Blackrock (BLK) Q3 Earnings Call

Blackrock (BLK) CFO Gary Sheldon said this is a challenging environment for all asset managers as the business is changing 

“Our clients are facing significant challenges driven by increased regulation, market volatility, record low interest rates and disruptive technology and that’s a result the asset management industry is changing rapidly. During these times as we’ve done in the past, we reexamined our strategic priorities and evolved our business model with the goal of better serving the needs of our clients and optimizing organic growth in the most efficient way possible for our shareholders.”

The client shift in favor of passive investing has hurt their asset management fee revenue

“While we continue to deliver strong growth, base fee growth has recently lagged growth and average assets under management as client appetite and portfolio construction decisions impact our business mix. In the current environment, client mixed shift has favored index over active, fixed income and cash over equities and government funds over prime funds in the money market space.”

Blackrock (BLK) CEO Larry Fink said he witnessed outflows in their products which focus on the European equities markets

“Across client segments, inflows were led by U.S. in emerging markets equities and debt as investors view the U.S. as a relatively safe haven and emerging markets have gained momentum as commodity prices stabilize. Meanwhile we saw outflows from European equities in the political and policy uncertainties both from the continent and the United Kingdom.”

And he says that insurance companies are becoming more and more comfortable utilizing fixed income ETF’s in their portfolio

“Insurance companies are also increasingly employing fixed income ETFs in a broad range of applications. A recent study from Brennan’s Associates found that ETF demand from insurers is likely to increase. Of insurers in the study, 52% of these companies expect to increase their use of fixed income ETFs in the next year and BlackRock is well-positioned to work with large insurers as our investment strategies and techniques evolve.”

Blackrock (BLK) President Rob Kapito says there is $50 trillion of cash globally sitting on the sidelines

“So we have found there is such a significant amount of cash that’s on the sidelines because rates are so low and equities have not returned what people have expected that the money that is potentially in motion is probably the largest. We’ve done studies to show that globally there’s 50 plus trillion that’s sitting in cash. And I don’t think anybody knows how big that can be relative to the size of the markets. So depending upon changes in interest rates and changes in equity volatility, a lot of that money can come into motion.  So it’s not only coming into areas of retirement. It’s overall. And the studies that we show range anywhere from 38% to 60% of clients’ portfolios are now sitting in cash. So we think that a lot of that money will start to move once people, once we get through the election and once we get through the next decision on where interest rates are going to be.”

 

Interactive Brokers (IBKR) Q3 2016 Earnings Call

Interactive Brokers (IBKR) CEO Thomas Petterfly said the less than normal volatility towards the end of summer hurt results

“This summer, specifically July and August, were dismally slow months. Intraday volatility was practically zero. We saw the market open and find its level for the day within the first few minutes of trading and then it would just sit there until the close. Looking at my screen, I often felt that I must have lost connection. But no, the market just stopped moving.”

They are starting to gain larger accounts

“Returning to our brokerage business, while commissions were low in July and August for the quarter, our number of accounts were up at an annualized rate of 16% and customer assets rose by an unprecedented annualized rate of 48%. This is due to our ability to attract larger accounts mostly comprised of larger accounts of the four major online brokers and the smaller prime brokerage accounts of the big banks.”

Interactive Brokers (IBKR) CEO Thomas Petterfly believes their low cost operating model will help them benefit as the industry moves to lower costs as a result of the Department of Labor regulations which come into effect in April

“So, we run a very pristine shop and we don’t take anything from customers other than commissions and we tell them exactly what it is and it’s much lower than anybody else you would compare us to. So, we think that especially from the point of view of registered advisers, it is going to be helpful for them to cope with that rule when they bring their accounts over on to our platform.”

Bank of America (BAC) Q3 Earnings Call

Bank of America (BAC) CEO Brian Moynihan said the company is continuing to use technology to lower its expense base

“We reported earnings of $5 billion or $0.41 per diluted share and EPS improvement of 8% from the year ago quarter. We improved operating leverage across the businesses, utilizing technology to lower costs and improve our processes.”

