NEW YORK (TheStreet) -- Carnival Corp. (CCL - Get Report) was down 5.42% to $37.83 at 11:52 a.m. on Tuesday after the world's largest cruise operator issued guidance that came up short of analysts' expectations.
Carnival expects full-year adjusted profit of $1.50 to $1.70 a share, which came up short of the estimate of $1.72 from analysts polled by Thomson Reuters. The company also forecast a loss of 2 cents a share to a profit of 2 cents a share for the current quarter ending in May thanks mostly to higher selling and administrative costs. Analysts expected a profit of 7 cents a share.
Carnival also expects net revenue yields on a constant-dollar basis to decline in fiscal 2014. Net revenue yields, which combine ticket sales and money spent on ships, dipped 2.1% in the first quarter.
The company reported a net loss of $15 million, or 2 cents a share, down year over year from a profit of $37 million, or 5 cents a share. Carnival just broke even on a per-share basis, excluding items. Revenue dipped to $3.58 billion. Analysts expected a loss of 8 cents a share on revenue of $3.56 billion.
Royal Caribbean (RCL), the second-largest cruise operator, increased its full-year earnings forecast in January and said its European ticket sales were improving.
Carnival's weak guidance stems from the company's price cuts in order to attract customers after several incidents have hurt demand for its cruises in recent years. Passengers who were stranded on the Carnival Triumph for five days in the Gulf of Mexico after a ship fire in February last year sued the company earlier this month.
"We rate CARNIVAL CORP/PLC (USA) (CCL) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, reasonable valuation levels, largely solid financial position with reasonable debt levels by most measures and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had sub par growth in net income."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- CCL's revenue growth has slightly outpaced the industry average of 3.4%. Since the same quarter one year prior, revenues slightly increased by 2.2%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- The current debt-to-equity ratio, 0.39, is low and is below the industry average, implying that there has been successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.19 is very weak and demonstrates a lack of ability to pay short-term obligations.
- Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- CARNIVAL CORP/PLC (USA)'s earnings per share declined by 33.3% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, CARNIVAL CORP/PLC (USA) reported lower earnings of $1.38 versus $1.67 in the prior year. This year, the market expects an improvement in earnings ($1.70 versus $1.38).
- You can view the full analysis from the report here: CCL Ratings Report