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May 7, 2015

May 7, 2015 - Slide1

 

BULLISH TRENDS

May 7, 2015 - Slide2

May 7, 2015 - Slide3

 

BEARISH TRENDS

May 7, 2015 - Slide4

May 7, 2015 - Slide5

May 7, 2015 - Slide6

May 7, 2015 - Slide7

May 7, 2015 - Slide8

May 7, 2015 - Slide9

May 7, 2015 - Slide10


GIS – THE ACTIVIST PLAYBOOK

Takeaway: General Mills is a great company.

The following is a summary of our 92 page Black Book on General Mills.  We are LONG General Mills and believe there are multiple ways to win

  1. The current management transforms into an Activist management team - 15% chance
  2. Fundamentally – Gluten Free Cheerios is  a home run – 20% chance
  3. Management sells the company – 15% chance
  4. An Activist shareholder takes a position  – 50% chance

We summarize the key takeaways into three main points:


GIS NEEDS TO BE REINVENTED!

The opportunity to create significant shareholder value from repositioning the company is significant. The recent performance suggests that management may be too stuck in the past to reshape the company in a way that will accelerate top line growth. There have been a number of events over the past few years that suggest the timing is optimal for an activist to come on and re-shape management and the board.

 

TRANSFORMATIONAL TRANSACTION

GIS has done a lot of things to stave off an activist attack, but it will all be for nothing if they do not execute on their growth plan. GIS is a great company with strong brands. Its business practices and backward looking are insular. Reshaping the portfolio of brands, CPW and G&A cuts are just some of the ways to create significant shareholder value.

 

MANY WAYS TO WIN

GIS needs to reshape the company to stay as a premier global food company.  Alternatively, GIS would make a solid acquisition target, especially for PepsiCo. GIS needs to accelerate its growth and management is struggling to do it internally. In our view, selling the company to PepsiCo would be an ideal scenario for all stakeholders. Or reinvent the company through meaningful acquisitions and divestitures.

 

THE HEDGEYE GIS ACTIVIST PLAYBOOK

Our playbook for GIS is focused on a few key moves, which involve transitioning the company to a more progressive global food company:

  1. The GIS Board is past its sell-by date
  2. Rationalize SKUs
  3. Brand portfolio rationalization
  4. Streamline SG&A
  5. Restructure CPW JV
  6. Transformational transaction

OVERVIEW OF GIS

The company generated $17.9bn in FY14 across its three reportable business segments:

  • U.S. Retail ($10.6bn)
  • International ($5.4bn)
  • Convenience Stores & Foodservice (C&F) ($1.9bn)

The company is focused on five key platforms globally:

  1. Ready-to-Eat (RTE) Cereal
  2. Super-Premium Ice Cream
  3. Yogurt
  4. Convenient Meals
  5. Sweet & Savory Snacks

Respected management team, although they seem to be complacent with the current status of the business.

 

GIS – THE ACTIVIST PLAYBOOK - Chart 1 5.6.15

 

HISTORICAL TRANSFORMATION

GIS has taken themselves from a Consumer Goods conglomerate to a more focused pure play packaged food company.

 

GIS – THE ACTIVIST PLAYBOOK - Chart 2 5.6.15

 

CEREAL IS A GREAT CATEGORY

The cereal category is not dead; it is merely at a point of maturity.

 

GIS – THE ACTIVIST PLAYBOOK - Chart 3 5.6.15

GIS – THE ACTIVIST PLAYBOOK - Chart 4 5.6.15

GIS – THE ACTIVIST PLAYBOOK - Chart 5 5.6.15

 

THE GROWTH MODEL HAS LITTLE FOUNDATION

The company's long-term “growth” model is unachievable given the current structure of the company.  The key “growth” brands represent only 45% of the global portfolio. 

 

GIS – THE ACTIVIST PLAYBOOK - Chart 6 5.6.15

GIS – THE ACTIVIST PLAYBOOK - Chart 9 5.6.15

 

TRANSFORMATIONAL TRANSACTION

We have a detailed Black Book coming out that will highlight the transaction of PepsiCo acquiring General Mills.

 

GIS – THE ACTIVIST PLAYBOOK - Chart 7 5.6.15

 

WHAT IS GIS WORTH

GIS has a lot of value that needs to be unlocked. Divesting underperforming slow growth brands will enable further growth and value for shareholders.

 

GIS – THE ACTIVIST PLAYBOOK - Chart 8 5.6.15

 

 

Let us know if you have any questions, or would like to discuss in more detail.

 

Howard Penney

@HedgeyeHWP

 


REPLAY | The Macro Show with Keith McCullough

The Macro Show is Hedgeye's dynamic pre-market rundown highlighting the most important macro developments around the globe. CEO Keith McCullough shares 15 minutes or less of market analysis and commentary and then answers viewer questions during a live Q&A session.

 

 


Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

OIL: Re-Visiting Conflicting Signals and Communicating the Internal Debate

Takeaway: WTI moved above and held its TREND line of resistance in the last week. We now look to the USD for more directional clarity.

Below we outline the quantitative signals and less importantly the fundamental story that supports the counter-TREND move in oil since the Fed’s March 18th meeting.

 

Without a near-term central-planning catalyst we view Friday’s non-Farm payrolls report as a key indicator for the direction of the USD which is near testing its intermediate-term TREND level of support at $93.12. Inverse correlations to commodities have also reverted to more normalized levels over the near-term, making the direction of the currency in the aftermath of Friday’s report telling for developing a more finite view on oil prices.

If you didn’t have a chance to view this morning’s macro call live or catch up with the Early Look commentary from KM, it’s worth a read as we verbally debated the meaning of the extended counter-TREND moves in commodities, the dollar, and interest rates:

 

"From SEP 2014 to FEB 2015, Oil Volatility (OVX) went from 17 to 63 = +270%.

