CCL 2Q09 Earnings call:


Prepared Remarks:

- Just took delivery for Seabourn Odyssey today.


- Reduced fuel consumption helped them by 5 cents.  Also, better than expected pricing on close in bookings benefited them by 3 cents.

  • Mexico hurt them by 3 cents
  • Total revenue yields came in at the lower end of the range, driven primarily by the flu impact


- The capacity increase was driven by European brands growing 8%, and Costa Asia doubled in size.


- 2Q09 revenue commentary:

  • Net ticket yields were down 10%, NA down 14% (Alaska, Mexico), Caribbean & other exotic held up better. European yields fell 6%.
  • Saw benefit from bookings that occurred pre-crisis, hence the back half will not have this benefit and will be more impacted
  • Onboard spend down across the board


- Cost commentary:

  • More vessels in drydock this year
  • As a result of more focus on fuel efficiencies, they have been able to reduce consumption more than the 2-3% run rate of the last few years
  • Currency hurt them as the dollar weakened
  • Continued to find opportunities to save another $33MM and brought total savings to $150MM
  • Fuel will save them $660MM over 2008, with 2009 fuel / metric ton at $353. Fuel and currency are driving their costs down. FX, however, will also reduce their revenues by $175MM or $0.22/ share in 2009
  • 10% change in fuel will impact them by $0.14/share. 10% change in all currency impacts them by $160MM or $0.16/ Share


- Since the March conference call they completed the Italian export credits, European investment bank loan, and two other term loans for $350 million each.  They are on target to get all of their financing needs for 2010 by September.


- Booking environment:

  • Booking volumes are running 26% ahead of last year
  • Seem to have found a price point of attracting customers
  • North American cruise brands are seeing a moderate increase in pricing ability on premium product, however, the lower end stuff has been more impacted by the Mexican flu issue


- 3Q09:

  • Alaska at 39% of capacity
  • Pricing for NA is lower across all itineraries with worst impact on Alaska
  • European prices are lower but not as bad as NA
  • Caribbean prices are also lower
  • Occupancies are lower for NA and slightly higher for Europe
  • UK yields only slightly lower, other mostly mid single digit declines, overall European yields lower in the single digit yield range


- 4Q09:

  • 5.7% NA 9+% capacity increases
  • NA brands Caribbean prices are lower, but booking momentum has been strong
  • European pricing is holding up better than Alaska but lower (on NA brands)
  • Occupancies for NA are still lower, but only modestly
  • European brands pricing better than the US brands during 4Q, and while occupancies still not much lower than last year, expect pricing to be down


- 1Q2010:

  • Fleetwide capacity up 9.2% (13.3% in European brands, 5% in NA)
  • Do expect yield declines in 1Q2010, as a good portion of 1Q09 was booked during better times
  • However, volumes/ bookings are in line
  • If the strong booking momentum continues, it's possible that pricing may be close to 1Q09



- Terms of the EIB loans?

  • $550MM Euros, 250MM drawn in 2009, 150MM in 2011 and balance in 2010
  • Rate is very favorable
  • Unique because the EIB looks to stimulate growth in the economy and these ships will be sailing in the Mediterranean
  • May or may not be repeatable


- Capacity for 2012 & beyond?

  • Expect capacity growth to slow but not stop (he doesn't know, basically)
  • Pricing on ships has come back down to levels of where they used to order ships -so may consider it when they have needs for particular brands (on a constant currency basis)


- 3Q09 net yields looks at the low end of their guidance, and 4Q09 forecasts big rebound (we assume he means less bad) 

  • Without the impact of the flu they would have come in at the mid-point of the net yield guidance in the 2Q09
  • For the 3Q09 - they suffered more because of the premium mix - therefore they feel the impact of yield erosion the most. The 4Q09 will be better because of mix as well, but don't see it dramatically better more just a mix issue


- The magic questions... with capacity increase will yields continue to be negative in 2010?

