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Global growth is the key variable in defining investors’ outlook on commodities, it seems.  Goldman Sachs has maintained its constructive outlook on commodities, keeping its overweight recommendation on raw materials relative to other assets, saying that global growth is “sufficient” to drive demand, according to Goldman Sachs.  Commodity prices, however, have dropped on concerns that the global economy may be slowing materially as S&P downgrade may worsen slowdown, according to Bloomberg.

The following comments from TSN today are bearish for restaurant margins: 

“Because many of our sales contracts are formula based or shorter-term in nature, we are typically able to offset rising input costs through increased pricing. However, there is a lag time for price increases to take effect.”

“Chicken prices were up 10.2% - “we expect weak market pricing conditions to continue as a result of an imbalance of available supply relative to customer demand. Current USDA data indicates reduced broiler egg sets and placements in the fourth quarter of fiscal 2011. However, we do not expect to see a meaningful impact of the reduced supply in our results until late in our fourth quarter of fiscal 2011 and continuing into fiscal 2012. Because of these factors, we expect our Chicken segment will likely experience a loss for the fourth quarter of fiscal 2011.”

“Beef were up 13.5% - “We expect to see a gradual reduction in fed cattle supplies of 1-2% in fiscal 2012 as well as exports to remain strong as compared to fiscal 2011. Despite reduced domestic availability, we expect adequate supplies in the regions we operate our plants. Based on these factors, we expect the strong fundamentals in our Beef business to continue in fiscal 2012”

“Pork prices were up 3.0% - “We expect hog supplies in fiscal 2012 to be comparable to fiscal 2011 and to be adequate in the regions in which we operate. We expect pork exports to remain strong in fiscal 2012.”


Restaurant stocks are underperforming the food and beverage categories as commodities slump, particularly sugar over the past two weeks, as concerns over a global growth downturn mount.

THE HBM: MCD, YUM, SBUX, PEET, CAKE, TXRH - subsector fbr


  • MCD July Global comparable restaurant sales exceeded estimates in July, increasing 5.1% versus consensus 4.6%.  US comps grew 4.4% versus 4.1% consensus, Europe grew 5.3% versus 6.6% and APMEA grew 4.0% versus 1.9%.
  • MCD Japan comparable restaurant sales growth fell -3.8%.
  • YUM raised to Outperform versus Neutral at Baird.  The price target is $60.
  • SBUX raised to Outperform versus Neutral at Baird.  The price target is $45.
  • PEET was downgraded to Hold from Buy at Gabelli.


  • CAKE was downgraded to Neutral versus Outperform at Baird, the price target is $30.
  • TXRH was cut to Neutral versus Outperform at Baird, the price target is $16.


Howard Penney

Managing Director