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.
The Macro Outlook:
From the FOMC minutes, it sounds like the Fed is right in line with the market consensus
Economic growth has remained solid
“meeting participants regarded the information received over the intermeeting period as indicating that economic activity had been expanding at a solid pace.”
Oil prices should boost consumer spending
“Recent declines in oil prices, which had boosted household purchasing power, were among the factors likely to underpin consumer spending in coming months”
The foreign economic situation could pose a risk, but accommodative actions probably helped
“Accommodative policy actions announced by a number of foreign central banks had likely strengthened the outlook abroad.”
Even the Fed seems perplexed as to why longer term interest rates are falling
“Participants also discussed…the substantial decline in nominal longer-term interest rates…The fall had occurred despite the strengthening U.S. economic outlook and market expectations that policy normalization could begin later this year. Some participants suggested that shifts of funds from abroad into U.S. Treasury securities may have put downward pressure on term premiums”
Lower rates could be a function of deflation expectations
“a few participants argued that…policymakers might still want to take that decline into account because it could reflect increased concern on the part of investors about adverse outcomes in which low inflation was accompanied by weak economic activity.’
But in general, the FOMC believes that inflation is still on track
“Participants generally anticipated that inflation would rise gradually toward the Committee’s 2 percent objective as the labor market improved further and the transitory effects of lower energy prices and other factors dissipated”
A rising dollar could be a headwind to exports
“However, the increase in the foreign exchange value of the dollar was expected to be a persistent source of restraint on U.S. net exports, and a few participants pointed to the risk that the dollar could appreciate further’
Many are concerned about what happens when “patient” goes away
“Many participants regarded dropping the “patient” language in the statement, whenever that might occur, as risking a shift in market expectations’
A few say that Fed Funds has been at zero for long enough though
“Some observed that, even with these risks taken into consideration, the federal funds rate may have already been kept at its lower bound for a sufficient length of time, and that it might be appropriate to begin policy firming in the near term.’
Are WalMart’s actions a sign that wages are finally on the increase?
Wal-Mart (NYSE:WMT) is giving its employees a pay increase
“Approximately 500,000 full-time and part-time associates at Walmart U.S. stores and Sam’s Clubs will receive pay raises in the first half of the current fiscal year.”This may be good for the long term health of the company
“As a result, we firmly believe that our customers will benefit from a better store experience, which can drive higher sales and returns for our shareholders over time.”
But it will impact this year’s earnings
“These strategic investments, which will cost approximately $1 billion this year…The full year earnings per share impact is expected to be approximately $0.20….We expect full year earnings per share to range between $4.70 and $5.05. This compares to reported earnings per share of $4.99 in fiscal 2015″
Although there are reports to the contrary, Jack In The Box (NASDAQ:JACK) isn’t seeing an increased competition for employees
“we have been reading some of the articles out there that are pointing towards this competition for talent and that there’s this war being waste for talent across competitor brands. We’re not seeing that, we’re not seeing it in our turnover numbers and we’re just not experiencing that behaviorally in the restaurants.’Jim McNerney wins for my favorite exchange of the week
Analyst Q: “And how do you feel about the valuation we see out there because it –”
A: “It’s ridiculously high with the possible exception of my share price. The numbers are hard to make work without significant bolt on kinds of synergies.” Bank of America (NYSE:BAC) Corporation (NYSE:BAC)
Financials:
Competition in sub-prime auto lending has gotten a little less silly
“when you talk to folks in the field, we are just seeing a little less pressure and a little less silliness than we saw 12 months ago. It’s — but the competition is still out there, the securitization market is still very strong’ Americas Car-Mart Inc (NASDAQ:CRMT)
The reinsurance market is over-capitalized and highly competitive
“The reinsurance market remain challenging during 2014, in general the market remains over capitalize in this highly competitive especially for new business” Greenlight Reinsurance Ltd (NASDAQ:GLRE)
The catastrophe business is the most competitive because of few catastrophes and influx of capital
“Our property catastrophe retro accounts continue to benefit from the light year from catastrophe. However, this was the most competitive area in the market due to influx of alternative capital and the recent history of years without a major loss’
Consumer:
Promotional activity in retail may have abated in the fourth quarter
We actually think in the fourth quarter last year there was actually less promotional activity than it was in the prior year. So we are pleased with that trend.” Fossil Group Inc (NASDAQ:FOSL)
Technology:
What will happen with the Telecom industry in 2015?
John Legere says it’s obviously competitive. Sprint has come out swinging and AT&T (NYSE:T) and Verizon have gotten burned
“The competitive environment into ’15, obviously, is intense…[Sprint is] swinging the bat pretty hard, trying to get some activity flow. I think AT&T and Verizon played really hard, and they felt the pain really badly. In Q4, I think the hand on the hot stove by the young child didn’t feel pretty good, and they’re taking the hand off the stove.” T-Mobile US Inc (NYSE:TMUS)
T-Mobile is rooting for Sprint
“we’re rooting for Sprint. We need Sprint to help us give — take a few shots at the big guys and cause a little churn in the industry. And churn is good for us.’ (TMUS)
Is there something brewing between T-Mobile and Dish?
