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Carnival Plans $300M Initiative

Zacks Equity Research

Leading cruise operator and vacation company, Carnival Corporation’s (CCL) subsidiary Carnival Cruise Lines will introduce a new program to improve its fleet-wide efficiency and ensure better safety for its passengers. Carnival Cruise is likely to spend $300 Million to completely execute the program.

Under the program, Carnival Cruise will be involved in augmenting the efficiency of its engine rooms as well as its emergency power supply across its 24 ships. In addition, Carnival Cruise will also be installing a latest technology in all of its vessels to detect fire and take proper measures to control it. Apart from this, Carnival Cruise has also formed a Safety & Reliability Review Board to monitor its fleet-wide operations.

In the recent times, Carnival met one accident after another, which might compel the cruise operator to invest heavily in safely issues. Earlier in Feb 2013, the engine of Carnival Triumph carrying around 3,000 passengers caught fire in the Caribbean. Although there were no casualties, Carnival expects the voyage disruption and repair costs owing to the fire will hurt its earnings by around 8–10 cents per share during the first half of 2013.

Once more, in March, Carnival’s ship the Carnival Dream was docked in the Caribbean due to equipment problems, adding to the company’s woes. In mid-Jan 2012, Carnival’s ship, Costa Concordia met with a tragic accident on the west coast of Italy causing casualties. Although the recent Triumph disaster is much smaller in scale than the Concordia catastrophe, it might disrupt the near-term bookings of the company.

Following the Carnival Triumph fire disaster, Carnival has issued a rigorous review process for all of its 101 ships across 10 brands. Moreover, the company plans to invest nearly $600 to $700 million to improve its entire cruise operations and enhance guests’ satisfaction.

Carnival currently carries a Zacks Rank #5 (Strong Sell). Some other companies that are performing well include Carmike Cinemas Inc. (CKEC), Speedway Motorsports Inc. (TRK) and The Madison Square Garden Company (MSG) . The Madison Square currently carries a Zacks Rank #2 (Buy) while both Speedway and Carmike carry a Zacks Rank #1 (Strong Buy).

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