Aiera Investor Event Recap — Week of January 24, 2021
Notable tonal sentiment highlights from the week as companies continue reporting Q4 2021 earnings. Plus, more notable textual commentary from the week’s earnings calls.
Notable Tonal Sentiment Highlights
[Positive] Colgate-Palmolive CEO delivered confident sentiment (textual and tonal) when asked if they were neglecting the Palmolive side of the business
So listen, we had, obviously, really strong performance in ’21 — excuse me, in ’20 across our liquid hand soap, our Personal Care categories, which include Palmolive overseas as well as our Home Care categories here in North America. Obviously, that — those categories, as I mentioned earlier, are falling off quite significantly, but we believe they have stabilized and will provide more continuity as we move forward. We had some challenges obviously getting some of the innovation executed what we wanted to do. Obviously, that’s had a short-term impact. But we feel very good about the plans we have in place in terms of not only getting the pricing through the category, but making sure that we continue to deliver an entrepreneurial approach to these businesses because we have isolated pockets of strength, North America being one, Latin America being another, where we find the opportunities on the ground that we can execute against.
[Divergence] Sherwin Williams SVP of IR delivers positive words with an uncertain tone when addressing raw material inflation guidance
What I would say is for the full year, we’re expecting, as we said, that low double-digit to mid-teens inflation. It should be the highest in the first quarter, and I would expect it to sequentially improve as the year goes on and the comparisons get a little bit easier. But I think even in our fourth quarter, you’re likely to see us up low and mid-singles in the fourth quarter. I think the strong demand that’s out there is helping to support the inflation that’s out there. I would again expect by segment, probably to still see pretty high inflation in our Performance Coatings Group.
[Divergence] Blackstone President and COO has negative sentiment when discussing tightening SEC rules on private equity
So what I’d say on that is that the technical, I think, change they announced yesterday that they’re seeking comment on is mostly around systemic risk and reporting systemic risk. So applied to a range of industries, private equity, hedge funds and others. I think for us, what we focus on is the fact that we’ve done such a good job for customers for such a long period of time, that we’ve delivered solid returns. You obviously see that in our public financials. Our investors get even more detail. And that to us is really important. And the second factor that I think is very important is we’re always striving. It’s been something very important to Steve since the day I joined this firm 30 years ago, and even going back longer for him, operating at the highest levels of integrity, transparency and disclosures that, that is a core value of this firm. And thus, whatever comes out from a regulatory environment we will adapt, and we will, of course, comply and that’s just the way we run our business. So we understand that we’re in an environment of heightened scrutiny, and we will obviously respond to it in the right way.
And now, more notable moments from the past week…
Energy Corps and Airlines Address Rising Fuel Costs
It also has an impact on the supply side because of the energy prices inside of Europe. And because so much of that power and what happens in natural gas, particularly is going to impact what’s happening in Europe. We’re already seeing this broad curtailment because where energy prices are today, imagine if the tensions increase, if you start to see less availability of natural gas, those prices could go up even further, and you could start to see even more of a supply impact happening in Europe and potentially elsewhere because of knock-on impacts.
- Roy C. Harvey, President, CEO & Director, Alcoa Corporation | Q4 2021 Alcoa Corp Earnings Call, Jan 19th, 2022
Looking to the first quarter, COVID-impacted demand and elevated fuel prices will continue to put pressure on our near-term margins.
- Derek J. Kerr, Executive VP & CFO, American Airlines Group Inc. | Q4 2021 American Airlines Group Inc Earnings Call, Jan 20th, 2022
As we look at our costs, like other airlines, we are seeing inflationary pressures in fuel prices, hiring and training for both new hires and existing crews as we build back our operation, including on the regional side. We are also seeing increased starting wages for certain work groups, including vendors.
- Derek J. Kerr, Executive VP & CFO, American Airlines Group Inc. | Q4 2021 American Airlines Group Inc Earnings Call, Jan 20th, 2022
Traditionally, I think we had gotten to the point where we had a high degree of confidence that fuel is a pass-through. And I’ve said that many times in the past, and I continue to believe that. During the crisis, with the supply demand equation quite out of balance, I think that has got out of balance. But as we look into Q2 and beyond, based on what we think is going to happen to demand and where we see supply hopefully, those relationships come back into place. And we’ll continue to make agile decisions on either the addition of the fleet, given what the price of fuel is like we always have done in the past. So I feel like we need a little bit more time to prove that the equation is still valid, but we’re well on our way.
