Carnival Earnings Call Insights: First Half Outlook and Fourth Quarter

Carnival Corporation (NYSE:CCL) recently reported its third quarter earnings and discussed the following topics in its earnings conference call.

First Half Outlook

Felicia Hendrix – Barclays Capital: Howard, starting with you. If we could just talk about your outlook for next year, you gave us good color for the first half, I appreciate that. And also appreciate your comments on the second half. What I’m wondering where you said that the yields would turn positive, I’m just wondering if overall do you think you could look forward to 2014 yields increase that’s better than flat year-over-year, and I know it’s early, but I am asking.

Howard S. Frank – Vice Chairman and COO: It’s early. I feel that’s some risk, I think we kind of gave first half yield outlook because it was going to be down. We do expect to see a churn in the third and fourth quarters to a positive yield, but I would hesitate to put any kind of numbers on it right now. I think we need to go through next couple of months, going through the business plans and we’ll have a much better feel for – this is based on, as David said at the start of his comments, it’s based very, very – all the information from the brand. So we need to refine it and get it better, but we wanted to get to guidance on the first half, that at least from a yield standpoint because we were concerned that people didn’t understand what was happening in the business.

Felicia Hendrix – Barclays Capital: The first half lower yields – the first half yields which are going to be lower year-over-year similar to the second half of ’13. Is that mainly just driven by still Carnival or is there anything else that’s driving that?

Howard S. Frank – Vice Chairman and COO: Well, it certainly is driven largely by Carnival, yes. We expect positive yields on the EAA side. So – the other two brands are solid, so we expect most of it to be a Carnival challenge and maybe a little bit – I can’t recall exactly, but I think there maybe a little bit from some of the other brands, but not much…

David Bernstein – SVP and CFO: I think one of the things when you look at the first half of 2014 versus the back half of 2013, and while we say there are similar declines, they are made up a little bit different. Costs both – both Carnival and Costa are improving, but what you’ll see happening is Costa is not improving as much as it did in the back half of ’13, and therefore, you’re kind of coming out at a similar amount. Although both Costa and Carnival are improving, Carnival is not down as much and Costa is not up as much as it was in the back half.

Arnold W. Donald – Principal, AWDPLC LLC: Actually Carnival compared to the first half of this year 2013, it’s a tough comparison, because the event happens (indiscernible) comparing first half next year of Carnival to first half this year. That’s a tough comparison given the flat Carnival were not yet fully recovered, I think.

Howard S. Frank – Vice Chairman and COO: I think we demonstrated improving the improvement from the prior quarter.

David Bernstein – SVP and CFO: On this prior quarter.

Arnold W. Donald – Principal, AWDPLC LLC: It is also consistent with what we said last quarter. It doesn’t seem like anybody took it (indiscernible), but it is consistent with what we said last quarter.

Felicia Hendrix – Barclays Capital: David, just a quick cost question. Thank you for the color you gave us on why it is going to increase next year probably more than we expected. But if we back out all the initiatives and the drydocks and the things that you talked about is the underlying cost profile looks similar to how you have typically run the business?

David Bernstein – SVP and CFO: Well, I think, next year there is a little bit unique – the things that we were talking about there were some one-time costs this year that relating to the Carnival Triumph, they’ll don’t repeat themselves next year. But we do have quite a few drydocks next year they are longer in length because of the vessel enhancements that has cost us something. We talked about the increased advertising expense which is an investment that we hope will wind up with better yields in the back half of next year. There are other investments that we are making in the food and entertainment, in the product. There are few other things; insurance premiums, crew air cost, investments in sales forces and other things that we think are worthwhile that we are looking at. But again these are all very preliminary and we’ve got a lot of discussions to do with the operating companies before we can give you a final number. But these are some of the things that they are proposing.

Fourth Quarter

Robin Farley – UBS: Couple of clarifications. I’m just thinking about rate of recovery and things for more than just a Costa brand, but I’m curious for Costa in the third quarter. Was the yield increase just in occupancy recovery or was there also ticket price improvement for the Costa brand in Q3? That’s one question. Then the commentary you gave about first half, you said North American yields would be down in the first half and I just wanted to clarify was that including or excluding the Carnival brand for first half yields?

Beth Roberts – VP of IR: The Costa brand in the third quarter was mostly occupancy led. We are projecting that the fourth quarter will be a combination of occupancy and pricing.

Arnold W. Donald – Principal, AWDPLC LLC: In the North American yield outlook that I provided was – includes Carnival.

Robin Farley – UBS: If you excluded the Carnival brand, would North American yields in the first half be up excluding Carnival?

Arnold W. Donald – Principal, AWDPLC LLC: I didn’t give that information.

Robin Farley – UBS: And it’s not something I guess…

Arnold W. Donald – Principal, AWDPLC LLC: It’s a little early, Robin. We try to give – based on preliminary information, both on the yield and cost, we try to give some directional information that will go through the numbers in the next couple of months with the business guys and get a better sense of it, and they’ll have a better sense of it as well, and it will…

Robin Farley – UBS: Good that you are trying to give guidance and why not, given as much but not give more than you have visibility for? I guess the reason I was asking for the clarifications is trying to think about whether it’s mostly the Carnival brand issues that are hurting North American yields. So I guess would you say that if it’s still a question mark for sort of the North American brands excluding Carnival? Is it still primarily related to Carnival brands issues that’s affecting the others or I’m just trying to get a sense if there is some other factor that we’re not thinking of, that may be impacting those other brands or would you say even if it’s not the Carnival brand itself, it’s still the impact of those issues affecting the other brands?

Howard S. Frank – Vice Chairman and COO: What I said is that both Princess and Holland America are going to have solid performances in 2014. What we don’t know? We all focus on yields. You may get the wrong piece of information because there is so much mix elements in terms of moving itineraries around, making investments in new markets and so on that can be effecting it, so we can give you much better guidance on this in the December call, but we don’t really have the information right now.