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GIS | Fundamentally Turning the Ship Around

Takeaway: GIS is staying on our Hedgeye Consumer Staples Best Idea list as a Long, as we look at the great possibilities FY16 will bring.

General Mills has just announced the removal of artificial colors and flavors from its cereal.

 

“We’re simply listening to consumers and these ingredients are not what people are looking for in their cereal today,” Said Jim Murphy, president of the Cereal division. The change will affect roughly 40% of GIS cereals over the next two to three years. Currently, about 60% of GIS cereals are already free of artificial sources and have been that way for years.

 

This move comes as consumers are asking for simpler ingredient decks, with less added chemicals such as Yellow 5. In most cereals you will barely be able to see a difference, but others such as Trix and Lucky Charms may have slightly different colors. 

 

We continue to love the cereal category, and think that GIS is going lead it to greener pastures. This latest innovation by GIS is a big step and they are putting a lot of effort in across the organization to make sure it is done right.  R&D is obviously leading the pack ensuring that quality and taste are not sacrificed in the process of taking out these unwanted ingredients. While marketing will be tasked with delivering the message, educating consumers about the changes and that General Mills has them at top of mind.

 

GIS | Fundamentally Turning the Ship Around - GIS Artificial color chart 1

 

GIS | Fundamentally Turning the Ship Around - GIS artificial color chart 2

 

General Mills is fundamentally turning this ship around as they continue to listen to the consumer. Management continues to impress us with their desire to adapt to the changing taste preferences of consumers. Heading into a very important FY15 Q4 announcement next Wednesday, we are confident in their ability to match consensus or possibly top it by a penny. GIS is staying on our Hedgeye Consumer Staples Best Idea list as a Long, as we look at the great possibilities FY16 will bring.


Under Armour Keeps on Winning (And Winning...) | $UA

Takeaway: Under Armour is not on a winning 'streak.' It's just flat out #winning. Again and again. Now it needs to translate that into dollars.

Just when you thought Under Armour's 2015 couldn’t get any better… 

 

Under Armour Keeps on Winning (And Winning...)  | $UA - z ua spi

 

In the same week that Stephen Curry wins an NBA title, Jordan Spieth wins the U.S. Open.  Spieth's victory marks the first time a player has won the first two majors of the year since Tiger in 2002 and the youngest to win the U.S. Open since Bobby Jones 1923. 

 

Under Armour (presciently) signed Spieth to a 10-year contract back in January, and so far the return -- at least as measured by share of voice -- has been immense. Spieth plastered the UA logo on primetime TV throughout the weekend and even managed to mention Under Armour in an interview immediately following his victory when asked if he had a 5th outfit for a playoff.

 

Shares of UA are up 1.3% today following Spieth's victory.

 

The challenge for UnderArmour at this point is whether the company can monetize these moments when its athletes are in the limelight. Historically, that's where every single brand has fallen down when playing the athlete endorsement game. It's not enough for the athlete to play, win, and advertise the logo all along the way. The company needs to use events like this to establish emotional connections between the Brand and the Consumer.

 

With Nike, we'd argue that its competitive edge in endorsements is not just a function of its huge wallet, but rather its ability to drive this emotional connection -- which clearly drives loyalty and increased sales. In fact, Nike has been known to do this even when it's athletes don't win -- or flat-out lose. This is the one area where we're waiting to see UA shine. If it succeeds in this regard, then 2H and 2016 expectations will prove far too conservative for UA.  


LEISURE LETTER (6/22/2015)

TICKERS: PENN, CZR, HOT, ALL.AX, CCL

EVENTS

  • June 23 - CCL Q2 2015 earnings 10am  
  • June 24 - PENN Opening of Plainridge Park Casino
  • June 25 - AC tax bill 

COMPANY NEWS    

Aristocrat - Aristocrat won a contract to deploy its entire Oasis 360™ solution that includes its full Casino Management System, Professional Services, SpeedMedia™, Oasis ONE LINK™ (bonusing, progressives and poker frenzy), Table Management System and Oasis HALO™ Loyalty (core software, kiosks, mobile app and promotions), subject to regulatory approvals at the Scarlet Pearl Casino Resort in D'Iberville, MS, which is set to open December 2015.

