Noble Growth

This note was originally published at 8am on April 17, 2014 for Hedgeye subscribers.

“Ambition is the germ from which all growth of nobleness proceeds.”

-Oscar Wilde


As an equity investor if you are early on growth in owning a stock, that is usually a very good thing.  Parabolic growth can propel a stock to, as they say, “infinity and beyond.”  On a macro level the same lesson applies.  We’ve obviously been vocal and early on our view of growth slowing this year and the sub-sector performance of the SP500 has reflected that in spades.


On a more micro level, we’ve also been pretty negative on social media stocks, in particular Twitter (TWTR) and Yelp (YELP).  Admittedly on Twitter, we were early as we were literally negative from the IPO, but as TWTR’s first earnings report showed us, expectations will eventually meet the gravity of reality.


In adding YELP to our Best Ideas list as a short, our timing has been much better.  The key tenets of the short thesis on YELP are that customer attrition is a major issue, which no one is focused on, and also that the addressable market is much smaller than the management team is pitching to investors.  The combination of attrition and a smaller market makes us believe that revenue growth will eventually disappoint. (If you’d like to get on the distribution list of Hesham Shabaan, who runs our Internet research team, please email


Even as we believe that certain social media stocks are getting ahead of themselves, it is hard to deny their ambitious growth.  The boot strapping startup stories of the likes of Twitter and Facebook are worthy of admiration.  In what direction these business models evolve will be the true test of longevity, but it is hard to deny the potential of a company like Facebook where 1/8 of the planet uses the application and 64% of users visit the site daily.


Another growth area we have been focused on has been electronic cigarettes, or e-Cigs.  This has been reflected on our Best Ideas list with a long in Lorillard (LO).  For the most part, LO is a boring tobacco stock, but has an underlying growth engine in its e-Cig business, which makes its growth prospects much more exciting.  Although, admittedly, it is hard to call this noble growth. 


The research on e-cigs naturally led us to also look at the burgeoning medical marijuana market.  In states that have recently legalized marijuana it has been a boon to state tax coffers and to the extent that this legalizing expands, it is likely that tobacco companies enter the field.  But before we dive into research and start doing calls on the topic, we’d like to get your view.


In our poll of the day that will circulate later today, we will be asking the question: Would you invest in a company that produces medical marijuana? We look forward to your responses and in getting the crowds view on whether medical marijuana is noble growth.


Back to the Global Macro Grind . . .


Heading into the long weekend, many business people and investors will be taking stock of the score in the year-to-date. In the chart of the day, we have attached one of a number of the quant screens that we circulate internally daily that show relative asset class performance.


One interesting chart looks at P/Es for countries versus their 3-year mean.  Based on that metric the three most overvalued countries are Mexico, Argentina, and Saudi Arabia.  Meanwhile, the three most undervalued are Russia, China, and Japan.  There is some global macro performance to be found in that group to be sure!


Speaking of performance, it likely has not been a great year for the average long only fund as the SP500 is up a dreary +0.75% (certainly much different than what the Barron’s round table projected to start the year) and the hedge fund industry hasn’t fared much better.  According to data from Preqin, the average hedge fund returned 1.23% in Q1, which is the worst start since 2008.


Interestingly, the one strategy that has worked well is activist investing.  According to the same data, activist funds on average were up 3.3% in Q1.  We have also been very vocal on one major activist name, the restaurant behemoth Darden (DRI).   And this may fall in the category of growth that isn’t noble as well, but you should expect to see more activist ideas come from us as the year continues. 


As we noted earlier, based on a comparison to the 3-year mean in forward P/E, Japanese equities are screening as cheap.  The question that arises is whether Japan is cheap for a reason.  Certainly, one potential negative catalyst for Japan is the VAT tax.  March department store sales were up an astonishing 25.4% year-over-year in March ahead of the VAT tax that was implemented on April 1st


Meanwhile, despite buying a lot, the confidence of consumers in Japan actually declined in March.  According to the Japanese consumer confidence index, confidence declined to 37.5 in March from 38.5 in February.  Clearly not an earth shattering breakdown in confidence, but likely a leading indicator of future declines now that the VAT tax is in place.


