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In-line quarter with a big boost from luck in Singapore




  • LVS's January Macau total market share: 19.7%
  • 3 growth segments in Macau:
    • Transportation/infrastructure
    • Hotel rooms, through Sands Cotai Central 
    • Chinese urban population
  • Asia opportunities: Japan, Korea, Taiwan, and Vietnam
  • 10th straight sequential gain in EBITDA
  • Selling of LVS's mall operations would erase all debt 
  • Sands Bethlehem:
    • Retail mall grand opening will be Feb 15
    • New meeting rooms will be completed by March 1

Q & A

  • MBS
    • 2011 rolling moving average hold was 2.85%
    • 4Q Normalized EBITDA: $45-50MM benefit
    • 4Q Normalized EBITDA margin: middle of 50-55%; mix was not as favorable as previous Qs and the property also had higher bad debt expense.
    • Premium direct is very concentrated which will create volatility but they are still growing
    • Mass: varies from $1.6MM per day to $4.6MM per day; can get to $5MM per day; 
    • FX was 'stable': $1.21-$1.30 Singapore $; doesn't have a significant impact
    • 80% foreigners
    • Talking to government about getting more hotel rooms due to high occupancy rate
    • Receivable: $650MM
      • Reserve: 18%
      • Normal reserve: Approximate 3-7% of win; for Q4, it was 10%. On an annual basis, it was 6%.
  • Macau
    • Venetian Macau high Q4 margin:
      • Margin was not 'out of the ordinary' and 'is sustainable'
      • Still haven't seen much junket movement there
      • Mass/ETGs will continue to dominate performance there
    • Four Seasons Q4 normalized EBITDA for low hold impact: +$7 or 8MM
  • Las Vegas had a "huge December"
  • Still see upward momentum in Macau and Singapore
  • Dividend will cost ~$800MM a year; stock buyback will cost 'many billions of $s'--that kind of money would be better suited for Asian development/investment
  • "We are in a class by ourselves" and therefore deserve a premium multiple
  • No timing for a potential sale of the Grand Canal Shoppes in Venetian Macau.  Many of their tenants are paying % rents. Temptation is not to sell.  If they are going to sell, it they won't do it for at least two years, when and if growth begins to level off.  Look at the opportunity as a "secret savings account."
  • They think that there is more opportunity to better yield manage their table real estate in Macau and so you may see further investment in that area in 2012
  • They have applied to the government for the development of Site 3 for a 4,000 room development with another mass market casino and separate tower for VIP play.
  • Industry underappreciates the growth potential of Sands Cotai Central - they have a Mountain and Polynesian themed casino
  • They believe that the junkets have an incredible opportunity at the Venetian.  Venetian Macau will continue to grow and grow.
  • How profitable is their non-gaming revenue at Singapore?
    • Margins on F&B - 30%
    • Margins on rooms - 83%
  • Costs continue to grow in Macau and Singapore because of inflation but revenues are also growing so they can maintain margins
  • Think that Sands China board would approve the same dividend that they gave last year in their next meeting. The dividend is intended to be a semi-annual steady dividend
  • High hold doesn't depress RC.  So that's not why their RC was low at MBS. 
  • Sites 5 & 6 - what's left under the table cap and where will the tables come from?
    • Will move tables between Mass and VIP and between properties based on demand
    • They can keep moving around their tables
    • Goal is to yield manage their tables between all their properties
  • If and when they do Site 3, they will get more tables
  • Are the junkets in Macau having any collection issues?
    • No issues on their junket or direct business
  • Why is their slot business outperforming?
    • Believe that they have the best people yield managing their floor
    • Having lots of rooms is an incredible advantage for them 
    • Lots of non-gaming amenities to drive traffic
  • Sands Cotai - which pieces are expected to come out of the box faster?
    • All of their VIP rooms are sold out in Sands Central  - so that will ramp up quickly
    • VIP should start faster, Mass will take a little time to ramp
  • How has the slot floor changed over the last 6 months?
    • Radical and consistent changes all the time
  • Singapore Grand Ballroom space is sold out for 2012



