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CCL F4Q YOUTUBE

In preparation for CCL FQ4 2013 earnings release tomorrow, we’ve put together the recent pertinent forward looking company commentary.

 

 

EX CARNIVAL BRAND 

  • Fleetwide booking volumes during the last 12 weeks from the end of June, covering sailings over the next three quarters, are at the same levels – about the same levels as last year. These bookings have been at higher prices versus last year.
    • For North American brands, booking volumes during this 12-week period are higher year-over-year at lower prices.
    • For EAA brands, booking volumes are lower at nicely higher prices.

CARNIVAL BRAND 

  • Booking volumes and pricing over the last 12 weeks are both lower year-over-year in the low single-digits and mid-double-digits range respectively.
  • Carnival's booking volumes have also shown recent improvement, and during the last six weeks are running higher year-over-year. As Carnival booking volumes steadily increase, we are expecting their cruise pricing to gradually improve over the longer-term.
  • Carnival Cruise Lines' brand continues to demonstrate its resilience in the market, maintaining high occupancies albeit at lower prices. The perception and consideration surveys on the Carnival brand continued to show improving trends at a faster pace than originally projected, so we are greatly encouraged by these positive signs.
  • Although, Carnival Cruise Lines' pricing is lower than we would like, with the new national advertising campaign and the increase in marketing spend this fall and winter, we do expect to see a recovery of pricing as we cycle into the second half of 2014. Recently, Carnival adopted a strategy of holding firm on pricing, even if its ships sail at slightly lower occupancies. We believe this will make Carnival's pricing recovery more achievable as we move through 2014.

4Q 2013 TRENDS

  • On a fleetwide basis, and this excludes Carnival, cumulative occupancies are lower at the same pricing levels as last year. 
    • For North American brands, excluding Carnival again, occupancies are slightly lower at slightly lower prices.
    • Carnival Cruise Lines occupancies for the fourth quarter are lower at lower prices.
    • For EAA brands, occupancies are lower year-over-year at slightly higher prices, reflecting the positive patterns we have experienced during the last 12 weeks. Costa brand occupancies and pricing for the fourth quarter are nicely higher.
  • North American brand revenue yields in the fourth quarter, excluding Carnival, are expected to be down slightly.
  • Carnival Cruise Lines yields in the fourth quarter are expected to be lower, in the double-digits range. And fourth quarter EAA pricing, revenue yields are expected to be higher year-over-year.

1H 2014 TRENDS

  • Although, pricing on bookings taken to-date for the first half of 2014 is higher, because we are running behind on occupancies, we are expecting revenue yields will follow the usual pattern of coming down as we close out the first and second quarters.
  • As a result on a fleetwide basis, for the first half of the year, we are estimating a low single-digits decrease in revenue yields, in a similar range to the lower yield we experienced in the third and fourth quarters of 2013; this expectation includes the Carnival Cruise Lines yields.
  • North American brand yields in the first half of 2014 are expected to be lower year-over-year and EAA brand yields are expected to be higher. 

2H 2014 YIELD

  • We are ramping up marketing efforts in both North America and Europe this fall and winter and are expecting that revenue yields will turn positive in the second half of the year.

1Q 2014 TRENDS

  •  On a fleet-wide basis, pricing on bookings taken to-date is higher year-over-year with lower occupancies. For North American brands, excluding Carnival, pricing is higher on lower occupancies. Carnival Cruise Lines pricing is lower on lower occupancies. For EAA brands, pricing on bookings taken to-date is flat year-over-year at lower occupancies.

2Q 2014 TRENDS

  • Second quarter of 2014 bookings taken to-date, which is still in the early stages of development, on a fleetwide basis, excluding Carnival, pricing is slightly higher year-over-year at lower occupancies.
  • North American brands, pricing is slightly higher at lower occupancies. At this stage, Carnival's pricing is also higher at lower occupancies. 
  • For EAA brands, pricing is slightly higher at lower occupancies.
  • Big increase in Caribbean supply

COSTA

  • We expect the company's performance will continue to strengthen over the remainder of this year and throughout 2014. Brand perception surveys for Costa continue to show improvement, particularly in Italy and France; its two most important markets.
  • We are forecasting continued revenue yield increases in 2014 for Costa, despite what is still a very challenging European economic environment, especially in Italy.

NA BRANDS

  • Our two premium brands, Holland America and Princess, are all expected to have a solid performance in 2014. Our Seabourn brand, although small, is performing extremely well.

COST SAVINGS

  • And then as we look at it and look at our total spend and the opportunity to leverage across the brands, I think there will be opportunities, additional opportunities, for cost savings.

% BOOKED

  • The ranges that we generally talk about are – for the next quarter, which would be the fourth quarter, would be 85% to 95% booked. The second quarter out, which is the first quarter, 50% to 70%. And then the second quarter, which is three quarters out, 30% to 50% booked. And we have indicated recently that we're at the lower end of those ranges as far as booking patterns are concerned.

 


SBUX: Removing Starbucks From Investing Ideas

Takeaway: We are removing SBUX from Investing Ideas.