Clearly, the Japanese policy makers are going to have some interesting decisions to make in coming months and most of them are unlikely to bode well for the Yen.  Japanese leadership may be wise to consider the words of Nascar legend Dale Earnhardt:


You win some, lose some, and wreck some”

Ultimately, Japanese policy makers will have to decide whether growth by devaluation is truly noble growth.


Our immediate-term Global Macro Risk Ranges are now:


SPX 1811-1881

Nasdaq 3959-4203

Nikkei 13699-14598

USD 79.11-80.03

EUR/USD 1.37-1.39

Nat Gas 4.49-4.72 


Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research


Noble Growth - chartoftheday



TODAY’S S&P 500 SET-UP – May 1, 2014

As we look at today's setup for the S&P 500, the range is 28 points or 1.27% downside to 1860 and 0.21% upside to 1888.                                                       













  • YIELD CURVE: 2.24 from 2.24
  • VIX closed at 13.41 1 day percent change of -2.19%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7:30am: Challenger Job Cuts y/y, April (prior -30.2%)
  • 7:30am: RBC Consumer Outlook Index, May (prior 50)
  • 8:30am: Fed’s Yellen speaks in Washington
  • 8:30am: Initial Jobless Claims, April 26, est. 320k (prior 329k)
  • Continuing Claims, April 19, est. 2.7m (prior 2.680m)
  • 8:30am: Personal Income, March, est. 0.4% (prior 0.3%)
  • Personal Spending, March, est. 0.6% (prior 0.3%)
  • 8:30am: PCE Deflator m/m, March, est. 0.2% (prior 0.1%)
  • PCE Deflator y/y, March, est. 1.1% (prior 0.9%)
  • PCE Core m/m, March, est. 0.2% (prior 0.1%)
  • PCE Core y/y, March, est. 1.2% (prior 1.1%)
  • 9:45am: Bloomberg Consumer Comfort, April 27 (prior -25.4)
  • 9:45am: Markit US Manufacturing PMI, April final est. 55.4 (prior 55.4)
  • 10am: ISM Manufacturing, April, est. 54.3 (prior 53.7)
  • ISM Prices Paid, April, est. 59.5 (prior 59)
  • 10am: Construction Spending m/m, March, est. 0.5% (prior 0.1%)
  • 10am: Freddie Mac mortgage rates
  • 10:30am: EIA natural-gas storage change


  • House, Senate in Session
  • U.S. Trade Representative Michael Froman testifies on agenda
  • German Chancellor Angela Merkel arrives for mtgs with Obama
  • Independent Community Bankers of America holds 2nd day of Washington Policy Summit, with speakers including Yellen
  • 12pm: Freddie Mac Chief Economist Frank Nothaft speaks at Natl Economists Club
  • U.S. ELECTION WRAP: Establishment Republicans Lead; N.C. Primary


  • U.S. signals Putin that any move against NATO nations risks war
  • Sprint said to plan T-Mobile bid as banks pushed for funds
  • Pfizer CEO meets w/large AstraZeneca holders, Osborne: FT
  • AT&T approached DirecTV about possible acquisition: WSJ
  • Abercrombie bows to activist by replacing 4 of its directors
  • Viacom said acquiring U.K.’s Channel 5 from Northern & Shell
  • Chesapeake cleared by U.S. prosecutors in Michigan shale probe
  • Ares seeks higher IPO value than buyout peers on stable rev.
  • Google unveils new advertising tools for marketers on YouTube
  • Musk’s SpaceX wins temporary order blocking rocket engine buys
  • Medicines Co.’s Cangrelor denied approval by FDA
  • April U.S. auto sales: Chrysler seen extending 48-month streak
  • U.K. manufacturing grows more than forecast as exports up
  • Fed Chair Janet Yellen speaks to community bankers conference


