Our Financial sector head, Josh Steiner, highlighted today some interesting comments from the American Express conference call that could negatively impact the outlook for some of the high-end restaurant companies that rely on corporate T&E for a significant part of their business.


Lower corporate spending and travel is a net negative for casual dining in general, but some of the specific companies that are levered to corporate T&E are: DFRG, RUTH and the Capital Grill which is owned by DRI.


Excerpts from the transcript:


Dan Henry, CFO: Each of the business segments is consistent with the fourth quarter of 2012, except for GCS, which is Global Corporate Services, that's the green line, and you can see here that the growth rate for that segment has moved down slightly, as T&E spending grew at a slower rate than total billings growth rate in the quarter.


Question: And finally as a follow up, can you give a little bit more color on what drove some of the weakness in GCS billed business?


Answer (CFO): So let me talk to GCS, so Corporate Services. So really across the board, we've seen lower spending in T&E categories.  And we're seeing better strength outside of the T&E categories. Corporate Services is primarily T&E type of spending, and so that's where you seeing it come down. And it's relatively broad geographically, so I think it's just lower T&E type of spending is what's causing them to be lower, and that actually ties into travel commissions and fees. So if T&E spending is lower, then that line is going to be impacted. Worldwide sales were down 3%; that's the main driver. Now travel – business travel, was down 4%, consumer was actually up 2%, but business travel is much larger than consumer travel, and so that's what's yielding the lower sales. So it's the activity in this particular category. 



Howard Penney

Managing Director


Rory Green

Senior Analyst


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.




Robert  Campagnino

Managing Director





Matt Hedrick

Senior Analyst

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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

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):




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,




PM – Currency can be a Bear - rr. 1


PM – Currency can be a Bear - rr. 2



Robert Campagnino


Managing Director










Matt Hedrick

Senior Analyst