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Monday Mashup

Monday Mashup - 1


Recent Notes

04/13/15 Monday Mashup

04/16/15 1Q15 Investment Ideas Earnings Preview

04/17/15 PNRA Flash Call Today @11am EST

Events This Week

Tuesday, April 21

  • EAT earning call 10am EST
  • CMG earnings call 4:30pm EST

Wednesday, April 22

  • YUM earnings call 9:15am EST
  • MCD earnings call 11:00am EST
  • CAKE earnings call 5:00pm EST

Thursday, April 23

  • DNKN earnings call 8:00am EST
  • DPZ earnings call 10:00am EST
  • BJRI earnings call 5:00pm EST


Recent News Flow

Monday, April 13

  • PNRA named Michael Bufano SVP and CFO.  Mr. Bufano has served as VP of Planning from July 2010 to August 2014.  Executive Vice Chairman William Moreton, who was serving as interim CFO, will continue his role as Executive Vice Chairman and assist the company in its financial strategy.
  • JMBA announced plans to further accelerate refranchising, with the goal of becoming a 90% plus franchise-to-company owed model by the end of FY15.
  • JACK The Jack in the Box Foundation announced the donation of $325,000 to Big Brothers Big Sisters.

Tuesday, April 14

  • DIN IHOP raised over $3.5 million during its National Pancake Day in March.  The proceeds will go to Children’s Miracle Network Hospitals and other local charities.
  • WEN introduced the new Jalapeno Fresco Spicy Chicken Sandwich and Ghost Pepper Fries as its latest LTO.
  • BJRI opened its newest restaurant in Albuquerque, New Mexico on Monday, April 13.  The 7,400 square ft. restaurant seats approximately 225 guests and features BJ’s extensive menu.

Wednesday, April 15

  • PNRA announced an increase in its share repurchase authorization to $750 million which will be funded through a combination of cash on hand, cash flow from operations, and $500 million of new debt.  Management also disclosed updated details on its plan to refranchise 50 to 150 stores.

Thursday, April 16

  • LOCO announced the launch of new menu items featuring fire-grilled Carne Asada.  The limited time only menu items include: Burrito, Tostada, Tacos, Quesadilla, and Wet Burrito.

Friday, April 17

  • PZZA is leveraging its online channels to highlight its “Better Ingredients” by providing consumers with details on their favorite ingredients (no trans-fats, MSG, fillers in meat toppings, BHA or BHT, or partially hydrogenated oils).
  • IRG completed the sale of Romano’s Macaroni Grill to Redrock Partners, LLC for $8 million.  The company also promoted Brad Leist to CFO, David Catalano to COO, and Robyn Martin to General Counsel.  In addition, Michael Dixon, President and CFO, and Jim Mazany, Preisdent of Joe’s Crab Shack, have left the company.


Sector Performance

The SPX (-1%) outperformed the XLY (-1.9%) last week. In aggregate, casual dining stocks underperformed the XLY, as quick service stocks outperformed.

Monday Mashup - 3

Monday Mashup - 4


Quantitative Setup

From a quantitative perspective, the sector remains bullish on an intermediate-term TREND duration.

Monday Mashup - 5


Casual Dining Restaurants

Monday Mashup - 6

Monday Mashup - 7


Quick Service Restaurants

Monday Mashup - 8

Monday Mashup - 9

RTA Live: April 20, 2015

Hedgeye CEO Keith McCullough answers your questions about Real-Time Alerts.




Takeaway: Sequentially better but...


The past week’s data was sequentially better but the YoY growth remained very negative, -40% YoY.  We do expect easier comps the remainder of the month which could pull the full month GGR decline into the high 30s%.


From a stock perspective, our concern remains with the grind mass segment. Grind mass appears to be stabilizing but at a level lower than anticipated by the Street. Indeed, hotel room demand is waning and promotional activity may be ticking up to entice more spending. Lower grind mass equals lower margins and likely, another round of estimate cuts.  


Please see our detailed note: 


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 80.51%
  • SHORT SIGNALS 78.32%

Euro, DAX and UST 10YR

Client Talking Points


Expectations for a more dovish Fed at the April 29th meeting took the Euro +2% vs USD last week. The Euro tapped the top-end of its current 1.05-1.08 risk range, and now the EUR/USD backs off -0.5% to 1.07.


If you didn’t know European stocks love Down Euro, now you know. Down Euro this morning = +1.1% DAX (to +20.6% year-to-date), with EUR/USD range bound within a bearish TREND, European stocks (especially German and Dutch) remain bullish from an intermediate-term TREND perspective.


The UST 10YR Yield is at 1.87%, down 31 basis points year-to-date as lower-for-longer continues to get priced in. The German 10YR is at 0.07% and the Swiss 10YR is at  negative -0.21% this morning.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

MTW revised down its 2015 guidance for the Foodservice Equipment segment and preannounced a weaker than expected 1Q 2015. Sales in the quarter are a noteworthy miss, but we do not believe that the release has relevance for our sum-of-the-parts valuation thesis, and see many reasons to anticipate stronger operating results in 2H 2015.  Basically, we think investors stand to be paid for suffering through this volatility, with potential share price upside on separation ranging from the high 20s to low 40s. Near-term profit weakness is partly why the shares are ‘cheap’, and we think holders may be compensated well for the volatility. The shares are currently trading lower on a weaker than expected 1Q15, but 2Q15 should show improved Crane segment results and 2H should show better Foodservice Equipment results.


iShares U.S. Home Construction ETF (ITB) is a great way to play our long housing call. The housing data was mixed in the latest week with the April homebuilder confidence survey (NAHB HMI) putting in a strong sequential improvement, while March Housing Starts were a bit soft. The National Association of Home Builders (NAHB) released its April Housing Market Index survey (HMI) – essentially a survey of builder confidence. The print was strong as it showed a nice bounce across all three survey categories: traffic of prospective buyers, current conditions, and expectations 6 months out. Housing Starts were up sequentially in March, but by less than the market expected. Total Starts rose by 2% to 926,000 (seasonally-adjusted annualized rate) from 908,000 in February.


