The Transcript 03.23.20

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Welcome to The Transcript, your weekly digest of quotes from earnings calls.
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Succinct Summary: The Covid-19 pandemic is an unprecedented global challenge unlike anything that we’ve seen for 100 years. It is like a war with an invisible enemy. It requires coordination and cooperation from all of us. Many industries like airlines and restaurants are seeing their businesses disappear overnight. But the economic impact is nothing compared to the human impact if we don’t act. Hospital systems are already being stretched to their limits and the worst may still be ahead. Let’s hope not. Our best hope of averting that fate is to buy ourselves time via social distancing and break down regulatory barriers for potential treatments. (Go to Covidactnow.org to see how important social distancing is in the US).

Quick Update: while @ekmokaya has held down the fort with The Transcript, our founder, @Skrisiloff, has been spending a lot of time looking at potential therapeutics. There are a lot of promising molecules and biologics out there. They just need to go to trial/production as fast as possible. We can and will beat this.

Macro Outlook:

This is an unprecedented challenge, unlike anything we’ve seen in 100 years
“This presents an unprecedented challenge.” – Volkswagen (VWAGY) CFO Frank Witter 

“It is a huge shock” – Federal Reserve Bank of St. Louis President James Bullard

“The coronavirus pandemic is a public health emergency unprecedented in recent history” – ECB Christine Lagarde

“COVID-19 is like nothing we’ve ever seen before. For a company that’s 92-years-old—that’s borne witness to the Great Depression, World War II ,and many other economic and global crises—that’s saying something.” – Marriott (MAR) CEO Arne Sorenson

“The coronavirus outbreak is a very unique situation. I’ve never experienced a significant amount of time where the companies – the country, if you will, will shut down, if you will.” – 51job (JOBS) COO Kathleen Chien

It is like war with an invisible enemy
“…this is a crisis. This is like we are being attacked from abroad. This is something that is of great consequence. This is like a war, and in a war you do whatever is needed to be done to take care of your people” – US Presidential Candidate Joe Biden

“What they were able to do during World War II and now it’s our time. We must sacrifice together because we are all in this together and we’ll come through together. We are all in this together and we’ll come through together. It’s the invisible enemy. That’s always the toughest enemy, the invisible enemy, but we are going to defeat the invisible enemy. I think we’re going to do it even faster than we thought and it will be a complete victory. It’ll be a total victory.” – US President Donald Trump

The impact on the tourism industry is more severe than 9/11 and 2009 combined!
“‘Covid-19 is having a more severe and sudden financial impact on our business than 9/11 and the 2009 financial crisis combined…In most markets, our businesses is already running 75% below normal levels… The restrictions on travel and required social distancing is having an immediate impact by depressing demand for our hotels…In the US, in the last couple of days anyway, when you look at decline in reservations, and in cancellations, the total is negative. So we’re losing business every day. ” – Marriott (MAR) CEO Arne Sorenson

“I’ve personally lived through many crisis starting with the SNL, the 9/11 crisis, the great recession. I’ve been doing this for 35 years, never seen anything like it…If you look at the major cities around the United States, they’re running in the single digits, which means, for the first time in a hundred years, Hilton has been around a hundred years, we’ve never closed a hotel that wasn’t going to be demolished for rebuilding, the bulk of our hotels in the major cities are closing as we speak.” – Hilton (HLT) President Chris Nasetta

“…day-by-day, the occupancy rates have dropped precipitously. So now we are seeing occupancies below 10% in the single digits, for the vast majority of our hotels. Whereas a week ago, they were 20, 30 points higher than that. It’s happened very rapidly.” – Hyatt (H) CEO Mark Hoplamazian 

“Right now, as these gentlemen have indicated, we’re probably under 20% [occupancy] nationwide, and headed South. If by the end of the year we get up to 35%, and nothing else happens, that’ll be about 4 million jobs lost. That’s if we can get back up to 35%.” – American Hotel and Lodging Association CEO Chip Rogers

Sadly, the worst is ahead for us
“I’ve said many times, and I’ll repeat it, the worst is ahead for us. It is how we respond to that challenge that’s going to determine what the ultimate end point is going to be.” – National Institutes of Allergy and Infectious Diseases Director Dr. Anthony Fauci

Time is of the essence
“Time is of the essence when it comes to getting test kits and medical supplies to healthcare providers who flatten this curve, contain the virus and save lives.” – FedEx (FDX) President Raj Subramaniam

