So there we were, skimming through average discount rates for operating leases among the S&P 500, because (a) we’re nerds who need a life; and (b) you can do that with Calcbench.

Discount rates are important because they help a company to determine the net present value of future lease payments. Those payments are now listed as liabilities on the balance sheet, thanks to the new accounting standard for leases, ASC 842.

When a company sets its discount rate on the high side, that results in a lower NPV for future lease payments, and therefore a smaller number liability reported on the balance sheet. Conversely, a low discount rate results in a higher NPV for future lease payments, and a larger liability on the balance sheet.

So those discount rates are important — and sharp changes to a firm’s discount rate are also important, since that can lead to big changes in liabilities on the firm’s balance sheet. Which can then lead to all sorts of questions about what’s going on.

Which brings us to Dish Network Corp.

As we skimmed over those discount rates for the S&P 500, we came to Dish Network ($DISH) and noticed that its discount rate had dropped, substantially. In the first and second quarters of 2019, Dish disclosed average weighted discount rates of 9.3 and 9.1 percent, respectively.

Then, in the Q3 statement Dish filed on Nov. 7, the average discount rate was 5.1 percent.

That’s a lot. As you can see in Fig. 1, below, other companies lower their discount rates too, but usually by only a few basis points — 3.5 to 3.38 percent, 4.2 to 4.1 percent, or something like that. Dish cut its discount rate by 400 basis points.

What’s up with that? We used our Trace feature on that 5.1 percent number to pull up the underlying disclosure.

There, we found a footnote disclosure that on Sept. 10, Dish took possession of $495 million in satellites and real estate that Dish had been leasing from Echostar — and remember, Echostar sold a chunk of itself to Dish earlier this spring.

This transfer of satellites and real estate is, apparently, part of that transaction. Dish said in its footnote that those leased assets were transferred over to Property, Plant & Equipment. Sure enough, the PPE line item ballooned from $1.89 billion in Q2 to $2.76 billion in Q3, an increase of 45.5 percent. The operating lease assets transfer was part of that balloon.

How does all that relate to the change in the discount rate to 5.1 percent? We’re not sure. One reasonable guess is that the remaining assets Dish still leases (from Echostar or anyone else) have a different market value or different lease structure, and therefore deserve a lower discount rate.

Regardless, the bigger story is that Dish moved around a substantial number of dollars on the balance sheet, shifting operating lease assets into PPE. That led to a subsequent drop in operating lease assets and operating lease liabilities, but the numbers only shifted around.

Each week we read 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. Click here to receive these posts weekly via email.

Earnings season began to slow back down this week. Most of the important companies have now reported, so this week’s post draws heavily from a handful of calls. The economic picture remains unchanged. There’s still a lot of optimism, but fundamentally GDP growth has been anemic and policymakers haven’t come through on promises.

Among the quotes are two interesting blocks. One is from Charlie Ergen of Dish. He implies that internet companies are seeing more than their fair share of profits from connectivity and that telecom companies (the distributors that make the internet possible) will fight back. Ergen has an ulterior motive in saying this. He owns a large chunk of wireless spectrum and may be trying to get one of those internet companies (Amazon?) to think about buying him.

The other interesting block is from David Seaton of Fluor. He points out that construction markets have never really gotten back to prior peaks. He is optimistic about infrastructure spending though. Even without a large stimulus bill, American infrastructure is probably overdue for some heavy investment.

The Macro Outlook:

Most people are feeling pretty good

“I feel pretty good about the global economy right now. We’ve already experienced, as you’ve seen in our orders the last couple of quarters, this is pretty good activity right now and we look for it to continue.” –Parker Hannifin CEO Tom Williams (Industrial Components)

The original reasons for optimism haven’t materialized but it’s better to be lucky than right

“I guess this is a case of better lucky than right. We expected the market to go up but for different reasons. We thought it would be based on generally positive growth oriented policies enacted by the administration, lower taxes, infrastructure spending, healthcare, reform et cetera, none of these things transpired. But what has transpired has been kind of global synchronized economic growth and a very accommodative global monetary structure. So, I’m happy with the outcome the reason for it was different from what we anticipated, but we’ll take it.” –Third Point CEO Dan Loeb (Hedge Fund)

Profits have rebounded but GDP growth has been anemic

“I think GDP probably is still a better reference point for assessing demand than corporate profits are. Obviously, they’re both averages of lots of economic activity and lots of participants in the economy. But GDP is a broader measure. Obviously, GDP has been quite anemic.” –Marriott CEO Arne Sorenson (Hotels)

