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This means future debt will likely be much more expensive, as it may need to find alternative ways to take out debt once its current loans come due. Management set a goal for the company to reach investment grade in 2026, but admits it "still [has] a ways to go." Carnival's $1.6 billion of operating income last quarter was a stark reversal from the operating loss of $279 million in the year-ago period. Consumers are clearly very interested in booking cruise trips again. This is all the more impressive, given the overall macroeconomic backdrop. You'd think that inflationary pressures and rising interest rates over the past couple years would discourage such spending, but this just hasn't been the case with travel.
Carnival's revenue is growing again
Carnival, for example, locked in a record $6.4 billion in customer deposits in the final quarter of 2023, up 31% since the fourth quarter of 2019. It is likely that many of the customers who have made deposits will be new-to-cruise customers. And while customers can cancel, most of the deposits the cruise line has collected will likely turn into full payment. The leading cruise ship operator is benefiting from the growing demand for cruises.
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At some point, 50% new-to-cruise customers growth just isn't sustainable. In fact, if the new-to-cruise guest count leveled off at fourth-quarter 2023's high rate for all of 2024, 2024 fourth-quarter growth in new-to-cruise guests would be zero on a percentage basis. Meanwhile, if there were a decline in the number, the growth rate in new-to-cruise customers would be negative, even though it would still be at a high rate. This is a very good story for Carnival, and for the cruise industry more broadly. And it is important to note that cruises are usually booked well in advance.
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That should enable the company to increase profits and cash flow in the coming years. Unfortunately, the pandemic has significantly affected Carnival's financial results. As of mid-2023, the cruise line operator had yet to return to profitability. Through the first six months of the year, the company reported a net loss of $563 million, or $3.02 per share. However, that was a significant improvement from the same period of the previous year when it posted a net loss of almost $1.3 billion, or $6.90 per share.
Instead, the price-to-sales (P/S) ratio offers a better comparison, given that people have returned to many pre-pandemic habits over the past 12 months. Royal Caribbean has the highest P/S ratio at 2.2, followed by Carnival at 0.9 and Norwegian at 0.8. Naturally, as Carnival's revenue disappeared during the height of the pandemic, the company was operating at a loss and needed to take on additional debt to stay afloat. For Carnival's fiscal 2019 (the full year prior to the pandemic), the cruise line operator generated $20.8 billion in revenue. That number took a nosedive to $5.6 billion for its fiscal 2020 before bottoming out to $1.9 billion for its fiscal 2021. The company produced $12.2 billion in revenue as travel restrictions loosened.
The company's direct competitors include Royal Caribbean Group (RCL), Norwegian Cruise Line Holdings Ltd. (NCLH), and Lindblad Expeditions Holdings Inc. (LIND). It also faces competition from the broader travel and tourism industry, including resorts, casinos, and theme parks. For FY 2021, ended Nov. 30, 2021, Carnival reported a net loss of $9.5 billion on revenue of $1.9 billion. There are only so many potential customers, and only so many rooms on Carnival's cruise ships to accommodate them.
As of 2022, the company laid claim to nearly half of the global cruising market share with several new ships in the works. The company's world-class and steadily improving fleet puts it in a strong position to capitalize on robust and growing demand for cruising. Before the pandemic, global ocean cruise passengers had grown at a 5.5% compound annual rate from 2003 through 2019.
Carnival has been working hard to shore up its financial foundation since it resumed cruises in the middle of 2021. It has been steadily repaying debt and plans to continue doing so. It also continues to invest money to refine its fleet, which will see eight new ships delivered across its brands through 2025.
Carnival has a mountain of debt
It is wonderful that Carnival is attracting customers who have never been on a cruise before. It improves the outlook for future performance since those customers can become repeat cruisers. But investors need to take this company's talking point with a grain of salt. The numbers are impressive today, but they probably won't remain this impressive for very long.
Fortunately, it's been a steady improvement for Carnival since hitting those lows. Through the first nine months of fiscal 2023, sales roughly doubled. In fact, in the most recent quarter (ended Aug. 31), Carnival registered record revenue of $6.9 billion with a Q3 record of $6.3 billion in customer deposits.
Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer. The Motley Fool reaches millions of people every month through our premium investing solutions, free guidance and market analysis on Fool.com, top-rated podcasts, and non-profit The Motley Fool Foundation. Carnival Corporation & plc is a leisure travel company operating a fleet of cruise ships, hotels, and resorts with international destinations. Brands under the Carnival Corporation umbrella include Carnival Cruise Line, Princess Cruises, Holland America, P&O Cruises, Seaborn, Costa Cruises, AIDA Cruises, and Cunard. The company’s goal is to provide extraordinary vacations at an exceptional value.
The industry had gotten back on a growth trajectory in 2023, with Carnival reporting all-time highs in bookings and customer deposits in the year's second quarter. 20 Wall Street research analysts have issued 12-month price targets for Carnival Co. &'s stock. On average, they anticipate the company's stock price to reach $21.47 in the next year. This suggests a possible upside of 52.1% from the stock's current price. View analysts price targets for CCL or view top-rated stocks among Wall Street analysts.
As of March 21, 2022, Carnival Corp. had 989.7 million shares outstanding. No, Carnival has not paid a dividend since suspending dividend payments amid the COVID-19 pandemic in 2020. Arnold W. Donald has been Carnival's chief executive officer since 2013. Donald was previously CEO of the Executive Leadership Council from 2010 to 2012 and of the Juvenile Diabetes Research Foundation International from 2006 to 2008.
Carnival relaunched cruises from the U.S. on July 3, 2021, when the Carnival Vista departed from Galveston, Texas. These include pre-cruise questionnaires and testing for vaccinated guests, and proof of vaccination required at terminals in advance of boarding. In difficult economic times like recessions, consumers tend to cut back on discretionary purchases, a category that cruise trips definitely fall under. Plus, the stock still looks cheap, even after its huge rise in 2023.
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