On Jan. 26 Carnival revised its December guidance for 2016 EPS to $3.02 to $3.32, down from $3.10 to $3.40 after 8 cents of net negative impact from foreign currency exchange and fuel (about 11 cents negative from currency and about 3 cents positive related to fuel). Q1 guidance was revised on a net negative impact of 2 cents per share for currency and fuel, to a range of 26 cents to 30 cents EPS.
Since that January update, UBS said in a note it sees fuel and foreign currency as a net positive for Carnival. The brokerage estimated subsequent fuel prices may imply about 2 cents to 3 cents of negative impact to full-year 2016 EPS, net of hedges, while currency movements suggest 8 cents to 10 cents of positive impact, or about 6 cents to 8 cents of net positive impact to the $3.10 to $3.40 guidance. This compares to the consensus expectation of $3.36 and UBS's own estimate of $3.43.
Though analyst Robin Farley said UBS sees net yield upside—the brokerage's constant currency net yield forecast is up 3.5% for the year, compared to the consensus of up 3.1% and Carnival's guidance of up approximately 3%—she cautioned investors that CCL tends to guide conservatively and doesn't typically lift guidance with Q1 results.
UBS included reclassification accounting that helps net yields by 100 basis points.
The brokerage said its distribution channel checks indicate booking volumes remain above average but have moderated, as expected, from peak wave season levels during March.
'We believe Caribbean yields have been strong and given 45% to 50% of CCL's Q1 '16 capacity is in the Caribbean this year, the quarter could see upside,' Farley said in a note. In line with the Wall Street consensus, UBS expects 32 cents EPS.
William Blair & Co. also expects Carnival to modestly beat the company's revised range of 26 cents to 30 cents EPS, and the brokerage's own 31-cent estimate. Analyst Sharon Zackfia cited the euro's strengthening since the late January guidance, which should benefit EPS by about a penny net of moves in other currencies.
William Blair projects a Q1 constant-currency net yield increase of about 3.5%, at the lower end of guidance of 3.5% to 4.5% and below the 4.1% consensus.
'Yields are likely to be driven by continued healthy results for North American brands, particularly Carnival, partly offset by headwinds tied to continued geopolitical turmoil in Europe,' Zackfia said in a note.
So far in calendar 2016, Zackfia added, 'pricing trends appear to have remained relatively steady, despite Zika virus headlines and terrorist events in Turkey and Belgium, although the latter may be so recent as to have not yet had any impact on pricing.'
Like UBS, William Blair thinks Carnival's guidance for an approximate 3% net yield gain will remain unchanged, with Zackfia citing 'relative strength in the Caribbean and Alaska partly offset by more muted trends in Europe, Asia and Australia.' She said Asia capacity is projected to be up 33% and Australia capacity up 19% in 2016.
Given little anticipated change to yield guidance, relatively stable fuel prices since the company’s late-January revision and a modest benefit from currency since then, William Blair expects CCL to reiterate or narrow its 2016 EPS guidance toward the upper end of its $3.02 to $3.32 range, compared to the brokerage's own estimate of $3.34 and the $3.36 consensus. Carnival's EPS was $2.70 in 2015.
For Q2, William Blair projects Carnival EPS of 35 cents, up from 25 cents the prior year and versus the consensus expectation of 37 cents.