 

Louis XIII - The US$1.1 billion Louis XIII casino-resort is due to open in the middle of next year. “The superstructure was topped out in early June 2015 and excavation of the basement has been completed. Approximately 89% of all construction works have been tendered,” the company said.

ARTICLE HERE

Takeaway: Will Louis XIII get the tables they need?

 

CZR - Omega Advisors liquidated its entire stake of CZR, (roughly 5.1% of the float), according to their 13-G filing last week. 

ARTICLE HERE

 

HOT - The Luxury Collection® announced, in coordination with its owner partners, a $300 million effort to expand and improve its hotel portfolio in North America. The Luxury Collection is investing in marquee hotel conversions and landmark renovations in diverse U.S. destinations, including Key West, Lake Tahoe, San Antonio and San Francisco, as it continues to grow around the world. A milestone year for the brand, The Luxury Collection is on track to surpass 100 hotels in more than 30 countries by the end of 2015. 

 

“Domestic demand for luxury travel is at pre-recession levels, which makes this an excellent time to invest in The Luxury Collection hotels in the U.S.,” said Hoyt H. Harper II, Global Brand Leader, The Luxury Collection Hotels & Resorts. “Additionally, we continue to see increasing demand from owners of independent luxury hotels who find tremendous value in partnering with Starwood to take advantage of our powerful distribution, loyalty and sales platforms. We expect this to be a period of significant growth for The Luxury Collection both in the U.S. and abroad as we sharpen the brand and drive profound consumer awareness around the world.” 

 

CCL - After initially adding faster internet speeds and less expensive packages on three of its ships, CCL has made the offerings available on nine additional vessels, with plans to include the majority of its fleet by October. 

  • Better web access has rolled out on Carnival Freedom, Carnival Breeze, Carnival Sunshine, Carnival Ecstasy, Carnival Sensation, Carnival Paradise, Carnival Fascination, Carnival Victory, Carnival Elation, Carnival Pride, Carnival Imagination and Carnival Inspiration.
  • Included on the list of new, notably cheaper connectivity packages are a $5 per-day package that allows you to connect to social media, such as Facebook, Twitter and Instagram; this choice does not allow access to the entire internet.
  • Meanwhile, AIDA introduced flat-rate Internet plans.  For social media, passengers can access popular sites for 4 euro per day, or 19 euros per week, including Facebook, Twitter, Instagram and WhatsApp.

ARTICLE HERE 

Takeaway: We believe more and more cruise brands will have to upgrade their internet network and offerings to remain competitive.

 

MSC - MSC Cruises, which is coming back to the United States when MSC Divina returns to Miami in November, is aiming to carve out a niche in the market rather than become a major player, according to its CEO. CEO Gianni Onorato said the line was looking to carry "a couple of hundred thousand" passengers across two Miami-based ships -- MSC Divina and new ship MSC Seaside -- by 2017/2018.

 

He acknowledged that the company needed to change its philosophy to succeed with Americans on its second push into the country. "We need to get there with a different proposal," Onorato said. "And we will be doing that by improving the brand, investing in the organization and investing in the product." 

When asked, Onorato said MSC was considering basing a ship out of New York "before 2022" -- when the last of the line's newbuilds are complete.

ARTICLE HERE 

INDUSTRY NEWS

China - China arrests 14 South Koreans for allegedly luring Chinese gamblers to foreigners-only casinos in South Korea, a South Korean official said Friday. Among the arrested are employees from Grand Korea Leisure Co. and Paradise Co., South Korea's top 2 casino operators, and workers at travel agencies in China, according to the official.

 

In February, China’s Ministry of Public Security Deputy Director Hua Jingfeng announced that authorities would pursue and prosecute operators from other countries who had “set up offices in China to attract and drum up interest from Chinese citizens to go abroad and gamble." 

ARTICLE HERE

ARTICLE HERE

Takeaway: This also serves as a warning to other Asian countries (South Korea, Laos, Myanmar, Cambodia, Malaysia, Vietnam, Philippines, and Malaysia) regarding marketing Chinese citizens to gamble. 