  • Too early to say- clearly they don't want to opine on this year and to be fair they just don't know


- The only time they saw an impact on Mexico was during the 3 week travel advisory period, as soon as they announced the new itineraries the demand rebounded at strong levels, but at lower pricing levels (expect pricing to rebound to previously depressed levels)


- Feel encouraged because everything was trending up before the travel advisory.


- Whether the % of European passengers on Europeans brands are any different than 2008

  • No but the North American Brands are carrying more non-Americans


- Fuel supplements back in place? No plans since the economy is crisis

  • In other words - they would love to but they can't because what goes into a supplement will come out in pricing - thank for the obvious question


- Onboard spending for European brands has held up reasonably well


- Mexican Flu impact

  • Nickel of extra costs for the change in itineraries - part of it fell to the 3rd Q
  • The other 5 cents was due to digging themselves out of the hole when bookings came to a standstill (7 cents in the 3Q - why not just throw the kitchen sink at it ... right?)

- 2010 is the first time when they planned itineraries in a high fuel environment.  So the savings will be high on consumption (we assume 4%)


- Costa Asia? (immaterial to the company)

  • See the summer season absorb the 2x capacity... (coming from 1 ship to 2)
  • Winter season was slow
  • Typically go to Japan & South Korea (4-6 day trips)
  • Don't see the same "RevPAR" trends as lodging because it much less penetrated


- Dividend

  • Clearly would like to see a turn in earnings and cash flow before re-instating the dividend
  • Won't risk loss of the investment grade rating


- IBERO brand

  • Haven't acquired the entire brand yet... in the approval process. Its only 2 ships. Have taken full control of the company though and have restructured it. Wont develop more ships until the Spanish market recovers


- If they can get same level of occupancy as 2009 in 2010 the pricing will be up - but that's obvious... he's just saying if they can fill all the incremental demand (9+%) than they can start raising pricing.... Again this is the million dollar question

  • Think that should cycle the price declines by the end of 2Q2010


- Since end of March they have seen yield declines start to improve. 

  • A lot of the volume they are seeing is close in volume, still behind booking levels for 2010... not enough to price though. Won't know until 3/4Q.


- Alaskan capacity will be down in 2010.



Initial claims continue to hover above the 600K line in the sand

Today's Initial claims number arrived at 608K; 3k higher than the prior week's number which was revised upwards by 4K, but still below the four week moving average by 8k. Since last week's bullish claims reading the S&P 500 has declined modestly on slightly increased volatility, while the US Dollar index has cut its decline for the year significantly from  -7% to under -2% and the yield curve has narrowed with 2 year yields rising to close the gap with the 10 year by over 10 basis points.

With Claims still hugging the psychologically important 600k line, the "glass half full " crowd are left still looking for signs of a bottom here, with accelerating declines in benefits paid  providing more clues that the rate of job losses has moderated sharply.

As always with the sometime conflicting employment data that the US government provides, interpretation is key: declining benefits paid to existing claimants could indicate a tightening job market for the newly unemployed, and could perversely cause the department of Labor Unemployment Rate metric (a lagging indicator -see our post on June 9) to rise. Despite this caveat, the declining pace of job losses is clearly evident and we currently anticipate that next month's unemployment release will likely register slightly below 10% -that critical double digit dam-buster that the bears are desperately seeking.

Our overall tactical outlook has not fundamentally changed from last week: We expect to continue to trade the equity market inside a narrow range for the near term, and while we have increased our domestic equity exposure to 15% from 12 % since last week, we have not seen enough supporting data for the equity market to join the glass half full crew yet.

Andrew Barber



Retail First Look: 6/18/09



In a sad sad statement about how my mind works, upon waking up at 4am to yet another rainy morning, my first thought was not about how peaceful it sounded with the rain hitting the trees. But rather " weather really going to have to be an issue for the retailers that I'm going to have to spend a single iota of brainpower exploring?" The reality is that sales are increasingly under pressure over the past 2 weeks. This is based on both our discussions with industry sources and was validated by SportscanINFO apparel data yesterday that showed a big downtick last week. Remember that this is the exact time that sales should be picking UP seasonally, and without a strong finish to June we're going to have to deal with excess promotional activity in July. Yes, inventories are in OK shape, but those facts can change easily without the top -line kicking in. Check out our analysis in our note last night.


