Weekend Update #146
Welcome to Blue Room's Weekend Update. Each week, we're sharing what companies we're researching and the what, the who and the how that we think makes the companies interesting and unique. This roundup is brought to you weekly by a group of interns, creative minds, artists and investors who believe that through best in class investing along with the democratization of financial education we can do great things together. Enjoy, Explore and Share.
Following a week chock full of market moving events, this week served as a reprieve, with a lightened schedule of both economic data and company-specific headlines. On Tuesday, September 26, the Consumer Confidence index extended its two-month decline, and settled at a four-month low. The index – which is composed of both a Future Economic Expectations index and a Present Economic Situations index – fell in large part due to increased pessimism about future economic conditions which reinforced the perspective for many that a recession still looms on the horizon. While the Present Economic Situations index was left relatively unchanged from its previous reading – another piece of evidence that supports near-term consumer resilience – declines in the Future Expectations Index have historically led the Present Economic Situations index by six to twelve months.
Friday saw the release of the Federal Reserve’s preferred inflation gauge, the Personal Consumption Index (PCE). Core inflation ran at a 3.9% 12-month rate – providing evidence of continued cooling on the inflation front. The six-month annualized rate and the three-month annualized rate ran at 3.0% and 2.2%, respectively. Compared to the CPI data for August, this readout was considerably more favorable – reflecting a steady downward trend that was sure to bring a sigh of relief to Jerome Powell.
Turning to commodities, oil continued its upward march – touching its highest level in more than a year on Wednesday, September 27. The West Texas Intermediate benchmark momentarily grazed $95/barrel on Wednesday – a nearly 40% increase from its nadir in mid-June. Oil continues to climb higher due to the growing imbalance between robust demand and an intentionally muted supply due to production reductions from Saudi Arabia and Russia. On Wednesday, it was reporting that the Cushing, Oklahoma crude oil stocks shrunk to their lowest level in 14 months, settling at slightly more than 21 million barrels. The reduction in the crude oil stock is evidence of the incredibly tight nature of the oil market, but is perhaps even more concerning because tank storage at Cushing below 20 million barrels is considered close to an operational low as the oil is difficult to remove at such levels. Given that the imbalance between supply and demand is only expected to grow through the remainder of the year, the argument in favor of structurally higher oil prices is gaining traction.
With respect to large thematic trends, union strength continued to dominate the headlines this week. On Wednesday, September 27, the Writers Guild Association’s (WGA) Union leaders voted unanimously to end the strike after nearly five months on the picket line. The writers walked away with several victories in the three-year deal, including increased royalties, mandatory staffing for television writing rooms and protections against generative artificial intelligence. The United Auto Workers continued their strike this week, and were joined on the picket line by President Joe Biden on Tuesday. While the strike has had a relatively small impact on the economy due to its piecemeal nature, its potential for an outsized impact on the economy – and the political landscape – still looms large.
In other significant news, it was announced this week that China’s largest diplomats will be returning to their homeland later this year. The three giant pandas living in the National Zoo in Washington D.C. will be returned to Chinese conservationists – reflecting the terse relationship between the world’s two largest economies. Pandas first arrived at the National Zoo in 1952 under the Nixon administration and have since become a foundational attraction for visitors to the Nation’s capital. The Wall Street Journal announced the Pandas will be delivered via FedEx.
Weekly Performance
S&P 500 4,288.05 -0.52%
Nasdaq 13,219.32 +0.36%
Dow Jones 33,507.50 -1.18%
Thank you Blue Room Analyst SPENCER WOOTTEN
At 68.1, consumer sentiment confirmed its early-month reading and was little changed this month — slipping a mere 1.4 index points from August and remaining 16% higher than a year ago.
A small decline in consumer expectations over their personal finances was offset by a modest improvement in expected business conditions.
Consumers are understandably unsure about the trajectory of the economy given multiple sources of uncertainty, for example over the possible shutdown of the federal government and labor disputes in the auto industry. Until more information emerges about these developments, though, consumers have reserved judgment on whether economic conditions have materially changed from the past few months.
BEAVERTON, Ore., September 28, 2023 — NIKE, Inc. (NYSE:NKE) today reported fiscal 2024 financial results for its first quarter ended August 31, 2023.
