Bank of New York Mellon (BK) Q2 2016 Earnings

Bank of New York Mellon (BK) CEO Gerald Hassell said they are using automation to streamline costs and improve efficiency 

“We fully implemented our Bring Your Own Device program, eliminating more than 90% of our company-paid handheld devices. We’ve been piloting robotics and machine learning processes to automate work and eliminate repetitive manual tasks. And while it’s still in the early days, we have put robotics into production in several areas and believe there are excellent prospects to roll this out more broadly and further reduce our costs. And in our business partner groups, we are leveraging our location strategy, negotiating to reduce vendor costs and automating or eliminating low-value activity.”

In the wake of Brexit, their bank is a safe harbor in a story sea

“Our third priority centers on being a strong, safe, trusted counterparty. The UK’s decision to exit the EU was and remains an opportunity to demonstrate our ability to navigate through real-life market stresses. Amidst the market volatility and increased transaction volume, in the wake of the referendum vote, we and our clients were able to continue to transact business without incident. We believe our UK and European legal entity structures, licenses and infrastructure, which includes a passport European bank in Belgium, creates a competitive advantage and positions us well to manage the potential impact of the new arrangements.  At least at this very early stage, we do not envision a significant impact to our operations and business.”

Bank of New York Mellon (BK) CEO Gerald Hassell on how they’re using robotics across the organization

“So right now, we have 30 bots in production right now across six different processes. We’re very encouraged by the results. It’s really taking some of the manual mind-numbing exercises out of the process and doing it at a lower cost. So we started with a couple of bots in one process and we since expanded it. So we’re actually pretty encouraged by the upside associated with this. We think we’re in the early stages of it and we see other applications across other processes. So, I’m actually encouraged by it and think it could be a real potential upside for us.”

Bank of New York Mellon (BK) CEO Gerald Hassell on why they’ve seen good growth in their liability driven asset management group 

“If you think about it with a lower-for-longer interest rate environment and pension liability is not declining, these firms need to come up with a better solution to match the liabilities against the returns on the assets. That’s exactly what our firm does, what Insight does. It really knows and tries to understand the liability structures and develop investment returns to better match it. Pension funds all over the world are struggling with this.”

Corporate Annual Reports And CEO Interviews 3.24.16

Source: John Deere Annual Report

John Deere (DE) CEO Sam Allen said the farm equipment recession of the last few years has been the worst in nearly a century

“In relation to the farm economy’s robust years earlier in the decade, the current downturn has been quite dramatic. Since peaking in 2013, industry sales of large agricultural equipment in the United States have fallen more than 60 percent. Deere’s total equipment sales have declined more than 25 percent from their high. Last year’s sales decline was the company’s largest in percentage terms since the 1930’s.”


Source: Richemont (owner of luxury jewelry brands such as Cartier, Van Cleef & Arpels) CEO Youtube Interview= https://www.youtube.com/watch?v=-MvyTHPueKI

Richemont CEO Johann Rupert said the true price of capital is obscured in today’s economic environment

“We have a lot more competition, especially from ridiculously mispriced capital. When people misprice something, it is abused. In England, water is free, it rains all the time yet there is a drought. Now, if you misprice capital, people will abuse it and will regret it, unfortunately in our business as well.”


Richemont CEO Johann Rupert stated you should always be improving your business whether we are in an economic expansion or economic recession

“Never waste a good recession. Never waste an opportunity to fine tune your business.


Source: Schlumberger Annual Report

Schlumberger (SLB) CEO Paal Kibsgaard remains constructive on both the supply and demand of the oil markets ultimately coming into equilibrium in the medium term

“We remain constructive in our view of the market outlook in the medium term and continue to believe that the underlying balance of supply and demand will tighten. This will be driven by growth in demand, weakening supply as the massive E&P investment cuts take effect, and the size of the annual supply replacement challenge. In continuing to accelerate the benefits of our transformation program across both our Technologies and GeoMarket regions in 2016, we believe that we will emerge as a stronger company once the price of oil and the market conditions in our industry improve.”