Washington is gridlocked

“So one of the frustrations I see, and this is kind of a political commentary…there’s 2,200…candidates have to go through Senate approval. I think the last count was 55. And you’ve got people like Elaine Chao in transportation. You’ve got Rick Perry in energy, Rex in State. These people that we know and know well are sitting there twiddling their thumbs, so to speak, because we haven’t been able – the government hasn’t been able to give their team. So I think that is why you saw things screech to a halt. And I don’t see a whole lot of improvement until that phenomenon is behind us and the efforts that the administration are putting forth in terms of the regulatory reform actually see light of day. A lot of good intent, a lot of good thought and strategies to people that I’ve talked to, including the folks I just mentioned, but until we get those things, done you’re not going to see these permits that are absolutely necessary to go forward actually awarded.” –Fluor CEO David Seaton (Engineering)

But don’t under-estimate the optimism

“Don’t under-appreciate the optimism, which still seems to exist in the market and in corporate America these days. And compare it to the point of view last August, September, and October, you’re talking about a pre-election time. I think there was not a sort of robust optimism. Economy seemed to be producing, again, fairly anemic GDP growth. And I think in some respects, while that fairly anemic GDP growth has continued into 2017, there is still some optimism. You can see it reflected in certainly the equities markets and other places.” –Marriott CEO Arne Sorenson (Hotels)

Inventories are still low

“we are continuing to see a very strong business environment for our products worldwide…Our bookings rate in the June quarter was extremely strong. Our inventories at Microchip as well as at the distributors are towards the low end of the normal range.” –Microchip CEO Steve Sanghi (Semiconductors)

There’s some modest restocking taking place

“On the distribution level, I would say there is some modest restock taking place. There’s been a surge in activity and I have North America mostly in mind when I make that comment.” –Parker Hannifin COO Lee Banks (Industrial Components)

Radical price transparency makes it harder to have inflation

” we’re nearly 80% [occupied] for the full quarter, which is a pretty impressive kind of number. And so, you would expect a little bit more pricing movement. But…you’ve got to remember that we have thousands of franchisees who are pricing their own hotels on a day-to-day basis. And it is a market with radical transparency in pricing. And that may have some impact on our ability to move rates in this cycle compared to prior cycles.” –Marriott CEO Arne Sorenson (Hotels)

Consumer:

Disney is ready to go head to head with Netflix

“It’s been clear to us for a while with the future of this industry will be forged by direct relationships between content creators and consumers…we’re accelerating our strategy to be at the forefront of this transformation…With this strategic shift, we’ll end our distribution agreement with Netflix for subscription streaming of new releases beginning with the 2019 calendar-year theatrical slate.” –Disney CEO Bob Iger (Media)

No other studio gets Netflix’s multiple

“we have Netflix envy, and we try to present our results in a way to give you the ability to value us on an equivalent metric. So we’ll leave the valuation to you guys. We’ll post the results and you tell us what it’s worth.” –CBS CFO Joseph Ianniello (Media)

Food companies are struggling

“clearly not everything went our way in the first half. Canada, India and commodity cost in United States are just a few examples” –Kraft Heinz CEO Bernardo Hees (Packaged Food)

“we’re experiencing a decline in our base volume greater than our previous expectations…Volume softness continues to weigh on the broader food industry.” –Dean Foods CEO Ralph Scozzafava (Dairy)

Technology:

Charlie Ergen made a good point about the relative strength of telecom and internet companies

The $500B tech companies all depend on connectivity

“I think Amazon is one of those $500 billion companies that probably have to think about connectivity in their future…their cloud business doesn’t work unless it’s connected.” –Dish CEO Charlie Ergen (Wireless Spectrum Owner)

That connectivity may not always be as cheap as it is today

“I think everybody in – the really big companies have always assumed there’s going to be a connectivity network out there that they can piggyback off of. And I think that if net neutrality rules get more define…you’re not going to be quite as confident of that in the future.” –Dish CEO Charlie Ergen (Wireless Spectrum Owner)

The telecom companies aren’t going to let the internet companies make all the money

“You can’t have all the profits going to three or four companies and have the guys that are – the companies that are providing them the raw material to make that money, not get wake up one day and get a little smarter…at some point, all the money going one direction, a lot of people are enabling that.” –Dish CEO Charlie Ergen (Wireless Spectrum Owner)

The balance of power always shifts between content and distribution

“They’re going to wake up and say maybe they should get – I’ve been through this business long enough to know that the money ebbs and flows between distribution and content. It’s probably going to continue to do that today. And a lot of the content companies, probably the distribution guys, probably are going to be in position to get a more of it. Then it may go the other direction.” –Dish CEO Charlie Ergen (Wireless Spectrum Owner)

Industrials:

Construction markets have never fully rebounded

“the current market environment is perhaps the worst I’ve seen in my 30-plus years. The market has contracted since 2014. The good news is that we’re starting to see prospects come back in some of our end markets including mining” –Fluor CEO David Seaton (Engineering)

Infrastructure spending is one brightening spot

“I feel pretty good about infrastructure and what’s going to happen. I would caution though…there is no such thing as a shovel-ready project. But what I’m very eager to see is that at least the dialogue is around…toll roads, bridges, ports, airports…But I believe that our infrastructure group will continue to be a bright spot” –Fluor CEO David Seaton (Engineering)

Infrastructure projects definitely suffer from the regulatory environment

“I think the capital is there. I agree with you 100%. I think the problem is, you got to look at the Purple Line in Baltimore. Project passed all the hurdles environmentally, financially, everything else and then the regulatory environment slowed it down and actually stopped it for a while. So even though the capital is ready, some of the projects, I think, are at least to a point where you get to that next stage. I think the regulatory reform that the government is talking about has to come through before the timing of those things actually improve. And I’d put pipelines in that category.” –Fluor CEO David Seaton (Engineering)

Spectrum acquisitions continue as wireless carriers prepare for 5G, the Internet of Things.