Credit discipline remains strong

“Another question that we get asked is can credit remain this strong? And in this quarter, it’s still got better again with our charge-off ratio decline to 40 basis points this quarter at an historic low. This is driven by changes we made right after the crisis, thinking 2008 and 2009 and the long term benefits of that effort continue to come through. And by the way, sticking to our responsible growth strategy, even as times have been relatively better.”

Growing their deposit base substantially 

“Deposits are core part of what drives our franchise earnings. We have 1.2 trillion of deposits that’s proof the customers entrust us to safeguard their money. We are heavily weighted and mix those deposits towards consumers, whether they are general consumers or wealthy consumers. This in turn provides a very stable base of funding for the company and allows us to be less relied on the markets we are funding. Nearly $450 billion or 36% of our deposits are non-interest bearing, a very strong mix. Deposits on average grew $68 billion year-over-year or 6%. The teams have done tremendous work here, and this quarter wasn’t an anomaly. This is the fourth quarter consecutive quarter where we have grown deposits more than $50 billion over the previous year.”

Still finding ways to reduce expenses

“Our expenses declined 3% from the third quarter of 2015 to 2016. Our efficiency ratio improved 60% to 62% this quarter that is a 400 basis points improvement from last year’s third quarter. We continue to deliver expense reductions while continuing to invest in technology and sales teams and other matters are important for the futures franchise. After taking in to account the addition of large bank FDIC assessment at the start of this quarter, expenses are also down on linked quarter basis, even as we continue to invest and absorb all the severance, regulatory, resolution planning and other repositioning cost to continue to reduce our operating cost.”

“Expense reductions are the result of a number of initiatives. For example, mobile banking penetration helps to optimize our delivery network, while improving customer satisfaction. More chip cards help us lower fraud cost and digitization of processes and statements helps us eliminate paper and related handling cost.”

International Business Machines (IBM) Q3 2016 Earnings Call

International Business Machines (IBM) CFO Martin Schroeder said currency fluctuations helped reported results for the first time in awhile

“Cloud delivered as-a-service is part of a solid recurring revenue base across software and services, and our annuity revenue continued to grow. Of course, the acquisitions we made in the last 12 months contributed to growth about the same amount as last quarter and for the first time in quite a while currency was a modest tailwind to revenue growth.”

Continuing to forge partnerships with other technology companies

“We are building the industry’s broadest and deepest cognitive solutions and cloud platform portfolio and we are extending our capabilities. For example, this quarter we continued the global expansion of our cloud footprint and we now have 49 cloud centers. We formed a partnership with Workday, where IBM cloud will become the foundation for Workday’s development and testing environment. And we extended our partnership with VMware to enable easy hybrid cloud adoption.”

Brazil surprisingly showed strong growth

“Latin America was up 5% led by Brazil. While the environment remains uncertain, double-digit growth of Brazil this quarter reflects the importance of our z Systems platform to the banking sector.”

They are devoting a large number of resources to their Watson Healthcare platform

“Turning to our vertical plays, we are focussed on scaling our Watson Health business. We have over 7000 employees and target four major areas, life sciences, oncology, imaging and value based care. We launched new offerings, such as Watson for drug discovery which is a cloud based scalable platform that helps life science researchers discover new disease pathways, new drug targets and additional drug indications. We had several major client wins, including UPMC and Best Doctors.”

Company is still specializing in making sure their clients data is 100% secure

“And moving to the cloud, our clients need to be sure that data is secure. Those in regulated industries need to know where their data is and many need to keep it in country. Our cloud infrastructure allows clients automatically to provision virtual with bare metal service while meeting their data sovereignty and regulatory requirements.”

International Business Machines (IBM) CFO Martin Schroeder explained how he sees the company’s 2017 performance unfolding

“Now, as we go into 2017, with our big transactional quarter coming up obviously and 90 days we’ll talk about what we saw in the environment and what that position us for 2017, but I do think we know, we know a few things as we head into next year already today, so we know for instance we’ve got good momentum in our strategic imperatives and we continue to see with our investments and our view of the market, how that resonates with clients and I think we would expect to continue to see good strategic imperatives performance which also by the way will drive some investments but keep in mind that with everything we got done this year, the bulk of the spending, the bulk of the investment dollars we freed up next year, that’s a much bigger number next year, so we have a freedom and an ability to invest more heavily given what we’ve got and done so far this year.”

