Investors in Carnival Corp. (CCL 1.31%) have been tossed about in the market's icy waters this years. Shares of the world's largest cruise line operator have fallen 13% in 2024. And they're going to be on the move again this week.
Carnival reports its fiscal second-quarter results on Tuesday morning. The stock is losing to the market this year, but momentum has been on the side of its improving fundamentals. A strong report would send the shares higher, but a rough showing would send sellers back to the lifeboats. Let's take a closer look.
Aiming for the upper decks
Expectations are reasonable heading into this week's telltale quarter. Analysts see Carnival generating revenue of $5.68 billion for the three months that ended in May, a 16% increase over where it landed for the same fiscal quarter a year earlier. The 22% increase it posted three months ago was just shy of where Wall Street pros were perched, so analysts are taking a more conservative stance.
Turning to the bottom line, analysts see a dramatic reduction in red ink. Carnival posted an adjusted loss of $0.31 a share for the fiscal second quarter of 2023. The target this time is an adjusted deficit of $0.02 a share. Don't be surprised if Carnival comes through with a profit.
If there's one thing Carnival has gotten consistently right over the past year and a half, it's blasting through expectations on the bottom line. It has exceeded adjusted earnings targets over the past six quarters, and the last time they've been double-digit percentage beats.
| Quarter | EPS Estimate | Actual | Surprise |
|---|---|---|---|
| Q4 2022 | ($0.87) | ($0.85) | 2% |
| Q1 2023 | ($0.60) | ($0.55) | 8% |
| Q2 2023 | ($0.34) | ($0.31) | 9% |
| Q3 2023 | $0.75 | $0.86 | 15% |
| Q4 2023 | ($0.13) | ($0.07) | 46% |
| Q1 2024 | ($0.18) | ($0.14) | 22% |
Data source: Yahoo! Finance. EPS = earnings per share.
A small loss or barely turning a profit may not seem like a lot, but this is a historically sleep quarter before activity picks up in the summertime. You have to go back five years to find the last time Carnival has been profitable in its fiscal second quarter. It could happen this time, but Carnival's report will be about a lot more than just the top and bottom line.
Image source: Getty Images.
Bruising for a cruising
There's a lot trending Carnival's way lately. The customer deposits it's holding for future sailings is at a record high. Net yields -- essentially revenue per available cruise day without variable expenses, including travel agent commissions and airfare promotions -- are expected to climb 10% this year.
Meanwhile, cruise line stocks are surprisingly cheap despite the ascending fundamentals. All three of the largest publicly traded players are fetching less than 12 times next year's projected earnings. Carnival's multiple is 11.
A lot can of things can rock the boat. A global recession, another pandemic, and even escalating geopolitical tensions could make folks hesitant to hop on a cruise ship for a few days. However, the near-term prospects are promising. As the first of the publicly traded cruise line stocks to report in the new earnings season, Carnival should set the tone with strong bookings ahead of the summertime travel season.
Carnival will probably also update its debt-reduction efforts. After paying down its debt by $4 billion last year, it was able to whittle it down by another $1.8 billion in its fiscal first-quarter report. But don't expect Carnival to reinitiate its dividend. Analysts don't see that payout returning until fiscal 2026.
Still, the stock offers a bullish scenario, trading lower despite positive momentum for the industry heading into Tuesday's financial update.
