Miscellaneous Earnings Call Notes 11.5.15

Colgate-Palmolive’s (CL) CEO Ian Cook on Q3 2015 Results

Have seen a decline in private label

“At the same time, we’ve seen a decline in private label shares in many of our categories indicating the consumers preference for branded products and respect of our equities.”

Anheuser-Busch InBev’s (BUD) CEO Carlos Brito on Q3 2015 Results

Big change in the Chinese economy towards consumption

“I think what’s happening in China at this point is that there is a big change from an economy that was all lead by exports and heavy investments in fixed assets, okay that generates a lot of blue-collar work or jobs to now an economy that’s much more service and domestic oriented economy. So more consumption, more consumer spending. So that of course, in the midst of this change, we see that in the Southeast, where some years ago there was lack of blue-collar workers and now there is too many of them. So there is a shift in there and I think that’s what the segments are showing us. But the segments that are more high priced are growing ahead of the ones that are lower price. And that’s exactly where we have most of our business and most of our brands position. So I think this change, while it may be bad for the industry, is not bad for us.”

PriceSmart’s (PSMT) CEO Jose Luis Laparte on Q4 2015 Results

We do have a soft economy in Columbia right now

“We do have a little bit of a soft economy right now, driven by the devaluation and other factors in the country. But we still are pretty optimistic about Columbia, and we haven’t reduced our efforts.”

Phillips 66’s (PSX) CEO Greg Garland on Q3 2015 Results

We see that the consumer side of China is doing very well

“we’re continuing to see good demand in Asia and across the system globally. So I think our view is demand is good. China is particular interest I think largely because of the reported numbers that what we see on both fuels and chemicals tells us that the consumer side of China is doing very well.””

By 2017/18 we’d expect not to be in a $50 crude environment any longer

“I mean our view consistently remains by 2017 and 2018 that really sort itself out and we are probably not $50 crude environment but we are probably not $100 but somewhere $60, $70, $80 in that range.”

Greenlight Capital Re’ (GLRE) CEO Bart Hedges on Q3 2015 Results

-16.9% through October

“The Greenlight Re investment portfolio lost 14.2% in the third quarter, bringing the year-to-date return to minus 16.9%.”

Brought next exposure up slightly during market sell off in August

“We reduced our gross exposure by 30 points in the quarter. Our net exposure increased slightly from 21% to 26% as we covered several shorts during the market sell-off in August. We continue to hold macro positions including gold, short Asian currencies and short French sovereign bonds. Overall, it’s been a challenging environment. We’re optimistic that we should get some recovery from our beaten down long portfolio.”

The Sherwin-Williams Company’s (SHW) CEO Chris Connor on Q3 2015 Results

Volume demand lagged initial expectations in virtually ever market we serve

“Volume demand lagged our initial expectations for the quarter in virtually every market we serve, but we remain focused on delivering positive results regardless of the demand environment.”

Continue to see deteriorating demand outside of NA

“We continue to see deteriorating demand for our product outside of North America.”

Banco Santander-Chile (BSAC) Q3 2015 Results

Economy has done better than most regional peers

“Segment [ph] in the corporate sectors continue to contract, but given the diversity of Chile’s economy and the fact that the average GDP growth of Chile’s main trading partners is relatively high, the economy has done better than other regional peers.”

No deterioration in asset quality

“In terms of evolution of asset quality, we think that the aligned trends are generally positive, especially in the consumer side, in the mortgage side and in the mid-size market. We haven’t seen any deterioration. ”

CBS (CBS) Leslie Moonves on Q3 2015 Results

Advertising is coming back in a big way

“advertising is coming back in a big way at CBS. Underlying network advertising was up 8% in the third quarter with strong growth in primetime, double-digit growth in sports and daytime and huge growth in late night, which was up 42%.’

The dire predictions of cord-cutting are overblown

“I think we’re all seeing that the dire predictions of cord-cutting are overblown, but the good news for CBS is, no matter where distribution goes, no matter how or where you want your content, we are in a perfect position. ”

There can never be too much content

“we are a content company, we believe the world can have more content, we don’t believe the guy who says oh, there’s too much content. There never can be too much content and we want more of it.”

