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Carnival Slashes Guidance Yet Again
CCL RGR MSG
It seems that there is no end to
Carnival Corp.’s ( CCL - Analyst Report) woes. This Miami-based cruise company slashed its earnings guidance from $1.80—$2.10 per share to $1.45—$1.65 anticipating a weak show in the second half of 2013. A lower net revenue yield owing to reduced pricing seems to be the culprit.
Net revenue yields are expected to be down 2—3% as against the previously announced flat yield guidance. Higher-than-expected voyage cancellations as well as higher selling and administrative costs are expected to reduce earnings by approximately 10 cents per share.
Prior to this, Carnival trimmed its earnings per share guidance for 2013 with the release of first-quarter results in Mar 2013 from $2.20−$2.40 per share to $1.80–$2.10 per share to reflect higher net cruise costs.
Carnival - the world’s largest cruise operator- has been facing one ordeal after another. After the grounding of its ship Costa Concordia last January in Italy, the engine of its Triumph cruise ship carrying around 3,000 passengers caught fire in early February this year. Again, in Mar 2013, Carnival’s ship, the Carnival Dream was docked in the Caribbean due to equipment problems, adding to the company’s woes. These catastrophes resulted in several voyage disruptions and escalating repair costs
Further, Carnival’s European operations continue to remain challenging due to the sovereign debt crisis, which has lowered consumer spending. On the pricing front, this region witnessed softer trends even before Costa was grounded. Lower consumer confidence in both North America and Europe threatens bookings.
In such a scenario, Carnival had to resort to marketing initiatives and price promotions to trigger bookings. Though the discounted prices boosted booking volumes, it significantly pulled down the anticipated net revenue yields.
However, although Carnival is taking initiatives to improve its fleet-wide efficiency and ensure better safety for its passengers, there is still some time before these initiatives pay off and consumer confidence is restored. Till then, we remain skeptical about Carnival, which currently carries a Zacks Rank # 5 (Strong Sell).
Other players in the leisure and recreational industry, which look attractive at current levels, include Life Time Fitness Inc. and The Madison Square Garden Company ( MSG - Snapshot Report) carrying a Zacks Rank #2 (Buy). Another company, which sells recreational products, Sturm, Ruger & Co. Inc. ( RGR - Snapshot Report) can also be considered as it carries a Zacks Rank #1 (Strong Buy).