Editor's Note: Carnival Cruise Lines (CCL) has been one of our Gaming, Lodging & Leisure team's top short ideas. Shares are down approximately 8% today. Incidentally, it was also added to our Investing Ideas product on June 13th by Hedgeye CEO Keith McCullough.
Below is a 90-second distillation from Hedgeye analyst Felix Wang.
CCL's outlook is apparently a big surprise to the Street, particularly on the EPS reduction and less robust pricing color. Q2 yields beat by a big margin and while Q3 yield guidance (1.5%-2.5%) is weaker than the Street’s expectations (2.9%) and in-line with ours (2.1%), CCL’s history of beats and bookings/pricing color suggest Q3 yields are currently trending a little above 2.5%.
The full-year yield growth hike to 3% had been well anticipated and could be the last one this year. But the pricing language in the release (“in-line” vs “higher prices” in the Q1 release) concerning the next 3 quarters suggest pricing growth deceleration for 2019. This does not bode well for yield growth in 2019.
We’ve talked about this deceleration theme multiple times in our cruise decks (4/20/18) and (6/1/18) - ping us for access to the decks. Another surprise to the Street is on FY EPS guidance of $4.15-4.25. Factset estimates for 2018 EPS was $4.36 despite the recent headwinds from FX/fuel. The Street historically have not modeled the impacts from FX/fuel well.
All-in-all, this report missed expectations on many levels.
