Monday Mashup

Monday Mashup - CHART 1






8/4/15 BETR | It’s Already Popped




Friday, August 7

WWAV | Reported 2Q15 results, which were highlighted by robust organic top line growth of +9%, but missed on the top line slightly. In addition to the impressive quarter, WWAV also acquired the Wallaby Yogurt Company (view our note here)

POST | Reported 3Q15 results in which management mitigated all of the potential disaster Avian Flu could have brought on them, and surprised the street. Most importantly they had great things to say about cereal. Declines in RTE cereal are slowing, and they are beginning to see an upward trend. Management noted that their biggest over performance versus expectation was in the RTE cereal category. As the industry is cycling over easier comps, “leaders in the category [GIS & K] seem to be reinvigorating their spending behind the category and it seems to be working.” (click here for news release)


Wednesday, August 5

BETR | Tumbled in its opening day of trading, down roughly -7%, never trading above their IPO price of $18 per share (click here for article, or here for our note on the IPO)

K | Upgraded to buy from neutral at Citi, target increased to $80 from $66


Tuesday, August 4

HSY | Introduces latest BFY granola bar offering (click here for article)



Food and organic stocks that we follow outperformed the XLP last week. The XLP was down -0.3%, the top performer from our list was Boulder Brands (BDBD) posting an increase of 11.3%, after announcing the engagement of William Blair to explore strategic alternatives for some of their brands. Worst performing company on our list was Amira Natural Foods (ANFI), which was down 21.7%.

Monday Mashup - CHART 2



From a quantitative perspective, the XLP remains bullish on a TRADE and TREND duration.

Monday Mashup - CHART 3


Food and Organic Companies

Monday Mashup - CHART 4

Monday Mashup - CHART 5



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



WWAV continues to impress us with their robust high-single digit to low-double digit organic growth rate. This quarter, in addition to their robust organic growth, WWAV also acquired the Wallaby Yogurt Company, an organic Greek and Australian style yogurt and Kefir beverage company. This is a continuation of their string of pearls approach, to adding top brands to their portfolio. WWAV continues to be a top company on our list for their future growth prospects both organic and through M&A as well as their possibility of being acquired. The stock traded a little weak through the day after earnings, but this company is still in BEAST MODE, no need to think anything different.



On Friday August 7th, WWAV reported a strong 2Q15, featuring robust organic growth, as well as a new acquisition. Reported revenue rose 10% to $924mm, slightly below consensus estimates of $927.2mm, organic revenue grew to $911mm, up 9% YoY. Operating income beat estimates, reporting $84.9mm versus consensus estimates of $83.1mm, representing a 20% increase YoY. WWAV beat the street estimates on the bottom line by a penny, reporting adjusted EPS, excluding the China JV of $0.26 versus consensus estimates of $0.25, representing an 11% increase YoY.


This robust growth was slightly hampered by a slowdown in the America’s Fresh Foods segment. The segment experienced tough crop conditions in the quarter in which they weren’t able to harvest a large amount of their fruit supply. All said and done, the segment sales were down -1%, but operating income was up 11%, as they continue to streamline the manufacturing process and exit lower margin business. Since the supply issues on organic salad last quarter, the team has worked diligently on regaining distribution and are seeing strong results.


Horizon Organic sales were up 15% in the quarter driven entirely by price, as organic milk supply continues to be constrained; consumers don’t seem to care about the rising prices. Horizon center-of-store products are meeting the increased expectations set out in the last call, and are well positioned heading into the back to school season.  


The European Foods and Beverages segment is growing at an unbelievable 23% on a constant currency basis. This growth is purely volume driven across all markets and product lines. This is the 4th consecutive quarter of 20%+ growth for this business and they are still expanding into new countries. Just recently entering France, and although in its early stages results are positive. Alpro is also working on new products such as drinkable yogurts that are coming out towards the end of the year.


Management is pushing costs out of the business. In the quarter they delivered 75bps of margin expansion, and are expecting to deliver that or more on a full year basis. Increased volume going through the system has been a key driver of cost savings as they further leverage their assets. In addition, the company is looking to invest in expansion, building out packing and manufacturing lines, warehouse space and further automating operations to increase efficiency.




In the quarter WWAV completed the acquisition of Vega, for $550mm. The brand has $100mm in sales over the LTM ended June 2015, experiencing 60% constant currency sales growth year-to-date June 2015. Management and Hedgeye are very excited about WWAV adding this brand to the portfolio. Management spoke to its vast expansion capabilities across the U.S. as well as international growth possibilities, such as tacking it onto the Alpro distribution network in Europe. Most importantly this is a margin enhancing, accretive acquisition to WWAV.


