Practical analysis for investment professionals
29 March 2016

The C-Suite Speaks: Getting Back on Track

The C-Suite Speaks: Getting Back on Track

Each week our team at Avondale Asset Management reads dozens of transcripts from earnings calls and presentations as part of our investment process. Below is a weekly post which contains some of the most important quotes about the economy and industry trends from those transcripts as well as other forums.

It was a holiday-shortened week last week, so there weren’t a lot of companies talking. It is annual report season though, so a lot of the quotes come from shareholder letters. Commentary continues to be positive. Optimism has rebounded with the markets. However, beware the temptation to think that the business cycle has been conquered.

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The Macro Outlook

The economy seems to be righting its course.

“There’s nothing that would suggest that we’re imminently ready to go into a recession here in the US . . . I think the market is starting to recognize as well. So, things seem to be getting back on track in terms of even a market perception. So, I think that everything is being set up of for the type of year that we had thought it would be, in terms of the US.” — Ford (F) EVP and CFO Bob Shanks (Automobiles)

There was some de-acceleration, but now there’s a sense of renewed confidence.

“We saw some signs of a slowing down in our industry over the last several quarters, particularly as we got into December and January, but now we are feeling some resurgence of confidence, at least a flattening out of that trend. So hopefully that was a moment and hopefully we’ll see some growth develop in the quarters to come.” — Steelcase (SCS) director, president, and CEO James Keane (Office Furniture)

Americans have more important things to worry about than a little stock market volatility.

“As I shared, we ended February with some good momentum and that’s the month that there was all the volatility in the marketplace. And I think if you look at a couple who are both gainfully employed and you now have a child and you have the need to get out of your apartment and move into a home. You are not worried about Wall Street volatility. You are worried about the second bedroom or third bedroom that you need, and on the street, out on Main Street the consumer right now is favorably looking at home ownership.” — KB Home  (KBH) director, president, and CEO Jeff Mezger (Homebuilder)

When people start questioning the existence of the economic cycle, however, it’s usually time to seek safety.

“We were circulating a piece internally here over the last few weeks by somebody outside the company who wrote about how maybe the idea that the economy follows a certain cycle of seven years . . . when you go back and you actually test it, it’s not so clear that it’s seven years. Sometimes it’s shorter, sometime it’s longer, and it’s always because of some factor. So maybe the whole idea of it being kind of an inevitable time-based cycle isn’t really as relevant as: Will we have another financial crisis? Will we have a political crisis? Will we have something else that could cause uncertainty and therefore growth to slow down?” — Steelcase (SCS) director, president, and CEO James Keane (Office Furniture)


European tourism could get hit this year by fears of terrorism.

“Because . . . what’s going on in Europe has a combination of Brexit in the UK, migrants in continental Europe and in the UK, and risk of terrorism or perception of risk of terrorism, we believe that the tourist business in Europe, that is a main driver of sales for this region, will be very significantly down.” — Tiffany & Co. (TIF) CEO Frederic Cumenal (Jewelry)

Ford said that China “looks really, really good.”

“China started off very strongly. Little hard to tell in the first two months because of the impact of the Chinese New Year, but it looks really, really good. Pricing there is starting to stabilize. We still expect it to be negative year-over-year but certainly we’re starting to see pricing stabilize, if we look at it on a sequential basis, which is a good sign.” — Ford (F) EVP and CFO Bob Shanks (Automobiles)

China has never been stronger for Nike.

“Finally, Greater China . . . continues to see strong marketplace momentum and very healthy growth despite macroeconomic uncertainty. China grew an incredible 27% this quarter. . . . Demand during the Chinese New Year surpassed anything we’ve ever seen before. . . . Our brand and business in China have never been stronger. And we continue to build momentum.” — Nike (NKE) Brand president Trevor Edwards (Apparel)

Tiffany said that mainland China is solid but greater China is “a nightmare.”

“Frankly we are quite pleased with mainland China and all performance in China. We have had very solid performances in 2015 in China, and we have no reason to think that our performance won’t be good in mainland China in 2016. Truth is that greater China, because of Hong Kong, continues to be a nightmare. There is no other word, and I believe this is the same for all of us, all the luxury players.” — Tiffany & Co. (TIF) CEO Frederic Cumenal (Jewelry)

Brazil has to solve its political crisis before its economy can turn around.

“It is entirely externally driven. It’s an economic downturn . . . driven by the commodity cycle, but it’s also overlaid, I think, by all the political issues that we see in Brazil and read about every day. Frankly, the turnaround is going to require the cycle to turn. And I think resolution to some extent of the political crisis that we see . . . For Brazil to unleash its potential [it’s] really going to require some structural changes to the economy, which is going to take government just [having] the ability and the will to do that. So, I think it’s dependent in part on that.” — Ford (F) EVP and CFO Bob Shanks (Automobiles)


KB Home still sees pressure on labor costs but thinks the worst may be over.

“There definitely still is a shortage of labor. . . . I think the worst of it’s over. It was pretty tight and we had a lot of cost pressures in the fourth quarter, there is still out there but they don’t seem as impactful as they were in the fourth quarter. . . . We think it’s getting better right now on the labor front.” — KB Home (KBH) director, president, and CEO Jeff Mezger (Homebuilder)

KB Home’s CEO says he doesn’t think we’re anywhere near a bubble price for homes in San Francisco.

