Starbucks FY 3Q17 Earnings Call Notes

Kevin R. Johnson – Starbucks Corp.

physical + digital

‘The evidence is clear that the pace of retail transformation is accelerating with a common theme: extending the in-store experiences to include relevant digital scenarios. It is the driving force behind combinations including Walmart’s acquisition of Jet.com, the combination of PetSmart and Chewy.com, and last month’s announcement of Amazon’s intent to acquire Whole Foods. Each of these combinations demonstrate that pursuit of enhancing the physical retail experience with a relevant and complementary digital experience.”

Matthew Ryan

Deceleration in restaurant spend but we’re outpacing the industry

“in the U.S. and just about any other market we’ve studied, there’s been a decades-long trend for growth away from home, food and beverage consumption, driven by demographics and people just want more convenience. And we’re strongly bullish on the long-term continuation of that trend.

However, in the past year, we’ve seen some pullback from that trendline, as we have from time to time, with consumers in the U.S. shifting some discretionary spend to other categories. We look at all sorts of sources of data here, including corroborating credit and debit card spend data. But we think the best source of industry comp intelligence comes from the APT index, which is a metric developed by Applied Predictive Technologies, that’s the name of the company, that aggregates and tracks actual comp data from a broad set of more than 100,000 retail restaurant and QSR competitor locations on a weekly basis, allowing us to understand just how well we’re doing versus important benchmarks.

And for Q3 overall, the APT index showed decelerating and negative comp for QSR and restaurant industries, while Starbucks’ own metrics accelerated comp to 5%. In fact, the differential between Starbucks and the industry increased significantly in Q3 compared to the past several quarters, and that’s just on the comp stores. It excludes the effect of any further market share gains we have as a result of our strong pace of new store openings.

Within the quarter, we did see some deceleration in month-to-month comp performance for both industry benchmarks and Starbucks, but Starbucks steadily outpaced the competition.”

Howard Schultz

New relationships will elevate brick and mortar

“I would just add, as Kevin had in his prepared remarks, what we’ve seen over the last few months with Walmart and Jet.com and PetSmart and Chewy and most recently Amazon and Whole Foods, I think this is just, we’re in the nascent stage of these kinds of commercial relationships that are going to elevate the experience of a brick-and-mortar retail company. And having said that, Starbucks is probably best positioned, given our national footprint, the demography of our customers, and where we’re located to have those kinds of conversations. I think it would be premature to kind of get into who they are, but clearly, we are a very viable partner, given the change in the industry.”

Starbucks FY 2Q17 Earnings Call Notes

Kevin R. Johnson – Starbucks Corp.

Retailers are dropping fast

“Thank you, Tom. Welcome, everyone. Before getting into Starbucks’ Q2 results, I thought I’d comment on a recent Wall Street Journal article noting that more retail stores have closed in the first quarter of calendar year 2017 than closed in all of 2016. And that more retail stores are expected to close in the U.S. this year than closed in any year during the Great Recession that began in 2008. The article illuminated once again the seismic shift in consumer behavior underway and the devastating impact that this sea change in behavior is having on many traditional brick and mortar retailers. Articles like this prompt three very important questions that I’ve repeatedly asked myself over the years and that I suppose many of you on today’s call have asked as well.”

Merge digital engagement with emotional connection

“The critical transformative components required for any brick and mortar retailer to survive, let alone succeed in the future are an engaging, digital and mobile relationship with customers that is threaded into a branded, immersive, experiential retail destination. The attributes of the destination will vary. They may include theater, intrigue, or romance. But the common denominator will be the creation of a consumer experience that evokes human emotion and connection. I firmly believe that these are the ingredients that will determine which brick and mortar retailers thrive in the future, and which become victims of the current trend.”

Howard S. Schultz – Starbucks Corp.

Competition is a non-event for us

“I would say a few things. First of all, there’s no evidence whatsoever that any national company, even those companies that are discounting coffee significantly, with McDonald’s nationally or Dunkin’ Donuts in New England, what Panera is trying to do, there’s no evidence whatsoever that we have, that there is anything that they are doing that is affecting us adversely. So I just want to get that off the table. The competitive issues question is just a nonevent for us.”

Starbucks FY 4Q16 Earnings Call Notes

Starbucks (SBUX) Q4 2016 Results
Howard S. Schultz

China has enthusiastically embraced Starbucks

“Perhaps nowhere in the world has the Starbucks Experience come to life more powerfully and been embraced more enthusiastically than in China, a country we first entered 17 years ago. I personally observed this again firsthand on my visit to the market just two weeks ago. Starbucks stores in China are among our most elegant, efficient and profitable of any stores in the world, and China once again produced record revenues and profits and strong comp store sales growth in both Q4 and fiscal 2016.”

One of the few western companies that has been embraced

“There are countless examples over the last decade of western companies and consumer brands that have tried but failed to achieve relevance in China. Not only has Starbucks cracked the code in China, consistently delivering record operating and financial performance, but our newest class of Starbucks stores in China is delivering the highest AUVs, ROI and profitability of any store class in our history in the market. And we have created partner pride and a deep emotional connection among our customers and our partners in the Starbucks brand in China that rivals any market in the world. By building the foundation of our business in China carefully, methodically and respectfully, we are creating a growth and profit engine that will continue to accelerate for decades to come.”

