The Transcript 10.14.19

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Succinct Summary:  The construction and manufacturing sectors continue to feel the heat of weakening global growth. Some of the tariff increases are making their way to consumers and the heightened global uncertainty is making retailers nervous and customers cautious. 

Macro Outlook:

Growth has weakened as uncertainties persist

“Growth around much of the world has weakened over the past year and a half, and uncertainties around trade, Brexit, and other issues pose risks to the outlook.” – Federal Reserve Chair Jerome Powell

The construction and manufacturing sectors are feeling the heat

“There is some slowing in our local construction business…I do know from talking to peers in other organizations and I know a number of folks and organizations that sell into this arena.” – Fastenal Company (FAST) CFO Holden Lewis

” business activity has continued to soften, the leading Purchasing Managers Index averaged 49.4 in the third quarter, and it was 47.8 in September.cThose are levels that are consistent with modest contraction in industrial production.” – Fastenal Company (FAST) CFO Holden Lewis

Some retailers are nervous and customers are cautious

“we see a sense of nervousness in the retailers, and we are seeing the spend come down..Retail segment’s performance was muted as clients spend cautious due to increase in perceived risks stemming from trade wars and geopolitical developments.” – Infosys Limited (INFY) COO Pravin Rao

“Business conditions remain sluggish and our customer tone remains cautious…When there’s uncertainty in an environment, a natural human reaction is sometimes it’s easier to not make a decision at all than to worry about what decision is the right one. And so we’re seeing, saw a little bit of slow down” – Fastenal Company (FAST) CEO Daniel Florness

Companies are passing on tariff increases to customers

“The latest round of tariff increase have been passed on in the form of price increases to our customers, but certain customers have a time bar before these increases go through.We are working to lower the impact of the tariffs by moving production out of China in conjunction with our manufacturers”  – VOXX International Corporation (VOXX) CFO Michael Stoehr

The labour market is tight, unemployment rate is low

“It’s most certainly a tight labor market out there right now…So yes, it is a tight battle for talent out there and for drivers all over the country.” – Domino’s Pizza (DPZ) CEO Ritch Allison

“Many indicators show a historically strong labor market, with solid job gains, the unemployment rate at half-century lows, and rising prime-age labor force participation. Wages are rising, especially for those with lower-paying jobs” – – Federal Reserve Chair Jerome Powell

But the Fed retains a positive macro outlook

“FOMC participants continue to see a sustained expansion of economic activity, strong labor market conditions, and inflation near our symmetric 2 percent objective as most likely. Many outside forecasters agree.” – Federal Reserve President Jerome Powell

Financials:

Negative interest rates are impacting Bank margins

“if you look at a bank in Belgium for instance that we spoke with recently, they’re making about negative 80 basis points on their deposits. At the same time, they’re paying out something like between 10 to 15 basis points to their depositors. So, we feel that this interest rate regime is going to put pressure on banking revenues.” – Infosys Mohit Joshi

Consumer:

The change to IFRS 15 having an impact on margins

“There’s a little bit of IFRS 15 for sure. Don’t forget also, last year, we changed the way we account for the retail division. We went from a net to a gross way of delivering the information. The bottom-line is the same thing but obviously that pulls on the margins because when you account for it net you have a 100% margin on that part of the business, and obviously now we don’t have that anymore.” – MTY Food Group (MTYFF) CEO Eric Lefebvre

Industrials:

Global car sales are down

“global car sales down approximately 3% from July and down 1.25% in the U.S. year-to-date” – VOXX International Corporation (VOXX) CEO Patrick Lavelle

Fastenal is gaining market share as customers struggle

“We’re picking up great market share because our customers are struggling right now. And it shines through in our heavy manufacturing” – Fastenal Company (FAST) CEO Daniel Florness

Miscellaneous Nuggets of Wisdom:

Lessons from starting Blackstone

“Being an entrepreneur is really fraught with setbacks and disappointments, and you have no idea when you start how desperate survival actually is. …you should only do it if you’ve thought of something that is really extraordinary. Replicating what somebody else does because you can “do it better” is a tough way to be successful, particularly if there’s more than just one other organization doing it.” – Blackstone CEO Steve Schwarzman

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