- Andrew P. Nocella, Executive VP & Chief Commercial Officer, United Airlines Holdings, Inc. | Q4 2021 United Airlines Holdings Inc Earnings Call, Jan 20th, 2022
Given this demand recovery, our customers are increasingly focused on their medium-term flight planning and continue to prioritize fleet modernization as an enabler to reduce carbon emissions and increase operating efficiency. New airplanes we deliver will be as much as 25% to 40% more fuel efficient with commensurate reductions in emissions compared to the airplanes they replace. And as oil prices remain high, our customers are keenly aware of these benefits.
- Brian J. West, Executive VP of Finance & CFO, The Boeing Company | Q4 2021 Boeing Co Earnings Call, Jan 26th, 2022
I mean clearly, what we’re seeing is elevated natural gas prices in the U.S. and also significantly higher Brent pricing, which will impact naphtha. So certainly, in Europe, our cost structure is going to be higher. But I think the points that Jim mentioned earlier, demand is very strong. And so you are likely going to see higher prices around the world. It is too soon to tell about Asia to the point that Jim made about Chinese New Year. We’ll see what happens.
- Howard I. Ungerleider, President & CFO, Dow Inc. | Q4 2021 Dow Inc Earnings Call, Jan 27th, 2022
I guess what we’re seeing in terms of demand is they’re kind of ahead of where we are in recovery from the latest spike in COVID cases. If you look at our 7 day in the U.K., we’re up about 10% of where we were month to date. So starting to see good recovery in mobility and gasoline demand in the system. Again, a very similar situation on diesel. ARA stocks are very low. So diesel looks very constructive as well. On the natural gas side, you see some switching of crude diets as a result of the high natural gas prices still $30 an MMBtu in Northwest Europe. So you see some people kicking out medium and heavy sour grades of crude running more light sweet. I think where we’ve seen it the most is optimization around hydroprocessing capacity. So people idling and cutting hydrocracking capacity as a result of very high natural gas prices, which again puts less diesel in the market and is one of the reasons why we’re experiencing all the tightness around diesel that we are.
- Gary K. Simmons, Executive VP & Chief Commercial Officer, Valero Energy Corporation | Q4 2021 Valero Energy Corp Earnings Call, Jan 27th, 2022
In oil and gas, favorable commodity prices and increased rig and completions activity contributed to a healthy 110% year-over-year increase in revenues.
- Raj Kumar, Executive VP & CFO, Kirby Corporation | Q4 2021 Kirby Corp Earnings Call, Jan 27th, 2022
Higher fuel redeals, seen in both the inland and coastal businesses, also contributed to the revenue increase as we saw the average cost of diesel fuel approximately double in price.
- Raj Kumar, Executive VP & CFO, Kirby Corporation | Q4 2021 Kirby Corp Earnings Call, Jan 27th, 2022
Yes. In general, we try to work fuel to be a pass-through. We don’t try to make money on fuel. It’s just a cost for our customers and we like to pass it through. If you think most of our customers are large energy companies anyway, right? The big oil integrated oil companies or big refining companies, so they understand the fuel markets better than we do. So we tend to just pass the fuel on. It does — as you know, from an accounting standpoint, we have to recognize it as revenue. So it does actually dilute the margin a little bit, right? Because higher revenue, all associated — not all of it, but the revenue associated with higher fuel kind of dilutes margin. All that said, though, I think a higher oil price is good. It’s good for our customers. It’s good for our chemical customers. It’s good for our refinery customers. It’s good for our oil — integrated oil customers. So that also will drive volumes. So it’s generally good just from — more from a demand standpoint than a price leverage standpoint. And then the cost of transportation as a percent of the cost of their product goes down, so they get a little less price sensitive on that, which is good. So generally higher oil prices are better for us than lower and — but we don’t really profit off the actual fuel cost. Now that said, we do well in KDS, right? A higher oil price generally drives demand for our pressure pumping customers and we’re seeing that. That said, they do have more capital discipline. You know this, Greg, you cover it. We’re seeing our oilfield customers be very, very disciplined with capital, which probably is helping drive the oil price up a bit.
- David W. Grzebinski, President, CEO & Director, Kirby Corporation | | Q4 2021 Kirby Corp Earnings Call, Jan 27th, 2022
We had higher freight and logistics expenses of $0.24 per share, as diesel prices and fuel surcharges continued to increase along with continuing truck and driver shortages, and very low box car availability.
