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MACAU CONFERENCE CALL TOMORROW AT 11AM

We will host a conference call on Friday, August 7th at 11am ET to discuss the latest Macau data, our outlook on the market and the stocks, and the implications of the recent earnings season. As always, we will entertain questions at the end of the presentation.

 

RELEVANT TICKERS INCLUDE:

LVS, WYNN, MGM, MPEL, 0027.HK, 1128.HK, 1928.HK, 2282.HK, 6883.HK, and 0880.HK.

 

DISCUSSION POINTS

  • Q2 earnings implications
  • Hedgeye company EBITDA estimates vs the Street for Q3, 2015, and 2016
  • Revised 2015/2016 monthly market projections
  • The promotional environment
  • "True" Mass trends
  • The increasing importance of non-gaming segments

CALL DETAILS

Attendance on this call is limited. Ping  for more information


RTA Live: August 6, 2015

Watch a replay of today's edition below.

 


JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES

Takeaway: Challenger data showed a surge in July layoffs driven by military restructuring. Meanwhile, Energy appear poised for another round of pain.

Below is the breakdown of this morning's labor data from Joshua Steiner and the Hedgeye Financials team. If you would like to setup a call with Josh or Jonathan or trial their research, please contact 

 

 

Army Woes & Energy Waves 

This morning's labor data doubleheader (July Challenger & Weekly Claims) featured weakness stemming from both the Army and the Energy industry. As the chart below shows, large troop reductions caused a ~50-60k surge in announced layoffs in July.

 

Meanwhile, Energy sector cuts rose to 9k from 0k in June. While we expect the troop count reduction was one-time in nature, our expectations on the energy front are the opposite. In speaking with our Energy Sector Head, Kevin Kaiser, many energy companies are hedged through year-end 2015, implying that later this year/early next year (assuming no bounce in energy) we'll see a second wave of job cuts from Energy.

 

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Challenger

 

On the claims side, rolling SA claims bounced nominally W/W (+3k to 270k) but remain at/near frictional lows. Recall that a few weeks ago, claims put in a 42-year low. 

 

The Data

Prior to revision, initial jobless claims rose 3k to 270k from 267k WoW, as the prior week's number was unchanged. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -6.5k WoW to 268.25k.

 

The 4-week rolling average of NSA claims, another way of evaluating the data, was -8.6% lower YoY, which is a sequential improvement versus the previous week's YoY change of -7.8%

 

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims2 normal  1

 

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims3 normal  1

 

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims4 normal  1

 

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims5 normal  1

 

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims6 normal  1

 

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims7 normal  1

 

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims9 normal

 

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 



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JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES

Takeaway: Challenger data showed a surge in July layoffs driven by military restructuring. Meanwhile, Energy appear poised for another round of pain.

This morning's labor data doubleheader (July Challenger & Weekly Claims) featured weakness stemming from both the Army and the Energy industry. As the chart below (Hat tip to Christian Drake of our Macro Team) shows, large troop reductions caused a ~50-60k surge in announced layoffs in July. Meanwhile, Energy sector cuts rose to 9k from 0k in June. While we expect the troop count reduction was one-time in nature, our expectations on the energy front are the opposite. In speaking with our Energy Sector Head, Kevin Kaiser, many energy companies are hedged through year-end 2015, implying that later this year/early next year (assuming no bounce in energy) we'll see a second wave of job cuts from Energy.

 

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - July Challenger

 

On the claims side, rolling SA claims bounced nominally W/W (+3k to 270k) but remain at/near frictional lows. Recall that a few weeks ago, claims put in a 42-year low. 

 

The Data

Prior to revision, initial jobless claims rose 3k to 270k from 267k WoW, as the prior week's number was unchanged. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -6.5k WoW to 268.25k.

 

The 4-week rolling average of NSA claims, another way of evaluating the data, was -8.6% lower YoY, which is a sequential improvement versus the previous week's YoY change of -7.8%

 

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims2

 

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims3

 

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims4

 

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims5

 

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims6

 

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims7

 

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims8

 

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims9

 

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims10

 

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims11

 

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims19

 

Yield Spreads

The 2-10 spread fell -5 basis points WoW to 154 bps. 3Q15TD, the 2-10 spread is averaging 164 bps, which is higher by 6 bps relative to 2Q15.

