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