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Hayden Cole

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  • Chipotle's Spectacular Q2 Cannot Overshadow Valuation Concerns [View article]
    Agree with all your points; not sure flat SSS is likely but deceleration certainly is.
    Aug 17 08:16 PM | 1 Like Like |Link to Comment
  • Chipotle's Spectacular Q2 Cannot Overshadow Valuation Concerns [View article]
    The reason that is very unlikely is that they are still growing store count in the double digits, which means each year a lot of restaurants enter the comp base that are still ramping towards maturity. This naturally inflates SSS for CMG compared to lower growth firms.
    Aug 17 04:47 AM | Likes Like |Link to Comment
  • Update: Cardtronics Earnings [View article]
    I presume you are not including acquisition costs in 'free' cash flow?
    Doesn't seem like a sound approach for a serial acquirier like CATM.
    Aug 15 01:58 AM | Likes Like |Link to Comment
  • Caterpillar - Investors Ignore Low Quality And Financially Engineered Earnings [View article]
    Comments from Cummins mangement on China not exactly bullish for the China construction market OR the prospect of a resources segment rebound:

    "Demand in construction markets has softened already from already weak levels as the pace of investment in infrastructure has not rebounded in China. Industry demand for excavators is expected to decline by 14% for the year, down from our previous forecast for the market to be flat. Power Generation revenues are also expected to be close to flat for the full year."
    Jul 28 10:46 PM | Likes Like |Link to Comment
  • Chipotle: One Overstuffed Burrito [View article]
    One thing I would push back on is I think the discount rate in your DCF is too high for a low beta, steady grower like Chipotle. But otherwise it is hard to disagree with your analysis.

    Certainly in international markets where their product is likely to have widespread appeal there are almost universally local copycats that have duplicated the Chipolte concept that would make widespread international expansion extremely difficult (Australia is a good example).

    The question is at what point do you get in front of the Chipotle Train given they have several quarters in front of them of favorable comparisons from menu price increases? It might derail tomorrow or it might keep rolling shorts as it has been quarter after quarter. It is hard to convince the market that valuation matters when they are posting same stores sales increases in the teens.
    Jul 26 10:35 AM | 3 Likes Like |Link to Comment
  • Caterpillar - Investors Ignore Low Quality And Financially Engineered Earnings [View article]
    Good summary of the quarter.

    I would add that during the first half CAT results benefited significantly by favourable year over year comparisons with dealer inventory changes.
    In H1 2014 dealer inventory decreased by $0.2 bil; in H1 2013 the decrease was $1.8 bil.
    So while revenue in H1 was fairly flat year on year, actual end user demand was significantly lower than last year.

    Importantly, CAT management stated on the CC that they expect dealers to wind down another $1.6 bil in inventory in the second half – about the same as 2013. Which means year over year comparisons are likely to be a LOT less favourable, and if CAT continue to post double digit declines in retail sales, as they did last quarter, then the top line will take a serious hit.
    I would consider management’s revenue guidance for H2, which is essentially flat with H2 of 2013, to be ‘optimistic’ to put it kindly, given:

    -Big deceleration in China construction market in recent month
    -Forecast decline in Latin American construction market in H2
    -No sign of pickup in mining sales, even if the worst of the decline is over
    -lack of dealer inventory tailwind in H2

    CAT management seem to be betting on a significant upswing in demand in H2 to make guidance, which looks like a huge stretch at this point.
    Jul 25 03:35 AM | 4 Likes Like |Link to Comment
  • Cardtronics: Aggressive Accounting And Secular Decline Drive 40-70% Downside [View article]
    Can you share management's rationale for the slower depreciation vs peers?
    Jul 22 08:52 PM | Likes Like |Link to Comment
  • Evaluating Caterpillar's Dividend Growth Potential [View article]
    More evidence that the construction equipment market in China is tanking:

    "Komatsu’s sales in China, where economic growth is slowing, dropped dramatically in April and May and it will probably miss its annual target for the nation... Komatsu’s China sales in the two months were about 20 percent lower on the previous year, he said"

    Note that floor space of new construction starts is down 18.6% in May, from a 1% increase last year.

    FYI, isn't it convenient that CAT management decide to talk up sales in China in Q1 and mention they were up 30%, while simultaneously failing to point out that comps were extremely easy in Q1 as Q1 2013 was an abysmal quarter for construction equipment in China, with excavator sales being down 31% in Feb alone?

    Unfortunately, comps aren't so easy going forward.
    Jul 11 10:02 PM | Likes Like |Link to Comment
  • Evaluating Caterpillar's Dividend Growth Potential [View article]
    It's interesting you bring up confirmation bias, as to me your post reads like a case study.

    The relevant data point to get a read on China construction sales is not total machines sales, but construction sales (obviously).

    In Q1 when CAT said China sales were up 30%, March A/P construction was 12%. In May it is DOWN 8% - the reason for the reversal is painfully obvious.

    This is clearly backed up by the data from CEIC in the PDF I linked, which you seem to have so much trouble reading.

