• run with the bulls

    get your first month

    of hedgeye free



In preparation for TRIP's FQ3 2013 earnings release tomorrow, we’ve put together the recent pertinent forward looking company commentary.




  • "This summer so far it's been bumpier than I had forecast. So our traffic is holding but not as strong as we had expected given the comp over the Olympics of last year. Pricing, as I said, has actually been down a little bit, and that wasn't what we expected. And we have told everyone, 'hey, the big meta headwind for us is in Q3, because our biggest points of sale are a 100%' and that remains absolutely true. But I don't generally provide updates in the quarter, but if I have to update this quarter it's like I am not seeing a lot of positive stuff."
  • "The third quarter...is going to take the hardest hit, because this is three months of being in the transition even though we're making iterative improvement, but compared to last quarter there was only one full month." 


  • "For full year 2013, we are reiterating our click-based revenue growth guidance of high-teens to low-20s."
  • "As it relates to display, based on our strong first half results, we now expect mid-to-high teens growth for the full year with Q4 being our strongest quarter for this product."
  • "For subscription, transaction and other business lines, we believe continued sales productivity in Business Listings, Vacation Rentals traction a nice contribution from our recent acquisition will now yield high 50s growth for the full year. Remember, that traction of our Vacation Rentals free-to-list product and flash sales will contribute similar seasonality to click-based revenue, where Q3 is seasonally strong and Q4 is seasonally weak."
  • "We are reiterating our total revenue growth expectations of low 20s for the full year."
  • "On the expense side, our investment and hiring plans remain unchanged giving our growth initiative and large market opportunities ahead of us. From a forecasting standpoint, we have considered our strong results in the first half of the year offset by our ongoing meta transition, offline ad spend, and our recent acquisition. Net, net, we are reiterating our expectations of mid-single digit EBITDA growth for the full year of 2013, which assumes negative Q3 and Q4 year-over-year EBITDA growth due to the timing of our offline ad spend."
  • "We're on that path to revenue neutrality, which means the increase in CPCs will equal the decrease in clicks that we're sending off to our partners and we believe that will occur at the end of this year." 


  • "Hotel shoppers continued to grow rapidly throughout the globe with notable continued strength in core U.S. and European markets. Some of our newer markets aren't growing at quite the rate that they were last year. Sort of the UK in particular, for the first couple of weeks in July haven't been as robust a growth as we had seen in the course of Q2."
  • "If you look at the top of funnel opportunity, which we call hotel shoppers, so hotel shoppers are travelers coming to the site, looking at a hotel geo page or a hotel detail page, not the restaurants, not the attractions. So those are the ones that we say are top of funnel, because they have a chance of monetizing for us. We don't currently monetize restaurants and attractions." 


  • "On smartphone, our hotel shopper growth continues at a triple-digit rate, but monetization remains at less than 20% of desktop.  Desktop and tablet are pretty much on parity (volume/price mix)."


  • "We have two properties, two companies in China, daodao.com and...Kuxun. This is an area that we have been investing in for several years. We run these...at a loss. But they're meaningful assets. We kind of look at it more as an option on the future because the Chinese market is important. And we want to be there when they're looking to travel outbound. As that market continues to develop, we believe we're building a very strong asset there."  


  • "We authorized a $250 million share repurchase plan and we did that about a year after we spun out of Expedia once we had built up those cash balances because we can only use U.S. cash to repurchase shares. The primary reason for the share repurchase is to offset employee equity dilution, so that's what we've been doing over the last several quarters."


  • "When I ask, hey who is the competition that kind of worries me the most in the two-year to five-year timeframe, Google still tops the list mostly at this point from a mind share perspective. When I talk to travelers, hey you're thinking about going on vacation, where do you start? The answer more often than I'd like to hear is Google. And so as Google learns how to build the travel product and I'd still say they're learning, they've launched a bunch of stuff, but it's in progress. Google can do a lot. They've shown a lot of appetite to invest heavily in this area."


  • "We have received very positive initial feedback from our announcement, and we expect that many of the largest companies that provide Internet booking engines to independent hotels will be working with us soon. Later this year, we intend to launch the second part of the TripAdvisor Connect platform, namely, a self-service bidding interface that will allow hoteliers to bid directly for our traffic."


