The Transcripts

The Transcript 02.17.20

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Succinct Summary:  Companies are assessing the impact of the Coronavirus and the outlook so far is not good. There is a real worry that the slowdown in China could result in a global slowdown. 

Macro Outlook:

While US consumer sentiment is strong,

“Consumer sentiment remains strong, but macro forecasts continue to call for positive but decelerating GDP and nonresidential fixed investment growth.” – Hilton Worldwide (HLT) CEO Chris Nassetta

Companies are assessing the impact of the Coronavirus so far: 

  • Merchants operations haven’t returned to normal

“For our e-commerce business, the delay in employees returning to work following the Spring Festival holiday is preventing merchants and the logistics companies from resuming operations. For the first two weeks after the Chinese New Year holiday, we have observed negative impact on our commerce business, as merchant operations have not returned to normal and a significant number of packages were not able to be delivered on time.” – Alibaba (BABA) CEO Daniel Zhang

  • Salmon demand down given that 95% of salmon consumption is through restaurants

“…right now there is no trade with China of salmon, although you can find the air freight for the salmon. It doesn’t help because you don’t have the clients. And the price is also very high because of the cost of air freights…There people do not go out and eat….95% of the salmon consumption in China is through restaurants and the likes. So 120,000 tonnes of that market is out.” – Mowi (MHGVY) CEO Ivan Vindheim

“Chinese consumption of salmon that takes place mainly in the foodservice segment, so that means restaurants, hotels.
And with activity slowing down, that also means that demand is reduced. And that China is – has its share of the total market, so demand there is down due to this corona outbreak.” – Mowi (MHGVY) CFO Kristian Ellingsen

  • There is a huge backlog of shipments

“…there’s a huge – there will be a huge backup of shipments. A lot of factories have been deferred from being reopened.” – Motorcar Parts of America (MPAA) CEO Selwyn H. Joffe

  • The risk of a global slowdown has increased

“The immediate and most significant impact is in China itself. However, given its importance as the world’s second largest economy, a broader slowdown is certainly possible.” – Moody’s (MCO) CEO Ray McDaniel


UK economic growth to remain below trend

“…the consensus forecast suggests that UK GDP will remain below trend and there are signs of a wider global slowdown. The continued low interest rate environment also poses a challenge to income growth for all UK and European banks. On the more positive side, the UK labor market remains fairly robust with record low unemployment helping to keep impairments at low levels.” – Royal Bank of Scotland (RBS) CEO Howard Davies

Online retail sales were up 20% YoY in China in 2019

“According to the China Ministry of Commerce, total retail sales across China increased by 8% year-over-year in 2019 for a total of RMB41 trillion. Consumption contributed 58% of China’s economic growth and accounted for 3.5 percentage points of China GDP growth. Online retail sales of physical goods for the year was RMB8.5 trillion, up 19.5% year-over-year. From these figures, it is clear that consumption has become the major driver of economic growth in China and online retail is the engine driving consumption growth.” – Alibaba (BABA) CEO Daniel Zhang


US and European Investment Grade bond issuance expected to be flat to down in 2020

“Despite a strong start to 2020 for U.S. Investment Grade issuance, a several factors are driving cautious full year outlooks from the banks. These include a tough comfortable M&A driven issuance, concerns around the economic impact of the coronavirus and potential volatility in the second-half of the year stemming from the U.S. election cycle. Overall, the banks call for U.S. Investment Grade issuance to be flat to down 5%….banks are expecting European speculative grade issuance to be largely flat, with stronger issuance for fixed rate debt or fitting a slight decline in floating rates issuance” – Moody’s (MCO) CFO Mark Kaye

Zero commissions are driving higher retail interest 

“…from a macro perspective, the implementation by the large retail brokers of zero commissions has driven more retail volumes. So retail volume overall was up… you can see that the zero commission phenomena has driven more interest. Some of that also is when you see, stocks like Tesla, that retail in particular is very interested in, you’ll see a spike in activity” – Virtu Financial (VIRT) CEO Douglas Cifu

Negative rates are actually a drag on business confidence

“…the intention is that, that is accommodated and encourages economic growth. But, in fact, it seems to me that that actually does represent a drag because of what it does for business confidence. And so, I think, the very attractive borrowing conditions are encouraging, refinancing and they are supportive of opportunistic issuance activity. But they’re really not contributors to companies thinking about it being time to invest in property plant and equipment and business expansion.” – Moody’s (MCO) CEO Ray McDaniel

