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Carnival beats Q3 forecasts but shares tumble on outlook

Article-Carnival beats Q3 forecasts but shares tumble on outlook

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Carnival Corp, & plc turned in a better than expected third quarter profit but lowered its outlook on higher fuel prices and cited headwinds including weakening economies in Europe and Asia. Shares fell 8.5%.

Adjusted net income was $1.8bn, or $2.63 per share, higher than the $2.36 a year ago and ahead of Wall Street’s $2.53 forecast and the company’s guidance of $2.50 to $2.54. US GAAP net income was $1.8bn, or $2.58, higher than the $1.7bn, or $2.41 per share, a year ago.

Total revenues were $6.5bn, up from $5.8bn.

Full-year guidance goes to $4.23-$4.27

Full-year adjusted earnings per share are now expected in the range of $4.23 to $4.27, reflecting recent fuel price increases. That is under the $4.33 consensus expectation and compared to Carnival’s June guidance of $4.25 to $4.35 as well as 2018 EPS of $4.26.

Q3 color

Third quarter net revenue yields decreased 0.5%, in line with June guidance of down slightly to flat. Net cruise costs excluding fuel per available lower berth day decreased 3.2% in constant currency, better than June guidance of up 0.5% to 1.5%, due to the timing of expenses and cost improvements.

Changes in fuel prices increased earnings by 7 cents per share, offset by a decrease due to changes in currency exchange rates of 7 cents per share versus the prior year. Compared to June guidance, changes in fuel prices and currency exchange rates decreased earnings by 3 cents per share.

‘We achieved additional cost improvements largely driven by leveraging our scale, offsetting the earnings impact due to voyage disruptions from the combined impact of Hurricane Dorian, the tensions in the Arabian Gulf and the delayed delivery of Costa Smeralda,’ said Arnold Donald, president and CEO, Carnival Corp. & plc. ‘A further reduction in guidance for ticket and on-board revenue worth 6 cents per share in part contributed to by the high level of close-in voyage disruptions was also offset.

‘However, due to an 8-cent impact from the recent spike in fuel prices caused by geopolitical events, we are reducing our full year guidance for 2019 by 5 cents per share.’

Based on current booking trends, Carnival expects full year 2019 constant currency net revenues to be up approximately 4% on capacity growth of 4.2%. The company continues to expect its North America and Australia segment yields to be up for the year, but slightly less than previous guidance, while its Europe and Asia segment is still expected to be down for the year, but slightly more than previous guidance. The company forecasts full year net cruise costs excluding fuel per ALBD in constant currency to be up approximately 0.3% versus the prior year, compared to June guidance of up approximately 0.7%.

Weather-related voyage disruptions, Arabian Gulf tensions and Costa Smeralda’s delayed delivery are expected to have an impact of 4 cents to 6 cents per share compared to June guidance. Changes in fuel prices and currency exchange rates are expected to decrease earnings by 8 cents per share, also compared to the earlier guidance.

Fourth quarter outlook

Constant currency net revenue yields are expected to be down 2% to 3% in Q4 compared to the prior year, with net cruise costs excluding fuel per ALBD in constant currency expected to be up 4% to 5%. Changes in fuel prices and currency exchange rates are forecast to increase earnings by 6 cents per share compared to the prior year while voyage disruptions due to weather, Costa Smeralda’s delay and Cuba are expected to have an impact of approximately 7 cents to 9 cents per share.

All told, Carnival now projects Q4 EPS of 46 cents to 50 cents, compared to Q4 2018’s 70 cents and lower than Wall Street’s 64-cent consensus.

MGO use to double in 2020

Cumulative advanced bookings for the first half of 2020 are ahead of the prior year at prices comparable to 2019. Since June, both booking volumes and prices for the first half of next year have been running lower than the prior year.

For full year 2020, the company expects capacity growth of approximately 7%. As previously indicated, in 2020 the company will increase its use of MGO as a percent of total fuel consumption as a result of the IMO sulfur emission regulations. MGO is currently anticipated to represent approximately 40% of fuel consumption in 2020 compared to approximately 20% during 2019.

Using fourth quarter September guidance fuel prices, fuel expense for 2020 is expected to be $1.8bn compared to the $1.6bn forecast for 2019.


With nearly 50% of customers sourced outside the US, ‘we are facing a number of current headwinds, including weakening economies affecting our Europe and Asia segment, a strong dollar and, of course, the IMO 2020 regulations,' Donald said, 'and we are working to mitigate them. We have taken actions to bring capacity in Southern Europe more in line with demand, reflecting the current conditions which have been heavily influenced by ongoing economic malaise, the uncertain geopolitical environment and recent trends in consumer confidence.

‘We have also made close-in deployment changes, including those made to address the recent situation in the Arabian Gulf, which has had an impact on recent booking trends and ticket prices. While we are subject to uneven economies in the short run,' Donald continued, 'the global aspect of our business has proven to be a strength over time, producing our industry leading position with over $5 billion in cash from operations, attractive returns on capital and the strongest balance sheet in the industry.’