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WMS YOUTUBE

In preparation for WMS's FQ1 2012 earnings release Thursday afternoon, we’ve put together the recent pertinent forward looking company commentary.

 

 

 YOUTUBE FROM FQ4 2011 CONFERENCE CALL

  • “We've reached an inflection point in our performance, with quarterly sequential improvement anticipated in the December 2011 to be followed by what we expect to be a return to growth over prior-year periods beginning in the second half of fiscal '12.”
  • “We expect to receive additional jurisdiction approvals for these [Portal application and WAGE-NET] products by the end of December quarter, which we expect will put us on a path to resume a more normal flow of product approvals in calendar '12.”
  • “Our focus continues to be on taking cost out of the Bluebird xD and Bluebird2 cabinets through continuous improvement initiatives, and significant progress has been made over the last 12 months.”
  • “As a result of realized cost savings to-date and further expected savings throughout the remainder of fiscal 2012, we anticipate a stronger product sales margin in the second half of the fiscal year than in the first half”
  • “We still expect that revenues for fiscal 2012 will follow the pattern of most prior years where the September quarter is the lowest and revenues build in each subsequent quarter, with the June quarter being the strongest of the year”
  • "In our Gaming Operations business, we've received initial approvals in recent weeks for five innovative new Participation games including THE WIZARD OF OZ Journey to Oz, MONOPOLY Party Train, Pirate Battle, Leprechaun's Gold, and BATTLESHIP, based on the iconic board game of the same name.  In the December quarter, in those jurisdictions where these games are approved, we are installing to refresh our installed base, replacing those games whose performance has declined over time and are now nearing the end of their performance life.  With the focus on refreshing the installed base this quarter, we expect most of these placements will be replacements and not incremental to our footprint in the December 2011 quarter, but they will be the key factor in stabilizing both our footprint and average revenue per day by the end of the quarter”
  • “We expect to resume growth in the installed base and average revenue per day in our second fiscal half”
  • “So I believe Gaming Ops is well positioned once we get through this next quarter. I would not look for any improvements in Q2; as Scott mentioned, that's really a replacement market to stabilize the installed base and the win-per-day. And then second half, we should see an uptick in both the footprint and the win-per-day, and that's what we're focused on”
  • “I think that seasonality-wise, Q2 is always a challenge with the holiday season, and so forth. Although Christmas is a great week, the month of December is not a great month. So, I would guess that I would use the word stabilized…to describe what I would look for in Q2.”
  • “From approximately 300 networked gaming machines running at 14 locations at the time of our August conference call, we now have our three Portal applications on over 480 gaming machines, and including our WAGE-NET System with Remote Configuration and Download functionality, we're now either at full commercialization or trial at a total of 29 casinos globally on over 700 gaming machines…Our goal is to have 100 casinos networked by the end of June, and that's going to be an aggressive schedule but that's our internal goal here. And going forward, you'll see some meaningful revenue beginning in fiscal '12 and beyond.”
  • “But going forward, you'll see our margins get back to the 53% to 55% over the second half of the year.”



Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.64%
  • SHORT SIGNALS 78.57%

WEEKLY COMMODITY CHARTBOOK

Corn and wheat gained 7% and 8%, respectively over the last week.  Most commodities moved higher as the Dollar Index weakened.

 

Almost all of the commodities that we monitor saw week-over-week price increases.  Food inflation is likely to be less of a factor, on the margin, for restaurant stocks than it was in 2012 but we still expect some companies to see continued pressure on margins.  This will be especially true in the first half of the year for companies with exposure to beef and chicken (particularly wings).

 

In terms of CPI, consumers are still seeing steeper food inflation in their grocery bills than in the restaurant check.  Proposed legislation in Washington, HB 3798, is expected to lead to higher food prices for American consumers.  The legislation focused on egg production.  For an albeit one-sided write up, click here.

 

WEEKLY COMMODITY CHARTBOOK - home vs away CPI

 

 

SUPPLY/DEMAND DYNAMICS

 

Grains – WEN, TXRH, CMG, PNRA, DPZ

 

DPZ: Company expects overall basket to be up 4.5-6% in 2011.  No specific guidance for 2012 but hoping for a moderation from 2011 levels.

