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CCL 1Q 2O12 CONF CALL NOTES

Is this finally the sandbagged guidance?

 

 

"Our base of business for 2012 is solid and booking volumes have gradually improved, which we believe is a testament to consumer confidence in the cruise industry's long-standing record of exceptional safety. Despite the slowdown in bookings, all of our North American brands are still expecting a modest yield improvement in 2012 while our European brands, excluding Costa, are expecting to have slightly lower yields due in part to the slowing European economies. Overall, based on current pricing trends, any consumers holding out for deeper than normal discounts may be disappointed." 

 

Mickey Arison - CEO

 

 

PREPARED REMARKS

  • 1Q 
    • NA brands grew 4%; EAA brands grew 3%
    • Net ticket yield: 2.6%; Onboard yield: 3.7%
      • NA yield: 5.0%, driven by Caribbean; Caribbean represented 2/3 of NA capacity
      • Euro yield: flat
      • EAA onboard yield lower
    • 1/2 of the increase in NCC driven by Costa Concordia ("CC") and Costa Allegra ("CA")
  • 2012 NCC guidance unchanged from previous guidance
  • As time passes they are confident that their business will improve. In continental Europe, the impact of the accident has had a larger impact
  • Recently they have seen an improvement in European bookings
  • Costa will resume marketing in the next coming weeks
  • Rest of 2012 guidance
    • 2012 net yield (ex Costa) down 1.5% (in-line with 2011)
    • NA: slightly lower occupancy, higher prices
    • EAA: lower occupancy,higher prices
    • 7 wks post CC accident: 
      • Fleetwide: lower mid-to high single digits bookings at lower prices
      • NA: mid single digit decline in bookings at slightly lower prices; weakest itineraries had been European-based. Higher airfare affected NA European cruises
      • EAA (ex Costa): bookings lower in mid-teens range at lower prices. Spain/Germany hurt most; UK holding up
  • Costa brand
    • Relatively few cancellations since the incident
    • Future cruises were rebooked on other Costa cruises
    • Last week March 4: bookings were down 50%; up from 80-90% decline in bookings following accident
    • Estimate up to a year before bookings become normal
    • Holding pricing and sacrificing occupancy to maintain 'order in the markets'
    • Forecast loss of $100MM in 2012
  • 2Q guidance
    • Capacity: +2.7% (+2.9% NA, +2.2% EAA)
    • Fleetwide: higher pricing, flat occupancy 
    • NA: 56% of capacity in the Caribbean
      • Caribbean pricing nicely higher, same occupancy
      • All other itineraries: pricing higher, slightly lower occupancy
    • EAA (ex Costa): pricing slightly lower, lower occupancy
    • All other itineraries: lower pricing, lower occupancy
  • 3Q guidance
    • Capacity: +2.9% (+3.4% NA, +2.2% EAA)
    • Fleetwide: higher pricing, lower occupancy
    • NA capacity: 38% Caribbean (slightly higher); 34% Alaska (same YoY); 25% Europe (same YoY
      • Caribbean pricing: higher YoY; Alaska/Europe cruises flat YoY
    • EA capacity: 85% Europe (up from 82%); 
      • EAA pricing: higher, lower occupancy
  • 4Q guidance:
    • Capacity: +2.9% (+3.7% NA, +1.7% EAA)
    • Fleetwide pricing higher at lower occupancy
    • NA: pricing flat, lower occupancy
    • NA capacity: 43% Caribbean (slightly higher YoY); 13% Europe (same YoY);
      • Caribbean pricing higher, higher occupancy
      • Europe pricing higher, lower occupancy
      • All other itineraries: higher pricing, lower occupancy 
    • EAA: nicely higher pricing, lower occupancy 

 

