Carnival Corp. (CCL 51.98, -4.67, -8.24%), the world's largest cruise ship operator, is
trading sharply lower today after it
reported Q1 (Feb) earnings this morning and provided Q2 (May) guidance. The
FebQ results were quite good but the MayQ guidance is leading to some weakness
The company operates a portfolio of 10 brands including Carnival Cruise Line, Holland America Line, Princess Cruises, Seabourn, AIDA Cruises (Germany), Costa Cruises, Cunard, P&O Cruises (Australia), and P&O Cruises (UK).
Turning to the FebQ results, non-GAAP EPS fell 6% yr/yr to $0.49, which was above prior guidance of $0.40-0.44. Revenue rose 10.4% yr/yr to $4.67 bln, which was above market expectations. In terms of guidance, CCL expects Q2 (May) non-GAAP EPS of just $0.56-0.60 which is below market expectations. For all of FY19, CCL lowered non-GAAP EPS guidance to $4.35-4.55 from prior guidance of $4.50-4.80. However, it reaffirmed its constant currency net cruise revenue guidance to be up +5.5%, with capacity growth of +4.6%.
CCL's strong revenue growth in FebQ was driven by higher capacity and improved onboard spending, offset by the timing of cost increases and a drag from fuel price and currency. The lowered full year EPS guidance was mostly from higher fuel prices and currency moving against CCL. Operationally, CCL continues to expect revenue and adjusted EPS in line with prior guidance.
In terms of highlights from the quarter, there was the delivery of AIDAnova, the first cruise ship in the industry powered at sea by liquefied natural gas and the delivery of Costa Venezia, the first Costa ship designed for the Chinese market. Also, Princess Cruises expanded its MedallionClass experience onboard Regal Princess, with three additional ships to follow in 2019.
In terms of the outlook for 2019, cumulative advanced bookings for the remainder of 2019 are ahead of the prior year at prices that are in line with the prior year on a comparable basis. Pricing on bookings taken since January have been running in line on a comparable basis to the prior year while booking volumes are ahead compared to the prior year. As a result, even with higher capacity, there is less inventory remaining for sale than at the same time last year.
Carnival Corporation President and CEO Arnold Donald said that booking trends achieved during wave season (when cruise lines offer promotional deals from Jan-March) "rivaled last years' historical highs and were consistent with the demand trends experienced going into the year. For our North America and Australia brands, our booked position is ahead of the prior year at higher prices while our Europe and Asia brands are well ahead of the prior year at lower prices.”
In sum, the FebQ results were quite good and the commentary about how advance bookings for 2019 are ahead of the prior year was nice to hear as well. However, the MayQ EPS guidance seems to be the main reason why the stock is down today. CCL does tend to be somewhat cautious with guidance so investors should take that into account. However, it seems higher fuel costs and FX will create some headwinds in MayQ.
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