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:
In the first quarter, US companies benefitted from low expectations, but results were generally just so-so
“while, results were admittedly far from robust, they did exceed our expectations…Net worldwide sales declined 5% in the first quarter, which was better than the 10% decline we had expected” —Tiffany & Co (NYSE:TIF) (Jewelry)
“our view, the results were impressive in light of the weak conditions plaguing the global agricultural sector…Net sales and revenues were down 18%” —John Deere (Ag Equipment)
Still, many companies have a right to be proud of the results they posted in a difficult environment
“crop receipts for 2015 are forecast to be about 23% lower than 2012’s record. John Deere expects to be solidly profitable in 2015…Such an achievement says a lot about the progress we’ve made establishing a wider range of revenue sources and a more durable business model.” —Deere (Ag Equipment)
There are signs that foreign currency fluctuations are having real impacts on demand
Weak tourist spending is equivalent to lost exports
“you can almost trace it back to when the euro started its precipitous decline. All of a sudden the tourism really dropped for us.” —Michael Kors (Apparel/Accessories)
Weak international bidding for US scrap metal has effects on used car prices
“We believe the cause of this lower ASP or average selling price is due primarily to lower scrap prices and softer international bidding. The lower scrap prices affect many of the lower end vehicles that we sell. The lower scrap price is caused by weakening global demand and a strong U.S. dollar. The softer international bidding primarily affects the higher end units that we sell and is primarily caused by a stronger U.S. dollar.” —Copart (Salvaged vehicle sales)
For now, many companies have mitigated the impacts of currency with financial hedges, but those hedges will roll off over the next couple of quarters
“we are exposed to transaction risk as our international businesses purchase goods and services in U.S. dollars. While we partially hedge purchases through forward contracts, many of our favorable contracts will be expiring in the early part of the fiscal year, resulting in higher cost of goods.” —Michael Kors (Apparel/Accessories)
On the plus side, housing markets seem very healthy
High-end home builder, Toll Brothers, is seeing pent up demand released around the country
“Pent-up demand is releasing in many markets…We are encouraged by the demand we’re seeing released around different pockets of the country. And hopefully that continues and we will also contribute to margin expansion around the rest of the country in 2016″ —Toll Brothers (Homebuilder)
Homebuyers aren’t focused on rates right now
“right now buyers don’t talk about rates, it’s not an issue, they have been sitting at this number for so long, so we don’t see it as an issue right now for our business.’ —Toll Brothers (Homebuilders)
They are also confident that they can resell existing homes
“We don’t hear as much about the concern of selling the existing home as we heard few years ago. To Bob stats, the stronger the resale market becomes the higher price of the houses become, the more comfortable people are in moving up and that is evolving.” —Toll Brothers (Homebuilders)
Amazingly, energy-linked economies aren’t exhibiting notable weakness
“Texas which for Toll is primarily Dallas and Houston, continues to perform well.” —Toll Brothers (Homebuilder)
“we’re tracking Alberta very closely. It’s very heightened alert but what we’re seeing is very little if any change in the core credit metrics that would say that any, in fact that has not driven any increase in the reserves for those areas on the consumer credit side.” —Toronto Dominion (Bank)
Some US consumer segments still don’t seem healthy though, especially for the middle and lower classes
Used car dealer America’s Car Mart saw delinquencies tick higher last quarter
“our accounts over 30 days past due are at 5.8% compared to 4.4% at the end of last fiscal year which tells us we are going to have to really work hard to minimize the effect of these higher delinquencies as we roll into 2016.” —America’s Car Mart (Used Car Dealer)
Trade-down categories did better than trade-up categories at Autozone
“our failure categories continued to do well, outpacing both maintenance and discretionary categories. This was…a little unique considering we were hoping the lower gas prices at the pump, coupled with the spring season, would lead to accelerating growth.” —Autozone (Auto Parts Retailer)
Tiffany’s weakest category was entry level silver jewelry
“we continue to experience weakness in silver jewelry sales before $500.” —Tiffany & Co (Jewelry)
International:
In the old days economic nationalism would have been accomplished through legislation (not currencies). That could always happen again.
