Call Today: "A Counterpoint To Herbalife as a Pyramid Scheme"

Call Today: "A Counterpoint To Herbalife as a Pyramid Scheme" - Staples herbalifeB


The Hedgeye Consumer Staples Team, led by Rob Campagnino, will be hosting an expert conference call entitled "A Counterpoint To Herbalife as a Pyramid Scheme" today, February 14th, at 1:00pm EST featuring Professor Anne Coughlan. 




  • Historical context and understanding of multi-level marketing (MLM) and how direct selling looks different than traditional retail
  • Areas in which Ackman and others misrepresent or misunderstand the MLM model
  • Assessment of HLF moving forward




Professor Coughlan is the John L. & Helen Kellogg Professor at the Kellogg School of Management. She joined the faculty in 1985. Coughlan's areas of expertise are distribution channels, direct marketing, international marketing, sales force management and compensation, and pricing. She is the lead author of Marketing Channels (a textbook originally published in 1996 and now in its seventh edition from Prentice Hall). She teaches classes on distribution channel strategies at the MBA level, and quantitative models in marketing at the doctoral level.  


Coughlan was invited by Herbalife to explain multilevel marketing plans at the company's January 10, 2013 Analysts Day. In July 2012 she published a paper titled "Assessing an MLM Business: Herbalife as a Legitimate MLM".


Coughlan was the recipient of the school's Executive Master's Program Teacher of the Year Award for the best elective course in 1996 and again in 2003, as well as receiving the Sidney J. Levy Teaching Award in 2000-01.  She received her Ph.D. in Economics at Stanford University. Prior to her appointment at Kellogg, she was a professor at the business school of the University of Rochester.





Please dial in 5-10 minutes prior to the 1:00pm EST start time using the number provided below, if you have any further questions email .

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 582869#


TODAY’S S&P 500 SET-UP – February 14, 2013

As we look at today's setup for the S&P 500, the range is 16 points or 0.68% downside to 1510 and 0.37% upside to 1526.




*Buy trade and sell trade levels updated as of 02/13/13











  • YIELD CURVE: 1.77 from 1.75
  • VIX  closed at 12.98 1 day percent change of 2.69%

MACRO DATA POINTS (Bloomberg Estimates):

  • G20 finance ministers, central bank governors meet in Moscow for two days
  • 5:30am: U.K. to sell GBP4b 1.25% 2018 bonds
  • 8:30am: Initial Jobless Claims, Feb. 9, est. 360k (prior 366k)
  • 9:45am: Bloomberg Consumer Comfort, Feb. 10, prior -36.3
  • 10am: Freddie Mac mortgage rates
  • 10:30am: EIA natural-gas storage change
  • 10:30am: Fed’s Tarullo testifies before Senate on regulation
  • 11am: U.S. to announce plans for sale of 10Y TIPS
  • 11am: Fed to purchase $4.75b-$5.75b in 2017-2018 sector
  • 12:50pm: Fed’s Bullard speaks in Miss. on economy
  • 1pm: U.S. to sell $16b 30Y bonds


    • 9am: Northrop Grumman briefings on defense programs
    • 9:30am: House Appropriations hears from Undersecretary of State on embassy security
    • 10am: Senate Appropriations Cmte hearing on sequestration
    • 10am: House Select Intelligence Cmte hearing on advanced cyber threats
    • President Obama speaks on economy in Decatur, Ga.
    • Senate Banking Cmte hearing on Dodd-Frank rules
    • Sens. Richard Durbin, D-Ill., Mike Enzi, R-Wyo., Lamar Alexander, R-Tenn., introduce legislation allowing states to collect sales tax from Internet-based retailers


  • AMR, US Airways boards said to approve $11b merger
  • Dell said to plan holder meetings to assess demands for LBO
  • AB InBev to sell U.S. Corona rights to meet deal demands
  • Apple says it will fight Greenlight’s effort to block vote
  • Google sues BT Group unit over 4 patents for network services
  • Buffett’s PacifiCorp denied rehearing of Cal ISO case at FERC
  • Endeavour hires advisers, considers sale of company
  • Time Warner said to talk w/Meredith about magazine deal
  • Total in ‘advanced talks’ to sign China shale exploration accord
  • Newfield to examine alternatives for international properties
  • Bertelsmann said to work w/Lazard on RTL Group share sale
  • Pershing, other funds to report holdings as of Dec. 31


