CCL 1Q2010 CONF CALL "NOTES"

Another strong quarter by CCL and favorable forward commentary.


"We have enjoyed a very robust wave season, setting booking records during the quarter. Wave season bookings were fueled by attractive pricing in the marketplace and pent-up demand from those who postponed vacations last year. As a result, pricing continues to increase, particularly for the peak summer season. Having achieved significantly higher pricing, we expect revenue yields for the remaining three quarters of the year to increase approximately 3 to 4 percent (in constant dollars) compared to last year. Vacationers should take advantage of the current low rates now as prices are going up."

- Carnival Corporation & plc Chairman and CEO Micky Arison

 

 

HIGHLIGHTS FROM THE RELEASE

  • "Since the start of the calendar year, booking volumes for the remaining three quarters are running ahead of the prior year with prices significantly higher than last year's discounted levels.  At this time, cumulative advance bookings for the remainder of the year are in line with last year at higher prices."
  • 2010 Guidance:
    • Net revenue yields, on a constant & current dollar basis:  +2 to 3% percent compared (up 2% from prior guidance)
    • Net cruise costs excluding fuel per ALBD, on a constant dollar basis: -2 to -3%  (down 1% from prior guidance)
    • Fuel costs are expected to increase $483MM, costing an additional $0.60 per share
    • Strengthening of the U.S. dollar since the December guidance is expected to reduce earnings by ~$85MM
    • EPS: $2.25 to $2.35, up $0.05 to $0.15 from compared to December guidance (Consensus is $2.23)
  • 2Q2010 Guidance:
    • Net revenue yields (constant dollar basis):  +1 to 2% percent compared (2.5 to 3.5% on a current dollar basis)
    • Net cruise costs excluding fuel per ALBD, on a constant dollar basis: -3.5 to -4.5% 
    • Fuel costs are expected to increase $176MM, costing an additional $0.22 per share
    • EPS: $0.26 to $0.30 per share (Consensus is $0.26)

CONF CALL

  • Better revenue yields due to better expected pricing on last minute bookings and better cost controls
  • Capacity increased 9.6% for the fourth quarter of 2009, with the majority of the increase once again going to our European brands. Our European brands grew 14.5% while our North American brands grew 5%. As I previously mentioned, overall net revenue yields in local currency declined 2.3%
  • Net ticket yields saw 4% in local currency.  North American was down across all itineraries.  European was down 6% - primarily due to Brazil - which had large capacity increases
  • Net onboard and other increased 3%, however, excluding some unusual items onboard would have been flat - and that's what they are assuming for the rest of the year
  • Expect the sequential improvement that they saw in the first quarter to continue through the rest of the year
  • Rising fuel prices masked good cost controls. However, fuel consumption per ALBD decreased over 3%
  • During the last 9 week period, bookings are up 9% and pricing is up 17%. North American up 23% and European pricing is up 6%
  • North American brands (3% increase for balance of 2010), Alaska pricing is showing some improvement. All itineraries are showing improving yields. Seabourn - is forecasting lower yields but they will experience 57% capacity
  • Europe: Costa and AIDA pricing is expected to be slightly lower for the year given the capacity increases, the rest is expected to be flat. Ibero cruises is expected to have stable yields for the rest of the year despite challenges in the Spanish economy
  • 2Q2010 Guidance: 8.3% increase in capacity for 2Q2010. 13% in European brands, 4% in NA. Forecasting local currency yield increases of 1-2%.  North American: 53% Caribbean. NA brand pricing is slightly higher - by 2% with very little left to sell.  Europe: 57% in Europe.  Pricing is slightly lower, with very little less to sell, occupancies down a little too.
  • 3Q2010 Guidance:Capacity up 6.2%, 3.2% in NA and 8%in Europe.  Fleetwide occupancies are higher across the board. NA capacity: 40% Caribbean. Pricing and is also higher for virtually all itineraries.  Only slightly higher in Alaska - with their tour business down.  Forecasting significantly higher yields in NA (high single digits): Ticket revenues - low double digit increases while onboard and other is forecasted to be flat.
    • Europe: Forecasting flattish to slightly lower local currency yields given the sluggish economy and capacity increases.  
  • 4Q2010: NA brands: 50% in Caribbean, 20% in Long and Exotic.  Pricing is higher in all itineraries but occupancy is a little lower. Europe: 73% in Europe.  Occupancy and pricing is higher in Europe.  Forecasting that yields will be nicely higher in the 4Q.

