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Takeaway: Operators have been consistently offering worse odds to slot players

  • Strip slot hold on a trailing twelve-month basis has risen from 5.6% to 7.5% over the past 15 years, pretty much on a straight line. 
  • Operators are keeping a larger share of coin-in due to game mix and inferior odds provided to the players.  In other words, operators have been raising pricing.
  • We think the higher hold has masked even worse demand.  Operators won’t have as much “pricing power” going forward given unfavorable demographics.



Average daily table revenues (ADTR) were HK$664 million this past week, a slowdown from HK$868 last week.  Typically, gaming volumes drop off materially in the 2nd half of September as we approach Golden Week in early October.  On a YoY basis, ADTR fell 4%.  Given the strong Mass floor traffic, volumes may have been better than the revenues indicated.  Our full month forecast is HK$23.5-24.5 billion, up 14-19% YoY.  Remember that October faces a tough comp so currently we are projecting only 6-12% YoY growth.




In terms of market share, Wynn and MGM finally moderated toward trend levels – Wynn still above but MGM at trend.  LVS gained a little share with 3 days of Phase 2 Sands Cotai opened.  However, the 17.5% share month to date won’t cut it.  We would expect share of 19-20% for October.  MPEL had a good week with MTD share rising 80bps from last week.




Takeaway: Even after excluding the favorable cost shift, the quarter was strong and guidance solid.

Better FY2012 yield guidance underscores a gradually improving demand environment. 2013 visibility is slightly better but booking curve remains more close-in than normal.


“The pace of booking volumes remains healthy enabling us to continue to catch up on occupancy levels, while pricing has gradually improved. Both of these trends leave us well positioned for a recovery in cruise ticket prices beginning in the second quarter of 2013.”


- Carnival Corporation & plc Chairman and CEO Micky Arison



  • 9 cent beat vs guidance in June was due to 
    • Better than expected close in bookings: $0.07
    • Lower net cruise costs: $0.05
    • Offset by increases in fuel and currency which cost them ($0.03)
  • 3Q12 highlights:
    • Capacity up almost 3%: NA brands were up 3.4%, EAA brands were up 2.1%
    • 4% decline in net ticket revenue yields offset by a 5% increase in onboard spend (ex Costa)
    • NAA brands had a 4.8% decline in net ticket yields driven by Europe and Alaska weakness.  Caribbean yields held up well.
    • EAA brand net ticket yields were only down 1.8% (excluding Costa)
  • Net onboard yields increased over 3% for both NAA and EAA brands.  The rest of the increase was driven by other revenue yields which resulted from a small change in accounting for Alaskan business.
  • Part of the lower net cruise costs was just reflective of timing between 3Q and 4Q and not a reduction in FY guidance
  • Excluding Costa, their non-GAAP net income would have been up slightly YoY
  • Market to market unrealized gain on fuel derivatives of $13MM this quarter.
  • Fuel hedge levels, which they will look to opportunistically increase over time:
    • 38% of 2013
    • 29% of 2014
    • 24% of 2015
    • 15% of 2016 
  • $265MM remaining under their stock repurchase reauthorization
  • Preliminary outlook for 2013 costs:  will continue to look for ways to reduce costs, but certain factors will drive up their unit costs 1.5-2%. 
    • Costa may rebuild occupancy in 2013 which will lead to higher food and other unit costs associated with higher occupancy 
    • Insurance costs will be higher
    • Charges related to their closed multi-employer pension plan (need to make-whole plan deficits)
    • Increased deployment to Asia will also increase costs
  • NA brand advance bookings for the next three quarters are about at the same level as last year at slightly lower ticket prices
  • For EAA brands, advance bookings for the next three quarters excluding Costa are at lower levels versus last year and slightly lower on local currency ticker pricing. 
  • When CCL fully cycles through January of 2013, they expect the occupancy comparisons on Costa to improve
  • Expect that EAA pricing will continue to decline through early 2013 as they rebuild their occupancy
  • Costa:
    • Expect that they will swing back to profitability in 2013
    • Brand perception is gradually improving
    • Beginning in 2Q13, they expect a nice YoY increase in their yields due to easy comps
  • 4Q12 Outlook
    • Capacity: 3.2% increase: 3.9% in NA and 1.3% in EAA
    • Fleetwide pricing is lower at slightly lower occupancy's. Very little inventory left to sell  
    • NA brands: 
      • 43% in Caribbean (up small YoY), 14% in Europe (same as last year)
      • Pricing lower at similar YoY occupancy
    • EAA brands:
      • Pricing is lower at slightly lower occupancy (ex Costa)
      • Pricing for European itineraries lower YoY and slightly higher for other itineraries
      • 61% in Europe
      • Costa's occupancies have caught up with last year but at lower pricing
  • 1Q13 Outlook
    • Fleet-wide:  slightly lower prices on lower occupancy 
    • Capacity +4.1%: 2.5% NA and 5.1% in EAA
    • NA brands:
      • 65% in Caribbean (flat YoY), 13.5% in Asia Pacific (+2.5% YoY)
      • Slightly lower occupancy and lower pricing
    • EAA brands:
      • 24% in Europe (vs. 19% in '12); 18% in Caribbean (vs. 22% in '12), 24% in Asia Pacific (vs. 21% in '12);  and 19% in SA (unch'd)
      • EAA occupancies are slightly lower but pricing is slightly higher (ex Costa)
      • Caribbean and South America pricing and slightly higher than a year ago with Europe and Asia-Pacific pricing lower

