PulteGroup 2Q16 Earnings Call Notes

PulteGroup (PHM) Q2 2016 Results

Richard J. Dugas, Jr. – Chairman, President & Chief Executive Officer, PulteGroup, Inc.

Land actions are consistent with shortening of positions

Yeah. Megan, this is Richard. I think I can help with that. We view everything we’re announcing today as a continuation and perhaps an enhancement of what we’ve already been doing, which is shortening the overall length of positions that we’re taking on the land side. We gave some good disclosure before that the last several years we’ve been buying much shorter positions. So that continues.”

Robert T. O’Shaughnessy – Chief Financial Officer & Executive Vice President

Decreasing our land acquisition as housing cycle is maturing

“Consistent with Richard’s comments and after several years of significant growth, we expect the rate of growth of our land acquisition spend to slow as we head into 2017. Recognizing that the current housing cycle is maturing, we are decreasing our land investment as a percentage of revenues, and could ultimately reduce the absolute dollars we spend depending upon our assessment of economic condition and their potential impact on the housing industry here in the U.S.”

Ryan R. Marshall – President

Recovery probably still has a few years left

“Government data as of May showing new home sales of 550,000 puts U.S. housing on track to deliver another year of roughly 10% growth. The trend is certainly positive. But after five years of recovery, we still remain well below the 50-year average, which is why we believe the recovery has a few years left. And while there is a lot of noise in the surrounding environment, there are certainly positives to be seen in the underlying economy, the job market, consumer confidence and the low mortgage rate conditions that are important drivers of ongoing demand.”

Demand conditions are stable

“The demand conditions we realized in Q2 are consistent with those suggested by some of the broader housing stats which point to a sustained recovery, but with pockets of stronger and weaker demand, depending on geography and buyer segment.”

Houston still showing great resilience

“Houston is still showing great resilience as demand continues to exceed expectations. Excessive rains earlier in the year have us behind on land development for Houston and Austin, but our teams are working hard to catch up on some of the delays. ”

First weeks of July have shown typical seasonal patterns

“Eric, this is Ryan. What I would tell you is that the first few weeks of July have continued to show typical seasonal selling patterns, and we continue to see local economies drive pockets of strength and/or weakness as we move across the country.”

Miscellaneous Earnings Call Notes

PepsiCo (PEP) Indra K. Nooyi on Q1 2016 Results

It’s a difficult environment indeed

“Most of the developed world outside the United States is grappling with slow growth. GDP growth in developing and emerging markets is also challenged with many D&E markets experiencing significant political unrest and high unemployment. Key energy-producing countries are dealing with significant budgetary gaps; and high levels of local inflation in many of these markets are eroding disposable income and dampening consumer spending. It’s a difficult environment indeed.”

Hugh F. Johnston – Vice Chairman, Chief Financial Officer & EVP

Incrementally less optimistic in South America and Eastern Europe

“I think the two places where we’re probably incrementally less optimistic, number one is South America, not Mexico. Mexico, I think, we’re quite positive on, but the balance of South America obviously is a challenge. And then number two is Eastern Europe. Eastern Europe is obviously continuing to be challenged from a GDP perspective and that flows through to disposable income and therefore to consumer spending on our products. The balance I think were probably roughly in line with where we’ve been.””


Hasbro’s (HAS) CEO Brian Goldner on Q1 2016 Results

Seeing impact from ongoing economic challenges

“While consumer demand remains robust, we are beginning to see an impact on some retailers from the ongoing economic challenges.”

Retailers are excited about toy category

“I would say this is the second year of strong growth year-to-date; we are seeing high single digit growth rates, both in developed economies like U.S. and also throughout Europe. Retailers are very excited about the category, as we continue to have more story driven brands, more integrated play brands and more innovation in the category. Overall, POS was very strong, as I said, but as we’ve noted before, online POS was even stronger, and many additional retailers that have been historically brick retailers are doing a very good job in omni-channel.”


