The Transcripts

The Transcript 02.08.21

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Succinct Summary: It’s hard to believe that we’re approaching a year since the US economy shut down due to COVID. Vaccines continue to roll out though and people are ready to have fun. Strong demand is putting pressure on COVID-impacted supply chains and potentially creating inflationary forces.

Macro Outlook:

We’ve been living with Covid for almost a year

“I’ll tell you the virus, while it’s only been around for a year, it feels like it’s been around longer.” – Asbury Automotive Group (ABG) CEO David Hult

Adversity has forced rapid change

“Adversity can often be a force for societies to change at an accelerated pace. Companies have digitized at a speed and scale they could never have imagined, and we expect these actions will continue into 2021.” – ManpowerGroup (MAN) CEO Jonas Prising 

But vaccines are rolling out

“Despite persisting lockdowns in certain markets, the vaccine is rolling out. Singles are already posting their positive antibody test results and vaccine confirmations on their dating profiles.” – Match (MTCH) CEO Shar Dubey

People are ready to have fun

“…we’ve seen just in the last 10 days an uptick again, and it’s right in line with the COVID numbers, sort of around the country, decreasing. It’s clear that people are ready to have fun. They are ready to travel, but they are still not quite sure if it’s time…In fact, for Superbowl, we’re going to be at almost 50% occupancy the first time since October with over a thousand casino customers coming, which is significantly more than we had for New Year’s Eve. So, while there’s still a long way to go in Las Vegas, we can tell that as people become more and more – feeling more safe, they are ready to travel and they are ready to have fun.” – Wynn Resorts (WYNN) CEO Matt Maddox

Economic activity is stronger than anticipated

“Despite experiencing a series of new COVID-19 related restrictions around the world, our results reflect a stronger market environment than we had anticipated, with revenue growth and new opportunities in select markets.” – ManpowerGroup (MAN) CEO Jonas Prising 

Strong demand is stretching supply chains

“I just want to say that the most interesting thing that’s happening is the rate at which demand has increased. We’ve never seen an increase in demand happened as quickly. And that combined with COVID and the pandemic has really stretched the supply chain…The supply base is generally tight, not just semiconductors, which has gotten a lot of press, but many of our components, are on longer lead times. Our suppliers and we are struggling with absenteeism due to COVID.” – Cummins (CMI) President & COO Livingston Satterthwaite

“I would tell you on the new car side, we lost unit sales, because…we couldn’t replace the inventory…in December, we had many stores below a 20-day supply and that’s a 20 day supply across all model line. So individual hot models you didn’t have any day supply…we sat here a quarter ago and thought by the end of the first quarter days supply would be back up to normal. But because what’s going on with the microchips and some other things, it’s probably going to bleed well into the second quarter before inventories gets back.” – Asbury Automotive Group (ABG) CEO David Hult

The supply chain is not stable

“I think one of the problems that we’re dealing with is that the supply chain is not as stable. You know, we’re finding that, you know, [subcontractors are missing deadlines]. Well, what happened? Well, what happened was they got a [de-commitment] from their supplier. They didn’t get some bundles they were expecting. They couldn’t hire some people, somebody tested positive for COVID. So they had to send 50 people home, who had come in contact with it.” – Microchip (MCHP) CEO Steve Sanghi

There’s no slack in the system

“…we expect that the constraints we are currently seeing are likely to continue through much of calendar year 2021 and possibly into calendar year 2022…there is no slack in the system. Everything that gets built, get shipped, there’s absolutely no slack in the system.” – Microchip (MCHP) CEO Steve Sanghi

This leads to inflationary pressure

“We are seeing quite a bit of commodity inflation and a larger foreign exchange impact as we go into 2021, particularly in Latin America, in Turkey, in India and in South Africa. And we’ve got some commodity inflation coming through, in particular, tea in India, in palm oil, in liquid oils and in food ingredients. So we’ve got some inflationary pressures coming forward. And we do expect mid- to high single-digit commodity inflation in the first half.” – Unilever (UL) CFO Graeme Pitkethly

