Carnival Rides on Initiatives & Bookings Trend, Risks Stay

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On Oct 18, we issued an updated research report on cruise and vacation company Carnival CorporationCCL .

Last month, the company posted better-than-expected third-quarter fiscal 2017 results, wherein both earnings and revenues beat the Zacks Consensus Estimate. Meanwhile, Carnival anticipates fiscal 2017 adjusted earnings per share in the range of $3.64 to $3.70 (previous projection was in the range of $3.60 to $3.70).

In fact, the company continues to reflect strength in several areas and is thus expected to continue performing well in the quarters ahead.

Key Growth Drivers

Of late, Carnival has been continually introducing new flagships to formulate measured capacity growth over time. This also allows its global fleet to meet escalating demand for cruise vacations in every region of the world. In fact, the company currently has 18 new ships planned to be delivered between 2018 and 2022.

We note that the launch of new ships is also a part of the company's long-term strategy to build state-of-the-art vessels that aid in providing guests with a remarkable vacation experience at an exceptional value. Given burgeoning demand for cruise travel, the addition of ships to its fleet bodes well.

Meanwhile, Carnival continues to drive revenue yield growth by creating demand in excess of measured capacity growth through its ongoing guest experience, marketing and public relations effort.

The company is particularly positive on its recent innovations like the transformational new ocean experience platform, featuring Ocean Medallion, a guest experience platform; PlayOcean, a proprietary mobile gaming portfolio and OceanView, a proprietary digital streaming network. These new offerings are anticipated to accelerate and expand engagement and step up the company's already high guest experience delivery by leveraging its industry-leading scale.

Carnival also believes that it is well positioned for continued earnings growth, given the current strength in its bookings. In fact, management noted that cumulative bookings for the first half of 2018 are still well ahead of the prior year at higher prices, at this point in time. It thus expects revenue yields (in constant dollars) to continue improving in fiscal 2018 backed by marketing initiatives and a better booking environment.

Markedly, Carnival has adopted a strategy to grow beyond its familiar itineraries and capitalize on new markets. The Asian source market for cruises is expected to continue growing significantly as it becomes more consumer-driven. Going forward, the company expects to continue profitably growing its presence in China and throughout Asia. Carnival is especially optimistic about growth prospects of the Japanese and Australian markets.

In the meantime, the company continues to lookout for sailing to new destinations in order to drive demand for cruising. Already, Carnival had sailed to markets like Cuba, Mexico and Bermuda in fiscal 2016, where demand is expected to ramp up and boost revenues, significantly.

Bottom Line

Does this mean that the company has been lying on a bed of roses? Well, not really!

Continual strengthening of the U.S. dollar against the functional currencies of the company's foreign operations is likely to adversely impact the company's results. Moreover, an increase in fuel prices may further prove detrimental to the company's earnings growth.

Lingering global uncertainties in certain international markets has also been keeping growth at check. Meanwhile, increased investments in advertising, TV programming and other revenue generating opportunities might put pressure on near-term margins and earnings.

In addition, the company faces competition from other cruise operators including Royal Caribbean Cruises Ltd. RCL and Norwegian Cruise Line Holdings Ltd. NCLH .

However, notwithstanding the headwinds, Carnival is well poised for growth given its global leader position in the cruise industry and an expected increase in demand for cruise travel, going forward.

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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 Nasdaq, Inc.

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

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