CCL reported F1Q this morning (3/26/19). Our initial take with more detail can be found here. The quarter was generally OK, but not great, but the guidance was worse than expected. The stock is trading down 10% we think mostly because CCL did not raise yield guidance as many expected given what appeared to be a strong wave season, and given what many thought to have been initially conservative guidance. The earnings call didn’t flash any warning signs on demand, in our view, but we also didn’t feel any sense of urgency from the company in a year where earnings are projected to grow only 4% y/y and ROIC still remains over a point below peers.
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Before the market opened CCL reported F1Q EPS. We thought the quarter was OK, but not great, as CCL beat by less than they normally do on yield growth. The FY guidance was disappointing, and the booking commentary decelerated some from last quarter. This is now the fourth quarter in a row where CCL has disappointed and the stock has traded down, while peers have been executing, so again we would not extrapolate this disappointment to RCL and NCLH. In our note last week, we explained several reasons why we think CCL has been underperforming on yield growth.
For our weekly charts this week we provide an update on IMO 2020 given on-going fluctuating fuel prices as well as some recent and potentially overlooked news on scrubber policy, which could become problematic for CCL. We’ll discuss and later in Exhibit 1 and Exhibit 2 we’ll quantify the potential impact to fuel expense. Please click the link above for the full report.
Since CCL’s last earnings report and subsequent earnings reports from RCL and NCLH earlier this year, many investors have asked what’s driving CCL’s yield underperformance. We think there are four main explanations, which we’ll explore, and we think there are solutions.
Since the cruise lines reported 4Q earnings, bunker fuel prices have risen and FX hasn’t been helpful, either. We believe this is one key reason why the momentum in the group has cooled. Historically movements in fuel and FX have worked as a natural offset, so the unusual double headwind, or lack of offset, is not helpful for earnings or sentiment.
Last week we were on the road for two days with RCL management, including CFO and IR. The meetings were positive, we thought, and our main takeaway is the investment thesis on RCL feels like a multi-year story beyond just the strength in 2019.
Timeshare stocks have rallied hard since the Christmas Eve bottom, with VAC up 61%, HGV up 33%, and WYND up 39% versus the S&P 500 up 19%. However, the stocks still remain well off their 2018 highs. For example, VAC remains 35% below its prior high and HGV remains 31% below its prior high, and it’s been entirely a function of multiple contraction. Interestingly, the S&P 500 is now only 5% below its prior high and credit spreads have narrowed considerably.
NCLH reported 4Q earnings this morning (2/21/2019). Our initial take is here.
This morning (2/21/2019) NCLH reported 4Q EPS ex-items of $0.85 vs. the prior guide of $0.78, consensus of $0.79, and our $0.81 estimate. NCLH beat its constant currency net yield guide by 70bp, similar to prior quarters. Similar to RCL the initial FY19 yield guidance was strong and better than expectations, even though EPS guidance was mostly in line with consensus.
We aggregated pricing trends across multiple vacation options/destinations including cruise lines, Las Vegas casinos, hotels in multiple global markets, airline fares, Disney resorts, ski resorts, and rental cars. The purpose of our analysis was to compare pricing trends for cruises and Las Vegas casinos to alternative vacation options to understand if recent years of pricing strength may begin to make substitute vacation options more attractive, which some investors have expressed to us.