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.
NCLH reported 1Q earnings this morning. Our initial take is here. NCLH beat the quarter and raised the full year on the beat and better 2Q yields, and the demand commentary on the call was robust. NCLH’s execution in the last couple years has been exceptional, in our view, after mishaps and previously over-aggressive targets back in 2016. NCLH beat and raised yields/EPS each quarter in 2018 and started 2019 the same.
This morning (5/9/2019) NCLH reported 1Q EPS ex-items of $0.83 vs. the prior guide of $0.70, and consensus and our $0.71 estimate. NCLH beat its constant currency net yield guide by 160bp, versus an average beat of ~90bp throughout last year, and it also follows a strong beat from RCL, too, we think implying strong close-in demand and onboard trends. NCLH cited strong growth in organic pricing across all core markets and robust onboard spending in 1Q. NCLH also raised FY guidance from the 1Q beat and from now higher 2Q-4Q expectations. NCLH also repurchased $200M of stock. This was a very strong report, in our view.
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.
Earlier this week we hosted meetings with NCLH’s VP of Investor Relations, Andrea DeMarco. The meetings were positive, and our three main takeaways are 1) demand is strong, 2) supply is being absorbed, and 3) 2020 earnings growth seems likely to reaccelerate. More in the note.
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.
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.
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