In addition to the completion of the Vega deal management also entered into an agreement to acquire Wallaby Yogurt Company for $125mm. An organic Greek and Australian style yogurt & Kefir beverage Company. Along with the great brand and growth prospects, as part of the deal WWAV also receives their yogurt manufacturing facility in the on the west coast. Now with their prior facility in Pennsylvania and the newly acquired one in California, they will be able to expand distribution rapidly.  Please view the below case study for greater detail:





After increasing full year guidance coming out of 1Q15 earnings, management is increasing guidance again. They now project reported net sales growth to be +12% - 13% versus prior projections of + low double %, and an organic growth rate of +10%.  Increasing adjusted EPS excluding China JV to $1.14-$1.17 from $1.10-$1.14.




Russell 2000, Japan and UST 2YR

Client Talking Points


The Russell 2000 got crushed into week’s end, taking it's correction  to -6.9% from its year-to-date high (much worse than SPX -2.5% from its year-to-date high). Small cap and high beta Style Factors are -7.7% and -9.3%, respectively, in the last 3 months – not bullish growth signals.


Japan is up +0.4% overnight and up for the 4th consecutive day –signaling almost as overbought now as the Russell 2000 is oversold, but this continues to be or favorite Global Equity market at +7.4% in the last 3 months vs. the mess that is the aforementioned factors in the U.S.


The UST 2YR Yield is up at 0.74% this morning and this has been the alleged “breakout” level all year long (failed here every time); if the Fed breaks it out, they could easily be the catalyst for a flattening and/or recession – that’s what Mr. Market told you post jobs report.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

HCA had some potentially chilling commentary on their earnings call this week and introduced a new term, #ACATaper. The pace of growth in the U.S. Medical Economy has been on a tear as the newly insured rolled into physician offices and hospitals. We’ve been highlighting in recent weeks the transition from an #ACATailwind to #ACAHeadwind, or as someone on the HCA call named it, the #ACATaper.   


In an analysis of the demographics of the newly insured, Pap testing, HPV, and mammography were at the top of the list of products that would be positively impacted by the ACA.  As we reach the #ACATaper stage, will HOLX take a hit to their Diagnostic segment? It is possible, in our view, but so far a minor risk.  As we learned last week from a lab operator, Qiagen is likely to continue to cede their 14% HPV testing share to HOLX. So while the #ACATaper appears to be finally here, there are offsets. 


On a disappointing note, our 3D Tomo Tracker update for July came in at 24 facilities. Down sequentially from June, and down from a peak of 54 in May. Our forecast algorithm, which is based on these updates, remains unchanged. While 20 is low, it is probably a blip in the longer term adoption cycle.  


PENN has emerged as the first domestic gaming growth story in 10 years with a new casino in Massachusetts this year and one in San Diego next year. Meanwhile, regional gaming trends have stabilized, providing near term earnings visibility and upside. Upcoming catalysts include the monthly release of State gaming revenues for July, including Massachusetts, and positive earnings revisions.


Sometimes the macro rotation and allocation playbook is relatively straightforward. As growth slows and "reflation" deflates, you want to be buying A) Long-term Bonds and B) stocks that look like bonds. Bond proxies and defensive yield consistently outperform alongside the dual deceleration in demand and prices and Utilities and REITS remain the go-to sectors for growth slowing, defensive yield exposure.  

Three for the Road


VIDEO | History: Why People Are Angry



The time to repair the roof is when the sun is shining.

John F. Kennedy


SeaWorld experienced an 84% drop in profits in the second quarter compared to the year before (still reeling from “Blackfish,” the documentary that raised questions about its treatment of animals) attendance dropped by 100,000 people, about 1.5%.

Early Look

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CHART OF THE DAY: Deflation Expectations (They're Rising Again)

Editor's Note: This is a chart and brief excerpt from today's Early Look written by Hedgeye CEO Keith McCullough. Click here for more information and how you can subscribe.


...Yep. That’s kind of a depressing note to kick off another week in a world that continues to be dominated by both #LateCycle growth slowing and #Deflation. But it is what it is. Hope is not a risk management process.


Post Friday’s US jobs report, I still think the Federal Reserve risks being THE catalyst for a curve flattening (recession). If they’re hostage to a political calendar and raise rates during a cyclical and secular slowdown, that is...


CHART OF THE DAY: Deflation Expectations (They're Rising Again) - Chart of the Day

Hostage To A Hike?

“Their waiting blurred the calendar.”