 

Hainan Island Typhoon - The first typhoon of the year to hit China was expected to make landfall on or near the southern island of Hainan on Monday.

ARTICLE HERE

 

Vietnam - Vietnam’s Prime Minister, Nguyen Tan Dung, has approved a new location for a proposed casino resort on Phu Quoc Island off mainland Vietnam’s Kien Giang province. The site to be pitched to investors will be at Bai Dai Ecotourism Area in Ganh Dau Commune on the island instead of Bai Thom Commune. Vietnamnet in April reported that no foreign investor had been found for the originally proposed site.

 

The complex proposed for the new site is expected to have 3,000-rooms worth of luxury hotel space, a conference center and a casino with 200 to 400 live tables and 2,000 gaming machines.

ARTICLE HERE

 

Iowa - The Iowa Lottery is seeing big benefits from a special scratch ticket it launched to commemorate the organization’s 30th anniversary. The ticket called “30 Somethings” hit $3.1 million in sales in its first 5 months. Iowa Lottery CEO Terry Rich, says that’s the hottest start ever for a new scratch ticket.

ARTICLE HERE

MACRO

Hedgeye Macro Team remains negative on Europe 

Takeaway:  European pricing has been a tailwind for CCL and RCL but a negative pivot here looks increasingly likely in 2015.


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

Retail Callouts (6/22): UA - Just #Winning, Hedgeye Retail Ideas List

Takeaway: UA - Not A Winning 'Streak', Just #winning. Again, and Again. Now Needs to Translate it to Dollars.

Hedgeye Retail Ideas List

Retail Callouts (6/22): UA - Just #Winning,  Hedgeye Retail Ideas List - 6 22 chart2

 

UA - Not A Winning 'Streak', Just #winning. Again, and Again. Now Needs to Translate it to Dollars.

Just when you thought Under Armour's 2015 couldn’t get any better, in the same week that Stephen Curry wins an NBA title, Jordan Spieth wins the US Open.  Spieth's victory marks the first time a player has won the first two majors of the year since Tiger in 2002 and the youngest to win the US Open since Bobby Jones 1923. 

Under Armour presciently signed Spieth to a 10 year contract in January, and so far the return -- at least as measured by share of voice -- has been immense.  Jordan put the UA logo on prime time TV throughout the weekend and even managed to mention Under Armour in an interview immediately following the victory when asked if he had a 5th outfit for a playoff.

 

The challenge for UnderArmour at this point is whether the company can monetize these moments when its athletes are in the limelight. Historically, that's where every single brand has fallen down when playing the athlete endorsement game. It's not enough for the athlete to play, win, and advertise the logo all along the way. The company needs to use events like this to establish emotional connections between the Brand and the Consumer.

 

With Nike, we'd argue that its competitive edge in endorsements is not just a function of its huge wallet, but rather its ability to drive this emotional connection -- which clearly drives loyalty and increased sales. In fact, Nike has been known to do this even when it's athletes don't win -- or flat-out lose. This is the one area where we're waiting to see UA shine. If it succeeds in this regard, then 2H and 2016 expectations will prove far too conservative for UA.  

Retail Callouts (6/22): UA - Just #Winning,  Hedgeye Retail Ideas List - 6 22 chart1

Retail Callouts (6/22): UA - Just #Winning,  Hedgeye Retail Ideas List - 6 22 chart3

 

 

OTHER NEWS

 

LB - L Brands Authorizes $250 Million Repurchase Program

(http://phx.corporate-ir.net/phoenix.zhtml?c=94854&p=irol-newsArticle&ID=2060879)

 

AMZN - Amazon to open FC in Target's backyard

(http://www.retailingtoday.com/article/amazon-open-fc-targets-backyard)

 

Retailers Cut Jobs as Pressures Mount

(http://wwd.com/retail-news/financial/layoffs-job-cuts-retail-10159174/)

 

Anna's Linens begins liquidation sales

(http://www.retailingtoday.com/article/annas-linens-begins-liquidation-sales)

 

Barneys enables Instagram shopping

(http://www.chainstoreage.com/article/barneys-enables-instagram-shopping)


Greece: Extend & Pretend

Client Talking Points

GREECE

Maybe it’s just us, but we can’t figure out what they actually did for Greece this morning – we guess that’s the point! Whatever it is they’re doing, the DAX loves it +3% after breaking down for weeks; Greek Stocks +8.3% (but -11.4% month-over-month).

