Carnival shares slip 2% following earnings
AInvestMonday, Sep 30, 2024 11:39 am ET
2min read
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Carnival Corporation (CCL) exceeded analyst expectations in its third-quarter earnings report, posting adjusted EPS of $1.27, higher than the anticipated $1.17, and a significant year-over-year improvement from $0.86. Revenue for the quarter hit $7.90 billion, surpassing expectations of $7.81 billion and reflecting a 15% increase compared to the same period last year. Key operational metrics were also strong, with passenger cruise days growing by 8.9% year-over-year to 28.1 million and occupancy reaching 112%, higher than the 111% expected.

Despite the strong results, Carnival's guidance raised some concerns. The company lowered its outlook for Q4 net yields, which were forecasted to increase by 5% compared to earlier estimates of 5.76%. This slight downward revision was largely attributed to anticipated dry dock expenses for maintenance and improvements. However, for the full year, Carnival now expects adjusted EBITDA to reach $6.0 billion, up from its previous guidance of $5.8 billion, a sign of confidence in continued demand.

Carnival's stock initially reacted positively in pre-market trading, rising by 2%, but shares quickly reversed course and fell by over 2% following the results, as investors weighed concerns over the net yield guidance and the overall cruise industry outlook. This decline also affected the stock prices of its peers, Royal Caribbean (RCL) and Norwegian Cruise Line (NCLH), which saw minor pullbacks of 0.9% and 1.3%, respectively.

The move appears to be due to profit-taking. The lower yields will raise concerns but the overall commentary around demand was very positive. Shares held support at the 20-day moving average ($17.50) which will set up as a key level for traders and investors to watch.

The company highlighted several bright spots during the quarter. New bookings surged, particularly among first-time cruisers, with Carnival noting a 17% increase in this segment. Advanced bookings for 2025 are currently higher than 2024’s record, with prices also ahead in constant currency terms. This suggests that Carnival is capitalizing on strong demand, particularly as there is no capacity growth planned for 2025, allowing the company to focus purely on increasing yields.

Carnival's CEO, Josh Weinstein, emphasized that the company is well-positioned for continued growth. He noted that demand indicators continue to trend positively, and despite no "pent-up COVID demand" remaining, the market remains robust. Alaska, in particular, was cited as the strongest regional market for the cruise line, while Millennials have become a growing demographic for the company, with the average passenger age now 41.

Looking forward, Carnival expects significant dry dock activity in 2025, with a 17% year-over-year increase in scheduled dry dock days. The company forecasts that these maintenance periods will not impact demand, as evidenced by the strong booking trends and advanced sales. Additionally, the impact of Hurricane season and geopolitical risks like the Middle East tensions are expected to be "insignificant" for the company.

In conclusion, Carnival's operational performance continues to break records, but concerns over net yield guidance and dry dock expenses weighed on investor sentiment. Despite the stock's volatile reaction, Carnival remains optimistic about its prospects for 2025, pointing to strong pricing and bookings, while peers Royal Caribbean and Norwegian may continue to feel some of the ripple effects of the cautious outlook.

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