 

Schwab (SCHW) Q3 Earnings

Schwab (SCHW) CEO Wallt Bettinger said the company sustained it’s mid single digits asset growth rate

“Schwab’s third quarter results reflect the combined power of our strategy and scale – we served more clients than ever while delivering record financial performance. Our range of full-service investment capabilities continued to attract a broad spectrum of investors and helped core net new assets total $30.0 billion in the third quarter, sustaining a solid 5% annualized organic growth rate. We ended the quarter serving 10.0 million brokerage accounts and 1.1 million bank accounts.”

Their online only robe-advisor investment offering crossed the $10 billion dollars in AUM threshold 

“Client assets enrolled in Intelligent Portfolios surpassed the $10 billion mark at month-end September, just 19 months after launching in March 2015. This digital advisory program’s combination of sophisticated, ongoing portfolio management – with no advisory fee charged and access to live support – has attracted investors of all ages and wealth levels, the majority of whom are formerly self-directed. Roughly a quarter of the assets enrolled in Intelligent Portfolios are new to Schwab, and that proportion is growing steadily.”

Schwab (SCHW) CFO Joe Martinetto said the company set a quarterly record for firm profit margins

“Schwab posted its fifth consecutive quarter of record revenues for the period ending in September, as well as a record pre-tax profit margin of 41.5%. Our prior peak margin was set in the third quarter of 2008. We have rebuilt our profitability from post-financial crisis lows by driving client asset and revenue growth with our ‘Through Clients’ Eyes’ strategy, and applying expense discipline to maintain an appropriate balance between near- term profitability and reinvestment for growth.”

JP Morgan (JPM) Q3 2016 Earnings Call

JP Morgan (JPM) CFO Marianne Lake said the credit worthiness of their oil & gas clients is improving 

“Dealing with oil and gas here, we’re encouraged by how quickly investor sentiment and risk appetite for the sector returned as the outlook for both oil and gas prices continued to improve. Capital market opened more broadly to these clients and we experienced lower draws against our facilities than previously anticipated.  So, a combination of pay downs opportunistic loan sales and select upgrades more than offset the impact of downgrades. If the environment remains broadly consistent with today, we would not expect further significant builds in the fourth quarter for energy.”

Growing deposit growth faster than competitors 

“We continued to experience record deposit growth more than twice the industry average, up 11% year-on-year. More than half of that growth is from existing customers. And based on the FDIC survey for 2016, we were number one in absolute growth and grew share in each of our top 30 markets.”

The bank benefitted from a large fluctuation in global rates as clients transacted in order to take advantage of low interest rates

“In terms of outlook, given the strength this quarter, we expect IB fees to be down in the fourth quarter sequentially but relatively flat year-on-year. Markets revenue of $5.7 billion was up 33% year-on-year. Clients were active and risk management conditions were favorable. Fixed income revenue was up 48% compared to a weaker third quarter last year. Rates was a standout in terms of performance this quarter as markets stayed active post Brexit with good client flow, as well as anticipation of an uncertainty around central bank actions.”

JP Morgan (JPM) CFO Marianne Lake talked about their incentives of how they incentivize their sales team and how it differs from that of Wells Fargo

“We’ve been very, very focused on investing in customer experience broadly defined and have made great progress I think in doing that. And also we had talked about the fact that what we are looking for very, very clearly is deep customer relationship engaged customers who want to be primary bank, we want to gather a deeper share of wallet, so balances not necessarily products. And so again, remember saying cross-sell is an outcome, it’s not an objective. And that’s certainly the philosophy with which we have designed our compensation and performance structures for the branches. And we review them regularly, at least annually to make sure that they continue to be aligned with our objectives and again objectives about the engaged relationship with customers, good customer experience in the right product, all the right reasons the right way.”

Unilever (UN) Q3 2016 Earnings Call

Unilever (UN) CFO Graeme Pitkethly said global growth remains anemic with Latin America being a notable laggard

“Overall, it is fair to say that the economic fundamentals remain weak and volatile. Since the start of the year, we’ve been flagging that we expect market conditions in Latin America to worsen. And that’s what we have been seeing. Just as in past cycles when currency is weaken the cost of living goes up faster than income and people either cut back on purchases or they down trade. Latin American markets are growing in local currencies through pricing. But consumer demand measured by market volume contracted by 10% in Brazil last quarter and fell by 7% in Argentina.”

