Carnival Corporation (CCL), the largest provider of cruise ship vacations, continues to struggle against higher fuel prices as the company recovers from the recession, which chopped company revenues by 10 percent from 2008 to 2009. Carnival Corp. is the parent company for nine cruise companies, including Holland America, Princess Cruises, and the Cunard Line, as well as Carnival Cruise Lines.
As of the end of the first quarter, Carnival Corp. owned 98 cruise ships, with 10 new ships scheduled to be delivered over the next three years.
Revenues for 2011 are finally forecast to move back above 2008 levels. Prior to 2008, CCL had been an excellent dividend source, with a rapidly increasing payout which peaked at $1.60 per share annually in 2008. The dividend was eliminated for 2009 and restarted at 10 cents per share in early 2010.
First quarter earnings of 19 cents per share were up from 12 cents a year earlier and right on the consensus estimate. During the first quarter press conference, Carnival management lowered the company's guidance for the second quarter to between 20 and 24 cents per share compared to 32 cents earned in the second quarter of 2010. The company noted that higher fuel costs negatively impacted the earnings estimate by 18 cents for the quarter.
The third quarter, which ends in August, generates the bulk of earnings for the year. In 2010, the net was $1.62 out of the total $2.47 earned for the full year. Cruise bookings and prices are locked in well in advance of the high season for cruises. The major factors affecting how much of the revenue reaches the bottom line are fuel prices and currency exchange rates.
Calculating fuel changes
Management notes from the first quarter conference call gave a rule-of-thumb that a 10 percent change in fuel costs will affect the net for the final three quarters of the year by 22 cents per share. A 10 percent change in all currencies relative to the U.S. dollar would have the same 22 cent per share effect on net per share.
In March, Barclays Capital and JP Morgan Chase confirmed their overweight ratings of Carnival Corporation with target prices of $50 and $47, respectively.
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