Carnival Cruise Line's stock soars after company swings to a profit

By Steve Gelsi and Ciara Linnane

Analysts cheer earnings that offer further evidence that momentum is building

Carnival Corp.'s stock (CCL) was up 8% Tuesday after the cruise operator swung to a second-quarter profit on wider margins as it benefited from higher prices.

Wall Street analysts had expected a loss.

With tighter cruise-ship inventory for customers, the company "achieved considerably higher prices (in constant currency) on bookings taken during the second quarter compared to the prior year," Carnival said.

Carnival also signaled smooth seas ahead for its financial performance, with advance bookings for 2025 now running ahead of 2024 in both prices and occupancy.

Carnival said its net income for the three months ending May 1 was $92 million, or 7 cents a share. In the year-ago quarter, Carnival lost $407 million, or 32 cents a share.

Adjusted second-quarter profit of 11 cents a share soundly beat the FactSet consensus estimate for a loss of a penny a share.

Revenue rose to $5.78 billion from $4.91 billion in the year-ago quarter, beating the analyst estimate of $5.68 billion.

By the end of the quarter, total customer deposits set a record high of $8.3 billion, which is $1.1 billion ahead of the previous record of $7.2 billion as of May 31, 2023.

Melius Research said the numbers are further proof that momentum is building as the company progresses with plans to simplify the business, which will drive efficiencies and boost margins in the years to come.

"With bookings mostly baked for '24 (upside from onboard spend) and '25 already at a record position, balance sheet repair is accelerating which should act as an additional tailwind to the equity going forward," analysts Conor Cunningham and Daragh Regan wrote in a note to clients. "We still like the stock here and would be a buyer."

Carnival has had to work over the past few years to build back the booking curve "from basically square one," said the analysts. The company had more fires to put out than its peers, given its global diversity.

"The good thing here is that there is no brand that sticks out as lagging from a booked position, which allows further focus on brands where returns have lagged (Costa, Princess & Holland)," they wrote.

Those three brands are not yet at the 12% return-on-invested-capital (ROIC) threshold they are aiming for, suggesting Carnivalhas yet to realize their potential, they wrote.

"Point being, there are more self-help opportunities at Carnival than the broader industry."

Derren Nathan, an analyst at Hargreaves Lansdown, agreed.

"Carnival's second quarter results have come into port ahead of expectations despite disruptions to routing in the Red Sea and the temporary closure of its Baltimore port," he wrote in emailed comments.

S&P upgraded Carnival's issuer-credit rating by one notch to BB from BB-, with a stable outlook.

S&P said it expects an improvement in Carnival's credit measures over the next 12 months due to its projected growth in earnings before interest, taxes, depreciation and amortization and net debt reduction.

"Carnival's strong forward bookings, which significantly increased customer deposits, and the return of credit card reserves are enabling accelerated debt reduction," the S&P analysts said.

Including Tuesday's moves, Carnival's stock was down 5.7% in 2024, while the S&P 500 SPX has risen by 14.4 %.

-Steve Gelsi -Ciara Linnane

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06-25-24 1454ET

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