Activision Blizzard (ATVI) Robert A. Kotick on Q3 2015 Results

Comparing King to Blizzard

“When we merged with Blizzard Entertainment, we found the right partner with extraordinary leadership. And when others dismissed the sustainability of Blizzard’s incredible capacity for innovation, we were certain patience would be rewarded. And it has. We see a lot of the same characteristics today in King. We think now is the right time to enter mobile gaming in a meaningful way. ”

Third Point Reinsurance’s (TPRE) CEO John Berger on Q3 2015 Results

Third Point owns Argentine debt

“Sovereign credit was up 3.1% on average exposure during the quarter, due to strength in Argentinean government debt the largest position in our credit portfolio. We’re looking forward to the run off Argentinean presidential election next month and we’ll be pleased with the victory from either candidate.’

Michael Kors Holdings (KORS) John D. Idol on Q2 2016 Results

Warm weather bad for seasonal items. Watch business still under pressure

“We saw accelerated growth in footwear, although the warm weather tempered boot sales in the quarter. The watch business continues to remain under pressure in retail and wholesale. ‘

Trend has been towards smaller handbags

” the idea that people are not buying handbags, I do not believe is a correct concept. They happen to be the fashion trend of smaller bags, so if we were selling x percent of $350, $400 and $500 handbags at this time last year we were selling less of those because we were selling a lot more in particular across bodies and large wallets. And that is what the consumer in particular the millennial is viewing as a fashion trend.’

All of us are now being impacted in parts of Texas because of oil prices

“all of us are now being impacted in parts of Texas because of oil prices there, that’s a little bit less tourist, but some of it’s related to the Mexicans shopping cross-border with the peso to the dollar.”

Time Warner (TWX) Jeff L. Bewkes on Q3 2015 Results

Programming is the most significant area of investment for the company

“Programming remains by far the most significant area of investment for the company. As you all know, we have plans to invest aggressively in content in 2016 and beyond.’

Stratasys (SSYS) David Reis on Q3 2015 Results

Excess capacity created by extraordinary expansion in 2014

“We also believe the situation has been worsened by the negative impact of excess capacity that followed the two-year period of extraordinary industry expansion that ended in 2014. Reflecting the low visibility of the current market environment, expected orders did not materialize as expected at the end of the quarter.’

Focused on adjusting the cost structure of the company to fit customer demand

“what I can tell is that we are taking very seriously the change in the business volume that we see in front of us and we are dealing with adjusting the cost structure of the company, the entire cost structure of the company not only MakerBot, to fit through what we see today in the market in terms of customer demand.”

Douglas Emmett’s (DEI) CEO Jordan Kaplan on Q3 2015 Results

Seems like occupancy is being driven by much stronger tenants

“I would say that, what’s driving — what’s going on here right now is a much stronger and wider base than what was driving the run up in ’04, ’05, ’06 and ’07. It’s way more comfortable, a way better percentage of kind of expenses for the tenants. The tenants are very — we’re seeing strong balance sheet and good credit. We’re seeing a good diversity of industries. You’re not seeing like a heavy lean on, I remember before, it was the mortgage — these mortgage guys were taking huge chunks of space”

“the strength in this market, all seems really healthy going to just literally more functional space for our tenants, as opposed to some of the tenants before that were literally just space grabbing and whether it be a big dotcom guy that didn’t exist a year ago and all of a sudden now needs 50,000 feet, 100,000 feet. What’s going on now seems a lot more comfortable and it’s backed by much stronger, more established tenants.”

Annaly Capital Management’s (NLY) CEO Kevin Keyes on Q3 2015 Results

Continued improvement in CRE fundamentals in the US

“The third quarter saw continued improved in U.S. commercial real estate fundamentals with healthy demand across all property types. Vacancy rates across all asset types declined compared to last quarter, with office and industrial continuing a trend of 22 consecutive quarters of positive demand.”

While the pace of CRE asset sales has slowed, we don’t see this as a weakening trend

“While the pace of sales has more recently begun to slow down 10% in September, we don’t see this as a weakening trend, as large take-private transactions continue to be announced with private equity taking advantage of the discount between listed markets and asset values.”

CMBS spreads have moved wider, but cap rates have not yet moved higher

“Spreads, however, have a continued widening that started this summer, with AAAs now at about 120 basis points, 32 basis points wider than at the beginning of the year and 34 basis points wider than this time last year. In addition, BBBs are almost 200 basis points wider than this time last year. While, this type of rate expansion is significant, we have not yet seen cap rates move higher. ”

Annaly 2Q15 Earnings Call Notes

Optimistic that the long overdue change in policy will come

“We remain optimistic that the long overdue change in the monetary policy landscape is in the offering. We are encouraged by the strength in the labor markets, recent stability in inflation indicators and the generally stronger economic growth, that in our opinion, solidly supports an adjustment of the zero balance by the Federal Reserve later this year.”

