Miscellaneous Earnings Call Notes 10.28.16

SunTrust Banks’ (STI) CEO Bill Rogers on Q3 2016 Results

Regulatory and compliance costs are not likely to abate

“But in terms of overall regulatory and compliance costs, if I look forward, John, I don’t think that in the short- to medium term I would think of regulatory costs in general abating or declining. I think we’re in an environment, where we would expect regulatory and compliance costs to be generally stable or increasing over time. And just the environment that we’re in, I don’t see realistically that anybody in the industry is going to see regulatory and compliance costs fall off.”

Potlatch Corporation’s (PCH) CEO Michael Covey on Q3 2016 Results

Eric Cremers

No rollover in land pricing

” Pricing remains firm. There is a lot of money on the sidelines looking to invest in the asset class. People have an expectation that prices will move higher over the next several years as we continue with this housing recovery that generally gets built into the models that are used to value timberland. And in a low interest rate environment high timberland prices are supported. So we’ve not seen a rollover in timberland pricing at all.”

Lumber prices well supported here. Moving from mid to upper 80s capacity utilization”

” As I think Jerry mentioned in his opening remarks, we might see a real slight rollover in lumber pricing in Q4, and that’s consistent with what the external pundits are forecasting maybe 1% or 2% rollover in pricing. You know generally speaking markets are well balanced, our order book is solid. As you know we sell forward our lumber production. So we’re out into the first or second week of November at this stage. And so we feel very good about where lumber markets are at, at this stage of the game. Just the general backdrop here, if you think about it, we’ve got demand, which has remained strong. Of course the housing market data, there is starts data is volatile from month-to-month. But generally we’re seeing starts increase, we’re seeing strong R&R repair in the model activity, and we’re seeing strong commercial and industrial activity as well. And with industry wide capacity utilization now moving up from the mid to the upper 80s and supply-chain inventories as Mike had mentioned remained very well, we think, lumber prices are well supported here.”

Brown & Brown’s (BRO) CEO Powell Brown on Q3 2016 Results

Hurricane Matthew will have little impact on rates

“We believe Hurricane Matthew will have limited impact on rates, if any. There will be more discussions around flood and wind deductibles, rate for cat property continued downward affecting retail, wholesale, and national programs, and that will continue into Q4 and into 2017.”

Honeywell International’s (HON) CEO Dave Cote on Q3 2016 Results

A favorable setup for 2017

” Darius and Tom will provide more details about 2017 during our annual outlook call in December, but we have a favorable setup. The fourth quarter momentum continues, our long cycle businesses are improving and our inflections start to kick in.”

Tom Szlosek/Dave Cote

A salesperson isn’t productive in his first year on the job

“A salesperson really isn’t productive enough in his first year on the job, so we have to ensure we have enough sales employees in place today to support tomorrow’s business… when you hire salespeople there’s training and familiarization that has to go on. So they’re not immediately productive. It’s the sort of thing that shows up in the future.”

Heidrick & Struggles International’s (HSII) CEO Tracy Wolstencroft on Q3 2016 Results

Rich Pehlke

Improvement in September/October

“we can’t really point to one thing because as we saw July and August kind of soft we really did worry a little bit about was it a sign of some kind of a cyclical trend or a movement but you know September bounced back pretty well and so – and as we talk to our folks and see what’s out there and see how October is progressing. You know there is nothing we can really point to that says that you know there is one – there is one driving factor. So whether or not it could have been client decision caused by things like Brexit et cetera certainly is certainly one of the factors that would have fallen into play but there isn’t any one thing that we can put to, and I don’t know if you want to leverage.”

Zions Bancorp. (ZION) Q3 2016 Results

Harris Simmons

It was a softer quarter for C&I loan demand than we would have hoped for

“I think that’s consistent with what we saw during the third quarter. The third quarter has generally been a softer quarter. You get kind of the summer vacations and everything else baked into it, but this was softer than I think we would have expected. And so we’ll see what happens through the remainder of the year. But it was a softer quarter in C&I than we would have hoped for.”

Brinker International (EAT) Q1 2017 Results Wyman T. Roberts – Brinker International, Inc.

Challenging times across casual dining

“Just as we said last quarter, these continue to be challenging times across casual dining. We’re already seeing some of the weaker players struggle with their viability in this choppy environment. ”

There are some examples of concepts that are shrinking

“We don’t have great metrics around capital spending in the category. But there are some examples of concepts that are shrinking. And in some numbers that are reasonable, we’re talking now in tens and hundreds. So that does make a difference. We’re also hearing from some competitors a dial back, which I think is again encouraging that people are starting to say, hey, listen let’s address the overcapacity and slow things down a little bit. And I heard something recently from a competitor that the expectation was that would also maybe take some of the steam off some of the real estate market, which has not really come back in our opinion kind of represented the softer overall economic situations out there. Still paying a pretty good premium in this environment we think for real estate. So all of those things I think bode well for getting the economics right and getting the supply and demand situation more in line”

United Technologies (UTX) Q3 2016 Results Gregory J. Hayes

China Otis sales down 10%

“We also continue to make good progress at Otis. Our China new equipment orders and units were up 2% in the third quarter and 3% year-to-date. This is in the face of an overall market, which is down more than 5%. I would remind you though, the pricing pressure remains intense, so despite unit orders being up, new equipment orders on a sales basis in China were actually down 10% in the quarter. A tough market right now, but we remain focused on increasing our installed base and converting those units into our service portfolio, which will deliver recurring revenue for decades to come.”