Source: Autozone Annual Report

Autozone (AZO) CEO William Rhodes said the company is prioritizing their E-commerce auto parts websites in order to get their products to consumers quicker

“We are expanding our fast-growing internet offerings. Utilizing our autozone.com, autozonepro.com and autoanything.com websites, we believe we are well positioned to serve our customers however they elect to interact with us. In 2016, we will continue our focus on both expanding our online product offerings and improving the shopping experience. While this business is growing at a faster pace than our “brick and mortar” business, it remains small in absolute terms. However, over time, as mobile shopping intensifies, it will only expand. We have to stay out in front in this sector of our industry. Our customers expect us to offer this shopping convenience and additional avenues for trustworthy advice to maintain, enhance or repair their vehicle.”


Source: Leucadia Annual Report

Leucadia (LUK) CEO Richard Handler said his company is undervalued and prepared to weather the stormy economic environment

“As we write, there is continuing volatility in the fixed income and equity trading markets, as well as in energy prices. Scratches and dents seem inevitable and we won’t dare make predictions for the rest of the year, but based on the actions we have taken to date, our businesses are prepared to weather the storm, and several are doing quite well. We are both aligned long-term investors in Leucadia stock and will continue to work our hardest to deliver good results in the coming years. There remains significant long-term upside in the value of Leucadia, which exists in the intrinsic value of our businesses and is not fully reflected in our current dismal stock price. We will discuss all of our businesses later in this letter.”


Source: Bank of New York Mellon Annual Report

Bank of New York Mellon (BK) CEO Gerald Hassell reiterated the company’s new mission statement

“We play an important role in the financial marketplace and describe ourselves as the Investments Company for the World. Our mission is to help people realize their full potential by leveraging our distinctive expertise to power investment success. In doing so, we seek to improve the lives of countless people globally – a goal that motivates us to be the very best at what we do.”

Bank of New York Mellon (BK) CEO Gerald Hassell said the company remains the dominant vendor for central banks and pension funds

“Our clients include three-quarters of the Fortune 500, central banks that hold approximately 90 percent of all capital and more than two-thirds of the top 1,000 pension funds.”


Source: Moody’s Annual Reports

Moody’s (MCO) CEO Ray McDaniel said the company is benefiting from several tailwinds in the financial markets

“We manage through cyclical conditions, while focusing on and investing around the deeper pull of structural market evolution: phenomena such as the disintermediation of credit, the demand for enhanced risk management techniques, the need to curate increasingly vast quantities of financial information and data and the development of emerging economies. These are powerful dynamics and they reveal an open road beyond the rubbernecking that often surrounds day-to-day market sentiment.”

Moody’s (MCO) CEO Ray McDaniel noted a choppy economic environment is creating uncertain buying patterns across their customer base
“Financial markets continue to be buffeted by volatility stemming from, among other things, uncertain global economic conditions, diverging monetary policies and geopolitical events. These dynamics (and their inter-relationship) create cross-currents and choppiness that unsettle market participants. This in turn impacts both the short- and long-term outlook for Moody’s.”

He elaborated that markets getting harder to interpret

“Markets are becoming more complex, not less, and are moving more quickly and featuring more choices. The need for products and services that illuminate and enhance the understanding of risk is essential to market confidence, and that confidence is essential to the sound management and efficient movement of global capital. Moody’s focus and opportunity involves filling the gaps that complexity, volume and information inefficiencies create.”


Source: Potash Annual Report

Potash (POT) CEO Jochen Tilk said increased global demand for protein will benefit his agricultural nutrient focused company

“By 2050, the world’s population is expected to grow by another 2.3 billion, reaching 9.7 billion. At the same time, diets are improving in many regions. These facts add up to greater demand for food, which will require increased crop production even as the amount of arable land per person is declining. With the world counting on increased yields from farmers, fertilizers will continue to be essential in keeping soils healthy. The role of fertilizers cannot be overestimated: they are responsible for half of all crop yields and without them, we believe the world would be incapable of feeding itself. ”


Source: Wells Fargo Annual Report


Wells Fargo (WFC) CEO John Stumpf said the company is still a relationship oriented business

“The most powerful expression of our heritage isn’t in documents or artifacts or even our stagecoach. It is in any of the millions of relationships we have formed over generations with customers, team members, communities, and shareholders. Relationships define Wells Fargo. Earning lifelong relationships, one customer at a time, is fundamental to achieving our vision.”