“I think DISH is a great opportunity, both for the country and for possibly T-Mobile.’ (TMUS)
Rackspace is seeing customers gravitate towards a hybrid public/private cloud
“More of our customers are consuming multi-tenant and single tenant product together in hybrid solutions, where the solution itself will dictate the best infrastructure form factor for that particular application.” Rackspace Hosting Inc (NYSE:RAX)
The marketplace is understanding the cloud now
“The market, as you’ve heard me say, is moving from hype to wisdom” (RAX)
Quality of wireless spectrum is more important than quantity
“much is made of the quantity of spectrum that each carrier holds, but spectrum strategy is much more than simply acquiring megahertz. Equally, if not more important, is what bands we have, are they fairly ubiquitous across the footprint, are they mainstream industry bids, and are they free from encumbrances?” Verizon Communications Inc (NYSE:VZ)
Healthcare:
Healthcare expenses were a headwind for WalMart last year, although not as bad as anticipated
“Although not as high as we anticipated, healthcare expenses were a headwind for Walmart U.S. during the year.” (NYSE:T)
Materials, Industrials, Energy:
Oil and Gas CEOs don’t seem to believe that oil prices will stay where they are
“our overarching goal this year is to prepare for oil price recovery. It is clear that current prices are too low to meet the world’s supply needs and the market will rebalance…The current supply demand imbalance is not very large.” EOG Resources Inc (NYSE:EOG)
They still are ready to move forward with capital projects, but they need to please their investor base
“I’ve been in front of a lot of customers over the last couple of week, particularly in the Oil & Gas business. And for the types of things that we’re chasing, they feel pretty bullish about them going forward. It’s just a matter of when. I think they’ve got their challenges with their investor base that they are dealing with and they are taking one more look in a deep breath before they start pulling the trigger on some of these programs” Fluor Corporation (NYSE:FLR)
The pipeline of oil and gas projects has not diminished for Fluor, it’s just been extended
“The pipeline of projects is not diminished..some of it has been pushed to the right…the gestation period is longer…But as we go over the next 12 quarters, I feel pretty good about solid growth in that market place over that longer period of time. And that’s Oil & Gas.” (NYSE:FLR)
EOG is cutting capex by 40% this year though
“2015 CapEx represents a 40% decrease from 2014. As Bill mentioned earlier, we’re not interested in growing oil production in a low price environment.’ (NYSE:EOG)
Greenlight (along with a lot of other hedge funds) exited its energy investments in Q4
“In the fourth quarter we exited our energy positions in Anadarko BP, Mcdermott and National Oilwell Varco (NYSE:NOV). We hedged our underlying exposure to oil mid-year by shorting crude oil futures. This protected us from the sharp falloff in oil prices.’ Greenlight Reinsurance Ltd (NASDAQ:GLRE)
US production growth should turn flat to negative by the end of the year
“our view now is that we really believe with the consensus opinion that as we go forward due to the response of the industry that we could have flat to maybe even negative U.S. production growth on a month-over-month basis by the end of this year, and that certainly going to slowdown U.S. production growth this year.’ (NYSE:EOG)
Boeing feels like the value proposition for the 787 is pretty strong even at $40 Crude Oil
“You remember the 787 program was approved at $40 oil, people forget that. So our view then remains today is that this asset which has 20 plus percent better fuel, 30 plus percent operating economics, which is an amazing step function change pace back at virtually any expected oil price that an airline executive has that’s what they’re saying.” (BA)
It wasn’t that long ago that companies were making plans based on $50 price assumptions
“I’d remind the audience here that it was only four-five years ago that our oil company customers are making the same capital decisions on $50 oil. So that’s not that long ago” (NYSE:FLR)
Miscellaneous Nuggets of Wisdom:
Fill gaps where there is a scarcity of expertise
“What we have always done is we have found scarcity of expertise gaps in the market.” (RAX)
Listen to your customer
“we’re addressing some of the critical guest feedback…the consumer essentially told us…what they don’t say about our burgers…What they say is…” (JACK)
Keep your powder dry to take advantage of a downturn
“we want to keep our balance sheet clean and low and we want to keep our powder dry so that we will be able to take some advantage of what could be some unique opportunities in this downturn.’ (NYSE:EOG)
When potential returns get compressed, it makes economic sense to pull back on investment and wait for markets to correct
“As we compare today’s oil prices to our expectations for a more balanced market, it makes economic sense to slow production until an industry wide supply response is realized and prices respond accordingly. This strategy maximizes the value of our assets and it’s the right strategy to create long term shareholder value.” (NYSE:EOG)
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.