In preparation for RCL's Q2 earnings release tomorrow, we’ve put together the pertinent forward looking commentary from RCL’s Q1 earnings call and 10Q.



Outlook from 10Q


2Q 2011

  • Net yields: +5% (current currency): +1-2% (constant currency)
  • Net Cruise Costs per APCD: +5% (current currency); +3% (constant currency)
  • Net Cruise Costs per APCD ex fuel:  +4-5% (current currency); +2 (constant currency)
  • "6.6% increase in capacity, primarily driven by a full quarter of Celebrity Eclipse and by the addition of Allure of the Seas which entered service during the fourth quarter of 2010."
  • D&A: $170-175MM
  • Net interest expense: $75-80MM
  • "If fuel prices for 2Q remain at the level of current "at-the-pump" prices, fuel expenses would be ~$189MM.  Our fuel expense is approximately 58% hedged and a 10% change in fuel prices would result in a change in our fuel
    expenses of approximately $9.0MM, after taking into account existing hedges."
  • "Assuming that fuel prices remain at $596 per metric ton and 2Q 2011 foreign currency exchange rates are $1.47 to the euro and $1.66 to the British pound, we expect 2Q 2011 EPS to be in the range of $0.40 to $0.45."


  • Net yields: +5-7% (current currency); +3-5% (constant currency)
  • Net Cruise Costs per APCD: +5-6% (current currency); +4% (constant currency)
  • Net Cruise Costs per APCD ex fuel: +4-5% (current currency); +2-3% (constant currency)
  • "7.5% increase in capacity, primarily driven by a full year of service of Celebrity Eclipse, a full year of service of Allure of the Seas and the addition of Celebrity Silhouette which will enter service during the third quarter of 2011." (Celebrity Silhouette launched on July 23)
  • D&A: $705-715MM
  • Net Interest expense: $310-320MM
  • "If fuel prices for 2011 remain at the level of current "at-the-pump" prices, fuel expenses would be ~$770.0MM For the remainder of 2011, our fuel expense is approximately 56% hedged and a 10% change in fuel prices would result in a change in our fuel expenses of approximately $31.0MM for the full year 2011, after taking into account existing hedges."
  • "Assuming that fuel prices remain at $581 per MT and full year foreign currency exchange rates are $1.47 to the euro and $1.66 to the British pound, we expect full year 2011 EPS to be in the range of $3.10 to $3.30."