We are all trying to navigate through a difficult time

“we are all trying to navigate through a difficult time. I mean I would label this time as just a high degree of uncertainty that obviously is domestically driven but has affected the rest of the world. John and I and Cliff just last week we’re in China and Japan, and Cliff and I will be in Europe next week, and I think it’s safe to say that wherever we have been, I don’t think we’ve ever witnessed such concern about what could happen in the U.S. as a result of the election.

And I think there’s no question, as I speak to other retailers and other merchants both in and out of our sector, that there isn’t one exception where everyone is experiencing, I think, a very unpredictable and erratic chain of events where it’s very, very hard. I think what’s equally hard, it’s very hard to cut through all of the noise and try and get access to the customer and try and get your message out.

So I think we’ve tried to be very disciplined and very thoughtful about how we spend our money, both in traditional advertising and social media, so that we are not in any way kind of getting caught into all of this. I think everyone is hoping that post the election, there will be a return to a natural state of affairs in terms of the consumer behavior.”

No doubt over the next five years we’re going to see dramatic level of retailers who can’t sustain their core business

“I was talking to Fred Smith just a couple of weeks ago about his situation at FedEx and he shared with me a piece of research which showed a significant drop in foot traffic on Main Street and in malls, not only domestically and around the world, as a result of e-commerce, the Web, and what I’ll loosely describe as the Amazon effect. As a result of that, you’re certainly seeing large companies and small companies not only not open new stores, but announce closures.

And let me just speak to that. I know this is a little long-winded but I think it’s important. There’s no doubt that over the next five years or so, we are going to see a dramatic level of retailers not be able to sustain their level of core business as a traditional bricks-and-mortar retailer, and their omni-channel approach is not going to be sustainable to maintain their cost of their infrastructure. And as a result of that, there’s going to be tremendous amount of changes with regard to the retail landscape.”

Scott Maw

Consumer remains under pressure

“So the consumer remains under pressure in many places in Europe and Asia as well as here in the U.S., economic uncertainty around the overall consumer environment, around the election, that continues to weigh on our customers around the globe. And I think we can see that continuing as we get into 2017.”

Starbucks (SBUX) CEO Howard Schulz Letter to Employees

Starbucks (SBUX) CEO Howard Schulz said the Starbucks experience only works if it is embedded with trust

“As I’ve recently expressed, the Starbucks journey is about trust. We earn trust in how we show up for each other. We build trust in how each of us connects with our customers and the communities we serve. We demonstrate trust in how we lead. In our fragile world, where trust is being tested in so many ways, I believe it’s never been more important for Starbucks to be the best version of ourselves—a Third Place that offers a sense of community and human connection to so many.”

On embracing curiosity and courage to adapt to the evolving competitive landscape

“To be among the world’s most respected and enduring companies, we must constantly look around corners and let our curiosity and courage drive innovation. With this mindset and purpose, I have no doubt we can continue to grow the company sustainably, and in ways that will continue to make us all proud.”

Starbucks (SBUX) Fiscal Q3 2016 Earnings Call

Starbucks (SBUX) CEO Howard Schulz said macroeconomic weakness is affecting the traffic to its stores 

“What we did not and could not have fully anticipated was the profound weakening in consumer confidence in Q3 that has caused sharp declines in QSR and restaurant traffic overall and has many of our competitors struggling with negative transaction comps. And as I have mentioned in the past, Starbucks is not immune to macro challenges that impact our competitors and retail overall. But as with weather, we will not hold these challenges out as excuses.”

Starbucks (SBUX) CEO Howard Schulz believes political turmoil and social unrest is having a toll on consumer confidence

“In Starbucks’ 24 years of public life, I can’t recall a quarter quite like Q3 of 2016, when a confluence of social and political turmoil at home, weakening consumer confidence, increasing global uncertainty, and the launch of one of our most significant long-term initiatives of all-time all occurred within a single earnings period.”

Europe grew the slowest of all of the company’s geographic regions

“System comps across our EMEA business grew 2% in the quarter. A slow-growth European economy, Brexit, a weakened British pound, and ongoing security concerns throughout the region have contributed to consumer uncertainty throughout Europe. Our brand continues to hold up well in this challenging environment.”

Starbucks (SBUX) CEO Howard Schulz spoke about what the Starbucks brand represents 

“As I said in my prepared remarks, though, we, at Starbucks, look at this not as an excuse but feel very strongly that what we offer our customers, the sense of community, the longing for human connection, a safe place, an affordable luxury and, obviously, the innovation that we have brought forth gives us the confidence that we will be the kind of company and the kind of brand that will demonstrate to our customers the aspirational connection.  So much of what we’ve been able to do over the years is linked to the equity of the brand which is linked to the experience.”

The company doesn’t want to get in the habit of being promotional 

“What we saw this past quarter and, for that matter, even beyond that, was given the challenges that exist in the marketplace that we’ve all seen and discussed, there is a tremendous amount of discounting and promotion going on in the market where people are buying business. We do not want to be in the business of buying business. We do not want to discount or dilute the integrity of the brand. We know who we are. We know what our core purpose is. And we’ve got to play the long game and have faith and confidence in what we stand for in terms of the experience, the quality of the coffee. What we keep talking about really internally is we want to take the equity of the brand and the position of Starbucks up. The premiumization of Starbucks is linked to the Roasteries and linked to this new format of stores that we are working on that you’ll begin to see in calendar 2017 which is Starbucks Reserve which, in a way, is like a cousin in a smaller format of the Roastery. All of that will shine a halo on the brand, shine a halo on the experience, and we don’t want to do anything that would dilute that halo by buying business or discounting, and we’re not going to get in that game, despite the fact that so many other people are throwing that at us.”