By Chris Nolter

AT&T's Inc. (T) $1.6 billion purchase of Straight Path Communications Inc. (STRP) has renewed attention on the value of wireless spectrum. Investors are casting an eye towards companies like Globalstar Telecommunications Ltd. (GSAT), privately held Ligado Networks and satellite TV provider Dish Network Corp. (DISH) that have built up spectrum portfolios.

Straight Path owns millimeter wave spectrum licenses that AT&T and others believe will have applications in 5G, the next generation of wireless services that will greatly boost wireless capacity and bring the Internet of Things fully online if it can live up to the hype. Straight Path's spectrum will pair with millimeter wave licenses that AT&T acquired through the January purchase of Fiber Tower. The spectrum can carry large amounts of data over short distances and requires dense infrastructure.

"This is a net positive for speculative spectrum companies including Globalstar, Ligado Networks, and Dish Networks because it shows an appetite for speculative 5G acquisitions," Height LLC analyst Nils Tracy wrote in a Tuesday note.

Satellite operator Globalstar won FCC permission in December to provide terrestrial service on the spectrum. Globalstar has touted the capacity of its spectrum to support small cells, or clusters of transmitters that can "densify" network coverage in areas where cell towers or other larger infrastructure does not reach, such as stadiums or shopping malls. Verizon Communications Inc. (VZ) is a vocal fan of small cell deployments, and would seem a potential partner. Globalstar declined to comment on the possibilities of deals.

Ligado Networks, which is backed by Centerbridge, Fortress, and JPMorgan, also hopes to win FCC approval to provide a hybrid satellite-terrestrial broadband service. "Our network would serve mission-critical needs, including public safety, infrastructure and energy, with ultra-reliable and highly secure connectivity," a spokesman said.

The company has had a charged history with the agency, but has ambitions to build out a 5G network that will connect with the Internet of Things—or the wide array of machines in fields from healthcare to agriculture to transportation that will have network connections.

"Ligado is focused on building an advanced satellite-terrestrial network to serve the emerging industrial Internet of Things and critical infrastructure industries such as rail, trucking and aviation," lawyers for the company explained to the FCC in an April letter. "Ligado envisions combining its terrestrial network capacity with the ubiquitous coverage afforded by its satellites to provide end users a pervasive, highly secure and ultra-reliable offering."

Formerly known as LightSquared and controlled by Philip Falcone, the satellite communications company was caught in a Washington firestorm in early 2011 after the FCC granted a waiver for the company to deploy wireless service over its satellite spectrum. The Department of Defense, aviation groups, and companies with investments in GPS argued that LightSquared's service interfered with global positioning systems.

The FCC eventually pulled the waiver. LightSquared's partnerships with companies like Sprint Corp. (S) faltered, and the company sought bankruptcy protection in 2012.

Dish Chairman Charlie Ergen tried to wrestle the spectrum, worth billions, away from Falcone in bankruptcy court. LightSquared wound up raising enough capital to buy Ergen out. Falcone does not have a controlling position in the company. Ligado is working on FCC approval. "The application currently before the FCC includes modifications to enable terrestrial use and to ensure compatibility with our spectrum neighbors," a spokesman said.

Dish has the premiere portfolio of wireless spectrum that isn't aligned with a wireless network. The company has spent billions to acquire spectrum in government auctions and in bankruptcy court. Dish and EchoStar recently announced an asset exchange that would give Dish access to millimeter wave spectrum in some markets.

While Dish declined to comment on the likelihood of a spectrum deal, Ergen has told investors and the FCC that the company plans to build out a network. "5G will meet the increasing demand for broadband communications by offering dramatically higher data speeds and capacity, while also addressing the needs of a networked society by enabling massive connectivity and ultra-low latency for mission critical services," Dish said in filings with the FCC, explaining that the company would deploy a 5G network focused on the Internet of Things by March 2020.

Dish and many of the companies that could take part in spectrum deals took part in a recently concluded FCC spectrum auction. Deal talks can't start until a quiet period lifts in the coming weeks.

New York firm Maglan Capital LP, which has invested in Globalstar, discussed the outlook in an April letter to investors.

Has the Cable Industry Topped? Cord Cutting is Real $CHTR $CMCSA $TWX $SPY #cable #espn @ESPN

I have been a fan of cord cutting for a while. My wife and I have cut the cord and currently subscribed to Netflix, Amazon Video, and Spotify to name a few.

