Tag: US Market

 while COVID-19 remains pervasive. With a return to sail underway, cruise operators are now utilzing updated health protocols to ensure the safety of cruising as paying customers return onboard. As virus mitigation tactics prove successful, we expect Royal to see modest pricing gains as it digests bookings paid for with future cruise credits, limiting near-term yield gains. On the cost side, stringent health protocols and cruise resumption costs should inflate spending, factors that will aggravate profitability through 2022.

Royal took quick action to reduce operating expenses and capital expenditures as a result of the coronavirus (we forecast capital expenditures of $2.2 billion in 2021, down from $3 billion in prepandemic 2019). Also, since the beginning of the pandemic, the firm accessed around $13 billion to enhance its liquidity cushion. Further, as of June 30, $2.4 billion in customer deposits were still available for use. Although we believe Royal’s cash burn should remain between $300 million-$350 million a month (as it restaff the fleet), it should be able to navigate a graduated return to sailing over the next six months. While Royal is set to return to positive profitability over the next year, the prior 20>25 by 2025 target (EPS to $20 by 2025) is virtually impossible to reach as a result of secular changes in demand due to COVID-19.

Financial Strength 

Royal has taken numerous steps to ensure it remains a going concern after COVID-19. In March 2020, Royal noted it was taking actions to reduce operating expenses and capital expenditures by the tune of $1.7 billion to improve liquidity. Additionally, since the beginning of the pandemic, the firm secured around $13 billion in liquidity through various debt and equity issuances (resulting in our estimate for $1.1 billion in debt service costs in 2021, up from around $400 million in 2019). 

Furthermore, as of June 30, $2.4 billion in customer deposits were still available for use, although industry commentary suggests about half of canceled bookings have been refunded in cash rather than future cruise credits during the pandemic. And in April 2020, Royal announced it was laying off or furloughing more than 25% of its 5,000 shoreside employees. The cash burn for Royal every month while restaffing and redeployng its ships should be between $300 million-$350 million.

Bulls Say’s 

• If COVID-19’s delta variant recedes quickly, yields could recover faster than we currently anticipate.
• Lower fuel prices could help benefit the cost structure to a greater degree than initially expected, thanks to Royal’s floating energy prices (with only about 50% of fuel costs historically hedged).
• The nascent Asia-Pacific market should remain promising post-COVID-19, as the four largest operators previously had capacity for nearly 4 million passengers at the beginning of 2020, which provides an opportunity for long-term growth with a new consumer when cruising fully resumes.

Company Profile 

Royal Caribbean is the world’s second-largest cruise company, operating 60 ships across five global and partner brands in the cruise vacation industry. Brands the company operates include Royal Caribbean International, Celebrity Cruises, and Silversea. The company also has a 50% investment in a joint venture that operates TUI Cruises and Hapag-Lloyd Cruises, allowing it to compete on the basis of innovation, quality of ships and service, variety of itineraries, choice of destinations, and price. The company is completed the divestiture of its Azamara brand in the first quarter of 2021.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

 Monster continues to extract outsize growth and stella profitability from this market. Crucial to Monster’s positioning in the market is its partnership with Coca-Cola. Being able to rely on the widest moat in beverages for distribution, merchandising, and retailer negotiation reinforces and perpetuates the benefits of its resonant brand, in our view. With its entire U.S. footprint and most international territories fully incorporated into the Coke system, strategic and logistic planning should become more seamless, allowing products to be scaled more quickly, particularly in international markets (over 35% of sales). Despite the inevitable complexity of appealing to distinct local palates, we believe Monster’s continued geographic diversification should augment its positioning.

Given the importance of the Coke relationship, the launch of Coke Energy products following arbitration between the two parties was a significant development. Still, it has proved to be far from an existential threat, garnering trivial share in the markets where it launched (and recently discontinued in the U.S.). In addition to a seemingly more tenuous Coke relationship, Monster must contend with an intense competitive environment. While Red Bull remains the most formidable rival, Monster is also beleaguered by a number of both established and upstart firms looking to carve out niches in the energy space. Nevertheless, structural advantages and an experienced management team should allow the firm to navigate an evolving competitive landscape.

