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GIS | Sends the Jolly Green Giant Packing

General Mills (GIS) is on the Hedgeye Consumer Staples Best Ideas list as a LONG.

 

General Mills announced yesterday that they have signed a definitive agreement to sell the Green Giant and Le Sueur vegetable businesses to B&G Foods (BGS) for $765mm in cash.  This news is no surprise, as it has been widely rumored for the last six months. As we laid out in our GIS Black Book, management still has work to do to reshape the portfolio for future growth. In addition to divesting underperforming non-core businesses, acquiring growth will be crucial to revitalizing the company.

 

GIS | Sends the Jolly Green Giant Packing - CHART 1

 

The picture below walks through the deal overview and strategic rationale. In summary BGS purchased the business for $765mm in cash. Green Giant is expected to generate annualized net sales of ~$550mm and annualized adjusted EBITDA of ~$95mm to $100mm.

 

GIS | Sends the Jolly Green Giant Packing - CHART 2

 

Although this news was largely expected by the market, it is good to finally see this deal close. We are expecting GIS to actively shape their portfolio for the foreseeable future. On whether it will be an acquisition or a divestiture, we are hoping for both, as they need to shed non-core assets and acquire high growth ones.  

 

GIS stated that they expect the sale to be dilutive to FY2016 EPS by ~$0.05-0.07 per share, excluding transaction costs and a one-time gain on the sale.  General Mills will provide additional details about the impact of the transaction when it reports 1Q16 results on September 22nd. As expected the company plans to use the net proceeds for share repurchases and debt reduction following the Annie’s acquisition last year.

 

Selling this big of a brand that means so much to the heritage of the company is not easy. Divesting Green Giant is a small piece of evidence that management is no longer thinking in the past, they are looking to the future. We know that many people believe GIS management to be stodgy, old, complacent, whatever word you want to use, but this simply is not true of the vast majority of the leadership team. GIS has leaders in place that can drive change and we firmly believe this will be the first step of many as they turn the company’s performance around.

 

Please call or e-mail with any questions.

 

Howard Penney

Managing Director

 

Shayne Laidlaw

Analyst

 


HOLX: We Are Removing Hologic From Investing Ideas

Takeaway: We are removing HOLX from Investing Ideas.

***Please be advised that we are removing Hologic from Investing Ideas today.

 

"Given my bear market view," Hedgeye CEO Keith McCullough writes, "I have everything on a shorter leash. I can always bring things back to the list." Since HOLX was added to our list, the S&P 500 has fallen -8.25%. Shares of Hologic are down 0.58%.

 

The takeaway right now according to Hedgeye Healthcare Sector Head Tom Tobinis is as follows:

 

Consensus numbers moved higher and now our 3D updates are slowing. A Breast Health miss coming in F4Q15?

 

It's looking like the early 2015 strength in facility has faded considerably over the last 3 months.  Even if we assume placements rebound back to a more reasonable level in September, our Breast Imaging and Breast Health revenue estimates feel stretched at $190M and $234M, respectively.  Consensus Breast Health is now $278M.  

 

HOLX: We Are Removing Hologic From Investing Ideas - z tom 1



Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.65%
  • SHORT SIGNALS 78.64%

The Crossroads: Here’s What Twitter Management Needs to Do | $TWTR

 

In this excerpt from The Macro Show this morning, Hedgeye Internet & Media Analyst Hesham Shaaban weighs in on the biggest structural challenge facing Twitter in the months and years ahead and explains what management needs to do to right the ship. 

 

 

Subscribe to The Macro Show today for access to this and all other episodes. 

 

Subscribe to Hedgeye on YouTube for all of our free video content.

 


Beware of Taleb’s ‘Dead Turkeys’ (And How It Relates to U.S. Jobless Claims)

Editor's Note: Below is an abridged breakdown of this morning's labor data from Josh Steiner and our Financials team. If you would like to setup a call with Josh and his partner Jonathan Casteleyn, or trial their research, please contact sales@hedgeye.com

*  *  *  *  *

Consider a turkey that is fed every day. Every feeding will firm up the bird's belief that it is the general rule of life to be fed every day by friendly members of the human race 'looking out for its best interests,' as a politician would say. Then, shortly before Thanksgiving, something unexpected will happen to the turkey. It will incur a revision of belief.

- Nassim Taleb, The Black Swan

 

Beware of Taleb’s ‘Dead Turkeys’ (And How It Relates to U.S. Jobless Claims) - z turkey

 

Just like Taleb's Turkey, initial jobless claims "appear" on solid footing below 300,000. However, the stark reality is that we're drawing inevitably closer to Thanksgiving Day ... and the market is, of course, the Turkey. 

 

The Transition

The current labor market trend shows a subtle shift from great to good.

