by Scott Krisiloff, Avondale Asset Management
Each week I read dozens of transcripts from earnings calls and presentations as part of my investment process. Below is a weekly post which contains some of the most important quotes about the economy and industry trends from those transcripts. Click here to receive these posts weekly via email.
The Macro Outlook:
Autozone sees a real impact of lower gas prices on its customers
"We continue to believe gas prices have a real impact on our customers’ abilities to maintain their vehicles, and as cost reductions help all Americans, we hope to benefit from some increase in disposable income." ($AZO)
Kroger also sees increased confidence
"Kroger customers are increasingly positive about the economy since late last year through the new year. They are feeling more comfortable with their discretionary spending, in part due to the low retail price of fuel.’ ($KR)
Lower income consumers benefit most from lower gas prices
"lower gas prices [are] relieving some pressure, particularly on our most economically challenged customers" ($AZO)
Fuel prices have been rising in recent weeks though
"Fuel prices rose 19% after they troughed in January. As I mentioned earlier, rising fuel prices have to some extent negatively impacted consumer sentiment in recent weeks.’ ($F)
Ford saw something change around the 20th of last month
"There was definitely a slowdown from about the 20th on in the month. I don’t know. I haven’t seen all the numbers coming from the competition yet, but from what I have seen, it seems like it was industry-wide. Why? I don’t know. I quit trying to explain the weather and its impact many, many years ago. So I really can’t attribute to one thing or another. Don’t know on the gas price. Maybe somebody in the room can help with that. But I don’t think there is any question, the industry slowed a little bit in the last week." ($F)
Low inflation makes it more difficult for companies to grow their top lines
"We have not been the beneficiary of inflation over the last, almost at this point I’d say 18 plus months, maybe pushing 24 months, and it doesn’t appear as though there’s a lot of inflation in the horizon either." ($AZO)
"we will also be facing industry and economic pressure…including more rapidly declining average spending prices in key product categories" ($BBY)
"From a comp standpoint, there’s numbers of factors that can go into [it]…One of those that you mentioned was inflation. We are expecting a little bit less inflation." ($KR)
As businesses gain confidence, they seem to be more focused on reinvesting in growth
"we’ll probably spend a little bit less on share buyback during – in terms of dollars in 2015 versus 2014. We are increasing our expectations for capital spend by a few hundred million dollars more because of the great pipeline of projects I spoke of in the prepared comments. And that’s what we think we would believe is the driver for growth in the future." ($KR)
Macro risks aren’t affecting the art market
"against the backdrop of some instability in Russia and questions about Chinese growth, you could have seen in those high profile Impressionist and Contemporary sales some hesitance or reticence to bid on those quality offerings. In fact, we saw just the opposite, strong demand, a strong commitment towards wanting to acquire great works of art’ ($BID)
Financials:
Improving credit isn’t a tailwind for banks anymore, but credit quality is still holding up
"While the tailwind from credit is abating, we continue to feel good about the quality of our portfolio. Overall, any increase in credit costs from here should be mostly driven by loan growth as well as lower loan loss reserve releases as credit normalizes." ($C)
Trading revenue at Citi is likely to be down due to currency charges, but activity has been strong
"Overall, we have seen strong client activity across rates and currencies this quarter and in particular in our local markets franchises. Despite the January event, we still currently expect rates and currencies revenues to grow year-over-year. Excluding this event, we would have characterized that growth as strong." ($C)
Citi thinks that the majority of its legal exposures are behind them
"We have said that we believe that with those charges we have put a significant portion of our legal exposures behind us, but of course you really can’t say that everything is over until you have actually announced settlements, but we do think that with the $9.4 billion of charges that we took last year that was a meaningful pay down then of our legal – remaining legal exposure." ($C)
Consumer:
Most would not have seen this coming in 2012: Best Buy saw strength in TVs offsetting weakness in tablets
"we capitalized on the product cycles in large screen televisions and mobile phones. These two categories were the primary drivers of our year-over-year revenue growth, and more than offset weakness in the tablet category which was impacted by material industry declines’ ($BBY)
Online advertising has shifted to a realm that creative agencies are more comfortable in
"Agencies have always been wary I think of technology shift. And I think the original shift online was complicated for them, because a lot of what online advertising meant was search space and the creative process is perhaps not as important in the search page tech as it was in TV, but with that the creative really matters, because we are doing photos and Instagram and video and creative thoughts and so agencies have been really important. So we work hard on our agency relationships..I think we try hard to be good partners to the agencies" ($FB)
