Carnival Beats on Q4 Earnings, Revs - Analyst Blog

By Zacks Equity Research,

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Miami-based cruise company Carnival Corp. ( CCL ) reported impressive fourth-quarter fiscal 2013 results beating the Zacks Consensus Estimate for both earnings and revenues on the back of increased cruise ticket prices and higher onboard spending in Carnival Cruise Lines, offsetting higher operating costs.

Though the company has stated that its net revenue yields will fall in first-quarter fiscal 2014, it is expected to increase slowly in the ensuing quarters, benefiting from improving booking trends and better ticket pricing.

Carnival's fourth-quarter fiscal 2013 adjusted earnings of 4 cents per share outpaced the Zacks Consensus Estimate of a breakeven result, driven by higher revenues. It was also ahead of management's guidance range of a loss of 3 cents to earnings of 3 cents.

However, quarterly earnings were lower than the year-ago quarter earnings of 14 cents per share by 71.4%. Higher operating costs were responsible for the year-over-year decline in earnings.

Total revenue in the quarter increased 2.2% year over year to $3,659 million, surpassing the Zacks Consensus Estimate of $3,577 million by nearly 2.3%. Revenues in the quarter were driven by increased cruise sales resulting from higher ticket prices and increased onboard spending offsetting lower net revenue yields. 

Net revenue yields (in constant currency) declined 2.1% year over year in the fourth quarter. Gross revenue yields (in current dollars) also dropped 0.9%.

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 1.4% year over year to $2,697 million.

Onboard and Other: In the fourth quarter of fiscal 2013, Onboard and Other revenues were $929 million, up 3.9% year over year.

Tour and Other: Segment revenues increased 26.9% year over year to $33 million.

Income & Expenses

Operating income was $104 million in third quarter, down nearly 40.9% 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 6.5% year over year due to the increase in advertising expenditure.

Carnival's ships have been facing one accident after another which affected its performance significantly. In order to recover, the company has undertaken a series of initiatives. Although these initiatives have pressured the company's profit, raising its costs at the current level, these are expected to prove beneficial in the long term.

Fuel price was $671 per metric ton in the quarter, down 6.3% year over year, while fuel consumption declined 2.7% year over year. Carnival has been striving hard for the past few quarters to reduce its fuel consumption. During the fourth quarter, the company achieved its target of reducing cumulative fuel consumption by 23% from 2005 through 2013.

Full-Year Fiscal 2013 Results

For full-year fiscal 2013, earnings per share were $1.58 which was ahead of the Zacks Consensus Estimate of $1.55 per share by 1.9% but below the prior-year earnings of $1.94 per share by 18.6%.

For full-fiscal 2013, revenues were $15.5 billion beating both the Zacks Consensus Estimate and the prior year's revenues of $15.4 billion by 0.6%.

First-Quarter Fiscal 2014 Guidance

The company expects net revenue yield (in constant dollar) to decline in the range of 3% to 4% in first-quarter fiscal 2014. Net cruise costs per ALBD (in constant dollar), excluding fuel, are projected to increase 4.5%−5.5%, resulting from increased advertising expenses.    

Based on higher costs and lower revenues, the company expects a loss of 7 cents to 11 cents per share in the first quarter which is significantly lower than the company's year-ago earnings of 9 cents per share.

Full-Year Fiscal 2014 Guidance

For the full year of fiscal 2014, Carnival expects its earnings to be within $1.40-$1.80 versus fiscal 2013 earnings of $1.58 per share.

Although the company's revenue yield is expected to be down in the first quarter, it will improve in the second half of 2014 driven by better booking environment and higher ticket pricing. Net revenue yields (in constant dollar) were guided to fall marginally in fiscal 2014.

Carnival also expects net cruise costs, excluding fuel per ALBD (on a constant dollar), to increase in fiscal 2014 as compared with the year-ago levels.

For full-year fiscal 2014, net cruise costs excluding fuel per ALBD are estimated to be high as compared with the year-ago level.

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. Carnival recently entered into a partnership with Dr. Seuss Enterprises to provide a variety of exciting and immersive dining and entertainment experiences on its fleet of 24 "Fun Ships" as part of its brand-building efforts.

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.

Like Carnival, another cruise operator Royal Caribbean Cruises Ltd. ( RCL ) has undertaken a host of brand building initiatives such as initiating a travel agent outreach program in June, a vacation guarantee program and a marketing campaign on prime time.

Other better-ranked stocks in the leisure and recreational industry include Regal Entertainment Group ( RGC ) and SeaWorld Entertainment, Inc. ( SEAS ). Both the companies carry a Zacks Rank #2 (Buy).

CARNIVAL CORP (CCL): Free Stock Analysis Report

ROYAL CARIBBEAN (RCL): Free Stock Analysis Report

REGAL ENTMNT GP (RGC): Free Stock Analysis Report

SEAWORLD ENTERT (SEAS): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
Referenced Stocks: CCL , RCL , RGC , SEAS

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