New Carnival Corp. (CCL) CEO Josh Weinstein thinks it’s high time for investors to chart a different view on the cruise company, after several years of it battling the rocky waters of the COVID-19 pandemic.
To be fair, he does finally have a few potential catalysts to finally stand up to investors.
Weinstein told Yahoo Finance Live at the 2023 Milken Institute Global Conference he has no plans to sell stock — which would raise cash — to pay down a whopping $32 billion in debt (which stood around $12 billion pre-pandemic).
A good chunk of that debt was incurred by Carnival to navigate the pandemic and be able to restart sailing its ships once government restrictions were lifted. The company’s debt cost it $539 million in interest expense in the first quarter, which did its part in driving a $693 million net loss.
The threat of an equity issuance to alleviate balance sheet pressure has been hanging over Carnival’s stock like a black cloud, experts say. Shares are down 45% in the past year, compared with a 3% gain for the S&P 500.
But Weinstein doesn’t see the need to dump stock on the market in a cash grab, as booking trends for the summer travel season have vastly improved as cruisers return.
“We just got through the wave period, which is the highest booking period in the industry. We literally had the most bookings in the history of our company in that three-month period. And that was both our North American brands and our European brands,” Weinstein said.
Ticket pricing has trended back up the past five quarters as well, Weinstein added.
The better booking and pricing trends set the table for improved free cash flow from Carnival in 2023 and 2024, provided there is no U.S. recession. By extension, that lends itself to paying down debt.
The other post-COVID wrinkle to the Carnival story is that it virtually has no new ships in development for the first time in a while. That could bolster free cash flow and aid debt pay-down.
Weinstein said: “When you look at our capex profile over the next few years, it’s our lowest ship order book in decades. When I first became treasurer in 2007, we had 24 ships on order. We now have four ships on order and a very small expedition ship. And that’s it.”
“What that means is we can take that cash and we can pay down the debt, and we get back on the road to an investment grade credit rating,” he added.
The Carnival CEO acknowledges it may take years to return to investment grade.
But that underscores the severity of how the pandemic impacted Carnival and the broader cruise industry, as well as investors’ appetite for buying shares.
In early February 2020, a passenger who had been on Carnival’s Diamond Princess line docked in Japan tested positive for COVID-19. By March, the company had suspended operations around the world and in turn saw skyrocketing losses.
Carnival lost about $15 billion on a net basis for 2022 and 2021 combined, according to SEC filings.
Weinstein — who took over as CEO in August 2022 from long-time leader Arnold Donald — ran point on operations as COO throughout the pandemic. He concedes it will take some time for the cruise industry to fully rebound, but thinks the recovery has taken hold.
“We are very well positioned for continued momentum and continued improvement,” Weinstein said.