Shares of Carnival Corp. (CCL 0.59%) jumped as much as 17.7% this week after the company reported earnings, according to data provided by S&P Global Market Intelligence. Shares closed the week up 16.5%.
The bottom-line bump
Carnival's revenue jumped 17.7% to $5.78 billion and earnings per share jumped from a loss of $0.31 a year ago to $0.11. But the bigger news was guidance.
Management now expects 2024 net yields to increase 10.25%, up from guidance for 9.5% given in March. And adjusted net income guidance increased by $275 million to $1.55 billion.
Customer deposits jumped to $8.3 billion, $1.1 billion better than ever recorded.
Carnival's improvement balanced by debt
Operating conditions are clearly improving at Carnival, but the company's debt is still a challenge. The balance sheet still holds $29.4 billion of debt and interest expense is at a nearly $2 billion run rate.
The customer deposit increase is solid, but the company is using deposits to pay down debt given there's just $1.6 billion of cash on the balance sheet. If the event of a downturn in the economy or bookings, that could quickly turn into a situation that requires more capital to survive.
The market is seeing this as positive news and if the trends continue Carnival will have made an impressive comeback from the pandemic shutdowns. But debt is too high for me to buy the stock, even if Carnival thinks it's now on a path to consistent profitability.
