Wall Street week ahead: Travel, leisure company reports set to give view of economy, consumer

A wide swath of the US travel and leisure industry is set to provide insight next week on the state of the economy, including trends in consumer spending, fallout from US-China trade tensions and any damaging impact from the stronger US dollar.

Third-quarter reports from several major hotels and online booking agencies roll in along with perspective coming on cruise lines and theme parks that will offer a window into the travel and tourism industry, representing nearly 3% of US economic output.

Of special interest is the consumer, who has been seen as a steady economic pillar at a time other areas such as industrial manufacturing are showing weakness. US economic growth slowed less than expected in the third quarter, according to data on Wednesday, as a further contraction in business investment was offset by resilient consumer spending.

The travel and leisure companies could provide a "good initial read" on their spending, given that most major retailers are not due to report until later in the month, said Walter Todd, chief investment officer at Greenwood Capital in South Carolina.

"Everybody is so focused on the fact that the consumer is what is holding the economy up, it's that much more important to understand the health of the consumer," Todd said.

The travel and leisure reports arrive more than halfway through a corporate earnings season that overall has been better than expected for large US companies but remains lackluster in terms of profit growth. S&P 500 companies are now expected to have posted a 0.8% decline in third-quarter earnings, according to IBES data from Refinitiv.

Among the S&P 500 travel and leisure companies reporting next week are Marriott International Inc and Host Hotels & Resorts Inc, online travel companies Booking Holdings Inc, Expedia Group and TripAdvisor, and Norwegian Cruise Line Holdings. Media and entertainment giant Walt Disney, which operates theme parks around the world, is set to post results on Thursday.

An index of five S&P 500 hotels and cruise lines has gained about 13% so far in 2019, but that has lagged the roughly 21% gain for the overall S&P 500.

Marriott, which is expected to post a 12.5% drop in earnings per share when it reports on Monday, will be particularly in focus due to its diversity of both hotel offerings and locations, according to Greenwood Capital's Todd.

"They are so big now and touch so many geographies and different stratas of incomes within their hotel portfolios, it gives you a good window into different pieces of the economy," Todd said.

Hotels that have reported so far have largely moderated their forecasts for revenue per available room, a key industry metric, said Dan Wasiolek, senior equity analyst at Morningstar, noting that the US-China trade dispute "continues to have an impact on corporate travel."

"When companies are uncertain about policy that can impact their business, they are unsure how to budget for that and that can therefore slow business meetings," Wasiolek said. "And if that slows business meetings, it slows travel and it slows people staying at hotels."

In Hilton Worldwide Holdings' conference call last week, Chief Executive Christopher Nassetta noted leisure business was "down a tick" in the third quarter.

Hotels' leisure business has been strong in 2019, said Brian Dobson, an analyst at Nomura Instinet, "but just at the margin, we are starting to see a little bit of weakness."

"That is something we will certainly be keeping an eye on and want to hear more about from Marriott," Dobson said.

Royal Caribbean shares ended down 3.4% following the cruises company's quarterly report on Wednesday as it pointed to "certain changes in our cost base" in the coming years. But Royal Caribbean's demand outlook otherwise has a "positive read-through" for Norwegian's results next Thursday, Nomura Instinet analysts Harry Curtis and Dobson said in a note.

Disney's quarterly earnings are expected to fall by about 36%, according to Refinitiv, and investors will be focused on the company's video streaming plans. In its last report, operating income declined at Disney's US theme parks as the company cited expenses for a "Star Wars"-themed expansion at California's Disneyland and lower attendance.

One factor that could make tourist travel to the United States more expensive is the strength of the dollar, said Mark Hackett, chief of investment research at Nationwide, especially in light of other economic and political uncertainty such as Britain's planned exit from the European Union.

The dollar climbed 4.5% against a basket of currencies from the third quarter of 2018 through the third quarter of this year.

"The biggest issue is the foreign traveler because of the dollar," Hackett said. "Are they willing to come over with the headwind of the dollar given all the other stresses and worries?"