Carnival’s Earnings Soar

Today, Carnival Corp., the world’s largest cruise company, posted highly positive results for its fourth quarter 2010, which ended Nov. 30. Net income increased from $193 million in the same quarter a year ago to $248 million this year. Quarterly revenues increased from $3.3 billion to $3.5 billion, year-over-year.
Analyst Robin Farley from UBS Warburg described the fourth quarter 2010 results, which beat the financial community’s expected earnings, as “very strong.”
Carnival Corp. also reported stellar financial numbers for the full year ended Nov. 30 – posting an 11 percent increase in net income on 7 percent higher revenues. The 2010 net income was $2 billion compared with $1.8 billion the previous year. Full year revenues were $14.5 billion, up from $13.5 billion the prior year. Annual earnings per share were $2.47 versus $2.24 the previous year.
Micky Arison, Carnival Corp.’s chairman and CEO, said “all-in-all, 2010 was an encouraging year with improved business trends from a gradually recovering economy.”
In a report to his firm’s investors, financial analyst Tim Conder, managing director, leisure equity research, Wells Fargo Securities, summarized the upside of the results as: “(1) stronger than expected close in booking prices, (2) stronger than expected on-board spending, (3) higher than expected net yields, and (4) Lower than expected fuel costs.”
Arison said that the company essentially had no negative booking impact from the Carnival Splendor fire and power failure incident off the coast of Mexico a few weeks ago.
2011 Outlook 
In its earnings report, Carnival Corp. said that since September, “booking volumes continued to be strong and prices for those bookings are higher than last year. At this point in time, cumulative advance bookings for 2011 are at higher prices with slightly lower occupancies versus last year.”
Based on these booking trends, the company forecasts a 3 to 4 percent increase in constant dollar net revenue yields for the full year 2011. Arison said booking trends have continued to improve for both North American and European brands, particularly for the peak summer season.
“We are optimistic these positive trends are an indicator of a strong Wave Season, our heaviest booking period which begins in early January,” said Arison. “Given the recent cold weather and snow, particularly in the Northern U.S. and Europe, there is no better time to book a cruise vacation.” 
Taking all the above factors into consideration, the company forecasts full year 2011 earnings per share to be in the range of $2.90 to $3.10 compared to $2.47 for 2010.
Arison added, “Based on the above guidance, we estimate our cash from operations will exceed $4 billion in 2011, while our capital investment commitments decrease to $2.6 billion. We expect to generate significant free cash flow in 2011 and beyond, which should provide us ample opportunities to return additional cash to shareholders over time.”   
Despite the positive outlook, Arison said for now the plan for taking on new ships is unchanged – growing in the area of 2-3 ships a year and “I don’t see that changing for the time being.”
Carnival Corp. said its net revenue yields for the first quarter of 2011 will increase about 2 percent over the same quarter in 2010. The company also said it expects improved net revenue yields as the year progresses. “Cruise equities will likely be the best performing [stocks] within our leisure coverage in 2011,” Conder told investors. 
Condor also noted that Carnival Corp.’s earnings report boded well for what investors can expect from Royal Caribbean Cruises Ltd. in its upcoming earnings report, due to – among other factors — Royal Caribbean’s recent new ship deliveries that could command higher yields and pricing.
Carnival Corp. executives also were asked about NCL’s recent confirmation that 30 percent of its bookings were direct sales to consumers. When asked about Carnival Corp.’s position and whether it would shift more to the NCL approach, Carnival Corp. officials stressed that the company has multiple brands in different countries -- all with different levels of direct bookings.
Arison said overall 17 percent of bookings were direct sales in 2009, and that while he didn’t have the full results for 2010, “I would expect some slow growth … I would anticipate that would continue, but my guess is that it would still be in the high teens.”
Carnival Corp. officials also told analysts that its approach differs from that of NCL’s. They said the company is concentrating on keeping distribution costs down by making the agent bookings it receives more efficient; nearly 60 percent of Carnival Corp. brands’ bookings with agents now are taken via automation.
Carnival Corp. owns Carnival Cruise Lines, Holland America Line, Princess Cruises, Seabourn, AIDA Cruises, Costa Cruises, Cunard Line, Ibero Cruises, P&O Cruises (UK) and P&O Cruises (Australia).  Together, the brands operate 98 ships totaling more than 191,000 berths with 10 new ships scheduled to be delivered between March 2011 and May 2014.

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