Carnival (CCL) Beats Q2 Earnings, Q3 View Below Expectations

Carnival (LON:CCL) Corp. (NYSE:CCL) reported strong second quarter fiscal 2016 results, wherein both earnings and revenues beat the respective Zacks Consensus Estimate.

The Miami-based cruise company’s adjusted earnings per share of 49 cents surpassed the Zacks Consensus Estimate of 39 cents by 25.6%, as well as the guided range of 34 cents to 38 cents. Further, earnings surged 96% year over year.

Higher-than-expected revenue yields drove the substantial year-over-year increase in earnings. Quarterly earnings exclude net unrealized losses on fuel derivatives.

Total revenue increased 2.8% year over year to $3.71 billion on the back of Carnival’s efforts to drive demand. Revenues also beat the Zacks Consensus Estimate of $3.66 billion by 1.1%.

Net revenue yields (in constant currency) increased 3.6% year over year, better than the March guidance of 1.5–2.5% rise. Gross revenue yields, however, increased only 1.3% due to fluctuation in currency exchange rates.

Segment Revenues

Carnival earns revenues from its Passenger Tickets business, Onboard and Other as well as Tour and Other segments.

Passenger Tickets: Passenger Tickets revenues increased 2.6% year over year to $2.69 billion.

Onboard and Other: Onboard and Other revenues were $978 million, up 5.5% year over year.

Tour and Other: Revenues declined to $31 million compared with the year-ago figure of $35 million.

Income & Expenses

Net cruise costs (in constant dollar) per available lower berth day (ALBD) (fuel and impairments excluded) decreased 1.9%. This was better than an expected increase of 0.5% to 1.5% in costs due to favourable timing. Gross cruise costs, including fuel per ALBD in current dollars, decreased 5.4%, supported by favorable changes in fuel prices.

Fiscal Third-Quarter 2016 Guidance

Fiscal third-quarter net revenue yields in constant dollars are expected to increase 2%–3% year over year. Net cruise costs, excluding fuel per ALBD, are expected to grow 6% to 7% year over year on a constant dollar basis.

Based on the above factors, the company expects adjusted earnings per share within a range of $1.83 to $1.87. The guidance fell short of the Zacks Consensus Estimate of $2.01 per share.

Fiscal 2016 Guidance

The company tightened its full-year 2016 adjusted earnings per share expectation. It now expects earnings in the range of $3.25 to $3.35 compared with $3.20–$3.40 guided previously.

Based on current booking trends, the company expects full-year 2016 net revenue yields in constant currency to be up approximately 3.5%, better than 3% expected previously.

The company expects net cruise costs excluding fuel per ALBD, on a constant currency basis, for full-year 2016 to be up nearly 1.5%.

Management noted that cumulative advance bookings for the rest of 2016 are well ahead of the year-ago level at marginally higher prices. However, it also said that since March, booking volumes for the remainder of the year have been lower than that the last year because of lower inventory available for sale than in the year-ago period.

Our Take

Carnival is well positioned as the global leader in the cruise industry with solid growth prospects. The company’s brand-building efforts and other promotional activities are expected to boost bookings further. Meanwhile, its strategy to tap into the fast growing Asian market requires special mention.

However, higher operating costs associated with investments in technology and advertising remain a major headwind for this Zacks Rank #3 (Hold) company.

Some stocks in the leisure and recreational industry that can be considered are Diamond Resorts International, Inc. (NYSE:DRII) , Planet Fitness, Inc. (NYSE:PLNT) and The Marcus Corp. (NYSE:MCS) . All of them carry a Zacks Rank #2 (Buy).