- Mark W. Kowlzan, Chairman of the Board & CEO, Packaging Corporation of America | Q4 2021 Packaging Corp of America Earnings Call, Jan 27th, 2022
We believe rising gas prices, inflation and the reduction of COVID-19 relief programs led to a decrease in disposable income on a sequential and year-over-year basis.
- Salvatore Mancuso, Executive VP & CFO, Altria Group, Inc. | Q4 2021 Altria Group Inc Earnings Call, Jan 27th, 2022
We expect fuel prices to be between $2.45 and $2.50 per gallon in Q1, also increased from the last quarter.
- Shane Tackett, CFO, Alaska Airlines | Q4 2021 Alaska Air Group Inc Earnings Call, Jan 27th, 2022
As a result, our first quarter unit cost inflation compared with first quarter 2019 and excluding fuel special items and profit sharing has increased about 10 points. Roughly half of that increase is driven by the $150 million of additional incentive pay we are offering to operations employees to early February, and the other half is associated with flying fewer ASMs than we were planning. In light of the significant impact from the Omicron wave on available staffing, extending the temporary incentive pay and further reducing our capacity were necessary steps to stabilize the operation.
- Tammy Romo, Executive VP & CFO, Southwest Airlines Co. | Q4 2021 Southwest Airlines Co Earnings Call, Jan 27th, 2022
Market fuel prices have continued to rise here, which also resulted in a $0.10 increase in our fuel cost per gallon guidance. Our estimated first quarter fuel price in the $2.25 to $2.35 per gallon range is also roughly $0.25 higher than our first quarter 2019 fuel price, and math’s inclusive of an estimated $0.35 of hedging gains here in the first quarter.
- Tammy Romo, Executive VP & CFO, Southwest Airlines Co. | Q4 2021 Southwest Airlines Co Earnings Call, Jan 27th, 2022
MSFT Reverses Course After Upbeat Cloud Guidance
After shares were initially indicating down 5% after hours following Microsoft’s earnings release, CFO Amy Hood’s guidance remarks caused shares to move 8% higher mid-call, implying a positive overall earnings reaction. Microsoft’s move also seemed to provide support to other large cap tech names as well.
Texas Instruments Talks Long-Term Investment to Keep up with Semiconductor Demand Growth
The last comment I’ll make is — and we’ll give you more details on that next week on capital management, but CapEx has been going up and will continue to go up over a number of years with those investments that I mentioned. Those are long-term investments. Those are going to set us up great for the next 15-plus years. So I’m very happy about this. I’m pleased with that. We’re confident about those. But that does flow through the P&L as higher depreciation. So I expect CapEx to go up, and depreciation will follow. And that will have an impact on gross margins. But frankly, at the end of the day, that’s accounting. The investment is happening now. It will happen over the next few years with that additional CapEx, and that will just put us in a great position to grow the top line and have really great fall-throughs over a long time to come.
- Rafael R. Lizardi, CFO and Senior VP of Finance & Operations, Texas Instruments Incorporated | Q4 2021 Texas Instruments Inc Earnings Call, Jan 25th, 2022
Overall, the quarter came in stronger than we expected. The strength was across most product families, end markets and geographies. The market environment is similar to what we reported 90 days ago. Lead times for the majority of our products remained stable, but hotspots continue to exist. However, customers continue to be selective in their expedite requests, increasingly focusing on products that complete a matched set rather than expediting products across the board. This behavior is not specific to any product family end market or geography. Discussions with customers confirm a high level of interest in our commitment to expanding our internal manufacturing capacity road map, including 300-millimeter wafer fabs; RFAB 2 and LFAB; our recently announced plans for a multi-fab site in Sherman, Texas; and the associated assembly test expansions. These investments, to strengthen our manufacturing and technology competitive advantage, will provide lower cost and greater control of our supply chain. And while there is a growing recognition that the near-term supply/demand imbalance will end at some point, the secular growth of semiconductor content per system will continue to increase, and this requires a robust manufacturing capacity road map for 2025 and beyond.
