Theme 2: Varied uses of cash
Companies discussed the variety of ways they are deploying strong balance sheets and large cash balances. Managements are increasing spending in capex, keeping cash overseas, building infrastructure, being opportunistic about M&A, borrowing at low yields, and funding pension plans. There was little evidence of increased hiring.
Starwood Hotels & Resorts Worldwide, Inc (NYSE:HOT)
Our approach to capital and return going forward remains the same; using dividends and share buybacks to return cash to shareholders.
Colgate-Palmolive Company (NYSE:CL)
…We have taken advantage of a low interest rate environment here in the U.S. to structure debt at very low coupon levels… located some of our cash in overseas markets where we see deployment opportunities and with that cash there, the investment returns we are getting are quite elevated.
Constellation Brands, Inc. (NYSE:STZ)
…We anticipate no change in how we’ve been marketing the brands and – or really the levels of investment behind our marketing.
Costco Wholesale Corporation (NASDAQ:COST)
The big culprit there is something I’ve mentioned in the past few quarters that just continued to increase is the IT modernization costs. We are now in full swing and that represented y-over-y a 7 basis point hit to SG&A. When I look at IT costs as a percent of sales y-over-y, they were up seven basis points.
The Hershey Company (NYSE:HSY)
Advertising spending increased 27% in Q4, slightly greater than our expectation of a 20% increase, as we took advantage of media buying opportunities to support our core brands. A greater percentage of that capital [spending] is non-U.S. in 2013.
Tyson Foods, Inc. (NYSE:TSN)
It would get back to what we always say about our priorities for excess cash and that’s to invest in growth through CapEx and acquisitions…which is what we’re looking for, and asking [our business leaders] to relook at some projects and see if some of those might need to be accelerated.
Exxon Mobil Corporation (NYSE:XOM)
Uses included additions to plant, property and equipment or PP&E of $10.1B and shareholder distributions of $7.6B. Additional financing and investing activities increased our cash by $300mm.
BlackRock, Inc. (NYSE:BLK)
We are investing a lot of money in technology. We’re actually investing a lot of money right now in terms of making sure we’re compliant with all the regulatory issues, which I think is going to be a burden…
Boston Properties, Inc. (NYSE:BXP)
Although we have significant cash balances of $1B at quarter end, we have highly productive uses for the cash over the next couple of years. We also have $600mm of debt that comes due in 2013… Given our funding requirements, we anticipate that we’ll tap the capital markets sometime in the first half of the year.
JPMorgan Chase & Co. (NYSE:JPM)
So we still think if you haircut earnings and buy stock at these prices, it’s probably still a good deal.
Baxter International Inc. (NYSE:BAX)
Well, I would say as it relates to pension, we’ve done a lot in the last 5 or 6 years to try to mitigate risk. We’ve closed the U.S. plant, the new entrants… We’ve lowered our expected return on assets. We’ve changed the investment asset allocation mix to be 40% fixed income. We’ve bought treasuries of the hedge in the pension fund since 2008.
3M Co (NYSE:MMM)
We’ve had certainly record levels of capital investment here in 2012. And as we’ve told you, we expect our CapEx to rise in 2013.
Honeywell International Inc. (NYSE:HON)
…Pension is expected to generate income of $50 million to $75 million this year, and that reflects the proactive funding we’ve done to date coupled with a higher than expected return on assets last year. If you just go back to the numbers in terms of discount rate that we had in 2009, 2010 in the 5% to 5.25% range, you’re basically at a fully funded status.
Lockheed Martin Corporation (NYSE:LMT)
We actually sent out in the fourth quarter an offering to our terminated but vested participants in the plan, offering to essentially give them lump sum payments in lieu of the pension payments over periods of time when they retire. We got a fairly good return on that…
Apple Inc. (NASDAQ:AAPL)
We’re buying equipment that we will own that we will put in partners’ facilities. Our primary motivation there is for supply, but we get other benefits as well. We’re also adding to our data center capabilities to support all of the services…
Google Inc (NASDAQ:GOOG)
…We believe now is the time to invest and that’s why we’re doing it with confidence, discipline but confidence.
International Business Machines Corp. (NYSE:IBM)
…We spent $3.7 billion to acquire 11 companies…Over the last three years, we’ve spent $11.5 billion for acquisitions.
AT&T Inc. (NYSE:T)
And if you combine the buybacks and dividends, we returned $23B to our owners last year. And we did this with a very small increase in debt.
The Southern Company (NYSE:SO)
We put $445 million into our pension this year at the end of 2012. Our PBO funding ratio was at 90% for the pension liability and it’s 84% when you throw in the non-qualified liabilities.
LyondellBasell Industries NV (NYSE:LYB)
On the capital side we under spent our capital budget for 2012 by several hundred million dollars. We’ve done everything we can to make sure that we’re spending the money efficiently.
