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CCL F1Q 2014 REPORT CARD

In an effort to evaluate performance, we compare how the quarter measured up to previous management commentary and guidance

OVERALL

  • MIXED:  CCL disappointed investors today by not raising FY yield or EPS guidance and providing below consensus Q2 expectations. Investor expectations going into the earnings release and call were higher this time which is hurting the stock despite strong first quarter results. But is CCL playing the conservative card? We think so. Q2 is likely to be a pretty big beat which should push full year to at least the higher end of the guidance range.

CARNIVAL BRAND 

  • MIXED:  While the Carnival brand recovery continued with better bookings, it is at the expense of lower pricing in the Caribbean. Carnival sacrificed occupancy to maintain price in F1Q.
  • PREVIOUSLY:  
    • Very pleased that the surveys show a significant recovery in the brand perception at Carnival Cruise Lines since the voyage disruptions...expect to benefit from it going forward.
    • Carnival recovery is a little bit ahead of that two to three-year timeframe that is conventional kind of thinking concerning recovery of brands that have suffered incidents.

1H 2014 TRENDS

  • WORSE:  F2Q yield guidance (-3% to -4% constant currency) came in much lower than expectations. While pricing remains low, it seemed to not have improved at all since last guidance.
  • PREVIOUSLY: 
    • Fleet-wide volumes during the last 13 weeks have been running well ahead of the prior year, outpacing capacity at prices that are lower.
    • Despite the recent high volumes, the cumulative bookings for the first half on a fleet-wide basis are still behind at lower prices.
    • Expecting lower yields in the first half
    • NA brands are impacted by challenging comps from the first half of last year, as they were booked prior to the voyage disruptions that occurred in February.  EAA brands face ongoing economic environment challenges in Southern Europe, the loss of the attractive Red Sea program and a close-in booking curve that is impacting their first half of '14.

 

2014 ONBOARD YIELDS

  • SAME:  Onboard yields rose 0.8% (CC) in FQ1.
  • PREVIOUSLY:  What is built into the 2014 guidance was yields up a little over 1%.
    • Some of CCL's operating companies are continuing to roll out the all-inclusive drink program, the high-end photography and other things.

CARIBBEAN

  • SAME:  For the reminder of the year, Caribbean is behind on both price and occupancy for the NA brands. Caribbean accounts for 50% of remaining capacity for NA brands.
  • PREVIOUSLY:  NA brands - behind on both price and occupancy

COSTA

  • BETTER:  Costa's yield was up a couple of points more than expected in FQ1, mainly due to occupancy gains.  European economy is still choppy but has strengthened recently. 
  • PREVIOUSLY:  
    • Surveys were also very encouraging. They showed an improvement in brand perception.
    • Seeing lifting in yields and occupancy in Costa, but the recovery may take longer than the two to three-year norm

ALASKA

  • SAME:  Behind on price but remained well ahead on occupancy
  • PREVIOUSLY:  Behind on price but well ahead on occupancy.  

EAA

  • IN-LINE:  Behind on price but well ahead on occupancy and substantially ahead of 2013.  Europe accounts for 70% of remaining itineraries for EAA brands.
  • PREVIOUSLY:  Seeing a sequential improvement in YoY pricing in each quarter from the first to the third quarter for this program.  Booking by volumes for these European programs for the last 13 weeks have been nicely higher as well.

ASIA

  • WORSE:  Japan underperformance will have an impact for the rest of FY 2014.  Japan deployments represents 1%. 
  • PREVIOUSLY:  
    • The yields in Asia are a little bit below the overall corporate average. Have talked a lot about a continued expansion into Asia.
    • Returns in Asia at the moment aren't where CCL would like them to be

COSTS

  • SAME:  While Carnival did not change their cost guidance forecast for the year, some FQ1 costs have been shifted into FQ2.  Advertising spend for 2014 is now 20% higher than that in 2012. Advertising is clearly the main driver of higher costs for CCL.
  • PREVIOUSLY: 
    • Expect cost per ALBD to be up only slightly for 2014
    • Found ways to do some of the vessel enhancement and service, thereby reducing dry-dock days in 2014.
    • Concerning advertising, CCL clearly invested heavily in Carnival, but also invested across a number of other brands to generate demand. And that is continuing into the first quarter of next year. For the full year CCL'll be substantially ahead in 2014 in total advertising spend versus 2012.
    • Expect net cruise cost excluding fuel to be flat to half of inflation in the long term...that's a good starting point for guidance for 2015