few insights from last week’s press conference:

1) The Fed is waiting for the whites of inflation’s eyes

Yellen’s new explanation for delaying the increase is that “the economy has a little more room to run than might have been previously thought.” While this is an ambiguous statement, we (and the market) have taken this to mean that the Federal Reserve does not expect to meaningfully raise interest rates until inflation returns above its 2% target rate.

Even though Janet Yellen explicitly said that “I’m not in favor of the whites of their eyes sort of approach,” it looks more and more like this is exactly what the Fed is looking for. The Fed appears to have delayed raising rates based on a single day 2% decline in the stock market in mid-September. When the board is that jittery, it suggests that the Fed will not raise rates meaningfully until it believes that it has a good reason to.

2) Watch for changing perceptions of the neutral rate

The Fed now appears to be focusing in on a concept of the “neutral rate” for interest rates. Yellen described this as “the interest rate that is neither expansionary nor contractionary and keeps the economy operating on an even keel.”

It looks like the Fed believes that the current neutral rate is very low. Since the beginning of this year, Yellen seems to be buying into the idea that we are in a “new normal” economy. She explicitly used this terminology in her press conference: “we’re struggling with difficult set of issues about what is the new normal in this economy,” and also voiced concern about longer term economic growth: “we have further written down our estimate of the longer run normal growth rate. And with that reflects is in assessment that productivity growth is likely to remain low for an extended time.”

The neutral rate is not something that is set in stone though. It is something that is highly theoretical, subjective and something that cannot be calculated. For this reason the neutral rate is subject to the same revisions that any other Fed indicator is, if not more.

3) The Fed is under increasing political pressure

Although the Federal Reserve likes to champion its independence, in reality the Fed does not operate in a political vacuum and historically has yielded to the demands of the President and Congress, because it knows that is only independent as long as the government allows it to be.

Ahead of this year’s presidential election, the Fed is under increased political scrutiny. This could go away after the election, or it could potentially get worse if an adversarial President is elected.  Either way, Yellen was asked multiple times about political motives and gave an impassioned response to one question:

“I have no concern that the Fed is politically motivated, and I will assure that you will not find any signs of political motivation when the transcripts are released in five years. We– I–It is important that we maintain the confidence of the public, and I do believe that we deserve it.”

Even if the Fed is not explicitly acting with political motivations, it cannot escape politics though. Its actions create economic winners and losers and as a result it will always be tied to the goals of elected officials. There is no such thing as an interest rate that is best for all citizens. While a low interest rate may promote near term economic growth and inflation, economic growth and inflation at all costs are not necessarily good for all Americans. Property owners benefit at the expense of lenders and wage earners in an environment in which GDP growth is allowed to exceed wage growth and interest rates. The best that policymakers can do is engineer a fair interest rate that properly balances the interests of varied stakeholders in the economy. When one set of stakeholders benefits more than another there will tend to be a political response, which is what we may be seeing in this election.

4) Beware of Commercial Real Estate

Yellen did pay lip-service to the idea that low interest rates could lead to asset bubbles in her press conference, but felt that in general asset valuations are not out of line with historical norms.

“interest rates both here and in advanced countries around the globe appeared to be very low. And that is an environment that, if we do have to live with that for a long time, we have to be aware that it does give rise to a reach for yield as individuals and investors seek to, perhaps, take on risk or lengthen maturities to seek higher yields…Overall, I would say that the threats to financial stability I would characterize, at this point, as moderate…In general, I would not say that asset valuations are out of line with historical norms”

While we’re not sure how Yellen justifies the assertion that “asset valuations are not out of line with historical norms” it was interesting that she did specifically mention Commercial Real Estate as one area of concern.

“there are areas my colleague President Rosengren is focused on commercial real estate where price to rent ratios are very higher, or cap rates are very low. And that’s something that has caught our attention…We’ve recently issued new supervisory guidance pertaining to commercial real estate. I would say in the area of commercial real estate while valuations are high, we are seeing some tightening of lending standards and less debt growth associated with that rise in commercial real estate prices.”

Especially at this point in the business cycle, we would strongly caution investors in Commercial Real Estate to take this information into account. If the Federal Reserve chooses to target Commercial Real Estate as a sector that is overheated, it is inevitable that the sector will ultimately be slowed by the pressure of the Central Bank. It is completely within the Fed’s power to slow the Commercial Real Estate market.

