The Transcripts

The Transcript 02.22.21

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Succinct Summary: Vaccines continue to be administered and supply will likely open up, even more, starting in April. Consumers have been dreaming of a return to normal and we appear to be at the cusp. The result of vaccination could be an explosion of pent-up demand for hardest-hit industries and a much better second half than people expect. Still, strong demand is putting pressure on supply chains and creating inflationary pressures. Given that stimulus is dependent on a K-shaped recovery, normalization could bring its own economic disruptions.

Macro Outlook:

Vaccine supply should begin to open up in April

“…we’re estimating about 500 million doses of vaccine between now and the end of June. So we think there’s going to be good supply and it should begin to open up in April.” – CVS (CVS) C0O Jon Roberts

People are dreaming about a return to normal

“We certainly have seen traffic on TripAdvisor, people planning or thinking about trip, not go down nearly as much as travel actually went down. So in that sense we’re a leading indicator that people still want to travel. They’re still searching, they’re still coming back. Are you, you drop — unique user drop, again, a lot less than our revenue drop, because they’re not yet booking, but they’re — thinking of it, they’re dreaming” – TripAdvisor (TRIP) CEO Steve Kaufer

“…in lots of surveying that we’re doing…over 80% of [our customers] say they’ve got to get back out on the road, which is the highest number…we’ve seen since this mess began.” – Hilton (HLT) CEO Chris Nassetta

Hard hit industries could come roaring back by the second half of the year

“…the current backdrop makes us increasingly optimistic that travel could come roaring back as early as the second half of the year.” – TripAdvisor (TRIP) CFO Ernst Teunissen

“…we need this vaccination effort between now and June, July to really ramp up…but I do think there’s a great opportunity for the second half of the year to be better than any of us think.” – Hilton (HLT) CEO Chris Nassetta

Even business travel may normalize by 2022

“We are, for the first time since COVID-19 began, seeing association in corporate activity pick up for 2022 and beyond. And we have early signs that we will actually host corporate meetings as early as the second quarter of 2021.” – Hyatt (H) CEO Mark Hoplamazian

“In January, we had a very strong month for group bookings in 2022 and beyond.” – Marriott (MAR) Group President Stephanie Linnartz

“…in China, group bookings were up to 20% of our room nights, again, which was encouraging. China’s a great story, it shows that there’s pent-up demand for travel…people started booking…leisure, but then quickly towards as the year moved on moved to both business travel and group.” – Marriott (MAR) Group President Stephanie Linnartz

Yellen says that employment won’t normalize until 2024 without more stimulus

“…we’re digging out of a deep hole. Last year was the worst year for economic growth since World War II. And the Congressional Budget Office projection recently showed it would take until 2024 in their baseline case to get back to full employment without a package like this..” – US Treasury Secretary Janet Yellen

Inflation pressures are mounting

“We have good pricing power which is good. We have raw materials that are expected to be benign right now, but the indications that we see in the last few days/weeks ultimately saw going up in terms of raw materials. So we’ll have to mitigate that.” – Ecolab (ECL) CEO Christophe Beck

“…prices for key raw materials such as steel, have risen significantly over the last quarter, while freight and logistics costs have also experienced upward pressure.” – Deere & Company (DE) CFO Ryan Campbell

“…this industry is a reopen play and that shows up on the pricing line as well as the volume line…they understand that and we understand that. They also understand that when their business reopens that we will increase prices as we normally do normal course of business. So there are some volume-related price increases that we simply haven’t taken and that specifically impacts that commercial line of business.” – Waste Management (WM) CEO Jim Fish

There may even be shortages in compute

“…it turns out actually there are limits to how Elastic Compute actually is. We got a call we never thought we’d get, one of the providers calling us to let us know that they were out of servers.” – Palantir Technologies (PLTR) COO Shyam Sankar


In China, demand returned quickly after shutdowns

“…in China, we have recently seen several markets essentially unlocked down in January and February for several weeks at a time in order to fight the spread of the virus, leading to a meaningful drop in occupancy in these markets. Overall occupancy in mainland China year-to-date has fallen to an average of around 40%.” – Marriott (MAR) Group President Stephanie Linnartz


SPACs are gaining momentum in Asia and Europe

“…we continue to see big demand for specs, not only in the U.S., but increasingly, also in Asia, and to some extent, also in Europe. So, at least in the short term, we don’t see this to slow down. It provides an alternative to private equity and traditional IPOs. And it’s something that is certainly here to stay, whether it will – is here to stay at these levels in the mid-to-long term, we’ll have to see. But I also think that if you look at the overall macroeconomic situation, there will be a lot of companies that will need to raise capital in the next two, three, four quarters” – Credit Suisse (CS) CEO Thomas Gottstein

Roaring Kitty testified in front of Congress

“Social media platforms like YouTube, Twitter, and WallStreetBets on Reddit are leveling the playing field. And in a year of quarantines and COVID, engaging with other investors on social media was a safe way to socialize. We had fun.” – Reddit Trader Keith Gill aka Roaring Kitty