First quarter revenues were $12.9 billion, up 2.0% compared to prior year on a reported and currency neutral basis
NIKE Direct revenues were $5.4 billion, up 6 percent compared to prior year on a reported and currency-neutral basis with growth across all geographies
NIKE Brand Digital sales increased 2 percent on a reported and currency-neutral basis
Wholesale revenues were $7.0 billion, flat compared to prior year on a reported basis and up 1 percent on a currency-neutral basis
Gross margin decreased 10 basis points to 44.2 percent (better than forecast)
Diluted earnings per share was $0.94 for the first quarter, up 1 percent
“Q1 offered proof of what NIKE can deliver when we connect great innovation, great storytelling and great marketplace experiences to consumers,” said John Donahoe, President & CEO, NIKE, Inc. “Moving forward, we are laser-focused on scaling these successes with greater consistency and speed as we continue to integrate and streamline our business. This is how we’ll extend our leadership position and drive growth over the long-term.”
Matthew Friend, Executive Vice President & Chief Financial Officer, NIKE, Inc. said, “Our first-quarter results demonstrated the impact of staying on the offense over the past fiscal year. With a healthy marketplace and another quarter of brand and business momentum, we are strengthening our foundation for sustainable, profitable, long-term growth.”
We are acquiring an 85% interest in Trimble's portfolio of agricultural assets and technologies and creating a new joint venture. This is a milestone in AGCO's farmer-first technology strategy that will create an industry leader in mixed fleet Precision Ag Solutions.
The newly created joint venture will be the exclusive provider of Trimble's industry-leading technology that will support the future development and distribution of next-generation Ag products and will become the largest Ag tech deal ever. AGCO's multi-pronged channel strategy will now include Trimble Ag, AGCO OEM and aftermarket, other OEMs and Precision Planting dealers, which is expected to drive significant growth and meaningfully expand the global market opportunity. All of these farmer touchpoints will result in our being even more farmer focused and are expected to deliver financial performance that is accretive to AGCO's growth, margin profile, and EPS in the first full-year. The transaction enhances and accelerates AGCO's growth ambitions around autonomy, precision spraying, connected farming, data management and sustainability. The transformational nature of this deal will result in AGCO offering a comprehensive suite of disruptive technologies across the crop cycle to address the farmer's needs of tomorrow.
Reshma Kewalramani — Chief Executive Officer and President
Certainly. Well, first of all, thank you for the invitation. It's nice to be in New York, and it's certainly very nice to be here live. We have been a CF company for 20-plus years, in the commercialized sense since 2012 and the availability of KALYDECO. And we aim to be and we intend to always be a CF company. That is going nowhere.
But going forward, we're going to be a CF-plus company. And that plus starts with, and we've been talking for some time about the fact that we've been preparing for the day when we're going to have a CF franchise. And just as we transform CF, our aim is to transform multiple more diseases.
The first next disease after cystic fibrosis is going to be sickle cell disease and beta thalassemia with exa-cel. And then, there are a whole host of additional diseases that we are in, in terms of not only clinical-stage, but in terms of post-proof-of-concept, like acute pain, like Type 1 diabetes, like AMKD with VX-147.
And so, when you look at the company from a 30,000-40,000 foot view, we started this diversification effort in full zeal circa 2014, 2015. And the big goal was to be in multiple diseases, check, multiple modalities. We're now in eight modalities, depending on exactly how you count, check. And we want to be in a place where we are the leaders in CF, and in CF have line of sight to that last 10%, to the last 5,000 to 6,000 patients who can't benefit from CFTR modulators because they simply don't make any protein.
For the first time, I can say, check, we have a program with Moderna for those last patients. And so, when you look at it, we said this is where we wanted to be, this is where we were planning to be, and this is where we are today.
Dan Skovronsky — EVP, Chief Scientific & Medical Officer, President, Lilly Research Labs
Yeah, thanks. Thanks, Terence. Thanks for having us here. It's great to be together. I think, for me, there's sort of a dual mandate. So one is to make the most of the opportunities we have. So where we have unlocked science, how do we make sure that we continue to translate that science into medicines for patients? So clearly, huge progress in diabetes, obesity, and huge progress in Alzheimer's disease. So the first sort of pillar of the mandate here is multi-generations of assets that continue to get better and better on behalf of patients.
