What to look for in CCL

What to look for in CCL

Carnival Corp. (CCL), one of the largest cruise companies in the world, is beginning to see a recovery after several years in which the COVID-19 pandemic shut down most of the cruise industry. In May, Carnival became the first major U.S. cruise line to put its entire fleet back into operation. And analysts now estimate that Carnival’s revenue will more than double in 2022 compared to a year ago. But great challenges remain. Despite the improvement, Carnival revenue this year is expected to be much lower than the annual levels before the pandemic and analysts expect continued large net losses.

Basically Takeaways

  • Analysts estimate the adjusted EPS -1.18 $ versus -1.80 $ in the second quarter of 2021.
  • Room occupancy is expected to increase significantly on an annual basis, but will still be below pre-pandemic levels.
  • Revenue is expected to continue its rapid recovery as cruises resume.

Investors will watch to see how fast Carnival recovers when the company reports earnings for FY 2022 on June 24, 2022. Analysts predict that quarterly adjusted losses per share will decrease on an annual basis (YOY). Carnival is also expected to record its highest quarterly revenue since the first quarter of 2020, shortly before the pandemic has had its full impact on the industry.

Investors will also focus on the occupancy rate of Carnival rooms, a measure of the available passenger or cabin capacity used. In the second quarter of 2022, the occupancy rate is expected to recover dramatically, though not to pre-pandemic levels.

Carnival shares followed the broader market over the past year. They traded heavily sideways from July to November 2021 and again in March and April 2022. However, despite this, Carnival shares generally fell last year, followed by a sharp drop in the last three months. As of June 23, Carnival shares had a 1-year overall yield -66.6%, well behind the S&P 500 overall yield -11.4%.

Source: TradingView.

Carnival profit story

The history of Carnival Adjusted Earnings Per Share (EPS) has been turbulent since the beginning of the pandemic. The company failed to record positive EPS in any quarter at least since the first quarter of 2020. The largest loss per share of -3.30 $ occurred in the second quarter of 2020. Since then, the company has gradually reduced these losses. It fluctuated between -1.70 $ and -1.80 $ in each quarter of 2021 before falling slightly to -1.66 $ in the first quarter of 2022. Now, analysts expect additional, moderate improvement. They estimate an adjusted loss per share of -1.18 $ for the second quarter of 2022. This would be the smallest quarterly adjusted loss per share since the onset of the pandemic.

The company’s revenue stream has shrunk dramatically over much of the pandemic compared to fiscal year 2019, the most recent healthy year. In the first quarter of 2020, quarterly revenue was $ 4.8 billion. It then fell to $ 740 million in the second quarter of 2020 before falling even further in the following quarters. The company’s revenue did not exceed $ 49 million in the four quarters between the third quarter of 2020 and the second quarter of 2021. From the third quarter of 2021, revenue began to improve, reaching $ 1.6 billion in the first quarter of 2022 Analysts estimate that this trend will continue as revenues reach $ 2.8 billion in the second quarter of 2022. However, this remains drastically below pre-pandemic revenue levels.

Basic Carnival Statistics
Estimate for the 2nd quarter of 2022 2nd quarter of the financial year 2021 Q2 FY 2020
Adjusted earnings per share ($) -1.18 -1.80 -3.30
Revenue ($ B) 2.8 0.05 0.7
Room occupancy rate (%) 72.1 32.2 96.1

Source: Visible Alpha

The basic measurement

As mentioned above, investors will also monitor the occupancy rate of Carnival rooms. The occupancy rate provides a measure of how well a cruise line uses its total passenger capacity. It is calculated by dividing the number of passengers during the relevant period by the total passenger capacity for the same period. Because the cost of most cruise lines is fixed, with the crew and ship operating costs not changing significantly regardless of the number of passengers, it is in Carnival’s best interest to try to fill the ships as much as possible. Passenger capacity presupposes that each cabin can accommodate two passengers, which means that a occupancy rate of more than 100% is an indication that some cabins are full with more than two passengers.

The occupancy rate of Carnival rooms exceeded 100% every quarter of 2019 as well as the first quarter of 2020. In the second quarter of 2020, when the impact of the pandemic widened, the occupancy rate dropped to 96.1%. It fell to its lowest point in the first quarter of 2021, when it reached just 16.0%. Since then, it has improved, though not steadily. The occupancy reached 58.4% in the 4th quarter of 2021 and then fell to 54.0% in the 1st quarter of 2022. Analysts estimate that the occupancy of the rooms will increase sharply to 72.1% in the second quarter of 2022. Although this occupancy would be the highest level in eight it would be much lower than the occupancy rates of the rooms before the pandemic.

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