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WEEKLY COMMODITY MONITOR: PEET, SBUX, GMCR, PNRA, DPZ, PZZA, DPZ, TXRH, CAKE, CMG, BWLD

Over the last week, continuing dollar strength put pressure on commodity prices.  Brent crude oil went higher, despite the greenback strength, suggesting that the slow-but-steady decline in gas prices could be plateau-ing. 

 

SUMMARY

 

Commodity prices declined across the board, with only chicken wings gaining on the week.  Wheat, coffee, cheese and corn fell -7.1%, -3.8%, -3.6%, and -2.8% respectively.  On our commodity performance table, below, the most interesting thing is that there are now several commodities trading below their year-ago prices.  Cheese, in particular, is surprising given where it was trading just a few weeks ago.  Caution is warranted on dairy prices, however, given that the fourth quarter compare becomes more difficult as time goes on. 

 

WEEKLY COMMODITY MONITOR: PEET, SBUX, GMCR, PNRA, DPZ, PZZA, DPZ, TXRH, CAKE, CMG, BWLD - commod 921

 

 

COFFEE

 

Coffee prices declining over the last week is a function of the stronger dollar, which erodes the appeal of commodities as an asset as it gains.  From a supply and demand perspective, coffee exports from Colombia, Mexico, and seven other Latin American countries fell 13% in August from a year earlier.  Total shipments dropped to 1.545 million bags from 1.766 million bags, Guatemala’s National Coffee Association, or Anacafe, said in a report released yesterday.

 

WEEKLY COMMODITY MONITOR: PEET, SBUX, GMCR, PNRA, DPZ, PZZA, DPZ, TXRH, CAKE, CMG, BWLD - coffee 921

 

 

Below is a selection of comments from management teams pertaining to coffee prices from recent earnings calls.

 

PEET (8/2/11): “As we indicated, in our first quarter call, we had to buy a small amount of our calendar 2011 coffee beans at significantly higher prices and this coffee will roll into our P&L during the third and fourth quarter.”

 

“Higher priced coffee resulted in gross margins this quarter being 290 basis points below prior year. In our first quarter conference call, we indicated that in addition to the overall higher price coffee market, we had to buy a small amount of coffee this year at significantly higher prices. And as a result, we expected our coffee cost to be 40% higher in fiscal 2011.”

 

HEDGEYE:  Peet’s is a company with a very competent management team that manages coffee costs extremely well.  Its higher-end, loyal customer base makes the price elasticity of demand more inelastic than for other coffee concepts’ products.

 

 

SBUX (7/28/11):  “As I mentioned earlier, are absolutely a headwind for us in the full business and that's most acutely impactful on margins in CPG as it's a much more coffee intensive cost structure, as you know. I can tell you that the decline as I spoke about it earlier from about 30% operating margin in CPG this year down to the target 25% next year is really all explained by commodities. Absent commodity inflation we'd be at or improving our margin in the coming year.”

 

“As we had anticipated, in recent weeks, coffee prices have retreated significantly from a high of more than $3 per pound just a couple of months ago to levels now near $2.40 per pound. As prices have been falling we continue locking up our needs for fiscal '12 and now have virtually the full year price protected.”

 

HEDGEYE: Starbucks is aligning itself with the right partners to gain more control of its coffee costs to provide investors with more certainty going forward and to protect its margins as global coffee demand continues to rise.

 

 

GMCR (7/27/2011): “However, what we've said is that should coffee prices or other material costs spike, we will certainly consider price increases as necessary. We certainly hope that we do not have to cover one again next year. But our objective long-term is attempting to maintain our gross margin as we would see input costs come along.”

 

HEDGEYE:  GMCR hedges out 6-9 months in advance.  Strength in the dollar has helped bring coffee prices lower but whether or not dollar strength will continue or not will be a significant factor in future price action in coffee.  Growing demand, globally, is bullish for coffee prices over the long term.

 

 

CORN & WHEAT

 

Grain prices slumped over the last week, again, as a result of the stronger dollar.  Continuing concerns surrounding crop sizes in the U.S., Ukraine, Argentina and Australia are providing some price support while rising inventories and the strong dollar provide downside pressure.  Despite concerns around the crop size, we would expect a continuation of slow growth and a stronger dollar to prevent significant upswings in price.  Wheat prices also fell on dollar’s rally cutting export demand.

 

WEEKLY COMMODITY MONITOR: PEET, SBUX, GMCR, PNRA, DPZ, PZZA, DPZ, TXRH, CAKE, CMG, BWLD - corn 921

 

WEEKLY COMMODITY MONITOR: PEET, SBUX, GMCR, PNRA, DPZ, PZZA, DPZ, TXRH, CAKE, CMG, BWLD - wheat 921

 

Below is a selection of comments from management teams pertaining to grain prices from recent earnings calls.

