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[video] Penney: Still the Bear on Micky D’s

 

The Golden Arches aren’t looking so bright according to Hedgeye Restaurants Sector Head Howard Penney. He remains one of the lone bears on McDonald’s and says MCD has more downside in store. In a recent note, Penney criticized current management writing, “McDonald’s management insists on blaming the macro environment for their issues.”

 

He noted that CEO, Don Thompson, was President of the U.S. division back in 2009, when the company decided to roll out McCafé (a failure according to Penney).  He thinks it’s “highly unlikely that [Thompson] will acknowledge the company has significant operational issues and the need to embark on a path of real change.  It is much easier to look for blame elsewhere.”

 

Click on the video above to watch Howard Penney on CNN earlier this week.


[podcast] Maine Calling: Keith Talks #PopTech

Hedgeye CEO Keith McCullough calls in from the 17th annual PopTech conference in Camden, Maine to talk innovation, technology and much more.

 


Bernanke's Little Blue Pills

Takeaway: Bernanke’s Buck Burning, Little Blue-Pill Experiment (not tapering) = Yen up = Nikkei Smoked

Bernanke's Little Blue Pills - blu1

The Nikkei got smoked again for a -2.8% loss overnight. It's down -4.5% in the last 3 days. Got interconnected global macro market risk associated with Bernanke trying to bend economic gravity?

 

Expectations of global growth slowing are definitely bending now as the Fed’s balance sheet moves toward +$1 TRILLION year-over-year (+$998.1 billion in last night’s report). This is what happens when unelected central planners try to bend economic gravity using monetary Viagra.

 

Bernanke's Little Blue Pills - drake

 

Editor's note: This is a brief excerpt from Hedgeye morning research. For more information on how you can subscribe click here.


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3Q13 FINANCIALS EARNINGS THEMES: MIXED NUMBERS, MIXED REACTIONS

Takeaway: 3Q13 Earnings Trends: Credit remains the big positive driver while loan growth and NIM are showing improvement, but efficiency is worsening.

Not Beating Expectations, but Not Missing Either

As Financials earnings season starts to wind down, we find it useful to examine the trends that have emerged. Our Hedgeye Financial Earnings Scorecard below shows patterns in the results based on nine metrics and our own score of overall strength (from -10 to +10) for each issuer and in the aggregate. So far, the results have been quite mixed, with an overall score of zero, suggesting that, all things considered, things are coming in just about in line with expectations. The money center banks (-4), credit card companies (-2) and trust banks (-1) have generally disappointed, while the regional banks  (+2) have been, on balance, more positive. 

 

3Q13 Earnings Season Themes

With the earnings season for Financials now largely in the rear-view mirror, it's clear that the strongest areas of contribution are still coming from credit with a preponderance of companies still showing sequential improvement in NCOs, NPAs and at least half of companies still seeing earnings contributions from reserve release. Efficiency actually deteriorated this quarter across the sector as well over half of companies have reported a sequential increase in costs relative to expenses. Regarding the top line, the news is generally positive. Almost three-quarters of companies are now reporting positive loan growth, albeit slow growth. The margin front also showed some improvement vs recent trends. Half of companies reported that NIM sequentially improved this quarter, up substantially from prior quarters. 

 

EPS: 26 out of  49 companies (54%) have beat consensus EPS estimates, while 11 have been in line, and 12 have missed (25%). Keep in mind that we are looking at the optical (unadjusted) numbers. 

 

Revenues: 10 out of 49 companies (20%) have beat consensus revenue estimates, while 22 were in line and 17 missed (35%). For reference, we consider +2%/-2% the threshold for a beat/miss on top line. 

 

Credit: 26 out of 49 companies have released reserves this quarter, or 53%. 13 of 49 (26%) have built reserves and the rest were essentially provisioning in-line with net charge-offs. NCOs were predominantly better again this quarter with 71% of companies reporting a sequential improvement in the level of net charge-offs. The data was better still on a forward-looking basis, where 88% of companies reported a sequential decline in NPAs.

 

Margins: NIM pressure seems to be abating modestly. 49% of companies reported a sequential NIM increase while 51% reported a decline. On average, NIM was higher by 1 bps while the median NIM was unchanged sequentially. Some of the worst NIM changes came from ZION (-22 bps), CBSH (-10 bps), MTB (-10 bps), NYCB (-11 bps), PNC (-11 bps) and WFC (-8 bps).

 

Loan Growth: 74% of companies reported positive loan growth this quarter, with the median company reporting +0.9% QoQ. The banks posting the most positive loan growth include HBAN, CBSH, GBCI (Acq-driven).

