What happened
Shares of Carnival (CCL 1.49%) (CUK 1.34%) tumbled hard in September, dropping 25.7%, according to data from S&P Global Market Intelligence, as the ship seemed to sail on the hoped-for recovery in the cruise industry.
Most of the losses occurred at the very end of the month after Carnival's fiscal third-quarter results revealed inflation was taking a greater-than-expected toll on the cruise line's costs, as were supply chain issues and maintaining health and safety protocols on board its ships.
Image source: Getty Images.
So what
Carnival's bookings for the third quarter continued to improve, rising 15 percentage points to 84% from the prior quarter and 54% versus a year ago, but they were below the normal range and at lower prices due to credits given for previous cruises that had been canceled.
Carnival expects the higher costs it's experiencing now to dissipate by the end of this year. Their cumulative impact, though, caused the cruise line to post a much wider loss than expected. Adjusted net losses of $770 million, or $0.65 per share, on revenue of $4.3 billion were worse than the $0.09 per share loss on $4.9 billion in revenue that Wall Street had anticipated.
Full-year 2023 bookings, however, are slightly above the 2019 range and are being made at much higher prices. Part of the problem is that the Federal Reserve is aggressively pursuing an inflation-control strategy by sharply raising interest rates. And that could negatively affect the cruise industry's recovery by tanking consumer demand and possibly the entire economy.
Now what
Carnival, which is more broadly exposed to Europe than Norwegian Cruise Line Holdings or Royal Caribbean, faces higher risk from the energy crisis developing on the Continent.
European energy prices are soaring as sanctions on Russia for the invasion of Ukraine caused it to turn off its gas pipeline to Europe in retaliation. Exacerbating the situation was possible sabotage to the pipeline that has left it off line for the foreseeable future.
While U.S. producers saw an opportunity to help alleviate the problem, the Biden administration is considering a ban on exporting gasoline, diesel, and other refined petroleum products in retaliation for OPEC nations mulling cuts to their production, which will raise prices.
Analysts still see Carnival as a good long-term stock pick, but only for investors who can ride out near-term volatility.
