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The Transcript 04.12.21: Reopening euphoria

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 Succinct Summary: Tens of millions of Americans have now been fully vaccinated and the fun is just beginning. Re-opening euphoria and pent-up demand could lead to an economic boom that lasts into 2023. Supply chains, especially semiconductors, are still feeling the effects of Covid, and price pressures continue.

Macro Outlook:

The economy is firming up

“…clearly we’re hearing from customers as the vaccine rollout picks up steam, things are firming up, particularly starting to firm up in some of the metalworking markets that have lagged so much for the past year. You combine that with some infrastructure stimulus and the macro looks pretty darn encouraging.” – MSC Industrial Direct (MSM) CEO Erik Gershwind 

“What we’re seeing now is really an economy that seems to be much at an inflection point, and that’s because of widespread vaccination and strong fiscal support, strong monetary policy support.” – Federal Reserve Chair Jerome Powell 

The boom could last into 2023

“I have little doubt that with excess savings, new stimulus savings, huge deficit spending, more QE, a new potential infrastructure bill, a successful vaccine and euphoria around the end of the pandemic, the U.S. economy will likely boom…This boom could easily run into 2023 because all the spending could extend well into 2023.” – JPMorgan Chase (JPM) CEO Jamie Dimon

“We feel like we’re at a place where the economy’s about to start growing much more quickly and job creation coming in much more quickly…I’d say that we and a lot of private-sector forecasters see strong growth and strong job creation starting right now. So really, the outlook has brightened substantially. ” – Federal Reserve Chair Jerome Powell 

The fun is coming

“We’re just continuing to do everything we can to create a safe environment and one that we know is going to be fun, because it’s coming. The fun is coming…I think our best days are ahead of us in the not-so-distant future.” – Wynn (WYNN) Resorts CEO Matthew Maddox

“Consumer excitement and optimism is returning in ways it hasn’t since well before the pandemic, and we’re seeing a denim resurgence as more people are going out.” – Levi Strauss (LEVI) CEO Chip Bergh

There’s a lot of pent up demand for travel

“…for 2022 in March, we saw a significant increase in bookings versus what we had seen in 2019….people are looking forward to getting away. There’s all that pent-up demand, and they’re planning the vacations.” – Carnival (CCL) CFO David Bernstein

But the pace of full reopening may be slower than expected

“…the thing on everyone’s mind is, when are we going to resume sailing here in the U.S.? Now while we’re very disappointed with the April 2nd additional guidance issued under the conditional sail order…we are continuing to work with the CDC and the administration to find practical approaches to resuming cruising in a way that serves the best interest of public health.” – Carnival (CCL) CEO Arnold Donald

A zero infection standard is too stringent

“The key thing is mitigating risk. We can’t be — prefer not to be — hopefully won’t be asked to stand up to a zero risk standard because, frankly, nowhere else in society is that being considered. We just like to be treated similar to the rest of travel and entertainment and tourism sector. And so if we do that, we’ll be fine.” – Carnival (CCL) CEO Arnold Donald 

Masks will be needed for a while

“You’re certainly … going to be wearing masks for the foreseeable future,” – Caesars Entertainment (CZR) CEO Tom Reeg


Jamie Dimon said America may not bounce back from this

“America has faced tough times before…But in each case, America’s might and resiliency strengthened our position in the world, particularly in relation to our major international competitors. This time may be different.” – JPMorgan Chase (JPM) CEO Jamie Dimon


Large companies are taking ESG seriously

“We have also advanced our efforts on social responsibility and governance. For example, half of our operating companies are now led by women executives, reflecting our commitment to diversity and inclusion. Also upon resuming operations, an even greater portion of executive pay will be tied to health, environment, safety, security and sustainability performance.” – Carnival (CCL) CEO Arnold Donald


Covid accelerated the shift to digital advertising

“Obviously we — when we hit COVID, we shut down every element of our media spend we could, as our stores were shut down; and canceled whatever we could out of our upfront buy, cable. And we had a little bit of media running for us in the third quarter, but in this kind of environment, number one, we are locking into a more fixed — cable buy is not something we’re really wanting to do, number one. We want to be pretty flexible with the media plan. And then secondly, as I look at how our stores are recovering right now with limited media, we’re super encouraged by that. We had an sort of always-on strategy. We’ve gotten ourselves, as you point out, to being on TV, on some channel virtually every week of the year. And so strategy this year as we come out of this COVID situation, and we’re going to learn some things by it, is to pivot more heavily into digital channels. We spent a significant amount of effort during the COVID shutdown on developing out our marketing tech stack and it is our intent to utilize that to really reach our guests where they are, and that’s not always on broadcast TV. So we’re going to lean into that much more heavily than we had anticipated pre COVID.” – Dave & Buster’s (PLAY) CEO Brian Jenkins

Movie studios may roll back some pandemic era changes

“I think it’s very fair to say that a big, you know, let’s say a big DC movie … it’s very fair to say that that would go exclusively to theaters first and then go to somewhere like an HBO Max after it’s in theaters…” – WarnerMedia (T) CEO Jason Kilar