Source: Mark Fields Business Insider Interview http://www.businessinsider.com/ford-ceo-mark-fields-interview-2016-3

Ford (F) CEO Mark Fields said cars on the road today are lasting longer than ever, suppressing demand for their products

“We have worked very hard at quality over the last number of years, and our quality is in the top echelons of the industry. So part of it is vehicles are lasting longer. When I was growing up, when you saw a 20-year-old car it was like, Oh my gosh — that thing’s on its last legs. Now you see a 20-year-old vehicle and in many cases it looks pretty good. So part of it is that, but the other part is when we went through the downturn, clearly there were a lot of deferrals of people replacing vehicles.”

Ford (F) CEO Mark Fields noted that economic volatility and currency wars are making the automobile manufacturing business a more competitive landscape

“For us the main policy is making sure that currency is not used as a weapon, if you will, to manipulate the cost of products, whether they’re imported or exported. We can compete with anybody around the world. We can’t compete with central banks.”

JS Earnings Call Notes 10.22.2015 – Halliburton, RLI, United Technologies, Bank of New York, Travelers, Pentair, iRobot, General Motors

Halliburton (HAL) President Jeff Miller says their business remains pressured but they ultimately expect a recovery in their end markets

“The pumping business in North America is clearly the most stressed segment of the market today, but it’s also the market that we know the best. We know our approach works when the market turns, and it will. This is the segment that we expect to rebound the most sharply.”

They expect oil drilling activity will remain tepid for the rest of the year

“We believe these prices are clearly unsustainable, but as we have been saying all along, pricing cannot stabilize until activity stabilizes. Looking ahead to the fourth quarter, visibility is murky at best. Based on current feedback, we believe most operators have exhausted their 2015 budgets, and will take extended breaks, starting as early as thanksgiving. Therefore our activity levels could drop substantially in the last five weeks of the year.”

They remain in active negotiations with the Department of Justice to gain regulatory approval to complete their Baker Hughes acquisition

During the quarter, we announced the second tranche of businesses to be marketed for sale in connection with the acquisition of Baker Hughes, and we expect that marketing process to begin shortly. On the first tranche of divestitures, we have now moved into the negotiation process. On the regulatory front, during the quarter, the timing agreement with the DoJ was extended by three weeks, and accordingly, Halliburton and Baker Hughes agreed to extend the closing date to December 16th.”

Halliburton (HAL) CEO David Lesar said their customers always want to drill 

And I think one of the things that our customers demonstrate, and believe me, we love all our customers. If they have cash they are going to spend it.”

Over half of the equipment is idled right now

If we look at the amount of horsepower that’s idled right now, just on the side lines, about half of it is on the sidelines today in terms of stacked equipment. And that’s equipment that’s not getting any maintenance, and it’s being cannibalized for parts.  The other factor that we see now, service intensity continues to increase actually on a per well basis. And so, that’s yet again harder on the equipment that is working. So if we look at what’s stacked today, we think about half of that equipment stacked today will not be ultimately serviceable. So that maybe in their estimates four to six million horsepower out of the market in ’16.”

Halliburton (HAL) CEO David Lesar ultimately expects the pricing of their services to recover

There are some key customers as Jeff said in key basins that have been very loyal to us, and we want to stay loyal to them. We know they are going to survive. We know they have good assets. We know they are going to get a budget reload, and we know that they want to take advantage of the services pricing that’s out there today, even if I don’t like that service pricing, it is there. It’s a fact of the market. This is a long-term game we are in. These are long-term customers we have. We typically make good money from them in good times, and I’m not going to walk away from them in the kind of times we are in today because it will pay off in the long run, and I think that’s in my view the smart way to approach this.”

