Carnival Sails Into More Troubled Waters


Carnival has been afflicted by another spate of unfortunate accidents in 2013, just when investors expected the company would be out of the media limelight. With the trouble of the Truimph last month and the Dream yesterday receiving negative press, analysts remain concerned that near-term pricing could be uncertain because of negative press.

Trading at 18 times the midpoint of management’s updated earnings guidance, shares look lofty today, and would caution investors on purchasing shares during the next quarter. First quarter yields were down 1.9% on a current currency basis, to $158 per available lower berth day (ALBD), lapping a healthy first quarter last year despite a 3.9% increase in capacity. This metric was hindered by a 2.8% decline in ticket revenue yields, which was offset by a 1.1% increase in onboard and other spend growth. Fortunately, costs were well controlled as net cruise costs fell 4.3% with fuel prices down 4% and consumption per ALBD improving by 5% year over year. Additionally, the company just sold three of its 212-berth Seabourn ships, which will leave the fleet in 2014 and beyond.

The revised forward outlook was disappointing, but expected in light of recent events. For 2013, the midpoint of management’s guidance has been reduced from $2.30 to $1.95 (the range is $1.80 to $2.10). The $0.25 decline is attributable to a lower ticket forecast ($0.14), lower onboard yields ($0.06), and increased modifications to ships to enhance operating system redundancies and improve emergency power ($0.05). For the full year net cruise costs excluding fuel are expected to increase 2.5% to 3.5% (from the previous range of 1.5% to 2.5%), impacted by the Triumph voyage disruptions and related repair cost as well as other fleet refurbishments.

The majority of this impact should fall in the second quarter, when the Triumph is out of service, as net cruise costs ex-fuel are expected to rise between 9% and 10%. The good news is that for the nine weeks ending March 10 (the wave season), fleetwide booking and pricing have been running ahead of last year. Since the Triumph incident, ex-Carnival, booking and pricing have been higher year over year. Booking for the Carnival brand was lower immediately after the accident, but has recovered and is expected to normalize over the next few weeks.


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