Here's Why Carnival Shares Can Sail To New Highs After Earnings

NEW YORK (TheStreet) -- Carnival Corporation (CCL), which is due to report second-quarter earnings results Tuesday before the opening bell, looks poised to sail to new highs even though revenue is expected to dip lower.

With Carnival shares now trading near 52-week highs, waiting for a lower price would ordinarily make sense. But with the Miami-based cruise ship operator benefiting from strong cruising demand and higher on-board spending, Carnival has plenty of wind in its sails to grow profits in the quarters ahead. Better still, the company can achieve this even as oil prices have moved higher in the past three months.

The concern, as oil prices trend higher, is that this would impact Carnival's future performance, given that fuel expenses represented 14.6% of its 2014 sales. So far this fiscal year, fuel costs account for just 9.0% of sales. But in a March appearance on CNBC, Arnold Donald, Carnival's CEO downplayed the notion on Carnival's reliance on low fuel costs.

"The reality is, very little of it [earnings beat] was helped from lower fuel costs," said Donald. Instead, he attributed his company's strong operating performance to high on-board revenue coupled with lower expenses. First-quarter on-board revenue, for instance, grew 8.5% year over year.

Moreover, net revenue yield, a closely-watched industry metric that tracks passenger spending and ticket prices, climbed 2% year over year, topping analysts' estimates of 1%. It also exceeded the company's December guidance of flat to up 1%.

The yield increase is "being driven by demand-creation and great on-board experiences," says Donald. Much of which offset negative impacts of the strong U.S. dollar, which devalued sales in overseas markets.

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