 

 

  

 

RLI Executive Vice President Craig Kliethermes said the firm’s superior underwriting continues to shine

RLI was founded on the promise of finding really smart disciplined insurance professionals and aligning their interest with shareholders. The culture of underwriting excellence will continue to be the focal point of our organization.  We posted an 81 combined ratio for the quarter which leaves us at 83 year-to-date. All of our segments came in under a 90 combined ratio.”

And they have been able to slightly increase rates  

Rates overall have been slightly up about 1% to 2% for the quarter and year-to-date mostly led by rate increases on all wheels based businesses.”

One of the strongest sectors of their business has been automobiles and trucks where they have an excellent reputation 

In casualty we continue to be led by our transportation business. We grew over 40% in the quarter and are up over 20% year-to-date while margins remain good. Rates were up nearly 10% for the quarter driven mostly by the public auto sector. While many have suffered terrible fates in the wheels business our results have evidenced, our underwriting discipline, and that relationships and expertise really do matter in this business. We had several large customers return to us this quarter as a result of poor service and claim handling by our competition.”

Catastrophe pricing remains weak  

Cat pricing continues to be down double-digits, went down a little more than quake. A very challenging environment to write much new business, the focus is to keep the best renewal accounts.  The broader market in general does not seem rational and disciplined to us.”

RLI Executive Vice President Craig Kliethermes reiterated what separates his company from the competition

We regularly see flights to markets that appear to produce exceptional underwriting results. It isn’t that easy, whether it be surety or more generally to specialty space, it isn’t the title specialty business that automatically earns you good underwriting results. You can’t get specialty results without specialists. That is what we have at RLI, specialists with a narrow and deep expertise and underwriting and handling claims that in a particular niche market that should differentiate us in all market cycles particularly in the more difficult troughs.”

 

 

 

 

United Technologies (UTX) CEO Greg Hayes said the sale of the Sikorsky helicopter unit reduces the company’s overall reliance on government spending

“When the Sikorsky sale is complete, the UTC portfolio will be focused on its core businesses, and that is supplying innovative game-changing technologies for the buildings and aerospace systems industries. Going forward, UTC will have a better organic growth profile, along with higher operating margins and a stronger, more predictable cash flow. And defense exposure for UTC goes from 19% to 13% on Sikorsky.”

United Technologies (UTX) CEO Greg Hayes highlighted some of the secular growth trends which will fuel their end markets 

“Thinking about Buildings and Aerospace portfolios, we’re very well positioned. Otis is the best elevator business in the world. And I say that because we’ve got 1,800 branch offices, we’ve got 3 million unit installed base and we service over 1.9 million elevators on a daily basis.  Our Aero backlogs are at their highest levels ever, giving us confidence that Pratt and UTAS can deliver the strong revenue growth goals that they’ve laid out.  The long-term outlook remains solid, innovative products, industry-leading franchises, global scale and solid market fundamentals in our core businesses, driven by revenue passenger mile growth and the global expansion and continued urbanization of the middle class.”

While China continues to decelerate  

In Asia, we continue to see the China market weakening. Growth in fixed investments has slowed considerably. Otis new equipment orders in China were down 19% in the quarter after being down 11% in the first half of 2015.”

And they expect next year will remain a challenging sales environment as well for the entire company

“Net-net, as Greg said last month, 2016 will likely be another challenging year. Earnings in three of the four segments – Otis, Pratt, and UTAS – will be flat to down even with the pension benefit.”

United Technologies (UTX) CFO Akhil Johri said almost half their revenue is recurring

Also we have a significant base of recurring revenues, which today account for about 45% of UTC sales.”

United Technologies (UTX) CEO Greg Hayes said the company operates with a 30 year time horizon

It’s simply a recognition that while we have to make investments in the short run, this is really a 30-year time horizon. We’re investing in engines today, we’re investing in elevators today that we’re going to service for 30 and 40 years.”