  • Airgas (ARG) 7:30am, $1.20
  • Alliant Energy (LNT) 6am, $0.79
  • Alpha Natural Resources (ANR) 7am, ($0.57) - Preview
  • American Tower (AMT) 7am, $0.50- Preview
  • AmTrust Financial Services (AFSI) 7am, $0.92
  • ANSYS (ANSS) 7:09am, $0.76
  • Avon Products (AVP) 7:01am, $0.21- Preview
  • Ball (BLL) 6am, $0.67
  • Baytex Energy (BTE CN) 8am, C$0.52
  • Becton Dickinson and Co (BDX) 6am, $1.50
  • BGC Partners (BGCP) 8am, $0.13
  • Bombardier (BBD/B CN) 6am, $0.08 - Preview
  • BorgWarner (BWA) 8am, $0.80
  • Bunge (BG) 6:30am, $1.40
  • Calpine (CPN) 6am, ($0.06)
  • Cardinal Health (CAH) 8am, $1.01 - Preview
  • CenterPoint Energy (CNP) 8:15am, $0.32
  • Church & Dwight Co (CHD) 7am, $0.73
  • Cigna (CI) 6am, $1.54
  • Clorox Co/The (CLX) 8:30am, $1.08 - Preview
  • CME Group (CME) 7am, $0.83
  • Cobalt International Energy (CIE) 7am, ($0.17)
  • ConocoPhillips (COP) 7am, $1.55- Preview
  • Domino’s Pizza (DPZ) 7:30am, $0.68
  • Endo International PLC (ENDP) 6:32am, $0.83
  • Enterprise Products Partners (EPD) 6am, $0.75
  • Exxon Mobil (XOM) 8am, $1.88 - Preview
  • Fidelity National Information (FIS) 7am, $0.68
  • Fortress Investment Group LLC (FIG) 7am, $0.15
  • Gartner (IT) 7am, $0.37
  • Generac Holdings (GNRC) 5:59am, $0.69
  • Goldcorp (G CN) 8am, $0.14 - Preview
  • Harman International (HAR) 8am, $1.01
  • Host Hotels & Resorts (HST) 6am, $0.15
  • Incyte (INCY) 7am, ($0.17)
  • Invesco (IVZ) 7:30am, $0.55
  • Iron Mountain (IRM) 6am, $0.26
  • ITT (ITT) 7am, $0.52
  • Jarden (JAH) 6:50am, $0.16
  • Kellogg Co (K) 8am, $0.97 - Preview
  • L-3 Communications Holdings (LLL) 7am, $1.95
  • Lazard (LAZ) 7am, $0.54
  • Legg Mason (LM) 7am, $0.58
  • Linn Energy LLC (LINE) 6:50am, $0.38
  • Manulife Financial (MFC CN) 6am, C$0.37 - Preview
  • Maple Leaf Foods (MFI CN) 7am, (C$0.16)
  • Marathon Petroleum (MPC) 7:06am, $1.06 - Preview
  • MasterCard (MA) 8am, $0.72
  • Motorola Solutions (MSI) 7am, $0.50
  • Mylan (MYL) 6:30am, $0.63 - Preview
  • Ocwen Financial (OCN) 7:30am, $1.02 - Preview
  • OGE Energy (OGE) 7am, $0.25
  • Penn West Petroleum (PWT CN) 6:31am, C$0.11
  • PG&E (PCG) 9:02am, $0.63
  • PPL (PPL) 6:57am, $0.71
  • Public Service Enterprise Group (PEG) 7:30am, $0.96
  • Realty Income (O) 9:15am, $0.23
  • Royal Gold (RGLD) 8am, $0.23
  • Sally Beauty Holdings (SBH) 7:30am, $0.39
  • Starz (STRZA) 7:30am, $0.53
  • Stillwater Mining Co (SWC) 8am, $0.09
  • Teva Pharmaceutical Industries (TEVA) 7am, $1.20 - Preview
  • Textron (TXT) 6:30am, $0.34 - Preview
  • T-Mobile (TMUS) 6am, ($0.11)
  • Viacom (VIAB) 6:45am, $1.05 - Preview
  • Vonage Holdings (VG) 8am, $0.03
  • Xcel Energy (XEL) 6am, $0.50


