Client Talking Points
One of the best positions you could have had this month was LONG the U.S. Dollar and SHORT the #Deflations (commodities and their country, currency, debt, equity, etc. links) – USD is retesting the top-end of its range here and hammering Oil (-1.5%), Russian Stocks (-1.9%), etc.
Eurozone and/or Italian CPI of 0.2% year-over-year isn’t a win for Mario Draghi, and the sovereign-bond market is starting to figure that out again (he needs to bring more cowbell to Jackson Hole); 10YR German Yield down to 0.65% this morning and could go a lot lower.
On a positive note, we hope you stayed with the net LONG Japanese equity position in July – it performed as well as the Yen did not. Last night’s core CPI print of 0.1% year-over-year in Japan (Household Spending -2% year-over-year) keeps the easy money play firmly intact.
**The Macro Show - CLICK HERE to watch today's edition at 8:30AM ET, with Hedgeye CEO Keith McCullough and Macro & Housing Analyst Christian Drake.
|FIXED INCOME||24%||INTL CURRENCIES||14%|
Top Long Ideas
General Mills (GIS) remains on the Hedgeye Consumer Staples Best Ideas list as a LONG. Key segments across the company are turning the corner and improving performance. Specifically GIS has figured out the yogurt category, after 3 years of struggling with Greek and losing on the core business, management has turned the Yogurt division into a growth segment. Cereal has obviously been a struggle for all companies participating. Although still down, the trend is looking better, in FY16 we hope to see the switch to Gluten Free Cheerios and other improvement, turn performance around.
Penn National Gaming reported Q2 profit of $16.9 million on Thursday. The company's profit of 19 cents per share beat analysts' expectations. PENN posted revenue of $701 million in the period, which also beat forecasts. Shares have climbed 40% since the beginning of the year and 58% over the last 12 months, obviously much higher than the S&P 500. Gaming, Lodging and Leisure Sector Head Todd Jordan was at Penn National Gaming's investor day on July 24th. He will provide a detailed update this week.
Those long of #LowerforLonger enjoyed another solid week of 2%+ gains for TLT and EDV. VNQ followed up last week’s gains with a pullback of equal size, but we received a positive sloth of data this week that confirms our long housing theme. A positive housing outlook within a bearish rate environment should be positive for VNQ.
Three for the Road
TWEET OF THE DAY
Italy's unemployment rate ramps to 12.7% (from 12.5%) - Draghi's drugs doing nothing but asset inflation
QUOTE OF THE DAY
The force of character is cumulative.
Ralph Waldo Emerson
STAT OF THE DAY
According to a Quinnipiac poll, 30% of Republican voters said they definitely did not support Donald Trump in his bid for the party’s presidential nomination.
"Yesterday’s Fed statement had a wiggle," Hedgeye CEO Keith McCullough wrote in today's Early Look. "It adjusted (just a bit, but on the margin is what matters) for the recent marked-to-market change in inflation. Very few at the Fed want to raise rates as nature’s pace of #deflation is accelerating."
Takeaway: And another...
- EBITDA and EPS ahead of guidance
- Revpar and Fee growth below guidance. FX and macro headwinds to blame.
- Market share increasing across 7 of 10 brands
- Focusing on reducing cost and remaining effective in the industry and continuing their asset light strategy
- Owners seeing greater accessibility to management
- They would like to remain lean and nimble in the future
- On April 16 launched new tribute portfolio collection brand with the Royal Palm and Miami South Beach
- Development group announced that they will open a tribute hotel in London
- Cited the new website and new reservations display, has been received well
- In august the new Sheraton grand hotels will be named
- This fall they will role out a brand new advert campaign for Sheraton
- Renewed focus on service and innovation for the guest experience
- Marketing and sales efforts ramping up for the luxury collection
- Notable conversions into the luxury collection include Chicago's miracle mile property and their hotel in Prague, CZ
- Owners of the luxury collection are spending liberally on renovations
- Limited service in Upscale segment has largest portion of pipeline
- Aloft is next in terms of pipeline growth
- Aloft US RevPAR increased by 13%, and up 24% since 2013. Aloft was up 10% in Q2. Intend to grow Aloft's room count and grow the brand.
- HOT is serious about organic growth, Aloft is major focus, but it is widespread.