Editor's note: Shares of Starbucks have risen over 12% from the date (7/18/13) Hedgeye Restaurants Analyst Howard Penney added it to Investing Ideas. The S&P 500 is up approximately 6% in that time.

 

SBUX: Removing Starbucks From Investing Ideas - sbux1

 

Following the all-star quarter from Starbucks in 4Q13, the company appears to be firing on all cylinders heading into FY14.  A strong commodity tailwind, international growth, the beginning of a recovery in the EMEA segment, and expansion into new segments of the global food and beverage industry are all long-term bullish factors moving forward. 

 

The only slight negative stemming from what was, overall, a bullish conference call last quarter was management reigning in expectations for FY14 -- especially expectations for same-store sales in the Americas.

 

Our recent store visits in the Northeast suggest that the holiday season has not been as robust as the company anticipated.  We believe the trickle-down effect on slowing same-store sales are not yet fully reflected in the current share price.  Considering earnings for 2014 are likely to be revised down slightly and valuation is close to a 3-year high, we see some downside in the stock.

 

Starbucks is a great company with a strong and feasible long-term strategy.  That being said, we expect to see the stock adjust accordingly to slower revenue growth in the early innings of 2014.


SBUX: LOSING A LITTLE MOMENTUM?

Following SBUX’s all-star quarter in 4Q13, the company appears to be firing on all cylinders heading into FY14.  A strong commodity tailwind, international growth, the beginning of a recovery in the EMEA segment, and expansion into new segments of the global food and beverage industry are all long-term bullish factors moving forward. 

 

The only slight negative stemming from what was, overall, a bullish conference call last quarter was management reigning in expectations for FY14 -- especially expectations for same-store sales in the Americas.

 

Our recent store visits in the Northeast suggest that the holiday season has not been as robust as the company anticipated.  We believe the trickle-down effect on slowing same-store sales are not yet fully reflected in the current share price.  Considering earnings for 2014 are likely to be revised down slightly and valuation is close to a 3-year high, we see some downside in the stock.

 

Starbucks is a great company with a strong and feasible long-term strategy.  That being said, we expect to see the stock adjust accordingly to slower revenue growth in the early innings of 2014.

 

SBUX: LOSING A LITTLE MOMENTUM? - SBUX AMERICAS

 

SBUX: LOSING A LITTLE MOMENTUM? - SBUX EMEA

 

SBUX: LOSING A LITTLE MOMENTUM? - SBUX CAP

 

SBUX: LOSING A LITTLE MOMENTUM? - EEG

 

 

Howard Penney

Managing Director


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.64%
  • SHORT SIGNALS 78.61%

THOUGHTS AHEAD OF CCL F4Q

Uncertainty reigns in the Caribbean but what will move the stock tomorrow?

 

 

 

Street already expecting lower guidance

  • Our recent pricing survey indicates continued volatility and discounting – FQ1 will be challenging
  • We expect management to provide guidance below the Street – flat yields – but that is already reflected in investor expectations
  • Indifferent on the stock heading into earnings but any price weakness could be buying opportunity since we believe conservative guidance will ultimately be achieved and potentially exceeded

As we highlighted in our cruise pricing survey conference call* yesterday, Caribbean pricing, particularly for CCL remains volatile.  Given the observed pricing volatility and pre-Wave uncertainty, we believe Carnival may issue conservative FY2014 guidance as part of its FQ4 earnings release tomorrow.  We’re expecting net yield guidance of -1% to +1%, which would suggest a midpoint of around $1.45 EPS, below consensus of $1.57. 

 

With the stock up 14% since our last positive price pivot signal from our survey in mid-October, one could surmise that the Street is optimistic about 2014 earnings.  We don’t think so.  Our conversations with investors indicate that they are already expecting lower guidance.  Certainly investors know that F1Q will be very challenging and the real juice is in Wave season, which hasn’t begun.  The newly minted CEO, Arnold Donald, will want to keep guidance beatable and since buy side expectations are already low, why not take advantage?

 

So what about the stock?  For the stock to move down significantly, we believe 2014 yield guidance would have to be negative, in our view.  On the positive side, the stock could pop on management endorsement of existing consensus or guidance only slightly below.  We’re indifferent on the stock into earnings but maintain that it could be a buying opportunity if investors react negatively.  The reasoning is simple.  We believe management’s guidance will be achieved and likely beat.

 

What kind of operating commentary will management provide?  They should emphasize that there is currently a seasonal lull before Wave season.  We think they will reiterate the long road to recovery for the embattled Carnival brand and are seeing improving signs albeit gradually.  The Caribbean continues to be fiercely competitive, particularly in the mass segment, with additional supply entering the market e.g. Norwegian Getaway (Feb 2014) and Quantum of the Seas (Dec 2014).  In addition, they should be cautiously optimistic on Europe.  Though this winter will be tough due to inclement weather, Europe is looking brighter for the summer itineraries.  Finally, we expect management to sway positively on Alaska. 

 

Here are our current projections for FQ1 and FY 2014:

 

THOUGHTS AHEAD OF CCL F4Q - ccc

 

*Note:  We hosted a conference call yesterday highlighting the results of our proprietary cruise pricing survey.  Please contact your sales contact if you’d like to hear the replay.


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