Portfolio Review: Booking Holdings, Disney, Otis Worldwide & Carrier Global

Booking Holdings (BKNG) reported first quarter revenues declined 19% to $2.3 billion with the company reporting a loss of $699 million, including impairment charges for OpenTable and Kayak. Gross travel services booked by customers decreased 51% during the quarter to $12.4 billion with room nights booked declining 43% as the COVID-19 pandemic spread around the world. Rental car days booked declined 36%.

New bookings in March were down more than 100%, indicating there were more cancellations than new bookings. The COVID-19 pandemic has profoundly impacted the company and the entire travel industry. Given the volatility in global markets and the financial difficulties faced by many of its travel service providers and restaurant partners, Booking expects to increase its provision for bad debt, which may materially and adversely impact cash flows.

The company took immediate steps to stabilize the company by reducing costs and bolstering its liquidity position. The company ended the quarter with $9.2 billion in cash and $7.6 billion in long-term debt. On April 8, the company increased debt further through a $4.1 billion bond offering. Emerging from a deep recession, travel demand will recover later than other industries, especially until a vaccine is available to make people feel safe to travel internationally again. Management expects the road ahead to be tough for the travel business with lower travel demand expected to last for years rather than quarters.

Given the long journey to full recovery and the additional debt the company added, we decided to cancel Booking Holdings by selling our position. Over the past eight years, Booking Holdings booked us a five-star 160% gain.

Walt Disney (DIS) reported second fiscal quarter sales increased 21% to $18 billion, reflecting the Fox acquisition, with net income from continuing operations plummeting 91% to $475 million. The COVID-19 impact and measures to prevent its spread are affecting Walt Disney’s segments in a number of ways. The most significant is at Parks, Experiences and Products where Disney closed its domestic parks and resorts. Cruise lines, Disneyland Paris and Asian parks and resorts were also closed during the period.

Management estimates COVID-19 shaved about $1 billion from Parks, Experiences and Products quarterly segment operating income, primarily due to revenue lost as a result of the closures.

In addition, Walt Disney has delayed, shortened or cancelled theatrical releases and suspended stage play performances at Studio Entertainment. Advertising sales also declined at Media Networks and Direct-to-Consumer & International. COVID-19 disrupted most film and television content production and availability, including the cancellation or deferral of live sports events televised on ESPN.

During the quarter, free cash flow declined 30% to $1.9 billion. To conserve cash, Disney ditched its July dividend, cut executive pay, furloughed more than 100,000 employees and issued debt to improve liquidity. Disney ended the quarter with $17.5 billion in cash and investments and $43 billion in long-term debt.

Due to the significant operating losses, higher debt and suspended dividend, the moat around Disney’s Cinderella castle looks less attractive. We decided to sell our position in Walt Disney with a magical 31% total return over the last four years.

Prior to its merger with Raytheon, we received small spin-off positions of Otis Worldwide (OTIS) and Carrier Global (CARR) from United Technologies during the past quarter. After evaluating the business fundamentals of the independent companies following first quarter results, we determined that neither Otis nor Carrier currently meet our investment criteria in terms of adding to the positions.

Therefore, we decided to go ahead and sell both small positions with Otis providing an elevated 201% gain and Carrier generating a cool 228% gain over the 19 years that both were part of United Technologies.
With the profits from Booking Holdings, Walt Disney, Otis Worldwide and Carrier Global, we plan to buy SEI Investments (SEIC) and add to our position in Walgreens Boots Alliance (WBA).See these related articles:

New Stock Buy: SEI Investments
Portfolios Highlights - June 2020: Walgreens Dividend Yields 4.4% 

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