On the other hand, the second thing that we have to get right is have more breakthroughs like those, and that's the challenge. I think it's rare that a company can do both things. Usually, there's a challenge because when you have great science and great breaking assets, you just want to keep investing in those and not do other things. And so for us, we want to do both, and that means our areas of immunology and oncology. We want to continue to make progress there. And I think we have some pretty big unlocks happening right now in both of those areas. And then also where some new areas that could, 10 years or 20 years from now, be like obesity and Alzheimer's are today, remembering that when we started in those areas, they were very much out-of-favor in pharma and nothing was working and what are those areas today. So those are the things we think about.
September saw a continued rise in the price of crude, reflecting the ever-increasing tightness of the global balance of supply and demand. On September 5, Russia and Saudi Arabia announced their voluntary extension of oil production cuts through the end of the year. The Saudi and Russian voluntary cuts are on top of the April cut agreed by several OPEC+ producers, which extends to the end of 2023. Saudi Arabia will extend its voluntary oil output cut of 1 million barrels per day, and Russia will extend its voluntary cut of 300,000 barrels per day.
Given the global importance of crude oil, the decision received significant pushback from countless parties. While the US Presidential election cycle has not started in earnest, rising gas prices are nonetheless a political nightmare given the fact that they are highly correlated to approval ratings. Indeed, the US has also argued that the world needs lower prices to support economic growth and prevent Russian President Vladimir Putin from earning more revenue to fund the war in Ukraine. The US and its Western allies have urged OPEC+ to raise output to secure lower energy costs and help the global economy, but OPEC+ producers have no incentive to reduce their national income in a zero-sum exchange. The tension between OPEC+ and the Western consumers is the appropriate lens with which to view the drama surrounding the market for crude oil in the month of September.
FROM BLUE ROOM HQ
HARVEST SUPER MOON
09.29.23
Photo Credit: Jared Fenley
Realizing threats to Consumer Demand:
2023 Q3 Form 10-Q - "Historically, RV industry sales have impacted by a number of economic conditions faced by our independent dealers, and ultimately retail consumers, such as the rate of unemployment, the rate of inflation, the level of consumer confidence, the disposable income of consumers, interest rates, credit availability, the health of the housing market, tax rates and fuel availability and prices. We believe these factors will continue to affect retail sales in fiscal 2023. In addition, due to inflationary pressures, higher interest rates and other factors, we believe that in fiscal 2023 our independent dealers will be continuously reevaluating their desired stocking levels, which may result in lower than historical dealer inventory stocking levels on a unit basis."
Total North American towables net sales decreased 57.4% year-over-year in Q3 2023 as result of a 57.3% decrease in unit shipments as result of softening independent dealer and consumer demand.
BWG - In Q1 2023 (THO Q3 2023), dealers noted unit sales were off as much as 50% in the motorized segment and 30% in the towables segment.
Rolling into July, motorized had recovered slightly while towables had dropped off roughly 45% year-over-year in April, May, and June.
Dealers noted a lack of a "spring pop," with volumes dropping unexpectedly in July and characterizing August as starting "really poorly."
Dealers also noted their cautious optimism on their own respective go-forward outlooks primarily driven by tightening of inventories and reduced purchase orders - all highlighting significant downward pressure on THO revenues.
Ramy Farid — President & Chief Executive Officer
Sure, sure. Happy to. So the business is set up to be able to leverage sort of an extraordinary platform that we've been developing over 33 years, the company was founded in 1990, and this platform has allowed us to compute properties of molecules with very high accuracy.
So we have this platform, been developing it over a long period of time, and we leverage it in several different ways. One way is to actually make that software available to the industry, and by industry, I mean the drug discovery industry. So pharma companies, biotech companies, worldwide, everywhere. We have sales offices all over the world. Also to material science companies doing all sorts of different things that involve designing novel molecules, and where it's really beneficial to predict the properties of molecules before you go randomly making a molecule and spending all that time and money doing things by trial and error just using experiments.
The other way that we leverage that platform is to help other companies to advance their drug discovery programs or material science programs, so where we are using our software internally and helping to advance those programs. And those types of collaborations, the partner has a lot to do about, for example, on drug discovery, picking the targets, and making decisions about when to take the program to development candidate stage, when to take it in the clinic. But we're playing a big role, and in fact, in many of these companies we've co-founded. So we were involved in the formation of those companies.
