Carnival Corporation’s (CCL, Financial) recently revealed first quarter results for fiscal 2015 was a mixed bag with earnings comfortably beating the consensus estimate but revenues falling short. Carnival reported adjusted EPS on $0.20 a share for the quarter, way ahead of the consensus estimate of $0.09 a share as well as the company’s own guidance of $0.11-$0.17 a share on the back of better-than-expected revenues as well as revenue yields. Earnings were also significantly higher than the year-ago quarter’s breakeven earnings. Following the results, the Carnival shares climbed to a new 52-week high of $47.70 before dropping to $47.12 at closing bell.
Lower Operating Costs, Fuel Prices Boost Earnings
Carnival reported revenues of $3.53 billion for the first quarter of fiscal 2015, down 1.5% year-over-year and missing the consensus estimate of $3.57 billion, owing to lower sales of passenger tickets. However, net revenue yields grew 2% year-over-year on a constant currency basis. The company logged operating income of $266 million for the quarter, significantly higher than the year-ago levels owing to lower operating expenses and higher revenues. Although Carnival saw its net cruise costs per available berth going up 2.4% year-over-year on a constant currency basis on the back of higher advertising expenses and dry-dock costs, gross cruise costs fell a significant 9.6% owing to changes in currency exchange rates and fuel prices. While the company’s fuel consumption fell 3.7% during the first quarter, the period saw fuel prices declining 38% year-over-year to $405 per metric ton.
Segment wise, the cruise ship company saw revenues declining 3.5% year-over-year to $2.63 billion at its Passenger Tickets division, while revenues from its Onboard and Other division grew 4.6% year-over-year to $889 million. The company’s Tour and Other division contributed $10 million to the overall revenues, up from the prior-year quarter’s $8 million.
Soft Outlook for FY2015
Carnival, which competes with businesses such as Royal Caribbean Cruises Ltd (RCL, Financial) and Norwegian Cruise Line Holdings Ltd (NCLH, Financial), also revealed its guidance for the second quarter and full fiscal 2015. The company said that although net revenue yields in Q2 2015 is likely to rise by 2%-3% year-over-year, net cruise costs excluding fuel are also expected to grow by 6.5%-7.5% year-over-year on a constant dollar basis owing to higher annual costs of dry-docking most of which would be incurred during the second quarter. At the same time, Carnival also expects to benefit from positive foreign currency headwinds and lower fuel prices that could add around $74 million or $0.09 a share to its Q2 earnings. Consequently, the company projected adjusted earnings for the second quarter in the $0.11-$0.15 a share range, which is much below the consensus estimate of $0.26 a share.
For the full fiscal 2015, Carnival expects net cruise costs excluding fuel costs to increase 2%-3%. Based on current trends in passenger bookings, the company revised its earlier guidance of 2% year-over-year growth in net revenue yields to the new 3%-4% growth. The company also lowered the higher end of its earlier earnings guidance, revising the adjusted EPS range from $2.30-$2.60 a share to $2.30-$2.50 a share, owing to expected negative foreign currency headwinds. The company also announced that advance bookings for the remainder of the year were already ahead of the prior-year levels and at higher prices.
Final Thoughts
Carnival reported upbeat earnings for Q1 2015, beating consensus estimates by a significant margin and topping the company’s own guidance. The company’s efforts at brand building, promotional activities as well as reducing fuel consumption are steps in the right direction. However, revenue from Passenger Tickets remains a concern and the company’s forecast of higher operating expenses for the second quarter resulting in the projection of lower-than-expected earnings is a dampener. Experts are looking at a growth rate of around 17% for Carnival’s average annual earnings over the next five years with a peak in FY2018. Although the market is bullish regarding the Carnival stock, it currently carries a ‘hold’ guidance for the short term.
