Carnival (CCL -1.34%) just released its earnings for the first quarter of fiscal 2023 (ending Feb. 28). The company informed investors that it is within striking distance of pre-pandemic revenue levels.

Certainly, that is good news for a company that endured a 99% reduction in revenue for more than a year during the pandemic. However, investors should not assume that this event constitutes a recovery for the cruise line stock. Here's why.

Carnival's earnings results

Admittedly, Carnival's first quarter of fiscal 2023 gives the impression that the company is on the cusp of a full recovery. Revenue of $4.4 billion is up significantly from the $1.6 billion in the year-ago quarter. It is also just 7% below revenue levels from the first quarter of fiscal 2020, which ended just before the pandemic temporarily shuttered the industry.

Also, net losses for the first quarter of fiscal 2023 came in at $693 million. Interestingly, this is less than the company's loss in the first quarter of fiscal 2020, when Carnival lost $781 million.

Why financial conditions are not as they seem

Still, shareholders need to look closer at the numbers. In the first quarter of fiscal 2020, Carnival reported $731 million in goodwill impairment. Hence, with this non-cash expense, the loss in that quarter was less dramatic than it might appear.

Additionally, one critical expense has risen considerably over the three-year period -- debt. At the end of fiscal Q1 in 2020, Carnival carried approximately $13 billion in debt. Interest expenses in that quarter came to $55 million, about $220 million if extrapolated to a yearly expense.

Still, for a time, the pandemic wiped out its only significant revenue source, customer bookings. To avert bankruptcy and liquidation, Carnival had to turn to the debt markets.

Consequently, its total debt over the last three years rose to just under $36 billion, nearly triple the level of three years ago. Carnival also had to finance its survival at a higher interest rate, so the quarterly interest expense came to $539 million in the most recent quarter, just under $2.2 billion annually. That is a nearly 10-fold increase over three years! Worse, its net income will have to rise to that level to put the company in a comparable financial position from a revenue and income standpoint.

That does not include paying off the debt, creating a need for more net income. Fortunately for Carnival, only $822 million of this debt comes due between 2023 and 2024, not including the debt with varying maturity dates. Another $823 million of floating-rate debt comes due in 2025.

However, beginning in 2026, Carnival will face more significant pain, as about $3.2 billion of this debt will mature that year. Worse, Carnival pays between 7.6% and 10.5% on these notes; it is unclear whether it can lower those rates if it has to refinance.

The picture in 2027 is even bleaker, with an additional $5.7 billion in debt due that year. Although it can probably refinance this debt as it matures, it may come at a higher interest rate, placing further pressure on the balance sheet.

The state of Carnival

Given its recovering revenue levels, Carnival should survive. Nonetheless, its ability for near-term prosperity appears seriously in doubt. As significant portions of the debt mature in 2026 and beyond, Carnival could find itself in a deeper debt trap. With the company still losing money and needing to increase annual income by billions to cover debt payments, it is certainly not the time to buy.