    • Precision Drilling (PD CN) 6am, C$0.08
    • Alliant Energy (LNT) 6am, $0.57
    • Cenovus Energy (CVE CN) 6am, C$0.38
    • Encana (ECA CN) 6am, $0.39
    • Alexion Pharmaceuticals (ALXN) 6:30am, $0.53
    • Regeneron Pharmaceuticals (REGN) 6:30am, $1.37
    • SPX (SPW) 6:30am, $1.56
    • Barrick Gold (ABX CN) 6:46am, $1.05 - Preview
    • PPL (PPL) 6:53am, $0.46
    • General Motors (GM) 6:58am, $0.51 - Preview
    • Incyte (INCY) 7am, $(0.02)
    • Alpha Natural Resources (ANR) 7am, $(0.49)
    • Discovery Communications (DISCA) 7am, $0.76
    • Jarden (JAH) 7am, $1.26
    • PepsiCo (PEP) 7am, $1.05 - Preview
    • RioCan Real Estate Investment Trust (REI-U CN) 7am, C$0.37
    • GNC Holdings (GNC) 7:30am, $0.46
    • NorthStar Realty Finance (NRF) 7:30am, $0.22
    • BorgWarner (BWA) 7:30am, $1.14
    • DIRECTV (DTV) 7:30am, $1.15
    • Molson Coors Brewing Co (TAP) 7:30am, $0.64
    • Waste Management (WM) 7:30am, $0.60
    • Apache (APA) 8am, $2.29
    • Vulcan Materials (VMC) 8am, $(0.09)
    • Realty Income (O) 9:15am, $0.54
    • CI Financial (CIX CN) 12:41pm, C$0.34
    • CBS (CBS) 4:01pm, $0.70
    • DaVita HealthCare Partners (DVA) 4:01pm, $1.58
    • Brocade Communications Systems (BRCD) 4:04pm, $0.16
    • QLIK Technologies (QLIK) 4:05pm, $0.23
    • Agilent Technologies (A) 4:05pm, $0.67
    • Health Management Associates (HMA) 4:05pm, $0.19
    • Fairfax Financial Holdings Ltd (FFH CN) 5:01pm, $8.87
    • Goldcorp (G CN) 5:01pm, $0.55
    • Key Energy Services (KEG) Post-Mkt, $0.08


  • Sugar War Revived as U.S. Senators Back Cuts in Price Supports
  • Cattle Disappearing Amid Drought Signals Beef Rally: Commodities
  • Gold Demand Rose 3.8% in Fourth Quarter, Narrowing Annual Drop
  • Platinum Widens Spread Over Gold as Supply Concern Drives Rally
  • Aluminum Climbs for Third Day Before Report on Jobless Claims
  • Wheat Rebounds From Seven-Month Low as U.S. Exports May Increase
  • Barrick Gold Takes $3 Billion Writedown on Zambia Copper Mine
  • Astra Agro Targets 10% Production Growth This Year, Mahdi Says
  • Soy Spread Surging Amid Wait for Big Harvest: Technical Analysis
  • Indonesian Palm Exports to Slump to Four-Month Low; Futures Drop
  • Gold Fields’ Profit Declines 7.4% After Strikes Cuts Production
  • Desalination Seen Booming at 15% a Year as World Water Dries Up
  • Alpha Quarterly Results Exceed Estimates After Coal Exports Rise
  • ‘No Moo in Mince’ Claim Helps Horse Meat in Food Scandal Twist
  • Gold Council Sees Central Bank Bullion Buying at 48-Year High


















The Hedgeye Macro Team





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 80.46%
  • SHORT SIGNALS 78.35%

New Deal for Anheuser-Busch InBev/Modelo and Constellation Brands

What’s New?

In a press release this morning, Anheuser-Busch InBev, Grupo Modelo and Constellation Brands announced a revised merger agreement that completely divests Grupo Modelo’s interest in the U.S. in perpetuity.  Under the terms of this revised agreement, STZ will acquire (in addition to the Crown JV as originally contemplated) Compania Cervecera de Coahuila, an asset that includes Grupo Modelo’s brewery in Northern Mexico as well as the profit stream associated with the sale of beer to Crown.    The total compensation now moves to approximately $4.75 billion ($2.90 billion for the brewery and $1.85 billion for Crown).

