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With RCL reporting this Thursday, we’re reporting the results of our most recent cruise pricing survey.  2013 is pretty much in the bag so we have few concerns regarding RCL’s Q3 earnings and Q4 guidance.  For RCL, it is 2014 we are concerned with, particularly in the first half.  RCL 2014 pricing looks weaker than CCL in Europe and Alaska.  As we noted in our note this morning, “SHIPS OF STOOLS NO LONGER,” we think RCL is now the stock at risk.    


Below are some observations from our proprietary pricing survey (>12,000 itineraries) for CCL, RCL, and NCLH.  We analyze YoY pricing, as well as relative TREND which is determined by comparing pricing relative to the last earnings/guidance date for a cruise operator i.e. CCL: 9/24; RCL: 7/25; NCLH: 7/29.  For a more quantitative analysis, please contact sales at .

  • CCL:  The good news is that the carnage seen in FQ1 2014 for the Caribbean didn’t get worse in mid-October.  The bad news is that any modest pricing gains for FQ2/FQ3 2014 seen in mid-September disappeared in mid-October.  Mgmt expects pricing to improve significantly in 2H 2014 for the Carnival brand so let’s hope this trend will reverse before Wave Season hits.  Europe pricing continues to be steady while early pricing for the 2014 Alaska cruise season has been quite robust.
  • RCL:  The data looks fine for the balance of 2013.  Our concern remains 2014.  Similar to Carnival, it looks like FQ1 2014 will be very weak in the Caribbean, while Europe and Alaska pricing will drag down FQ2/FQ3 performance.  Not surprisingly, Pullmantur was a notable laggard in mid-October.
  • NCLH:  Steady overall pricing but lower Getaway prices is not encouraging





Caribbean – Carnival brand

  • Pricing for the few FQ4 itineraries left was down double-digits YoY but slightly better relative to mid-September’s
  • FQ1 2014 pricing did not move much MoM with close to double-digit YoY declines
  • Summer 2014 pricing continued to be quite volatile.  After moving modestly higher on a relative basis in mid-September, FQ2 2014 pricing trend dropped sharply in mid-October.  On a YoY basis, pricing is now trending flat.  Early FQ3 2014 pricing also reversed course, giving back most of the pricing gains seen in mid-September


  • Costa FQ4 2013 YoY pricing continued to make gains on top of excellent growth.  Costa’s FY 2014 pricing was unchanged and TREND was stable.
  • Princess and Cunard brands saw modest pricing improvements while Holland America pricing did not move.
    • Interestingly, the new Royal Princess saw significant discounting, which was offset by pricing gains in other Princess brands.
  • Early modest pricing pressure for AIDA’s 2014 Western Europe/Mediterranean itineraries


  • Off to a great start in 2014 with Princess leading the charge.  Pricing was much higher on a YoY basis with TREND accelerating.

Asia, Mexico, South America

  • Asia 
    • Holland America and Costa maintained FY2014 pricing in mid-October
    • Princess pricing was slightly lower for FQ2 2014 but nicely higher for FQ3 2014
  • Mexico
    • Carnival brand pricing for FQ1 2014 remained modestly lower YoY but TREND had turned positive
    • Carnival brand pricing for FQ2 and FQ3 2014 TREND lost some steam but remain nicely higher YoY
  • South America
    • Costa’s pricing TREND was slightly higher.  Holland America continued its struggles with FQ4 2013 pricing down significantly and FQ2 2014 pricing lower.  Princess’s FQ1 2014 pricing TREND was roughly flat in mid-October.



  • RC brand:  FQ4 2013 YoY close-in pricing improved slightly.  FQ1 2014 pricing continued to be significantly lower –a trend seen since July.  Further out in 2014, it’s an unclear picture with slightly better FQ3 2014 pricing offsetting slightly weaker FQ2 2014 pricing; pricing TREND was stable for both quarters. 
  • Celebrity:  FQ4 2013 and FQ2 2014 pricing was slightly higher but FQ1 2014 prices were much lower.  Pricing TREND was stable for all quarters.
  • Pullmantur:  FQ1 2014 pricing fell slightly; however, significant discounting for FQ2 2014 itineraries remained


  • RC brand:  FQ2 2014 pricing had not improved much from mid-double digits declines.  Pricing TREND was stable.
  • Celebrity:  FQ2 2014 pricing remained lower substantially YoY with stable pricing TREND
  • Azamara:  2014 pricing improved modestly MoM
  • Pullmantur:  Rough seas for this brand in 2014.  The substantial FQ2 2014 price discounting had been extended to FQ3 and FQ4.  Western Europe and Baltic/North Seas regional pricing both look under pressure.  Price TREND was negative.


