The company reported a quarterly profit of $0.11 per share versus a street estimate loss of $0.02. Revenue for the quarter also beat expectations by approximately $100 million. This marks the 7th straight quarter that Carnival has beat earnings expectations and 6th straight quarter they have beaten revenue forecasts. Cruise operators had rough 2020, 2021, and 2022 fiscal years due to rotating lockdowns stemming from Covid-19. Since then, most cruise operators have turned it around. 2024 has been a record year for cruise operators as booking volumes hit all-time highs as consumers look for new experiences at affordable prices.
Carnival CEO, Josh Weinstein said on the company’s earnings call that the company continues to see strong bookings volume driven by record volumes for 2025 sailings. Total customer deposits during the second quarter hit a new all-time high, surpassing the previous number by over a billion.
We forecasted strong earnings for the sector as we exited COVID-19 citing the consumer’s interest in experiences and services rather than goods. Even we did not foresee this strong of earnings for these cruise operators.
The one issue that we along with many investors see with Carnival is their debt levels which remain quite high. The same can be said for basically the entire industry. The cruise industry requires a lot of capital and leverage. The company paid down $1.6 billion in debt during the quarter, putting its net debt at $27.7 billion.
Along with strong earnings during Q2, Carnival raised its earnings forecast for the 2024 fiscal year as well as its revenue, operating profits, and booking volumes.
We continue to see more upside in this cruise operator as it continues its accession post-Covid-19 after being severely beaten down. We think this is a long-term play that could pay off well down the road.
Disclaimer: MacNicol & Associates Asset Management hold Carnival Corp across various client accounts.
A warning?
Trucking employment fell year-over-year in the most recent jobs report. Trucking employment falling has been something that has been a pre-cursor to every recession since 1991.
We understand the importance of trucking as when employment is increasing, it’s due to demand and more spending from consumers, corporations, and even governments. It reflects an increased level in commerce when increasing and a slow down, sometimes a recession when it’s on the decline especially when the trend turns negative like it has recently.
The other way to look at this is the market is reverting to the mean and is going through a small correction. By market, we mean the trucking market and by reverting to the mean, we mean employment count. During Covid-19 and after Covid-19 employment in trucking surged due to consumers buying everything online. This led to increased employment in trucking to satisfy consumer demand. Fast forward a few years and consumers are buying less online and less goods which has caused layoffs in the trucking and logistics industries. Look at FedEx and UPS, they have both announced layoffs across their workforces in a move to cut costs.
Although in the past this may have been a good gauge of a coming recession, we think this time’s occurrence is also a factor of COVID-19 and the over-employment that we saw in the trucking industry correcting itself.
Do we think some signs are pointing to a potential recession? Yes. Do we think a recession is guaranteed? No. Does this trucking data mean a recession is coming? Potentially but you must look at why these layoffs are happening. It’s a correction. Consumers are still spending, they just moved on from goods to services as the global economy has re-opened over the last 24 months.
AI energy demand
Is the energy industry set for a huge AI boost? It looks like it. According to the Boston Consulting Group, AI data center electricity needs are set to exceed the energy usage of 40 million U.S. homes. Demand for electricity and energy in the AI space has been surging and is forecasted to continue to do so.
Global data center capex by year is expected to jump quite significantly through the end of this decade.
The AI revolution will take decades of work which will demand more and more energy.
Expect energy consumption to only increase from here. We hope you still have exposure to some energy and electricity names.
An alternative way to play the AI space.
MacNicol & Associates Asset Management
June 28, 2024
