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Category: Stock Market and Carnival Corporation
Date: 29 September 2019 Stock Price: $43.58 We take a look at the 3rd quarter earnings release of their 2019 fiscal year of Carnival Corporation the world's largest leisure travel company. The question is how are they doing considering another massive travel company Thomas Cook recently collapsed.
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About Carnival Corporation
Carnival Corporation & plc, the world’s largest leisure travel company, provides travelers around the globe with extraordinary vacations at an exceptional value. The company’s portfolio of global cruise line brands includes Carnival Cruise Line, Holland America Line, Princess Cruises and Seabourn in North America; P&O Cruises (UK) and Cunard in Southampton, England; AIDA Cruises in Rostock, Germany; Costa Cruises in Genoa, Italy; and P&O Cruises (Australia) in Sydney. Additionally, Carnival Corporation owns a tour company that complements its cruise operations: Holland America Princess Alaska Tours which operates in Alaska and the Yukon.
Together, these brands comprise the world’s largest cruise company with a fleet of 102 ships visiting more than 700 ports around the world. A total of 19 new ships are scheduled to be delivered to Carnival Corporation between 2017 and 2022.
Carnival Corporation employs over 120,000 people worldwide and its 10 cruise line brands attract nearly 11.5 million guests annually, which is about 50 percent of the global cruise market. Combining more than 225,000 daily cruise guests and 100,000 shipboard employees, more than 325,000 people are sailing aboard the Carnival Corporation fleet every single day, totaling about 85 million passenger cruise days a year.
Carnival Corporation’s 10 leading brands offer a wide range of vacation experiences for millions of guests with varied leisure-time preferences from multiple backgrounds, cultures and languages. The company’s broad product offerings appeal to travelers of all kinds with many preferences, and consistently provide extraordinary vacation experiences at an outstanding value, especially when compared to similar land-based vacation options.
Together, these brands comprise the world’s largest cruise company with a fleet of 102 ships visiting more than 700 ports around the world. A total of 19 new ships are scheduled to be delivered to Carnival Corporation between 2017 and 2022.
Carnival Corporation employs over 120,000 people worldwide and its 10 cruise line brands attract nearly 11.5 million guests annually, which is about 50 percent of the global cruise market. Combining more than 225,000 daily cruise guests and 100,000 shipboard employees, more than 325,000 people are sailing aboard the Carnival Corporation fleet every single day, totaling about 85 million passenger cruise days a year.
Carnival Corporation’s 10 leading brands offer a wide range of vacation experiences for millions of guests with varied leisure-time preferences from multiple backgrounds, cultures and languages. The company’s broad product offerings appeal to travelers of all kinds with many preferences, and consistently provide extraordinary vacation experiences at an outstanding value, especially when compared to similar land-based vacation options.
Overview of Carnival Corporation' latest earnings report
The numbers we are interested in (for the quarter):
- Revenue: $6.533 billion (up from $5.836 billion from the same quarter of the previous year)
- Revenue increased by 19.18% over the last 12 months
- Operating expenses: $3.532 billion (up from $2.958 billion for the same quarter of the previous year)
- Operating expenses increased by 40.4% over the last 12 months
- Net income $.178 billion (up from $1.707 billion for the same quarter of the previous year)
- Diluted earnings per share: $2.58 (up from $2.41 for the same quarter of the previous year)
- Dividend declared: $0.50
- Dividend yield: 4.5%
- Diluted weighted-average shares outstanding: 691 million (down from 707 million for the same quarter of the previous year)
- Cash and cash equivalents: $1.153 billion
- Cash and cash equivalents per share: $1.66
- Cash and cash equivalents makes up 3.83% of Carnival Corporation's market capital
- Cash and cash equivalents makes up 2.62% of Carnival Corporation's total assets
- Inventories: $482 million
- Inventories makes up 1.1% of Carnival Corporation's total assets
- Stockholders equity of Carnival Corporation: $25.295 billion
- Stockholders equity per share: $36.61
- Carnival Corporation is trading at 1.2 times its stockholders equity which is well outside the expected range of between 2 and 4 which most companies tend to trade at.
