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Carnival 1989 Q3 Earnings

Carnival Cruise Lines has reported net income of $84.4 million on revenues of $405.2 million for its third quarter that ended August 31, 1989, compared to net income of $56.3 million on revenues of $157.6 million for the same quarter in 1988.

Net income for the nine months that ended August 31 was $172.3 million on total revenues of $921.6 million compared to net income of $154.3 million on revenues of $469.3 million for the same period in 1988.

While Carnival has reported record net income for the nine month period and maintained a high operating margin, its net profit margin has decreased, from about 33 percent in 1988 to 18.7 percent this year.

Carnival attributed the higher earnings in the third quarter to the seasonality of Holland America Line and its affiliated companies. As one of the main operators in Alaska, HAL traditionally sees the volume of its business in the third quarter.

While Carnival reported that revenues increased for the latest three months by 157 percent and for the first nine months of its fiscal year by 96 percent, it did not reveal any information about its operating margin or net profit margin.

Annual Results

According to CIN estimates, Carnival’s operating profit margin is expected to remain at about 30 percent in its fiscal year ending November 30, 1989, compared to 30.9 percent last year, 31.3 percent for 1987 and 28 percent for 1986. But its net profit margin will dip below 20 percent for the first time since 1985 when it was about 18 percent. This year’s anticipated annual net profit margin of about 18 percent is dramatically less than last year’s margin of 32.7 percent.

The lower net profit margin can be attributed to the higher depreciation and interest charges from Carnival’s acquisition of HAL; additional costs incurred from the Eastern Airlines strike; as well as start-up costs at the Nassau resort complex.

The company’s long term debt is about $897 million; its net worth (less current liabilities and long term debts) is estimated at about $890 million.

Fourth Quarter

Fourth quarter earnings are expected to be less, again reflecting the seasonality of HAL as well as the unexpected negative impact of Hurricane Hugo, which led to increased costs for the Caribbean cruise operators which were forced to change itineraries as well as sailing dates. There were also cancellations and in many instances, passengers were offered discounts on future sailings.

Future May Depend on HAL Turn-around

Starting next year, the first of Carnival’s three new ships being built at Wartsila is slated to enter service in the three- and four-day market between Miami and the Bahamas – designed to capitalize on the synergies of the ship and the land-based resort.

According to analysts, if Carnival is able to fully integrate its cruise operations and benefit from economies of scale and operating improvements along with reduced interest expenses and debt payments, the company should continue to show a strong earnings growth and improve its net profit margin.

While a healthy annual growth rate in cruise demand is projected, Carnival’s net profit margin could suffer at least temporary from a further reduction if the company is unable to build year-round volume business for HAL and/or if Carnival, as is expected, places an $800 million order for three new HAL ships.

For fiscal 1988, while Carnival achieved an operating profit margin of 30.9 percent, HAL’s was an estimated 15.7 percent. But while Carnival reached a net profit margin of 32.8 percent, HAL’s was estimated at 10.7 percent.

This would seem to indicate that a newbuilding order for HAL may not be as imminent as reported and that other plans for a super upscale line, Tiffany, or downmarket operations, are at least put on hold until Carnival has completed the integration of its present cruise and land-based operations.

It is well known in the industry that Carnival drives a hard bargain. So hard in fact that it may be driving its shipbuilders out of business. Wartsila was recently rescued from bankruptcy. The builders of the other new Carnival vessels, Swedish Kockums and Danish Aalborg shipyards are no longer in business.

Largest Cruise Carrier

Carnival also reported that its fleet of ships achieved an average occupancy level of 112.2 percent in its third quarter, carrying 223,953 passengers. For the first nine months of 1989, fleetwide occupancy was 108.6 percent, with a total of 606,189 passengers.

Carnival is the world’s largest cruise line based on the number of passengers carried. Together with HAL and Windstar Sail Cruises, it currently operates 14 ships in Alaska, the Caribbean, South Pacific and the Mediterranean. Carnival also has three 2,600-passenger ships under construction at the Wartsila shipyards in Finland and is said to be contemplating a three-ship order for HAL with Fincantieri.

Carnival also operates Carnival’s Crystal Palace Resort & Casino, a 950-room property in Nassau, with another 617 rooms scheduled to open by the end of this year.

At press time Carnival closed at $24.25 on the American Stock Exchange.

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