February 4, 2019

Income Strategy Update for Week Ended 2/1/19

Alternative Asset Managers Advance on Strong Earnings While Tupperware Falls on Dividend Cut

Last week, the Income Strategy advanced 0.37%, underperforming both the Merrill Lynch U.S. High Yield Master II Index’s 0.78% rise and the S&P 500’s 1.62% gain. (Exhibit 1). The strategy ended the week up 12.10% YTD, or 738 basis points ahead of the high yield index and 397 basis points ahead of the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 2/1/191

Time Period Income Strategy ML HY II S&P 500
Last Week (1/25 – 2/1) 0.37% 0.78% 1.62%
MTD 0.25% 0.12% 0.10%
QTD 12.10% 4.72% 8.13%
YTD 12.10% 4.72% 8.13%
Inception (annualized since 4/2/2009) 14.03% 11.15% 15.61%

Source: Bloomberg, Miller Value Partners

Four equities and a preferred comprised last week’s top five contributors (Exhibit 2). Alternative Asset Managers rose on better-than-expected quarterly results, notably from Apollo Global Management (APO) and Blackstone (BX). Apollo reported strong distributable earnings of $0.61, driving a dividend of $0.56/share (7.6% annualized yield). Capital deployment of $6B helped drive strong transaction fees, while capital raising and realization activity remained robust. Carlyle Group (CG) rose above its 100-day moving average and announced they raised 1.35B euros for their latest global tech fund. Preferred shares of General Electric (GE) rose on solid Q4 results where revenues of $33.3B beat analyst estimates of $32.3B and Industrial FCF of $4.9B came in stronger than expected. The company did not announce 2019 guidance but noted that GE Capital Aviation Services (GECAS) is not for sale which should help calm investor concerns surrounding a liquidity shortfall. There was no price-changing news on Macquarie Infrastructure Co (MIC) or Arlington Asset Investment Corp (AI).

Exhibit 2: Significant Contributors to Performance, 1/25/19 – 2/1/19

Name Type Return
Carlyle Group LP Equity 8.6%
Apollo Global Management LLC Equity 5.2%
Macquarie Infrastructure Co Equity 3.7%
General Electric Co 5.0% Preferred 5.4%
Arlington Asset Investment Corp Equity 4.7%

Source: Miller Value Partners

Four equities and a bond comprised last week’s top five detractors (Exhibit 3). Tupperware Brands (TUP) reported Q4 EPS in-line at $1.33, while net sales fell -7% on a local currency basis (vs guidance of -2% to flat) and -14% on a reported basis. The company cut its quarterly dividend 60% to $0.27/share (3.9% annualized yield) and the $80M in annual savings will be used to fund accelerated investment ($100M through 2022) in the company’s Global Growth Strategy Initiative. Upon completion, the program is expected to enable annual sales growth in the mid-single digits with $50M in annualized savings. Lastly, management provided initial FY19 EPS guidance of $4.06-$4.21, or -7% below consensus at the midpoint, as well as expects -2% to flat local currency sales growth and a -4% to -2% net sales decline. Greenhill (GHL) reported Q4 EPS of $0.45, falling short of estimates of $0.51 and was driven by weaker-than-expected advisory fees of $88M versus expectations of $91M. Management announced the completion of 89% of its share buyback plan and remains optimistic on strength in the M&A cycle and strong restructuring trends. Debt of Avon Products (AVP) fell on a bearish note from Barclays in response to the company’s announcement of additional headcount reductions and increased cost savings, both of which they view as a negative signal into the Q4 earnings release. There was no price-changing news on Seaspan (SSW) or Just Energy Group (JE CN).

Exhibit 3: Significant Detractors from Performance, 1/25/2019 – 2/1/19

Name Type Return
Tupperware Brands Corp Equity -29.3%
Greenhill & Co Equity -16.0%
Seaspan Corp Equity -4.8%
Just Energy Group Inc Equity -1.4%
Avon Products 7.0% 3/23 Bond -0.5%

Source: Miller Value Partners

Did you know that we write this piece for Opportunity Equity as well? Check it out.

1The performance figures reflect the results of a representative account net of management fees and certain other expenses. For important additional information about Income Strategy performance, please click on the Income Strategy Composite Performance Disclosure. The performance returns shown in this report are preliminary and are subject to revision. Past performance is no guarantee of future results.

Significant Contributors and Significant Detractors are the Strategy holdings that had the greatest effect on Strategy performance for the week. Holdings that have been in the Strategy since the end of the most recent calendar quarter are identified by name. For information on how Contributor/Detractor data were calculated and a list showing the contribution to the Strategy’s weekly performance of each investment held at such quarter end, contact us.

Any views expressed are subject to change at any time, and Miller Value Partners disclaims any responsibility to update such views. The information presented should not be considered a recommendation to purchase or sell any security and should not be relied upon as investment advice. It should not be assumed that any purchase or sale decisions will be profitable or will equal the performance of any security mentioned. Past performance is no guarantee of future results, and there is no guarantee dividends will be paid or continued. Content may not be reprinted, republished or used in any manner without written consent from Miller Value Partners.

©2019 Miller Value Partners, LLC

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