Financial Strength 

Moreover, the business churns out healthy free cash flow, with over $1.1 billion generated on average over the past three years (high-20s as a percentage of sales). The company’s free cash flow has historically supported persistent share repurchases, and the company’s ability to continue buying back shares amid market disruptions like the coronavirus pandemic is a poignant illustration of its financial health, in our view. As of June 2021, Monster had over $1.5 billion in cash and short-term investments on its balance sheet, with no long-term debt to speak of. 

Still, general liquidity is not a concern. In addition to its healthy cash balance and an untapped revolver, Monster has implemented certain nontraditional means of financing, such as a working capital line of credit that is similar to an interest-bearing liability but not treated as leverage for accounting purposes. 

Bulls Say’s

• Monster is a leading pure-play incumbent in a secularly advantaged beverage category that is growing in the high single digits, meaningfully above the broader industry average (low single digits).
• Monster’s strategic partnership with Coca-Cola aligns its fortunes with the widest moat in nonalcoholic beverages, affording it top-tier store positioning and merchandising.
• International expansion through Coke’s bottlingsystem offers material runway for growth.

Company Profile

Monster Beverage is a leader in the energy drink subsegment of the beverage industry. The Monster trademark anchors its portfolio, and notable offerings include Monster Energy and Monster Ultra. The firm has also started to incubate new trademarks for emerging enclaves of the energy space, like Reign in performance energy. It is primarily a brand owner, outsourcing most of its manufacturing processes to third-party copackers. It primarily uses the Coca-Cola bottling system for distribution after a strategic agreement in which Coke became Monster’s largest shareholder (roughly 19%) and that also included the exchange of certain businesses between the two firms. Most of Monster’s revenue is generated in the United States, though international geographies are increasing in the mix.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Fee revenue has fully recovered to beyond prepandemic levels, as the company reported second-quarter fee revenue of $1.6 billion, a 34% increase year over year and a 3% increase from the second quarter of 2019. Adjusted EBITDA also came in strong for the current quarter at $220 million, 26% higher than the second quarter of 2019. 

Adjusted EBITDA margin calculated on a fee-revenue basis was 13.5%, significantly higher than the 10.2% reported in 2020 and 11.1% in 2019. The adjusted EBITDA growth and margin expansion reflect the impact of strong brokerage activity and permanent cost reduction actions, which management believes amounted to around $30 million in the current quarter and will reach $125 million in annualized permanent cost savings.

The company announced that John Forrester, who is the current global president, will succeed Brett White as the new CEO of the company effective Jan. 1, 2022. White will remain executive chairman after the transition and continue to lead strategy, mergers and acquisitions, and succession planning, alongside Forrester. 

The brokerage segment of the company displayed excellent recovery in the current quarter compared with the second quarter of 2020, when the pandemic suppressed business around the world. Capital markets revenue more than doubled in the current quarter on a year-over-year basis and was 17% higher than the second quarter of 2019. Leasing revenue was 67% higher in the current quarter compared with last year, but it remains 9% below 2019 levels.

Management Anticipates Revenue Growth

The valuation and other segment remains a bright spot for the company as fee revenue came in 16% higher in the quarter on a year-over year basis. The property, facility, and project management segment, which has been resilient throughout the pandemic, reported a 7% year-over-year increase in fee revenue. Management anticipates revenue growth in midteens for the full year as brokerage revenue growth is expected to be up more than 30% and the nonbrokerage segment is expected to grow in midsingle digits. Management said it expects adjusted EBITDA margins for the full year to be well above 2020 levels and will approach 2019 levels, which equates to an adjusted EBITDA range of $660 million-$710 million for full-year 2021.

Company Profile 

Cushman & Wakefield is the third largest commercial real estate services firm in the world with a global headquarters in Chicago. The firm provides various real estate-related services to owners, occupiers and investors. These include brokerage services for leasing and capital markets sales, as well as advisory services such valuation, project management, and facilities management.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.