 

 

PNRA (7/27/11): “Just to note on the cost of wheat, in 2011 overall, the per-bushel cost will be about the same as 2010 due to our laddering purchasing strategy.”

 

“We are going to take price in the fourth quarter. This price will offset dollar for dollar the per-bushel inflation of wheat of approximately $3 a quarter that we're going to see in the fourth quarter of this year and then across next year”

 

“We do continue to expect significant inflationary pressures in 2012, 4% to 5% food inflation, $10 million of unfavorability on wheat costs, which means that we don't expect operating margin much better than flat to full-year 2011 in 2012.”

 

HEDGEYE:  Wheat costs have come down but it remains unclear whether or not the current easing of grain prices will continue.  Weak global demand and a stronger dollar are currently trumping the adverse impact on supply due to weather and fires in the U.S.  Slowing demand may also mean lower sales for PNRA, so it remains to be seen if margins improve from this effect, even if high wheat costs come down.

 

 

DPZ (7/26/11): “We're fairly locked in on our chicken, locked in on our wheat into – partway into next year.”

 

PZZA (8/4/11): “We're actually covered through Q1 from a contract standpoint. So from a supply chain disruption or even significant price impact we don't anticipate anything between now and the end of the year.”

 

 

CHEESE

 

Cheese prices have dropped dramatically since early August and are now trading below the year-ago price.  This is the first time cheese prices have been down year-over-year since January.  It is important to note that the bullish supply and demand set up for beef prices could indicate some support for cheese prices as compares become more difficult in the fourth quarter. 

 

WEEKLY COMMODITY MONITOR: PEET, SBUX, GMCR, PNRA, DPZ, PZZA, DPZ, TXRH, CAKE, CMG, BWLD - cheese 921

 

Below is a selection of comments from management teams pertaining to cheese prices from recent earnings calls.

 

DPZ (7.26.11): “Given higher than originally anticipated cheese prices, we currently expect our overall market basket for 2011 will increase by 4.5% to 6% over 2010 levels. This was up from our previously communicated range of 3% to 5%.”

 

HEDGEYE: We recently highlighted the fact that DPZ’s last earnings call took place during a trough in cheese prices and we expected a change in tone from the commentary in early May.  CAKE's EPS guidance may seem more reasonable now but we would caution against making that assumption if it is based on diary inflation being benign.  Beef prices and dairy prices, naturally, track rather closely and dairy prices have whipped around to the upside and downside this year.  Tougher compares as we move through 4Q only adds to the uncertainty.

 

 

TXHR (5.2.11): “We've also got a lot of flow in the dairy markets, in cheese, so there's other things beyond produce that do move around throughout the year.”

 

HEDGEYE: In 1Q09, TXRH called out favorable beef and cheese prices as being primary drivers of cost of sales being down 126 bps in the quarter.  Cheese was a contributor to a cost of sales increase in 2Q11, as we predicted.  For the remainder of the year, barring another (possible) spike in prices, TXRH could see some margin relief from lower dairy costs.

 

 

CMG (4.20.11): “As we move into 2011, we're expanding our use of cheese and sour cream made with milk from cows that are raised on open pastures rather than spending much of their time in confinement, as most dairy cattle do.”

 

HEDGEYE:  For CMG, the lower levels of dairy costs, if they persist, will offer some food costs relief on the company’s P&L.

 

 

CHICKEN WINGS

 

Chicken wing prices gained 7.2% over the last week as the price action continues to point higher.  Unless there is a significant upswing into year-end, we expect favorable year-over-year compares to continue until 1Q12.

 

WEEKLY COMMODITY MONITOR: PEET, SBUX, GMCR, PNRA, DPZ, PZZA, DPZ, TXRH, CAKE, CMG, BWLD - chicken wings 921

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst

 

 


LVS INVESTOR DAY: PART 1

Some remarks by Sheldon Adelson

 

  • There is a general consensus that the company should consider making dividend payments.  They are considering it.
  • Won't pursue any developments where they can't get a 20% ROI. Assume any new project would have 30% equity contribution and 70% leverage.
  • Asia expansion is their first priority, however, they will pursue any gaming opportunities that make sense
  • Other jurisdictions all look to MBS to see what they have done there when considering opportunities
  • Spain: Madrid or Barcelona is their location site of choice. Think that a resort in Spain would draw 1BN people that live within a 5 hour flight.  Before they make any investments in Europe, they will thoroughly research the opportunity and feasibility of an integrated resort. They like Spain given the good weather and the high unemployment rate there should garner support from the government - both regionally and nationally.
  • FCPA allegations made by a 'former very disgruntled employee'.  They are fully cooperating with the investigation. 100% certain that he or any other senior executive employee at LVS has never asked their employees to do anything improper. When the lawsuit concludes, he's sure that all of Jacobs allegations will be found to be baseless. In fact, Sheldon asserts that there is no actual allegation of wrongdoing by Sheldon so he can't be found guilty of anything.
  • Predictability and reliability of their revenue and FCF has been greatly improved as they have expanded. Their properties are mostly mature and their success has made them a front-runner for future opportunities.

