Consensus estimates, management guidance and commentary, and questions for management in preparation for the earnings release/call tomorrow.




Total revenues:  $3,905 million

EBITDA:  $1,354 million

EPS:  $0.92/share






    1. How do you drive growth in Singapore?
    2. VIP outlook given all the concerns?
    3. Update on the CFO search process
    4. Previously indicated 75 more mass table at SCC in spring 2014 – are those now installed, game types (is this Dragon Master)?
    5. Update on efforts to rationalize excess gaming floor capacity at the Venetian Macau?
    6. Any plans to add additional ferries to the fleet given the current capacity constraints?
    7. Update on the opening of the Parisian?
    8. Update on the monetization of the entire Macau retail real estate portfolio – previously alluded to a $12-$14 billion portfolio value?
    9. Discuss the mechanics of repurchasing SCL shares, if approved by shareholders?  Is the repurchase contingent on a Macau asset sale?
    10. Expectations for Japan gaming expansion given the Japan Gaming Congress in three weeks?
    11. Update on the sale of the St. Regis Tower and Bethworks?



  • We remain on budget and on schedule. Subject, of course, to timely government approvals that may be required, we continue to target a late 2015 opening of our latest Integrated Resort.


  • We will open our Dragon Master room (premium mass) later this year, probably in the spring
  • Mass win per table per day was $13,900 Q4 of 2013 and we believe we can get to $15,000, $16,000 a table.

Macau Mass:

  • We expanded mass table productivity to $12,143 of mass win per table per day across our Macao property portfolio from just $9,716 per day one year ago
  • Goal: $15,000 win per mass table in 2014 (as well as portfolio wide)

 Macau VIP:

  • Rolling volume per table of approximately $1.23 million per day, which was a record for the company and was up 33.7% compared to the quarter one year ago

Singapore Premium Mass:

  • ADR increasing to $425 and occupancy approaching 97%
  • We expect to drive growth in the future as we focus our marketing efforts on high-value visitors from the surrounding Southeast Asian region
  • We're still running 60%-plus margins in the premium mass segment.
  • Mass gaming win increased to $4.63 million per day,  Our goal is to get to $5 million a day
  • So we're buying more rooms from the hotel and that may have an adverse effect, a point or two on the margins

Dividend/Buyback/Balance Sheet:

  • Raised our recurring dividend for the 2014 calendar year to $2 per share, an increase of 42.9% compared to the $1.40 recurring dividend we will have paid this year.
  • We have every intention of increasing the dividends at Las Vegas Sands and Sands China in the years ahead as our business and cash flows continue to grow.
  • With $1.4 billion remaining under the term's stock repurchase authorization and in the future we expect to repurchase at least $75 million of stock per month.
  • Subsequent to year end through February 28, 2014, we repurchased 8,224,255 shares of our common stock for $663.8 million
  • During 1Q14, VML established a new $2 billion credit agreement.   A portion of this new credit agreement was used to repay the $819.549 million of term loans by non-consenting lenders.   The consenting lenders, representing ~$2.386 billion consented to an extension of the maturity of term loans to March 31, 2020.

YUM: China Leads The Way


YUM reported 1Q14 earnings AMC yesterday, missing top line estimates by 241 bps while beating bottom line estimates by 392 bps.  As expected, China led the way in 1Q delivering 9% same-store sales growth and an 80% improvement in operating profit.  These results prove that the supply chain debacle is largely beginning to fade and consumers have regained trust in the KFC brand.  Despite strong performance in China, KFC Division, Pizza Hut Division and Taco Bell Division results were less than desirable, weighing down earlier optimism over impressive China numbers.  The stock traded down intraday, suggesting a China recovery is baked in.  As such, we believe the street is looking to Taco Bell to be the source of incremental upside in 2014, but a disappointing 1Q14 has raised concerns. 


China Division delivered 9% same-store sales growth including 11% growth at KFC and 8% growth at Pizza Hut Casual Dining.  Restaurant margins grew 6.8% over the prior year.  However, lapping last year’s productivity measures and additional labor and food costs pressure will likely slow the rate of margin improvement moving forward.  Management guided to a full-year restaurant margin of 17%, in the middle of its prior 16-18% guide.  KFC appears to have regained consumer trust and plans to capitalize on its current sales momentum by bringing more innovation and excitement to the brand.  A new menu was rolled out to 4,600 restaurants in late March should help achieve this.  KFC plans to revamp the menu once a year.  Better sales forecasting, labor scheduling, optimizing operating hours and other initiatives have helped improve restaurant margins.  New advertising, packaging, staff uniforms and menu boards are all additive to the brand restage.  The team has plans for a new mobile app which will allow for preordering/electronic payment and expects free Wi-Fi to be available in over 2,000 restaurants by year-end.  Pizza Hut casual dining generated strong same-store sales in the quarter and continues to resonate with customers as it offers compelling value and a flexible menu (refresh 20% of the menu twice a year) which is increasingly including breakfast.  A strong economic model will allow the team to continue aggressively expanding into lower tiered cities.  Home service continues to be a strong, local brand as 40% of what they deliver is Chinese food.  There are approximately 200 home delivery units with room for substantial upside.