  • "In our fast-growing subscription, transaction and other line, we've seen a nice uptick in Business Listings sales productivity as we add more fully-trained sales reps in more parts of the world."
  • "In our Vacation Rental business, early results from free-to-list remain positive as overall listings are up, as well as mailable users, traffic and inquiries. On the consumer side, we've increased the percentage of our listings that are online-bookable properties from zero last year to over 20% this year, and we shortened the booking flow to improve conversion. We've integrated the majority of FlipKey and Holiday Lettings properties onto the main TripAdvisor site and we're working on integrating Niumba's inventory to give vacation renters more choice in Spain."


  • "So again, we only spent a couple of million dollars so far, but we have no reason at this point to be pulling back on our expectations to spend kind of the full budgeted amount going forward." 
  • "Direct marketing costs increased slightly versus last quarter, as we started testing our new TV campaigns in six U.S. markets in an effort to promote TripAdvisor brand awareness and diversify traffic. We expect to increase TV spend materially in the second half of the year, as we broaden our testing domestically and internationally."


  • "Our Q2 GAAP effective tax rate was 26%, which is consistent with our ongoing mid-to-high 20s expectation for the year."


TODAY’S S&P 500 SET-UP – October 23, 2013

As we look at today's setup for the S&P 500, the range is 42 points or 1.80% downside to 1723 and 0.59% upside to 1765.                                  










THE HEDGEYE DAILY OUTLOOK - 10                                                                                                                                                                  



  • YIELD CURVE: 2.20 from 2.22
  • VIX closed at 13.33 1 day percent change of 1.29%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: Mortgage Applications Index, Oct. 18 (prior 0.3%)
  • 8:30am: Import Price Index M/m, Sept., est. 0.2% (prior 0.0%)
  • 9am: House Price Index, Aug., est. 0.8% (prior 1.0%)
  • 10:30am: DOE Energy Inventories
  • 11am: Fed to purchase $2.75b-$3.5b notes in 2020-2023 sector


    • President Barack Obama meets with Pakistani Prime Minister Nawaz Sharif to discuss security concerns
    • 8:30am: CSIS, Finl Svcs Roundtable discussion on cybersecurity
    • 10am: SEC meets on proposed rules, forms on offer and sale of securities through crowdfunding
    • 10:30am: House Education and the Workforce ranking member Rep. George Miller, D-Calif., Reps. Jan Schakowsky, D-Ill., Alan Grayson, D-Fla., host forum on Wal-Mart wages
    • 11am: House Judiciary Chairman Bob Goodlatte, R-Va. to announce introduction of bill “to address ever increasing problem of abusive patent litigation.”
    • 2pm: House Financial Services panel hearing on reducing impediments to capital formation
    • 2pm: House Armed Services Cmte hearing on Navy’s 30-year shipbuilding plan
    • 3:30pm: House Armed Services hears from Pentagon officials on spending cuts, effect on acquisition, modernization


  • Icahn’s Netflix sale shows differences with son over value
  • JPMorgan close to $6b settlement with institutional investors: FT
  • Men’s Wearhouse said to mull bid for shoemaker Allen Edmonds
  • ECB stress test to use stricter capital definition than review
  • Peugeot reviews GM alliance as savings goal proves tough to meet
  • Rabobank said to agree to $1b settlement over Libor claims
  • Biggest Chinese banks triple debt write-offs
  • Twitter secures $1b credit line before initial share sale
  • Carlyle, KKR, CVC join initial bid for Woori F&I: Maeil
  • Amgen boosts 2013 forecast after third-quarter sales rise
  • Buffett praises IBM profit prospects, says cos. have blips
  • Spanish GDP rises 0.1% in 3Q, ending nine-quarter recession
  • Heineken cuts profit outlook as central European sales slide


