Yellow Vests, Brexit and Cruise Backlash: Why Carnival Can’t Catch a Break in Europe

June 24, 2019, 5:12 PM UTC
carnival cruise ship europe-ms grand holiday
The cruise ship MS Grand Holiday of Carnival Cruise Lines docked in Nice along the French Riviera, France. (Photo by: Arterra/Universal Images Group via Getty Images)
Arterra Universal Images Group via Getty Images

Recession in Southern Europe. The “yellow vest” revolts in France. Citizen backlash in Venice, Barcelona and Amsterdam. Price wars in Germany. And don’t forget about Brexit. Add it all up, and Carnival Corp has a big Europe problem.

The weight of the old world’s macroeconomic and geopolitical troubles helped sink the company’s full-year guidance estimates late last week and sent shares tumbling more than 8 percent over the past two trading days. The situation on the other side of the Atlantic deteriorated so quickly that the world’s largest cruise ship operator surprised the markets on Thursday by pushing up its second quarter results to warn of an uncertain second-half of 2019.

On a call with analysts, CEO Arnold Donald said the company was slashing full-year guidance from $4.35-$4.55 earnings-per-share to $4.25-$4.35 EPS. Donald singled out its Italy-based Costa and German-speaking AIDA cruise ship businesses as two culprits contributing to the 10-to-30-cent forecast drop. “Our Continental European brands have been facing heightened geopolitical and macroeconomic headwinds, which has impacted operating performance this year,” Donald said.

It could have been worse. Cheaper fuel costs and favorable currency swings cushioned the blow by a few pennies last quarter, the company said. But should oil prices spike due to tensions in the Persian Gulf or should the already flagging euro weaken further, these external factors could weigh further on the company’s business abroad, and its bottom line.

Europe has been a particularly challenging market for the entire sector, but Carnival appears more exposed than its rivals. “Carnival is unique in the publicly traded cruise line space. They have what I would refer to as national, or nationalistic, brands,” says Sharon Zackfia, an analyst that covers the sector for William Blair, referring to Costa and AIDA. “And so, they become a little bit more levered towards the environment in those home markets.”

And there’s a lot of turbulence to deal with. At the start of the year, Amsterdam began levying a new tax on cruise ship passengers, forcing Carnival and others to dock elsewhere. Meanwhile, Barcelona and Venice, two popular Carnival cruise destinations, are both trying to divert ships to more distant ports to regulate the flow of tourists and to reduce carbon emissions. Venetians have stepped up protests against the massive cruise ships in recent weeks after the MSC Opera cruise liner, run by rival MSC Cruises, lost control and collided into a busy pier earlier this month.

But the company says the big problem in Italy is the lackluster economy. Italy has been in and out of recession in recent years, and that’s starting to bite into the spending power of the Italian middle class. The company cited the opening of lower-budget resorts in North African and Turkey that are adding competition to the southern Europe vacation market and driving down prices everywhere.

While Italy and Southern Europe is a problem of weak demand for cruise holidays, the German problem is one of overcapacity, or too much supply, Zackfia says. The German-speaking markets have seen an in-flux of new tour company entrants, driving down ticket prices—not just in Germany, but in Switzerland and Austria.

That German pricing issue could turn around as soon as next year, Zackfia noted. But the problems in Southern Europe are beyond the company’s control. And it’s that lack of visibility on when the company might fully steer through the choppy waters in Europe that led to her decision to downgrade the stock on Thursday.

Carnival has problems elsewhere. The Trump Administration, for example, slapped new restrictions on Cuba, for example, that have torpedoed a promising new port of call. But it’s Europe, which Zackfia says accounts for 27% of the company’s cruise ship capacity, that will hobble the company over the next few quarters.

“Given the uncertainty in Europe, and the situation there, and, in addition, the pressure on pricing in aggregate over the next six months, it didn’t seem as if there’d be an opportunity for the stock to out-perform over our rating time horizon, which is twelve months,” she explained in downgrading Carnival from a buy to hold.

At least for investors, it’s not looking like calm seas are in the near future.

More must-read stories from Fortune:

—Meet the A.I. landlord that’s building a single-family-home empire

—Slack went public without an IPO. Here’s how a direct offering works

5 things to know about Facebook’s new cryptocurrency, Libra

—This pot company stock is now more popular than Apple among millennials

—When the next recession hits, four good things could happen

Don’t miss the daily Term Sheet, Fortune‘s newsletter on deals and dealmakers.