Anadarko’s (NYSE:APC) CEO says the company remains committed to 1) unconventional resources, 2) exploration and 3) expanding beyond North America. New venture areas include sub-Sahara, Africa and Indonesia. U.S. discussion focused on the deep water exploration and the development of K2/K2 North fields as well as the deep Haley play in west Texas.
Kerr McGee (KMG RETIRED) has clearly moved beyond the restructuring era and is well into the development of its deep water Gulf of Mexico discoveries. The Caesar well was announced as a discovery yesterday, the second such exploration success in the company’s 5 well deep water program in 2006.
Boeing’s (NYSE:BA) management was very optimistic about the prospects for strong organic profit growth, fueled by the strong market commercial aviation recovery, exceptional performance and improving margins. Although small to modest sized ($100 million - $2 billion) acquisitions are part of the company’s strategy, sense it is mainly focused on accelerating and enhancing investments in adjacent products/services. The company seems particularly focused on using partnerships and acquisitions to become a larger provider of maintenance and material management services for its commercial and military customers. Although growing Boeing’s aftermarket services seems like an important thrust for Mr. McNerney, believe his largest priority is to ensure strong organic profit conversion rates, reduce indirect costs and allocate capital wisely.
Wal-Mart (NYSE:WMT) has significant opportunities to improve gross margins, which should offset expense pressures and drive modest operating margin expansion. Inventory was reduced by $2 billion in 1st quarter and it is possible for WMT to grow inventory at less than 50% of sales growth for the next few quarters before stabilizing at the targeted 50% growth rate. Inventory clean-up efforts included removing inventory from rafters in the store, back rooms, trailers behind the stores and outside warehouses contracted for by store managers.
The stores' organization will need to closely monitor inventory levels to make sure they do not creep back up, and we expect that the change in incentive programs which incorporate ROI will help in this regard. This is just one aspect of the focus on inventory levels and driving gross margin improvement. Mini-remodels, which started this month, will help stores better showcase apparel, home, pharmacy, food and electronics. WMT is still in the early stages of global procurement, which over the long run could drive at least 20-25bps of margin expansion, in our opinion.