Practical analysis for investment professionals
21 June 2016

The C-Suite Speaks: Healthy Consumers

The C-Suite Speaks: Healthy Consumers

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.

Recent statistics suggest that consumers are in pretty healthy shape, but macro uncertainty may still be causing some hesitation. The US Federal Reserve is also showing some hesitation, as it neglected to raise rates last week. And while Fed chair Janet Yellen reiterated that every meeting is a “live” meeting, there are some signs that even the Fed may be starting to expect that rates will be lower for some time more.

In addition to conference calls last week, we spent some time at E3 in Los Angeles, and collected a couple of quotes from a meeting with Microsoft’s Xbox CFO. Also, for what it’s worth, we got a chance to demo HTC Vive, Oculus, and Sony PlayStation VR and were thoroughly impressed.

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The Macro Outlook

Consumers are feeling more positive according to recent data.

“Unemployment is low, interest rates are low, inflation is low, gas prices are low. And all of that would say the consumer should feel pretty good about where they’re at and I think the consumer feels okay.” — Walmart CFO Brett Biggs (Big Box Retail)

“The consumer tells us that their wages are up, their job stability is better than it’s been in many years. They have price appreciation in their home. They have more money in their savings accounts than they have had [in] quite a while and energy prices, although up, are still down relative to last year. So overall, the consumer is telling us they feel really good about their personal economic position.” — JCPenney CEO Marvin Ellison (Department Store)

 But they are also feeling hesitant because of the overall macro environment.

“What they’re telling us is that they are pulling back a little bit on apparel-related spend because they are spending more on experiences and entertainment, but also because of some of the uncertainty that may exist in the broader macro that they can’t predict.” — JCPenney CEO Marvin Ellison (Department Store)

Brexit is having wide-reaching effects. 

“It’s hard to say with the typical summer malaise or whether there is something that is broader than that. Certainly the vote [this] week in Britain has impacted not proposal activity, but it has impacted clients making decisions. We have absolutely seen that in Europe and to some extent we’ve seen that in North America.” — Korn Ferry CEO Gary Burnison (Executive Search)

The summer travel season looks to be in great shape.

“I feel very, very positive in terms of overall summer visitation. Certainly, I think there [are] a lot of indications that summer travel, particularly car travel, is going to be robust. We’re seeing a very strong visitation in the national parks . . . I think certainly summer visitation and summer tourism travel, I think, is in a good spot.” — Vail chairman and CEO Robert Katz (Ski Resorts)

Kroger is seeing customers trade up, but it’s not clear whether that’s because of the economy or deflation. The company would have expected to see more inflation by now, but it hasn’t happened.

“There is no doubt that you see people . . . buying more beef, things like that. So, those things are definitely happening. But some of those prices are the best prices that customers would have seen in, I want to say, almost three years . . . So how much of it is driven because of economy and how much of it’s just driven because . . . it’s a good value, again, given the changes in price?” — Kroger chairman and CEO W. Rodney McMullen (Grocery)

“We would have expected to start seeing a little bit more inflation right now than when we were sitting here three or four months ago thinking about it. And it just hasn’t happened. And as I sit here today, it certainly doesn’t feel like we are going to have the pickup in overall food inflation . . . I think we are going to wind up most of the year in a fairly low inflationary environment.” — Kroger EVP and CFO J. Michael Schlotman (Grocery)


The Fed hasn’t changed its expectation that it will raise rates incrementally.

“The committee continues to anticipate that gradual increases in the federal funds rate over time are likely to be consistent with achieving and maintaining our objectives.” — US Federal Reserve chair Janet Yellen (Central Bank)

They could raise rates at any meeting.

“Every meeting is live. There is no meeting that is off the table. No meeting is out in terms of a possible rate increase . . . So, I’m . . . not comfortable to say it’s in the next meeting or two, but it could be . . . It’s not impossible that by July, for example, we would see data that led us to believe that we’re in a perfectly fine course.” — US Federal Reserve chair Janet Yellen (Central Bank)

But there are signs that Yellen may be starting to believe that rates could be lower for much longer. She cited “persistent factors” in addition to “lingering effects of the financial crisis” as a driver of low interest rates.

“I’ve often . . . talked about headwinds that reflect lingering effects of the financial crisis . . . I think many of us expect that these headwinds would gradually diminish over time and that’s a reason why you see the upward path for rates. But there are also more long-lasting or persistent factors that may be at work that are holding down the longer run level of neutral rates. For example, slow productivity growth . . . and we have . . . aging societies in many parts of the world that could depress this neutral rate.” — US Federal Reserve chair Janet Yellen (Central Bank)

This may be a “new normal” for a while longer.

“The sense that maybe more of what’s causing this neutral rate to be low are factors that are not going to be rapidly disappearing, but will be part of the new normal.” — US Federal Reserve chair Janet Yellen (Central Bank)


Online shoppers tend to buy more premium products.