Company Notes Digest 9.23.16

Each week we read dozens of transcripts from earnings calls and presentations as part of our 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:

The Fed didn’t raise rates

“We judged that the case for an increase has strengthened, but decided for the time being to wait for further evidence of continued progress toward our objectives” —Federal Reserve Chair Janet Yellen (Central Bank)

Because the economy has “a little more room to run” before it generates inflation

“the economy has a little more room to run than might have been previously thought, that’s good news. Remember that inflation continues below 2 percent…we don’t see the economy is overheating now.” —Federal Reserve Chair Janet Yellen (Central Bank)

Yellen says that she does not favor a “whites of their eyes” approach to inflation

“monetary policy operates with long and variable lags…And that is why I believe we have to be forward looking and I’m not in favor of the whites of their eyes rights sort of approach. We need to operate based on forecasts.” —Federal Reserve Chair Janet Yellen (Central Bank)

But the Fed is certainly acting like it wont raise until it does see them

“there would also be risks from not seeing inflation move back to our 2 percent objective. And exactly how to balance these two risks, which is more serious– which is a more serious risk, can affect one’s judgment about the appropriate timing, and we’re all struggling to understand the magnitude and nature of those two risks.” —Federal Reserve Chair Janet Yellen (Central Bank)

How far are we from inflation?

The Fed believes that we are seeing a “new normal”

“we’re struggling with difficult set of issues about what is the new normal in this economy and in the global economy more generally which explains why we keep revising down the rate path.” —Federal Reserve Chair Janet Yellen (Central Bank)

But the consumer is healthy

“Generally speaking, we actually see a relatively healthy consumer in the United States…frankly our domestic business both Orlando and California is quite strong and we’ve seen no sign whatsoever of a consumer slowdown or issues with the consumer…On the other side we see is consumer product…that’s been strong as well.” —Disney CEO Robert Iger (Media)

Steelcase, which had seen weakness, is now seeing orders bounce back

“The good news for the Americas is that we had stronger orders in August and those have continued through the first three weeks of September…our backlog of high confidence opportunities in the Americas has strengthened for the second half of the year…we’ve seen recessions before in our industry and they are characterized by significant and sustained drops in order patterns. And that’s not really what we’re seeing this time.” —Steelcase CEO James Keane (Office Furniture)

Homebuilders continue to see tight labor markets

“there’s been very tight labor conditions across the country…we’ve had instances in some of our divisions where some contractors are coming back to us and basically saying they’re going to have to work over time with their folks or that they’re going to need to see some price increases in order to stay on the job.” —KB Home CEO Jeff Mezger (Homebuilder)

“Land is expensive. Land is hard to come by. People are expensive and hard to come by. It’s hard to grow operations efficiently and effectively at an accelerated rate in a market where land and labor is really constrained.” —Lennar CEO Stuart Miller (Homebuilder)

Bed Bath and Beyond is seeing wage pressure

“we believe payroll and wage pressure will continue. We’re not immune to it; it’s impacting our broader workforce including all of retail. It’s also something that we’re seeing…a more than one year impact that there are scheduled increases…for multiple years out” —Bed Bath and Beyond CEO Steven Temares (Home Goods)

Gas prices have probably bottomed out

“During the quarter, nationally unleaded gas prices started out at $2.22 a gallon and ended the quarter at $2.24 a gallon, a $0.02 increase.” —Autozone CFO Bill Giles (Auto Parts Retail)

Grocery price deflation has been heavily impacted by eggs

“if you strip out the pricing on eggs, it’s about 1% inflation…So we had the flu last year and the price of eggs was really high, and it’s a lot lower now, so that accounts for a lot…what we’re seeing in our categories really is about 2.5% price appreciation in the first quarter” —General Mills COO Jeff Harmening (Packaged Food)

Interest rates are low and credit availability is expanding

“Interest rates remain low and credit availability is expanding…if you look at credit profiles of Fannie Mae bonds being sold, the FICO score continues to move down a little bit.” —KB Home CEO Jeff Mezger (Homebuilder)

FedEx is raising rates by 3.9%-4.9% next year

“we will be raising rates effective January 2, 2017. FedEx Express rates will increase by an average of 3.9%. Rates for FedEx Ground and FedEx Freight will increase by an average of 4.9%. We will also change the dimensional weight divisor for FedEx Express and FedEx Ground from 166 to 139.” —FedEx EVP T. Michael Glenn (Delivery)

What is the true “neutral rate”?