 

Initial claims, put in their low watermark ~6 wks ago and are now in a 1.5 steps back, 1 step forward re-convergence higher, moving back toward 300k. While anything sub-300k isn't "bad" per se - remember, it's what happens on the margin that counts. This is especially true when the market is stretched on longer-term valuation metrics and is entering the upper echelons of historical bull market duration.

 

Outside of claims, yesterday's ADP print came in light vs expectations at 190k (consensus was looking for 210k) and this happened last month as well when consensus was also looking for 210k and ADP delivered 185k. On the NFP front, the last two months (June/July) have been in-line with expectations, but that actually follows the same great to good pattern, as the May NFP print was a 280k blow-out (consensus was 220k).

 

The Data

Prior to revision, initial jobless claims rose 11k to 282k from 271k WoW, as the prior week's number was revised down by -1k to 270k.

 

The headline (unrevised) number shows claims were higher by 12k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 3.25k WoW to 275.5k.

 

The 4-week rolling average of NSA claims, another way of evaluating the data, was -9.0% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -9.5%.

 

The Cycle

It's not easy to tease out exact causation here, but a few possibilities come to mind. One possibility is the inevitability of late cycle reality --> great becomes good (early late cycle --> mid late cycle) and then good becomes less good (mid late cycle --> late late cycle) and, eventually, less good becomes bad (late late cycle --> recession). Another possibility is that the confluence of fears from real energy sector headwinds, August market weakness and rising Global Macro uncertainty are conspiring to facilitate that first shift downward from great to good. It's also possible (likely, even) that the latter is simply this cycle's causal factor for the former.

 

The Bottom Line

Like an old broken record, we're here to remind you again that it's late cycle and it's time to start preparing for the inevitable cyclical downturn.

 

Beware of Taleb’s ‘Dead Turkeys’ (And How It Relates to U.S. Jobless Claims) - z jobs 1

 

Beware of Taleb’s ‘Dead Turkeys’ (And How It Relates to U.S. Jobless Claims) - z jobs 2


INITIAL JOBLESS CLAIMS | LATE CYCLE & BETA DEFENSE

Takeaway: Claims remain benign but slowly/surely what has been great is now transitioning to good. We're getting later in what is already late cycle.

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 

 

 

The Transition: The current labor market trend shows a subtle shift from great to good. Initial claims, put in their low watermark ~6 wks ago and are now in a 1.5 steps back, 1 step forward re-convergence higher, moving back toward 300k. While anything sub-300k isn't "bad" per se - remember, it's what happens on the margin that counts. This is especially true when the market is stretched on longer-term valuation metrics and is entering the upper echelons of historical bull market duration.

 

Outside of claims, yesterday's ADP print came in light vs expectations at 190k (consensus was looking for 210k) and this happened last month as well when consensus was also looking for 210k and ADP delivered 185k. On the NFP front, the last two months (June/July) have been in-line with expectations, but that actually follows the same great to good pattern, as the May NFP print was a 280k blow-out (consensus was 220k). 

 

The Cycle:  It's not easy to tease out exact causation here, but a few possibilities come to mind. One possibility is the inevitability of late cycle reality --> great becomes good (early late cycle --> mid late cycle) and then good becomes less good (mid late cycle --> late late cycle) and, eventually, less good becomes bad (late late cycle --> recession). Another possibility is that the confluence of fears from real energy sector headwinds, August market weakness and rising Global Macro uncertainty are conspiring to facilitate that first shift downward from great to good. It's also possible (likely, even) that the latter is simply this cycle's causal factor for the former.

 

The bottom line is that, like that old broken record, we're here to again remind you that it's late cycle and it's time to start preparing for the inevitable cyclical downturn

 

The Data

Prior to revision, initial jobless claims rose 11k to 282k from 271k WoW, as the prior week's number was revised down by -1k to 270k.

 

The headline (unrevised) number shows claims were higher by 12k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 3.25k WoW to 275.5k.

 

The 4-week rolling average of NSA claims, another way of evaluating the data, was -9.0% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -9.5%.

 

INITIAL JOBLESS CLAIMS | LATE CYCLE & BETA DEFENSE - Claims18 normal  2

 

INITIAL JOBLESS CLAIMS | LATE CYCLE & BETA DEFENSE - Claims2 normal  3

 

INITIAL JOBLESS CLAIMS | LATE CYCLE & BETA DEFENSE - Claims3 normal  3

 

INITIAL JOBLESS CLAIMS | LATE CYCLE & BETA DEFENSE - Claims4 normal  3

 

INITIAL JOBLESS CLAIMS | LATE CYCLE & BETA DEFENSE - Claims5 normal  3

 

INITIAL JOBLESS CLAIMS | LATE CYCLE & BETA DEFENSE - Claims6 normal  3

 

INITIAL JOBLESS CLAIMS | LATE CYCLE & BETA DEFENSE - Claims7 normal  3

 

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


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