P&O Cruises Looks To Boost Yield

Thursday, July 26, 2001
P&O Princess Cruises, the world's third largest cruise operator, said lower holiday prices would cut revenue yields this year, but added it still hoped to boost earnings by cost cuts and lower tax rates. P&O Princess reported a slight fall in second quarter pre-tax profits to $93.8 million from $95.2 million a year ago, but earnings per share rose seven percent to 12.9 cents. Lower prices led to the fall in pre-tax profits, and P&O Princess Cruises added in a statement that pricing remained "competitive" in its key North American market, which counts for 75 percent of group turnover. The company added it expected overall like-for-like net revenue yields -- a measure of how much money the company makes per passenger -- to fall three percent during the year. The group's main rivals, Royal Caribbean Cruises Ltd. and market leader Carnival Corp., have also reported lower second quarter profits and declining yields as cruise lines keep fares down in the face of global economic slowdown. However, Chief Executive Peter Ratcliffe said the company still expected to meet market forecasts for full-year earnings, despite the tough economic environment in North America. Analysts expect P&O Princess to report full year earnings per share of between 42.5 to 43 cents, Ratcliffe said. "We...expect that cost reductions and the lower tax rate will allow us to achieve increased earnings for the year as a whole, despite the lower yields in North America," Ratcliffe said. While P&O Princess Cruises shares have outperformed the broader FTSE All Share market by about 40 percent since the start of 2001, P&O Princess trades at a discount to Carnival and Royal Caribbean. However, analysts at Lazard investment bank felt P&O's international operations in Europe and Australia, where the company said its trading environment was "positive," could help offset the effects of lower yields. Lazard, which rates P&O Princess shares "outperform," added that the cost-cutting program could also boost its performance. "P&O Princess' numbers looked pretty solid by comparison to Carnival and Royal Caribbean. A premium to at least one of those stocks is justifiable as its returns have been much higher," Lazard analyst James Winchester told Reuters. Chief Executive Ratcliffe said relocating management operations in Britain and the United States would help cut costs, along with integrating purchasing systems. He added that the firm was currently ahead of its target to cut costs by two percent each year. - (Reuters)
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