In preparation for IGT's F2Q 2013 earnings release tomorrow, we’ve put together the recent pertinent forward looking company commentary.




  • "On the gaming ops side… the biggest driver of gaming ops yield for us is improvement in gross gaming revenue, which we haven't had a lot of good news in that area lately… We're going to float very closely to gross gaming revenues. We are over-indexed in Nevada and in Native American, because that's where our wide area progressive concentration is and that is the highest yielding product for us…  We're expecting a bit of a lift up in our yield, I think, on a going forward basis, expect to see kind of flat yields year-over-year when you think about it on an annual basis."
  • "What we're really focused on as a company is looking at the gaming operations assets and making sure we're generating the maximum amount of cash from those assets that we can generate for shareholders."
  • "I think we're in steady state actually right now. When we look out over the next couple of years, we think that the game ops capital is kind of at a fixed number for us in our planning.  The real money wagering part of the business… we feel very good about that business.  Last week, we launched in Mexico. There's only two online gaming license that were granted in Mexico. We also launched in British Columbia, ten days ago, with our real-money wagering. Feel very good about how that is going early."
  • [DoubleDown] "We see daily active and monthly active users above our expectations, the projections that we had for the company when we acquired it, the revenue per daily user, the churn rates, the conversion rates, everything that we looked at in the business…  I think the most important thing that we expected is when we acquired DoubleDown they were running at about $0.18 a day in revenue per user. They're now at $0.31 per day. We've launched four of our traditional titles that you would see in casinos and those games outperform anything else in the slot content world. So we feel very good about it, top to bottom. We feel good about the margins. We feel good about the track we're on to make it GAAP accretive in 2014 and we're still committed to that." 
  • "I would say the couple of areas that we feel stress in the business that capital could solve, one is in the talent area. As you move into social gaming and online gaming, the whole war for talent really heats up in that area, particularly on the mobile front. And it's not unusual to do kind of an acqui-hire, where you go and you buy the studio as opposed to hiring people one at a time. So we always have our eyes open for those things."
  • "We have $600 million left on our authorization for repurchasing shares. We have that kind of a window of two to four years, depending upon the valuation of the stock."
  • [WMS Deal] "So I would say that we haven't seen a lot of movement yet. I do think that it will create more rational pricing in the marketplace than what we have been experiencing for the last year, which, I think, is a good thing. There are a lot of laws in the VLT market around your ability to be both the machine and the system supplier and so those areas where Sci Games is the system supplier they're going to have some issues there with their ability to provide boxes, which we think is a good situation for us, where we have an opportunity to take market share."


  • "Our consolidated average sales price was down, but this was largely a reflection of the higher mix of video lottery terminal sales and a lower percentage of multi-layer display units sold."
  • "We expect to leverage our strong revenue growth this year into even higher operating income and earnings per share growth through responsible cost controls and increasingly efficient research and development expenditures, which can now be leveraged to benefit both our land based and online products alike."
  • "We expect to resume normal open market repurchases during the remainder of 2013."
  • "The domestic replacement market is kind of continuing to bump along… we would say cautiously optimistic with overall replacement, but increasingly optimistic with our opportunity to take more than our fair share of what comes in the market."
  • "On the margin side, the uptick in Product Sales margin was really attributable to non-box, in particular intellectual property contributions in the quarter. So we would expect margins to be more comparable to prior year excluding that one-time effect."

Is PG the Canary in the Staples Coal Mine?

PG reported Q3 EPS this morning, beating consensus by $0.03 per share, largely on the strength of cost savings.  However, Q4 guidance was below the Street, which is odd as the company essentially maintained (took up the low end by $0.02) its full-year view (updated for Venezuela on 2/21).   There seems to be some bad sell-side math involved, but regardless, the market isn’t treating the stock all that kindly today after what has been a very good recent run.   At 14% of the XLP, PG’s weakness is dragging the broader staples sector lower, displaying significant underperformance relative to the broader market.

Some folks we have spoken with have called PG the canary in the coal mine with respect to the staples rally, but we aren’t quite there yet.  While PG’s results were “meh”, we don’t think they are sufficient to derail what have been the primary drivers of the strong performance of the staples group – yield, low volatility, as well as expectations that the group is poised for top-line improvement and margin expansion.

However, we don’t believe that CL’s results (tomorrow) will be a positive catalyst for the broader staples group.  Meanwhile, MO’s print should be constructive for the best performing staples sector on our screen today (tobacco).   All things considered, we continue to see limited upside to estimates across the staples group for the next one to two quarters.

