Wm. Blair thinks Caribbean-heavy Q1 will dampen CCL guidance

William Blair expects Carnival to report Q4 results before the markets open on Dec. 19.

Carnival's guidance for Q4 is 15 cents to 19 cents per share, compared to the consensus expectation of 20 cents and Q4 2013's 4 cents per share.

William Blair analyst Sharon Zackfia projects a constant-currency net yield increase of 2% to 2.5%, at the higher end of guidance of 1.5% to 2.5% and improved from Q3's 1.8% gain. This is driven by 'an inflection into positive net ticket yields for North American brands along with continued positive yields at European brands,' she said in a note.

The brokerage's pricing surveys showed trends weakened in November for future cruises, with lower year-over-year pricing for winter Caribbean cruises partly offset by accelerating pricing trends for the Mediterranean. Zackfia said future pricing for the Carnival brand looks better than the overall trend, with particular strength in shorter cruises.

The analyst thinks the heavy weighting of Caribbean itineraries in Q1 and higher expected net cruise costs excluding fuel in the first half of 2015 will dampen Q1 guidance. That's why Zackfia forecasts a modest 1% net yield increase and a modest loss in Q1, below the consensus expectation of an 8-cent per share profit.

Carnival's earnings in the first quarter this year were flat.

For the full year 2015, William Blair expects Carnival management will continue the tone of their Q3 call that indicated positive constant-currency net yields are achievable with Caribbean capacity growth slowing as the year goes on and new product initiatives and marketing bolster demand.

Zackfia reminded investors Carnival tends to be conservative in providing its first look at the coming year since the company's December guidance comes before wave season. The analyst expects guidance will encompass William Blair's estimate of $2.09 and the $2.25 consensus.

She said Carnival stock continues to trade above its typical mid-teens price/earnings valuation, at 21 times the brokerage's 2015 estimate, adding: 'While we are encouraged by signs of traction in yields, we believe a healthy recovery is already largely incorporated into the stock valuation.'

William Blair rates CCL 'market perform' (hold).

Carnival shares closed at $42.84, up 45 cents, on Tuesday.