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Wednesday, consumer products maker Newell Rubbermaid (NYSE: NWL) delivered some bad news to investors when it slashed its current quarter profit outlook rather significantly.
It took the Street completely by surprise, and the shares got hammered to the tune of 27%.
Then yesterday, one of the quintessential companies that relies on consumer spending, Carnival Corp. (NYSE: CCL), announced that it too has lowered its profit guidance for 2009, to a range of $2.25 to $2.75 per share from its previous range of $2.50 to $3 per share.
The company said it expects full-year net revenue yields to fall 6% to 10% on a constant dollar basis compared with previous guidance of a drop of 1% to 5%.
Despite the weak outlook, the shares were up on a day when not much else was rising.
What gives?
For one thing, the world's largest cruise operator said its fourth-quarter earnings rose 4% from a year ago, as it was able to hold down costs and also benefited from higher prices on some of its cruise lines. Carnival predicted earnings for the first quarter of fiscal 2009 will range from 20 cents to 22 cents per share, which is down from earnings of 30 cents per share last year, but ahead of the 16 cents analysts are predicting for the quarter.
Investors must also be heartened by the continuing plunge in oil prices, which show no signs of making a bottom. The company now says that fuel costs will be approximately $278 million lower in fiscal 2009 compared with previous guidance.
That's all well and good, but in this investing environment, I choose to focus on the negatives.
Carnival said that 2009 occupancy levels for advance bookings are running behind 2008, and ticket prices are also lower.
"As expected, 2009 is shaping up to be a challenging year in the travel industry," said Carnival CEO Micky Arison.
There is too much downside risk with Carnival without the likely reward.
There is no telling how much worse the economy will become, how many more people will be thrown out of work or lose their homes. And oil prices can't be counted on to stay at current levels, however nice that prospect is. In fact, I feel quite strongly that oil prices will move up as OPEC cuts production to match current demand.
I believe Mr. Arison when he says that over the years he and his team have positioned the company to weather the difficult environment it now faces. He says the company has strong cash flows from operations, a solid balance sheet and a secure liquidity position.
I've checked the numbers myself, and he's right. I just wonder how many of his customers can say that. I believe CCL shares are ripe for a fall and may even retest their lows as the recession becomes even more pronounced.
In my opinion, you can buy shares lower.
Jamie Dlugosch is a contributor to InvestorPlace.com.
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Reader Comments (Page 1 of 1)
12-20-2008 @ 2:24AM
Debra said...
Carnival Cruise Lines has been at TOTAL NIGHTMARE!!!!!!! There are 18 people scheduled to sail on Carnivals Miracle on Feb 17, 2009--until they complete changed the itinerary on us--sending us to placed we have NO desire to go. It is impossible to get anyone to actually help with THEIR issue. It isn't our mistake the ship they booked us on has mechanical problems. So we are expected to pay for their issues. We will make sure the word is out---NEVER BOOK A CRUISE ON CARNIVAL CRUISE LINES!!!!!! Word of mouth is a wonderful thing.
1-13-2009 @ 11:17PM
phdewar said...
Carnival will be facing serious times ahead, if the disastrous sailing from Rome to Fort Lauderdale is any indication of things to come. Mishandling of the Grand Princess in rough weather caused severe damage to the port bow, and at least one major panel had to replaced at port. In addition, the ship was undergoing major renovations during the 21 day cruise, and the resulting noise, dust and inconvience infuriated the customers, many of whom promised "never again".
"It certainly was a fiasco" said hotel manager Daniel Parton. "Princess obviously guessed wrong when they assumed their customers wouldn't mind a bit if ongoing work"
The entire front end of the ship, including the jogging track and the tennis courts were closed for most of the cruise to allow for carpet replacements. The fore and aft sections of the top decks had new metal stair cases installed, resulting in hours of welding, hammering and grinding.
The dust from the grinding rendered the fore and aft adult pools unuseable, and the noise from the hammering could be heard several decks below.
"All in all, not our finest hour" said Daniel.
2-06-2009 @ 5:04AM
Rsurf said...
CCL shares are low. Soon it will be smart to buy.
Entertainment first-class is a bargain, even now.
I'm an investor and cruiser. I know good values. I'm buying more CCL.
Richard Vetter
3-11-2009 @ 10:00PM
Gid Pool said...
CCL should be a "buy" right now. The cost cutting measures of its new president will fully kick in during 2009. While cruisers may not like some of the changes, the bottom line will.
Another big plus. CCL has more ships in the Caribbean during the summer than other lines. Those other lines have opted to send their ships to Alaska and Europe.
Why is this important? In a down economy people still want to play. But where is the value in spending $1300 for air fare to Europe to go on a cruise. Or $700 in air fare to pay top dollar to see Alaska? Would people "want" to go to Europe or Alaska? Probably. But I think they will stay closer to home and cruise Carnival.
I just opened a positon in CCL. So my money is where my mouth is...:-)