Carnival Corp. Reports Narrower Q1 Loss, Achieves Record Bookings

Carnival surpasses Q1 expectations with a narrowed loss and record bookings, signaling strong demand and strategic debt reduction.

By Bill Bullington

4/4, 03:13 EDT
Carnival Corporation

Key Takeaway

  • Carnival Corp. reported a narrower Q1 loss of 14 cents/share, beating expectations and achieving record bookings with a 22% revenue increase to $5.41 billion.
  • Strategic debt redemption and $1.4 billion in adjusted free cash flow signal Carnival's strong financial health and path toward an investment-grade rating.
  • Despite global challenges, Carnival's pricing power and competitive edge are evident, with stock surging over 90% in the past year, reflecting robust investor confidence.

Carnival's Fiscal First-Quarter Performance

Carnival Corporation reported a narrower loss than expected for its fiscal first quarter on March 27, with a loss of 14 cents a share, surpassing both its own guidance of a 22-cent loss and analysts' expectations of an 18-cent loss. The company also experienced record bookings during the quarter, with significantly higher pricing, leading to a 22% year-over-year increase in revenue to $5.41 billion, slightly below the $5.42 billion consensus. Despite these positive indicators, Carnival's shares fell 4.3% by the week ending March 29, influenced by factors such as the recent collapse of Baltimore’s Francis Scott Key Bridge, which is expected to impact profits by as much as $10 million, and a significant stock run-up prior to the earnings announcement.

Strategic Moves and Financial Health

Carnival has been making strategic efforts to improve its financial standing and market position. The company generated $1.4 billion in adjusted free cash flow in the most recent quarter and redeemed nearly $1 billion of debt with original maturities in 2027, including its remaining second-lien debt. These actions are part of Carnival's path toward achieving an investment-grade rating. Analysts and investors have noted Carnival's ongoing demand and visibility into the company's path to profitability, with Macquarie analyst Paul Golding raising his price target to $24, citing these factors.

Competitive Landscape and Pricing Power

Carnival's performance in the first quarter showed improvements in net "yields" and occupancy rates, surpassing those of its competitors, Norwegian and Royal Caribbean. The company's ability to continue commanding higher prices is supported by the limited growth in cruise ship capacity across the industry, as new vessels take years to build. Carnival placed its first order since the pandemic only in February, indicating that it will operate its nearly 100 ships until approximately 2027. This scenario suggests a period of muted capacity growth relative to normal, which, combined with strong demand, provides Carnival with continued pricing power.

Overcoming Challenges and Future Outlook

Despite facing global challenges, including the conflict in the Red Sea and the Baltimore bridge collapse, Carnival is making strides in overcoming operational disruptions. The company has relocated a ship to Norfolk, Va., to minimize the impact of the Baltimore disruption. Carnival's stock performance has been strong, with shares surging over 90% in the past year, reflecting investor confidence in its business model and ability to navigate market volatility. The company's fiscal first-quarter results exceeded expectations, with a narrowed loss and a 22% increase in revenue, highlighting its growth and effective pricing strategy.

Street Views

  • Paul Golding, Macquarie (Bullish on Carnival):

    "Carnival is successfully 'navigating unexpected headwinds [and] delivered yet another strong quarter.'"

  • Chris Kissane, Newfleet Asset Management (Bullish on Carnival's financial strategy):

    "Over the next few years, Carnival should generate several billion dollars of free cash flow that will be used to repay debt. They want to get back to investment-grade ratings, and they should have the ability to do that, absent a recession."

  • Conor Cunningham, Melius Research (Bullish on Carnival):

    "The demand environment remains robust, and balance sheet restoration is happening in real time."

  • Ivan Feinseth, Tigress Financial Partners (Bullish on Carnival):

    "The recent pullback in the shares [is] a major buying opportunity."