Carnival Earnings Warning Triggers Sell-Off

If it's darkest before dawn, than it is nearly daybreak at Carnival Corp. The company's stock price has been severely punished since the beginning of the year for seemingly phantom reasons. Last week it gave analysts solid grist to chew on as it sounded an earnings warning on March 17 after it said premium-priced Millennium sailings helped lift first-quarter profit and it was scuttling a deal to buy rival NCL with an Asian cruise company.

Shares of Miami-based Carnival, which recently agreed to pay $600 million for the first trans-Atlantic liner built in decades, the Queen Mary 2, dropped more than 10 percent on March 17. Carnival, with nearly 8.1 million shares changing hands, was among the most heavily traded issues on the New York Stock Exchange.

The sell-off came after a sharp rise the day before, when Carnival's shares rose more than 3 points in a broad Wall Street rally after being beaten down in recent weeks from the 40s and 50s amid concerns that bookings were tepid.

Before the market's opening on March 17, Carnival said fiscal first-quarter profits from its Holland America, Cunard, Carnival and other lines rose nearly 9 percent, matching analysts' forecasts. But it warned that the outlook for the second quarter was weak, in part because of higher fuel costs.

Net income in the quarter ended Feb. 29, boosted by its premium-priced Millennium cruises, rose to $171.5 million, or 28 cents per share, from $157.8 million, or 26 cents, a year earlier. Analysts had forecast earnings of 28 cents, according to tracking firm First Call/Thomson Financial.

Revenues rose 10.2 percent to $824.9 million from $748.3 million in comparable period a year earlier.

"Softer ticket pricing resulting from slower booking patterns ... together with increased fuel costs, could cause second-quarter earnings to be slightly lower than last year," Carnival said in its earnings report.

Oil recently broke $34 a barrel, a nine-year high recalling the spike in crude prices during the Gulf War. It has since sunk back to less than $32, which is still high by historical standards. In the year-ago second quarter, Carnival earned 33 cents a share.

Carnival said it believed earnings for the second half of 2000 would be stronger, and estimated full fiscal-year earnings would rise 8-10 percent from 1999. Carnival last year earned $1.66, and analysts expect a 15 percent increase to $1.91 in 2000.

Enjoying a long boom in North American cruising, shares of big cruise companies such as Carnival and Royal Caribbean have been rocked amid fears of a possible slowdown in sea vacations as the industry continues a pricey, new-ship building spree.

Carnival has reversed itself several times in recent months, including ending a twisting takeover battle for Norwegian Cruise Lines. After abandoning its own bid, Carnival joined forces with rival Star Cruises of Malaysia to buy NCL, the No. 4 operator, for $1.1 billion. However, on March 16, the two companies ended the alliance to buy NCL after a falling out over details of the deal. Star will be the sole owner of NCL.

In Miami, Little Rock, Ark., attorney Steven Cauley filed a shareholders' lawsuit alleging that Carnival artificially inflated the price of its stock by making false and misleading statements about its financial condition and by failing to disclose safety, maintenance and regulatory problems with its ships.

The U.S. District Court lawsuit seeks class-action status on behalf of investors who held Carnival shares between Feb. 25, 1999, and Feb. 16, 2000. During that period, the lawsuit alleged, Carnival insiders unloaded their own stock, reaping proceeds of $11.5 million.

Carnival spokeswoman Jennifer de la Cruz said the company had not been served with the lawsuit but that it appeared to be a "copycat suit" similar to others filed against Carnival in recent weeks. "Just as we believe is the case with the other suits which this one is copying, the claims appear to be completely without merit. We feel there is absolutely no basis for the suit whatsoever," de la Cruz said. - (Reuters)