We are posting commentary from Ruane, Cunniff & Goldfarb (also known as Sequoia fund) investor day. Below is part II, part I can be read: HERE.
Telling about Corning Incorporated (NYSE:GLW), they said it is a 150-plus-year-old company, with focus on material science research lab. Over the years it is credited with number of innovations like CorningWare, fiber optics etc. Corning Incorporated (NYSE:GLW) has a 50 percent market share in glass that sandwiches the microelectronics for LCD TVs. And there is only couple of competitors in this segment, as such glasses are extremely difficult to make and this is where Corning Incorporated (NYSE:GLW)derives most of its earnings. It’s another invention, Gorilla Glass, is used in most of the smartphones today. But the company is feeling pressure due to declining prices of consumer durables. Historically, glass prices had declined about 8% a year. In the coming years it is going to generate a lot of cash from this business, but to do that it has to invest a lot.
About Mastercard Inc (NYSE:MA) Ruane, Cunniff & Goldfarb commented, that Mobile payments have a huge potential but as of now it is relatively new. Players like Google Inc (NASDAQ:GOOG), Amazon.com, Inc. (NASDAQ:AMZN) and Apple Inc. (NASDAQ:AAPL)could tap it better but the kind of network and reach that Master and Visa Inc (NYSE:V) had build is difficult to obtain again.
Ruane, Cunniff & Goldfarb are bullish on Goldman Sachs Group, Inc. (NYSE:GS) but they also told that GS won’t earn as much as it used to earn previously. The company is fighting so many different battles right now including public relations, greatly increased regulation, et cetera but if one has a mindset good for Wall Street, Goldman Sachs Group, Inc. (NYSE:GS) is a good bet. Their earnings are currently structurally and cyclically depressed.
Ruane, Cunniff & Goldfarb have owned The TJX Companies, Inc. (NYSE:TJX) since 2000 and it has been a consistent performer. It has largely benefitted from continuing decline of the department store industry and the shrinkage in the number of department stores. As of now many big national vendors depends on TJX. A consumer prefers going to The TJX Companies, Inc. (NYSE:TJX) than a department store as TJ has the same products at lower prices. Its competitor, Ross Stores, is also doing well thanks to the powerful business model. However going forward, questions could be raised about the ability to raise the margins while maintaining the same level of value. To counter the concerns The TJX Companies, Inc. (NYSE:TJX) has huge market in Europe. It has performed well in the UK and increasingly better in Germany.
Discussing the prospects of International Business Machines Corp. (NYSE:IBM), they said it is in a middle of a five-year plan up to 2015, which as per the management is going to deliver $20 a share in EPS. One special feature of the company is it has tremendous planning capacity and remarkable execution capability, “The company has the systems in place to know all the pieces of the business and how they are doing.”International Business Machines Corp. (NYSE:IBM) has performed exceedingly well in just one year into plans, so this takes pressure of the remaining four years. The company is doing very well and this is what will help it in future growth as the segment carries 80 percent gross margins.
World Fuel Services Corporation (NYSE:INT) is the largest independent marketer, seller and distributor of fuel, operating in three markets: The marine bunker fuel market, the aviation jet fuel market, and the land segment. In a nutshell it acts as an intermediary between the big oil companies and customers. What has happened in past few years is that big oil companies like Exxon Mobil Corporation (NYSE:XOM) and Chevron Corporation (NYSE:CVX) have exited this segment and World Fuel has moved in. It has grown a wide network in the segment, which makes it difficult for a new player to enter the market. Also the exit of big oil companies, provide it with opportunity to grow organically.
Telling about CEO of Brown & Brown, Ruane, Cunniff & Goldfarb told that he is hard-working, dedicated and has good people skills. Apart from these he has a huge incentive for doing well for the shareholders because he and his family is a big shareholder of the company. Brown & Brown organic growth numbers have not been as good as those of the rest of the industry, but its profit margin is almost double than those of its peers. Despite slow growth, company’s management has been able to control expenses. The future looks bright for the company, as its current problem looks like fading away. As it comes back on the growth track “now that its costs are as tight as they have ever been, you could see a real improvement from already high levels of its EBITA margin.”
The full transcript of the meeting can be found: http://www.sequoiafund.com/Reports/Transcript12.htm