Hedgeye is hosting a visit to PENN’s Plainridge Casino in Plainville, MA on Friday August 28th at 10am. We will meet with PENN’s COO Jay Snowden and Plainridge’s GM Lance George and tour the facility as well. As you know, Plainridge is a big growth driver for PENN and could contribute an estimated 15% of the company’s property EBITDA in 2H 2015.


Following the PENN meetings, we will drive over to visit Plainridge’s primary competitor, the Twin River casino in Lincoln, RI, about 30 minutes away.


Please let Todd Jordan or your Hedgeye salesperson know if you are interested in attending. Thanks.


TAKEAWAY: We view LNCE as a high quality, small cap name in the Consumer Staples space.  The company’s brands are well positioned in the snacking category to allow for sustainable volume growth and margin expansion for the next 3-5 years.  


Snyder’s-Lance (LNCE) reported 2Q15 numbers yesterday after the close that beat the street on both the top and bottom line. As a result of this beat and a strong outlook for the next 12-18 months, we are raising LNCE up to the Hedgeye Consumer Staples Best Ideas list as a LONG.



We will dive deeper into this idea next Wednesday, August 19th at 11:00am ET when we present our Black Book on LNCE. Formal invite and details will follow later today.



Snyder’s-Lance is a leader in the snacking category, their portfolio of brands is something that actually brings people to the center-of-the store. It is exciting to see the innovation they are implementing across the top brands as well as driving growth through increased distribution. There is still plenty of white space out there that LNCE can fill as they expand their operations. In early analysis we see 25%+ upside in the name, as we are confident the team can continue to grow organically, as well as acquire fast growing snacking brands to plug into their DSD network.



As previously noted LNCE beat the street on both the top and bottom line. Reporting net sales of $431.4mm versus consensus estimates of $430.2mm and operating income of $32.3mm versus consensus of $31.0mm. In the quarter, management improved their operating margin by 50bps, as they leveraged the manufacturing footprint and continue to streamline operations. Moving down to EPS, LNCE beat the street by a penny, posting $0.27 versus estimates of $0.26. The great financial performance was coupled with impressive share gains by all of the core brands, which include; Snyder’s of Hanover, Lance, Cape Cod, Pretzel Crisps and Late July.



Innovation is a key source of growth, and they are showing their brands can expand well across categories. Cape Cod’s early days in RTE popcorn are proving to be positive, and they are spreading innovation across better for you snacking all the way to premium snacks. Seeing these actions shows they are most likely casting a wide net across the space when looking at possible M&A targets. At first thought, Popcorn Indiana, Angie’s, KIND Snacks, Justin’s and thinkThin jump to mind as possible targets.



In 2Q15, LNCE’s core brands net sales grew an impressive, 9.1%, with volume up 10% and increasing market share across the board. But there is still plenty of more room as they enter different channels. LNCE just recently entered e-commerce, it is growing well for them and expanding as their products cater well to this platform. Drug channel and C-store are also areas to improve as they are in most location but sometimes with just Lance or just Cape Cod, and management’s goal is to get broad distribution across all brands.



From 2012 to 2014 LNCE spent $227mm on capital expenditures to update the manufacturing footprint and streamline the business. This was ~72% more than the previous three year period, as it was time to update manufacturing lines and infrastructure to improve efficiencies. Now that this spend has begun to taper off, they can focus their cash on growing the business. For starters they have updated their packaging across the core brands to increase consumer appeal on the shelf. They have also ramped up marketing spend both digital and media, to get in front of the consumer and drive awareness and trial of new products and old staples.



Just about one year ago on June 30, 2014, LNCE closed the deal to divest their private label business, which included two manufacturing facilities in the U.S. and Canada. Shearer’s Foods a subsidiary of Wind Point Partners purchased the business for $430mm. The private label business accounted for $287.8mm in net revenue in FY2013, 16.4% of the companies then $1.76bn in total net revenue. This was an important step for LNCE management, which allows them to focus 100% of their attention on the branded portfolio. Freed up cash to be put to better use on innovation and expanding the core branded portfolio of brands. As LNCE is lapping the one year mark of divesting this business the company is looking stronger than ever, very focused on growth and innovation.



