Carnival (NYSE:CCL) is charting a new course. The cruise ship giant isn't boosting its core growth metric, net cruise yields, at nearly the same pace investors have seen in the past few years. On the other hand, Carnival is getting more contribution these days from the rising capacity that comes from launching lots of new ships.

CEO Arnold Donald and his team see that shift as just one element of their big-picture strategy to build a business that's less susceptible to risks like demand swings and spiking fuel costs. Executives explained their progress on that score in a conference call with Wall Street analysts, and below are a few highlights from that discussion.

A cruise ship near an island covered with greenery

Image source: Getty Images.

Sluggish results

Net ticket yields were down 0.4%. Our [North American and Australia] brands were flat while our [Europe and Asia] brands were down 0.7%. Both segments had tough prior-year comparisons.
-- CFO David Bernstein

There was no denying the sales growth slowdown in these results. Carnival's net revenue yields, a core industry growth metric, landed at less than 1% compared to 4% in the prior fiscal year and 3% in fiscal 2017. Digging deeper into the numbers, executives said overall cruise ticket yields ticked down while onboard spending rose.

Besides those outlays by vacationers in areas like restaurants, spas, and the casino, Carnival's healthy demand metrics included strong occupancy rates and steady or rising prices. These successes are helping the cruise giant weather multiple pressures on its global fleet, including economic headwinds through much of Europe.

Shifting gears

Our fleet replenishment efforts are purposely designed to achieve greater economies. We will welcome 17 larger, more efficient ships and continue to divest our less efficient ships, representing net capacity growth of approximately 5% compounded annually through 2022.
-- Donald

Carnival is managing its business so that more growth comes from rising capacity as opposed to higher ticket prices and onboard spending. Executives say there are many benefits to this shift, including less sales volatility and more predictable profits. Combined with its emphasis on more fuel-efficient ships and its fuel-hedging bets, these adjustments should produce a more stable business over time, and one that has the best shot at meeting management's broader goals of double-digit annual earnings growth paired with double-digit returns on invested capital.

Booking that vacation

Booking volumes for the remaining three quarters of 2019 have been running ahead of the prior year at prices that are in line with last year. Let's not forget that this [peak selling] season activity is on top of two consecutive years of record seasons.
-- Bernstein

Carnival affirmed its full-year outlook that calls for net revenue yields to rise by about 1% compared to 4% in 2018. Not only does that translate into a significant slowdown, but it's also a change in tone from last year, when the company routinely exceeded its targets.

There's even less of a chance of a surprising growth uptick in 2019 because the company has booked a larger percentage of its vacation capacity than it did at this point last year. The good news is that trend makes it likely Carnival will post a third straight year of record sales and improving profitability. Yet investors have to balance that success against the prospect for weaker, more capacity-driven growth over the next few years.

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