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In last week’s conference call to discuss second-quarter financial results, CEO Arnold Donald took pains to assure analysts that capacity isn’t growing too fast and Carnival’s worldwide business is strong.

But a forecast that third-quarter net income would be no better than it was a year ago set off a slide in Carnival shares, which erased about $4 billion from the company’s value the day the forecast was issued, recovering only about $1 billion the next day.

Carnival attributed the weaker forecast to unfavorable trends in fuel costs and foreign exchange rates and, to a lesser extent, the continuing malaise hanging over southern Caribbean cruises from San Juan following last year’s hurricanes.

Clearly, some investors didn’t buy that assertion.

Susquehanna Financial Group analyst Rachael Rothman wrote in an analysis after the conference call that investors expecting a decline in Carnival shares — “bears” in Wall Street parlance — dumped Carnival stock because they believe the Caribbean is headed into oversupply.

“The share price reaction shows it will likely take time to disprove the bear thesis,” Rothman said.

Cold feet about the Caribbean stems from big ships delivered earlier this year that will be redeployed come November. These include the Norwegian Bliss, currently sailing in Alaska, the Symphony of the Seas, now in the Mediterranean, and the Carnival Horizon, which is in New York.

Add to that new ships due in November, Holland America Line’s Nieuw Statendam and Celebrity Cruises’ Celebrity Edge, and there is a lot of big, new hardware converging on South Florida.

Donald said he was aware of all that.

“I know people are concerned about capacity and so on,” he said before assuring analysts that shipyard constraints make it impossible to grow too fast and that business currently is “super strong.”

“We just had a record quarter,” Donald said. “We look ahead. Things look very good.”

For the second quarter, ended May 31, Carnival reported net income of $561 million, up from $379 million, while revenue rose 11.4%, to $4.4 billion.

But for the third quarter, Carnival is projecting net income of between $1.6 billion and $1.64 billion, no higher than last year. It mainly blamed fuel and currency for a projected $136 million headwind.

Demand in the Caribbean, however, continues to reflect a hole created by hurricanes Irma and Maria last fall, when people stopped booking, mostly affecting the 2018 second and third quarters.

Carnival CFO David Bernstein said Carnival’s ship based in San Juan remains behind year-ago levels at lower prices, but he added that eastern Caribbean itineraries that had been behind have now pulled even with last year.

“The [2018] second quarter was probably the biggest impact from the hurricane last year, and we expect to see an improving trend over time,” Bernstein said.

Rothman said Carnival might have forecasted flat third-quarter results in an effort to stay conservative after last year’s hurricane season.

“However, with management unwilling to quantify the magnitude of the conservatism, the stock was left with little to debunk the [oversupply] thesis for now,” she said.

The two other public companies with big capacity in the Caribbean — Royal Caribbean Cruises Ltd. and Norwegian Cruise Line Holdings — are on a different fiscal calendar than Carnival and won’t reveal second-quarter results or make third-quarter forecasts available for about another month.

Source: travelweekly.com