On the domestic fixed income front we’re looking at lower yields for longer. Lower yields benefit those slow-growth fixed income cash flows tied to the treasury curve (yields down, bonds up). TLT sets-up nicely in a slow-growth, deflationary setting because inflation missing=expectation for even easier policy=more central-planning cowbell=lower yields for longer.

Three for the Road


Our Q2 Macro Theme of #DemographicYields (lower-for-longer) firmly intact @HedgeyeDDale



Sometimes you don’t realize your own strength until you come face to face with your greatest weakness.

Susan Gale


2 million high school aged kids in the U.S. smoke electronic cigarettes, according to the CDC.

CHART OF THE DAY: Counter-Trend Macro Correlations

CHART OF THE DAY: Counter-Trend Macro Correlations - 04.20.15 chart


Editor's Note: This is a brief excerpt and chart from today's Morning Newsletter. Click here for more information on how you can subscribe.


If you look at the Correlation Risk (USD vs. everything Commodities) on a 1-month basis, it’s been significant, even though the USD hasn’t corrected much on a percentage basis. Here are the 1-month moves:


Character Breakfast

“Character is inspired; it is not imparted.”

-Laura & Malcolm Gauld


While I didn’t subject my son to a “character breakfast” with Cinderella @Disney last week, I think he built some in realizing that his little sister was less scared than he was on Space Mountain.


After a neck wrenching week of family fun on the rides, it’s good to be back in my un-buckled seat this morning! I hope you’ve had some quality time away from the screens with your family this Spring break too.


The aforementioned quote comes from a good parenting book I read last week called The Biggest Job We’ll Ever Have. It’s an especially relevant book for those of you who are into self-reflection and improvement – we can all build character by doing, every day.


Back to the Global Macro Grind


I don’t unplug from markets very often, but when I do… I like it when they don’t do a whole heck of a lot that surprises me. I left you suggesting that I think the Fed gets easier at their April meeting. I’ll come back to you this morning reiterating the same thing.


Character Breakfast - Yellen dove 09.17.2014


Amongst other things, a more dovish Fed does a few big things to macro markets – and they are not the same things:


  1. Down Dollar – that’s a counter-TREND move for Commodities and their linked-securities
  2. Down Rates – that’s a continuation of a bullish TREND for Bonds


Breaking that down in week-over-week, in rate of change terms:


  1. US Dollar Index dropped -1.9% last wk to +7.9% YTD
  2. UST 10yr Yield dropped another -3 basis points last wk to 1.87% (-31 basis pts YTD)


In Correlation Risk terms, what that translated into was:


  1. Euro (EUR/USD) counter-TREND bounce of +1.9% wk-over-wk (but still -10.7% YTD)
  2. CRB Commodities Index and Oil (WTI) +3.1% and +8.6%, respectively, on the week


US and European Equities did not enjoy inflation expectations bouncing:


  1. SP500 and Dow Jones Industrial Index were both -1.3% on the week to +1.1% and 0.0% YTD, respectively
  2. EuroStoxx600 and the DAX corrected -2.2% and -5.5% to +17.9% and +19.2% YTD, respectively


Net, net, net, both the TREND move in super-sized asset allocations to US Fixed Income continued to beat US Equities YTD, while a big league counter-TREND move in USD driven Correlation Risks frustrated #Deflation bears who didn’t dynamically reset esposures.


If you look at the Correlation Risk (USD vs. everything Commodities) on a 1-month basis, it’s been significant, even though the USD hasn’t corrected much on a percentage basis. Here are the 1-month moves:


  1. US Dollar Index -2.2%
  2. EUR/USD +2.0%
  3. CRB Commodities Index +7.1%
  4. Gold +4.8%
  5. Copper +6.1%
  6. Oil (WTI) +24.1%


Yep, that’s right. You can tell yourself all the stories you want about supply/demand in Oil related markets, but the reality is that the #1 driver of macro inflation expectations remains an easier Fed. Those expectations turned on a dime on that last lousy US jobs report.


What’s next?  The point I was trying to make before I left for vacation was pretty simple: “Some of my very short-term views are at odds with my longer-term ones – and others (rates) are aligned.” (apologies for quoting myself)


In other words, you’re one better jobs report away from both the USD and rates bouncing again. But, there’s this thing called the Fed meeting (April 29th) and a weak headline Q1 GDP report (reported on the same day), before the April jobs report (May 8th).


Yeah, inflation expectations bounce when the Dollar goes down and dovish central planning expectations go up. You already know that. So sending me a chart of something like break-evens bouncing reflects that people who manage risk in real-time get that too.


US 5-year break-evens bounced (just like everything Commodities did) +9 basis points last week to 1.7% and look a lot like Oil does on a 1-month basis (+32 bps is a big bounce!). But if you look at the TREND, they’re still down -25 basis points year-over-year.


My sense is that not everyone nailed all of these moves. If success was imparted on your portfolios, well done. This hasn’t been easy. Trying to risk manage all of these calendar catalysts, inflation/deflation expectations, etc. (across multiple durations) builds character.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.85-1.95%

SPX 2066-2093
DAX 113
USD 97.01-98.74
EUR/USD 1.05-1.08
Oil (WTI) 49.05-57.69


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Character Breakfast - 04.20.15 chart