Carnival on Cruise Control

Cruise-line operator Carnival (NYSE: CCL  ) successfully navigated oil-price volatility for its third quarter, but next quarter could see further turbulence from a fuel perspective. Good thing the company has a number of favorable qualities to ride out short-term predicaments.

Quarterly sales advanced 10.5% as net revenue yields (an industry metric measuring daily net income per passenger) grew a respectable 2.5% while "another strong European season [and] a solid Alaska season" boosted improving trends in the unpredictable Caribbean market. Fuel prices grew 7.4%, and overall fuel costs jumped almost 19%, but other costs grew slower than sales, allowing earnings to cruise ahead 12%.

Strong overall booking trends and coming capacity increases caused management to increase the low end of its full-year earnings guidance. It now projects $2.92-$2.94 per share for this year, although it expects the fourth quarter to be lower "as a result of significantly higher fuel prices and timing of dry-dock expenses." Based on the current share price, that's a reasonable multiple of 16.6.

Going forward, management expects international sales to account for 38% of capacity in 2010, up from about 33.5% currently. That should help diversify uneven Caribbean revenue, which is always subject to hurricane risks. Alaska tends to be a more predictable destination, and North America sales should continue to benefit from a rising tide of retiring baby boomers, but overseas potential is higher because fewer foreigners than North Americans have ever taken a cruise vacation.

Carnival expects overall capacity to increase 7.5% in 2008, and a recent acquisition will increase the figure to 8.9%. Carnival mentioned in its most recent 10-K filing that the industry grew almost 8% from 2000 to 2005 and was able to leverage this into double-digit sales and earnings growth over this time frame.

Carnival also holds industry-leading market share, ahead of archrival Royal Caribbean (NYSE: RCL  ) and smaller players such as Disney (NYSE: DIS  ) , which operates a couple of cruise ships. It also is the most profitable industry player, which, when combined with a continued bright outlook for global cruising growth, make it hard to argue against the stock at current levels -- provided you can handle short-term turbulence.                                              

For related Foolishness:

• Party On With Carnival
• Fuel Prices Dampen Carnival's Party
• Foolish Forecast: Carnival Ready to Cruise