“We have a situation right now in the supply chain…There’s a huge capacity issue, where there’s not enough capacity, and we know they’re going to have to — they’re going to start spending money around steel, iron ore, mining, copper, plastics, all these things.” – Emerson (EMR) CEO David Farr

“Though we are seeing an improvement in our in-stock levels as compared to where we were during Q2, we were not immune to the supply chain disruptions and rising freight costs, which were prevalent across the industry.” – The Container Store (TCS) CFO Jeff Miller


China’s economy has been a standout

“From a regional perspective, China stood out. The Chinese economy has recovered from the downturn. GDP is now higher than it was before the pandemic. Demand in China is strong, both from the domestic market and from export market.” – Siemens (SIEGY) Deputy CEO Roland Busch

Is there some reason to be cautious?

“…we are hearing a very cautious tone from our OEM customers in China about demand in the second half of the year. It is true that demand held up strongly through the second half of 2020. And yes, you’re right. The industry is off to a strong start in Q1. We don’t expect to see that significant decline in Q1, that’s for sure.” – Cummins (CMI) CFO Mark Smith

Yum is talking about expanding to Tier 6 cities

“There’s still plenty of white space in which we can expand. We are tracking over 700 cities in which we have no presence in China. To penetrate new markets, KFC is piloting small-town model designed for the needs of Tier 6 cities or below.” – Yum China (YUMC) CEO Joey Wat


Working from home may end sooner than expected

“I think the world looks to tech to be the leaders in what’s going on. And right now tech has said, people should stay home until we have clarity on the pandemic. But the conversations we’re having with our tech clients and other large tech companies are some have advanced plans to begin opening [offices] in…mid-2021 when they were actually looking at the end of 2021.” – Kilroy Realty (KRC) EVP of Leasing and Business Development Robert Paratte

Office rent collections remain strong

“Our average portfolio-wide rent collection across 2020 exceeded 97% with office and life science rent collection at 99%.” – Kilroy Realty (KRC) CEO John Kilroy

ICE says that US market structure is flawed

“…when we bought the New York Stock Exchange, we were pretty vocal about the fact that we thought that the market structure in the US equity space was flawed and that it needed a holistic review…that infrastructure paralyzes the industry somewhat and stifles innovation in my view. And so, we’re going to have a new SEC Chair and — Chairman Gensler is confirmed and he actually takes that seat. He is a person that worked in the derivative space in part of his career, worked in the regulated commodities and derivatives space for part of his career and has a deep interest in — and knowledge of market structure.” – Intercontinental Exchange (ICE) CEO Jeffrey Sprecher

There’s growing opposition to tax increases in California

“…our governor is not very popular…everybody is pissed off. Thinks he is an idiot, and I do too…we have a lot of stupid people and a lot of stupid policies. And there’s a lot of us that are pissed off. And it’s not just people in the real estate business or people that are wealthy, it’s people at every level…And I think you’re going to see a ground swell of opposition to tax increases and to other things, and that’s what the polls are showing.” – Kilroy Realty (KRC) CEO John Kilroy


Bezos stepped down as CEO of Amazon

“If you do it right, a few years after a surprising invention, the new thing has become normal. People yawn. That yawn is the greatest compliment an inventor can receive. When you look at our financial results, what you’re actually seeing are the long-run cumulative results of invention. Right now I see Amazon at its most inventive ever, making it an optimal time for this transition.” – Amazon (AMZN) Founder & CEO Jeff Bezos

YouTube is dwarfing television

“And as traditional TV ratings continue to decline, TV advertisers are turning to streaming platforms like YouTube to reach people who are no longer watching TV. Connected TVs are our fastest-growing screen. In the U.S., we have over 100 million people that watch YouTube and YouTube TV on their TV screens each month. YouTube helps advertisers reach general audiences they can’t reach anywhere else. We talked about it. YouTube reaches more 18- to 49-year-olds than all linear TV networks combined.” – Alphabet (GOOG) SVP & Chief Business Officer Philipp Schindler

