We are reiterating our long-term Neutral recommendation on
), the largest cruise operator in the world.
Carnival's fourth quarter 2011 adjusted earnings of 28 cents per
share were in line with the Zacks Consensus Estimate. However,
quarterly earnings deteriorated from the year-ago quarter earnings
of 31 cents. Total revenue increased 5.7% from the prior-year
quarter to $3,696 million, but fell short of the Zacks Consensus
Estimate of $3,786.0 million.
On a constant currency basis, net revenue yields rose 1.5% year
over year in the fourth quarter. Gross revenue yields rose 0.3% at
current dollars. Net cruise costs, excluding fuel per available
lower berth day (ALBD), were down 1.8% year over year on a constant
The company expects net revenue yield on a constant dollar basis
to increase 1.5% to 2.5% in the first quarter of 2012 and 1% to 2%
in fiscal 2012. For the first quarter of 2012, net cruise costs per
ALBD, excluding fuel are expected to be up 3.5% to 4.5% on constant
dollar basis, primarily due to the higher number of dry-dock days
and related costs versus the prior year. Conversely, for fiscal
2012, net cruise costs per ALBD, excluding fuel, are projected to
be down 0.5% to up 0.5% on a constant dollar basis.
The cruise operator expects adjusted earnings per share in the
range of 6 cents to 10 cents for the first quarter of 2012, hurt by
higher fuel prices and foreign exchange headwinds. However, for
2012, Carnival raised its adjusted earnings outlook from
$2.40-$2.44 to $2.55 -$2.85 per share.
We believe that a strong balance sheet and solid cash generation
should position Carnival well and promise above-average long-term
growth in the backdrop of an improving economy, marked with slow
industry capacity growth. Moreover, during the fourth quarter of
2011, Carnival finally deployed a fuel hedging program to reduce
the risk associated with significant hikes in fuel price.
We believe that the fuel derivative program will mitigate the
impact of fluctuating fuel prices to a certain extent in a cost
effective manner. Management is also committed to its cost-control
To counter the increasing input costs and realize some cost
savings, Carnival is focused on reducing fuel consumption per ALBD
by 1% to 3% per year, over the next couple of years. Additionally,
with the wave season around, which is the heaviest booking period
for the cruise industry occurring between January and March, we
expect booking volumes to improve.
However, European sovereign debt crisis and lower consumer
confidence in Europe are currently acting as major hindrances for
the company's growth, thereby affecting the booking window. Hence,
to boost occupancy, the company has to lower its prices.
Within Europe, southern Europe (Spain and Italy in particular)
remains more challenging, which according to management is
partially attributable to the uncertainty of the future austerity
measures. In contrast, demand has held up well in Germany and in
As for the US customers, demand has been stable with the
exception of European deployments next summer. Management believes
that this weakness is due to a combination of factors including
higher airfare and negative macro headlines regarding Europe.
Moreover, surging fuel prices, unfavorable foreign exchange
fluctuation and a greater exposure to the sluggish European market
remain major headwinds for the company.
Additionally, the recent disaster of the ship Costa Concordia,
owned by Carnival, will be marked as a horrific day in the
company's history and is a huge set back for the industry as a
whole. The vessel is expected to be out of service for atleast the
entire fiscal 2012 and as a result the company expects 2012
earnings to be hurt by 11 cents to 12 cents per share.
CARNIVAL CORP (
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