Can Carnival Shake Its Huge Losses in Q2?

  • Carnival (CCL) reports its second-quarter results at the end of May.
  • In the first quarter, it lost $1.49 billion, almost identical to its loss in Q1 2021. 
  • Before you buy CCL stock, you might want to answer the question.
Carnival (CCL) cruise ship on water in front of beach with chairs
Source: Flickr

Carnival (NYSE:CCL) reported first-quarter 2022 results in March. It won’t be long before the cruise ship operator says its Q2 2022 results. Before you buy CCL stock, you might want to consider whether it will be able to put a dent in its losses in the second quarter.

I believe it can. 

In Q1 2022, Carnival lost $1.9 billion from its operations on $1.62 billion in revenue. In Q1 2021, it lost $1.52 billion from its operations 0n $26 million in revenue. This says a lot about the company and whether its shares are worth buying.  

Despite generating revenues in the first quarter that was almost $1.6 billion higher than a year earlier, its operating loss was a mere $33 million less. That’s almost entirely attributable to Carnival’s variable costs for sending cruise ships out to sea. Variable Costs Are Like a Weight Around CCL Stock’s Neck

For example, a big deal is made about Carnival’s debt — I discussed this situation in January — but its Q1 interest expense of $368 million was just 10.5% of its $3.51 billion in total expenses for the quarter [$3.11-billion plus $397 million]. 

CCL Carnival $13.06

Bigger expenses included payroll ($506 million), other operating ($557 million), selling and administrative ($554 million), and depreciation and amortization ($554 million). Fuel came close at $365 million.

What to Make of Carnival’s Cost Structure

Of all its operating and non-operating expenses in the first quarter, its “other operating” expenses increased the most year-over-year, 208% higher than a year ago. According to its 10-K, other operating expenses include repairs and maintenance of the ships, dry-dock expenses, etc.

The company’s highest revenue year is 2019, at $20.83 billion. Its highest operating income was $3.33 billion in 2018 on revenue of $18.88 billion. Not coincidentally, Carnival stock hit an all-time high of $72.70 on Jan. 30, 2018.    

The three most significant expenses in 2018 were other operating ($2.81 billion), commissions, transportation and other ($2.59 billion), and selling and administrative ($2.45 billion).   

From 2016 through 2018, its operating expenses varied between 81% and 84% of revenue. Yet its operating profit in all three years was at least $2.8 billion. Its lowest operating profit in the past decade was $1.35 billion in 2013. Its operating expenses were 91% of revenue. Even in 2006, when it had revenues of just $11.8 billion, it had an operating profit of $2.6 billion. 

So, the past would suggest that Carnival needs to get revenues to $10 billion or more before the profits start rolling in.  

The Bottom Line

Carnival’s occupancy percentage in the first quarter was 54%. In 2018 and 2019, it was 106.9% and 106.8% — the number’s over 100% because more than two people stay in some rooms — and the company expects its historical occupancy to return in 2023. 

If so, there’s a very good chance it gets to over $10 billion in annual revenue and turns profitable. 

When Carnival reports earnings, I would look at occupancy percentage and customer deposits. If both of those are moving in the right direction, CCL stock will move higher. 

It’s important to remember that in June 2021, CCL was trading at over $30 despite the fact the pandemic was still very much alive and kicking. While it’s still around, we’re learning to live more normal lives. 

Carnival’s current share price ought to be enticing to aggressive investors.   

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.


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