In-Line 4Q for Carnival

Carnival Corporation (CCL - Analyst Report) reported fourth quarter 2011 adjusted earnings of 28 cents per share, in-line with the Zacks Consensus Estimate. Quarterly earnings deteriorated from the year-ago quarter earnings of 31 cents. For full fiscal 2011, earnings per share were $2.42 versus $2.47 recorded in the year-earlier quarter.

Carnival’s fourth quarter total revenue increased 5.7% from the prior-year quarter to $3,696 million which fell short of the Zacks Consensus Estimate of $3,786.0 million. For full-fiscal 2011, revenues were $15.8 billion, up 9.0% year over year. 

On a constant currency basis, net revenue yields rose 1.5% in the fourth quarter from the prior-year quarter. Gross revenue yields rose 0.3% at current dollars. Net cruise costs, excluding fuel per available lower berth day (ALBD), were down 1.8% year over year on a constant dollar basis. Fuel price of $680 per metric ton was up 39.0% year over year.

Segment Revenue

Passenger Tickets: Revenue increased to $2,821.0 million from $2,666.0 million in the fourth quarter of 2011.

Onboard and Other: Revenue increased to $847.0 million from $791.0 million in the prior-year quarter.

Tour and Other: Revenue from the segment declined to $28.0 million from $40.0 million in the year-ago quarter.

Financial Position

At quarter end, the company had cash and cash equivalents of $450 million, long-term debt of $8.1 billion and shareholder equity of $23.8 billion.

First Quarter 2012 Guidance

Management expects net revenue yield on a constant dollar basis to increase 1.5% to 2.5% (earlier up .0% to 2.0%). Net cruise costs per ALBD, excluding fuel are expected to be up 3.5% to 4.5% on constant dollar basis primarily due to the higher number of dry-dock days and related costs versus the prior year.

Fuel costs for the first quarter are expected to increase $93 million year over year, costing an additional 12 cents per share.  Based on current fuel prices and currency exchange rates, the company expects fully diluted earnings in the range of 6 cents to 10 cents per share.

Full Year 2012 Guidance

Carnival Corporation expects net revenue yield to increase 1% to 2% on a constant dollar basis. Net revenue yield on a current dollar basis is estimated to be down 1.5% to 0.5%.

However, net cruise costs per ALBD, excluding fuel, are projected to be down 0.5% to up 0.5% on a constant dollar basis. Net cruise costs per ALBD, excluding fuel, are projected to be down 3.0% to 2.0% on a current dollar basis.

Fuel expenses are estimated at $650.0 per metric ton. Carnival has raised its non-GAAP earnings range to $2.55 to $2.85 per share, from its previous outlook of $2.40 to $2.44.

During 2012, the company will introduce three new ships. Costa Fascinosa is scheduled for delivery in April, while AIDAmar and Carnival Breeze are scheduled for delivery in May.

Our Take

Carnival has improved its earnings outlook for full-fiscal 2012. The company is also experiencing strong booking volumes leading into wave season which is the crucial business period  for cruise companies.

We believe that a strong balance sheet and solid cash generation capacity should bode well for Carnival. The company is poised to experience solid long-term growth in an improving economy, marked with slow industry capacity growth and reviving consumer demand. Capacity growth for Carnival will likely decelerate in 2012 as opposed to 2011 and 2010. The company also recently implemented a fuel derivative program to mitigate significant increases in fuel prices.

On the flip side, shooting fuel prices and a greater exposure to a sluggish European market are the near-term challenges to the company.

Carnival, which competes with Royal Caribbean Cruises Ltd. (RCL - Analyst Report), currently retains a Zacks #4 Rank (short-term Sell rating). We also reiterate our long-term Neutral recommendation.

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