  • Agnico Eagle Mines (AEM CN) 5pm, $0.24 - Preview
  • Akamai Technologies (AKAM) 4:01pm, $0.53
  • AlonA Energy (ALJ) 6pm, $0.05
  • Arch Capital Group (ACGL) 4:01pm, $1.06
  • BioMarin Pharmaceutical (BMRN) 4pm, ($0.46)
  • Covance (CVD) 4:01pm, $0.90
  • DaVita HealthCare Partners (DVA) 4:01pm, $0.86
  • Eldorado Gold (ELD CN) 5:48pm, $0.05 - Preview
  • Expedia (EXPE) 4pm, $0.15
  • First Quantum Minerals (FM CN) 5pm, $0.24 - Preview
  • FleetCor Technologies (FLT) 4:01pm, $1.07
  • Fluor (FLR) 4:05pm, $0.97
  • Integrys Energy Group (TEG) 5:08pm, $1.75
  • InvenSense (INVN) 4:05pm, $0.11
  • Kodiak Oil & Gas (KOG) 4:01pm, $0.18
  • Kraft Foods Group (KRFT) 4pm, $0.76 - Preview
  • LinkedIn (LNKD) 4:05pm, $0.34
  • Manitowoc Co/The (MTW) 4:25pm, $0.20
  • Mohawk Industries (MHK) 4:01pm, $1.17
  • ON Semiconductor (ONNN) 4:05pm, $0.15
  • PMC-Sierra (PMCS) 4:05pm, $0.07
  • RR Donnelley & Sons Co (RRD) 4pm, $0.23
  • SBA Communications (SBAC) 4:01pm, ($0.03)
  • Southwestern Energy Co (SWN) 4:10pm, $0.63
  • Standard Pacific (SPF) 4:02pm, $0.11
  • Tempur Sealy International (TPX) 4:03pm, $0.51 - Preview
  • Vertex Pharmaceuticals (VRTX) 4pm, ($0.77)
  • Western Union Co/The (WU) 4:01pm, $0.35
  • Wynn Resorts (WYNN) 4:05pm, $2.07
  • XL Group PLC (XL) 4:01pm, $0.74


  • WTI Drops to Four-Week Low as Crude Supplies Rise; Brent Falls
  • Shale Revolution Luring Trading Houses Into U.S. Energy Assets
  • Silver Looks Like Gold as Slump Defies Car-Part Use: Commodities
  • Gold Drops for Fourth Day as Federal Reserve Curbs Bond Buying
  • Crop Futures Drop as Warmer U.S. Weather May Boost Planting Pace
  • Nickel Declines Amid Indications Rally Lifted Prices Too High
  • Robusta Coffee Drops Amid Ample Vietnamese Supplies; Cocoa Falls
  • European Gas Costs to Extend Longest Drop in 4 Years in Mild May
  • Rio Claims Vale, Steinmetz Conspired on Guinean Iron Ore Mine
  • Utility Investors Brush Off Supreme Court’s EPA Support: Energy
  • Dutch Police Arrest Activists Trying to Block Arctic Oil Tanker
  • Looming El Nino Seen Spurring Droughts to Smelly Reefs in Asia
  • Aluminum Inventories Rebound on Additional Capacity: Bear Case
  • Gas Swings Show Russia Avoids Iran-Style Curbs: Chart of the Day
  • Life Imitates Art as Wall Street Bets on Shipping Debt: Freight

























The Hedgeye Macro Team














May 1, 2014

May 1, 2014 - Slide1



May 1, 2014 - 2

May 1, 2014 - 3

May 1, 2014 - 4

May 1, 2014 - 5

May 1, 2014 - 6

May 1, 2014 - 7

May 1, 2014 - 8




May 1, 2014 - 9

May 1, 2014 - 10

May 1, 2014 - 11
May 1, 2014 - 12

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Borgata disappointing (in part to 1x online startup expenses) but overall at the top of guidance. 2014 guidance looks in line. Upcoming catalysts include big refi, Borgata property tax resolution (likely favorable and material), and less bad regional gaming revs.





