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Carnival Tops, Revises Outlook

CCL RCL

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Carnival Corporation (CCL - Analyst Report) reported third quarter 2012 adjusted earnings of $1.53 per share, breezing past the Zacks Consensus Estimate of $1.46 per share. On a GAAP basis, the company reported earnings of $1.71 per share which improved from the year-ago quarter earnings of $1.69 per share.

Total revenue in the third quarter of 2012 decreased 7.4% year over year to $4,684.0 million but surpassed the Zacks Consensus Estimate of $4,651.0 million.

On a constant currency basis, net revenue yields declined 5.3% year over year. Excluding the effects of the Costa Concordia disaster, net revenue yields dipped 2.1%. Gross revenue yields fell 9.2% at current dollars due to unfavorable fluctuations in currency. Net cruise costs, excluding fuel per available lower berth day (ALBD), decreased 3.0% year over year on a constant dollar basis. Fuel price of $659 per metric ton was down 4.0% year over year.

Segment Revenue

Passenger Tickets: Revenue declined to $3,561.0 from $3,907.0 million in the year-ago quarter.

Onboard and Other: Revenue increased to $965.0 million from $936.0 million in the prior-year quarter.

Tour and Other: Revenue for the segment declined to $158.0 million from $215.0 million in the year-ago quarter.

Fourth Quarter 2012 Guidance

Management expects net revenue yield on a constant dollar basis to decline 5.0—6.0%. Net cruise costs per ALBD, excluding fuel are expected to be down 2.0—3.0% on a constant dollar basis. On a current dollar basis, net cruise costs per ALBD, excluding fuel, are projected to be down 4.0—5.0% while yields are projected to be down 7—8%.

Based on current fuel prices and currency exchange rates, the company expects adjusted diluted earnings in the range of 7—11 cents per share. Unfavorable changes in currency and fuel prices will likely hurt fourth quarter earnings by 8 cents per share.

Full Year 2012 Guidance

Carnival expects net revenue yields on a constant dollar basis, excluding Costa, to be flat to slightly lower than the year-ago quarter, but including Costa the company predicts a decrease of 3% in net revenue yield.

Net cruise costs per ALBD, excluding fuel, are projected to be down 1.0% on a constant dollar basis. On a current dollar basis, net cruise costs per ALBD, excluding fuel, are projected to be down 3.0%. Fuel expenses are estimated at $716.0 per metric ton.

Carnival has revised its non-GAAP earnings in the range of $1.83—$1.87 per share from its previous outlook of $1.80—$1.90 per share.

Our Take

We believe that Carnival is recovering at a good pace from the Costa disaster. The company is also experiencing increase in on-board revenue yields as well as booking volume. Its cost containment efforts are also paying off.

However, the sluggish European economy that led to an uncertain consumer confidence in Europe and adverse currency translations are posing major threats to the company.

Carnival, which competes with Royal Caribbean Cruises Ltd. (RCL - Analyst Report), currently retains a Zacks #3 Rank (short-term Hold rating). We also reiterate our long-term Neutral recommendation on the stock.

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