Categories Analysis, Industrials

Carnival Corp’s Q2 results impress, but there is still a long way to go

The stock declined despite the company reporting stronger-than-expected second quarter results

Carnival Corporation & plc. (NYSE: CCL) reported better-than-expected second-quarter results this week and raised its guidance, with revenue growing sharply and bookings reaching an all-time high. The cruise giant’s post-COVID recovery accelerated this year as more and more people engaged in leisure travel after long periods of lockdowns and social distancing.

Shares of Carnival reached a 12-month high this week, recovering from the sharp decline that followed the earnings announcement. Earlier, the stock slipped as the positive results and guidance failed to impress investors. After struggling to recover from the pandemic-induced slump in the last couple of years, the stock gathered steam in recent weeks and has come out of the single-digit territory.

The Stock

But CCL is unlikely to return to the pre-COVID levels any time soon since it would take some time for the cruise industry to recover fully. Also, the company’s unhealthy balance sheet remains a concern, with inconsistent cash flows and high debt. While the company has maintained its dividend unchanged for many years, it currently offers an impressive yield of 4.7% which is well above the market average.

Of late, Carnival has been facing stiff competition from cruise operators both in the domestic and international markets. So, the company might not be able to take full advantage of the ongoing recovery in demand, especially in the luxury cruise segment which is getting crowded due to the entry of new players.

Carnival Corp. Q2 2023 earnings infographic

Outlook

However, the steady improvement in Carnival’s quarterly results, in terms of revenue and bottom-line performance, shows the company is on track to regain the lost momentum. Recent rating upgrades by JPMorgan and Bank of America indicate that analysts, in general, are optimistic about its future prospects.

It is worth noting that bookings done for future sailings climbed to a record high in the second quarter. The management expects the company to become profitable once again in the second half of the year, benefitting from the steady revenue growth and higher prices.

Speaking at the post-earnings conference call, Carnival’s CEO Josh Weinstein said, “We are already executing on our strategy with a demonstrated ability to grow revenue by taking up ticket prices, even while maintaining record onboard spending levels, building occupancy, and growing capacity. We are implementing a range of initiatives to capture incremental demand for cruise vacations and working hard to close the outrageous and unwarranted 25% to 50% value gap to land-based offerings over time. We are well positioned to do so, given our high-satisfaction and low-penetration levels.”

Key Numbers

Carnival has reported negative earnings in every quarter since early 2020, and the trend continued in the second quarter of 2023 when the adjusted loss narrowed sharply to $0.31 per share. While the losing streak continued, the bottom line beat estimates for the third time in a row, after four consecutive misses. The improvement was driven by a sharp increase in revenues to $4.91 billion, which is above the consensus estimates.

In the past 30 days, CCL has consistently stayed above its 52-week average. The stock traded sharply higher during most of Wednesday’s session.

Looking for more insights on the earnings results? Click here to access the full transcripts of the latest earnings conference calls!

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