Youtube from Q1 Conference Call

  • “The Mediterranean became softer as a result of Libya. Obviously the events in Asia and Egypt and Tunisia had an impact. I would say all those product lines are down from our expectations when we had our last call. But our expectations related to the Caribbean, Alaska and the other product lines are the same to slightly better. And the net effect of it is, excluding the direct impact of Egypt, Tunisia and Japan, net, net it’s all about the same as it was three months ago.”
  • “At that time, we provided initial guidance for the year of $3.25 to $3.45... the direct impact of the geopolitical events is expected to be about $0.20. At today’s pricing, fuel expense, net of our hedges, cost us another $0.30. But we were covered about a $0.11 of this in the first quarter from the change in the value of our fuel options. In addition, when fuel prices are increasing, the U.S. dollar more often than not is decreasing in value, which has a positive effect on our earnings. Since our last call, we’ve picked up about $0.15 in our forecast from currency. So on a nutshell, the midpoint of our guidance has been lowered by approximately $0.15.”
  • “With regard to cost, we are feeling the pressures... in precisely the areas that we said we were most concerned about: food and transportation in particular. However, our team has managed to offset these cost pressures without sacrificing our customer engagement initiatives.”
  • “Each additional 1% we can improve pricing, moves our earnings per share up by about $0.25... You should expect to see us toeing the line on costs, but pushing harder than ever to enhance our pricing, both by being more attractive to the guests and by strengthening the support we provide to our travel agent partners. This will continue to include sales and marketing commitments, our hardware investments, better deployment or enhanced websites, just to a name a few. These actions do put pressure on costs, but we only intend to pursue them if they generate disproportionate benefit on revenues.”
  • “You’ll note that we have modestly increased our CapEx estimates. Part of this relates to Project Sunshine, which we’ve previously announced and which we’ve recently finalized the contract for. Another part of the increase relates to our revitalization programs, which have been underway for some time now. Our results from the refurbishments we have already completed have been so compelling, both in terms of guest satisfaction and returns that we feel it’s appropriate to accelerate and expand these.”
  • “In addition to our fuel swaps, as we have previously disclosed, we have numerous WTI fuel options which provide additional insurance against rising fuel prices. These options are at strike prices ranging from $90 to a $150 and have various maturities running through 2013.”
  • “Prior to the earthquake in Japan, we were forecasting double-digit yield improvement for the Legend of the Seas. Unfortunately, our spring deployment of this vessel was targeted to the Chinese market with Japan as the featured destination. In total, we have already rerouted 21 sailings as a result of the tragic events at Japan and it is likely we will need to make further modifications going forward."
  • “Prior to the Libyan uprising, Mediterranean bookings were running ahead of the same time last year despite significant increases in capacity... During the months of February and March demand softened considerably, particularly out of the U.S. and UK markets. Over the last few weeks, however, bookings have returned to normal levels albeit at reduced pricing.”
  • “We still expect our European product line in total to finish the year with yield increases in the mid single-digits. Additionally, our other product groups, including the Caribbean and Alaska, continue to show strong year-over-year improvements. We expect this strength to substantially offset the discounting you’ve witnessed in the Mediterranean.”
  • “Pullmantur has recently expanded its air and distribution operations in Spain. Both of these initiatives are expected to strengthen our brand and improve our market position in the future. And while this area may cause some volatility in our metrics, we expect little to no effect on earnings for the balance of the year. We currently expect about a 1% increase in yields and about a 1.5% increase in costs due to these initiatives.”
  • “We’ve been able to offset virtually all of the increases in oil prices through our hedges, options and currency gains. The demand environment remains sound and for the vast majority of our products demand is as good as or better than it was in January. And with the exception of Asia, we are forecasting yield increases for all of our other product groups.”
  • “Although there is of course very limited visibility for the 2012 Europe season at this time, we remain bullish on our brands prospects for next year in Europe and view the Navigator situation as a unique one.”
  • “In May, we will revitalize the already beautiful Radiance of the Seas, again adding a number of features from our more recent ship classes. And in the fall, we will do the same for Splendour of the Seas.”
  • [UK pricing] “In the last month or so, we have seen pretty solid demand, some of it at lower prices than we would have received if we had been in the absence of these events... We expect to sail our ships and we expect it will have a reasonable pricing as the season moves on. It’s very hard to divorce what’s happening in the UK and the EMEA market from the rest of what we’re doing, because they’ve just become so strategic and that’s the primary source market for us that we take them sort of integrally into the mix as we do our business.”
  • “The Mediterranean, we’re still discounting. We have got the volume back where it needs to be. But it is discounted from before the Libyan situation but the volume is back and our yields in aggregate from the other products are substantially offsetting that discounting. We are looking at peak yields in the third quarter, in part because of the impact of the items that we talked about but also as we alluded to on our last call, the third quarter is probably where we have the most ground to make up to prerecession levels.”
  • “At this point, we are not adding discounts other than the normal tactical things that go on in the marketplace. But I think our pricing is more back in equilibrium with the demand environment and relatively stable at this point.”
  • “Generally speaking, we’ve talking about being 50% booked in the trailing 12 months period.”
  • “We are seeing outside of the Med the ability to raise prices. We’ve also been able to raise the prices in Northern Europe. So, we are able to largely offset the shortfall in the Med and then the Med promotions are typical promotions that we do anywhere when we run into a situation where we aren’t getting the demand that we’d like."
  • “I think we do see that the investments that we are making ...relates either to sales and marketing efforts in the U.S. or to our growth internationally. So we have significantly expanded our focus in your offices in places like China and Brazil et cetera. We are also investing in things that will hopefully make us even more attractive to the travel agent community in terms of systems and programs. So all of those are expensive, they’ve been included in our forecast and our expectations and while we’re coming back to a question that was asked earlier, while we are trying to control costs and seem to have done so, we are not doing and sacrifice those things which we think payoff.
  • “The constant currency yield increase for the quarter is low relative to the full year. This is driven by two factors. First, the majority of the impact from events in Northern Africa and Japan are expected to be felt in the second quarter. And secondly, most of the revenue upside from Pullmantur’s increased tour operation will fall in the second half of the year with very limited impact in Q2.”