NKE: Black Book Available

 

Our NKE Black Book is now available...

 

We think that investors are underestimating both the depth and duration that Nike’s recent infrastructure investments will have on financial results. It is one of the few companies that fits within our three different durations – TRADE (3 weeks or less), TREND (3 months or more) and TAIL (3 years or less). We like it at current levels, and think that there is upside to earnings in the coming quarter, the remainder of the May 12 year, and throughout the next three years. If Nike puts a lid on guidance on Thursday, as its biorhythm so often leads it to do with 1Q earnings, then we think it will be a great shot to get involved.

 

True, with a current EBITDA multiple of 10x our F12 estimates, Nike might not look like the cheapest name out there. But we think that earnings and cash flow expectations are too low across all durations, and that Nike has such a commanding lead right now in a global duopoly backed by the tools to sustain it. Combine that with a bullet proof balance sheet and what we think is a permanent structural advantage in sourcing product in a strengthening Yuan climate and this story has some serious legs to stand on.

 

 

If you have not received a copy of our report, contact , or at to request access.

 

 

NKE: Black Book Available - NIKE HE estimates vs. Street 9 11

 

NKE: Black Book Available - NKE BB Post Cover 9 11

 

 

 

 

 


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THE HBM: CMG, DPZ, SBUX, WEN

Notable macro data points, news items, and price action pertaining to the restaurant space.

 

MACRO

 

Commodities

 

Gasoline prices continue to shadow the trend of 2008. 

 

THE HBM: CMG, DPZ, SBUX, WEN - gasoline 9231

 

 

Subsectors

 

Full service restaurants underperformed peer subsectors despite a significant gain of +22.8% day-over-day for KONA on an upgrade.

 

THE HBM: CMG, DPZ, SBUX, WEN - subsector fbr

 

 

QUICK SERVICE

 

CMG dipped yesterday as speculation mounted that the 7% gain following the opening of Chipotle’s new concept, ShopHouse Southeast Asian Kitchen, was overdone. 

 

DPZ announced yesterday that after three months of operation, the new Domino’s App for iPhone and iPod Touch has achieved $1 million in sales in a single week.

 

SBUX is planning to build a “major multibillion-dollar business in the grocery industry”, according to Howard Schultz, cited in German newspaper Spiegel. 

 

SBUX is set to see margin expansion due to the single-serve business, according to Piper Jaffray.

 

WEN was reiterated “Overweight” by Barclays.

 

THE HBM: CMG, DPZ, SBUX, WEN - stocks 921

 

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst


THE M3: ANGELA LEONG; SANDS LOAN; AUG CPI; CHANGI AUG; MBS

The Macau Metro Monitor, September 21, 2011

 

 

GAMING TABLES GROWTH LIMIT 'REASONABLE' Macau Daily Times

SJM Holdings executive director Angela Leong On Kei said she is not concerned with the 3% cap on gaming table growth after 2013.  Leong said casino operators will be able to cope with government restrictions, but future amendments may be needed depending on market demand.  She added that the Macau government should not forget that gaming is Macau's biggest industry.

 

LAS VEGAS SANDS SAID TO SIGN $3.7 BILLION FIVE-YEAR LOAN TODAY Bloomberg

Sands China is expected to sign a 5-yr $3.7 BN loan today.  About 10% of the 5-yr loan was sold in general syndication. 

 

CONSUMER PRICE INDEX FOR AUGUST 2011 DSEC

August CPI increased 6.15% YoY and decreased 0.04% MoM.  Price index of Recreation & Culture; and Transport rose by 0.97% YoY and 0.82% MoM upon higher charges for outbound package tours and airfare.

 

MONTHLY BREAKDOWN OF PASSENGER MOVEMENTS Changi Airport Group

S'pore Changi Airport reported a 11.2% YoY increase in passenger traffic in August.  July's growth was 13.6% YoY.

 

HOTEL GUESTS MADE TO WAIT AT MBS Today Online

A 'system upgrade' caused a three-hour delay as guests were unable to check in.  Without disclosing how many guests were affected, the spokesperson added, "We seek the understanding of our guests and regret any inconvenience caused." 


