Fluor 1Q17 Earnings Call Notes

David Thomas Seaton – Fluor Corp.

Lowered guidance

“Let me get started off by addressing the guidance. First quarter admittedly got us off to a slow start for the year on earnings. That and the potential for slow burn on a couple of key projects put pressure on the lower end of our previous guidance range. The upper end of the range would have required new awards coming in at a faster pace than we’ve recently experienced. For these reasons, we have lowered our guidance for the year.”

We continue to believe a gradual recovery is underway

“While first quarter economic data has been relatively soft, we continue to believe a gradual recovery of our markets is underway, driven by improvements in the global economic activity. Some of the leading indicators for future capital spending like industrial production, capacity utilization are improving in several regions and industries, which provides us confidence that our clients are beginning to increase their spending.”

However the lack of engineering awards is unprecedented

“However, the lack of engineering and new awards is unprecedented and lower than we expected to see when we initially issued guidance for 2017 last November. Let me emphasize that we believe that we have good insight into what is coming and that the opportunities remain robust.”

Projects are being pushed out

“In fact, everything is pushed to the right where when you think about the guidance that we set last year in November, we were expecting some significant awards in the third and fourth quarter of last year that would have been really in the peak of burning their engineering scope now. We still are scheduled to put those projects into backlog in the coming quarters but, as you can see, you missed basically three quarters of earnings on those projects, or at least the ramp up, it pushes everything to the right.”

We’re late cycle and this cycle is no different

“Thank you, and thank you to everyone for participating on our call today. As I said, although we’re disappointed on where we are at this point in 2017, all indications are that this is unprecedented contraction in the capital spending of our customers and that it is coming to a close and optimism is there. Our industry has always been a late cycle industry and this cycle is no different.”

General Motors 1Q17 Earnings Call Notes

Mary Teresa Barra – General Motors Co.

Cruise gives us access to world class talent

“We are running our autonomous vehicle program like a startup to give us the speed that we need to stay focused at the forefront of these technologies and the market applications. As autonomous car technology matures, our talent needs will increase, and Cruise’s presence in the Bay Area gives us access to a world-class talent pool. These are men and women who want to be part of a fast-moving technology company that can also manufacture autonomous vehicles in scale.”

Chuck Stevens

Inventory remains heavy

“Shifting to inventory, as I said during the January DB conference and in our recent Office Hours webcast, we expect to build inventory in the first half of the year, which will then decline in the second half, very much driven by product launch cadence and scheduled K2XX downtime. And through the first trimester of the year, we are very much on plan.

Admittedly, passenger car inventory remains heavy and we have been working to bring that down to more appropriate levels by cutting production, and we remain committed to match supply and demand. We expect to end 2017 with inventory in line with 2016 at about 70 days’ supply, with significantly reduced passenger car levels.”

Lance Fritz 1Q17 Earnings Call Notes

Lance M. Fritz – Union Pacific Corp.

Frac sand and coal stabilized

“we’re seeing particular strength in a few markets such as frac sand. Coal seems to have stabilized and we’re seeing some signs of gradual improvement in other areas of the economy.”

See 3% Inflation rate

“a higher inflation rate, which for the full year we still see overall inflation in that 3% range which is obviously is higher than what we ended up with last year.”

We think the administration gets that US economy linked to trade

“in terms of trade overall, our perspective is the following: that the U.S. economy is tightly connected to our trading partners. We understand that open global trade and more markets available to U.S. manufacturers and producers is critical both for jobs in the United States as well as for the economic vibrancy of the United States. We believe that that’s well understood also in our current administration and we believe that while there are opportunities to both enforce existing trade agreements, enhance them and negotiate new ones, that the long-term answer is more markets available to U.S. manufacturers and producers is better than fewer markets available. That’s essentially the pathway towards economic prosperity and job creation.”

Elizabeth F. Whited – Union Pacific Corp.

Seeing substantial increases in demand for Frac sand in Texas

Okay. So, we are seeing substantial increases in demand in Texas, specifically in the Permian Basin. We’d mentioned that we were up 59% in the quarter. We were up almost 100% in the Permian Basin and we’re up around 40% in Eagle Ford. We’re seeing some spiking demand as well in the Niobrara, but not as substantial. I would say that that is sustaining and maybe even growing a little bit as we enter into the second quarter. And I don’t see anything right now that changes that, so that’s been a bright spot for us.

Applied Industrial Technologies 1Q17 Earnings Call Notes

Neil Schrimsher – President and CEO

April down a little from March

“I would say the sales per day trends really improved throughout the prior quarter of January to February, February onto March. April is running positive year-over-year, really in the projected sales range. It is down from the month of March with a couple of days to go, but I would say somewhat as expected considering holiday timing, spring break season so forth.”

