Tourism & Cruises

Carnival’s woes hurt bottom line

Carnival Corp. continues to struggle to attract passengers to its namesake brand, months after a fire disabled one of its Fun Ships at sea.

The Miami-based cruise operator said Tuesday that third-quarter profits had dropped compared to a year ago and said advance bookings company-wide for the rest of the year and first half of 2014 are running behind the previous year at similar prices.

For Carnival Cruise Lines specifically, which suffered a prolonged stretch of harsh scrutiny after the Carnival Triumph fire earlier this year, prices and advance bookings are both lower. Primarily due to the brand’s issues, the parent company said it doesn’t expect to see year-over-year improvements in yields, or revenue per berth per day, until the second half of 2014.

Carnival Corp. is the world’s largest cruise-ship company. Its 10 brands include Carnival Cruise Lines, Princess Cruises, Holland America Line, and Costa Cruises.

The parent company reported revenues of just more than $4.7 billion for the three months ending Aug. 31, slightly higher than a year earlier. Net income, including some impairment charges and gains on fuel derivatives, was $934 million — a nearly 30 percent drop. Excluding those charges and gains, the company reported $1.1 billion in profits, or $1.38 per share, compared to $1.2 billion last year, or $1.53 per share.

Net cruise costs excluding fuel were lower than expected, the company said, due in part to the timing of advertising expenses. Carnival launched a new $25 million advertising campaign this week.

The earnings of $1.38 per share beat Wall Street expectations of $1.30, but the company’s stock fell 7.65 percent to $34.54 on the weak forecast. With increased advertising expenses and costs of enhancing ships, the company is projecting earnings next quarter that range from a loss of three cents per share to a gain of the same.

“I think they are being cautious about 2014,” said Robin Diedrich, consumer analyst for Edward Jones, in an interview. “That was certainly what’s causing the very negative reaction in the stock. Certainly they have a little more work to do ... before they can start raising prices, both from the impact of brand issues in Carnival but also just economically speaking with the European brands.”

In a statement, Carnival Corp. President and CEO Arnold Donald said brand perception has improved steadily over the past few months for Carnival Cruise Lines. The company announced a $300 million program to improve safety and reliability on the brand’s 24 ships in the spring, and has more recently been reaching out to both agents and consumers.

Howard Frank, Carnival Corp. vice chairman and chief operating officer, said booking volumes have steadily increased, and pricing is expected to follow over the long term. He and Donald said the brand has recently started to hold prices on some itineraries, even if it means ships don’t sail completely full.

“Although Carnival Cruise Lines’ pricing is lower than we would like, with the new national advertising campaign and the increase in marketing spend this fall and winter, we do expect to see a recovery in pricing as we cycle into the second half of 2014,” Frank said during a conference call with analysts.

He also highlighted some positives in what he acknowledged has been a “challenging” year, including the planned growth of the Costa and Princess brands in Asia; position as a leader in Australia; and improvements in Europe for Costa since the deadly 2012 wreck of the Costa Concordia.

While Morningstar equity analyst Jaime Katz singled out the expansion to Asia as a positive future move in a note to investors, she also warned of difficulty in the near term.

“The company remains hopeful that net revenue yield growth will resume by the second half of next year,” she wrote. “But we surmise visibility is limited more than three quarters out, and believe the critical third quarter of 2014 could still be in jeopardy if the negative contribution from the Carnival brand continues to weigh on the total business.”