“We have a very, very critical point now. If you look at the curves that I’ve described multiple, multiple times, this window that we’re in is going to be very important for us to stay ahead of this curve.” – National Institutes of Allergy and Infectious Diseases Director Dr. Anthony Fauci

Young people are not invincible to COVID-19
“Every day we are learning more about this virus and the disease it causes. One of the things we’re learning is that although older people are the hardest-hit younger people are not spared. Data from many countries clearly show that people under 50 make up a significant portion of patients requiring hospitalisation. Today I have a message for young people; you’re not invincible, this virus could put you in hospital for weeks or even kill you, even if you don’t get sick the choices you make about where you go could be the difference between life and death for someone else.” – WHO Director-General Dr Tedros Adhanom Ghebreyesus

There is a shortage of medical personnel and supplies
“Right now, we have a lack of medical personnel, and I worry very much that if there is a peak, whether we have the capability of dealing with the hundreds of thousands of people who may be in hospitals, so we need unprecedented action right now to deal with the unprecedented crisis.” – US Presidential Candidate Bernie Sanders

“We will however experience short term supply issues for select hand sanitizer, cleaning chemicals, safety gloves and protective mask items due to the unprecedented spike in demand experienced in recent weeks.” – HD Supply (HDS) President HD Supply Facilities Maintenance Brad Paulsen

However, there is not a shortage of food despite pictures of empty shelves
“…up until this point, the supply chain has been working remarkably well and our service levels are well over 90%. And I will tell you our retail partners have been very grateful for the work that we and others have done. So certainly up until this point in time, the supply chains have been working very well despite maybe we should see pictures of store shelves being empty, I can tell you that food continues to flow, we continue to make it, our retailers continue to stock as quickly as they can and that all is actually working pretty well” – General Mills (GIS) CEO Jeff Harmening

“…you don’t have to buy so much. Take it easy. Just relax…There’s no shortages. We have no shortages other than people are buying anywhere from three to five times what they would normally buy.” –  US President Donald Trump

It’s a logistics problem, not a production problem
“We’re breaking production records every day…Amazon and Walmart and the others have faced a huge increase in demand. I think the bottle-neck is being able to deliver to people’s homes, not production…Penetration has increased for them (Amazon), more people are subscribing – it’s big demand and you have to adapt your logistics system to attend this demand.” – Kraft Heinz (KHC) Chief Executive Miguel Patricio

The big question: What happens to the people who will lose their jobs?
“What happens to the workers who are there? What happens to the millions of workers who may end up losing their jobs?” – US Presidential Candidate Bernie Sanders

When things get back to normal there will probably be a fair amount of pent up demand
“Certainly, when everybody gets back to business, business has normalized, I do expect some pent-up demand and a snapback.” – HD Supply (HDS) CEO Joe DeAngelo

International:

China is rebounding nicely with manufacturing capacity back up to 65-75%
“In China, we have seen a rebound week over week since the week of March 3. With the urgent need for stock replenishment and with air capacity shortage in the market, we believe demand will stay elevated.” – FedEx (FDX) Executive Vice President Brie Carere

“…when we looked at the Chinese recovery, what we have seen is 90% to 95% of large manufacturers in China are now back to work in some capacity. Closer to 65% to 70% of small businesses in Mainland China are coming back to work from a manufacturing perspective. So we believe output is in around 65% to 75% and we are seeing that rebound.” – FedEx (FDX) Executive Vice President Brie Carere

“Our demand is good right now…In fact, the last two weeks we’ve seen our demand in China bounce back. We’ve already started to see a recovery from that” – Dow (DOW) CEO Jim Fitterling

Offline Sectors have been slower to rebound
“We have noticed that corporates in the Yangtze River Delta area, covering Shanghai and parts of Jiangsu and Zhejiang provinces as well as the Pearl River Delta area in Guangdong province have been early movers to resume operations. Verticals such as e-commerce and education have fared better, but offline sectors like real estate and auto have faced greater difficulties. These are just our preliminary observations, and the situation is very fluid and dynamic. However, we do feel that trough has been passed in February and activity is beginning to build momentum in March” – 51job (JOBS) CEO Rick Yan

“What we can say is that we have seen since the week of Feb 24, which is the week that people have started to come back to work, that demand has continued to ramp up.” – 51job (JOBS) Kathleen Chien