- Cash generated from operations: $1.245 billion
- Cash generated from operations per share: $1.80
Carnival Corporation' management commentary on the results and earnings guidance
MIAMI, Sept. 26, 2019 /PRNewswire/ -- Carnival Corporation & plc (NYSE/LSE: CCL; NYSE: CUK) announced financial results for the third quarter ended August 31, 2019 and provided an outlook for the full year, fourth quarter 2019 and 2020.
Highlights from the third quarter included Carnival Cruise Line's partnership with Thrillist to create Island Hoppers, the first-ever comedy competition show at sea. Princess Cruises announced Phantom Bridge, a first-of-its-kind game combining digital and physical elements for the ultimate immersive escape room, which will launch onboard Sky Princess and Enchanted Princess. AIDAnova was the first-ever cruise ship to be awarded the prestigious Blue Angel certification for excellence in environmentally friendly ship design by Germany's Federal Ministry for the Environment. Additionally, during the quarter, the company released its 2018 Sustainability Report, detailing the key initiatives and progress made in 2018 toward its 2020 sustainability performance goals.
2019 Outlook
Carnival Corporation & plc President and Chief Executive Officer Arnold Donald stated, "I thank our 150,000 global employees for their efforts to deliver a record quarter in an otherwise challenging year. We achieved additional cost improvements largely driven by leveraging our scale, offsetting the earnings impact due to voyage disruptions from the combined impact of Hurricane Dorian, the tensions in the Arabian Gulf and the delayed delivery of Costa Smeralda. A further reduction in guidance for ticket and onboard revenue worth $0.06 per share in part contributed to by the high level of close-in voyage disruptions was also offset. However, due to an $0.08 impact from the recent spike in fuel prices caused by geopolitical events, we are reducing our full year guidance for 2019 by $0.05 per share."
Based on current booking trends, the company expects full year 2019 constant currency net cruise revenues to be up approximately 4.0 percent, with capacity growth of 4.2 percent. The company continues to expect its North America & Australia segment yields to be up for the year, but slightly less than previous guidance while its Europe & Asia segment is still expected to be down for the year but slightly more than previous guidance. The company expects full year net cruise costs excluding fuel per ALBD in constant currency to be up approximately 0.3 percent versus the prior year compared to June guidance of up approximately 0.7 percent.
Weather related voyage disruptions, the tensions in the Arabian Gulf and a ship delivery delay are expected to have a financial impact of $0.04 to $0.06 per share compared to June guidance. Changes in fuel prices and currency exchange rates are expected to decrease earnings by $0.08 per share also compared to June guidance. Taking the above factors into consideration, the company expects full year 2019 adjusted earnings per share to be in the range of $4.23 to $4.27, reflecting recent fuel price increases, compared to June guidance of $4.25 to $4.35 and 2018 adjusted earnings per share of $4.26.
Fourth Quarter 2019 Outlook
Fourth quarter constant currency net revenue yields are expected to be down 2.0 to 3.0 percent compared to the prior year. Net cruise costs excluding fuel per ALBD in constant currency for the fourth quarter are expected to be up 4.0 to 5.0 percent compared to the prior year. Changes in fuel prices and currency exchange rates are expected to increase earnings by $0.06 per share compared to the prior year. Voyage disruptions due to weather, a ship delivery delay and the previously announced U.S. government's policy change on travel to Cuba are expected to have a financial impact of approximately $0.07 to $0.09 per share. Based on the above factors, the company expects adjusted earnings per share for the fourth quarter 2019 to be in the range of $0.46 to $0.50 versus 2018 adjusted earnings per share of $0.70.
2020 Outlook
Cumulative advanced bookings for the first half of 2020 are ahead of the prior year at prices that are in line compared to 2019 on a comparable basis. Since June, both booking volumes and prices for the first half of next year have been running lower than the prior year.
