ii view: robust demand at Carnival delivers record Q3 profit

Third-quarter results to 31 August

• Revenue up 3.2% to $8.15 billion (£6 billion)
• Adjust profit (EBITDA) up 6% to $.2.99 billion (£2.2 billion)
• Adjusted earnings up 13% to $1.43 per share

Guidance:

• Now expects full-year adjusted profit (EBITDA) of about $7.05 billion, up 15% compared to 2024 and better than June guidance

Chief executive Josh Weinstein said:

“This was a phenomenal quarter delivering all-time high net income and our tenth consecutive quarter of record revenues. 

“We also welcomed our game changing new exclusive destination, Celebration Key, to rave guest reviews and overwhelming media coverage. It joins our unparalleled footprint of seven Caribbean gems that are set to host eight million guest visits next year. 

"And as beaches are the number one preferred destination for vacationing Americans, our miles upon miles of some of the most beautiful beaches in the world are well-positioned to attract even more first-time cruisers while offering our loyal guests yet another great reason to come back soon.”

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ii round-up:

Carnival (LSE:CCL) has detailed strong forward bookings and raised full-year profit expectation, but the cruise ship operator also flagged rising costs. 

Record third-quarter sales up 3.2% to $8.15 billion pushed adjusted earnings up 13% to $1.43 per share. Analysts had estimated $8.1 billion and $1.32 per share respectively. Carnival now expects annual adjusted profit (EBITDA) of $7.05 billion, up 15% on 2024 and up from $6.9 billion forecast in June. 

Forward bookings of nearly half the required total for 2026 and a good start to 2027 sat against management forecasts for increased future costs including fuel and dry dock ship maintenance expenses. 

Shares in the FTSE 250 and S&P 500 company fell 4% in post results US trading having come into these latest results up by more than a half over the last year. The FTSE 250 and S&P 500 are up almost 4% and 16% over that time. Much smaller rival Saga (LSE:SAGA) has more than doubled in value. 

Carnival brands include Costa, Cunard, P&O as well as Carnival itself with the company unique given its inclusion in both the FTSE250 and S&P 500 indexes.

Carnival bookings now include cruise trips to ‘Celebration Key’, a new $600 million destination on the south side of Grand Bahama Island, built exclusively for Carnival guests.

Customer deposits taken during the period of $7.1 billion are up 45% from the same quarter in 2019 on less than a 10% increase in capacity, driven by factors including higher prices and increased pre-cruise onboard sales. 

A net debt to adjusted profit ratio of 3.6 times is down from 4.7 times a year ago, with management targeting a level of under 3 times. Credit agency Moody’s recently upgraded its rating, maintaining a positive outlook. 

Fourth-quarter results are likely to be announced mid-to-late December. 

ii view:

Started with just one second-hand ship in 1972, Carnival today operates around 90 ships across various brands and including Aida, Holland America Line, Princess Cruises and Seabourn. Passenger numbers hit 13.5 million during the 2024 financial year, up from 12.5 million in 2023. Geographically, North America generated most sales during 2024 at 60%, followed by Europe at 30%, and Australia and Asia the balance.  

For investors, the many factors outside of management’s control which can hinder performance, such as wars, the weather, and even pandemics, should not be forgotten. Fuel costs and currency movements regularly hinder profits. Net debt remains elevated following the pandemic, leaving the dividend payment suspended, while a forecast price/earnings (PE) ratio of 14 times sits above the 2017-2019 average of 13 times, suggesting the shares are not obviously cheap. 

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More favourably, investment in new destinations such as Celebration Key is helping to attract bookings. A focus on reducing group debt persists. A diversity of both brands and geographical operations is not to be overlooked, while trends such as ageing populations and the desire for multi destination holidays arguably work in its favour. 

In all, and while travel related companies generally warrant an added degree of caution, a consensus analyst estimate of fair value above £22.50 per share points to continued optimism in the City. 

Positives: 

• Diversity of brands and geographical locations
• Focus on reducing debt

Negatives:

• Uncertain economic outlook
• Dividend suspended

The average rating of stock market analysts:

Buy