What CEOs Said Last Week: Taking a "wait and see" attitude

by Scott Krisiloff, Avondale Asset Management

It’s almost the end of the first quarter, so this was a particularly light week for earnings calls. There were a few companies that spoke at conferences, but in general there’s not a lot to talk about this week.

Janet Yellen held a press conference after the FOMC meeting, which was more of the same. The Fed did make a token rate increase, but is in no hurry to change course. Even though Yellen acknowledged that there has been an “obvious and notable” improvement in sentiment, the Fed seems determined to wait to act until something happens to force its hand.

The sun is quickly setting on the Yellen Fed though. Yellen’s term expires in January 2018 and Trump will probably appoint someone from his camp. That creates an odd lame duck period for Yellen. Her opinions are likely to matter less and less in the months ahead. The Fed may raise three times this year, but what about 2018? The outlook is foggier than usual.  It’s very possible that Trump’s Fed Chair will have a radically different vision for monetary policy. 

The Macro Outlook:

The Fed raised rates, but policy remains accommodative

“Even after this increase, monetary policy remains accommodative, thus supporting some further strengthening in the job market and a sustained return to 2 percent inflation.” —Fed Chair Janet Yellen (Central Bank)

There is an “obvious and notable” improvement in sentiment

“I think it’s fair to say that many of my colleagues and I note a much more optimistic frame of mind among many, many businesses in recent months…the shift in sentiment is obvious and notable.” —Fed Chair Janet Yellen (Central Bank)

But the Fed is taking a “wait and see” attitude

“But I’d say most of the business people that we’ve talked to also have a wait and see attitude, and are very hopeful that they will be able to expand investment and are looking forward to doing that, but are waiting to see what will happen. So, we will watch that. And, of course, if we were to see a major shift in spending reflecting those expectations, that could very well affect the outlook. I’m not seeing it — I’m not seeing that at this point.” —Fed Chair Janet Yellen (Central Bank)

The Fed isn’t changing its outlook

“as you said, the data have not notably strengthened…we haven’t changed our view of the outlook. We think we’re on the same path; not, we haven’t boosted the outlook projected faster growth. We think we’re moving along the same course we’ve been on” —Fed Chair Janet Yellen (Central Bank)

And is staying on a gradual course

“I think the trajectory that you see is the median in our projections which, this year, looks to a total of three increases. That certainly qualifies as gradual.” —Fed Chair Janet Yellen (Central Bank)

They continue to believe that the “neutral rate” is existentially low

“the Committee continues to anticipate that the longer-run neutral level of the federal funds rate is still likely to remain below levels that prevailed in previous decades.” —Fed Chair Janet Yellen (Central Bank)

International:

Visa said that international economies have stabilized

“Chinese growth isn’t changing, that still I would say, okay, not great, but at least it’s stabilized, the rate of growth is not declining. Oil economies have stabilized. So, cross-border commerce out of there is returning. And then beyond Europe…there was a massive amount of inbound commerce into the UK and frankly into many parts of Europe because of the weak euro and then the strong dollar moderated. I mean it isn’t getting weaker, but it’s not getting stronger at the same rate.” —Visa CFO Vasant Prabhu (Payments)

GE sees improvement in Europe

“In Europe things were better particularly in Germany and Spain driving Europe and then secondly I think actually we’ve seen some improvement in France and Italy, so I think it’s market-by-market, but we are seeing in general strong economy that’s driving equipment sale.” —GE Capital CEO Richard Laxer (Conglomerate)

It’s tough to predict what will happen in DC, but you can prepare

“One of things we have encouraged our customers to do is run three, four, five scenarios so they kind of get it into muscle memory and therefore depending on whatever happens in terms of DC and the U.S. government, we are ready to act swiftly.” —Jabil CEO Mark Mondello (Electronics Manufacturing)

Financials:

Mastercard still sees room for more electronic payments

“The verticals that are not as mature or more nascent are rent, education, consumer loans, utilities…it’s in those verticals that we really see the opportunity to convert a significant amount of volumes, trillions of dollars in volume over to electronic…84% of our world transactions are conducted in cash and check today.” —Mastercard EVP Linda Kirkpatrick (Payments)

Consumer:

Location is still important in a digital retail world

“we are looking at our business as a digital business and with the digital business you have to place warehouses [stores] close to your consumer and with our 500 warehouses we have today, we’re within 20 minutes of 70% of the U.S. population. So when we’re looking to build out a new warehouse we’re trying to figure out, how can we get closer to that customer, so that someday we can meet that demand of the customer of delivery within whatever short period of time we want to deliver upon.” —DSW CEO Roger Rawlins (Shoes)

Healthcare:

Credit analysts looking for a deleveraging story might consider Abbott

“I think right now in the short-term, our big focus is debt repayment…We come out of the gates this year, and doing the St. Jude acquisition with about $28 billion; so it’s going to be in our best interest to pay down as much as we can as quickly as possible.” —Abbott Labs CFO Brian Yoor (Healthcare)

Industrials:

Non-res construction markets are solid

“we feel really good about the customers we are talking to. There is no customers that I have talked to in a non-res construction environment that didn’t say, hey, we feel really good about the year and we are proceeding as we thought. So, I think its line with being a solid market out there. I think that’s the right description of it.” —HD Supply CEO Joe DeAngelo (Industrial Distributor)

Television inventories are healthy

“Our view of inventory is that it’s going to be healthy coming into the year…the panel market inventory which is where we have the best line of sight has been pretty consistent. They’ve been running high utilizations and have maintained the same level of inventory now for quite a while. So, I think we feel good about supply chain inventory assuming that retail demand does what we expect this year in total which is up mid-single digits.” —Corning IR Ann Nicholson (Glass)

Miscellaneous Nuggets of Wisdom:

Valuations go up and they go down

“So there is one thing I know with certainty about valuations, they will change right. They will go up, they will go down and they will float but that’s the only thing I know with certainty about valuations” —Pfizer CFO Frank D’Amelio (Pharma)

Full transcripts can be found at www.seekingalpha.com

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