India Division same-store sales declined 1%.  India continues to be a long-term opportunity for YUM, but is largely immaterial to the current business.  KFC plans to launch a new vegetarian line of products and management remains focused on developing a stronger economic model for expansion into lower-tiered cities.  Pizza Hut delivery grew same-store sales at a faster clip than its largest delivery competitor while Taco Bell continues to be a potential source of growth in India.


KFC Division delivered 1% same-store sales growth, led by international strength and offset by a struggling U.S. business.  Restaurant margin and operating margin declined 30 bps and 60 bps, respectively.  We remind you that 90% of KFC profits are generated outside the U.S.  With only 2 stores per 1 million people, KFC is well positioned to capitalize on a growing consumer class in emerging markets.  Australia and the U.K. continue to be pockets of strength for the developed markets segment, while the U.S. and Canada continue to woefully underperform.  The team plans to apply overseas best practices to these two regions in 2014.


Pizza Hut Division same-store sales declined 2%, due in large part to a struggling U.S. business and marginally offset by international strength.  Restaurant margin and operating margin declined 420 bps and 580 bps, respectively.  The U.S. business continues to lose share to competitors offering more compelling value.  WingStreet and new Garlic Parmesan Pizzas could provide a bit of a short-term boost, but the brand’s issues go well beyond a lack of innovative offerings.  Management is moving quickly to find ways to fix their value proposition and engage the digital consumer, but noted that the brand could trail prior estimates in FY14.  Outside the U.S., we expect the pace of global development to accelerate in 2014.


Taco Bell Division same-store sales declined 1%.  Restaurant margin and operating margin declined 260 and 140 bps, respectively, as operating profit fell 16%.  Restaurant margin was hurt by a mix of labor intensive promotional products and higher than expected commodity inflation.  Management also cautioned that commodity pressure could mitigate 2Q profits.  Taco Bell rolled out breakfast at the end of 1Q and, according to management, is off to a good start.  The team plans to introduce mobile ordering soon, in addition to a major new product launch in 2H14.  Net new unit growth should accelerate from 78 to 100 in FY14.  Though 97% of profits currently come from the U.S., management has plans to make Taco Bell YUM’s third major global brand.


YUM is a largely franchised business, with over 90% of stores outside China franchised and will generate approximately $2 billion in franchise fees in FY14.  As such, it is a very high return business.  It is also positioned exceptionally well to capitalize on a long-term growth opportunity in emerging markets.  This quarter wasn’t the best, but the turnaround in China is the number one thing we wanted to see.  The domestic Taco Bell business will stabilize and, in our view, accelerate meaningfully from here as breakfast, new product innovation, digital initiatives and additional pricing will drive incremental sales.  When all is said and done, we believe YUM will be able to generate greater than 20% EPS growth in FY14.  China looks strong, emerging markets have positive momentum and the Taco Bell business is poised to bounce back after a quarter in which most restaurants struggled.


In addition to strong growth prospects, YUM offers an attractive and growing dividend yield and has three main levers (growth investments, growing dividend, share repurchases) to continually support the stock and drive shareholder value.  Barring an unexpected upheaval of issues in China, we view YUM as a sound investment that offers attractive upside in both the near and short term.



YUM: China Leads The Way - YUMN




Howard Penney

Managing Director


Fred Masotta


Poll of the Day Recap: 63% Say Gold Is King (For Now)

Takeaway: 63% GOLD; 37% S&P 500.

Poll of the Day Recap: 63% Say Gold Is King (For Now) - 75684c71b3faa8e2037bab86bace3f78.500x333x1


After rising six days straight, stocks have edged lower amid a new round of quarterly earnings reports from US companies. 


In our poll today, we wanted to know: If you had to buy the S&P 500 or Gold today, and hold for one year, which would you buy?

At the time of this post, 63% said they would buy GOLD; 37% said S&P 500.

One voter who chose GOLD specifically pointed to #InflationAccelerating and said that “the best option for protecting your money is always gold.” Another echoed the sentiment: “Gold loves slowing of growth, and that's what we're seeing, along with rising inflation.”


A few GOLD voters stated that the S&P 500 seems overvalued, has bearish signs on the weekly charts, and that when the dollar goes so will the S&P.

Or as one responder for GOLD explained, “Having a young family we are feeling the inflation in our bottom line. Fear can happen fast.”


Of those who said they would buy the S&P 500, these comments tell the story:

  • “Gold is a crisis hedge and a terrible inflation hedge. I expect a roller coaster of a ride, but bubbles blow bigger before they burst, and they burst at the end of the Presidents term, not in the middle.”
  • “Gold is going to 1150 - no catalyst at all to buy currently.” 
  • “In the near term, gold might outperform stocks as stocks might go [through] a correction in summer. But a year from now, I expect stocks to significantly outperform gold.”
  • “Secular up trend versus secular down trend.”
  • “The correction won't happen until May 2015.” 