Likely inflation but not runaway

“I would say from an year to date standpoint, we haven’t seen so much. We are seeing increases from suppliers. So I think as we work through calendar 2017, we will see a few more supplier increases, and likely have some moderate inflation as we go forward. As we look back at the results and the impact prices it has not been so large, but we think going forward in that time period; it will start to show up more. “

Honeywell 1Q17 Earnings Call Notes

Darius Adamczyk

Slight downtick in animal spirits

Yes, and Joe, maybe just add a couple of comments. I think as you look at our long-cycle business and our backlog, we are fairly encouraged by what we saw, in Q1 backlog being up pretty much for every one of those businesses, and certainly there is a level of confidence in what we’re seeing on the long-cycle.

The short-cycles is a slightly different story and we are positive on that short-cycle too, but if you think about kind of the animal spirits that we saw overall in the markets particularly in the U.S. and let’s say in January versus what we see now, I would say that’s a slight down arrow versus what it was and I think some of that could be reflected in the short-cycle and frankly we’re being a little bit cautions and measured in terms of our outlook and we hope to deliver to the upside of what we stated.”

Nucor 1Q17 Earnings Call Notes

John Ferriola – Chairman, CEO and President

We welcome an investigation into the impact of imported steel on national security

” I have to tell you, we welcome an investigation into the impact of imported steel upon our national security, particularly given that many of these steels are imported illegally, violating our trade laws. And so we’re happy to see this. I think it was a bold move by the President. He clearly set a time frame that’s aggressive and it’s a good thing for the industry.”

Inventory levels are very low

“without a doubt, the inventory levels, as you mentioned, are extremely low. Our sheet products are about 1.8 months on hand. I can’t — frankly, I can’t remember the last time they were that low. Plate inventories are somewhere around 2.3 months on hand, also well under the normal PIV rate. And in terms of the impact or what we’re hearing as to why that’s been happening, I guess, part of it has been that the service center industries have been waiting to make sure that what they’re seeing today in the balance between supply and demand and its impact on pricing is longer term. They want to make sure that this wasn’t one of those short pops.”

Steel use per rig has doubled

“Well, if you take a look at the U.S. rig count, it’s up quite a bit. It’s currently running at about 850 rigs. That’s up from a low in the middle of last year of about 400. So the number of rigs have doubled. And as importantly, the amount of steel consumed per rig has doubled since about 2013. So when you have a situation where you’re doubling the number of rigs and the amount of steel consumed has doubled, that’s a good situation for us. And again, as I mentioned, we’re — we tend to be heavy on hot band, particularly at our Gallatin facility. And Gallatin has always been a big feeder to the OCTG. So we stand ready to supply this increased demand.”

25% of steel is imported…construction is #1 consumer of steel

“Yes. In general, I would have to agree with what you were saying. I will say, though, one point that I need to correct. You talked about basically the steel being cut off from China and Korea and some other — Turkey, some other problem areas. I need to point out that, that is a battle that we’re still fighting. If you look at the import percentage today, we’re probably still having 20% to 25% of the market share supplied by imported products, many of which are dumped products. So we continue that battle. But in general, we take a look at things and we say, “Okay, what’s — where does the steel demand come from?” And at the end of the day, when you look at the United States, construction accounts for the vast majority of steel consumed in the United States followed by automotive, okay, followed by energy.”

Fastenal FY 1Q17 Earnings Call Notes

Dan Florness – President and CEO

Holden Lewis

Industrial production returned to growth

“Industrial production returned to growth with an even stronger showing from key subcomponents like primary metal, fabricated metal and machinery areas that are more pertinent to our business. And this broadening of industrial demand was reflected by the fact that as Dan alluded to the significantly greater number of our stores were actually growing in the first quarter relative to the 53% to 54% pace that had been set through 2016.”

Transportation markets are the only laggard

“here remains a great deal of enthusiasm around oil and gas, and during the quarter the outlook for the general manufacturing space and the construction space also improved even as the quarter we’re on. The only laggard we could see would be manufacturing that’s going into transportation markets, things like heavy duty truck, rail et cetera. But other than that, frankly on the hold customer demand strengthened and broadened throughout the quarter and we remain encouraged about the near-term trend.”

MSC Industrial Direct FY 2Q17 Earnings Call Notes

Erik Gershwind

Conditions remained positive

‘Conditions remained positive during our fiscal second quarter with January building upon December’s return to growth. While February reflected difficult comparison for the same period last year, March’s growth rate picked back up to start the third quarter.”

Growing optimism

“Customer sentiment generally matches what we are seeing from the macro industries across a broad range of manufacturing sectors. The growing optimism in the industrial economy has continued as the outlook has turned noticeably more positive over the past two quarters.”

