Article / 30 June 2017 at 12:51 GMT

Earnings Watch: Can Carnival maintain its momentum?

Head of Equity Strategy / Saxo Bank
Denmark
  • Ten out of the 2,000 companies we track during earnings season report next week
  • Today we focus on Carnival, Yum! Brands and Ocado Group
  • Carnival EPS estimated to be $0.47, down 3% y/r, revenue at $3.9 billion, up 5% y/y
  • Yum! Brands EPS seen at $0.61, down 19% y/y, revenue at $1.4 billion
  • Ocado revenue seen at £699 million, up 20% y/y

Carnival Cruises
 How fast is Carnival cruising, the stock market wants to know. Photo: www.carnival.com


By Peter Garnry

Companies are closing their books for the second quarter and preparing for "judgment day" over the coming months. Next week looks quiet, with only 10 companies reporting earnings (off-calendar results and not part of the standard Q2 earnings season) out of the around 2,000 companies we tracking during the earnings season. Today's Earnings Watch focuses on cruise operator Carnival, fast-food chains owner Yum! Brands and online grocer Ocado Group.

Full steam ahead for Carnival?

Carnival, the world's largest cruise operator, has strong momentum in its share price and underlying business. In March, the company said bookings were well ahead of same period a year earlier. As a result, the share price is up 57% over the past year, compared with 19% for the MSCI World Index. Our equity model has a slightly negative score on the stock because the return on invested capital is below industry levels and volatility is also higher than peers.

Carnival weekly share prices
Carnival share price
Source: Saxo Bank

Carnival is scheduled to report first-half results on Monday at 1315 GMT. Analysts expect earnings per share of $0.47, down 3% year-on-year, and revenue of $3.9 billion, up 5% y/y.

Yum! Brands looking to transform Pizza Hut

For years Yum! Brands has led a transformation of Kentucky Fried Chicken and Taco Bell, and is now beginning the same exercise on Pizza Hut, staring in the US, and representing around 50% of the segment revenue. The turnaround and focus on costs have increased return on capital to levels far above the industry, which is the most positive equity factor in our quant model. The total score is positive. The share price has gained 26% over the past year, compared with 16% for the S&P 500 Consumer Discretionary Index.

Yum! Brands weekly share prices
Yum! Brands
Source: Saxo Bank

Yum! Brands is due to report second-quarter earnings on Wednesday, with the consensus looking for EPS of $0.61, down 19% y/y (not comparable because of its Chinese divestment). Revenue is expected to be $1.4 billion, with no comparable figure for a year ago.

Will Ocado get its Whole Foods moment?

Amazon's acquisition of Whole Foods is vindicating the need for technology in the traditional grocery industry. Ocado is far ahead with its capital-intensive robotics business model, but the Amazon deal surely means that Ocado could be a potential target further down the road for a bigger traditional player. Ocada has lately invested heavily to expand so growth must be delivered in the coming years. The stock is not currently tracked by our equity model. Ocado reports first-half results on Wednesday, with revenue estimated at £699 million, up 20% y/y. 

Ocado weekly share prices
Ocado share price
Source: Saxo Bank


Next Friday's Earnings Watch will look more broadly at the upcoming earnings season and provide our expectations.

Pizza Hut
 Yum! Brands is beginning to transform Pizza Hut — like it did with 
KFC and Taco Bell. Photo: Shutterstock


— Edited by John Acher


Peter Garnry is head of equity strategy at Saxo Bank

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