 

Stock Performance: 48% of companies have seen their stock price rise on the trading day post earnings, and the average change has been +0.3%. Relative to the XLF, the average change has been -0.2%. 

 

3Q13 FINANCIALS EARNINGS THEMES: MIXED NUMBERS, MIXED REACTIONS - scorecards

 

3Q13 FINANCIALS EARNINGS THEMES: MIXED NUMBERS, MIXED REACTIONS - subsector scorecard

 

The chart below shows the percentage of companies that beat/missed earnings and revenue, the percentage that showed sequential improvement or deterioration by category, and the percentage that saw their stock prices rise/fall following earnings on an absolute and relative (vs XLF) basis. 

 

3Q13 FINANCIALS EARNINGS THEMES: MIXED NUMBERS, MIXED REACTIONS - bar chart

 

The charts below show the best and worst performers in loan growth, NIM, and efficiency on a sequential basis.  

 

3Q13 FINANCIALS EARNINGS THEMES: MIXED NUMBERS, MIXED REACTIONS - nim

 

3Q13 FINANCIALS EARNINGS THEMES: MIXED NUMBERS, MIXED REACTIONS - loan growth

 

3Q13 FINANCIALS EARNINGS THEMES: MIXED NUMBERS, MIXED REACTIONS - efficiency

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


Hershey's: Sweet Runway Ahead

Takeaway: A rock star quarter.

This note was originally published July 25, 2013 at 14:21 in Consumer Staples

Hershey's: Sweet Runway Ahead - hersh2

Hershey’s Q2 performance shows it is running on all cylinders. HSY is lapping 2012, a year in which it took price to offset inflated input costs; it’s now seeing significant volume gains, up +6.6% versus the prior-year quarter, lower input costs, and solid market share gains in the U.S. in every channel that it competes in (including mints and gums that are typically weak). We expect this strong momentum to continue in 2H, especially given the strong merchandising around Halloween and the holidays.

 

Our quantitative set-up shows HSY trading near its immediate term TRADE resistance level of $93.95. We’re waiting and watching to see if it can break through this level; if it can we like that it’s firmly anchored by its support lines (the two green lines), over the TRADE and TREND durations.

 

Hershey's: Sweet Runway Ahead - hedrick

 

 

What we liked:

  • Q2 EPS beat consensus ($0.72 vs $0.71), up 9.1% versus the prior-year quarter
  • Revenue in line with consensus at $1.51B, or 6.7% versus the prior-year quarter
  • Volume rose 6.6% (including 1% from Brookside and +0.1 FX benefit)
  • GM up 290bps in the quarter on lower commodity costs, profitable sales mix, and cost savings
  • Input cost deflation of $29MM was better than original estimates
  • Momentum in U.S. and key international markets
  • In the US, with the exception of gum, sales increased at the high end of the historical growth rate
  • Gained market share in the U.S. in every channel that it competes in., and overall took a 1.3% market share gain in chocolate
  • Strong performance from Brookside and expected to contribute 1pt of growth in 2013
  • International - China, Mexico, and Brazil solid performance
  • International sales (excluding Canada) up 8% in the quarter. Expects international to accelerate over 2H and FY sales up 15-20%
  • Q2 interest expense of $21.1MM, declined vs $24.3MM last year
  • In 2013 expects interest expense to be $90-95MM and FY adjusted tax rate to be the same as last year [35.7% tax rate in Q2 (in-line with expectations) vs 32% last year]
  • Expects FY advertising up 20%. Specifically for International, advertising up 45-50%

 

Guidance FY:  Net Sales up 7% (including the impact of FX); EPS $3.68-3.71 (up 14% year-over-year vs previous 12% guidance); GM up 220-230bps (vs prior estimate of 190-210bps, due to improved sales mix and higher productivity, and sees no change due to input cost inflation).

 

 

Matthew Hedrick

Hedgeye Senior Analyst

 


CALL WITH CFO OF EAT: DIAL-IN DETAILS

 

Friday, October 25th at 11:00am EDT  

We will be hosting a call today with the CFO of Brinker International, Guy Constant, to discuss 1Q14 results, the outlook for the balance of the year, and the emerging role of technology in the casual dining industry.

 

 

TOPICS TO BE DISCUSSED:

  • Bringing technology to the casual dining industry.
  • A more detailed look at 1Q14 results.
  • Why traffic trends in the casual dining industry look bleak.

 

 

GUY CONSTANT

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.

 

 

CALL DETAILS

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 733231# 


 

 

Howard Penney

Managing Director


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