- 1 Adjusted EPS is raised by almost 250% from $-0.58 to $0.864 in comparison with Q3 2022
- 2 EBITDA has increased by more than 600% and Free cash flow increased by more than 200%.
- 3 Net Profit ended positive for the first time since the resumption of operations of the guest cruise.
Carnival Corporation & PLC deals in the operation of Cruise ships. It was founded in 1972, and headquartered in Miami, Florida. It operates in various regions: North America and Australia (NAA) Cruise, Europe and Asia (EA) Cruise operations, Cruise Support, and Tour and others. The NAA Cruise segment includes Carnival Cruise Lines, Holland America Lines, Princess Cruises, and Seabourn. The EA Cruise Operations includes AIDA, Costa, Cunard, and P&O Cruises (UK). The Cruise Support segments include Port destinations and private islands for its cruise brands. The tour and other segment operates transportation and hotels of Holland America Princess Alaska Tours.
In spite of a Profitable Quarter, no improvement in Liquidity and Solvency
Carnival Corporation & PLC (NYSE: CCL) announced its Q3 earnings on September 29, 2023, where CEO Josh Weinstein declared revenue growth of 60% increase from $4,305 Million to $6,854 Million leading to an increase in Gross Profit Margin from -6.5% to +23.70%. Going down to operating margins, it increased by around 680% increasing Operating Income from a loss of $279 Million to a gain of $1,624 Million in comparison with Q3 previous year.
Growth of Revenue is driven through sustainable sources
The main driver of growth in revenue is an increase in occupancy rate. The occupancy rate has increased up to 100% and it was expected to be around 90%. If CCL is able to maintain the current occupancy rate, then the company will be able to maintain the current level of revenue which will constantly increase the levels of profit. It will support the sustainable growth of the company’s finances.
Total operating expenses are increased by 14% while the subsequent revenue is increased by 60%. If we look at various components of operating expenses then it is observed that fuel consumption has become more efficient as it has decreased by 16% in the last 5 years and this reduction in fuel consumption has saved $375 Million this year.
Another revenue driver is an increase in bookings by almost 100% in the last four years in all three major regions of operations; Bookings in North America increased by 104%, Europe increased by 98%, and Combined Cruise increased by 103%.
An increase in bookings and occupancy has led to a lower inventory of 5% for the company despite increasing the capacity. The increase in bookings and occupancy is the result of successful strategic advertising. Advertising and Promotional spending has increased by 17% in the last four years. And this spending has created much more demand for services provided by the company. As a successful result of an increase in A&P spending, web visits increased by 35% from 2019 to 2023, and paid search clicks increased by 50% ( this also added to the growth in revenue), Natural search visits increased by 85% in the same period. This increase in searches will probably increase the revenue in the coming quarters as it is creating a sales pipeline for the company.
If we are to analyze the quality of services provided by the company, it can be confirmed through the growth in the percentage of repeat customers as 55% of total customers do take repeat services.
Expectations from upcoming quarters
Revenue of the coming financial year is expected to increase as 50% of the total sailing capacity is already booked for next year out of which 40% are expected to actually take the services and the company is constantly trying to improve its performance and further increase this percentage of actual conversion of booking.
Looking at the future growth trend of the revenue the company is creating opportunities by providing bundled services on advance bookings by the period of two years/24 months. The ones who book services 3 days prior are provided with targeted special customers which they can claim afterward and this increases the percentages of repeat customers. Additional amenities and experiences are provided to on-board customers to improve their overall experiences and this also leads to an increase in revenue. CCL is still trying to increase more onboard amenities to increase revenue from onboard customers.
Strategic Debt Repayments to make CCL debt free in the years ahead
Going forward to the balance sheet of the company is accelerating its deleveraging activity in order to make it a debt-free company by reducing Long-term debts by 10% in the last two quarters from $35 Billion to $31 Billion by using extra cash available to the company due to improvement in cash flow from operations and reduce its interest expenses to almost zero. The company has made prepayments of $2.3 Billion reducing the interest expenses for coming quarters. Now looking at the next quarter, $0.5 Billion debt repayment is scheduled.
Liquidity and Solvency: Major concerns for growth ahead
The company has reduced its liquidity ratio from 0.70646x to 0.42542x from November 2022 to August 2023. This reduction is due to a decrease in cash and cash equivalents and short-term investments used in the prepayment of debt and this decrease in liquidity ratio will not affect the financial position of the company as the company has managed to maintain enough liquidity to make the upcoming scheduled debt repayments and short term liability. The only concern looking at the current ratio is that the company needs to wisely manage its working capital expenses.
Despite the constant prepayment of debts; the company has not improved its total debt-to-total equity ratio. The total debt to asset ratio has reduced from 4.523x to 4.24x which needs to be reduced further as through the Total debt / total equity ratio it is ascertained that the company is financed 4 times more through debt than equity.
In the coming quarters, it needs to be observed how effectively the company will be able to manage its working capital expenses and how it sustain its growth in revenue, occupancy, and bookings if the company is able to manage its profitability ratios and cash flows then it will eliminate the issues in liquidity and solvency. The company has also not paid dividends since 2020 due to negative earnings but if this positive profit trend continues then the company can resume dividend payments which will be positive news for its shareholders. The current added value to shareholders sign is already a positive sign but as of now, the company might retain this cash to maintain its cash position.
Adarsh Singh is a true connoisseur of Defi and Blockchain technologies, who left his job at a “Big 4” multinational finance firm to pursue crypto and NFT trading full-time. He has a strong background in finance, with MBA from a prestigious B-school. He delves deep into these innovative fields, unraveling their intricacies. Uncovering hidden gems, be it coins, tokens or NFTs, is his expertise. NFTs drive deep interest for him, and his creative analysis of NFTs opens up engaging narratives. He strives to bring decentralized digital assets accessible to the masses.Adarsh Singh is a true connoisseur of Defi and Blockchain technologies, who left his job at a “Big 4” multinational finance firm to pursue crypto and NFT trading full-time. He has a strong background in finance, with MBA from a prestigious B-school. He delves deep into these innovative fields, unraveling their intricacies. Uncovering hidden gems, be it coins, tokens or NFTs, is his expertise. NFTs drive deep interest for him, and his creative analysis of NFTs opens up engaging narratives. He strives to bring decentralized digital assets accessible to the masses.