“We continue to expect that the evolution of the economy will warrant only gradual increases in the federal funds rate over time to achieve and maintain our objectives. That’s based on our view that the neutral nominal federal funds rate–that is, the interest rate that is neither expansionary nor contractionary and keeps the economy operating on an even keel–is currently quite low by historical standard” —Federal Reserve Chair Janet Yellen (Central Bank)

Every meeting is a live meeting

“Well, every meeting is live and we will again assess as we always do incoming evidence in November and decide whether or not a move is warranted.” —Federal Reserve Chair Janet Yellen (Central Bank)

And Investors are nervous and fickle

“Investors are always nervous. That’s what they do. They are nervous…The same investor one month why are you buying back so much to why didn’t you buy back more. It’s very fickle.” —CBS CEO Les Moonves (Media)


Negative interest rate policy does not appear to be working

Europe is still a fragile environment

“We continue to closely monitor the overall demand environment in EMEA as various headwinds continue to pressure consumer and business confidence raising concern that even a small shift in confidence could destabilize the already fragile environment.” —Steelcase CFO David Sylvester (Office Furniture)

Europe is digesting some continent specific events

“we’re having to introduce fare levels that are considerably lower than they were before, to induce people to travel. This is a result of all sorts of things going on in the last 18 months…whether it be the terrorist activity…Brexit. The state of the European Union. The way the Greeks, the Portuguese, and the Italians, and everything else are being dealt with, and how that’s affecting demand out of Europe. [Then,] the euro tanked, the pound went down [and] the [U.S.] dollar strengthened.” —Emirates CEO Tim Clark (Airline)

But the BOJ is also doing everything it can to create inflation with little success

“The Bank will continue expanding the monetary base until the year-on-year rate of increase in the observed CPI (all items less fresh food) exceeds the price stability target of 2 percent and stays above the target in a stable manner.” —Bank of Japan (Central Bank)

At least Russia is benefiting from negative rates in Europe

“there is a big influx of investment in the Russian bonds, rouble denominated, because there’s so much money available, and because Western institutions provide the negative interest and Russia still provides quite a handsome margin on investment.” —VTB CEO Andrey Kostin (Bank)


The Fed is watching out for bubbles

“Yes. Of course, we are worried that bubbles could form in the economy, and we routinely monitor asset evaluations. While nobody can know for sure what type of valuation represents a bubble–that’s only something one can tell in hindsight–we are monitoring these measures of valuation” —Federal Reserve Chair Janet Yellen (Central Bank)

They are aware that low interest rates give rise to a reach for yield

“interest rates both here and in advanced countries around the globe appeared to be very low. And that is an environment that, if we do have to live with that for a long time, we have to be aware that it does give rise to a reach for yield as individuals and investors seek to, perhaps, take on risk or lengthen maturities to seek higher yields. And I think we should be concerned about that to the extent it creates financial stability risks. And we are very aware that those are possible.” —Federal Reserve Chair Janet Yellen (Central Bank)

But do not believe that asset values are out of line with historical norms

“We engage in regular assessments of financial stability factors that bear on financial stability. Overall, I would say that the threats to financial stability I would characterize, at this point, as moderate. Not– I mean– so, I would characterize it as moderate. In general, I would not say that asset valuations are out of line with historical norms” —Federal Reserve Chair Janet Yellen (Central Bank)

If they are concerned about any asset class though, it’s Commercial Real Estate

“but there are areas my colleague President Rosengren is focused on commercial real estate where price to rent ratios are very higher, or cap rates are very low. And that’s something that has caught our attention…We’ve recently issued new supervisory guidance pertaining to commercial real estate.” —Federal Reserve Chair Janet Yellen (Central Bank)

KB Home is seeing strengthening demand in B submarkets

“we are seeing strengthening demand in what I’ll call the B submarkets. We’re really not looking at the Cs yet, don’t know that we ever will, as long as there’s opportunity in the B…So we hug the coast in California but we are seeing more business in the inland areas as they recover.” —KB Home CEO Jeff Mezger (Homebuilder)

Carmax has seen credit trends migrate in a little bit more negative direction

“we have been in an environment of very favorable, not just we but the overall credit markets in general, have been in a very favorable loss environment for the last few years, the last couple of years at least. And it’s not hugely surprising to see things starting to migrate a little bit differently.” —Carmax CEO Bill Nash (Auto Dealership)


China is opening up as a real market for media companies

“frankly, before two years ago we were getting nickels and dimes and we used to fondly say that The Big Bang Theory is the number one watched show in China except nobody over here got paid a nickel for it. That it was just out and about and neither Warner Bros. nor CBS got any money for it. Now that marketplace really is opening up and, obviously, it’s a very, very large market.” —CBS CEO Les Moonves (Media)

Retailers are still trying to find the right balance for stores in an omnichannel world

