Please ensure Javascript is enabled for purposes of website accessibility

Why Shares of Carnival Sank 12.2% in March

By Lou Whiteman – Apr 8, 2019 at 9:04PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Forex issues and higher fuel costs caused some investors to abandon ship.

What happened

Shares of Carnival (CCL 3.67%) fell 12.2% in March, according to data provided by S&P Global Market Intelligence, after the cruise ship operator cut fiscal second-quarter and full-year guidance on higher costs and currency exchange issues.

So what

Carnival had a good fiscal first quarter, reporting adjusted earnings of $0.49 per share and revenue of $4.7 billion that beat analyst expectations. But the market was more focused on the company's guidance for the rest of the year. Carnival said it expects second-quarter adjusted earnings per share between $0.56 and $0.60, short of the $0.72 analyst estimate.

A Carnival cruise ship leaving harbor.

Carnival is looking for smooth sailing. Image source: Carnival Corp.

For the full year, Carnival expects earnings of $4.35 to $4.55 per share. The company had previously guided for $4.50 to $4.80.

While energy costs and forex issues are weighing on the business, demand remains strong. Carnival said it expects constant-currency net cruise revenue to be up about 5.5% in fiscal 2019 on cumulative advanced bookings that are trending up year over year.

Now what

Carnival execs used their post-earnings conference call to talk through shifts in how the business operates that they say should lead to better results. The company hopes to use its refreshed fleet of modern, larger ships to generate growth from rising capacity as opposed to higher ticket prices and onboard spending.

The newer ships are also more fuel-efficient, and Carnival is also hedging fuel costs in an attempt to generate more stable returns over time.

There is still the potential for rough waters ahead, with economic headwinds in Europe already taking a toll and the threat of a broader global slowdown still out there. And there is only so much growth larger ships and added capacity can deliver. But Carnival's attempt to break free of price wars and fuel cost swings is admirable if management can successfully navigate the course.

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool recommends Carnival. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.