This revised agreement provides for STZ’s complete control over all aspects, including production, of Grupo Modelo’s brands in the United States, effectively establishing STZ as the third largest brewer in the U.S

Almost certainly, this revised agreement was created within the context of the ongoing discussions with the Department of Justice, satisfying most, if not all, of the concerns expressed in the DOJ’s complaint, making regulatory approval extremely likely.

What Does it Mean?


As some background, there are two profit streams associated with the sale of Grupo Modelo’s brands in the United States.

  1. Crown JV - $2.5 billion of revenue, $430 million of EBIT – to be acquired by STZ under original agreement
  2. Compania Cervecera de Coahuila - $310 million of EBITDA derived the manufacturing and licensing of the Modelo brands to the Crown JV

STZ will own the entirety of the profit pool associated with the sale of Grupo Modelo’s brands in the United States.  The quick and dirty math is as follows (2013):

  1. Approximately $660 million of EBITDA generated by the wine and spirits business at STZ
  2. An incremental $450 million of EBIT/EBITDA to be acquired under the terms of the original transaction (likely very little depreciation as there were few assets associated with the deal)
  3. $310 million of EBITDA associated with Compania Cervecera de Coahuila
  4. $1,420 million in total EBITDA at Constellation (roughly and conservatively)
  5. At $40 per STZ share, we conservatively estimate EV/EBITDA at 10.5x – for perspective, TAP trades at 9.4x a 2013 EBITDA number we don’t think that the company will achieve

The Good and the Bad

  1. Positive – deal almost certainly gets done having satisfied the bulk of the concerns expressed by the DOJ
  2. Positive – STZ becomes the 3rd largest brewer in the U.S. with a premium portfolio in the fastest growing segment of the U.S. beer market
  3. Negative – new transaction moves STZ between 5.0 – 5.5x debt to EBITDA
  4. Negative - deal moves from asset light to asset heavy for STZ – there were virtually no assets associated with the original deal.  Under the modified terms, STZ owns a brewery and one that needs to be expanded over time to meet the demands of the Crown JV, to the tune of $400 million in CAPEX over three years



Obviously, today's news justifies our view that the value of the transaction to Anheuser-Busch InBev was so substantial globally that the company was willing to make significant concessions related to the business in the U.S.  With the closing of the deal highly likely now that the transaction has been revised, we believe that STZ should move to the mid-$40's based upon our math.  We suspect that the first print of the day will be close to $41 and that buyers come into what will be a very different Constellation Brands going forward.  We may even get a couple of upgrades from the shops that downgraded the name at $31 last week.




Robert  Campagnino

Managing Director





Matt Hedrick

Senior Analyst

CHART OF THE DAY: Game Plans and Chocolate Choices


CHART OF THE DAY: Game Plans and Chocolate Choices  - Chart of the Day

Game Plans and Chocolate Choices

“All I really need is love, but a little chocolate now and then doesn't hurt!” 

-Charles M. Schulz, Peanuts.


As I set about to find an appropriate theme for the Early Look this morning, I was reminded that it is Valentine’s Day.  Now just how I was reminded of Valentine’s Day is interesting in and of itself; watching the news get interrupted by yet another commercial for Kay Jewelers pitching their seemingly endless collection of heart-shaped charms and sparkling pendants.  Of course TV isn’t the only place I have been inundated with a Valentine’s Day message to exercise consumerism.  All I had to do was to walk into my local pharmacy or discount store where I had to snake my way around displays of candy boxes in every shape, size, and assortment.  Honestly, without these less-than-subtle reminders, Valentine’s Day might sneak up on me unnoticed and Hallmark might miss the sale of one additional card.


A lot of chocolates and gifts are bought for Valentine’s Day.  According to the National Retail Federation, the average male will spend $175.61 this Valentine’s Day on gifts, jewelry, roses, chocolates, dates and more.  Women will spend just less than $89.  It is estimated that more than 58 million pounds of chocolate will be sold in the days leading up to Valentine’s Day. All totaled, it is estimated that $13.19 Billion will be spent. 


