Why Carnival shares rose 19% in October

by Junna Base November 6, 2024

Shares of carnival (NYSE:CCL)(NYSE:CUK) The stock rose 19% in October, according to data from S&P Global Market Intelligence. The company delivered a stellar earnings report earlier in the month and also benefited from improving investor sentiment due to lower interest rates.

During the worst part of the pandemic, Carnival’s revenue fell to zero, but that’s not because the company fell out of favor with fans. Right after the relaunch, people started signing up and they haven’t stopped. The surge in demand shows just how big the cruise market is, and Carnival’s position as a leader in the industry brings long-term benefits.

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Despite the return of high demand, some problems remained, such as returning to profitability and eliminating the debt the company had taken on to maintain operations when it was not making money. But even these measures are improving enough to comfort investors.

Results for the fiscal third quarter of 2024, ended Aug. 31, were consistently better than expected, underscoring Carnival’s strength and providing confidence in its long-term story. Investors expect record demand to fade at some point, but so far it is proving more sustainable than the market gave credit for. There were again records for several metrics: revenue of $7.9 billion, up $1 billion year-on-year; operating profit of $2.2 billion, up more than $500 million from the previous year; Record ticket prices and record bookings, resulting in above-average sales performance and improved profitability.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) reached a record $2.8 billion, up 25% year-on-year, and net income was $1.7 billion, $662 million more than last year.

The economy as a whole and some specific industries benefit from lower interest rates. The way it impacts Carnival is through the impact on its high debt.

Carnival has already reduced its maximum debt by several billion dollars, but still has more than $30 billion at the end of the third quarter. That’s about $20 billion more than before the pandemic.

The company has been able to repay its high-interest borrowings by generating strong cash flow, but there are still concerns that a slowdown in demand could lead to falling cash flow and difficulty paying down debt. However, as demand remains strong and interest rates fall, Carnival should find it easier to make repayments and get back to historical levels. That’s still a few years away, but investors are now recognizing the potential.