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Carnival (CCL) Q2 Earnings Top, Weak View Hurts Cruise Stocks

Zacks Equity Research

Carnival Corporation CCL 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.

A glance at the company’s price performance too shows that it has underperformed the industry in the past three months. The stock has lost 13.5% against the industry’s 0.2% growth.

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.


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%.

Carnival Corporation Price, Consensus and EPS Surprise

Carnival Corporation Price, Consensus and EPS Surprise

Carnival Corporation price-consensus-eps-surprise-chart | Carnival Corporation Quote

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.

Domino Effect

Carnival’s trimmed guidance for fiscal 2019 disappointed investors. Following the news, cruise stocks like Norwegian Cruise Line Holdings Ltd. NCLH and Royal Caribbean Cruises Ltd. RCL declined 2.5% and 3.2%, respectively, on Jun 20.

Zacks Rank & A Key Pick

Carnival has a Zacks Rank #3 (Hold). A better-ranked stock in the same space is SeaWorld Entertainment, Inc. SEAS, carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

SeaWorld Entertainment reported better-than-expected earnings in the trailing four quarters, the average being 35.6%.

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