 

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims15

 

JOB CUTS & JOBLESS CLAIMS | ARMY WOES & ENERGY WAVES - Claims16

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


MPEL Q2 2015 CONFERENCE CALL NOTES

Takeaway: Weaker than expected in Macau due in part to Mass hold. Manila an emerging bright spot.

conF CALL 

  • Net revenue Q2 2015 was $916.8 million, (24%) YoY from US$1,199.5 million 
  • Despite Low hold in premium mass, they are happy with their ability to hold their share. 
  • July is showing stronger signs relative to recent trends. Especially on the mass side
  • Hotel occ has remained at nearly 100%, relative to the market that is very strong
  • Cost control has been very consistent, and has aided margins
  • Studio city continues to create job opportunities for the local community and has been very well received.
  • Integrated resort will serve as a growth catalyst. 
  • Location of Studio city is prime, with close proximity to the lotus bridge. 
  • Ex. gaming operations continues to serve as a great compliment for customers. 
  • Studio city will include a number of attractions never before seen in Macau.
  • 1,600 rooms, 350k sq/ft of retail space, and 30 fnb options
  • Manila continues to expand across all segments 
  • Leads Philippines in visitation and occ
  • Rolling chips segment generated 2.5x the prior period as junket efforts start to ramp up
  • The decline in net revenue was primarily attributable to lower rolling chip revenues and mass market table games revenues in Macau
  • Offset by the net revenue generated by City of Dreams Manila, which started operations in December 2014.
  • Q2 2015 Adjusted property EBITDA $204.9 million vs. Adjusted property EBITDA of $313.6 million Q2 2014. 
    • Adjusted property EBITDA (35%) YoY  
  • GAAP net income $24.3 million, $0.05 p/s vs. $0.26 p/s in 2014 
  • CoD Macau
    • Net revenue of $654.2 million vs. $967.5 million in 2014 
    • City of Dreams generated Adjusted EBITDA of US$179.0 million (38%) YoY
    • Rolling chip volume totaled $11.1 billion vs. $22.1 billion in the second quarter of 2014. The rolling chip win rate was 2.7% in both quarters ended June 30, 2015 and 2014. 
    • Handle of $1,116.7 million vs. $1,511.4 million Q2 2014.
    • Non gaming revenues of $28.6 million 
    • low hold impact of $20 million in EBITDA 
    • 50 mm in costs expect to realize 
    • Corp expenses to remain flat with prior q. 

Q3 guidance

  • d&a = $110-$115 million
  • corp expense - $20 million -$25 million

CoD Manilla - building lease payment = $7 million 

q & a 

Utilization capacity for tables? 

  • Not a real meaningful way to look at it at this point. Due to their contribution to Macau they would be very upset to receive 150 table allocations. But do not expect it. 

Optimistic about their contribution of non gaming attractions as a factor for the govt. to be generous?

  • Yes we are, see themselves as a model citizen and this should help them with the govt going forward. 

Given assumptions on tables, how do you plan to allocate the tables? Will it be similar to CoD? 

  • Table number to drive the decisions. But the shift in VIP tables to the Mass side plays a factor. The floor set up is very flexible to shift their lay out. 
  • As of now it's tough to say since they do not 
  • Look to bring over the high end premium feel to Studio City from CoD 

CoD more table shifting?

  • See the level as quite optimum right now at CoD and Altira. Not looking to make more changes in terms of floor lay out 

Macau at a bottom?

  • July looking stronger. Transit visa is a huge sentiment shift. Prior to that there had been only negatives surrounding Macau. 
  • VIP, structurally, will never be what it once was. 
  • Lower comps going into 2H and 2016, should be very helpful. 

Focus of Studio City? Lots of foot traffic will mean a shift towards mostly mass and premium mass clientele?

  • Studio City offers far more flexibility because of the other attractions and the experience we will offer. 
  • Efficiency and experience they gained from Cod and Altira will assist the opening of Studio City.

$50 million in savings? How?

  • Combo of a number of initiatives. Will not be split evenly. Could see more at CoD than Altira. But the savings will be widespread. Savings should be more back end loaded. 

Market shifting to mass? what makes mass successful? what are the drivers?