Have seen a slowdown in construction activity in UK

“In Europe, we have seen a slowdown in construction activity in the U.K., we think as a result of the Brexit vote, but the rest of Europe appears to be improving slowly, more than compensating for the slowdown in the U.K.”

Freeport-McMoRan (FCX) Q3 2016 Results
Richard C. Adkerson

It’s clear there’s going to be a need for copper

“Is just, unless you see the world really turning upside down economically, it’s clear that there is going to be a need for copper that’s going to require a significant price increase to justify the spending, and that’s why we feel very good about our long-term strategy.”]

C.H. Robinson Worldwide (CHRW) Q3 2016 Results Andrew Clarke

Carriers raised rates when Hanjin filed for bankruptcy

“Hanjin filed on August 31 and what happened shortly thereafter is the other carriers that remained in the Trans-Pacific eastbound lane began to raise rates. I think what happened then shortly thereafter was that they doubled them. They were up as high as $750 as I mentioned earlier, $750 to $900 a box. Now, we weren’t able to immediately pass those rate increases along to our customers. As I mentioned, our account managers are out there right now having those discussions with our customers to reflect the rates that are now in place in that trade lane. We would expect the impact to trickle into the fourth quarter, but not much beyond that.”

Applied Industrial Technologies (AIT) Q1 2017 Results
Neil A. Schrimsher

October a little softer than September

” I’d say on our sales per day trends – did include expected seasonal softness in July with improvements then in August and even stronger in September. Order trends for October, as expected, developing a little softer than September. However, we still have a handful of days to go. And I’d say year-over-year October is just kind of down low single-digits, which, again, is what we expected looking at the comparables. And, again, that’s got still a handful of days for us to positively impact it.”

Mark Eisele

Foreign exchange rate impact down to zero

” That’s exactly the expectation. If you look at foreign exchange rates, let’s say, for September and if those would stay relatively stable through December, when we look at our overall sales, we would expect to have a 0% impact of currency translation in the December quarter. Then if you keep going on through the rest of the fiscal year, you’d actually see a small positive impact probably in the March quarter and then more flattish in the June quarter. So, our view is, for the entire year, we may end up at virtually zero on FX. Obviously, it depends upon how the rates move from today forward, but that’s our perspective. We’re seeing some stability.”

Range Resources (RRC) Q3 2016 Results
Jeff Ventura

Supply and demand for gas could be more balanced into 2017

“On a macro level, there are signs that later this year and into 2017, supply and demand will be more balanced and pricing could improve. We expect natural gas production in the U.S. to continue declining for the remainder of the year. Based on available data, it appears 2016 will be the first time that natural gas production will decline on the year-over-year basis since 2005. This supply decline is happening while demand for natural gas is increasing, driven by Mexican exports, power generation and LNG exports. Looking towards 2017, the NYMEX Strip has moved above $3 and we think it can continue to climb. Based on where strip pricing is today, we believe that we can grow the combined company at 33% to 35% for 2017. This equates to an organic growth rate of 11% to 13% for 2017, coupled with the full year of the North Louisiana division versus roughly a quarter in 2016. Importantly, this preliminary plan for 2017 also results in strong growth for 2018, assuming a $3.25 per mcf and $60 per barrel, we are projecting that we should achieve organic growth for 2018 of approximately 20%

Potlatch 1Q16 Earnings Call Notes

Potlatch Corporation’s (PCH) CEO Mike Covey on Q1 2016 Results

Sold 172k acres in Central Idaho for $114m

“We announced this morning that we have sold 172,000 acres of timberlands in Central Idaho for $114 million. As many of you know, Central Idaho is our realized strategic timberland holding based on productivity and location.”

Norther Idaho generates $117 EBITDA per acre, which is 5x central Idaho

“In addition, the truck-haul distance is shorter in Northern Idaho which results in much higher stumpage values in Central Idaho. For these reasons, our Northern Idaho property generates a $117 of EBITDA per acre, which is over 5 times that of Central Idaho.”

Northern Idaho appraised at $2000 per acre

“As you know, we had an appraisal completed in 2012 when log prices were much lower that concluded the 352,000 core acres of our ownership in Northern Idaho were worth of $2,000 per acre.”

Eric Cremers

We had seen a nice run in lumber prices our expectation is for modest gains going forward

“we had seen a real nice run in lumber prices. Our expectation from here is for continued very modest gains in pricing. We are not really yet to the heart of the building season and with the U.S. dollar continuing to be relatively weak, we think that bodes well for the future.”