“as we develop our omnichannel model, Dana, we think that our stores still have a role. So the easy answer is, oh shut all your stores and move everything online. I don’t know if that’s the right answer…just to give you a quick kneejerk, when we open up a new store, we find that our online sales in that market go up. So that’s important information.” —Ascena CEO David Jaffe (Apparel)


There’s not a huge difference between the telecom networks anymore

“The important message to take away from this is, Verizon’s marketing hugely gone right. The T-Mobile network is good. Our network is good. AT&T network is good. So we’re all within fighting distance. Now in some places they’re better, we’re better, but that’s gone.” —Sprint CEO Marcelo Claure (Telecom)

Automated logistics is likely to evolve incrementally over time, not all at once

“After all, our auto pilots in our 777 airplanes are among the most sophisticated robots in the world. They can take off, land the plane and taxi to the gate and turn themselves off if that’s what we chose to do so. But it’s very difficult in the foreseeable future to substitute for the well trained pilot or driver or person. And we look at the use of automation more as an opportunity to improve the productivity of those types of experts within our system to make their job more comfortable and easy and above all to increase safety…our philosophy may be slightly different than a lot of other people that think that right over the horizon, everything is going to be an automated vehicle or some sort of UAV. We think that is unlikely and that this technology like most technologies particularly aviation technology will evolve incrementally over time with a great emphasis on safety first.” —FedEx CEO Fred Smith (Delivery)

Full transcripts can be found at www.seekingalpha.com

Autozone 4Q16 Earnings Call Notes

AutoZone’s (AZO) CEO Bill Rhodes on Q4 2016 Results

Believe international will be good for us

“While the domestic business dominates our sales mix and continues to be our primary focus, we believe we have great growth opportunities outside the U.S. for many years to come. I would expect the international mix of our business to only grow from here. In 2016, we expanded our online offerings in both our traditional autozone.com and autozonepro.com website as well as on AutoAnything.”

40 consecutive quarters of double digit EPS growth

“We are pleased to report our 40th consecutive quarter of double-digit EPS growth and for the year to report an EPS growth rate of 13%. We are also quite pleased with all we accomplished during 2016.”

Attention to detail and consistent execution are what matter

“We believe our steady, consistent strategy is correct. It is the attention to detail and consistent execution that will matter. Our belief is solid, consistent strategy combined with superior execution is a formula for success. Our charge remains to optimize our performance regardless of market condition and continue to ensure we are investing in the key initiatives that will drive our long-term performance. In the end, delivering strong EPS growth and ROIC each and every quarter is how we measure ourselves.”

I don’t think we’re a good indicator of the strength of the consumer

“I don’t think the health of the consumer is really that significant of a driver. If you turn back the clock to 2009, 2010 and 2011 when everybody was really struggling, we performed exceptionally well. So I don’t think we are a good barometer of the consumer and the consumer’s health”

Bill Giles

Gas prices rose 2c during the quarter

“Let me touch on domestic macro trends for a second. During the quarter, nationally unleaded gas prices started out at $2.22 a gallon and ended the quarter at $2.24 a gallon, a $0.02 increase. Now, last year gas prices decreased $0.18 per gallon during the fourth quarter, starting at $2.69 and ending at $2.51 a gallon. We continue to believe gas prices have a real impact on our customers’ ability to maintain their vehicles and as cost reductions help all Americans, we hope to continue to benefit from this increase in disposable income.”

Miles driven is up 3.3% this year

“Miles driven increased 2% in May and 3.2% in June and we don’t have July or August data yet. But year-to-date through June, miles driven were up 3.3% and ahead of last year’s increase at this time. The other statistic we highlight is the number of seven year and older vehicles on the road, which continues to trend in our industry’s favor.”

Inflation has been down slightly year over year

“In regards to inflation, it has been down slightly year-over-year. Currently we feel costs will be predictable and manageable. We will remain cognizant of future developments regarding inflation and we will make the appropriate adjustments should they arise.”

Steelcase FY 2Q17 Earnings Call Notes

Steelcase’s (SCS) CEO James Keane on Q2 2017 Results

Stronger orders

“The good news for the Americas is that we had stronger orders in August and those have continued through the first three weeks of September. We are in the midst of annual dealer meetings and they have been quite enthusiastic about the new products we launched earlier this year. Orders for those products are gaining momentum and are doing better than we estimated. Dealers are also responding positively to the work we’ve done to address growing demand for informal spaces including better merchandising of our ancillary portfolio. At a broader level, our backlog of high confidence opportunities in the Americas has strengthened for the second half of the year. So, we’re expected to grow our topline third quarter.”