Fixed income markets have experienced significant volatility

“As we have all witnessed, fixed income markets have exhibited significant volatility over the past quarter, as interest rates increased and spreads widened across a wide spectrum of fixed income assets.”

Do expect a hike this year but slow pace of liftoff

“we do expect the first rate hike to occur later this year, but as we have stated previously, we anticipate that the pace of Fed tightening will be very gradual given the slow growth of the inflation backdrop.”

We are less concerned about a significant rate sell of than we were earlier this year

“we are less concerned about significant rate sell-off now relative to earlier this year when the 10-year note was yielding inside 2%.”

Hired a team from GE Capital

“In addition, as we previously announced earlier in the second quarter, we added a significant amount of talent to the commercial team to help continue to grow the business. Specifically, we hired Jeff Thompson as a leader in our group and added five members of his investment team from GE Capital.””

[Analyst comment] about change in CEO

“Kevin, if you don’t allow Wellington to have some influence in your opening comments going forward, our lives will be a little bit less interesting going forward.”

Annaly 1Q15 Earnings Call Notes

Policymakers have been very successful in creating both debt and equity market bubbles

“Despite their noble efforts, I believe policymakers have failed to foster the conditions for a credible sustained recovery. They have, however, been very successful in creating both debt and equity market bubbles, however reliant they may be on zero interest rates.”

Wages have not kept pace with asset price appreciation

“Since 2009 when the experiment began, global bond markets have increased in value by roughly $17 trillion, or the size of the U.S. economy, while global equity markets have increased in value by a staggering $40 trillion. Yet the American wage earners have gained a relatively paltry $722 billion in comparison during the same period. Or to put it more clearly, for every dollar gained by the American worker, the global equity markets have the gained $55.”

Policymakers will need to maintain their monetary stance for longer than desired to avoid asset price deflation

“I understand the need to inflate away the previous cycles over indebtedness. But I fail to see how encouraging greater indebtedness at inflated asset prices will translate into future sustainable growth. Unfortunately, if policymakers truly hope to avoid the negative economic menace of asset price deflation, they will need to be in a position to maintain their easy money stance for longer than they currently desire.’

So called free markets

“We look forward to the day the central banks permanently retreat from actions that distort the so-called free markets.”

Fixed income markets have exhibited significant volatility

“As we have all witnessed, fixed income markets have exhibited significant interest rate and spread volatility over the recent past given the debate over the timing of Fed lift-off amidst continued global central bank stimulus and its impact on U.S. markets.’


“Regarding our market views going forward, we do believe that the Fed will raise rates later this year but we expect the pace of Fed hikes will be very gradual, consistent with current market expectations. Agency MBS spreads are likely to remain somewhat tight given continued demand for the sector and again we are considering the possibility that rate volatility may persist and, as such, we expect to continue to operate with lower leverage over the near term.”

We have to make sure our liquidity is liquid

“we’re mindful of trying to make sure the composition of the portfolio is as liquid as it can be. And one of my sayings is make sure your liquidity is liquid. And what we try and do is make sure whatever vehicles we’re using to hedge or whatever vehicles we’re using to offset potential moves in interest rates, we want to make sure that we are thinking about holistically in what kind of response the market will have as things start to change.’

Annaly 4Q14 Earnings Call Notes

Each week I read dozens of transcripts from earnings calls and presentations as part of my investment process. Below are some of the most important quotes about the economy and industry trends from the transcripts that I read this week. Full notes can be found here.

Fed Governor says: no sign of bubbles

“When a Fed Governor was asked recently if he saw any evidence of an obvious bubble, he replied and I quote “I don’t think there is anything on the scale of the housing or internet bubble right now. The only candidate is bonds, government debt, and other kinds of debt. But I am not counting that, I guess because that’s us”.”

We always think we’re sophisticated and our predecessors naive

“As if often the case with humanity, we fancy our present selves as the most intellectually sophisticated and tend to look back upon our predecessors as somewhat naïve in light of our current knowledge base. There are certainly good reasons for that attitude, here are a few examples. Up until the late 1800s bloodletting was a popular prescription for many ills, in fact George Washington was reportedly a huge proponent and after awakening with a bad sore throat he asked to be blood let. During the next 16 hours five to seven types of blood was drained from his body, four days later he was dead.

Before microscopes and cell theories, many scientists believed in spontaneous generation as the explanation for how life arose. Right up until the 19th century scientists still believed in it and some even wrote recipes for making animals. One such recipe called for basil placed between two bricks and left in sunlight to produce a scorpion. It wasn’t until 1859 that Louis Pasteur finally put the popular belief to rest. I mention these extreme examples of our lack of intellectual sophistication to emphasize how wrong humanity can prove to be with the benefit of time, discovery, and hindsight.”

