The coast is clear for Carnival (CCL +0.68%) (CUK +0.00%) investors who were holding out for fresh financials to kick off the new trading week. The world's largest cruise line operator delivered a solid report for its fiscal third-quarter results on Monday morning, topping expectations on both ends of the income statement.
The strong performance isn't really a surprise. A record $8.3 billion in customer deposits at the end of May all but assured that it would be strong top-line results. A pair of analysts jacking up their price targets days before the report -- noting bullish operational catalysts including low fuel costs and strong passenger demand -- made it easy to predict an eighth consecutive beat on the bottom line.
It was still a well-navigated report for the cruising bellwether's seasonally potent summertime report. Let's get up to the ship's bridge for a clearer view.
NYSE: CCL
Key Data Points
Deck the hauls
Revenue rose 15% to $7.9 billion for the fiscal third quarter covering the busy months of June, July, and August. This is just ahead of the 14% increase that analysts were targeting. This is historically the strongest reporting period for cruise line stocks with schools out for their summer breaks. The atypically warm weather that may have kept folks away from theme parks and other outdoor activities was never going to be a challenge for Caribbean getaways, where pool decks and beach destinations are perfect solutions to cool off under the sun.
The rest test was going to be the bottom line. Would lower costs materialize to deliver another blowout earnings performance within this scalable industry? Carnival itself set the bar high in expecting adjusted earnings of $1.15 a share, a 34% year-over-year gain. The improvement was even better than its late-June guidance. The $1.735 billion it posted in net income for the quarter is a 62% improvement.
It's the second-strongest quarter in Carnival's history. Adjusted earnings per share climbed 48% to reach $1.27 a share. It's just the latest strong performance since Carnival returned to normal operations in the wake of the prolonged pandemic-related shutdown.
| Period | EPS Estimate | Actual EPS | Surprise |
|---|---|---|---|
| Fiscal Q4 2022 | ($0.87) | ($0.85) | 2% |
| Fiscal Q1 2023 | ($0.60) | ($0.55) | 8% |
| Fiscal Q2 2023 | ($0.34) | ($0.31) | 9% |
| Fiscal Q3 2023 | $0.75 | $0.86 | 15% |
| Fiscal Q4 2023 | ($0.13) | ($0.07) | 46% |
| Fiscal Q1 2024 | ($0.18) | ($0.14) | 22% |
| Fiscal Q2 2024 | ($0.02) | $0.11 | 650% |
| Fiscal Q3 2024 | $1.15 | $1.27 | 10% |
Data source: Yahoo! Finance. EPS = earnings per share (adjusted).
Landing ahead of Wall Street pros for eight straight reports is impressive. Coming through with double-digit percentage beats in the last five of those quarters is a juicy cherry on top.
Image source: Getty Images.
Dipping a toe into the inviting valuation waters
Some pretty cool valuation tides can shift after a strong performance that historically accounts for the lion's share of a company's annual profit. Carnival closed at 24 times trailing earnings on Friday. That multiple dropped to less than 16 on Monday morning before the opening bell.
Carnival is once again boosting its full-year guidance, and by more than just the fiscal third-quarter beat. Carnival now sees an adjusted profit of $1.33 a share for the entire fiscal year that ends in November, up from the $1.18 a share it was targeting just three months ago. Carnival will deliver its first fiscal fourth-quarter profit since fiscal 2019. Put another way, the trailing earnings multiple that just went from 24 to 16 over the weekend will drop to less than 14 in three months with the stock at the same price.
With customer deposits for future sailings clocking in 7% higher than they were at the end of last summer, the near-term outlook continues to be sunny. The leveraged balance sheet is still a pressure point, but with interest rates moving lower and Carnival putting its good fortune to work by prepaying $7.3 billion of its debt since the start of last year, it's making the right moves. The stock is cheaper and potentially less risky than most investors think.
