Welcome to HL's reimagined News, Insights and Research experience. Find out more

Share research

Carnival Corp - Q4 loss of $1.2bn, but bookings strong

Fourth quarter revenues of $3.8bn more than trebled from 2021, which was still impacted by Covid related pauses to operations.

No recommendation - No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

Prices delayed by at least 15 minutes

This article is more than 1 year old

It was correct at the time of publishing. Our views and any references to tax, investment, and pension rules may have changed since then.

Fourth quarter revenues of $3.8bn more than trebled from 2021, which was still impacted by Covid related pauses to operations. This was 80% of 2019 levels, and just shy of market consensus estimates.

Whilst capacity was approaching 2019 levels, occupancy of 85% was 19 percentage points lower.

The Group reported an underlying net loss of $1.1bn, compared to a profit of $0.4bn in the same period in 2019. Whilst underlying costs at cruise level are on a downwards trend, this has been offset by higher advertising costs as well as adverse impacts from fuel price, fuel mix and currency rates.

Interest expenses were $448m against $49m in 2019, reflecting higher debt levels. At $30.5bn, net debt is $6.2bn higher than a year ago. Carnival issued over $3bn of debt in the quarter.

Booking volumes during the fourth quarter of 2022, for 2023 sailings, are nearing 2019 comparable booking levels, with November booking volumes exceeding 2019 levels.

The shares were down 3.1% in mid afternoon trading.

View the latest Carnival share price and how to deal

Our view

Carnival is still growing its debt pile to fund ongoing losses. That's not a great place to be and the need to refinance in a higher interest rate world is another obstacle to the return to profit.

2023 bookings are showing a promising uptick in pleasure seekers booking trips on the high seas, with occupancy in the first quarter of 2023 expected to reach 90%. The question is how long can this last, as Carnival targets a return to historical levels of over 100% in Summer 2023.

Whilst reservations are going in the right direction, consumers are likely to feel the pinch if the cost of living crisis persists. Revenue for the last quarter was still behind pre pandemic levels and the full year profit outcome is expected to be well into the red. But in 2023, the average analyst prediction suggests revenues will rise 68% to $21.2bn generating pre-tax profit of $608.1m. However, with Carnival still loss making, it has to pedal hard to achieve these numbers.

Looking out to 2024 the projections are even more optimistic for earnings, with profits predicted to more than double off revenue growth of just 9.5%. That level of growth priced into the current valuation presents some risks. On the revenue side a prolonged cost of living crisis, and any uptick in unemployment, could jeopardise the appetite for travel. Similarly general inflation but also prolonged high fuel prices could see Carnival's gas guzzlers cause a further blow to profitability.

There are some positives. The move towards larger, newer, and more efficient ships should give margins a push in the right direction as passenger numbers continue to recover.

The industry's also a big contributor to carbon emissions and other pollutants. Carnival's looking to innovation to mitigate this through both the increased usage of biofuel blends, and a series of technology upgrades which are designed to reduce both fuel usage and greenhouse gas emissions - while also contributing to cost savings.

The forward valuation, based on revenues, is below historical norms reflecting the low earnings. There is scope for a positive re-rating but if Carnival hits any earnings icebergs that cause sentiment to worsen, the current valuation could be exposed.

Carnival key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

Latest from Share research
Weekly newsletter
Sign up for editors choice. The week's top investment stories, free in your inbox every Saturday.
Written by
Derren Nathan
Derren Nathan
Head of Equity Research

Derren leads our Equity Research team with more than 15 years of experience in his field. Thriving in a passionate environment, Derren finds motivation in intellectual challenges and exploring diverse ideas within his writing.

Our content review process
The aim of Hargreaves Lansdown's financial content review process is to ensure accuracy, clarity, and comprehensiveness of all published materials
Article history
Published: 21st December 2022