Image: Royal Caribbean.
Falling oil prices and the collateral damage on the financial sector and the global economy more broadly sent stocks sharply lower Tuesday, with the Dow and S&P both losing nearly 2% on the session. Increasingly, earnings reports from U.S. companies are raising the specter of a potential end to the expansion in the domestic economy, and the potential for a recession has been enough to drive many investors to the safety of the fixed-income market. Many stocks outside the hard-hit energy sector suffered substantial declines on Tuesday, and Royal Caribbean (RCL 3.55%), Rent-A-Center (RCII 1.45%), and Pitney Bowes (PBI) were among the worst performers on the day.
Royal Caribbean plunged 15% in the wake of the cruise operator's fourth-quarter earnings report on Monday night. The company reported solid results to close out 2015, but its guidance for 2016 fell short of what investors had expected to see. Royal Caribbean highlighted particular weakness in the Mediterranean region, as well as in Australia and Brazil, saying that pricing levels were relatively soft. However, demand appears to be relatively strong in North America, Northern Europe, and Asia. If the company can sustain strength in those more promising regions of the world, then Royal Caribbean could produce long-term growth that will overcome any short-term headwinds holding it back for now. Nevertheless, Royal Caribbean's drop took other cruise-line operators down with it, although their losses weren't as extreme as what Royal Caribbean shareholders suffered.
Rent-A-Center plummeted more than 25% after reporting its own financial results for the fourth quarter. The rental operator reported a drop in same-store sales of 2.2% for its core U.S. market, decelerating even further compared to year-ago levels. Although the company's Acceptance Now concept continued to perform well, the larger core chain suffered revenue declines, and its Mexican operations saw revenue fall by nearly a quarter. In addition, Rent-A-Center gave guidance for further revenue contraction in the U.S. of 4% to 6% for 2016. Even with anticipated improvement in operating profit margins, EBITDA, and free cash flow, investors in Rent-A-Center are increasingly worried that if the state of the U.S. economy starts to worsen, then customers who are currently able to make payments comfortably might choose to give up on merchandise and eat into the company's sales even further.
Finally, Pitney Bowes dropped 14%. The mail-equipment specialist and business services provider saw declines in its business during the fourth quarter, including a sales drop of 6% in its small- and mid-sized business division and a 9% contraction in revenue from its production mail business. Investors have hoped that Pitney Bowes would be able to pivot away from the secular decline in the mailing industry to broaden its appeal to enterprise customers, and CEO Marc Lautenbach argued that the company has made "substantial progress against our strategic objectives." Nevertheless, results that missed expectations and downbeat guidance for 2016 left investors uncertain about Pitney Bowes' future prospects, and the path of least resistance for the stock was downward.
