ccl analysis

Carnival Corporation & plc. (NYSE: CCL) is among the tour operators worst affected by the pandemic which pushed the company into a financial crisis, necessitating an organizational restructuring. With normalcy returning to the business world, there is optimism that Carnival has emerged from a long-drawn losing streak and returned to profitability.      

The performance of Carnival’s stock has been unimpressive for quite some time and it languished at multi-year lows, often testing the patience of shareholders. Analysts’ positive outlook and recovery hopes will likely reflect on the performance of CCL, which looks on track to regain the lost momentum. The British-American cruise operator has been paying dividends consistently over the years and currently offers an above-average yield of 4.7%.

Outlook

Underscoring the positive view, Carnival’s booked position for the next fiscal year already stands at record levels. The company is implementing multiple initiatives to drive incremental demand for cruise vacations and is striving to close the value gap to land-based offerings. In addition, it is reinvesting in advertising and sales support to build future demand.

Carnival’s huge debt would remain a concern when it comes to a full-fledged recovery. During the shutdown, the company relied on external funding to stay afloat and meet the high fixed costs typically associated with the cruise business. Meanwhile, inflation concerns and continued softness in discretionary spending, amid rising interest rates and economic uncertainties, would slow down the recovery to some extent.

Back on Track

When it announces third-quarter results on September 29, before the opening bell, Carnival is expected to report earnings of $0.75 per share, compared to a loss of $0.58 per share in the prior-year quarter. The company has incurred losses in every quarter since 2020. It is estimated that August-quarter revenues jumped about 37% annually to $6.69 billion, driving the turnaround. The projected number represents a deceleration from the trailing quarters when the top line more than doubled consistently, but it would be an all-time high if achieved.  

Carnival’s CEO Josh Weinstein said at the last earnings call, “We remain disciplined in making capital allocation decisions. And our lowest order book in decades provides a pathway for further deleveraging. We are clearly gaining momentum on an upward trajectory, positioning us well to deliver strong profitability and rebuild our financial fortress. We are already executing on our strategy with a demonstrated ability to grow revenue by taking up ticket prices, even while maintaining record on-board spending levels, building occupancy, and growing capacity.

Record Bookings

While the bottom line mostly missed Wall Street’s estimates during the pandemic era, the numbers topped expectations in the last three quarters. In the second quarter, net loss narrowed sharply to $0.32 per share from $1.61 per share in the prior year. Revenues more than doubled to $4.91 billion during the three-month period, aided by a surge in passenger bookings. Anticipating the uptrend to continue, the management sees an increase in occupancy to about 107% in the third quarter.

Carnival’s stock traded at a three-month low this week, after withdrawing from the July highs. The value nearly doubled in the past twelve months.