Company Notes Digest 11.3.17

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 economy is strong, capacity utilization is narrowing and inventories are growing.  It’s hard to find anyone who isn’t bullish.

The Macro Outlook:

The industrial economy is enjoying broad based growth

“From an end market perspective, virtually all improved during the quarter. Aerospace, fabricated metals and oil and gas continued to show strength while other end markets like heavy truck and agriculture which had bottomed out several quarters earlier are improving. In general, as customer sentiment remains positive and the industries hold the current levels, we should continue to see solid sales trends.” —MSC Industrial (Distributor)

“this is a broad-based growth…We’re really growing across the globe…better than we’ve seen in over five years. Really, really coming out of the recession was the only other time we saw this kind of growth number.” —UPS (Logistics)

Inventories are building

“The inventory destocking would seem to be behind us, and we’re building against the underlying growth in the categories going forward” —Colgate Palmolive (CPG)

Capacity is tightening

“the data that we see has the ocean utilization at over 97%. So you have a high, high, demand environment now with capacity really becoming tight…then you get up in the air, this is the fourth consecutive quarter where you really had demand outpacing capacity.” —UPS (Logistics)

“markets are still relatively tight and not all of the industry has returned to unconstrained operations because of some of the comonomer lingering outages that does impact some grades of polyethylene. ” —Lyondell Basel (Chemicals)

Price increases are on their way

“While competitive intensity remains high, several suppliers began taking prices up or signaling that price increases are likely in the coming months…what we are telegraphing here is a big bit firmer and more defined activity than what we have seen in past years at this point in time.” —MSC Industrial (Distributor)

What could go wrong?

“It’s an environment where the uncertainties are unusual in terms of number, scale and insolubility, where prospective returns are just about the lowest they have ever been, where asset prices are high across the board and where pro-risk behavior is commonplace. It’s impossible for us to predict what will catalyze the market’s correction, how severe it might be and when it will occur…We do not believe this is a time in the cycle for reaching for return” —Oaktree (Investment Management)


Foreign exchange has become a tailwind

“We are also encouraged that on balance, foreign exchange turned favorable in the quarter, as we experienced a top line benefit from foreign exchange for the first time since the third quarter of 2011.” —Colgate-Palmolive (CPG)

Regulators have been more active in Europe

“In terms of regulation, we certainly recognize that there is more regulatory activity in Europe than the other regions.” —Visa (Payments)

Zuckerberg had some choice words for the Russians

“I’ve expressed how upset I am that the Russians tried to use our tools to sow mistrust. We built these tools to help people connect and to bring us closer together, and they used them to try to undermine our values. What they did is wrong, and we are not going to stand for it.” —Facebook (Social Media)


The private funding market is still incredibly robust

“there hasn’t been as much, as we talked about, in the IPO market, but the private funding market is incredibly robust. And it’s impacted by the Sovereign Wealth Funds coming in, it’s impacted by the Vision Fund from SoftBank, it’s impacted by a lot of money that’s being invested by the Venture Capital Community. ” —Silicon Valley Bank (Bank)

CRE transaction volume has slowed

“Investment sales activity is down appreciably from last year, largely a function of buyer caution, lesser quality product being brought to market and owners electing to refinance rather than sell.” —Vornado (REIT)


The holiday spending outlook is bright

“We also remain confident about the holiday season, as consumer sentiment remains elevated” —UPS (Logistics)

But no one wants to invest in retail

“Because the retail industry is likely facing more structural than cyclical issues, we’re approaching it with extreme caution.” —Oaktree (Investment Management)

Mall operator Macerich says that sentiment is worse than reality

“As you can tell from the facts that our operating results, our company continues to perform at a very high level. However many folks tend to look at the glass as being half-empty instead of half full. Why is that? That’s because there is a major negative sentiment that we all know about retail, about our sector and about our company.” —Macerich (Mall REIT)


Companies are getting more and more comfortable with the cloud

“the kinds of workloads now that are moving to the cloud has qualitatively changed. In the past we participated, but a lot of Tier 1 workloads were not on Microsoft stack, whereas now, a lot of Tier 1 workloads are in fact increasingly on Microsoft cloud.” —Microsoft (Enterprise Tech)

It’s tough to say how much companies are really using AI

“when somebody goes out and builds a rack…How much of its workload is really being used by AI? Anybody who tells you exactly what that number is, is just wrong, to be honest with you.So it’s very hard for us to say with precision that X percent of our units went into AI workloads because it’s rare that a rack is purely AI except for rare cases. But we know that it’s small, just by the type of interactions we have, but also fast-growing and one of the biggest areas of interest.” —Intel (Semiconductors)


Healthcare markets have moderated

“this is just one of those years I believe where the market has been a bit overheated in the past and maybe it just moderated.” —HCA (Hospital)

Amazon won’t confirm or deny whether they are getting into pharmacy

“Yeah, I can’t confirm or deny any of the rumors related to pharmacy or anything else.” —Amazon (E-Commerce)


A lot of new cars were sold in Houston

“we’ve never seen anything like that before, and I don’t think we will ever see anything like that again. Our Houston stores on new vehicles basically doubled what they normally do.” —Group 1 Automotive (Auto Dealership)

A manufacturer can only move as fast as its weakest link

“there’s 10,000 unique parts, so to be more accurate, there’re tens of thousands of processes necessary to produce the car. We will move as fast as the least competent and least lucky elements of that mixture.” —Tesla (Automobiles)

Automation also makes it harder to ramp if a link is broken

“There’s vastly more automation with Model 3. Now the tricky thing is that when one automation doesn’t work, it’s really harder to make up for it with men and labor. So with S or X, because a lot less that was automated, we could scale up labor hours and achieve a high level of production. With Model 3, it tends to be either the machine works or it doesn’t or it’s limping along and we get short quite severely on output.” —Tesla (Automobiles)

Materials, Energy:

With Brent Crude back over $60, oil investment is likely to rebound

“In fact, Brent is already over $60. So as I like to say, I’m going to declare victory and retreat. In terms of what has to happen now for there to be increased investment, I think it’s going to happen…I think what’s going to happen – what’s happened is that there has been an enormous, enormous underinvestment in productive capacity worldwide. It’s breathtaking how big that underinvestment has been.” —Loews (Conglomerate)

There may be a limit to shale capacity in the US

“And it is my belief, based on study and research that shale oil produced in the United States, we’ll not be able to fully supply worldwide oil demand over the next 5 to 10 years that there is a limit to the shale productive capacity in the United States. I know that that statement maybe going against history and the trend so far, but I think that what you will see is that there is a limit to how much shale oil can be produced here.” —Loews (Conglomerate)

Miscellaneous Nuggets of Wisdom:

It’s not bad to be a little paranoid

“I think a good characteristic of any CEO is to be a bit paranoid” —Visa (Payments)

Love your customers

“We don’t comp people that don’t play, period…So maybe we have a little less business, but we send a lot of non-productive customers over to our neighbors. And because we love our customers, we send them over to our neighbor in a Rolls Royce.” —Wynn (Casinos)

Full transcripts can be found at