For the second time in as many quarters, Carnival (CCL 4.00%) (CUK 3.54%) is hosing down its adjusted earnings guidance for the fiscal year, capping off another mixed financial report. Its shares opened sharply lower -- again -- after the world's leading cruise line operator posted fiscal second-quarter results on Thursday morning.
Revenue rose 11% to hit $4.838 billion for the three months ending in May. Carnival's top line has now delivered double-digit percentage growth in four of the past six quarters, unusual for a slow grower that hasn't posted a double-digit revenue gain for an entire fiscal year in more than a decade. This isn't something that investors should get used to, as once again we're seeing the adoption of new accounting guidance accounting for the lion's share of the revenue gain. The more accurate measuring stick here would be the 5% increase in net cruise revenue on a constant currency basis.
Heavy is the anchor
Gross revenue yields -- the most important metric for gauging a cruise line's health that charts the revenue per available lower-berth day -- rose a hearty 5.6%. Net revenue yields adjusted for currency fluctuations went up 0.6%, a metric that may not seem very impressive given the marginal improvement but it is better than the flat guidance that Carnival was putting out there three months ago. If there's one thing that Carnival has consistently gotten right with investors, it's that it has routinely landed just above its conservative guidance on that front.
Once again, we see the bottom line not cooperating with the top-line advance. Adjusted net income -- what you get when you back out the volatility of unrealized gains and losses on fuel derivatives and other net charges -- declined nearly 7% to $457 million, or $0.66 a share. Carnival had braced its shareholders for a larger slide, targeting adjusted earnings per share between $0.56 and $0.60 for the fiscal quarter.
The stock falling sharply on Thursday after another period of double-digit reported revenue growth and better-than-projected adjusted earnings may not make sense, but once again, it was Carnival's outlook rocking the boat. Carnival's guidance calls for adjusted EPS of $2.50 to $2.54 during the seasonally potent fiscal third quarter, ahead of the $2.36 a share it washed up ashore with a year earlier during the same peak summer period. However, it is once again lowering its forecast for the entire fiscal year.
Lower yields through Europe and Asia, voyage disruptions for its Carnival Vista ship, and the U.S. government's policy change on Cuba as a port of call will weigh on its near-term profitability. Carnival is now targeting an adjusted profit per share of $4.25 to $4.35, lower than the $4.35 to $4.55 it was eyeing three months ago and well below the $4.50 to $4.80 it was modeling when it initiated its fiscal year guidance late last year.
The good news is that demand remains healthy for Carnival's future sailings. Bookings are running ahead of where they were a year earlier at comparable prices. The bad news is that, with the shares closing in on a 52-week low, sometimes shareholder success is more than just a popularity contest on the open seas.