Despite dragging itself through the public relations mud the last few years, cruise liner Carnival (NYSE:CCL) is giving investors plenty of reasons to stay onboard…
Horror stories of food shortages and overflowing toilets sloshing about in cabin rooms is enough to make anybody swear off going on cruises altogether.
That scene played out this past spring beginning in February when Carnival Corporation’s (NYSE:CCL) Carnival Triumph cruise ship had an engine fire which resulted in a power outage that turned the holiday week of over 3,100 passengers into an agonizing (and smelly) ordeal.
It happened again in March when the Carnival Dream also lost power and several toilets stopped flushing.
If that weren’t enough, other Carnival ships including the Elation, Legend and Splendor all experienced technical malfunctions which caused various steering, speed and propulsion issues.
But of course, those weren’t nearly the worst of Carnival’s problems.
When the Costa Concordia ship run by Costa Crociere (a subsidiary of Carnival Corporation) ran aground in Italy back on January 13, 2012, the boat sank and 32 travelers lost their lives.
The investigation into the catastrophe was a public relations nightmare as it was soon discovered that the ship’s captain had abandoned the ship before it went down.
He was later charged with failing to describe to maritime authorities the scope of the disaster and with abandoning incapacitated passengers, but that was hardly enough to quell the lashing that Costa Crociere and Carnival received in the months that followed.
One noted journalist called the Costa Concordia disaster the “most significant event in modern maritime history” because “every single safety procedure designed to make sea travel safe failed miserably”.
As quickly as the fallout began, Carnival hunkered down and looked for ways to slow the bleeding.
From announcing sweeping changes to their safety procedures to offering steep vacation promotions, the Company acted quickly to woo travelers back leading up to the all-important summer travel season.
To the surprise of investors — and even Carnival itself — their efforts began to pay off.
After a volatile first half of 2012, Carnival’s stock appeared to be on the mend as investor optimism slowly returned. Shares rose from its yearly low of $29.97 in late February 2012 to $39.15 on February 1st 2013.
The rally abruptly ended when the aforementioned series of technical breakdowns on multiple ships pummeled the stock for the next few months.
But once again, aggressive promotion tactics, new product offerings, and special incentives for travel agencies helped share prices recover for the remainder of 2013.
Carnival also touted its long-running environmental stewardship efforts by reducing its fleet’s fuel consumption by 5% along with initiatives such as the installation of emission-reducing “scrubbers”, reduction of greenhouse gases, and implementation of onboard water treatment plants.
And in early September, Carnival announced its ambitious “Great Vacation Guarantee” which not only refunds dissatisfied customers within 24 hours of the start of their vacation, but they’ll receive 10% on top of the full refund of the cruise fare, free return air transportation from the next port of call, free ground transportation and hotel accommodations (if necessary) and a $100 shipboard credit for a future Carnival cruise.
While these kinds of strategies can never guarantee that any stock would rebound, they’re showing signs of working for Carnival.
Q3 profits fell 30% — which sent the stock into a short-lived free fall in late September — but its full year earnings report last week beat analyst estimates with a $1.2 billion profit and promptly pushed the stock to a fresh 52-week high.
Has The Tide Turned?
Bookings and revenues are expected be soft for the next quarter as management forecasts a decline of 3-4 percent in sales. This is likely to result in a diluted loss per share in the range of $0.07 – $0.11 versus full year 2013 of $0.09 EPS.
But from the looks of it, both investors and vacationers are likely to look past Carnival’s recent mishaps and see the Company for the market leader that it is.
And as we witnessed repeatedly, Carnival has an innate ability to bounce back each and every time a major problem arises.
Assuming there are no setbacks like what we saw over the past two years, there’s every reason to believe that Carnival will have a solid 2014.
Yet, even if something were to happen, its recent track record is a testament that they will do everything they can to make things right again.
For that, the seas are looking a little calmer for Carnival.