ESG mandates are having real effects on corporate behavior

“Environmental, social and governance issues aren’t side projects. They are strategic, core and part of our culture as aspirations push us beyond sustainability.” – Walmart (WMT) CEO Doug McMillon


There were fewer retailer bankruptcies than one would have expected

“I definitely agree with you that COVID accelerated retailer bankruptcies, but fortunately a lot of the bankruptcies were restructures, not liquidations. And in that connection, we were able to save a lot of retailers in our portfolio. I’ve mentioned earlier that we favored occupancy in 2020, we wanted to make sure that our retailers stayed in our shopping centers, that we could weather the COVID pandemic together” – Tanger Factory Outlet Centers (SKT) CEO Stephen Yalof

Restaurant demand is probably coming back in 2Q

“…at the moment demand is coming back, that’s going to compound, which is really good news. And we expect that not to happen in the first quarter, but it’s going to happen sometime in the second quarter.” – Ecolab (ECL) CEO Christophe Beck

Some restaurants were hardly impacted

“2020 also marked our 17 consecutive year of positive same-store sales growth, closing the year at 21.4%. On a 2-year basis, that equates to 32.5% same-store growth” – Wingstop (WING) CEO Charlie Morrison

“During the fourth quarter, we continued to see significant pent-up demand in our restaurants with the reopen dining rooms and remarkable sales volumes at our off-premise only locations.” – The Cheesecake Factory (CAKE) President David Gordon

Even gyms may not be dead

“We opened 130 new stores in line with most recent expectations, while at the same time URSA, Fitness industries trade association has predicted that about 25% of U.S. gyms and studios will permanently closed as a result of the pandemic.” – Planet Fitness (PLNT) CEO Chris Rondeau

Walmart sales hit 500B and an 8.6% comp

“We just completed a year with record sales of $560 billion in constant currency including record fourth quarter sales of more than $150 billion and record operating cash flow of $36 billion…Walmart U.S. comp sales excluding fuel grew 8.6% in both Q4 and for the year” – Walmart (WMT) CFO Brett Biggs

And they’re investing in DCs and e-commerce

“We are one of the largest eCommerce companies in the world, approaching $100 billion in revenue in the next couple of years, and we believe $200 billion a few years after that…we need to lean in more aggressively in key markets with increased capital and fulfillment capacity, supply chain, automation, and technology. This new infrastructure will allow us to expand eCommerce assortment, enabling us to reduce both shipping time and cost. We will step up automation in DCs to deliver aisle and department-ready pallets, stores.” – Walmart (WMT) CFO Brett Biggs

Cord cutting has almost reached 50%

“We are right around that point where there are more US households without a cable subscription than those with one, and that trend is not reversing. Dig a little deeper and you’ll find that younger generations, the 18 to 34-year-olds, highly coveted by many advertisers have even less interest in cable.” – The Trade Desk (TTD) CEO Jeff Green

“The median viewing age for the three major broadcast networks is now over 60 years old, driven in part by the flight of younger viewers to streaming. These changes accelerated a trend already underway: marketers fundamentally reevaluating their TV investment strategy” – ROKU (ROKU) CEO Anthony Wood and CFO Steve Louden

The TV advertising model is being shattered

“I can’t put it any better than Mark Pritchard did, the Chief Brand Officer at P&G, the world’s largest advertiser. I was on stage with him at CES a few weeks ago, virtually of course, and he talked about how 2020 has forced advertisers into a world of ”constructive disruption”. He highlighted the upfront process, which he described as a hold over from the 1950s where TV ad campaigns were tied to new vehicle launches every fall. He talked about the need to be more flexible, more real time to bring the same measurement techniques we’ve grown accustomed to in digital, to the world of TV.” – The Trade Desk (TTD) CEO Jeff Green


Software is no longer merely a luxury good…

“One of the interesting things about philosophy, history and software is that when something becomes crucial to a society, absolutely determinative, it sets off a dialectic of learning. So that the – what we understand about what it means to procure software, use software, integrate into a world that is defined by software, is very different than what we would have thought about it when it was a luxury product. And that’s largely how software has been viewed here before. It’s something that can augment your enterprise, your government; it can make your enterprise slightly better than your competitor in a myriad of context. It can make you a military slightly more efficacious, slightly more transparent, or in some contexts, less transparent. It can make things more cost-effective, but that’s not the context we’re in now. We’re in a context where it is basically binary, institutions and societies, which implement software effectively, will dramatically outperform.” – Palantir Technologies (PLTR) CEO Alex Karp

“Every industry is becoming a software industry. It is almost literally a Darwinian evolution, where the companies who are best able to adapt to the changing needs of their customers and to build that software and answer their customers needs, those are the ones who win…In the old world of IT, you would often have this question of, should I build the financial system or should I just buy a solution off the shelf? Usually, it made sense to just buy a solution off the shelf, but you always have this old build versus buy question. I would say, because of that Darwinian evolution that’s going on, where the great builders of software can differentiate in the eyes of customers, now, it’s not build versus buy, it’s build versus die. That’s the nature of that expression.” – Twilio (TWLO) CEO Jeff Lawson

but rather is now the language of our time

“…software is the language of our time and a mastery of software will determine what works and what doesn’t. The numbers that you’ve seen our reflection of our bet that this would happen, they are a lagging indicator. And we believe that the transformation, which is happening in the world now, will accelerate” – Palantir Technologies (PLTR) CEO Alex Karp