Travel is picking back up though
“We believe the pent-up demand is there because lot of customers before Chinese New Year already booked their trips within China and overseas…we believe the market has already showed signs of recovery and the consumers have the buying power to resume the travel. ” – Trip.Com (TCOM) CEO Jane Jie Sun

Europe, like the rest of the world, faces an unstoppable decline in economic activity
“…economic activity across the euro area will decline considerably. Public policies cannot prevent this. What they can do is ensure that the downturn is no longer and deeper than it needs to be. The current situation creates acute strains on the cash flows of companies and employees, putting the survival of firms and jobs at risk….Over the last week, we have seen conditions in the euro area deteriorate considerably. Our evaluation of the economic situation has darkened. The depth of uncertainty over the economic fallout is now visible across all asset classes, in the euro area and globally.” – ECB President Christine Lagarde

Consumer:

E-commerce demand is spiking
“…we’ve seen broad-based demand across all channels. Certainly, e-commerce is spiking. Big picture, it’s still a relatively small channel in the US. So, even though we’re seeing more demand there, it’s something we can clearly service and we’re working with those customers to make sure they have the product that they need.” – General Mills (GIS) Group President, North America Retail Jonathon J. Nudi

“We’ve seen strong demand for FedEx Ground here in the US and especially home delivery and even the commercial volumes have been quite stable” – FedEx (FDX) President Raj Subramaniam

Home office products are also seeing increased demand
“You know with the large number of folks that are working from home, I think we’ve seen a sudden realization that maybe people are not set up to work from home as well as they thought they might be. So we have seen an increase in demand and products that are related to remote working as well.” – Herman Miller (MLHR) CEO Andi Owen

Restaurants have had to make dramatic changes to cost structure
“To preserve liquidity, we are suspending all capital expenditures that are non business-critical and substantially reducing our inventory, both immediately and throughout the year. We are cutting all nonessential operating expenses for example, in advertising. We are focusing only on high ROI initiatives that drive e-commerce traffic and conversion” – Williams-Sonoma (WSM) CEO Laura Alber

“…given the material declines we’re seeing in our business, we’ll have to make dramatic change to our cost structure and cut non-essential spending.” – Darden Restaurants (DRI) CEO Gene Lee

Construction jobs have only been delayed but not pulled yet
“…a lot of large construction jobs underway. We have not seen any significant instruction jobs pulled. We are just starting to see some slowdown or delayed as a result of some of the government actions taken to curb commercial activity, but these jobs haven’t been canceled, they have been delayed” – HD Supply (HDS) CEO Joe DeAngelo

Homebuyer traffic is slower but currently running at a higher conversion rate to sales
“Even in the current environment, we are selling homes. Our customers are attracted to the safety and security of a home of their own, while interest rates are low and inventory is limited. Although, fears of the general economic slowdown, stock market signals and of course unemployment concerns, may well come to bear…we have started to see a slowdown in traffic over the past several days, while at the same time we have seen a higher conversion rate of traffic to sales as those coming out are now more serious buyers” – Lennar (LEN) CEO Rick Beckwitt

Industrials:

Healthcare suppliers can’t produce items quickly enough
“…on the healthcare side you’re getting people who are saying, ‘Can you hurry up? We have demanded that maybe we didn’t have three or four weeks ago.” – Herman Miller (MLHR) CEO Andi Owen

Demand recovery for the airline industry is going to take a while
“We’re now projecting our June quarter revenues will be down by US$10 billion compared to a year ago – an 80 per cent reduction…Given the underlying damage the virus has created to the overall economy, that demand recovery will take an extended period once the virus is contained” Delta Air Lines (DAL) CEO Ed Bastian

Healthcare:

We have back end testing capacity, it’s about the front end that is difficult
“…the back of the shop testing capability is there. The front of the shop is what we’ve been really working on. In order to get a test there, you’ve got to be able to swab individuals, get them into the system without completely paralyzing the entire healthcare system as we have.” – U.S. Department of Health and Human Services Assistant Secretary for Health Admiral Brett Giroir 

Materials & Energy:

Saudi Aramco likely to sustain high April oil output through May
“In a nutshell, Saudi Aramco can sustain the very low price and can sustain it for a long time,” Chief Executive Amin Nasser said on Monday during a full-year earnings call with investors and analysts. “For the production in May … I doubt it would be any different from next month.” – Saudi Aramco (ARMCO) CEO Amin Nasser

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