Carnival reported third quarter revenue of $4.3bn, an increase over the previous quarter for the third time in a row and nearly 8 times the same period last year. Growth in onboard and other spending outpaced ticket sales. However, sales fell flat of analyst expectations of $4.95bn.
In August, ships were close to 90% full. For the period, passenger cruise days were up 55% quarter on quarter, to 17.7m.
Underlying cash profit (EBITDA) turned positive for the first time since the terminals re-opened for business. But is expected to, at best, break even in the fourth quarter due to seasonality and investment in advertising spend.
Interest payments and fleet upgrades contributed to a total underlying net loss of $688m, an improvement against a loss of $1.9bn in 2021.
Bookings for future cruises are "considerably higher than strong 2019 levels."
Free cash outflows were $882m (improved from $1.8bn in 2021). Net debt was up 11.2% to $27.0bn.
The shares were down 20.5% on the day.
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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.
The third quarter showed a promising uptick in pleasure seekers booking trips on the high seas, and cross border volumes by the major credit card networks show that pent up demand for overseas travel is still holding firm. The question is how long can this last?
Bookings are doing well for now, but consumers are likely to feel the pinch if inflation 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 73% to $21.4bn generating pre-tax profit of $718m. 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 10.8%. 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
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