    • Airgas (ARG) 7:30am, $1.23
    • Allegheny Technologies (ATI) 7am, $(0.28)
    • American Electric Power (AEP) 6:57am, $1.08
    • Boeing (BA) 7:30am, $1.52 - Preview
    • Brinker Intl (EAT) 7:45am, $0.45 - Preview
    • Bristol-Myers Squibb (BMY) 7:30am, $0.44
    • Canadian Pacific Railway (CP CN) 7:30am, $1.71 - Preview
    • CapitalSource (CSE) 8am, $0.15
    • Caterpillar (CAT) 7:30am, $1.67 - Preview
    • Commercial Metals (CMC) 7am, $0.17
    • Dr Pepper Snapple (DPS) 7am, $0.83
    • Eli Lilly (LLY) 6:30am, $1.04 - Preview
    • Encana (ECA CN) 6am, $0.16 - Preview
    • General Dynamics (GD) 7am, $1.68 - Preview
    • Hudson City Bancorp (HCBK) 8am, $0.08
    • Lorillard (LO) 7am, $0.81 - Preview
    • Medicines (MDCO) 8am, $0.16 - Preview
    • Molex (MOLX) 7:30am, $0.37
    • Motorola Solutions (MSI) 7am, $1.02
    • NASDAQ OMX (NDAQ) 7am, $0.62
    • New York Community Bancorp (NYCB) 8am, $0.26
    • Nielsen (NLSN) 6am, $0.48
    • Norfolk Southern (NSC) 8am, $1.39 - Preview
    • Northrop Grumman (NOC) 7am, $1.82 - Preview
    • Omnicare (OCR) 7am, $0.90
    • Owens Corning (OC) 7:28am, $0.64
    • Popular (BPOP) 8am, $0.70
    • Prologis (PLD) 8am, $0.41
    • Six Flags Entertainment (SIX) 8am, $1.66
    • Thermo Fisher Scientific (TMO) 6am, $1.28
    • Tupperware Brands (TUP) 7am, $1.04
    • US Airways Group (LCC) 8am, $1.14 - Preview
    • WellPoint (WLP) 6am, $1.82 - Preview
    • WR Grace (GRA) 6am, $1.03
    • Wyndham Worldwide (WYN) 6:29am, $1.36


    • Agnico Eagle Mines (AEM CN) 5pm, $0.09 - Preview
    • Akamai Technologies (AKAM) 4:01pm, $0.46
    • Angie’s List (ANGI) 4:05pm, $(0.20)
    • Assurant (AIZ) 4:05pm, $1.50
    • AT&T (T) 4:01pm, $0.65 - Preview
    • AvalonBay Communities (AVB) 4:01pm, $1.18
    • Brandywine Realty Trust (BDN) 4:15pm, $0.40
    • Cadence Design Systems (CDNS) 4:05pm, $0.21
    • Citrix Systems (CTXS) 4:05pm, $0.69
    • CoreLogic (CLGX) 4:15pm, $0.42
    • E*TRADE Financial (ETFC) 4:05pm, $0.16
    • Equifax (EFX) 4:11pm, $0.88
    • Equinix (EQIX) 4:01pm, $0.60
    • Everest Re Group (RE) 4:05pm, $4.76
    • F5 Networks (FFIV) 4:04pm, $1.19 - Preview
    • Fortinet (FTNT) 4:15pm, $0.11
    • Fortune Brands Home & Security (FBHS) 4:01pm, $0.41
    • Fusion-io (FIO) 4:05pm, $(0.11)
    • Infinera (INFN) 4:15pm, $0.04
    • KKR Financial Holdings (KFN) 4:21pm, $0.38
    • Lam Research (LRCX) 4:05pm, $0.70
    • Leggett & Platt (LEG) 4:05pm, $0.44
    • LSI (LSI) 4:01pm, $0.16
    • NXP Semiconductor (NXPI) 8pm, $0.83
    • O’Reilly Automotive (ORLY) 6:30pm, $1.65
    • Polycom (PLCM) 4:05pm, $0.11
    • Raymond James Financial (RJF) 4:13pm, $0.63
    • Service Corp (SCI) 4:03pm, $0.20
    • ServiceNow (NOW) 4:01pm, $(0.02)
    • SL Green Realty (SLG) 5pm, $1.28
    • Stericycle (SRCL) 4:02pm, $0.94
    • Susquehanna Bancshares (SUSQ) 4:30pm, $0.23
    • Swift Transportation (SWFT) 4pm, $0.29
    • Symantec (SYMC) 4:01pm, $0.44
    • Teradyne (TER) 6pm, $0.44
    • Terex (TEX) 4:46pm, $0.59
    • Torchmark (TMK) 4pm, $1.43
    • Tractor Supply (TSCO) 4:01pm, $0.41
    • TripAdvisor (TRIP) 4:04pm, $0.44 - Preview
    • TriQuint Semiconductor (TQNT) 4:02pm, $0.10
    • Varian Medical Systems (VAR) 4pm, $1.11
    • Whiting Petroleum (WLL) 4pm, $1.06


