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Carnival Corp. Earnings Dip, Reflect Costa Concordia ChargesMarch 9, 2012 By: Susan Young
|The line is not planning to deeply discount Costa's fares, but instead let the ships sails with lower load factors to maintain price integrity during the post-Concordia period. // Photo by Susan J. Young|
Carnival Corporation said its net income was $13 million for the first quarter of 2012. That compared with first quarter 2011 net income of $152 million.
Revenues for the first quarter of 2012 increased to $3.6 billion from $3.4 billion for the prior year. Robin Farley, a UBS Investment Research analyst, said the downside in terms of financial impact and bookings reported by the firm was not as bad as expected, given the Costa Concordia incident.
The company said its first quarter 2012 results reflect Costa Concordia incident expenses of $29 million, including a $10 million insurance deductible related to third party personal injury liabilities.
During the first quarter of 2012, the company also recorded an insurance payment of $515 million, which offset the write-off of the net carrying value of Costa Concordia as the ship has been deemed to be a constructive total loss.
Carnival Corporation & plc Chairman and CEO Micky Arison noted: “All of us at Carnival Corporation & plc are deeply saddened by the Costa Concordia tragedy. Our hearts go out to everyone affected, particularly the families of the deceased and missing. The global cruise industry has an outstanding safety record and every one of our brands is committed to the well-being of our guests and crew.
"Immediately following the Costa Concordia accident we ordered a thorough review, with the help of industry-leading experts, to understand what happened as well as to conduct an extensive audit of all safety and emergency response procedures across all of our cruise lines. We will work tirelessly to understand what went wrong, and make sure it never happens again.”
In its 2012 outlook, Carnival Corp. said "the company’s expectations for 2012 will be affected by the direct and indirect financial consequences of the Costa Concordia incident. At this time, cumulative advance bookings, excluding Costa, for the remainder of 2012 are approximately 3 occupancy points behind the prior year with prices slightly higher than last year’s levels (constant dollars)."
It also said that since the date of the Costa Concordia incident in mid-January through February 26, fleetwide booking volumes, excluding Costa, have shown improving trends but are still running high single digits behind the prior year at slightly lower prices.
Carnival Corp. noted there is less impact on the company’s North American brands than European brands. Booking volumes for Costa during the same period are running significantly behind the prior year at lower prices, however, Costa has curtailed virtually all of its marketing activities during this period.
Looking forward, Arison stated, “Our base of business for 2012 is solid and booking volumes have gradually improved, which we believe is a testament to consumer confidence in the cruise industry’s long-standing record of exceptional safety."
He also said: "Despite the slowdown in bookings, all of our North American brands are still expecting a modest yield improvement in 2012 while our European brands, excluding Costa, are expecting to have slightly lower yields due in part to the slowing European economies. Overall, based on current pricing trends, any consumers holding out for deeper than normal discounts may be disappointed.”
Arison also noted that the company’s cash flow remains strong and is expected to approach $3.3 billion in 2012 (including net insurance proceeds), which is sufficient to fund this year’s capital expenditure requirements and expected dividend distributions without the need for additional financing.
Excluding Costa, the company forecasts full year 2012 net revenue yields, on a constant dollar basis, to be in line with the prior year. Including Costa, the company forecasts a decline in net revenue yields (constant dollars) of 2 to 4 percent.
In order to maintain an orderly market, Costa has adopted a strategy of minimizing discounting and, if necessary, operating at reduced occupancy levels. Consequently, much of Costa’s anticipated yield decline is expected to result from lower occupancy levels.
In other words, Costa won't deeply discount just to fill its ships. It will instead let the ships sail with far lower load factors than the norm.
Taking everything into account, Carnival Corp. says it's now projecting its full year earnings to be in the range of $1.40 to $1.70, compared to 2011 earnings of $2.42 per share and the December guidance that it had given to investors (pre-Concordia) of $2.55 to $2.85 per share.
Arison also said: “Our company is resilient and we will continue to work through this challenging period. We have every confidence that we will restore consumer faith in the Costa brand and the excellent reputation Costa’s management team has built for the organization which has a deep-rooted Italian heritage spanning more than 60 years."
He continued: "Carnival Corporation & plc expects to carry nearly 10 million guests on its global fleet this year and the long-term fundamentals of our business remain strong as consumers continue to place tremendous importance on quality and value when making vacation decisions. Based on our solid operating cash flow, strong balance sheet and high investment grade credit ratings we are well positioned for the future and remain confident in our long-term outlook.”