Morgan Stanley (MS) James Patrick Gorman on Q1 2016 Results

Seeing a better turn in markets now

“where are we now? Though it’s impossible to predict the future, we’re seeing a slightly better turn in markets, certainly, in comparison to what was evident at the start of the first quarter, leading into the early days of February. The M&A pipeline is strong and some green shoots suggest the equity underwriting calendar may open up. The S&P level at the end of the first quarter will help with asset pricing in our Wealth Management business, where we continue to grow our lending book and see flows into managed accounts. ”


Brinker International’s (EAT) CEO Wyman Roberts on Q3 2016 Results

QSR is taking share with promotions

“I mean there’s just such a strong value proposition being played out there. And we don’t think that that’s sustainable or it’s a long term issue, I think it’s more of those are limited time offers, but they also are interesting that the QSR category is kind of showing us that they’re rethinking how they deliver value and their value propositions ”


The Coca-Cola (KO) Ahmet Muhtar Kent on Q1 2016 Results

James Quincey – President & Chief Operating Officer

The degree to which our industry was affected by the slowdown in China was worse than expected

“In China, we are adjusting our plans to reflect these realities. China’s macro environment was challenging in 2015, and that continued to be so in the first quarter. While the economic slowdown is not new, the degree to which the NARTD industry was impacted this past quarter was worse than expected.”


Chicago Bridge & Iron NV (CBI) Philip K. Asherman on Q1 2016

Customers aren’t canceling work, just delaying

“I would have to say if there’s customer impact in today’s environment, it has to do with just again a delay in making financial commitments and we’ve seen that. However, we haven’t seen any cancellations in current backlog or in prospective work. So, that’s good. It just seems to be pushing out a little further.”


Knight Transportation (KNX) CEO Dave Jackson on Q1 2016 Results

April has been better y/y

“if I were to look into April thus far, we would say what we have seen so far in April has been more of the same where we’re seen our trucks run a little bit better in terms of miles’ year-over-year and we’re seeing — so therefore we’re seeing decent volumes on a year-over-year basis.”


PulteGroup (PHM) Richard J. Dugas, Jr. on Q1 2016 Results

No V-shaped rebound

“We have believed since the outset of this housing recovery that it would be more gradual than the V-shaped rebound, typical of most housing cycles. Our thesis is unchanged as we expect an extended recovery will continue to unfold for the next several years supported by improving economy, favorable demographics, years of relative under-building and a supportive mortgage rate environment.”

Inventory of available homes remains tight

“The inventory of homes available for sale remains tight in most of our markets; and at least on the new home side it will likely remain that way for a while given the limited supply of finished lots available. ”


Fifth Third Bancorp (FITB) Gregory D. Carmichael

Would grow investment portfolio at slightly higher rates

“So, frankly, if rates were to stay at these pretty low levels, you could expect from us just to reinvest cash flows because the entry points don’t look real good. But if rates were to have a little bit of a sell-up here and present more opportunity, then you would expect our investment portfolio to grow in line with earning assets. But I don’t think you’ll see a lot of movement in the book one way or the other throughout 2016.”


Cohen & Steers’ (CNS) CEO Bob Steers on Q1 2016 Results

The asset management industry is no longer a growth industry

“The simplest takeaway from the letter is that the asset management industry in its current form is no longer a growth industry for a majority of traditional active asset managers. Overcapacity, chronically poor investment performance, high fees, competition from passive strategies, growing barriers to entry for access to distribution and the rapidly growing cost of regulatory compliance, taken together will challenge future growth and profitability for most legacy investment managers. However, we’re convinced that asset managers who are focused on a limited number of historically inefficient markets, with strong brands and track records of consistent outperformance, will be among the relatively small number of big winners.”

Real estate is under-allocated in retirement plans but not among institutional investors

“I would say that large institutions are not under-allocated to real assets. The largest endowments in sovereign wealth funds have had a 10% to 30% allocation to real-assets for some time. However, most of those allocations have been executed to private equity strategies. Where the under-allocation is more pronounced is both in the wealth and what I would call the retirement channel, the fine contribution channel which as you know we’ve been adding to our DCIO team because there’s virtually no representation in the 401(k) market in real assets.”


Reliance Steel & Aluminum (RS) Gregg Mollins on Q1 2016

Rising steel prices for the first time in over a year thanks to positive trade case filings

“for the first time in well over a year, we’ve begun to experience rising metal pricing for carbon steel products as well as stainless steel flat-rolled products. This pricing improvement, which accelerated towards the end of first quarter, was mainly result of the recent trade case filings by U.S. steel producers. We continued to support these trade actions which seem to be having a positive impact on reducing the overall level of imports in the United States marketplace and on metal prices.”

