Investors were worried that Carnival (NYSE:CCL) might have bad news to report in its third-quarter earnings announcement. The cruise giant had lowered its outlook in each of the prior two quarterly reports, after all, and an active hurricane season threatened to produce another downgrade heading into the last quarter of fiscal 2019.

Its actual results came in just as management had predicted they would back in late June. However, Carnival noted several nagging disruptions that are combining to set up a weak outlook for the rest of the year and into 2020.

Let's take a closer look.

A cruise ship out at sea

Image source: Getty Images.

A mixed quarter

Reported sales jumped 12%, but those gains included major disruptions from currency exchange rate shifts. After adjusting for these temporary swings, net revenue yields, a core industry growth metric, declined by less than 1%. That performance met the prediction that CEO Donald Arnold and his team issued in late June. Still, investors weren't happy to see growth fall into negative territory after climbing by 4% in fiscal 2018.

Cost trends were slightly better than expected, with cruise expenses falling 3% rather than rising by around 1%, as executives had forecast. But that overperformance was driven by the timing of expenses that are now projected to lower earnings in fiscal Q4 and beyond.

Management noted some successes at dealing with many negative trends that pressured results in recent weeks, including the Cuba travel ban and weather-related cruise cancelations. "We achieved additional cost improvements," Arnold said in a press release, "offsetting the earnings impact to due voyage disruption from the combined impact of hurricane Dorian, the tensions in the Arabian Gulf, and the delayed delivery of Cost Smerelda." These wins helped Carnival deliver record third-quarter earnings.

Rough seas ahead

The bigger investor concern was around Carnival's outlook for the year's final quarter and for fiscal 2020. Executives said bookings over the last three months have been trending lower, both in terms of volume and pricing. These pressures will likely result in a 3% decline in net revenue yields for the current quarter, setting the company up for a potential annual decline in 2020. "We are facing a number of current headwinds," Arnold said, as he cited economic struggles in parts of Europe and shaky consumer confidence.

Normally, Carnival's global sales base protects it from issues in one or two large markets. But challenges are now affecting demand for voyages in the Caribbean, Europe, and the Arabian Gulf. Add extra financial pressures from rising fuel costs, and there's a high probability that fiscal 2020 will be a tough one for the cruise ship leader.

Carnival has sailed through difficult selling environments like this before, and it's likely the company will emerge from this one in a stronger financial position, too. There's no threat to its over $5 billion of annual cash flow that's currently financing the production of more ships. Management is planning to add capacity at a pace of 7% next year, in fact, which should lift sales even if net revenue yields are near flat. Yet investors will have to balance that positive long-term outlook with Carnival's weak growth potential over the next year or so, even assuming economic growth rates don't worsen in one or more of its key vacation markets.