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WMS FQ3 YOUTUBE

In preparation for WMS's Q2 earnings release tomorrow, we’ve put together the pertinent forward looking commentary from WMS’s Q1 earnings call and subsequent conferences/releases.

 

  • “The $8 million of orders were not canceled but they shipped in early April rather than by March 31st. Our production and distribution teams were simply unable to fulfill these orders in time as they were received after our normal cut-off dates which created challenges and stresses related to logistics of an already compressed order fulfillment period.”
    • This implies 450-500 units at WMS’s average ASP that were pushed into 4Q
  • “As we look forward over the next 12 to 24-months, WMS is planning new product introductions that we believe could be game changers and thus we would begin to monetize the potential value we’ve created through investments, intellectual property and R&D initiatives during the past several years. These include the expected launch of our portal applications and other network solutions, the introduction of our first participation games to be powered by our third generation operating systems CPU-NXT 3, and new category creating form factors yet to be announced”
  • “We expect that the further roll-out of these products and the approval of additional new products  in the June quarter will help us improve gaming operations momentum”
  • “Today we reiterated our revenue guidance of $210 million to $220 million for the June 2011 quarter. And with expectations for an improvement in product sales margin further strengthening of growth in gaming operations and our focus on cost containment, we expect operating margins will improve on a quarterly sequential basis to a range of 22% to 23.5%.”
  • “Initial outlook for fiscal 2012 to be consistent with the growth level achieved in fiscal years 2009, 2010 and 2011. We are still in the midst of our budgeting process, but we expect annual growth of 3% to 7% to be driven by continued market share penetration, especially in international markets, stronger new casino openings and expansion opportunities domestically and internationally, growing revenues from new networked gaming and online gaming products and services and increased participation revenues. Our operating margin guidance range of 21% to 22% anticipates improvements in product sales margin and operating expense growth at a rate less than our revenue growth”
  • “We now have received GLI approval on our core WAGENET system including remote configuration and download functionality and Jackpot Explosion. This now allows us to begin the commercial launch into Native American casinos, in California initially, and then expand to other travel casinos as well as certain riverboat and other commercial casino jurisdictions as secondary approvals for those jurisdictions are received.”
  • “In our for-sale business, we’re also beginning to break through the regulatory logjam. During the last 90 days, we’ve launched multiple new game themes in our G+ deluxe series and launched our first themes in a new line of Real Boost games, which is part of our innovation series of products. While still early in their rollout, these games are amongst the best performing games we have ever commercialized.”
  • Q: “What kind of ship share assumptions do you have for the fiscal 4Q and for fiscal 2012?
    • A: “I would say in a high 20s to the 30% range”
  • “We have modeled our guidance today on flat demand for fiscal ‘12, replacement demand.”
  • “I don’t think pricing really entered into our issues in Q3. Pricing comes up every now and again. It didn’t use to come up hardly at all. It comes up a little bit more frequently now but we still believe that we have pricing leverage and if our content continues to perform at the levels of the G+ Deluxe and the Real Boost product, we’re not going to continue to see pricing as an issue.”
  • 2012 guidance: “No, we’re not counting on any new markets. I believe there might be a little bit of Italy in there but I think that for the most part we’re not assuming any new market openings. It’s really flat demand and us continuing to drive penetration internationally and domestically as well as our gaming operations business and margin improvement. That’s where you’re going to see the up ticks.”
  • “Battle Stations, we got the Pirate Battle and we have Leprechaun’s Gold that have essentially moved from Q2 and Q3 in our original fiscal ‘11 planning into Q4, Q1 and Q2. So, you’re going to see the games that we launched in Q3 are going to help suffice through Q4 and the games we’re launching in Q4 are going to help build our footprints slightly and our average win per day should see a nice up tick over the next couple of quarters. So, you are going to see some accretion in the footprint and the rate over the next call it two quarters.”
  • 2012 growth will come from:
    • Greater market penetration [internationally] …margin improvement, ASP and Network gaming,… online revenues”

THE HBM: CBOU, MCD, DNKN, MSSR

Notable price action and news items from the restaurant space as well as macro callouts pertaining to the space.

 

MACRO

 

Consumer

 

Initial jobless claims came in at 400k for the week ended July 30.  The number was below the Bloomberg survey estimate but remains higher than needed to reduce the unemployment rate.   The Bloomberg Consumer Comfort Index will be released later this morning.

 

Subsectors

 

Quick Service outperformed the other food, beverage, and restaurant categories on the back of a strong pre-earnings move from CBOU and a bounce in COSI which has been getting run into the ground recently.  The only down stop was DNKN, which declined -4.2%.

 

THE HBM: CBOU, MCD, DNKN, MSSR - subsectors fbr

 

 

QUICK SERVICE

  • CBOU coffee announced 2Q earnings of $0.13 ex-items versus $0.09 expectations.  The stock was up almost 10% yesterday. Who knew what when?
  • MCD was upgraded to Overweight from Neutral at Piper Jaffray. 
  • DNKN declined yesterday after an earnings release which, to us, left more questions than answers.