  • The strong cash flow, liquidity and financial position of the company have allowed us to declare a recurring annual dividend. The Las Vegas Sands board of directors declared yesterday an annual dividend of $1.00 per common share to be paid quarterly, with the initial payment to be made on March 30, 2012 to shareholders of record on March 20, 2012.
  • Sands Cotai Central, the first phase of which will open approximately eight weeks from today.
  • Marina Bay Sands produced a record $426.9 million of adjusted property EBITDA during the quarter and an EBITDA margin of 52.9%.
  • Vegas: 
    • Table game drop was up 14.9% 
    • 91% of our occupied rooms during the quarter were sold to cash-paying customers, compared to 82% in the fourth quarter of 2010.
    • REVPAR up 13%
  • Cash: $3.9BN ($7.1MM restricted cash)
  • Debt:$10.03BN
    • Total principal payments in 2012 and 2013, which principally relate to our Singapore Credit Facility, are approximately $455.8 million and $530.0 million, respectively.
  • Capex: $420.9MM, including construction and development activities of $308.0MM in Macao, $73.1MM at Marina Bay Sands, $30.1MM in Las Vegas and $9.7MM at Sands Bethlehem.


BYI beats and raises 



"Our recent innovations have resulted in four consecutive quarters of year-over-year revenue and earnings-per-share growth. Numerous of our investments of recent years are now producing good results.”


- Richard M. Haddrill, the Company’s Chief Executive Officer




  • Believe that they eclipsed 20% ship share in the quarter and 20% of Revel's floor
  • Completing their largest iVIEW DM installation at Mohegan Sun
  • Will help one of their customers as they plan the world’s largest slot tournament using their flexible tournament application and iVIEW DM across over 1,000 devices 
  • 531 opening and expansion units rest were replacement units
  • Estimate that NA replacements were up 5% in the quarter YoY industry wide
  • Pro Curve sales exceeded their expectations, which led to higher than expected ASPs and lower margins.  They do not expect similar ASP growth going forward.
  • Continue to expect slight margin improvement in product sales for the rest of the year.  Expect to approach 48-49% margins in the coming quarters.
  • WAP revenue growth in the quarter and Resorts World results exceeded their expectations
  • Higher tax rate was due to a shift in business mix in international jurisdictions
  • The reduction of 25bps of interest rate will save them $1MM per year
  • Leverage below 2x also removes the limit on share buybacks
  • Expect further delays in Italy but there is very little in their FY12 guidance. Close to receiving approval for their systems products for one of their concessionaires but future approvals for other concessionaires could face more delays due to new regulatory requirements that have come up recently. 
  • Gaming operations continues to be a bright spot for BYI
    • Upcoming WAP releases of Grease (Q3) and Michael Jackons (Q4) are on track
  • Seeing good results in Alpha 2 game sales: 2,734 units were sold in NA.  Ship share in new openings continued to increased. 2,197 were replacements.
  • Have had product approval delays in Australia which caused slower rollout in that market than expected.  On the bright side, their operating system got its approval in New South Wales this quarter. 
  • Welcomed Peermont in SA and Valley Forge, PA to their systems family
  • Completed 12 major go lives in the quarter, including first go live in New Zealand
  • This calendar year will be very exciting year for systems - most of the installations will include iVIEW DM
    • Have more than 1600 DM's installed at Mohegan
    • New East coast site is getting ready to open with DM
    • Southern Nevada site going live with DM
  • Seeing positive customer spending momentum across all of their segments
  • Seeking key acquisitions that can benefit from their management expertise 