-Wallace Stegner


Life, like economies, can be cyclical. Then there’s the secular stuff that just won’t go away. As Stegner wrote in The Angle of Repose, we can be “imprisoned” by our circumstances, “vacillating between hope and disappointment.” (pg 437)


Yep. That’s kind of a depressing note to kick off another week in a world that continues to be dominated by both #LateCycle growth slowing and #Deflation. But it is what it is. Hope is not a risk management process.


Post Friday’s US jobs report, I still think the Federal Reserve risks being THE catalyst for a curve flattening (recession). If they’re hostage to a political calendar and raise rates during a cyclical and secular slowdown, that is.

Hostage To A Hike? - Fed cartoon 01.28.2015


Back to the Global Macro Grind


Cyclically, both non-farm and private payrolls slowed sequentially and in year-over-year rate of change terms in July. I still think the cycle peak for US employment was in Q1. It’s now Q3, and counting. Given July’s #Deflations, Q3 is shaping up slower than Q2.


On the jobs data, rates were down (10yr UST Yield 2.16% = Long-term Treasuries + Utilities (XLU) up). I guess some (especially Long Bond Bears) were surprised by that move. No one should be – the Bernanke/Yellen Fed has never tightened during a slowdown.


That certainly doesn’t mean Yellen can’t pull a 2011-style Trichet (former ECB czar) and just “do it, because it’s time.” That would sadden me as I was genuinely starting to think that she and her colleagues are “data dependent.”


For those of you who still pay attention to both the data and how macro markets are interpreting it, here’s what happened in FICC (Fixed Income, Currencies, Commodities) last week, within the context of the last 3 months:


  1. FX (wk-over-wk): Canadian Dollar -0.4%, Brazil’s Real -2.5%, Russia’s Ruble -3.6%
  2. FX (in the last 3 months): Canadian Dollar -7.7%, Brazil’s Real -13.8%, Russia’s Ruble -21.5%
  3. Commodities (CRB Index) down another -2.1% wk-over-wk, deflating -12.6% in the last 3 months
  4. Oil (WTI) #deflated another -6.7% wk-over-wk, crashing -27.8% in the last 3 months
  5. Copper dropped another -1.3% wk-over-wk, moving into crash mode, -20.1% in the last 3 months
  6. Break-evens (5yr UST) down another 11 basis pts wk-over-wk and -39bps in the last 3 months to 1.29%


And sure, the Fed can start to ignore all of the deflationary expectations and data inasmuch as they want to hope for magical wage inflations and capex cycles, but that’s precisely THE risk. They haven’t communicated changing that data dependent mandate, yet.


Mr. Macro Market’s read-through to Global Equity markets was as plainly obvious as it was to the US Equity market:


  1. Energy Stocks (XLE) led losers, closing down another -3.4% on the week, taking 3-month deflation to -16.7%
  2. Basic Material Stocks (XLB) dropped another -1.6% on the week, taking 3-month deflation to -10.9%
  3. Emerging Market Stocks (MSCI) fell another -1.8% on the week, taking 3-month deflation to -13.6%
  4. EM Latin American Stocks (MSCI) lost another -4.2% on the week, taking 3-month deflation to -18.0%
  5. Brazil’s Stock market (Bovespa) dropped another -4.5% on the week, taking 3-month deflation to -14.7%
  6. Utilities (XLU) appreciated +0.9% on the week, taking the 3-month gain to +1.5%


All the while, our favorite Global Equity market (see Q3 Macro Themes deck - Japan’s Nikkei) added another +0.7% of absolute weekly performance, taking its 3-month appreciation to +7.4%. There’s always a bull market somewhere!


The thing about Japan is that central-planners there have vacillated “between hope and disappointment” (for 20 years) before finally accepting that they have nothing sustainable that would deliver their people the threat of a “hike.”


Well, to be fair, even though some of the un-elected at the Fed might like to think so, we aren’t “their people.” We are simply The People who will be hostage to a hike. Best of luck to all my friends in Texas and in the Dakotas on that front.


US stocks obviously get this. Signaling immediate-term TRADE oversold on Friday, they’ve been down for 11 of the last 14 days and the Russell 2000 is in the midst of a -6.9% correction (vs. SP500 -2.5% from its YTD high and the Dow now -2.5% for 2015 YTD).


As we all await the blurring September “rate hike” calendar, the question remains, however: does the Fed get it?


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.14-2.25%

SPX 2067-2096
RUT 1199-1227
Nikkei 209
EUR/USD 1.08-1.10
Oil (WTI) 42.89-46.41


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Hostage To A Hike? - Chart of the Day

The Macro Show Replay | August 10, 2015


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