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: Implications of Brexit

It’s another light week for earnings, but reports will begin to pick up soon as earnings season kicks off officially next week. There were some interesting quotes though, including statements from MSC Industrial that conditions continued to slow through June. There were also some early reactions to Brexit. However, the consensus is that it’s too early to tell what the impact will be.

For what it’s worth, I attended a wedding outside of London last week and the political-mood was dour. The wedding was between two Oxford alums, so the guests were mostly well educated millennials. Almost everyone who gave a toast cited the “uncertain times” that we live in. The tone of the conversations that I had were pretty similar to what one might expect to hear in the US if Trump were to be elected in November (disbelief and distress). One cab driver that I had said that he might as well “light himself on fire” because “it would be less painful than the slow death his business will suffer” as a result of the vote. Still, hopefully any British readers can take solace in the fact that Britain has seen much worse times than these. Everything will turn out ok. It may just be a bit of a painful transition.

The Macro Outlook:

MSC Industrial said that conditions have continued to grow more challenging through June

“Conditions remained quite difficult and in fact grew even more challenging as we progressed through our fiscal third quarter and into June. On our last call, we described a tough environment. And in talking to our customers and looking at the macro indices, commented that we saw the potential for some stabilization on the horizon. Unfortunately, that did not materialize and in fact things weakened…I mean I can just anecdotally tell you that for the month of June, what we heard from customers and particularly, what I heard from some of our key supplier partners that June was a really bad month.” —MSC Industrial Direct CEO Erik Gershwind (Industrial Distributor)

The company also said that ISM has not been an accurate gauge of manufacturing for the last several years

“The ISM, I would tell you that it’s been – to be honest we sort of scratched our head at the latest reading. But I think we have been – we and the rest of the industry have been scratching our head at the readings over the last several years, so really not surprising.” —MSC Industrial Direct CEO Erik Gershwind (Industrial Distributor)

Still, this year’s macro environment has been more stable than many companies expected

“When we give guidance, our intention is always to hit it and perhaps beat it. Now that we’re halfway through the year, I think we’ve seen two things. One, the macros are operating in a consistent steady way, so there has not been a deterioration, which, obviously, is to our benefit relative to our expectations.” —Pepsi CEO Indra Nooyi (Snack Food)

Labor markets have tightened

“I’ll close by saying, and maybe preempt some other questions on labor, is that labor market is tight and it continues to be tight in specific markets, which is driving a little bit more inflation…We’re seeing 2.5% to 3.5% wage inflation depending on where we are.” —Darden CEO Gene Lee (Restaurants)

International:

Everyone is trying to understand what impact Brexit will have on the global economy

Most agree that it’s too early to tell

“The situation is very volatile at this time. For sure, the period of uncertainty will be quite long whatever happens because even if the U.K. will leave the Euro, it cannot happen overnight, it will take at least two years. And the consequence of it will be much longer than two years. So, I believe that once the emotional impact is gone, things will settle down and we will have an idea of what is happening, but for now really — it’s really too early, too soon we have seen in the stores days — very good days, bad. So in a few months probably we will be able to say something.” —Walgreens Boots Alliance CEO Stefano Pessina (Pharmacy)

It’s probably a net negative

“I think post Brexit…I mean I think like everybody else, our customer suppliers kind of scratching their head, not sure exactly what to make of it, so a lot of uncertainty. Look I think the general sense though is net-net a negative, not a positive and that it creates a headwind given both the potential for the stronger U.S. dollar, which hurts exports and then the potential for weakening underlying European demand that would also hurt exports. So, I think the sense would be net negative, but uncertain as to how big of a headwind and how much to make of it.” —MSC Industrial Direct (Industrial Distributor)

But many expect that Brexit wont have much impact at all

“Brexit has no immediate impact on our business and it has not reduced our appetite or interest in Europe. The UK is a relatively large part of our business and in the end British consumers will still want the same products and services.” —Liberty Global CEO Mike Fries (European Cable Company)

For now the obvious impact is on currency values

“Regarding last week’s referendum outcome on Brexit, the immediate impact to our business will be currency rates. Early this week, we reevaluated our guidance and determined that a 3% impact from currency is our best estimate at this point in time. Any longer term impact on our business will depend in part on the outcome of tariff, trade and regulatory negotiations. As a point of reference, our sales in the UK were 8% of total company sales in fiscal 2015.” —McCormick CFO Gordon Stetz (Spices)

