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PM – Hard to Poke Holes in the Quarter

PM put up a solid print yesterday - here's what we liked



Constant currency organic revenue growth accelerated to 6.8% in the quarter versus a reasonably difficulty comparison (+8.2%) in the year ago.  Even better, we saw that top line strength leveraged into +12.3% currency-neutral operating income growth, an enviable result versus the balance of the consumer staples names that have reported thus far.  The company exceeded our volume estimate, posting volume growth of 2.7%, with strength in the Eastern Europe, Middle East and Africa region (+7.1%), as well as the Asia region (+5.7%)  – meaningful reacceleration of the volume momentum in both regions.



EPS exceed consensus by $0.02 in the quarter, but guided below consensus (range of $5.68 to $5.78) versus consensus of $5.79 (we are at $5.71, but still see some risk to that number as the yen continues its downward spiral.



We need to see consensus move down closer to our estimate (it should) given the company’s commentary yesterday in order for us to get more constructive on the name.  We prefer to have a positive bias on names with a clear path to EPS upside (CAG, for example).



Having said that, PM’s results in the quarter shame a number of other large cap staples names whose multiples exceed that of PM (in some cases by a 1 or 2 P/E turns).  If only PM shipped diapers instead of cigarettes…

 

Call with questions,

 

Rob

 


Robert  Campagnino

Managing Director

HEDGEYE RISK MANAGEMENT, LLC

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P:



Matthew Hedrick

Senior Analyst



Oh Snap

“I hated every minute of training, but I said, ‘Don’t quit. Suffer now and live the rest of your life as a champion.’”

-Muhammad Ali

 

Winning is never easy.  It requires early mornings and working hard.  That is true regardless of what your field of competition.  It may be producing research, it may be investing, it may be athletics, and so on.

 

Last night I joined the men of Ivy League Football for a few cocktails post the dinner they hold every two years.  Now I’m going to admit it, I definitely would have preferred to continue to sleep in this morning (so, yes, perhaps I had too many cocktails), but the only type of winning I understand is that which requires getting up and grinding. So here I am.

 

As usual when I get up, I’m greeted by a few emails from my colleague Keith McCullough regarding the global macro news and data flow.  The most notable one this morning related to the Stoxx 50, which is the “blue chip” index for Europe. (Think Dow Jones with a few more names.)  His email simply stated, “The Stoxx 50 snapped.”

 

For those of you that have been subscribers for awhile, you know that the price of securities and indices in our model are critical to determining future outlook.  When something snaps, that is not a good thing for those investors that are long of that market.  So, yes, as it relates to Europe, oh snap indeed.

 

Should any of us be surprised that the blue chip European index has snapped this week? Well, not really given that the European Union leaders were all convening in Brussels and that T.V. cameras were omnipresent.  In fact, according to the news releases this morning, they actually pulled an all-nighter last night.  I was out late with the boys from the grid iron, but I certainly didn’t pull an all-nighter, so kudos to them.

 

That said, the fundamental problem with politicians getting too much air time is that it is usually not great for equity returns.  Or, really, any asset price returns.  The funny thing about policy and policy makers is that they actually do influence markets and sometimes to a greater degree than they realize.  The perfect recent example of this phenomenon is the Japanese Finance Minister, Taro Aso.

 

Mr. Aso has been quite explicit since coming into office that he believes Japan needs to devalue and create inflation.  That is obviously all fine and good, until the market corrects more than said policy maker hopes.  As it relates to Mr. Aso and the Yen, it seems that has happened this morning.  According to this Aso:

 

“It seems that the government's policies have fueled expectations and the yen weakened more than we intended in the move to around 90 from 78.”

 

Markets are funny critters, aren’t they? They often do more than we expect.  (And sometimes less for that matter.)

 

This morning, there is a fair amount of pin action. As Keith also highlighted this morning:

 

“Plenty of cracks in my country level TRADE and TREND signals (Equities) now – tops are processes, not pts:

 

1.   FX WAR – Draghi is now trying to do precisely the opposite of what helped Germany recover, jawbone the Euro back down; overlay the slope of German economic recovery w/ the Euro in the last 3 months and you will see the pt western academics don’t get – currency has a POSITIVE correlation to growth expectations.


2.   INDIA – India’s Sensex joins the KOSPI (and Italy, France, Spain, Brazil) as the latest Equity market to snap my immediate-term TRADE line of 19,839 support. In isolation, I wouldn’t bother w/ a signal like this – but when the big country indices start to pile up, I move. Took down our Global Equity asset allocation yesterday.