Comcast (CMCSA) was way to expensive and quite frankly all we ever watched was ESPN anyways. We never really have time to sit around and watch cable and there is no episode on TV that I NEED to watch live that can’t wait for the next day,…

Each week we read 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. Click here to receive these posts weekly via email.

This Week’s Post: Objects in Mirror…

The FOMC seems to believe that financial markets are not accurately reflecting the strength of the economy, but it looks like the committee prefers to err on the side of caution.  Even though many CEOs appear to agree with the Fed’s assessment, financial market conditions have tightened enough to generate caution.  The question remains whether that caution will be enough to cause a broader slowdown.

The Macro Outlook:

According to a number of FOMC participants, financial markets aren’t reflecting economic developments

“a number of participants noted that the large magnitude of changes in domestic financial market conditions was difficult to reconcile with incoming information on U.S. economic developments.” —FOMC Minutes

Industries that would typically be first to feel recession are holding up

Advertising markets remain robust

“advertising is as robust as we’ve seen in a long time…back in ’08, we saw it coming, we saw it coming. It was there in bright, shining lights. We’re not seeing anything remotely resembling that now.” —CBS CEO Les Moonves (Broadcast TV)

The sky is not falling for Marriott

“what we see is, again, reasonably encouraging. The sky is not falling when we look at our data” —Marriott CEO Arne Sorenson (Hotels)

Business is strong in Las Vegas

“With regard to Las Vegas, January was terrific and Super Bowl and February are off to a roaring start…as of now business is pretty good in the United States” —Wynn Resorts CEO Steve Wynn (Casinos)

Wages are rising for many low income workers

“on February 20, we’ll raise the starting wage to at least $10 per hour for hourly associates hired before January 1, 2016.” —Walmart US CEO Greg Foran (Big Box Retail)

“we are expecting inflationary headwinds in 2016, primarily as it relates to our labor costs” —Potbelly CFO Michael Coyne (Restuarants)

There are even signs of strength in China

“what is interesting is to say that January in Macau…was our best month in a long time. Happy to say so. And Chinese New Year is in progress, but early in the week, a little too soon to say, the mass component clearly looks a little stronger than in the past.” —Wynn Resorts CEO Steve Wynn (Casinos)

“Obviously, we’ve been bombarded with news about the Chinese economy over the last couple of quarters. Most of it not very positive in what we read in the papers here…I think we see in our industry and certainly at Marriott, stronger performance in China than you might expect from reading that newspaper…what we see so far in 2016 continues to make us quite positive about China.” —Marriott CEO Arne Sorenson (Hotels)

If the economy is strong, then what is going on with financial markets?

FOMC participants said it may be a function of valuation

“A couple of participants pointed out that the recent decline in equity prices could be viewed as bringing equity valuations more in line with historical norms. Additionally, a few participants cautioned that valuations in CRE markets should be closely monitored.” —FOMC Minutes

Will the volatility affect the real economy? Vornado’s CEO thinks so

“asset prices are high, well past the 2007 peak…With many sectors of the economy decelerating we have experienced a period of high volatility in both the credit markets and the equity markets, this will of course have some effect on the real-estate markets.” —Vornado CEO Steven Roth (REIT)

Financial market stress is impacting companies’ ability to access credit markets

“The decision to delay the spin, as we have previously stated, is the sudden disruption in the debt markets. This is a market-driven decision. We understand that the debt markets have not been like this since 2008. We expect to complete the spin once market conditions are favorable.” —Community Health Systems CEO Wayne T. Smith (Hospitals)

“The market liquidity has tightened up a fair amount in the last six months and certainly we were pretty conservative” —Dish CEO Charlie Ergen (Telecom)

“The unsecured and CMBS debt markets are getting a little jumpy.” —Vornado CEO Steven Roth (REIT)

Companies are planning more conservatively

“I think we’re all living in very uncertain times. And so, while we’re not seeing any specific macroeconomic indicators yet, we all realize that if the current uncertainty gets elongated and last for an extended period of time, we will see potentially impact on customers buying psyche and sales cycles, et cetera, budget sensitivity. So with an abundance of caution, we’ve baked in a bit of the challenging economic cycle into our estimate as well.” —Rackspace CEO Taylor Rhodes (Cloud Support)

“What’s changed between then and now, I think, we look at a world in which there’s obviously more anxiety in the marketplace…and as a consequence, we’ve been a bit more conservative in the forecast that we provided.” —Marriott CEO Arne Sorenson (Hotels)

If things keep going the way they are it’s tough to see how we won’t get a recession

“if there is a recession in America, and it is hard to see why there won’t be if we keep going the way we are, then Las Vegas will ultimately reflect whatever is going on in the rest of the United States. It always has…So I don’t want you to construe my remarks about a healthy January and a promising February to mean that we’re running counter to anything else you’re seeing. We’re just lucky, that’s all. Just luck, we’re holding high. I don’t want to make too much of it.” —Wynn Resorts CEO Steve Wynn (Casinos)