Rest assured that Britain will endure

“The UK can handle change. It has one of the most flexible economies in the world and benefits from a deep reservoir of human capital, world-class infrastructure and the rule of law. Its people are admired the world over for their strength under adversity. The question is not whether the UK will adjust but rather how quickly and how well. Nonetheless, the decision to leave the European Union marks a major regime shift. In the coming years, the UK will redefine its openness to the movement of goods, services, people and capital. In tandem, a potentially broad range of regulations might change. Uncertainty over the pace, breadth and scale of these changes could weigh on our economic prospects for some time. While some of the necessary adjustments may prove difficult and many will take time, the transition from the initial shock to the restructuring and then building of the UK economy will be much easier because of our solid policy frameworks.” —BOE Governor Mark Carney (Central Bank) [special thanks to Erick Mokaya for contributing these notes. Other contributions are welcome!]

Financials:

A 3% yield is a good dividend yield in this environment

“it’s interesting to Google dividend stocks because as you see interest rates so low and returns so low, more and more capital is seeking higher yields, we think a 3% yield is an attractive yield in today’s market.” —Greenbrier Companies CEO Bill Furman (Railcars)

Consumer:

The beverage market has fragmented, which means that controlling distribution is even more important

“Now, let me just say, the marketplace is fragmenting. Forget Pepsi or Diet Pepsi or the cola category, any new category that’s expanding is becoming niche, more fragmented. And that’s why it was important for us to own the distribution system because once you have control over the distribution system, you can pump a lot of niche products through it, all our craft products, all of those are low-volume products. So we have to learn how to handle complexity, not walk away from it.” —Pepsi CEO Indra Nooyi (Snack Food)

Free shipping is a promotion like any other

“we look at free shipping as just being one of the promotional offers which we can use and we try and balance free shipping along with all the other. I mean free shipping is just another discount and we just look at it alongside all the other discounts opportunities that we have.” —Pier One Imports CEO Alexander Smith (Home Furnishing)

There has been a rise in “sport culture” throughout the world

“we are all seeing the growing power of sports. Participation is increasing all over the world. People are leading healthier, more active lives. At the same time, the rise in sport culture is bringing fitness and style together. Profoundly influencing what we all wear everyday.” —Nike CEO Mark Parker (Apparel)

Technology:

Micron was optimistic about improvements in channel pricing of DRAM

“With recent data points indicating some improvement in channel pricing…we remain confident about our opportunities.” —Micron CEO Mark Durcan (Semiconductors)

Materials, Energy:

Have commodity prices finally bottomed?

“after more than two years of strong declines commodity prices appear to have reached the bottom during the first quarter of 2016.” —Star Bulk Carriers CEO Petros Pappas (Dry Bulk Shipping)

Miscellaneous Nuggets of Wisdom:

You can learn a lot by visiting the companies that you are investing in

“I spent a full day at Pixar thanks to Steve Jobs and John Lasseter and Ed Catmull when I had broached to Steve the idea of buying Pixar. We began a conversation and I said, “I need to spend a day there. I need to go into the tent for a day.” And he said, “Absolutely.” I went completely alone. I didn’t have a piece of paper and a pen. I had nothing to take notes on. I met every director; they each pitched me seven or eight films. I met everyone. And my takeaway was that there was a culture there that was extraordinary. And that the worst thing that we could do as a company would be to destroy or damage it in any way.” —Disney CEO Bob Iger (Media)

Keep your focus on your own performance rather than the performance of others

“I won’t speak for the entertainment industry. I speak for Disney. I’ve seen people in the industry come to work every morning paranoid about what the other person or other company is doing. That means you’re spending time and focus on somebody else’s business instead of your own.” —Disney CEO Bob Iger (Media)

Each week I read dozens of transcripts from earnings calls and presentations as part of my 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.

It was a light week, but here are some quotes we picked up.  Happy 4th!