Pandemic demand trends seem to be sticky

“When the vaccine was announced in the fall, you saw a reaction to the stock, but we did not see any reaction to our sales or demand. We still have not seen any softening since that vaccine was announced and since the vaccine has been rolling out. So other than investors getting nervous, the consumers are still feeling like they want to work out at home.” – Peloton Interactive (PTON) CEO John Foley

“…in the markets where we start to open those dining rooms up…we’re seeing 50%, 60% of the dining room business come back and we’re hanging on to 85%, 80% of our digital business. And as you walk into 2021, our digital system now has 19.5 million members. And what we have seen is they like the additional access, the convenience that it provides…we’re seeing a scenario where digital is going to prove to be very sticky and people look forward to getting back out and going into our restaurants.” – Chipotle (CMG) CEO Brian Niccol

Millenials want yards after all

“What we’ve seen — and this is before COVID, so this is in a couple of years leading up to COVID, is that everyone thought that young people are going to stay in sort of metropolitan areas, and we’re going to live in apartments and condos, they didn’t want a yard. And it was crazy here, I think, was the first one who told me, those metrics are bullshit…What is clear in COVID is that people value the home experience, they value a yard, the ability to be with their families, everything that’s kind of we’re about more so.” – The Scotts Miracle-Gro (SMG) CEO Jim Hagedorn


Gen Z lives in a digital world

“…social interaction is moving from physical to digital more broadly for the Gen Z population. And the consumption of sport and entertainment is moving from linear to interactive for the Gen Z population and we kind of sit at the very intersection of those two secular trends.” – Electronic Arts (EA) CEO Andrew Wilson

Gaming demand is extraordinarily high

“I mean anecdotally, what we know to be true is demand is extraordinarily high for both consoles and that retailers, both digital and physical, are struggling to keep them in stock.” – Electronic Arts (EA) CEO Andrew Wilson

Amazon hasn’t figured out gaming quite yet

“Some businesses take off in the first year, and others take many years..,Though we haven’t consistently succeeded yet in AGS, I believe we will if we hang in there…Making great games is hard, and we’re not going to get everything right.” – Amazon (AMZN) Incoming CEO Andy Jassy

Apple’s moves on IDFA are a hot topic

“…we do anticipate that there could be another interruption to demand later in the quarter, as we see some of the iOS changes implemented and as we work with our advertising partners to navigate those changes also implemented.” – Snap (SNAP) CFO Derek Andersen

“With respect to IDFA, this is a question, I think, we got by all of you — got from all of you. The changes related to IDFA are going to require that our customers recalibrate much of what they’re doing related to their acquisition, their monetization and their marketing strategies. And we’ve been working really closely with customers to help them do this.” – Unity Software (U) SVP & CFO Kimberly Jabal


Life science companies are booming

“Life science is a force to be reckoned with. It continues to be the most dynamic. In terms of activity and what we see going on, there’s no very limited supply…if you look at life science in the Bay area, there are about a dozen life science biotech companies in Mission Bay in San Francisco. There are over 180 of those companies in South San Francisco. So it’s just a very vibrant growing market and we’re really happy about that.” – Kilroy Realty (KRC) Executive Vice President of Leasing and Business Development Robert Paratte

Casinos are opening their own COVID testing labs

“…this month we will be opening our COVID testing lab, which is a PCR based lab that will have the ability to process between 5,000 and 7,000 tests a day. That opens this month. And the idea is that when we talk to groups or when we’re talking to the state leaders about entertainment, about nightclubs, about conventions, that will have the ability for customers to have health passport, whereby they can say and show that they’ve been vaccinated, or they’ve been tested in our lab onsite, and it’s been turned around within six hours.” – Wynn Resorts (WYNN) CEO Matt Maddox 

