Why Carnival, Norwegian, and Royal Caribbean Stocks Dropped Today – The Motley Fool

What happened

Stock markets zigzagged early Monday as investors tried to make heads or tails of the situation in Silicon Valley this morning. As the morning wears on...it seems they still haven't made up their minds. The generally stolid Dow Jones Industrial Average is up a small fraction of a percent as of 10:50 a.m. EDT, while the tech-heavy Nasdaq is down -- but also by only a small fraction of 1 percent.

Curiously, though, investors are taking a decided negative stance against one group of NYSE stocks in particular. Cruise stocks Norwegian Cruise Line Holdings (NCLH -1.04%), Carnival Corporation (CCL -1.84%), and Royal Caribbean (RCL 0.56%) are down 3.6%, 4.3%, and 4.6%, respectively. Why is that?

Well if you look beyond the banking kerfuffle in California, it turns out that for the cruise industry...it's earnings season!

Just a couple of weeks ago, Norwegian Cruise Line reported its 2022 final results, and the news wasn't great. Norwegian missed analyst earnings targets by a pretty wide margin, and burned through about $1.6 billion in cash. Management also threw a bucket of cold seawater on analyst forecasts for Q1 2023 -- and for the year as a whole, predicting a smaller profit than Wall Street wants to see for the year and a loss for the first quarter.

Suffice it to say that this sets up investors for another possible disappointment when the much larger cruise company Carnival reports its earnings for its own Q1 2023 just a couple of weeks from now. Carnival had been expected to report earnings next Monday, March 20, but this morning the company announced that it will actually hold on to its news another week and not report until March 27, before market open.

Analysts are expecting both good and bad news from Carnival when it finally does report. On the good-news side, sales are forecast to grow 167% year over year, approaching $4.3 billion. Losses are expected to slim significantly, from $1.66 per share a year ago to a $0.61-per-share loss for Q1 2023.

(Data from S&P Global Market Intelligence confirms that these are pro forma figures, but the results as calculated according to generally accepted accounting principles -- GAAP -- won't be far off. Carnival's GAAP loss in Q1 2022 was also $1.66 per share. Its GAAP loss for Q1 2023 is expected to be $0.60.)

So that's one way Carnival could potentially disappoint cruise line investors this month -- by missing on its quarterly results. With Norwegian having just warned us that business isn't improving for it in its first quarter, it makes sense that its competitor might be sailing on choppy seas as well.

Another way Carnival could disappoint is on guidance. Currently, analysts see Carnival having a chance to earn a profit only in the seasonally strong summer vacation quarter. Wall Street thinks revenues will grow more than 50% year over year in Carnival's Q3 2023 and is hoping the company can flip from a year-ago loss to an $0.89-per-share profit in this year's third quarter. (For the full year, Wall Street thinks Carnival will still end up losing $0.08 per share despite revenues growing 71%.) If Carnival warns of an even bigger loss this year, however -- or merely warns that revenues may come in lighter than expected -- that could set off alarm bells across the cruise industry and weigh on shares of Norwegian Cruise and Royal Caribbean as well as Carnival.

All that being said, let's not count our cracked eggs before the chickens have even laid them.

While Carnival could spook investors later this month, it could also reassure them. Predicting only an $0.08-per-share loss for the year isn't all that far away from predicting a profit. If Carnival beats the odds and guides investors to expect even a tiny profit in 2023, rather than the loss Wall Street is warning of, this could potentially spark a buying frenzy -- both for Carnival and for Royal Caribbean and even Norwegian Cruise as well.

Fingers crossed, cruise investors. And keep them crossed for the next two weeks.

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