• It's Coming...

    Etf Pro

    Get the big financial market moves right, bullish or bearish with Hedgeye’s ETF Pro.

CCL 4Q CONF CALL NOTES

Pricing commentary spooking investors today.

"On the whole, 2011 was an encouraging year for our global portfolio of cruise brands. Our North American brands performed well, achieving an almost four percent revenue yield increase, while our European, Australian and Asian brand yields were in line with the prior year (constant dollars) despite having been significantly impacted by the geo-political unrest in the Middle East and North Africa.  Higher revenue yields partially offset a 32 percent increase in fuel prices, which reduced earnings by $535 million or $0.68 per share for the year. Cash from operations of $3.8 billion provided more than ample funding for our $2.7 billion capital investment program and enabled the company to return excess cash to shareholders.  Earlier this year, our quarterly dividend was increased from $0.10 to $0.25 per share resulting in $670 million of dividend distributions. In addition, we purchased 14.8 million of the company's shares in the open market at a cost of $455 million."

- CCL CEO Micky Arison

CONF CALL

  • 4Q 2011
    • EAA brand yield grew 10% while NA brand yield grew 3%
    • Net ticket yields: NA +8%, higher yields in Caribbean, Alaska, Canada/New England, and transatlantic itineraries; EAA: -6%, from impact on MENA
    • Net onboard yield & other: +1.4%
      • Driven by our North American brands as our EAA brands were impacted from MENA itinerary changes that resulted in lower occupancies, lower short duration revenues and slightly lower spending in other areas
    • Net cruise costs ex fuel influenced by ship repair costs
    • Fuel usage savings of 15% since 2005
  • 2011
    • 4% improvement in NA brand yield; EAA brand yield in-line YoY
    • Fuel/currency shaved EPS by 41 cents
    • Ex Japan and ME, CCL would have been at the high end of their original guidance range from a year ago
    • Dividends paid and share repurchases of $1.1BN which consisted all of its FCF
    • Going forward, CCL will not include in our earnings guidance any year-to-date impact or any future estimates of the unrealized gains and losses on the fuel derivatives. Will be on non-GAAP basis going forward.
  • 2012
    • Current spot price for fuel used in our guidance is essentially in line with 2011's average price.  However, based on the current FX rates, currency is expected to have a negative impact of 17 cents
    • 10% change in the price of fuel represents a 225 million or $0.29 per share impact for the full year
    • 10% change in all relevant currencies -- relative to the U.S. dollar, would impact EPS by 25%
    • 3 ships for delivery: Costa Fascinosa scheduled for April, while AIDAmar and Carnival Breeze are scheduled for May
    • Capex: $2.6BN
    • FCF: $1.4BN
    • The $0.30 per share range for 2012 compares to the $0.20 share range we have used in recent years due to European uncertainty
    • Lower consumer confidence caused some delay in vacation decisions and resulted in a lower end booking window.
    • Fleet-wide bookings volumes have been higher year-over-year, we have achieved this volume by reducing prices for our Cruises. 
    • North America brand booking volumes over the last 13 weeks have been "rubbing higher" than a year ago at lower prices
    • EAA brand bookings are slightly higher at lower prices.  
    • Recent bookings over the last six weeks have seen stronger pickup in booking volumes for both North America and Europe brands which is encouraging 
    • In terms of our current booking status at the present time based on bookings taken to date, constant dollar ticket prices for North America and EAA brands are slightly higher than a year ago on slightly lower occupancies.
    • Capacity: +4.8%
  • 1Q 2012
    • Capacity: +4.9%
      • 4.5% for NA brands
      • 5.6% for EAA brands
    • Occupancies on the fleet-wide basis are slightly higher year-over-year, with constant dollar pricing also higher.
    • Very little inventory left
    • NA brand
      • 65% Caribbean (same as last year)--pricing is higher than a year ago at slightly higher occupancy 
      • Pricing for all other itineraries is also shootingly higher than a year ago at slightly lower occupancies
    • EAA brand
      •  22% Caribbean (vs 20% last year); 19% in Europe (vs 22% last year); 18% South America (vs 16% last year)
      • EAA constant dollar pricing in the Caribbean is higher than a year ago on lower occupancies.  EAA prices in Europe is lower year-over-year but with higher occupancies.  And EAA South America pricing is nicely higher than a year ago on higher occupancies.
    • Incremental costs for the increased number of dry dock days vs 1Q2011 is ~$0.06 per share.  This is a timing difference.  These dry dock days that will reverse during the remainder of the year as the dry dock days for the full year 2012 is approximately the same as 2011.
  • 2Q 2012
    • NA: Caribbean 56% (same YoY); pricing nicely higher on same occ; other itins are higher with lower occ
    • EAA: 53% Europe (vs 55% last year); EAA European constant currency Cruise pricing is slightly higher than a year ago on slightly lower occupancies. EAA brand pricing all taken together is slightly lower than last year also at lower occupancies.  
    • Overall basis estimate is that constant dollar revenue yields will be flattish for the second quarter by the time we close
  • 3Q 2012
    • Capacity: 4.7% (3.3% in NA, 7% in EAA)
    • Pricing higher on lower occu
    • NA
      • 39% in Caribbean (36% last ago); 24% in Alaska; (slightly higher than year ago); 25% in Europe (same YoY)
      • Pricing for Caribbean Alaska and Europe itineraries are higher than a year ago.  Occupancies for Caribbean and Alaska Cruises are running at about the same level as last year with occupancy for Europe Cruises lower than last year.
    • EAA
      • 88% in Europe (in-line YoY); pricing nicely higher on lower occu
      • But considerable amount of inventory left to be sold

