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.
It was another light week this week, but next week earnings season starts to kick into high gear…
The Macro Outlook:
It’s now clear that we’re in a low industrial demand environment
“At the time, I said that it was unclear as to whether we had moved out of a moderate demand environment and into a low one…With another few months under our belts and with the same headwinds persisting, it’s now clear that we are in a low demand environment.” —MSC Industrial Direct (Industrial Supplies)
Low oil prices and exchange rates are impacting manufacturing activity
“Root causes for the slowdown included the impact of the rapid drop in oil prices, softening export demand, and foreign exchange headwinds all of which were impacting broader manufacturing activity.” —MSC Industrial Direct (Industrial Supplies)
The good news is that things have stabilized at low levels
“while things have not continued to deteriorate, they have essentially remained at low levels in what is a sluggish environment…most customers are suggesting that their activity has at least leveled, meaning they’ve not seen further significant declines.” —MSC Industrial Direct (Industrial Supplies)
The pricing environment is very soft
“With respect to the pricing environment, conditions remain extremely soft, due primarily to the lack of commodities inflation. Supplier pricing activity, which is the primary driver of distribution pricing movement, remains well below historical levels.” —MSC Industrial Direct (Industrial Supplies)
Small local distributors are fighting for survival
“the national players, get hit certainly. We get affected when there’s a slowdown. The local distributors that make up the 70% of the market get disproportionately hit. And what we see in times of slowdown is competition. They will get very – the local distributors will get very competitive. So I would say price competition is very high right now. And a lot of that, I mean, that’s really being driven off the local distributors doing what they do when things get slow, which is fight for survival.” —MSC Industrial Direct (Industrial Supplies)
Hiring is slowing
“With respect to sales force expansion, we continued moderating as we had started to do last quarter. This is in response to the softening demand environment, as sales force paybacks lengthen when growth rates slow.” —MSC Industrial Direct (Industrial Supplies)
Alcoa (NYSE:AA) sees strength in US construction though
“When you go to building and construction, actually we do believe in North America continue to believe in the 4% to 5% growth for this year. The early indicators are really positive.” —Alcoa (Aluminum)
International:
Europe is still weak
“Weakness in Europe continues. We anticipate the usual European summer slowdown across all sectors” —Alcoa (Aluminum)
Pepsi’s growth looked strong in constant currency, but big headwinds hit GAAP
“Based on the strength of the quarter, our overall first half results and our outlook for the remainder of the year, we are increasing our full year of core constant currency 2015 EPS growth outlook to 8%…We expect foreign exchange translation to negatively impact net revenue and core earnings per share growth by approximately nine and 11 percentage points respectively, based on current market consensus rates.” —Pepsi (Snack Foods)
What is constant currency anyways?
“Since our results fluctuate due to the changes in foreign currency exchange rates, we also discussed our sales in what we call constant currency. For that we translate the current period results from the foreign subsidiary functional currency in the U.S. dollars at the same period last year exchange rates.” —WD-40 (Consumer Chemicals)
Financials:
Valuations are high but the cost of money is low
“As you know we have been always [indiscernible] with potential acquisitions, so we will if we will have an opportunity we will analyze this opportunity very rationally and we will do it just if this will create additional value. It’s true the market is now quite bullish but it’s also true that the cost of the money is still quite low” —Walgreens Boots Alliance (Drug Stores)
Consumer:
Consumers will spend irrationally just to hit free shipping thresholds
“We always kind of joke around here that customers widely overvalue free shipping these days…free shipping status, we intentionally said it is $75 in order to drive incremental spend.” —The Container Store (Specialty Retail)
Packaged food companies could be the target of government action
“we are also in constructive conversations with governments, to make sure there aren’t any discriminatory taxes or discriminatory action on any of our categories.” —Pepsi (Beverages and More)
Healthcare:
Walgreens expects a substantial wave of consolidation in the healthcare sector
“I have said many times, that I believe that the American markets will go through a substantial wave of consolidation horizontally and vertically. I have said very clearly that we want to be part of this, at the right time with the right partner. We are open to any kind of combination which could improve the value of our company and we are looking actively around us to understand which is the best option for us. But please don’t forget that we are looking actively not just in the U.S. but even in other countries because we consider ourselves a global company.” —Walgreens Boots Alliance (Drug Stores)
Materials, Industrials, Energy:
On average it takes 18 years to bring a mine from discovery to production
“The reality of today’s environment is that mining projects now take an average of 18 years to reach production after discovery.” —Novagold (Gold Mine)
Klaus Kleinfeld is still very bullish on aerospace markets
“you can see that we are really optimistic, as most people are, in where this market is going, right? So, and the fundamentals are there. I mean, and they are very different from what we’ve seen before. We didn’t have an emerging Asia that adds 100 million new passengers every year in the next 20 years every year. We didn’t have a situation where the next-generation aircraft was so much more attractive in terms of fuel efficiency and maintenance costs and where we literally had 600 aircraft per annum retiring every year.” —Alcoa (Aluminum)
Miscellaneous Nuggets of Wisdom:
No one likes to see their share price drop but you can’t be concerned by it
“Nobody likes to see their share price drop. But we’re not really concerned by that. I mean the main decision for NOVAGOLD is two years out into the future, that’s a lifetime in the gold industry, particularly as tumultuous as its been the last four months” —Novagold (Gold Mine)
Employees take care of customers take care of shareholders
“Herb Kelleher Southwest Airlines always said we take great care of our people, they take great care of our customers and our customers take great care of our shareholders and we wholeheartedly agree.” —The Container Store (Specialty Retail)
Nobody likes cost cutting, everybody likes growth
“look nobody likes cost cutting, everybody likes growth.” —Pepsi (Sugar Water)