Carnival Cuts Earnings Forecast After Crippled Triumph
Carnival Corp. (CCL), the cruise operator beset by mishaps at sea this year, cut its annual earnings forecast to reflect costs from an engine fire that crippled the Carnival Triumph last month.
Earnings excluding some items this year won’t exceed $2.10 a share, Miami-based Carnival said today in a statement, less than the $2.40 seen previously. The Triumph debacle, which left 3,100 passengers stranded at sea for four days, was the first of at least three incidents this year on separate ships, including the Dream and the Legend the past two days.
The Triumph disaster, along with repairs and fleet-wide upgrades to avert similar failures, will boost costs this year for Carnival, which is cutting prices to attract passengers. Bookings for the largest cruise operator have recovered since the Triumph mishap, aided by discounts, Chairman and Chief Executive Officer Micky Arison said on a conference call.
“Their short-term results don’t mean that everything’s OK, since perception about a company’s brand is a longer-term thing,” said Allen Adamson, a managing director in New York for branding firm Landor Associates. “Three thousand people trashing your brand online on TripAdvisor (TRIP) tends to multiply much faster today than 1,000 people telling their neighbor they had a good or OK time.”
Carnival dropped 2.2 percent to $34.95 at the close in New York. The stock has fallen 4.9 percent this year, while competitor Royal Caribbean Cruises Ltd. (RCL) has declined less than 1 percent. The Standard & Poor’s 500 Index has advanced 9.4 percent.
Two incidents on Carnival ships this week focused public attention on the impact mechanical failures can have on cruise- going vacationers.
The Carnival Dream yesterday aborted a trip in the Caribbean because a generator failure interrupted elevator and restroom service. The company said today another ship in the Caribbean, the Carnival Legend, was forced to skip a stop because of slow speed.
“Sadly here, we’ve just had a bit of a run that is very unfortunate,” Howard Frank, chief operating officer, said on the call. The company experienced a short, double-digit decline in Carnival signups after the Triumph, he said.
The new forecast reflects estimated costs of 10 cents a share related to the Triumph, 14 cents because of lower prices, 6 cents in lower on-board revenue and 5 cents to bolster backup systems on the company’s fleet, according to the company.
Carnival previously forecast earnings of as much as $2.40 while analysts on average predicted $2.37.
First-quarter net income totaled $37 million, or 5 cents a share, Carnival said. The company posted a loss of $139 million, or 18 cents, a year earlier after the Costa Concordia ran aground off Italy in January 2012, killing 32 people.
Excluding items, Carnival earned 8 cents in the quarter ended Feb. 28, compared with the 3-cent average of 14 analysts’ estimates compiled by Bloomberg.
The company posted costs of 2 cents a share in the quarter because of “voyage disruptions and related repair costs.” In February, the company said the Triumph incident would cut first half profit by 8 cents to 10 cents a share.
The breakdown of the Dream occurred March 13 at night during regularly scheduled testing of the ship’s emergency generator, Carnival said yesterday in a statement.
Vance Gulliksen, a spokesman, said he couldn’t provide an estimate of the financial effect of the latest incident. The company operates about 1,500 cruises annually, he said.
Passengers were to be flown to Orlando, Florida, the airport serving the ship’s base at Port Canaveral, or to their final destinations, he said. The company also canceled the next scheduled trip for the liner, he said.
Guests will receive a refund equivalent to three days of their voyage and 50 percent off a future cruise, the company said. The ship is based in Port Canaveral, Florida.
The Carnival Dream had about 4,300 passengers and 1,300 crew aboard, according to Gulliksen. The ship was on the last leg of a seven-day cruise and was docked in St. Maarten when the malfunction occurred.
The Carnival Legend was experiencing a propulsion-system malfunction, the company said in an e-mailed statement. The safety systems and hotel services are functioning normally. The vessel will skip a stop in Grand Cayman and return to Tampa, Florida, on March 17, the company said. Guests were also offered partial refunds and credit.
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