UPDATE 2- Cruise price cuts, higher ad spending to hurt Carnival Corp

Tue Mar 25, 2014 12:31pm EDT

* Forecasts full-year profit below analysts' estimates

* Warns it may post loss for current quarter

* Shares fall as much as 6 pct (Adds CEO and analyst comments; updates shares)

By Devika Krishna Kumar

March 25 (Reuters) - Carnival Corp, the world's largest cruise operator, forecast a full-year profit below analysts' estimates as it cuts prices and spends more on advertising to attract customers after onboard mishaps hurt demand over the past couple of years.

Shares of Carnival, which also warned it might post a loss for the current quarter, fell as much as 6 percent in late morning trading.

"Pricing has been weak for a while now and a lot of it is with regard to their specific brand issues and operational issues," Edward Jones analyst Robin Diedrich said.

Carnival's image took a hit after the operator of the Carnival, Holland America and Costa cruise lines suffered a series of mishaps on its ships, including the sinking of its Costa Concordia off Italy in 2012.

The company was sued earlier this month by passengers who had been stranded on the Carnival Triumph for five days in the Gulf of Mexico after a fire on the ship in February last year.

Carnival is not only cutting prices, but also increasing its advertising spending to woo customers.

"We have increased our investment in advertising and expect to spend over $600 million in 2014. That is a 20 percent increase over 2012," Chief Executive Arnold Donald said on a conference call with analysts.

Carnival's forecast contrasted with that of the no. 2 cruise operator, Royal Caribbean Cruises Ltd, which raised its full-year earnings forecast in January, saying its ticket sales in Europe were improving.

Donald said Carnival was experiencing some recovery in demand from Europe, which accounted for about 30 percent of its passenger capacity in 2013.

"We've seen a continued improvement in perception with an almost doubling of trust and confidence in the core Italian market," he said.

Diedrich, however, said it would take some time for Carnival to return to the "normalized" earnings pattern the company had seen in the past. Edward Jones has a "hold" rating on the company's stock.

Carnival forecast an adjusted profit of $1.50-$1.70 per share for the year ending November.

Analysts on average were expecting $1.72 per share, according to Thomson Reuters I/B/E/S.

Carnival said it might post a loss of 2 cents per share to a profit of 2 cents per share for the current quarter ending May, mainly due to higher selling and administrative costs. Analysts on average were expecting a profit of 7 cents per share.

The company said it continued to expect net revenue yields, on a constant-dollar basis, to fall slightly in 2014.

Net revenue yields, which blend ticket sales and money spent onboard, fell 2.1 percent in the first quarter ended Feb. 28 on a constant-currency basis.

Carnival reported a net loss of $15 million, or 2 cents per share, for the quarter compared with a profit of $37 million, or 5 cents per share, a year earlier.

Excluding items, the company barely broke even on a per-share basis.

Revenue fell marginally to $3.58 billion.

Analysts on average had expected a loss of 8 cents per share on revenue of $3.56 billion.

Carnival's shares were down 5.4 percent at $37.86 in noon trading on the New York Stock Exchange. (Additional reporting by Shailaja Sharma in Bangalore; Editing by Kirti Pandey)

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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