Carnival Corp. (CCL) recently announced a massive management shuffle, possibly to fix some persistent operational issues. Per the program, the cruise operator plans to divide the roles of its chairman and chief executive officer (CEO).
While former CEO Micky Arison will only continue as chairman of the board, Arnold W. Donald who has been on Carnival’s board for the past 12 years will take up the mantle of CEO, effective Jul 3.
The decision puts an end to Arison’s 34-year long career as CEO with Carnival. During his leadership, Carnival was transformed from a privately-held entity to a public company and crowned as the world’s largest cruise operator. However, in his role as chairman, Arison will continue to supervise the operations of the company.
He had also conducted a big-ticket merger with P&O Princess Cruises plc. In a nutshell, under his supervision, Carnival grew from generating $44 million in revenues to a $15 billion company.
However, of late, Carnival’s ships have been facing one accident after another, which sharply lowered its bookings. The negative publicity generated as a result of the mishaps and soft economic conditions have adversely affected bookings.
Even the adoption of a sharp price discounting strategy could not meaningfully trigger bookings; rather it pulled down net revenue yield. Following such issues, Carnival had to lower its fiscal 2013 guidance more than once. In such a scenario, we believe, Carnival had no other option but to make a drastic move, such as the appointment of a new CEO, to turn around the company’s fortunes.
The new CEO Donald has previously worked with governmental organizations, private equity firms and a large publicly traded company. Donald founded and held a top position at Merisant, a company that owns tabletop sweetener brands such as Equal and Canderel. He also assumed multiple senior management roles at Monsanto Co. (MON) for around 20 years. At present, Donald is also a board member of Bank of America Corp. (BAC).
From the time it became a publicly traded company, Carnival’s operating policy has been regulated by Arison. However, considering Donald's decade-old alliance with the company, we believe, he will be able to do justice to his new responsibility.
Anyways, there is still some time before this management churn pays off and consumer confidence is restored. Till then, we remain skeptical about Carnival, which currently carries a Zacks Rank # 5 (Strong Sell). However, one company, which sells recreational products, Sturm, Ruger & Co. Inc. (RGR) is worth considering as it carries a Zacks Rank #1 (Strong Buy).
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