While the Thanksgiving and Christmas travel season is still a few months away, shares of major cruise operators like Carnival Corp. CCL, Royal Caribbean Cruises Ltd. RCL and Norwegian Cruise Line Holdings Ltd. NCLH sank on Thursday on the heels of Carnival lowering its full-year profit guidance in light of increasing crude oil prices.
Industry overview
The cruise industry, a subset of the travel and leisure industry, contains companies that offers hospitality and vacation services to consumers through cruise lines. Cruise companies fiercely compete on several factors, including price, brand name, itinerary offerings, quality of cruise ship and onboard activities. Table 1 lists the cruise lines for each cruise holding company.
| Carnival Corp. CCL | Royal Caribbean Cruises Ltd. RCL | Norwegian Cruise Line Holdings Ltd. NCLH |
| Carnival Cruises / Princess Cruises / Costa Cruises / AIDA | Royal Caribbean International | Norwegian Cruise Line |
| Holland America | Celebrity Cruises | Oceania Cruises |
| P&O Cruises / Cunard Cruises | Azamara | Regent Seven Seas Cruises |
| P&O Australia / Seabourn | Silversea Cruises |
Table 1
Cruise companies have high cyclicality: During economic downturns, consumers are likely to cut back on discretionary purchases and reduce the number of vacations taken.
Carnival slashes earnings guidance on increasing oil prices
For the quarter ending Aug. 31, Carnival reported net income of $1.8 billion, or $2.59 in earnings per diluted share, compared with net income of $1.7 billion, or $2.41 in earnings per diluted share, in the prior-year quarter.
Carnival CEO Arnold Donald said the company reported strong results for the fiscal third quarter despite headwinds from Hurricane Dorian, tensions in the Arabian Gulf and the delay of the Costa Smeralda delivery. Despite this, the company expects its earnings for the 12 months ending in November, their fiscal year-end quarter, to decline between 5 cents and 8 cents from the prior guidance range of $4.25 per share to $4.35 per share, reflecting increasing fuel costs stemming from geopolitical events, including the Saudi Arabian oil attack in mid-September.
Carnival’s profit warning sends cruise stocks down
Shares of Carnival tumbled over 8% on its lowered earnings guidance for the year. Likewise, shares of Royal Caribbean and Norwegian sank over 2% and 3%.
Gurus with holdings in Carnival include PRIMECAP Management (Trades, Portfolio), Ray Dalio (Trades, Portfolio)’s Bridgewater Associates and Jim Simons (Trades, Portfolio)’ Renaissance Technologies.
Premium features highlight: Competitive Comparison and Warning Signs
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The website ranks Carnival’s profitability 8 out of 10 on several positive investing signs, another Premium feature. Positive investing signs for Carnival include expanding profit margins, a strong Piotroski F-score of 7 and a price-earnings ratio near a 10-year low.
Disclosure: No positions.
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