CCL: YOUTUBE & PREVIEW

Until the fuel rocket was ignited recently, 2009 estimates looked reasonable but we thought 2010 was majorly at risk.  Fuel costs are up 47% since CCL last gave guidance on March 24th.  Q2 guidance of $0.25-$0.27 looks fairly safe but 2009 full year guidance will come down, to no one's surprise.  2010 remains our concern, and not just because of fuel.  Analysts continue to project flat yields in the face of high single digit capacity increases.  That would be quite a v-shaped recovery.  Our 2010 estimate of $1.25 is almost 40% below the Street at $2.08.

Our bias clearly remains on the negative side even given the recent weakness, but not necessarily because of tomorrow's earnings release.  Reduced 2009 guidance is expected but to the extent lower estimates focus investors on the optimistic 2010 sell-side outlook, the stock's valuation may not hold up.  At 19x our 2010 EPS estimate (almost 11x EV/EBITDA) there is precedent for downside.

The following discussion YouTubes management's assertions from the last earnings call and press release, and provides our synthesis.

Guidance:

  • 2Q09 EPS (reduced for Swine Flu): $0.25-$0.27
  • We're inline at $0.25

Revenues:

"We are approximately two-thirds booked for the remainder of 2009, even with the reduced visibility. And based on this, we think our current net revenue yield guidance of down 10% to 12% for the year is reasonable."

  • Given that most of 2009 was already on the books by March 24th,we don't see a lot of risk to the yield guidance (outside of the swine flu impact), especially for 2Q09 as "there is not much inventory left to sell"
  • We believe that discounted prices offered are continuing to bring in booking volumes ahead of 2008 levels

3Q09 guidance: "even with the strong wave season bookings, occupancies are running significantly behind last year. Caribbean occupancies are lower in the double-digit range, with lower pricing in single digits on a year-over-year basis. Alaska occupancies and pricing are substantially lower in the double-digit range. European itineraries are running behind in the single-digit level, but with pricing also substantially lower. So it is clear that the third quarter is shaping up to be an extremely challenging one for our North American brands, with ticket revenues expected to be in the range of 15% to 20% lower on a year-over-year basis."

  • We're interested in how 4Q09 bookings are shaping up as capacity increases are most pronounced but the comps are a lot easier

"For the full year 2009, we have taken our local currency net revenue yield guidance down by approximately 3% to a range now of 10% to 12%. This includes reduced expectations for onboard revenues for the remaining three quarters as a result of the slowdown in consumer spending habits."

  • Aside from the impact of swine flu which the company already lowered guidance for on May 18th we do not expect any material change in yield guidance

Swine flu estimated to impact 2Q09 by $0.05 as a result of the modifications in the cruise itineraries. However CCL left the door open for further impact on back half results:

  • "potential remains for additional financial impact beyond June 15 which could range up to approximately $0.05 per share bringing the estimated total impact to $0.10 per share on full year 2009 results."

"that the fourth quarter, because of the -- we think because of the lower price points -- is booking somewhat better than third quarter's booking because of the higher price points, relatively speaking. It is a relative thing. I don't know if you can glean anything from that at the end of the day, except that that is sort of the phenomena that we see."

  • With the easy comps, in addition to the lower price point, it's hard to see how 4Q09 y-o-y won't be better than 3Q09
  • Expect no change to prior commentary on European pricing holding up. As opposed to last year, the vast majority of European itineraries are bookedby Europeans, which eliminates the cost of a flight and making the vacation a comparative bargain.

Costs:

"Cruise costs per available lower berth day, for the full year, excluding fuel and in local currency, are projected to be in line with the prior year, up approximately 0.5%."

  • Expect CCL to continue to impress on the cost front

"In current dollars and excluding fuel, our costs are expected to be down 15% to 17%."

  • Both fuel and the dollar have moved against CCL since they last gave guidance

Based on the current spot price for fuel, fuel prices are projected to be $279 per metric ton for 2009 versus $558 per metric ton in 2008, saving us a total of $902 million.

  • As we wrote about in "Fuel could make the glass look half empty" on 6/1/2009, since CCL issued guidance on March 24th IFO 380 has spiked 47% as of yesterday's average spot price.
  • For the 2Q09, we estimate a minimal impact of 2 cents per share, however for the 2H09 we estimate that the increase in fuel costs impacts earnings by $0.22 cents

CCL FX guidance: "Our guidance in 2009 of EUR1.35 and GBP1.45" "the stronger dollar will reduce our costs."

  • Since CCL's guidance, the dollar has weakened against the pound and euro current spot rates are EUR1.38 and GGP1.64, which doesn't help on the cost front but should help on the revenue side

Other:

Expect an update on the two new Italian export credits for 2009 worth over $500MM, for the Costa Pacifica and one for the Seabourn Odyssey. As of the last call, the banks had signed these agreements and they were fully committed. CCL was waiting for the issuance of the Italian export credit agency's insurance policy