Give Me A Line! SP500 Levels, Refreshed



We are getting a lot of inbound request for levels. That’s a signal in and of itself, but the timing of the requests is very appropriate. With the VIX immediate-term TRADE overbought at 22.01, we are testing the SP500’s intermediate-term TREND line of support.


For scenario analysis purposes, I stress tested some of the volume, volatility, and duration assumptions in my model to make sure I am not hanging on 1319 instead of a tighter range of probabilities. What I come up with instead is a 1 range of intermediate-term TREND line support that I am comfortable managing risk around.


The core tenant to our “Risk Ranger” Theme for Q3 plays right into this. If we go bearish TREND, I’ll get more aggressive on the short side. If we remain bullish TREND, I’ll lean longer (like I am now).


Put another way: 

  1. If we breakdown and close below 1316 (closing prices), I sell
  2. If we hold and close above 1316 (closing prices), I buy 

Our long-term TAIL durations of support and resistance wrap around immediate-term TRADE range of 1

  1. TAIL resistance = 1377
  2. TAIL support = 1251 

So, again, those are your fractal points of reference above or below 1316.


This is manageable.



Keith R. McCullough
Chief Executive Officer


Give Me A Line! SP500 Levels, Refreshed - SPX


Decent results and the MGM catalyst



After reporting what looks like a decent quarter, BYD’s stock is trading lower.  The stock traded up into the quarter but once those gains are booked we expect a sharp reversal in the stock.  While the quarter was not a blockbuster, it did beat our expectations, particularly in the regional markets.  Importantly, BYD’s locals Las Vegas business reported YoY growth and beat our estimate so that market may have stabilized. 


We think the stock could bounce significantly off of its morning lows.  Anecdotally, there seems to be a lot of interest in the hedge fund community for the next big gaming idea, given the terrific moves that a lot of gaming stocks have had year to date.  BYD had a good week of trading but is still lagging the big movers over the past few months.  Moreover, with a likely very strong MGM quarter coming up a couple of weeks (August 8th), people will be looking for the usual derivative Strip play – exposure to the Las Vegas locals market.  MGM is up over 30% in the last month alone.  Watch BYD closely today.


Here are the results from the quarter:



Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.45%
  • SHORT SIGNALS 78.38%


In preparation for the HOT Q2 earnings release tomorrow, we’ve put together the pertinent forward looking commentary from HOT’s Q1 earnings call and subsequent conferences/releases.



Post earnings call commentary (June 21 – Jefferies Conference / June 8 – Goldman Conference)

  • “We’re very focused on deleverage; we’d like to be a solid investment grade rating over time. That means additional debt pay-down in the coming years; we do have maturities that come due in ‘12 and ‘13 that we will pay down with some of that excess cash. But we are also very focused with any incremental cash that we generate from time share and our lodging operations, as well as selling assets to reinvest that capital in the business and accelerate our growth.”
  • “There’s still not a lot of capital available for buyers to put debt on those properties, so the pool of capital is still relatively limited.”
  • “You won’t get that kind of ramp in incentive fees that you might have gotten if you had a lot of old U.S. contracts, because we didn’t see that kind of decline either. Having said that, we will get some ramp”
  • “Hotels will be as profitable as rate. Rate is the make or break variable… Rates are still well below where they were, at least 10%, 15% in some places. Rates will not only get back to where there were in nominal terms, but I am convinced they will go well past, there is no question about it, because there really isn’t going to be any hotel construction unless they do that.”
  • “On the cost side… the insurance markets are tighter, so insurance costs are going up but they are not such a big chunk of costs that they will be a big factor. The same with utilities. F&B, we tend to want to pass on those costs… if we have big inflation, there will some cost pressures, but hopefully, we also have rate flexibility. What happens to margins in this industry over the cycle, entirely a function of rate. It is the variable to watch.”
  • “Our immediate priority in priority order, reinvest in the business, pay down some debt. Those are the first two priorities. We scaled back investing in our business through the tough times in ‘09 and to some degree in ‘10. We’ve begun to scale it back up in our own hotels. Our own hotels need some capital.”
  • “My guess is we’ll get to a BBB rating sometime next year. Once we’ve gotten to those, then we get to the point where, where do we put excess cash? Well, clearly acquisitions, if they are available, we would be interested, not of real estate, but of brands.”
  • “So if there is a slowdown going on today, I think the rule of thumb people have had is, we may see it in our business six months from now.”
  • “Yes, the environment is good today in terms of pricing, but it’s not a deep market for hotel sales. So we did $6 billion or $7 billion of the hotel sales in the ‘06, ‘07 timeframe in one $4 billion-plus sale. I don’t know of anybody out there today who is in the market for a $2 billion portfolio.”
  • “We get a very small percentage of our business from OTAs (Online Travel Agency) today, less than 5%.”