  • FQ2 2014:  RC brand & Celebrity pricing down double digits YoY. 
  • FQ3 2014:  RC brand pricing saw double-digits declines while Celebrity pricing was slightly positive

Asia and South America

  • Asia 
    • RC brand & Celebrity:  Pricing was nicely higher for FQ1 2014
    • Azamara:  Flat pricing
  • South America
    • RC brand & Celebrity:  Sparse itineraries but pricing was nicely higher for FQ1 2014



  • Close-in FQ4 2013 pricing deteriorated further in mid-October.  Pricing TREND for FQ1/FQ2 2014 was flat.
    1. Breakaway:  Steady pricing, maintained 35-40% pricing premium over Gem
    2. Getaway:  Pricing was slashed by the low teens in FQ1 2014.  Pricing premium over Epic and Sun reduced from 50-60% in mid-September to 30-40% in mid-October.


  • Steady 2014 pricing

NJOY and Developing Trends in the E-Cigs Industry

We will host an expert call on electronic cigarettes with Craig Weiss, CEO of NJOY, on Wednesday, October 30th at 1:00pm EDT titled "NJOY and Developing Trends in the E-Cigs Industry." 




Mr. Weiss will contribute his expertise to Hedgeye's ongoing research on the electronic cigarette category.




  • Industry trends and the developing landscape
  • NJOY's company profile and share of the category
  • The regulator outlook for e-cigs in the U.S. and internationally
  • What the future holds for e-cigs



Before joining NJOY in June 2010, Craig Weiss, a U.S. Registered Patent Attorney, practiced law, where he focused on the drafting and prosecution of patent applications for medical device, eCommerce and business method inventions. Weiss has three patents to his name, including two for medical devices. He was also the managing member of a hedge fund focused on intellectual property. Weiss earned his law degree from Arizona State University and his bachelor's degree from the University of Pennsylvania.




NJOY is a private e-cig manufacturer, founded in 2006 and headquartered in Scottsdale, Arizona, with online sales and retail distribution in over 60,000 locations nationwide. NJOY has carved out a leading position in the category, offering a variety of rechargeable and disposable products in traditional tobacco and menthol varieties.  


In April 2010 the company announced that it received a $20MM investment from the private equity company Catterton Partners. In June 2013, a collection of investors, including Sean Parker (formally at Facebook), announced a $75MM investment in the company.




  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 959896#
  • Materials: CLICK HERE


Please email  for more information.


Takeaway: McDonald's remains on the Hedgeye Best Ideas list as a short.

McDonald's released its Q3 earnings this morning. Revenue missed. Management blamed a challenging global environment. Hedgeye Restaurant Sector Head Howard Penney? He's not buying it -- literally or figuratively.


Bearish TREND = 97.22, broken. 




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[video] Keith's Macro Notebook 10/21: China, Germany, US10YR

All-time Highs: SP500 Levels, Refreshed

Takeaway: If the reaction to the employment report is bullish, 1764 is next; if its bearish, 1712 is next. So #GetActive.



All-time is a long time. And fighting a setup like this (higher-lows and higher-all-time-highs) is as tough as tough gets. Forget about Fed fighting – don’t fight Mr. Market.


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


  1. Immediate-term TRADE overbought = 1764
  2. Immediate-term TRADE support = 1712
  3. Intermediate-term TREND support = 1671


In other words, the US stock market remains in what we call a Bullish Formation (bullish on all 3 of our core durations – TRADE, TREND, and TAIL). If the reaction to the employment report is bullish, 1764 is next; if its bearish, 1712 is next.


So #GetActive.



Keith R. McCullough
Chief Executive Officer


All-time Highs: SP500 Levels, Refreshed - SPX


CCL looks washed out (as are the bathrooms on the Triumph, finally) while RCL may be the stock at risk.



This is indeed a pivot for us - we’ve been crapping on CCL all year.  But with most of the issues flushed out, the stock may be bottoming out.  In our latest pricing survey, Europe looks stable and with easy upcoming comps, CCL’s large European exposure should be an asset.  Moreover, CCL is doing better than the competition in Alaska and while the Caribbean outlook is still somewhat cloudy, our pricing survey did not indicate any further deterioration for early 2014 itineraries.  Could we be early?  It’s happened before but the hedge of RCL on the other side might be the solution, for those so inclined to a pair trade.


