What happened
Yesterday I posed the question, "If Carnival misses on earnings tomorrow, what will that mean for Royal Caribbean and Norwegian Cruise Line Holdings?" Well, guess what? It's tomorrow -- and now we know the answer.
Turns out, Carnival Corporation (CCL 0.43%) (CUK 0.63%) did miss on earnings -- badly -- and as a result, not just Carnival stock but fellow cruise line stocks Royal Caribbean (RCL -0.26%) and Norwegian Cruise Line Holdings (NCLH 0.83%), too, are falling hard. As of 10:10 a.m. ET, shares of Royal Caribbean have crashed 8.2% and Norwegian Cruise is off 11%. Carnival itself is undergoing a staggering 18% decline.
So what
Reporting earnings for its fiscal Q3 2022, Carnival lost $0.65 per share on sales of only $4.3 billion -- numbers much worse than analysts' predicted $0.13-per-share loss on $5.1 billion in revenue.
Focusing on sequential improvements, Carnival noted that its "occupancy" (the number of berths occupied across its fleet, divided by the total number of berths) grew 15 percentage points between Q2 2022 and Q3 2022 and reached 90% in August. Revenue in the third quarter grew even faster, up 80% quarter over quarter, and CEO Josh Weinstein predicted Carnival will enjoy "significant revenue growth over the long term." Meantime, the company says it had $300 million in "adjusted" earnings before interest, taxes, depreciation, and amortization (EBITDA, which is not the same thing as net profit) in Q3.
That's the good news. Now here's the bad:
"Given the seasonality of its business, the company expects a net loss ... for the fourth quarter ending November 30, 2022." Furthermore, even "adjusted EBITDA" is going to be breakeven at best in Q4 -- and it could turn negative. Management noted, too, that while "booking volumes for all future sailings are considerably higher than strong 2019 levels," in Q4 in particular, bookings are below historical levels and "at lower prices," too -- neither of which bodes well for profits.
Now what
So clearly, this was not good news for Carnival Corporation. But returning to our original question: What does this bad news for Carnival mean for Royal Caribbean and Norwegian Cruise Line Holdings?
First and foremost, if you assume that "cruises" are basically a fungible service, such that all else being equal, your average vacationer would just as happily cruise with Carnival as with Royal Caribbean or Norwegian, then Carnival's admission that it didn't earn a profit in Q3 2022 throws cold water on analyst predictions that Royal Caribbean will earn a profit in Q3 ($0.22 per share, according to analysts polled by S&P Global Market Intelligence). Conversely, Carnival's prediction that it will lose money in Q4 reinforces analyst views that Royal Caribbean will also lose money in Q4.
For what it's worth, basically everyone already agrees that Norwegian Cruise will earn no profits in either Q3 or Q4 -- or Q1 2023, either. That alone, I suspect, is reason enough for investors to be selling Royal Caribbean and Norwegian Cruise stock today, alongside Carnival stock.
That being said, there is one silver lining to all these stormy clouds. While Carnival didn't play up the fact in its earnings report, a review of Carnival's balance sheet reveals that the company's cash burn rate has slowed significantly. Cash levels, while lower at the end of Q3 than at the end of Q2, are down only $134 million. What's more, long-term debt is down $745 million, and the portion of long-term debt coming due as current debt is down as well -- by $320 million.
While it is overall still in pretty dire straits, and still unprofitable, there are at long last some signs of financial improvement at Carnival, and investors may be able to hope to see similar signs at Royal Caribbean when it reports earnings late next month, and at Norwegian Cruise when it reports early in November.
Investors in the cruise stocks can perhaps take some comfort in that on an otherwise miserable day.