Youtube from Q1 Conference Call

  • “Our vacation ownership business continues to be a strong source of cash, and with small re-investments, we can sustain our sales and cash generation at current levels through 2013.”
  • “Our group pace – or the total amount of group business we have on the books for 2011 – is on track to be up double-digits. We’re also on track for our group pace in 2012 to be ahead of 2011. In fact, we now have more business on the books for 2012 than we did in early 2006 for 2007.”
  • “Our corporate negotiated rates, we’re happy to report that we achieved the high single-digit increases that we were seeking. Coupled with rising occupancies, transient revenue increased 15% in Q1, and from what we can see today, this trend is continuing in Q2, with room nights booked one month out on track to increase double-digits and with ADRs up over 6%.”
  • “Midweek occupancies now are approaching 2007 levels in gateway cities such as New York, London, Paris, Hong Kong, as business travel, particularly at the high end, remains robust.”
  • "We expect to make $5 million to $10 million in Japan, a $20 million to $25 million EBITDA shortfall for the year. Given the financial condition of the Sheraton Grande Tokyo Bay, we have written off our equity investment. All in all, Japan will be a headwind this year.”
  • “U.S. Booking pace remains strong in China, though comparisons will be affected by the lapping of the World Expo in Shanghai in Q2 and Q3 last year.”
  • “Moving on to the Middle East and Africa, the political turmoil in North Africa continues, with no clear end in sight. Our one hotel in Libya is shut, and travel into most North African countries is down sharply. We have 24 hotels across the affected countries, which includes all of North Africa plus Bahrain, Syria, and Jordan. We expected to earn at least $15 million in fees this year. We now estimate our fees will be cut in half, with no incentive fees earned and base fees down sharply.”
  • “EMEA division is working on offsetting shortfalls from the Middle East in other parts of the region The first quarter is a small quarter in continental Europe, but booking pace suggests strength as we enter Q2.”
  • “Drug wars and the negative press in the U.S. have decimated leisure travel into our Mexican resorts. In the peak season, occupancies were in the 50s, and rate was down sharply, as we have to replace U.S. guests with lower-rate domestic business.”
  • “In Latin America, the gap between high local inflation while currencies appreciate relative to the dollar is severely hurting our owned hotel margins, particularly in Argentina. This inflation devaluation gap caused our owned margins to decline as much as 400 basis points in Q1. We are working on improving our dollar rate realization with our global accounts and by remixing the business.”
  • “Based on current trends, we expect second quarter RevPAR growth to be in the same range as first quarter growth in North America, despite tougher comparisons.”
  • “In Q1, worldwide RevPAR was 10% below the Q1 2008 peak, 9% lower on rate and 100 basis points lower on occupancy.”
  • “Our vacation ownership business continues to be stable. Sales to existing owners have picked up, and tour flows are getting better. Default rates also continue to decline.”
  • “Japan, North Africa, and the sale of the Westin Gaslamp will reduce Q2 EBITDA by approximately $10 million”
  • “Sales have continued at good square foot rates and high deposits, and we’ve been in contact with people with signed contracts to alert them to the upcoming closing schedule. As we have indicated, there will be income recognized from closings that are completed in 2011 which is not included in our outlook. We will provide our best estimates as we get closer to actually initiating the closing process. Any cash from closings this year is also not included in our estimate of cash flow from our vacation ownership and residential business.”
  • “When you look at the lower-rated channels, OTA, our business with OTA has probably peaked at 5% to 6% of room nights, whereas when you went back to 2007, that number was closer to 2% or 3%, so there’s several percentage points that we can gain by moving to our own higher-margin distribution channels instead of using the OTAs. And our business with government is relatively small, call it just under 3%, and at the prior peak, that was probably 1% or 2%. So there’s some room to grow there from a mix standpoint.”