  • 2Q13 Outlook
    • Expect fleetwide higher YoY net revenue yields for both NA and EAA brands driven by easy comps
    • Currently local currency pricing is slightly lower and occupancies are running behind year ago levels
    • Capacity +3.2%: 2.3% for NA and 5% for EAA 
    • NAA brands:
      • pricing & occupancy slightly lower 
      • 53% in Caribbean (vs. 56%); 13% in Asia Pacific (vs. 10%)
      • Caribbean pricing is slightly higher than a year ago Asia-Pacific is lower than a year ago prices for all other brand and itineraries taken together are lower than a year ago
    • EAA brands: 
      • 59% in Europe (vs 53%); 
      • EAA pricing for European itineraries are lower than a year ago but flat for all other itineraries at lower occupancies
  • AIDA Stella will be delivered in March 2013
  • Late May 2013 they will take delivery of the Royal Princess (3600 lower berths - 4,100 passenger capacity)
  • 4.1% increase in fleetwide capacity in 2013
    • 1.1% in Q1, 3.2% in 2Q, 3.8% in Q3 and 2.4% in 4Q
    • NA: 3.3%;  EAA: 2.8%
    • Growth in German market; slight decline in UK and other European capacity; Australia and Asia capacity will be up 8.5%



  • Broadly speaking, to keep demand going, they have had and should continue to have heavy promotional spending. That's been working for them and it obviously depends on the brands.
  • For some brands the booking curve is still close in. More recently there has been some evidence of the booking curve pushing out. However, the booking curve still remains close in.
  • Costa: Beyond 2Q13 they are looking for both price and occupancy increases. A good chunk of what they lost was occupancy though, because they lost all of WAVE season bookings and they didn't come back for some time. Occupancy drop was over 11% and 6% in the 2Q and 3Q period and 5% for the whole year. They are virtually flat on occupancy in 4Q12.
  • How much of a drag was Costa in 2012? 
    • On the March call, they reduced their earnings by $500MM because of Costa and expected Costa to lose $100MM in 2012.  Things turned out a little bit better than that
  • Onboard spend:  Onboard was up a little over 3% excluding Costa on both sides of the Atlantic.  It was up ~2-3% in the 1H12 and had forecasted about 2% in 3Q on a normalized basis.  Had a couple credits from the 4Q11 last year so onboards will look more flattish to down next Q.  Bar, casino, and shop categories all reported increases.
  • Dividend?  In 2012, they don't have a huge amount of FCF. They will continue to opportunistically repurchase share. As excess FCF increases they will then think about dividends.  Special dividends are not high on their consideration list for this year. 
  • UK and Germany have held up better than expected over the last two quarters.  Italy and especially Spain have had a harder time.
  • Impact from volatility in the Middle East? They have had some itinerary port cancellations.  They have less than 10% of their capacity in those ports and most of the cruises already occurred. Other than that, they just have one small ship in the Red Sea.
  • It's tough to make a call on how WAVE season 2013 in Europe will go.  They have a very easy comp though so that helps. They will have a better sense later in the 4Q. Feel optimistic. 
  • They are expecting solid profitability for Costa in 2013.  They are going to have 3 less ships than what they had in 2011 - so they will not get back to where they were in 2011 revenue wise.
  • When you look at 4Q, there will be a big QoQ decrease in onboard and other, and net passenger revenue will be more flattish to 3Q overall. They had some one time items last 4Q. They did need to sell at lower prices to get to flat occupancies at Costa.
  • They don't get the same strength of close in demand as they saw in the 3Q because 4Q is a slower season for cruising
  • Believe that they can continue to reduce fuel consumption - looking for a 3% decline on an ALBD basis
    • Lots of retrofitting of the ships to reduce fuel consumption and also make itineraries a little more efficient.  As they add newer ships, those new ships are also more efficient.
  • No change in their order book or future capacity forecast
  • It will take Costa a few years to get back to their "normal" profitability
  • Pressure on net cruise costs for 2013
    • Deployment change is the largest
    • The multi-employer pension plan is worth about $25MM next year
      • Would love to believe that this is a one-time only.  They do an estimate every 3 years.  So at least it's a closed plan but likely there may be issues in 3 more years.  If there was a deficit, they would have to fund it.
    • Costa occupancy is slightly less than that on a unit basis
  • Language in the press release was similar in booking volume over 2Q but pricing has improved since June
  • They are still at the bottom end of the numbers that they have given out for booking curve.  NA is close to normal booking patterns but Europe is closer in.
  • They continue to work with the EPA to see if they can do average weighting, but they haven't been successful.  They hope to get something through legislation between now and 2015.  Also, lots of innovation on fuel efficiency.
  • Additional fuel efficiency requirements will cost the firm an additional $30MM 
  • 1Q-4Q deployment in the Mediterranean: 6% 1Q; 17% 2Q; 25% 3Q; and 28% 4Q (19% FY roughly 50/50 east / west)
  • Through the 9M 2012, there was about $30MM of uninsured expenses incurred related to Concordia.  May have another $1MM to go.