Ok McGough, do you really expect me to believe that the market does not get a real-time read on these numbers and trends? Isn't it in the stocks already? Of course they do. Certain folks out there already know the exact comp number for key retailers through yesterday (even though they shouldn't). But the reality is that the MVR (Morgan Stanley Retail Index) is only down only 5% over the past week, and while this is 2x the S&P, it is far less of a divergence than we've seen in retail in the past when sales weaken. Are investors looking through the weather? Maybe, but when numbers are printed at a time when stocks have stopped going up on good news, I cannot imagine that it will be a positive event.


Where do I come out? This is not enough to rattle my models and bullish view on cash flow in the coming 9-12 months for apparel/footwear. But near-term I'm more sensitive to sticking with the names where I KNOW there are company-specific levers to grow earnings, and where the Street is grossly off base with earnings expectations. This includes PSS, RL, UA, and even LIZ (despite today's guidance issued in conjunction w/convert deal). US-centric companies without specific levers that have no positive FX exposure to a weakening dollar (ie bricks and mortar retailers) are particularly at risk.



Some Notable Call Outs

  • A PVH executive described the divisional consolidation at Macy's in the first quarter as "a little crazy as they've tried to reorganize their divisions and consolidate from seven into one". The merchandise direction on a go forward basis is being led by the former Macy's East. This bodes well for PVH because it was most heavily penetrated with this division and orders are likely to increase for doors that were formally less engaged with the PVH product.


  • Last week was the worst year over year change in sports apparel since July 2008. Everything was down at an alarming rate. Sporting goods retailers fell down by 15%, discount/mass channel declined by 40%, and the recently strong family retailer channel decreased by 10%. I call it like it is, and will VERY rarely pull the weather card. But last week's impact was unmistakable. The average temperature was 6-15 degrees cooler than average across virtually the entire US - with warmer temperatures only in Virginia, Georgia and parts of Texas. I won't even begin to call out the rain, because it rained pretty much everywhere.


  • We expect designer and luxury brands to continue to partner/collaborate with mass oriented retailers. The latest announcement that Jimmy Choo will create a holiday shoe and accessory line for H&M is yet another example. As luxury remains the hardest hit sector across retail, it is not surprising to see brands augment growth with seasonal and short term deals to boost cash flow and broaden their customer reach. Note yesterdays comments about lux retailers and brands starting to use price as an offensive weapon. They need to be creative elsewhere as well.


ZachHammer's overview of items you're unlikely to find in the general press.















  • Indian retail may lose foreign direct investment of up to Rs 400 crore this fiscal because of last week's recommendations by the Parliamentary Panel on Commerce, which has opposed further leeway to the entry of international retail brands in the country <>












RESEARCH EDGE PORTFOLIO: (Comments by Keith McCullough):


06/17/2009 12:31 PM


The shorts can't be enjoying this +4.25% squeeze on a day where the world was supposed to be ending. Sell green here and buy it back on a down day. KM


06/17/2009 10:04 AM

BUYING UA $21.28

People freaking out again today, and it continues to bet on McGough's call here on the long side when they do (see his note). Buy low. KM


Insider Trading Activity:


CHS: John Burden, Director, purchased 10,000 shs on a base of 30,000 after a 100% increase in share price YTD.

HLYS: Roger Adams, Founder, continues to wind down holdings (38,600 shs).

CMRG: Ken Ederle, VP& GMM, sold nearly half of his position (17,300 of 37,300 shs).