Starbucks (SBUX) Q1 2016 Earnings Call

 

Starbucks (SBUX) CEO Howard Schulz said the decline of traditional brick and motor retail isn’t slowing the company’s brand or success down
“Our recent classes of new and remodeled retail stores continue to defy established consumer trends away from traditional bricks-and-mortar retailing and deliver record-breaking unit sales, unit economics and return on investment; very strong performance metrics that underscore the increasing power and relevance of the Starbucks brand around the world.”
 
Still opening a massive amount of new stores in China
 
Starbucks has committed to China, and we now have over 2,000 stores in 100 cities in China and are adding over 10 new stores every week. Our business in China remains very strong, and I personally have no doubt that the Chinese government’s commitment to true economic reform is genuine and that its plan to double 2010 per capita income by 2021, resulting in a middle-class in China approaching 600 million people, almost twice the size of the entire current U.S. population, is achievable.”
 
Starbucks (SBUX) COO Kevin Johnson said a substantial percentage of their customers are paying for their orders with their phone
 
And we now have almost 19 million users of our mobile app in the U.S. alone. Mobile payment represented 24% of total U.S. tender in Q2, and Mobile Order & Pay continues to be increasingly embraced by our customers. It adds incrementality, especially at peak. Mobile Order & Pay transactions represented approximately 4% of total transactions in the quarter, which was a 40% increase sequentially.” 

JS Earnings Call Notes – Starbucks

Starbucks (SBUX) CEO Howard Schulz said the company is performing well despite numerous macroeconomic challenges

Starbucks Coffee Company is connecting more deeply with more customers across all day parts around the world than ever before and we are delivering quarter-after-quarter of record breaking financial and operating results despite the accelerating shift in consumer behavior away from traditional bricks and mortar retailing and despite challenging macro economic foreign exchange, geopolitical and retail and consumer headwinds that continue to negatively impact many other national and global retailers.”

Starbucks (SBUX) CEO Howard Schulz said the company’s technology offerings are helping to strengthen brand equity

Technology innovation is further strengthening our brand, improving our efficiency and in-store execution, increasing our profitability and most importantly, enabling us to deliver an elevated Starbucks experience to our customers, particularly to Millennials.”

And their doubling down on their China business despite the recent economic slowdown in the region

We are taking a long-term view on how we will build our business in China because despite now having close to 2,000 stores in nearly 100 cities in China and being on track to have 3,400 stores on the mainland by 2019, I am convinced more than ever that Starbucks is just getting started in that important country. And I am equally convinced that, when we fully roll out our digital, mobile, card gifting and loyalty programs across our business in China and CAP overall and expand distribution of our ready-to-drink products later this fiscal year, we will perform at even higher levels than we are today.”

Their Starbucks gift cards continue to gain momentum

Starbucks gift cards once again enabled customers to give the gift of choice. And this year, one in six American adults received a Starbucks gift card, up from one in seven last year and one in eight the year before. And this holiday, $1.9 billion was loaded on cards in the U.S. and Canada in Q1 alone, up 19% over a year ago.”

Starbucks (SBUX) COO Kevin Johnson said one fifth of all Starbucks store purchases are now made through their proprietary mobile phone app

In the quarter, over 21% of total U.S. transactions were paid using the mobile apps with December accelerating to 22%, and we are seeing further acceleration in the month of January. Over 1 million customers in the U.S. used our mobile order and pay capability in the month of December and those customers averaged approximately five mobile orders in the month, driving meaningful revenue growth and incrementally.  In many of our busiest stores where morning peak demand is high, mobile order and pay exceeds 10% of total transactions.”

Starbucks (SBUX) CFO Scott Maw said their stores with the lowest employee turnover often have the best sales

Noteworthy is that while our comp growth overall remains very strong in today’s challenging retail environment, comps are the strongest in stores where partner attrition is the lowest, a function of the deep connection our partners build over time with our customers.”

Starbucks (SBUX) CEO Howard Schulz believes that their Chinese business could one day be bigger than their US business

So if you look at the unit economics in China today, which are incredibly attractive and you lay on the technology we talked about. And then we know the morning ritual is going to come. We are sitting in a business today that, as I said publicly when I was in China last week, that we believe one day could very well be larger than the U.S. business. So anyone on the call who is in any way dissuaded by our commitment or our success in China as a result of a 5% comp in the region is not only mistaken, but you are looking at the wrong metric.”

Starbucks at Morgan Stanley Conference Notes

Starbucks’ (SBUX) Management Presents at Morgan Stanley Global Consumer & Retail Conference
Scott Maw – Chief Financial Officer

Our employees are partners

“I think the first one and perhaps the most important one is winning with our partner. So again, our employees we call them partners, because the vast majority of them are eligible to participate in a stock compensation program for Starbucks.”