 

3.   10YR  - the long bond looks almost identical to the VIX on price/volume/volatility factors – both signaled their first higher-lows of the yr in the last 48hrs. The upside down of that now makes last week’s closing high for the 10yr of 2.01% immediate-term TRADE resistance. Brent Oil > $115 is a headwind to global growth. Period.”

 

Incidentally, if you are not on the Direct from KM email list, ping and let them know you want to be upgraded.

 

As for the points above, the most noteworthy callout from my seat is that the Indian equity market has also snapped.  When equity indices start to snap, it is time to reduce equity exposure. 

 

Despite some of these major indices snapping, not all is negative this morning.  In fact, China reported some solid economic data.  Specifically, Chinese trade data for January  beat expectations as exports rose +25% versus estimates of +17.5% and imports were up +28.8% versus estimates of +23.5%.  Those are darn good numbers, even if it is the year of the snake!

 

I’m going to cut it a little short this morning as I’m sure many of you are busy prepping for the snow storm.  As always, let us know if you need help with anything.

 

Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, EUR/USD, USD/YEN, UST 10yr Yield, and the SP500 are now $1, $115.78-118.03, $79.79-80.29, $1.33-1.35, 92.20-94.29, 1.92-2.01%, and 1, respectively.

 

Keep your head up and stick on the ice,

 

Daryl G. Jones

Director of Research

 

Oh Snap - Chart of the Day

 

Oh Snap - Virtual Portfolio


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THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – February 8, 2013


As we look at today's setup for the S&P 500, the range is 24 points or 1.15% downside to 1492 and 0.44% upside to 1516. 

                                                                                                                              

SECTOR AND GLOBAL PERFORMANCE


THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

THE HEDGEYE DAILY OUTLOOK - 3

 

THE HEDGEYE DAILY OUTLOOK - 4

 

EQUITY SENTIMENT:


THE HEDGEYE DAILY OUTLOOK - 10


CREDIT/ECONOMIC MARKET LOOK:

  • YIELD CURVE: 1.69 from 1.71
  • VIX  closed at 13.5 1 day percent change of 0.67%

MACRO DATA POINTS (Bloomberg Estimates):

  • 6am: ECB announces 3-yr LTRO repayment
  • 8:30am: Trade Balance, Dec., est. -$46b (prior -$48.7b)
  • 10am: Wholesale Inventories, Dec., est. 0.4%  (prior 0.6%)
  • 11am: Fed to purchase $1b-$1.5b debt in 2017-2042 sector
  • 1pm: Baker Hughes rig count

GOVERNMENT:

    • Defense Dept. has ordered Army, Navy, Air Force, Marines to submit specific spending cuts they’ll make if across-the-board reductions take effect on March 1 under sequestration
    • CFTC holds closed meeting on surveillance matters. 10am
    • House Fin Svc Cmte holds hearing on FHA actuarial report, w/ Commissioner Carol Galante, 10am
    • Oral arguments at U.S. Court of Appeals for the Federal Circuit in Washington in CLS Bank Intl case that may clarify rules for when software is eligible for patent protection, 10am

WHAT TO WATCH

  • Trade deficit in U.S. probably narrowed as exports climbed
  • EU leaders prepare for budget cuts in bow to Cameron’s demand for thrift
  • China’s exports and imports rose more than estiamted in Jan.
  • German exports climbed in Dec. to propel year to record $1.5t
  • Charter to buy Cablevision’s Optimum West for $1.63b
  • S&P may face lawsuits by more states, Connecticut’s Jepsen says
  • Peugeot takes $5.5b writedown as sagging auto market saps assets
  • Boeing seen forced to alter 787 battery after U.S. NTSB findings
  • McDonald’s Jan. global comp sales may fall 1.1%
  • Warner Music agrees to buy Coldplay label for $764m
  • N.Y,, New England prepare for blizzard; 2,000 flights canceled
  • State of the Union, G-20, Cisco, Grammys: Wk Ahead Feb. 9-16

EARNINGS:

    • Soufun (SFUN) 5:45am, $0.56
    • Carlisle (CSL) 6am, $0.78
    • Corporate Office Properties Trust (OFC) 6am, $0.48
    • Sirona Dental Systems (SIRO) 6:30am, $0.84
    • Laboratory of America Holdings (LH) 6:45am, $1.62
    • AOL (AOL) 7am, $0.53
    • Apollo Global Management (APO) 7am, $0.93
    • Buckeye Partners (BPL) 7am, $0.82
    • Entergy (ETR) 7am, $1.71
    • Moody’s (MCO) 7am, $0.71
    • CBOE Holdings (CBOE) 7:30am, $0.42
    • Louisiana-Pacific (LPX) 8am, $0.21
    • American Axle (AXL) 8am, $0.06
    • Beacon Roofing (BECN) 8am, $0.40
    • Brookfield Infrastructure (BIP) 8am, $0.32
    • TC Pipelines (TCP) 8am, $0.63
    • IGM Financial (IGM CN) 9:39am, C$0.73
    • Emera (EMA CN) 10:20am, C$0.41
    • Cameco (CCO CN) Post-Mkt, C$0.41