“Our online shares are slightly ahead of our offline shares . . . I don’t get too excited about that, because the demographics of the online shopper currently skews more premium in our portfolios, more premium, so it should be the case.” — Procter & Gamble CFO Jon Moeller (Consumer Packaged Goods)

E-commerce is a modern take on catalog retailing.

“You could argue that JCPenney was one of the first omni-channel retailers between brick-and-mortar and catalog. And online is only a very sophisticated modern view of what the catalog was 50 years ago.” — JCPenney CEO Marvin Ellison (Department Store)

Cable companies did not handle the transition from linear television to video on demand (VOD) well.

“They bungled it. By and large, the incumbent distribution system was too slow to give the consumers what had already been invented. They had the programming; they could have offered it in an effective way to consumers who would have watched. Instead, [multichannel video programming distributors] MVPDs let consumers go to alternatives for the very same programming they already had, because consumers wanted it on VOD and with a great interface.” — Time Warner chairman and CEO Jeff Bewkes (Media)


We’re starting an age when the fantasy is over.

“I think we’re entering the post-unicorn era, and what I mean by that is when the market corrects, you have a shift from growth to all costs to a back to the basics and a focus on profitability. The scorecard changes.” — Dropbox cofounder and CEO Drew Houston (Cloud Storage)

GE has a knack for arriving late to an economic party. It now wants to be more like a start-up.

“So we’ve been on a journey, especially in the past three to five years, to be much more agile, faster speed, to be much more like a start-up. Why is that important? Because our customers expect that there is incredible change happening in the marketplace right now, and our customers need to be ready for it and we need to serve them better.” — GE vice chair Beth Comstock (Industrials)

The widespread embrace of virtual reality (VR) requires lower prices and more content.

“It’ll take prices coming down and broader content to get mass adoption of VR.” — Microsoft Xbox CFO Kevin McCarthy (Gaming)

An Apple supplier cited weakness in its mobile phone division, but expects a rebound in two quarters.

“The current decline in demand we’ve seen in existing products is more acute than in past years, thereby amplifying the negative impact to the earnings this quarter . . . as we sit today, we do expect a snapback. Everything that we’re looking at in terms of demand, the product launches on new products are going as expected and are on track.” — Jabil director and CEO Mark Mondello (Electronics Manufacturer)

Health Care

As some markets become more competitive, it is more important to manage relationships with payers.

“If you think about not only hep C [hepatitis C], but some of the markets we talked about in inflammation and oncology, clearly very competitive marketplaces, where I think it’s very evident to us that additional focus on managing our payer and contracting strategy is a really important thing to do.” — Gilead EVP and CFO Robin Washington (Biotech)

Materials, Energy

The oil service industry remains a disaster.

“Our first quarter results reflect what is arguably the most difficult industry environment faced by Total Energy since we commenced our operations in 1997. The decline in North American oil and natural gas, drilling, and completion activity that began in 2014 accelerated during the first three months of 2016 . . . This difficult environment has led to what we have characterized as a dysfunctional market in certain of Total’s business lines. Evidence supporting our characterization includes unsustainable pricing, cannibalization of equipment, and willingness to take excessive counter-party credit risks, which in turn is leading to business failures.” — Total Energy Service president and CEO Daniel Halyk (Oil Services)

Energy company bankruptcies will increase in the weeks ahead.

“With no clear and substantial improvement in industry conditions in near sight, we fully expect business failures in our industry to accelerate over the next few months.” — Total Energy Service president and CEO Daniel Halyk (Oil Services)

Miscellaneous Nuggets of Wisdom

Put a smile on your customer’s face.

“For us, it’s not about specs, it’s not about teraflops, it’s not about horsepower of a particular system. For us, it’s about content. Nintendo is a content-focused company. We create content that makes people smile.” — Nintendo America president and COO Reggie Fils-Aime (Gaming)

Jeremy Saltzberg just finished reading My Life and Work, an autobiography of Henry Ford. He selected a few quotes from one of the greatest CEOs of all time.

The purpose of technology is to enhance our enjoyment of life.

“When one speaks of increasing power, machinery, and industry there comes up a picture of a cold, metallic sort of world in which great factories will drive away the trees, the flowers, the birds, and the green fields. And that then we shall have a world composed of metal machines and human machines. With all of that I do not agree. I think that unless we know more about the machines and their use, unless we better understand the mechanical portion of life, we cannot have the time to enjoy the trees, and the birds, and the flowers, and the green fields.”

Hard work leads to success.

“The man who has the largest capacity for work and thought is the man who is bound to succeed.”

Leave the fear of failure behind.

“There is no disgrace in honest failure; there is disgrace in fearing to fail.”

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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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