March 26, 2019 / 1:36 PM / in 2 months

Carnival cuts forecast on fuel costs, dollar headwinds; shares sink

(Reuters) - Carnival Corp cut its annual profit forecast on Tuesday, expecting a hit from higher fuel prices and a stronger dollar, sending shares of the world’s largest cruise operator down over 8 percent.

FILE PHOTO: Arnold Donald, CEO of Carnival Corp. takes the stage to deliver his keynote address at CES in Las Vegas, U.S., January 5, 2017. REUTERS/Rick Wilking

The company also maintained its 2019 expectation for net revenue yield, an important metric that blends bookings and on-board spending.

Carnival’s weak profit forecast comes against the backdrop of strong growth predictions for the industry, despite a cooling Chinese economy and a Brexit-led slowdown in Europe.

“I am surprised at some of the disappointing results from Carnival because I believe overall the industry is very strong and is seeing record demand and pricing,” Tigress Financial Partners analyst Ivan Feinseth said.

Roughly 30 million passengers are expected to sail in 2019, up from 28.2 million last year, according to industry trade body Cruise Lines International Association.

Rival Royal Caribbean Cruises Ltd said in January that it was heading into 2019 with record cruise bookings, higher demand from Chinese tourists and rapid growth in tourists vacationing in Europe, the Caribbean and Alaska.

Carnival Chief Executive Officer Arnold Donald acknowledged that industry trends have been strong, but said on a post earnings call that the yield forecast was left unchanged to account for headwinds such as hurricanes, and uncertainties in the global economy.

The company’s full-year earnings forecast reflects $155 million, or 22 cents per share, hit from higher fuel prices and adverse currency movements, Donald said.

Brent crude is up nearly 25 percent this year, pressured by supply cuts by the Organization of the Petroleum Exporting Countries and allies, and U.S. sanctions on Iran and Venezuela.

Miami-based Carnival said it expects adjusted earnings of $4.35 to $4.55 per share in 2019, compared with $4.50 to $4.80 per share, estimated previously, while analysts were expecting $4.77, according to IBES data from Refinitiv.

The company also forecast second-quarter adjusted profit to be between 56 cents and 60 cents per share, well below estimates of 72 cents.

The forecast cut cast a shadow over Carnival’s first-quarter profit and revenue beat, as the company benefited from higher ticket prices and on-board spending.

Carnival’s shares were at $51.97 in afternoon trading.

The stock has risen 14 percent this year, compared with a 30 percent jump for Norwegian Cruise and 17 percent gain for Royal Caribbean.

Reporting by Aishwarya Venugopal in Bengaluru; Editing by Shinjini Ganguli and Sriraj Kalluvila

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