  • Detail on margin improvement on Pro Curve and new boxes.  Can they really get to high 40's margins?
    • To get to the 48-49% margins, they need more volume and decrease in raw materials
    • Also depends on where they are in the product cycle.  24 months after launch, they reduced the raw materials cost of their Pro Series by 15%.
  • They do have more ROI data on their enterprise bonus applications now that they have had it running at casinos for a while, and it's helping them demonstrate ROI to new customers.
  • New openings in the Q
    • Part of Kansas Speedway
    • Other Kansas property
    • Miami Jai-ALai
    • Shipped portion of Sands Cotai Central units
  • Backlog for Michael Jackson and Grease? Will these be incremental? 
    • The interest so far is very strong - they will not disclose numbers though
    • Pre-launch interest is as high as they have ever seen
    • 700-800 games in 6 months is a very successful run rate typically
    • Given their very small WAP footprint, they don't expect that the cannabalization rate will be very high
  • Just have over 1,000 WAPs
    • IGT has 12k+ and WMS has 3-4k
    • AC Coin, Konami are also in this space
    • So BYI is a very smaller player in this space so there is room to grow
  • Their premium footprint has also been increasing
  • Expect to recognize go live revenues for Sun International and Canada starting this summer and running for several years - so that's not in their FY12' forecast
  • ASP's from the past 2 quarters are more indicative of future ASP's
  • Timeline from IL and Italy?
    • IL - start recognizing revenue in early FY13
    • Italy - start revenue recognition in FY12 but the costs will be higher then revenues as they are carrying a lot of inventory
  • There is not a big difference in domestic vs. international ASPs although more pro curves are sold in NA than international
  • Think that Italy will be slower and a little less profitable to them than they originally thought given all the delays
  • What percentage of game operations is variable vs. fixed? 
    • They are higher weighted towards fixed fees vs. variable since they have a much smaller WAP footprint
    • Saw less seasonal impact in the quarter than usual
    • About 55% fixed, rest variable.  Expect more variable with Grease and Michael Jackson coming online
  • I've never felt better about the business than now - Dick Hadrill
  • Excited about their interactive strategy



  • Repurchased 330k shares in 2Q for $10MM and paid down $19MM of debt
  • Leverage below 2.0x resulted in a 25bps drop in BYI's LIBOR spread on its bank debt
  • Product sales:
    • New units: 3,636
      • International: 25% of total 
    • ASP: $17,201
      • ASP's increased "primarily as a result of product mix, including a heavier sales mix towards Pro Curve during the quarter, and an increase in ASP from international sales."
    • "Gross margin decreased... primarily due to higher costs for the initial production runs of several models of the Pro Series line of cabinets, which were released in late fiscal 2011, and a heavier sales mix towards Pro Curve during the quarter"
  •  Game Ops:
    • Increased due to growth in premium and WAP install base and placements at Resorts World NY
  • Systems increase "due to increases in software and services and maintenance revenues"
    • $18MM of maintenance revenue
    • "Gross margin...primarily as a result of the change in mix of products sold and an increase in maintenance revenues. Specifically, hardware sales were 33 percent of systems revenues, and software and service sales were 33 percent, as compared to 40 percent for hardware and 26 percent for software and services in the same period last year."
  • "SG&A increased... primarily due to increases in payroll, regulatory, and other infrastructure expenses to support key new markets and an increase in bad debt resulting from a general increase in accounts receivable associated with increasing revenues and heavier weighting to international markets. Bad debt as a percentage of revenue remains at approximately 1%."\
  • "R&D increased $1 million primarily due to an increase in payroll."
  • 2012 EPS: $2.25 to $2.45 (raising the bottom end of the range by 5 cents)

M: Has Its Time Come?

I did not like M in 4Q, and I was dead wrong. But the thesis still holds, and we're starting to get indications on the fringes that one of the biggest consensus longs in retail could finally face some intense pressure. 



In hindsight, these Macy's management changes make sense.  Ron Klein, Macy's Chief Stores Officer, and the 4th top executive in the company, is stepping down.  This happened a day after the top management team was paid a cash dividend for a 2-year performance incentive plan. In fairness, it was not an options exercise, or flat-out stock sale. But a dividend that was put to them on a pre-determined date. The verbiage from yesterday's 8k is actually quite clear.