Not seeing anyone build inventory in anticipation of higher prices

“You have to realize that our average order size is about $1,600, so we are dealing with a lot of small to mid-size job shops. That’s probably the vast majority of our businesses is not with large OEMs, and so therefore they are really not buying in advance. We have not seen or heard from our guys in the field that anybody is building inventory in anticipation of higher prices. So I’d have to say basically its business as usual with our customer base and we don’t see anybody really trying to build inventories ahead of price increases.”


Miscellaneous Earnings Call Notes

McDonald’s (MCD) CEO Steve Easterbrook on Q4 2015 Results

Our turnaround is starting to take hold

“I am confident in the actions we are taking and attraction is beginning to take hold. Most importantly, customers are noticing a difference. Our customer feedback systems are showing improvements in many important aspects of the customer visit, including food quality, order accuracy, speed and friendliness.”


Zions Bancorporation’s (ZION) CEO Harris Simmons on Q4 2015 Results

Paul Burdiss

Don’t expect credit deterioration in anything besides energy

Well I mean, I guess the short answer is until we see the non-energy economies start to really fray, but we’re not seeing that we — and I don’t think we’re going to venture a guess as to when the cycle really starts to et cetera, we’ll actually do that but I think suffice to say that at the moment we continue to see improvement and even in markets like, in a market like Texas the non-energy portfolio remains very healthy. We are looking at a lot of indicators in each of those portfolios to kind of watching for problems and so far it is not really showing up.”

Michael Morris

All domains continue to perform well and metrics are all solid

No, I can’t add anything to that, all domains consumer, retail, mortgage, small business, large commercial they all continue to perform well and metrics are all solid.


W.W. Grainger (GWW) Q3 2015 Results

Macroeconomic conditions are well understood

“The macroeconomic conditions faced by our industry in 2015 are well documented and largely understood.”


DuPont’s (DD) CEO Ed Breen on Q4 2015 Results

There is always cost saving

“Look, there is always cost savings. I mean I am a believer that they occur every year in a few percent range, as you keep streamlining your company, I would say. So, you are never done with it.”

Dow is already on IT systems that we were implementing

“we’re on a very fragmented IT system. One of the benefits it looks like we obviously get here with the Dow merger is Dow is on the IT platform that we were going through the global — actually latest revision of the SAP platform”

Fourth quarter was actually our best organic quarter of the year

“It’s interesting to note though that — and I don’t want to say there is a trend here, but our fourth quarter organic revenue was actually our best of the year. We had been running kind of minus 3% through the first nine months of the year and we are minus 1% in the fourth quarter. And if you kind of look at it around the geographies, it was kind of flat in Latin America, flat in North America, pretty flat in Asia and our one down market was Europe which was down about 2%. So, we’ll see how the trend goes here in the first half of the year but that was little bit encouraging that we saw that lift.”


Brown & Brown (BRO) Powell Brown on Q4 2015 Results

Small businesses still trying to understand ACA

“We define small employee benefits as employers with less than 100 employees. For this segment we are continue to see companies be very focused on managing their costs and trying to understand the implementation complexities of ACA, specifically how they manage costs via exchanges and/or private plan.”

Do expect rates to remain under pressure. A lot of activity in M&A but prices remain high

“We do expect rates in ’16 to remain under pressure and are watching the economy very closely for signs of further expansion or contraction. From an M&A perspective there’s a lot of activity out there. We’ve seen a number of announcements in 2015, maybe the most active year of acquisitions ever. We can tell you that prices remain high, some at levels that don’t make sense to us. However, we continue to look for partners that fit culturally and make sense financially”


AK Steel Holding’s (AKS) CEO Roger Newport on Q4 2015 Results

“the steel industry continues to face significant challenges as we enter 2016. These challenges include continued pressures in the global steel industry as the result of the massive oversupply steel primarily from China, that direct and indirectly impact others oversupply in all regions of the world and otherwise AK Steel is not a major player in the oil country tubular goods business, the significant downturn in that market is contributing to the excess capacity in those markets in which we do compete and to the overall steel market. As we have been stating for several quarters now, the steel market in the United States has been flooded with what we believe are unfairly traded imports. While the import levels have indeed began to decline for many of those countries where preliminary duties are being levied, we still face significant ongoing import pressures.”