Q/A

  • Marketing/discounting will not be greater than last year
  • Close-in patterns are good
  • Biggest obstacle to bookings is that people are expecting lower prices, but that's not going to happen. Once people realize that, bookings should pick up
  • Really feel like the Costa impact will be short term in nature – just need to take the pain of lower occupancy and hold pricing
  • NA: Carnival outperforming premium brands
    • First timers: Carnival brand not having problems; other brands doing fine except with European cruises.
  • Ibero charge: 
    • They had projections of growing the brand over time. In reality they have reduced capacity by moving ships out of the market. And so when they pulled capacity out of the model it required a write down. They still believe in the Spanish market but Ibero is still struggling
    • It will take longer for the Spanish economy to return to strength so it became hard to justify growth in that market.
  • Why are they confident that the Costa impact will take a year to come back vs. longer or shorter?
    • That’s what the research has indicated using other examples of companies in crisis
    • Also the signs of positive trending that they are already seeing even without marketing. 
    • Will take a year or 2 to return to profitability
    • The capacity will also have 3 less ships than previously predicted for 2013
  • Markets with less Costa presence markets (ex. Germany, France, Italy, etc) showing some comeback 
  • Germany is showing signs of recovery while Italy is still very challenged
  • Overcapacity?
    • No. Growing at much slower pace (2-3 ships)
    • Allegra is for sale
    • Low single-digit global capacity growth
  • Too early to forecast 2013 but 'future is bright'
  • UK/Germany market weren't impacted by the Costa incident
  • AIDA brand: had taken down revenue yields due to CC;
    • Last week, bookings were higher YoY for the first time this year
  • Allegra: do not intend to put back into service
  • 2012 NCC flat guidance: advertising down in Q1, inflation is lower than previously expected
  • Higher safety regulations costs not expected in 2013
  • April/May easy comparisons
  • 300 itinerary changes made last year (mostly were Costa)
  • CC full removal date? 
    • Salvage process to begin after summer 
    • Duration: 10-12 months 
  • Onboard spending: do not expect a significant change; ex Costa, 1.5% increase for 2012 guidance; all major categories up including casino 1Q
  • Alaska: 'pretty consistent and solid but not spectacular'. Strength in Alaska may be at the expense of a weaker Europe
  • Costa improvement last 7 weeks: mainly due to occupancy gains
  • No need to obtain additional financing to fund capex
  • Dividend: long-term target (30-40%) sustainable
  • 2012/2013 Capex guidance: $2.6BN, $1.9BN (including $750MM other capex for existing fleet)

 

HIGHLIGHTS FROM THE RELEASE

  • 1Q2012 results: 
    • EPS: loss of $0.18 (consensus $-0.06)
    • Constant $ net revenue yields: +2.9% (guidance of +2%)
    • Gross revenue yields (in constant $): +1%
    • Constant dollar net cruise costs: +6.4% (guidance of +4%)
    • Fuel: +30% YoY to $707/metric ton 
  • 2Q2012 guidance
    • Current dollar net revenue yields: -4% to -5%
    • Constant dollar net revenue yields: -2.5% to 3.5% 
    • Current dollar net cruise costs (ex. fuel): -2% to -3%
    • Constant dollar net cruise costs (ex. fuel): -1% to 0%
    • Fuel: $772/metric ton; 863k metric tons
    • EPS: $0.05-0.09 (consensus: $0.18)
  • FY2012 guidance:
    • Diluted EPS:$1.40-$1.70 (previous guidance: $2.07 to $2.34; consensus: $2.06)
    • Constant dollar net revenue yields: -2.0% to -4.0% 
    • Constant dollar net cruise costs (ex. fuel): -0.5% to 0.5%
    • Fuel: $766/metric ton
    • Fuel consumption: 3,382k
  • The company recognized $21 million of net unrealized gains on its portfolio of fuel derivatives during 1Q 2012.
  • 2012 outlook
    • "At this time, cumulative advance bookings, excluding Costa, for the remainder of 2012 are approximately 3 occupancy points behind the prior year with prices slightly higher than last year's levels (constant dollars). Since the date of the Costa Concordia incident in mid-January through February 26, fleetwide booking volumes, excluding Costa, have shown improving trends but are still running high single digits behind the prior year at slightly lower prices. There has been less impact on the company's North American brands than European brands."
  • 2012 Cash flow: $3.3 BN

THE EMPLOYMENT DATA IS BULLISH

Today’s employment data was strong across the board for the restaurant industry. 

 

As the chart below shows, all of the age cohorts we track on a monthly basis avoided year-over-year decline in February.  This is the first time we have seen green all the way across the table since February 2007.  The 20-24 YOA cohort saw a 60 basis point sequential acceleration in year-over-year employment growth which is a positive for QSR companies.  The one sequential slowdown in employment growth came in the 45-54 YOA cohort.  Overall, this employment data is a positive for casual dining, given both the broad-based employment gains and the improvement in the older 55-64 YOA cohort’s outlook. 

 

THE EMPLOYMENT DATA IS BULLISH - Employment by Age

 

 

Hiring trends in the restaurant industry remain strong as of January (this data set lags by one month).  As the chart below illustrates, hiring growth in the full service and limited service dining industries are growing at prerecession levels.  The U.S. Employment Situation Report for February called out the food service industry as a bright spot in the recent employment trends:

 

"In February, employment in leisure and hospitality increased by 44,000, with nearly all of the increase in food services and drinking places (+41,000). Since a recent low in February 2010, food services has added 531,000 jobs."

