Each week we read dozens of transcripts from earnings calls and presentations as part of our 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.
*A brief programming note: Scott is getting married this week so Jeremy will taking the reins for this week and next week’s company notes posts. Enjoy!*
Consumer:
The CEO of AB Invev (BUD), Carlos Brito, highlighted the brewer’s scale as one of the firm’s most important competitive advantages for his stable of brands which includes Budweiser, Corona, & Stella Artois
“We are the leader in the beer industry, both by volume and profitability. Our volumes are more than 50% larger than those of our closest competitor – and our EBITDA is more than 30% larger than our four largest competitors combined..
“Scale matters. It drives operational leverage, and provides the resources, access to properties and commercial opportunities which provide excitement for our customers and consumers. We have made a conscious decision to focus our efforts on the most important markets, those markets with the largest profit pools and the greatest growth potential. Today, we hold the number 1 position in 4 of the 5 largest profit pools in the world. The top three markets, the US, Brazil and Mexico, alone represent nearly 40% percent of the global profit pool.”
The CEO of AB Invev (BUD), Carlos Brito, stressed the importance of the firm’s diversified brand portfolio allows them to compete in different consumer segments and geographies
“Each of our three global brands, Budweiser, Corona, and Stella Artois has a unique and differentiated consumer proposition, while our international brands of Beck’s, Hoegaarden and Leffe have rich histories and quality credentials. Our local champions which command significant consumer loyalty, complete a strong portfolio. Our portfolio now includes 16 brands with more than one billion dollars in annual retail sales, and more in the making. Based on the 2015 BrandZ report, we own 4 of the top 5, and 7 of the top 10 most valuable beer brands in the world. BrandZ also confirms that Budweiser remains the only beer brand, across all categories, in the Top 100, at number 33.”
The CEO of AB Invev (BUD), Carlos Brito, spent a considerable amount of time discussing how their culture differs from their peers
“Our culture is based on an ownership mindset. Our people are consumer-focused, never completely satisfied with results and always looking to open new gaps to drive performance. Our culture is one in which we lead by personal example, in an open and informal manner, and manage our costs tightly, so as to free up resources to support top line growth. We keep things simple rather than introducing unnecessary complexity. We never take short-cuts. We understand it takes time to build a great company and that there is only one way to do it, the right way.”
Chief Financial Officer for AB Inbev (BUD), Felipe Dutra, said the company has gained a considerable amount of financial flexibility on favorable terms by being able to issue debt in Euros
“In addition to the fact that there is little depth of liquidity or flexibility in terms of tenor in the Brazilian Real debt market, matching our Brazilian Real cash flows to Brazilian debt would be too expensive given prevailing interest rate levels in Brazil. As a result, we have found that Euro funding has proven to be the single best alternative as the EUR bond market is considerably deeper, cheaper and more flexible.”
The CEO of Campbell (CPB), Denise Morrison, said the food sector is changing dramatically
“The food industry is in a period of revolutionary change, which presents both challenges and opportunities for Campbell. The changes in the industry are being driven by several seismic shifts; new global economic realities in the U.S. and abroad; major demographic changes and the redefinition of the American family; profound changes and consumer preferences for food, with greater focus on health and wellbeing, and the impact of digital technologies on marketing, shopping and the growing demand for greater transparency about food.”
The CEO of Campbell (CPB), Denise Morrison, highlighted the dramatic effects that 3G Capital’s lean operating strategy has had on the entire food industry with their recent takeover of Kraft Heinz
“The convergence and acceleration of these shifts are reshaping the consumer and retailer landscape. Combined with the prevailing industry dynamics of consolidation and cost cutting these shifts are placing increased pressure on traditional center store categories and mainstream food companies. We’ve also made substantial strides to improve our cost structure through our cost savings initiatives and enterprise redesign.”
The CEO of Campbell (CPB), Denise Morrison, said their taking a page out of the 3G capital playbook and are implementing zero based budgeting
“We initiated plans for zero-based budgeting (ZBB) process. We’re piloting ZBB in two cost categories in fiscal 2016 with plans to expand in the future. We’re off to a very good start to realizing our $250 million cost savings target. We delivered earlier than expected savings of approximately $85 million across several categories, including headcount reductions, non-working marketing, reduced travel expenses and spending on consultants.”
The CFO of Campbell (CPB), Anthony Disilvestro, said Americans aren’t eating as much soup as they use to but the company still commands the largest share of the soup market
“The category as a whole declined 0.9%. Our sales in measured channels declined 0.7% with weakness in ready-to-serve soups partly offset by gains in broth. Our share increased 10 basis points in the last 52 weeks and has now been relatively stable for three years. Other branded players in aggregate had a share of 28.1%, declining 30 basis points, while private label with a 12.6% share gained 20 basis points”
The CEO of Campbell (CPB), Denise Morrison, said they are reducing their television advertising spend
“We are shifting more dollars out of conventional TV and more into digital. And that spend has been shifting over time but will be up to 40% going forward.”
Industrials:
The CEO at Donaldson (DCI), Todd Carpenter, said the firm which manufacturers filters for various industrial applications is significantly reducing their capital expenditures in China due to recent slowing in the region
“In China we have been investing for growth that has not yet materialized as we expected which prompted us to evaluate both our operating expense structure and asset base. This evaluation resulted in us implementing workforce reductions in China. In addition as we assessed our production capacity needs over the next several years, we determined that we are no longer going to pursue our second campus in China at this time. As a result we recorded a $2.9 million charge in gross margin to exit our partially completed facility in Xuzhou.”
Materials:
The CEO at Joy Global (NYSE:JOY), Ted Doheny, said the mining business is in a world of hurt
“The mining industry continues to be challenged with low pricing, regulatory issues, lower global demand drivers, strained cash flows, and oversupply commodity markets resulting in major reductions in capital expenditure plan. In some cases, we’d even seen complete freezing of all CapEx until a full project-by-project short-term payback assessments are completed. Without question it’s one of the toughest market landscapes in recent history, as a result, we continue to make prudent business decisions to reduce cost while still investing and driving our profitable growth strategies. The markets are tough, or, actually internally have used the word the markets are brutal.”
The Chief Financial Officer at Joy Global (JOY), Dan Sullivan, said weakening demand for coal decimated client orders
“After the sequential increase in the second quarter, service orders in the third quarter took another step down primarily due to difficult conditions in the North America coal market which regulatory pressures and sustained sub $3 natural gas prices reducing production levels which are now projected to be down approximately 10% for the year. The 33% decrease in surface mining equipment bookings versus the year ago period was comprised of the 68% decrease in original equipment, and an 18% decrease in service. We have now gone two consecutive quarters without a shovel order.”
And their earnings are starting to get hurt by some of their customers filing for bankruptcy
“The bad debt expense recorded in the quarter was attributed to bankruptcy filings of certain US coal customers. As a point of reference, US coal represented approximately 21% of sales.”
The CEO of Joy Global (JOY), Ted Doheny, reminded investors what a cyclical business the mining machinery business is
“We’re annualizing at $2.8 billion EBIT, we were $5.6 billion just three years ago. There is more to do but we’ve lost almost half of our volume. So we’ve got some more work to do to hold that now that we’re showing that there is a step down in the market coming.”