The Macro Outlook:

To the extent that Greece drives the Euro lower, Greece is a tragedy for Greece but not for Europe

“Currencies are making exports much more attractive in those currencies, particularly in agriculture and manufactured products…increased geopolitical stresses…create upward pressure in the value of fungible commodities. While Greece is a tragedy for the Greece, it is not for Europe.” —Greenbrier (Railroad Equipment)

Currency fluctuations have a real effect on foreign trade

“Currencies do matter. Currencies are one of the major drivers for reduction in agricultural, the demand exports for coal and so on. That in turn has affected velocity. But oil prices are settled in U.S. dollars and U.S. dollars are stronger while other currencies are weaker.” —Greenbrier (Railroad Equipment)

International:

On McCormick’s call one analyst noted that the e-commerce trend has accelerated in China

“The shift to e-commerce in China, it’s hurt a lot of consumer companies lately. McCormick seems to be bucking the trend…I’m just curious for your thoughts here because it does seem to be a little bit of an anomaly versus what we’re seeing elsewhere.” —McCormick (Spices)

Consumer:

General Mills said that it will be spending less on media advertising and more on direct consumer marketing

“Media is down and what I said is our total consumer will be up. And just let me parcel that out. So media is obviously what you see on air, what you see in digital or in print. It will be slightly down…And then total consumer will be up low-single digit. So when I talk about total consumer, that takes into things like in-store events…And then sampling falls into it as well.” —General Mills (Packaged Foods)

Product samples have become increasingly effective

“Sampling is perhaps the most powerful penetration driver that we have and many of our natural and organic businesses are not really driven in the traditional media. They are in fact driven almost entirely by getting the products into people’s mouths. So that’s a growing part of our marketing mix and one that is not really counted in the media thing. So that’s an important highlight for you.” —General Mills(Packaged Foods)

Constellation Brands is increasing ad spend to maintain “out of the ballpark” growth

“we continue to increase our spends in advertising and marketing because we think that it’s critical to continue to drive the kind of success that we’ve had…we can’t just take our current growth and be penny wise and dollar foolish for the future. We have to make sure that we are taking all of the right steps to ensure that we are able to maintain this kind of hit it out of the ballpark growth that we’ve been enjoying.” —Constellation Brands (Alcoholic Beverages)

Conagra’s new CEO laid out a vision of cutting SG&A to grow

“On SG&A, we are well into mobilizing an intensive SG&A reduction effort that is aimed not only at offsetting stranded cost associated with a Private Brands divesture, but moving ConAgra into the top quartile of SG&A efficiency in our space over time.” —Conagra (Packaged Foods)

Technology:

PC demand is even weaker than people expected

“PC builds declined well below seasonally slow demand in the first half of the year…I think it’s fair to say that probably nobody expected the PC segment to be as slow as it’s been.” —Micron (Semiconductors)

Micron’s other end markets were stable though. They expect demand to pick up in the back half of the year, even in PCs

“we saw relative stability in other end markets…we believe that demand is going to be higher in the back half of the year…Even PCs I think, our view is that by the time we get to the end of the year notwithstanding the decrease in unit sales, there will be a small net growth in bits into the PC segment.” —Micron (Semiconductors)

Healthcare:

Many businesses are just starting to pay more attention to ACA requirements

“I think as clients started to really pay attention to it and I do think now we’ll probably see another resurgence of interest in it…I think when you get to the end of the year and those first filings have to be done and the penalty start to come into the 100 plus employee clients, I think they are really going to get a lot of attention at that point. And so the 50 or up, below a 100 will have to file, or the 50 to 100 will have to file. So that will be an awakening, I think for them that well this is a lot more difficult. And I think this is going to be another good year for the ESR product that we have, that helps them with Affordable Care Act.” —Paychex (Payroll Processing)

Materials, Industrials, Energy:

Dry Bulk shippers are finally canceling orders and scrapping ships. These are the ingredients to a lasting recovery

“During the first months of 2015 we have experienced record high levels of demolition and significant delays in scheduled deliveries. Furthermore orders have been running at record low level since October ‘14. In fact also after we adjust for conversions and cancellations we can say with confidence that we have practically experienced negative contracting of vessels. The above adjustments have put a ceiling for medium term fit growth and as a consequence the fundamental requirements for a sustainable recovery are slowly being built.” —Star Bulk Carriers (Dry Bulk Shipping)

Almost 3x as many ships have been scrapped in 2015 vs 2014

“During the first five months of 2015, we have identified more than 20 million deadweights that has already been scraped and/or committed for demolition. This compares with 16.2 million deadweight demolished throughout 2014 and 7 million deadweight demolished during the first five months of 2014.” —Star Bulk Carriers (Dry Bulk Shipping)

