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Cruise-liner Carnival (NYSE:CCL) reported stronger-than-expected second-quarter earnings on Friday. The firm earned $0.20 per share for the second quarter of 2012. Though that's down from $0.26 during the same period last year, it exceeded the consensus estimate of $0.07 per share. Revenue came in about $50 million shy of expectations, at $3.5 billion, a year-over-year decline of 2%.

The firm was able to successfully decrease costs (ex-fuel) by 2.2% compared to the same period last year, though fuel costs increased 12%. Carnival also hedged an additional 19% of its fuel costs for the rest of the year, meaning 38% of the company's fuel consumption for the rest of 2012 is hedged. With the price of oil down significantly, the company could see profit tailwinds from the portion of its unhedged fuel costs. In addition to lowering expenses, the company was able to offset some of its decline in revenue yields thanks to firm cruise pricing and higher-than-expected onboard spending. North American revenue yields grew 3%, but that growth was offset by weakness in its Europe, Asia, and Australian brands.

Pricing in the Costa Cruises Group continues to be weak in the shadow of the sinking of the Costa Concordia in January of this year. We suspect Costa will weigh on results of the cruse-liner for the near term. The firm believes revenue will be in-line with guidance for the remainder of the year (down 5-6%). However, Carnival raised its earnings guidance to $1.80-$1.90 from its previous range of $1.40-$1.70. It expects the average price for a metric ton of fuel to fall to $620 in the third quarter, from $756 per metric ton in the second quarter.

Though the company's forecast was better-than-expected, we continue to believe shares are overvalued. Shares currently trade above our fair value range and at a premium valuation to its peers. We also believe the firm's nearly 3% yield is not very safe given our expectations for cash flow generation over the next several years and current balance sheet position. We do not think Carnival is a very compelling investment opportunity at this time.

Source: Carnival's Results And Outlook Are Better Than Expected