Carnival Company Earnings Do Not Tell the Whole Story

Cruise ship
Cruise ship

Carnival Corp. (NYSE: CCL) reported second-quarter fiscal 2013 results before markets opened this morning. The cruise line operator reported adjusted earnings per share (EPS) of $0.09 on revenue of $3.48 billion. In the same period a year ago, Carnival reported adjusted EPS of $0.20 on revenue of $3.54 billion. Second-quarter results also compare to the Thomson Reuters consensus estimates for EPS of $0.06 and $3.55 billion in revenue.

In its outlook for the third quarter, the company expects net revenues to fall 3.5% to 4.5% year over year and fuel costs to rise 8.5% to 9.5%. Adjusted EPS for the quarter is forecast at $1.25 to $1.33, well below last year's total of $1.53 per share. The consensus estimate calls for adjusted EPS of $1.38 on revenues of $4.68 billion.

For the full year Carnival expects adjusted EPS of $1.45 to $1.65 compared with last year's total of $1.88 per share. Net revenue is also expected to be 2% to 3% lower in 2013.

The company's CEO said:

The level of quality, variety and innovation available throughout our fleet has never been greater and our guests are reaping the benefits of truly exceptional vacation values. We are working to more broadly communicate that message through stepped up consumer and trade marketing efforts, as well as strengthened engagement of our travel agent partners. We believe these initiatives, combined with slower supply growth, will lead to increased yields.

Carnival's profitability in the quarter was better than expected but still far weaker than the same period a year ago. Costs are rising and revenues are not keeping pace. The company also reported that $2 billion of its long-term debt is now classified as current. A refinancing or secondary stock offering might be something to look for in the near future.

Carnival's shares are up 1.8% in premarket trading this morning, at $33.84 in a 52-week range of $31.65 to $39.95. Thomson Reuters had a consensus analyst price target of around $36.70 before today's report.

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