One earnings call out of the zillions I have been on over the past few weeks has me concerned.
The name is Hyatt hotel operator Host Hotels (HST) , whose results I dove into ahead of a sit-down with Choice Hotels (CHH) CEO Stephen Joyce inside a Cambria hotel in NYC yesterday (check out my Twitter feed @BrianSozzi around 1:30 p.m. ET). All in all, I had been generally impressed by how the travel and leisure sector held up during the clearly sluggish second quarter. And it was important that it did hold as, in my opinion, it's a great forward-looking indicator on global economic growth.
Royal Caribbean's (RCL) CEO Richard Fain told me on Tuesday the North American cruise market remains strong (China's a little worrying), and the numbers support the claim. It was a similar upbeat tone I heard from Norwegian Cruise Line's (NCLH) CEO Frank Del Rio in late July. Going through Choice Hotels' results, things looked OK, too. The company trounced Wall Street profit forecasts and lifted its full-year earnings guidance. Average daily rates were up in all of the company's hotel brands, save for Mainstay. Occupancy increased in all segments except Rodeway and Mainstay. The domestic pipeline of hotels -- those that will be built in the near future -- rose a solid 14%.
But then there was Host Hotels, a company that has seen its stock explode 14% this year amid rumblings it would be a takeover candidate in the same vein as Starwood (HOT) . I definitely didn't see the attractiveness of its business in the second quarter, in fact, quite the opposite -- I saw a company signaling that we may be on the verge of slightly negative U.S. growth in the third quarter and potentially the fourth quarter.
Of specific concern:
- Company saw an increase in cancellations, mostly from business customers.
- Corporate demand was "soft," according to the company.
- Demand in the New York City market was weak due to the strength of the U.S. dollar. I think this is a negative tell on Macy's (M) second-quarter as its results are heavily influenced by travelers to its giant NYC flagship store.
- Softness in business customer class mostly tied to financial and consulting segments, said the company, as businesses are being "thoughtful on the level of expenses." Host's CEO specifically called out weak corporate profits as especially unnerving.
If there is any saving grace here it was that spending on amenities inside the hotels was solid and the company hasn't seen many, if any, cancellations for 2017.
Normally, when a company's earnings report sticks out in such a manner -- good or bad -- I would chalk it up to something on the execution front. Maybe a company is doing some amazing things operationally to drive new business (good report) or it's not doing enough to attract customers in a competitive market (bad report). But the commentary and below-plan rate and occupancy results from Host seem to fit all too well with the ugly results by so many leading-indicator-type companies in recent weeks. It has to make you concerned, and at least partially understanding as to why consumer-staples stocks continue to catch such a nice bid in the mostly bullish broader market. There is weird, negative stuff happening out there in the U.S. economy right now that is not being reflected in stock prices.
Maybe the new bond king, Jeff Gundlach, was correct in saying to sell everything. At least Host confirms that bold viewpoint.