 

CASUAL DINING

  • MSSR declined -1.7% on accelerating volume ahead of its earnings call today.  DIN bounced back, up 7.2%, after a sharp sell off on Monday and Tuesday.

THE HBM: CBOU, MCD, DNKN, MSSR - stocks 84

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst

 


INITIAL CLAIMS CLOSE TO FLAT; 2-10 SPREAD GETS SQUEEZED

Initial Claims Flat; Expect Volatility in Coming Weeks

Initial claims came in at 400k last week, 2k higher than the reported number the prior week (but 1k lower than the revised print).  Last week, we noted that significant volatility is typical at this point in the year due to manufacturing layoffs.  Because the annual furloughs shift slightly in timing, the seasonal adjustment model doesn't do a good job of correcting for the effect.  Accordingly, we expect a degree of snap-back in initial claims in the next 1-2 weeks.  

 

INITIAL CLAIMS CLOSE TO FLAT; 2-10 SPREAD GETS SQUEEZED - rolling

 

INITIAL CLAIMS CLOSE TO FLAT; 2-10 SPREAD GETS SQUEEZED - raw

 

INITIAL CLAIMS CLOSE TO FLAT; 2-10 SPREAD GETS SQUEEZED - NSA

 

INITIAL CLAIMS CLOSE TO FLAT; 2-10 SPREAD GETS SQUEEZED - seasonality

 

QE, initial claims, and the S&P are all tightly related, as the following two charts demonstrate.  This suggests that further improvement in initial claims will be difficult in the absence of QE. 

 

INITIAL CLAIMS CLOSE TO FLAT; 2-10 SPREAD GETS SQUEEZED - s p

 

INITIAL CLAIMS CLOSE TO FLAT; 2-10 SPREAD GETS SQUEEZED - fed

 

2-10 Spread Flattening Pressures Margins

The 2-10 spread has flattened dramatically in the last week, putting pressure on bank margins.  This week's level of 229 bps is 26 bps tighter than a week ago.  Banks have been increasing positioned for rising rates, as we noted in a report earlier this summer, which amplifies margin pressure. 

 

INITIAL CLAIMS CLOSE TO FLAT; 2-10 SPREAD GETS SQUEEZED - spreads

 

INITIAL CLAIMS CLOSE TO FLAT; 2-10 SPREAD GETS SQUEEZED - spreads QoQ

 

Joshua Steiner, CFA

 

Allison Kaptur

 

 


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THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP - August 3, 2011

 

This morning the USD breaking out above its intermediate-term TREND line; the most important global macro factor affecting everything that ticks right now.  As we look at today’s set up for the S&P 500, the range is 61 points or -1.61% downside to 1240 and 3.23% upside to 1301.

 

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - levels 84

 

THE HEDGEYE DAILY OUTLOOK - global performance

 

THE HEDGEYE DAILY OUTLOOK - daily sector view

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: +445 (+2195)  
  • VOLUME: NYSE 1352.06 (+7.98%)
  • VIX:  23.28 -5.69% YTD PERFORMANCE: +31.72%
  • SPX PUT/CALL RATIO: 1.52 from 2.10 (-27.82%)

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 25.81
  • 3-MONTH T-BILL YIELD: 0.02% -0.04%
  • 10-Year: 2.64 from 2.66    
  • YIELD CURVE: 2.31 from 2.33

MACRO DATA POINTS:

  • 8:30 a.m.: Jobless Claims, est. 405k, prior 398k
  • 8:30 a.m.: Bloomberg Consumer Comfort, est. (-47.5), prior (-46.8)
  • 10 a.m.: Freddie Mac weekly mortgage data
  • 10:30 a.m.: EIA natural gas
  • 11:30 a.m.: U.S. to sell $20b 10-day cash-mgmt bills

WHAT TO WATCH:

  • Japan sold yen to intervene in currency markets, acting unilaterally, Finance Minister Noda said
  • Health Management Associates disclosed late yesterday had received subpoenas from Dept. of Health and Human Services: WSJ
  • European Commission must decide by today whether to open in- depth investigation of ramifications from Deutsche Boerse’s buyout of NYSE Euronext
  • Kraft Foods announces intent to create two independent publicly traded companies

COMMODITY/GROWTH EXPECTATION

 

THE HEDGEYE DAILY OUTLOOK - daily commodity view

 

 

COMMODITY HEADLINES FROM BLOOMBERG:

  • Rio Tinto First-Half Profit Trails Estimates as Costs Increase
  • Shipping Stuck in Recession on Expanding Glut: Chart of the Day
  • Macarthur Lures Bidders as Peabody Rouses China: Real M&A
  • Commodities to Rally, Buy Gold, JPMorgan Tells Investors
  • Natural Gas Spread at 11-Year Low on Record Heat: Energy Markets
  • Cargill Turkey Salmonella Link Spurs Second-Biggest U.S. Recall
  • Newcrest Says 10 Die in Helicopter Crash in Indonesia
  • Oil Trades Near 5-Week Low as Economy Concern Counters Stimulus
  • Gold Near Record as Declining Currencies Increase Haven Demand
  • Copper Premiums in China Drop to Four-Month Low on Demand
  • Malaysia Export Growth Accelerates as Commodities Shipments Gain
  • Coleman’s Merchant Commodity Fund Said to Decline 4.9% in July
  • Copper Gains From Three-Week Low as BHP Strike Caps Second Wee
  • Rogers May Boost Agriculture Investment on Food Shortages
  • Rio warns on commodities outlook
  • Escondida Workers to Weigh Offer at Strike-Hit Chilean Mine

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - daily currency view

 

 

EUROPEAN MARKETS

  • EUROPE: Italy is crashing, FYI (down -28% since FEB) and Russia (the only tape that was not broken) finally breaks Hedgeye TREND line support

THE HEDGEYE DAILY OUTLOOK - euro performance

 

 

ASIAN MARKETS

  • ASIA: ex-China (up +23bps overnight), Asian equity markets flashing negative divergences vs yesterdays hopeful US equity close; KOSPI breaks hard

 

 THE HEDGEYE DAILY OUTLOOK - asia performance

 

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - MIDEAST PERFORMANCE

 

 

Howard Penney

Managing Director


Old Slate

This note was originally published at 8am on August 01, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“We’re not just going to start with a clean slate, we’re going to throw the old slate away.”

-Vince Lombardi (1959)

 

That was one of the first iconic leadership quotes to come out of Vince Lombardi’s mouth when he moved his family to Green Bay, Wisconsin in 1959 (page 207 of “When Pride Still Mattered”, by David Maraniss).

 

As all great leaders across history have proven, results matter more than rhetoric. But, when you can combine both, you have the holy grail of life’s opportunities – to “be the change you want to see in this world” (Gandhi).

 

Barack Obama and Johnny Boehner are not Gandhi. Neither are they Lombardi. These two gentlemen would have a tough time leading me to the men’s room at a Yale Hockey game without forming a committee. And, sadly, after we get this morning’s stock market rally out of the way, we’re all going to be stuck with their same Old Slate.

 

This isn’t to say that this gong show of a Debt Ceiling Debate isn’t going to help America start with a clean slate. First though, we need to throw away the old one! That will take time. Change is a process; not a point.

 

Back to the Global Macro Grind

 

With the most anticipated headline since ‘sun rising in the East’ behind us, the question for Risk Managers now isn’t about the mechanics of the debt “deal” (it will be back end loaded and will not move the dial until all of these politicians are gone) – it’s about Global Growth and Earnings Expectations – both are still too high.

 

Here’s how the globally interconnected market is reacting to the “news” that Washington does career risk management:

  1. STOCKS – Asia rallied across the board to lower-highs and remains the best looking region of the 3 majors (Asia/Europe/USA); European Equities are up marginally on low volume and basically still look awful; US Equities have immediate-term downside support at 1286, but a wall of intermediate-term TREND resistance up at 1319 on the SP500.
  2. TREASURY BONDS – We’ve been on the other side of the PIMCO “credit risk” trade (El-Erian) and focused more on the two things that have really provided a bid for bonds since April – US Growth Slowing and Inflation Expectations coming down. We saw new highs in 10 and 30-year UST bonds on Friday into the “news.” Now Treasuries are immediate-term TRADE overbought.
  3. EUR/USD – This is the one strike price that should continue to whip around in the next 48 hours as we finally put this debt deal dog to bed. Watch $1.43 as your TREND line that inflates/deflates everything else (across asset classes). The global market’s Correlation Risk moves off that.

From the Eurocrats to the Fiat Fools of the Keynesian Kingdom in America, do any of these people realize the causal relationship between debt and growth?

 

Republicans and Democrats, Reid my Boehner on this:

 

DEBT STRUCTURALLY IMPAIRS GROWTH.

 

That’s it. So keep it simple stupid. The only thing that you are really doing to global markets and economies are:

  1. Shortening economic cycles
  2. Amplifying market volatility

How short was the last “bullish” economic cycle? You tell me (if you are a Washington/Wall Street person you will have a different answer to this question than Main Street, fyi). The only thing worse than Friday’s Q2 US GDP report of 1.3% is the thought that the government’s made-up number could be off by 81%! (Q1’s was restated at 0.36% versus 1.92% prior!!!)

 

I think that’s the first time I have used 3 exclamation points in an Early Look. Re-read that fact about reported US GDP. Maybe I should have used six!!!!!!

 

Either these Republicans and/or Democrats figure out how to throw out this Old Slate of failed economic policy, or The People are going to throw all of them out. That’s the change I can believe in.

 

My immediate-term support and resistance ranges for Gold (sold ours last week), Oil (no position), and the SP500 (no position) are now $1609-1633, $95.96-100.49, and 1286-1316, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Old Slate - Chart of the Day

 

Old Slate - Virtual Portfolio



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