Retail First Look: 6/18/09 - consumer disc 



  • Positive divergence between the MVRX +60bps and XLY +140bps versus the S&P -14bps.
  • Within Consumer Discretionary, Media and Specialty Retailers continue to outperform to the upside with Luxury Goods companies the only industry with negative absolute performance.
  • BGFV rebounded sharply +7% after a 4-day -18.7% selloff.
  • ANF +4.7% shares traded higher after company announced credit amendment and closing of Ruehl operations.
  • CROX -7.3% shares cool for second straight day following huge run up last week on the back of mgmt roadshow.
  • HAR maker of GPS devices continues 2-day -17.4% slide on 2x avg. daily volume following disappointing earnings Monday.

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White Coats

"If you're not confused, you're not paying attention."
~ Tom Peters
Yesterday, the SP500 locked in its 3rd consecutive down day, taking its correction to -3.8% from the year-to-date high (946) established last Friday. With the SP500 having broken my immediate term TRADE line (917), but holding comfortably above the intermediate term TREND line (845), now we have ourselves a good ole fashioned game of bulls and bears trading a proactively predictable range.
The REFLATION bulls have been in it to win it since the US Dollar started collapsing in March. The easy money here has been made. Being long everything that's denominated in Dollars was a winner, and everyone finally has to agree with that revisionist math. Alongside that crescendo of consensus comes compression in returns. As the head trader at a hedge fund I used to work for would say - "that's it - the guys in the white coats have figured this out."
He's a funny guy - he calls the "quants" the guys in the "white coats". You know, the nerdy guys who do math before they do "fundamentals". But isn't math fundamental? The pretension of this business is funny - if you're at a fund that combs through 10K's and engages in the almighty "one on one", you honestly think of yourself as being the fundamental guy, dismissing the scientists and mathematicians process as "quant." I wonder what Darwin would think about this industry...
Darwin taught us that if you are confused and/or losing, that you better evolve. That's what makes a great global market operator - she keeps moving. High R-Squares and inverse correlations are not perpetual. People in this business chase trends and eventually crowd out returns. That's not new. Yes, the tickers might change, but the behavioral side of this business never does.
Out of the 9 sectors in the SP500, the worst 4 performers yesterday were XLF, XLE, XLB, and XLI (in that order of worst (Financials), to 2nd worst (Energy), to Basic Materials and Industrials). With the US Dollar down, this was downright confusing. When the Dollar is down, the REFLATION trade is supposed to work!
Since I am long Energy (XLE), that was annoying. Why is the market all of a sudden starting to annoy us? I'll give you three of my latest thoughts:
1.       After both a crash and a squeeze of generational proportions, range bound markets can be annoying
2.       REFLATION traversing the last part of its easy money move and morphing into INFLATION will be annoying
3.       RE-REGULATION of the US Financial Market is annoying
On the first point, I think I have riffed enough - calling for crashes and bubbles AFTER they occur doesn't work. Managing toward tail risk is a proactive exercise, not a reactive one.
On the second point, my investment team is doing a great deal of work as of late. Yesterday's CPI report in the US not only flashed DEFLATION, but the lowest CPI reading since 1950! I don't see reported inflation coming onto the field as THE political football until Q4. Three of my leading indicators on that front are 10-year US Treasury yields, Dr. Copper, and the prices of West Texas Crude oil.
Here are my current levels where I think REFLATION becomes INFLATION come Q4:
1.       10-year yield > 3.29%
2.       WTIC Oil > $71.31/barrel
3.       Copper > $2.24/lb
On the third point, this is where confusion reigns. Primarily because his "economic" team is dominated by lawyers, college professors, and politicians, President Obama doesn't get this yet, because no one on his team does. For those of us real-time practitioners of the trade - stock market operators if you will - confusion in market's breed contempt. Contempt erodes confidence. Without confidence, markets lose multiples.
On the topic of RE-REGULATION, I will point to three of the best written points I have read as of late.
1.       In his June "Investment Outlook", Bill Gross wrote: "Of one thing you can be sure however: over the next several decades, the ability to make a fortune by using other people's money will be a lot harder. Deleveraging, reregulation, increased taxation, and compensation limits will allow only the most skillful - or the shadiest - into the Balzac or Forbes 400."
2.       In his "Weekly Screed", our Chief of Compliance (ex-Carlyle hedgie with me), Moshe Silver wrote: "Bair is, as far as we know, the only regulator in charge of a federal agency who actually gets her hands dirty when things get ugly. Her agency confronts massive financial failures - failures that wreck communities, shutter industries, and ruin people's lives - and Bair has waded in to join the battle on more than once occasion. Bair's public image is that of a person more concerned with doing her job than with keeping her job."
3.       In his comments overnight, Bank of England Chief, Mervin King said: "some of these banks may be too big."
Confusion is what it is. Like this rain we are getting on the East coast, it's annoying. But no matter where you go this morning, there it is... and we have to deal with it... so get up from your desk and go buy yourself a white coat would ya!
My immediate term downside support level for the SP500 remains 904, and upside resistance 933.
To Laura's grandmother, Mimi, we will miss you dearly. Thanking you for making us all smile,


