Carnival (NYSE:CCL) is one of the most famed cruise liner companies on the globe. Chances are, if you have been on a cruise, it was with this company or one of its few competitors. In fact, it is the largest cruise company in the world. You may know some of their brands in its portfolio.
Its portfolio of cruises operates in North America, Europe, Australia, and Asia, and is comprised of Carnival Cruise Lines, Holland America Line, Princess Cruises, Seabourn, AIDA Cruises, Costa Cruises, Cunard, and Ibero Cruises. I used to follow this company and owned the stock for about five years, but have paid little attention to the stock, especially since oil prices have risen in the last few years.
However, oil prices are now so high and Carnival has been facing operational challenges for some time now that I feel it is time to weigh in on this company and its stock. To do so, an examination of its recent performance is in order.
Despite the operational issues that have plagued the company for some time now, Carnival managed to increase its year-over-year income. In fact, non-GAAP net income was $80 million, or 10 cents diluted earnings per share for the second quarter of 2014 compared to non-GAAP net income for the second quarter of 2013 of $57 million, or 7 cents diluted earnings per share. For the second quarter of 2014, U.S. GAAP net income was $106 million, or 14 cents diluted earnings per share.
For the second quarter of 2013, U.S. GAAP net income was $41 million, or 5 cents diluted earnings per share. Revenues, however, did not grow as much as I expected they would. In fact, they came in at $3.6 billion, compared with $3.5 billion the prior year. While this is an improvement, it struck me as poor year-over-year growth compared to the earnings.
But it is important to note that these quarterly earnings were a huge estimate beat and were significantly better than anticipated in the company’s March guidance. Much of this was due to better-than-expected net revenue yields for most of the company’s cruise brands, as well as lower-than-expected net cruise costs.
Net revenue yields only decreased 2.2 percent, which was better than the company’s guidance of down 3 to 4 percent. Gross revenue yields decreased 0.5 percent in current dollars. But what really stood out was that the company’s fuel prices declined 3.7 percent while fuel consumption simultaneously declined 6 percent.
So looking ahead, the company may be reaching an inflection point and is planning to return to growth in earnings this year and into next. Total revenues are expected to be higher for full-year 2014 compared to the prior year. It is important to note that the company continues to expect full-year 2014 net revenue yields to be down slightly compared to the prior year.
The company now expects full-year 2014 net cruise costs, excluding fuel, to be flat to up slightly compared to the prior, which is better than had been anticipated in the March guidance. However, changes in fuel prices and currency exchange rates have reduced full-year 2014 forecasted earnings by 6 cents per share compared to March guidance.
All things considered, the company has increased its full-year 2014 non-GAAP diluted earnings per share guidance to be in the range of $1.60 to $1.75 compared to 2013 non-GAAP diluted earnings of $1.58 per share. Given that results were better than I thought they were, the company has increased guidance, and it pays a 2.6 percent dividend, coupled with the fact it may be at an inflection point, I think it is time to do some buying in Carnival Cruise shares on pullbacks.
Disclosure: Christopher F. Davis hold no position in Carnival Cruise but may initiate a position in the next 72 hours. He has a tentative buy rating on the stock and an $44 price target.