Management did not change guidance for 2015, they are still shooting for net revenues for the full year of $1.69 to $1.72 billion. The earnings per diluted share estimate range also remains at $1.11 to $1.19 and capital expenditures to be between $60 and $62 million. 

Panic! China Central Planning Style

Takeaway: This is one more sign of panic by Chinese central planners—their 7.0% "growth" number is a lie.

When in doubt, devalue!

*  *  *  *  *

Panic! China Central Planning Style - z Yan


Big news this morning as Beijing opts for a central planning move that doesn’t work. Yep, we taught them that (after Japan, Argentina, Zimbabwe, etc. tried the same for the sake of “exports”). The biggest devaluation move in two decades begs the basic question: just how made-up is the +7.0% GDP story in China with -9% exports?


Expect cross-asset class volatility to continue to rise and FX/correlation risk to ramp on this.  The Shanghai Casino Composite is down 1 basis point on the news … #funny


If you didn't know why locals have been selling Singapore, Taiwan, Indonesia (-4-6% in the last month) well now you know #Yuan


This is simply one more sign of panic by Chinese central planners—their 7.0% "growth" number is a lie.

Panic! China Central Planning Style - China GDP cartoon 07.16.2015

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China, USD and Volatility

Client Talking Points


When in doubt, devalue! Yep, we taught them that (after Japan, Argentina, Zimbabwe, etc. tried the same for the sake of “exports”) – biggest devaluation move in 20 years begs the basic question – how made-up is the 7.0 GDP story in China with exports -9%?


Cross-asset class volatility and foreign currency correlation risks should ramp on China trying to centrally-plan markets, but this is coming off a relatively big down day for USD after Fed’s Fischer acknowledged economic gravity. The EUR/USD 1.10 is at the top end of our 1.08-1.10 range.


Inasmuch as UST 2YR resistance of 0.75% has held all year long, so has 11.34 @Hedgeye TREND support for front-month VIX – total U.S. Equity market volume (including dark pool) was -24% vs. its 1 year average on yesterday’s no volume “reflation” day.


**The Macro Show - CLICK HERE to watch today's edition at 8:30AM ET.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

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


Van Sciver: Fade Caterpillar's "Barron’s Bounce" | $CAT… @HedgeyeIndstrls




Talent is cheaper than table salt. What separates the talented individual from the successful one is a lot of hard work.

Stephen King


57% of teens say they have met a friend on the Internet and more than 50% of that group say they’ve done it more than five times.

CHART OF THE DAY: The Slowing ... It's Secular (Long-Term Chart of Global Yields)

Editor's Note: Below is a chart and brief excerpt from today's Early Look written by Hedgeye CEO Keith McCullough. Click here to subscribe and stay ahead of consensus.


...As you can see in today’s Chart of The Day (Long-term chart of Global Yields) China telling the “truth” (sort of) by their actions only confirms what long-term investors have had right on growth and inflation for a long time now – the slowing is secular.


CHART OF THE DAY: The Slowing ... It's Secular (Long-Term Chart of Global Yields)  - Chart of the Day

Landing On Their Head

“That is why, no matter how desperate the predicament, I’m always straightening my derby hat and fixing my tie – even though I have just landed on my head.”

-Charlie Chaplin


After making up a 7.0 GDP number in Q2, the Chinese have quite publicly landed on their head. And, as you’re all accustomed to by now, the only ideological central-plan for that in this day and age is a currency devaluation.


Must “stimulate” exports, right? Never mind what might happen to all your customers (Singapore, Taiwan, Indonesia – stock markets all -4-6% in the last month) and/or local consumers (less purchasing power) – it’s for The People, right?