EWZ - iShares Brazil-President Lula da Silva is the most economically effective of the populist Latin American leaders; on his watch policy makers have kept inflation at bay with a high rate policy and serviced debt -leading to an investment grade credit rating. Brazil has managed its interest rate to promote stimulus. Brazil is a major producer of commodities. We believe the country's profile matches up well with our re-flation theme.

SPY - SPDR S&P 500 -The S&P 500 is positive from a TREND duration and negative from a TRADE duration. Yesterday was not a bad recovery from the 904 line, but not convincingly bullish either.  

QQQQ - PowerShares NASDAQ 100 - We bought Qs on 6/10 to be long the US market. The index includes companies with better balance sheets that don't need as much financial leverage.

EWC - iShares Canada - We want to own what THE client (China) needs, namely commodities, as China builds out its infrastructure. Canada will benefit from commodity reflation, especially as the USD breaks down. We're net positive Harper's leadership, which diverges from Canada's large government recent history, and believe next year's Olympics in resourcerich British Columbia should provide a positive catalyst for investors to get long the country.    

XLE - SPDR Energy - We think Energy works higher if the Buck breaks down.  Bearish TRADE and bullish TREND.

CAF - Morgan Stanley China Fund - A closed-end fund providing exposure to the Shanghai A share market, we use CAF tactically to ride the wave of returning confidence among domestic Chinese investors fed by the stimulus package.  To date the Chinese have shown leadership and a proactive response to the global recession, and now their number one priority is to offset contracting external demand with domestic growth.

TIP- iShares TIPS -The iShares etf, TIP, which is 90% invested in the inflation protected sector of the US Treasury Market currently offers a compelling yield on TTM basis of 5.89%. We believe that future inflation expectations are currently mispriced and that TIPS are a compelling way to own yield on an inflation protected basis, especially in the context of our re-flation thesis. 

GLD - SPDR GOLD -We bought more gold on 5/5. The inflation protection is what we're long here looking ahead 6-9 months. In the intermediate term, we like the safety trade too.  



XLP - SPDR Consumer Staples - We shorted XLP on the bounce on 6/17. The immediate term TRADE line here is breaking down and so is consumer confidence. TRADE is negative, TREND is positive.

SHY- iShares 1-3 Year Treasury Bonds - If you pull up a three year chart of 2-Year Treasuries you'll see the massive macro Trend of interest rates starting to move in the opposite direction. We call this chart the "Queen Mary" and its new-found positive slope means that America's cost of capital will start to go up, implying that access to capital will tighten. Yields are going to continue to make higher-highs and higher lows until consensus gets realistic. 

UUP - U.S. Dollar Index - We believe that the US Dollar is the leading indicator for the US stock market. In the immediate term, what is bad for the US Dollar should be good for the stock market. Longer term, the burgeoning U.S. government debt balance will be negative for the greenback. 

