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On-board spend, Carnival brand recovery, Asia get Carnival's 2015 off to 'strong start'

Carnival brand outperformed expectations
Higher on-board spending, outperformance by the Carnival Cruise Line brand and strength in Asia got Carnival Corp. & plc's 2015 off to a 'strong start.'

The non-GAAP profit of $159m, or 20 cents per share, for the first quarter compared to the year-ago non-GAAP loss of $3m, or flat EPS in Q1 2014. Q1 GAAP profit, including unrealized losses on fuel derivatives of $112m, was $49m, or 6 cents EPS, up from a loss of $20m, or 3 cents EPS, a year ago.

Q1 revenues were $3.5bn, down from $3.6bn.

'The year is off to a strong start achieving significantly higher earnings than the prior year and our previous guidance. Our on-board revenue initiatives drove particularly strong improvement in the first quarter with on-board yields more than 8 percent higher than prior year (constant dollar),' Carnival Corp. & plc president and ceo Arnold Donald said.

Donald also noted the Carnival brand continued to outperform, achieving significant revenue yield growth, and remains on track for a strong year.

Additionally, Costa’s Asia operations achieved double-digit revenue yield growth, affirming the pent-up demand in the region and building confidence in the long-term potential for growth, the company said.

On a constant dollar basis, net revenue yields increased 2% in Q1, better than the company’s December guidance of flat to up 1%. Net cruise costs excluding fuel per available lower berth day rose 2.4% in constant dollars, mostly due to higher drydock costs and advertising expenses and undershooting December's guidance of up 5.5% to 6.5%, mainly due to the timing of expenses between quarters.

Gross cruise costs including fuel per ALBD in current dollars fell 9.6% due to changes in fuel prices and currency exchange rates. Fuel prices declined 38% to $406 per metric ton for Q1 from $654 per metric ton in Q1 2014. Fuel consumption fell 3.7%.

Currency exchange rates shaved 6 cents from EPS in constant currency.

Carnival said cumulative advance bookings for the remainder of 2015 are ahead of the prior year at higher prices. Since January, booking volumes for the remainder of the year are running in line with last year’s historically high levels at higher prices.

'We are experiencing an ongoing improvement in underlying fundamentals based on our successful initiatives to drive demand. Our efforts to further elevate our guest experience are clearly resonating with consumers and, notably, improving the frequency and retention of our loyal guests,' Donald said.

He cited Carnival's multi-brand marketing campaign building up to a Super Bowl commercial and response to the introduction of P&O Cruises' Britannia, named by Queen Elizabeth, as drawing attention to cruising.

The company expects 2015 net revenue yields to increase 3% to 4% on a constant currency basis, excluding translation and transactional currency impacts. This is one full point better than December guidance on a constant currency basis. On a constant dollar basis, which does not exclude the unfavorable impact of currency exchange, the company still expects yields to be approximately 2% higher than the prior year.

Net cruise costs excluding fuel per ALBD for full year 2015 are projected to be up 2% to 3% on a constant dollar basis, which is better than December guidance of up 3%, mainly due to the favorable currency impact.

Since December, unfavorable changes in currency exchange rates (constant currency) have reduced full year 2015 earnings expectations by $219m, or 28 cents per share. However, this impact has been significantly offset by the improvement in the company’s operating performance, resulting in just a nickel reduction to the midpoint of December guidance. 

Carnival now forecasts 2015 non-GAAP EPS range of $2.30 to $2.50, compared to 2014 non-GAAP diluted earnings of $1.93 per share.

'Consistent with many global companies, the strengthening of the US dollar has hampered our full year earnings expectations, masking the 3 to 4 percent (constant currency) yield increase our collective brands are expecting to achieve,' Donald said. 'Our successful initiatives to drive both ticket and on-board revenue yields have improved our financial performance and we remain on track toward our goal of achieving double-digit return on invested capital in the next three to four years.'

Second quarter constant dollar net revenue yields are expected to increase 2% to 3% compared to the prior year, while net cruise costs excluding fuel are projected to be up 6.5% to 7.5% on a constant dollar basis compared to the prior year, driven by higher drydock expenses. Most of those will occur in Q2. Changes in fuel prices net of fuel derivatives and currency exchange rates (constant currency) are expected to benefit second quarter earnings by $74m compared to the prior year, or 9 cents per share.

All of this puts Carnival's non-GAAP EPS projection for Q2 range of 11 cents to 15 cents per share versus 2014 non-GAAP profit of 9 cents per share.