“domestic payment schemes through regulation, nationalism, nationalistic chauvinism, I worry about that, because it’s not just a domestic schemes. If every country said, you’re going have to process everything on soil, everything on soil. Then, one of my biggest advantages is my global technology…If I had to change that and make centers in every country, my cost of operation would change ” —Mastercard (Payment Processing)
Starbucks (NASDAQ:SBUX) holds an annual meeting for employees’ parents in China in order to keep them happy with their kids’ career decisions
“over the last four years we have done something in China that I don’t think has been done before and that is I go to China every year to hold annual meetings of parents and grandparents. You got to see it to believe it. You are laughing, but it is no joke.” —Starbucks (Coffee House)
Tax avoidance is one of the biggest barriers to electronic payment adoption in India
“And only idiots like me pay taxes there…not paying taxes is a bloodsport in India, right. And that’s going to be, that’s one of the biggest reasons why acceptance in India is poor, acceptance is probably less than a million merchants, there is probably $10 million merchants and $1 million take cards and even they say the take cards, you show up with your card and the first thing will be told is, do you pay cash instead and it’s just the whole way it works, right. That’s going to take time to change.” —Mastercard (Payment Processing)
Financials:
Uhaul’s management noted that prices are getting a little high for acquisition of self storage properties
“We’ve been mentioning over the last couple of years or the last year really that prices on self-storage project have been going up. So we have been a little bit more careful on acquisitions of existing storage” —UHaul (Moving Trucks/Self Storage)
This is probably about as good as the credit cycle can get
“I think we’re at the point where we’re seeing kind of at the low end of the cycle of credit losses and I personally would not expect to see material significant downside going forward, on a positive downside.” —Toronto Dominion (Bank)
Competition for auto loans may be abating
“in terms of the competitive outlook, anecdotally we think we’re getting a little bit of relief there, but when you talk to the guys in the field there is still plenty of competition, if anything it’s just been a slight marginal improvement and certainly things aren’t getting any worse or any more aggressive.” —America’s Car Mart (Used Car Dealer)
Visa’s infrastructure isn’t a barrier to entry. It’s the analytics that sets them apart
“The things that we’re doing – anyone can build the switch. I mean, if we think of what we do for living, in networks or switch, in this day and age, that’s not the hardest thing to build. It gets harder if you actually want to have access to 2.5 billion consumers and 35 to 40 million merchants across the world. But that too can be built over a period of time…It’s the analytics, the fraud scoring, it’s all the work that we do to make that transaction valuable because it runs across the network which everyone else has to catch-up on.” —Visa (Payment Processor)
National processing schemes in Europe have handed responsibility to Visa and Mastercard because they can’t keep up with required investment
“Domestic processing schemes have struggled to spend the money to keep pace with that. So, in the Netherlands some years back, two or three years back, they kind of basically said, you take it over because we can’t keep pace with it. ” —Mastercard (Payment Processor)
Consumer:
Costco (NASDAQ:COST) said that it’s easier to secure organic food inventory because the supply chain is expanding
“the challenges are still out there although they are becoming less formidable because we like everybody else – there is more organic supply and producers doing it. And we are pretty good at getting out there and working with suppliers, both here and around the world to commit more to it, whether it’s raising eggs or ground beef processing or produce” —Costco (Retail)
Social Media followers is now a reportable metric
“In the fourth quarter on a year-over-year basis Facebook (NASDAQ:FB) followers increased 22%, Instagram followers increased 99%, Twitter (NYSE:TWTR) followers increased 46% and Weibo followers increased 120%, as consumers around the globe turn to Michael Kors for lifestyle and fashion inspiration.” —Michael Kors (Apparel/Accessories)
Visa and Mastercard have better data than anyone when it comes to helping digital advertisers
“We go to merchants and we say, we can do work for you, to help you understand what value you’re getting from your digital advertising. And there are plenty of people that will tell you, what happens in terms of how many clicks you get but they’re really very few if any who could tell you, whether it results in something actually turning into a sale, we can do that for you.” —Visa (Payment Processor)
Technology:
Michael Kors’ watch business is “not healthy” in North America, but it’s not clear whether that’s due to Apple (NASDAQ:AAPL)
“Our watch business is not healthy in North America. Outside of North America it is. And we did see shift in our business to jewelry. So whether that’s something that’s cyclical, whether that’s something that’s a trend, whether that’s something that’s driven around other entries into the category, we are not exactly 100% sure.” —Michael Kors (Apparel/Accessories)
It’s still early days for large scale companies to run finance software in a pure cloud environment
“It’s still relatively early in the days of selling finance large-scale to large-scale companies running in a pure cloud environment.” —Workday (Enterprise Software)
Healthcare:
Healthcare costs are much lower in foreign countries, which helps SG&A spending
“By the way what helps those numbers also has increased foreign expansion. There is a – just on benefits, which is primarily healthcare medical, dental, and vision in a large extent. They are U.S. versus other countries. In some countries there is 40 basis points to 60 basis points of delta just on that SG&A item because healthcare cost in the U.S. are so much higher than everywhere else.” —Costco (Retail)
Materials, Industrials, Energy:
A sign of a floor for gold prices? Tiffany saw strength in gold jewelry
“fashion jewelry was a strong performer in the quarter. The strength in fashion continued to be led by gold jewelry designs.” —Tiffany & Co (Breakfast establishment)
The agriculture equipment industry is facing its deepest downturn in 25 years
“we’re facing, as you know, the deepest downturn in North American large Ag equipment industry in 25 years” —John Deere (Ag Equipment)
If the weather is good this year, 2016 will probably be another tough year for ag equipment suppliers
” if you talk to our Chief Economist, he would tell you we’re really in kind of a year-to-year type of mode right now. And as frustrating as it may be for people to hear, it really is about what happens this summer with the current crop that’s in the ground. If you’re going to assume another year of better than average weather, where yields are above trend yield, then certainly it’s going to be a challenging argument to make that 2016 would certainly improve really anywhere around the globe.” —John Deere (Ag Equipment Supplier)
Miscellaneous Nuggets of Wisdom:
Take your time when making big decisions
“this is a big decision, and we at AutoZone (NYSE:AZO) are pretty methodical in how we make decisions. This isn’t about next year or year after, this is about the long-term and so we want to make sure we get it right. So we’re going to take enough time to get it right.” —Autozone (Auto Parts Retailer)
The goal isn’t necessarily to be the biggest
“I’ve told you we don’t aspire to be the number one market share…the way that you would have to grow the market share additionally in North America would be very promotionally-driven and we don’t want to do that. And we’re comfortable with that.” —Michael Kors (Apparel/Accessories)
The quarterback gets too much credit and takes too much of the blame
“I think the quarterback always gets too much credit and perhaps maybe too much blame. But there is such great talent inside the company.” —Starbucks (Coffee Shop)
There is a propensity to under-estimate how much success a great company can achieve
“how many of you would have thought in 1992 when we went public we had 125 stores, we had one quarter of profitability, people could not pronounce the Italian words on the menu. People said what is the grande, what is a venti, what is that. How many people would have thought that from 1992 to today, we were to achieve this kind of recognition and respect in terms of the equity of the brand and the global nature of Starbucks footprint. And I suspect there is not probably many of you.” —Starbucks (Coffee Shop)
Full transcripts can be found at www.seekingalpha.com
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.