Carnival Reports Q1 2004

All Carnival Corporation brands are performing extremely well, according to Vice Chairman and COO Howard Frank who spoke to analysts on the company's conference call on first quarter earnings.

"It looks like we are headed for a solid year," Frank said, giving earnings guidance for the full year in the range of $2.05 to $2.15 per share, compared to $1.66 for 2003 and $1.73 for 2002.

Q1 04

Carnival reported net income of $203 million, or $0.25 per share, on revenues of $2.0 billion for its first quarter ended Feb. 29, 2004, compared to net income of $127 million, or $0.22 per share, on revenues of $1.0 billion for its first quarter of 2003.

The results include P&O Princess Cruises, which Carnival acquired last April.

The earnings increase was attributed to "very strong onboard revenues" and pricing picking up, according to Gerald Cahill, executive vice president and CFO.

Carnival also delayed some advertising expenditures until later in the year and continued to benefit from savings obtained from P&O Princess synergies. Cahill said that the company was on track to achieve the $100 million in synergy savings for the year that it had projected.

With a higher share of its capacity now in Europe, revenues will also be more seasonal, with a bigger boost coming during the summer season.

Outlook

Said Frank: "Bookings are running 62 percent higher than at this time last year for the last nine months of the year." While bookings were down in Spain (following the Madrid bombings) bookings elsewhere in Europe remained strong, and Frank said that Costa Crociere expects that Spain will pick up again.

A particularly strong performer this year has been Princess Cruises, according to Frank.

Frank went on to say that the QM2 is also performing extremely well as are the other brands, including Holland America Line, and that the "forward looking pictµre appers quite good."

"We are seeing pent-up demand coming back into the market," Frank said, adding that Carnival Cruise Lines recently had its best booking week ever.

Frank said that for the company as a whole bookings were running four percent ahead of capacity and occupancy was five percent ahead of last year (adjusted for the capacity increase), while pricing was running six percent higher than last year.

With bookings trending further out, Frank was also able to say that occupancy for Q4 was running 10 percent ahead of last year.

Bookings taken during the last two weeks have been running 100 percent ahead of last year, according to Frank.

Carnival's strategy is to start out with somewhat lower prices to avoid last minute discounting and instead hoping to raise prices closer to sailings.

"The message to consumers is that this is a great time to book, because we expect prices to go up," Frank said.

Newbuilds

The exchange rate issue is still there, according to Frank, who said that with the high euro it is "tough to get the returns you need. We can still order ships for the European market, however," he added.

"We are very encouraged by what we are seeing at Aoda Cruises , P&O Cruises and Costa," Frank continued.

He noted that pricing on older ships tend to be driven by itineraries. While newer ships get higher prices for veranda cabins, they do not get much higher prices for inside cabins.

Cahill added that onboard revenue was up four percent year-over-year, compared to the normal growth rate of two-to-three percent per year.

Overall, Carnival will grow its capacity by 17.5 percent in 2004, 9.2 percent in 2005 and 5.3 percent in 2006.

While Frank said it was too early to forecast earnings for 2005, he said he was very encouraged by 2004.

But Carnival is predicting what it calls substantial free cash flow in 2005 - in excess of what is needed for its newbuilding program. The company has three options, according to Frank: increase dividends, pay down debt or repurchase stock. That decision will be taken when they get there (2005), he said.

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