Carnival 1Q Profit Falls on Fuel Costs

MIAMI (AP) -- Carnival Corp. said Thursday first-quarter profit fell 17 percent due to rising fuel costs, a drag on operations that also led the world's largest cruise operator to lower full-year profit guidance.

Net income dropped to $236 million, or 30 cents per share, in the three months ended Feb. 29, from $283 million, or 35 cents per share, a year ago. Sales rose 17 percent to $3.15 billion from $2.69 billion.

Analysts polled by Thomson Financial had forecast average earnings of 29 cents per share on revenue of $3.15 billion.

The increase in revenue was largely offset by escalating fuel expenses, which cost Miami-based Carnival $156 million, or 19 cents per share, in the quarter. Fuel prices increased 66 percent to $499 per metric ton for the quarter, compared to $301 per metric ton in the prior year, the company reported.

With high fuel costs expected to persist, Carnival expects fuel expenses to increase by $532 million compared to 2007, which would reduce full-year earnings by 65 cents per share.

The company now forecasts full-year earnings per share to be in the range of $3 to $3.20 compared to its previous guidance of $3.10 to $3.30.

Meanwhile, earnings for the second quarter were expected to be in the range of 42 cents to 44 cents per share, down from 48 cents per share in 2007, Carnival said.

Nonethless, Carnival shares rose $1.62, or 4.3 percent, to $39.22 in midday trading Thursday.

At a conference earlier this month, the world's leading cruise companies cited higher fuel costs and other economic factors such as the struggling housing market as obstacles. But they remained generally optimistic about the state of the cruise industry for the year, partly because the all-inclusive nature of its vacations provides value to cost-conscious customers.

Carnival said advance bookings for the rest of the year were ahead of 2007 in occupancy and pricing.

"Consistent with their historical performance, our cruise brands continued to demonstrate resiliency despite a difficult economic environment," said Micky Arison, Carnival chairman and chief executive. "This especially holds true in the Caribbean where there continues to be a strong rebound in pricing from last year."

Carnival said first-quarter net revenue yields increased 6.2 percent year-over year, buoyed by strengthening euro and sterling exchange rates compared to the dollar. As a result, the company now expects a 5.5 to 6.5 percent improvement in net revenue yields for the full year compared to 2007, versus previous guidance of an increase of 4.5 to 5.5 percent.

But, excluding the benefit of the strong foreign currencies, net revenue yields are expected to increase 2 to 3 percent, versus previous guidance of a 3 to 4 percent increase, primarily due to reduced expectations for onboard spending.

Yields are a key profitability gauge that measure net income earned from passengers per day from cruise tickets and onboard sales.

On a conference call, Chief Financial Officer David Bernstein said Carnival remained in discussions with the Florida attorney general concerning its review of a fuel surcharge and whether it was properly disclosed to passengers. No. 2 cruise operator Royal Caribbean Cruises Ltd. announced a settlement last week with the state.

Carnival operates 84 ships among 11 brands in its portfolio.

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AP Business Writer Michelle Chapman in New York contributed to this report.

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