The fund only owned 2.56 million shares of Coca-Cola Enterprises as of March 31, a position that likely more than doubled as JANA returned CCE to its “top 5 positions.” Its overall rationale is that, with a deteriorating economic picture in Europe, businesses like CCE’s are very appealing. CCE is the “monopoly” distributor of Coca-Cola (NYSE:KO) products on the continent, and JANA sees a secular growth trend for this business. CCE is also one of the top six holdings at James Crichton’s and Adam Weiss’ hedge fund Scout Capital, which held 8.1 million shares as of March 31 (you can view the rest of their portfolio here).
One of the catalyst events that JANA sees for CCE is its potential purchase of German bottling operations from Coca-Cola, which would give it a sweep as the major distributor of Coke products in Western Europe. CCE’s revenue for the second quarter 2012 was $2.2 billion, down from $2.4 billion year-over-year. The company does have some competitive contracts relating to the London Summer Olympics and the Euro Cup 2012 that might also act as business catalysts. That said, while worldwide sales volume for Coca-Cola products increased 4 percent in the second quarter, sales volume decreased 4 percent during the same period in Europe.
JANA’s macroeconomic thesis also has it making other short sales in “companies in the natural gas liquids distribution chain suffering from supply-glut pricing pressures.” Thus, we might see a shakeup when JANA next discloses its complete holdings. As of March 31, the fund held 6.45 million shares of Marathon Petroleum (NYSE:MPC), the downstream refiner and distributor spin-off of Marathon Oil (NYSE:MRO). This made Marathon Petroleum JANA’s largest holding. In the first quarter, Marathon Petroleum’s net income increased 13 percent year-over-year. John Burbank’s Passport Capital owns 2.4 million shares in Marathon Petroleum as well.
Marathon Petroleum lacks the extensive European retail segment that Phillips 66 (NYSE:PSX), the downstream spin-off of ConocoPhillips (NYSE:COP), possesses. Phillips 66 is engaged in heavy marketing activities in the European retail segment with over 1000 owned sites. In contrast, Marathon’s six refineries and major retail segment (including Speedway locations) are located in the United States. With the decrease in demand for natural gas liquids thus far in 2012, Phillips 66 saw compromised earnings. Demand for refined oil products has remained flat over the past year while overall supply has increased significantly. Despite this, Warren Buffett recently disclosed that Berkshire Hathaway has a significant position in Phillips 66 (you can see the hedge fund’s portfolio here).
The fund also mentioned that its “favorite” short positions include “a big box retailer whose category is being entered by Amazon.” Hmm… sounds like a jab at Best Buy (NYSE:BBY), the Amazon (NASDAQ:AMZN) victim whose shares have been hemorrhaging value over the past two years and are presently trading below their rock-bottom Great Recession levels. Hedge fund giant David Einhorn probably would have appreciated this advice before his Greenlight Capital lost $100 million on a Best Buy resurgence bet.
Disclosure: Brian owns shares in Phillips 66.
