CCL zacks - CARNIVAL PDF

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Summary

CARNIVAL...

Description

Dec 03, 2018 Zacks Rank 4-Sell

Carnival Corporation (NYSE: CCL) $60.29

20 Day Average Volume Beta Market Cap Dividend / Div Yld

$72.70 - $53.47 3,386,431 1.01 31.76 B $2.00 / 3.32%

Industry

Leisure and Recreation Services

Industry Rank

153 / 257 (Bottom 40%)

Current Ratio

0.22

Debt/Capital

25.18%

Net Margin

17.15%

Price/Book (P/B)

1.29

Price/Cash Flow (P/CF)

7.00

Earnings Yield Debt/Equity

P/E (F1) Rel to Industry

7.05%

Elements of the Zacks Rank Agreement Estimate Revisions (60 days)

0.34

0%

-2.73 1.02

P/S (F1)

1.70

P/S (TTM)

1.70

P/CFO

7.00

EV/EBITDA Annual

100%

Q1 (Current Qtr)

Q2 (Next Qtr)

F1 (Current Year)

F2 (Next Year)

Revisions: 0

Revisions: 0

Revisions: 1

Revisions: 1

Up: 0 Down: 0

Up: 0 Down: 0

Up: 0 Down: 1

Up: 0 Down: 1

NA 8.39

Proj. EPS Growth (F1/F0)

11.34%

Hist. EPS Growth (Q0/Q-1)

26.18%

Qtr CFO Growth

37.22

2 Yr CFO Growth

9.88

Return on Equity (ROE)

12.30%

(NI - CFO) / Total Assets

-19.80

60 Days

30 Days

7 Days

Current

0%

Q1

60 Days

30 Days

7 Days

Current

0%

Q2

60 Days

30 Days

7 Current Days

0%

F1

60 Days

30 Days

7 Days

Current

-0.21%

F2

Upside Zacks Consensus Estimate vs. Most Accurate Estimate

0.45

Momentum Score 1 week Volume change

100%

Magnitude Consensus Estimate Trend (60 days)

Growth Score

Asset Turnover

0%

14.18

PEG Ratio

P/CFO Rel to Industry

VGM:

Shares of Carnival have underperformed the industry in the past six months. Sof fourth-quarter fiscal 2018 earnings guidance is a concern for investors. Earnings in the fourth quarter will largely be impacted by strong dollar and rising fuel prices. Higher costs relating to additional investments this year remain a threat. Increased investments in advertising and TV programming further are adding to the company’s costs. Moreover, continual strengthening of the U.S. dollar against the functiona currencies of the company’s foreign operations is likely to adversely impact the company’s results. Estimates for fiscal 2018 have also been stable over the past 30 days. However, given the burgeoning demand for cruise travel, the addition of new ships to its fleet bodes well. The company also believes that it is well poised for continued earnings growth, given the current strength in its bookings along with pricing trends for the year.

Value Score P/E (F1)

Momentum:

Summary

Data Overview 52 Week High-Low

Growth:

Style:Value:

USD ( As of 11/30/18 )

Most Accurate:

0.69 Most Accurate:

0.49 Most Accurate:

4.25 Most Accurate:

4.70

Zacks Consensus:

0.69 Zacks Consensus:

0.49 Zacks Consensus:

4.25 Zacks Consensus:

4.70

1 week Price Cng Rel to Industry

1.32%

(F1) EPS Est 1 week change

0.00%

(F1) EPS Est 4 week change

0.00%

(F1) EPS Est 12 week change

0.28%

(Q1) EPS Est 1 week change

0.00%

0.00%

Q1

5.33%

Q2

0.00%

F1

0.00%

F2

0.00%

Surprise Reported Earnings History

© 2018 Zacks Investment Research, All Rights Reserved

Reported: 2.36

Reported: 0.68

Reported: 0.52

Reported: 0.63

Estimate: 2.31

Estimate: 0.60

Estimate: 0.43

Estimate: 0.50

Q End 08/18

Q End 05/18

Q End 02/18

Q End 11/17

Average 4 Qtr Surprise

10 S. Riverside Plaza Suite 1600 · Chicago, IL 60606

The data on the front page and all the charts in the report represent market data as of 11/30/18, while the report's text is as of 12/03/2018