You really can’t tell anything about the economy until March though

“January, February is always a little bit soft in the first quarter and March really is kind of indicative of what we were going to see basically in the second quarter. So I think we will always be a little bit conservative on our guidance in the first quarter…the telling point [is] really in the month of March.” —Reliance Steel CEO Gregg Mollins (Steel Distributor)

And if things do get dicey, everyone expects the Fed to ride to the rescue

“I believe and most commentators believe [that volatility] will cause an extension of the low interest rate, easy money environment that we have found ourselves in for years and years now…the interest rate environment and the wall of liquidity which still exists, is an anchor on keeping pricing firm.” —Vornado President Mitchell Schear (REIT)

Case in point:

“they agreed that uncertainty had increased, and many saw these developments as increasing the downside risks to the outlook…Several participants noted that monetary policy was less well positioned to respond effectively to shocks that reduce inflation or real activity than to upside shocks, and that waiting for additional information regarding the underlying strength of economic activity and prospects for inflation before taking the next step to reduce policy accommodation would be prudent” —FOMC Minutes

International:

Hedging only delays the impact of currency moves on EPS

“hedging only delays the EPS impact…even if and when currencies stabilize completely, there will always be the following year EPS challenge of anniversarying non-operating hedge gain.” —Fossil CFO Dennis Secor (Apparel)

In most cases hedging currency is so expensive that you’re better off assuming the risk

“to be quite honest in many cases the costs of those hedge are so prohibitive that it’s really better off to stick with the risk.” —Marriott CFO Kathleen Oberg (Hotels)

Copa Airlines isn’t seeing an impact on passenger traffic from the Zika virus

“so far, we have not seen an impact…most of our passengers originate in Latin America so the Zika scare is not such a big deal. We’re already living in Latin America.” —Copa CEO Pedro Heilbron (Airline)

Financials:

T-Mobile and Cabela’s each mentioned signs of weakening credit quality

“During the quarter, we saw a shift in the trends in delinquencies. Greater than 30-day delinquencies were 0.82% as compared to 0.68% a year ago, greater than 60-day delinquencies were 0.51% as compared to 0.41% a year ago…we’re certainly not alarmed by it, but we think we’ve reached the trough of charge-offs and we expect them to go up.” —Cabela’s CFO Ralph Castner (Sporting Goods)

“the increase was a function of a shift to subprime during…the prior year…we’ve taken several steps that have tightened credit for subprime during the first quarter of this year to counteract that phenomena that we saw in the prior year. So, yeah, we are very focused on this issue” —T-Mobile CFO J. Braxton Carter (Telecom)

The FOMC unanimously agreed that a cap should be reintroduced on repurchases at some point

“participants reiterated that the Committee expects to phase out the facility when it is no longer needed to help control the federal funds rate, and they unanimously expressed the view that it would be appropriate to reintroduce an aggregate cap on ON RRP operations at some point.” —FOMC Minutes

Consumer:

Competitors are feeling an impact from McDonald’s all day breakfast

“we experienced the effects of both the heightened competitive focus on value and the impact of McDonald’s all-day breakfast, primarily between the hours of 10:30 a.m. to noon.” —Jack in the Box CEO Leonard Comma (Restaurant)

E-commerce is growing rapidly in China

“And talking about online channels in China, ecommerce is of extreme importance and we have heavily engaged with this. And already 50% of our sales in petcare goes via ecommerce in China, 30% in coffee, 30% also infant formula.” —Nestle CEO Paul Bulcke (Packaged Foods)

“We expect to focus primarily on e-commerce. That is the most rapidly growing path to market in China.” —iRobot CEO Colin Angle (Consumer Robotics)

Technology:

Amazon is destroying its competition in cloud

“We found that as Amazon really leveraged their strengths, which are pouring capital under their product, building their developer ecosystem, training people on APIs, et cetera, they really picked up a lot of momentum that took public cloud apps further and further into their model. And that was a – just – you’ve seen them, right, they’re a tornado. So we think that was an impact that was larger to our public cloud than we anticipated at the time.” —Rackspace CEO Taylor Rhodes (Cloud Support)

True 5G probably isn’t coming until 2020

“One competitor has pushed out and talked about, I think in a somewhat misleading fashion, about consumer 5G…when you think about 5G in a smartphone, you’re talking a 2020 story. And nobody that understands the technical space and where we are with standardization would really tell you anything different.” —T-Mobile CTO Neville Ray (Telecom)

Digital advertising may be generating disappointing ROIs

“I think there’s no question that there’s a bit of noise out there about digital advertising not having quite the same ROI as we do, as broadcast…In addition, you see things from programmatic, and you hear noise that maybe not everybody recorded is really a person. It’s a machine.” —CBS CEO Les Moonves (Broadcast TV)

Healthcare:

