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Carnival (CCL) Q3 Earnings Top, Stock Down on Soft '19 View

Zacks Equity Research

Carnival Corporation CCL reported third-quarter fiscal 2019 results, wherein both earnings and revenues surpassed the Zacks Consensus Estimate. However, shares of the company lost nearly 7% during the pre-market trading session, following its trimmed guidance for fiscal 2019.

In fourth quarter, Carnival’s results are likely to be impacted by Hurricane Dorian, the tensions in the Arabian Gulf as well as the delayed delivery of Costa Smeralda.

A glance at the company’s price performance too shows that it has underperformed the industry year to date. The stock has lost 2.5% against the industry’s 3.9% growth.

Adjusted earnings in the quarter under review came in at $2.63 per share, which exceeded the Zacks Consensus Estimate of $2.53 and also jumped 11.4% year over year. Also, revenues of $6,533 million outpaced the consensus mark of $6,178 million and increased 11.9% 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 declined 0.5% year over year, which was in line with the company’s prior guidance. Notably, net on-board and other yields increased 2.3% in constant currency.

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 2.8% year over year to $4,477 million. Onboard and Other revenues totaled $1,855 million, up 41% year over year. Tour and Other revenues rose 19.8% year over year to $200 million.

Expenses

Net cruise costs (in constant dollar) per available lower berth day (ALBD), excluding fuel, decreased 3.2%. Gross cruise costs (including fuel) per ALBD, in current dollars, rose 9.4%.

Balance Sheet

Carnival exited the fiscal third quarter with cash and cash equivalents of approximately $1,153 million, down from $982 million as of Nov 30, 2018. Trade and other receivables summed $441 million, down from $358 million as of Nov 30, 2018. Long-term debt amounted to approximately $8,893 million.

Cash from operations totaled $1,245 million in the quarter under review. Carnival’s capital expenditure was $427 million while it paid out dividend worth $347 million during the same period.

Q4 Outlook

Carnival expects fourth-quarter fiscal 2019 EPS to be in the range of 46-50 cents compared with adjusted earnings of 70 cents per share reported the prior-year quarter. The company expects Voyage disruptions due to weather, a ship delivery delay and U.S. government's policy change on travel to Cuba to impact four-quarter earnings by 7-9 cents. The Zacks Consensus Estimate for fourth-quarter earnings is pegged at 65 cents.

In constant currency, net revenue yields are expected to be down 2-3%. Also, net cruise costs (excluding fuel), per ALBD, are expected to increase by 4-5% compared with the prior-year figure, in constant currency.

Carnival Corporation Price, Consensus and EPS Surprise

Carnival Corporation Price, Consensus and EPS Surprise

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

Fiscal 2019 View

Carnival stated that 2019 results are likely to be impacted by Hurricane Dorian, the tensions in the Arabian Gulf, the delayed delivery of Costa Smeralda and the recent increase in fuel prices due to geopolitical events. Changes in fuel prices and currency exchange rates are likely to hurt company’s full-year earnings by 8 cents. Moreover, weather-related voyage interruptions, the tensions in the Arabian Gulf and a ship delivery delay are likely to have a negative impact of 4-6 cents in comparison to June guidance.

However, the company continues to expect higher yields from North America and Australia brands but marginally less than the prior guidance. The company continues to expect lower yields in the Europe and Asia segment.

Considering the afore-mentioned factors, Carnival now expects 2019 EPS to be in the $4.23-$4.27 band, down from $4.25-$4.35 projected earlier. The consensus estimate for the current-year earnings is pegged at $4.33. Net cruise revenues are likely to improve 4%, with 4.2% capacity growth.

However, Carnival expects net cruise costs (excluding fuel), per ALBD, to be up nearly 0.3% in constant currency compared with June guidance of up roughly 0.7%.

Fiscal 2020 Guidance

For fiscal 2020, the company expects capacity growth to be nearly 7%. Carnival anticipates  2020 fuel expense to be $1.8 billion compared with 2019 fuel expense of $1.6 billion.

Zacks Rank & Key Picks

Carnival has a Zacks Rank #3 (Hold). Better-ranked stocks worth considering in the same space include SeaWorld Entertainment, Inc. SEAS, Cedar Fair, L.P. FUN and Studio City International Holdings Limited MSC. While SeaWorld Entertainment sports a Zacks Rank #1 (Strong Buy), Cedar Fair and Studio City International carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

SeaWorld Entertainment’s earnings have surpassed the Zacks Consensus Estimate in the trailing four quarters, the average being 34.9%.

Cedar Fair reported better-than-expected earnings in three of the trailing four quarters, the average being 3.8%.

Studio City International Holdings earnings have outpaced the consensus estimate in each of the trailing three quarters.

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