For full year 2020, the company expects capacity growth of approximately 7 percent. As previously indicated, in 2020 the company will increase its usage of MGO as a percent of total fuel consumption as a result of the IMO sulfur emission regulations. MGO is currently anticipated to represent approximately 40 percent of fuel consumption for full year 2020 compared to approximately 20 percent for full year 2019. Using fourth quarter September guidance fuel prices, fuel expense for full year 2020 is expected to be $1.8 billion compared to $1.6 billion expected for full year 2019. The company currently expects depreciation to be approximately $2.4 billion for full year 2020 compared to $2.2 billion for full year 2019.
Donald added, "As a truly global cruise company, with nearly 50 percent of our guests sourced outside of the U.S., we are facing a number of current headwinds, including weakening economies affecting our Europe & Asia segment, a strong dollar and of course, the IMO 2020 regulations, and we are working to mitigate them. We have taken actions to bring capacity in Southern Europe more in line with demand, reflecting the current conditions which have been heavily influenced by ongoing economic malaise, the uncertain geopolitical environment and recent trends in consumer confidence. We have also made close-in deployment changes, including those made to address the recent situation in the Arabian Gulf, which has had an impact on recent booking trends and ticket prices. While we are subject to uneven economies in the short run, the global aspect of our business has proven to be a strength over time, producing our industry leading position with over $5 billion in cash from operations, attractive returns on capital and the strongest balance sheet in the industry."
Highlights from the third quarter included Carnival Cruise Line's partnership with Thrillist to create Island Hoppers, the first-ever comedy competition show at sea. Princess Cruises announced Phantom Bridge, a first-of-its-kind game combining digital and physical elements for the ultimate immersive escape room, which will launch onboard Sky Princess and Enchanted Princess. AIDAnova was the first-ever cruise ship to be awarded the prestigious Blue Angel certification for excellence in environmentally friendly ship design by Germany's Federal Ministry for the Environment. Additionally, during the quarter, the company released its 2018 Sustainability Report, detailing the key initiatives and progress made in 2018 toward its 2020 sustainability performance goals.
2019 Outlook
Carnival Corporation & plc President and Chief Executive Officer Arnold Donald stated, "I thank our 150,000 global employees for their efforts to deliver a record quarter in an otherwise challenging year. We achieved additional cost improvements largely driven by leveraging our scale, offsetting the earnings impact due to voyage disruptions from the combined impact of Hurricane Dorian, the tensions in the Arabian Gulf and the delayed delivery of Costa Smeralda. A further reduction in guidance for ticket and onboard revenue worth $0.06 per share in part contributed to by the high level of close-in voyage disruptions was also offset. However, due to an $0.08 impact from the recent spike in fuel prices caused by geopolitical events, we are reducing our full year guidance for 2019 by $0.05 per share."
Based on current booking trends, the company expects full year 2019 constant currency net cruise revenues to be up approximately 4.0 percent, with capacity growth of 4.2 percent. The company continues to expect its North America & Australia segment yields to be up for the year, but slightly less than previous guidance while its Europe & Asia segment is still expected to be down for the year but slightly more than previous guidance. The company expects full year net cruise costs excluding fuel per ALBD in constant currency to be up approximately 0.3 percent versus the prior year compared to June guidance of up approximately 0.7 percent.
Weather related voyage disruptions, the tensions in the Arabian Gulf and a ship delivery delay are expected to have a financial impact of $0.04 to $0.06 per share compared to June guidance. Changes in fuel prices and currency exchange rates are expected to decrease earnings by $0.08 per share also compared to June guidance. Taking the above factors into consideration, the company expects full year 2019 adjusted earnings per share to be in the range of $4.23 to $4.27, reflecting recent fuel price increases, compared to June guidance of $4.25 to $4.35 and 2018 adjusted earnings per share of $4.26.
Fourth Quarter 2019 Outlook
Fourth quarter constant currency net revenue yields are expected to be down 2.0 to 3.0 percent compared to the prior year. Net cruise costs excluding fuel per ALBD in constant currency for the fourth quarter are expected to be up 4.0 to 5.0 percent compared to the prior year. Changes in fuel prices and currency exchange rates are expected to increase earnings by $0.06 per share compared to the prior year. Voyage disruptions due to weather, a ship delivery delay and the previously announced U.S. government's policy change on travel to Cuba are expected to have a financial impact of approximately $0.07 to $0.09 per share. Based on the above factors, the company expects adjusted earnings per share for the fourth quarter 2019 to be in the range of $0.46 to $0.50 versus 2018 adjusted earnings per share of $0.70.
