Carnival's Results Were Decent But Shares Are Expensive

| About: Carnival Corporation (CCL)

Cruise line company Carnival (NYSE:CCL) reported better than expected third quarter results (click here for second-quarter results). Revenue fell 5.3% adjusted for currency, which was better than the firm's internal guidance of down 6%-7%, but was in-line with GAAP consensus estimates of $4.68 billion. Earnings, on a non-GAAP basis, also didn't fall as much as the consensus expected, dropping 9.5% year-over-year to $1.53 per share.

Much like in previous quarters, the firm struggled to drive ticket revenue, which tumbled 8.9% year-over-year to $3.56 billion. However, CEO Mickey Arinson noted that pricing continues to strengthen, though not at the same rate as bookings. He also expects industry-wide pricing to recover in the second quarter of 2013. If the company continues to fill up its ships, higher occupancy rates should drive overall profitability. Though consumers are spending less on tickets, onboard revenues grew 3% year-over-year to $965 million. Carnival is benefiting from lower input costs; as fuel expenses fell 4% year-over-year and costs, ex-fuel, fell 3% year-over-year. Unfortunately, the firm's per ton metric fuel cost of $659 is expected to rise to $739 during the fourth quarter.

Costa, which sank off the coast of Italy, remains challenged, as occupancy is down 5 percentage points compared to last year and at lower prices. Though advanced bookings have accelerated recently, bookings for the first half of 2013 still trail last year's levels and are at lower prices.

Looking ahead, the firm narrowed its full-year earnings range to $1.83-$1.87, roughly in-line with expectations. Fourth quarter revenue is expected to fall 5%-6%, but only 3%-4% net of Costa. Though we think fiscal year 2013 will be stronger than this year, we do not like shares of Carnival at current prices. Shares only score a 4 on the Valuentum Buying Index (our stock-selection methodology), so we aren't interested in adding them to the portfolio in our Best Ideas Newsletter at this time. However, we think Carnival's business remains strong, so we aren't interested in a put-option position either, even though shares may be overvalued. For put-option ideas, we prefer firms that have both poor value and poor momentum characteristics--a 1 or 2 on the Valuentum Buying Index (click here to learn why).

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.