 

CMG: Management plans to take no additional pricing in 2011.  Currently there is roughly 4.6% of price on the menu.

 

SUPPLY

  • Corn output in Argentina is expected to fall by 7% in the year starting March 1ston a year-over-year basis. 
  • Russian grain shipments will slow because of shrinking inventories, according to the USDA.

DEMAND

  • Export demand for American corn is improving.  Export deports near New Orleans boosted premiums this week to the highest level in two months.
  • The UN’s Food and Agriculture Organization has spoken out against the use of corn for ethanol production as it “affects the prices of maize all over the world”.

 

Chicken Wings – BWLD

 

BWLD: The company has guided to ~2% pricing for 2012.  We believe that this will be revised higher.  We also expect guidance for “moderate” inflation to be revised when the company reports 4Q11 earnings.

 

SUPPLY

  • The six-week moving average for egg sets has declined for the past couple of weeks (chart below).  We will be watching this as a leading indicator of supply in the U.S. chicken industry.

DEMAND

  • We expected demand for chicken to be strong in 2012 as restaurants look to offset the elevated beef prices.  This is bullish for wing prices.

WEEKLY COMMODITY CHARTBOOK - egg sets wing price

 

 

Beef – WEN, TXRH, JACK, CMG

 

WEN: The company expects ROP margins to be down roughly 100 basis points year-over-year in 2011.  Beef remains a concern at 20% of spend.  The company purchases fresh beef and does not contract its beef needs.

 

SUPPLY

  • The USDA is releasing its biannual cattle inventory report on Friday.  The report is expected to show shrinkage in the U.S. herd, which is already the smallest since the 1950s.
  • Elevated corn prices are not helping the cattle industry, with many ranchers in Texas seeing their businesses hurt in the past year by elevated feed costs and severe drought.

DEMAND

  • The largest tailwind for U.S. beef demand is Japan reviewing curbs on U.S. beef imports.  Japan was once U.S. beef’s biggest customer.  South Korea is also expected to increase its consumption of U.S. beef.

 

Coffee – SBUX, DNKN, GMCR, PEET, THI, CBOU

 

SBUX: Company reports tomorrow, it will be interesting to hear thoughts on pricing strategy going forward.  We expect some commodity-related pressure to ease as we lap higher coffee costs of 2011.

 

SUPPLY

  • Peru’s coffee crop is expected to fall by 8.8% this year from last year’s record.
  • Brazil is consuming more of its own coffee, which will lead to higher prices in the U.S.

DEMAND

  • Coffee consumption in Brazil, the world’s largest producer, will rise by 3.5% this year, according to a Brazilian roaster’s association known as Abic said today.

 

WEEKLY COMMODITY CHARTBOOK - commod

 

 

CORRELATION TABLE

 

WEEKLY COMMODITY CHARTBOOK - correl table

 

CHARTS

 

Coffee

 

WEEKLY COMMODITY CHARTBOOK - coffee

 

 

Corn

 

WEEKLY COMMODITY CHARTBOOK - corn

 

 

Wheat

 

WEEKLY COMMODITY CHARTBOOK - wheat

 

 

Beef

 

WEEKLY COMMODITY CHARTBOOK - live cattle

 

 

Chicken – Whole Breast

 

WEEKLY COMMODITY CHARTBOOK - chicken

 

 

Chicken Wings

 

WEEKLY COMMODITY CHARTBOOK - chicken wing

 

 

Cheese

 

WEEKLY COMMODITY CHARTBOOK - cheese

 

 

Milk

 

WEEKLY COMMODITY CHARTBOOK - milk

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst


US Dollar: Selling SOTU

POSITION: Selling US Dollar

 

Like all free-market capitalists,  I am driven to win. If I win, I don’t want to allocate a #FairShare of my winnings. If I lose, I want to be held accountable for the losses. Winning and losing in America matters.

