(Carnival earnings article updated for market reaction and analyst comment)

MIAMI ( TheStreet) -- Carnival Corporation's ( CUK) Lido Deck may not reach a full recovery until the second half of 2010.

Indeed, the Carnival Corporation beat a fourth-quarter Street estimate in its fourth-quarter earnings announced this morning -- but, at the same time, the cruise ship operator guided lower for the first quarter 2010.

What's more, even in beating the Street estimate for the fourth quarter 2009, the earnings per share was well below the 2008 fourth quarter level.

The two faces of the Carnival earnings give a fair approximation of the sailing conditions headed into 2010: a headwind to begin, but a financial tailwind expected by the second half of the coming year.

The mixed sailing conditions also led the markets to a negative reaction: Carnival shares were down a little more than 3% and had already surpassed average daily volume at mid-day.

Kevin Milota, senior cruise line analyst at J.P. Morgan, said today was the first time Carnival had given 2010 guidance, and since the net yield guidance Carnival provided, at 2%-3%, was lower than the most bullish Street estimates, a decline is not surprising.

Overall, however, Milota thought the indications from Carnival were encouraging. "Call occupancy levels will be flat for the first two quarters of 2010 -- slightly better in North America and slightly worse in international brands. More importantly, though, the early indications for the third quarter 2010 are encouraging, and Milota noted that it is the third quarter earnings per share that typically are the biggest among quarterly EPS, and drive full year numbers.

Carnival reported net income of $193 million, or 24 cents diluted earnings per share, on revenues of $3.2 billion for its fourth quarter ended November 30. Net income for the fourth quarter of 2008 was $371 million, or 47 cents diluted earnings per share, on revenues of $3.3 billion.

The difference between a Street estimate of 21 cents and the actual 24 cent EPS may be explained by the fact that results in the fourth quarter were better than September guidance that had been previously provided by Carnival. For example, net revenue yields (net revenue per available lower berth day) decreased 10.4% for Q4 2009, which was better than the September guidance of down 11% to 13%.

The company reported net income for the full year ended November 30 of $1.8 billion, or $2.24 diluted EPS, compared to net income of $2.3 billion, or $2.90 diluted EPS, for the prior year. Revenues for the full year 2009 were $13.2 billion, compared to $14.6 billion for the prior year.

While Carnival was able to beat the Street in the fourth quarter, the slow business expectations in the beginning of 2010 have Carnival guiding lower than estimates for first quarter 2010 earnings per share -- 8 cents to 12 cents a share, versus a Street estimate of 14 cents. Still, for the full year, the high-end of Carnival guidance is in line with the Street's expected $2.30 per share.

Micky Arison, CEO and chairman, played up Carnival's cost-cutting at a time of lower revenue yields. "On significantly reduced global travel demand, net revenue yields for our North American brands fell 13%, while our European brands' yields fell a more modest 6%...through effective global cost containment initiatives we achieved $170 million of savings since the start of the year, which partially offset the pressure on net revenue yields."

Looking to future launches, Aronson noted that during the fourth quarter, Carnival placed its first new ship order in two years, "which demonstrates our continued confidence in the future of our industry." The new 3,690-passenger ship for Carnival Cruise Lines will be the third ship in the Dream-class and is set to enter service in June 2012.

Some industry analysts continue to question the latest builds from the cruise line companies, with the level of uncertainty about vacation travel pickup still running high. But the cruise ship operators contend that they build for the long-term, and will be left behind if they don't think of builds in terms of a multi-year schedule, even in face of weaker short-term conditions.

Pent-up demand was the key to a bullish outlook by Aronson for the second half of 2010. On a cumulative basis, 2010 pricing is slightly behind last year at this time. However, since September, pricing is running well ahead of last year's lower levels, a trend that Carnival expects to generate yield improvement in the second half of 2010.

"We are optimistic that the attractive pricing we have in the marketplace and pent-up demand for vacation travel will continue to stimulate strong booking volumes and lead to a solid wave season."

However, since the pace of that pent-up demand is hard to peg, Carnival focused investors on its ongoing cost containment. Carnival expects net cruise costs excluding fuel for the full year 2010 to be down approximately 1% to 2% compared to the prior year. Fuel costs will continue to rise, and taken together with the gradual pace of vacation travel recovery, will remain a challenge for the cruise ship industry.

Based on current spot prices for fuel, forecasted fuel costs for Carnival for the full year are expected to increase $368 million compared to 2009, costing $0.46 per share.

The low-end of the Carnival forecast for full year 2010 earnings per share, in the range of $2.10, takes these factors into account, whereas the full year 2009 earnings were $2.24.

-- Reported by Eric Rosenbaum in New York.

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