Carnival's Latest Quarter Hits the Deck

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Shares of Carnival (NYSE: CCL) (NYSE: CUK) opened sharply lower on Thursday after the company posting mixed financial results. The world's largest cruise line operator came through with a solid fiscal third quarter, but once again we see weak guidance weighing on the stock.

Revenue rose 5.8% to $5.836 billion for the seasonally potent summertime quarter. This follows back-to-back periods of double-digit percentage growth, but those two quarters were the exceptions to the rule in recent years. Carnival's top-line growth in its latest quarter was fueled primarily by a 4% increase in revenue yield, or revenue per available lower berth day (a key metric in gauging the health of the cruise industry). Favorable currency swings padded the revenue yield, but even on a constant currency basis the metric would've clocked in at a reasonable 2.9% uptick. Carnival's guidance back in June was calling for a 1.5% to 2.5% increase on that basis.

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Breaking down the numbers

The path down the bottom line wasn't as smooth as Carnival's previous outing. Adjusted net income rose a mere 0.8%, despite net cruise costs excluding fuel rising a modest 2.7% per available lower berth day. Carnival's aggressive share buybacks helped make the adjusted earnings look better on a per-share basis, rising to $2.36 for the quarter from $2.29 a year earlier.

As ho-hum as it may seem to be growing its revenue and adjusted earnings by less than 6% and 1%, respectively, this isn't what's weighing on the shares today. Investors were actually bracing for slightly less on both ends of the income statement. The rub here is that Carnival is leaving the high end of its adjusted profit forecast for the entire fiscal year at $4.25 a share despite the beat on the bottom line. Back in March the high end of Carnival's adjusted profit range was at $4.40 a share. Carnival sees adjusted earnings per share for the current quarter clocking in between $0.63 and $0.69, well short of what Wall Street was targeting.

Folks are still booking their Carnival cruise getaways. Cumulative advanced bookings for the first half of fiscal 2019 are ahead of where fiscal 2018 bookings were a year earlier, but fares have been in line with what they were before. Carnival points out that booking volumes since June have been running sharply higher but at lower price points, a problematic look for the top dog in cruise vacations. Folks have started to pay more earlier this month, but Carnival points out that the first half of fiscal 2019 will be rough on the growth front since it's pitted against the double-digit revenue growth that it posted through the first half of this fiscal year.

Carnival remains a popular stock with income investors, and the one silver lining to Thursday's drop is that it pushes the yield north of 3% for new shareholders. This is the second time in a row that Carnival stock has taken a hit after a poorly received quarterly report, and investors hope that this doesn't become a habit.

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Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool recommends Carnival. The Motley Fool has a disclosure policy.