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CCL REPORT CARD

Takeaway: Even excluding the favorable cost shift, quarter was good and guidance solid

In an effort to evaluate performance and as a follow up to our YouTube, we compare how the quarter measured up to previous management commentary and guidance.

 

 

OVERALL

  • BETTER:  CCL gave slightly better FY 2012 yield guidance.  Volumes remained healthy, cost subdued, while pricing showed a pulse

CCL REPORT CARD - ccl


F4Q GUIDANCE 

  • SAME: No change in fleetwide yield/occupancy guidance.  NA brand pricing still down lower but occupancies improved. For EAA brands performance on yield and occupancy was consistent although European pricing weakened QoQ. Costa occupancies improved on lower yields.
  • PREVIOUSLY: 
    • Fleet-wide pricing (ex Costa) slightly lower on lower occupancy 
    • NA brands: Pricing slightly lower at lower occupancy
    • EAA brands (ex Costa): Pricing higher at lower occupancy but expect pricing to decline as the quarter closes
      • European pricing slightly higher at lower occupancy
      • Costa's pricing and occupancy are lower than a year ago.
      • All other pricing higher on lower occupancy

F1Q 2013 GUIDANCE

  • SAME:  Fleet-wide pricing remain slightly lower on lower occupancy.  NA pricing overall is slightly better than previous guidance while EAA pricing is worse.
  • PREVIOUSLY:
    • Fleet-wide capacity of 4.0%; fleet-wide pricing slightly lower on lower occupancy
    • NA
      • Overall pricing lower with flat occupancy
    • EAA
      • Overall pricing higher with lower occupancy
      • Costa pricing higher with lower occupancy

COSTA

  • LITTLE BETTER:  Costa pricing and occupancy should show improvement once the Concordia incident is lapped in 2013.  The operating loss for Costa in 2012 is tracking a little better than ~$100MM forecasted on the March call. A normalized level of profitability for Costa will take a few years to reach. Given the sale of 3 ships, CCL doesn't expect a return to pre-Concordia levels.
  • PREVIOUSLY:  "We do expect that when year-over-year occupancy levels begin to normalize, Costa's cruise prices for 2013 should start to firm up. Costa's revenue yields for 2012 are forecasted to be down in the mid-teens levels on a year-over-year basis and we expect Costa's operating loss to be in the range of $100 million."

SHARE REPURCHASE PROGRAM

  • BETTER:  CCL purchased 2MM shares in F3Q for $67MM.  $265MM remained under the buyback authorization program
  • PREVIOUSLY:  "At the moment... $330 million that remains on the program."

ONBOARD SPEND

  • SAME:  Excluding Costa, onboard increased 5%.  Both NA and EAA brands saw an increase of over 3% YoY compared to an increase of 2-3% in 1H12.  There healthy across most categories: casino, bar, and retail. 4Q11 recorded credit for guaranteed payments so the coming quarter will appear flat to down before adjustments. 
  • PREVIOUSLY:
    • "We are seeing some increases in onboard. We were very pleased. In fact, we took the guidance up almost a point on onboard from March to the June guidance, so the trend is very favorable and I hope it is a leading indicator."

GOLD: Where Do We Go From Here?

Takeaway: If the US dollar continues to head lower, you can expect $GLD to continue making all time highs over and over again.

Since 2008, gold has enjoyed the fruits of Ben Bernanke’s labor. The Federal Reserve has been engaged in devaluing the dollar and driving up commodity prices for years now, much to the chagrin of investors who are hooked on gold. Every time the Federal Reserve announces a new round of extension of quantitative easing, gold heads higher and has continued to do so since QE1 started in November of 2008.

 

 

GOLD: Where Do We Go From Here?  - QE goldchart

 

 

However, things could be taking a different turn now that the investing public has caught on to how the QE gold trade works. If you look at the above chart, you can see that up until September of 2011, gold’s meteoric rise was predictable and much of the same. But when the Fed extended lower rates back in January of this year, gold popped a bit then fell off and continued to do so right up until this month when Bernanke’s Jackson Hole meeting.

 

Seeing as how we’ve already enjoyed our Jackson Hole pop, the question remains: where do we go from here? Here’s what Keith had to say about gold (specifically, the GLD ETF) yesterday:

 

If the US Dollar falls again from here and Gold recovers this morning’s losses to make higher-all-time-highs, I’ll likely cover my short position in GLD. If it doesn’t, well, I guess that’s not going to be my problem.”

 

Gold is really at a turning point at this moment. It’s either going to continue its post-Fed activity rise and will continue making all time highs or correct and fall off a cliff if the dollar manages to recover and strengthen. With November’s election fast approaching, a lot of catalysts lie in wait. Our immediate term risk range for gold is currently $1731-1762. You can rest assured we’ll be keeping a close eye on everyone’s favorite metal this week.