Still not saturated in the US

“I think a few years ago, people would have thought we were saturated in the U.S. and that you couldn’t open another Starbucks without having to expand into the walls of the Starbucks that was sitting beside. But what we have learned is there is significant real estate opportunity in places that 5 years ago we wouldn’t have thought about opening a store ”

Good at creating locally relevant design of stores

“Importantly, our stores all have locally relevant design. Our designers are really great at integrating locally relevant design, whether you are in China or in Omaha, we are able to sort of adapt our store format to pickup what’s locally relevant in the geography and I think we are getting increasingly good at that and driving some great design concepts and then larger format stores. ”

21% of transactions are done on the mobile device

“21% of our transactions in the U.S. are done, payment transactions are done on the mobile device. I guarantee in the U.S. there is no one else even close as far as the number of mobile payments.”

JS Earnings Call Notes 11.3.2015 – Potash, Varian, AIG, Loews, Discovery Communications, McGraw Hill Financial, AB Inbev, Starbucks, Novo Nordisk, LKQ, Ellie Mae, & DistributionNow

Potash (POT) CEO Jochen Tilk said the agricultural chemicals market remains weak

“Looking ahead, macroeconomic headwinds, including lower GDP growth in emerging markets and the erosion of many currencies relative to the US dollar, contributed to a weaker commodity environment in 2015 that affected our sector as well. In light of these broader factors, we have lowered our expectation for 2015 global potash shipments to approximately 59 million tonnes and our sales volumes to a range of 9 million to 9.2 million tonnes. While potash demand held up relatively well in the face of emerging market uncertainty, prices have been less resilient.”

He said they continue to rebalance the portfolio and take costs out of the business to stay competitive

“First, our focus is on striking the right balance between flexibility and cost. We have some of the best, most efficient potash assets in the world and we continue to take steps to even further improve efficiencies and lower our costs. We began with operation workforce reductions in 2013 when we reduced our potash operating capability by approximately 3.5 million tonnes or 30%. This was central to marrying our capability with expected market conditions.”

Potash (POT) CEO Jochen Tilk said they will continue to maintain the high dividend even though it means they are paying out a significant percentage of their net profit

“our objective is to maintain our dividend. When we raise the dividend over recent years, we did this both thoughtfully and cautiously. The value of the dividend, $1.2 billion annually, was stress tested in a number of downside scenarios and we remain comfortable that even amidst a more challenging macro environment, it is very well-supported and can be sustained at current payout level.”

With new Potash supply coming online soon from mines that were built a few years ago when prices were higher, they continue to believe the supply demand balance remains tight

“So the question on our expectation of supply and demand going forward in next year and the year thereafter, we continue to believe that supply/demand is actually relatively tight and we think we understand new production coming online.

Even though the microeconomic environment is challenging, demand for the end product continues to grow

“The one thing that, even in spite of these difficult conditions, potash demand, globally, has remained pretty resilient. Our estimate for this calendar year on global demand in that 58 million to 60 million tonnes will represent the second best year of potash demand globally and that doesn’t go unnoticed by us.”

Given the recent weakness in the share price of Potash, CEO Jochen Tilk said he is still not comfortable buying back his own stock

“If you contemplate a share repurchase program, it has to be meaningful, it has to be significant. I don’t think leveraging the balance sheet up at this point, at this stage, with those concerns that have been raised would make sense.”

 

 

 

 

Varian (VAR) CEO Dow Wilson said they gained market share against all of the competitors during the year

“We gained share against the competition in all three regions of the world for the year. In North America alone, we estimate that we generated over $150 million in orders during the year to replace hardware and software products from our competitors.”

Varian (VAR) CFO Elisha Finney said currency movement had a massive impact across both reported revenues and how their competitors are behaving

“Before I walk you through the numbers, let me just say that exchange rates wreaked havoc on our 2015 results. Currency driven price erosion had a huge impact on our imaging components
business.”

When asked if he would divest the struggling image component segment of the business, CEO Down Wilson said there is significant synergies with the oncology equipment business thus he is not currently interested in divesting

“The profitability of that business hasn’t changed, but it’s very cyclical. We like the fact that we’re the leader in digital imaging technology. And so, we’ve got both a strong product portfolio as well as scale in the business. And there are synergies with our oncology business. The oncology is the second largest customer of that business. About 10%-12% of the product cost of our oncology business comes from our components business; over 1500 tubes and panels a year. So, there is some vertical integration that we look at.”

Varian (VAR) CEO Dow Wilson said the company’s equipment provides the lowest total cost of ownership

“As we go into an environment that’s uncertain from a reimbursement point of view, total cost to ownership is everything, and Varian’s advantage is there. There is nobody close to us with that. There will be some niche products out there that probably get some play in some segments, but I think people are still going to be looking at value for money and how to stretch their capital dollars.”

 

 

 

 

AIG CEO Peter Hancock responded first thing in the company’s earnings conference call to a public letter from Carl Icahn to split up the company

“But before I do I’d like to comment on the recent letter we received from Carl Icahn. The letter outlines a plan that includes separation of Life and P&C. Management and the board have carefully reviewed such a separation on many occasions including in the recent past and have concluded it did not make financial sense. We of course will meet with him to further share our conclusions and give him an opportunity to elaborate on his views.”

AIG CEO Peter Hancock highlighted some technology trends which are affecting the insurance business

“We’ve been investing, and we’ll continue to make investments that will give us a competitive advantage in an ever changing landscape. The current mega trend that we see in artificial intelligence, digital, the Internet of Things, and Big Data require us to make these investments with a constant eye on innovation in order to be relevant.”

