Pesky fuel prices, an iffy economy, and a turbulent hurricane season that has forced some last-minute port changes aren't raining on Carnival's (NYSE: CCL ) (NYSE: CUK ) parade.
The cruise-industry bellwether came through with respectable fiscal third-quarter results this morning. Revenue inched 11% higher to $4.8 billion, powered in part by a 24% increase in capacity from its European sailings. Earnings clocked in at $1.65 a share, or $1.63 a share if you back out an insurance recovery benefit. It is less than the $1.67-a-share profit that Carnival served up a year ago, but refreshingly better than the $1.58 a share that Wall Street was expecting.
Don't read too much into the net margin contraction. It all boils down to the volatile fuel prices. With fuel prices for Carnival soaring 77% over the past year, the spike in that line item alone was enough to eat away at $0.28 a share in potential earnings. Back out fuel, and the costs per available lower berth were in line with last year's productivity.
This would normally be encouraging news, given the recent downturn in fuel prices, but now the soft economy is taking its whacks at Carnival. Advance bookings are running softer than at this point last year, even though passengers are paying a bit more.
Since the summer quarter is the company's most lucrative quarter, investors shouldn't expect much during the next three quarters. Carnival will still be profitable, but investors may want to gauge how fuel prices and the economy will line up in time for next year's telltale summer travel season.
Plenty is at stake. A company like Steiner Leisure (Nasdaq: STNR ) relies mostly on revenue from its fleet of cruise-ship spas, including those on Carnival. Rival fleets like Royal Caribbean (NYSE: RCL ) , NCL, and Disney (NYSE: DIS ) are all facing the same dynamics, even though Disney obviously has a more diversified entertainment empire.
Cruising was supposed to be a welcome alternative for travelers who wanted to see new places without having to deal with refueling cars or preposterous airline charges. Did UAL's (Nasdaq: UAUA ) United really double the fee on second checked bags to $50 this week? Yikes. No wonder cost-leader Southwest (NYSE: LUV ) is having a field day by poking fun at the legacy carriers in its latest ads.
However, opportunities become challenges if travelers are so tight for cash that they choose to go nowhere at all. Keep an eye on how bookings at Carnival shape up over the next three seasonally quiet quarters. It will make all the difference when it's time to embark or disembark on the stock ahead of next summer's performance.
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