  • JPMorgan Said to Draw BTG Bid for All of Commodities Business
  • Tyson Chases Hormel by Targeting Moms With Burritos: Commodities
  • WTI Drops to 5-Month Low; Discount to Brent Widest Since April
  • Copper Slumps From One-Month High as Chinese Interest Rates Rise
  • Gold Declines as Investors Sell After Rally to Three-Week High
  • Wheat Nears Fourth-Month High as South American Demand May Climb
  • Robusta Coffee Halts Decline After Falling 8.3% in Past Six Days
  • Petroineos to Decide on Future of Grangemouth Oil Refinery
  • U.S. Pump Prices Seen Dropping to Three-Year Low: Energy Markets
  • Rebar Falls, Erasing Earlier Gains, After China Money Rates Jump
  • Natural Gas Consumption Likely Sluggish Into 2014: Bear Case
  • Pig Iron Cost Structure May Put Floor Under Nickel as 4Q Evolves
  • Japan Mulls Plan for One Operator to Run All Reactors: Energy
  • Ineos Will Keep Grangemouth Refinery Open, U.K. Minister Says


























The Hedgeye Macro Team















But it’s still not a long.


Kimberly Clark reported $1.44 adjusted EPS this morning versus consensus of $1.40. The better-than-expected results were driven by organic sales growth of 5%, which is being well-received by the market. Management raised the lower end of its FY13 guidance range to $5.65-5.75 versus $5.60-5.75 prior. Strong organic sales numbers took us by surprise; we see no reason to be involved in KMB at this stage.




We have been bearish on Kimberly Clark since mid-July and, while the stock has underperformed, the recent performance strength and strong organic growth numbers reported by the company have weakened our conviction in shorting the stock here, in a pair with EL (as we proposed) or otherwise.


Contrary to our prior expectations, KMB will likely meet the Street’s FY13 EPS expectations as top line performance has accelerated into 2H13, despite some industry data previously suggesting that this could be a tall task. Dollar weakness is certainly helping and will be worth monitoring going forward.




  • EBIT growth is being driven by cost savings alone as revenue growth remains anemic. The market may be unwilling to pay an above-average multiple for peer-lagging revenue and earnings growth.
  • We believe that input costs are worth monitoring over the remainder of the year as management’s guidance may be underestimating costs in 4Q13.

KMB DE-SHEETS OUR BEAR CASE - kmb cost savings chart


What we liked in 3Q13 Results:

  • EPS beat, supported by organic sales growth of 5%
  • Mgmt raised the low end of the guidance range by 5 cents
  • Strong KC-International organic sales of 10% boosted by emerging markets (China, Russia, to a lesser extent Brazil) accelerating
  • Sustained strong volume growth in emerging markets
  • Operating cash flow aided by improved working capital efficiency


What we didn’t like in 3Q13 Results:

  • EBIT growth decelerating further to 1% despite easier comp
  • No Operating Margin expansion year-over-year
  • Personal care operating margins declining 20bps
  • Organic growth in Europe being boosted by phasing out of weak businesses
  • Negative 3Q FCF growth (-0.5%) with EBIT growth slowing to +0.9% from +5.8% in 2Q13 despite management expecting cash flow generation to improve in 2H13 as of 7/22


Quantitative Levels

From a quantitative perspective, KMB has broken out above its intermediate-term TREND line of $98.24.





Rory Green

Senior Analyst






real-time alerts

real edge in real-time

This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.

LINN Pleads the Fifth: S-4 Ammendment #5 Recap

This morning (10/22) LINN Energy filed the 5th Ammendment to its Form S-4 Registration Statement for the LINE / LNCO / BRY merger.  For the second time, LINN changes verbiage and disclosure, but not distributions.  The market is taking these changes to be quite positive (LINE +2% at the time of writing), though it's not clear to us why... 


The key change in this version is that LINN will no longer use the non-GAAP measure "Adjusted EBITDA."  In fact, it has removed substantial disclosure and reconciliations related to “Adjusted EBITDA,” “Credit Facility EBITDA,” and “EBITDA” in the latest S-4/A.  This comes after removing "Distributable Cash Flow (DCF)" in the S-4/A #4.  The market's positive reaction to this latest change could suggest that investors believe that LINN has done enough to satisfy the SEC, as the SEC was concerned with LINN's use of non-GAAP measures, and LINN has solved the problem by no longer using them...  We have no view as to what the SEC will or will not do, though the optimism seems excessive, in our view.


