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




  • MIXED:  2013 net yield guidance of +2-4% is solid and underpinned by record US volumes and easy Costa Concordia comps.  European markets, especially Spain, remain the laggard with poor visibility.  2013 Cost guidance (+2-3%) was the negative surprise, which the company blamed on higher insurance, marketing, and technology costs. 


RCL 4Q 2012 REPORT CARD - 11



  • WORSE:  RCL has seen a 50% increase in their protection and indemnity insurance costs.  Their reinsurance costs incurred by the P&I clubs due to Costa Concordia was higher than previous estimates. 2013 insurance costs will be up $20MM YoY (60bps increase in costs), mainly related to P&I.  Increases in investments/marketing will impact costs equally.  The cruising space continues to be competitive and RCL needs to invest global marketing capabilities to maintain its edge.
  • PREVIOUSLY:  "I think we've talked about on the capital side that we are investing in IT and trying to upgrade a lot of our systems, both shore side and shipboard. Not all those expenses are capitalized, so we may feel some pressure there. I think we're looking at some modest increases in insurance, but I think they'll be manageable. We do have a number of revites, as Adam alluded to, over the next year, and there are costs that hit the P&L that come from there. And we're still evaluating things like food inflation and freight and whatnot. So there are some pockets of pressure, but again, I think we have pretty disciplined environment here that, hopefully, we can help keep this to a minimum."


  • SLIGHTLY BETTER:  Post-Costa Concordia bookings have been up 20% YoY.  Significant challenges remain in Spain with pricing and volumes lower; hence, the impairment charge for the Pullmantour brand in 4Q.  UK volumes have been disappointing at higher pricing.  Having sold less than 50% of European itineraries, Europe will be the largest swing factor in RCL's guidance.  Northern Europe booking curve is the same YoY.  Southern Europe booking curve are about 1 month closer than a year ago.  
  • PREVIOUSLY:  “The last few months of booking activity have been fairly stable. Our deployment has been adjusted slightly to accommodate for the stronger markets and the early order book for 2013 is encouraging....We are seeing a much more normalized booking curve from the North American market. Europe and particular Southern Europe has had a contracted booking curve. Northern Europe has actually had a pretty normal booking curve as we look out."


  • BETTER:  Caribbean yields are up in the mid-single digits while European itineraries were down slightly.
  • PREVIOUSLY:  “Currently, the fourth quarter sailings, our load factors are slightly below last year, but at slightly higher APDs. Caribbean itineraries, which account for 42% of our inventory in the fourth quarter, are showing the greatest strength. On the other hand, European itineraries, which account for 27% of our capacity, are forecasted to be down slightly."


  • SAME:  Cautiously optimistic for 2013.  Short excursions and beverage (introductions of new options) outperformed in 2012.  The revitalization programs have benefited onboard revenues and will continue in 2013.
  • PREVIOUSLY:  “We saw some strength in gaming, in retail and in short excursions."


  • SAME:  New ECA regulations will negatively impact fuel expenses by $11 million in 2013
  • PREVIOUSLY:  "While the ECA came into effect on August 1 of 2012, it isn't really until 2015 that the very – much more significant burden of sulfur requirements kicks into effect. So while we are facing a somewhat extra burden of fuel costs because of the first stage of the ECA right now and that will continue through the end of 2014, it's really not significant in the scheme of things for us and, I think, for the industry in general. The question is really what more will happen as we approach 2015? Will the ECA regime stay exactly in a fact as it is, or will there be potentially some adjustments through political or legislative process."


RCL 4Q 2012 REPORT CARD - 23

CLX - Solid Quarter, Top Line Flattered by Items

Clorox (CLX) reported Q2 ’13 EPS this morning, a solid result of $0.90 ($0.03 gain in the quarter included in reported results) versus consensus of $0.81.  We didn’t see much to do into the quarter, as our estimate was ahead of consensus.  Our bias is to look to be short the name, as we view its multiple (18.6x ’13) as disproportionate to its long-term growth rate (3-5% top line).  However, valuation isn’t a sufficient catalyst for us, so we will remain on the sidelines waiting for a clearer path to an EPS or top line miss is apparent.  We may not have to wait long, depending upon how consensus shakes out for Q3.

The clear standout in the quarter was the company’s 7.1% constant currency organic top line growth (against a 4.1% in the year ago quarter).  However, it appears that the number was flattered by:

  1. Early shipments (in Household, specifically charcoal)
  2. Robust flu season (disinfecting wipes – strong retailer buy-in, takeaway was very good as well, unclear what inventory status is) - not sustainable
  3. New products (bleach, lip care and dressings)

We should point out that the only segment that didn't have some sort of volume "noise" associated with it was International, which saw volumes decline 3 percent.

