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Why Carnival Stock Fell Today

By Rich Duprey – Oct 18, 2021 at 6:17PM

Key Points

  • Business continues to look up for the cruise ship operator.
  • It recently announced that more ships from its Princess line will begin cruising again early next year.
  • Gloomy economic reports seem to be weighing on Carnival's stock price.

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The market seems to fear the cruise ship operator is facing choppy seas.

What happened

Shares of Carnival (CCL 1.69%) (CUK 1.46%) fell by 2.3% in trading Monday as much of the travel industry seemed to react to a slowing Chinese economy and manufacturing data that was much worse than expected due to ongoing supply chain disruptions.

So what

Although it's not directly related to cruise ships and tourism stocks, a weakened Chinese economy could have ripple effects globally, much as the logjams at shipping ports are opening large cracks in the U.S. supply chain. As such, issues in China could unsettle the U.S. economy, and domestic consumers who are more concerned about their pocketbooks will be less likely to want to take cruises.

Carnival's Princess cruise ship

Image source: Carnival.

China's economic growth slowed to just 4.9% in the third quarter compared to 7.9% in the second quarter. It was also up only 0.2% from the prior-year period.

U.S. manufacturing also fell short with factory production falling by 0.7% in September, the worst decline in seven months. Including mining and utilities, total industrial output was down 1.3%.

Now what

Those worries would seem to belie the strong growth in bookings Carnival and other cruise ship operators have posted. A month ago, Carnival said cruise bookings for the second half of 2022 were ahead of pre-pandemic levels while noting that voyages for the third quarter were cash-flow positive, a trend it expected to continue.

Last week, Carnival announced that several of its Princess vessels would resume cruising early next year, beginning in February.

While another surge of new COVID-19 cases could yet result in a reimposition of the do-not-sail orders that crushed the industry last year, there's no indication that's even a remote possibility right now, so the strong order flow for bookings signals a return to strength for Carnival and the industry. Carnival had also said it generated 20% better revenue per diem compared to 2019, even when including the impact of cruise credits that it issued to customers whose voyages were canceled during the industry shutdown.

As a result, Carnival seems to have plenty of ballast to keep it steady despite some choppy waters at the moment.

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

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