Carnival Delivered a Quarter of Records. But Here's Even Better News for Shareholders (and it Could Supercharge the Stock).

Source The Motley Fool

After the tumultuous seas of early pandemic days, Carnival (NYSE: CCL) (NYSE: CUK) has sailed into calm waters. The world's biggest cruise operator recently reported a quarter filled with records, beat analysts' earnings estimates, and raised full-year guidance for a third time.

The recipe for such success? Carnival has put the focus on controlled spending, cost savings in key areas such fuel, and has made efforts to increase guests' onboard spending.

All this has helped Carnival, which had to halt sailings during the first stages of the pandemic, cruise back along the path to financial health -- and growth. Investors have recognized the company's progress, prompting the stock to climb more than 29% over the past year.

Moving forward, the stock could be in for more gains. This is thanks, in part, to Carnival's fantastic earnings performance, but another element may be even better news for shareholders.

A parent and child smile while holding onto a railing on the deck of a cruise ship.

Image source: Getty Images.

Carnival's wall of debt

First, let's take a quick look back in time at the challenges Carnival faced in recent years. The halt in sailings drove the previously profitable company to a loss, and resulted in Carnival building up a wall of debt. This also weighed on the shares, which plunged nearly 60% in 2020.

CCL Net Income (Annual) Chart

CCL Net Income (Annual) data by YCharts

But Carnival set the sails in motion for recovery through various cost-saving efforts -- from limiting new ship orders to designing routes favoring fuel efficiency -- and travelers rushed back to this popular type of vacation as coronavirus restrictions eased. All of this has ushered Carnival along the path to this latest quarter's superstar results.

In the quarter, Carnival reported record operating income of $2.2 billion, record third-quarter revenues of $7.9 billion, and a cumulative advanced booked position for 2025 that's surpassed this year's -- and that's at higher cruise prices. Revenue and earnings per share both came in ahead of analysts' estimates for the quarter, too.

Finally, Carnival lifted its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) guidance for the full year to $6 billion -- that's up by nearly $200 million from guidance, given a few months ago, and represents a 40% increase from last year. And the company also expects adjusted return on invested capital of 10.5%, a half-point better than earlier guidance.

All this is fantastic news and suggests more growth ahead for Carnival. But one other element represents even better news for the company and shareholders because it may help Carnival address its biggest challenge today: reducing debt. And that's the latest move from the Federal Reserve.

A big move by the Fed

The Fed recently lowered interest rates by 50 basis points -- a greater-than-expected move -- and suggests it may cut rates two more times before the end of the year. The initial move represents the central bank's first such move in four years, and marks a path to lower costs for companies with high debt -- such as Carnival.

As it stands now, Carnival has managed a complicated situation well, with a focus on paying down variable-rate debt to make itself less vulnerable to interest rate fluctuations. "We will continue to look for more opportunistic refinancings over time," chief financial officer David Bernstein said in the recent earnings call. This suggests a lower-rate environment could significantly lower Carnival's costs over time and help the company reach its financial health goals.

Carnival has gradually improved its net debt-to-EBITDA leverage, a measure of a company's debt in relation to its cash flow, and considers itself "two-thirds" of the way to investment-grade status -- which it aims to reach in 2026. (Carnival also has prepaid debt, for example prepaying $7.3 billion in debt since the beginning of 2023.)

So yes, Carnival's earnings news is great for the company and investors, but the recent move by the Fed -- along with the idea that more rate cuts may be on the horizon -- could be an even brighter sign. This should offer the cruising giant an additional boost when it comes to reducing debt, an effort that will lead to smoother sailing for Carnival and its shareholders.

Should you invest $1,000 in Carnival Corp. right now?

Before you buy stock in Carnival Corp., consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Carnival Corp. wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $752,838!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of September 30, 2024

Adria Cimino has no position in any of the stocks mentioned. The Motley Fool recommends Carnival Corp. The Motley Fool has a disclosure policy.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
placeholder
Gold edges toward $4,200 as shutdown deal fuels aggressive December Fed cut betsGold trades near $4,195 in early Asian dealings, brushing up against the $4,200 mark as hopes for a U.S. shutdown-ending funding bill and a nearly 64% market-implied chance of a December Fed rate cut support XAU/USD, even as a divided Federal Reserve and upcoming policymaker speeches threaten to steady the dollar and cap bullion’s latest advance.
Author  Mitrade
23 hours ago
Gold trades near $4,195 in early Asian dealings, brushing up against the $4,200 mark as hopes for a U.S. shutdown-ending funding bill and a nearly 64% market-implied chance of a December Fed rate cut support XAU/USD, even as a divided Federal Reserve and upcoming policymaker speeches threaten to steady the dollar and cap bullion’s latest advance.
placeholder
Why a Quiet 2025 Signals a Massive 2026 Crypto Bull Run: Bitwise CIO ExplainsBitwise's Matt Hougan Predicts a Crypto Boom in 2026 Amid Current Market Struggles
Author  Mitrade
Yesterday 04: 03
Bitwise's Matt Hougan Predicts a Crypto Boom in 2026 Amid Current Market Struggles
placeholder
Gold hits three-week top as dovish Fed bets offset US government reopening optimismGold (XAU/USD) reverses a modest Asian session dip and climbs to an over three-week high, around the $4,213 region, on Thursday.
Author  FXStreet
Yesterday 06: 22
Gold (XAU/USD) reverses a modest Asian session dip and climbs to an over three-week high, around the $4,213 region, on Thursday.
placeholder
Bitcoin vs. Ethereum: Distinct Monetary UniversesBitcoin and Ethereum are diverging significantly in their monetary roles, according to a joint report from Glassnode and Keyrock.
Author  Mitrade
4 hours ago
Bitcoin and Ethereum are diverging significantly in their monetary roles, according to a joint report from Glassnode and Keyrock.
placeholder
Ethereum slides 5% as bears lean on $3,500 cap and put $3,150 support in focusEthereum (ETH) drops more than 5% after a failed push above $3,550, with price sliding to $3,153 and now holding below $3,350, the 100-hour SMA and a bearish trend line at $3,500; unless bulls reclaim the $3,350–$3,500 zone, the short-term bias stays bearish and a clean break under $3,150 could expose $3,050, $3,000 and even the $2,880–$2,850 support area.
Author  Mitrade
3 hours ago
Ethereum (ETH) drops more than 5% after a failed push above $3,550, with price sliding to $3,153 and now holding below $3,350, the 100-hour SMA and a bearish trend line at $3,500; unless bulls reclaim the $3,350–$3,500 zone, the short-term bias stays bearish and a clean break under $3,150 could expose $3,050, $3,000 and even the $2,880–$2,850 support area.
goTop
quote