The Newsletter

The Transcript 08.19.19

Welcome to The Transcript, your weekly digest of quotes from earnings calls.

Click Here to Receive The Transcript by Email. 

Succinct Summary:
  Most CEOs seem to agree that we are experiencing a slowdown, but not a recession. The fundamentals are strong with high consumer confidence and healthy consumer spending. Weaknesses in manufacturing persist though. 

Editor’s Note: More than 90% of companies in the S&P 500 have reported their Q2 2019 results (according to FactSet) thus we are entering a lull period in the earnings seasons.


Macro Outlook:

There is a slowdown but it’s not a recession

“It’s not a recession. It’s just a slowing down of a growth rate that is faster than most  years in the last decade or so.” – Bank of America (BAC) CEO Brian Moynihan

“The economy’s not in {a} recession.” – St. Louis Fed President James Bullard

“I think that the U.S. economy has enough strength to avoid [a recession],” – Former Fed Chair Janet Yellen

Because the US is in pretty good shape

“The U.S. is relatively strong. The fundamentals are right…the reality is, the U.S. economy is fine.”- Bank of America (BAC) CEO Brian Moynihan

“Macroeconomic outcomes are quite good for the United States. Unemployment is near a 50-year low. Inflation is low and stable.” – St. Louis Fed President James Bullard

“The economy is growing. Unemployment is at an all-time low and claims are at an all-time low….the actual underlying statistics are as strong as they’ve been in this expansion. Number of people employed, wage growth, inflation, all higher. All that shows that the U.S. is in pretty good shape.” –  Bank of America (BAC) CEO Brian Moynihan

Consumer confidence remains solid

“The overall macroeconomic trends…continue to be relatively positive….Consumer confidence has decreased slightly, but still remains solid.” – Sysco Corporation (SYY) CEO Tom Bené

“I would say in general consumer confidence remains high,” – A.P. Møller-Mærsk A/S (AMKAF) CFO Carolina Dybeck Happe

“Overall the health of our customers is pretty strong. The wages are up, the hours worked are up.” – America’s Car-Mart (CRMT) CEO Jeffrey A. Williams

and their spending is robust

“Consumers are spending money at a rate of about 5.5 percent for the first half of the year vs. last year. That’s a trillion, trillion-and-a-half dollars of Bank of America customer spending, up 5.5. percent, up 8.5 percent last year, and up about 5 percent the year before. So it’s more consistent with a 2 to 2.5 percent growth.” – Bank of America (BAC) CEO Brian Moynihan

“Consumer spending remains healthy,” – Macy’s(M) CEO Jeff Gennette

“Consumer spending remains fairly robust in the U.S. supported by good labor markets and high consumer [indiscernible] confidence.” – A.P. Møller-Mærsk A/S (AMKAF) CEO Soren Skou

There are weaknesses in manufacturing though with weak industrial growth

“…business confidence has continued to weaken and especially in the manufacturing sector.” – A.P. Møller-Mærsk A/S (AMKAF) Carolina Dybeck Happe

“Industrial production growth remained weak with some key segments such as automotive and electronics, displaying a negative growth rate. Other than originally anticipated by most market participants, the outlook for the full year further softened.” –Henkel AG & Co. KGaA (HENKY) CEO Hans Van Bylen

“We saw a slowdown in demand across a number of our end markets during the quarter. This was most notable in heavy machinery, mining, oil and gas, and process-related industries. ..the industrial backdrop is proving more challenging near-term,” – Applied Industrial Technologies, Inc. (AIT) CEO Neil Schrimsher

And consumers are in no mood for price increases

“…today’s customer doesn’t have much appetite for price increases.” – Macy’s(M) CEO Jeff Gennette

“…there is not very much inflation in the economy.” – Commerce Secretary Wilbur Ross

The main fear is for a further slow down in the US 

“When you’re the largest economy by about a third of any economy, if your economy is growing, that’s good for the rest of the world because of the consumption nature, the consumers and the drivers of our economy, the entrepreneurship and things. So, the fear, if the United States slows down, the rest of the world has a hard time making it without them.” – Bank of America (BAC) CEO Brian Moynihan


There’s more trade liberalization than trade restriction happening in the world

“WTO data now actually indicates the trade flows that are subject to liberalization are about three times as high right now than before the start of the trade tensions. So that’s outpacing the restrictive measures in U.S. China trade. Over time these measures will help mitigate the negative trade impact from the U.S. China trade tensions.” – A.P. Møller-Mærsk A/S (AMKAF) CEO Soren Skou