AIG CEO Peter Hancock said their mortgage insurance business is a strong contributor to the company

“So UGC is a business which was for sale for virtually nothing back in the crisis days. And since then we’ve invested in it, modernized it, and taken it from number five to number one in its industry, and it’s performing very well today. We’ve kept it as a very modular unit, so it gives us strategic flexibility. But today it is a core business making a significant contribution to the company.”

AIG CEO Peter Hancock said he sees the company having a lower headcount in the next few years due to increased automation

“I think that there will be fewer people, because a lot of those jobs will eventually be replaced by automation. We also, beyond the head count numbers that you see, have a very substantial number of contractors. And that number will also decline. So between contractors and head count in total we’d expect that number to be substantially lower. And our technology would be a bigger part of the spend and the scalable infrastructure that gives us, will lower our unit costs substantially.”

AIG CFO David Herzog said the S&P rating agency gives them a diversification benefit for being in multiple non-correlated lines of insurance

“I think the S&P – the explicit diversification benefits, I don’t know that we have disclosed publicly, but it is quite substantial. It’s north of $5 billion in diversification benefits.”

 

 

 

 

 

Loews (L) CEO James Tisch began the call by focusing on the recent decline in the company’s stock price and their plans to buyback a significant amount of shares

“Since I’m not in the habit of ignoring the elephant in the room, I want to start today’s discussion by focusing on the stock prices of Loews and our subsidiaries. You certainly don’t need me to tell you that the stock market performed terribly in the third quarter. In general, we believe that the stock market is undervaluing our shares and those of our subsidiaries. Despite being frustrated, rather than complain, we look at this as an opportunity to create value for Loews’ shareholders by buying back our stock, and we did.”

Loews (L) CEO James Tisch discussed his thinking process on buying a hotel outright versus partnering with an operator

“Listen, I like capital light. So, management is always number one, but with management, you don’t control the asset, and in some ways, you don’t control your own fate. A partnership is the next best thing because that’s not capital light, but it’s capital lighter, so that we don’t have to put up all the money for the hotel. And the third alternative is for us to buy a 100% of the hotel, which we have done a number of times. What we look to do when we buy a 100% of our hotel is that over the next one year to two years we look to sell down a percentage interest in that hotel so we don’t have as much as cash invested in the property.”

Loews (L) CEO James Tisch said he sees a lot of value being produced by its hotel subsidiary even though it currently isn’t generating large earnings

“I’d say that with respect to Loews Hotels, it doesn’t have a lot of earnings, but it does have a lot of value. The hotels in our portfolio, many of them are the envy of a lot of people in the hotel business. And the goal of Loews Hotels is to continue building the value of the company. As I said, it may be difficult for you to see in the form of net income. We do show adjusted EBITDA as a measure to help give you some ability to get value of the business. But I’d simply end by saying that – as I’ve said before, I love all my children, I love all our businesses, and I think each one of them is doing well within the context of their industry.”

 

 

 

 

 

 

Discovery (DISCA) CEO David Zaslav says they were able to raise their prices even in a challenged environment for TV content companies

“On the affiliate side, revenues rose 12% in the third quarter. We continue to see the benefits of the strong price increases we have secured through the current renewal cycle, of which we are now 80% complete here in the U.S. The price escalators are locked in for years to come.”

Advertising growth showed particular strength

“Turning now to the operating units, despite all the talk about domestic secular concerns, our U.S. Networks grew revenues an impressive 8% this quarter, as we benefited from another quarter of strong distribution growth of 12% and a significant acceleration in advertising growth to up 6% year-over-year. We are extremely pleased with our third quarter ad sales performance. As David mentioned, our ratings outperformed the industry and this outperformance helped us benefit from robust scatter pricing and volume as well as stronger overall demand.”

And they are seeing increased viewership in international market

“At our Investor Day, I also said that our leading global distribution platform is Discovery’s secret sauce. That’s once again true in the third quarter. International viewership grew mid-single-digit overall with ID, TLC and Eurosport up double-digit or better. Our ability to increase share of viewership internationally helped drive strong organic advertising and affiliate growth. Organic ad sales rose 12% and organic distribution growth also was strong, up 8%. These figures demonstrate our strong international growth profile and best-in-class platform.”

Discovery (DISCA) CFO Andrew Warren said the company is adjusting its view on repurchasing its own shares

“On our last earnings call, we stated that we were unlikely to repurchase additional shares through the end of 2015 in an effort to retain capital allocation flexibility for strategic transactions as well as to pay down debt to lower our leverage ratios. But given our solid and better-than-expected third quarter revenues and bottom-line results, the successful Comcast renewal, our significant higher level of confidence in our ability to drive accelerating free cash flow, our high and growing cash flow-to-total debt yield, the continued favorable interest rate environment, and finally, that we find the return of buying our shares at these levels to be extremely attractive, we have adjusted our view on leverage. After very careful consideration, we are now comfortable with increasing our gross debt to adjusted OIBDA ratio to the 3.25 times to 3.4 times range versus the 2.75 times target we previously outlined, all while being highly committed to remaining an investment-grade debt issuer.”

Discovery (DISCA) CEO David Zaslav says they’re starting to take their content direct to consumer

“The direct-to-consumer business is something we’re just getting started with, but we have invested over the last year and a half primarily through our Eurosport partnership and in Northern Europe with the Eurosport app and with Dplay. We’re learning a lot. Both of those platforms are growing meaningfully. We do have a target in place which we’re calling March to a Million. We have 200,000 subscribers right now. And if we can get to a million at the $6 to $8 a month, we could generate close to $100 million in revenue.”

