Triumph Fire to Dent CCL's 1H13

Zacks

Carnival Corp. (CCL) is facing one ordeal after another. After the grounding of its ship Costa Concordia last January in Italy, the engine of its Triumph cruise ship carrying around 3,000 passengers caught fire in early February. However, unlike the prior one, there were no casualties due to the recent disaster.

Carnival expects the voyage disruption and repair costs owing to the fire disaster in the Caribbean to hurt its first half of 2013 earnings by around 8–10 cents per share. Meanwhile, the stranded ship has been tugged to the port of Mobile, Ala.

Carnival – the world’s largest cruise operator – assured a refund to the passengers of the vessel along with the transportation expenses incurred. The company will also offer a future cruise credit to the passengers on the ship.

Carnival Cruise Lines also cancelled 14 voyages of the Carnival Triumph through April 13, 2013 following the disaster. Those guests too will receive a full refund of the fare as well as some non-fundable charges and as much as a 25% discount on future sailings.

Costa Concordia disaster hurt the company’s earnings per share by more than 60 cents in fiscal 2012. More than two years back, Carnival faced another calamity when a fire broke out in the engine room of the ship Carnival Splendor, off the coast of Mexico. The accident hurt fourth quarter 2010 earnings by about 7 cents a share. However, that disaster also was much smaller in scale and did not put lives at risk.

Carnival as well as other cruise companies like Royal Caribbean Cruises Ltd. (RCL) is still recovering from the dip in consumer confidence following Concordia grounding.  The recent mishap will act as an additional drag on the company’s reputation as well as financials. One of the passengers also sued Carnival demanding indefinite damages.

As we know, the cruise industry does maximum business in the wave season between January and March. The recent tragedy could shatter passenger confidence again especially that of first time cruisers and result in subdued bookings. The timing of the catastrophe is bound to take a toll on Carnival’s busiest booking season this year.

Having said that, we think, in due course, Carnival will return to normality as the recent disaster is much smaller in scale than the Concordia catastrophe.

Carnival currently retains a Zacks Rank #3 (Hold). Some companies from the leisure and recreational services industry that are worth a look include Carmike Cinemas Inc. (CKEC) and Live Nation Entertainment Inc. (LYV) both carrying a Zacks Rank #2 (Buy).
 

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