Carnival Cruise Lines has reported record revenues of $1,148 billion for its fiscal year ended November 30, 1989 compared to $599.7 million for fiscal year 1988.
Net income, however, was $193.6 million compared to $196.4 million for the previous year. As a percentage of revenues, net income was 16.8 percent compared to 32.7 percent in 1988.
The revenue increase was primarily attributed to the additional capacity provided by the cruise ships of Holland America Line and its tour businesses, which Carnival acquired last January, and to the opening of Carnival’s Crystal Palace Resort & Casino in the Bahamas.
The decline in net income was attributed to increased interest expense and reduced interest income associated with the use of funds for the HAL acquisition, and higher costs incurred in connection with the start-up of the resort and casino.
Carnival also announced an increase in quarterly dividends from 10 cents to 12 cents per share. The dividend was declared for the fiscal quarter ending February 28, 1990.
At press time, Carnival shares were trading for about $19 on the American Stock Exchange.
Fourth Quarter Results
Net income for the fourth quarter was $21.3 million on revenues of $231.1 million compared to net income of $42.1 million on revenues of $130.5 million posted in the same quarter in the previous year.
The results were said to have been impacted by the seasonality of HAL and its affiliated companies, and additional expenses incurred in connection with the opening of the final phase of Carnival’s Crystal Palace. Additionally, the fourth quarter of 1988 was also said to have benefited from a non-recurring gain of approximately $6 million.
Load Factors
The company’s 14 ships carried 783,485 passengers, achieving a fleetwide occupancy level of 106.5 percent. With an estimated 3.5 million cruise passengers in 1989 (taking cruises of three days duration and longer), the Carnival fleet earned a share of the North American cruise market of about 23 percent.
1990
According to sources, while Carnival expects load factors comparable to prior year levels, it appears that advance bookings are softer than usual, which may be attributed to the repositioning of ships. To make room for the Fantasy, Carnival is shifting the Carnivale to Cape Canaveral, which is a new market for the company, and has doubled its capacity out of San Juan. It is uncertain if this softness will last and/or how it will impact occupancy rates and/or prices, which were increased by two to three percent. Sources also report that advance bookings for HAL are “strong.”
Carnival shares, however, have weakened over recent months as the company’s market valuation has been impacted by a number of factors largely beyond its control. Since the Eastern strike, which was said to have reduced 1989 earnings by nearly $7 million; the company was criticized by the National Transportation Safety Board; there was some concern that Hurricane Hugo might damage its ships or casino; its newbuilding program suffered a setback when Wartsila declared bankruptcy; and last fall the company withdrew a $200 million public offering.
Analysts specializing in the cruise industry see Carnival as a favorable growth and profitability prospect, indicating a target share price for the next 12 months around $26, and at least one analyst regards today’s price as a “buying opportunity.”
Analysts concede that the principal risks in investing in the cruise industry is the possibility of an economic recession and/or industry overcapacity, which they say would lead to greater price discounting and reduced earnings .