United Technologies (UTX) CEO Greg Hayes acknowledged they have lost market share to elevator competitors, such as Kone

And so to your point, KONE has gained share on us in China. We’re not happy, we’re going to go after that and not just China, really it’s globally.  It’s about having great product and a great service team and great leadership and we’ve got that across-the-board in Otis today and I’m confident we’re going to be able to regain share without sacrificing a lot of margin.  The loss in China market share, to some extent, was driven by a conscious decision on our part not to play in certain segments.”

And they are remaining disciplined when evaluating potential acquisition opportunities 

“We have not seen or found an asset of quality that we like quite yet, but we continue to look. And it ultimately comes down to, can we buy a business and create real value for the shareowners without having to give all of that value to their shareowners in the firm  in the form of a very high takeover premium.  I think what’s off the table today is the bigger deal. We’ll do deals in kind of that $1 billion to $5 billion range, things that we can finance with existing cash or cash flows or what we have on the balance sheet.  So over time, as the UTC share price recovers back to towards where intrinsic value is, we may think of a bigger deal.  We’ve closed on a couple of deals and we’ve walked away because the value wasn’t there at the end of the day after we did due diligence and we did the right thing.”

 

 

 

 

Bank of New York Mellon (BK) CEO Gerald Hassell said the firm is finding it a difficult environment to grow revenue so they are focusing on what they can control which is namely operating expenses

Our priority is executing on our business improvement process that leverage our scale and expertise to deliver efficiency benefits to clients, while reducing our structural costs. Our success on this approach is reflected not only in lower expenses in nearly all categories, but in our industry leading market positions across all of our businesses.  And we have also been analyzing our current real estate portfolio to reduce cost. And we are selecting locations and workplace standards that enable collaboration and innovation.”

Bank of New York Mellon (BK) CFO Todd Gibbons said due to negative interest rates in Europe, the bank is charging some of its customers to hold their deposits

There is a slight decline, in deposits since we initiated that strategy, but not much. We did up the charge for some of those deposits in the third quarter, late in the third quarter. And I would say just seeing a modest decline, if any.”

And they plan on improving their advisor retail offering

“Absolutely, what I would point you to is that while we are the sixth largest asset management in the world, in terms of U.S. mutual fund families, we are currently 37th. So we have all of the investment capabilities or a large majority of the investment capabilities in-house that is used by investors that use mutual funds, financial advisors and individuals, ultimately as the end users. But our platform to reach advisors is below where we think it should be or where it could be to really improve our distribution of our investment capabilities through that channel.”

 

 

 

 

Travelers (TRV) CEO Jay Fishman said analytics and pricing policies appropriately have been a huge competitive edge for the company

But as I reflected on this quarter’s earnings as well as the string of quarters that we put together over the recent past, my hypothesis is that the competitive advantage of analytics, risk selection and pricing management have had a meaningful effect, particularly cumulatively. I can’t prove it to you because I don’t know what our results would have been if we weren’t just good as we are. But I do believe that one of the important factors that has led us to produce industry-leading returns is the fact that we have managed the changing rate environment over the last five years as effectively as we have.  I am certain that it has mattered and you should know that the commitment to analytical insight that produces these advantages is very much a part of the DNA of this place.”

Travelers (TRV) CEO Jay Fishman said their customers tend to be some of the older demographics

And we know that for example from our experience of being the GEICO partner for as many years as we have been, the customers that buy directly are on average, now it doesn’t mean that we are on lots of exceptions but on average they are younger, more single, more single cars, more minimum limits, they are a different driver than a higher end older, importantly older driver, the sort of type that was typically been a Travelers customer. So you can speculate and it’s all it is, is it possible that distracted driving is impacting that younger group disproportionately relative to the older drivers.”

Travelers (TRV) CEO Jay Fishman reiterated the company’s acquisition strategy 

And I would just add that in the context of acquisitions, we’ve been actively engaged with anything that’s transpired, we’ve established views of value and where value can be created, and points at which it can be and if we would have find the transaction, that would fit strategically, that would enable us to either reduce the volatility of our own returns or potentially even improve them and of course, that’s hard being the highest return competitor in the industry, but if we can find that, we’re not uncomfortable moving ahead, where we have done a few transactions in our lives and feel that we have got the skill base to execute and so we will always keep looking.  