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP - September 21, 2011

 

As we look at today’s set up for the S&P 500, the range is 41 points or -1.17% downside to 1188 and 2.24% upside to 1229.

 

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - levels 921

 

THE HEDGEYE DAILY OUTLOOK - daily sector view

 

THE HEDGEYE DAILY OUTLOOK - global performance

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: -814 (+833) 
  • VOLUME: NYSE 926.25 (+1.97%)
  • VIX:  32.86 -0.40% YTD PERFORMANCE: +85.13%
  • SPX PUT/CALL RATIO: 1.91 from 2.33 (-17.87%)

 

CREDIT/ECONOMIC MARKET LOOK:

 

FIXED INCOME: UST Yields look like they want to make higher-lows on whatever Twizzler move Bernanke tries (or no move at all) this afternoon.

  • TED SPREAD: 35.05
  • 3-MONTH T-BILL YIELD: 0.01%
  • 10-Year: 1.95 from 1.97     
  • YIELD CURVE: 1.77 from 1.81

 

MACRO DATA POINTS (Bloomberg Estimates):

  • 7 a.m.: MBA Mortgage Applications
  • 10 a.m.: Existing home sales, est. 4.75m (up 1.7% M/m)
  • 10:30 a.m.: DoE inventories
  • 2:15 p.m.: FOMC rate decision 

 

 WHAT TO WATCH:

  • FOMC may decide to replace short-term Treasuries in its $1.65t portfolio with long-term bonds; Jefferies estimates $300b-sized action for “Operation Twist”
  • European officials to return to Greece next week to complete review of economy; Greece to hold Cabinet meeting to discuss accelerating budget cuts
  • SABMiller reached deal to buy Foster’s for A$5.10-shr
  • Google faces Senate panel today on the “Power of Google”
  • PepsiCo reaffirms 2011 guidance, forms global snacks group
  • FDA briefing docs due for 9/23 advisory panel on Miltenyi Biotec’s CliniMACS CD34 Selection System
  • Boeing is on schedule to deliver first 787 next week, CEO McNerney said at forum: WSJ
  • Obama addresses U.N. General Assembly as Palestinians prepare to seek full membership at the Security Council and the U.S. promises a veto

 

COMMODITY/GROWTH EXPECTATION

 

COMMODITIES: Gold fails (again) at the Hedgeye TRADE line of resistance ($1820).

 

THE HEDGEYE DAILY OUTLOOK - daily commodity view

 

 

MOST POPULAR COMMODITY HEADLINES FROM BLOOMBERG:

  • Bullion Vaults Run Out of Space as Gold Rallies: Commodities
  • PepsiCo Poised for 49% Gain Imitating Kraft Breakup: Real M&A
  • Wild West Comes to India Where Miners Defy Supreme Court Rule
  • Lynas Slumps Most in Two Years on Rare Earths Price Drop
  • Corn May Reach Record on Supply ‘Nervousness,’ Newedge Says
  • Oil Drops in New York on Bets of Lower Demand, Higher Supplies
  • BHP Says Global Imbalances, High Debt Creating Uncertainty
  • Gold May Gain for Second Day on Growth Concerns, Fed Speculation
  • European Naphtha Exports Sinking to Year’s Low: Energy Markets
  • Rice to Drop as Indian Exports Intensify Export Competition
  • Parrilla Hires Ex-CastleBay Manager for Commodity Hedge Fund
  • Copper Climbs in New York on Speculation Fed Will Support Growth
  • Copper Imports by China Climb for Third Month on Low Stocks
  • Wheat Advances for a Second Day on Unfavorable Crop Conditions
  • Global Sugar Market Will Be in Surplus in 2011-2012, Licht Says
  • Copper Rises in London as Fed Meets to Boost Growth: LME Preview

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - daily currency view

 

 

EUROPEAN MARKETS

 

EUROPE: down, but not the disaster the shorts need here to keep getting paid (Italy is up small this morn and DAX sitting on TRADE line)

 

GERMANY: at 5514 DAX is still in crash mode (down -27% from May), but up +10% from the Sept12 capitulation low

 

THE HEDGEYE DAILY OUTLOOK - euro performance

 

 

ASIAN MARKETS

 

ASIA: bottoming process in the KOSPI (Korea) could be in motion w/ a TRADE line breakout back above the critical 1813 line; China up +2.7%

 

THE HEDGEYE DAILY OUTLOOK - asia performance

 

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - MIDEAST PERFORMANCE

 

 

 

Howard Penney

Managing Director


Daily Trading Ranges

20 Proprietary Risk Ranges

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