Company Notes Digest 7.2.15

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 (NYSE:GIS) 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 (NYSE:STZ) 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 (NASDAQ:PAYX) (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)

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Written By: Scott Krisiloff