Shares of Carnival Corporation (CCL) dropped after the company provided downbeat second quarter guidance and lowered its outlook for fiscal 2019, despite reporting better-than-expected results for the first quarter.
EARNINGS/GUIDANCE: Before the market open, Carnival reported Q1 adjusted earnings per share of 49c on revenue of $4.7B, compared to analysts' estimates for 44c and $4.31B, respectively. The company said that adjusted net income for Q1 excluded net charges of $2M for the quarter and net gains of $16M for Q1 of 2018 relating to unrealized gains on fuel derivatives net of other charges. Gross cruise revenues for the quarter were $4.6B, while net cruise revenues, in constant currency, were $3.6B, an increase of 4.7% year-over-year.
Looking ahead, Carnival guided for Q2 adjusted EPS in the range of 56c-60c, which is lower than the Wall Street consensus estimate of 72c. In addition, the company cut its FY19 adjusted EPS view to $4.35-$4.55 from $4.50-$4.80, citing changes in fuel price and foreign exchange for the lowered outlook. However, the company said it continues to expect FY19 constant currency net cruise revenues to be up roughly 5.5% year-over-year. Analysts expect the company to report FY19 EPS of $4.78 on revenue of $19.7B. On its quarterly earnings conference call, Carnival said the company is on track to achieve its FY19 guidance.
MANAGEMENT COMMENTS: Commenting on the quarter, Carnival president and CEO Arnold Donald said, "First quarter earnings included revenue growth from higher capacity and improved onboard spending, offset by the timing of cost increases and a drag from fuel price and currency compared to the prior year. First quarter adjusted earnings were better than the mid-point of December guidance by 7c per share." The CEO added that, for the full year, the company's earnings guidance now reflects 22c per share from fuel price and currency "moving against us." "Operationally, we continue to expect revenues and adjusted earnings per share improvements in line with our December guidance," he added.
BOOKINGS: Meanwhile, Carnival noted that 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, the company said. As a result, even with higher capacity, there is less inventory remaining for sale than at the same time last year, Carnival added.
STREET RESEARCH: Following the earnings report, BofA Merrill Lynch analyst David Holmes maintained a Neutral rating and $60 price target on Carnival, saying that the company's Q2 guidance suggests flat constant-currency net revenue yield. The analyst believes this is disappointing given the expectation for a progression in yield throughout this year.
Meanwhile, Stifel analyst Steven Wieczynski kept a Buy rating and $70 price target on the shares, saying that while he continues to like Carnival shares for the long-term, he believes tactical investors would be better suited to use the ancillary weakness from its earnings report to add positions in other operators across the group, notably Norwegian Cruise Line (NCLH) and Royal Caribbean (RCL). The analyst added that he sees pressure on Carnival shares until European concerns dissipate.
PRICE ACTION: In afternoon trading, Carnival shares are down 9% to $51.56.
OTHERS TO WATCH: Shares of rivals Norwegian Cruise Line and Royal Caribbean fell a respective 2.15% and 1.8% after the earnings report.
Carnival
-5.225 (-9.22%)
Norwegian Cruise Line
-1.165 (-2.11%)
Royal Caribbean
-2.14 (-1.87%)