Carnival Cruise Booking Solid Despite Tight Economy

Carnival Corp.'s fiscal second-quarter net income was flat as stronger-than-expected revenue yields were offset by surging fuel costs, which prompted the world's largest cruise company to cut its earnings forecast for the year.

Carnival reported net income of $390 million in both the latest and year-ago May-ending quarter. Per-share earnings in the latest period were 49 cents a share, above the company's March forecast of 42 cents to 44 cents a share. Revenue increased 16% to $3.38 billion.

The number of passengers rose 8.7%. Net yields, or net revenue per available lower berth day, rose 7.3%, or 3.7% without foreign-exchange fluctuations. The Miami company had projected increases of 6.5% to 7.5% and 2.5% to 3.5% without foreign-exchange changes.

"Despite the current difficult economic environment, our booking trends continue to be solid," said Chairman and Chief Executive Micky Arison, though he conceded that "the impact of skyrocketing fuel prices on our operating results has overshadowed the revenue yield improvement we have experienced."

Faced with soaring fuel costs, Carnival has shifted capacity to Europe, where there is strong demand from the new moneyed classes in Asia and Russia for affordable dollar-based European cruises. Carnival's brands range from mass-market Carnival Cruise Lines and Princess Cruises to premium and luxury brands Holland America and Cunard.

The company lowered its fiscal-year earnings outlook to $2.70 to $2.80 from $3 to $3.20, citing increased fuel expenses that are expected to reduce earnings by 92 cents a share. Analysts forecasted $2.96 a share. The company also lowered expectations for net yields by one percentage point to 4.5% to 5.5% because of currency fluctuations.

Current-quarter earnings are seen falling to $1.56 to $1.58 a share from last year's $1.67 a share. Analysts had expected third-quarter earnings of $1.78. Net revenue yields are projected to increase about 4%, or 1% on a constant dollar basis.

Andrew Fitchie, an analyst at Collins Stewart, said, "The cut in guidance was expected and the company is demonstrating that it is trading and managing [its operations] well, given the tough economic environment."

He noted, however, that is was "disappointing" that Carnival was cutting back on its revenue guidance. "If revenue growth weakens and fuel prices continue to rise, it would suggest that the company won't be able to pass on fuel costs [to customers]."

By: Shirleen Dorman
Wall Street Journal; June 19, 2008