- Willing to use BS flexibility to seek new opportunities
- HOT opened 21 hotels with 5k rooms in Q2
- 64 deals for new hotels in signed Q2. Up 70% YoY
- 15 of which were conversions from other hotel brands, a 100% increase YoY
- Net room growth in 2016, should be up to historical 4-5%
- Excited about their recent deals, Phoenician and Gritti palace and the prices they commanded
- On track to meet $800mm disposition goal for 2015
- Search for successor CEO and board of director seat is ongoing, nothing to report as of now
- Intl revpar came in weak, and dragged the Q down.
- Management and franchise fees down 1%
- FX a major issue
- OCC up 140bps YoY to 72.2%
- Owned and leased hotels outperformed -
- WW revpar +7%
- NA +9%
- Vacation ownership earnings came in at $44 million at the high end of the expectations
- contracts signed up 1.8% YoY
- average price was down YoY
- on track to complete the spin off in Q4
- SG&A down 3.4% YoY
- Run rate pnl savings of 21mm
- Expect additional write downs of 30-35mm
- Negative impacts in oil states and western canada on revpar
- Gain of share in NYC 130bps
- Room nights from intl spg guests are flat yoy
- Group bookings remain on pace for rest of the year
- Difficult comps in South America due to world cup, but also a weakening economy is to blame
- Mexico is showing strong signs, resorts revpar up 18%
- Argentina is very similar to brazil
- not seeing this changing in 2H
- Volume of US travelers to Europe up 20%, and strong Chinese travelers which assisted better than expected results
- Due to soft comps, MEA should be at the higher end of the range in 2H
- Mainland china revpar growth driven by occ
- Thailand showing good signs of growth (off low comps)
- $285-$295mm is the new ebitda range for q3.
- Increasing revpar range for owned hotels to 5%-7%
- vacation ownership earnings up to ---
- CF guidance up to 84mm
- 1.2mm share buy back in Q2
- YTD they returned $228 million, expect to buyback $380mm in shares this year.
Timeline on new CEO search?
- No comment, can confirm they're in the middle of the search but will not rush to make an announcement.
Timing of the timeshare spin?
- On track for the end of 2015. Continue to believe it will add value
How to drive unit growth? ideas on the market?
- They are working harder to reach out to owners and streamline processes to drive unit growth. seeing material results due to this approach
- not worried about it,
Mkt share increase in 7 of the 10 brands?
- Technically its 9 because Tribute is new. Sheraton and Fourpoints are the only ones to not increase share.
- most increases in share are not more that 100bps.
- Aloft continues to be the strongest brand for them in terms of growth.
Restructuring costs? 54 million? Transitioning that into additional savings? how?
- Actually closer to 30-35 million in costs
When will HOT be 100% fee driven?
- After vacation ownership spin, they will be at 80% or so. there is no new timeline, but there is substantial progress. Never have said they intend to be 100% fee driven, but north of 80% is likely.
IHG and WYN rumors?
- No comment.
Buyback this Q? only 100mm but asset sales over 500mm, why not buyback more shares?
- They are simply ahead on asset sales, and trying to remain consistent with the $300-$350mm capital return policy. After the spin off leverage will be at high end of range, no need to buyback more shares as of now.
Strategic review and CEO search a distraction to owners and developers?
- No, they haven't seen it hurting business and relationship with owners and developers
Likelihood of more asset sales despite uncertainty with new CEO search?
- No slowdown experienced, they have brokers out to market and there is a lot of interest worldwide for their properties.
- quite confident they will meet the target of asset sales.
Expanding distribution? what is ideal? how will you get there?
- Open to a wide array of new distribution channels, trying to build out mobile and websites to make them more functional. listening to consumers and watching where the market is headed.
Corporate travel? Trends seen this year and the trajectory?
- Too early to call for 2016. Transient booking growth will continue through the year, think it will continue to drive rates.
Momentum building for select service? How do you get out to scale?
- The answer will come from the strategic review. From that review they will build out their plan for more growth.
How many Sheratons need to come out of the brand to keep consistency in the brand?
- No need to think about taking rooms out. With more marketing efforts they can redefine the whole brand, to move it up the latter and become a top choice hotel.
- In sum, they are working on making sure they refresh the brand and make it better.
Additional restructuring costs in Q3?
- There will be additional charges. $9mm for the company plane. Additional trickle of charges going into 2015.
Any black out dates for buybacks? did you buyback enough?
- Achieved target they wanted, and are pleased to be in a good position to complete the pledged buyback.
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