Carnival reports better-than-expected earnings

Carnival Corp. reported better-than-expected financial results for the second fiscal quarter Tuesday, but the company said continued competition in the Caribbean is expected to be a drag on third-quarter earnings.

The Doral-based cruise company reported $3.6 billion in revenues for the quarter that ended May 31, up from $3.5 billion a year earlier. Net income, which included a net gain on vessel transactions and unrealized gains on the company’s fuel hedging program, was up more than 150 percent to $106 million.

Adjusted net income, which does not include those gains, was $80 million, or $.10 per share. That beat Carnival’s forecast as well as analyst predictions. The company raised its full-year forecast to $1.60-$1.75 per share, up from the previous estimate of $1.50-$1.70.

“It feels like we’ve turned a bit of a corner,” Canival Corp. president and CEO Arnold Donald said in a conference call with analysts Tuesday morning. “We are working very hard to build on our current momentum.”

The world’s largest cruise ship company said the net revenue yields, or the amount spent per berth per day, were better than anticipated and costs came in lower than expected. Carnival, which has a global portfolio of brands including Carnival Cruise Lines, Princess Cruises, Holland America Line and Costa Cruises, also cut fuel consumption by 6 percent compared to the previous year.

“Goooooooal in Q2,” wrote UBS Investment Research leisure analyst Robin Farley in a World Cup-inspired note to investors.

But all the news was not positive; yields were still down 2.2 percent year-over-year, compared to the 3-4 percent decrease the company had forecast. Carnival said it expects yields to be flat to -1 percent in the third quarter, which surprised some analysts. Shares closed at $38.23 Tuesday, down nearly 3 percent.

Farley wrote that the third quarter “would have plenty of European and Alaskan itineraries to offset the weak Caribbean,” and noted that it should be easy to beat last year’s performance in the third quarter, when business took a major hit following the disabling fire aboard the Carnival Triumph.

Chief financial officer David Bernstein said Carnival previously believed yields would be slightly positive in the third quarter.

“All we’re talking about is a very small movement from a tad positive to slightly negative,” he said in the earnings call. He attributed the expected decline to continued discounting in the Caribbean. Instead of slashing prices, he said, Carnival Cruise Lines has held prices stable at the expenses of filling all staterooms.

While Bernstein said ticket prices are moving in a positive direction, the company expects to sacrifice some occupancy in the months between June 1 and Aug. 31.

In a note to investors, Morningstar equity analyst Jaime Katz said she believes the strategy is sound.

She wrote: “On the pricing side, we view the decision to accept lower occupancy rates at stable prices as wise, particularly since occupancy remains over 100%, as this positions the company to capture better pricing in 2015, when capacity in the weaker-priced Caribbean will decline materially, shifting the supply demand equilibrium.”