Why Carnival Corp. Rallied Today

The cruise industry leader reported strong earnings and a strong outlook.

Shares of cruise industry leader Carnival Corp. (CCL 8.08%) were rallying today, up 8.2% as of 1:48 p.m. ET.

The cruise line leader reported second-quarter earnings this morning, beating analyst expectations handily and quelling fears that higher interest rates might be crimping demand for cruising.

It appears there’s seemingly no stopping the momentum of the cruise industry as consumers seek affordable “revenge travel” voyages left and right.

Inflecting to positive profits

For its fiscal second quarter, Carnival reported $5.78 billion in revenue, up 17.7%, with non-GAAP (adjusted) net income inflecting from negative $0.31 a year ago to positive $0.11. Both figures handily beat analyst expectations. Adjusted free cash flow came in at a solid $1.3 billion.

Not only that, but management also forecast record bookings numbers despite higher pricing, along with moderating costs. For the full year, management raised its adjusted net profit guidance by $275 million relative to the prior quarter.

Basically, just about everything that could go right went right for Carnival. Customers continued to book cruises despite higher prices, while Carnival was able to hold adjusted cruise costs per available lower berth day (ALBD) outside of fuel costs flat compared with the prior year, thanks to further identified cost savings.

Meanwhile, the cumulative booked position for the rest of 2024 is the highest on record, both in terms of pricing as well as occupancy, and the cumulative booked position for 2025 is even higher. Total customer deposits totaled a record $8.3 billion, about $1.1 billion higher than the previous record last year.

Importantly, the company also continued to chip away at its debt load it accumulated during the pandemic. In the second quarter, Carnival paid down $1.6 billion in debt, while repricing another $2.7 billion. The company also issued $535 million in notes maturing in 2030 to pay off its 2026 unsecured notes, extending its debt maturities. All told, the transactions should lower the company’s interest expense by $85 million on an annualized basis. Still, overall debt remains substantial, at $29.3 billion as of May 31.

Reaching its “SEA Change” early?

New CEO Josh Weinstein unveiled Carnival’s three-year strategic plan, called “SEA Change,” last year, in which the company seeks to decrease carbon emissions by 20%, increase adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) per available lower berth day by 50% over 2023, and achieve a 12% return on invested capital by the end of 2026.

On the earnings release, Weinstein noted the company will already be two-thirds of the way there by the end of 2024.

That’s certainly encouraging, and also may have analysts thinking the company could exceed its 2025 and 2026 targets as well. No wonder the stock is rallying today.

Billy Duberstein and/or his clients have no positions in any of the stocks mentioned. The Motley Fool recommends Carnival Corp. The Motley Fool has a disclosure policy.

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