AlthoughCarnival shares rose ahead of its conference call on Friday, they turned lower amid concerns that demand for the Costa brand may be slow to recover, one analyst told CNBC.
“I think that what people got was additional color on the conference call that it could take the Costa brand about a year or two for demand trends to recover,” said Rachael Rothman, an analyst with Susquehanna Financial Group. “We do see in our own proprietary pricing surveys that price cuts have been coming through — not just in the near-end bookings for the second quarter, but they are aggressively cutting price in the third and fourth quarters as well at this point.”
Rothman has a $29 price target and a “neutral” rating on the cruise operator.
Carnival expects to earn between $1.40 per share and $1.70 per share in the fiscal year. At its midpoint, this new range is $1.15 per share lower than the forecast Carnival gave in December, largely because of a hit to the Costa brand’s earnings. Analysts had estimated that the company would earn $1.85 a share for the full fiscal year.
On the call, Costa, which accounts for 14 of the company’s 99 ships, said it would be holding its prices despite suffering the loss of its cruise liner Costa Concordia, which capsized off the Italian coast in January and resulted in the deaths of at least 25 people.
In late January, Carnival forecast the disaster would lower its profit by $155 million to $175 million this year, and said on Friday that the ship was deemed a “total loss.”
Although Costa said it would be holding its own prices, other brands are employing a different strategy to boost demand.
“We’re clearly seeing price cuts across all brands from Celebrity to Princess to Royal to Carnival throughout the Mediterranean and Europe, specifically, we are seeing price cuts," she said. "So again, they are substitute goods. Costa may be taking the tactic of sacrificing occupancy for price, which we definitely understand, because it makes it easier to raise price in the out years.”
However, she added, “since they are substitute goods ... ultimately if its peers do continue to cut, we think it will follow suit.”
—Reuters contributed to this report.
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Rachael Rothman does not own shares of the companies mentioned in this article.
Follow Katie Little on Twitter @katie_little.