Friday, January 25, 2013

Earnings Call Notes 1.25.13

Like most analysts during earnings season I spend a lot of my day reading earnings calls.  I've been trying to figure out a good way to incorporate some of the data that I gather from those calls into the blog.  To that end below are quotes from calls that I've read today--snippets of information that I find relevant (typically on a macro/industry level) from companies that I have some working understanding of.  Complete transcripts can be found at Seeking Alpha.

Raytheon (RTN)
"Looking at the defense environment, the U.S. government averted the brunt of the fiscal cliff earlier this month. However, the ultimate outcome for sequestration was delayed and not resolved, and the new potential implementation date for sequestration is now March 1. The government continues to operate under a continuing resolution for fiscal year '13 that runs through March 27 or roughly halfway through its fiscal year." 
"I would say that the department, State Department and the administration, understands that foreign military sales help us bridge the gap as we go through these headwinds in the sense that, if we have these programs in our factories, they help keep our overheads in control. They help, in some cases, to lower them, which allows the U.S. to make the decisions that need to be made."
On acquisitions: "Right now, I can tell you I've not seen a reduction in market prices. Everybody still thinks they're beachfront properties. And so for us, we're pretty disciplined here about how we go and do that. But as you look to the future here, people are going to have to evaluate what they have and maybe the prices will get better."
Halliburton (HAL)
"North America, 2012 was a very challenging year for the industry. Operations we’re impacted by headwinds such as guar costs, pricing pressures and a significant drop in the natural gas rig activity. However I want to be clear before you listen to the rest of the presentation. We believe that the fourth quarter marked the bottom for U.S. land margins
we believe the rig count will continue to grow from current levels, but will average down slightly for the year compared to 2012."

"Many of our competitors are operating at breakeven or lost positions which should set a floor on stimulation pricing. However, an improvement in pricing will require a meaningful decrease in excess capacity"

"We are expecting the industry to add hardly any capacity this year and over time, we should see a drop in excess horsepower due to normal attrition. Increasing oil activity and rising service intensity will also help to a certain extent. However, we believe that without a significant uptick in natural gas drilling, it is difficult to see a path for pressure pumping equipment to reach equilibrium this year." 
"Our view is that the U.S. natural gas drilling will not be a major activity driver in 2013, although the rig count in that area appears to have flattened. The decline in output from existing natural gas wells will likely be offset by additional volumes generated from new gas wells, the restart of shutting wells and associated gas from new oil wells if we see any meaningful uptick in gas activity that likely will not occur until the second half of the year. That being said, we still strongly believe in the long-term fundamentals of the gas business and are not going to abandon that market." 
"Our growth strategy going forward remains the same. We'll continue to grow our market share in deepwater, in global unconventionals and in mature assets."

City National Bank (CYN)
"City National’s assets exceed $28 billion, a 21% increase as well from the prior year." 
"Between September 30 and year end, we added a record $1.1 billion to City National’s loan portfolio."

"In the fourth quarter, loans really grew across the board." 
"commercial line utilization increase for the second straight quarter topping 60% for the first time since the end of 2010." 
"Particularly noteworthy improvement can again be seen in California’s housing market. The median home price in Southern California, for example, is up 20% year-over-year and home inventories are shrinking."

"I know how focused, almost all of you are on margin pressure and its impact on the industry in general. And there is no doubt that growing loans and deposits is putting more pressure on margin. But it does add to net interest income now, additionally when rates rise, these loans and deposits will provide large margin expansion for companies like ours." 
"The flattening yield curve that took place during 2012 will no doubt make it harder for banks to grow earnings in 2013." 
"I think one of the points that’s worth noting is that the average duration in our [securities] portfolio is relatively conservative. And we have deliberately tried to be conservative with it, just find the balance between getting a decent yield but not locking the company in to rates for the long-term that we would regret a few years out."  
East West Bank (EWBC)
"Year-to-date, return on common equity and return on assets were both above our peers at 12.3% and 1.3%, respectively." 
"During the full year of 2012, East West grew non-covered commercial and trade finance loans by $1.1 billion or 35% to a record $4.2 billion" 
"Provision for loan losses on non-covered loans was down 35%, net charge-offs on non-covered loans was down 62% from a year ago."

