Just when you thought the airlines had it tough with
regulations and fuel prices, consider the cruise industry that's
not only fighting for business after several recent high profile
disasters, but is also a slave to the skyrocketing costs of fuel
and whims of the leisure travel business.
Annual fuel bills for cruise lines like Carnival
(Zacks Rank #5) can easily add up to hundreds of millions of
dollars as their ships can consume tens of thousands of gallons
of fuel on any given cruise. The price of intermediate fuel oil,
which most cruise ships use, has risen almost in sync with crude
oil forcing many lines to take evasive action like augmenting
routes for efficiency and even high performance hull coatings
that reduce drag in the water.
But with the odds stacked against them and consumers strained
around the globe, it might be rough seas for Carnival's
Catastrophe, Bad Luck and Bad Press
Less than a week ago, a man fell to his death aboard one of
Carnival's newer ships, the Carnival Magic. A week before,
a 12 year old boy was air-lifted after an accident on another
ship. Then just yesterday, the Carnival Conquest was
diverted from New Orleans to Mobile, Alabama as a tug-boat
capsized (unrelated), closing a 10-mile stretch of the
All of these incidents can cost Carnival big money in direct
or indirect repercussions.
In the quarter alone, there have been numerous set-backs to
Carnival's business with the EPA adding even more headwinds to an
already rough ride with low-sulfur fuel requirements near U.S.
coastlines and even more strict regulations coming in 2015.
Even though Carnival and others are cutting prices to record
levels, passengers are still reluctant to set sail and that is
effecting revenue directly.
There was also news that Micky Arison, who has been CEO since
1979 and is the son of Carnival co-founder Ted Arison, is being
replaced by Arnold W. Donald, who has served on the company's
board for the past 12 years. Investors seemed to think that
Mr. Arison's departure could be good for profits as shares have
rallied; that remains yet to be seen.
Earnings Good, But Not Great
Carnival Corp. did manage to squeeze a $41 million second-quarter
profit ( $0.09 per share) thanks to lower fuel costs and the
timing of some administrative expenses. This was a pleasant
surprise and beat the Zacks Consensus by 3 cents.
Carnival had revenue of $3.50 billion for the quarter,
compared to the consensus estimate of $3.55 billion.
Earnings and revenue were both down compared to a year ago as CCL
posted $0.20 in the same quarter in last year. Quarterly revenue
was down 1.2% on a year-over-year basis.
While the consensus averages a "hold" rating on the stock, we
are seeing the majority of earnings estimate revisions lower over
the last 60 days, despite the somewhat positive report.
This doesn't bode well for a continuation of the recent
Carnival also currently trades at over 22.5 times forward
earnings and is expected to grow earnings 12.72% this year on
revenue growth of only 3.0% for 2013.
Given their string of mishaps, rising oil prices and the
global flow of economic data, it looks like a more realistic
trajectory for the shares may be lower.
Unless Carnival can bring their revenues up and control their
fuel costs through successful trading of derivatives, it might be
tough for the stock to climb back above its 200 day moving
average of $36.23.
If you're looking to invest in the entertainment industry, it
might be a better idea to focus on movies withRegal Entertainment
(Zacks Rank #3) or take a ride on an theme park stock likeSix
(Zacks Rank #2) .
Jared A Levy is one of the most highly sought after traders in
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