Agencies get how to buy TV, they feel comfortable doing it
"If you are brand marketer you know exactly how to buy TV. You have been buying TV for your entire career; there is a huge process in your agency to set that up." ($FB)
Facebook is trying to make it so that the efficacy of TV ads are matched by digital
"One of the main reasons people gave for a long time that more spend wasn’t moving to digital is because all the marketers would say a TV sells my products. TV sells my products that’s right, you can feel the strength of the beautiful 30 seconds thoughts that I produced, now you can build that on Facebook and increasingly across digital and I think we’re going to see overtime people understand that" ($FB)
Linkedin is trying to build that same level of compelling content to help you sell yourself
"social selling…historically, when a sales person came calling. You had no mechanism of understanding who they were…Today…the sales person gets a chance to establish their identity and this isn’t just about a resume or the profile and the experience of their skills or their ambition, it’s their post, it’s the content that they’re sharing, it’s the product that they’re selling" ($LNKD)
Technology:
IBM excels at dealing with the complexities of technology at a large enterprise. You can’t just use a retail solution
"Remember moving — changing flights onboard a plane means you’ve to get back into the company’s reservation systems that means you’ve to be able to tell your client, your customer on a plane I’ve got that seat for you and nobody else will take, that means you’ve to interact with those records and the systems of record which is not trivial and you’ve to make sure that you do it in a secure way. That’s just a system side. Then you get into — think about a roll out and we do and we deploy and we manage and we upgrade and keep those systems moving. So when you have a fleet or you’ve a labor force of thousands and thousands of these that you want to deploy you have to get them into the hands of the users, when it breaks you’ve to be able to deal with a broken machine. As an enterprise you don’t want to go to a retail store and give all your corporate data to whoever happens to be in the retail store. So we provide the service around that." ($IBM)
Materials, Industrials, Energy:
There is price elasticity to oil demand
"Lower price environment is likely going to stimulate increased demand and although I can’t quantify for you, it looks like the other data points the associated data points would be headed the right direction for that to happen." ($VLO)
The metals and mining industry continues to struggle
It sounds like Joy Global had an even tougher quarter than they expected
"We had expected a slower first quarter with many of our customers taking extended production shutdowns. However, the further deterioration seen in some of our major end markets resulted in a tough quarter for us." ($JOY)
For dry bulk carriers, the fourth quarter was “disastrous”
"As we all know by now 2014 ended in a disastrous way" ($DSX)
Diana shipping still doesn’t see a bottom in the dry bulk shipping market
"we have no change whatsoever in our bearish view about the market. We have not seen the scrapping and the laying up of vessels that we want to see before will start going up this scale. The psychology as regard to market turning positive should turn little bit more to the less and less optimistic. But not at the pessimistic level. We won’t achieve that before and some other things as we have explained in the past, before we start going up in the scale of your question." ($DSX)
They are preparing for a turn though, perhaps in 2016
"we believe that purchasing vessels at this point in the cycle will prove to be profitable investment as the market strengthens gradually from 2016 and beyond…We also believe that provided there is a continued restrain in ordering, the lack of bank finance and the even greater lack of investor appetizing the capital markets will eventually lead the industry to better days.’ ($DSX)
Long term fundamentals are still strong for copper markets
"While there certainly will be periods of volatility in copper markets, the fundamental long-term dynamics remain positive and provide an investment opportunity for most of our customers." ($JOY)
Coal may actually be a mining industry best poised for a rebound since it’s been so beaten up
"globally looking at it, Jerry, it’s probably the best opportunity for growth coming back is actually coal because we’ve had 2 years of reduction there." ($JOY)
Miscellaneous Nuggets of Wisdom:
Sheryl Sandberg says teach your kids to code
"every single person in here have kids, teach them the code because that how they are going to have job" ($FB)
Sentiment doesn’t get really negative until analysts stop caring about an industry
"The next time that we will have less and less analyst really interested about the dry bulk sector it would be a very good point for the market to start for us to start thinking positively." ($DSX)
Focus on returns on capital
"our primary focus has been and continues to be that we ensure every incremental dollar of capital that we deploy in this business provides an acceptable return, well in excess of our cost of capital. It is important to reinforce that we will always maintain our diligence regarding capital stewardship as the capital we invest is our investors’ capital." ($AZO)
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