Hospitals: Check 'Em

Takeaway: Companies like $HCA and $LPNT are poised for positive Q3 results with the only negative being birth rates.

As we head into the third quarter of 2012, our Healthcare team remains bullish on hospital names, particularly LifePoint Hospitals (LPNT) and HCA Holdings (HCA).  There are multiple fundamental drivers in 3Q12, with only one significant headwind going into the quarter. So as the aforementioned stocks report earnings, we remain net positive.

 

 

Hospitals: Check 'Em - hospitals1

 

 

The one meaningful headwind at hand is births, which according to our models, suggest year-over-year declines in 3Q12.  Births are likely the single biggest driver of hospitals admissions this quarter because of its high proportion to total admits and seasonal strength in 3Q. 

 

3Q12 Positives include a 27% uptick in quarter-to-date flu data (read: more sick people), a modest acceleration in year-over-year growth for physician utilization (improving outpatient utilization), and the annualizing cardio acuity comp that began in 2Q11 (help stabilize volumes and improve pricing).

 

 

Hospitals: Check 'Em - hosiptals2


Early Look

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DFS: The Time To Short

Takeaway: With DFS set to report on Thursday, we think the company has a negative EPS growth story on its hands that makes for a good short.

In the past, we’ve been too bearish on Discover Financial Services (DFS). The stock has had a fantastic run and we simply timed the cycle prematurely, thinking that delinquency rates were stacked against the long side. Cycles come and go and when you look at the loss of value for some companies in the past, it’s easy to be bearish. In the last cycle Discover lost 83% of its value, Capital One lost 90% and American Express lost 84%.

 

 

DFS: The Time To Short  - DFS 2

 

 

With DFS reporting on Thursday, we’ve shorted DFS in our Real Time Positions as the numbers finally add up on a quantitative basis. We expect a year-over-year negative trend in EPS and think the company is running on fumes at this point.

 

DFS: The Time To Short  - DFS 1                                                                                                                                     


We Are American

WE ARE AMERICAN

 

 

CLIENT TALKING POINTS

 

WE ARE AMERICAN

Americans catch a bad rep sometimes. For whatever reasons, financial professionals and policy makers think they can outsmart the public time and time again. And you know what? That’s simply not the case. Be it the gentleman in Arkansas who pulls money from a mutual fund or the misguided youth protesting with the Occupy Movement in New York, people are catching on and smarting up. They are tired of central planning policy that has killed their ability to generate yield and has created no economic boost that’s tangible. Devaluing the dollar has run its course, and soon the planners and policymakers will have to move on to something that doesn’t involve the word “easing.”

 

 

THUS THE EARNINGS SLOW

Our focus on the slowing of growth is still alive and beating in our hearts as we shake our head at Bernanke’s failed policies. But in the immediate-term, we have turned our attention to corporate earnings. Make no mistake about it: earnings are slowing. Companies like FedEx (FDX), Intel (INTL), Norfolk Southern (NSC) and Oracle (ORCL) all paint a picture of lower guidance and falling revenues. It’s interesting because this is one thing Bernanke can’t step in and fix with the wave of a magic pen. As we continue farther into the Q312 reporting game, things will likely become worse.

 

 

_______________________________________________________

 

ASSET ALLOCATION

 

Cash:                  Flat

 

U.S. Equities:   Flat

 

Int'l Equities:   Flat   

 

Commodities: Flat

 

Fixed Income:  Flat

 

Int'l Currencies: Flat  

 

 

_______________________________________________________

 

TOP LONG IDEAS

 

WENDY’S COMPANY (WEN)

Our conversations with Wendy’s franchisees indicate that sales have been trending sequentially higher in 3Q versus 2Q. We believe the company is about to announce the end of the company’s Sisyphean breakfast initiative after a prolonged “testing” phase. Given the capital demands on the company over the next few years as it invests to upgrade its asset base, shifting capital from the distraction that has been breakfast is a positive. The tail is less certain as it will take years for the system to rejuvenate the asset base and push out the older franchisees that don’t want to make the necessary investments to bring the asset base in line with contemporary industry standards..

  • TRADE:  LONG
  • TREND:  NEUTRAL
  • TAIL:      NEUTRAL            

 

PACCAR (PCAR)

Emissions regulations in the US focusing on greenhouse gases should end the disruptive pre-buy cycle and allow PCAR to improve margins. Improved capacity utilization, truck fleet aging, and less volatile used truck prices all should support higher long-run profitability. In the near-term, Paccar may benefit from engine certification issues at Navistar, allowing it to gain market share. Longer-term, Paccar enjos a strong position in a structurally advantaged industry and an attractive valuation.

  • TRADE:  LONG
  • TREND:  LONG
  • TAIL:      LONG

 

LAS VEGAS SANDS (LVS)

LVS finally reached and has maintained its 20% Macau gaming share, thanks to Sands Cotai Central (SCC). With SCC continuing to ramp up, we expect that level to hold and maybe, even improve. Macau sentiment has reached a yearly low but we see improvement ahead.

