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What Carnival Wants Investors to Know

By Demitri Kalogeropoulos - Updated Dec 27, 2018 at 1:34PM

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Highlights from the cruise giant's latest call with investors.

Investors reacted harshly to the earnings report that Carnival (CCL 8.46%) issued in the final days of 2018, even though negative sentiment for the wider market might have played a role. The cruise-ship giant revealed several important wins in the period, including surpassing its growth forecasts in each of the last three quarters. Wall Street focused instead on the modest slowdown that CEO Arnold Donald predicted for 2019.

In a conference call with analysts, Donald and his team added context around that new-year forecast while explaining the key drivers behind 2018's record outing. Here are a few highlights from that presentation.

Beating goals

According to CFO David Bernstein:

Our record adjusted [earnings per share] for the fourth quarter was $0.70. This was $0.03 above the midpoint of our September guidance. The improvement was revenue driven, as an increase in net ticket yield benefited from stronger pricing on close-in bookings on both sides of the Atlantic, while onboard and other yields continue to benefit from a variety of our ongoing efforts.

A cruise ship docked near an island.

Image source: Getty Images.

Carnival's net revenue yield, a key growth metric for the industry, landed at 3.7% to blow past the guidance range that executives issued back in September of between 1.5% to 2.5%. The company credited robust demand in its Europe, Australia, and China itineraries, which offset a weaker Caribbean segment. However, they noted that the Caribbean market, its biggest, is continuing to recover slowly from the hurricane disruption that started in the fall of 2017.

Financial wins

Cash provided by operations was $5.5 billion. As a result of our strong cash flows during the year, we were able to return almost $3 billion to our shareholders via the regular quarterly dividend and share repurchases of $1.5 billion.
-- Bernstein

Executives celebrated the fact that Carnival has now reached its goal of pushing its return on invested capital past 10%, doubling that metric over the past five years. Its focus on financial efficiency has produced a stronger business with plenty of cash available to direct toward building out the fleet while also returning funds to shareholders.

The best part is that this success has put the company in a position to make further financial gains over the next few years. "Our business model is more sound than ever," Donald said, "having built into the fleet even greater...resilience on top of an even stronger balance sheet."

Looking ahead

Our guidance for next year reflects, once again, delivering record results. We expect net yields and constant currency above this year's historical highs on mid-single-digit capacity growth, producing nearly $1 billion of incremental net revenues, resulting in yet again growth in earnings and the end return on invested capital.
-- Donald

Carnival says its booking trends look solid for the next 12 months and, in fact, a large portion of its 2019 availability has already been reserved at prices that are about even with the year that just closed. Those movements translate into likely net revenue growth of about 1%, which would mark a slowdown from the roughly 3% that shareholders have seen in the past two fiscal years.

Still, Carnival is planning to be more aggressive about adding ships to the fleet so that its revenue, cash flow, and earnings all improve at market-beating rates as the company relies a bit more on boosting its overall capacity and a bit less on squeezing more revenue out of any given cruise.

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