Carnival Corporation’s (CCL) fourth quarter 2010 earnings came in at 31 cents per share which fell short of the Zacks Consensus Estimate of 32 cents but outperformed year-ago quarter’s earnings of $24 cents. Earnings for the quarter exceeded management’s guidance of 25 to 29 cents per share.

The improvement in results was aided by better-than-expected net revenue yields and ongoing cost reduction initiatives, which more than offset the hike in fuel prices. The results fared better despite the recently announced voyage disruptions, which reduced earnings by 7 cents per share.

Total revenue of Carnival, the world’s largest cruise company, spiked 6.6% from the prior-year quarter to $3.5 billion, ahead of the Zacks Consensus Estimate $3.36 billion. On a constant currency basis, net revenue yields rose 3.9% from the prior-year quarter versus management’s guidance of up 2.5% to 3.5%. Gross revenue yields increased 1.5% in current dollars.

Net cruise costs, including fuel and voyage disruptions, fell 1.1% from the year-ago level on a constant dollar basis. Fuel price of $488 per metric ton was up 6.0% year over year, a slight increase from management’s guidance of $479 per metric ton.

The company’s full-year earnings per share were $2.47 versus $2.24 per share in full fiscal 2009. Revenues were $14.5 billion in full fiscal 2010, representing a year-over-year growth of 7.4%.

Segment Revenues

Passenger Tickets: Revenues from Passenger Tickets increased to $2,666.0 million in the fourth quarter from $2,495.0 million in the fourth quarter of 2010.

Onboard and Other: Revenues from Onboard and Other jumped to $791.0 million in the fourth quarter from $753 million in the prior-year quarter.

Tour and Other: Revenues from the Tour and Other segment declined to $40 million in the fourth quarter from $34 million in the year-ago quarter.

One new ship, Cunard Line’s 2,068-passenger Queen Elizabeth was delivered in Europe in the reported quarter. This will expand Carnival Corporation’s global footprint.

Financial Position

At the end of the fourth quarter, the company had cash and cash equivalents of $429 million, long-term debt of $8.0 billion and shareholder equity of $23.0 billion.

First Quarter 2011 Guidance

Management expects net revenue yields on a constant dollar basis to increase 2%, including the impact of lower Caribbean pricing. Net cruise costs per ALBD excluding fuel for the first quarter are expected to be up 3 to 4%. Based on current fuel prices and currency exchange rates, the company expects fully diluted earnings for the first quarter 2011 to be in the range of 15 cents to 19 cents per share.

Full Year 2011 Guidance

  • Carnival Corporation expects net revenue yields guidance to be up 3% to 4% on a constant dollar basis based on robust booking trends. However, net revenue yields on a current dollar basis are expected to increase from 3.5% to 4.5%.
  • Net cruise costs per available lower berth date, excluding fuel, are projected to be down 0.5% to up 0.5% on a constant-dollar basis.
  • Fuel expenses for 2011 are expected to increase only by $134 million on a year-over-year basis costing 17 cents per share.
  • Carnival anticipates its earnings estimates for full-year 2011 will be in the range of $2.90 to $3.10 per share.

Our Take

We believe Carnival will experience a strong booking and pricing trend, going forward. Its successful cost-containment efforts, and a commendable debt-equity ratio, along with ample cash balance promise above-average long-term growth in an improving economy, marked with slower industry capacity growth and reviving consumer demand.  

However, surging fuel prices, lower Caribbean prices in the first half of 2011 and the overall economic uncertainty will likely restrain Carnival’s growth in the near term. The company expects Caribbean pricing to be lower in the first quarter of 2011, due to significant supply increases in that market.

Hence, Carnival currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.

Carnival’s nearest competitor Royal Caribbean Cruises Ltd. (RCL) will release its fourth quarter 2010 earnings on January 26, 2011.

 
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