Tupperware Brands (TUP) CEO Rick Goings on Q4 2015 Results

Turkey very weak

“Turkey, very disappointed. It was down 25% and much like France it’s been heavily impacted by externals, particularly the terrorist attacks, military activity, there is political instability which has just been almost bipolar from the President almost being voted out of office in June to getting a majority back again just over the last two months. So that’s we’ve seen weakened concurrency and there is a lot of change in consumer behavior in spending.”

I might be concerned if I were selling cars in China, but I think we’re ok

“Also I would say in China for all the news you really hear about that, I think if I was selling cars I might be concerned, but at the lower, we’re again a multi-local business, I think we’re in good shape there.”

It isn’t business as usual out there

“we don’t look at it as a crisis but isn’t business as usual out there”


Qualcomm’s (QCOM) CEO Steve Mollenkopf on Q1 2016 Results

Qualcomm talking about strong volumes

“QCT chipset shipments were near the high end of expectations, with low tier strength across OEMs particularly in China, offsetting some weakness in thin modem sales at a key customer. QTL revenues were higher than expectations on strong 3G/4G device volumes and ASPs and we continue to make progress in signing up Chinese licensees, although there is still more work to be done on that front.”

Lots of industries are looking to leverage mobile technology into their products

“At the Consumer Electronics Show earlier this month, it was clear that many industries are looking to leverage mobile technology into their products and businesses are looking to the leaders in communications and computer systems, such as Qualcomm, to make the world more connected and smarter. Our many announcements at the show reflect our progress extending Qualcomm technology into adjacent and new areas, including automotive, IoT and networking.”


PulteGroup’s (PHM) CEO Richard Dugas on Q4 2015 Results

The volatility does change the way management teams think about their businesses at the margin

“All that being said we are well aware of the volatility in the world today. From concerns of our global economic conditions to the swoon in oil prices, to gyrations in the stock market, the day-to-day swings can be violent. The reality is however that we can’t control any of these factors, what we can do is focus on running our business, consistent with the goals we have established and disciplines we’ve demonstrated. This means acquiring well-located communities that we believe can deliver high returns on investment. It also means hedging our bets by using more land options, where possible and focusing in on smaller, shorter duration projects, where we can get our capital back quickly. It also means, not over leveraging the balance sheet and keeping one hand on the lever to slow investment if housing demand begins to change. And finally, it means having the discipline to systematically give excess funds back to shareholders, rather than trying to force investments in the system. ”


Ford Motor’s (F) CEO Mark Fields on Q4 2015 Results

We are a mobility company

“Well to answer your question Joe when you look at where we’re heading we said we were transforming into an auto and a mobility company because it’s really important that we don’t lose sight of our core business as I mentioned on our remarks upfront.”

China is going from an industry led economy to one that’s consumer led

“In China obviously as we mentioned, when you look at the stock market volatility, that’s endemic of the country that’s moving from an investment and industry led economy to one that’s consumer led. And actually when you look at the components of GDP growth there, the services in the consumer portions of that are actually growing while some of the industry ones are coming down and we view that as a good sign.”

Marion Harris

Not seeing any uptick in delinquencies in the US

“Colin, this is Marion. No, we’re really not. I know there is a lot of discussion about this, but with the exception of the trend in longer term financing we’re not seeing any weakness in the consumer alone. In fact delinquencies which are a leading indicator were at an all time record low for us.”


Las Vegas Sands’ (LVS) CEO Sheldon Adelson on Q4 2015 Results

Adelson thinks we’ve seen stabilization in Macau

“We do see stabilization in gaming revenue trends. In the mass gaming segment, our non-rolling drop was down just 1% over the prior quarter, despite new competition that has predominately focused on the mass market. Our VIP rolling volumes were actually up 5% over the prior quarter outperforming the 2% sequential increase in the Macau market.”…”I thought we had either hit bottom in the mass market or we are bottoming out. Ever since I said I’ve been reading the issues, I’m been reading from analyst reports and from other Sands China reports that I get daily, other clippings that people are starting to believe that and some of the numbers put out and experienced through December and January indicate to me that that’s the case.”


