Carnival battered in wake of fatal shipwreck

CHICAGO (MarketWatch) � Shares of Carnival Corp. fell sharply Tuesday, losing as much as 14% in the wake of the wreck of its cruise ship Costa Concordia off the Italian coast.

Reuters The cruise ship Costa Concordia lists after running aground off the west coast of Italy at Giglio island on January 14, 2012.

The accident, which happened late Friday, killed at least 11 and several dozen more people remain missing. The captain of the ship has been put under arrest for abandoning the stricken vessel and its 4,000-plus passengers and crew to their fate, creating a public relations nightmare for the line.

Shares of Carnival CCL �were last down $4.75 at $29.53. Rival Royal Caribbean RCL � slipped 3.5% to $27.73.

The Costa Concordia is owned and operated by Carnival�s local subsidiary Costa Crociere SpA. It cost $573 million to build and represents roughly 2% of the company�s passenger capacity. The tragedy comes at a time when demand for cruises, while higher than during the recession of 2008 and 2009, remains soft.

Carnival said in a release over the weekend that it has insurance that covers damage to the vessel with a deductible of approximately $30 million. It also has third party personal injury liability coverage subject to an additional deductible of about $10 million.

/quotes/zigman/322132/quotes/nls/ccl CCL 33.68, -0.31, -0.91%

The company noted that a damage assessment is underway and the ship is �expected to be out of service for the remainder of our current fiscal year if not longer.�

It estimates that in the current fiscal year, the loss of use will cost its 2012 bottom line $85 million to $95 million or 11 cents to 12 cents a share.

�In addition, the company anticipates other costs to the business that are not possible to determine at this time,� it said.

Even as the search for possible survivors continued, Wall Street analysts were busily totting up their own estimates of the financial impact of the tragedy.

Late Monday night, J.P. Morgan downgraded Carnival�s stock to neutral from overweight, reduced its fiscal 2012 earnings estimates from $2.73 to $2.16 a share and cut its price target to $30 from $38.

The revisions stem from �the impact that a tragic and headline catching event like this will have on an already soft consumer environment (particularly in Europe), and the resulting price discounting/promotional activity that we believe will follow,� wrote Kevin Milota.

�We believe an increasingly promotional pricing environment is particularly worrisome given the industry is at the early stages of �wave season�, the peak sales period from early January through the end of March when approximately one-third of annual cruise itineraries are sold, and helps set the tone of bookings for the rest of the year,� he added.

Click to Play How accident will impact tourism

WSJ's Arian Campo-Flores looks at the state of the cruise tourism industry and how it might be affected by the accident involving the Costa Concordia cruise ship off Italy. Photo by Laura Lezza/Getty Images

Harry Curtis of Nomura estimates that the loss of the Concordia alone will cost the company 7 cents per share in profit annually.

�The extent of the damage has yet to be fully determined, but the ship could be beyond repair,� he said. �Yields for the remaining Costa brand, which is 14% of Carnival�s global capacity, could be down around 10% this year given the timing of the tragedy.�

Making matters worse, he continued �is the company�s �silence and slow response to the incident presumably will not be viewed favorably by Costa�s passenger base in Europe, which is sourced largely from Germany, Italy, and France.�

Curtis expects Carnival will get an insurance payout of roughly $320 million and �in our view, [the company] should use the proceeds to repurchase roughly 9mn shares of stock, which limits the long-term EPS impact.�

Rachael Rothman of Susquehanna, who downgraded Carnival to neutral from positive, also pulled the trigger on Royal Caribbean.

�Cruise yields are likely to come under pressure as the timing of the tragedy and negative media attention coincides with the start of the Wave booking season,� she write. �The loss of life and significant negative media attention is likely to create a severe headwind to cruise bookings in the months ahead.�

The �read-through to Royal Caribbean is a clear negative, and as we saw with the Arab Spring in early 2011, a negative event during Wave has the potential to result in multiple downward revisions in guidance,� Rothman added.