Carnival's shares took a beating Monday after the company lowered its forecast for the full year. Executives pointed out the reason was a hit from fuel and currency, not a lack of demand. That said, they (and the rest of the travel industry) could really use a quiet hurricane season this year.
Last year’s deadly hurricane season continues to be a drag for the world’s largest cruise company — which is not great news, considering this year’s season is already under way.
Carnival Corp. on Monday said during an earnings call that cumulative bookings for the Caribbean on North American brands are behind last year’s levels at lower prices.
“Given the negative news flow from Puerto Rico, the hurricane impact continues to affect the Southern Caribbean itinerary,” David Bernstein, Carnival’s chief financial officer, told analysts. He said the lower prices are driven primarily by itineraries out of San Juan, where Carnival Cruise Line bases a ship and sources many passengers. The company is seeing improving trends in the Eastern Caribbean, he said.
The comments came as the cruise operator trumpeted record performance for the second fiscal quarter, which ended May 31. Revenue increased from $3.9 billion in 2017 to $4.4 billion this year, while net income jumped from $379 million during the second quarter a year ago to $561 million this year. Carnival Corp. owns nine brands around the world, including Carnival Cruise Line, Princess Cruises, Holland America Line, Seabourn, Costa Cruises and AIDA Cruises.
Net revenue yields, or the amount of money spent per berth per day, increased 4.8 percent on a constant currency basis, more than expected. And the 3.6 percent increase in net cruise costs was lower than expected.
But citing the impact of currency exchange rates and rising fuel prices, the company lowered its forecast for the full year to adjusted earnings per share of $4.15–$4.25, compared to an earlier forecast of $4.20–$4.40.
That prompted the stock price to dive; Carnival shares closed at $58.54, down nearly 8 percent from the previous close.
Felicia Hendrix, an analyst with Barclays, addressed the drop during a question-and-answer session: “Throughout this conference call … your stock keeps going down,” she said. “Is there anything you’d like to say?”
Carnival Corp. CEO Arnold Donald was optimistic, highlighting the opportunities he sees for the industry and the company.
“I think the business is super strong,” he said. “We just had a record quarter. We look ahead. Things look very good. There’s little dynamics in one market or another.”
When another analyst mentioned the year being negatively affected by the Caribbean, Donald took a defensive stance.
“I just want to emphasize to everyone, we’re growing in the Caribbean. We’re generating more earnings in the Caribbean, and we’re growing generally more earnings everywhere else in the world, too,” he said. “So on a relative growth basis, yes, the Caribbean might be weaker on yield than some other markets. But overall, we’re growing earnings, and there’s no weakness in the business.”
China, which was weighing on results last year, is a stronger market this year, Donald said. Despite that, he said he doesn’t foresee a short-term “dramatic increase” in capacity there.
“The reason is not so much because of China, but because of the demand everywhere else in the world,” he said. “There’s large addressable markets everywhere in the world that are under-penetrated, including the United States. And so the ships are needed to continue to grow and serve the market demand that we’ve been creating over the past several years.”
In a note to investors, Morningstar analyst Jaime Katz wrote that the change in Carnival’s forecast appears to be out of the company’s control. And she noted that ticket and onboard revenue for the second quarter were “stellar,” indicating strong demand.
“While some concern continues to linger surrounding close-in Caribbean bookings given last year’s aggressive hurricane season and its impact on key ports like San Juan, we don’t think the commentary surrounding demand for cruising warrants excessive worry,” she wrote. “Carnival noted that since March, booking volumes for the forward three quarters have been slightly ahead at prices that have been in line with the year-ago
period. Given the strong booking cadence pre-2018 hurricane season, this still implies that the cruise business continues to attract consumers at a healthy pace and that demand for the product is not waning.”
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Photo credit: Carnival Conquest is shown returning to San Juan in November of 2017. Parent company Carnival Corp. said itineraries sailing out of the Puerto Rican port have been struggling. Carnival Cruise Line