"Single-family loan average loan size of $389,000 and an average loan-to-value of 53%." 
"many banks out there are offering 10-year fixed (interest rate swap) at a very low rate and I think that someday down the road, maybe 3 years, 4 years from now, I think they're going to be hurting in a big way." 
"mostly in California and New York that we see activities in term of the commercial real estate."
"At this time, we would like to grow our loan portfolio across-the-board."

"in 2010 and 2011...we mainly focused on C&I...But in addition to that now, we are kicking up our real estate origination for CRE and multifamily and so forth and even construction loans." 
Cash America (CSH)
"In retrospect I think both our customers and our company have enjoyed the easy benefits of escalating gold prices for the past two years and now we need to recalibrate our training and marketing programs and store operating model to one that is more attuned to the emerging general merchandize product categories in disposition channels."
"you have a whole new emerging electronics categories with smartphones and tablets and a wide variety of other things we’re seeing in our stores today and we need to be training our folks to encourage our customers to bring in those items to the extent that they have those versus jewelry or scrap gold."
"I have got to believe that at this point that people are going to have to start using additional collateral to some extent that they offered up most of that excess gold and jewelry over the last few years"
Kennametal (KMT)
"Political and economic uncertainties led to spending deferrals and inventory destocking by customers. Those conditions resulted in a weaker-than-expected global investor production across certain end markets and geographies." 
"In addition, our sales were unfavorably impacted as a number of customers who extended shutdowns year end holidays. This trend was more severe in Europe but it occurred in North America as well." 
"We now expect fiscal '13 sales to be between negative 2% and negative 4% with organic sales ranging from negative 7% to negative 9%." 
"we have seen an uptick in Asia. However, it's still, year-over-year, a negative growth"
Jacobs Engineering (JEC)
"Oil and gas market remains very, very strong. It's one of our hottest markets." 
"And in the chemicals market, it's as good as it's ever been in my memory. It's a very strong market for us right now. It's obviously a business where there's a key driver is this cheap gas" 
Question from an analyst: "one of your peers, couple of weeks ago, came out and said that labor constraints were looking like it was becoming a slight bit of an issue sort of in the Gulf Coast area on the petrochem side. So I was just wondering if you can -- it's the first time I've sort of heard that in a while. "  
Response: "we will continue to see pressure on escalation and rates, but it's all good news. The craft side of the business is probably another 8 months to a year away before we start seeing pressure there, but on the engineering side, we're in the throes of it right now." 
"my concern about the fiscal cliff discussion for a while was that it might push all these projects significantly out. And it doesn't seem to have done that. So our customers seem to be planning their investments, particularly ones in the natural gas or in the chemical side,"
Comment from analyst: "So it sounds like some of your labor costs are starting to move up in the market, starting to tighten"
Microsoft (MSFT)
"Windows 8 is a sort of big, bold, re-imagining of Windows across the whole ecosystem, and I think this was the start of that process. I think, we all collectively learned a lot about from the user interface to the touch devices. And, as I tried to give context on the call, there's a lot of things we are working on with our partners that I think to continue to drive this process forward over the next several quarters whether it's the chipset, whether it's with developers or the kinds of applications that people want and certainly for the kinds of touch devices that they write price points that consumers want I think all of that continuously improving, we are continuously learning and happens over time, but this is a big ambitious re-imagining of Windows, and this quarter was the first step in that process." 
Starbucks (SBUX)
"a Starbucks card was perhaps the nation’s single most frequently given holiday gift, with one in 10 U.S. adults receiving a Starbucks card" 
"The U.S. remains a market rife with growth opportunity for Starbucks, and we will profitability capitalize on this opportunity by adding 1,500 new stores in the U.S." 
"Starbucks’ China and Asia-Pacific segment now spans 12 countries that by the end of fiscal 2013 will grow to nearly 4,000 stores, including 1,000 stores in Japan and 500 in Korea." 
"We had 86% more customers sign up for a My Starbucks Rewards card in the first quarter of 2013 than in the first quarter of 2012. And it’s not that these new card customers didn’t know where to find us last year. It’s that we are more deeply connected, and even more relevant, to them than any other time in our history." 
Procter and Gamble (PG)
"[plan] further reduction of non-manufacturing [headcount] by additional 2% to 4% per year from fiscal year 2014 through 2016." 
"there are new categories we have entered too. Jon mentioned the ZzzQuil in sleep aids. We entered the auto care fragrance category. And as we also talked, we have bolstered our new category innovation as well and we fully expect some of those innovations to come to market over the next year or so." 
"we are growing or holding share in the 60% of our business in the U.S"