Q&A

  • There has been "ebb and flow" in bookings
    • For last 13 weeks: less impact on 1Q, more impact on 2Q and 3Q
    • Last 6 weeks, bookings have been stronger
  • Some markets fine, some markets lower demand--more broadly so in Europe than NA
  • Southern Europe: a big challenge but still holding pricing
  • Comps for European crisis won't happen until mid-February
  • "Pleasantly surprised" by UK and Germany
  • Southern Europe--Spain, Italy and France-- wintertime is a slow time for those countries
  • Don't expect crack spread between WTI and brent to come down 
  • Costa was hit the hardest from MENA disruption--expect better occupancy to drive yields in 2012
  • MENA negatively impacted yields by 1.7%.  EAA brands was probably over double that.
  • Ships that go to dry docks depends on the ships every three years, twice every five years.
    • Relative to 2011, 2012 total # of dry dock days were in-line. Capacity went up slightly.
    • Dry dock costs will not affect cruise costs for the full year
  • FCF: 30-40% payout in dividends
  • Don't source a lot of Scandinavia passengers; Netherlands business is going well
  • Pricing will continue to be a challenge in Southern Europe; not much capacity increase in Europe
  • Booking window has come in a little bit
  • If you didn't lower price, would you see better volumes? 
    • Don't know
  • Market share vs Tour operators/Thomas Cook: Package holiday business in Europe in general is shrinking while the Cruise business is growing.  So obviously we're effectively taking share but our share is so small in number.  Compared to the overall package holiday business in Europe, it's not meaningful.
  • 2012 capacity increase is after the Pacific Sun take out
  • Wave guidance
    • In some markets, sustained pricing and good volumes
    • In other markets, lower pricing
  • But once you get post that line in the comparisons get much easier, we'll be running well ahead in terms of prices
  • More than of 50% of yield will be driven by occupancies
  • Not much change in patterns between Premium and Contemporary brands; US Premium is holding up well
  • Q2 "flattish pricing"--could still be slightly up or down but in a tight range
  • No need to worry about cost of new itineraries; they are booking well
    • Major change in deployment is shorter duration which is helping bring pricing down and delaying the booking which would benefit onboard spend

HIGHLIGHTS FROM THE RELEASE

  • 4Q2011 results: 
    • EPS: $0.28 (consensus $0.28)
    • Current $ net revenue yields: +2.1% (vs consensus of +2.2% and guidance of +1.5-2.5%)
    • Constant $ net revenue yields: +1.5% (guidance of +1% to 2%)
    • Gross revenue yields (in constant $): +0.3%
    • Constant dollar net cruise costs: -1.8% (guidance of -3-4%)
    • Fuel: +39% YoY to $680/metric ton (lower than guidance of $686/mt)
  • 1Q2012 guidance
    • Current dollar net revenue yields: +0.5% to 1.5% (consensus: +2%)
    • Constant dollar net revenue yields: +1.5% to 2.5% (consensus: 2.3%)
    • Current dollar net cruise costs (ex. fuel): +2.5% to 3.5%
    • Constant dollar net cruise costs (ex. fuel): +3.5% to 4.5%
    • Fuel: $652/metric ton; 860K metric tons
      • Fuel costs for Q1: $93MM or $0.12 EPS drag
    • EPS: $0.06-0.10 (consensus: $0.14)
  • FY2012 guidance:
    • Diluted EPS:$2.55-$2.85 (consensus: $2.77)
    • Constant dollar net revenue yields: +1.0% to 2.0% (consensus: +2.8%)
    • Constant dollar net cruise costs (ex. fuel): -0.5% to 0.5%
    • Fuel: $650/metric ton
    • Fuel consumption: 3,470K
  • Fuel derivatives program
    • "During the fourth quarter of 2011, the company entered into zero cost collars for approximately 10 percent of its estimated fuel consumption for the second half of fiscal 2012 through fiscal 2015.  The company will not realize any economic gain or loss upon the maturity of these zero cost collars unless the price of Brent is above the ceiling price or below the floor price."