Cooler Caribbean cuts cruise outlook

NEW YORK - Carnival, the world's top cruise operator, yesterday cut its 2006 earnings outlook, citing weak demand for Caribbean cruises, higher fuel costs and an accounting change.

Carnival's shares shed more than 8 per cent in their biggest drop since September 17, 2001, when the market reopened six days after the attacks on the World Trade Centre and Pentagon.

The news also dragged down shares of rival Royal Caribbean Cruises more than 7 per cent.

Carnival said it now expected fiscal 2006 earnings of US$2.65 ($4.32) to US$2.75 a share, and second-quarter earnings of 43c to 45c per share.

Excluding special items, analysts, on average, expect earnings per share of US$2.93 for the full year and 46c for the second quarter, according to Reuters Estimates.

Chief operating officer Howard Frank said on a conference call that the company's problem was largely with business in the Caribbean.

"Our North American destination trades have performed quite well, and our European brands business is quite strong," Frank said.

"While we have had to take our guidance down for 2006, the fundamentals of our business remain very strong."

Carnival, which operates Holland America, Cunard and Princess cruise brands, has seen demand for its Caribbean cruises weaken in recent months, but the company has said its other cruises, such as those in Alaska and Europe, have been doing well.

Carnival in March estimated earnings per share of between US$2.90 and US$3 for full-year 2006 and between 48c and 50c for the second quarter.

However, it lowered those forecasts later that month by 4c to 5c after fire damaged one of its ships.

Robert LaFleur, an analyst at Susquehanna Financial Group, blamed weakness in the Caribbean - which saw some of its critical ports damaged during last year's hurricane season - on the economy and fears of more hurricanes.

"The weakening consumer economy [petrol prices, rising interest rates, cooling housing market] is a formidable headwind," LaFleur wrote in a research note.

"Passengers' fears of hurricanes, whether rational or not, are real."

Carnival lowered its outlook for net revenue yield - a key measure of ticket prices and occupancy that excludes travel agent commissions and air fares - on a constant dollar basis from further weakness in bookings, mainly for its Caribbean cruises during the second half of 2006.

The company said it expected net revenue yields for the year to increase 1 to 2 per cent instead of 2 to 3 per cent under its previous forecast. It said the lowered outlook would reduce estimated earnings by about 10c a share.

Carnival said fuel costs had also increased since its last forecast and would further hit full-year earnings by about 7c a share.

Carnival also said that beginning with the first quarter, it was changing its accounting policy related to dry-dock costs. The change will reduce full-year earnings per share by about 8c, including 4c in the first quarter and 4c over the balance of the year.

Carnival's shares fell as low as US$41.39, before trading down US$3.94, or 8.5 per cent, at US$42.60, on the New York Stock Exchange.

Royal Caribbean slumped to US$37.03 before trading down US$2.96, or 7.4 per cent, at US$37.24.

- REUTERS