Western Union experiencing a continued decline in US domestic money transfer

“…continued declines in U.S. domestic money transfer.U.S. DMT trends were similar to last quarter and we expect declines will continue this year as we manage the business for cash flow.” – Western Union (WU) CFO Raj Agrawal


Companies reaffirm increasing customer demand ESG products

“…we’ve got a huge customer base of banks and insurance companies, as well as fixed income investors and commercial and non-commercial property players, who are coming to us and asking us for ESG and climate contents.” – Moody’s (MCO) COO Rob Fauber

“The International Energy Agency estimates a doubling of the annual global energy sector investment, and we want to be at the forefront of making that happen. There is a clear market appetite to shift to more energy-efficient buildings, as well as for greater use of renewables and electric vehicles. However, demand is not being met with supply.” – Royal Bank of Scotland (RBS) CEO Alison Rose


The semiconductor industry is becoming less volatile

“…we are not taking our eye off the powerful trends that are driving the semiconductor industry forward and creating a structurally larger and less volatile market. At the low point of this recent downcycle and customer spending, which occurred in the second calendar quarter of 2019 the combined quarterly revenues of the top five semi equipment companies were only 17% lower than at the cycle’s peak. In contrast, during the industry cycles that took place between 2000 and 2013, peak to trough revenues for the same five companies combined dropped on average 44%.” – Applied Materials (AMAT) CEO Gary E. Dickerson

eSports is thriving with a global audience of USD $440 million

“Gaming is thriving, and gamers prefer GeForce. The global phenomenon of eSports keeps gaming momentum with an audience now exceeding $440 million, up over 30% in just two years, according to Newzoo. The League of Legends World Championship brought more than a 100 million viewers on par with this month’s Super Bowl.” – NVIDIA (NVDA) CFO Colette Kress

High demand for equipment to support rollout of 5G

“There is a strong commitment on the part of these customers to advance the leading edge as they get ready for demand related to the rollout of 5G. At the same time, we’re also seeing healthy spending for specialty nodes to support growing demand from the IoT, communications, automotive, power and image sensor market.” – Applied Materials (AMAT) CEO Gary E. Dickerson

China Singles day sales set new records

“Our 11.11 Global Shopping Festival set a new GMV record of RMB268.4 billion. This is equivalent to 2.3 times the combined online sales of Black Friday and Cyber Monday in the US.” – Alibaba (BABA) CEO Daniel Zhang

Expedia’s problem with Google

“Google has certainly a monopoly share all over the world, and it does what monopoly shares get you to do, which is extend its business in every direction they can. Now so long as they don’t use unfair practices, I’ve got no problem with that. But when they compete against their advertisers, and we are one of their largest advertisers, we have within their top five of advertisers. They’re using their tactics to squeeze these entities that are delivering real service is, among many things, antisocial. I mean, I think it’s bad practice.” – Expedia (EXPE) Chairman Barry Diller

Materials & Energy:

Commodity prices to remain volatile

“While the forward curve is depressed today, commodity prices will undoubtedly remain volatile” – Marathon Oil (MRO) CEO Lee Tillman

Real Estate:

Record low number of homes in the US up for sale which is driving pricing pressures

“The number of homes for sale at the end of 2019 in the US was the lowest in at least two decades 9% below January 2018 levels…Price pressure that used to be limited to a few cities like San Francisco or Portland is now widespread, leading Americans in search of affordability with fewer places to go than earlier in the housing recovery…Across the industry, homebuyer demand is very strong so the limit on sales growth will be inventory…the number of bidding customers – of customers bidding on homes has far exceeded those who have won.” – Redfin (RDFN) CEO Glenn Kelman

The restrictions on consumer credit after 2008 are limiting housing liquidity

“Even when rising prices entice more sellers to list their home, some first take months to fix up their properties. Others can no longer get the credit to own two homes at once and get stuck in a frenzied market. They refuse to sell their current home before finding a new one to buy. They can’t buy the new one without cashing out the old one. The restrictions we put on consumer credit after 2008 are now 12 years later, limiting housing liquidity. For all these reasons, we think that the seller’s market will last at least through the first half of 2020.” – Redfin (RDFN) CEO Glenn Kelman

Whirpool sees signs of US housing strengthening

“U.S. housing starts show positive signs of strengthening that has not yet translated into higher appliance demand…I would say, we’re reasonably optimistic on housing, but…” – Whirlpool (WHR) CEO Marc Bitzer.

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