Our pricing survey actually presented a more uncertain 2014 for RCL.  Given RCL’s newfound position as the Cruise bellwether and recent stock appreciation to match, the risks look greater for that stock.  RCL won’t feel the Europe tailwind (“Europe tailwind”? it’s no longer an oxymoron) to the extent of CCL.  Regionally, RCL faces pressure in all of its markets – potentially from CCL’s aggressive marketing strategy.  Pricing is way down in Alaska and Europe and RCL is overexposed to the Caribbean (highest since 2007) where visibility is the lowest.  Sell-side sentiment seems the most bullish in over 2 years.  While valuation is in-line with historical levels, RCL's earnings are at risk.


Here are some of the differentiating factors between CCL and RCL:



If the European economies and consumers continue to recover from the depths of a painful recession, Carnival benefits disproportionately given its outsized exposure to Europe and easier comps.  Our macro team is seeing an improved risk climate in the region, which bodes well for Q4 and 2014.  Please see Hedgeye Macro Themes Q4 2013 that presents their view that the environment is ripe for the European consumer – strong currency, growth accelerating and inflation decelerating.  Our Cruise Pricing Survey corroborates the Hedgeye macro view.  We estimate CCL, RCL have 30% and 22% of its itineraries in Europe for 2014, respectively.






The British Pound also looks bullish for the consumer.  According to a recent TripAdvisor survey, UK consumers are likely to cut back on daily living expenses to protect their holiday budgets for 2014.  Despite an economy that is still fragile and recovering, this could result in a higher travel budget for some UK consumers.  Carnival’s P&O Cruises UK and Cunard, which accounts for roughly 10% of overall itineraries, could benefit from the UK rebound.



Our Cruise Pricing Survey is showing quite a divergence in pricing between RCL and CCL brands in Europe and Alaska for 2014.  In Europe, RCL is discounting heavily while most of CCL’s brands are maintaining price.  The discrepancy is more stark in Alaska.  One reason why RCL may be lowering price in Europe could be due to tougher 2014 comps; we believe RCL’s 2H 2013 pricing was strong.  



One of the primary reasons why many analysts have been so positive on RCL is that they believe the company can achieve +2.5% to 3.0% net constant currency yield for 2014 and beyond.  We believe that Street forecast is too rosy based on early trends from our pricing survey;  +1.0% to +2.0% yield growth is probably more reasonable guidance for 2014 (we’re at +1.7% constant currency net yield).  While it’s true that RCL may get a yield bump in Q4 2014 with the delivery of Quantum of the Seas, the Caribbean is very crowded market and cannibalization remains a risk. 


For Carnival, 1H 2014 yield guidance would suggest the lowest net yields seen since 2004.  Unless there is another ship catastrophe, the bottom may finally be in.  We are forecasting +1.5% yield for 2014.  We believe F1Q yields will be the worst, with sequential improvement each subsequent quarter.



We think so.  When Carnival Triumph became kaput in February, the sell-side tried to reassure investors that this was a ‘normal’ ship incident that would only have a temporary adverse effect on the business.  We thought otherwise as we noted in "CHART DU JOUR: CCL: IT COULD GET SMELLIER” (02/14/13) given our concerns of the deterioration of the Carnival brand and that the incident was widely publicized and US-based.  Since then, Carnival has lowered guidance three times and boosted capex to shape-up their ships.  This past quarter, we thought some of the CCL bulls were still too early as we noted in "CCL: IS NOW REALLY THE TIME FOR A VALUATION UPGRADE? (08/15/13).


With Wall Street finally pessimistic on CCL (see the Sentiment section below), we think FY2014 estimates are finally achievable and a meet may be good enough for the stock to work.  For FY 2014 EPS, we’re in-line with the Street for CCL at $1.64 and below the Street by 6% for RCL at $2.88.



Sell-side sentiment on CCL appears to be at its lowest since July 2010 as 15% of the analysts have stamped a sell rating on the stock, stemming from a flurry of downgrades following 2014 guidance.  On the other hand, analysts love RCL – the highest % of buy ratings since October 2011.  The upside potential implied by their average price targets has narrowed between the two names – CCL +7% and RCL +9%.   





Being contrarian for contrarian sake is not our goal, but when that same contrarian call is backed by catalysts, it becomes compelling.  The RCL/CCL sentiment divergence is as wide as we’ve seen it yet CCL is the one with the better fundamentals, on the margin.  CCL comps are easier and pricing looks more stable than for RCL, particularly in Europe and Alaska.  Europe on the margin is a tailwind and a bigger one for CCL.  Estimates look reasonable – finally – for CCL while we’re below the Street for RCL.  2013’s big cruise stock performance divergence could reverse as we move into 2014.


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