2020 Outlook
Cumulative advanced bookings for the first half of 2020 are ahead of the prior year at prices that are in line compared to 2019 on a comparable basis. Since June, both booking volumes and prices for the first half of next year have been running lower than the prior year.
For full year 2020, the company expects capacity growth of approximately 7 percent. As previously indicated, in 2020 the company will increase its usage of MGO as a percent of total fuel consumption as a result of the IMO sulfur emission regulations. MGO is currently anticipated to represent approximately 40 percent of fuel consumption for full year 2020 compared to approximately 20 percent for full year 2019. Using fourth quarter September guidance fuel prices, fuel expense for full year 2020 is expected to be $1.8 billion compared to $1.6 billion expected for full year 2019. The company currently expects depreciation to be approximately $2.4 billion for full year 2020 compared to $2.2 billion for full year 2019.
Donald added, "As a truly global cruise company, with nearly 50 percent of our guests sourced outside of the U.S., we are facing a number of current headwinds, including weakening economies affecting our Europe & Asia segment, a strong dollar and of course, the IMO 2020 regulations, and we are working to mitigate them. We have taken actions to bring capacity in Southern Europe more in line with demand, reflecting the current conditions which have been heavily influenced by ongoing economic malaise, the uncertain geopolitical environment and recent trends in consumer confidence. We have also made close-in deployment changes, including those made to address the recent situation in the Arabian Gulf, which has had an impact on recent booking trends and ticket prices. While we are subject to uneven economies in the short run, the global aspect of our business has proven to be a strength over time, producing our industry leading position with over $5 billion in cash from operations, attractive returns on capital and the strongest balance sheet in the industry."
Carnival Corporation (NYSE: CCL) stock price history
The image below, obtained from Google, shows the stock price history of Carnival Corporation (NYSE: CCL) over the last 5 years. And it's been a very average time for Carnival Corporation (NYSE: CCL). 5 years ago the stock was trading at around $39.60 and its currently trading at $43.58 That's a very modest return of 106% over the last 5 years. The stock is trading at very close to its 52 week low and is far far away from its 52 week high which to us is a clear indication that the short term sentiment and momentum of Carnival Corporation is very negative. And no doubt some of this sentiment is fueled by the collapse of Thomas Cook.
Carnival Corporation (NYSE:MTN) latest stock valuation
So based on the earnings report and guidance provided by Carnival Corporation (NYSE: CCL) what do we value Carnival Corporation (CL) stock at? Based on the earnings report and their earnings guidance our valuation models sets a target (full value) price of $55.50. We therefore believe Carnival Corporation is undervalued.
Part of the sharp decline in the stock price after the release of their results is the guidance on their fuel costs which will increase sharply during their 2020 fiscal year. Our valuation model takes into account a 20% increase in their fuel costs. We feel the negative sentiment towards travel companies following the collapse of Thomas Cook and the sharp decline in Carnival's stock price after the release of the results has provided a good opportunity for long term fundamental and value investors to get into the stock. We recommend looking to enter the group at least 10% below our target (full value) price of $55.50. So a good buying price for the stock will be below $49.50 and the stock is currently well below this price. We therefore rate Carnival Corporation a buy.
Part of the sharp decline in the stock price after the release of their results is the guidance on their fuel costs which will increase sharply during their 2020 fiscal year. Our valuation model takes into account a 20% increase in their fuel costs. We feel the negative sentiment towards travel companies following the collapse of Thomas Cook and the sharp decline in Carnival's stock price after the release of the results has provided a good opportunity for long term fundamental and value investors to get into the stock. We recommend looking to enter the group at least 10% below our target (full value) price of $55.50. So a good buying price for the stock will be below $49.50 and the stock is currently well below this price. We therefore rate Carnival Corporation a buy.