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Carnival reported third-quarter revenue of $4.3 billion, an increase over the previous quarter for the third straight time and nearly 8 times the same period last year. Growth in onboarding and other expenses outpaced ticket sales. However, sales fell short of analysts’ expectations of $4.95 billion.
In August, ships were close to 90% full. For the period, passenger sailing days increased by 55% quarter-on-quarter to 17.7 million.
Basic cash earnings (EBITDA) turned positive for the first time since the terminals reopened for business. But, at best, it is expected to break even in the fourth quarter due to seasonality and investment in ad spend.
Interest payments and fleet improvements contributed to a total net loss of $688 million, an improvement from a loss of $1.9 billion in 2021.
Bookings for future cruises are “significantly higher than strong 2019 levels”.
Free cash outflows were $882 million (up from $1.8 billion in 2021). Net debt increased by 11.2% to $27.0 billion.
Shares fell 20.5% on the day.
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Our point of view
Carnival is still raising its debt pile to finance ongoing losses. That’s not a good place to be, and having to refinance in a world of higher interest rates is another barrier to turning a profit.
The third quarter showed promising growth in pleasure seekers booking offshore travel, and cross-border volumes from the major credit card networks indicate that pent-up demand for overseas travel is still robust. The question is how long can this last?
Bookings are doing well for now, but consumers are likely to feel the pinch if inflation continues. Revenue for the latest quarter was still behind pre-pandemic levels and the full-year profit result is expected to be in the red. But in 2023, the average analyst forecast suggests revenue will grow 73% to $21.4 billion, generating pretax profit of $718 million. However, with the carnival still to be missed, one has to pedal hard to reach these numbers.
Looking to 2024, forecasts are even more optimistic for earnings, with earnings projected to double revenue growth of just 10.8%. This level of growth at the current valuation presents several risks. On the income side, a prolonged cost-of-living crisis and any increase in unemployment could threaten the appetite for travel. Similarly, general inflation, but also prolonged high fuel prices, could cause Carnival’s gas bill to cause a further hit to profitability.
There are some positives. The move to bigger, newer and more efficient ships should give margins a push in the right direction as passenger numbers continue to recover.
The industry is also a major contributor to emissions of carbon and other pollutants. Carnival is seeking innovation to mitigate this through increased use of biofuel blends, and a number of technological improvements designed to reduce fuel use and greenhouse gas emissions – while also contributing to cost savings.
The forward estimate, based on earnings, is below historical rates reflecting low earnings. There is potential for a positive re-rating, but if Carnival hits any earnings icebergs that cause sentiment to deteriorate, the current valuation could be exposed.
Key Carnival Facts
- Forward price/sales ratio (next 12 months): 0.05
- Ten-year average price/sales ratio: 0.42
- Potential dividend yield (next 12 months): 0.0
All reports are sourced from Refinitiv. Please remember that yields are variable and not a reliable indicator of future earnings. Keep in mind that the main figures should not be seen in isolation – it is important to understand the big picture.
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This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. Unless otherwise stated, estimates, including potential yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Returns are variable and not guaranteed. Investments rise and fall in value, so investors can make a loss.
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