Orders have begun to turn the corner

“While order volumes are not yet as robust as sentiment, they’ve begun to turn the corner for most of our customers, and this is true despite the lack of further clarity on policy topics such as infrastructure spending, lower corporate tax rates, and a more business friendly regulatory environment. Last quarter, we were cautious not to call December’s improvement a sustained trend. Today, we would. If the indices hold the current levels, we should continue to see improving sales trends for our business.”

Hearing more an more conversation about future price increases

“We are, however, hearing more and more conversation about potential future more meaningful price increases from suppliers. And this bodes well as we look ahead.”

We are coming out of a prolonged industrial recession

“For the past two years, we’ve been operating in a deep and prolonged industrial recession. We view that time to capitalize on opportunities that present themselves only during downturns, to focus on the fundamentals of the business and to improve this company. Along the way, we’ve delivered solid financial results given the environment. We are now seeing things start to turn positive as momentum in manufacturing is building.”

Building optimism, not just cautious optimism

“I would say in general we are seeing a building optimism in our customers. So I would describe it more is building optimism than I would cautious optimism. Look, certainly like everybody else in the country there is somewhat of a wait-and-see approach with respect to the various policy reforms, no question about it. But in general, more and more strengthening, more and more confidence and I think a couple of proof points I’d point to, one would be at the turn of the calendar year, we talked about capital related purchases that generally happens when customers are feeling more optimistic in their business. This quarter, this past quarter Q2, I’d point to you may have noticed, our vending growth contribution spiked up. A lot of our vending is metalworking, production related metalworking items. That started to ramp up. So those are indications to me sort of proof points to support the anecdotal evidence we are hearing from customers that there is building optimism, yes.”

Broad based improvement in sentiment

“the good news here is that the improvement we are seeing in the numbers and in customers sentiment is pretty broad based. So we are finding it across most of our customer types and most of our end markets things are improving.”

Even oil and gas is stabilizing

“I wouldn’t underestimate it is oil and gas stabilizing. Not boom but stabilizing so relative where this economy has been in the last two years. The fact that it’s stabilized and showing signs of life now is a big change.”

Tools are getting used

“I think what you are seeing here is a fairly typical cycle of what happens and when things starting to improve. So end of the year, around the December -January time is the year end tends to be time when if there is more optimism customers will put in machine orders. We saw that and that was the capital related purchases. Once the machine get delivered they need to get tooled up and then they start running so they get tooled up with what Rustom refer to as tooling packages which think that is like a starter kit of tooling, large purchase but tends to be lower gross margin. And tooling accessories like holders and things that hold the tools. Once that happens then presumably these machines are going to start running. And they are going to start consuming tools consumables. And so what you are seeing is so when Q2 it was a spike in capital related purchases. Encouraging sign I mean customers are investing in capital. What you are now seeing and we are seeing it in the spike up in the vending growth contribution is tool starting to get used.”

Price increases would come in the August/September timeframe

“What we are hearing more and more from suppliers, look, they are all seeing what we are seeing which is commodity is recovering from a two year low period, they are building almost all commodities now on a 12 year — a 12 months basis or up and suppliers also looking at and saying demand environment is getting better. So commodity is up, demand environment is getting better. There is more and more talk from our suppliers that they are entertaining increases. Those of have not yet come to market but if they do as we suspect they will that could mean a more robust increase in the future. And that look hypothetically I said on the earlier question could be sooner than the catalogue increase, the typical catalogue increase August-September but more likely than not would be then and if this trend continues it would be a healthier increase.”

Steelcase 4Q17 Earnings Call Notes

Steelcase’s (SCS) CEO James Keane on Q4 2017 Results

Decline in demand for traditional private offices and cubicles

“In the Americas, our project business remains strong with project order growth of 17% in the quarter compared to the prior year. Day-to-day business continues to be considerably softer likely because of the ongoing decline in demand for traditional private offices and open plan cubicles. Customers are shifting can use solutions like our Ology height-adjustable desk inline which delivered strong growth again this quarter.”

New workspaces

“We also believe our customers are looking for more than just trending offices, customers are trying to grow, but the job market is tight so they can’t just hire more people. They need to more fully engage their existing workforce and we know the workplace is strongly correlated with engagement. They want offices that up practically support creativity and innovation by helping their people do their best work. This would be genesis of our recently announced alliance with Microsoft. We’re going to be working together on a couple of fronts to solve the customer issues about how to integrate space and technology to unlock creativity and productivity of people. ”

Thoughts on international environment

“And if you go market-by-market I tell you that Middle East where we’re still feeling the pressures of oil prices. We have some of the larger countries in Western Europe where election concerns and issues in their own countries might be a factor. In the UK, yes our business has struggled and part of it has been because of Brexit, part of it is also things that we’ve addressed that were issues internally before. And I would say that some of the issues that we’re faced we’re hearing about in Western Europe might be related to things going out of the U.S. So there’s concern about exported balances and so on that any time there’s a destruction and a cause for people to lose confidence, we can see that show up in order pattern. So I can speculate that there might have been a factor there related to political and economic and stability, I can’t prove it, I can’t give you any examples for example of any particular customers who chose to pull back, I have many stories like that, which would give me more confidence that we were hearing specific like that. So we’re not hearing that, but we have – we wonder about the same thing you’re wondering about.”

