In preparation for PENN's FQ1 2012 earnings release tomorrow, we’ve put together the recent pertinent forward looking company commentary.
Telsey Advisory Group Spring Consumer Conference (3/28/2012)
- “There is a process in place to legalize slots at the tracks. We own two of the seven tracks. We recently signed an MOU with the governor and we anticipate relocating those tracks to Austintown and to Dayton. There'll be a spend at each facility of $200 million, including the license fee, and we also agreed to pay a $75 million relocation fee at each facility.”
- “They'll have a 33.5% tax rate plus some sort of horsemen subsidy. We expect that to be around 10% to 11% and we have some guarantees if that exceeds 45%. The biggest thing we buy for the relocation fee is a buffer, a 50-mile buffer around our stand-alone facilities and also around our slots at tracks. There are a few exceptions to that 50 miles. Scioto Downs, that I talked about, is one of them. I'll get to the other two. This is still contingent. There are more developments necessary. There is – there needs to be an agreement signed with the horsemen and there needs to be a resolution to the constitutional challenge. So we're excited for the progress that we've made in Ohio, but this is not yet shovels in the ground go time.”
- "Hollywood Bangor recently added table games, one example, seven poker tables and six blackjack tables. There's a 16% tax rate and – not quite as exciting as our other stories, but there is certainly an opportunity for incremental EBITDA at that property."
- [January/February trends] “We've seen more spend particularly on the higher tier customers. February, as you said, there was an extra day and there was also great weather that contributed to our results. January was a good month, not quite as good as February, but so far we're pleased with the quarter. And I don't think that as a company we're quite ready yet to determine whether the consumer's back. I think that there's more optimism right now.”
- [Kansas cannibalization] “It's still better than expected.”
Barclays Capital High Yield Bond and Syndicated Loan Conference (3/26/2012)
- [I-gaming] “I don't think we expect federal legalization this year. There is the potential for state by state. If it happens state by state, that raises a lot more questions. You have to look at what kind of bill it is, who is allowed to be involved, what the tax rates are going to be, how hard it is to get a license. So we're kind of in wait and see mode on that, although we've had some discussions so if something is legalized we would be able to move quickly.”
- “Charles Town is doing very well, Penn National is doing very well, the Gulf Coast is struggling along a little bit, Illinois is struggling because of the new competition there, and that's kind of how it looks as far as our markets go.”
Q4 Conference Call:
- "I think there's some continued expectations for improvement, although relatively minor in the markets that are not going to be affected. The markets where we've got cannibalization taking place, it will be very difficult to maintain – certainly almost impossible to improve and very difficult to maintain, and we are showing some expectations for some declining margins in those businesses where we're expecting cannibalization. And then we've got to help kind of offset the whole piece is – we've got some pretty good expectations for where we think margins will be relative to the new properties opening."
- "Relative to markets of concern, well clearly Charles Town with Anne Arundel opening is clearly going to be one of those that we are going to be very focused on and we will be reacting appropriately. But Anne Arundel also has a little bit of an impact on Perryville and even less impact on Penn National. We've got the full year to see how the whole thing in Illinois pans out with the Rivers Casino. If we look at last couple of months results in Illinois that has been a little bit concerning. And then obviously there is the Pinnacle opening in Baton Rouge and we've got our property opening in Kansas, that's going to have an impact. So, clearly it's very difficult to predict."
- "Let me just talk about the ramp up in Ohio. I think Carlo you are right. I think the good proxy for how that's going to evolve over the first two to three years would be Penn National out in Grantville, PA. That's the way we are thinking about a ramp up there, both from a revenue growth standpoint and also margin improvement standpoint. So, I think that is the right proxy to use as you think about Toledo and Columbus opening later this year.”
- “Given the projections for racing in general and the prospects of what looks on a going forward basis in New Jersey, they came to a conclusion that the previously booked goodwill need to be written off [on the Freehold track JV]. I can tell you at this point there is no more goodwill in the joint venture, so it's all been written off and although there is a very small remaining delta between the underlying land values and the total book values, they're comfortable that we are going to be okay with that on a going-forward basis.”
- [Sioux City litigation] "We are looking collectively at various sites right now and are hopeful that we have some agreement reached by midyear to continue to move forward with our business in Sioux City and enhance our operations there. We are hopeful that the litigation that's out there can be put to rest through an agreement that can come together between us and our non-profit sponsor. But, a lot more to come between now and midyear."
- [Casino Rama] “As you saw in our guidance we have reached an agreement to extend our existing relationship for another six months, which takes us out to September 30 of this year. We've been told by the Ontario Lottery and Gaming Commission that they suspended the RFP process and they are not sure what direction they're going to take yet with the Rama contract, and I think it has broader political implications. They're trying to determine what they want to do strategically going forward with overall gaming in the province, which we're just a part of. So, we've been told that hopefully within the next couple of months they'll provide us with a little bit more direction on where they're going to go and it's tough to predict right now what's going to happen between – post- September 30, but it is a very politicized process right now that really is out of our hands.”
