Carnival sinks as guidance disappoints after record third quarter

Cruise giant Carnival sunk as fourth quarter earnings guidance came in below expectations.

Third quarter net income sailed up 28% to $1.71bn from $1.33bn a year earlier on revenue of $5.84bn, rising 5% year on year.

The FTSE 100 company said third-quarter 2018 adjusted net income was $1.7bn, or $2.36 adjusted earnings per share - higher than the $1.7bn and $2.29 reported a year ago. EPS is being boosted by a $1bn share buyback of both Carnival Corporation common stock traded in New York and Carnival plc ordinary shares traded in London.

Analysts were looking for earnings of $2.32 per share and revenue of $5.80bn, according to FactSet.

Adjusted net income excluded unrealised gains and losses on fuel derivatives and other net charges, totalling $34m in net gains for the third quarter.

“Strong execution delivered the highest quarterly performance in our company's history, overcoming fuel and currency headwinds,” said president and chief executive officer Arnold Donald.

“At the same time, our strong cash flow and balance sheet enabled us to accelerate our opportunistic share repurchase program, investing almost $750m in Carnival stock since the beginning of the third quarter, bringing the total investment to $4.4bn in just three years, and leading to the second replenishment of our $1.0bn repurchase program this year alone.”

Based on the third quarter results and fourth quarter guidance for adjusted earnings per share of 65-69 cents, the company said it now expected full year 2018 net revenue yields in constant currency to be up about 3.5% year-on-year, better than June guidance for 3.0% growth.

The firm said it expected full-year net cruise costs excluding fuel per ALBD in constant currency to grown by 1.5%, rising from June guidance of 1.0%, which it put down to the accounting treatment for ships sold during the quarter.

Changes in fuel prices, including realised fuel derivatives, and currency exchange rates were expected to decrease earnings by six cents per share compared to June guidance, and 18 cents per share compared to the prior year.

Taking those factors into consideration, Carnival said it expected full-year 2018 adjusted earnings per share to be in the range of $4.21 to $4.25, compared to 2017 adjusted earnings per share of $3.82.

While guidance for the fourth quarter was some way short of the average analysts forecasts of 73 cents, the full year guidance could still beat the consensus of $4.24.

“We are on track to achieve double digit return on invested capital in 2018 as we deliver upon our strategy to create demand in excess of measured capacity growth, all while containing costs and leveraging our industry leading scale,” added Donald.

“Going forward, we remain on a path toward continued growth in earnings and returns, driven to a greater degree by capacity increases as we add more efficient ships, replacing less efficient capacity.”

He said the board believed the plans it had put in place would maximise returns to shareholders over time, as it continued to execute in an industry that was both under-penetrated and capacity constrained.

“At the same time, we remain committed to returning cash to shareholders as evidenced by the growth in our recurring dividend, currently distributing $1.4bn annually, accompanied by our recently replenished share repurchase programme.”