It’s been a slow flu season

“a slower flu season created a headwind to our Cold, Cough and Flu business this quarter.” —Walmart US CEO Greg Foran (Big Box Retail)

“Our volumes, including emergency room visits, were lower than expected in the quarter as compared to a year ago, mainly attributable to the lack of flu and respiratory illness which we historically see during this period.” —Community Health Systems CEO Wayne T. Smith (Hospitals)

Express Scripts may be interested in investing more in the Healthcare IT space

“I think HCIT, there’s a lot of fragmentation there. We obviously have a lot of internal capabilities that we can invest in, but as we look out both from a payer and a provider standpoint, there may be some interest there.” —Express Scripts President Tim Wentworth (PBM)

Industrials:

Autos and aerospace are still considered strong markets

“Demand for automotive, which we service mainly through our toll processing operations in the U.S. and Mexico, was strong throughout the year; a trend we expect to continue in 2016.” —Reliance Steel CEO Gregg Mollins (Steel Distributor)

“I’ll begin with aerospace, which continues to be one of our strongest end markets for us, due to its relatively stable pricing and strong demand trends.” —Reliance Steel EVP William Sales (Steel Distributor)

30% of PG&E’s power is supplied by renewable resources

“In 2015, nearly 30% of PG&E’s electric deliveries came from qualifying renewable resources, and even more meaningfully nearly 60% of the energy that we delivered was carbon free.” —Pacific Gas & Electric CEO Anthony Earley (Utility)

Materials, Energy:

Distressed assets that are for sale in the mining space are distressed for a good reason

“Right now, there is distressed assets that are out there and they’re distressed for a good reason; high costs, low quality, no infrastructure, people trying to get rid of – I was going to say get rid of their trash, but I could never say that…there are some very good assets in what you’d probably describe as distressed balance sheets, and they’re not on the market as yet.” —Rio Tinto CEO Sam Walsh (Iron Ore)

Most mining CEOs speak favorably about copper

“Certainly in the area of copper, as Chris said, if there was an attractive project in that area, that could be of interest to us, at the right price or right value.” —Rio Tinto CEO Sam Walsh (Iron Ore)

Miscellaneous Nuggets of Wisdom:

Focus on the bottom line not just the top line

“We tend to be very fastidious about having all of our games be profitable. We don’t pay so much attention to the top line as we do to the bottom line…we try to maximize every foot of the casino with one metric in mind, contribution of EBITDA per foot.” —Wynn Resorts CEO Steve Wynn (Casinos)

“We’re not as focused on the number of subscribers we have, we’re a bit more focused on the actual profitability of the subscribers.” —Dish CEO Charlie Ergen (Telecom)

Know what your customers want and give it to them

“We know who our customers are, we know what they want. And we’re going to try and figure out a better way to give it to them. That’s my ace in the hole. That is my secret.’ —Wynn Resorts CEO Steve Wynn (Casinos)

Having a headquarters off the beaten path can be a competitive advantage

“One last aspect of the secret behind Hormel Foods that I’d like to share with you really relates to our team, where we are — I mentioned to you we’re in a small town in Minnesota; we’re little bit of a throwback in that regard. When someone joins our organization, they tend to join it for a life and indeed our average tenure of our officer team at Hormel Foods is 26 years, that’s not 26 years of industry experience, that’s 26 years of experience at Hormel, which I think does make it somewhat unique in the industry.” —Hormel Foods CEO Jeff Ettinger

When times are lean, you may have to sacrifice profitability so as not to cut into muscle

“Let me give you also a little bit of the strategic view that we have when it comes to expenses…we are going to maintain underwriters even if the market might cause us to reduce underwritings…I am not going to give my underwriters to the competition.” —Arch Capital Group CEO Dinos Iordanou (Reinsurance)

Doing what’s right for the long term sometimes means being penalized in the short term

“We’re making money over long period of time. We’re very fortunate in that regard because we don’t feel any pressure for short-term gains, right? And so we can make long-term decisions…sometimes we’re penalized in the short-term stock price for that, but that’s a small price to pay if you’re doing the right thing for your shareholders long term.” —Dish CEO Charlie Ergen (Telecom)

Each week we read 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. Click here to receive these posts weekly via email.

