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Korea's KOSPI Index Moves Lower

Korea's KOSPI Index has taken a beating over the last month, falling from a notch above 2000 in late March to 1900 this morning with a -1.2% move overnight. The index is down -5.0% year-to-date as plenty of external factors weigh on the index. Japan's monetary policy that has devalued the Yen considerably has played a significant role as well as the breakdown of US tech companies/stocks with Apple (AAPL) falling below $400 a share yesterday. All these interconnected factors will continue to weigh on the Korean index in addition to the war cries of North Korea.

 

Korea's KOSPI Index Moves Lower - KOSPIindex


SAB Miller – TAP Implications from Trading Update

SABMiller provided an update on its full-year trading for the 12 months ending March 31st this morning.  We won’t focus on the broader results, but wanted to highlight the company’s commentary with respect to the MillerCoors JV.

 

 Shipments to retailers declined 3.3% in the quarter to March (TAP’s first quarter) with shipments to wholesalers declining 2.5%.  The company commented on “weaker industry performance” which is wholly consistent with our view on a weaker February and March, with weather being a contributing factor.  However, recall that our view is that the U.S. domestic industry will likely see down volume in the 2-3% range in 2013 as we lap a relatively strong 2012 and the economy remains broadly lackluster.

 

The weakness was across segments, with the following commentary:

 

“Premium light STRs were down mid single digits in the quarter, with a low single digit decline in Coors Light and a high single digit decline in Miller Lite. The premium regular and economy segments both declined by mid single digits. The Tenth and Blake division saw high single digit growth, driven by Blue Moon and supported by the national expansion of Batch 19. The above premium segment saw double digit growth following the national launch of Redd’s Apple Ale and Third Shift Amber Lager”

 

We remain below consensus for Q1 on TAP, as well as the full-year and it remains one of least preferred names in consumer staples.

 

Rob

 

Robert  Campagnino

Managing Director

HEDGEYE RISK MANAGEMENT, LLC

E:

P:

 

Matt Hedrick

Senior Analyst


PM: Battling The Dollar

Philip Morris International (PM) reported weak first quarter earnings for 2013. One of the major headwinds the company is up against is a stronger US dollar. In the chart below, we've highlighted periods of dollar strength and weakness and how it is inversely correlated with strength and weakness in the share price of PM. When the dollar is weak, PM's share price tends to rise and vice versa. The outlook for Philip Morris is not a positive one on our end and we believe the company will have a rough time meeting earnings per share (EPS) estimates going forward.

 

PM: Battling The Dollar - PM dollar


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Morning Reads From Our Sector Heads

Keith McCullough (CEO):

 

Najib Warns Anwar Malaysia Election Win Spells Disaster (via Bloomberg)

 

Facing Arrest, Musharraf Flees Courtroom in Pakistan (via New York Times)

 

Josh Steiner (Financials):

 

Rising Bank Profits Tempt a Push for Tougher Rules (via NYT Dealbook)

 

Fed’s Rosengren: Broker-Dealers Are Potential Threat to Stability (via WSJ MoneyBeat)

 

Hedgie Playing Hooky (via NY Post)

 

Kevin Kaiser (Energy):

 

CLB Q1 2013: DEEPWATER DRIVES MOST PROFITABLE QUARTER EVER (via Corelab)

 

Matthew Hedrick (Europe):

 

Senate Blocks Drive for Gun Control (via New York Times)

 

Brian McGough (Retail):

 

Apparel Makers Face Profit Squeeze as Prices Drop and Labor Costs Rise (via Sourcing Journal Online)

 

Howard Penney (Restaurants):

 

Traders Eat Up Restaurant Stocks on Growth Bet: EcoPulse (via Bloomberg)

 

 



 




PM – Currency can be a Bear

PM is on the tape with Q1 2013 EPS of $1.29, a shortfall of $0.05 versus consensus – however, currency was a $0.07 headwind in the quarter.  Currency is now forecasted to be a $0.19 headwind for the year (versus $0.06 prior) resulting in a $0.13 downward adjustment to EPS at both the top and bottom end (now $5.55 to $5.65).  Underlying guidance remains unchanged.



PM posted a volume decline of 6.5% (against the toughest comparison of the year, +5.4%).  Volume was weaker than consensus in multiple regions – European Union (-10.1% reported versus -6.7%), Asia (-10.4% reported versus -5.4%) and Latin America and Canada (-7.5% reported versus -1.0%).  However, again, Q1 was the most difficult comparison of the year in each of those regions.  Despite the volume shortfall versus consensus, reported revenue (net of excise taxes) of $7.584 billion came in slightly better than consensus, against a very difficult comparison.  Constant currency organic revenue growth was +3.2% despite the volume print, indicating to us that the pricing architecture for 2013 is in place and intact.



Operating income declined year over year (-0.6%), currency neutral EBIT +2.9%, so the company saw negative operating leverage for the first quarter since Q4 2011 – not surprising given the volume print in the quarter.

