Skip to Content
Stock Strategist

Foreign Exchange, Fuel Headwinds Hurt Carnival's 2018 Profits

Cruise line still sails in a moat based on efficient scale, cost advantages, and intangible brand assets.

Mentioned: , , ,

Shares of narrow-moat  Carnival (CCL) tumbled after reporting strong second-quarter results that included a downtick in full-year earnings per share guidance. With EPS now expected to fall between $4.15-$4.25 (from $4.20-$4.40 prior, and $4.00-$4.30 at fiscal year-end), investors are resetting their near-term expectations for the business. Moreover, third-quarter earnings forecasts are likely to come down nearly 10% given Carnival’s $2.25-$2.29 guidance versus our $2.47 forecast (and consensus outlook for $2.48), which we believe is the key issue weighing on shares.

We contend that the factors driving this change are out of the company’s control--the $0.10 downtick in the midpoint of EPS guidance stemmed from $0.09 of second-quarter outperformance and share repurchase accretion that was more than offset by higher fuel and foreign exchange costs of $0.19. However, all in, the constant currency outlook calling for yield growth of 3% (up from 2.5% prior) and a cost increase of 1% for the full year was largely unchanged. We don’t plan any material change to our $70 fair value estimate, which includes average yield growth of 2% and cost increases of just above 1% in 2019 and beyond, leading to EBITDA margins that expand to 32% over the next decade from 28% in 2017, as our long-term supply and demand factors remain intact.

Jaime M. Katz does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.