Carnival Sets Sail for Better Times

Affordable cruise liner Carnival (NYSE: CCL  ) is seeing smoother waters ahead as the company exits a difficult and controversial period in its long-running history. Shares rose on Thursday as the company beat estimates on the top and bottom lines, though the coming quarter wasn't quite up to Wall Street's expectations. Cruise vacations are an attractive business currently. Consumers are slowly but surely feeling more comfortable, especially with the Fed's recent commitment to keeping rates low in the near future. In this environment, families are getting back to their vacation habits but perhaps not too eager to spend the big-time money on flights, accommodations, and food. Putting its troubles behind it, Carnival looks set to sail.

Earnings recap
Surprising investors and analysts, Carnival hauled in $3.66 billion in sales for its fiscal 2013 fourth quarter. The Miami-based company brought in $0.04 per share on the bottom line, which came in much better than analysts' prediction of break-even profit. Year-over-year earnings still shrank substantially -- down from $76 million in 2012's fourth quarter to $35 million this year.

Carnival has done everything it can to move past the disasters with the Costa Concordia and Carnival Voyager. While some image damage will linger for many months onward, it looks like the company has repaired its relationship with the public and is ready to move forward.

Full-year earnings came in at $1.2 billion, or $1.58 per diluted share. Carnival used a combination of aggressive promotions, an outreach program to travel agents (who are still, apparently, in existence), and new product offerings to steer the falling numbers back up at year's end.

Looking ahead, quarter one may be soft. Cumulative advanced bookings are still lower year over year, but again, in the past few months the advanced bookings have accelerated. Net revenue is expected to drop 3% to 4%, with a diluted loss per share of $0.07 to $0.11.

Calmer waters
Investors can expect things to get better throughout the coming year and, barring another disaster, onward from there. Carnival has a tremendous business and the ability to offer industry-leading benefits such as a 100% guarantee on customer satisfaction.

For prospective investors, though, now is not the time to try to hit a turnaround play -- that was the day after the Costa Concordia. Carnival currently trades at nearly 24 times earnings -- not an outrageous valuation but certainly priced with enough optimism and little protection for the downside.

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