This is however, excellent timing for Mr. Klein. The consensus is looking for a robust 4% top line growth rate at Macy's alongside a peakish 40% gross margin for the next two years. I'll give 'em one or the other, but not both. Our particular concern is the competitive landscape, and the falling dominoes that are being set in motion by JC Penney (and perhaps Sears), as Target, Kohl's, Macy's of the world WILL have a planned response. But their planned response probably does not account for the planned response of others. Welcome to the world of retail.



From Yesterday's 8K

In accordance with the terms of the 2008-2009 stock credit plan, earned performance-based stock credits and time-based stock credits were all subject to two-year and three-year holding periods commencing on January 31, 2010 with their ultimate value to the participants dependent on Macy's stock price. The value of one-half of the stock credits, with dividend equivalents accrued during the holding period, was required to be paid in cash to the senior executives at the conclusion of the two-year holding period (with an automatic payment on or about January 30, 2012). The value of the remaining one-half of the stock credits, with dividend equivalents accrued during the three-year holding period, is required to be paid in cash to the senior executives at the end of the three-year holding period (with an automatic payment on or about February 4, 2013).



The stock credit plan provides that the value of the stock credits is determined on the basis of the average closing price of Macy's common stock as reported on the New York Stock Exchange for the 20 business days preceding a payment date. For the January 30, 2012 payment, this value was $34.25 per share.



The named executive officers received the amounts shown below with respect to the 2008-2009 stock credits for which the two-year holding period ended as of the end of fiscal year 2011. Janet Grove, a named executive officer in the March 30, 2011 proxy statement, retired during fiscal 2011 and is not listed below.



Stock Credit Dividend

Value Equivalent


T. Lundgren $6,357,879.90 $141,850.83

K. Hoguet $1,397,017.43 $31,168.52

T. Cole $1,397,017.43 $31,168.52

R. Klein $1,068,315.73 $23,834.91

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This week’s commodity chartbook shows significant gains in grains and chicken wing prices along with declines in beef, coffee, and chicken breast prices.  Below is some commentary pertaining to select commodities and the companies that have exposure to them.  Further on, we show the latest price charts of select commodities. 






Beef prices impact the prices of most restaurant companies but WEN (20% of food and paper spend), JACK (20% of commodity basket), TXRH, and CMG are especially exposed.  Even companies that do not buy beef on the spot market are expecting significant margin pressure due to beef costs in 2012.  The chart of live cattle prices, in the “charts” section of this post, below, shows just how far prices have run. Grain prices gaining over the past couple of weeks do not bode well for investors hoping for a rapid snap-back.




Last Friday, the biannual cattle inventory report on Friday offered no surprise; short supplies and higher prices look likely over the next few months, at least.  The impact of the 2011 drought is obvious in the numbers: cattle numbers in Texas are down by 11% from a year ago, and numbers in Oklahoma are down by 12%. Cattle and calf numbers in Florida, Mississippi, Nebraska and Wyoming were up by 5%, 6%, 4% and 5% respectively.


One point worth noting is that beef replacement heifers were up by 1% year-over-year.  A replacement heifer is a young, female bovine that is raised for the purpose of replacing and improving the cow herd.  This could suggest that producers in certain areas have begun to react to attractive prices by starting the process of expanding their herds.



Beef shipments strengthened for the week ended January 21st by 1,956 metric tons versus the week prior’s 13,128 as Mexico, Japan, and Canada purchased 5,100 MT, 3,000 MT, and 3,000 MT, respectively.



Chicken Wings – BWLD


Traditional chicken wing prices comprise 20% of sales, from a COGS perspective, for BWLD and we expect that the elevated level of wing prices will pressure EPS and bring estimates lower.  FY12 estimates have not moved materially over the last few months, despite a steep gain in wing prices.  4Q11 estimates have gained, and the stock price has traded well over the last few days.  Our thesis on the stock remains intact; we do not think the strong 4Q results which we and the market, obviously, are anticipating detract from our view.  FY12 estimates need to come down, management guidance and tone needs to be revised from prior discussion on FY12 outlook, and the company still does not have the right to grow (fully capitalized sales to investment ratio of 0.91). 




