• run with the bulls

    get your first month

    of hedgeye free


OIL: Dog Days Ahead?

Brent crude oil is down for the second day in a row as global supply rises. Down -2.5% this morning to $99.85 a barrel, the commodity has crossed below the all-important $100/barrel mark. Considering this is happening on a day where the US dollar is down (dollar down, commodities up and vice versa), when the US dollar catches a bounce and heads back up, oil and gold are likely to take another multi-percentage point hit. Lower oil prices are a boon for the American consumer. No one likes paying high gas prices at the pump.


OIL: Dog Days Ahead? - 3mo brentoil

Corn: Taking A Cut

Oil isn't the only commodity having a down day; corn is taking a beating, down nearly -5.8% this morning to $6.40 a bushel. Corn and other agricultural names like wheat and soybeans put in their all-time highs last summer, so with the strong dollar vanquishing the great commodity bubble that was brought forth by the policies of the Federal Reserve, it should come as no surprise that corn is heading lower week-after-week. This is a big plus for our consumption = growth thesis considering how widely used corn is among different food products.


Corn: Taking A Cut - CORN6mo

ENR - Big Beat on EPS, But No Flow Through

ENR reported a big beat versus consensus this morning, $1.80 versus $1.27, but oddly didn’t take the opportunity to increase its full-year guidance (remains $6.75 to $7.00).  Odder still, the maintained guidance range includes a higher level of cost savings – to a range of $50 to $60 million from the prior range of $25 to $35 million.  We expect a positive stock reaction given the magnitude of the EPS beat, but that the reaction should be muted given the lack of flow through to full-year EPS and the likely need for negative EPS revisions in 2H.

What we liked:

  • Big beat versus consensus
  • Increased annual cost savings target (to a range of $50-$60 million from $25-$30 million)
  • Increased total project cost savings target to $225 million from $200 million
  • Very good gross (+148 bps) and operating (+398 bps) margin performance
  • A promise to increase advertising and promotion spending in 2H

What we didn’t like:

  • No flow through to full year guidance on huge EPS beat and higher annual cost savings, implying a material reduction to 2H consensus
  • Lackluster (+0.3%) currency neutral sales growth
  • Advertising and promotion expenses declined 8.2% in the quarter after declining 1.7% in Q1
  • Weird revenue guide down in the Personal Care segment (to low single digit increases from prior mid-single digit sales growth), but only reflects 1H weakness, as the company expects 2H sales growth in the 3-5% range – so a call for material improvement in sales trends in this segment
  • Company is still anticipating low single digit sales declines in Household Products, but an odd Q4 2013 call out of weakness

Bottom line, sales trends remain anemic, but cost savings provide substantial income statement flexibility.  The name isn’t particularly expensive on consensus numbers (14.1x calendar ’13) but our issue is that we have a difficult time seeing any opportunity for material EPS growth once cost savings have run their course.   The battery category remains challenging, and beyond that we don’t see the opportunity for sustained growth in the company’s other categories.


Call with questions,



Robert  Campagnino

Managing Director





Matt Hedrick

Senior Analyst

the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.

Morning Reads From Our Sector Heads

Keith McCullough (CEO):


Russia’s 20 Biggest Billionaires Keep Riches From Putin (via Bloomberg)


Fed Seen Slowing Stimulus With QE Cut by End of This Year (via Bloomberg)


Josh Steiner (Financials):


Paulson Leads Hedge-Fund Lobby Push to Privatize Fannie (via Bloomberg)


If the Federal Reserve ain’t broke, don’t fix it (via FT)


US banks: breaking up is hard to do (via FT)


Brian McGough (Retail):


Top Retail Executives Weigh In on the Customer (via WWD)


Jay Van Sciver (Industrials):


ADT Reports Second Quarter 2013 Results (via ADT)


Kevin Kaiser (Energy):


Brent Crude Drops a Second Day as Global Supplies Climb (via Bloomberg)


Matthew Hedrick (Europe):


Italian PM launches opening salvo against austerity - but where will the cash come from? (via Open Europe Blog)


Bailout scrapes through parliament (via Cyprus Mail)



