Carnival 1998 Q1 Earnings

Carnival Corporation has reported net income of $109.9 million, or $0.37 per share, on revenues of $557.8 million for its first quarter ended Feb. 28, 1998, compared to net income of $85.4 million, or $0.29 per share, on revenues of $521.1 million for the same quarter in 1997.

Notably, the main “driver” generating increased earnings and revenues during the first quarter was price, since Carnival actually carried fewer passengers in the first quarter of this year compared to last year. According to Carnival, passengers spent more for their cruise fares as well as in on-board spending.

Normally, earnings and revenues have been boosted by increased capacity, but Carnival did not introduce additional capacity in the period. In fact, overall occupancy was down, because fewer “third and fourth berths were discounted,” Carnival said.

However, the newer ships are supporting higher pricing through a richer mix of cabins. The new Rotterdam VI, for instance, achieved higher pricing than the Rotterdam V, which she replaced.

In addition, Carnival was also able to reduce total costs and expenses to 76.9 percent of revenues this year compared to 80 percent of revenues last year.

Affiliated Companies

Affiliated companies contributed a Joss of $10.7 million, including $8.1 million from Airtours and $1 million from Costa Crociere.

Carnival attributed the result to the seasonal nature of these companies’ operations.

According to Carnival, pricing is up and demand is strong for Costa, which is expecting its best year ever, Howard Frank, vice chairman of Carnival, said in a conference call to analysts.

The economies of the U.K. and Scandinavia are also strong, Frank noted, and Airtour’s bookings are ahead of last year, he said.

Frank also added that the U.K. is very price sensitive, hence the positive diversification of Airtours into Scandinavia and Canada, while the Italian market is supporting much higher pricing.

Frank also noted how Airtours’ sales for Carnival Cruise Lines and Holland America Line had been up four-fold in 1997, compared to 1996, and that they expected sales to double in this year over last year.

European sourcing was said to represent “from five to 10 percent” of CCL and HAL passengers in 1998, which translates into from 100,000 to nearly 200,000 passengers.

Frank also noted that the companies are doing more marketing in Europe and expect to see a significant increase in passenger sourcing from Europe, however, he did not expect to see CCL or HAL move any of their ships out of the North American market and into Europe at least “not in 98, 99 or 2000.”

In addition, Frank pointed out that since Carnival bought 28.5 percent of Airtours, its shares have risen in value from 475 pence two years ago to 1,500 pence.

Also, admitting that Alaska was soft in 1997, Frank said last week that Alaska was well ahead of last year and that pricing was up.

Overall, the Carnival executives on the call that included Micky Airson, chairman, Jerry Cahill, CFO and Frank, said that for the rest of 1998, booking patterns were trending very positively for all the brands – and ahead of last year. In addition, pricing is considerably stronger, they said.

Fleet Growth

Carnival Corp. has posted some 27 consecutive quarters with earnings growth, according to Frank. Most of that has come from adding capacity and economies of scale (lower costs).

What makes the future more interesting is that this past quarter Carnival boosted revenues and earnings from higher prices and increased on-board spending.

Thus, this pricing and spending development creates an even more interesting future potential for Carnival, when combined with the company’s fleet expansion.

In 1998, Carnival Corp. is adding two new ships for a 5.7 percent capacity increase; in 1999 three ships will be introduced for a 13.7 percent capacity increase; and in 2000 three more ships will enter service for another 14.6 percent increase in capacity. And more ships will follow in 2001 and 2002 boosting capacity by 12 percent each year.

Altogether some 14 ships are expected to enter service for Carnival Corp. companies over the next five years, including two more new ships for HAL, which Frank said were in the dicussion stage.

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