With Adjusted EBITDA and DCF out of the picture, the key non-GAAP measure that remains is what was formerly known as "maintenance capital expenditures," but is now "discretionary reductions for a portion of oil and natural gas development costs."  Importantly, "This change in terminology, however, does not reflect any change in LINN’s methodology for determining the amount of these costs" (pg. 233); in other words, nothing has changed except for what LINN is calling it; same as the prior S-4/A.


LINN did include new data for the amount of reserves estimated to be converted to the PDP status via discretionary reductions CapEx (pg. 236 and cut out below):


LINN Pleads the Fifth: S-4 Ammendment #5 Recap - linn1


The F&D (finding and developing) cost for this capital is remarkably low compared to LINN's consolidated metrics.  For instance, discretionary reductions F&D was $1.37/Mcfe in 2012, 36% below the PUD Conversion Cost and 64% below LINN's organic (ex. acquisition) proved developed F&D cost.  LINN's numbers imply that it's non-"discretionary reductions" capital had a staggeringly-high F&D cost of $13.85/Mcfe in 2012 ($886MM to move 64 Bcfe into the PD category).


LINN Pleads the Fifth: S-4 Ammendment #5 Recap - linn2 


How anyone can take these numbers seriously, we don't know.  LINN's total PD F&D cost over the last three years is $3.41/Mcfe ($20.46/boe).  Based on that number, at current production levels, LINN needs to spend at least $250MM/quarter to keep reserve and production flat, not the ~$110MM/quarter it's currently calling "discretionary reductions."  Of course, LINN's distribution would be cut by ~100% should it deduct that amount of capital from the cash available for distribution - hence its reluctance to change.


Other Notable Changes in the 10/22 S-4/A (#5):

  • Page 50: Change in wording for the “discretionary reductions” risk factor.  Dropped terms "natural decline," "cash production," and swapped "producing assets" our for "producing reserves."
  • Page 171 on the “remedial method”: “Additionally, the pro forma financial information does not represent the actual results of allocating depreciation, depletion and amortization and other cost recovery deductions generated from the “remedial allocation method” pursuant to Treasury Regulation Section 1.704-3(d). The total tax liability generated from the remedial allocation will be recognized over the remaining life of the underlying assets, which could extend beyond 50 years. See footnote (d) to LinnCo’s notes to the unaudited pro forma condensed combined financial statements for additional information.”
  • Page 210: David Hall vs. Berry Petroleum Company – “parties are currently engaged in settlement discussions” was removed.
  • Page 233-4: Significant changes in wording / disclosure re: distribution calculation; and no longer using “Adjusted EBITDA.”
  • Page 235: LINN clarifies funding, “LINN intends to fund interest expense, a portion of its oil and natural gas development costs and distributions to unitholders from net cash provided by operating activities. LINN funds premiums paid for derivatives, acquisitions and other capital expenditures primarily with proceeds from debt or equity offerings, borrowings under its Amended Credit Facility or other external sources of funding. Although it is LINN’s practice to acquire or modify derivative instruments with external sources of funding, any cash settlements on derivatives are reported as operating cash flows and may be used to fund distributions.”
  • Page 235 footnote 1: LINN acknowledges that even through premiums paid hit the GAAP cash flow statement as CFFO, it considers them investments, so it will add them back to operating cash flow to arrive at cash available for distribution.

Kevin Kaiser

Senior Analyst


Takeaway: Emerging markets love dollar debauchery.

Click image to enlarge. 



Takeaway: Join us for a conference call with Guy Constant, CFO, of Brinker International.

Friday, October 25th at 11:00am EDT  

For details please email 


We will be hosting a call with the CFO of Brinker International, Guy Constant, to discuss 2Q14 results, the outlook for the balance of the year, and the emerging role of technology in the casual dining industry.



  • Bringing technology to the casual dining industry.
  • Closer look at 2Q14 results and a detailed outlook for the balance of the year.
  • Incremental topics TBD post the 2Q14 earnings call.




Guy Constant is Executive Vice President, Chief Financial Officer and President of Global Business Development for Brinker International.  In this role, he is responsible for overseeing Planning and Analysis, Mergers and Acquisitions, Investor Relations, Treasury, Tax and Accounting, Domestic Franchise Business Development, and Corporate, Chili’s and International Finance in addition to overall Development.  Guy added his global responsibilities in January 2013 and is responsible for overseeing global operations.




Please email or call to learn more about the event. Attendance is limited. Please note if you are not a current client of our Restaurants research there will be a fee associated with this call.




Howard Penney

Managing Director


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.