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




  • [MGM Cotai] "We remain on track, as we've said before, for an early- to mid-2016 opening."
  • "Last quarter, a referendum was passed in Prince George's County in Maryland, and we are now in the RFP process for what would be a very lucrative fixed license in Maryland. We have a deadline... of May to submit our proposal. We will easily meet that deadline. We believe that we will prevail for an MGM at National Harbor, which is a tremendous destination resort, literally minutes from our nation's capital. A decision on that by the State of Maryland will be before the end of the year, we expect." 
  • "Our international casino business continues to be strong, as this was a record fourth quarter for our Strip properties when you include ARIA for both the international drop and win. We're seeing some encouraging signs in our domestic casino play, as our non-baccarat table drop at our wholly-owned Strip properties increased 6% year-over-year."
  • "We are starting to see domestic customers again, starting to see their activity pick up."
  • "Looking at the room trends here in the first quarter, we anticipate the trends to be similar to what we saw in the fourth quarter, with room revenues up low single-digits and essentially flat REVPAR."
  • "While it is still early, ARIA is off to a good start in 2013, and we expect to continue to build traction throughout the year. Convention sales are pacing well, as room nights on the books for 2013 as of February 1 are 14% ahead of last year at this time....2014 is looking even stronger as we look forward. So there's still work to do in 2014, but its pace is actually even up higher than what we're experiencing here in 2013."
  • [MGM CHINA] "We're seeing early signs of success from our level 2 VIP gaming floor expansion, which opened in late September. We're also expecting to add another junket operator in the second quarter of 2013. The fourth quarter was our strongest volume quarter for the year for our own in-house VIP business. We expect to see continued growth in this business with the support from the MGM International marketing team."
  • [MGM CHINA] "This transition of mix has also driven an increase in our pre-branding-fee EBITDA margins by 60 basis points. We expect this positive trend of increasing main floor mix to continue, driven by upgrades to our main gaming floor product, marketing efforts, and of course the strong growth in the Macau mass market revenues."
  • "On the convention side, without the solid citywide convention base, what ends up happening is our lower-end properties Circus and Excalibur, they're the last to fill, and there's always a challenge there from a pricing perspective. With regards to Luxor, they're also usually a benefactor of Mandalay's overfill, and that hasn't quite happened as much as it used to happen in the past, but it's well-positioned to get that overfill coming up in the future here."
  • "We like the way our convention business is shaping up for the calendar year 2013, and obviously the leisure and transient business has been performing well for us. That's a big part of our business, so I think it's too premature right now to go out with full-year guidance. We like the way the calendar is shaping up, and we like the way the convention business is booked and the pace that we're on, and I think the best is to kind of leave it at that for now."
  • "I'd just reemphasize what's happening for us, in the second quarter, between when someone spends over $100 million on the corner of Tropicana and the Las Vegas Strip in Hakkasan to build a night club/lounge/bar, which right now has been a construction site and has been for the better part of nine months, is going to have a material impact on MGM Grand; having a Mayweather fight in May, material impact on MGM Grand; having a new Cirque show at Mandalay Bay, a material impact in the second quarter for Mandalay Bay; and the restaurants that we're adding there."


Top That!

Client Talking Points

Beckoning The Bulls

The Professional Top Callers (PTC) have come out of their bunkers this morning to call the top in stocks once again. Too bad that doesn't really work when you've been wrong several times throughout the year. With the S&P 500 hitting a fresh all-time high yesterday, global markets are following in the footsteps of the US with the following markets putting up impressive year-to-date returns thus far:


  • FTSE: +11% (in Bullish Formation)
  • Philippines: +24%
  • Indonesia: +18%

Commodities Cornered

Commodities rallied on the US dollar taking a hit but are back to the same old game of getting whacked this morning. Gold, corn and oil are all down this morning, which is a good thing for the consumption game. After all, lower oil and corn prices mean cheaper groceries and lower prices at the pump. Corn has no support here until $6.02 and was as high as $8.30 back in August of 2012. Ouch. 

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

Decent earnings visibility, stabilized market share, and aggressive share repurchases should keep a floor on the stock.  Near-term earnings, potentially big orders from Oregon and South Dakota, and news of proliferating gaming domestically could provide near term catalysts for a stock that trades at only 11x EPS.  We believe that multiple is unsustainably low – and management likely agrees given the buyback – for a company with the balance sheet and strong cash flow as IGT.  Given private equity’s interest in WMS (they lost out to SGMS) – a company similar to IGT that unlike IGT generates little free cash – we wouldn’t rule out a privatizing transaction to realize the inherent value in this company.


WWW is one of the best managed and most consistent companies in retail. We’re rarely fans of acquisitions, but the recent addition of Sperry, Saucony, Keds and Stride Rite (known as PLG) gives WWW a multi-year platform from which to grow.


With FedEx Express margins at a 30+ year low and 4-7 percentage points behind competitors, the opportunity for effective cost reductions appears significant. FedEx Ground is using its structural advantages to take market share from UPS. FDX competes in a highly consolidated industry with rational pricing. Both the Ground and Express divisions could be separately worth more than FDX’s current market value, in our view.

Three for the Road


"More Bad News is Good News "Good for QE, Just Buy Stocks" ADP National Employment Nov 276k Feb 237k April 119k" -@Convertbond


"In a few minutes a computer can make a mistake so great that it would have taken many men many months to equal it." -Unknown



ADP Employment Report shows US added 119,000 jobs in April. Estimates were looking for a gain of 150,000.

Attention Students...

Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.