RATES

The more interesting move is the #divergence between German/American 10s (both +6 basis points day-over-day) vs Italian/Spanish 10s (yields for both down -12 basis points day-over-day); credit /flow move we guess (US 10YR Yield was -13 basis points week-over-week coming into this).

USD

Down -0.9% last week for the U.S. Dollar Index (that makes it down 3 weeks in a row into and out of an incrementally dovish Fed); USD down -5.2% in the last 3 months, so it will be important to continue to watch its easing signal as #LateCycle econ data rolls in.

 

**The Macro Show - CLICK HERE to watch today's edition at 8:30AM ET, with special guest Healthcare Sector Head Tom Tobin.

Asset Allocation

CASH 36% US EQUITIES 8%
INTL EQUITIES 14% COMMODITIES 14%
FIXED INCOME 25% INTL CURRENCIES 3%

Top Long Ideas

Company Ticker Sector Duration
PENN

Shares of Penn National Gaming are up approximately 9% since it was added to Investing Ideas on May 26. Our Gaming, Lodging & Leisure team reiterates their high conviction on the stock and notes that Ohio and Kansas have both been super-strong revenue generators in the month of May. This positive development has has led our analysts to raise their estimates even higher (and we're already the highest on the street...).

ITB

It was a busy week across the housing space with a host of fundamental releases, builder earnings and notable regulatory updates.   Net-net-net....the past week offered another positive update on the state of the residential real estate market with housing turned in a second week of strong, positive absolute and relative performance. The NAHB HMI (Builder Confidence Index) for June surged across all categories and in all regions, posting its best reading in almost 10 years. Total Starts declined -11% MoM to +1.036 MM units with SF and MF starts declining -5.4% and -20.2% month-over-month, respectively.  Permits, meanwhile, rose to an 8-year high advancing +11.8% sequentially and +25% year-over-year.   The strength in permits augurs forward strength in Starts and suggest residential construction spending will be (increasingly) supportive of GDP growth over the next couple quarters.

 

TLT

Bottom line right now remains that Lower-For-Longer is firmly intact as long as US #GrowthSlowing is. As Keith pointed out on Friday, Consensus Macro is still stubbornly sticking to the tired idea that rates have to go higher - they just have to... because, they haven't? All told, it was a great week sticking with the process on the long side of bonds. Here we feature an in-depth discussion from Senior Macro Analyst Darius Dale which does a thorough job outlining where our macro team currently stands with respect to the Fed, interest rates, markets and economy. The prescient discussion occured just hours before release of the FOMC statement.

Three for the Road

TWEET OF THE DAY

Starbucks doubles its Global Farmer Fund Program; In 2015 99% of @Starbucks coffee supply chain verified as ethically sourced $SBUX

@HedgeyeHWP

QUOTE OF THE DAY

Leadership is intentional influence.

Michael McKinney

STAT OF THE DAY

“Jurassic World” is only the second film in history to top $100 million in two separate weekends. “Jurassic World” has now passed “Jurassic Park” ($357.1 million) as the highest-grossing domestic release in the franchise’s history when not adjusted for inflation.


Education of A Bond Bull

This note was originally published at 8am on June 08, 2015 for Hedgeye subscribers.

“Education is what happens after one has forgotten what one has learned in school.”

-Albert Einstein

 

After rates rise, we learn that consensus hasn’t learned a whole heck of a lot about cyclical investing. It’s too bad they don’t teach that in school.

 

I don’t know about you, but I got schooled last week. Both stocks and bonds were down. With German Bund Yields doubling in 3-days, then US yields rallying on  another “good” jobs report, bond yields ripped.

