Carnival Corp. Stays Neutral - Analyst Blog

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We are reiterating our long-term Neutral recommendation on Miami, Florida-based Carnival Corporation ( CCL ), 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 dollar basis.


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 initiatives.

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 the UK.

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 ( CCL ): Free Stock Analysis Report
 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

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