 What we liked:

  • Beating EPS estimates is always better than the alternative
  • +3% organic sales growth is consistent with the company’s year to date performance
  • Productivity savings continue to provide income statement flexibility
  • Continued strong U.S. market share performance
  • Higher marketing spend in the quarter

What we didn’t like:

  • Q4 guidance was weak relative to consensus, but that seems to be bad modeling on the part of analysts
  • Company seems to be playing games with organic sales growth guidance – full year stays at 3-4% despite having reported +2% in Q1 and +3% in Q2 and Q3 – 4% is all but  impossible at this point.  On the flip side, on Q2, the company took up its full-year organic sales growth guidance to 3% to 4% from 2% to 4% when it became apparent that 2% growth was unlikely.  Full year sales growth guidance should have gone to 2-3%, with one quarter remaining.
  • Pace of gross margin improvement slowed
  • Only modest improvement in FCF (+$32 million year over year)

We don’t know for sure that the fat lady has started singing for the staples group, but what we do know is that, at some point, valuation will matter and that someone should at least let the fat lady know that we are going to need her sooner rather than later.


Call with questions as we have run out of colloquialisms,




Robert  Campagnino

Managing Director





Matt Hedrick

Senior Analyst

DPS - OK Results and a Poorly-Timed Short Call Help the Stock

Top line hit consensus and core EPS beat by $0.07, with the CEO citing weather and a weakened consumer as responsible for the softness in Q1 volume results. Convenient store trends still look good, and lower gas prices behind an increased marketing spend could be beneficial in the coming quarters.


What we liked:

  • Core EPS ahead of consensus ($0.53 vs. $0.46), up 15% for the quarter
  • Revenue in line with consensus at $1.38B, up 1% (price/mix +3%; volume -2%)
  • Reaffirms FY EPS $3.04-3.12; and 3% FY net sales
  • Reported GM 57.2% vs 57.1% last year
  • Hawaiian Punch comps will be easier in 2nd/3rd quarters
  • Incremental brand investment behind the launch of  the TEN platform, expected to exceed $30 million
  • Increased marketing spend scheduled for 2H


What we didn’t like:

  • Commodity costs increased this quarter, in apple prices in particular
  • Packaging and ingredient costs are expected to increase COGS by 2% in 2013, on a constant volume/mix basis
  • Non-carbonated volumes mostly hit hard, -4% (Snapple -2%, Hawaiian Punch -14%, Mott’s +11%).
  • Continued softness in restaurant (QSR) trends
  • Weakness in TEN launch, a strategic Carbonated Soft Drink (CSD) with less calories playing to the wellness trend


Call with questions,




Robert  Campagnino

Managing Director





Matt Hedrick

Senior Analyst


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 80.43%
  • SHORT SIGNALS 78.34%


In preparation for WYNN's F1Q 2013 earnings release tomorrow, we’ve put together the recent pertinent forward looking company commentary.






  • "We have 9% or 10% of the revenue, but we have doubled the amount of EBITDA in the project and less interest than our expense."
  • [Cotai] "The trick is getting out of the ground and that will take most of 2013. Then in 2014 and 2015, we'll finish the job and get the structures and interiors installed. So, the labor situation for this phase has been handled already. As you know, we're financed at less than 2% for this project... The government has been very cooperative in giving us the labor we need to do the next phase of our construction."
  • "New junket space on the first floor has been performing very well but it's tables that have resulted from a reshuffling of tables elsewhere in the building so it isn't necessarily 14 incremental tables; it's 14 tables that we're getting higher yield out of by removing tables from elsewhere on the property. So, it's part of our continuing efforts to increase yield from our existing gaming units."
  • [Slot high-limit room] "It's being done in three phases so we don't impact our current business levels. Phase 1 has just completed. Phase 2 will begin after Chinese New Year and finish in mid-April. Phase 3, which includes the addition of private slot suites, will finish in August of this year."
  • "We all agree that the news in China is healthy. The news in Asia is healthy and most likely to continue. So that's the kind of feedback we're getting."
  • "On the 1st of January, the new smoking law came into play, which banned smoking in 50% of the square footage of casino spaces in the city. Frankly, looking at the numbers, anecdotal evidence, consumer feedback, it's been very marginal in terms of effect to the business. We haven't seen anything at this point that makes us unduly concerned."
  • [Cotai] "Will we get our tables for our hotel? Yes. We will. Our plans, our tables, our casino layout has been approved by the government. They don't let you build the building and not give you tables in China. That's part of the approval process."


