Cruise ship operator Carnival Corp. has emerged from the pandemic’s grip, demonstrating resilience and a strong rebound in passenger numbers. The company reported its 10th consecutive quarter of record revenue, highlighting the growing demand for cruises as operators return from extended shutdowns.
In its recent fiscal third-quarter earnings, Carnival revealed a significant uptick in performance, posting a record revenue of $8.15 billion, a 3% increase from the previous year. Ticket revenue alone saw a 4% rise, amounting to $5.43 billion, while onboard revenue also experienced a modest 2% growth. Notably, the occupancy rate remained high at 112%, underscoring the company’s pricing strength even with a slight decline in available lower berth days (ALBDs).
Financial metrics additionally showcased Carnival’s improved profitability. The net yields, which reflect the revenue per ALBD minus variable costs, climbed 5% to $249.11. Furthermore, the gross margin per ALBD increased, indicating better profit margins per cabin. Carnival’s adjusted net income surged 10% to $2 billion, and adjusted EBITDA jumped 7% to $3 billion, with adjusted earnings per share rising 13% to $1.43.
As of this year, Carnival has produced approximately $4.7 billion in operating cash flow, with free cash flow reaching $2.6 billion, a marked improvement compared to last year. The company expects to enhance its manageable debt load, projecting a reduction in leverage to about 3.6 times net debt to adjusted EBITDA by the end of 2025, a significant drop from 6.7 times at the close of fiscal 2023.
Looking forward, Carnival projects a robust fourth quarter, anticipating adjusted net income to climb 60% to $300 million, alongside a forecasted rise in net yields by 6.4%. This positive outlook led Carnival to revise its full-year guidance upwards, signaling confidence in sustained growth.
Despite the compelling financial results and favorable industry trends, the stock reacted negatively to the recent earnings report, although it remains up approximately 15% year-to-date. The current valuation stands at a forward enterprise value-to-EBITDA multiple of about 9.5, making it competitive compared to rival Norwegian Cruise Line and less expensive than Royal Caribbean.
As Carnival continues its disciplined approach to managing debt and expanding its fleet, investors are weighing the stock’s potential. While the cruising market’s dependence on economic stability remains a concern, the company’s proactive strategies and positive financial indicators suggest solid growth opportunities ahead.
Overall, Carnival appears well-positioned for further expansion, supported by favorable market dynamics, strong booking trends, and the potential for reasonable valuation growth. However, caution is advised due to the cyclical nature of the cruising industry and potential economic headwinds.
