On Aug 11, 2014, we issued an updated research report on
This leading cruise operator posted strong fiscal second-quarter
2014 results on Jun 25 with top and bottom lines beating the Zacks
Consensus Estimate. The bottom line of 10 cents was also better
than management's guidance range of a loss of 2 cents to earnings
of 2 cents.
The quarter witnessed a turnaround in Carnival's fortunes buoyed by
the company's brand building efforts and other promotional
activities. This is reflected in the better-than-expected revenue
yields and lower-than-anticipated cruise costs, which drove the
Net cruise costs (in constant dollar) per available lower berth day
(ALBD) (fuel and impairments excluded), increased 1.2% primarily
due to higher dry-dock costs, as well as advertising and promotion
expenses. However, the cost increase was lower than the company's
March guidance of a rise in the range of 2.5% to 3.5%.
Total revenue in the quarter rose 4.4% year over year to $3.63
billion. Also, revenues beat the Zacks Consensus Estimate of $3.58
billion by 1.4%. Revenues in the quarter benefitted from higher in
cruise sales and onboard spending. However, net revenue yields (in
constant currency) declined 2.2% year over year in the second
quarter, better than the company's guidance of 3 4% decline. Gross
revenue yields (in current dollars) also dropped 0.5%.
Though the company expects revenue yield to decline in fiscal
third-quarter 2014, it is expected to improve toward the end of
fiscal 2014 driven by a strong booking environment.
In fact, the company is continuously undertaking new marketing
initiatives to increase its customer base. The company plans to
spend more than $600 million in 2014 on advertising, up 20% from
2012. Also, the company indicated that it will offer promotional
advantages for its guests in fiscal 2014.
Carnival's ships have been facing one accident after another,
significantly affecting its reputation. 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 over
the long term.
Carnival continues to focus on enhancing its fleet by retiring old
ships and adopting new technology. Going forward, such initiatives
will help the company to achieve better revenue yield and improve
Moreover, the company has adopted a strategy to grow beyond its
familiar itineraries and capitalize on Asian opportunities. In
2013, the company doubled its presence in China. The burgeoning
Chinese middle class bodes well for the company's cruise business.
Management considers Asia a significant growth driver and is set to
expand the fleet size in the region, going ahead.
Carnival Corp. presently has a Zacks Rank #3 (Hold). Some
better-ranked stocks in the same industry include Royal Caribbean
Cruises Ltd. (
), Diamond Resorts International, Inc. (
) and Speedway Motorsports Inc. (
). While Royal Caribbean sports a Zacks Rank #1 (Strong Buy),
Diamond Resorts and Speedway Motorsports have a Zacks Rank #2
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