Additional Details
Record NAND QLC bit shipments this year, reaching record share of sales in data center and client SSDs
Forecasted NAND growth in CY23 has increased from high-single digits to high teens percentage due to stronger than expected demand in consumer markets and a trend of greater elasticity in per unit content. NAND will start Micron’s fiscal year strong
Customers reduced inventory (buys) in Q4, which led to a bottoming in the inventory cycle in smartphone, PC and automotive. Data Center will follow suit over the next two quarters.
Overall demand is now recovering leading to an inflection in pricing.
Some customers have made strategic purchases in DRAM and NAND to take advantage of unsustainably low pricing as the market recovers.
General purpose server demand is low, but offset by AI server demand. Total server units will resume growth in C2024. Micron estimates that data center revenue has bottomed in 4Q.
Micron HBM3E is currently in qualification for NVIDIA compute products, which will drive HBM3E-powered AI solutions. The production ramp of this product will occur in early C2024 and will achieve meaningful revenue through F2024.
In PCs, Micron expects the refresh cycle to drive a low-to-mid-single digit percentage growth for the PC segment, driven primarily by AI enabled PCs.
In Q4, Micron saw strong sequential growth in PCs for LPDRAM in thin client notebooks
In Smartphones, Micron expects mid single digits growth in ‘24 driven by elasticity and a mix shift toward premium phones.
Forecasting edge-AI chips to be integrated into most smartphones, driving higher memory requirements
The automotive industry segment set another record revenue year. The content per vehicle story is key here driven by autonomy and NEVs.
In industrial, 4Q showed signs of recovery as inventory levels are stabilizing across the board. Micron is expecting volume recovery to the degree that was seen in 2H23 through ‘24.
Still forecasting bit supply growth to be below demand in an effort to gain an advantage in pricing.
Largely attributed to capital spending, but also due to budgets and capacity diverted to HBM3 and HBM3E which have lower yields and higher capacity reqs.
Mark Zuckerberg — Chief Executive Officer
Hi, everyone. Welcome to Connect. It's really good to be in person with all of you. It has been quite a bit since we've done one of these live. It is — it's really fun to be in person. So, we have a lot of exciting stuff that we're going to talk about today. We have — we have Quest 3, and — and some other new hardware that I'm excited to show you, and we have a whole lot of new AI experiences. So, we've been in the lab for a while, and I'm — I'm really looking forward to — to showing you what we've been building.
But, first I want to — I just want to take a moment to — to talk about why we're here. At Meta, we are focused on building the future of human connection. And what that means is that we build products to help people feel closer, like we're right there present with each other, with our friends and family and colleagues and the people we care about, no matter where in the world we actually are. And, we do this because we believe that that makes us — that that strengthens our relationships. It helps us have more fun together. It improves how we learn. It gives us more opportunities that help span distance.
Now, the physical world around us is amazing, but I think that one of life's great joy is — is getting to go out and be active and explore. And at the same time, over the last few decades, our industry has been building up this increasingly vibrant digital world alongside it, with all the apps and digital content that we've been creating and, you know, I just find it funny when people say that that, the digital world and all the apps and stuff isn't the real world. Because, I think increasingly, in our modern time, the real world is really this combination of the physical world that we inhabit and — and this digital world that we're building. But even though we constantly are touching the digital world, it's mostly through screens and it — it's almost like you habit a completely different plane from our — our physical lives.
And, I think that one of the most interesting questions for our industry over the coming decades is going to be, how do we unify these experiences of the physical that we have with this vibrant digital world to create something that is more coherent and just better than anything that we have today. Now, in the future, I think not too far from now, you're gonna walk into a room and there are going to be as many holograms of digital things for you to interact with as there are physical objects. I mean, think about all the things that are physically there but don't actually need to be physical things. So, all the paper, the — the media, the games, the art, your workstation, any screen, it can all be interactive holograms.
CATCH UP ON OUR LAST THREE
Icebreaker: What was the highlight of your summer?
Icebreaker:
Shared Personal Reflections on Impact on September 11
Icebreaker:
A question about balance and transitions. The Spring and Autumn Equinox marks the beginning of spring and fall, and on this date, daylight and dark are equal parts. Answer one or more of the following please:
+ We're now in Autumn. How does this make you feel. Do you like fall and winter?
+ How is the balance in your life, are you seeking more of one thing and less of an another?
+ Fall also means more comfort foods. Do you have a favorite go to?
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