- Dave Pahl, Head of IR & VP, Texas Instruments Incorporated | Q4 2021 Texas Instruments Inc Earnings Call, Jan 25th, 2022
Visa & Mastercard Detail Healthy Holiday Spending Trends, Express Positive Outlook on Omicron Recovery
U.S. holiday retail spending was especially strong, more than 40% over 2019. E-commerce continued to gain share of retail spending, up 5 points since 2019. The impact of Omicron on domestic volume has been modest. As the Omicron wave crest globally, we expect the impact to ease as it has in markets such as South Africa and the U.K., which were among the first to be hit.
- Vasant M. Prabhu, CFO, Visa | Q1 2022 Visa Inc Earnings Call, January 27, 2022
The outlook remains positive despite the recent supply chain constraints, geopolitical uncertainties and inflationary pressures. Although there has been a recent surge in COVID cases, there are signs that these may be peaking. By each of these areas, merit monitoring, underlying spending trends remain strong as consumers, businesses and governments have become more adaptable to a changing environment.
- Michael Miebach, CEO, President & Director, Mastercard Incorporated | Q4 2021 Mastercard Inc Earnings Call, January 27, 2022
As we look ahead, we expect accelerated revenue growth versus pre-COVID over the coming years, driven by our 3 strategic levers of consumer payments, new flows and value-added services. Many current trends in payments, including ADA, RTP, Buy Now, Pay Later, Crypto and wallets are enabling new ways to pay. These represent opportunities for Visa, where we are extraordinarily well positioned to utilize our unique strength and global network to help them grow and scale.
- Alfred Francis Kelly, CEO, Visa | Q1 2022 Visa Inc Earnings Call, January 27, 2022
Cross Border Travel Trends Continue to Improve
We had a very sharp recovery in cross-border travel in October and November as much of the globe ex-China moved to reopen borders or announced timetables to open borders and listed restrictions such as quarantines. As a result, card-present and card-not-present travel, which exited September at an index of 61 to 2019 rose steeply to hit an index of 72 for the first quarter. Border reopenings came sooner than we had anticipated. And as we’ve seen throughout 2021, consumers were very quick to act.
- Vasant M. Prabhu, CFO, Visa | Q1 2022 Visa Inc Earnings Call, January 27, 2022
The recovery has continued with overall quarter 4 cross-border levels now higher than those in 2019. Cross-border travel continued to show improvement relative to quarter 3 levels, aided by border openings in the U.S., U.K. and Canada. While Omicron has had some recent impact on cross-border travel, we continue to believe that cross-border travel will return to 2019 levels by the end of this year. Cross-border card-not-present spending ex travel continued to hold up well in the quarter. So overall, the spending trends are moving in the right direction with some near-term travel-related headwinds as a result of the variant.
- Michael Miebach, CEO, President & Director, Mastercard Incorporated | Q4 2021 Mastercard Inc Earnings Call, January 27, 2022
Apple Results Highlighted by “Strong” Demand Across Product Segments
But what I would tell you is that we saw strong demand across the iPhone 13 family. And in fact, we had several of the top-selling models in various markets, including the top 5 in the U.S. and Australia, the top 4 in Urban China, 2 of the top 3 in the U.K., 3 of the top 4 in France and Germany and 4 of the top 6 in Japan. And certainly, based on some external data that I’ve seen, it does seem to say that we are gaining share as well. So we feel quite good about the momentum of iPhone. And I should add that we were constrained during the quarter.
- Tim Cook, CEO, Apple | Q1 2022 Apple Inc Earnings Call, January 27, 2022
For Mac, revenue of $10.9 billion was an all-time record with growth of 25% year-over-year driven by strong demand for our newly redesigned MacBook Pro powered by M1 despite supply constraints.
- Luca Maestri, CFO, Apple | Q1 2022 Apple Inc Earnings Call, January 27, 2022
iPad generated $7.2 billion in revenue, down 14% year-over-year due to very significant supply constraints, but customer demand was very strong across all models. Despite the supply shortages, our installed base of iPads reached a new all-time high during the quarter, thanks to a high number of customers that are new to iPad. In fact, around half of the customers purchasing an iPad during the quarter were new to the product.
- Luca Maestri, CFO, Apple | Q1 2022 Apple Inc Earnings Call, January 27, 2022
We are also making great advancements in audio and are seeing strong demand from customers as a result.
- Tim Cook, CEO, Apple | Q1 2022 Apple Inc Earnings Call, January 27, 2022
Note: All excerpts, highlights, and insights in this email were generated entirely using the Aiera platform.
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