Q&A

  • .75% benefit for the $19MM settlement in the 1Q2010 on yields
  • What changed with regard to cost guidance?
    • About half of the change has to do with the gain on the sale of P&O Artemis
    • The other half is just savings across the board... sounds like they sandbagged on cost guidance in Dec
      • Basically operating companies tend to underestimate their ability to reduce costs
  • Alaska head tax issue (governor is proposing a repeal)
    • If the proposals pass, then they would give passengers onboard credits which will hopefully increase onboard spending. It won't pass in time to impact this summer season through
    • The session only has 4-5 weeks left to run, and if the governor's proposal doesn't pass then it won't pass this year
    • Their itineraries are in place for 2011 (not sure what the competitors are doing)
    • Alaska is 15% of overall capacity in 3Q
  • Europe- they don't have the Brazil business for the rest of the year, only in 1Q.  So their forecast for the rest of the year is consistent with the current down 1% yields, ex Brazil that they saw this Q.
  • In the UK they've been very pleased with the business. 
  • Seabourn is their highest priced product and they are taking capacity from 600 beds to 1500 beds, and that capacity will take some time to absorb.
  • The guarantee items aren't necessarily 1x items.  It's just that all the reconciliations are done every year in January. In good years they never kick in so they are irrelevant.
  • Holland and Princess both made strong comebacks that are close in actual #s
  • Are forecasting a 1.5% decrease in fuel consumption - but they will likely beat that number
  • Selling and building new ships? What are they seeing on pricing
    • Working on the Princess deal for a long time - taking 2 years.  Hope that final contracts will be signed by April. Not working on any other deals - so it'll take a while before you see anything else.
    • Prices to build are more attractive now. Even a 10-15% decrease in pricing isn't going to make them build ships they don't need.  Probably will add 2-3 ships per year in the long term
  • Historically, when they give guidance, the next quarter is usually 85-95% booked, and the following 55-75%, and the 3rd 30-50% booked. 
  • They baked in the litigation expenses when they gave guidance in December, but not on the taxes.
  • The timing of some expenses is difficult to predict - especially in SG&A.  Some expenditures were pushed out to further quarters, hence 1Q was lower than normal.
  • Onboard spend in the EU vs. NA brands. EU brands still have lower onboard spend than the NA. They drink more and gamble less than NA.
  • Thoughts on reimplementing fuel charge
    • No present intention to reinstate it
  • They are not seeing any changes in booking windows. They are purposefully waiting to book a little closer in to try to get pricing.  Booking curve is similar to what was in 4 of the last 5 years, with the exception of 2008.
  • They are surprised by the strength of pricing so far this year.  Things are coming back a lot faster in NA but Europe is slower. They still offer the best "value" vacation out there
  • Commissions and passenger yield costs? Why were they down so much?
    • Air / Sea mix was down 25%.  Only 12% of people purchased air from them this year vs. 16% last year (and that's a pass through expense).
  • Why are they guiding flat onboard spend? Is it the mix shift with Europe?
    • Partly Europe, but operating companies are typically conservative because they have no visibility.  In theory, higher ticket prices should indicate an increase in onboard spend- but they have no visibility there.  People are also spending differently - like casinos - which have become so prevalent on land that they are less popular onboard. There is also a seasonality issue - since Europe is more seasonal than the NA business
  • They had a $0.25 swing in total impact due to fuel & currency -both fuel and currency moved against them. 10% on fuel is still $0.20 on earnings
  • How sustainable are these cost declines? Will you see a big rebound when things get better?  Think that they are getting more bang for the buck on advertising.  Search costs declined because they won the use to their trademarks on Google. They are just becoming more efficient on their ad spend.  Also it's hard to predict inflation, right now there is no inflation. 
  • Is there a structural impediment to getting yields above 30%?
    • Not on the cost side
  •  They may hedge Brazil with more capacity from Argentina
  • Continental European brands focus on an upper-middle market, can't say if the premium customers are doing better there

Cartoon of the Day: Hard-Headed Bears

How's this for "hard data"? So far, 107 of 497 S&P 500 companies have reported aggregate sales and earnings growth of 4.4% and 13.2% respectively.

read more

Premium insight

McCullough [Uncensored]: When People Say ‘Everyone is Bullish, That’s Bulls@#t’

“You wonder why the performance of the hedge fund indices is so horrendous,” says Hedgeye CEO Keith McCullough, “they’re all doing the same thing, after the market moves. You shouldn’t be paid for that.”

read more

SECTOR SPOTLIGHT Replay | Healthcare Analyst Tom Tobin Today at 2:30PM ET

Tune in to this edition of Sector Spotlight with Healthcare analyst Tom Tobin and Healthcare Policy analyst Emily Evans.

read more

Ouchy!! Wall Street Consensus Hit By Epic Short Squeeze

In the latest example of what not to do with your portfolio, we have Wall Street consensus positioning...

read more

Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

read more

McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

read more

Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more

6 Charts: The French Election, Nasdaq All-Time Highs & An Earnings Scorecard

We've been telling investors for some time that global growth is picking up, get long stocks.

read more

Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more