We’re not quite there for FY2014 but we’re getting close.
We have increased our 2014 FY EPS from $1.65 to a likely Street high $1.90 on the back of significant cost cutting. Not surprisingly, our net yield (constant-currency) projection declines from +1.4% to +0.3%, due to continued Caribbean uncertainty and adverse FX impact.
Lower yield guidance was expected but the cost outlook was indeed a pleasant and major surprise. The management reorganization paid dividends much sooner than expected. Already, new management is driving cost synergies and efficiencies in the fuel, operations, and procurement areas under new CEO Arnold Donald.
With 2014 net cruise costs ex fuel now expected to be only ‘slightly higher’ vs +3-4% earlier and 2014 fuel metric per ton guidance of $650 (fuel efficiency: +4%), we believe EPS was boosted by 15-20 cents in each category.
While the cost side of the business is heading in the right direction, yield expectations came in slightly below already lowered Street numbers. We mentioned in our preview ‘THOUGHTS AHEAD OF CCL F4Q’ that mgmt may give conservative flat net yield (constant-currency) guidance. The demand environment (pricing and bookings) in the Caribbean has been weak while Europe is mixed ahead of Wave. But that does not matter much right now as Wave will dictate how 2014 will shape out.
Here are other takeaways from the earnings release/call:
1) Onboard and other yield outperformed in F4Q - Will onboard begin to drive yields in 2014 with ticket yields under pressure? Onboard guidance for FY 2014 (‘little higher than +1%’) was roughly in-line with us.
2) Lower fuel price per ALBD - The divergence in brent oil vs bunker in recent times and a favorable hedging strategy may have played a role.
3) Europe is mixed
- Costa strength offsetting other brands
- Northern Europe behind booking curve, trying to catch up
4) Watch out for FQ2/FQ3 capacity growth in the Caribbean (CCL, RCL, NCLH, MSC)
- 1Q: 3%
- 2Q: 19%
- 3Q: 22%
- 4Q: 13%
