Carnival Corp. Experiencing Strong Demand

Image: Carnival’s shares have traded sideways since the beginning of 2024.

By Brian Nelson, CFA

On September 30, Carnival (CCL) reported better than expected third quarter results for its fiscal 2024. Third quarter revenue reached an all-time high of $7.9 billion, which was $1 billion better than the year-ago period. The company posted record operating income and adjusted EBITDA in the quarter. Third-quarter net income came in at $1.7 billion, which was 60% better than what it recorded in the same period last year. Management commentary was positive in the press release, particularly as it relates to visibility into future revenue:

We delivered a phenomenal third quarter, breaking operational records and outperforming across the board. Our strong improvements were led by high-margin, same-ship yield growth, driving a 26 percent improvement in unit operating income, the highest level we have reached in fifteen years.

We are poised to deliver record operating performance for full year 2024, with adjusted EBITDA now expected to cross $6 billion and adjusted return on invested capital to be approximately 10.5 percent. Strong demand enabled us to increase our full year yield guidance for the third time this year and we improved our cost guidance driving more revenue to the bottom line.

Looking forward, the momentum continues as our enhanced commercial execution drives demand well in excess of our capacity growth, leaving us well positioned with an even stronger base of business for 2025, a record start to 2026 and firmly on the path toward our SEA Change targets.

With nearly half of 2025 booked and less inventory remaining for sale than the prior year, we are leveraging strong demand to achieve record ticket pricing (in constant currency). Our brands continue to deliver robust bookings momentum, with all our brands ahead on price for 2025 sailings, based on the success of their demand generation efforts along with the exciting offerings and unparalleled experiences we consistently provide our guests. Likewise, 2026 is off to an unprecedented start achieving record booking volumes in the last three months.

Looking to its full year 2024 outlook, net yields in constant currency are expected to be up 10.4% compared to 2023, and better than its June guidance. Adjusted cruise costs are expected to increase 3.5% compared to 2023, one percentage point better than its June guidance. Adjusted EBITDA is targeted at approximately $6 billion, which is up more than 40% compared to the same period a year ago. Adjusted return on invested capital is expected at 10.5%, up five percentage points on a year-over-year basis and 50 basis points higher than its June guidance.

ESG Matters

Carnival has a lengthy Sustainability Report. In 2023, the company “produced 10% less total greenhouse gas (GHG) emissions than in (its) peak historical year (2011) – despite a more than 30% increase in capacity since that time…(The company) also accelerated (its) 2030 GHG intensity reduction goal by four years, committing to cutting 20% on a lower berth capacity basis by 2026 (versus 2019 levels).” Management is working hard to encourage diversity:

We also promoted and expanded Diversity, Equity, and Inclusion across our ranks and departments, implementing vital new initiatives in support of this commitment. Female representation has grown in a number of shipboard departments and globally we have seen a growth in female representation within cadets where 1 in 5 Carnival Corporation cadets are female. We also launched additional Employee Resource Groups such as a Women Officer Network, a group devoted to helping propel women toward even more leadership roles in the organization through networking, skills development, and career advancement. Plus, we continued prioritizing recruitment and retention programs, boosting our status as among the most diverse companies in the world and ensuring our team reflects the diversity of the communities we serve (Sustainability Report).

Concluding Thoughts

We like the demand momentum behind Carnival’s business, but its balance sheet keeps us on the sidelines. The company ended the quarter with $1.5 billion in cash and $28.9 billion in long-term debt. Fitch rates the company’s debt as non-investment grade with a BB credit rating. S&P rates its debt at BB and Moody’s B1. The company’s economic returns aren’t that much greater than its cost of capital either, even during good times. Carnival’s shares have been roughly flat year-to-date.

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