Are Cruise Lines a Disastrous Investment?


If there's one company that's been making headlines lately for all the wrong reasons, it's Carnival . This year the cruise-ship company has had to answer for six large-scale malfunctions within its fleet, and its ship Triumph left more than 4,000 passengers stranded at sea for days. Since then cruises have been cancelled, S&P ratings have lowered, and the company has turned into a laughingstock of its former self. Is Carnival's stock breaking down as badly as its ships?

Sinking prices
Wall Street hasn't exactly responded favorably to Carnival's headline-making Triumph disaster. After the news hit, the cruise line's stock took a dip from $39 to $34.43. The price rose shakily afterwards, reaching a peak of $36.24. Sadly, when Carnival came back into the national spotlight for more ship troubles, Mr. Market gave up. Carnival's price went on to hit its lowest point of the year.

Surprisingly smooth sailing
Carnival's price might be struggling, but its financials have stayed surprisingly sharp. On March 15, the company released its Q1 earnings call, which stated that its quarterly revenue was $3.59 billion, up 1% from where it was this time last year. In addition, Carnival's earnings per share rang in at a remarkable $0.08 per share. That's a 300% jump from last year's $0.02 per share, and it trampled analyst estimates, which predicted that the company would ring in $0.03 per share.

This all means that Carnival was able to retain revenues more effectively this quarter than during the same time last year. A clearer explanation can be found by taking a look at the margins. Carnival's operating margin in particular was 150 basis points (or 1.5%) higher than in Q1 of 2012, which means the company is using a smaller chunk of its revenue to run and maintain its fleet. Of course, if Carnival is cutting the percentage of money it spends on the upkeep of its ships, there may be a reason they keep breaking down.

Clearer skies elsewhere?
Carnival's latest trajectory has been rocky, but if you're an investor with a passion for cruise lines, there are plenty more hopeful prospects out there. Fellow Fool contributor Sean Williams has sung the praises of Disney's cruise-ship service. Besides having a name even your 2-year-old niece recognizes, Disney has a much stronger reputation for safety, and it dodges consumer backlash by arranging its summer bookings months in advance.

Times are anything but a triumph for Carnival right now, but with a little bit of time (and perhaps some PR tweaking), the company may be able to move past its recent controversies. In the meantime, try sticking your investor dollars in less stormy seas.

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Fool contributor Caroline Bennett has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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