Of course, if the market improves people may not scrap ships as quickly

“I agree with you if the market goes up in the next couple of months it has already started improving actually…it’s possible that we might see a better market during the second half of this year. Unfortunately this will probably have an effect on scrapping so it is possible that scrapping will slow down and if that happens we’ll probably see again a slow beginning of next year.” —Star Bulk Carriers (Dry Bulk Shipping)

Miscellaneous Nuggets of Wisdom:

Don’t worry about the market, just focus on earnings and cash flow

“I don’t fully understand what our stock is trading on…we have got a strong backlog, we have got improving margins, it’s not seeming to trade on that, it seem that professional investors are trying to time the market here or predicting a peak. I personally don’t get it…But hey, life isn’t fair so we are not complaining, we are just going to do our very best to continue to pound out very strong earnings and cash flow.” —Greenbrier (Railroad Equipment)

Each week I read dozens of transcripts from earnings calls and presentations as part of my 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:

By most metrics, the economy has continued to strengthen

"By most metrics, the national economy is continuing to strengthen, whether you consider job growth, the unemployment rate, GDP growth or consumer confidence" ($KBH)

Housing's spring selling season has gotten off to an encouraging start

"The early signs of spring selling season have been very encouraging" ($KBH)

More first time buyers are coming out

"We are certainly seeing, with the traffic increase, a lot of people that are out for the first time, looking around. I don’t know that we can share that we have seen a big swell in sales to the first time home buyers yet but it’s an encouraging trend.' ($KBH)

There's incredible pent up demand

"it’s an incredible pent up demand that seems to be starting to get unlocked.' ($KBH)

Darden is seeing consumers act a little less tight

"And the one thing that we’re seeing from the consumer today is we are seeing the consumer’s willingness to buy less on deal and actually for the first time in a very long time, we’re seeing alcoholic beverage sales growth, we are seeing add-on sales growth, we are seeing more dessert sales...we are seeing a little bit healthier of a consumer." ($DRI)

There's not even a slowdown in Houston

"There has been a lot of new coverage on the impact of declining oil prices on jobs and housing in Texas. At this time, we are not seeing any evidence of a slowdown in demand. While the central region was up a solid 15% in net orders, Houston’s results actually exceeded the region’s average." ($KBH)

Steelcase doesn't see a slowdown among its office furniture buyers either

"We have a normal level of uncertainty in the U.S. economy driven by the strong dollar and other factors that affect our customers. But we are not seeing signs of a broader slowdown in the Americas" ($SCS)

Large projects, which are more geared to new construction, showed the greatest strength

"Regarding project business, the growth in orders was driven by large projects from some of our largest customers, which is different than the trend we saw over the last two quarters when many small to midsize projects drove the growth." ($SCS)

We're seeing mixed signals on inflation:

The cost of building a new home went up faster than price

"you have a combination of — in many of our markets our cost of build went up faster frankly, than we could move price. So we have some margin erosion on the cost of build." ($KBH)

Darden saw food inflation y/y but the inflation moderated versus last quarter

"Food and beverage costs as a percentage of sales this quarter were higher than last year, driven by continued elevated beef inflation. Dairy costs are also higher on a year-over-year basis, but have moderated significantly from the [fiscal] second quarter." ($DRI)

HD Supply is dealing with outright deflation

"we are getting impacted by deflation, the same as everyone else, particularly where we have the commodities that you mentioned – you know, steel rebar, that sort of thing is going down." ($HDS)

International:

Steelcase thinks that Western Europe has bottomed

"we continue to believe we have seen the bottom of the recession in Western Europe." ($SCS)

Not surprisingly, credit quality declined in Greece, but there may be some early signs that deterioration is slowing

"Unsurprisingly the asset quality [delinquency] rate has picked up in the first quarter of 2015...that clearly reflects the uncertainty and perhaps more hazard in Q1. Its only saving grace is the latest weekly data shows perhaps a slowdown in that change in direction." ($NBG)

Tiffany saw soft sales in Macau and Hong Kong

"Tiffany has seen a mark softening in sales results in Hong Kong and we’re also experiencing weakness in Macau. We believe that some tourists may be diverting their travels to other markets or perhaps increasing their spending locally." ($TIF)

Financials:

Many companies continue to return more capital than they generate in free cash flow

