Shares of Carnival Corporation (CCL) reached a new 52-week high of $42.31 at the beginning of the trading session on Sep 23, just after the company reported blockbuster third-quarter 2014 results primarily due to higher revenues.
Also, the company’s strong financial performance led it to raise its profit forecast for 2014 boosting investors’ confidence.
The share price of the cruise operator eventually closed at $40.51, an increase of 0.4% from the previous day.
Earnings Discussion
Carnival‘s adjusted earnings of $1.58 per share surpassed the Zacks Consensus Estimate of $1.43 as well as management’s guidance range of $1.38–$1.44.
Further, quarterly earnings were higher than the year-ago quarter figure of $1.38 per share. Higher revenues, better-than-expected revenue yields and lower-than-anticipated cruise costs drove the year-over-year rise in earnings. Third-quarter earnings excluded net unrealized gains on fuel derivatives.
Total revenue in the quarter rose 4.7% year over year to $4.94 billion. Also, revenues beat the Zacks Consensus Estimate of $4.88 billion by 1.2%. Revenues in the quarter benefitted from higher in cruise sales and onboard spending.
Further, net revenue yields (in constant currency) increased 1.8% year over year in the reported quarter, better than the company's guidance of net revenue yield (in constant dollar) remaining flat to down 1%.
Net cruise costs (in constant dollar) per available lower berth day (ALBD) (fuel and impairments excluded) increased 0.5%, better than the company’s June guidance of up 1–2%, due to the timing of certain expenses.
Fourth-Quarter 2014 Guidance
Carnival expects net revenue yield (in constant dollar) in the fourth quarter to be up 1.5% to 2.5% compared with the year-ago quarter. Net cruise costs per ALBD, excluding fuel, are expected to be down 1–2% on a constant dollar basis from the prior-year quarter.
Based on the above factors, the company expects adjusted earnings for the fourth quarter 2014 in the range of 15 to 19 cents per share, higher than 2013 adjusted earnings of 4 cents.
Full-Year Fiscal 2014 Guidance
Based on the strength of third-quarter net revenue yields and present booking trends, Carnival expects net revenue yield (in constant dollar) to remain flat year over year, better than the prior guidance of its being marginally down. Net cruise costs per ALBD (in constant dollar), excluding fuel, are projected to increase slightly.
the company expects its bottom line in the range $1.84–$1.88 per share in 2014, better than both June guidance of $1.60 to $1.75 and 2013 adjusted diluted earnings per share of $1.58.
Sailing High?
We believe Carnival is sailing high on robust earnings and strong guidance for fiscal 2014. The company seems to have won back customers after the Costa Concordia mishap in 2012 and a fire aboard the Triumph last year.
This is reflected in the higher bookings and the 10% year-over-year jump in on-board spending in the recently reported quarter. The company’s several brand-building efforts and other marketing promotions have started yielding results.
Carnival’s partnership with Dr. Seuss Enterprises to provide a variety of exciting and immersive dining and entertainment experiences on its fleet of 24 "Fun Ships” as part of its brand-building efforts is expected to further boost revenues. Reduction in fuel consumption is another bright spot in Carnival’s report card.
Stocks to Consider
Carnival carries a Zacks Rank #2 (Buy). Some other stocks in the leisure and recreational industry that can be considered include HomeAway, Inc. (AWAY), Royal Caribbean Cruises Ltd. (RCL) and Diamond Resorts International, Inc. (DRII). All these stocks sport a same Zacks Rank as Carnival.
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