Cruise company Carnival is taking on water after it admitted it had underestimated the impact of the Arab spring and the Japanese earthquake.
Oh yes, and the rise in oil prices. The company said the conflicts in the Middle East and north Africa as well as the Japanese disaster would cost it an extra $0.15 per share for the second half, and fuel costs would hit it for another $0.05. Here's the mea culpa:
In its March guidance the company underestimated the full impact of these events on its second half earnings. The March guidance occurred just one week after substantially all the itinerary changes resulting from these events were announced and only days after the Japanese earthquake.
The company's shares have lost 38p to £22.61 as a result. It seems cruel to mention that on Friday Evolution Securities issued a buy note on the business, saying it was a good time to pick up the shares. But to be fair the broker pointed out the likely volatility in the share price. In a note entitled When you really don't want to buy Carnival is the time to buy, Evolution said:
We think it's a good time to pick up unloved Carnival. It's share price is down by 27% year to date as it has been hijacked by the price of crude oil since February. Short-term, we expect Carnival's share price to remain volatile but the longer-term investment story continues intact: we expect Carnival's free cashflow to surge as new ships enter service and trading recovers. If the oil price falls and this, in turn, helps to drive an economic recovery then we expect the sea of cash to turn into an ocean.
