It seems that there is no end to
) 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.
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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
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
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.
The Madison Square Garden Company
) carrying a Zacks Rank #2 (Buy). Another company, which sells
Sturm, Ruger & Co. Inc.
) can also be considered as it carries a Zacks Rank #1 (Strong