The worst may not be over yet for Carnival Cruise Lines, the US focused mass market brand in Carnival Corp & plc group, says Robin Farley, leisure, lodging and gaming analyst at UBS Invesrment Research in New York.
Farley downgraded Carnival to neutral from buy after a profit warning on Tuesday.
“We had maintained a buy rating after previous incidents due to the belief that the worst was behind for the Carnival brand and that perception issues would start to resolve going forward. Tonight's news signals that the worst may not yet be behind for the Carnival brand, and the guidance reduction suggests that booking trends have gotten worse, not better, in the last two months, signaling that perception problems may not have bottomed yet,” she said in a research note emailed to Cruise Business.
“Remaining on the sidelines in the near term may be the best course of action until the tide turns on Carnival's perception problems. Carnival management has been one of the best regarded management teams in the consumer sector and on a wider basis for more than a decade.”
“Our downgrade is a change in our view of the stock, not a change in our view of the company. This management team will right the ship. Our downgrade is only a matter of timing.
“Downgrading after bad news has already happened, but our concern is that the worst is not behind Carnival just yet. We had maintained BUY after previous incidents with belief that perception issues would start to resolve going forward, but lower guidance tonight means bookings have gotten worse, not better, in the last few weeks.”
Carnival group management is focused on rebuilding the Carnival Cruise Lines’ brand and re-establishing service to travel agents for improved relationships. “Constant negative publicity has damaged the Carnival brand more than what management had expected when CCL (Carnival group) last gave guidance in March’13, and that is particularly notable for a management team that historically has been viewed as guiding conservatively. “
“Based on the 75 bps of lowered guidance due to the Carnival brand in March, and now an additional 250 bps of yield decline attributable to the brand, the cumulative 325 bps of yield reduction for Carnival Corp suggests that the Carnival brand, which is about 30% of Carnival Corp, may be seeing yield declines of 10-11% at the brand level this year,” Farley stated.
