Carnival – Full Steam Ahead But A Long Course To Charter

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Carnival plc (LON:CCL)’s business update revealed revenues of $4.4bn for the first quarter of 2023. That’s back to 95% of pre-pandemic levels.

Underlying net losses of $690m were better than the December guidance range of $740m to $850m. The better-than-expected outcome, was driven by increased pricing, growth in onboard sales and higher than expected occupancy.

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Carnival also generated positive $388m of cash from operations in the quarter, but did not disclose the figure. That’s before $1.1bn of capital expenditures, $0.7bn of debt repayments and $0.5bn of interest expenses.

It’s been a record quarter for booking in north America, Australia and Europe. Full-year guidance is looking for underlying cash profits from operations (EBITDA) of between $3.9bn and $4.1bn, but still expects the company to record a net loss of between $350m and $550m.

The shares were up 1.7% in early afternoon trading.

Carnival's Earnings

Derren Nathan, Head of Equity Research at Hargreaves Lansdown

"Business is booming at Carnival. Its ships are set to be full this summer and it looks well set to return to cash generation even after its weighty capital expenditure and debt financing bills.

That’s not to say it’s all plain sailing though, with fuel and currency headwinds still taking some wind out of its sails. The record booking season is just as well because at the last check Carnival’s net debt stood at $30.5bn.

That’s nearly three times the value of Carnival’s total market value, meaning that for now, it’s very much debt holders who influence Carnival’s course.  Although Carnival is hopeful of generating free cash flow this year, it could be a long while before that balance to be redressed in shareholder’s favour.

That’s perhaps somewhat reflected in the equity valuation, which remains a long way below the long-term average. Carnival is well placed to have a good year, but it needs to have a few in a row to make a dent in it’s debt pile. And with consumers under pressure from all angles, that could still be a big ask."