Company Notes Digest 9.25.15

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:

Jamie Dimon doesn’t want to talk about the Fed

“It’s a lot of chatter about nothing. I don’t want to add to that chatter. Let the Fed decide when they want to raise rates and wherever I go I ask businesses, consumers, small business, large business, will it affect you if rates go 25 basis points? I haven’t found anyone who says, Oh my god… it’s a psychological thing, folks. It’s not a economic thing” —JP Morgan (Bank)

This isn’t even a real tightening

“it’s not really in my opinion tightening. They could raise rates – tightening in the old days meant you’re taking cash out of the system…The reserve banking doesn’t exist anymore because all those reserves bank…are not required under old reserve requirements, they required an LCR…they can set IOER, which the rate they pay us if rates go immediately there and it’s not necessarily taking money out.” —JP Morgan (Bank)

While Dimon has a point, we’re still going to parse what Yellen said this week:

The Fed gets that there’s uncertainty and they could wait to raise rates

“Given the highly uncertain nature of the outlook, one might ask: Why not hold off raising the federal funds rate until the economy has reached full employment and inflation is actually back at 2 percent?” —Federal Reserve (Central Bank)

But monetary policy affects the economy with a lag and they don’t want to have to slam on the brakes

“The difficulty with this strategy is that monetary policy affects real activity and inflation with a substantial lag. If the FOMC were to delay the start of the policy normalization process for too long, we would likely end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of our goals. Such an abrupt tightening would risk disrupting financial markets and perhaps even inadvertently push the economy into recession” —Federal Reserve (Central Bank)

They also don’t want to encourage excessive risk taking in financial markets

“In addition, continuing to hold short-term interest rates near zero well after real activity has returned to normal and headwinds have faded could encourage excessive leverage and other forms of inappropriate risk-taking that might undermine financial stability.” —Federal Reserve (Central Bank)

So they are going to raise rates this year

“For these reasons, the more prudent strategy is to begin tightening in a timely fashion and at a gradual pace, adjusting policy as needed in light of incoming data.” —Federal Reserve (Central Bank)

Listening to companies, there is evidence to support the Fed’s position

Homebuilders are facing a very tight labor market

“labor has also become a limiting factor. The slow and steady recovery in housing did not signal to the labor market that it was time to come back to work in the sector, and many found work elsewhere. Today, the entire labor market has tightened and rapid growth in housing production will be limited by available labor.” —Lennar (Homebuilder)

Darden cited wage pressure as well

“Wage pressure continues to be a problem. We will continue to monitor it, as we monitor the different states and the different cities and what they are doing with minimum wage. The job market is improving. We are seeing in certain markets today, becoming a little bit more difficult to hire help. So that will eventually put some pressure on our average wage. But right now, I believe that we are managing this very-very effectively.” —Darden (Restaurants)

There are also signs of excessive risk taking: US Bank’s CEO called out some “remarkably bad behavior” in CRE markets

“There is some remarkably bad behavior in long term 10 year deal and in some of the non-recourse deals and I’m telling you, I’m calling it out it’s a worry and I’m saying commercial real estate in certain markets” —US Bank (Bank)

So far financial market volatility doesn’t seem to be impacting the real economy

Factset hasn’t seen financial services companies pull back on hiring

“We haven’t really seen any of that indication we clearly stay close to our clients throughout this volatility. It is felt still fairly healthy as we look at the sell-side graduating classes that we just saw were reasonably healthy, and attrition rates were nothing of know so, we haven’t seen anything that alarms us in that space so far.” —Factset (Financial Data)

Carnival hasn’t seen order rates impacted by the stock market

“We did not see any falloff in demand related to stock market or general economic fluctuations, none whatsoever.” —Carnival (Cruise Line)

Still, Accenture feels like the macro risk has clicked up a notch or two recently

“I think, when we look at the macro environment in general, relative to where we were 90 days ago, I would say, relative to where we were at this time last year, the volatility and risk in the macro environment has clicked up a notch or two, and so that’s a factor then.” —Accenture (Enterprise Tech)

And this kind of story makes markets sound very unhealthy:

“in April of 2015, we moved our $3 billion student loan portfolio…into the held for sale with the intent to sell the portfolio…in the early months of our being out to bid…one of the largest rating agencies started downgrade a couple of the FFELP portfolios and then others started to follow. The pricing margin started to gap and in the very two weeks we’re in the market getting the bids, I even use a phrase that isn’t official but the market broke, there literally wasn’t bids” —US Bank (Bank)


Companies are forecasting continued earnings impact from currency

“For the full fiscal year ’16, based upon how the rates have been trending over the last few weeks, we currently assume the impact of FX on our results in USD will be negative 4% compared to fiscal ’15.” —Accenture (Enterprise Tech)

“obviously the U.S. dollar strengthens, the Canadian dollars, the A dollars, the Euro, the Brazilian Real. So yeah we see more of a headwind on our reported results from currency.” —General Mills (Packaged Food)


On the whole, commercial banks have been very well behaved this cycle

“The last crisis obviously the heart of it, the nucleus, was mortgages in the banking system…that was the corruption that caused the whole crisis. I don’t see anything like that in banks, zero, nada, nothing, zilch.” —JP Morgan (Bank)

