Carnival Corp. (CCL), the world's largest cruise ship operator, is trading modestly higher today (+3%) after it reported Q3 (Aug) earnings this morning. In terms of quick background, you are likely very familiar with Carnival. However, you may not realize that they are much more than that. They operate a portfolio of 10 brands that include nine of the world's largest cruise lines.
With operations in North America, Europe, Australia and Asia, its portfolio features Carnival Cruise Line, Holland America Line, Princess Cruises, Seabourn, AIDA Cruises (Germany), Costa Cruises, Cunard, P&O Cruises (Australia) and P&O Cruises (UK), as well as Fathom, the company's immersion and enrichment experience brand. Together, its cruise lines operate 103 ships with 231,000 lower berths visiting over 700 ports around the world, with 18 new ships scheduled to be delivered between 2018 and 2022. CCL also operates Holland America Princess Alaska Tours, a tour company in Alaska and the Canadian Yukon.
Taking a step back, the multi-night global cruise industry has grown significantly but still remains a relatively small part of the wider global vacation industry, which includes a large variety of land-based vacation alternatives around the world. CCL believes the cost of a cruise vacation represents an exceptional value in comparison to land-based vacations. Cruising delivers many relatively unique benefits, such as transportation to various destinations while also providing accommodations, a generous diversity of food choices and a selection of daily entertainment options for one all-inclusive, competitive price.
Cruising appeals to a broad range of ages and income levels. Cruising provides something for every generation, from kids' clubs to an array of onboard entertainment designed to appeal to teens and adults. While baby boomers make up a large proportion of cruisers, CCL has made a strong effort to attract younger guests. With a population of over 80 million, the millennial generation has surpassed the baby boomers and now represents the largest generation size in history. For the millennial generation, vacation is typically not merely about relaxation and exploring, but rather being able to share their adventures with friends and family via social media. Also, millennials typically prefer more affordable vacations without sacrificing the accommodations or experiences. As such, CCL has been working on enhancing its ships' internet connectivity.
Turning to the AugQ results, non-GAAP EPS grew 19% YoY to $2.29, a good bit ahead of prior guidance of $2.16-2.20. Revenue rose 8.2% year/year to $5.51 bln, which was also above market expectations. In terms of guidance, CCL expects Q4 (Nov) non-GAAP EPS of just $0.44-0.50 which is a good bit below market expectations and a good bit below the $0.67 earned in the prior year period.
So why the weak guidance? Several temporary port closures associated with the storms led to voyage disruptions which are expected to result in a $0.10-0.12 EPS hit in Q4 (Nov). The company has resumed normal operations, with some itinerary modifications. At this time, cumulative bookings for the first half of next year are well ahead of the prior year on both price and occupancy. Since June, booking volumes for the first half of next year have been running ahead of last year at prices that are well ahead.
CCL says it delivered another consecutive quarter of strong operational improvement as its efforts to create demand well in excess of supply growth helped to drive 5% higher cruise ticket pricing. Also, CCL is excited about some innovation efforts that should interest younger cruisers. CCL recently announced a digital streaming channel, OceanView, and its mobile gaming portfolio, PlayOcean, both launching this week. The company will launch OceanView and PlayOcean at a public relations event in New York City's Time Square on September 28.
In terms of the recent earthquakes in Mexico and a very challenging series of hurricanes, many people throughout these areas have been impacted and several ports are temporarily unavailable. Fortunately, CCL's owned destinations including Amber Cove, Dominican Republic; Cozumel, Mexico; Mahogany Bay, Honduras; Half Moon Cay and Princess Cays, Bahamas, as well as more than 40 other ports, plus all those in Mexico, are fully operational.
In sum, investors seem pleased overall with the AugQ result and NovQ guidance. The hurricanes did have an impact and hurt NovQ guidance, but the stock had already pulled back in recent weeks, so the concern was likely already priced in. Perhaps investors were bracing for even worse guidance so that may be why the stock is higher. Also, CCL's commentary on strong bookings for 1H18 may be fueling the stock as well this morning.