Carnival Cruises (NYSE: CCL) shares were lower following the company's fiscal Q1 earnings report which showed a miss on the top and bottom-line by a significant margin. Cruise companies are back to operating between 70 and 80% but are facing a much more challenging operating environment.
One major factor is that oil is nearly 100% higher now than it was during the pre-pandemic era in addition to higher costs for nearly every item required to run a cruise ship. Another factor is that labor costs have risen due to a tight labor market and many workers leaving the hospitality & leisure industry during the pandemic.
Finally, the cruises operators took on large amounts of debt and issued stock in order to raise money to survive during the pandemic when revenues plummeted. Given that they are headquartered overseas, they weren't able to take advantage of government bailouts either. This is leading to lower EPS and higher interest expenses.
Inside the Numbers
In Q1, Carnival reported a loss of $1.65 per share, steeper than expectations of a loss of $1.23 per share. Revenue missed also at $1.6 billion vs $2.3 billion. Both figures were improvements from last year's loss of $1.79 per share and $26 million in revenue.
For the quarter, occupancy reached 54%, a 20% increase from its last quarter. Total fleet capacity was 60%, an increase from 47% last quarter. Passenger ticket and onboard and other revenues were $873 million and $750 million, respectively.
Carnival CEO Arnold Donald, said, "Despite the impact of Omicron, guests carried grew by nearly 20 percent in the first quarter compared to the prior quarter, while simultaneously increasing revenue per passenger cruise day and driving an improvement in adjusted EBITDA. We expect monthly adjusted EBITDA to turn positive by the beginning of our summer season as we build occupancy and return more ships to service."
Overall, Carnival should continue to benefit from the recovery in travel and pent-up demand for all sorts of experiences. However, there are better companies to take advantage of this recovery rather than cruises which face higher costs and a tougher operating environment in addition to debt and dilution on a per-share basis.