Infrastructure built for COVID will be long lasting

“New opportunities were opened during the course of the year because of the pandemic…we were able to put $1 billion of additional reinvestment in the business above the normal increases that we have every year. And we’re stepping that up again in 2021…So what does that mean for the future? It means that the company is positioned to grow more rapidly…And much of the investments that we made that are supporting COVID are going to be applied to other applications. So obviously, vaccines and therapies we expect will continue to be very relevant in 2022. But at some point, they’ll be less relevant. And that capacity, that all converts over to non-COVID-related activities.” – Thermo Fisher Scientific (TMO) CEO Marc Casper

Industrials and Transport:

Amazon hired 500k new employees in 2020

“I’d like to start by thanking the nearly 1.3 million Amazon employees who have risen to the challenge of serving customers around the world during this pandemic. We are proud that more than 500,000 people chose to take new jobs at Amazon in 2020.” – Amazon (AMZN) CFO Brian Olsavsky

UPS flexed 40k employees in 4Q20

“…in the fourth quarter of ‘20. We had 40,000 employees coming on, which was about $100 million headwind.” – United Parcel Service (UPS) CFO Brian Newman

The trend in electric vehicle demand is clear

“It’s early in the transition, but the trend is clear. We watched one out of 10 vehicles sold in Europe in December be pure electric. EV sales in China continue to grow and the reality is the customers, including in the US, are increasingly giving E-mobility greater consideration…We are rapidly building on our electric vehicle plans and building out our manufacturing and our R&D capabilities…we successfully launched three incredibly important vehicles that exemplify our new Ford and our direction. Our first all-electric Mustang Mach-E, which we and more importantly others believe is the first credible mass-marketed competitor to Tesla; and the F-150, the 2021 F-150, America’s favorite vehicle.” – Ford (F) CEO Jim Farley

Materials & Energy:

The US government is putting pressure on the oil and gas industry

“…from our perspective, some of the recent executive actions targeting U.S. oil and gas production will have a negative economic and environment consequences to the American people. If the moratoriums become permanent, they will eliminate well-paying jobs mainly in rural America, slower economic recovery, negatively impact energy and national security, and increase our reliance on higher GHG for minerals. We certainly want to avoid these outcomes. So we stand ready to work with the Biden and team, as we did successfully with the Obama-Biden administration to find balanced solutions to address the issues.” – ConocoPhillips (COP) CEO Ryan Lance

Companies are also trying to move rapidly away from fossil fuels

“Amazon became the world’s largest corporate purchaser of renewable energy, taking another step in its journey to be net-zero carbon by 2040. The company is investing in the building of 26 new utility-scale wind and solar projects in Australia, France, Germany, Italy, South Africa, Sweden, the UK, and the U.S., bringing Amazon’s total number of renewable energy projects to 127. Amazon’s investments will supply its operations with more than 18,000 gigawatt hours (GWh) of renewable energy annually, helping put the company on a path to achieve 100% renewable energy by 2025, five years ahead of the initial 2030 target.” – Amazon (AMZN) Founder and CEO Jeff Bezos

It makes no sense for O&G companies to seek growth right now

“…the macro environment has firmed up recently, we’re cautious about the trajectory and the timing of a recovery. Demand recovery is taking longer, spare supply remains and inventories remain elevated. It makes no sense to grow into this market environment. So we’re choosing to stay at a sustaining level for the year.” – ConocoPhillips (COP) CEO Ryan Lance 

This could lead to higher prices

“…our view is in the medium term, it’s quite possible that we’ll spend some time above mid-cycle prices. And add to this, a little bit, there’s some demand reduction, we know there’s been significant supply reduction particularly in year-end…I mean U.S. current oil production was at 8.2 million barrels a day in December of 2019, and last year it was 7 million barrels a day.” – ConocoPhillips (COP) EVP & COO Matt Fox

Miscellaneous Nuggets of Wisdom:

Success is sweeter when it takes longer

“Being successful right away is obviously less stressful, but when it takes longer, it’s often sweeter,” – Amazon (AMZN) Incoming CEO Andy Jassy

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