Theme 3: Mixed views on the economy
Uncertainty persists, and companies continue to tread lightly in a slowly recovering economy. By and large, corporate management remains cautious due to slow GDP growth, low consumer confidence, and a mixed holiday season. However, these challenges are well understood by now and recent stability alongside a steady recovery in housing is generating some optimism.
Parker-Hannifin Corporation (NYSE:PH)
Parker-Hannifin Corporation (NYSE:PH) offered a broad overview of strong, flat, and weak industries
Real strong segments for us right now would be Pharma and Ag, process industries, oil and gas and commercial Aerospace OEM. … Just strong would be defense Aerospace OEM, defense Aerospace aftermarket…
Forestry, general industrial, machine tools, marine, construction, mining, commercial air conditioning, those would be some that would be trending negative. And then kind of flat right now … cars and light trucks, power gen, semicon, life sciences, heavy duty truck, industrial refrigeration and commercial Aerospace aftermarket. That’s kind of the lay of the land right now.
Companies citing economic uncertainty:
SYSCO Corporation (NYSE:SYY)
Consumer sentiment and restaurant traffic trends have softened of late due to ongoing economic pressures…
American Express Company (NYSE:AXP)
So we’ll strive to be a growth company in a slow growth environment. But achieving 8% is challenging with GDP in the U.S. where it is.
Thermo Fisher Scientific Inc. (NYSE:TMO)
With the economic uncertainty that still exists, we have contingency plans in place across our businesses to further reduce cost if necessary.
BlackRock, Inc. (NYSE:BLK)
We have been living in a strained investment environment for some time. Economic and political uncertainty persist. Unfortunately, they will continue to persist.
Cintas Corporation (NASDAQ:CTAS)
…Our customers have continued to tell us that the economic uncertainty in the U.S. caused them to be very cautious in spending, hiring, and investment decision making. Unknowns concerning U.S. tax policies and the impact of changing healthcare regulations have created a pause in many of their business activities. …I think everybody’s just taking a wait and see attitude to see what happens.
Citigroup Inc. (NYSE:C)
Although the overall environment has shown signs of improvement, we believe it’s likely to remain challenging, with continued spread compression, new or evolving regulation, as well as the costs associated with putting legacy issues behind us.
E I Du Pont De Nemours And Co (NYSE:DD)
The U.S. is experiencing a weak recovery with bright spots and pent-up demand for housing and auto.
Family Dollar Stores, Inc. (NYSE:FDO)
Near term, the environment remains difficult. Recent consumer confidence commentary and muted holiday sales results confirm to us that our customers remain cautious. We saw this uncertainty reflected in our discretionary sales trends in December.
Schlumberger Limited. (NYSE:SLB)
Let us now turn to the macro environment where there continues to be uncertainty. However, GDP growth outlook for 2013 remains in line with the previous quarter…
Verizon Communications Inc. (NYSE:VZ)
This [government policy] uncertainty created a wait-and-see approach that clearly impacted new business in 2012.
General Electric Company (NYSE:GE)
I think about the U.S., you’ve got a slow and steady housing recovery that I think is very positive and then there’s still a lot of fiscal uncertainty. And how those blend through into U.S. GDP in 2013, we’ll see.
Companies noting improvement in economic conditions:
JPMorgan Chase & Co. (NYSE:JPM)
I think the American economy, I would say the table is rather well set. Consumers, businesses, housing and small businesses, they’re all in pretty good shape. And I think we need good policy and good fiscal policy…
The Southern Company (NYSE:SO)
These trends along with continued positive migration into the region bode well for continued residential customer growth in our markets. Finally, our roundtable participants were cautious in their outlook for the commercial sector, but do see growth emerging, particularly in the private sector.
Wells Fargo & Company (NYSE:WFC)
The housing market began a steady rebound during 2012. While many measures of activity and prices remain low by historical standards and a complete recovery will still take some time, there is no doubt that a corner was turned, which is a real positive …
Southwest Airlines Co. (NYSE:LUV)
Broadly speaking, while we see a lot of encouraging signs in the broader economy, we’re monitoring demand closely for signs of any weakening by consumers resulting from the increased income taxes, but at this point, we’re not seeing any signs of any weakness.
Air Products & Chemicals, Inc. (NYSE:APD)
Going forward, we expect slow, but modestly improving growth driven in part by the recovering housing market and the Fed monetary policy. In any scenario, reduced government spending will lower 2013 growth.
3M Co (NYSE:MMM)
We can see recovery coming in the base [ex-electronics] business, and that is a big portion for us. And so we see sequential improvement in that as we move ahead for the base business going into Q1.
Robert Half International Inc. (NYSE:RHI)
In the U.S., year-over-year growth rates for our temporary and consulting divisions decelerated throughout the quarter. However, we did see sequential growth in every U.S. line of business during the quarter.
To be continued – click page 3 below:
