Carnival Corporation reported net income of $171.5 million, or $0.28 per share, on revenues of $824.9 million for its first quarter ended February 29, 2000, compared to net income of $157.8 million, or $0.26 per share, on revenues of $748.3 million for its first quarter last year.

Carnival Chairman and CEO Micky Arison attributed increased earnings to the strong revenue growth. Capacity was up 6.9 percent in the quarter and revenue also increased because of the Millennium cruises.

Partially offsetting earnings were increases in fuel costs as well as operational costs related to the Millennium cruises.

Outlook

In light of declining stock prices since the beginning of the year, Carnival's first quarter results and forecast for the rest of the year were expected to set the near-term course for stock prices.

But in that respect Carnival did little to boost the market. Arison said softer ticket pricing resulting from slower booking patterns for post-Millennium cruises, together with increased fuel costs, could cause second quarter earnings to be slightly lower than last year.

However, Carnival also believed that earnings for the second half of fiscal 2000 will be stronger and estimated that for the entire fiscal 2000, earnings will be eight to 10 percent higher than for 1999.

At press time, Carnival traded for $23.75 compared to a recent low of $21.20 and a January 2000 high of $53 50.

How Things Change!

At the Miami cruise conference earlier this month, top level executives from Carnival and other major cruise lines said they "saw nothing that warranted the decline in stock prices."

The fundamentals are the same, they said.

And increased fuel costs had no impact on the companies, they said.

Not so, according to Arison, vice chairman Howard Frank, and CFO Gerry Cahill, at Carnival.

Were the executives in Miami and Carnival Corporation talking about different things? Did different definitions apply? Or are different messages given to different audiences?

If it becomes a credibility issue, then stock prices may be in for more disappointments.

In the case of Carnival, the company also suffered - at least image-wise - from the failed acquisition of the timeshare company Fairfield Communities and the joint venture with Star Cruises to own Norwegian Cruise Line.

Earnings Factors

Contrary to expectations, Arison said the Millennium cruises incurred higher costs than expected in terms of onboard services and entertainment offsetting the benefit of higher prices.

The first quarter result was also negatively impacted by higher fuel costs. For the rest of the year, Carnival expects fuel costs to be eight cents more per share than last year - or three cents more than previously anticipated.

Five weeks of revenue was lost due to repair work on both the Celebration and the Destiny which suffered a fire and mechanical breakdown, respectively.

In addition, the delivery of the Zaandam has been delayed until the second quarter, although Carnival is receiving compensation from Fincantieri because of the delay.

Airtours had larger losses than last year, which were attributed to seasonal losses, the Millennium, and acquisitions.

Costa Crociere meanwhile contributed net earnings of $4.8 million, part of which was attributed to the sale of the Mermoz.

Wave Period

According to Frank, the Millennium-year bookings have been difficult to read. He said the company had hoped for a strong Wave Period, which would have allowed it to increase prices. But the period did not start out strong and the company has not been able to raise prices in the second quarter as it had hoped.

But the Wave Period is continuing, Frank said, adding that by extending the Wave, Carnival is hopeful that booking patterns will tum stronger.

Arison noted that while bookings are up year­ over-year, going into 2000 Carnival was behind, hence the company took pricing action.

Arison said the extended Wave Period is driven by price stimulation.

The market is very price sensitive and demand is driven by discounts, according to Arison, who said that all the operators were discounting.

Second Quarter

While the second quarter will be "tough" according to Carnival, it is an anomaly, Carnival executives pointed out, where unique factors combine to put a lid on earnings - including slow bookings and higher fuel costs.

Also impacting the second quarter is the late Easter. Thus, because the weather in the Northeast gets better, Carnival does not expect to get business back during this vacation period.

Carnival also said that Wall Street and investors should look at the larger picture. Carnival has posted 35 consecutive quarters of earnings increases; bas a cash flow that greatly exceeds its newbuilding program over the next several years, and has a minimal debt ratio of 15 percent.

Arison added that next year Carnival Corp. will introduce four new ships in one year. "The goal is first to fill the ships," he said, "and then to look at yield.

"But the revenue potential of the new ships are much higher than the older ships," he added.

Added Frank, "In an environment of weaker prices, smaller carriers will struggle more and may move out capacity.

"And bigger operators may move out older capacity too. "We are eventually looking to move out the 1980s generation of ships," Frank said. In terms of the different messages by different cruise line executives on different occasions, Frank said." We call it as we see it. Look at our credibility."