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Carnival Shows No Signs of Improvement: Analyst

Friday, 22 Jun 2012 | 4:19 PM ET
Carnival Cruise ship
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Carnival Cruise ship

Carnival’s revenues for the second quarter decreased to $3.5 billion, compared to $3.6 billion in the same quarter a year earlier. Net income dropped to $0.20 per share from $0.26 per share in the prior year.

With headwinds such as the euro zone crisis and higher fuel costs, the world’s largest cruise ship operator saw profits plunge in the second quarter. Is this a temporary setback, or will the cruise line continue in this direction for the rest of the year?

Kevin Milota, JPMorgan Chase analyst, and Rachael Rothman, senior analyst of Susquehanna Financial Group, talked about where they see the company headed on CNBC’s “Squawk On The Street.”

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Rothman said there have not been any signs of increased demand from Europe since end of the quarter. In fact, she said, other regions of the world are seeing slumps of their own.

“Europe has been exceptionally weak, and now we’re seeing pricing pressure in Alaska,”
she said. “They took down the midpoint of their full-year constant currency net yield outlook by about half a point, and they’re calling for the back half of the year to be down about 6 to 7 percent, which is pretty dramatic.”

JPMorgan’s Milota has a “neutral” rating on Carnival . Although revitalized marketing efforts have led to more bookings for trips, Milota predicts that the uncertainty in markets and worries of a looming fiscal cliff have had an adverse effect on sales.

“To an extent, bookings have come back, but those are at much lower prices,” he said.

However, with the plummet in earnings, Milota said there is a better pricing environment now for consumers than there has been in the last couple of years.

“Occupancy and pricing are down,” he said. “It’s certainly a better way for consumers to take a cheaper vacation if wallets or discretionary income are a little bit tighter this year.”

Rothman predicts that events in Europe will improve by the fourth quarter, but the stock will remain flat as consumers begin to shift their attention toward the U.S. and away from European events.

“I think you can get a situation where Europe does stabilize, but U.S. economics headlines come into focus and the stock kind of stalls for a while,” she said.

—By CNBC.com’s Brian Tam

Additional News: Demand for Carnival May Be Slow to Recover: Analyst

Additional Views: Time to Buy Carnival?

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Disclosures:

Rachael Rothman does not own shares of Carnival. Disclosure information for Kevin Milota was not available.

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