 

 

 

  

Pentair (PNR) CEO Randall Hogan said customers are delaying their purchases and deferring maintenance

“Core sales in all four Valves & Controls sub-verticals were down double digits with the steepest declines in mining. We also saw weakness in our short cycle business, which is further evidence that customers will not only cut capital expenditures this year but are also deferring some maintenance turnarounds and operational expenses.”

Pentair (PNR) CFO John Stauch elaborated on 2 distinct distribution strategies for the company

Our customer buys from us either in a short cycle, I need it quickly, I want it for a installed based or MRO aftermarket application, or I’m seeking an engineer to order application or a project. So, our sales force has been working to meet those customer needs in that regard.  So, what we’ve done is we’ve aligned the two value streams to support that within the business around those two buying proposals, which starts to identify the needs to serve the short cycle, which means I need local inventory, I need to get it to you in 24 to 48 hours, I have to have service centers to be able to give you the service you need. And then on longer projects, I can generally ship that from anywhere in the world, and I can begin to work and then engineer the order to the customers’ needs.  The standard is obviously a higher margin, and you’re buying something that you need on a like-for-like basis.”

 

 

 

 

iRobot (IRBT) CEO Colin Angle said the business saw weak sales in Japan

Q3 revenue met our expectations, due to continued strong growth in the United States and China, partially offset by softness in Japan. Third quarter earnings exceeded expectations, primarily because we decided to curtail the planned incremental Japan marketing investment, as the overall economic climate in the region was dampening its impact.  While we are experiencing weakness in a few isolated international markets, we expect the macro impact to be temporary.”

Despite increased competition into the robot vacuuming category, they claim they are still leading the category

While we are experiencing weakness in a few isolated international markets, we expect the macro impact to be temporary. Global spending in robot vacuum cleaners continue to grow, and we are maintaining our leadership position in the market, despite several recent entrants in the category.  As the vacuuming market continues to grow, there are new entrants, but they have not impacted our share, and so I think that that’s the key message that we have been able to successfully raise our performance bar swiftly enough that, we feel like we are increasing our performance lead over the competition, and the market share figures support that confidence and the performance of our products.”

iRobot (IRBT) CEO Colin Angle referenced one of their products high ratings on Amazon as a validation of the quality of the end product

And the performance of the robot has been outstanding, and it is a huge amount of technology that we just put on the marketplace, so that the fact that we are getting very high ratings on Amazon, suggest that the tremendous amount of work we went into ensuring that connecting the app and the ease of use of the app and the navigation technology ability to function in real world environments, is all proving out in a very positive fashion.”

And they are collecting data direct from their robots on how and when the products are being used

We actually feed back to our customers, the ability to monitor when the robot came out, and how much area that it covered. Those are things that we also can collect and understand. So just plain usage data and run time data are two of the earliest things. Also if you call our customer service line, with an issue on the robot, the robot will be able to give us some information, as to its own state. And so, those are all very-very helpful in order to improve customer confidence and customer experience.”

 

 

 

 

General Motors (GM) CEO Marry Barra cited the company’s improved emphasis on investment returns as opposed to the old strategy of sales volume

“Adjusted automotive free cash flow of $0.8 billion reflects seasonality and the settlement of several uncertainties, and our 26% return on invested capital based on a trailing fourth-quarter average demonstrates that our disciplined capital allocation is paying off. It had $3.3 billion in EBIT adjusted with an 11.8% EBIT-adjusted margin. These are both records for North America.”

Truck & SUV sales were strong and they picked up additional market share

“Clearly, trucks, crossovers and SUVs drove strong sales gains. U.S. retail market share in Q3 was up nearly 1 percentage point from a year ago, 16.5% compared to 15.6% in 2014. GM’s share of the entire retail full-size pickup segment is approximately 40%, up 2 percentage points from a year ago.”

