Carnival Matches EPS, Revs up

Carnival Corporation ( CCL - Analyst Report ) reported fourth quarter 2012 adjusted earnings of 13 cents per share, in line with the Zacks Consensus Estimate. For full fiscal 2012, adjusted earnings per share were $1.88 versus $2.42 recorded in the last year.

On a GAAP basis, the company reported earnings for fourth quarter 2012 of 12 cents per share which was lower than the year-ago quarter earnings of 28 cents per share. Unfavorable changes in currency and fuel prices hurt the full-year earnings by 39 cents per share.

Total revenue in the fourth quarter of 2012 decreased 3.2% year over year to $3,579.0 million but surpassed the Zacks Consensus Estimate of $3,532.0 million. For full-fiscal 2012, revenues were $15.4 billion, down 2.5% year over year.

For fourth quarter 2012 on a constant currency basis, net revenue yields declined 4.5% year over year. Gross revenue yields fell 5.7% at current dollars due to unfavorable fluctuations in currency. Net cruise costs, excluding fuel per available lower berth day (ALBD), decreased 0.9% year over year on a constant dollar basis. Fuel price of $716 per metric ton was up 5.4% year over year.

Segment Revenue

Passenger Tickets: Revenue declined to $2,659.0 from $2,821.0 million in the fourth quarter of 2012.

Onboard and Other: Revenue increased to $894.0 million from $847.0 million in the fourth quarter of 2012.

Tour and Other: Revenue for the segment declined to $26.0 million from $28.0 million in the fourth quarter of 2012.

Liquidity Position

At the end of 2012, the company had cash and cash equivalents of $465 million, long-term debt of $7,168 million and shareholder equity of $23,929 million.

First Quarter 2013 Guidance

Management expects net revenue yield on a constant dollar basis to decline 2.0−3.0%. Net cruise costs per ALBD, excluding fuel are expected to be down 1.5−2.5% on a constant dollar basis. On a current dollar basis, net cruise costs per ALBD, excluding fuel, are projected to be down 1.5−2.5% and net revenue yields are projected to be down 1.5−2.5%. Fuel price is expected to be $674 per metric ton.

Based on current fuel prices and currency exchange rates, the company expects adjusted diluted earnings in the range of 3−7 cents per share.

Full Year 2013 Guidance

Carnival expects net revenue yields to increase in the range of 1.0−2.0% on a constant dollar basis and 1.5−2.5% in current dollars. Net cruise costs per ALBD, excluding fuel, are projected to be up 1.0−2.0% on a constant dollar basis and 1.5−2.5% in current dollars. Fuel expenses are estimated at $692.0 per metric ton.

Considering abovementioned figures, Carnival expects adjusted earnings in the range of $2.20−$2.40 per share.

Our Viewpoint

We believe that Carnival is recovering at a steady pace from the Costa disaster and we expect the Costa cruises to swing back to profitability next year. The company is also experiencing increase in on-board revenue yields as well as booking volume. Since third quarter 2012, booking volumes for the coming three quarters, including Costa, are running in line with the strong booking volumes experienced last year at somewhat lower prices. Moreover, its cost containment efforts are also paying off.

However, the sluggish European economy that led to an uncertain consumer confidence in Europe and higher overall unit costs pose major threats to the company in 2013. The adverse currency translations and surging fuel prices are another cause of concern.

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.