Carnival Expects Key Growth Drivers to Be Strong in 4Q15



Average lower berth days

Average lower berth day (or ALBD) is a standard measure of passenger capacity. It’s calculated by multiplying passenger capacity by the ship’s revenue-producing operating days in the period. ALBD assumes that each cabin that’s offered for sale accommodates two passengers.

As can be seen from the chart above, Carnival’s passenger capacity is on an increasing trend. ALBD increased 1.6% 1Q15, 2.3% in 2Q15, and 0.6% in 3Q15.

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Occupancy is a measure of capacity utilization. Like ALBD, the occupancy calculation also assumes that each cabin that’s offered for sale accommodates two passengers. Occupancy of more than 100% indicates that more than two passengers occupied cabins during the period.

The chart above shows that occupancy has also been on an increasing trend. Occupancy increased by 0.2% in 1Q15 to 103%, further increasing to 102.8% in 2Q15 and 110.9% in 3Q15.

Fuel cost

Fuel prices have fallen sharply in the last 15 months from a high of $105 per barrel last July to levels below $40 this year. The fall has continued in November, as flat oil prices and large fluctuations in the strength of the dollar continued. This is a big sigh of relief for cruise companies, as fuel prices form a large part of their costs and have a substantial effect on their profitability. Carnival’s (CCL) competitors Royal Caribbean Cruises (RCL) and Norwegian Cruise Line Holdings (NCLH) have benefitted too.

As the chart above shows, fuel prices have declined substantially as compared to 2014. However, quarter-over-quarter, prices have increased.

For 3Q15, fuel prices fell by 32% to $439 as compared to $650 in 3Q14. Oil prices have declined further in this quarter, and the trend is expected to continue.

Management outlook

With both ALBD and occupancy expected to increase in 4Q15, management expects earnings per share (or EPS) for 4Q15 to be in the range of $0.36 to $0.40. The full year 2015 EPS is expected to be in the range of $2.56 to $2.60.

Management also expects fuel cost to fall further to $366 per metric ton for 4Q15 and to $405 for the full year 2015.

CCL forms 4.0% of the WBI Large Cap Tactical Yield Shares (WBIG) and 4.0% of the WBI Large Cap Tactical Select Shares ETF (WBIL).


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