Pull up a quote for Carnival Corp. (CCL -0.66%) after Monday morning's highly anticipated quarterly report -- it's not pretty. Shares of the world's largest cruise line operator traded as much as 12% lower on the news, ultimately ending the day with an 8% slide.
Finding the culprit following a post-earnings dip is typically as easy as rounding up the usual suspects. Did the financial results fail to meet expectations? Is guidance problematic? Is there something in the subsequent earnings call that scared off analysts? You'll come up empty on all fronts in sizing up Carnival's encouraging update. Let's take a closer look at three things I learned from the cruising giant's fiscal second-quarter report.
1. The beats keep coming
The headline numbers look good. Revenue more than doubled, soaring 105% to hit a second-quarter record of $4.9 billion. The results are stacked against depressed results a year earlier, but they still surpassed projections from Wall Street pros. They figured that Carnival's top line would fall just short of doubling at $4.8 billion.
The bottom line was also a refreshing beat. Carnival's adjusted profit clocked in at $0.31 a share. It stretches the seafarer's streak of losses to 14 quarters, but it's actually the best earnings performance out of Carnival since the fall of 2019.
| Period | EPS Estimate | EPS Actual | Surprise |
|---|---|---|---|
| Q3 2021 | ($1.25) | ($1.55) | (24%) |
| Q4 2021 | ($1.27) | ($1.52) | (20%) |
| Q1 2022 | ($1.26) | ($1.66) | (32%) |
| Q2 2022 | ($1.17) | ($1.64) | (40%) |
| Q3 2022 | ($0.13) | ($0.58) | (287%) |
| Q4 2022 | ($0.87) | ($0.85) | 2% |
| Q1 2023 | ($0.60) | ($0.55) | 8% |
| Q2 2023 | ($0.34) | ($0.31) | 9% |
Data source: Yahoo! Finance. EPS = earnings per share.
After falling woefully short of market profit projections in its first few quarters after resuming sailings, Carnival has rattled off three straight beats in a row. Another welcome trend is that the degree of the beats has widened in each of those three financial updates.
The stage is set for a return to profitability in the current quarter. Carnival has come a long way from a very scary place, but don't let Monday's stock action convince you that a turnaround isn't happening faster and stronger than initially expected.
Image source: Getty Images.
2. Analysts are generally happy
Most of the Carnival watchers were impressed with Monday's results. There were at least three analysts that bumped their price targets on the stock higher.
- Susquehanna went from $11 to $17.
- Stifel took its price goal from $18 to $20.
- Barclays went from $18 to $19.
The boosts are welcome, even if they are basically the result of analysts fine-tuning their projections after Carnival's beefy bounce this year. The stock had nearly doubled in 2023 heading into this week's earnings call. This is perfectly illustrated by Christopher Stathoulopoulos at Susquehanna, who had upgraded the stock in March with an $11 price target. He couldn't remain bullish with a price goal in the preteens.
Another interesting note was Steven Wieczynski at Stifel, tagging the sell-off as a "sell the news" moment. Everyone was expecting a strong report and encouraging guidance. He was still impressed by the historically conservative management team at Carnival guiding to $7 billion in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) by 2023, implying 20% annualized growth.
3. Hot stocks take breathers
The only analyst to justify the sell-off on Monday was Patrick Scholes at Truist, sticking to his sell rating and $11 price target. With the stock up a whopping 70% since its last quarterly update in late March it was going to take more than a garden variety "beat and raise" performance to catapult the scintillating Carnival stock even higher. It doesn't mean that it was a bad report.
Carnival raised its full-year guidance for most of its metrics. Total bookings for future sailings made during the fiscal second quarter hit a new all-time high. It closed out the quarter with $7.2 billion in customer deposits, well above the previous record of $6 billion set before the pandemic.
Even with the quarterly loss, Carnival generated positive operating income, cash from operations, and adjusted free cash flow. Net yields are now surpassing its 2019 performance. Carnival is also paying down some of its maturing debt, something that will get even easier now as Carnival generates a healthy profit this summer. There may still be some big risks for investors in cruise line stocks, but the industry is back and in some ways better than it was before. Don't let a one-day breather dissuade you from this bon voyage.
