Cruise Line Stocks: Carnival Earnings Preview

Cruise lines haven’t returned to normal business since the pandemic and it's been hurting the shares, but is there light at the end of the tunnel for the largest Caribbean operator?

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Hiccups along the way

The travel industry is still in recovery mode, with most major hotel chains and airlines still reporting traffic below pre-pandemic levels. Cruise lines have been the slowest to recover. Carnival's revenue last quarter was barely a third of what it was before the pandemic. And cruise lines can also be impacted by problems in other sectors of the industry.

The recent spate of flight cancellations across the US shows the fragility of the system, but also makes it more difficult for people to reach cruises they've booked, adding an additional risk factor to the industry. Last quarter, earnings came in well below estimates in large part due to increased fuel costs.

What to look out for

Carnival is expected to report another loss, with EPS at -$1.06 despite a forecast of significantly improved revenues of $2.80B. Investors likely are concerned that losses haven't narrowed as fast as the top line has grown.

Another issue that could come up is the firm’s debt. The company has amassed $35B in debt to keep boats afloat during the pandemic. Recently it had to borrow $1B to pay down some of that debt and had to agree to an interest rate in the double digits. With the cost of debt expected to increase as the Fed fights inflation, this could cut into the bottom line even more. And that's assuming the US doesn't slip into a recession, where people would curtail expenditure on luxuries like cruises.

CCL’s relentless downtrend

Below the round support of $10 things aren’t looking too rosy, but a bullish harami, coupled with a double RSI divergence, could offer at least a brief respite. Near-term resistance can be observed at the 10.50-11.00 gap printed a few sessions back, but 10.00 must weaken first. Above there, a narrow gap at 12.80-12.90 is the next level of attention.

On the flip side, if prices or the indicator fail to carry out the bullish signal appearing on the charts, the covid-crash low of 7.80 would offer major support next. In the interim, though, bears will meet bulls at the 8.50-9.30 gap of the first weekend of April 20.

Source: Spreadex trading platform

Key takeaways

The travel industry has been in recovery mode since the pandemic, and a recent spate of flight cancellations has added an additional risk factor to the slowest to recover: the cruise lines.

Carnival went into debt during the pandemic and is expected to report another loss. They are now struggling with double interest rate digits on that debt and a potential US recession, so any sort of relief might be temporary.