Economist and CNBC senior contributor Larry Kudlow squares off with Hedgeye CEO Keith McCullough on inflation and whether market signals like gold and TIPs are forecasting higher prices.
Consensus estimates, management guidance and commentary, and questions for management in preparation for the earnings release/call tomorrow.
Q2 2014 CONSENSUS ESTIMATES
- Total revenues: $798 million
- EPS $0.57
QUESTIONS FOR MANAGEMENT
Visitation into Hawaii has declined in 2014. Any worries about Pride of America?
Has the Caribbean pricing environment gotten worse since your Q1 earnings call? We've been hearing a pickup in NCL promotional deals being delivered via email.
Is the Caribbean weakness mainly attributed to lack of demand from North American source markets? Are international source markets for Caribbean itineraries doing better?
How confident are you that Breakway will be able to maintain double digit premiums in the NY/NJ market as Quantum makes its arrival in November?
As your biggest competitors look to new destination markets in 2015 and beyond, at what point would you be comfortable in deploying ships outside of North America and Europe?
Is onboard and other revenue yield reaching a peak? It declined for the 1st time in 8 quarters in Q1.
ECA impact in 2015
Update on pending Genting share sell
Industry capacity growth in Europe in 2015
FORWARD LOOKING COMMENTARY
- Caribbean still has opportunities to improve on booking, but that is the major focus for the NY and Miami markets
- Across the Baltic, the Canaries and the Med, all of which are significantly booked better than last year.
- On par pretty much with Hawaii
- Are heavily booked in the Canada and New England,
- Had significant positive bookings every week for the last 10 weeks, which has put NCLH into a very good book position
- Pretty solid with onboard as NCLH moves through the rest of the year.
- Pricing across Europe is very healthy double-digits.
- Seeing the benefits of our strategy of consistent deployment and commitment for the European markets in the form of improved pricing and occupancy as we go into the third consecutive year of our four ship seasonal deployment from Europe.
- Alaska is in the zone of being low single-digit positive.
- Norwegian Sun has found its footing and is showing stronger pricing and booked position versus last year demonstrating that our strategy of keeping consistent offerings while it may include some time for awareness to grow during their introduction, results in these products being successfully absorbed by the marketplace and contributing to overall yield growth.
- Hawaii is doing well
- Pricing still a little behind
- Minimal incremental capacity in 2015
- 3-yr $500m share repurchase program
Genting ownership sale
- Genting is seeing that the stock prices are not where they would like it to be and are NCLH suspects, will take wait-and-see attitude on selling their shares.
The table below lists our Investment Ideas as well as our Watch List -- a list of potential ideas that we are in the process of evaluating. We intend to update this table regularly and will provide detail on any material changes.
YUM: We removed long YUM from our Investment Ideas list in part due to the recent food scandal in China and its implications on the company's ability to hit its current full-year targets, which we now fear may be too aggressive. We ran through our thoughts in a recent note below.
MCD: We added short MCD to our Investment Ideas list following the company's lackluster 2Q14 results. We believe the management's current "reset plan" will prove inadequate and the company will be forced to undertake a major restructuring in 2015. We ran through our thoughts in a recent note below.
07/21/14 MONDAY MASHUP: EARNINGS KICKOFF
07/21/14 DFRG: THOUGHTS INTO THE PRINT
07/21/14 CMG: SIMPLY INCREDIBLE
07/22/14 INFLATED MULTIPLE DEFLATING
07/23/14 YUM: LOSING FAITH
07/24/14 BLMN: 2Q ESTIMATES ARE TOO HIGH
Events This Week
Monday, July 28th
- DENN earnings call 4:30pm EST
Tuesday, July 29th
- DIN earnings call 11:00am EST
- RT earnings call 4:15pm EST
- BWLD earnings call 5:00pm EST
Wednesday, July 30th
- PNRA earnings call 8:30am EST
- DAVE earnings call 4:30pm EST
Thursday, July 31st
- BAGL earnings call 4:30pm EST
- BBRG earnings call 5:00pm EST
Friday, August 1st
- BKW earnings call 8:30am EST
- RUTH earnings call 8:30am EST
Chart of the Day
Recent News Flow
Monday, July 21st
- No news
Tuesday, July 22nd
- SBUX Nikkei reported that Starbucks has plans to more aggressively open stores (an additional ~260 over the next three years) in Japan, shifting its focus to the suburbs.
Wednesday, July 23rd
- MCD was upgraded to buy at LBBW with a $104 PT.
- MCD was downgraded to equal-weight at Stephens with a $100 PT.
- MCD was downgraded to underperform at CLSA with a $101 PT.
- MCD was downgraded to neutral at RW Baird with a $98 PT.
- MCD was downgraded to neutral at Sterne Agee.
- EAT was downgraded to sector perform at RBC Capital with a $49 PT.
- BOBE detailed the qualifications of its Board nominees in a letter to shareholders.