The upcoming quarter represents the most difficult year over year top line comparison (+5.9%) and will likely suffer from what flattered this quarter’s results.  We will wait and see where consensus shakes out.




Robert  Campagnino

Managing Director





Matthew Hedrick

Senior Analyst

#QuadrillYen Continues

Japan’s plan to devalue the Yen has worked well over the last three months, with the CurrencyShares Japanese Yen Trust ETF (FXY) falling -13.31% since then. Japanese Finance Minister and Prime Minister Taro Aso and Shinzo Abe have worked meticulously on “stabilizing” the Yen; if they continue down this path, they very well could get more than they bargained for.


#QuadrillYen Continues - YEN

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European Banking Monitor: Short Term Risk Trumps Reward

Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor".  If you'd like to receive the work of the Financials team or request a trial please email .


European Financials CDS Monitor – European financials were wider across the board last week.


European Banking Monitor: Short Term Risk Trumps Reward  - bb. banks


Euribor-OIS spread – The Euribor-OIS spread widened by 1 bp to 11 bps. The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. 


European Banking Monitor: Short Term Risk Trumps Reward  - bb.Euribor


ECB Liquidity Recourse to the Deposit Facility – Deposits continue the secular decline. The ECB Liquidity Recourse to the Deposit Facility measures banks’ overnight deposits with the ECB.  Taken in conjunction with excess reserves, the ECB deposit facility measures excess liquidity in the Euro banking system.  An increase in this metric shows that banks are borrowing from the ECB.  In other words, the deposit facility measures one element of the ECB response to the crisis.  


European Banking Monitor: Short Term Risk Trumps Reward  - bb. facility


Matthew Hedrick

Senior Analyst


Retail Call TODAY: Look Into Europe Pre-Earnings

Takeaway: REMINDER: Today we're hosting a call at 1pm to review European retail pre-EPS. Tickers include GPS, ANF, KORS, RL, URBN, DECK, GES, TIF, TJX


Retail Call TODAY: Look Into Europe Pre-Earnings - Retail europedial

We’d like to invite Hedgeye clients to participate in a call we are hosting on Monday February 4th to explore the state of retail in Europe in advance of 4Q retail earnings. We’ll be co-hosting the call with Stacey Widlitz of SW Advisors where she will give us her view on incremental changes we’re seeing with different brands in Europe, including promotional cadence vs. last year, and general selling trends overall.  When we hosted a similar call with Stacey last quarter, her insights proved correct on GES, GPS and ANF. We’ll revisit those names, as well as the following on Monday…



PVH (Hilfiger)








local competition-Debenhams, John Lewis, Next, BHS, House of Fraser

fast fashion (Zara, H&A, Topshop)


We encourage you to send any questions in advance to , and we’ll be sure to both ask (anonymously) and answer for you on the call. Stacey will also be available for Hedgeye clients after the call to discuss trends in more detail.


We hope you can join us.


Crushing It

Client Talking Points

Growth Games

With #GrowthStabilizing, you have two things happening: stocks are going up and bonds and commodities are getting crushed. We’ve seen the rally in stocks as the Dow hit 14,000 and the S&P 500 pole-vaulted past 1500. Treasuries, conversely, have been getting hammered and the yield on the 10-year ticked up to 2.05% this morning as fund flows continue to shift from bonds to stocks. With stocks up the last five weeks in a row, they show no sign of letting up soon. 

End Of The Golden Days

Goldbugs are an interesting breed. They keep insisting gold will always go up, until it doesn’t. Gold made a long-term lower-high in mid November at $1755/oz then snapped our intermediate-term TREND line of $1698 in early December. Last week, gold net long positions crashed to 82,081. Those bugs went selling their net long positions in Gold contracts to the tune of down -24% wk-over-wk. Like we said before, the Growth Game is bearish on bonds and gold, bullish for stocks.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

We believe ASCA will receive a higher bid from another gaming competitor. Our valuation puts ASCA’s worth closer to $40.


With FedEx Express margins at a 30+ year low and 4-7 percentage points behind competitors, the opportunity for effective cost reductions appears significant. FedEx Ground is using its structural advantages to take market share from UPS. FDX competes in a highly consolidated industry with rational pricing. Both the Ground and Express divisions could be separately worth more than FDX’s current market value, in our view.


HOLX remains one of our favorite longer-term fundamental growth companies given growing penetration of its 3D Tomo platform and high leverage to the 2014 Insurance Expansion from the Affordable Care Act.

Three for the Road


“08:16ET Herbalife subject of FTC investigation: NY Post” -@cbk_chi


“It is by universal misunderstanding that all agree. For if, by ill luck, people understood each other, they would never agree.” -Charles Baudelaire


The best start for US Equity flows since 1996 as stocks make multi-year highs.

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