The Macro Outlook:

The retail industry is going through a tough period

“We believe that the retail industry is going through a tough period that we seem to experience something like this every five years to seven years or so, and this one feels familiar in that regard.” —Macys (Apparel Retail)

It is not nearly as bad as 2008

“Someone asked me just earlier this morning, is this similar to 2008 and 2009, and my answer is absolutely no…This is what we’ve seen, a slowdown, as you said, in transactions particularly in this last quarter. We also here can see that the fundamentals of the economy are in much better shape than they were in 2008 and 2009.” —Macys (Apparel Retail)

But it is an across the board slowdown

“We’re not economists, we’re merchants…all we can tell you is in our business, we saw a slowdown. And it was across the board, as Jamie talked about. It wasn’t regionally or a merchandise region or a channel.” —Nordstrom (Apparel Retail)

It’s not weather either.  It’s a demand issue

“I would reiterate that there’s really not a seasonal component to where we’ve seen transactions slow down. Our coat business has been really strong having big increases. It’s just a traffic thing. We’ve got less people buying clothes this quarter than we expected and there’s really nothing else to point to” —Nordstrom (Apparel Retail)

The holiday season is approaching and there’s no sign of a change in trend

“As we head into holiday, we don’t anticipate a measurable change in current trends and we’ve made appropriate adjustments to our operating plans, including our inventory levels.” —Nordstrom (Apparel Retail)

Inventory levels are elevated

“less inventory is better than more inventory. So we’re working hard to try to turn our inventory more quickly. And so going into the holiday with more inventory than last year, we’d like to be going in with the same or less inventory.” —Kohls (Apparel Retail)

The environment will be extremely competitive

“I don’t want to minimize at all…we expect the holiday season to be very promotional, very competitive. Wes mentioned to you that we’ve baked into our assumptions a really pretty significant increase in our marketing expenditures, probably the biggest one we’ve had in a long time, and part of the backdrop to that is that we have an expectation that if we’re going to win, we’re going to have to drive traffic” —Kohls (Apparel Retail)

There could be heavy markdowns

“Retailers who are in the fashion business like us, we’re not selling lumber, so I can’t carry the lumber over to 2016 and sell it at the same price next year. We’re selling fashion apparel and so we’re going to mark that inventory down. That will be good for consumers, but it will obviously put pressure on our own margins in the fourth quarter” —Macys (Apparel Retail)

But you have to shoot when the ducks are flying

“you have to shoot when the ducks are flying, and they’re flying in November and December. That’s when the traffic is there.” —Macys(Apparel Retail)

International:

Chinese steel demand has contracted by 3-4% this year

“With the exception of Europe, all major markets have seen apparent demand contract in 2015. We are now forecasting global apparent steel consumption to decline by between 1.5% up to 2% this year. China, the ongoing weakness in real estate and machinery end-markets has caused a contraction of real demand by around 3% up to 4% this year.” —Arcelor Mittal (Steel)

Chinese mills have turned to exports, but they do not have any inherent cost advantage

“Chinese steel production is sticky, so exports have increased. Here the volumes, price, excluding China have declined to less than $300 per tonne. But this is not a profitable business model for Chinese mills as they have no structural cost advantages. This is highlighted by Sesa reports that mills lost an average of $35 per tonne in the third quarter.” —Arcelor Mittal (Steel)

Financials:

Stanley Fischer said the economy is withstanding the shock of a stronger dollar “reasonably well” thanks to the Fed’s delay in raising rates

“while the dollar’s appreciation and foreign weakness have been a sizable shock, the U.S. economy appears to be weathering them reasonably well, notwithstanding their large effects on certain sectors of the economy heavily exposed to international trade. Monetary policy has played a key role in achieving these outcomes through deferring liftoff relative to what was expected a little over a year ago.” —Federal Reserve (Philosopher Kings)

The art market sounds like an echo of equity markets

“the buyers are getting more discerning.” —Sothebys (Art Broker)

Buyers are crowding into the highest quality merchandise while mid tier assets are struggling

“with respect to the high-end, the folks who are buying things of more than $1 million, that group is getting…very discerning and quality oriented in their purchases…When you talk about folks that are a much larger pool that are invariably going to be a little bit more sensitive to macroeconomic uncertainties…it’s little bit sluggish” —Sothebys (Art Broker)

The headlines aren’t telling the whole picture because the highest quality merchandise is distorting the averages

“by the way quality sells for enormous prices…it’s hard to talk about average price because that’s not what’s happening, honestly, in the auction room. What you are seeing is the prices of very high quality objects are going very strongly against the estimates and the prices of everything else are soft.” —Sothebys (Art Broker)

Insurance companies are staying conservative because of low investment returns

“while everything is competitive, I don’t think anybody is under the delusion that they can operate on a sloppy fashion on the underwriting side and make it up on investments. So the nature and tone of competition and where that bar is set in terms of underwriting profitability is lower this time around than what it would have been in previous cycles, so that’s somewhat good news.” —Markel (Insurance)

It’s been a while since a big hurricane made landfall

“For the 10th consecutive year latest news to report in the third quarter is what didn’t happen. Specifically there wasn’t a U.S. land falling major hurricane or any U.S. land falling hurricane for that matter. The odds of this long of a lucky streak occurring is less than 1% and in fact it’s statistically more remote than odds of the 2004 or the 2005 storm years.” —Renaissance Re (Reinsurance)

Consumer:

Bob Iger does not wish to retract what he said last quarter about softness at ESPN

