Carnival Hit by Fuel Costs, Outlook

MIAMI ( TheStreet) -- Carnival ( CCL) shares tumbled Tuesday morning after the cruise ship operator reported a 13% quarterly profit decline as high fuel costs cut into its revenue, and revised its earnings outlook.

Carnival Cruise
Carnival Cruise Line vessels Sensation and Ecstasy

Carnival said it expects to book a 2011 profit in the range of $2.55 to $2.65 per share , down from its December guidance range of $2.90 to $3.10.

The Miami operator of Carnival Cruise Lines, Princess Cruises and Costa Cruises, among others, first announced an earnings outlook revision earlier this month when it pre-announced disappointing first-quarter earnings, saying higher fuel prices would pressure its results.

Tuesday's forecast raised that range by a nickel, citing currency fluctuations and changes in spot prices for fuel. Even so, Carnival cut its outlook for net revenue yield growth for 2.5% to 3.5%.

Current quarter earnings were forecast in a range of 20 cents to 24 cents per share, lower than the 32 cents per share analysts had expected.

Carnival shares fell 4.1% to $39.34 amid heavy trading Tuesday morning. Nearly 5.5 million shares changed hands two hours in the trading session, compared with their average daily volume of just 4.1 million.

"Despite the uncertain world events that have unfolded during our peak booking period, we have experienced a solid wave season," said CEO Micky Arison. "Ticket prices for the peak summer season remain particularly strong."

For the quarter ended Feb. 28, Carnival booked a profit of $152 million, or 19 cents per share, down 13.1% from the year-earlier period, matching analysts' consensus call.

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Revenue jumped 7.6% to $3.42 billion, topping expectations.

Net revenue yields -- a closely watched metric of industry performance -- rose 2%, excluding the effects of currency.

HSBC Global Research analyst Ben O'Toole recently initiated coverage of Carnival and rival Royal Caribbean ( RCL). He donned Carnival with an overweight rating and $51 price target; the analyst gave Royal Caribbean a neutral rating and $43 price target.

O'Toole noted that demand for cruises has been improving, especially in Europe, and that the operators are further helped by slow supply growth.

"We are also optimistic that costs can be controlled and that, as both operators increase in size, further efficiencies can be achieved, leading to margin expansion," he noted.

Cruise ship rival Royal Caribbean saw its shares tumble 3.6% to $41.77 Tuesday morning.

Despite Tuesday's share price losses, operations at Carnival and Royal Caribbean have improved as of late.

Consumers loosened their purse strings and took vacations after staying home for the better part of the past few years as unemployment rose. With the economy recovering, North Americans increased bookings, prompting Goldman Sachs ( GS) to upgrade Carnival to "buy" and increase its share-price target to $44 from $36. Some vacationers opted for cruises because they're relatively cheap and perceived to be safer than the hotspot of Mexico, some of whose cities are plagued by drug-fueled violence.

Carnival is the largest cruise operator in the world, with 90 ships and $14.47 billion in revenue in 2010. Royal Caribbean is No. 2, with 39 ships and nearly $6.75 billion in revenue last year.

-- Written by Miriam Marcus Reimer in New York.

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