Company Notes Digest 3.7.14

The Macro Outlook

Important question for markets: is Pandora the only web 2.0 company starting to struggle with slowing adoption growth?

“our listener hours were about 1.5 billion, up 9%, our unique listeners was 75.3 million, up 11%. And so we’ve said, obviously, with the law of large numbers we are starting to see some growth slowing.” (P)

Weather continues to be a credible excuse for retailers

“In December and January we did see much more severe and I would say continual weather. It really kept the customer from coming up for air…As we looked at our store base over the last couple months, we’ve seen that over 60% of our stores were affected continually by weather during that time” (PETM)

At least someone benefited from the weather. Consumers stock up on groceries ahead of a storm

“certainly, the snow helped, as we made the comments on people coming in to stock up before weather events. Typically, when people go on a normal shopping trip, they shop off of their lists. When they come in to stock up before an event like that, they come in to stock up before an event like that, and they aren’t really beholden to a list at that point in time.” (KR)

High meat prices pressuring Costco’s fresh food margins

“meat is very competitive. Meat is at an all time high in some categories and that’s raining on everybody…overall, I would say meat, pork and poultry is the biggest culprit there” (COST)

Chinese Iron ore restocking has reached completion

“After ending the year around 135 per tonne, iron ore prices have trended lower in recent weeks, a sign that the Chinese restocking cycle has reached completion” (JOYG)

Consumer

Omni-presence of omni-channel strategies

“I want to make it clear that we’re not getting out of the retail business. Our stores are an important differentiator versus the competition. They are a key part of our omni-channel strategy, and we know customers appreciate the convenience and service stores provide.” (SPLS)

“And finally, we have been testing order online, pick up in store, which is the second-most requested feature by our customers. We will begin rolling this out to all of our stores in 2014.” (PETM)

Foreigners like big American stuff too

“When asked for why have we been so successful in several countries including some of these countries in Asia, we think part of it is, is not only is our value proposition more extreme over there, and also that people actually do like big American stuff.” (COST)

Technology

Comcast/Time Warner deal is an industry redefining deal

“Comcast/Time Warner, and that’s a blockbuster deal from our standpoint. It’s an industry redefining deal from our standpoint.” (T)

And AT&T thinks it’s going to get done

“our studying of this is that it probably gets done.” (T)

Subsidies on mobile phones are probably going away

“we actually think that the industry is at a place where you can actually see line of site to the subsidy equation just fundamentally changing in a very short period of time and who would have thought, right.” (T)

Industry is adopting T-Mobile’s approach of breaking out the cost of the handset from the cost of service and letting the customer choose unbundled

“we are bring you some transparency to what the price of that handset, the cost of that handset is and letting the customer make a decision that if you would like to buy the handset, then there is an exchange of that in different value proposition that lower pricing on the recurring revenue streams that are available and the customers are overwhelmingly choosing that equation.” (T)

The telecom network is integral to the internet of everything

“So connecting the car we think is very important, connecting the house and then we think is really important. When you think of M2M devices that do monitoring within the home become very, very inexpensive to manufacture and to deploy within the home when it’s wireless-based, LTE-based and so everything from water sensors, the temperature sensors, the light controls, hatchback controls so forth.” (T)

GE is going to connect everything in makes

“General Electric is being very progressive as they think M2M and they want everything that they manufacture to be networked and networked wirelessly, everything from jet engines to generation equipment and so forth diagnostic type work, sensors and so forth. So everything they do will be networked.” (T)

The cloud infrastructure is a commodity, but an essential one to facilitate other products

“cloud is somewhat of another commodity service, and it’s not any inconsequential commodity service…And so we think it’s very critical that we invest here, that we have the capability, we have state-of-the-art capability” ()

But AT&T doesn’t think that selling the cloud itself is a great return on capital opportunity

“but just cloud in of itself, selling cloud is, it’s not like a wonderful great return opportunity, but it’s a very important part of the overall product package that the customer is going to expect.” (T)

Microsoft is focused on cloud enabled services: e.g. businesses adopting continuous planning powered by cloud

“much more importantly cloud enabled services; the software has the ability to immediately observe customer behavior, so to respond to customer needs in far more agile way. Our entire organization is going through a profound change so that we can follow along the continuous development, we have continuous development, continuous quality, continuous intelligence, using business intelligence” (MSFT)

Staples moving to minute by minute price changes

“Today, we change prices daily. And very soon, we’ll be changing prices minute-by-minute to really to generate like personalized offers for customers” (SPLS)

Materials, Industrials, Energy

Joy Global seeing coal stabilize for the first time in two years

“For the first time in 2 years, we are seeing some incremental positive signs coming from the U.S. coal market…The continued normalization of utility inventories as well as the recent weather-driven spike that pushed natural gas prices above 5 should drive an increase in coal consumption in the U.S.” (JOYG)

No recovery in Met Coal though

“Weak steel prices will continue to put pressure on steel making inputs, particularly metallurgical coal. Seaborne met coal demand is expected to grow nearly 5% in 2014. Oversupply conditions persist and supply cuts have not been enough to balance markets. We’ve continued to see spot prices decline below 135 per tonne, and this resulted in the Q1 2014 contract settling at 143 per tonne, the lowest level seen since 2009.” (JOYG)

Refiners have had a good run, but important to remember it’s a cyclical business

“So the chart shows the volatility of EBITDA, especially in refining and that’s why it’s important to have a very strong balance sheet that allows the financial flexibility and earnings diversity that’s required in order to invest through the cycle and increase dividends annually” (PSX)

Miscellaneous Nuggets of Wisdom

Change never happens as fast as people expect but then is always bigger than anyone expected

“It’s funny in this industry. Every time a disruptive capability comes along, we all anticipate how big it’s going to be and everybody gears up for a major transition. Whether it was VoIP on the fixed line side or wireless substitution, wireless to wireline, it never happens as fast as everybody expects, but when it does happen, it happens bigger than everybody expects and I think over-the-top video will be a case of that.” (T)

Buy well run companies

“The thing that was attractive about Harris Teeter as a transaction is that it’s a well-run company that overall we admired a whole lot…What we have not liked over time is poorly run companies” (KR)

It’s hard to reinvent a big company

“Reinventing a company our size is really hard, but that’s our job when customers shift what they buy or where they buy or how they buy.” (SPLS)

Respect your competitors; focus on your customers

“we have a lot of respect for everybody that we compete against. We would not look at a neighborhood store much different than a supercenter. And what we’re really focused on is, obviously, our customer and serving our customers and making sure that we continue to improve the value, but we really don’t see the effect much different.” (KR)

The customer drives the bus

“the customer always drives the bus. And if you’re not providing kind of what the customer is looking for, you should close your store. And if you are, you’ll get to keep your store open” (SPLS)

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.