Why Royal Caribbean Stock Dropped, Then Popped
Carnival beat earnings, so why did Royal Caribbean stock sell off?
By Rich Smith
Royal Caribbean (RCL +0.07%) stock tumbled nearly 10% in early trading this morning -- then made it all back. As of 1 p.m. ET, Royal Caribbean stock is trading almost exactly where it closed last night -- $309 per share. So why the sudden sell-off before investors changed their mind?
Well, you can blame Carnival Corporation (CCL 5.51%) for that.
Carnival Corporation earnings
Despite being only half Royal Caribbean's size by market capitalization, rival Carnival Corporation boasts annual revenues ($27 billion), 50% higher than Royal Caribbean's ($18.4 billion). So it's still considered something of a bellwether for cruise stocks. Accordingly, when Carnival reports bad earnings, investors may be tempted to take out their wrath on Royal Caribbean stock as well.
But here's the strange thing: Carnival reported earnings this morning... and the news wasn't bad.
Q2 adjusted earnings of $0.41 per share beat analyst forecasts, as did quarterly revenue of $6.7 billion. Revenue set a new record for Carnival, and earnings were up 20% year over year.
What's next for Royal Caribbean
All that said, Carnival did warn investors that its earnings this year might come in a bit light. Analysts were looking for Carnival to earn $1.42 per share (adjusted) in Q3, but Carnival promised only $1.35. Through the end of the year, guidance for $2.22 per share may create a narrower miss; Wall Street only needs to see $2.23 for the year.
Presumably, this is the thing that spooked Royal Caribbean investors this morning: the worry that if Carnival's going to underperform this year, then Royal Caribbean might, too. Q4's still a ways away, however, and if the worst Carnival's going to do is miss by one penny... maybe Royal Caribbean investors don't have much to worry about after all.