Discovery (DISCA) CFO Andrew Warren said they are making it a point of emphasis to have the highest debt load in the industry

“To answer your question on the leverage, we expect to kind of accrete our leverage up to the 3.25, 3.4 times by year-end 2016. It’s just so important to highlight that even at that level, our free cash flow to debt yield is still going to be mid teens to high teens, the highest in the industry. Our interest coverage ratio is going to be the highest in the industry. And we feel extremely comfortable given our growth profile of cash flow, that’s the right leverage target and capital structure for us.”

Discovery (DISCA) CFO Andrew Warren said he’s seeing pockets of growth across various geographies

“We still see aggressive growth, meaningful growth in Latin America, particularly Brazil and Mexico, although Brazil has slowed down a little bit with the economy, and India, we’re seeing meaningful growth in Eastern Europe.”

 

 

 

 

 

McGraw Hill Financial (MHFI) CEO Doug Peterson said with the recent intention to divest the J.D. Power business, the company is now focused on global and scalable businesses

“Our portfolio is now increasingly focused on businesses with a common set of attributes. The businesses are scalable; they are global; all have market-leading positions and fantastic brands; and serve growing markets. These businesses are increasingly interrelated and serving the capital and commodities markets. Together, it’s this unique collection of great assets with these world-class brands that distinguishes McGraw Hill Financial.”

McGraw Hill Financial (MHFI) CEO Doug Peterson said ratings services were weak during the quarter as customers turned cautious amid macroeconomic uncertainty

“Now, let me turn to Standard & Poor’s Ratings Services. Issuance outside the U.S. was weak as concerns related to China’s declining growth, falling commodity prices, and the Fed’s impending interest rate hike hindered issuance activity.”

With very specific weakness in global issuance in Asia & Latin America

“Asia and Latin America issuance decreased by 58% and 72%, respectively. This led to a 20% decline in global issuance overall. To put that in perspective, both Asia and Latin America had their lowest quarterly issuance since 2008. Due to the turmoil in the Asian markets and the devaluation of the Chinese yuan, year-over-year quarterly revenue from China experienced a decline for the first time in the last five years. In addition, this was Europe’s lowest issuance quarter since the third quarter of 2013.”

 

 

 

AB Inbev (BUD) CEO Carlos Brito admits they have mismanaged the Bud Light brand and they plan to refresh the image of the brand

“We are going to have what we think is going to be revolution in terms of trying to understand where the brand came from and trying to learn from its amazing 20 plus years history from zero to a market leader in the U.S. and playing that back in a more contemporary way playing back to some of these rituals. There will be also some packaging refresh and visual identity. So, I mean, lots of things that’s only fair for a brand of this size. So we think we have been unfair for the brand, so our fault, not the brand’s fault. We don’t believe in anything about brand having cycle. We believe in brands that are well managed and brands that could be better managed. And Bud Light is one of those that could be better managed and that’s what we have for next year.”

He added that the structure of the beer market is very regionalized

“We believe beer has been a very local brand, local business, different than any other consumer goods you look out there. So I think there is an amazing opportunity for us to drive these three global brands and really capture what consumers in all markets today want in some occasions, which is more of a global citizen type brand.”

Their Chinese operations outperformed their peers during the quarter and gained market share

“Moving now to China, in China economic headwinds and poor weather led to decline in industry volumes in the quarter. We estimate industry volumes were down almost 7% in the quarter and down over 5% year-to-date with most of the impact being felt in the value and core segments. Our own beer volumes declined by 1.3% in the quarter and were up 0.5% year-to-date with our focus on the faster growing core plus and premium segments leading to an estimated market share gain of 104 bps to 18.7% in the quarter.”

And they continue to focus on certain segments of the market such as women drinkers

“In China, we are outperforming the industry and gaining share based on our strategy of focusing on the women’s segments and channels.

AB Inbev (BUD) CEO Carlos Brito said their partnership with the NFL which allows them to put team logos on bottles continues to be beneficial

“We are very happy with NFL’s agreement that we have in the sponsorship. Of course, as consumer change, the media habits and the way they interact with sports and the NFL. We are also changing together with the league on properties and things we can activate. And the NFL has been a very good partner in agreeing with us on changes that we need to do to continue to be relevant with that consumer base. So again, a great partnership, we respect them a lot. They have a great business. And again, the number one sports in the country could all be associated with the number one beer in the country. ”

And he continues to see a lot of room to grow the business in Mexico

“So, I think the other fact in Mexico will be like in any other market of ours, a function of three things, revenue management initiatives, premiumization, and in Mexico specifically like Brazil if we increase our own distribution. I mean, premium in Mexico is only 3% of the industry volume.”

 

 

 

 

 

Starbucks (SBUX) CEO Howard Schulz highlighted the shift away from brick and motor retailing

“We are delivering quarter after quarter of record-breaking financial results despite the accelerating shift in consumer behavior away from traditional bricks-and-mortar retailing and despite difficult macroeconomic retail and consumer headwinds that continue to challenge traditional retailers.”

