Carnival Well Poised On Solid Q3 Results & Growth Prospects

On Oct 6, we issued an updated report on the leisure travel and cruise company, Carnival (LON:CCL) Corporation (NYSE:CCL) .

The company reported strong third-quarter fiscal 2016 results wherein both the top and bottom lines beat the Zacks Consensus Estimate. The quarter’s adjusted earnings per share of $1.92 also surpassed the guided range of $1.83 to $1.87 and increased 9.7% year over year on the back of higher revenues. Meanwhile, total revenue increased 4.4% year over year on the back of Carnival’s efforts to drive demand.

The company also increased its full year 2016 guidance. It now expects earnings in the range of $3.33–$3.37 per share compared with $3.25–$3.35 guided previously.

Scope

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.

Moreover, Carnival’s strategy to grow beyond its familiar itineraries and capitalize on new markets bodes well. Its strategy to tap into the fast growing Asian market bodes well as an increasing number of ports and tourist destinations in Asia present tremendous growth opportunity for the cruise industry. Cruises to comparatively untapped markets like Cuba, Bermuda and Mexico are also expected to favor the company.

The company believes it is well positioned for continued earnings growth, given the current strength in its bookings particularly in Caribbean, Alaska, Europe, Asia and Australia along with pricing trends for next year. In fact, management noted that cumulative advance bookings for the first half of 2017 are well ahead of the year-ago level at significantly higher prices.

Moreover, in the third quarter, the company launched the initial phase of its yield management system, which will aid in driving incremental revenue yields over time.

CARNIVAL CORP Price and Consensus

Risks

With a major portion of Carnival’s revenues coming from Asia and Europe, the company is highly exposed to the impacts of negative currency translation. Though the dollar weakened slightly in 2016 compared to the previous year, the negative currency impact is still quite significant.

Notably, the company faces competition from Royal Caribbean Cruises Ltd. (NYSE:RCL) , Norwegian Cruise Line Holdings Ltd. (NASDAQ:NCLH) and Carnival PLC (NYSE:CUK) in the Leisure and Recreational industry.

Meanwhile, although the marketing initiatives undertaken by the company to enhance bookings will drive the company’s profits over the long haul, these investments are likely to hurt margins in the near term. Further, a slowdown in the Chinese economy, where the company has significant presence, is also likely to dent revenues.

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