  • "Obviously the convention business is the one that allows us the most stability to forecast what's going on. We feel really good about 2013. We are tracking above in room nights. We're tracking above in rates. We're seeing the same kind of strength going on into 2014. So that's going to lay the base and we hope that's going to really maximize a great hotel year. Obviously, we will still be focused on bringing in hotel guests who want to engage in every part of our non-gaming business. Super Bowl is this weekend and we are heartened with the business that we have coming in... Chinese New Year is right around the bend. So, we're very hopeful for a great first quarter."


The Hedgeye Restaurants Team, led by Howard Penney, will be adding McDonald's (MCD) as a short to Hedgeye's Best Ideas List on Thursday, April 25th and we will be hosting a conference call at 11:00am EDT titled, "MCD: FLYING TO CLOSE TOO THE SUN" to detail our bearish stance on MCD FY13 EPS versus expectations.  






  • MCD stock is too far ahead of underlying fundamental performance of the company
  • MCD needs a new "Plan to Win"
  • Changing consumer preferences and competitive pressures are impacting U.S. business



Attendance on the live call is limited. If you are not a current client of our Restaurants research please email to obtain the dial-in information for this call and a copy of the presentation, or to learn more about our research. Please note there may be a fee associated with this call for non-subscribers.


In an effort to evaluate performance and as a follow up to our YouTube, we compare how the quarter measured up to previous management commentary and guidance




  • BETTER: BYD's focus on operating margins finally began to show dividends as they came in with a pretty handy beat.  There was even renewed optimism that Locals revenues may actually turn the corner in coming quarters.





  • BETTER:  Operating efficiencies drove the higher than expected EBITDA.  BYD is cautiously optimistic going forward.  The Orleans, in particular, is doing well.  Spend per visitor in 1Q is flat.  March revenues improved dramatically from January/February or 'relatively flat' YoY. 
    • "We saw reasons for guarded optimism in this region later in the quarter, as business trends started to improve. The declines we saw in October to November moderated in December, and that positive trend has continued into the first quarter."
    • "Customer accounts are up. Spend per visitor is down."


  • BETTER:  They had solid traction on their marketing and advertising initiatives. EBITDA margins beat our expectations across the wholly owned portfolio
  • PREVIOUSLY: "We refined our marketing and advertising programs and made significant changes on our casino floor, and we began to see the benefits of this in the fourth quarter as visitation strengthened month-by-month across our Locals business. In 2013, we will continue looking for ways to improve our core business, not just in Nevada, but across our portfolio.


  • BETTER:  Consumers are becoming used to higher payroll taxes but offsetting that were the tax refunds coming in, improvements in investment portfolios, and strengthening economic conditions across many regions
  • PREVIOUSLY: "As other companies in our industry have already reported, gaming customers   nationwide pulled back in the fourth quarter due largely to economic uncertainty surrounding the elections and the fiscal cliff. While we actively worked to mitigate the impacts of these trends on our business, they did affect our operations. These trends continued into the first quarter. Our customers are now adapting to the impact of higher payroll taxes that took effect January 1; continued uncertainty from Washington over federal spending and taxes is affecting consumer behavior as well."


  • SAME:  Unemployment has declined below 10% and the pace of jobs have been accelerating. The housing continues to be in recovery mode.
  • PREVIOUSLY: "We are encouraged by signs of continued improvement in the Southern Nevada economy. The unemployment rate has been declining in recent months and home prices rose substantially throughout 2012. Las Vegas is still far from the boom years, but the trend is in the right direction, and we believe we will see modest improvement throughout this business in 2013."


  • WORSE:  Business levels have been weak.  BYD is focused on improving operating margins and continues to be optimistic with the upcoming redevelopment of Downtown.
  • PREVIOUSLY: "Visitation remains solid, especially among our Hawaiian customer base, and we gained 250 basis points in market share from the third quarter to the fourth, further expanding our leading position in the Downtown market. We believe those positive trends will continue. Our Hawaiian business remains strong and we will benefit from the ongoing redevelopment of Downtown, which continues to drive new business, new visitors and new residents into the area."


  • SAME:  Marketing spend rose in the quarter compared with the abnormally low levels during its introductory period. BYD expects visitation to grow, particularly with the opening of a 6,000 room arena in late June.  Kansas Star remains on track to generate $100MM in annual EBITDA.
  • PREVIOUSLY: "Looking ahead to the first quarter, Kansas Star will be comparing to a strong introductory period, when it was able to generate robust visitation with very little marketing spend. That is obviously not sustainable and customer reinvestment has increased to more realistic levels. Winter weather has presented more of a challenge in the first quarter of 2013 as well. But we remain quite optimistic about Kansas Star's long-term potential and we expect that Kansas Star's margins will remain the highest in the Peninsula portfolio and project that the property will generate about $100 million in annual EBITDA going forward."

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