  • MPEL has a been a pioneer for premium mass. 
  • Lots of hotel rooms helps. but that's mostly for grind mass. 
  • Service combined with rooms really assists the premium mass, extra restaurants, bars, etc. 
  • Premium mass client is very sophisticated and needs the additional amenities 

Seeing other competitors extending credit for premium mass players and comped rooms? 

  • Have heard some things in the past. but for the most part them and all the competitors have been very rational 

Number of tables you can operate at Altira?

  • Reduced tables for VIP. Altira should be more resilient in terms of rolling chip volume, relative to mkt 
  • Key is more on the optimization of the small junket operators

 

How can you ramp up CoD Mannilla? 

  • Being careful with who they choose as Junket operators. Bring on another Junket operator in late summer. Must be cautious about credit. 

Beyond VIP, what should we think of the rest of the market in Manila?

  • Very happy with the product they have built so far. The trick is the same. Grow the database and continue to monetize the database and visitation. Lots of work to be done but the early signs are great. 

 

 

 

 

 

 

 

 

 

 

 

 


WWAV | EARNINGS PREVIEW & POTENTIAL ACQUISITION

WhiteWave Foods (WWAV) is on the Hedgeye Consumer Staples Best Ideas list as a LONG

 

EARNINGS PREVIEW

WWAV is set to report 2Q15 earnings this Friday; we are expecting to see another blockbuster quarter of robust organic growth in the high-single digits to low-double digits. Consensus estimates have EPS coming in at $0.25 an 8.7% increase YoY. Followed by total net sales of $928.1mm representing a 10.7% increase YoY. And gross income of $320mm which represents a 12.3% increase YoY and a 100 basis point margin expansion. To outperform these expectations would be tough, but realistically we believe that WWAV can match the street and that’s all they really need to do to.

 

During WWAV’s 1Q15 earnings call they raised adjusted diluted EPS guidance to $1.10 to $1.14 for the full-year 2015, increased from previous guidance of $1.08 to $1.12. Consensus estimates are currently projecting near the high end of the range at $1.13, leaving at least a penny of EPS on the table. We think WWAV will get the $1.14 and possibly more for the full year. 

 

Within this earnings will be another quarter of Horizon center-of-store products on the shelf, So Delicious, as well as a better read on the China JV. On the Horizon front I think we will see positive results, with increased sales, as premium milk buyers notice the trusted brand on center-of-store products.  So Delicious is such a dominating brand in the dairy-free category within the natural channel, and we really believe its success is really just beginning. The China JV admittedly is a wild card this quarter, although the sales will probably still be minor, the read they are getting on the business will be vital. We think it will be a positive outlook with some caution given the macro environment in the country.

 

It will be interesting to see if the droughts in the west continue to hamper the Earthbound crop. Although addressed in the 1Q15 call as a non-issue for 2015, conditions may have gotten worse than expected.

 

All-in-all we continue to believe that WWAV is performing without a hitch and that we will once again see strong organic growth within the business.

 

POTENTIAL ACQUISITION

Turning onto possible investments in the near future, we continue to see consolidation within the food space, especially with smaller better-for-you brands. It is widely known that WWAV is on the hunt for smart acquisitions, and we believe Quorn would be the perfect fit.

 

Quorn is a meat alternative food producer that leads the market in the UK and has a rapidly growing presence in the U.S. In January it was stated that Quorn had £150mm in sales. Quorn would be a perfect fit into the WWAV portfolio and extend them into the increasingly popular meat alternative segment.

 

We highlighted this potential acquisition in our WWAV Black Book and have become more convinced it would be great for the company after Pinnacle Foods recently reported robust growth in their Gardein business. Plant-based alternative products across all segments are rising in popularity, and meat alternatives is a major segment in which WWAV does not participate at this time. There are a lot of potential targets in this industry but Quorn is currently one of the most recognized with a pre-built customer base. Additionally, Quorn’s UK business is their biggest driver of revenue making it a perfect tack on to WWAV’s Alpro business. This acquisition would yet again add a #1 or #2 player to WWAV’s robust portfolio that is built for consumer preferences that have yet to fully evolve. We continue to be long WWAV and excited about the multitude of acquisition that they can make out in the market.

 

 


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