Carnival warns of rising costs, cuts forecast

Carnival Corporation announced it has signed a shipbuilding contract for a third next-generation LNG cruise ship for its rapidly growing AIDA Cruises brand, the leading cruise line in Germany. (PRNewsfoto/Carnival Corporation & plc)

Carnival Corp cut its annual profit target, blaming higher fuel prices and a stronger U.S. dollar, sending shares of the world’s largest cruise line operator tumbling 10 percent.

The company, which owns the Queen Mary II and Queen Elizabeth cruisers, said it would take a hit of 19 cents per share in the year related to the currency and gasoline prices even as it expects strong bookings to soften the blow.

Carnival’s comments come in contrast to rival Royal Caribbean Cruises Ltd (RCL.N), which also warned of similar headwinds but said strong bookings would offset the rising costs completely.

“The industry has a lot of tailwind, so some of these issues are unique to Carnival because they have a large fleet and are in so many places,” Tigress Financial Partners analyst Ivan Feinseth said.

Feinseth said that not all of the company’s ships will be high yielding for them to offset the higher costs.

Brent crude touched a more than three-year high of $80.50 in May, compared with $50 a year earlier, marking a more than 50 percent increase. U.S. dollar .DXY has risen 2.5 percent this year.

The company said it now expects adjusted earnings of $4.15 to $4.25 per share in 2018, compared with $4.20 to $4.40 estimated previously.

Analysts were expecting earnings of $4.35 per shares for the full year, according to Thomson Reuters I/B/E/S.

“(We) may be a victim of our own conservatism, but the reality is (the forecast is) not conservatism, it’s us just trying to be practical,” Chief Executive Arnold Donald said on a conference call.

The bleak forecast overshadowed Carnival’s strong second-quarter results. Excluding certain items, the company earned 68 cents per share, beating analysts’ estimate of 60 cents.

Carnival’s net revenue rose 10.4 percent to $4.36 billion in the quarter ended May 31, beating the average analyst estimate of $4.32 billion.

While overall bookings were strong, Miami-based Carnival said bookings in the Caribbean dipped due to hurricanes Irma and Maria despite lower prices.

The company’s shares fell to an over one-year low of $56.95 in early afternoon trade.




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