General Motors (GM) CEO Marry Barra intends to use their scale to drive further efficiencies and higher profitability

We’re leveraging our scale across the value chain to develop this new vehicle family that will require less capital, generate more volume, and drive more profitability.  And as we look at cost efficiencies, we continue working across the entire value chain to make sure that we are as efficient as possible so we can enhance the customer experience and also drive shareholder value.  As we talked about in the Global Business Conference, we have identified $5.5 billion of savings from the 2015 to 2018 timeframe. And that’s from purchasing initiatives, manufacturing, driving for efficiencies and reducing administration expenses.”

General Motors (GM) CEO Marry Barra said the company continues to focus on selling vehicles in smaller Chinese cities as opposed to competing in the hyper competitive large urban marketplaces

And despite the slower growth, there is still significant growth potential for China. Much of the growth will be in the Tier 2 to 4 cities and that currently represents 85% of GM’s volume. We will continue to focus on sustaining strong margins between 9% and 10% through the sales growth that is afforded by MPVs, SUVs, and Cadillac.”

General Motors (GM) CFO Chuck Stevens said they are combatting the slowing growth in China by managing their mix

And as we’ve talked about on a number of occasions, we’ve been able to generate these results specifically because the team in China has been proactively managing the market risk with several actions such as optimizing mix – and you saw the results with the September sales being up significantly from an SUV perspective – aggressively reducing cost by rolling out cost-down-efficiency-up initiatives and really working to manage our inventory levels and ensure that we’re aligning supply and demand.”

And they’ve been able to generate a substantial amount of savings by altering their material cost

But if you look just one of the components of that, this year we’ve talked about non-raw-material performance of $2 billion. We’re very, very much on track to deliver that.”

General Motors (GM) CFO Chuck Stevens said the entire car industry is acting more rationally than in the past by utilizing less discounting of end products

Overall, the dynamics in the industry remain reasonably rational.  One of the things that we talked about and if you look at the share performance year-to-date is our real focus on shifting our volumes out of fleet and into retail because retail is more profitable than fleet.”

JS Notes: WTM, IBM, VZ, TRV, PNR, IRBT, MKTX, BK

We’re excited to announce that Jeremy S., an investment analyst here in Southern California, has started to contribute to Avondale’s company notes database. Below are quotes from some of the calls that Jeremy has read this week.

 

White Mountain (Ticker: WTM) CEO Ray Barette says book value and share price have grown at nearly the same rate since the firm’s IPO 30 years ago

“2015 marks the thirtieth anniversary of the Company’s IPO. Since then, we have grown book value per share and share price by 14% and 13% per year, respectively, including dividends.”

White Mountains thinks about the insurance business in a way that’s materially different than a majority of their insurance peers

We have achieved these results by remaining focused on creating shareholder value per share, often giving up short term upside to avoid big downside. Our results have been lumpy, often disappointing, for extended periods of time. The key to success in the insurance business is to avoid big mistakes.”

Nonetheless, they have made some strategic mistakes along the way

“We made three big mistakes in the last ten years that have significantly reduced our overall performance.  We have learned from those lessons, and I believe we have improved our approach to managing those and other major risks. The challenge has been in not becoming overly risk averse. In practice, we have substantially de-risked your Company.”

They are still experiencing soft pricing in some insurance lines

“The influx of capital from peers and alternative markets is putting pressure on prices and terms and conditions, mostly in peak cat zones and some specialty areas.”

A large portion of their investment portfolio is in conservative, short duration bonds which has hurt their investment returns 

“The short duration positioning of the fixed income portfolio left money on the table but protected our capital position from what we continue to perceive as an asymmetrical risk to rate movements.”

The company has nearly $1 billion of cash sitting on the balance sheet and is no hurry to put it to work given current valuations 

“Intellectually, we really don’t care much about leaving our capital lying fallow for years at a time. Better to leave it fallow and to wait for the occasional high-return opportunity. Frankly, sometimes shareholders would be better off if we all just went to play golf.”

The firm prioritizes underwriting for profitability rather than underwriting in order to grow revenues

“An insurance enterprise must respect the fundamentals of insurance. There must be a realistic expectation of underwriting profit on all business written, and demonstrated fulfillment of that expectation over time, with focused attention to the loss ratio and to all the professional insurance disciplines of pricing, underwriting and claims management.”

