Carnival Cruise Line's stock has experienced a significant decline, falling approximately 26% from its year-to-date high and entering bear market territory. Last week, the stock closed at 1830 pence, nearing its lowest level since December of last year. The upcoming earnings report this week will provide investors with insights into the impact of the ongoing conflict in Iran on its operations.
The persistent conflict in Iran presents major challenges for Carnival and other cruise operators. Viking Holdings' stock has dropped to $68 from a year-to-date peak of $81, while Royal Caribbean has declined to $263 from $355 in February. Norwegian Cruise Line has fallen from $25 to $19.
These declines coincide with investor expectations of a dual impact on the industry due to the prolonged conflict. Most notably, Carnival's operating costs have climbed due to rising oil prices. This is a critical factor, as fuel represents one of the largest expenses in its operations.
As the effects of increasing energy prices ripple through the economy, particularly in food markets, other costs are likely to rise in the coming weeks. The conflict has already driven up fertilizer prices, which is expected to push food prices higher in the months ahead.
On another front, the company may face cooling demand as the conflict continues. Although Carnival does not operate in the Middle East, consumers might reduce spending on cruises in the short term. The majority of its customers are from the United States, followed by Germany, other parts of Europe, and the United Kingdom.
Additionally, many potential customers may have concerns about norovirus, which recently affected approximately 150 people on a cruise ship in the Caribbean.
Carnival Group is set to release its earnings report this week, drawing significant market attention. The report is expected to show that the company continued to perform well in the first fiscal quarter, supported by sustained strong demand for cruises.
Recent data indicates that Carnival achieved a net profit of $2.8 billion last year, with revenue increasing to $26.6 billion. Operating income surged to a record $4.5 billion.
This positive trend continued into the fourth quarter, during which net profit soared to $422 million. The company ended the quarter with customer deposits exceeding $7.2 billion.
Analysts anticipate that the upcoming earnings report will reveal a 5.67% increase in first-quarter revenue to $6.14 billion, with earnings per share jumping to 18 cents.
In a recent report, analysts at Morgan Stanley suggested that the company's stock remains undervalued. They projected that while cost and revenue growth may slow this year, conditions are expected to improve once the conflict concludes. The analysts pointed to the stock's decline during the COVID-19 pandemic and the Russia-Ukraine conflict as historical precedents.