The U.S. ISM manufacturing PMI has been in a downtrend for the last year, and this week it fell below the key 50 level for the first time since August 2016. In this week’s piece we examine the implications for our coverage by looking at industry stock returns over the last 25 years in relation to when PMI drops below 50 as well as when PMI eventually bottoms.
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U.S. RevPAR growth has been sluggish and has continued to decelerate. The weekly data reported by STR last week grew y/y (+1.2% y/y) for the first time in seven weeks, as the comps were particularly tough over that time period before easing a little for this last week. The forward indicators we track are showing mixed signs for future months, and in this week’s piece we’ll examine those indicators and discuss our outlook going forward.
Current reports indicate Hurricane Dorian is strengthening and could make landfall in Florida as a Category 3 storm on Sunday.
Resort fees are additional charges outside of advertised room rates (for access to the gym, pool, internet, etc.), which have been gaining more attention following criticism from consumers, OTAs, and some regulators. In this note we discuss the key issues and the financial impact to our coverage.
2Q adjusted EBITDA of $618M beat our $606M, consensus of $600M, and the prior guide of $590M-$610M despite in line RevPAR growth. Relative to prior guidance, about $8M was a true beat and the other $10M is timing related. HLT raised FY19 EBITDA guidance by $10M at the midpoint, similar to the core beat, but with some puts/takes. HLT reduced FY19 RevPAR guidance from 1%-3% to 1%-2%, which we think impacts the back half by only $6M.
HLT reported earnings this AM (07/24/19). The quarter beat consensus EPS and EBITDA with RevPAR mostly in line, we think. HLT raised FY EBITDA guidance by about half of the 2Q beat, we think implying now lower embedded 2H RevPAR guidance and/or some timing impact. HLT reduced the high-end of the FY RevPAR range by 100bp, which we think makes sense because 1H RevPAR is at the midpoint of the new guidance, and we think most did not assume an acceleration in the back half of this year given recent trends.
For our Weekly Sho we've recorded a 20-minute video with 36 slides highlighting our current views as we head into another earnings season. The cruise line section begins at 4:03, the lodging section begins at 9:00, and the gaming section begins at 15:40. Enjoy the rest of your weekend!
Our coverage is up 24% YTD, on average, which is modestly outperforming the market. However, our coverage remains 21% below 2018 highs, on average, and also 10% below 2019 highs, on average, all while the market is near an all-time high. Our coverage mostly remains out-of-favor, in our opinion, but we see some opportunities. Within lodging our best idea is VAC. Within gaming our best idea is ERI. And within cruise our best ideas are RCL/NCLH.
Hotel brand loyalty is critically important because loyalty members pay higher rates, spend more while at the property, stay more frequently, and cost less (i.e. a direct booking guest without OTA commissions), which attracts developers and owners to the brand. Importantly, loyalty is growing. The combined loyalty at the major C-Corps (MAR/HOT, HLT, IHG, CHH, and WH) currently totals ~450M members. Five years ago, those same C-Corps had combined loyalty of only around ~270M members.
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