Core Operations

  • Cutting expenses in light of flat revenue environment
  • Recent Southern Nevada data points support stronger revenue outlook - job add, house price appreciation...within increased consumer confidence gaming spend should increase
  • Penny Lane rolled out to 15 properties with full roll out by end of the summer
  • B-Connected rolled out to all markets
  • Non-gaming amenities revitalization
  • Severe winter weather negatively impacted $10-$12M
  • Real Money On Line - Borgata brand capturing 1/3rd of NJ online revenue
  • Opportunities to expand land based operations -- looking at Northern California and South Florida
  • BS is strong and making progress, delevering and paid down $55M in Q1, estimated will save $80M in interest expense
  • $1.1B Federal loss carry forward
  • Use FCF to reduce debt
  • LT shareholder value - organic, on line, acquisitions. Will consider all opportunities and consider all options seriously.

Operating Results

  • Total Property Margins nearly unchanged YoY
  • Weather impacted results by $10-12M

 Las Vegas Locals

  • YoY comps more difficult but strength in destination business and core operations
  • 1Q maintained market share with flat reinvestment
  • Actively refining non-gaming amenities Gold Coast and Orleans room renovations, Sun Coast rooms later this year; Gold Coast meeting rooms this summer -

 Downtown Las Vegas

  • Capturing more walk-in traffic from Fremont Street
  • Higher yields on Hawaiian business


  • ex weather Q1 2014 would have been closer to Q1 2013
  • modest YoY EBITDA growth will occur in 2H14
  •  B-Connected launched last few weeks in Louisiana, complete portfolio rollout by end of summer
  •  Also launching Penny Lane
  •  Kansas Star - phase 2 started = 150 rooms, double room count and $20M in non-gaming space (meeting, banquet space and equestrian facilities)


  • Borgata operating loss due to 40" of snow
  • Philly impacted by 57" of snow vs. 8" in 2013
  • $2.5M higher utilities
  • $1.5M higher property taxes

On Line Gaming

  • lead NJ market since launch, combined market share = 40%
  • invested heavily in marketing and advertising - $2M from non-recurring one-time expenses
  • enhancing game content options
  • net-teller, prepaid service


  • reduced debt by $55M
  • available credit of $300M at Boyd, $35M Peninsula, and $20M Borgata
  • Boyd secured leverage 4.2x secured vs. 5x covenant
  • Total leverage 6.7x vs. 8.5x covenant
  • Peninsula 6.3x vs 7x covenant
  • Borgata had $114M of covenant EBITDA
  • CapEx $18M during Q1 including: $2M Borgata & $6M at Peninsula
  • Full year capex: $120M maintenance plus $20M expansion at Kansas Star

Q2 EBITDA Outlook

  • Las Vegas Local: in line
  • Downtown: in line
  • Borgata exceed prior year
  • Other US - YoY EBITDA declines similar to Q1 absent negative EBITDA weather impacts
  • 3Q anniversary Shreveport and IL VLT competition

Full Year Outlook

  • Las Vegas Locals: 2014 EBITDA growth should be similar to EBITDA growth 2013 vs. 2012.
  • Downtown: comparable
  • Midwest/South/Peninsula:  YoY growth in 2H 2014, $9.3m property tax adjustment at Blue Chip from Q4 in 2013 and not 2014
  • Borgata: even with 2013 results, not assuming any impact from property tax, but does consider ($3.5M) on line gaming loss in Q1
  • Recent trends: less optimistic about top end of guidance, therefore lower top end of guidance of EBITDA from $630M to $620M 

