Carnival Shares Spike Despite Pause On China

By John Konrad (gCaptain) Shares of Carnival Corporation, the parent company of Carnival Cruise Lines $CCL, soared by nearly 10% today on what the CEO calls “a phenomenal season”. This uptick follows a robust second-quarter earnings report, where the company posted revenue of $4.91 billion, outperforming the consensus estimate of $4.77 billion, despite no plans to return to China.

Analysts from Wells Fargo and Susquehanna have responded by raising their price targets on Carnival to $15 and $17, respectively, while Morgan Stanley upped its target to $11.5. Citigroup held steady with an $18 target. Other cruise line stocks, including Norwegian Cruise Line, Royal Caribbean Cruises, and Lindblad Expeditions, are also experiencing a positive trading day.

During this week’s earnings call, CEO Josh Weinstein expressed optimism despite large amounts of debt taken on during the pandemic. He highlighted that the company reached a meaningful inflection point for revenue and bookings during the second quarter of this year.

“We reached a meaningful inflection point for revenue with net yield surpassing 2019 strong levels,” he said. “And on top of that, operating income, cash from operations, and adjusted free cash flow were all positive. Adding to those achievements, we just hit all-time highs for bookings and customer deposits.”

Weinstein also expects bookings to continue picking up steam. “We are still experiencing a phenomenal season, which started early, gained strength, and is still going strong midway through the year,” he said.

The CEO also addressed the company’s position regarding China. He stated that while they are excited about China fully opening up for international travel, Carnival has no plans to participate if they do.

“No, there is no assumption in these numbers that we will return to China,” said Weinstein. “We are very excited about China opening up for international travel with cruise companies, and we think that’s a great thing for the industry, but the fact is, we will probably remain on the sidelines of that (market) for a few years.”

Weinstein also introduced the SEA Change program, a three-year target that will demonstrate the company’s progress towards delivering strong profitability and sustainability. The acronym SEA stands for sustainability through carbon intensity reduction, EBITDA per ALBD, and adjusted ROIC, three very important key performance indicators.

For sustainability, the company plans to reduce its carbon intensity by more than 20%, compared to 2019. For EBITDA per ALBD, they are targeting a 50% increase, compared to their 2023 guidance. This would also represent a 25% increase over 2019 levels, holding fuel price and currency constant. For adjusted ROIC, they expect it to reach 12%, more than doubling from 2023 levels.

This strong performance and an optimistic outlook from the CEO have clearly resonated with analysts and investors (at least in the short term) leading to the surge in Carnival Corporation’s share price. As the company continues to navigate the post-pandemic landscape, it will be interesting to see if the market continues to reward their efforts.

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