Overview Founded in 1972 and headquartered in Miami, FL, Carnival Corporation (CCL) operates as a cruise and vacation company. As a single economic entity, Carnival Corporation & Carnival plc forms the largest cruise operator in the world. Carnival has four reportable segments, namely, (1) North America (63.5% of total revenues in fiscal 2017), (2) EAA (35.2), (3) Cruise Support (0.7%) and (4) Tour and Other (1.3%). Intersegment elimination constitutes 0.8% of total revenues in fiscal 2017. Carnival Cruise Line is one of the most recognizable brands in the cruise industry and carried 5 million guests in 2017.

Zacks Equity Research: CCL

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Page 2 of 9

Reasons To Sell: Lower-Than-Expected Q4 Outlook Weigh on Stock: Despite reporting better-thanexpected earnings in third-quarter fiscal 2018, shares of Carnival declined sharply due to soft fourth-quarter earnings outlook. The company expects fourth-quarter earnings to be in the range of 65-69 cents, lower than consensus estimate of 72 cents. Earnings in the fourth quarter will largely be impacted by strong dollar and rising fuel prices. In the past six months, the company has witnessed a decline of 4.8% against the industry’s 1.2% decline. Estimate for fiscal 2018 have also been stable over the past 30 days.

Negative currency translation along with macroeconomic issues in key operating regions remains potent headwinds

Higher Costs: Carnival aims to make additional investments this year as its brands have identified further revenue generating opportunities. Though these efforts are expected to benefit the company over the long run, these would put pressure on near-term margins and earnings. Also, increased investments in advertising and TV programming further are adding to the company’s costs. During the third quarter, net cruise costs (in constant dollar) per available lower berth day (ALBD), excluding fuel, increased 2.7%. For fiscal 2018, the same metric (in constant dollar) per ALBD, excluding fuel, is anticipated to be up nearly 1.5% year over year. Currency & Fuel Headwinds: Negative currency translation is a concern for Carnival. With a major portion of its revenues coming from Asia and Europe, the company is highly exposed to the impact of negative currency translation. Thus, continual strengthening of the U.S. dollar against the functional currencies of the company’s foreign operations is likely to adversely impact the company’s results. Moreover, an increase in fuel prices is further likely to prove detrimental to the company’s earnings growth. Macro Headwinds: Terror assaults on key European cities like London, Paris and Brussels in recent years have affected tourism. In Europe, economic/political conditions are expected to be further challenging after U.K.’s exit from the 28-member economic bloc. Moreover, the company is investing heavily in China, where a cooling economy may impact discretionary spending, thus hurting demand and putting pressure on Carnival’s top line. Also, prevention of port calls to some of the company’s most premium destinations due to itinerary restrictions is a cause of concern. Valuation Looks Inappropriate: Carnival’s valuation looks a bit stretched when compared with the industry average. Looking at the company’s EV/EBITDA ratio (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization), which is the best multiple for valuing cruise companies as they are highly capital-intensive, investors might not want to pay any further premium. The company currently has a trailing 12-month EV/EBITDA ratio of 8.03, which makes it overvalued compared with its peers as the industry average EV/EBITDA currently is 7.39x.