Q & A

  • Guidance: which segment drove cut to high end - all segments, across all aspects of business, not one specific segment.  Expect all segments to do better in Q3 and Q4.
  • How balancing investing for long-term vs. near-term earnings - loss in Q1 driven by start-up and launch advertising costs.
  • What seeing right now in regional landscape in April, specifically Kansas -- level of revenues at Kansas Star were down less than prior months, permanent casino opened just over one year ago to strong demand and visitation, thus after plateau, this is the reset/steady state operating environment.  Kansas Star is ~50% of all GGR in Kansas.  Expect uplift from add'l hotel rooms and meeting space.
  • Thus far in April - echo market commentary...slow because of tax-filing and Easter weekend.  Still looking for business uplift in May and June.
  • Midwest/South Segment Q2 declines similar to Q1 ex weather of $6M
  • Comps getting easier - what gives you confidence regarding 2H growth - Q3 and Q4 2013 was real degradation beyond normal seasonal slowdown, weakness in lower end consumer in 2013 and not expect add'l and repeat weakness in 2014.   While cautious thus far in April, some properties doing better than forecast. 
  • Las Vegas customer behavior - frequency is down, daily actual is up in Locals Segment and has been for past two years.
  • Board emphasis on shareholder value - takes many different forms, takes time to analyze and vet over short term and long term, makes correct for long term 
  • Borgata tax appeal - no estimate when appeal will run course


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



• Total revenues:  $1,264 million

• Adjusted EBITDA:  $293 million

• FFO:  $0.30/share



FY 2014:

  • Comparable hotel RevPAR - domestic: 5% - 6%
  • Comparable hotel RevPAR - int'l constant US$: 5.5% - 6.5%
  • Total comparable RevPAR - constant US$: 5% - 6%
  • Total revenues (GAAP): +2.9% to +3.9%
  • Total comparable hotel revenues: +4.3% to 5.3%
  • Operating profit margins (GAAP): 140-160 bps
  • Comparable hotel adj. operating profit margins: 60-110 bps
  • Adjusted EBITDA $1,350-$1,390 million
  • Net Income: $490-$527 million
  • Diluted EPS: $0.63-$0.68
  • FFO (NAREIT)/share: $1.39-$1.44
  • FFO (Adj)/share: $1.40-$1.44


  • CapEx - total value of growth vs. maintenance capex programs?  ROI on renovations from last 2 years? 
  • Views on:
    • Washington DC
    • New York
    • Chicago
    • California: San Diego, Los Angeles, vs. San Francisco?
    • Urban vs. Suburban vs. Resort/Conference
  • Where are inflation pressures negatively impacting margins?
  • Does the company want to achieve a debt rating upgrade from BBB to BBB+ or A- ?
  • What is the Company's dividend strategy/policy - given the $0.01/share increase each of the past 13 quarters to Q1 2014's dividend/share of $0.14?
  • How much current cash is trapped overseas? How do you plan to utilize this cash?
  • Recent commentary from Delta Air Lines indicated strong price taking in April, May and June of this year, how does that compare with what the company is seeing for advance bookings?



  • Comparable same-store RevPAR was +6.6% (constant dollars), with room rate +4.4% and occupancy up 140 bps.
  • Actual RevPAR, which includes the 10 properties that were either acquired or under renovation last year, was +7.2%, with rate +4.7% and occupancy +180 bps.
  • Adjusted operating margins were +130 bps.
  • F&B revenue increased 6.1% during Q1 2014.


