What Carnival Needs to Do to Recover

Next Tuesday, Carnival (NYSE: CCL  ) will release its latest quarterly results. Yet, investors already have a pretty good idea just how challenging a quarter this will turn out to be, and they're right to be concerned about how the company plans to address the many issues that have plagued the cruise-ship operator lately.

Carnival is one of the largest companies in the cruise industry, with its Princess, Holland America, and Seabourn lines operating alongside its namesake Carnival ships in North America. Yet, the company also has an extensive operation around the world, with hotels and tourist transportation complementing its cruise offerings. Let's take an early look at what's been happening with Carnival over the past quarter, and what we're likely to see in its quarterly report.

Stats on Carnival

Analyst EPS Estimate

$0.06

Change From Year-Ago EPS

(70%)

Revenue Estimate

$3.56 billion

Change From Year-Ago Revenue

0.5%

Earnings Beats in Past 4 Quarters

4

Source: Yahoo! Finance.

Will Carnival's earnings sink or swim this quarter?
In recent months, analysts have slashed their estimates on Carnival's earnings. Calls for the May quarter have fallen by nearly half, and a more-than-20% decline for full-year fiscal 2013 reflects negative sentiment following some unfortunate situations for the company.

Carnival has already let investors know that they should be prepared for rough seas ahead. A month ago, Carnival cut its earnings guidance for the full year, cutting its earnings-per-share range by $0.35, to $0.45.

Most people are familiar with the tragedies behind that negative guidance. Carnival has suffered several major problems with its cruise ships, with an engine fire in February leaving its Carnival Triumph vessel with only emergency power and no propulsion for days. Carnival had to have food and water transferred from other vessels, leaving passengers in uncomfortable conditions. Then, in March, the Carnival Dream suffered a generator problem that forced the early termination of the voyage. Followed by news of passengers falling overboard from its Carnival Spirit ship in May, Carnival has seen its credibility hit especially hard.

Carnival isn't the only company facing problems, as a ship from rival Royal Caribbean (NYSE: RCL  ) also suffered a fire last month. But at this point, mishaps from any operator are bad news for the whole industry. In addition to refunds and discounts, Carnival has had to cut prices and offer promotions generally, in order to entice traffic onto its ships. That will likely lead to price wars among the two companies as well as Disney's cruise division, and newly public Norwegian Cruise Line.

In Carnival's quarterly report, watch for the latest about what steps the company is taking to ensure the quality of its fleet. With so much bad news for the company, it's critical for Carnival to get in front of a potential public-relations disaster to the greatest extent possible.

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