That makes most bankers optimistic about credit quality

“credit hasn’t been talked about for a while and frankly won’t be for a while.” —US Bank (Bank)

The one thing that Jamie Dimon worries about a little is treasury markets

“the one thing I do worry about a little bit by the way is treasuries…Anyone into this business since 2006 has never seen interest rates go up…And the biggest buyers of treasuries were central banks, foreign exchange managers effectively and banks. And all three of those are going to reverse. So I wouldn’t be shocked to see 10-year treasury rates…go up much faster than people think. I’m not predicting that, I’m simply saying in the back of mind, I think that’s a possibility and we will be prepared for that” —JP Morgan (Bank)

Bank of America is now focused on growth

“The good news is [litigation] is largely behind us and we’re pivoted to focus solely on responsible growth…We have to grow, no excuses. We’ve had hundreds of billions of dollars of run off of assets, businesses risk that we’ve taken out of this company, but the reality is now we got to grow through all that.” —Bank of America (Bank)


Consumers are increasingly shopping online for items that you may not have expected, like cars and food

“We’ve definitely seen the sentiment shift where customers are looking to do more and more research, more and more pieces of the transaction from home, and in some cases the entire transaction from home” —Carmax (Used Cars)

“U.S. food sales that are going through online are between 1% and 2%. Now that’s changing pretty quickly, meaning moving from 1% to 2%. If you said what does it look like out four or five years ahead, all the projections I’ve seen are in the 5% to 6% range. So it’s going to be a high growth area.” —General Mills (Packaged Food)

People don’t even want to interact with waiters anymore

“We also continued the roll out of our table-top tablets. The tablets are now on more than half of our restaurants, with 80% of the tables choosing to interact with the devices in those restaurants. We continue to see the same benefits, as we saw during the tests, higher add-on sales, faster dining times, and overall higher guest satisfaction scores. We are pleased with the progress of the rollout, and we expect to complete it by the end of the second quarter.” —Darden (Olive Garden)

Kids are reading more books than adults

“According to a study released this June by the Association of American Publishers…the size of the children and young adult market surpassed the adult market for the first time, with children’s and YA selling at 843 million units to 746 million units for adults” —Scholastic (Publishing)

At least low gas prices are getting Americans out of the house

“As new vehicle sales are reaching all-time highs and gas prices on average are down year-over-year, vehicle miles driven continue to increase. This trend is encouraging.” —Autozone (Auto Parts Retail)


Sprint says that it is disrupting the way telecom networks are constructed

“the way we’re building our network is not a traditional way it’s a disruptive way. We are not buying equipment from your traditional OEM and we’re not going to a traditional tower companies so which both are quite expensive. We have found a combination of newer vendors…It’s a disruptive way. It’s a very different way” —Sprint (Telecom)

Materials, Industrials, Energy:

Houston’s housing market is starting to show signs of deterioration at the high end

“I would say that the Houston market is still overall a pretty decent market… if you look at that, it hasn’t been across all price points. The lower price points, let’s say, sub-$300,000, $350,000 are performing pretty well. It’s just when you get up in that $350,000-plus, the price point sales has been impacted and have slowed.” —Lennar (Homebuilder)

“We are seeing some softening at higher price points in Houston above 350,000.” —KB Home (Homebuilder)

Carnival doesn’t have any plans to change its fuel hedging strategy amid lower oil prices

“at this point wouldn’t have any particular plans to change but we review it constantly” —Carnival (Cruise Line)

The mining industry can only recover once supply and demand come into balance

“The bearish tone was the reality. So, if we look out to the markets that we’re seeing prices are resultant of the supply and demand situation. So, if we have to wait for a pricing to move something has got to happen with the supply or the demand…looking at our various commodities around the world, there is an oversupply of the commodities through this huge ramp-up in commodities in the previous cycle. That’s got to be worked through.” —Joy Global (Mining Equipment)

Dry Bulk fleets are finally shrinking

“a very high demolition rate is further reflecting ship supply. More specially, in 2015, the Capesize scrapping activity has exceeded 2013 and 2014 combined, which is almost 13 million deadweight tons year-to-date. The substantial reduction of the order book as well as the accelerated scrapping activity has finally led to negative fleet growth year-to-date in 2015.” —Seanergy (Dry Bulk Shipping)

Miscellaneous Nuggets of Wisdom:

Don’t run your business focusing on expenses

“We don’t run the business that way and they are not expense initiatives. We run the business that you think the way you want to do, you invest what you got to invest, you built the systems you need, you open the branches you need.” —JP Morgan (Bank)

“We never focused on efficiency [ratio] as a goal…It’s never been a goal but it’s an outcome. It’s an outcome that usually gets better because we grow revenue faster than expenses” —US Bank (Bank)

Good execution beats good strategy

“While we study the external environment and react where appropriate, we must stay committed to executing day-in and day-out on our game plan. Success will be achieved with an attention to detail and exceptional execution.” —Autozone (Auto Parts Retailer)

Full transcripts can be found at