Cruise line Carnival Corp (CCL -0.06%) continues to produce record-setting operational results in 2024. Corporate-earnings reports for 2024 have shown tremendous strength, highlighting consumers' embrace of the Carnival brand. Its favorable and welcomed performance proves that the firm has fully recovered from the perils of the COVID-19 pandemic. Carnival is clearly thriving in the new normal.
Carnival's spectacular second quarter
Carnival recently released an earnings report for the second quarter of their 2024 fiscal year. In the report, Carnival reported a bevy of impressive results:
- Net income increased nearly $500 million year over year.
- Record operating income of $560 million for Q2.
- Record revenue of $5.8 billion in Q2.
- Record cumulative booked position for the rest of 2024.
Perhaps most encouragingly, Carnival reported that per diems, a calculation of the amount of revenue earned for each day of cruising, in constant currency were up over 6% from the prior-year period. This improvement was due to both higher ticket prices and higher onboard spending by customers.
2024 is off to a record-breaking start for Carnival
What makes Carnival's record-setting Q2 even more impressive is that the results build on 2024's Q1, which was also record breaking. These two quarters make for a dazzling start for the full 2024 fiscal year. The growth in bookings resulting in record revenues and positive free cash flow has allowed Carnival to spruce up its balance sheet. One of the potential negatives of the company as an investment is the overall level of debt. Carnival's debt-to-equity ratio had been nearly 6 in the aftermath of the pandemic.
However, in the past 15 months, it has been able to pre-pay $6.6 billion in debt. Not only has this shrunk its debt-to-equity ratio to 4.3, it has lowered the company's interest expense by $55 million for 2024. These measures are expected to save $85 million on interest charges for 2025 as well.
Total debt due in 2025 is $1.7 billion. Ideally, an improved credit-risk profile and potentially lower interest rates will allow it to refinance some of this amount at even greater interest savings. But, even if Carnival simply paid this amount off outright, the company's projected earnings before interest, taxes, depreciation, and amortization (EBITDA) of $5.3 billion for 2024 means that it can easily afford to do so. The way Carnival sees 2025 going, servicing its debt should be even easier next year.
Carnival Corp's optimism is contagious
In addition to the record Q1 and Q2 financial results, Carnival is projecting more of the same for the rest of 2024. The company boosted guidance for adjusted EBITDA and adjusted net income for full-year 2024. Both estimates represented increases of over $200 million. They also see 2025 shaping up to be a powerhouse year. In addition to the higher guidance for 2024, Carnival also reported a record booked position for 2025. These bookings are happening at higher pricing and occupancy levels in comparison to the first six months of 2024.
Beyond the increased estimates of financial performance and balance-sheet improvement, Carnival is also taking steps to strengthen its brand performance. The company is folding its Australian P & O Cruises into the Carnival brand. The move is expected to conclude in March of 2025, and the company envisions this move improving operational efficiencies.
With such strong earnings and pre-booking performance, now is a great time to consider investing in Carnival Corp stock.
With shares up over 150 percent in almost two years, Carnival is well off its pandemic lows. However, a look at several fundamental-valuation metrics reveals that shares are not overpriced.
| Symbol | Price-to-free cash flow per share | Price-to-sales | Price-to-earnings |
|---|---|---|---|
| CCL | 22.9 | 1.1 | 15.5 |
Data source: YCharts
None of these metrics scream "cheap" in a traditional, deep value investing sense. However, these metrics also show that Carnival is not overvalued. The company is optimistic about the future, and despite the relatively large run-up in prices, there is still room to run with continued operational success. Investors looking for a way to bet on continued economic growth should consider shares of Carnival at these levels.