Dave and Buster’s is launching Ghost Kitchen concepts

“We are excited about ghost kitchens as a new revenue stream. As we consider their potential impacts, particularly in the context of our historically category-leading 10 million AUVs and a smaller store count than many of our competitors, we do understand that they will be a relatively small contributor to total sales. Our ghost kitchens, combined with our core D&B to-go offerings, are currently generating approximately $50,000 per store. However, we are just beginning this journey.” – Dave & Buster’s (PLAY) COO Margo Manning

Travel prices are starting to go up

“We’re seeing prices starting to go up too, which of course is the assumption of demand, which is why I continue to advocate [people to] go out, look at what you want, go get it now.” – Booking (BKNG) CEO Glenn Fogel


The semiconductor shortage could persist to 2022 or later

“Right now all our fabs are not only more than 100% utilized, we are adding capacity as fast as we can,” – GlobalFoundries CEO Tom Caulfield

Chip vendors are fully booked

“It’s a snowball effect that we’re pushing in front of us, and the situation since then has just become worse and worse and worse…When I talk to some of the chipset vendors, some of them tell me that they have something like overbooking of 300% of their capacity.” – Zyxel Communications Head of European Regional Business Karsten Gewecke

Getting more capacity takes time

“The minute you say, I want to make more capacity, it’s a 12-month cycle…The semi industry going into Covid was projecting a 5% annual growth rate for five years. We’re projecting that to almost double now…It’s not a one-time thing. It’s a structural shift, that the pervasive need for semiconductors is accelerating.” – GlobalFoundries CEO Tom Caulfield

It’s not CPUs in short supply, it’s all the other chips

“The auto industry is not having a chip shortage because it doesn’t have CPUs. No one’s saying I can’t build enough computers, it’s all the other chips,” – GlobalFoundries CEO Tom Caulfield

“…in terms of how we see the demand environment today versus what you refer to a few years ago, no question that at that time, the demand was driven with the increases in cloud primarily and today the demand drivers are much more diverse. We are seeing shortages across all end markets. The demand is strong across all end markets.” – Micron Technology (MU) CEO Sanjay Mehrotra

Tim Cook has never spoken to Elon?

“You know, I’ve never spoken to Elon, although I have great admiration and respect for the company he’s built. I think Tesla has done an unbelievable job of not only establishing the lead, but keeping the lead for such a long period of time in the EV space. So I have great appreciation for them.” – Apple (AAPL) CEO Tim Cook

Blackberry is seeing design wins in electric vehicles

“We’re delighted to report that we now have design wins with 23 of the world’s top 25 electric vehicle OEMs, which together represent 68% of global EV production.” – BlackBerry (BB) CEO John Chen


PPE equipment is going to start comping negative

“Let me start with the safety or PPE–you know, it’s really been safety and janitorial. What I would say is it’s still early to say what will continue post pandemic here, which we hope is right around the corner. What I will say is we’re likely going to be negative, and we saw it in March, in our fiscal third quarter because that was when we had the huge surge last year.” – MSC Industrial Direct (MSM) CEO Erik Gershwind

BioNtech has delivered 200m vaccines so far

“As of March 2021, we had delivered more than 200 million doses of our vaccine to more than 65 countries and regions together with our partners, and we are already seeing the first signs of vaccine associated reduction of COVID-19 cases and mortality in multiple countries” – BioNTech CEO Ugur Sahin

Industrials and Transport:

The supply chain is pretty chaotic

“I’ll start with the first part of your question around cost inflation and what we’re seeing. Look, I think–and it’s probably not going to be a news flash, but I will say that what’s happening in the global supply chain right now, it’s pretty chaotic, and I think that’s really at the root cause of why the change in the last few months. But if you think about what’s happening right now kind of across North America and global supply chain, we have a faster than expected economic rebound that’s left a lot of suppliers and manufacturers with insufficient inventory and capacity to handle the demand pick-up.” – MSC Industrial Direct (MSM) CEO Erik Gershwind

Product scarcity is driving inflation

“What’s happening is there’s a lot of product scarcity and that’s beginning to lead to significant inflation, and we’re seeing it in the form of our suppliers beginning to move. In terms of–so really, that was in large part the driver behind our March increase.” – MSC Industrial Direct (MSM) CEO Erik Gershwind

Industrial companies are talking about healthy price increases

“Our typical cycle, Tommy, would be the next meaningful increase that we would take would be sometime over the summer, but what I would say–and certainly if things continue on their current trajectory with the macro, we would anticipate a healthy increase because we are hearing more and more from suppliers about the need to make pricing moves. What I would say is, if you look back over time, it’s also–it’s feasible that we could even do something sooner if we saw that much inflation heat up that quickly, we could move before then.” – MSC Industrial Direct (MSM) CEO Erik Gershwind

Materials & Energy:

Cruise ships are reducing carbon footprint

“Despite fleet-wide capacity growth of 25% from 2011 to 2019, our absolute carbon emissions peaked in 2011, and we delivered a more than 30% reduction in our carbon intensity since 2005. We also lead the industry in the development of shore power. Over 40% of our fleet is capable of plugging in well in port, enabling power for more sustainable sources.” – Carnival (CCL) CEO Arnold Donald


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