 

No, I’m not capitulating on the Slower-For-Longer (lower rates) cycle call this morning. If US growth was accelerating, I would. On jobs, #history students know that Non-Farm Payrolls rising is what happens AFTER the US economic cycle has already peaked.

Education of A Bond Bull - Jobs cartoon 06.05.2015

*Click here to watch The Macro Show at 8:30am ET with special guest, U.S. macro analyst Christian Drake.

 

Back to the Global Macro Grind

 

As you can see in today’s Chart of The Day (it’s actually a rock solid table of historical labor cycle data), these are the facts about US labor metrics. I’d like you to zero in on the number of NFP months (+/-) vs. economic cycle peaks:

 

  1. DEC 1969 (economic cycle peak) = +4.9 months (# of months after DEC 69’ when NFP peaked)
  2. NOV 1973 =  +5.9 months
  3. JAN 1980 = +3.9 months
  4. JUL 1981 = +2.0 months
  5. JUL 1990 = +1.0 months
  6. MAR 2001 = +1.0 months
  7. DEC 2007 = +3.0 months

 

Yeah, I know – the Fed and its Old Wall research departments are all over it, reminding you about that this morning. But, unless it’s “different this time”, US non-farm payrolls are in the #process of peaking. And I’m not a big fan of capitulating at peaks.

 

Zooming into this #LateCycle (2015), here’s what the rate-of-change in Total Non-Farm Payrolls (NFP) has looked for the last year:

 

  1. JUL 2014 = +2.01% year-over-year growth (y/y)
  2. OCT 2014 = 2.04% y/y
  3. NOV 2014 = 2.11% y/y
  4. ***FEB 2015 = 2.34% y/y
  5. APR 2015 = 2.18% y/y
  6. MAY 2015 = 2.21% y/y

 

And if you want to data mine, Total Private Payrolls (PP) peaked in rate-of-change terms in FEB 2015 as well = 2.71% (vs. 2.53% in Friday’s jobs report).

 

In other words:

 

A)     The US economic cycle (see recent GDP report for details and/or April/May economic data) already peaked

B)      The latest of #LateCycle indicators (employment) is in the process of peaking, as it always does

 

“So”, Janet, what do you say you raise rates into that?

 

You know, with the almighty Dow down for 3 straight weeks (-1.6% in the last month) – why not give it a try, just to see what happens? Not that you care about the stock market, or any other asset bubble that your boy Bernanke perpetuated… give it a whirl!

 

While this note contextualizes the latest GROWTH cycle component of the Fed’s decision on June 17th, here’s a friendly reminder on the other big economic factor that some say bond yields are rallying on – INFLATION:

 

  1. CRB Commodities Index was down another -0.3% last wk and is still in crash mode at -26.9% year-over-year
  2. Oil (WTI) remained in TAIL risk mode (TAIL resistance = $67.92/barrel) -2.3% last wk and -36.7% year-over-year

 

Not to be confused with the counter-TREND bounce off the January 2015 #deflation scare lows (when the Long Bond tested all-time highs), year-over-year inflation’s TREND remains as bearish as the rate of change in US growth is.

 

I’m thinking that if the Fed raises rates in this environment, equity volatility (VIX) is going to start looking like FX and Fixed Income volatility (venti!). Don’t forget that horse has already left the barn (VIX +21.7% year-over-year) too.

 

If I’m wrong on US Treasury Yields from here, the re-education of perma stock market bulls is officially back-to-school.

 

Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now:

 

UST 10yr Yield 2.02-2.44% (bearish)

SPX 2079-2109 (neutral)
RUT 1239-1267 (neutral)
Nikkei 20371-20679 (bullish)
VIX 13.04-14.99 (bullish)
USD 95.01-98.05 (neutral)
EUR/USD 1.08-1.14 (bearish)
YEN 123.76-125.81 (bearish)
Oil (WTI) 56.77-61.30 (bullish)

Natural Gas 2.52-2.75 (bearish)

Gold 1170-1200 (bullish)
Copper 2.62-2.78 (bearish)

 

Best of luck out there this week,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Click to enlarge

Education of A Bond Bull - z 06.08.15 chart


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