History is littered with long standing theories…

“History is littered with long standing theories and beliefs that ultimately prove incorrect. My hope is that as policy makers of the world continue to prescribe their remedies for the ailing economic patients that they do not render it worse off. As with their predecessors, I suspect that there is no doubt in the minds of our central bankers that they are the smartest they have ever been. Yet I fear that they are not the smartest they will ever be.”

We expect more consistent volatility

“Our current view on the next four leading up to June and the potential Fed lift off and for many months to follow quite frankly is that more consistent volatility will return to the markets we operate in.”

We’re positioned for volatility

“I will put it simply, volatility equals opportunity for Annaly. Given our size and liquidity we are prepared to be opportunistic during windows of cheaper pricing for our targeted assets. Our current leverage ratio now is 40% below the industry average. A level we expect to increase when clear relative value opportunities present themselves. One term leverage at today’s spreads can produce approximately 15% of incremental annual earnings for our shareholders.”

We don’t care when the Fed does it

“The timing of the Feds lift off does not preoccupy us. We have maintained our conservative posture as a competitive advantage. We believe this conservatism which has been ignored during the relative calm over the last few years will be rewarded as volatility means something once again in the market.”

The expectations for the pace of tightening are not as aggressive as they were

“rates certainly are lower and the expectations for the pace of tightening is not as aggressive as it was before but nonetheless we do think that the tightening that is priced into the market is we would say not overly aggressive. If anything we think it will be slightly less aggressive than that which is priced in.”

Mortgage spreads usually do widen in flat yield curve

” typically mortgage spreads do widen in a flatter curve environment and we expect that that will be the case as well.”

Annaly Capital 4Q13 Earnings Call Notes

A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

Not a good year for the mortgage REIT

“2013 was not a good year for the mREIT. A cloud of uncertainty surrounding the timing and magnitude of the Fed pullbacks from the market and the potential impact that would have on book value plagued the sector for most of the year.”

Focus shifting to Fed policy

“With tapering underway, monetary policy will now center on the forward guidance of the Fed fund’s target rate. The focus will remain on the timing and magnitude of the potential change in the cost of carry.”

mREITs are kind of like inverse floaters

“I think of the mREIT sector broadly as a type of inverse floater. When short rates rise generally earnings go down. With an inverse floater when LIBOR rises the coupon goes down.”

Never seen this type of stimulus before

“this economy has never gone through a period where you’ve had this level of stimulus injected and then slowly removed. So I do think that there is no precedent for what aspect of the economy has been supported by this tremendous amount of liquidity that has gone in. I mean we see it directly in the mortgage market but it has trickled through to a lot of other sectors of the economy and helped out.”

supply of new mortgages will be low

“over the near-term when we look at the supply projections both gross and net supply, we obviously are going to be in year where supply is relatively low.”

Fed wil still be soaking up a lot of agency supply this year

” think when we look at what actual net supply or growth of the agency MBS market will be this year, most estimates have it ranging from about $100 billion to $150 billion in net supply. The Fed even with the taper will absorb that much supply in the first four to five months of this year”

Fed’s purchase of MBS has removed negative convexity from the market

“They’ve removed a lot of negative convexity for the market — from the market and when we look beyond even 2014, the cost associated with hedging MBS for MBS holders will be relatively lower even beyond the exit of the Federal Reserves.”

Lots of beneficiaries of stimulus that will have to deal with the reduction

“here has been a tremendous amount of beneficiaries from this policy that whether you look at stock market or you look at the housing market, or you look at the economy in general, that we will have to deal with a reduction in that stimulus. And none of us have ever dealt with that. Our economy has never dealt with the type of stimulus withdrawal that we’ve just been through”

Fed rate guidance more important to us

“Now with that said, the forward guidance in the low rate policy out of the Fed is much more meaningful to a position that carries assets via short-term interest rate. So as much as they — I think they will continue to taper come hell or high water but with respect to the Fed fund’s target I think that’s another story altogether. ”

We’re being opportunistic as the 2/10 spread widens, there will be volatility but rates not going to 4 in a straight shot

“I just want to let people know that we are going to be opportunistic when we are evaluating the market that 2/10s this time last year was around 160 versus 240 today, yeah do I think the long end is going to bear some volatility as the reality of this tapering sets in? Absolutely. But do I think we are going to have a straight shot at 4% on 10, no looking back and this economy is going to be just fine with it? Absolutely not.”