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 80.52%
  • SHORT SIGNALS 78.67%

E-Cig VUSE Drags on Quarterly Performance; RAI has LT Outlook

Reynolds American reported Q1 2014 adjusted EPS of $0.72 (flat Y/Y) that missed consensus of $0.74 and revenues of $1.94B that came in slightly above the Street at $1.91B. The stock is trading down today on mix results. Our neutral outlook on RAI remains intact.


On the positive side, RAI saw solid results from its core brands (Camel, Pall Mall, Santa Fe, and Grizzley), the company re-affirmed its FY EPS guidance of $3.30-$3.45 (or growth of 3.5% to 8.2% Y/Y), and saw strong pricing in the quarter (+4.2%) to offset RJR tobacco volume down -5.2%, which underperformed the industry cigarette volume down -4.4%.


On the negative side, RAI is boosting its e-cigarette spend on VUSE (nearly $60M over the last 6 months). Concerns on the call about just how much of a “drag” VUSE will be on the bottom line moving through the year or if the category can realize margins as high as cigarettes remained largely unanswered (more below).  Further, operating Margin dropped 220bps, and CEO Daan Delen’s decision to step down in May is a bit puzzling, however by all accounts he’s being replaced by a very capable operator in Susan Cameron who served as the company’s president and CEO from 2004-11 and rejoined the company’s board of directors in December 2013.


Our preferred tobacco stock is long Lorillard (LO). The company’s Q1 2014 earnings conference call is tomorrow at 1pm EST. (Email me if you’d like a copy of the Best Idea Long Presentation on LO)



On E-Cigs


E-cigs were once again a focal point of the call: the company began the call discussing its e-cig business under the brand VUSE and the majority of analysts’ questions in the Q&A were about VUSE.


As we’ve said previously, we expect 2014 to be a big year of investment for the company behind VUSE as it plans to roll-out nationally (and play catch up to LO’s blu as it competes alongside MO’s launch of MarkTen).


Today the company said that it will begin selling in Wisconsin and Indiana in early June, after its initial test state launches in CO and UT, where the company stated it has nearly 80% market share in each state. It then expects to launch by late June into 15,000 stores nationwide. 


CEO Delen brought forward a cautious tone to the VUSE rollout, suggesting that the company was “hedging its bets” by first gauging the 15,000 store rollout (and assessing the size of the overall category) before further launching into more outlets in the second half of the year. [For reference, LO’s blu has a national distribution in 85,000 retail outlets].  This cautious tone on the category’s growth and size echoes some of the slowing we’re seeing in the category, and certainly Delen’s tone does not strike the exuberance chord that we’ve become so accustomed to on the subject of e-cigs. 


RAI reinforced that its investment in VUSE is 1H weighted (heavy on factory and machine start-up costs and purchase of merchandise material to properly support the brand in the quarter and throughout the launch to 15,000 stores). We believe in RAI’s long-term strategy to grow VUSE as an add-on growth business and one to soak up declining cigarette smoking trends. That said, for RAI we’re concerned about the extent to which VUSE could cannibalize its tobacco business at a lower margin in the years out.  To this end we’ll be doing survey work to better understand these trends.  (Note: we do not see cannibalization risk for LO this year given its core smoker demographic (that differs from that of RAI and MO) smokes Newport menthol, its core business (~ 85% of total profits).


When questioned on the call about the potent for disappointment from the profitability of VUSE (being lower than cigarettes), Delen only said the company sees huge opportunity in e-cigs as a growth category. He thinks there are some technological shortcomings across the industry, but that VUSE is ahead of the curve. He added, he’s very confident that the current iteration of VUSE already meets what the industry is calling “next generation technology” and his team is diligently working on future enhancements (no discussion on what the future technology may incorporate). He reaffirmed he’s confident that VUSE can get cigarette-like margins over the long term.

Finally, on deeming regulation, the company reiterated that it has no knowledge of what they may include or when they might be announced. We continue to wait with bated breath, as the FDA will soon have to step in with a pronouncement to regulate e-cigs closer to traditional tobacco. Tick tock. 


Call or email with questions,




Howard Penney

Managing Director


Matt Hedrick



Fred Masotta


CCL: Removing Carnival from Investing Ideas

Takeaway: We are removing CCL from Hedgeye's high-conviction stock idea list.

After enjoying a nice ride higher over the last 6 months or so, Carnival’s valuation of 16x 2015 EPS looks fair to Gaming, Lodging & Leisure Sector Head Todd Jordan. 


Near-term risks include:  

  1. Continued choppiness in Caribbean pricing for the industry.
  2. Increased macro risks including consumer spending pressure* and higher oil prices. 

We remain constructive over the intermediate term as CCL yields should outperform Street expectations as the brand continues to regain lost value and brand rebuilding costs should abate.


CCL: Removing Carnival from Investing Ideas - car4 

*#ConsumerSlowing: The cyclical increase in consumer spending growth from the 2009 lows is under pressure. Rising food prices and a stagnating USD continue to squeeze average Americans on the margin. Given the potential for further USD depreciation and a continuation of global commodity inflation as a real macro risk, we think U.S. consumption growth will slow as it bumps up against difficult compares heading into 2Q and beyond.

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