Those same commercials that last night reminded me of Valentine’s Day were also omnipresent both before and after Tuesday evening’s State of the Union message.  Thinking about the marketing effectiveness surrounding Valentine’s Day, I wonder if a similarly unavoidable marketing reminder of the rising United States debt, the current Federal deficit, and pending sequestration cuts would drive more timely decision making by the male and female constituents of congress.  I bet they made their respective Valentine’s decisions before today!


From candy and gifts to the State of the Union.

Tuesday evening’s address seemed to me a rambling list of the wonderful things this administration is hoping to set in place during the balance of Obama’s term in office.  And whenever I hear “hope”, I am now conditioned to question the means behind the anticipated “hoped-for” event.  The President spoke of expansive government involvement ranging from building roads and bridges to pre-kindergarten education for four year olds, and from Social Security and Medicare to energy independence.  Very little discourse was aimed at the funding of these proposals.  Like walking into displays of chocolates around Valentine’s Day, does it not make sense to discover which ones are favored by your sweetheart first?  Certainly, buying every option in the store so as not to neglect that one special favorite is less than efficient, if not financially impossible. 


Not knowing what chocolates are favored, would you elect to push off Valentine’s Day a couple months if you could?  Would you kick the can down the road and address the decision later?  What if Valentine’s Day could not be delayed or postponed?  What then of your chocolate choices?


At Hedgeye, we tend to simplify our thinking wherever possible and bring complicated matters down to sporting metaphors where appropriate.  In this case, I think of the Federal budget as the foundation of any game plan for our government.  Pending decisions for our congressional leaders seem too easily kicked down the road.  Congress has failed to pass a Federal budget since 2009!  How should we expect our leaders to make decisions that potentially influence our enemies and allies alike, positively and negatively, without a game plan?  I played for some Hall of Fame coaches in Herb Brooks and Bob Johnson.  Like Keith and Daryl, I also played for the legendary Tim Taylor at Yale.  Whether it was hockey, football, volleyball, softball, tennis, golf, or any other sport, there was always a game plan!


The Federal Debt level is fast approaching $16.5 Trillion.  It is estimated that 2013 will add another $900 Billion-$1 Trillion.  Rienhart and Rogoff will argue that “Countries with debt to GDP ratios above a certain level (90%) tend to experience slower economic growth.”  It certainly appears that the U.S. has reached the point where our debt levels significantly dampen growth.


Of particular interest to me during the State of the Union speech were the President’s plans projecting out a decade and longer.   At Hedgeye we talk about duration and believe projections longer than three years out are highly subject to forecasting error.  Already the US economy is showing anemic growth.  The most recent figures showed a decline of -0.1% in US GDP during the fourth quarter.  The CBO office is projecting 1.4% growth for fiscal 2013.  And projecting 2.6%, 4.1%, and 4.4% in ’14, ’15, and ’16 respectively.  Unfortunately, much of the US expenditure projections are not as flexible or easily manipulated as the revenue and economic growth assumptions.


Just for reference, the average US GDP growth rate over the past ten years was 1.7%.  What is the real plan and how does Congress make it flexible enough to adjust for the game changing and to embrace the unknowns?


And what about the sequester and Congress?  Referring to Congress after the State of the Union speech by President Obama, House Speaker John Boehner stated,  “None of them have ever lived under a sequester.  For that matter, neither have I…This is going to be a little bleak around here when this actually happens and people actually have to make decisions.”    A sobering thought during times when decisions have to be made that will affect the lives and finances of so many.


My Valentine’s wish is for Congress to develop a game plan; one with real metrics, transparent to voters, and offering accountability.


As for chocolate choices, I know yours will be easier than the decisions that face our Congressional leaders.  My Valentine’s Day game plan is simple.  My wife will wake to a card on the counter under a package of Reese’s Cups.  And I am likely to read my card from her as I down a handful of plain M&M’s with my morning coffee.


Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, USD/YEN, UST 10yr Yield, and the SP500 are now $1, $116.98-118.91, $79.71-80.31, 92.78-94.46, 1.96-2.01%, and 1, respectively.


Happy Valentine’s Day!


Bob Brooke

Managing Director


Game Plans and Chocolate Choices  - Chart of the Day


Game Plans and Chocolate Choices  - Virtual Portfolio

Early Look

daily macro intelligence

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