What happened
Shares of Carnival (NYSE: CCL)(NYSE: CUK) stock fell 16% in August according to data provided by S&P Global Market Intelligence. The price had already doubled this year, and as the market dipped in the wake of another interest-rate increase, many stock prices that had already skyrocketed this year dipped along with it.
So what
Carnival is the largest cruise operator in the world, and before the pandemic, it was reliable for sales growth, increasing profits, and beating the market.
That's why is was a compelling story to watch unfold as it shut down operations under lockdown. It borrowed money heavily to stay in business, and it's now at the tail end of an incredible recovery. Sales of $4.9 billion in the 2023 second quarter, ended May 31, were a second-quarter record, and it had record deposits of $7.2 billion. People are coming back in droves, and price increases aren't stopping them.
However, losses persist as it continues to rebuild. Net loss came in at $407 million in the second quarter, although that was an improvement from over $1 billion last year. Operating income was positive for the first time since the pandemic started, and adjusted earnings before interest, taxes, depreciation, and amortization were $681 million, close to the top of guidance. It's guiding for that to more than triple in the third quarter, and it's also expecting to get back to an adjusted net profit.
Long-term debt is still very high, since Carnival had to issue lots of debt to maintain operations when there was no revenue. It stands at $32 billion as of the end of the second quarter. However, it's working toward paying it off, and it's already more than $1 billion off of its peak debt. It also diluted its share count by issuing more equity, but it's been buying back shares at a fast pace to create more shareholder value.
Now what
Carnival stock was up more than 100% earlier this year, but it gave back some of its gains in August and is now up 95% year to date. That was partially due to macroeconomic factors, and the broader market also gave back some year-to-date gains in August. The S&P 500 gave back some of its gains as well in August before swinging back up.
Investors have baked much of Carnival's recovery into the price, so it isn't surprising to see it falter. Long term, as it keeps up bookings and gets back to profitability, it should be a valuable addition to a portfolio.
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Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool recommends Carnival Corp. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