"free cash flow now to be in the range of 3.4 billion to 3.7 billion. Finally, we continue to expect to return at least 3.8 billion through dividends and share repurchases" ($ACN)

That means they're probably borrowing to fund repurchases...It's a little curious when a company has to slow repurchases in order to manage debt metrics

"As we’ve done in the past, we expect to slow the pace of our share repurchase activity in order to return to our target debt to adjusted EBITDA level of 1.5 to 1.8. Even at a slower pace, we still expect to lower our shares outstanding by 1% in 2015." ($MKC)

Mortgage underwriting remains tight

"I certainly think the mortgage situation remains tight. And it is holding back the recovery. You know we have talked about things like the mortgage insurance premium came down and that’s a good thing. I do feel that the big banks still have overlays and are still conservative in their underwriting because of the rules and the impact of Dodd-Frank are still getting clarified. So you have a recovery that’s occurring and demand is growing. It’s still a top shelf borrower, I will say, in that FICO scores that five years ago you could get a loan on you still can’t get today.' ($KBH)

Consumer:

As Lululemon talked about product "ambassadors," it struck me that the power of celebrity has never been greater

"This ambassador-driven campaign launched alongside a news stream capsule illustrates how our brand is most powerful when our stories are inspired and generated by our local communities and our local heroes. And as I mentioned, our brand operating model comprised of product, guest experience and brand and community will be leveraged in an omnichannel manner across diverse geographies to achieve our growth targets." ($LULU)

Technology:

The machines are coming to take our jobs

"looking at all the innovations we are bringing especially around automation, especially around robotics and especially around cognitive computing. And if you bring these three capabilities all together we have indeed a unique opportunity...to bring a level of productivity and efficiency in our business process operations where we start seeing this bifurcation between headcount growth and revenue growth and we might expect some acceleration in ’16 and beyond. So it’s still early days regarding the leading edge characteristics of these technologies. But I’m feeling extremely positive...that we have the tools and techniques to move to the next level of productivity.' ($ACN)

Mastercard says that the days of the plastic card may be numbered

"We see consumers moving to device based commerce. We are getting out of the physical world where plastic card goes to a terminal and that is just an awesome opportunity for MasterCard" ($MA)

Apple pay was the catalyst

"I think Apple Pay really served to capture the imagination of consumers and served as a catalyst in the market." ($MA)

Visa says that consumers are seeking out places to use Apple Pay

"consumers are delighted with the experience...they like the form factor, they like the experience. And so people are seeking out places to use Apple Pay." ($V)

More merchants are getting on board with NFC

"So we’re starting to see merchants who have terminals that are NFC ready, turn them on, because they see that experience, they see the consumer demand, they see how it speeds up the line at the point of sale' ($V)

The "acceptance gap" of NFC is narrowing. Once 30-40% of merchants adopt NFC that will be a tipping point

"we could see a significant ramp up in the acceptance gap. And once that happens, you can see it three out of every ten places you want to or four out of every ten places you want to, that tends to be the tipping point where you see these systems really take off." ($V)

Google is in the payments business because they need the data to justify the ROI of search ads to advertisers

"it’s the reason why Google is into payments, they hate payments...they like the data...the only way for Google to connect what happens when you do that search...is if you use Google Pay, so they can connect what happens with that search and what happens at the point-of-sale." ($V)

Materials, Industrials, Energy:

Dry Bulk shipping companies may be getting more proactive about scrapping capacity

"Ship owners have been very proactive when responding to negative demand developments. This year we are experiencing an encouraging strong response that has come in the form of vessel scrapping, converting, canceling and curtailing of the order. During the first two and a half months of 2015, we have identified almost 10 million deadweight that has already been scrapped and/or committed for demolition." ($SBLK)

Orders may be falling too

"I think there is a realization that to be able to get there, we need to act and looking at 600,000 deadweight ordering for the first three months of this year is amazing, I have not seen this since 1990 happen" ($SBLK)

Miscellaneous Nuggets of Wisdom:

Control the controllables

" our markets and environment are not controllable, therefore our approach is to analyze the facts to understand risks and opportunities, respond accordingly, and stay focused on executing what we can control and strive to get better." ($HDS)

A Munger-ism from the Daily Journal annual meeting:

"Other people are trying to act smarter. I'm just trying to be non-idiotic." ($DJCO)