CCL F2Q 2013 CONF CALL NOTES

We didn't expect much to come out of this call but as always, management is optimistic on yield outlook, particularly in Europe. We just wish it was reflected in the yield guidance. 

 

 

CONFERENCE NOTES

  • Arnold will be CEO in early July
  • Micky will remain Chairman for the foreseeable future
  • Timing of SG&A 
  • 2Q:
    • Capacity increased 1%
    • EAA yield : +4.6%, driven by AIDA, COSTA
    • NA yield: -1%, more dry docks days YoY
    • Net ticket yields: -2.7%
      • EAA brands down 3.8%, declines in Northern Europe offset by increases in Costa and P&O Australia 
    • NA brands down 1.8% driven by promotional discounting at Carnival brand
    • Net onboard and yields: +0.5%
    • Lower fuel prices saved the company 8 cents
  • zero collar fuel hedges: 40% consumption hedged ; 25% in 2017
  • 25 cent dividend to continue
  • CFO guidance of $2.7 bn
  • Net capital investment: $2.1 bn
  • 2H 2013: certain brands expect to increase promotional spending
  • Ex Carnival bookings last 11 wks:
    • NA & EAA: higher YoY at higher prices
  • NA brand
    • Carnival bookings/pricing last 11 wks: lower in the high single digits and low double digits YoY, respectively
      • Over last 6 wks, gradual improvement in volumes and prices
    • Caribbean volumes last 11 wks (ex Carnival): slightly lower YOY at slightly higher prices
    • Alaska bookings (ex Carnival):  signifcantly higher at lower prices
    • European bookings slighlty lower at nicely higher prices
  • EAA brand last 11 wks
    • Caribbean bookings running behind last year but at nicely higher prices
  • 3Q (ex Carnival)
    • Fleetwide bookings: slightly behind at slightly lower prices
    • NA bookings: slightly behind at flat prices
      • Alaska pricing behind
      • European pricing higher
    • EAA bookings: occu slightly behind at lower prices
      • Asia/Australia: bookings nicely higher at slightly higher prices
        • Costa in China particularly strong
    • Ex Carnival, 3Q revenue yields -1.5-2.5%
  • 4Q (ex Carnival)
    • NA bookings: occu slightly lower at slightly lower prices
    • Carnival brand: occu lower at slightly higher prices
    • EAA bookings: occu flat at lower prices
    • Costa occu nicely higher; expect Costa to deliver nice yields in 4Q
  • 1Q (incl Carnival)
    • occu lower at higher prices
    • NA occu lower at nicely higher prices
    • EAA occu lower at slightly higher prices
  • Expect nice yield at Costa in 4Q
  • 1Q 2014 EAA brands bookings lower at slightly higher prices
  • Carnival brand
    • 2013 Forecast YoY profit decline is estimated have a 50% per share on the company's YoY results. Of this, approximately $.27 is primarily due to rent lower revenue euros, $.16 results from our failings and repair costs related to the Carnival triumph Triumph refurbishments, increase in Carnival's and higher plan marketing spend in the second half of the year for Carnival Cruise Lines amounted to seven cents a share, and that builds to the $.50 to cleaning declining year-over-year results.
    • Recovery will be gradual - will take 2-3 years
  • Costa will return to profitability in 2013
    • Italian market (largest market) has significantly improved
    • Recent bookings volume strong
    • Expect higher yields in 3Q and 4Q
  • Believes worst is over  
  • Full rollout of scrubber technology in 2014
  • New ships will be far more fuel efficient

 

Q&A

  • CCL consultants say it will take 3 years to regain its brand perception
  • Some of the repair cost will be in 3Q
  • Vessel enhancement costs in 2013: 6-7 cents
    • Some vessel enhancement costs in 2014
  • Will begin putting scrubbers on tomorrow's ships later in 2013
  • Believe they can mitigate a substantial portion of the worst-case $265MM additional costs from the change in sulfur requirements
  • Expects Carnival brand yield improvement in 2H 2014
  • 4Q will be a little better than 3Q as they continue to see improvement in Europe
  • 3Q and 4Q yield will be mostly driven by pricing
  • Higher promotional spend 2H 2013: A lot of it is going to be focused on travel agents and travel agent swap marketing, more trade advertising. A lot of it is social media and web-based marketing and TV-based. 
  • A little puzzled by Europe strengthening recently
  • When CCL went through the guidance in December, they had indicated that they expected northern European brands to be down, and expect Costa to get back about half the yield previously lost. As the months and weeks passed, Europe was worse than expected and CCL brought down yield guidance in both northern Europe and for Costa. Costa is only expected get back a quarter of what it previously lost. Even though northern European brands, the yield is still going lower, the yields at P&O cruises and AIDA are doing incredibly well. So it's a directional change in reduction.
  • Vessel enhancements: 2H 2013, 2014 and 2015
  • Carnival brand:  they haven't done anything to reduce prices since prices been reintroduced.
  • FY 2013 yield guidance: NA will be slightly more than the -2-3%; Europe slightly less; premium/luxury brands in NA is flat
    • Ex Carnival, rest of NA brand pricing would have to be flat to reach upper end of guidance
  • Europe, essentially what they've seen in the last 11 weeks is an uptick in European bookings and pricing across substantially all brands but since the last guidance color (5-6 wks ago), nothing has changed