 

THE EMPLOYMENT DATA IS BULLISH - restaurant employmnet

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst


Selling Green: SP500 Levels, Refreshed

POSITIONS: Long Utilities (XLU), Short Consumer (XLY)

 

Buy red, Sell green. Rinse and Repeat.

 

My last communiqué was on Tuesday (“Short Covering Opportunity” on 3/6/11 at 11:29AM EST) and it was harder to buy then than it is for the performance chasing community right here and now. We’re right at levels in the SP500 and the VIX where I think this is an easy call to make.

 

Here are the lines, across my risk management durations, that currently matter to me most: 

  1. Immediate-term TRADE resistance = 1374
  2. Immediate-term TRADE support = 1345
  3. Intermediate-term TREND support = 1283 

With the US Dollar Index breaking out to the upside (above $79.03 TREND support), I am getting more constructive on US Equities – but from a price. On Tuesday my buy/cover line was 1345. It still is today.

 

Enjoy your weekend,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Selling Green: SP500 Levels, Refreshed - SPX


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 80.64%
  • SHORT SIGNALS 78.61%

THE HBM: SBUX, GMCR, SONC, MCD, BWLD

THE HEDGEYE BREAKFAST MONITOR

 

MACRO NOTES

 

Unemployment

 

Private payrolls gained by 233k versus expectations of 225k in February.  The unemployment rate stayed at 8.3% but, on the positive side, the labor force participation rate ticked up by 20 basis points to 63.9%.  This was the first uptick since August 2010.  During February, employment in leisure and hospitality increased by 44,000 with nearly all of the increase in food services and drinking places (+41,000).  Since a  recent low in February 2010, food services has added 531,000 jobs.

 

THE HBM: SBUX, GMCR, SONC, MCD, BWLD - lfpr shift

 

 

SUBSECTOR PERFORMANCE

 

THE HBM: SBUX, GMCR, SONC, MCD, BWLD - subsectors

 

 

QUICK SERVICE

 

SBUX: Starbucks’ announcement after the close yesterday, that it is to release a new brewer named Verismo by Starbucks, has been met favorably by investors; the stock is up 3.4% premarket.

 

SBUX: Starbucks was reiterated “Buy” at Deutsche Bank.  The PT was raised to $59 from $53.

 

GMCR: Starbucks’ announcement after the close yesterday, that it is to release a new brewer named Verismo by Starbucks, has been met unfavorably by investors in GMCR; the stock is down -14.4% premarket.  Green Mountain has responded by saying that its Keurig brewer uses low pressure to brew non-espresso coffee and tea, meaning Starbucks may not become a direct competitor to its core business.

 

SONC: Sonic reported 2QFY12 same-store sales at +3.4% (3.5% at franchise drive-ins versus 3.1% for company).

 

MCD: Despite the returns that McDonald’s generated for shareholders in 2011, Jim Skinner, the CEO of MCD, saw his compensation decline by 10% to $8.8m.

 

MCD: McDonald’s was reiterated “Conviction-List Buy” at Goldman Sachs.

 

 

NOTABLE PERFORMANCE ON ACCELERATING VOLUME:

 

DNKN: Dunkin’ Brands gained 3.5% on accelerating volume. 

 

SONC: Sonic declined -7% on accelerating volume yesterday.  The stock cratered on the sales preannouncement.

 

 

CASUAL DINING

 

BWLD: Buffalo Wild Wings is launching its “More March” multi-platform ad campaign in time for one of the busiest months of the year.

 

 

NOTABLE PERFORMANCE ON ACCELERATING VOLUME:

 

EAT: Brinker gained +3.4% on accelerating volume yesterday.

 

 

THE HBM: SBUX, GMCR, SONC, MCD, BWLD - stocks

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst

 


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – March 9, 2012


As we look at today’s set up for the S&P 500, the range is 37 points or -1.53% downside to 1345 and 1.18% upside to 1382. 