Starbucks (SBUX) CEO Howard Schulz emphasized that by investing in their employees, via increased salary & benefits, it leads to a better customer experience and lower employee turnover

“And the investments we make in our partners pay tangible dividends in the form of more satisfied and engaged partners, deeper connections among partners, and with customers and improved in-store efficiency, all of which contribute to an elevated in-store Starbucks experience for everyone, partners and customers alike. Noteworthy is that today we are seeing improvements in partner attrition, a direct result of our partner investments at a time when the industry overall is actually moving in the opposite direction. And we are seeing a direct correlation between reduced partner attrition and our business results. Our comp results are strongest where we are having our greatest success in reducing turnover. ”

Starbucks (SBUX) CEO Howard Schulz highlighted their customers loyalty to the brand

“Our customers trust us and reward us with unparalleled frequency and loyalty, as demonstrated by the robustness of our business, the unprecedented increases in global traffic we are seeing, and the amount of currency preloaded on our customers’ mobile devices. We continue to leverage all these assets in ways that are accretive to our business and to the heritage of our company. Never in our 23 years as a public company has the Starbucks brand or our business been more relevant or been stronger.”

Mobile pay accounts for nearly 1/4 of all store transactions

“Mobile payment now accounts for 21% of all transactions in our U.S. company-owned stores, and although we only completed the rollout of Mobile Order & Pay across our system 7500 U.S. company-owned store portfolio in September, we were already operating at a run rate of over five million transactions per month.”

Starbucks (SBUX) COO Kevin Johnsaid 1 out of every 7 Americans received a Starbucks gift certificate last year

“You may recall that last year, one in seven Americans received a Starbucks Gift Card over the holidays, generating over $1.6 billion in card loads in our first quarter of fiscal year 2015.”

Starbucks (SBUX) CEO Howard Schulz said they are in the business of creating experiences

Well, I think the equity of the Starbucks brand throughout our public life has been defined by the culture and values and guiding principles. I said from day one that we are in the experience business, and our brand is defined by the people who wear the green apron. The entire DNA of the company goes back to equity in the form of stock options, comprehensive health insurance, 25 years ahead of the Affordable Care Act, and this year alone groundbreaking benefit of college achievement of providing all of our people with a four-year education.

Starbucks (SBUX) CEO Howard Schulz emphasized the importance of how important mobile is to the business

“I think we also believe very strongly that we had to seamlessly integrate the Starbucks experience with all things mobile. And as I said in my prepared remarks, we are living in a mobile-first global economy and we’re witnessing that kind of change.”

The China business accelerated during the quarter

“we went back to work on that and I think we also believe very strongly that we had to seamlessly integrate the Starbucks experience with all things mobile. And as I said in my prepared remarks, we are living in a mobile-first global economy and we’re witnessing that kind of change. In addition, what we saw during the quarter was that comps actually accelerated month to month. And in China, we see that comps are continuing to accelerate into the month of October, which is great news for us.”

 

 

 

 

 

Novo Nordisk (NVO) CFO Jesper Brandgaard said robust performance of certain drugs are being offset by macroeconomic conditions

“We are seeing intensifying competition within both diabetes and biopharmaceuticals and challenging market access as well as macroeconomic conditions in China and a number of markets in International Operations.”

Novo Nordisk (NVO) CEO Lars Sorensen expects their China business to remain challenged

“In regards to China, we are impacted by increasing local competition. And we are impacted by a segment shift, much like we have historically experienced the same in Japan, where we have a strong position in premix market, China used to be a premix market. The only real solution to this is of course that we get Tresiba into the Chinese market, so that is a couple of years out. So, I think we will be facing relatively tough market conditions in China for a couple of years. We expect China to come back. But here in the immediate future, we expect lower growth.”

 

 

 

 

 

LKQ (LKQ) CEO Robert Wagman said increased vehicle miles driven is providing a tailwind to their business

“New vehicle sales increased the size of the car park, which equates to more insured cars on the road, the likelihood of increased accidents and more repairs. These trends help drive North American organic growth for parts and services.”

The declining prices the company received for various scrap materials hurt their earnings

“While we have been dealing with falling scrap steel prices for a while, during Q3, we also experienced a material decline in the prices received from other metals that are a residual of our recycling activities, including aluminum, copper, platinum, palladium and rhodium, which were down materially compared to the third quarter of last year.”

LKQ (LKQ) CEO Robert Wagman reminded the investor community of the firm’s mission statement and core competency

“We’re laser-focused on our mission statement of being the leading global value-added distributor of vehicle parts and accessories by offering our customers the most comprehensive available and cost-effective selection of parts solutions, while building strong partnerships with our employees and the communities in which we operate. I am encouraged by the trends in miles driven, the continued growth in the average number of parts per claim, the increase in the per unit share of APU, the increased costs of repairs pushing carriers to seek alternative parts to lower their costs and the consistent pipeline of acquisition opportunities we’re witnessing across all of our business lines.”

The average age of cars on the road in Europe is increasing which benefits LKQ

“The average age of the car part in the UK is 7.8 years old, but it’s expanding. And on the continent, it’s 8.6 years old and expanding. So we think as these cars get older, it’s going to provide a nice tailwind.”

 

 

 

 

 

Ellie Mae (ELLI) CEO Jonathan Corr said his company continues to benefit from the increased regulation and compliance associated with mortgages

“Shortly after the close the Respa Tila Integrated Mortgage Disclosure rule became effective. We’ve received positive feedback on the comprehensive solutions support and training our team provided customers as they significantly reengineered their business processes to meet these new requirements. The services and education we provided through our readiness initiatives further distinguished Ellie Mae from our competitors and helped build our pipeline of expected customers. With these new regulations in effect and more expect to become over the next couple of years the need for an all-in-one mortgage solution and a team that excels in compliance is greater than ever, and we’re seeing that reflected in the sustained demand for Encompass.”

