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Why Carnival Corporation Stock Sank 12% in March

Jeremy Bowman, The Motley Fool

What happened

Shares of Carnival Corporation (NYSE: CCL) slipped last month after the cruise-line operator turned in a disappointing first-quarter earnings report and slashed its full-year guidance. According to data from S&P Global Market Intelligence, the stock finished March down 12%.

As you can see from the chart below, the bulk of the stock's losses came when its earnings report came out at the end of the month.

CCL Chart

CCL data by YCharts.

So what 

Carnival, which owns a number of other cruise lines including Princess and Holland America, saw strong demand in the first quarter, but costs also rose, which turned off investors.  

A Carnival cruise ship in the port at Nagasaki.

Image source: Carnival.

Overall revenue rose 10.4%, to $4.67 billion, driven by a sharp increase in onboard spending, and topped estimates at $4.31 billion. However, costs rose faster than revenue, and operating income fell from $419 million to $386 million. Adjusted earnings per share slipped from $0.52 to $0.49, but that still beat muted expectations of $0.44. 

Gross revenue yields, measured by revenue per available lower-berth day, increased by 0.5% in constant currency, better than guidance for flat growth. However, costs increased 0.9% excluding fuel.

CEO Arnold Donald said, "First-quarter earnings included revenue growth from higher capacity and improved onboard spending, offset by the timing of cost increases and a drag from fuel price and currency compared to the prior year."

Now what 

Due, in part, to rising fuel prices and a stronger dollar, Carnival slashed its full-year earnings guidance. On the top line, it continued to call for a 1% increase in yields but dialed down profit expectations from $4.50-$4.80 to $4.35-$4.55, which still represents growth from $4.26 a year ago. 

While currencies always fluctuate, Carnival investors may have to get used to rising fuel prices as oil prices have been low for some time. Though growth looks muted for the foreseeable future, investors can take advantage of the 3.8% dividend yield for now.

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