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Why Royal Caribbean Cruises Stock Just Dropped 5.5%

By Rich Smith - Dec 20, 2018 at 3:32PM

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Blame its archrival, Carnival.

What happened

Carnival Corporation ( CCL 1.17% ) stock got rocked by a mediocre earnings report, compounded by an earnings warning earlier today -- but Carnival wasn't the only casualty. Now, rival Royal Caribbean Cruises ( RCL 2.81% ) is suffering from the sell-off, as well, and down 5.5% as of 2:40 p.m. EST -- not as bad as Carnival's 10.5% decline, true, but bad enough.

So what

With most market indexes down severely today, it's possible that Royal Caribbean's share-price slide can be dismissed with a glib, "Well, all stocks are down today." I suspect, though, that the reason Royal Caribbean stock is down so much more than most other stocks can be traced directly back to the details contained in Carnival's report.

To recap, Carnival experienced a marked slowdown in its rate of revenue growth in its fiscal Q4, with sales growth that had been averaging 8% all year long slowing to less than 5% in the year's final quarter. Profits at Carnival actually declined in Q4, and management noted that it suffered from "a significant drag from [expensive] fuel and [unfavorable] currency [exchange rates]."

Cruise ship in calm waters

Royal Caribbean investors could really use a safe port in a storm right about now. Image source: Getty Images.

Now what

These, of course, are factors investors can expect to affect Royal Caribbean, as well, potentially foreshadowing an earnings disappointment when Royal Caribbean reports its own fourth-quarter results next month. That being said, Carnival did note, in issuing guidance  for the new year, that it expects these headwinds to dissipate in 2019 and for "changes in fuel prices (including realized fuel derivatives) and currency exchange rates ... to increase earnings by $0.14 per share compared to the prior year." [emphasis added]

Before selling Royal Caribbean stock as a knee-jerk reaction to Carnival's earnings disappointment, investors might want to ponder those words.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Royal Caribbean Cruises Ltd. Stock Quote
Royal Caribbean Cruises Ltd.
RCL
$69.89 (2.81%) $1.91
Carnival Corporation Stock Quote
Carnival Corporation
CCL
$18.16 (1.17%) $0.21

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