3 Answers That Burned Carnival Stock Investors This Week

Shares of Carnival Corp. (NYSE: CCL) declined 5% on Tuesday. The world's largest cruise line operator in terms of passenger count and revenue reported mixed financial results for its fiscal second quarter.

The market's reaction suggests that there was more bad than good in Tuesday's update. I had three burning questions for Carnival to answer this week. Let's see how things stand now that the financial report is fading in the wake of the cruise line's quarterly performance.

Image source: Getty Images.

1. Can the bottom-line beats keep coming?

Yes. This was the one positive in the report. Carnival had an impressive run of 11 consecutive quarters of beating Wall Street's adjusted profit targets heading into this week's reveal. It stretched that winning streak to a clean dozen reports on Tuesday.

Revenue rose a modest 5% to $6.66 billion, just shy of the $6.69 billion analysts were modeling. The bottom-line showing was the real star. Carnival's adjusted earnings rose 15% to $0.41 per share, even after a 30% rise in fuel costs resulted in an unfavorable impact of $0.06 per share.

Data source: Yahoo! Finance. EPS = earnings per share (adjusted).

Analysts weren't expecting Carnival's operations to overcome the rising fuel costs. They were forecasting an adjusted profit of $0.34 a share, just below the $0.35 a share it delivered a year earlier. Clocking in at $0.41 a share is a clear beat, its second-largest positive surprise over the past year.

2. Can guidance continue to impress?

No. Here is where the wheels -- or, I guess we can say, rudder -- started to come off. Carnival is feeling the brunt of rising costs and their impact on the company heading into its seasonally potent fiscal third quarter and beyond.

Despite soundly beating expectations on the bottom line, Carnival's view for the entire fiscal year that ends in November is now $2.22 a share in adjusted earnings, a penny shy of where the market was docked. The $1.35-a-share adjusted net income it's now guiding for the current quarter -- the busy summer season for the industry, when the lion's share of its profit is made -- is well short of the $1.42 a share the market was projecting.

Carnival also lowered its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) guidance for fiscal 2026. It's now at $7.11 billion. It was holding out for $7.19 billion three months ago.

3. Can Carnival retain its newfound market leadership?

No.

Demand remains strong for the watery escapes that Carnival offers. The cruise line operator points out that bookings for the balance of this fiscal year are ahead of where they were a year ago for fiscal 2025. Passengers are also willing to pay more to board.

That's the good news. The bad news is that the argument I made for Carnival's market leadership centered largely on the stock's outperformance relative to its two closest rivals among publicly traded ocean cruise specialists. Carnival's 30% jump over the past year was roughly double what its closest rival, Royal Caribbean (NYSE: RCL), was delivering. Just three trading days later, the one-year stock charts have become passing ships.

Royal Caribbean is now up 17% over the past year, rising even as industry bellwether Carnival takes on some water. Carnival stock is now just 16% higher over the past year.

It's a fair transfer of market leadership. Royal Caribbean may be smaller in fleet size and revenue, but it has commanded a higher market cap due to its superior profitability, margins, and passenger loyalty. Royal Caribbean is the shareholder returns leader, as it has been for most of the past few years.

Rick Munarriz has positions in Royal Caribbean Cruises. The Motley Fool recommends Carnival Corp. The Motley Fool has a disclosure policy.