Lower Revenue and High Fuel Costs Sink Carnival

In its outlook for the second quarter, the company expects net revenues to fall 3% to 4% year over year on a constant dollar basis. Adjusted EPS for the quarter is forecast at in a range of a loss of $0.02 to a gain of $0.02, well below last year’s total of $0.07 per share. The consensus estimate calls for adjusted EPS of $0.07 on revenues of $3.58 billion.

For the full year, Carnival expects fuel costs to rise slightly, from an average of $649 per metric ton in the second quarter to $653 for the year. Carnival forecasts adjusted EPS for 2014 in the range of $1.50 to $1.70, compared with EPS of $1.58 last year. Consensus estimates call for full-year EPS of $1.73 on revenues of $15.98 billion.

Following an engine fire on its Carnival Triumph in February 2013 and a subsequent U.S. Coast Guard inspection of the ship in July, the company will have to have the Carnival Triumph inspected every quarter for the next three years.

The company’s somewhat casual approach to how its ships operate appears to be a failure of leadership that is tamping down the stock’s share price. Competitor Royal Caribbean Cruises Ltd. (NYSE: RCL) has posted a much more substantial increase in share price over the past five years. Royal Caribbean’s shares are up more than 600% over the past five years, compared with a rise of 83% for Carnival. Both companies have market caps right around $30 billion, so one firm is doing something right and one is not.

Carnival’s CEO said:

We have experienced a solid wave season, with booking volumes up almost 20 percent globally surpassing last year’s cumulative advance booking levels, albeit at lower prices. Many guests are booking further in advance, which increases visibility and builds confidence that yield comparisons will turn positive in the second half of 2014. Increased interest across our brands is an encouraging indication that our message is resonating as consumers recognize the strong value proposition and exceptional vacation experiences we provide.

That bit about lower prices is translating into lower or absent profits.

Carnival shares are down about 2.4% in early trading Tuesday morning, at $39.09 in a 52-week range of $31.44 to $41.89. Thomson Reuters had a consensus analyst price target of around $41.50 before the report.