Carnival Corporation (CCL) reported third quarter 2011 adjusted earnings of $1.71 per share, breezing past the Zacks Consensus Estimate of $1.63 and showing an improvement from the year-ago quarter earnings of $1.62.
Bottom line results exclude a charge of 2 cents related to the sale of Costa Marina. Earnings also exceeded management's guided range of $1.60–$1.64 per share.
The better-than-expected results were driven by higher net revenue yields in North America brands and lower costs, partially offset by persistent hike in fuel prices and lower yield for European, Australian and Asian brand.
Carnival’s third quarter total revenue increased 11.7% from the prior-year quarter to $5.1 billion, beating the Zacks Consensus Estimate of $4.9 billion. On a constant currency basis, net revenue yields rose 2.6% from the prior-year quarter and were better than management’s guidance range of up 1.0% to 2.0%. Gross revenue yields rose 6.8% at current dollars.
Net cruise costs, excluding fuel per available lower berth day (ALBD) and Costa Marina charge, were up 1.9% year over year on a constant dollar basis. Fuel price of $686 per metric ton was up 45.0% year over year, reflecting an increase from management’s guidance of $670 per metric ton.
Segment Revenue
Passenger Tickets: Revenue increased to $3,907.0 million from $3,478.0 million in the third quarter of 2010.
Onboard and Other: Revenue increased to $936.0 million from $847.0 million in the prior-year quarter.
Tour and Other: Revenue from the segment rose to $215.0 million from $202.0 million in the year-ago quarter.
Financial Position
At quarter end, the company had cash and cash equivalents of $430 million, long-term debt of $7.7 billion and shareholder equity of $24.8 billion.
Fourth Quarter 2011 Guidance
Management expects net revenue yield on a constant dollar basis to increase 1.0% to 2.0%. Net cruise costs per ALBD, excluding fuel are expected to be down 2.5% to 3.5% on current dollar basis. Based on current fuel prices and currency exchange rates, the company expects fully diluted earnings in the range of 26 cents to 30 cents per share.
Full Year 2011 Guidance
Carnival Corporation expects net revenue yield to increase 2% on a constant dollar basis, in line with its previous guidance of up 1.5% to 2.5%. Net revenue yield on a current dollar basis is estimated to be up 4.0%.
However, net cruise costs per ALBD, excluding fuel, are projected to be up 1% on a constant dollar basis, at the higher end of the company’s previous guidance of flat to up 1%, due to the charge related to the sale of Costa Marina.
Net cruise costs per ALBD, excluding fuel, are projected to be up 3.0% on a current dollar basis.
Fuel expenses are estimated at $648.0 per metric ton. Based on the current spot prices, fuel costs are expected to increase $542 million year over year, costing an incremental 69 cents per share.
Carnival has narrowed its earnings range to $2.40 to $2.44 per share, from its previous outlook of $2.40 to $2.50, due to unfavorable currency exchange and steeper fuel price.
Our Take
Carnival has reduced its earnings outlook, hence we expect estimates to be lowered in the coming quarters. The Zacks Consensus Estimate for 2011 and 2012 are pegged at $2.44 and $2.89, respectively.
We believe that a strong balance sheet and solid cash generation capacity should position Carnival well and promise above-average long-term growth in an improving economy, marked with slow industry capacity growth and reviving consumer demand.
However, surging fuel prices and a greater exposure to a sluggish European market remain headwinds for the company.
Carnival, which competes with Royal Caribbean Cruises Ltd. (RCL), currently retains a Zacks #3 Rank (short-term Hold rating). We also reiterate our long-term Neutral recommendation.
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