 

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

THE HEDGEYE DAILY OUTLOOK - 3

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: 1777 (53) 
  • VOLUME: NYSE 716.61 (-10.53%)
  • VIX:  17.95 -5.87% YTD PERFORMANCE: -23.29%
  • SPX PUT/CALL RATIO: 0.98 from 1.74 (-43.68%)

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 39.72
  • 3-MONTH T-BILL YIELD: 0.08%
  • 10-Year: 2.01 from 2.01
  • YIELD CURVE: 1.70 from 1.71 

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Trade Balance, Jan., est. -$49.0b (prior -$48.8b)
  • 8:30am: Nonfarm Payrolls, Feb., est. 210k (prior 243k)
  • 8:30am: Unemployment Rate, Feb., est. 8.3% (prior 8.3%)
  • 8:30am: WASDE corn, soybean, cotton, wheat
  • 10:00am: Wholesale Inventories, Jan., est. 0.6% (prior 1.0%)
  • 1pm: Baker Hughes rig count 

GOVERNMENT:

    • Obama to speak on economy at Rolls-Royce aerospace facility in Richmond, Va. 12:30pm, then fly to Houston for campaign events
    • CFTC meets to consider issuance of proposed rules, 9:30am
    • House meets in pro forma session, 11am 

WHAT TO WATCH:

  • U.S. payrolls may have increased by 210k in Feb. after rising 243k in Jan., economists est.
  • Investors with 95.7% of Greece’s privately held bonds will participate sovereign debt restructuring after govt said it will trigger an option forcing them to take part
  • UPS said to be near deal to buy TNT Express after initial offer of EU4.9b rejected
  • El Paso holds a shareholder vote on $21.1b Kinder Morgan deal
  • Watch video-game makers after NPD reported U.S. video-game sales fell 20% in Feb. to $1.06b
  • Texas Instruments cut 1Q sales, profit forecasts; watch chipmakers, suppliers
  • Molycorp agreed to buy Canada’s Neo Material Technologies for ~C$1.3b ($1.3b) to increase Chinese sales, gain technology
  • Boston Scientific agreed to buy Cameron Health for as much as $1.35b to add a new kind of defibrillator
  • Wal-Mart wins South African lawsuit contesting Massmart takeover
  • London Stock Exchange agreed to buy a majority stake in LCH.Clearnet Group for GBP463m ($613m)
  • NRC deadline for issuing orders on safety improvements developed in year since radiation crisis at Fukushima, Japan
  • No U.S. IPOs expected to price: Bloomberg data
  • SATURDAY: China trade data for February
  • SATURDAY: Kansas Republican presidential caucuses
  • SUNDAY: Daylight savings time: Clocks spring forward in most of U.S. (Europe shifts on March 25) 

EARNINGS:

    • Hibbett Sports (HIBB) 6:30am, $0.56
    • Ferrellgas Partners (FGP) 7am, $0.79
    • Halozyme Therapeutics (HALO) 7:30am, $(0.15)
    • Ann (ANN) 7:35am, $0.09
    • Carnival (CCL) 9:15am, $(0.05) 

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Gold Bulls Strengthen as Wagers Reach $131 Billion: Commodities
  • Soybeans Climb to Five-Month High as Brazil Cuts Crop Forecast
  • Oil Rises a Third Day on U.S. Economic Outlook, Greek Debt Swap
  • India to Review Cotton-Export Ban as China Seeks Withdrawal
  • China February Copper Output Rebounds From an 11-Month Low
  • Gold May Rise as Low Interest Rates Boost Demand for the Metal
  • Tocom to Discuss Alliance With CME Next Week, Ezaki Says
  • Copper Traders Probably Added to Wagers That Prices Will Decline
  • Palm Oil Surges to Nine-Month High on Speculation Reserves Fell
  • Rare-Earth Bust Spurs Molycorp’s Biggest Takeover Bet: Real M&A
  • Coffee Falls on Speculation Supplies Will Improve; Cocoa Drops
  • Iran Oil Risk Threatens Peak Profit for Naphtha: Energy Markets
  • Shipping Lines’ Asia-Europe Rate Rise May Fail: Chart of the Day
  • Oil Rises on Greek Debt Swap, U.S. Outlook
  • Copper Gains for Third Day on China Inflation, Industrial Output
  • Rubber Futures Advance as China’s Inflation Eases: Tokyo Mover
  • Chalco to Seek to Raise as Much as 8 Billion Yuan in Share Sale 

THE HEDGEYE DAILY OUTLOOK - 4

 

 

CURRENCIES


THE HEDGEYE DAILY OUTLOOK - 5

 

 

EUROPEAN MARKETS


THE HEDGEYE DAILY OUTLOOK - 6

 


ASIAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 7

 

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 8

 

 

 

The Hedgeye Macro Team

 



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