Carnival 1Q net income falls on higher fuel prices

AP News
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Posted: Mar 22, 2011 11:39 AM
Carnival 1Q net income falls on higher fuel prices

Higher-than-expected fuel prices pushed Carnival Corp.'s first-quarter profit down 13 percent, but the cruise operator managed to meet Wall Street's earnings expectations thanks to cutting other costs.

But Carnival shares fell 4 percent in midday trading Tuesday as the company behind the Holland America Line, Princess Cruises, Carnival Cruise Lines and Costa Cruises brands reduced its full-year earnings guidance to a range below analysts' expectations.

For the period ended Feb. 28, Carnival reported net income of $152 million, or 19 cents per share, down from $175 million, or 22 cents per share, a year ago.

Wall Street was already anticipating the results, as the Miami company had provided its quarterly expectations earlier this month.

Carnival said its performance benefited from lower than-expected costs that helped offset fuel prices that rose 9 percent. The prior-year period included an unusual benefit of 10 cents per share.

Revenue climbed 8 percent to $3.42 billion from $3.18 billion on higher ticket prices and passengers spending more on board its ships. Analysts expected revenue of $3.28 billion.

The economic recovery has allowed cruise operators to raise their ticket prices. People are again starting to feel confident enough to spend more on travel at sea, with the recession's harshest effects beginning to fade for many.

First-quarter net revenue yields, which measures the amount a cruise company makes from its passengers after removing expenses, increased 2 percent on a constant dollar basis due to higher prices for Carnival's European brands.

Carnival now expects full-year earnings of $2.55 to $2.65 per share. This is a bit better than the earnings forecast of $2.50 to $2.60 per share that the company provided earlier this month, as it accounts for lower spot fuel prices since that guidance was given. In December, Carnival said it anticipated earnings of $2.90 to $3.10 per share for 2011.

Analysts expect earnings of $2.76 per share for the year.

Its stock dropped $1.63, or 4 percent, to $39.38 in midday trading. The shares have traded between $29.68 and $48.14 over the past year.

Carnival said fuel prices have climbed "significantly" since it provided its outlook in December.

Vice Chairman and Chief Operating Officer Howard Frank said during a conference call that political unrest in the Middle East and North Africa led to a significant slowdown in demand for itineraries there. Carnival had to reset 280 cruises, which Frank estimates will result in about $44 million in lost revenue, or 5 cents a share, for the year.

He indicated that higher fuel prices hurt the company's revised 2011 outlook by 45 cents per share.

For the second quarter, the cruise operator forecasts earnings of 20 cents to 24 cents per share. Wall Street expected 33 cents per share.

While fuel prices are dampening Carnival's outlook, the company is upbeat about the peak summer season.

CEO Micky Arison said in a statement that ticket prices remain strong.

"The convenience and affordability of a cruise vacation continues to gain recognition as consumers discover the unrivaled experience cruising offers," he said.

Carnival also indicated that since January booking volumes and prices for the three remaining quarters are running higher than a year ago.

Frank said occupancies for the rest of 2011 on a fleet-wide basis are slightly lower than a year earlier due to increased cruise capacity, but that ticket prices are "nicely higher."

The company operates 98 ships and has 10 new ships set to be delivered between March 2011 and May 2014.