Volume growth down in Asia

“In Asia, we’ve had a few quarters of very low price growth as commodity costs have been benign. This is now turning. Palm oil is up almost 70 percentage points over the last nine months and Brent crude is back over $50 per barrel. In categories like skin cleansing and laundry, this means a rebalancing of the growth mix with more pricing and less volume as the increases are put through. All these mean that for the moment aggregate market volumes in emerging countries are now slightly down on the same period last year.”

Benefitting from the trend of urbanization

“In Foods, our biggest opportunity is to develop the emerging markets. Already a €5 billion business for us that has been growing at more than 7%. Demand for our categories will only continue to increase as populations become more urban with more kitchens and with more women moving into paid employment. We are particularly well placed to meet this demand with the broad distribution reach we can command with our portfolio.”

Their Chinese e-commerce business has tripled in the last 2 years

“In China, sales were flat in the first half year but were slightly down in the third quarter. The market channel structure is shifting rapidly to e-commerce. Two years ago, this was just 3% of our sales, today it’s over 10%. By cutting out intermediaries like wholesalers this shift results in a structural reduction in trade stock levels. And this is likely to continue for some time to come.”

Not expecting the market conditions in the 4th quarter to look any different

“We are not expecting improvement in market conditions in the fourth quarter and indeed markets are likely to remain volatile and hence challenging for a while yet.”

Alibaba (BABA) Jack Ma’s Annual Shareholder Letter

Alibaba (BABA) Chairman Jack Ma emphasized the evolution of Alibaba’s strength as a mobile company

“In the fiscal year prior to our IPO in September 2014, mobile revenue accounted for a single-digit percentage of total revenue from our China retail marketplaces; in our most recent quarter, mobile contributed more than 75% of total revenue. Our mobile monetization rate now exceeds that of the desktop, making Alibaba Group the largest mobile commerce company in the world.”

Their cloud platform hosts more than 1/3 of all websites in China

“Supported by the twin pillars of cloud computing and Big Data, our goal is to empower merchants with the ability to transform and upgrade their businesses for the future. Eight years ago, we began to strategically invest in Alibaba Cloud in order to fulfill this mission. Today, Alibaba Cloud hosts 35% of total websites in China while also providing clients with cloud computing and big data services. Alibaba Cloud is a company with cutting-edge technology and an extensive range of products and now ranks among the world’s top three cloud computing companies.”

Similar to IBM’s outlook, Jack believes big data is a natural resource which can be mined

“The widespread adoption of cloud computing is important, yet it is just a piece of a larger picture that we see coming into focus.  Throughout history, technological disruptions have followed similar trajectories: 20 years of technological disruption followed by 30 years of further rapid change as new technologies are applied throughout society. The internet revolution is a historical inflection point, much like when electricity was introduced, and it may have an even greater impact. Over the next 30 years, with computing power as the new “technology breakthrough” and data as the new “natural resource,” the landscape of retail, financial services, manufacturing and entertainment will be transformed.”

The Alibaba platform has particular strength in the millennial demographic

“Alibaba is shaping and guiding Chinese consumer behavior and trends. We are also helping consumers enjoy greater convenience and a wider range of options in the ongoing consumption upgrade. We are popular among millennials, who view us as an inseparable part of their lives. More than 75% of our users are 35 years old or younger.”

 

 

Source: http://www.alizila.com/letter-to-shareholders-from-executive-chairman-jack-ma/

Fastenal (FAST) 3Q 2016 Earnings Call

Fastenal (FAST) CEO Daniel Florness said they have been shrinking the amount of employees in the company after hiring a substantial amount in 2015

“During the last twelve months, we have reduced our headcount by 430 people in our stores and 115 people in total. We continue to add headcount where necessary to support our growth initiatives, notably our Onsite business (defined as dedicated sales and service provided from within the customer’s facility). However, the continued softness of the North American industrial economy has caused us to more intensively scrutinize our full- and part-time staffing levels outside of these initiatives. Indeed, after increasing our total headcount every quarter during 2015, it has declined during every quarter of 2016.”

