Going Down With The (Cruise) Ship

The fickle fate of finance has clubbed yet another maritime niche, one that has been an overachiever for much of the past decade. The cruise industry, riding high for more than half a decade, was dealt a dose of reality last week when shares of the two top companies, Carnival Corp. and Royal Caribbean Cruises, were dragged to new lows after Carnival issued a financial report. The problem: profitability, a condition not easily remedied considering a decidedly toned down outlook on cruise passenger numbers for the remainder of the year and a record amount of new tonnage still contracted to come on line in the next several years. Executives of the Miami-based operator of the Carnival, Cunard and Holland America lines blamed higher fuel costs and shrinking passenger yields for flat second-quarter earnings. The financial pain is likely to last through the fiscal year ending in November, they said. "Looking to the remainder of the fiscal year," Carnival said in its earnings report, "the company expects that net revenue yields for the second half of 2000 will be somewhat less than last year and that earnings per share for the full year will be slightly higher than last year." Carnival's stock sank to new 52-week lows of 19 1/2, down as much as 16 percent, amid investment downgrades by Wall Street analysts. Before the opening of the market, Carnival reported fiscal second-quarter operating earnings of 32 cents a share, excluding a gain of 2 cents. Revenues for the quarter, ended May 31, were $875.1 million, versus $796.1 million for the same period in 1999, an increase of nearly 10 percent. Goldman Sachs slashed its rating on Carnival, knocking the shares from its recommended list and saying the stock would be only a market performer. Goldman analysts Richard Simon and Richard Greenfield cut to $1.70, or 10 cents less, their full-year 2000 forecast and also trimmed their fiscal 2001 estimate to $2.10. Carnival, which operates hotels and transport services in Alaska, in addition to a fleet of 46 ships, reported share profits of $1.66 in its last fiscal year. Royal Caribbean was also swept down in the bearish undertow, hitting a 52-week low of 18-15/16 before recovering to 19-1/8, off 1-15/16. The reduction of market capitalization considering that before the trading day started on Tuesday, both companies were already down sharply from the beginning of the year, when both companies were trading above the $50/share mark.