“there is nothing that I would either retract or in any way change…we decided to be candid, I think maybe refreshingly so, about what the industry was experiencing in terms of sub losses during roughly the last period. And we feel that there certainly should be no reason to panic over comments like that. The fact remains that we’re in an environment today that’s definitely changing, it’s different than the environment before, there’s a lot more competition for people’s time.” —Disney (Magic Kingdom)

Viacom is trying to steer the SVOD market into viewing windows

“we have strategically developed and chosen windows for different types of programming down to specific shows and moved around distribution of some of these shows around the existing major SVOD players in the U.S. And for example, we’ve seen growth in our presence in Hulu and a diminishment of our presence on Netflix.” —Viacom (Media Conglomerate)

Clear Channel says that radio currently has the broadest reach out of any media form

“television is no longer the mass reach media. We’re at 93%. Television is at 87% or so. And then when you go to millennials, we’re still at 93% and television is like 75%, 74%, 75% out there. And I think that smartphones is at 80%.” —Clear Channel Outdoor (Out of Home Advertising)

Technology:

The cable industry could become a serious competitor in the wireless industry

“I think the cable industry is potentially poised to be a serious competitor in the wireless industry.” —Dish (Satellite TV)

Priceline is spending more money with Facebook, but Google is still the leader in intent-based marketing

“we have been doing more and more business with Facebook. Most of it though is in the category or re-messaging or re-targeting. It’s not really in the big sweet spot which is intent-based marketing. That’s really what search gives you is intent-based marketing. Somebody types in, I want a hotel in New York, and then you are responding to that request. But the folks at Facebook very much understand this. They’re working to try to win that kind of businesses.” —Priceline (Travel Booking)

Industrials:

Rockwell doesn’t think we’ve seen the bottom of the industrial cycle yet

“we’re cautious about how we’re approaching this because we don’t believe we’ve seen the bottom.” —Rockwell Automation (Industrial Manufacturing)

The aerospace cycle may be softening

“most industry players were seeing significant changes in some of the end markets in which we operate. This is primarily lower demand within the corporate jets and regional jet market, reduced utilization of older wide-body Jets as well. And we’re also seeing a continued and even more severe deterioration in the offshore sector to which our Marine business is exposed.” —Rolls Royce (aerospace)

But the housing cycle may have a lot of legs left

“I would say we still think that there’s legs left in this cycle. I mean, we’re not even close to what is a historical demand. So we’re trying to be very judicious and value the capital we have.” —DR Horton (Homebuilder)

Materials, Energy:

Companies in the energy industry are just trying to survive

“For many, the major theme across the industry is survival. Service pricing continues to decline and this has led to sharp reductions in personnel, expenses and investments across the board.” —Helmerich and Payne (Contract Drilling)

People are hoping things will get better, but rig count will likely continue to decline into 2016

“our hope would be is that we would at least be able to maintain our activity set that we have today going into at least the first part of the first calendar quarter of 2016. But that’s – of course, that’s not what we’re hearing. We’re hearing that overall, the rig count, a lot of folks are expecting it to continue to decline.” —Helmerich and Payne (Contract Drilling)

The bottom will come when no one believes that there is a light at the end of the tunnel anymore

“What we keep saying is that people should realize that it has to take some time where you have people not believing that there is an end lies at the end of the tunnel. What we know based on past history and based on the cyclicality of our industry is there is a light at the end of the tunnel, but we cannot see. The people that will keep walking in that tunnel and they will be still alive they will reach that point.” —Diana Shipping (Dry Bulk)

When a market is at the bottom, people start to talk as if it will never get better, but then it does.

“whenever the market is down we are trying to find new words to describe the market. This time is different from the previous, but I can assure you is not, is exactly the same the supply and demand. And it will never change…the fact that people start talking like you about structural changes and things are different et cetera is a good starting point for the right forces to take effect and the market to turn. It goes with the psychology that we were saying earlier.” —Diana Shipping (Dry Bulk)

Miscellaneous Nuggets of Wisdom:

Controlling costs ultimately comes down to having good people

“You guys are going to get tired of me saying this, but it really is the people. We got the – one of the toughest markets, toughest weather conditions, toughest labor markets, is our Dallas-Fort Worth area. And those two guys, because they have been in the market for 20-plus years, because they have a direct relationship with the vendors and suppliers, make a call and get people to show up. And you just can’t put a – you can’t quantify that and put it into a model.” —DR Horton (Homebuilder)

Deals start slowly and end quickly

“My experience with deals are that people can sit around and talk about them, they’re just not going to happen, but when somebody decides to do something, they move pretty quick.” —Dish (Satellite Television)

Don’t make a lot of decisions, just make the right decisions

“we don’t make a lot of decisions, but the ones that you do make on the strategic side need to be – better have a good chance of success.” —Dish (Satellite Television)

Build great products by thinking about your customer first

“we’re starting with what we believe the consumer wants. Every one of those examples that you used, which sounds like a strategic initiative for the company is actually a strategic initiative for the consumer. It’s really that simple. And this is a company that has been consumer-facing from the start.” —Disney (Magic Kingdom)