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Arabica Coffee Premium Over Robusta Falls to Lowest Since 2009
  • Wheat Slump Seen Extending on Growth in Stockpiles: Commodities
  • Diesel Slumps in Europe as Output Capacity Soars: Energy Markets
  • Platinum Trades Near 16-Month High as Rally May Spur Selling
  • Brent Crude Advances to Nine-Month High, Boosts Premium to WTI
  • Copper Rises as Chinese Trade Tops Estimates and Car Sales Jump
  • Robusta Coffee Climbs to Four-Month High on Vietnam; Sugar Gains
  • Soybeans Head for Fifth Weekly Gain as U.S. Exports Cut Supplies
  • Brazil Prepares to Surprise Drillers This Time With Gas: Energy
  • TransCanada Says East Route Eases Oil Discount: Corporate Canada
  • Deutsche Bank Said to Fire 10 Traders as Banks Retrench
  • Chocolatier Petra Seen Targeted in Asia’s Deal Spree: Real M&A
  • Rebar Rises for Fourth Week as China’s Exports Beat Forecasts
  • Oil May Fall as Technical Tools Signal Pullback, Survey Shows

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - 6

 

EUROPEAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 7

 

ASIAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 8

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 9

 

 

The Hedgeye Macro Team

 

 

 

 



THE M3: CNY BOOKINGS; MGM: JUNKET REGULATION; SANDS CHINA PAY RAISE; MGM/BORGATA; SOLAIRE MANILA

The Macau Metro Monitor, February 8, 2013

 

 

MACAU FULLY-BOOKED Macau Daily Times, Macau Business

Gamblers booked into Macau resorts over the Lunar New Year can already count themselves lucky as accommodations are sold out, boosting revenue for operators.  Seventeen major casino hotels in the world’s biggest gambling hub were fully-booked for Feb. 12-14 for the weeklong Chinese holiday that begins on Feb. 10.  "Demand for hotel rooms is exceptionally strong with 100% occupancy," said Yoko Ku, a spokeswoman at Galaxy Entertainment. 

 

Total visitor arrivals from February 5 to February 7 reached over 316,000, up by 6.2% compared with the same period last year, according to the Tourist Office. Close to 246,000 of those visitors came from the mainland, an increase of 13%.

 

Last year during the Lunar New Year holidays, a five-star hotel room cost, on average, MOP2,400 (US$300) per night. This year, data submitted by the industry to the Tourist Office shows that the average room rate from February 11 to February 14 will stand at above MOP2,700.

 

STRICTER JUNKET RULES BRING NO HARM TO CASINOS: MGM CEO Macau Business

MGM China CEO Grant Bowie says that stricter regulation on junket operators, as announced by the government earlier this week, would not have any impact on VIP gaming revenue.  On the contrary, Bowie says it will ensure gamblers’ safety.

 

Commenting on the report by The Times that Beijing planned to crack down on triad-linked junket operators in the mainland, Bowie said he believed that Macau’s gaming industry would continue to get all the necessary support from the central and local governments.

 

SANDS CHINA ANNOUNCES PAY RISE Macau Business

Sands China announced it would increase the salaries of its employees by 5% starting next month. Additionally, the company said it is paying a bonus on February 14 to its staff, as a result of the company’s strong financial performance in 2012.  The gaming operator has over 25,000 employees.

 

NEW JERSEY AGENCY TO REVIEW FINDING AGAINST MGM WSJ

New Jersey regulators are set to reconsider a decision that had forced MGM to put its stake in an Atlantic City casino up for sale.  MGM planned Thursday to make a formal application for regulators to reconsider the Borgata investment.  The company planned to argue that the arrangement with Ms. Ho should be less troubling to regulators now because her influence and the size of her stake in the Macau business has decreased since the earlier investigation.


MGM is applying for licenses to build casinos in Maryland and Massachusetts and would like to remove a stain from its record ahead of those proceedings.  It also would like to retain its stake in the Borgata.

 

FIRST MANILA BAY CASINO TO OPEN NEXT MONTH Macau Business

Boasting 500 hotel rooms, the US$1.2-billion (MOP9.6 billion) Solaire Manila Resorts will open its doors on March 16.  Solaire plans to add 300 more hotel rooms after two years, said Bloomberry, a listed firm controlled by Philippine port tycoon Enrique Razon.


 



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