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Recovery of Carnival brand pricing, net yields an ongoing, multi-year process

Repairing 'damage' to Carnival brand yields will take multi-year effort: Wells Fargo

It is an ongoing, multi-year process to 'repair the damage done to the Carnival brand' as measured by price and net yields, Wells Fargo Securities said in a note following meetings between Carnival Corp. management and investors on Tuesday.

'This will likely take redeployment of a substantial portion of yet unquantified cost savings, via marketing/advertising and ongoing customer experience enhancements, to generate a recovery in net yields sufficient to return to double digit ROIC levels,' according to Wells Fargo analyst Tim Conder. 

Conder expects Carnival to outline specifics of its grand cost-saving plan and related realization time frame during the company's mid-December earnings call.

He said Carnival management incentives are aligned to keep the focus on collaboration in terms of revenue, costs and deployment maximization, and driving net yields, operating profits and ROIC.

Meanwhile, net capacity growth will remain 3% to 5% annually, with a preference toward the lower end of the range. The company is looking to sell about six older, less efficient ships.

Wells Fargo projects it will be toward the end of the first half of 2015 before slightly lower Caribbean capacity produces stability in Caribbean pricing, but also cautioned that recovery could take longer for entry-level brands due to greater economic pressure on less affluent US consumers.

Europe and China appear to be performing well.

Carnival management see further opportunities to reduce fuel use, and said Wi-Fi will be a focus in the next 18 to 24 months as a key point to enhance the customer experience.

Wells Fargo remains neutral on CCL stock, with the shares already discounting improvement through 2015, in Conder's view. The brokerage reiterated its 'market perform' (hold) rating.

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