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.






  • WORSE:  We expected CCL to give 2013 yield guidance around 3.5%, below Street expectations of close to 4% yield growth.  So 1-2% yield growth guidance is indeed very disappointing. Softening trends in Germany and UK continues to drag down the outlook for Europe.  Higher 2013 capacity growth rate from 3.4% to 3.6% is not helping.  Although we do see positive longer-term catalysts, today's selloff is warranted and at 16x forward PE, valuation continues to be a stretch given all the uncertainties. 

2013 COSTS

  • SAME:  ex items, 2013 net cruise costs ex fuel guidance of 1-2% is in-line with previous guidance
    • "These unique factors alone will drive our unit costs up 1.5% to 2%. Therefore, I am expecting overall unit costs, excluding fuel, to be higher in 2013 compared to 2012."
      • To begin with, we are expecting that Costa will fill their ships in 2013, which will lead to higher food and other unit costs associated with this higher occupancy. This will simply be a reversal of the occupancy-driven unit cost reduction in 2012. 
      • Our insurance costs will be higher in 2013. 
      • We are anticipating charges relating to a closed multiemployer pension plan for certain British officers and crew. The multiemployer pension plan accounting rules require us to expense our contribution to unplanned deficits when the invoices are received."
      • Our increasing emerging market deployment for Japan by Princess, for China by Costa, and for Australia by Carnival Cruise Lines will also increase our costs. 


  • SAME:  The outlook on Costa remains bright.  Occupancy is expected to return to normalcy but pricing will not have a full recovery given the weak economies in Europe.  
  • PREVIOUSLY:  "Beginning in the second quarter of 2013, we expect Costa's revenue yields to nicely increase year-over-year against these easier comparisons for the last year's second quarter. We are very pleased with the progress that Costa has made, and our expectation is that Costa's financial performance will continue to improve as we move through 2013."


  • WORSE:  2013 capacity growth forecast increased from 3.4% previously to 3.6%. Capacity guidance in FQ1 is increased to 4.2% from 4.1% previously.
  • PREVIOUSLY:  "Fleet-wide capacity for 2013 is expected to increase by 3.4%: 4.1% in Q1, 3.2% in the second quarter, 3.8% in Q3, and 2.4% in the fourth quarter."


  • WORSE:  European bookings continue to be very close-in.  But even bookings in some of the relatively less weak European economies (e.g. UK, Germany) are experiencing a closer in pattern.
  • PREVIOUSLY:  "For certain brands it's still pretty close-in. You're starting to see some evidence of it pushing out more recently because of the recent increase in bookings over the last quarter. But it's still closer-in than it has been historically. And that's been the pattern. We're seeing it more in the European brands, but we're also seeing a little bit of it, but not quite as much, in the American brands."


  • SAME:  Similar to 2012, onboard spend 2013 guidance will be ~+2% with increases in all the major categories.
  • PREVIOUSLY:  "For certain brands it's still pretty close-in. You're starting to see some evidence of it pushing out more recently because of the recent increase in bookings over the last quarter. But it's still closer-in than it has been historically. And that's been the pattern. We're seeing it more in the European brands, but we're also seeing a little bit of it, but not quite as much, in the American brands."


  • WORSE:  The U.K. and Germany economies are getting softer.  Yields in those markets will be lower and the booking curve has tightened in those countries.  CCL also has higher capacity growth in Europe than its competitors, particularly in Germany. 
  • PREVIOUSLY:  "I would say that U.K. and Germany has held up better than we expected in the last two conference calls I would say a little bit, while Italy, France and Spain struggled....We like the European demographics. We like the market. We think the market is still considerably underpenetrated relative to other developed markets, so we like our investments in Europe from a long-term standpoint and once we get through these difficult economic challenges that we're experiencing, especially in Southern Europe.... I think we'll start to see some stabilization and some very positive results for the company longer-term."


  • BETTER:  Fuel efficiency will be 5% in 2013, higher than previous guidance of 3%.  Historically, CCL has reduced fuel consumption by 2-3% per year.
  • PREVIOUSLY:  "We're working very hard to reduce consumption and we believe that we can continue to do that at significant levels, and I think next year we'll do it
    again is my perception...we're looking at 3% for the year."

PCAR: Turning A Loss Into A Gain

Over the past year, Navistar (NAV) has lost considerable class 8 market share in the trucking sector. In August, Industrials Sector Head Jay Van Sciver noted that Navistar would likely lose significant market share following quality and strategy challenges. In turn, PACCAR (PCAR) is poised to pick up the pieces, turning Navistar’s loss into PACCAR’s gain by picking up market share that Navistar lost. PCAR will likely see the benefits of higher market share in 2013 and the stock remains one of our top long ideas.


