Carnival (CCL) Down 7.6% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Carnival (NYSE:CCL). Shares have lost about 7.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Carnival due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Carnival Q2 Earnings Top, Weak View Hurts Cruise Stocks

Carnival reported second-quarter fiscal 2019 results, wherein both earnings and revenues surpassed the Zacks Consensus Estimate. However, shares of Carnival declined 7.7% on Jun 20. Furthermore, the company trimmed its guidance for fiscal 2019. In the coming quarters, quarterly results will be impacted by Trump administration's policy change on travel to Cuba and lower ticket prices.

Adjusted earnings in the quarter under review came in at 66 cents per share, which exceeded the Zacks Consensus Estimate of 61 cents but declined 2.9% year over year. Meanwhile, revenues of $4,838 million outpaced the consensus mark of $4,532 million and increased 11% year over year. This upside can be attributed strength in passenger tickets, and onboard and other as well as tour and other businesses.

On a constant-currency basis, net revenue yields rose 0.6% year over year. Notably, net on-board and other yields that increased 1.6% in constant currency led to the uptick.

Segmental Revenues

Carnival generates revenues from the Passenger Tickets business, and the Onboard and Other as well as the Tour and Other segments. Revenues at the Passenger Tickets business segment increased 2% year over year to $3,257 million. Onboard and Other revenues totaled $1,122 million, up 34.6% year over year. Tour and Other revenues rose 69% year over year to $71 million.

Expenses

Net cruise costs (in constant dollar) per available lower berth day (ALBD), excluding fuel, decreased 1.5%. Gross cruise costs (including fuel) per ALBD, in current dollars, were up 12.1%.

Balance Sheet

Carnival exited the fiscal second quarter with cash and cash equivalents of approximately $1,202 million, down from $982 million as of Nov 30, 2018. Trade and other receivables summed $405 million, down from $358 million as of Nov 30, 2018. Long-term debt amounted to approximately $9,080 million.

Cash from operations totaled $2,053 million in the quarter under review. Carnival spent $893 million on capital expenditure and $346 million on dividends during the same period.

Q3 Outlook

Carnival expects third-quarter fiscal 2019 EPS to be $2.50-$2.54 compared with adjusted earnings of $2.36 per share reported the prior-year quarter. The Zacks Consensus Estimate for third-quarter earnings is pegged at $2.70. In constant currency, net revenue yields are expected to be flat to down marginally. Also, net cruise costs (excluding fuel), per ALBD, are expected to increase by 0.5% to 1.5% compared with the prior-year figure, in constant currency.

Fiscal 2019 Guidance

Carnival stated that Continental European brands are impacted by heightened geopolitical and macroeconomic headwinds. However, the company continues to expect higher yields from North America and Australia brands, which will overshadow lower yields in the company’s Europe and Asia brands during the third and fourth quarter of fiscal 2019.

Furthermore, Trump administration's policy change on travel to Cuba is concerning. It will impact Carnival’s earnings by 4 cents to 6 cents, whereas Voyage disruptions related to Carnival Vista will hurt the bottom line by 8-10 cents. This apart, the company is expecting lower ticket prices in the second half of 2019.

Taking the afore-mentioned factors into consideration, Carnival now expects net cruise revenues to improve 4.5%, with 4.5% capacity growth compared with the prior projections of increase by 5.5% and 4.6%, respectively. For the fiscal year, the company anticipates EPS to be in the $4.25-$4.35 band, down from $4.35-$4.55 projected earlier. The consensus estimate for the current year is pegged at $4.53.

However, Carnival continues to expect net revenue yields to increase by 1% in constant currency.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -6.3% due to these changes.

VGM Scores

At this time, Carnival has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Carnival has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.