Carnival Beats Q3 Earnings, Revs - Analyst Blog

Miami-based cruise company Carnival Corp.'s (CCL) third-quarter fiscal 2013 adjusted earnings of $1.38 per share beat the Zacks Consensus Estimate of $1.30 by 6.2% but were lower than the year-ago quarter earnings of $1.53 by 9.8%. Higher operating costs and increased cruise costs were held responsible for the year-over-year decline in earnings.

However, the quarterly earnings were ahead of management's guidance range of $1.25−$1.35 owing to lower-than-expected unit costs and time shift of advertising expenses.

Total revenue in the quarter inched up 0.9% year over year to $4,726 million, surpassing the Zacks Consensus Estimate of $4,640 million by nearly 1.9%. Revenues in the quarter were driven by increased cruise sales (passenger tickets revenues and onboard and other revenues included) offsetting lower net revenue yields. 

Net revenue yields (in constant currency) declined 3.8% year over year due to lower revenue yields from the North American and Northern European brands, offset by improved yields from the Costa brand. Gross revenue yields (in current dollars) dropped 2%.

Segment Revenues

Carnival earns revenues from its Passenger Tickets business, Onboard and Other as well as Tour and Other segments.

Passenger Tickets: Passenger Tickets revenues in the quarter increased 1.04% year over year to $3,598.0 million.

Onboard and Other: In the third quarter of fiscal 2013, Onboard and Other revenues were $987.0 million, up 2.3% year over year.

Tour and Other: Segment revenues declined 10.8% year over year to $141 million.

Income & Expenses

Operating income was $951 million in third quarter, down nearly 26.6% year over year as a result of higher operating costs.

Net cruise costs (in constant dollar) per available lower berth day (ALBD) (fuel and impairments excluded), increased 4.6% year over year due to the timing of dry-dock expenses, higher spending on vessel improvement initiatives and increased pension plans. Fuel price was $674 per metric ton in the quarter, up 2.3% year over year, while fuel consumption declined 5.2% year over year.  

Fourth-Quarter Fiscal 2013 Guidance

The company expects net revenue yield (in constant dollar) to decline in the range of 3% to 4% in fourth-quarter fiscal 2013. Net cruise costs per ALBD (in constant dollar), excluding fuel, are projected to increase 3.5%−4.5%, resulting from increased advertising expenses and higher investment on vehicle improvement program.    

Based on current fuel prices and currency exchange rates, the company expects loss of 3 cents per share to earnings of 3 cents per share in the fourth quarter, significantly lower than the year-ago earnings of 13 cents per share.

Full Year 2013 Guidance Declined

Carnival lowered its earnings guidance for the full year of fiscal 2013 to $1.51–$1.57 from its previous guidance of $1.45–$1.65. The company trimmed its earnings guidance in view of the expected higher-than-expected fuel prices and increased cruise costs. The projected earnings range for fiscal 2013 is much below the year-ago earnings of $1.88 per share.

Net revenue yields (in constant dollar) were guided to be down 3% against the previously-announced yield guidance of 2%–3%. The prevailing geopolitical turmoil in Eastern Mediterranean region is expected to hurt revenue yields.

Carnival also expects net cruise costs per ALBD, excluding fuel and impairments (on a constant dollar), to increase 4% against the prior guidance of 3.5%–4.5%.

For the first half of fiscal 2014, the company expects to witness a decline in revenue yields. For full year fiscal 2014, net cruise costs excluding fuel per ALBD are estimated to be high.

Our Take

We believe that Carnival's turnaround remains on track. The company's several brand-building efforts and other marketing promotions are expected to be beneficial. Reduction in fuel consumption is another bright spot in Carnival's report card.

However, higher operating costs remain a major headwind for the Zacks Rank #3 (Hold) company. European crisis and geopolitical conflict in Middle East region remain a lingering concern.

Other stocks in the leisure and recreational services sector that are performing well include Interval Leisure Group, Inc. (IILG), Rick's Cabaret International Inc. (RICK) and Cedar Fair, L.P. (FUN). While Interval Leisure and Rick's Cabaret carry a Zacks Rank #1 (Strong Buy), Cedar Fair holds a Zacks Rank #2 (Buy).