 

Our business model is built on transparency, accountability, and trust. When the fundamental research and risk management facts change, I do. Last night’s State of the Union (SOTU) address was not only US Dollar bearish, it ignored the core underpinnings of what’s driven this short-term US Economic recovery altogether – Strong Dollar (the word Dollar wasn’t used once in the speech; a weak Dollar Manufacturing policy was implied).

 

Reflectivity: Strong Dollar = Deflates the Inflation = Strengthens Consumption = Stronger Employment = Stronger Confidence.

 

So why is the US Dollar up today (it was down for a week into the SOTU)? 

  1. Ben Bernanke should be less dovish in his FOMC press conference (no Qe3)
  2. Japan is moving closer to a Sovereign Debt Crisis (bearish YEN/USD)
  3. Greece lives to be socialized another day (bearish EUR/USD) 

In other words, the US Dollar could start going down again tomorrow. My process hasn’t changed - Multi-factor, Multi-Duration – within the framework of a globally interconnected marketplace. That’s what all of this is – that hasn’t changed today either.

 

The policy rhetoric changed last night and so has the US Dollar Index’s price. See the attached chart for TRADE and TREND lines – you’ll note that as of now the USD is bearish TRADE, bullish TREND and there’s nothing that suggests a weak US Dollar policy can’t set us up for an intermediate-term TREND line test of $78.16 support.

 

KM

 

Keith R. McCullough
Chief Executive Officer

 

US Dollar: Selling SOTU - 1


THE HBM: MCD, CMG, EAT

THE HEDGEYE BREAKFAST MONITOR

 

MACRO NOTES

 

Comments from CEO Keith McCullough

 

Contrast the Top 2 US Headlines this morn: 1. "Apple Profit More Than Doubles" vs. 2. "Fair Share" – I don’t get it – markets don’t either:

  1. US DOLLAR – I #SOTU Word Scored the entire speech last night and the US Dollar was not mentioned once. #FairShare had 5 mentions and #Capitalism = 0. Just words, but they matter – Even the NYT and BBC ran #FairShare in their headline this morning. It’s just not good for my Strong Dollar case. Clinton and Regan both rolled w/ Strong Dollar, Strong Consumption (ie 71% of US GDP)
  2. TREASURIES – stocks lost all of their Pre-#SOTU speech Apple momentum and have gone red this morning as UST Bond Yields fall a few beeps and the Yield Curve compresses by 3 basis points d/d. If you had to score the speech on Growth, it didn’t score well either. 10yr UST Yields of 2.03% is the most important Global Macro line in my model right now. If we snap it, I’ll get more defensively positioned.
  3. GLOBAL EQUITIES – at about 6PM last night I thought the futures had it right and Apple was going to bust a move taking the SP500 to a fresh YTD high – no dice. Instead we are looking at what’s called an Outside Reversal from Monday (testing new highs intraday of 1322, failing, and closing at/below prior closing high). Asian, European, and Latin American stocks at risk of doing the same.

 

My bullish Strong Dollar, Strong America tone is changing this morn, because globally interconnected prices have.

 

SUBSECTOR PERFORMANCE

 

THE HBM: MCD, CMG, EAT - subsector fbr

 

 

QUICK SERVICE

 

MCD: A McDonald's restaurant in Dickinson, N.D., is offering $300 signing bonuses for prospective employees. The move comes as North Dakota's unemployment rate hovers around 3.4 percent, the lowest in the nation (NRN.com).

 

CMG: Chipotle is running a promotion on Super Bowl Sunday offering half-off burrito boxes.  The promotion is generating publicity for the company because of the ad itself.

 

THE HBM: MCD, CMG, EAT - cmg promo

 

 

NOTABLE PERFORMANCE ON ACCELERATING VOLUME:

 

TAST: Working diligently on the separation of the two companies

 

DPZ:  On a relative basis it was a good day for DPZ

 

 

CASUAL DINING

 

EAT: Brinker was raised to Buy from Hold at KeyBanc Capital.

 

Other Casual Dining News

 

Del Frisco Restaurant Group LLC filed registration papers for an IPO.

 

Howard Penney

Managing Director

 

Rory Green

Analyst

 


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