  • TRADE:  LONG
  • TREND:  NEUTRAL
  • TAIL:      NEUTRAL

  

_______________________________________________________

 

THREE FOR THE ROAD

 

TWEET OF THE DAY

“’Futures flat as Fed hopes offset Caterpillar’, LOL” -@KeithMcCullough

 

 

QUOTE OF THE DAY

“The middle of the road is where the white line is-and that's the worst place to drive.” –Robert Frost

                       

 

STAT OF THE DAY

5 million. The amount of Apple iPhone 5s sold in just three days.

 

 

 

 

 


Thinking That Way

This note was originally published at 8am on September 11, 2012 for Hedgeye subscribers.

“I wouldn’t be doing my job if I started thinking that way.”

-Neil Barofsky

 

In one of the more riveting introductions to a book I have read in some time (Bailout – “An Inside Account of how Washington Abandoned Main Street While Rescuing Wall Street”), that’s what former Special Inspector General for TARP, Neil Barofsky, told former Assistant Secretary of the Treasury for Financial Stability, Herb Allison.

 

Herb was one of Hank Paulson and Timmy Geithner’s guys. He was also the former CEO of Fannie Mae and President of Merrill Lynch. While objectively analyzing the biggest taxpayer bailout in US history, Allison told Barofsky “you’re really hurting yourself” and asked him “have you thought at all about what you’ll be doing next?”

 

Evidently Barofsky had thought about it. He decided to tell the truth. Meanwhile, as we test 4.5 year highs, memories are short and storytelling is back. I, for one, haven’t forgotten the lessons of 2007-2008. The truth is, neither should you.

 

Back to the Global Macro Grind

 

After 3 weeks down, US stocks had 2 up days, then a down day. After 4 months down, Chinese stocks had 3 up days, then a down day. What is the truth? With the price of Oil up +31% since late June, is economic growth going to magically appear?

 

To Review:

  1. Dollar Down inflates asset prices (stocks and commodities) in the short-term
  2. Rising Inflation Expectations slow real (inflation adjusted) economic growth in the long-term
  3. As Growth Slows, begging for bailouts (and more Dollar Debauchery) is what Old Wall Street does

This is not new. In fact, what’s quite sad about it at this stage of the game is that everyone knows precisely how it works. How else would you explain the following?

  1. CFTC bullish futures and options contracts testing all-time highs (1.33 million contracts) as demand slows
  2. Gold speculative contracts up +35% and +10% wk-over-wk in the last 2 weeks, respectively (pre Fed meeting)
  3. Again, Oil prices up +31% in a straight line (bull contracts pushing 200,000) since mid-June as global growth has slowed

And, again… these are just questions. I wouldn’t be doing my job if I didn’t ask them that way.

 

Another risk management question about the current #BailoutBull rally in stocks and commodities is how does this all end? One of the easiest ways to answer that question is reversing what’s driven asset prices higher (Dollar Down). What happens when the Fed runs out of communication ammo and the largest Ball Under Water trade (Dollar Up) in US history rips to the upside again?

 

Sadly, at this point, Obama, Geithner, and Bernanke know the answer to that question just as well as Vladimir Putin does. President Bush understood it too. We call it the Correlation Risk. Central planners don’t call it anything because that would be an admission of the most obvious risk in the world right now. It would also make them accountable for it.

 

Here’s the update on that (Correlation Risk between the US Dollar and everything else on our immediate-term TRADE duration):

  1. Gold -0.92
  2. Silver -0.88
  3. Copper -0.89
  4. CRB Index -0.89
  5. SP500 -0.73
  6. Eurostoxx600 -0.77

In other words, with the US Dollar on 3-month lows, mostly everything Big Macro that moves on no-volume these days has gone straight back up to lower long-term highs. All the while, the US Dollar continues to make higher long-term lows (see chart).

 

As a result, the next calamity in stocks and commodities will be no different than the one we just saw from the March highs to the June lows. Every one of these centrally planned debaucheries of the currency ignites shorter-term rallies and steeper corrections.

 

It also perpetuates structural long-term growth slowing, globally. And why the Fed can’t figure out the why on that is very simple – they haven’t run real-time businesses that have to meet payrolls. Therefore, they don’t get expectations.

 

Thinking That Way, for anyone who hasn’t spent their entire life getting paid by the largesse of the US Government’s broken policy promises, isn’t tyrannical. It’s just common sense.

 

My immediate-term support and resistance risk range for Gold, Oil (Brent), US Dollar, EUR/USD, 10yr US Treasury Yield, Russell2000, and the SP500 are now $1694-1745, $113.47-115.48, $80.11-81.21, $1.24-1.28, 1.56-1.67%, 823-846, and 1419-1441, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Thinking That Way - Chart of the Day

 

Thinking That Way - Virtual Portfolio


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%
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