    You certainly go to great lengths to try and discredit the S&P forecast (which as you note is derived from companies' own capex expecations). All I can say is, you seem mightly convinced that the managment of these companies know less about their own forward capex than you do.

    Hope that works out for you.
    Jul 10 12:40 AM | Likes Like |Link to Comment
  • Evaluating Caterpillar's Dividend Growth Potential [View article]
    The Q1 data is old news. For the 3 months ending March dealers reported A/P construction was up 12%. Fast forward to May it is down 8%. Do you honestly still think China sales are up 30%, or even positive at this point? If so I think you're in for a reality check.

    You claim little of what I said is true, and yet provide zero evidence in support. Conversely, statements such as:

    "The overall trend in Cat’s global business is up and its profit margins are increasing as a result of better factory utilization and greater efficiencies from the continuous implementation of Lean manufacturing practices (the Caterpillar Production System). "

    are easily debunked by looking at recent trends in dealer sales sales which show continued double digit declines in machine sales and declining E&T sales. Q1 improvements were solely driven by dealer inventory rebuild in construction which is not likely to be repeated in subsequent quarters, as CAT management themselves have said.

    If you think CAT tinkering around the edges of their dealer program is going to be a substitute for actual capital spending by their customers you are kidding yourself.

    Some light reading if you feel like broadening your horizons beyond CAT PR propaganda:

    Have a look at the graph on China domestic machinery sales
    Jul 4 12:48 AM | Likes Like |Link to Comment
  • Evaluating Caterpillar's Dividend Growth Potential [View article]
    CAT retail sales still falling double digits, with energy and transport sales growth trend reversing;
    S&P forecasts global real capex to continue to decline for the next 3 years, driven by CAT key markets (energy and materials);
    Major miners like Rio expect capex will not bottom until 2018;
    IOCs flagging the capex cycle has peaked, and now national oil companies cutting capex budgets in the wake of weak ROIC and persistently negative free cash flow;
    China real estate in real trouble with excavator and bulldozer sales down 31% and 25% respectively in May from previous year.

    The only bright spot in NA construction but it's a fraction of their business - and yet it seems to be the only thing the market is focussed on.
    There is no doubt that CAT will miss guidance this year and I expect they'll flag the deteriorating China situation as a headwind in Q2. Shareholders are picking up pennies in front of a CAT bulldozer right now.
    Jul 3 08:51 PM | Likes Like |Link to Comment
  • Caterpillar Is An Avoid At Current Levels [View article]
    CAT May retail statistics for were abysmal. Machines sales down 12% and Energy and Transportation was down 3% (the first YoY decline reported this year).

    On the back of the slowdown in the Chinese real estate sector, Asia Pacific construction was down 8%, from consistent double digit growth just a couple of months ago. As a result even with the much-touted US construction recovery, construction sales were only 4%.

    CAT bulls are kidding themselves that the recovery is here, and CAT's 2014 guidance is clearly in jeopardy at this point.
    Jun 19 10:22 PM | Likes Like |Link to Comment
  • Is Caterpillar A Better Investment Than Deere & Company? [View article]
    I think you’re misunderstanding me. What I am saying is that I don’t believe CAT earnings have troughed. I think we are in the middle stages of a protracted downturn in commodity investment and in the early stages of a significant contraction in China construction.

    The April retails statistics are supportive of the thesis and paint a picture of continuing deterioration.

    A timely data point today was the release of the Australian Bureau of Statistics’ updated mining capex expectations for the 2014-2015 financial year (beginning July). The most recent estimate for mining capex for the coming year is 21.2% below the current year (ending June). Does that indicate to you that mining has bottomed?

    China real estate sales are down 6.9% in the first four months of this year and new area under construction is down 22.1%. Primary industry and developers are massively leveraged at a time when home prices are falling and those industries are plagued by overcapacity. That has clear implications not just for China construction but for commodity prices, mining investment and growth throughout the region.

    And yet CAT’s stock price implies that we have bottomed and that it will continue to grow double digits into the near future – so either my expectations about future growth are wrong, or CAT’s stock price has to come down significantly to reflect the current reality.
    May 29 01:49 AM | Likes Like |Link to Comment
  • Cardtronics: Aggressive Accounting And Secular Decline Drive 40-70% Downside [View article]
    What do you make of the CIO purchasing 7,800 shares recently at a 10% premium to the current price?
    May 28 05:35 AM | Likes Like |Link to Comment
  • Is Caterpillar Stock Overvalued? [View article]
    Ray, I expect hitting guidance for 2014 will be a challenge on the back of greater than expected declines in mining and a slowdown in China construction.

    But I think the real story is 2015 and beyond - analysts are forecasting 15% earnings growth in 2015 which I think is incredibly unlikely as I expect mining to remain weak and China to get much weaker. In the medium term there are other risks as well - a slowdown in O&G capex which is highly elevated by historical standards (the recent experience in mining might give us a clue to what mean reversion in capital spending looks like). We are already seeing the supermajors cutting capex budgets. Also as interest rates normalize and CAT's borrowing costs rise, CAT Financial is certainly not going to be the profit engine that it has been the last several year.
    May 27 08:58 AM | 1 Like Like |Link to Comment