SMF Notes PCLN Priceline.com Earnings Preview (678.50 +13.38)

PCLN Priceline.com Earnings Preview (678.50 +13.38)

Priceline (PCLN) is set to post Q2 results after the close with Capital IQ consensus sitting at EPS of $7.37 on revenues of $1.355 bln. Reaction to earnings has been volatile as we saw BSFT and FOSL post big gains in reaction to slightly better than expected results (We even saw GMCR see solid gains on awful numbers). PCLN has been a volatile stock post-earnings so this will be one to keep an eye on. Results will be interesting as the co has a large exposure to Europe and thus is also subject to currency fluctuations. Shares were hammered following Q1 earnings as pedestrian earnings and conservative Q2 guidance helped drag the stock from $764 on May 3 to $603 on June 3. The co said that Q2 guidance took into account a weak European performance so we shall see how well the co forecasted the slow down. And finally the quarter will be up against difficult comparisons as 2Q11 was a record setting quarter for PCLN. The stock has been bouncing around in a rather wide range of $620-700 since early June. This could be the catalyst to push shares out of this range.

Taking a look at Q1, PCLN beat EPS by $0.30 and posted in line revenue numbers. The Group's international operations contributed revenues in the 1st quarter of $617 million, a 58.5% increase y/y (~ 65% on a local currency basis). The Group's gross profit for the 1st quarter was $743 million, a 47.0% increase from the prior year. Gross Bookings were pretty solid as it came in at $6.7 bln (International $5.45 bln, Domestic $1.26 bln) which was up 43% y/y.

Q2 guidance was in line as it forecast EPS in $7.20-7.40, with total gross travel booking projected to be up 26-31% (international 32-37%, domestic 5-10%), and a y/y increase in revenues in the 18-23% range (in line revenue numbers would be an approx 22% increase y/y). Gross profit is projected to be in the 31-36% range.

Europe was a primary issue on the Q&A so the commentary provided by PCLN on the region is worth noting. PCLN stated that Q2 growth rates were impacted by slowing growth in Southern European markets and a difficult comp, as bookings growth accelerated in the first two quarters of last year. The co said, given challenging economic conditions and the sovereign debt issues facing Europe, it was likely to see volatility in the euro/dollar exchange rate, which can materially impact results expressed in U.S. dollars. PCLN has hedge contracts in place to substantially shield Q2 EBITDA and net earnings from any fluctuation in the euro or pound versus the dollar between now and end of the quarter, but these hedges do not offset the impact of translation on gross