Egg sets are still down ~5% versus a year ago as the food processor industry continues to search for profit.  At the same time, wing prices continue to move higher.







We believe that the food service industry will continue to focus on chicken to offset the elevated levels of beef prices in 2012. 



Wheat/Corn – WEN, TXRH, CMG, PNRA, DPZ


Grain prices have been climbing for the past two weeks.  Bernanke’s sustaining of dollar-bearish monetary policy does not bode well for investors looking for substantially lower feed costs. 




Wheat is trading higher today as cold temperatures in Europe and Russia may damage the winter crop. 

According to the Congressional Budget Office, improving yields in the U.S. over the next ten years should lead prices lower from current levels.  In the near-term, however, lower yields in Argentina continue to support corn prices.  Adversely dry and hot weather conditions are being blamed for the reduction in the Argentine crop.




Demand for grains should remain strong as demand for proteins, globally, remains strong.  In terms of news flow, the supply side of the grains set up has been garnering more attention over the past week.






























Chicken – Whole Breast





Chicken Wings















Howard Penney

Managing Director


Rory Green



Another solid quarter.



“Ameristar’s fourth quarter financial performance capped off a record-breaking year that was driven by our consistent delivery of a superior guest experience, focus on cost management and effective marketing... Our ability to generate significant free cash flow has allowed us to make substantial debt repayments, increase our quarterly dividend and opportunistically repurchase shares and pursue growth"

- Gordon Kanofsky, Ameristar’s Chief Executive Officer




  • Excluding share repurchases, YoY EPS would have still increased by 6% YoY
  • Continued to implement central best practices across all properties, which clearly helped their results
  • Promotional efficencies and favorable weather helped the quarter
  • There was a one time $5.6MM stock comp impact in the quarter resulting from equity reward modifications that accelerated the recognition of the expense. This impacted EPS by $0.16
  • The only gaming company that continued to pay dividends from 2008-2011 - only missing one quarter during that period 
  • Dividend for 2012 is only 10% of their FCF and therefore a very sustainable level
  • New Kansas City facility will open next quarter and the bridge by their St Charles facility will have some construction - which will lead to a complete bridge closure by November 2012 for about a year and that will negatively impact them. However, there are alternative routes to get to their facility
  • $15-20MM will be a normal maintenance capex run rate per quarter in 2012
  • Will pay down $155-165MM of debt for the year and $xxMM in 1Q12
  • Shares should be about 34MM in 1Q12
  • MA: 25% gaming tax rate, no limit on positions, 3 casinos in 3 regions and a racino with a 40% tax rate
    • ASCA site in Springfield, MA: 27 miles from Hartford and 86 miles from Albany, 74 miles from the closest existing casino
    • Springfield has the largest population in Western MA
    • There are 2.45MM adults within a 50 mile radius with a total household income of $106BN with only 1 future casino within a 50 mile radius. This compares to St Charles which has 1.98MM adults within a 50 mile radius with a total household income of $82.6BN and 6 casinos within a 50 mile radius 
    • Minimum of $500MM spend and $85MM licensing fee


