Following a disappointing earnings report in September, stock in cruise holding company Carnival (NYSE:CCL) has charted a gradual recovery. Friday's release of fiscal fourth-quarter earnings pushed shares up 7.6% on the day, and the CCL ticker is now up 3% year to date.
While Carnival will almost certainly underperform the S&P 500 in 2019 (the index has appreciated 28% year to date), the consumer discretionary giant can at least claim some momentum. Its adjusted per-share earnings skated beyond expectations in the current quarter, and management was able to issue an optimistic financial forecast for the coming year. As we walk through results of the last three months below, keep in mind that all comparative numbers refer to those of the prior-year quarter.
Carnival: The headline numbers
|Metric||Q4 2019||Q4 2018||Change (Decline)|
|Revenue||$4.78 billion||$4.46 billion||7.2%|
|Net income||$423 million||$494 million||(14.4%)|
|Diluted earnings per share||$0.61||$0.71||(14.1%)|
Highlights from the quarter
- Adjusted earnings per share (EPS) of $0.62 helped push full-year adjusted EPS to $4.40. This exceeded management's guidance for 2019 adjusted earnings of $4.23 to $4.27. Significantly, it also outpaced the $4.25 to $4.35 adjusted EPS projection that was in place in June -- before management reduced the company's outlook last quarter.
- Carnival's revenue of $4.78 billion set a record for fourth-quarter results, and full-year revenue of $20.8 billion set an annual record.
- Carnival's net revenue yields (i.e. net revenue divided by total available passenger cruise days) dipped 1.8% in constant currency terms, improving on management's forecast for a 2% to 3% drop.
- Net cruise costs excluding fuel per available lower berth day (ALBD) inched up 2.6%, a smaller increase than the company's projected 4% to 5% rise. Management attributed the better performance to cost reduction initiatives and "the timing of expenses between quarters."
- Carnival took delivery of the Costa Smeralda, the second of 11 planned ships powered by LNG (liquefied natural gas), designed to reduce its fleet's emissions.
- In a separate announcement from earnings also dated Dec. 20, Carnival informed investors and customers that it won't take delivery of its Mardi Gras vessel from Finnish shipbuilder Meyer Turku until the fall. The ship's original sailing date of Aug. 31 has been pushed back to Nov. 14.
- The cruise operator overcame several business headwinds during the quarter to surpass its guidance, including the impact of Hurricane Dorian and a downturn in its Continental European business.
Looking ahead to fiscal 2020
Despite some initial pressure in the fourth quarter on fiscal 2020 bookings from Hurricane Dorian, Carnival is entering the new year with record bookings. Cumulative advanced 2020 bookings are ahead of comparable bookings at this same point in the previous year, though at slightly lower prices.
For the fiscal year, management expects that net cruise revenue will advance by 5.5% over 2019, while net yields will dip by 1.5% in constant currency. The organization expects capacity to expand by 6.6% this year.
Management expects a positive EPS impact of $0.17 to $0.24 in 2020 from a combination of fuel mix changes, fuel prices, and currency impacts. (I discussed the fuel mix changes in more detail in last quarter's earnings recap.) This will be partly or fully offset by $0.12 to $0.17 in per-share headwinds related to voyage disruptions -- including delayed ship deliveries. Management anticipates total adjusted 2020 EPS of $4.30 to $4.60, which, at the midpoint of the range, will represent a slight 1% increase over fiscal 2019's $4.40 adjusted EPS.
For the first quarter of fiscal 2020. the company advised shareholders on Friday to expect 4% year-over-year growth in net cruise revenue, a constant-currency decrease of 1% to 2% in net yields, and a 6% expansion in capacity. Adjusted EPS is chalked in at $0.47 to $0.51, equaling the prior-year quarter's $0.49 at the midpoint.
Thoughts from Carnival's management
In Carnival's earnings release, CEO Arnold Donald applauded the organization's healthy performance in spite of negative external factors. I'll leave you with his comments, which place the current and upcoming quarters in a realistic but generally positive context:
Despite the negative impacts from the tail effect of the high number of unusual events in 2019, as well as a continuation of the negative headwinds facing our Continental European source markets, our brands continue to perform, and we are at record booked occupancy levels for 2020 on peak capacity growth. Given the evolution of conditions in Continental Europe, and recognizing the timing of significant capacity increases we have in our European portfolio, we are taking a number of actions to adapt over time. Globally, we are also taking actions to further stimulate demand and increase our cost efficiencies in 2020 and beyond.