It's a quiet week for earnings announcements, but one notable company stepping up to set sail is Carnival Corp. (CCL -0.66%). The world's largest cruise line operator reports its fiscal third-quarter results on Friday morning.
Expectations are high -- and we'll get to that shortly -- as analysts warm up to the stock ahead of the telltale financial update. However, the real story of this week's quarterly report is that it should be the end of two long-running streaks at Carnival. The end of one run is great, the other not as bad as it seems. Let's take a look through the porthole to see what lies ahead.
Anchors aweigh
Let's start with the streak investors will enjoy to see coming to an end. Carnival has posted 14 consecutive quarters of losses, a string that dates all the way back to the final frame of fiscal 2019. You know what happened in 2020. Cruise lines were the hardest hit segment of the travel market given the quick spread of COVID-19 aboard ships and international travel restrictions that limited the availability of global ports of call.
Revenue took a hit, but the impact was even more pronounced on the other end of the income statement. A lot of fixed costs go into any sailing, so even when Carnival began to pick up the cadence of its voyages, it wasn't enough to wash out the red tide of deficits. There weren't enough people willing to fill up vessels at premium prices, and Carnival's bottom line was a mess. The $9.5 billion it posted as a loss in fiscal 2021 wasn't much better than the $10.2 billion hole it delivered the year before.
Making matters worse, Carnival and smaller rivals Royal Caribbean (RCL 2.27%) and Norwegian Cruise Line (NCLH -1.60%) resorted to a lot of desperate and dilutive measures to stay afloat. They issued new stock at low price points during the operating lull, with Norwegian's share count more than doubling. They all resorted heavily on financing. Debt has more than tripled at Carnival and has roughly doubled at Royal Caribbean and Norwegian Cruise Line.
The road to profitability has been long, but the players are finally here. Royal Caribbean and Norwegian Cruise Line got out of the red for the second quarter ending in June. Carnival clocked in with a net loss for its fiscal second quarter that ended in May, but all 13 of the major analysts putting out earnings estimates for Carnival expect it to serve up positive net income on Friday. The forecasts range from a profit per share of $0.70 to $0.84, with $0.75 as the consensus average.
Image source: Getty Images.
View from the top deck
Another streak likely to be coming to an end is triple-digit percentage revenue growth. Carnival's year-over-year growth has more than doubled for eight straight quarters. Analysts see the increase decelerating sharply, rising 37% to hit $6.7 billion for the potent summertime quarter that ended at the close of last month.
But this isn't a problem. Cruise lines came to a grinding halt in the springtime of 2020, and the year-over-year comparisons were easy heading into the second half of fiscal 2021. Now, Carnival and its peers are back, and Carnival should wrap up fiscal 2023 with record revenue. It will take a bit longer for the per-share profitability to catch up, but in terms of demand, the cruise line stocks are sitting pretty.
Bookings for future Carnival sailings hit a new high in its previous quarter. The $7.2 billion it's holding in customer deposits for these sailings is $1.2 billion more than its previous record for the end of a quarter. Some travel segments have experienced sluggishness this summer, but cruise lines were late to crash the revenge travel party. Carnival's guidance will dictate the stock's direction on Friday, but the fiscal third quarter itself should reveal a shipshape performance. It's OK to celebrate the end of two long streaks at Carnival.