  • Nebraska gaming legislation is very preliminary, they are hopeful that nothing will move forward in the term
  • To maximize their chances in Springfield it doesn't make a lot of sense to pursue a lot of other greenfield opportunities - would rather look at an acquisition. They do look at everything however
  • They are looking at pursuing I-gaming
  • MA will be a substantial facility, enough to compete with the CT facilities although not as large. It will be a full scale facility for them
  • Goal is to be in a position to present a license application to show that they will have no financing contingency for whatever they want to build in MA
  • Seeing decent degree of stabilization across their markets. There are some indicators that point to a recovery but its too soon to tell.
  • Yes the farm economies are doing well
  • Flow-through in 2012 should continue to be strong
  • The bridge won't be completely closed near St Charles - just a partial closure. So they think it will be a short term, manageable impact. They learned how to manage around this sort of thing in East Chicago.
  • Corporate expense increase is mostly due to their development efforts in MA
  • Thinks that their gains in East Chicago are sustainable
  • Gaming tax rate reduction will be a topic of discussion in Colorado this year
  • They are pushing maximum margins at their properties until revenues increase
  • 4Q tax rate:
    • Costs that were built into the stock buyback that weren't deductible and hit them in the 4Q
  • CZR's is still a formidable competitor and not asleep at the switch, but the competitive environment has remained stable and rational
  • Cline Avenue Bridge- replacement talks are going on behind close doors. Its been radio silent over the last 60 days. Plan is for the state to turn over the bridge to the city and for the city to enter into an agreement with a private contractor using tolls to pay for the repair.
  • One of their core goals is to strive for continuous improvement.   



  • "Council Bluffs... benefited from market share growth and overall market strength."
  • "East Chicago had a 2.6% year-over-year decline in net revenues that was mostly attributable to a new competitor in Des Plaines, Illinois, partially offset by market share growth in the more immediate Northwest Indiana market."
  • "Notably, Jackpot and Black Hawk delivered Adjusted EBITDA margin improvements of 8.4 percentage points and 5.3 percentage points, respectively."
  • Balance sheet info:
    • $257MM of borrowing capacity under the R/C
    • Total Net Leverage Ratio: 5.04x vs. a 7.0x covenant
    • Senior Secured Net Leverage: 2.53x vs. a 4.5x covenant
    • Interest Expense Coverage: 2.62x vs. a 2.0x covenant
  • 4Q Capex: $36.5MM, "included a $9.3 million settlement payment to the general contractor for our St. Charles hotel construction project completed in 2008."
  • In 4Q, ASCA repurchased 200k shares for $2.4MM
  • 1Q12 outlook: 
    • D&A: $26.5MM to $27.5MM
    • Interest expense (net of capitalized interest): $26.5MM to 27.5MM (including $1.4MM of non-cash interest)
    • Tax rate: 43-44%
    • Stock comp: $4.5MM to $5.0MM
    • Capex: $31MM to $36MM (including $16MM MA land purchase)
    • Corporate expense (ex stock comp): $12.5MM to $13MM
  • 2012 outlook: 
    • D&A: $105MM to $110MM
    • Interest expense (net of capitalized interest): $103.5MM to $108.5MM (including $5.5MM of non-cash interest)
    • Tax rate: 43-44%
    • Stock comp: $14.8MM to $15.8MM
    • Capex: $85MM to $90MM (including $16MM MA land purchase)
    • Corporate expense (ex stock comp): $52MM to $53MM

Short Selling Opportunity: SP500 Levels, Refreshed

POSITION: Long Energy (XLE), Short SP500 (SPY)


So, the HedgeyEconomics model says that as inflation expectations (prices) accelerate, growth slows sequentially. That’s the fundamental reason why I am shorting the SP500 (SPY) today. I think most late January and early February growth data slows.


On the other side of that, I’m long Bernanke’s Policy To Inflate (Energy –XLE). Not good for the country (real-growth), but it’s good for our P&L’s while it lasts. Perverse, but true.


Across all 3 durations in my risk management model, the quantitative view supports this Short Selling Opportunity:

  1. Immediate-term TRADE overbought = 1327
  2. Immediate-term TRADE support = 1317
  3. Long-term TAIL support = 1267

So, theoretically, I’m in this short position for at least 10 SP500 points. But the beauty of embracing uncertainty is that I can, at any time, throw the theoretical out the window. If 1317 breaks, then it’s a long way to 1267.


Right here, right now, this is the high probability move in my model, so I’m making it for the 1sttime in 2012.




Keith R. McCullough

Chief Executive Office



Short Selling Opportunity: SP500 Levels, Refreshed - SPX.02.01.12

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