 

 

 

IBM CFO Martin Schroeter reminded the financial community of the mission critical work & transaction data that are run using IBM’s servers

“Let me give you a real example of what we’re talking about. If you are UPS, one of the largest logistics companies in the world, you have to manage nearly 5 billion deliveries a year with highly seasonal changes in demand. Your customers expect their packages to arrive on time, and they expect to schedule, manage and track shipments anywhere, anytime, and increasingly through their mobile devices.  These mobile transactions can lead to dramatic increases in overall traffic as customers complete transactions at will. This requires a system that can handle the growth and scale seamlessly when activity spikes, maintaining a secure system that’s always available. That’s why UPS chose to upgrade to the IBM z13 mainframe because it could meet the expanding demands of the mobile economy.  I don’t think that mainframe is fully appreciated for the essential nature of the work it does.”

“Financial services sector is obviously one where the mainframe plays a pretty vital role in how the world banks run and when you get a new mainframe, particularly when so relevant to them shifting their business into mobile, particularly one where counter fraud is such an important part of what they have to think about every day.  And again you need scalability, you need reliability. You have to run all the time.”

 

 

 

Verizon (VZ) CFO Frank Shammo says the company is willing to let the most price sensitive customers defect to other carriers

“If the customer who is just price-sensitive and does not care about the quality of the network, or is sufficient with just paying a lower price, that’s probably the customer we’re not going to be able to keep”

 

 

Travelers (TRV) CEO Jay Fishman on the firm’s insurance underwriting pricing discipline 

“We don’t pressure underwriters for volume, we don’t. If you do, you will get volume; you won’t like what you get; that’s been our philosophy but you will get it. We let them run their business with tremendous amounts of data like adults making thoughtful decisions managing it for the long-term.”

Travelers CEO Jay Fishman says that low interest rates require clients to pay higher premiums than usual in order for Travelers to earn a decent return on capital

“Fixed income returns remain at historical lows and as a consequence, we must continue to be mindful that this challenging environment has already lasted far longer than most would have assumed and we will continue to factor that environment into our pricing strategies.”

 

 

Pentair (PNR) CEO Randall Hogan says the company saw  a significant slowdown in all parts of their business  

“We do not see this to be a Pentair specific issue as this broad-based decline was across virtually every business, every geography and every market.”

Pentair CFO John Stauch says he sees deflation in his sector

“I think clearly global commodity prices are not increasing.  We don’t want to use the word deflation yet but it feels like we are heading a little bit more into deflation area environment and so we are put our main suppliers on notice that we all have to work competitively to reduce our cost structures.”

 

 

iRobot (IRBT) CEO Colin Angle says robot vacuuming is becoming more of a substitution to traditional vacuuming 

“I think that one of the driving factors is the demand for robot vacuuming is showing very strong continued signs of growth, so that we have an underlying improvement in demand for our products. The robot vacuuming is becoming more and more mainstream. The skepticism, barriers to purchase continue to be reduced. And I think that our marketing programs continue to improve and as we more efficiently learn how to speak to our customers.  We believe that we’re approaching a mainstreaming of robot vacuuming, where our household penetration is still quite low relative to where we believe it’s going.”

 

 

MarketAxxess (MKTX) CEO Rick McVey says his firm is taking market share from clients who traditionally call a banks sales & trading desk to buy or sell bonds   

“Accelerating market share gains across high-grade, high-yield emerging market and euro bond products drove our record results. Our estimated adjusted U.S. high-grade market share was 15.6% for the quarter up from 13.4% a year ago.”

 

 

Bank of New York Mellon (BK) CEO Curtis Farrell says the firm is leveraging technology to increase efficiency on a profit per employee basis    

“Our goal as part of our business improvement process is to drive down the labor component of our company and use technology as the strategic asset. So, one of our goals is to get to revenue per employee up, the employee expense down and use technology as a strategic asset to get there. So clearly part of our plan is to reduce that employee headcount per revenue.”