 

What we liked:

  • Preservation of underlying operating guidance
  • Solid pricing architecture in place for 2013
  • Respectable constant currency organic revenue growth of +3.2% against a difficult comparison
  • Comparisons ease substantially through the balance of 2013

What we didn’t like:

  • EPS miss and reduction of guidance (even if for no reason other than currency)
  • Volume weakness across multiple regions versus consensus (and even versus our more bearish estimates)
  • Lack of operating leverage (first time since Q4 2011)
  • Awful FCF generation in the quarter (-32.8%, and -17.1% adjusting for currency)

It’s tough for us to be positive on a stock when EPS estimates are heading lower (regardless of the reason) and when we couple that with a firm view of continued strength in the U.S. dollar, we have a hard time getting behind PM at this point despite what we readily acknowledge as strength in the underlying business model.

 

Call with questions,

 

Rob

 

PM – Currency can be a Bear - rr. 1

 

PM – Currency can be a Bear - rr. 2

 

 

Robert Campagnino

 

Managing Director

 

HEDGEYE RISK MANAGEMENT, LLC

 

E:

 

P:

 

 

 

Matt Hedrick

Senior Analyst 

 

 


INITIAL CLAIMS: A GROWING DIVERGENCE BETWEEN PERCEPTION & REALITY

Takeaway: So far, this year is following in the footsteps of the prior three years on both a seasonally and non-seasonally adjusted basis.

Back on Track

We realize there are a lot of charts in this note, so in the interest of everyone's time we'll direct you to the two that we consider most important: the first and second.

 

The first chart shows the illusion. You can see from the bottom right series that seasonally-adjusted initial jobless claims are beginning their steady rise that will continue through August, just as they have in the prior three years. In fact, the slope of the line is steeper than what we've seen in the last three years - a negative sign. As a reminder, we think this dynamic is one of the primary contributors to the recurrent pattern we've seen in the XLF over the last three years. For more on that see our note yesterday "Beware the Ides of April?".

 

The second chart shows the reality. The reality is that non-seasonally adjusted claims are 4.0% lower than last year, which is right in-line with the trend line of improvement we've been seeing since the recovery began in early-2009. You can see that the slope of the 2013 YTD change is nearly identical with what we saw in 2012.

 

The takeaway from this is that the market still focuses on the first chart when it should be focusing on the second chart. While we recommend battening down the hatches for the immediate term, we would view weakness as a buying opportunity so long as the second chart remains on track. 

 

The Numbers

Prior to revision, initial jobless claims rose 6k to 352k from 346k WoW, as the prior week's number was revised up by 2k to 348k.

 

The headline (unrevised) number shows claims were higher by 4k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 2.75k WoW to 361.75k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -4.0% lower YoY, which is roughly flat with the previous week's YoY change of -4.4%.

 

INITIAL CLAIMS: A GROWING DIVERGENCE BETWEEN PERCEPTION & REALITY - 1

 

INITIAL CLAIMS: A GROWING DIVERGENCE BETWEEN PERCEPTION & REALITY - 2

 

INITIAL CLAIMS: A GROWING DIVERGENCE BETWEEN PERCEPTION & REALITY - 3

 

INITIAL CLAIMS: A GROWING DIVERGENCE BETWEEN PERCEPTION & REALITY - 4

 

INITIAL CLAIMS: A GROWING DIVERGENCE BETWEEN PERCEPTION & REALITY - 5

 

INITIAL CLAIMS: A GROWING DIVERGENCE BETWEEN PERCEPTION & REALITY - 6

 

INITIAL CLAIMS: A GROWING DIVERGENCE BETWEEN PERCEPTION & REALITY - 7

 

INITIAL CLAIMS: A GROWING DIVERGENCE BETWEEN PERCEPTION & REALITY - 8

 

INITIAL CLAIMS: A GROWING DIVERGENCE BETWEEN PERCEPTION & REALITY - 9

 

INITIAL CLAIMS: A GROWING DIVERGENCE BETWEEN PERCEPTION & REALITY - 10

 

INITIAL CLAIMS: A GROWING DIVERGENCE BETWEEN PERCEPTION & REALITY - 11

 

INITIAL CLAIMS: A GROWING DIVERGENCE BETWEEN PERCEPTION & REALITY - 12

 

INITIAL CLAIMS: A GROWING DIVERGENCE BETWEEN PERCEPTION & REALITY - 13

 

INITIAL CLAIMS: A GROWING DIVERGENCE BETWEEN PERCEPTION & REALITY - 14

 

Yield Spreads

The 2-10 spread fell -10.6 basis points WoW to 147 bps. 2Q13TD, the 2-10 spread is averaging 153 bps, which is lower by -14 bps relative to 1Q13.

 

INITIAL CLAIMS: A GROWING DIVERGENCE BETWEEN PERCEPTION & REALITY - 15

 

INITIAL CLAIMS: A GROWING DIVERGENCE BETWEEN PERCEPTION & REALITY - 16

 

 

Joshua Steiner, CFA


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 80.30%
  • SHORT SIGNALS 78.51%
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