Interesting Chinese demographics

“…the emergence of the middle class of over 300 million people living in large cities. This affluent middle-class population is almost as large as the entire U.S. population, and their consumption needs and wants are approaching developed market levels.” – Alibaba Group Holding Limited (BABA) Executive Vice Chairman Joseph Tsai

Chinese state-owned enterprises are boycotting Cisco due to Trade War

“…what we’ve seen is in the state-owned enterprises anymore, we’re just being we’re being uninvited to bid. We’re not being allowed to even participate anymore. So those are the enterprises that’s where the large impact was this past quarter, so it was just a much faster decline of what we candidly expected.” – Cisco CEO Chuck Robbins


PMs being conservative in asset allocation

“Portfolio managers continue to take a conservative position in their portfolios as a result of global macroeconomic challenges and generally stressed valuations at this point in the current bull market.” – CI Financial Corp (CIFAF) CEO Peter Anderson

The inverted yield curve may no longer be a sign of a recession 

“…and I think that’s when markets pay attention to it, but I would really urge that on this occasion it may be a less good signal. The reason for that is there are a number of factors other than market expectations about the future path of interest rates that are pushing down long-term yields.” – Former Fed Chair Janet Yellen

There is pressure to cut rates

“Long term interest rates are falling faster than short term interest rates, and that is inverting the yield curve. And when that happens, it means that cash is more attractive than bonds. And as a result, you tend to see then movement toward cash and a slowing up of lending. So we have a situation in which there’s a lot of pressure to cut rates, at a time where the economy yet is fairly operating in a fairly high level of activity.” – Bridgewater Associates Founder Ray Dalio

Sysco is seeing an uptick of bad debt

“I do think we have seen some worsening of the environment for bad debt. I think the – it’s – I wouldn’t certainly call it at a crisis situation, but it has certainly gotten worse. Our overall days are a little softer. We’ve had – we had about one fairly significant hit per quarter to some extent that has impacted us. And so on one hand the bad debt expense” – Sysco Corporation (SYY) CEO Tom Bené

There’s lots of money available for subprime auto lending

“There’s still a lot of money available for subprime and deep subprime. So it is competitive…The market certainly is flush with cash” – America’s Car-Mart (CRMT) CEO Jeffrey A. Williams


The food service industry is flattish

“The food service industry data suggest modestly improved sales with flat to slightly higher volume growth.” – Sysco Corporation (SYY) CEO Tom Bené

“The industry has seen a couple of soft spots, specifically April and July are not great months for the category.” – Brinker International (EAT) CEO Wyman Roberts

Customers are moving to over-the-top (OTT) media services fast

“I think that we are still in the early stages of the secular shift, the consumer TV habit moving to OTT, and that move is very fast. You can see it in the growth of streaming hours on our platform. So, I do think it will take more than 3 years to play out” – Roku (ROKU) CEO Scott Rosenberg

Inventory overhang at Macy’s in the quarter

“With an inventory overhang to start the quarter and a tougher sales environment than we anticipated, our teams took the necessary markdowns to clear that excess spring inventory…these markdowns resulted in a significantly lower gross margin in the quarter” – Macy’s(M) CFO Paula Price

A stronger push for environmental-friendly transportation

“The shift to clean energy alternatives has now passed the point of no return. So there is a growing concern…in most layers of the populations around the world and an acknowledgement that the climate changes are real and also true concerns about local emissions…there is significant push now for greener transportation.” – Hexagon Composites (HXGCF) CEO Jon Erik Engeset

Technology and Health:

Memory industry inventories are stabilizing

“…we are seeing early signs of improvement. Output across the industry has come down, we are under shipping true end market demand from a supply standpoint as we exit the year. This is bringing our customers inventories down, it’s bringing our customers’ customers inventories down, and we do see the early signs of demand elasticity beginning to kick in and signs of price stability…And while I’m still not ready to call the bottom of the cycle, I see positive leading indicators of future growth.” – Applied Materials (AMAT) CFO Dan Durn

Rough times in server pricing

“as you know the market, this is choppy and macroeconomic that it be soft….Server pricing environment is choppy” – Super Micro Computer (SMCI) CEO Charles Liang

Outsourcing trend in non-core lab services

“We see a continued secular trend of customers seeking to drive increased productivity and to outsource non-core services in the lab.” – Agilent Technologies (A) CEO Michael McMullen

Materials & Energy:

Easing in materials prices

“Regarding commodity prices, as indicated in the past, we start seeing pressure from direct material prices easing.” – Henkel AG (HENKY) CEO Hans Van Bylen

Full transcripts can be found at Seeking Alpha and the Motley Fool