Definitely. For sure. Now that most of the majors (Japan, Europe and China) have answered the bell on a global cyclical slowdown meeting their secular (demographic) ones, the only one left to devalue (again) is the USA.

Landing On Their Head - China GDP cartoon 07.16.2015


Back to the Global Macro Grind


If Abenomics (BOJ) + Draghi’s (ECB) “Whatever It Takes” (and almost 600 rate cuts around the world in response to growth and inflation slowing) = US Dollar’s biggest 6-12 month ramp in modern history, what’s China devaluing by 2% going to do?


I don’t know. Do you?


This is where embracing the uncertainty of it all comes into the #process. While the absolute devaluation (to 6.2298 Yuan vs. 6.1192 Yuan) is small (2%), the non-linearity of the move is probably what matters here. The Chinese are panicking.


In addition to the FX moves overnight, this is what Mr. Macro Market told us:


  1. Shanghai Composite down, literally, 1 basis point (-0.01%) on the “news” – nice job dudes
  2. Indonesia and Singapore stock markets were -2.7% and -1.4% on the news, respectively
  3. KOSPI and Taiwan saw their stock markets decline (again) and are -3.6% and -5.8% month-over-month
  4. Oil (WTI) failing to have more than a 1-day bounce, -0.5% to $44.73 (no support to $42.62)
  5. Gold sees some follow through, +0.8% to the top end of my $1080-1118 risk range


Global Rates backed off on the implicitly bearish #ChinaSlowing news too:


  1. US 2yr Treasury Yield backed off the 0.75% level of resistance it has failed at, every time, in 2015
  2. US 10yr Treasury Yield back down to 2.17% and remains bearish TREND @Hedgeye
  3. German 10yr Bund Yield failed at its long-term TAIL risk level of 0.76% and has fallen to 0.66% last
  4. Swiss 10yr Bond Yield has retraced all the way back down to -0.17%
  5. Japanese 10yr Government Bond Yield of 0.39% is -4 and -12 bps lower than where it was 1mth and 1yr ago


In other words, the most fundamental reality in Global Macro today remains the same as it was yesterday. As both Global Growth and “reflation” slows, #Deflation linked assets get cheaper and slow-growth ones (Long Bonds) get more expensive.


As you can see in today’s Chart of The Day (Long-term chart of Global Yields) China telling the “truth” (sort of) by their actions only confirms what long-term investors have had right on growth and inflation for a long time now – the slowing is secular.


As for the US stock market, don’t forget that no “surprise” (non-linear) central-planning move happens in a vacuum. Since yesterday was a “reflation” day, today is most likely going to be a deflation day. What I mean by that is:


  1. Energy Stocks (XLE) bounced +3.2% on Down Dollar yesterday, but remain bearish TREND @Hedgeye
  2. Utilities (XLU) corrected -0.4% on Up Bond Yields yesterday, but remain bullish TREND @Hedgeye


That gave the SP500 its 4th up day in the last 15, but it came on crashing US Equity Volume (Total US Equity Market Volume, including dark pool, was -24% vs. its 1yr average).


Since I covered every short position in Real-Time Alerts on Friday (they all signaled immediate-term oversold), I saw plenty of short selling opportunities yesterday. Given the China news, my 2 favorite SELL signals yesterday were CAT and Industrials (XLI).


If you want to make money in this market, I say you keep moving out there. When someone asked me yesterday what I’ve been doing differently in Real-Time Alerts (24 booked gains in a row), I said I was just seeing the big picture clearly.


As most of you know, 16 years of risk managing markets doesn’t always go this smoothly. But when it does, and we’re not consensus, it sure beats landing on my head.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.13-2.25%

SPX 2076-2118
USD 96.35-98.46
Oil (WTI) 42.62-46.19

Gold 1080-1118


Best of luck out there today,


Keith R. McCullough
Chief Executive Officer


Landing On Their Head - Chart of the Day

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