They saw business conditions in the 3rd quarter of 2016 that were very similar to conditions in the first 2 quarters

“Business conditions in the third quarter of 2016 looked very similar to those in the first half of 2016. Daily sales growth remained slow at 1.8% in the third quarter of 2016, versus growth of 1.9% and 1.6%, respectively, in the first and second quarters of 2016. Our OEM and construction fastener sales remain relatively weak, reflecting the sustained relative weakness of our heavy equipment and construction end markets.”

Operating in a tough business environment

“It’s not a great environment to do business in. But that’s the world we live in and that’s the world we need to contend with. And there is a lot of uncertainty. But the certainty I do know is that we have a great organization, a great group of people out there managing our business. And we are going to continue to focus on our growth drivers and we are going to continue to let our regional vice presidents, our district managers, our hub managers, our support leads run their perspective groups. But we will need to be mindful of the environment we are in.”

Fastenal (FAST) CFO Holden Lewis said large customers are slowing their oders

“Qualitatively, it’s not clear to us that the tone changed much in the third quarter. We saw that the sales of fasteners into heavy manufacturing construction end markets were relatively weak as we have seen before. The same could be said of our largest customers. Our top 100 was flat to maybe down slightly during the period. But again, these are the same dynamics that have persisted throughout 2016.”

Brookfield Asset Management (BAM) Investor Day

Brookfield Asset Management (BAM) CEO Bruce Flatt said Asian insurance companies are shifting more of their portfolios into alternative asset classes

“Alternatives and foreign investments by Asian institutional investors continues to increase and some of those are just regulatory changes. China used to have a 5% cap, originally 3%, then 5%, now it’s 15% on foreign investments in insurance companies, and a lot of the amounts of money being driven out of Asia and out of China is really driven by these regulation changes that are happening in the funds and all of those things are shifting people towards more real assets and alternatives.  We think the trends will continue despite, irrespective of interest rates increasing and whether they put another 25 or 50 or 75 basis points on the short end.”

They believe that having boots on the ground is a competitive advantage

“One of the big advantages we have in real asset investing is that when we’re investing, developing a piece of real estate, building a toll road, running a power plant or running any one of our real asset type businesses, it’s hard work. It takes operating skills. It takes people. There are a tremendous amount of issues every day and that gives us a huge competitive advantage over a financial player or someone else that’s just going to do it on their own or someone that just starts up tomorrow morning. It gives us a big competitive advantage over them.”

They think the asset management and private equity market will grow to be $70 trillion in the next decade

“We think that industry that we’re marketing towards will continue to head towards around $70 trillion into the 2020s, and that we’ve put together the backbone to manage the growth and there’s really two things they want. They want investment performance but they want to be taken care of and we’ve invested the money to have the compliance, the governance and the servicing capabilities.”

All about relationships and good investment performance returns

“We have significant relationships that we’ve built with institutions to co-invest beside us and that allows us to do things which other people can’t and really it comes down to in an environment that we’ve been in. We’ve been able to generate the returns that are on this slide, which on the opportunistic side are in the 20s and in the core and value-add side are in the mid-teens, which are very good returns. These include the financial crisis vintages.”

They believe the Brazilian economy has likely bottomed out

“Interest rates look like they’re going to be low but commodities and emerging markets are definitely recovering and we think that Brazil has bottomed and I’d say we saw that based on the fundamentals of the businesses we have there in February or March of 2016, this year, and it’s going to be a slow way back but we think it’s slowly coming back.”

Doing large scale transactions which not many can compete with due to the size of the assets they’re going after

“If you think of the pipeline we just bought, it’s $5 billion; it’s in Brazil and it takes operating capabilities to underwrite and operate, and not many people could compete with that.  The fact is we just try to find spots where other people are not.”

Brookfield Asset Management (BAM) CEO Bruce Flatt wants a dividend policy which gives him flexilbility to buy assets during a market correction 

“We’ve had a view over time that we didn’t really want to have a high dividend policy, largely because we wanted to ensure that at the bottom of the market we could make unbelievable investments that allowed us to do things that others could never do.  It’s amazing what availability of capital does in the business. So you never want to have to go back and retrace your dividend with your investors because they really get mad at you.”