  • About 70.0% of 2014 group business has been booked.
  • Group revenue is tracking +5.5%, with room nights up 3.0% and rate +2.5%.
  • Group revenue is still 10.0% below prior peak levels
  • Group revenues booked in Q4 for 2014 and 2015 exceeded the prior-year’s strong pace
  • For 2014, group booking pace is up 3% in room nights with average rates projected to be up in every quarter
  • More than 70% of our expected group rooms for the year have been booked
  • Revenues for the year up more than 5.5%, and we expect a solid year from our group segments


  • Strong demand in our higher-rated retail and corporate business, which increased more than 6.5%


  • 2013 results for portfolio RevPAR was $151 and occupancy of 76.0% versus prior peak inflation adjusted RevPAR of $178 and occupancy of 78.0%.
  • More room to grow before the portfolio achieves prior peak levels. 
  • F&B revenues are still roughly 10% behind 2007 level
  • Margins are still 300 bps below peak and profitability 15.0% on a non-inflation adjusted basis

Asset Sales

  • Disposed of nearly $700 million of assets over last 12 months.
  • Over the past 12 months, the company sold six hotels for $667 million.
  • Since the start of 2012, the company has sold $1.1 billion of assets.
  • Marketing additional assets but sale multiples could be in the low double digits as substantial capex is needed for several properties


  • equity issuance this year should be minimal in the absence of significant acquisition opportunities, as HST is approaching its leverage target of 3x.”

Market Trends

  • San Francisco:  mix shift to higher-rated transient and group
  • San Diego:  strong group & transient
  • Hawaii: occupancy -430bps due to timeshare construction at the Hyatt Hotel in Maui
  • Due to the negative impact of the unfavorable exchange rates this quarter, nominal comparable international hotel RevPAR grew only 0.9%
  • Expect European joint venture hotels’ RevPAR to increase from 2013 levels, but will continue to unde rperform our total portfolio in 2014

SAM: Impressive Results on Easy Comp; 2H More Challenging

Takeaway: Q1 strong on easy comp; on balance we like SAM's ability to navigate its growing pains -- the remainder of the year will be more challenging

SAM had a strong quarter of results for what is typically its smallest quarter of revenue in the year: it grew net income 20.3% to $8.3M (albeit on a very easy comp of -7.8%) on net revenue of $183.8B, or +35.2% Y/Y, which beat our estimate of $177.1B (+30.0%).


There were lots of exciting offerings in the quarter:  it introduced a new spring seasonal Samuel Adams Cold Snap, late in the quarter launched Samuel Adams Summer Ale; and launched Samuel Adams Rebel IPA.  The strong volume performance in the quarter (+32% Y/Y) clearly got a lift from this suite of products (alongside strong performance from Angry Orchard, Twisted Tea and the launch of Twisted Tea Lemonade), however going into the remainder of the year the company will get less of a benefit as it does not plan to launch any more seasonals.    


To support these launches SG&A was bumped up significantly in the quarter, to +32.8% or $77.1M, which was also against a light comp of +16.8% in the prior year quarter (avg last year was 23.8%). 


Other Notables:

  • Company achieve price increases of ~ 2%
  • Gross Margin was down in the quarter by 70bps Y/Y to 49.2% on higher input costs
  • Operating Margin grew 20bps Y/Y
  • Tax rate increased to 37% versus 28% in the year-ago quarter
  • Company maintained the FY Gross Margin range of 51% to 53%
  • Company maintained the FY diluted EPS range of $6.00 to $6.40
  • Company narrowed its FY Capital Expenditure range to $160M to $200M versus previous guidance of $160M to $220M

We continue to like SAM but are cognizant that Q1 had relatively easy comparisons. We expect SAM’s GM in particular to be challenged over the remaining quarters on more difficult comps and rising input costs. We also expect shipping costs, which fall under Advertising and Promotional Spending (up a significant 41% in the quarter Y/Y) to remain elevated as the company cites less availability of carriers.


We’re seeing strong demand across the portfolio, but cognizant that the company will experience growing pains as it expands its brewing capacity. Rising input costs will also be a headwind and the company must manage its advertising throughout the year after an impressive rollout of new products in Q1.


Howard Penney

Managing Director


Matt Hedrick



Fred Masotta


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