Dealers have learned to operate with low inventories

“It’s hard to get good data on where things stand out in the distribution network. Our general feeling is that dealers have learned to operate with very low inventories. It’s more of a just in time kind of a business. So any change in the outlook or demand or lumber or housing starts, shows up very rapidly in the form of price increase or decrease. So I think it’s fair to say that that inventories are – they’re relatively low levels. “

Potlatch 4Q15 Earnings Call Notes

Potlatch Corporation’s (PCH) CEO Mike Covey on Q4 2015 Results

Lumber prices hurt by strengthening dollar

“Lumber prices were hurt principally by our strengthening U.S. dollar which has gained 43% against the learning [ph] since January of 2013. To a lesser degree, weaker from China and a modest growth in the U.S. housing market also put pressure on lumber prices. As a result, our average lumber price realization dropped $56 per 1,000 board feet and EBITDA for the Wood Product segment dropped $56 million year-over-year.”

Trying to arbitrage the high private market values of land vs the deep discount that our stock trades

“we are actively pursuing opportunities to take advantage of the arbitraged between high private market timberland values and this deep discount in which are stock currently trades in the public equity market. Hence we have shifted from being a buyer of timberland to a seller with intend of using sale proceeds before successful to repurchase our share and reduce debt. ”

We think our stock is at a 40% discount to NAV

“Our stock is currently about 40% lower than analyst’s estimates of NAV are roughly $900 per acre. The resent market volatility and the further decline in our stock prices only increased our conviction at ours that this is an attractive strategy.”

Their assumed value per acre

“our arbitrage opportunity really comes from the fact that I think the stock is trading at around $900 an acre for the company and we think Southern timberland is worth as I said $1,700 to $2,000 an acre and our Northern Idaho timberland we think it worth $2,000 an acre. So there is the arbitrage opportunity.”

Jerry Richards

There are lots of reasons to be optimistic on lumber prices this year

” if you look at the demand factors that are out there, I mean we are talking about higher housing starts, we are talking about improved repair remodel markets, we’re talking about non-residential construction doing well. The only think that’s really holding back the industry is weakness in China which ultimately is causing the Canadians to push lumber away from China towards the U.S. That’s the only real negative factor. But if you collectively take all those things into consideration, there is reasons to be optimistic. And we’re talking about 5% improvement in pricing year-over-year and that’s right in line with where the fund it’s forecasting as well.”

Eric Cremers

A little early to say whether we’ve seen prices turn yet

Yeah, so I would say we’ve seen pickup in pricing yet, it’s still too early in the year George. I wouldn’t expect to see it frankly until we get out into maybe mid-February. It’s now like you can pinpoint one day and say okay, this is the day that the prices turns. So far no, we’ve not seen prices turn.

Potlatch at UBS Conference Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

“if you follow the industry, you are maybe you familiar with this issue. British Columbia is an important producer of lumber to the industry not just for North American demand but also for Asian demand, particularly China. The mountain pine beetle has decimated the forest in British Columbia and the trees are basically dead…oughly 20 to 25 large saw mills that will be closing in British Columbia. These are big mills, these are not typical small mom and pop mills that you might find in the U.S. These are large mills, and so when they comes down, there will be less supply coming out of British Columbia, which ought to help the outlook for the industry.”

“A lot of the lumber and logs that the [Chinese] are buying from North America are used for construction. It’s not for the construction of the single family home, but it’s used for the construction of concrete warming for large urban building or condominium building and in any given year, the management try to maybe a little bit higher or a little bit lower but nonetheless, very significant. And the simplest way to think of it that the takeaway from North America today is roughly the equivalent of 600,000 to 800,000 U.S. housing starts. So you think about housing starts in the U.S. collapse so less demand for wood. Well, China has really stepped in the plates here to absorb a lot of that capacity.”

“back in the early 2010, you can see both lumber and power prices went to the roof that was due to extraordinarily wet weather down in the south, or it’s going to receive shortage of logs because we stop to harvest when the ground is too wet.”

“A lot of dealers in the U.S. build up inventories in anticipation of a strong home building season while we did see a pretty strong home building season so maybe not quite as strong as they had hoped. So prices rolled over”

“it’s not easy to get that late capacity to come back on line again, there is somebody that recently bought a mill in our operating area down in our Arkansas and they said we are going to get this mill back up and running again. And the question was asked when do you expect to start this mill back up again and they said December of 2014. So it’s going to take them almost a year and half to get this mill up and running again, and if you think about it and we are just mills and sitting, they are not running for four years is probably, the machinery is probably gotten rust, you have probably lot of motors that need to be replaced certainly the blades and the saws have to be sharpened, you got to find the employees, skilled labors scattered in the recession oil fields. So I think it’s a lot harder to get these mills back up and running than we might think.”

“certainly there is a lot of chatter about new mill construction. [Postner] has said they are going to build some 700 million square foot two mills in the South. There is talk of that sort of thing, but when does that capital actually get invested, when does the plant gets build, and when it starts production. It’s a long time into the future. So I think people are scratching their heads right now trying to figure out how to get capacity up in south and sorting through the various alternatives.”