And they’ve now partnered with both Fannie Mae & Freddie Mac directly

“We’re excited to announce a strategic partnership with Freddie Mac to further integrate their risk management tools into Encompass. These integrations will allow Ellie Mae customers to more easily originate loans within Freddie Mac guideline. You’ll recall that we also announced the strategic partnership with Fannie Mae in July. By partnering with both GSEs we’re making the entire loan process even easier for our lenders from application to post-closing.”

Ellie Mae (ELLI) CEO Jonathan Corr discussed how he thinks about when to raise prices on his software

“Historically, we have raised prices on base fees and loan fees, over time as we’ve added more and more value to the platform. We don’t take a position, although obviously we have a big position in the market and a big market share. We don’t use that to just raise the prices based on our market pie, we really look to as we’re adding more value to the platform, raise those fees over time and over last four years the base fee has just gone from 50 to 60 to 70 it was up to 75 for new customers as of — earlier in 2015. And we’ll keep doing that and the idea is again adding greater value rather than using our pricing power, is our approach.”

 

 

 

Distribution Now (DNOW) CEO Robert Workman says many of their manufacturers of steel pipe are in distress after steel prices went below their 2009 low

“We have begun to see some bankruptcies from the pipe mills and further shutdowns. I would like to think that we are near the lows regarding steel prices, but the factors previously mentioned make it difficult to predict our manufacturers’ price bottom or their input costs.”

“Regarding the market environment, we are in a decline like no other I have experienced, not only in my 24 years in this business, but also as a kid growing up in the energy industry. I was born and raised in a small town in the Permian Basin where my parents owned an oilfield service company. I never thought the market could decline again as sharply and severely as it did in the 1980s while I watched my parents struggle to make payroll, but I have clearly been proven wrong. We continue to see rig counts being reduced, projects being canceled, budgets being slashed, and inventory being cannibalized.”

Starbucks FY 3Q15 Earnings Call Notes

23 million more customer occasions than the year before

” Starbucks third quarter of fiscal 2015 stands as among the most remarkable quarters in our over 23 years as a public company. Our global comp store sales grew 7%, driven by a stunning 4% increase in global traffic. Let me put that 4% traffic increase figure into perspective. A 4% increase in global traffic on a business of our scale translates into having served over 23 million more customer occasions in Q3 of 2015 than in Q3 of 2014 or an average of approximately 25 more customer occasions every day from every single store in our nearly 10,000 store global comp base.’

Many retailers have responded to digital by just increasing their digital budgets, driving up customer acquisition costs

“many traditional retailers and consumer brands have responded simply by substantially increasing their digital advertising budgets, significantly driving up their cost of customer acquisition and producing little to show for it. We on the other hand, took a very different approach.””

Partnership with Spotify, Spotify buys rewards to Starbucks for its customers

“The first partnership we announced was with Spotify. Under the arrangements, Spotify will purchase Starbucks Stars from us and then distribute these Stars to drive premium subscriber acquisition. It will allow Spotify to differentiate themselves from competitive music streaming services and reward customer loyalty. In addition and as an added benefit to our own employee partners, all Starbucks partners are being given a Spotify premium account free of charge.”

Try to get food to mid 20% in terms of mix and rolling out evenings: beer and wine

“We said in the analyst conference at the end of last year that we would see our food mix growing up to the mid 20s% in terms of percentage of mix, and I think that feels like a good place directionally. We are now up to 20%. We’ve seen a 1 point increase in the mix. So directionally heading that way and we have a good line of sight on it.

Evenings we have rolled out the Evenings program to stores across different parts of the country. We are still in the early phase. We will see the expansion of Evenings to hundreds of stores in the US over the next 12 months.

And that again gives another opportunity but only to introduce wine and beer, but to strengthen our food offering to be part of that Evenings software complemented by teas, coffees and a range of beverages.”

We are not reaching a saturation point in the US yet

“I think you would all agree that unequivocally we have proven and demonstrated that anyone who a year or two or even three thought that Starbucks might be achieving a level of saturation in the US or North America is clearly not the case.”

We’re a long way away from our unit volume ceiling

“I can’t give you the specific number, but I can tell you that we believe that we are a long way from the average unit volume of a Starbucks store achieving its ceiling. And I think one of the unique strengths that we’ve developed over the last couple of years is being able to identify need states and then to link that need state with the right product made for our customers in a customized fashion.”

We’re leveraging the fixed asset that we have now

“There was a time when Starbucks’ entire business pretty much happened 70% to 80% of it before noon. Well, that’s not the case today. What’s happening today is that we have identified, developed and executed against the strategy of leveraging the fixed asset we have throughout the daypart by creating need states products, and now we’re going to extend that to evening.”

The thing we have done really well is stay small while getting big. It’s about local relevancy

“I think the thing we have done really, really well and it’s quite a challenge is, how do you get big and stay small? How do you maintain intimacy and trust with your customers and your brand when you are as ubiquitous as Starbucks has become? And the way you do that is through local relevancy and the kind of product design and experience that we’ve now been able to create around the world.”