Position in Europe: Long German Bunds (BUNL)
Moments ago Keith covered France (EWQ) in the Hedgeye Virtual Portfolio. We’re taking this price opportunity to cover for a TRADE; our intermediate term negative view on France hasn’t changed. Below we provide our quantitative levels on for EWQ:
This Sunday marks the first of two French presidential election votes. While the leading two candidates, the incumbent Nicolas Sarkozy and Socialist Francois Hollande, will advance to the second round vote on May 6th, recent polls suggest Hollande will beat Sarkozy 29% to 24% in Round 1 and 58% to 42% in Round 2, according to CSA.
What’s broadly clear is that both candidates plan to increase taxes and impose fees on financial transactions. Both have declared to reduce the country’s deficit to 0% (as a % of GDP), Hollande by 2017 and Sarkozy by 2016. Both guide to reduce the deficit to 3% by 2013 versus 5.3% in 2011.
However, Hollande has signaled an even more socialist agenda, which we think should result in the inability of the state to meet its deficit and debt reduction targets. Hollande wants to increase spending by €20 MM over five years (by repealing €29 MM of tax breaks and generating revenue by separating retail and investment bank operations and raising the income tax on earners over €1 MM to 75%) and reduce the retirement age to 60 from 62. With the country’s debt rising to the 90% level, we expect growth to be compressed, as proven by the work of Reinhart and Rogoff. Finally, Hollande has stated that if elected he will renegotiate the EU budget compact and that he will not accept austerity as rule for countries.
Taken together, we think these policy moves will disadvantage the broader economy versus its European peers.
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In preparation for MAR's FQ1 2012 earnings release tonight, we’ve put together the recent pertinent forward looking company commentary.
- “As of year-end 2011, our group revenue pace for 2012 is up 9% and room rates continue to improve. For group revenue booked in 2011 for the following 12 months, room rates are up 3%. And for the transient business, approximately 80% of our special corporate rates are now negotiated with room rates running up at a mid single-digit pace.”
- "Group revenue booked during the fourth quarter of 2011 for the next 12 months increased 16% year-over-year with 3% coming from rate while total group revenue on the books for 2012 is up 9%."
- "As the bookings made in recession years in our large convention and resort hotels continue to burn off, we expect our group business will continue to strengthen."
- “Our hotels in Japan have seen a remarkable recovery since the March 2011 tsunami. In December 2011, the Ritz-Carlton Hotel in Tokyo reported an 89% occupancy rate compared to just 28% last April. Demand from domestic Japanese travelers has led the recovery, but we expect growing numbers of international guests and easier comparisons in 2012. “
- “The economy is Europe is concerning; government related travel has been weak in the UK provinces for some time largely due to government austerity programs. We estimate government related business represents 10% of lodging industry demand in continental Europe, so a broader adoption of such programs could have a negative impact on the industry. Although the European economy is soft, 30% of our European lodging demand comes from outside Europe with about 20 points from North America and 7 points from Asia. We also benefit from a heavy concentration of hotels in international gateway markets. The Olympics in London this summer should also be a shot in the arm. Combined with a strong U.S. dollar, we hope for a strong tourist season this summer in Europe.”
- "In the Middle East, local economies should be benefiting from higher oil prices but political unrest and the weak European economy continues to discourage travel, particularly to Egypt. While we can't predict future political unrest in the region, impact from the Arab Spring began in February 2011 so most of 2012 should at least benefit from easier comparisons. "
- "San Francisco, Los Angeles, and Chicago were strong while some markets in the Eastern U.S. lagged a bit. West Coast markets had both strong transient business and last minute group booking. New York RevPAR growth was moderated by new supply and competitor discounting. In Washington, our RevPAR increased modestly in the quarter but continued to be constrained by weak government business. Philadelphia had a very strong quarter following the completion of a public space renovation at the 1400 room Philadelphia Downtown Marriott."
- "At year end, our pipeline increased to over 110,000 rooms worldwide with nearly half of the rooms in international markets. Today, roughly 40% of our worldwide pipeline rooms are under construction and another 10% are pending conversion."
- For 2012, we expect worldwide system wide RevPAR to increase 5% to 7%, reflecting strengthening group business. With roughly 30,000 group room additions – gross room additions, we expect adjusted fee revenue to increase 8% to 11% and incentive fees decline roughly 20%.
- In 2012, we expect diluted earnings per share to increase 16% to 25% year-over-year to $1.52 to $1.64
- For the first quarter, we expect diluted earnings per share to total $0.26 to $0.30 assuming a 5% to 6% worldwide system wide RevPAR increase. We expect fee revenue to increase 6% to 9% over 2011 first quarter adjusted levels.
- We expect investment spending 2012 to total $550 million to $750 million including about $50 million to $100 million in maintenance spending.
- We expect the [timeshare] transaction will generate approximately $400 million to $450 million of cash tax benefits over time, a bit better than our earlier expectations. We recognized about $80 million of these cash tax benefits in 2011 and expect to recognize about $115 million to $125 million in 2012.