AT&T (T)
"we believe we are going change every aspect of our customers lives. How they buy things. How they manage and secure their homes. How they access entertainment. Their experience behind the car wheel is going to change. There is going to be a whole healthcare ecosystem change. And I can go on, but it’s clear that the industry is moving beyond the device and into a new era of solutions and services. "
"the question you have to ask is are there opportunities for us to participate in that growth outside the U.S."
Keycorp (KEY)
"Our average C&I loans were up 21% over last year and led our year-over-year loan growth." 
"we will maintain a moderate risk profile" 
"Our capital remains a competitive advantage for us in both the intermediate and long term."
ITT Education (ESI)
"prospective students are more sensitive of the cost of postsecondary education and are making educational decisions based on their perceived opportunity to derive value from their educational investment."
AmerisourceBergen (ABC)
"demographic trends and health care reform initiatives will expand coverage to the uninsured and should drive organic growth in our industry over the next several years"
Southwest Airlines (LUV)
"We are seeing encouraging signs in our business travel trends."
United Continental Holdings (UAL)
"We did not achieve our return on invested capital target in 2012 and we’re absolutely not satisfied with the financial results we produced last year."
"look the [787] is a terrific aircraft and customer loves the airplane and I have no doubt the customers will flock back to that airplane as soon as we get it back up again."
Avnet (AVT)
"After several quarters of a somewhat cautious technology spending environment, certain segments of our served markets demonstrated relatively better strength in the December quarter."
Flextronics (FLEX)
"the macroeconomic environment remains very soft for electronics hardware. The semiconductor industry association, or SIA, forecast for the start of 2012 was for 7.6% growth. The semiconductor industry ended the year with a negative growth rate of about 3.2%. These numbers would have been lower if not had been for the strong growth and volume from both Samsung and Apple." 
"we also announced an important multibillion partnership with Google-Motorola Mobility to streamline their supply chain operations and position Flextronics as a key supply chain partner for current and future hardware products within its ecosystem"
Synaptics (SYNA)
"The latest projection from IHS Research in November shows the smartphone market hitting 660 million units in 2012." 
"IDT’s projections for notebooks with touch is now 25% of the unit shipments by 2014."
Silicon Valley Bank (SIVB)
"For the full year 2012, we grew average loans by $1.7 billion or 30%"
"Yeah, we see more people entering the market [for loans to venture stage companies]. And I guess it's not surprising, mainly because it's one market. And we've said this for years, and we should expect to see this, that it's a high-growth market, it's performed well through multiple cycles, and again, it's one of the only fast-growth areas in the market. So that's not surprising...So, yes, we have acknowledged that City National has been hiring in the marketplace and they will compete with us."
Xerox (XRX)
"Xerox is a company that is going through a seismic transformation." 
"The shorter contract and less megadeals is a sign of the times today. We had significant pressure in both government and large enterprises, given a very weak macroeconomic environment."
LG Display (LPL)
"We expect the continued risk demand trend in 2013. However, the industry supply increase would be also marginal this year." 
"several companies will execute fab conversions in second half, which would have a positive impact on the supply side."

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