“I don’t think you are anywhere near a bubble price, certainly not at the price points we are playing out. Hate to say, but $1.5 million is . . . affordable in [the] Bay Area right now or the city of San Francisco.” — KB Home (KBH) director, president, and CEO Jeff Mezger (Homebuilder)


Consumers have been moving towards leasing cars and used car prices are falling.

“What we have seen is a continued shift . . . to longer and longer terms. We’ve also seen more and more leasing in the industry. . . . We’re seeing the auction value of cars decline and pretty sharply.” — Ford (F) EVP and CFO Bob Shanks (Automobiles)


Everyone wants to be more digitally savvy. AB Inbev has hackathons.

“With the creation of our disruptive growth team, we are seeking team members with skills more typically associated with start-up, entrepreneurial companies. One approach to finding such employees with a creative, curious, challenge-the-status-quo mindset, has been to invite students to participate in hackathons where they are encouraged to tackle real business problems.” — AB Inbev (BUD) CEO Carlos Alves de Brito (Beverages)

Retailers know it’s imperative that they develop e-commerce expertise.

“We are expanding our fast-growing internet offerings. . . . We have to stay out in front in this sector of our industry. Our customers expect us to offer this shopping convenience and additional avenues for trustworthy advice to maintain, enhance, or repair their vehicle.” — Autozone (AZO) chairman, president, and CEO William Rhodes, III (Auto Parts Retail)

Even utilities tout their social media strategies.

“We are reaching out to our customers in new ways. PSEG has more than 90,000 Twitter followers and a considerable Facebook presence as well.” — PSEG (PEG) chairman, president, and CEO Ralph Izzo (Electric Utility)

But no matter how much traditional companies spend on digital, they will always lag behind.

“And lastly on digital, we are spending, we have been spending, and we are trying to be state of the art on digital. Are we? No. Will we ever be? No, because always someone will do better than us the month after.” — Tiffany & Co. (TIF) CEO Frederic Cumenal (Jewelry)


John Deere’s CEO said last year’s sales decline was the largest since the Great Depression era.

“In relation to the farm economy’s robust years earlier in the decade, the current downturn has been quite dramatic. Since peaking in 2013, industry sales of large agricultural equipment in the United States have fallen more than 60 percent. Deere’s total equipment sales have declined more than 25 percent from their high. Last year’s sales decline was the company’s largest in percentage terms since the 1930s.” — John Deere (DE) chairman and CEO Sam Allen (Farm Equipment)

Materials, Energy

Schlumberger’s CEO is optimistic that oil supply and demand will tighten before long.

“We remain constructive in our view of the market outlook in the medium term and continue to believe that the underlying balance of supply and demand will tighten. This will be driven by growth in demand, weakening supply as the massive E&P investment cuts take effect, and by the size of the annual supply replacement challenge.” — Schlumberger (SLB) chairman and CEO Paal Kibsgaard (Oil Services)

Potash’s CEO said that world population growth depends on fertilizers.

“By 2050, the world’s population is expected to grow by another 2.3 billion, reaching 9.7 billion. At the same time, diets are improving in many regions. These facts add up to greater demand for food, which will require increased crop production even as the amount of arable land per person is declining. With the world counting on increased yields from farmers, fertilizers will continue to be essential in keeping soils healthy. The role of fertilizers cannot be overestimated: They are responsible for half of all crop yields and without them, we believe, the world would be incapable of feeding itself.” — Potash (POT) president and CEO Jochen Tilk (Fertilizers)

Miscellaneous Nuggets of Wisdom

Talent has surpassed capital as the major difference maker.

“In the Human Age — an era where talent overtakes capital as the key strategic and economic differentiator for organizations and countries alike — changes in the world of work are accelerating at a rapid pace and scale.” —ManpowerGroup (MAN) chairman and CEO Jonas Prising (Temp Staffing)

When resources are mispriced, they get abused.

“We have a lot more competition, especially from ridiculously mispriced capital. When people misprice something, it is abused. In England, water is free, it rains all the time yet there is a drought. Now, if you misprice capital, people will abuse it and will regret it, unfortunately in our business as well.” — Richemont (CFRHF) chairman Johann Rupert (Luxury Goods)

Never let a crisis go to waste.

“Never waste a good recession. Never waste an opportunity to fine tune your business.” — Richemont (CFRHF) chairman Johann Rupert (Luxury Goods)

Business is about relationships.

“The most powerful expression of our heritage isn’t in documents or artifacts or even our stagecoach. It is in any of the millions of relationships we have formed over generations with customers, team members, communities, and shareholders. Relationships define Wells Fargo. Earning lifelong relationships, one customer at a time, is fundamental to achieving our vision.” — Wells Fargo (WFC) chairman and CEO John Stumpf (Banking)

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

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About the Author(s)
Scott Krisiloff, CFA

Scott Krisiloff, CFA, is the CEO of Avondale Asset Management, an independent investment advisory firm located in Los Angeles. Krisiloff is the author of the firm's blog, Company Notes.

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