Risks Strong Brand Recognition: Carnival is the largest and historically, the most profitable cruise operator in the world. The company’s cruise brands are well diversified across diverse geographies, including Asia and Europe, and strategically positioned at various price points within the larger North American cruise market. This enables the company to cater to passengers i various geographic regions as well as within the contemporary, premium and luxury cruise segments. With the strength and diversity of its brands and itineraries, the company boasts a broader passenger base among potential and repeat cruise vacationers. Carnival’s market leading position offers a cost advantage, allowing it to generate higher return on investment than smalle companies. Further, its leadership position provides the scope to expand capacity — by upgrading current ships and increasing the fleet — due to higher cash from operations and comparatively lower debt burden. Carnival's capacity growth should allow it t maintain market share without putting pressure on pricing. Launch of New Ships: The company continues to introduce new flagships to form additional demand creation opportunities. In June 2017, its Germany-based AIDA Cruises brand launched AIDAperla, one of the world's most eco-friendly and technologically advanced ships. Carnival also launched Majestic Princess from Princess Cruises in March, which is the world's first cruise ship built specifically for the Chinese market. In fact, the ship has been very well received by its guests. During the second quarter o 2018, the company launched Carnival Horizon (belonging to Carnival Cruise Line brand) and Seabourn Ovation (Seabourn) Further, AIDAnova (AIDA Cruises) and ms Nieuw Statendam (Holland America Line) are slated for a December launch. Carniva has 18 new ships scheduled to be included in its portfolio of leading global cruise brands between 2018 and 2022. Notably, with these new launches, the company also aims to formulate measured capacity growth over time that allows its globa fleet to meet escalating demand for cruise vacations in every region of the world. In fact, launching new ships is a part of th company’s long-term strategy to build state-of-the-art vessels that aid in providing guests with a remarkable vacation experienc at an exceptional value. Moreover, we note that along with focusing on new-builds to stimulate demand creation, Carnival als continues to invest in its existing fleets to further enhance guest experiences. Exploring Foreign Shores: Carnival has adopted a strategy to grow beyond its familiar itineraries and capitalize on new markets. The Asian source market for cruises is expected to continue to grow significantly, as it becomes more consumer-driven

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Page 3 of 9

Carnival is especially optimistic about the growth prospects of the Japanese and Australian markets. These countries boast a rapidly developing cruise market with passenger numbers soaring over the past few years and expected to rise further. A growing middle-class with high disposable income makes these markets an attractive bet for Carnival. Moreover an increasing number of ports and tourist destinations in Asia present tremendous growth opportunity for the cruise industry an Carnival expects to continue profitably growing its presence in China and throughout Asia. By 2020, China’s cruise market is projected to grow to 4.5 million passengers, up from 1 million in 2015, as per data from the Chinese Ministry of Transport. Also, by 2030, China is expected to become the world's second largest cruise market, after the U.S. In a bid to expand its leading presence in China, Carnival has also entered into a joint venture with the country’s larges shipbuilder—China State Shipbuilding Corporation—to order two new cruise ships with an option for four more. The joint ventur for the first ever cruise ships to be built in China supports the country’s efforts to prioritize cruise industry growth in its five-yea economic development plan. The first such Chinese-built ship is slated to be delivered in 2023. Meanwhile, the company is continually on the lookout to sail to new destinations in order to drive demand for cruising. Markedly the company sailed to markets like Cuba, Mexico and Bermuda where demand is expected to ramp up and boost revenues significantly. In fact, Carnival Cruise Line’s Carnival Paradise is the largest ship sailing from the United States to Havana and capturing attractive ticket price premium. Going forward, Carnival has more sailing scheduled to Cuba than any other major U.S operator. This should help it in meeting increased demand from travelers, who want to explore one of the most desired destinations in the Caribbean islands. Strategic Initiatives to Improve Revenue Yields: Carnival continues to enjoy ticket price improvements for both its North American and EAA brands, with particularly robust ticket price improvements in its core Caribbean deployment. The company continues to drive revenue yield growth by creating demand in excess of measured capacity growth through its ongoing gues experience, marketing and public relations effort. In fiscal 2017, Carnival’s ticket prices increased 4.5%. The company is particularly positive on its recent innovations like the transformational new ocean experience platform, featuring Ocean Medallion, a guest experience platform, PlayOcean, a proprietary mobile gaming portfolio, and OceanView, a proprietary digital streaming network. These new offerings are anticipated to accelerate and expand engagement and step up th company’s already high guest experience delivery by leveraging its industry-leading scale. Meanwhile, the company believes that it is well positioned for continued earnings growth, given the current strength in booking particularly in Caribbean, Alaska, Europe, Asia and Australia along with pricing trends for 2018. In fact, management noted tha booking trends for third and fourth quarter of 2018 have been better than the last year at basically higher prices. Moreover cumulative bookings for 2018 are still well ahead of the prior year on both press and occupancy at this point in time Consequently, it expects revenue yields (in constant dollars) to continue improving in fiscal 2018 driven by marketing initiatives and a better booking environment. It is also constantly increasing its expenditure on advertising to drive bookings and boost revenues. Moreover, to improve brand perception, Carnival is also promoting its brands through documentaries, television programs, motion pictures and digita initiatives. Only recently, it created four original TV programs in order to entertain, educate and engage viewers.