CCL 3Q12 CONF CALL NOTES - 9 25 2012 9 59 23 AM

  • "Earnings were better than anticipated in the company’s June guidance due primarily to a combination of higher than expected revenue yields and lower than expected costs, partly due to the timing of certain expenses"
  • “The significant efforts of our brand management teams were successful in partially mitigating the decline in cruise ticket prices. Onboard revenue yields (constant dollars excluding Costa) improved 3%...Our brand managements’ continued focus on cost containment contributed to a 3% reduction in cruise costs (constant dollars excluding fuel) as well as a 6% reduction in fuel consumption on a unit basis.”
  • Repurchased 2MM shares or $67MM of stock during 3Q
  • YoY changes in FX  for 3Q 2012 "reduced both net revenue yields and net cruise costs excluding fuel per available lower berth day, “ALBD” by almost 4% each and cost the company $0.09 per share"
  • 3Q key metrics:
    • Constant $ net revenue per ALBD: -5.3% (better than guidance of a 6-7% decline)
    • (Ex Costa) Constant $ net revenue per ALBD: +2.1% (better than guidance of a 3-4% decline)
    • Gross revenue yield (current $): -9.2% (impacted by unfavorable FX)
    • Net cruise costs per ALBD (constant $): -3% (better than guidance of  0.5-1.5% decline) partly due to timing of certain expenses
    • Gross cruise costs per ALBD (current $): -8.2% driven by unfavorable FX
    • Fuel prices: -4% to $659/metric ton (higher than guidance and costing an additional $18MM, net of hedge benefit)
  • "In keeping with the company’s previously stated strategy of introducing two to three new ships per year, the company has seven new ships scheduled for delivery between 2013 and 2016, some of which will replace existing capacity reductions from possible sales of older ships." 
  • Additional capacity will be directed towards developing emerging cruise markets
  • CCL "has almost tripled its guest sourcing from emerging cruise markets in the past five years. For 2013, the company will capitalize on the increasing popularity of cruising in Asia with the deployment of a second Costa ship in China and the launch of a new Princess Cruises program for the Japanese
  • “Our lower capital commitments should result in significant excess free cash flow in the coming
    years which we intend to return to shareholders.”
  • "Since June, fleetwide booking volumes and pricing trends for the remainder of fiscal 2012 and first half of 2013 have continued to strengthen."
  • "For the last six weeks, booking volumes excluding Costa have increased 9% versus the prior year at prices in line with last year’s levels. Over the same period, booking volumes for Costa have also increased 9% albeit at lower prices."
  • "For the remainder of the year and first half of 2013, cumulative advance bookings excluding Costa are still behind the prior year at slightly lower prices. For Costa, cumulative advance bookings have shown considerable improvement but are still 5 occupancy points behind the prior year at lower prices over the same period.

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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.




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



  • 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.
    • 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


  • SAME:  Fleet-wide pricing remain slightly lower on lower occupancy.  NA pricing overall is slightly better than previous guidance while EAA pricing is worse.
    • 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


  • 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."


  • 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."


  • 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. 
    • "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