Thursday, July 24th
- WEN named Brandon Solano Senior VP of Marketing. Prior to joining Wendy's, Solano held various roles at Domino's, The Hershey Company, Procter & Gamble, the Kellogg Company and Newell Rubbermaid.
- DRI Starboard Value filed a complaint against Darden, seeking an order to force the company to hand over certain books and records related to the company's sale of Red Lobster to Golden Gate Capital.
Friday, July 25th
- LOCO El Pollo Loco IPO (originally priced at $15.00) opened at $19.00 on the Nasdaq. It ended the day trading at $24.03.
- CMG detailed plans for its Cultivate Dallas-Ft. Worth Festival, which will include cooking demonstrations, Kids' Zone games, other activities and live music headlined by Amos Lee and O.A.R.
The XLY (-1.0%) underperformed the SPX (+0.0%). In aggregate, both casual dining stocks (-0.6%) and quick service stocks (+0.7%) outperformed the XLY Index.
The Hedgeye U.S. Consumption Model continues to signal bullish, with 7 out of 12 metrics flashing green.
XLY Quantitative Setup
From a quantitative perspective, the sector remains bullish on an intermediate-term TREND duration.
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Visitation from mainland China contributing to drop in overall visitation to Singapore.
Anyone predicting a 40% to 50% drop in total Mainland visitation? How about eight straight months of YoY declines in Mainland visitors? Uneasiness over the tragic Malaysian airline 370 disappearance filled with Chinese nationals on March 8 no doubt contributed to the steep decline. The number of Mainland Chinese on Malaysia/Singapore tour destination groups is way down since the incident. However, weakness in Mainland visitation had actually started before the incident. Mainland Chinese had been the 2nd largest visitors to Singapore - Malaysians overtook them in May 2014. Overall visitation has fallen for three straight months, despite growth from Indonesia which continues to account for the most visitors to Singapore.
Genting will report its earnings in the next few weeks and we will likely see weak VIP volumes consistent with LVS and Marina Bay Sands. Market VIP volumes declined in both Q4 and Q1. Genting mentioned on its 1Q 2014 conference call that they had not seen much impact from the Malaysia/Korea incidents.
Not surprisingly, our regressions show that visitation is a statistically significantly variable in driving gaming revenue.
Takeaway: June pending home sales fell 1.1% m/m, and are down -7.2% year-over-year. The trend in housing data continues to soften.
Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume.
The table below has a lot of red on it. The only holdouts remain builder confidence - increasingly at odds with construction activity - and Existing Home Sales - a lagging indicator.
*Note - to maintain cross-metric comparability, the purchase applications index shown in the table above represents the monthly average as opposed to the most recent weekly data point.
Today's Focus: June Pending Home Sales Index
The National Association of Realtors (NAR) today released its Pending Home Sales Index for the month of June.
Big picture, PHS drops 1.1% (not huge), but as we’ve noted, with cash sales still elevated and the regulation-catalyzed shift in the origination channel ongoing, the truth is probably somewhere in between PHS and Purchase apps. But with Purchase demand sliding further in July, New Home Sales flagging and HPI in full retreat, the broader trend in housing remains one of ongoing softness.
Pending Home Sales fell by 1.1% month-over-month to an index level of 102.7 (vs 103.8 in May). For reference, an index value of 100 corresponds to the average level of contract activity in the year 2001. While the sequential decline wasn't especially large at -1.1%, it marks a continuation of the negative year-over-year trends, falling -7.2%. Moreover, it reverses three positive monthly prints in a row. Consider that at this time last year, Pending Home Sales were growing at a rate of +12% y/y and today they're shrinking at -7%.
Geographically, Northeast/South were worse sequentially, West/Midwest better MoM, but all regions remain negative on a YoY basis.
About Pending Home Sales:
The Pending Home Sales Index is a monthly data release from the National Association of Realtors (NAR) and is considered a leading indicator for housing activity in the US. It is a leading indicator for Existing Home Sales, not New Home Sales. A pending home sale reflects the signing of a contract, but not the closing of the transaction, which occurs 1-2 months later. The NAR uses data from the MLS and large brokers to calculate the Pending Home Sales index. An index value of 100 corresponds to the average level of activity during 2001.
The NAR Pending Home Sales index is released between the 25th and the 31st of each month and covers data from the prior month.
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European Financial CDS - Russian bank, Sberbank, continued to see its swaps widen (+18 bps to 283 bps). Outside of Russia, however, there was slight tightening across Europe. The average EU bank tightened 2 bps on the week.
Sovereign CDS – Sovereign swaps tightened an average of 3 bps over the week. Portuguese swaps tightened the most, -11 bps, with Spain next at -3 bps. Swaps in the US were unchanged at 16 bps.
Euribor-OIS Spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States. Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal. By contrast, the Euribor rate is the rate offered for unsecured interbank lending. Thus, the spread between the two isolates counterparty risk. The Euribor-OIS spread widened by 1 bps to 14 bps.
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