Last Earnings Report Carnival Q3 Earnings & Revenues Surpass Estimates

Quarter Ending 08/2018

Carnival reported better-than-expected third-quarter fiscal 2018 results. Earnings came in at $2.36 per share, which outpaced the Zacks Consensus Estimate of $2.31 and improved 3.1% year over year. Revenues of $5,836 million exceeded the consensus mark by $5,816 million and increased 5.8% year over year. This year-over-year top-line improvement can be attributed strength in passenger tickets, onboard and other as well as tour and other businesses.

Report Date

Sep 27, 2018

Sales Surprise

0.34%

EPS Surprise

2.16%

Quarterly EPS

2.36

Annual EPS (TTM)

4.19

Net revenue yields rose 2.9% year over year on a constant-currency basis. The upswing was primarily driven by higher net ticket, and net on-board and other yields that increased 2.2% and 5.1%, respectively, in constan currency. Also, the company benefited from ongoing guest-experience efforts along with marketing and public-relation programs that drove cruise ticket prices in the reported quarter. Segmental Revenues Carnival generates revenues from Passenger Tickets business, Onboard and Other as well as Tour and Other segments. Revenues at the Passenger Tickets business segment increased 5.2% year over year to $4,353 million. Onboard and Other revenues totaled $1,316 Zacks Equity Research: CCL

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Page 4 of 9

million, up 7.6% year over year. Tour and Other revenues rose 8.4% year over year to $167 million. Expenses Net cruise costs (in constant dollar) per available lower berth day (ALBD), excluding fuel, increased 2.7% and were better than the June guided range of 3-4% increase. Gross cruise costs (including fuel) per ALBD in current dollars decreased 2.6%. Balance Sheet Carnival exited the third quarter with cash and cash equivalents of approximately $526 million, up from $395 million as of Nov 30, 2017 Trade and other receivables summed $366 million, up from $312 million in the fourth quarter of fiscal 2017. Long-term debt amounted to approximately $8,297 million. Cash from operations totaled $1,349 million in the quarter under review. Carnival had spent $583 million on capital expenditures and $356 million on dividends in the same period. Fourth-Quarter 2018 Guidance Fiscal fourth-quarter 2018 net revenue yields, in constant dollars, are anticipated to increase in the band of 1.5-2.5% year over year Net cruise costs, excluding fuel per ALBD, are expected to decline in the range of 1-2% from the prior-year figure, on a constant-dolla basis. Based on the above factors, Carnival expects adjusted earnings per share in the range of 65 cents-69 cents. Fiscal 2018 Guidance Carnival riased fiscal 2018 adjusted earnings per share guidance to the range of $4.21-$4.25 from $4.15-$4.25 projected earlier. The company had reported earnings of $3.82 per share in fiscal 2017. Based on current booking trends, the company expects fiscal 2018 net revenue yields (in constant currency) to be up approximately 3.5% year over year compared with the prior guidance of up nearly 3%. Also, net cruise costs (in constant dollar) per ALBD, excluding fuel, for fiscal 2018 are anticipated to be up nearly 1.5% year over year. Management noted that cumulative advance bookings for the first half of fiscal 2019 are ahead of the previous year at higher prices.

Recent News Carnival Takes Over Port & Railroad to Gain Edge in Alaska – Jun 6, 2018 Carnival announced that its subsidiary, Holland America Princess Alaska Tours, has arrived at an agreement to acquire TWC Enterprises Limited's White Pass & Yukon Route (WP&YR) division. WP&YR comprises White Pass' port, railroad and retail operations in Skagway, AK. Subject to customary conditions, the transaction is slated to close on Jul 31. Along with the merger agreement, Holland America Princess Alaska Tours also implemented a memorandum of understanding (MOU with Survey Point Holdings, Inc. Under the MOU, Survey Point will be jointly managing the acquired division. The agreement is finalized on the condition that Survey Point and its affiliate will own a majority stake in the company while Carnival will retain a minority position.

Zacks Equity Research: CCL

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Industry Analysis Zacks Industry Rank: 153 / 257 (Bottom 40%)

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