Steel Dynamics (STLD) Mark D. Millett on Q4 2015 Results

I think there’s positive momentum

“Well, I think there’s positive momentum, generally. I’m sure Dick can speak to some of it, but the inventory overhang, there’s continued destocking there and it’s becoming balanced. It’s still relatively high, particularly in hot band. But in coated products, in coated sheet, I think it’s getting into a good position. And you speak to a seasonal uptick. I think we’re seeing that as well.”

Theres tightness forming in cold roll sheet

“On cold roll sheet and coated, I sense a tightness forming in that arena. I think it’s a combination of – the automotive arena is strong. So, the integrated mills got a relatively good order book. Construction continues to come back. There’s some destocking going on. And we have some relief from the trade cases and erosion of import levels.”


United States Steel’s (X) CEO Mario Longhi on Q4 2015 Results

Automotive continues to be a good market, appliance and construction markets should also grow

“Now I would like to give a brief summary of what we are seeing in our markets and our guidance for 2016. The automotive market continues to be a very good market for us and we expect it to remain strong throughout the year. We also expect growth in demand in the appliance and construction markets compared with last year. Industrial equipment market is mixed with a slight improvement in demand for construction equipment, steady demand in the railcar markets and weakness in mining equipment. In the energy markets, low oil prices and rig counts remain a significant headwind. At this time, we do not see any catalysts other than increase in oil prices that would drive significant improvement in tubular demand and pricing with impacts to both our tubular and flat-rolled segments. We continue to expect slight growth in the automotive, appliance and construction markets in Europe as compared to last year but tin mill products may be facing increasing challenges from imports.”

PulteGroup 2Q15 Earnings Call Notes

Design communities for 11 targeted customer groups

“While externally, we discuss buyer activity along brand lines for the sake of simplicity, investors who have followed PulteGroup for a while know that we actually design communities to serve 11 targeted consumer groups or TCGs. From the community location and lot layout to the specific floor plans and options we offer, we develop each community to address distinct buyer wants and needs.”

Millenials value proximity to downtown over schools and single family design

“within our array of communities are those developed to serve a subset of first-time buyers who prioritize proximity to downtown over schools and single-family design. Based on experience and consistent with this year’s market research work, the buyers for these communities are very much today’s millennials who are moving out of shared living arrangements and into their first homes.”

Overall demand was solid in 2Q

“overall demand in the second quarter was solid, with strong buyer traffic to our communities and sign-up gains in both units and dollars. Generally, demand trends at the market level have remained fairly constant over the past several quarters”

Spring selling season was successful

“From PulteGroup’s perspective, we would say the spring selling season was a successful one for the company and one that leaves us well positioned for the coming quarters. ”

Millenials are becoming a significant part of our first time buyer portfolio

“there is a group of first-time buyers in that millennial age group that – and you said it will – are willing to trade size for proximity. And I think it’s essentially what Richard talked about in his prepared remarks about that millennial buyer. And what it was trying to tell you was that it is already a pretty significant part of our portfolio of, again, not entry-level, but first-time buyers in that millennial age group. ”

We’re seeing a change where millenials are skipping the entry level product in their 20s and buying a higher level home in their 30s

“sort of the traditional view of an entry-level consumer buying a home in their mid-20s and then trading up, et cetera, over time is changing. And in fact we’re seeing a lot of people actually skip the Centex true entry-level product, say at $200,000, and buy a Pulte-branded home at $300,000 in their early-to-mid-30s, typically consistent with when they either get married or begin living together, and their housing needs change from rental to ownership.”

Not hearing a lot of rate hike fear driving purchase behavior

“Rates just did begin rising here over the last month to six weeks primarily. Historically, I would say that does drive purchase behavior as people kind of fear the loss of a low rate environment. So we certainly don’t fear that occurring, provided that it continues with the economy continuing to strengthen. But are we hearing a lot of anecdotal information on the ground about that? I’d say not yet.”

We’re very comfortable running with less cash because we have easy access to capital markets

“I think we’re very comfortable running with this much cash and even a little bit less, candidly, because we have so much availability under the revolver. And then we think we’ve got access to the capital markets on terms that what would be attractive. So, when we need to, we have a way to fill any cash shortfalls that we might want to deal with. So, again, leverage being between 30% and 40% is what is driving most of our decision making.”