Carnival Q2 loss lower than forecast as revenues, bookings hit records

The company is introducing its SEA Change Program, a set of key performance targets designed to achieve strategic goals related to sustainability, earnings and returns over a three-year period ending in 2026.

Q2 adjusted net loss was $395m, or 31 cents per share, above the better end of the March guidance range of $425m to $525m and beating Wall Street's consensus 34-cent/share loss projection. US GAAP net loss was $407m, or 32 cents/share.

Adjusted EBITDA was $681m, at the high end of the March guidance range of $600m to $700m.

Revenue reached a Q2 record of $4.9b, above Wall Street's $4.77b forecast.

All-time high for future bookings

Carnival reported continued acceleration of demand, with total bookings made during the quarter reaching a new all-time high for future sailings. As of May 31, customer deposits were a record $7.2b, passing the previous $6b record at May 31, 2019.

Cash from operations and adjusted free cash flow were positive.

Q2 ended with $7.3b of liquidity following the prepayment of over $1b in near term variable rate debt.

'We reached a meaningful inflection point for revenue this quarter, with net yields surpassing 2019's strong levels, and we achieved positive operating income, cash from operations and adjusted free cash flow,' President/CEO Josh Weinstein said.

'We are already executing on our strategy to grow revenue by taking up ticket prices, even while maintaining record onboard spending levels, building occupancy and growing capacity.'

Weinstein added Carnival raised its expectation for revenue in the second half which, coupled with the interest expense benefit captured from deleveraging, will bring another $275m to the bottom line for the year.

'We are focused on the durable revenue growth and margin improvement that will deliver on our SEA Change Program and propel us on the path to delevering and investment grade leverage metrics,' the Carnival chief said.

Wave season continues into Q3

Q2 booking volumes exceeded Q1's, which was the previous record high.

Weinstein said the typical Q1 wave season 'started in record-breaking fashion at the end of the fourth quarter, set a record in the first quarter, actually accelerated in the second quarter and has continued into the third quarter. Booking volumes have been tremendous and we are gaining momentum with favorable pricing trends, which reflects improved commercial execution and returns on our advertising investments.'

Extended booking window for NAA

The booking lead times for the North America and Australia segment are now 'further out than we have ever seen, while lead times for our Europe segment continue to lengthen and are now within 10% of 2019 levels, which is an improvement of 10 points from the last quarter,' Weinstein said.

European brands' bookings taken this past quarter for second half 2023 sailings for European deployments achieved double digit percentage increases in both volume and price compared to 2019.

The company's cumulative advance booked position for the remainder of 2023 is at higher ticket prices in constant currency, despite the loss of St. Petersburg as a marquee destination.

Carnival said its cumulative advance booked position for full year 2024 is above the high end of the historical range at strong prices.

Q2 net yields and costs

While gross margin yields were down in Q2 compared to 2019, the company achieved a significant milestone of net yields in constant currency surpassing 2019 levels, above March guidance by 3.2% in constant currency.

Cruise costs per available lower berth day increased 8.3% from Q2 2019. In constant currency, adjusted cruise costs excluding fuel per ALBD rose 13.5% compared to Q2 2019 and were above the high end of March guidance primarily due to the timing of expenses between the quarters.

Costs were higher compared to 2019 as a result of higher dry dock related expenses, higher advertising investments to drive revenue for 2023 and beyond, and incentive compensation increases reflecting expected improvements in the company's current and long-term performance and partially mitigating the impacts of high inflation.

2023 outlook

For full year 2023, Carnival expects adjusted EBITDA of $4.1b to $4.25b, above its March guidance range and with a midpoint increase of $175m. This includes approximately $0.5b unfavorable impact from fuel price and currency compared to 2019.

Forecast net per diems of 5.5% to 6.5% in constant currency are 2.5 points higher than March guidance.

Adjusted cruise costs excluding fuel per ALBD in constant currency are expected to be 1.5 points higher than March guidance due to a slower expected ramp down in inflation, incentive compensation increases and continued increases in advertising.

2023 EPS is forecast at a loss of 20 cents to a loss of 8 cents, better than Wall Street's expectation of a 27-cent/share loss.

Q3 EPS forecast

For Q3, Carnival expects occupancy of 107% or higher and adjusted net income of $0.95b to $1.05b. EPS is expected in the range of 70 cents to 77 cents, compared to Wall Street's 76-cent consensus.

SEA Change Program goals

New strategic goals over a three-year period ending in 2026 include more than 20% reduction in carbon intensity compared to 2019, a 50% increase in adjusted EBITDA per ALBD compared to 2023 June guidance and 12% adjusted return on invested capital, more than doubling adjusted ROIC from 2023 to 2026.

By the end of 2026, the company is expecting to approach investment grade leverage metrics.

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