David Sylvester

Growth overall but declines in some verticals

“Turning to vertical markets in the Americas, we experienced growth in six of the 10 vertical markets we track including five with double digit percentage growth rates. This growth was dampened by declines in the technical professional, education, healthcare and information technology sectors some of which reported strong order growth in the fourth quarter of the prior year.”

year over year strength

“Since June, we have talked about the year-over-year strength we were seeing in our pipeline of project activity in the Americas, which continues to reflect meaningful growth compared to this time last year as well as sequentially compared to the third quarter.”

Corning at Susquehanna Conference Notes

Ann Nicholson

Feel good about channel inventory

Yes. Our view of inventory is that it’s going to be healthy coming into the year. So, we look at panel marker, set market, retail in total, entering this year in a healthy position and as we go through this year, exiting relatively at the same range as expressed in forward-looking weeks. Obviously in the second and third quarters, the supply chain builds inventory to get ready for the fourth quarter holiday season drawdown of that inventory. And predominantly the panel marker inventory which is where we have the best line of sight has been pretty consistent. They’ve been running high utilizations and have maintained the same level of inventory now for quite a while. So, I think we feel good about supply chain inventory assuming that retail demand does what we expect this year in total which is up mid-single digits.

End market demand overview

“Yes, so our view of TVs this year is very similar to last year. We expect unit sales to be consistent. So, no unit growth year over year. Maybe a little bit of unit growth. We do expect average screen size to increase by an inch and a half at least, and then that totals to giving you high single digit area growth for TV. Then you click down to the IT market, IT handheld market, pretty much net flat year-over-year. So, some screen size growth, we think tablets shrink a little bit this year, and that gives you a net zero. So, in total, that’s how we get to mid-single digit growth as measured in square feet at retail for the year.”

Try to manage supply tight to demand

“Yes, so Corning manages supply to demand very prudently. You’ve heard us say before that tanks have a long life. So, when you start up a tank, you want to keep it running. It’s a high fixed cost, high variable margin business. So, you really want to have that be a 100% spoken for in terms of demand. So, that’s where we are very prudent. So, we take a long-term view of what demand is going to be. We look out 12 months. We do our estimation of end market expectations.”

OLED vs. LCD in TV

“Yes, so for OLED television today it’s a small market. So, the cut right to the chase. We just don’t see OLED televisions gaining mainstream adoption in the television market. So, OLED you go back to eight years ago, when I first joined IR, OLED television’s promise was richer color gamut, thinner form factor, thinner bezels, low power consumption.

If you fast-forward to today, its proven difficult, yeah, the last one was lower bill of materials costs, if you fast-forward to today it’s been technically difficult to manufacture OLED. So, they have not been able to realize the lower cost. Still very much a premium price over LCD televisions, but in the meantime LCD televisions have improved their color gamut, improved the picture quality, thinner bezels, thinner form factor and for television consumption, people don’t really care about power consumption.

So, you could see why OLED makes sense in the small form factor. Their cost challenges are not as great right. So, they’re more cost competitive with LCD and people do care about the battery life of their device. So, OLED make sense in that small form factor.

But we believe that its difficult because LCDs continue to improve. They continue to reduce cost. They’re getting cheaper every year and to your point, quantum dot definitely expands the color gamut for LCD and we feel like it pretty much can put LCD on par with that picture quality that you find in OLED.

Some people will prefer and OLED picture over LCDs in the television space and so we’ll probably continue to see sales of OLED, but we don’t think it becomes mainstream.”

Gorilla glass in cars

“So I think if you think about it as one chunk of the pie, if you believe that is going to happen, then you say okay well what are the advantages of Gorilla glass in cars? It is definitely reducing weight? It’s reducing weight in the top half of the car. So, reducing weight, making no other changes gives you better miles per gallon. That lighter weight also gets you better performance. So, you go from 0 to 60 faster. I don’t think that Ford Mustang or Supercar GT was interested in improving the miles per gallon. I think they were interested in that car’s performance, right. You’re reducing glass in the top half of the car. You’re lowering the center of gravity. You’re improving its safety and/or improving its performance.”