Not seeing anything that looks like a recession

“Yes, so, we’ve seen recessions before in our industry and they are characterized by significant and sustained drops in order patterns. And that’s not really what we’re seeing this time. And they are usually also characterized by economic news that’s somewhat profound. So, whether it was the banking crisis or it was the drop in the NASDAQ back in 2001, you can usually point to some external factor that’s profound and say there’s a connection there. Sometimes there’s a lag between when you see it and when we see our orders, but we’re not really seeing that kind of connection now.”

For the most part people see an economy stuck in neutral

“I was in Washington last week meeting with CEOs of a lot of our customers at a kind of a general CEO conference. And I had a lot of discussions about how people are seeing the economy. And the way I’d characterize it is that there’s a lot of uncertainty, but for the most part people see it as an economy that is stuck in neutral, just a very slow growth or no growth economy in the United States.”

It doesn’t feel like an economy that’s poised to grow quickly

“We all know what the Fed did this week. It is clear that they have an interest in raising interest rates, but decided not to again based on the economic news that they are seeing. So, I think everybody is looking at it the same way. It just doesn’t feel like it’s an economy that’s poised to grow quickly. But on the other hand there is not really anything that’s pushing it down. ”

David Sylvester

Performance in verticals

“From a vertical market perspective, some of the largest declines were in sectors that had strong double-digit percentage growth in the prior year; for example, federal government, financial services, technical professional and insurance services, or in sectors where you might expect a significant decline because of known headwinds like energy. But we also saw a significant decline in the information technology sector which was closer to flat in the second quarter of the prior year.”

Continue to closely monitor EMEA

“We continue to closely monitor the overall demand environment in EMEA as various headwinds continue to pressure consumer and business confidence raising concern that even a small shift in confidence could destabilize the already fragile environment.”

Notable decline in Germany

“Customer order backlog for EMEA ended the quarter down 7% compared to the prior year. The decline in orders during the current quarter was driven by continued weakness in the Middle East and Africa largely driven by low prices as well as the U.K. likely impacted by Brexit, but it’s also a market where we believe we should be doing better and have recently appointed new leadership. Germany also declined by a notable percentage compared to strength in the prior year. These declines were reduced by strong growth in Spain despite uncertainty related to recurring elections and France which is continuing to improve following the leadership changes we made a year ago.”

Larger project business has been coming back

“we’ve been talking about on the last several calls, more of the mid-sized projects or mid-size continuing orders has been okay or decent for the last three quarters. Larger project business has been an area of decline for us up until the most recent quarters. So, the current quarter that grew modestly versus a modest decline last year. And I think that’s linked to the improvement in the project pipeline that we started talking about in June.”

Bed Bath and Beyond 2Q16 Earnings Call Notes

Bed Bath & Beyond’s (BBBY) CEO Steven Temares on Q2 2016 Results

Democratization of shopping

“As retail continues to evolve, there’s been a democratization of shopping enabled by technology and the Internet, which has resulted in an ongoing shift in the way the customer shops. We now have more choices, more transparency and more convenience than ever, all resulting in significant investments in technology and dramatic shifts in the retail landscape highlighted by both new shopping options on one end, and retailer consolidation and closing the website and stores on the other.”

Databases about thousands of college dorms

“Our associates and our website have valuable information regarding thousands of U.S. colleges and in many cases, the details about select dorms on campus. We also produced our first student life catalog that was mailed in June to a targeted distribution of incoming college freshmen.”

Transitional time for retail

“It’s a transitional time for retail and many retailers including us are experiencing pressure on their operating margins. Despite the fact that we continue to achieve among the highest profit margins in retail we too have experienced downward pressures on our financial results as our transformation continues.”

e-commerce is a core category for us

“But when you talk about noncore categories, Alan, we wouldn’t all e-commerce our noncore category. E-commerce is a core category for us. I mean again, how we reach the customer, how we do more with the customer, how do we satisfy the customer, the digital experience is part of the entire experience, and we have to be great at it.”

Seeing wage pressures

“We did call out in order of magnitude payroll related expenses for Q2 that’s similar to the increase that we saw in Q1 as well. And we believe payroll and wage pressure will continue. We’re not immune to it; it’s impacting our broader workforce including all of retail. It’s also something that we seeing as you pointed out seeing a more than one year impact that there are scheduled increases depending upon the state or the city or the county for multiple years out.”

Sue Latman

Gross margin deleverage

“We are modeling our cost sales change to be in a range of relatively flat to 1% increase for fiscal 2016 with the net sales increase to be about 125 basis point to 140 basis points higher than the comp sales change. We are modeling gross margin de-leverage including increases in coupon expense and net direct to customer shipping expense as well as the inclusion of our modeled results for One Kings Lane.”