Company Notes Digest 5.19.17

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.

It´s been a light week for earnings as the Q2 earnings season winds down with a whimper. There has been growing and glowing interest in Europe as an investment hub this week. Retail customers are blending the online and in-store experiences companies commit to being omnichannel retailers. Meanwhile, after the Wannacry cyber attack last weekend, we have been reminded that cyber security threats loom large and we all need to be wary.

Editor’s note: Thanks again to Erick Mokaya (@probinginvestor) for his great work in writing this week’s piece.

Macro and International Outlook

Europe is attracting renewed interest

“It’s nice to hear people talking about Europe in a positive way. We’re really seeing growth in a broad way you haven’t seen in 5 or 10 years. The political risk in Europe is coming down. Europe is in the 3rd inning of a recovery. The US, depending on Trump, is somewhere between the 7th and 9th inning.” – Polygon Global Partners LLP Founder Reade Griffith

“All of a sudden we have stability in France, in Germany, in the Netherlands—and more political uncertainty in the United States. Europe is the place to invest, because it’s been very much underinvested.” – Marathon Asset Management CEO Bruce Richards

“Europe has been a long stretch of either disaster or disappointment….You’ve finally got attractive growth, better inflation data, reasonable valuations and much better earnings prospects” – Skybridge Capital Partner Troy Gayeski

The global economy is growing moderately

“Global recovery is gaining momentum, yet growth remains moderate and GDP is still below potential in many countries, with the balance of risks tilted to the downside.” – G7 Finance Ministers and Central Bank Governors Communique

US Inflation has been below target

“The reflation trade was probably overdone…Inflation has been below target for a while. It’s been unexpectedly difficult to get inflation up.” –  Former Fed Chair Ben Benanke

The Swedish Central Bank is considering  a variable inflation target

“The Riksbank is considering changing the target variable for the inflation target to the CPIF. As inflation will always vary around 2 per cent, a variation band of +/- 1 percentage point is being also considered to illustrate this uncertainty.” – The Swedish Central Bank

Markets are underestimating political risk

“It always puzzles me a little bit that markets are very blase about political risk until the last moment….I’m not counting on major changes in the tax code or infrastructure.” – Ben Benanke Former Fed Chair


The art and luxury goods market is showing signs of strengthening

“So, what is the state of the market for the art and luxury goods that Sotheby’s sells? In short, the market is starting to show signs of strengthening….East and Southeast Asia’s buyers were prepared to pay top prices for excellent quality art and jewelry.” – Sothebys CEO Thomas Smith

The IASB released IFRS 17 on insurance contracts and it´s a big deal

“The International Accounting Standards Board … issued IFRS 17 Insurance Contracts…{to} help investors and others better understand insurers’ risk exposure, profitability and financial position.” IASB

“It’s a big deal as it means accounting policies will change for all contracts, and profits could be more volatile than today…More of the profit from a contract will be deferred over the contract period, which could mean increased volatility in earnings.” EY Partner Kevin Griffith


Accelerated merchandise growth at Wal-Mart in the quarter

“The U.S. e-commerce GMV growth accelerated significantly, up approximately 69%. Through the lens of strong, efficient growth, I’m pleased with the results.”  – Wal-Mart EVP and CFO Brett Biggs

Trends in retail are secular

“these changes that we’re seeing are secular and not cyclical. On the consumer side, we see continuing shifts in shopping trends, driven by the rapid adoption of technology, and for some of our customer segments, a greater emphasis on value and on experience. As for the retail industry overall, we’ve known for some time that the United States is over-retailed compared to other markets, so it’s not surprising to see the contraction in retail square footage.” Macy’s CEO Jeffrey Gennette

Customers are blending the online and in-store experience

“I think the interesting thing for us is over 45% of our orders on the customer is actually choosing to pick up into our stores….this whole customer engagement is becoming a blended element between online and in-store, and the customer is choosing in some cases, they start the shopping experience online, they finish in-store or…vice-versa”  – Home Depot CEO Craig Menear

Retailers are making a stronger commitment to omnichannel

“we’re all in on being a meaningful omnichannel retailer. We have a massive brick-and-mortar presence…our challenge is, of course, on the product side, to make the product offering in those stores more relevant and more effective, and then to leverage, as an omnichannel retailer, those store assets, our people, our inventory, our physical facilities, for customers who prefer to buy online.” – Kohl’s Corp CEO Kevin Mansell

“And third, we remain committed to becoming a world-class omnichannel retailer.” – J. C. Penney CEO Marvin R. Ellison

More chains are turning to automation to resolve labour costs issues

“We have more and more chains coming to us looking at how to resolve labor issue, how do we offset the higher cost of labor through automation.” – Middleby CEO Selim A. Bassoul

Sales improved in March and April compared to February

“while sales results for the quarter in total didn’t meet our expectations…sales in February were down high single digits and improved to down 1% in the March/April combined period. April sales and traffic metrics were both positive mid-single digits, and traffic metrics actually led sales during that month.” – Kohl’s Corp CEO Kevin Mansell

There’s an ongoing casualization trend

“there’s a continuing trend around casualization that we need to be mindful of really kind of across the board.” – Nordstrom Co-President Peter E. Nordstrom


Cyber threats are growing and are having devastating effects

“We recognise that cyber incidents represent a growing threat for our economies and that appropriate economy-wide policy responses are needed. No point of cyberspace can be absolutely secure as long as cyber threats persist in the surrounding environment.” – G7 Finance Ministers and Central Bank Governors Communique

“Last week’s WannaCry ransomware attack was another example of the devastating impact cybercrime can inflict on individuals, companies and countries around the world….It’s important that the tech industry and customers work together to defend against these attacks from cyber criminals.” – Cisco Systems CEO Charles Robbins

Seasonality impacted ad revenues for Tencent

“For the first quarter, for the first time our digital subscription video revenue exceeded our video advertising revenue that’s partly a seasonal factor because the first quarter is seasonally weak for advertising and seasonally strong for consumer digital spend, so we wouldn’t necessarily expect that to be the case in subsequent quarter.” Tencent Holdings CFO John Lo

Cisco is focusing more on software and subscriptions

“We set out 18 months ago to transition the business to one of more software and subscription. At the time, 8 quarters ago, it was $2 billion on our balance sheet. Today, we’ve more than doubled that, up 57% this quarter to $4.4 billion and accelerating.” –  Cisco Systems CEO Charles Robbins

Even Kohls is touting machine learning

“while we increased fulfillment levels from our stores, our overall fulfillment costs remain nearly constant as a percent of digital sales….by using machine learning to improve the algorithms that determine how to optimally fill orders with our network of stores and EFCs” – Kohl’s Corp CEO Kevin Mansell


Winning in autonomous is going to take scale and know-how

“You’ve got to be able to make these vehicles at scale and you’ve got to have the manufacturing know how to put thousands and tens of thousands of vehicles out in the field.” – General motors VP of Global Strategy Michael Abelson

Materials, Energy:

Contango in spring makes for a stronger summer in the freight market

“The product market is normally more in Contango when we come to the spring market…If the contango is very strong this spring and summer, it’s quite likely that we might see a stronger freight market in the summer.” – Avance Hodings President Christian Andersen

China is driving the world demand in the bauxite market

“the vast majority of bauxite demand sits in China. There is some third-party demand outside, but for the most part it’s a China story….there’s an insatiable appetite in China to bring that in-country in either stockpile or use.” Alcoa CEO Roy Harvey