As troubles persist, Carnival Corp. reduces guidance again

By Tom Stieghorst
Carnival Corp. reduced its guidance for earnings for the second time this year, a sign that its business is no better than last year and might even be worse for some of its brands.

Lower ticket prices since the mid-February Carnival Triumph incident have pushed booking volumes higher but have also resulted in lower-than-anticipated net revenue yields.

Carnival now expects yields to fall 2% to 3% this year; previously it forecasted yields flat with 2012.

Analyst Sharon Zackfia of William Blair & Co. said a big part of the problem is Carnival Cruise Lines, which accounts for about 30% of all Carnival Corp. berths.

In a note to clients, Zackfia wrote that she sees "little in the way of an end to the current trajectory of Carnival pricing weakness," adding that prices have been down 15% to 20% since late March.

That suggests a long road to recovery ahead for the Carnival Cruise Lines brand, leading Zackfia to downgrade her outlook for Carnival Corp. shares to "market perform" from "outperform."

Other analysts, however, took a sunnier view.

Deutsche Bank's Greg Poole, who retained his "buy" recommendation on the stock, said 80% of the lower earnings for the current year are one-time costs.

In its statement, Carnival Corp. did not specify what factors contributed to lower yields. Beyond the Carnival Cruise Lines brand, other Carnival Corp. brands are exposed to continued economic weakness in Europe.

Zackfia said the yield decline at Carnival Corp. has not spread industry-wide. She said yields are anticipated to be up 3% at Royal Caribbean Cruises Ltd. and 4.5% at Norwegian Cruise Line Holdings.

Bolstering passenger confidence is key for Carnival Cruise Lines, Zackfia said, but the $300 million ship reliability improvement program launched in March doesn't appear to be gaining the cruise line much traction.

Zackfia also said the brand's "aggressive pursuit of direct-to-consumer sales" has done little to build goodwill with agents.

"Travel agents have an obvious incentive to convert customers to higher-priced brands (and higher commission dollars) when feasible, and as a result, might do less to countermand consumers' negative perceptions of the Carnival brand," she said.

For all of 2013, Carnival Corp. now expects to earn between $1.1 billion and $1.3 billion, down from March guidance of $1.4 billion to $1.6 billion. Carnival Corp. recorded $1.5 billion last year, when the Costa Concordia incident hurt its results.
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