We maintain our Neutral recommendation on
) based on the strong fiscal fourth quarter and 2013 results
reported on Dec 19, 2013. However, the company offered a muted
outlook for fiscal first quarter 2014, which keeps us on the
Carnival reported impressive fourth-quarter fiscal 2013 results.
Though quarterly earnings of 4 cents declined 71.4% year over
year due to increased operating costs, it beat the Zacks
Consensus Estimate of a breakeven result. Total revenue in the
quarter increased 2.2% year over year and comfortably surpassed
the Zacks Consensus Estimate by 2.3%. Revenues in the quarter
were driven by increased cruise sales, which offset lower net
revenue yields. Driven by the strong results, the Zacks Consensus
Estimate for fiscal 2014 and 2015 largely moved upwards over the
last 30 days.
Carnival's cruise brands are well diversified across geographic
regions and strategically positioned at various price points
within the larger North American cruise market. With the strength
and diversity of its brands and itineraries, the company has been
successful in capturing a broader passenger base among potential
and repeat cruise vacationers.
The company is set to expand fleet size in Asia as it considers
it to be a significant growth driver for the future. Also, it is
working on a strategy to grow beyond its familiar itineraries and
capitalize on Asian opportunities. In fact, in 2013, the company
was successful in doubling its presence in China and in launching
a home port in Japan.
The company has been trying to reduce its fuel consumption for
the last few quarters. The company succeeded in its efforts, as
its fuel consumption declined 5% per unit in fiscal 2013. Also,
during the fourth quarter, fuel prices declined 6.3% year over
year and were lower than expected. Going forward, these
initiatives would also help the company in meeting air emission
standards, while curtailing fuel costs.
Despite these positives, we remain concerned due to higher
operating costs, which remain an overhang on margins. Higher
operating costs could be attributed to increased marketing spend
and costs incurred to improve entire cruise operations and
enhance guest satisfaction, which would hurt the bottom line in
Further, the company also does not expect revenue yield to
improve before the second half of fiscal 2014. The company
expects net revenue yield to decline in the range of 3% to 4% in
first-quarter fiscal 2014. Net cruise costs per available lower
berth day, 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.
Other Stocks to Consider
The company presently has a short-term Zacks Rank #2 (Buy). Some
other stocks worth considering in the sector include
SeaWorld Entertainment, Inc.
Town Sports International Holdings Inc.
). While SeaWorld Entertainment holds a Zacks Rank #1 (Strong
Buy), HomeAway and Town Sports International Holdings carry a
Zacks Rank #2 (Buy).
HOMEAWAY INC (AWAY): Free Stock Analysis
CARNIVAL CORP (CCL): Free Stock Analysis
TOWN SPORTS INT (CLUB): Free Stock Analysis
SEAWORLD ENTERT (SEAS): Free Stock Analysis
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