PCAR: Turning A Loss Into A Gain - NAV

Idea Alert: FNP -- Go Long Now

Takeaway: We’re adding $FNP to Hedgeye's Virtual Portfolio as the quantitative setup and catalyst calendar synch with our bullish fundamental view

We’re adding FNP to the Hedgeye Virtual Portfolio as the near-term quantitative setup and catalyst calendar synch with our bullish intermediate and long-term fundamental view. Our estimates remain double the consensus for the next two years.


We think that the pre-ICR update is likely to be favorable, and that we’re more like than not to see a 25% upwards positive revision beginning by the time the company reports its fourth quarter in early January.


The crux of our call around FNP is that this is an out of favor stock with more unrealized value than perhaps any other name in retail. It has Kate Spade, which is one of the best growth stories in global retail today and is worth over 40% above where the stock is today based on our assumptions. Then it has Lucky Brand, which we view as an annuity. It is one of the few denim brands that might not take a big swing at the fences each year, but has muted fashion risk and it consistently contributes cash flow to cover roughly half of the parent’s capex. Then…there’s Juicy Coture. We think that the break here is not temporary, but that they have a customer problem that will be too much to overcome. That’s when bad news is good news because we think that CEO McComb has low tolerance for having his crown jewel (Kate) weighed down by the ugly red-headed stepchild.


Our point is that the chance is low that Juicy is still part of the company in six months’ time. We don’t think that having a new COO (hired last month) impedes this decision. In fact, it allows McComb to run the parent, not the sub, and also makes the bench more attractive for a buyer.


If we assume that Juicy gets a paltry $160mm on a $500mm revenue base, then we get to a scenario where 45% of FNP’s debt is gone and it takes any concern about the balance sheet right along with it.


Perversely, we don’t think that there will be as much value added if Juicy is fixed – but in the end, we think that the only risk to Juicy is no volatility. Improvement is good. Erosion is good (ie it gets sold). Status quo is like Chinese water torture.


But that's already priced in to the stock, and status quo on a third of the business while one third acts as an annuity, and the other third continues as one of the best growers in retail is not exactly a bad place to be. Our aggregate value for the company today – using a very realistic ‘sell it now’ price for Juicy is $20 per share, and we think that either corporate action or the upwardly revised earnings power of the company will get it there in 2013.


Idea Alert: FNP -- Go Long Now - 12 20 2012 11 18 59 AM


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Jobless Claims: Happy Holidays

Jobless claims rose 18k to 361k last week, but the 4-week rolling average declined 14k to 368k bringing us back to pre-Hurricane Sandy levels. If we examine state data for NY, NJ and PA, the areas most affected by the storm, they’ve fully re-normalized. Despite the first rise we've seen the past five weeks, we expect claims data will continue moving lower in the coming months thanks to a seasonality distortion tailwind (i.e. holiday help). Add in the positive growth we’ve seen in the housing market recently and financials like Bank of America (BAC) and Citigroup (C) should benefit from the data.


Jobless Claims: Happy Holidays - 1 normal


Jobless Claims: Happy Holidays - 12 normal


Jobless Claims: Happy Holidays - 3 normal

Bullish: SP500 Levels, Refreshed

Takeaway: Bullish is as bullish does.

POSITION: Long Consumer (XLP, IGT, ADM), Short Commodities (XLE, OIL, CLB)


Bullish is as bullish does, and this market continues to hold all 3 durations of support (TRADE, TREND, and TAIL). Buying stocks at VIX 17-18 has worked for the last few months too (sell at VIX 14-15).


Across our core durations, here are the lines that matter to me most:


  1. Immediate-term TRADE overbought = 1449
  2. Immediate-term TRADE support = 1429
  3. Intermediate-term TREND support = 1419


In other words, the refreshed immediate-term risk range = 1, and there’s more upside than downside from here (there was more downside than upside from yesterday’s highs).


Keep making high probability gross and net exposure decisions – and keep moving.



Keith R. McCullough
Chief Executive Officer


Bullish: SP500 Levels, Refreshed - SPX

Warming Up For Winter

Despite the relatively mild temperatures here in the Northeast part of the United States, winter is fast approaching and as more of the population keep their homes heated, the price of natural gas and oil are on the rise. However, in recent weeks, both commodities have bucked tradition and dropped in price as the US dollar strengthens and the commodity super cycle we’ve experienced begins to deflate. Currently, natgas stands at 3.45/MMBtu and Brent crude oil at $110.06/bbl. We believe that oil will continue to fall in price over the coming weeks and is in for a particularly nasty drop.


Warming Up For Winter - energychart

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