EWW - iShares Mexico - We're short Mexico due in part to the repercussions of the media's manic Swine flu fear.  The country's dependence on export revenues is decidedly bearish due to volatility of crude prices and when considering that the country's main oil producer, PEMEX, has substantial debt to pay down and its production capacity has declined since 2004. Additionally, the potential geo-political risks associated with the burgeoning power of regional drug lords signals that the country's economy is under serious duress.



PNK is known for its development.  Not that the company is a bad operator.  It's just that they've developed some of the nicest regional properties including Lumiere Place, L'Auberge Du Lac, and Belterra.  Of course, you cannot build without financing and Dan Lee and company have been very adept at raising debt and equity over the years to fund these projects.  They will have to do it again, this time with a new bank facility and a sub or senior bond deal.  Although with these guys, you can never rule out an equity deal (highly unlikely at this stock price).

PNK's current bank facility matures in December 2010 and the leverage covenant will likely bust in Q1 2010.  A new facility, amendment, or extension is a certainty.  The company also has about $400 million worth of senior subordinated bonds maturing in 2012 and 2013.  We believe the most likely course of action involves a new credit facility finalized over the next month or two, followed by a large bond deal.  Some observations:

  • PNK probably cannot start Sugarcane Bay without having the money to finish it and cover the overhang of the 2012 notes maturing - that would just be very risky in this market
  • They have to get rid of the 2013s because the indentures really strap the company's ability to use the credit facility. A covenant in the 2013s prevents PNK from drawing more than $350 million on the credit facility unless the Consolidated Coverage Ratio rises above 2.0x on a pro forma basis.
  • If the company is going to refinance the 2013s they may as well get rid of the 2012s. If they don't, they still have the issue of using the R/C to pay off the maturity and doing yet another deal in 2011
  • In the current environment, we come up with a rate of 10.5% on the new $600MM of notes as the current ones are trading at a yield of 10.6%. Even though they are called Subordinated, they are effectively Seniors given the restrictions on additional leverage - so when those go away new debt should price higher, or as high, even if it's called "senior"
  • The bank market is the most constrained so if they downsize the credit facility from $650 million to $450 million, they can probably get all in pricing around 6%
  • The only reason not to get rid of the notes is if they think they can get above 2.0x Consolidated Coverage Ratio. PNK might move above 2.0x over the next few quarters, but could also miss their opportunity to tap the current opening of the high yield markets. Also, proceeding with Sugarcane may preclude them from doing that in any event.

With those thoughts in mind, we've come up with the following assumptions:

  • 1) PNK closes on a new $450MM credit facility early in Q3 2009. We are assuming a rate @ L +4%, with a 2% floor. Currently PNK is borrowing at LIBOR +2%, or around 3.5% currently. With the floor in place, PNK's effective rate rises 2.5% under our assumption.
  • 2) After the new credit facility is arranged, PNK retires the 2012 (8.25%) & 2013 (8.75%) senior subordinated bonds with a new $600MM deal @10.5%.


The following chart shows where we shake out relative to the Street.  Our revenue and EBITDA estimates are pretty much in-line, but EPS is below.  Clearly, the Street hasn't made the appropriate cost of capital adjustments.




Six Hong Kong residents, three Thais, two mainlanders and one Macau resident have been charged with organized crime, brutal murder and dismembering in relation to the death of Lai King-man, 60, nicknamed "Police Man", Macau's Public Prosecutions Office said yesterday.

The crime is believed to be gang-related. Lai and one of the gang members, last name Ma, had a dispute over money.  On the night of September 6, Lai was dragged from the Venetian Macao casino and held in a VIP room in a restaurant.  He was then stabbed to death and dismembered in what one of the prosecutors described as an "atrocious crime".

Lai reportedly had debts of 2 million yuan (HK$2.27 million) - two decades after he lost the money in an underground casino in Shenzhen.

It is unclear why his creditor, who ran the casino, began to chase the 20-year-old debt last year.

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