From FEB 2015 to now, OVX dropped from 63 to 36 = -42%."

Hedgeye Macro Show  

 

With WTI moving above its own TREND resistance level, our risk ranges remain very wide over the intermediate-term with the shorter-term market signals more confirming of a move higher. The market signals that have accompanied the move higher are similar to the November-January signals that accompanied the move lower.

Specifically, oil is making a series of higher lows and higher highs in the last several weeks on healthy volumes and tighter ranges, or compressing volatility (both realized and implied). Since March 17th (pre-Fed meeting), here’s how the signals shake-out:

  • Price: Positive daily returns skewed to the upside
  • Volume: Ratio of Green Day Volume/Red Day Volume= 1.2
    • 22 days of positive returns: 832,903 ADTV (Contracts)
    • 11 Days of Negative Returns: 699,022 ADTV (Contracts)
    • Volatility: historical volatility has compressed along with OVX despite healthy volumes (See the link to our Slide Deck and Commentary from April 24th below).     

OIL: Re-Visiting Conflicting Signals and Communicating the Internal Debate - WTI Levels

 

OIL: Re-Visiting Conflicting Signals and Communicating the Internal Debate - USD Levels

 

OIL: Re-Visiting Conflicting Signals and Communicating the Internal Debate - USD correls

 

OIL: Re-Visiting Conflicting Signals and Communicating the Internal Debate - WTI HVG

 

OIL: Re-Visiting Conflicting Signals and Communicating the Internal Debate - Skew

 

OIL: Re-Visiting Conflicting Signals and Communicating the Internal Debate - Implied vol

 

On April 24th we blasted a video and slide deck outlining these conflicting signals in more detail:

1) Conflicting quantitative signals in oil markets (Against our bearish call)

2) The importance of yielding to top-down macro over the push-and-pull of global supply/demand narratives. The replay link and slide deck are included below.

Audio

Slides  

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On the fundamental side of global energy markets we re-iterate that supply/demand adjustments will continue to smooth on a lag. Although much lower on the compendium of important factors to our process, the fundamental supply/demand picture DOES suggest more support for oil prices than it did in January:

  1. Domestic crude production has gone from a linear increase, to decelerating, to now topping IN REACTION to a financial market fueled sell-off (Note below that the supply/demand picture is not that much different than it was last summer). The extra YY incremental barrels are without a doubt fueled by the U.S. shale boom, making the U.S. production slowdown a meaningful psychological catalyst supporting prices.
  2. Crude oil rigs in service, albeit not a proxy for production, are 42% of the October highs (679 vs. 1609).
  3. Last week was the first inventory flush in Cushing since the end of November and this week marked the first aggregate inventory flush since January 2nd

OIL: Re-Visiting Conflicting Signals and Communicating the Internal Debate - Global Production Monitor

 

OIL: Re-Visiting Conflicting Signals and Communicating the Internal Debate - U.S. Production Delta

 

OIL: Re-Visiting Conflicting Signals and Communicating the Internal Debate - Crude production table

 

OIL: Re-Visiting Conflicting Signals and Communicating the Internal Debate - Production vs. WTI Price

 

OIL: Re-Visiting Conflicting Signals and Communicating the Internal Debate - Production vs. Rig Count

 

OIL: Re-Visiting Conflicting Signals and Communicating the Internal Debate - DOE crude Inventories

 

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Oil prices will continue to move up and down and back again but all-in-all our historical cycle suggests anchoring on the direction of major currency moves is the most-sound tools for developing the right bias to risk manage the longer duration moves in commodities. Friday’s jobs report will be an important jobs report and one the Federal Reserve will be watching closely.

 

OIL: Re-Visiting Conflicting Signals and Communicating the Internal Debate - cycle

 

 

Ben Ryan

Analyst

 

 

 

 

 


Cartoon of the Day: Petro Surprise!

Cartoon of the Day: Petro Surprise! - Oil cartoon 05.06.2015

"To be clear, my mistake wasn’t being short Oil for this entire move up (we covered commodity shorts ahead of an easier Fed and #LateCycle Labor reports, for a trade)," Hedgeye CEO Keith McCullough wrote this morning. "It wasn’t being long it at $100 either. It was in not being long it from $45 to $62. My main mistake there was that I didn’t think Oil’s Volatility was going to compress almost as fast as it exploded to the upside." 


Get The Dollar Right (And You’ll Get A Lot Of Other Things Right ... Like #Oil)

Editor's Note: This is an excerpt from today's morning research. Click here to learn more and to subscribe to America's fastest-growing independent research firm.

*  *  *  *  *  *  *

Oil experienced an epic 6 month crash, then rally. Right now, the inverse correlation between Oil and the U.S. Dollar is screaming (yes, we know that supply and demand narratives help too…) with USD signaling immediate-term lower-highs and Oil higher-lows into this US jobs report. Bad jobs report = USD bearish, Oil bullish.

Get The Dollar Right (And You’ll Get A Lot Of Other Things Right ... Like #Oil) - z 100 ben

 

Speaking of the Dollar, the Russell 2000 does not like Down Dollar. That makes sense to me as the “tax cut” from lower gas prices is, well, getting cut! This is going to be a problem for an economic narrative that even Janet Yellen has been forced to acknowledge recently (#StrongDollar, Down Oil, Stronger Consumption).

 

The Russell 2000 in the midst of a -4.7% correction. Overlay that with the USD and you’ll get the point.

 

As I spelled out in today’s Morning Newsletter, my intermediate-term TREND price deck for Oil is now $42.06-$69.03.

Get The Dollar Right (And You’ll Get A Lot Of Other Things Right ... Like #Oil) - z OIL


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 80.28%
  • SHORT SIGNALS 78.51%
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