It's clear to us that management is low balling Q2 - commentary didn't match guidance. Lofty expectations are a problem for the stock, however.
CONF CALL
- Brand perception is most of the way back
- Brand loyalty is almost
- Cautiously optimistic - expect pricing to improve
- Costa - up 50% YoY on bookings volume. Doubling of trust in confidence in core European market
- NA brands caught up on occupancy while European brands are pushing out the bookings curve
- Will turn corner in 2H 2014
- Advertising expenses for 2014: $600MM (+20% over 2012)
- Princess/Costa in Europe/ P&O Cruises launched new campaigns
- FQ1:
- better revenue Caribbean/Continental European brands (5 cents) better NCC (4 cents);
- Capacity: +1.7%;
- Net ticket:
- -3.5% for NA brands - driven by promotions at Carnival brand;
- -2.5% for EAA brands - Costa increases offset by other European brands
- Net onboard: EAA: +4%, NA: slightly down, driven by lower occupancy at Carnival Cruise lines
- NCC: higher advertising spend but less than previous guidance
- 2014
- NA/EAA: bookings ahead by 20% at lower prices. Carnival Cruise Lines and Costa led the way in bookings
- 1st time cumulative bookings for next three quarters are higher than prior year as booking window widen; although they're still at lower end of historical bookings curve
- F2Q
- Tough comps due to pre-Triumph bookings last year
- 2H 2014: positive yields for NA and EAA yields
- Expectations for Caribbean unchanged for rest of year despite better close-in performance for FQ1
- Japan: below expectations with Princess having 2 ships there. Deployment represents 1% of annual capacity.
- NA brands:
- Caribbean: Behind on price and occupancy; represent 50% for reminder of year; catching up on occupancy
- Alaska: Behind on price but well ahead on occupancy
- Seasonal European: Well ahead on price and occupancy
- EAA brands:
- Europe (70% for remind of year): Behind on price but well ahead on occupancy and substantially ahead of 2013
Q & A
- For all 3 coming quarters: higher volumes at lower prices
- Lower occupancy at Carnival brand: giving up a points of occupancy to maintain price
- Historical bookings curve: 80-90% (current), 50-70% (1Q out), 30-50% (2 Q outs)
- Carnival brand: previously guided down mid-to-high single digits in 1H 2014 and turn positive in 2H 2014; in Q1, Carnival turned out to be a little better than expected. Forecast for remaining quarters remain unchanged for Carnival.
- Costa: occupancy up a couple of points more than expected in FQ1. Had less ships in South America for FQ1 due to high costs there so they give up a little in yield to drive profitability.
- Capacity growth: +10% in the Caribbean for Carnival brand; overall market +19% in the Caribbean
- Lower pricing happened in 2009 but pricing recovered in 2010. They are not concerned about the lower prices.
- Lost 10% in yields in 2009, got back half of that in 2010/2011. Today, about 11% behind 2008 yields. Their competition is close to 2008 yields.
- Switchers (New to Cruise) more price and media sensitive but smallest part of the cruiser base
- Carnival brands: ships sail full or almost full (as do their competitors)
- Carnival brand recovery faster than expected
- Costa brand recovery: European economy still choppy but has strengthened
- Cost savings: hold off on forecasts, overall see further efficiencies
- FQ2: impacted by higher capacity and promotional rates in Caribbean
- FQ3: will be negatively impacted by Japan
- Costa up a couple of points in FQ1 (15% of overall capacity)
- FQ4: expect costs to be down
- FQ1/FQ2: increase in costs was mainly driven by advertising
- FQ3: 50% booked
- FQ4: 1/3 booked
- 2015 Caribbean capacity: For FQ1, small decrease for CCL brands (Carnival Legend moving to Australia)
- Refurbed ships getting higher premium pricing
- Japan EPS impact: assume Japan will "lose some money" but overall bullish
- Ukraine: has impacted some itineraries; 0.7% of overall capacity; Costa replacing May itineraries with Bulgaria/Istanbul; AIDA/Seabourn in F3Q itineraries will change as well.
- Had not advertised Princess brand in over 10 years
- Do not expect ECA higher costs to have a material impact
- Dallas oil spill: if channel opened up this wk and future cruises operate as normal, it might cost CCL 1 penny in F2Q
- 1Q European yields (ex Costa): were down just a little bit; UK made changes to their pricing programs and commission structure. CCL expects an improving trend in UK overall.