The Macau Metro Monitor, July 27, 2011




According to a source, MBS has named George Tanasijevich CEO of Marina Bay Sands and Benny Zin its COO.  Tanasijevich had been MBS's interim CEO following the sudden resignation of Tom Arasi from the position in January.  Zin, who had been serving as interim COO, was Marina Bay Sands' VP of meetings, conventions and exhibitions.


In a separate article, MBS has again called on the Singapore government to make available several adjacent plots of land which are currently not on the reserve list and not positioned to go through the public tender process.  "The ramp-up here in each of our business lines has been very rapid. We want to be ahead of the demand to make sure that we're not constrained as we continue to progress and build our business," said Tanasijevich. 



Judge Elizabeth Gonzalez said the Jacobs case will proceed as she turned down a request to put the suit on hold.  Last week, Sands China attorneys had asked to freeze the lawsuit while an appeal was ongoing.  The appeal to the Nevada Supreme Court was filed last May, asking for the lawsuit to be dismissed.




Unemployment rate for April-June 2011 was 2.7%, up slightly by 0.1% point over the previous period (March-May 2011).  Total labor force was 338,000 in April-June 2011 and the labor force participation rate stood at 71.6%, with the employed population increasing by about 800 over the previous period to 329,000.




Notable news items and price action from the restaurant space as well as our fundamental view on select names.







Yesterday, the ICSC chain store sales index posted its fifth consecutive weekly gain.  Consumer spending does not seem to be impacted by the reductions in confidence as the debt-ceiling debate continues; even recent small increases in gasoline prices and stock market weakness have not hurt current trends. Year-over-year growth posted its best three weeks in more than a year, topping 4% for two consecutive weeks. 


Richmond Federal Reserve Manufacturing Survey


Also yesterday, the Richmond Fed Manufacturing survey contracted in July after rebounding in June. The composite index fell by 4 points to -1 and has now been in negative territory in two of the last three months.  In 1Q11 the index averaged 21.  The all important look at Job picture slowed significantly in July, with the employment index slipping from 14.1 in June to 4 in July, the lowest level since September 2010.


So far this week we have seen two regional Fed surveys that point to a continued sluggish job picture and an overall economic that is sluggish at best.  Despite that consumer spending remains resilient and that is showing up in the restaurant industry sales trends - for the better positioned concepts.  I view the slight uptick in consumer confidence as a non-event, as confidence levels are still consistent with a consumer recession. 




Food Retail and Food Processing were the leaders yesterday as full service restaurants continue to lag.  Quick service restaurants’ price action was also sluggish.






  • DNKN is now one of the most expensive stocks I follow, despite the massive surge in multiples over the past year, with no track record as a public company.
  • SBUX was upgraded to “Buy” at Janney Montgomery today.  The twelve-month price target is $48 per share.
  • DPZ traded higher on accelerating earnings after posting a strong quarter.  See our post from yesterday for further details.
  • COSI clearly has some real problems, trading down -3.8% on accelerating volume.


  • BWLD missed EPS expectations for 2Q but is still looking strong, in our view.  Restaurant level margins improved year-over-year, while operating margins declined on higher G&A and pre-opening expenses.   We are comfortable with the concept incurring “the cost of growth” so long as comps remain strong, which they are.  Commodity costs also remain favorable.  See our post from early this morning for more details.
  • BWLD was upgraded this morning to “Outperform” at Raymond James.
  • KONA posted a great quarter.  We continue to like the story as remodels are completed and sales trends remain strong.
  • PFCB posted a dismal quarter this morning.  The change of timing of the release is never good news.  EPS came in at $40 cents versus expectations of $0.55.  Guidance was lowered dramatically for 2011 to $1.60-1.70 versus prior $2.15-2.20 and consensus $2.09.  The stock traded down as much as -12% in premarket trading after the news came out.




Howard Penney

Managing Director


Rory Green


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