Carnival posts record results on strong cruise demand

The vigorous rebound in cruise demand shows few signs of letting up after global volumes surpassed the pre-pandemic baseline last year. Carnival (CCL) beat its guidance in its half-year results and raised its forecasts on the back of another record performance, and the market leader is starting to make inroads into tackling its debt problem. 

Adjusted cash profits rose 75 per cent to a record $1.19bn (£945mn) in the second quarter, helped by higher ticket prices and onboard spending. Management now expects an annual figure of around $5.83bn, up 40 per cent on 2023 and $200mn ahead of March guidance. 

A revenue surge of a fifth in the half was underpinned by strong demand, as year-on-year occupancy rose from 95 per cent to 103 per cent and passenger numbers improved from 5.7mn to 6.3mn. Passenger ticket revenue jumped 23 per cent to $7.37bn, while onboard and other revenue was up 15 per cent to $3.82bn.

Looking ahead, bookings sit at a record level for 2025 and the cumulative advanced booked position for next year is ahead of 2024 in both price and occupancy terms. Customer deposits reached a peak level of $8.3bn at the half-year mark, around $1.1bn ahead of last year. 

New annual guidance is for year-on-year net yield growth of around 10.25 per cent, an improvement of 75 basis points from the forecast in March. Yields should be assisted going forwards by the capacity outlook.

The main risk with Carnival from an investment standpoint is its huge debt pile. Leverage was around 6.4 times at the last year-end. Carnival had a liquidity position of $4.6bn at the end of the half, with outstanding debt maturities of $5.7bn out to 2026. 

There are signs of balance sheet improvement as management targets a return to investment-grade status by 2026. Debt maturities are starting to look more reasonable and debt is being refinanced at cheaper levels. Debt reduction is being aided by improved cash generation, with $2bn of cash generated from operations in the second quarter.

Analysts at Peel Hunt "expect a steady process of refinancing to continue; to reduce the cost further, and to increase the maturity of the group's debt". 

The shares trade at 12 times forward consensus earnings, an undemanding rating given the outlook. This, along with an improving picture for the balance sheet, has changed our view. Hold. 

Last IC view: Sell, 1,022p, 26 Jun 2023