Carnival shares fall 5% on mixed 2024 outlook

Scoring its first quarterly profit since the pandemic, Carnival blew past profit expectations and chalked up record revenues. Though the company raised its outlook, it forecast a wider Q4 loss than the Wall Street consensus and didn't issue 2024 guidance.

During the earnings call, analysts questioned consumer health and pressed for more 2024 details.

No signs of a slowdown

CEO Josh Weinstein repeatedly said Carnival sees no signs of a weakened consumer nor any slowdown in bookings or spending.

The company approaches 2024 with a 'strong base of business' positioning it for further revenue improvement. The booking curve has lengthened, occupancy is ahead of last year by 10 points on higher pricing and 'well ahead' of 2019 despite 2024's 5% capacity increase. Carnival expects to return to occupancy in the 106% to 107% range next year.

'We just haven't seen [any slowdown] in our bookings or our results,' Weinstein said.

European brands doing better

Where there was concern around Europe before, the CEO said Carnival's European brands should be applauded and congratulated for their turn around, with Costa Cruises and AIDA Cruises hitting positive yields over the summer. And though P&O Cruises, with a 40% capacity spike since 2019, may not have raised yields, it recovered occupancy.

Further gains for the European brands — which made up 38% of Carnival's capacity in 2023 — is expected. 'We're quite encouraged they'll be making up big chunks of revenue yield performance,' Weinstein said.

The Carnival Cruise Line brand continues to outperform and adds capacity in 2024, while the Australia business is recovering.

Headwinds

On the minus side for 2024: The high-yielding Baltic itineraries that included St. Petersburg are still gone due to the war in Ukraine. China remains a question mark for the industry, though Carnival remains largely on the sidelines there.

Inflation is decelerating but 'we'll have to see how that plays out,' Weinstein said.

Expenses will be higher with 530 drydock days in 2024 adding three-quarters of a point to a point of cost.

Costs also go up with four new ships coming online. Before, new ships used to be 15% to 20% more efficient, but CFO David Bernstein noted that since Carnival's fleet optimization, with older vessels exiting during the pandemic, efficiency gains from new ships will probably be less than 1%.

EU emissions tax

With the European Union's new carbon emissions tax coming into play, Carnival expects to pay approximately $75m for the full year. This is expected to represent 40% of what the total will be at some point in the future as the taxes are progressive, Bernstein said. But since the tax is based on fuel consumption, mitigation efforts will help chip away at that.

Back to investment grade metrics in 2026?

By 2026, a combination of improving EBITDA and Carnival's debt reduction program should bring the company back to investment grade metrics, Bernstein said. With four newbuilds coming in 2024, there's less opportunity to narrow the debt. But in 2025, Carnival will take delivery of just one new ship, and no deliveries are planned for 2026.