- Assuming incremental investment opportunities do not appear, we expect to return roughly $1 billion to shareholders through share repurchases and dividends in 2012.
- "We're encouraged by our first period results. For January, system wide RevPAR at our North America hotels was up roughly 8%. For international hotels, RevPAR was up roughly 4% on a constant dollar basis in January, reflecting an earlier Chinese New Year in 2012. Given our 13 period fiscal year, our first quarter international RevPAR statistics will include only January and February so we won't see the easing comparisons in the Middle East and Japan until the second quarter."
- Q: “So you generally expect the group rates to improve throughout the year as we look forward”
- A: "That's absolutely right. Now it obviously varies significantly by hotel, but the group business on the books for 2012 at the beginning of the year is probably about 70% of the total group business that will actually stay and pay in 2012. So we'll get building rates on the business booked in the year for the year compared to the average, but they won't dramatically shift the total rate performance of the total group segment."
- "There's a little bit of recycling in 2012, not around these EDITION hotels, but around some loans that will be paid off that we would anticipate happening. Total order of magnitude, $100 million."
- Q: “Are you anticipating that debt will increase in 2012?”
- A: “Sure, because we're anticipating the increase in EBITDA, or adjusted EBITDA from the rating agency standpoint. So based on that we have debt capacity and we'll use it.”
- "We're sort of assuming that we have modestly positive RevPAR in Europe, plus two points or three points in comparable hotels. I think if you look at the risks in the model, probably the biggest single risk would be that we could do worse than that in Europe. Now, remember, we talked about 9% of our total fees are coming out of Europe, so you can do the math. If we lost 10%, really, of our RevPAR and therefore of our fees in Europe, that's only 1% of the total so it's not enormously crucial to us. But we don't have tremendous confidence that we have clear insight into the way Europe will perform in 2012."
THE HEDGEYE BREAKFAST MONITOR
HEDGEYE VIRTUAL PORTFOLIO POSITIONS
LONGS: JACK, SBUX
Commentary from CEO Keith McCullough
If only the global economy was Apple…
- SPAIN – do up your chinstraps because Spain is officially moving back into crash mode (down -19.4% from its YTD high in Feb where a lot in Global Macro stopped going up – gravity + #GrowthSlowing = nasty combo). Remember, the Germans are on the record saying Spain and Italy are potentially “Too Big To Save”… potentially…
- COPPER – the Doctor is out. No bounce this morning in either Gold or Copper as Bernanke’s Bubbles continue to pop. Neither of these Commodities look like Nat Gas yet (crashing to $1.94 this morn), but both are in what we call Bearish Formations (bearish across all 3 risk mgt durations – TRADE/ TREND/TAIL).
- US DOLLAR – hanging in here at its long-term TAIL of support ($76.13) like a champ. Despite all of the fiscal and monetary planning disasters in the US, that’s impressive – and that’s mainly because trading USD in the middle of a Global Currency War is relative (France could vote for a Socialist and Japan is on the fiscal brink).
SP500 no-volume rally yesterday didn’t close above my immediate-term TRADE line of 1394 resistance, despite APPL. KM
MCD: McDonald’s was raised to “Buy” from “Hold” at Edward Jones.
PNRA: Panera Chief Operating Officer John Maguire will step down effective May 31st to become CEO of Friendly’s Ice Cream LLC. Charles Chapman III, currently serving as executive vice president of development and business development and licensing, will take over as Panera’s COO at the end of May.
NOTABLE PERFORMANCE ON ACCELERATING VOLUME:
SBUX: Starbucks has declined for two consecutive days, closing down 1.7% yesterday on accelerating volume.
YUM: Yum traded higher on accelerating volume ahead of earnings.
NOTABLE PERFORMANCE ON ACCELERATING VOLUME:
BWLD: Buffalo Wild Wings declined on accelerating volume yesterday. This stock remains one of our favorite names on the short side.
In-line 1Q but will RCL change FY 2012 guidance?
We’re projecting an in-line 1Q at 14 cents. Close-in bookings for Q1 were weak but it shouldn’t have much effect on results since there was very little unsold inventory left at the time of the last call. 1Q fuel expenses are estimated to be $8MM higher since its latest guidance update on Feb 29. The big question is whether RCL will follow CCL and lower FY2012 guidance again. As RCL mentioned on their last call, 2Q and 3Q is highly uncertain. We’ve have lowered 2Q and 3Q estimates due to weak pricing across most itineraries as we mentioned in "2012 MARCH CRUISE PRICING MATRIX" (4/18/2012). However, 4Q is looking healthy due to strength in the Caribbean business. Our current FY 2012 estimate is $2.01, which is lower than the Street’s $2.16, but still within the $1.90-$2.30 set forth by RCL.
No change in guidance or only a small tweak lower would be a positive for the stock. Since RCL lowered guidance on 02/02/12, the stock is down 3% while the S&P is up 5%.