Each year around this time we dig through annual proxy statements to learn about changes in corporate governance and shareholder alignment, and we publish the results. Specifically, we study three broad categories: 1) CEO compensation, including how much and how it’s derived, 2) CEO equity ownership, and 3) board composition. We gave each company a qualitative score for each category and aggregated the results in Exhibit 1. Every company has areas of improvement, in our view, but HLT and WYND scored best based on our qualitative aggregation, followed by VAC, NCLH, and WH. All five are companies we think to be commercially aggressive and shareholder focused
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In this week’s piece we discuss five ideas with five charts, including probably way-too-early hurricane forecasts for the upcoming Atlantic hurricane season as it relates to cruise lines; NCLH’s recent consistent beat and raise execution, and what that hasn’t meant for the equity multiple; why VAC’s planned analyst day later this Fall seems positive; RevPAR index gains for brands, who seemingly took RevPAR share from independents in 1Q, which we believe is positive for the long-term model; and softer Chinese credit data in April, and what that might mean for Macau GGR. Please click the link above for the full report.
Last week was a busy week filled with cruise, gaming, and lodging earnings reports. In this week’s piece we highlight ten key themes with several charts. Please click the link above for the full report.
This morning(5/1/2019)RCL reported 1Q earnings and hosted their call. RCL meaningfully beat results; they lowered EPS guidance on fuel, FX, and crane damage, as widely expected; but they also raised yield guidance by more than people expected and spoke very positively about overall demand with particular strength in North America and Asia.
News is starting to circulate that the Trump Administration is expected to restrict travel to Cuba stemming from Cuba’s support of the Maduro regime in Venezuela (details should come out later). Recall the Obama Administration ended the multi-decade embargo on travel to Cuba, which allowed cruise lines to begin sailing to the region in 2016 and 2017. We expect more developments to come, and it’s unclear if this will definitively happen, if it will be short lived, and/or if it will definitively affect cruise travel, but for now it doesn’t seem positive.
This is a deep dive report we write each quarter where we update our thesis with new charts and preview each company and update estimates into earnings. Since the Christmas Eve bottom the average of our coverage is up 32%. The absolute risk/reward now seems less compelling, but the S&P 500 is also up 22% since the bottom, and our coverage is higher beta and already meaningfully underperformed the market last year.
RCL’s Oasis of the Seas ship has been undergoing a drydock at the Great Bahamas Shipyard. Yesterday a large construction crane crashed onto the ship, which has caused temporary damage. The ship was originally scheduled to sail out of Port Canaveral on 4/7, but the damage is likely to cause at least a couple canceled sailings, we think, which will result in lost revenue as RCL provides refunds while also still likely incurring some costs. We estimate each week the ship is out of service results in >$5M to the bottom line. If we assume the ship is out of service for four weeks, then we estimate the total impact could be around $20M ($0.10/share), with our math included in Exhibit 2. We believe RCL has insurance for the ship damage, but not for business interruption.
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 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.
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