The SolarWind Hack was very sophisticated

“I think from a software engineering perspective, it’s probably fair to say that this is the largest and most sophisticated attack the world has ever seen..‘More alarming: how the hackers got in… piggy-backing on a piece of third party software used to connect, manage and monitor computer networks….The breach could have compromised up to 18,000 SolarWinds customers that used the company’s Orion network monitoring software, and likely relied on hundreds of engineers. When we analyzed everything that we saw at Microsoft, we asked ourselves how many engineers have probably worked on these attacks. And the answer we came to was, well, certainly more than 1,000,” – Microsoft (MSFT) President Brad Smith

UID 2.0 as an alternative form of identification online

“UID 2.0 is the new common currency of the open Internet, one that respects privacy and improves consumer controls, while preserving the value exchange of relevant advertising. UID 2.0 is also free. And as we speak, it is being integrated into the transactional pipes of the entire open Internet.” – The Trade Desk (TTD) CEO Jeff Green


J&J vaccine needs to be approved to get to the numbers Biden admin has put out there

“…the country needs to have J&J get approved to get to the numbers that the Biden administration has put out there. ” – CVS (CVS) CEO Karen Lynch

Industrials and Transport:

There are not enough superlatives to describe the demand curve for generators

“…then the demand curve has just been, I — you talk about the loss of words and superlatives. Mike’s running out of things in the thesaurus here — every time we write these prepared remarks, we’re trying to figure out how else to describe what we’re seeing, because it’s — it is — it’s really something.” – Generac (GNRC) CEO Aaron Jagdfeld

Supply chains can’t keep up. There’s a backlog of everything.

“…in terms of capacity where we’re at and have been at full capacity here at our plants in Wisconsin, where we make most of those products really, since the pandemic hit…we did announce we’re opening another plant in South Carolina. That’ll be online here in the next several months. But we can’t make them fast enough. And we’re doing everything we can to supply more product into the market…There’s, there’s just a backlog of everything…Lead times are long, but we don’t see a ton of cancellations, it’s very sticky backlog. To answer your question about as compared to when we exited 2012 into 2013, after Sandy. It’s orders of magnitude higher, hundreds of millions.” – Generac (GNRC) CEO Aaron Jagdfeld

“…we’ve added production, we’ve added some shifts in some of our large facilities, places like Waterloo, for example, and in some of our facilities in South America as well. So, we have made those adjustments. The real challenge and Ryan mentioned this, is on the supply side, there are components and parts that continue to be tight, from a supply point of view. So, we’re managing those really tightly. Supply management group is working really hard with suppliers day-to-day, some components are week-to-week in terms of what we’re seeing from an availability point of view ” – Deere & Company (DE) Director, Investor Relations Josh Jepsen

“Given supply constraints, our in-stock suffered significantly during portions of the year.” – Walmart (WMT) CEO Doug McMillon
Materials & Energy:

Oil and gas demand is going to accelerate

“…so to the oil and gas demand. When cars are going to be used more, when planes are going to be flying more, when boats are going to be more traveling as well, like cruise ships obviously. So the demand for oil and gas is going to accelerate.” – Ecolab (ECL) CEO Christophe Beck

Sentiment has improved in agriculture

“…we’ve seen underlying fundamentals continue to improve since the last quarter. Higher commodity prices and improved market access have boosted sentiment in Ag markets and are reflected in the results of our early order programs and order books.” – Deere & Company (DE) CFO Ryan Campbell

Coal is recovering too

“On a positive note a colder than average winter is taking place in the Northern Hemisphere that has helped coal consumption recover. Furthermore, the rebound in international coal prices is providing an incentive to global coal producers to raise exports and together with an industrial activity recovery is creating a favorable outlook for short-term gold rates.” – Star Bulk Carriers (SBLK) CEO Petros Pappas
Miscellaneous Nuggets of Wisdom:

Farewell to Arne Sorenson. We always enjoyed reading his earnings calls.

“We are all truly heartbroken by the recent unexpected passing of our President and CEO, Arne Sorenson. He was an exceptional visionary leader but more importantly an exceptional human being. He will be deeply missed.” – Marriott  (MAR) SVP, Investor Relations Jackie McConagha

Company cultures evolve. Don’t hang on to old culture.

“…the trick is don’t try to hold on to previous culture, just evolve your culture to be better than it was before, bring forward your strengths, double down your strengths, try to leave some of the weaknesses behind and just make sure that the next version of your company is a better version than the previous company. I think the way cultures end up bad is when people hold on to things that were appropriate in previous times and make both things that are unnegotiable. And I see this as a path that doesn’t lead to anything. personally, I’ve – I’m the one person looking at Shopify, who has seen every single version of Shopify. And this one is the best one. So far as good. I’m intending to keep it this way” – Shopify (SHOP) CEO Tobi Lütke

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