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Carnival's 2Q Earnings Beat, Revs Trail

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Carnival Corp. (CCL - Free Report) reported second-quarter fiscal 2013 adjusted earnings of 9 cents per share, ahead of the Zacks Consensus Estimate of 6 cents per share but lower than the year-ago quarter earnings of 20 cents per share.  Lower revenue combined with higher cruise costs were responsible for the year-over-year earnings decline.

Total revenue in the quarter slipped 1.7% year over year to $3,479 million, missing the Zacks Consensus Estimate of $3,596 million. A lower net revenue yield owing to reduced pricing led to the decline in revenues.

Net revenue yields (in constant currency) declined 1.9% year over year. Gross revenue yields dropped 3.1%. Net cruise costs (in constant dollar), excluding fuel per available lower berth day (ALBD), escalated 8.8% year over year mainly due to the timing of dry-dock expenses and vessel repair costs. Fuel price was $683 per metric ton in the quarter, down 9.7% year over year while fuel consumption declined 5.7%.  

Segment Revenues

Passenger Tickets: Passenger Tickets revenues in the quarter declined 2.3% year over year to $2,613.0 million.

Onboard and Other: In the second-quarter of fiscal 2013, Onboard and Other revenues were $839.0 million, down 0.6% year over year.

Tour and Other: Segment revenues grew 42.0% year over year to $27 million.

Third Quarter 2013 Guidance

This Miami-based cruise company expects net revenue yield (in constant dollar) to decline in the range of 3.5% to 4.5% in the third-quarter of fiscal 2013. Net cruise costs per ALBD (in constant dollar), excluding fuel, are projected to increase 8.5%−9.5%. The majority of the cost increases will be due to a new program announced in Apr 2013 to improve its fleet-wide efficiency and increased marketing expenses.    

Based on current fuel prices and currency exchange rates, the company expects adjusted earnings to be within $1.25−$1.35 per share in the third quarter, significantly lower than the year-ago earnings of $1.53 per share.

Full Year 2013 Guidance Retained

Carnival maintained its earlier announced guidance range for the full year. Owing to the prevailing economic headwinds Carnival slashed its guidance in May 2013 from $1.80—$2.10 per share to $1.45—$1.65, anticipating a weak show in the second half of 2013. Net revenue yields were guided to be down 2—3% as against the previously announced flat yield guidance.

In the wake of several accidents, Carnival had to resort to marketing initiatives and price promotions to trigger bookings, which significantly pulled down the anticipated net revenue yields.

Carnival also expects net cruise costs, excluding fuel per ALBD, to increase 3.5% to 4.5% on a constant and current dollar basis. Higher-than-expected voyage cancellations as well as higher selling and administrative costs led the company to trim its earnings guidance. The projected earnings range for fiscal 2013 is much below the year-ago earnings of $1.88 per share.  

Carnival continuously strives to lower its fuel consumption by implementing several fuel saving technologies. It is on track to achieve its target of reducing cumulative consumption by 23% from 2005 through 2013.

Our Take

Although Carnival is recovering at a modest pace from the Costa disaster last January, the cruise operator continues to suffer one accident after another. These catastrophes have not only resulted in voyage disruptions but also escalated repair costs. Also, these catastrophes compelled Carnival to invest heavily in safety issues.

Further, the prevailing economic uncertainty, especially in Europe poses a major threat for the rest of fiscal 2013. However, reduction in fuel consumption is one bright spot in Carnival’s report card.

Carnival currently carries a Zacks Rank #5 (Strong Sell). Some stocks in the leisure and recreational services sector that are performing well include Six Flags Entertainment Corp. (SIX - Free Report) carrying a Zacks Rank #1 (Strong Buy) and Life Time Fitness Inc. (LTM - Free Report) and The Madison Square Garden Co. (MSG - Free Report) both  carrying a Zacks Rank #2 (Buy).

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