Pack A Plunger: Memories of Backed Up Toilets Continue to Plague Carnival (CCL)
Nothing sucks the joy out of vacation memories like the stench of a backed up toilet.
The stock was down more than seven percent Tuesday after reporting disappointing earnings, and Wednesday, it’s sinking again on the back of at least seven analyst downgrades.
Among the notables, Morningstar analyst Jamie Katz called Carnival’s outlook “disappointing” saying investors had expected the company to show improvement in Q3.
"What the commentary indicates to us,” Katz said, “is that that's not the case."
Katz indicated either the company was losing market share to competitors or customers were seeking better discounts.
Zolomax reported Wednesday that analysts at Morgan Stanley (NYSE: MS) downgraded Carnival from “equal weight” to “underweight,” adding that other recent reports include a Natixis downgrade from “neutral” to “reduce.”
Edward Jones analyst, Robin Diedrich, said she believed consumers would eventually come back to Carnival.
"Ultimately people go back to their normal patterns," Diedrich told The Associated Press adding, "It will take some time and work on Carnival's part."
Carnival, for its part, has tried to counter bad memories with financial incentives in the form of discounts. Carnival’s efforts have not exactly been rewarded. All this comes at a time when the rest of the cruise industry has mostly been able to recover from the effects of the recent recession.
Carnival said bookings for the next three quarters are below last year’s numbers, a sign that discounts alone will not bring customers back. The company said it expects a three percent drop in revenue in 2013.
Customer confidence is key to success in the cruise industry. With three major incidents over the past year, Carnival has struggled to convince potential passengers that its ships are safe.
The company has certainly made the effort. It announced in April that it would spend $300 million on backup generators, safety upgrades, and general improvements to all of its vessels. In June Carnival announced that CEO Micky Arison was leaving and would be replaced.
At the time of this writing, Jim Probasco had no position in any mentioned securities.
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