Cruise line operator Carnival (NYSE:CCL, CUK) was capsized by the rogue pandemic wave. Because its industry was drydocked longer than virtually any other due to COVID-19, cruise ship stocks were brought to the brink.
Forced to take on massive amounts of debt to survive, cruise operators are still listing and Carnival stock is down 5% year-to-date. Shares remain 60% below their pre-pandemic high.
Yet Carnival also recently reported earnings that were stronger than expected. A surprise second-quarter profit caught Wall Street unaware as it was looking for another quarter of losses. With record bookings and a demographic primed for cruising, is Carnival stock about to ride a tsunami of growth higher? Let’s look at the evidence to see whether CCL will hang ten or sink to Davy Jones’ locker once again.
A Record Quarter
Carnival’s second quarter was a welcome reprieve. Revenue of $5.8 billion set a new record for the cruise ship operator as did customer deposits for future cruises of $8.3 billion. Even better, the company was also able to lock in higher prices. It all combined to provide ballast for the cruise line, letting it post a GAAP profit of 7 cents per share and adjusted earnings of 11 cents per share. Analysts had forecast a 2 cents per share loss.
Booking volumes for the year are the best Carnival has ever seen. And since it has less capacity available for sale, it can book these cruises at higher prices. More importantly, 2025’s bookings volumes are accelerating and are at even higher prices than those recorded this year.
Carnival CEO Josh Weinstein said in a statement, “While still early, the cumulative advanced booked position for full year 2025 is even higher than 2024 in both price (in constant currency) and occupancy.”
Towing a Heavy Anchor
Yet storm clouds still hover on the horizon. Carnival continues to be weighed down by a significant debt load totaling $27.7 billion. While that has been lowered from its pandemic peak of around $32 billion, that is a heavy draught for the cruise line.
Carnival reported interest expense of $450 million for the quarter. While that is less than the $542 million it paid last year, it is an amount almost three-and-a-half times greater than the $134 million in net income it reported.
The cruise ship operator is trying to further refine its debt. It prepaid $1.6 billion in first-lien term loans, repriced $1.75 billion worth of secured term notes and it completed a $535 million debt offering. That paid off loans due in 2026 and extended the terms out to 2030. In all, it will cut interest expenses this year by $55 million and by $85 million on an annualized basis.
The Future of Cruising
Yet this could be as good as it gets for Carnival for a while. The second quarter tends to be the cruise ship operator’s best quarter so investors shouldn’t expect the third quarter to build much at all upon its early success. But Carnival is giving a full-steam-ahead call. It raised its full-year earnings outlook to $1.18 per share from its prior guidance of 98 cents per share in the first quarter.
The industry is also generally looking more shipshape. Both Royal Caribbean Group (NYSE:RCL) and Norwegian Cruise Line (NYSE:NCLH) raised guidance for the full year.
Moreover, the Cruise Lines International Association says the average age of a cruise passenger is 46 years old, with 36% of cruise travelers under 40. Passengers aged 50 and older represent half of all cruise passengers. The trade organization says millennials are the most enthusiastic about cruising.
It suggests that while Carnival stock may run into dead calm for a bit, the open seas look smooth and it could be clear sailing to reach new highs.
On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or
indirectly) any positions in the securities mentioned in this article.
