Carnival Earnings: Cost Pressures Continue To Weigh on Shares, but Profits at a Turning Point

Although no-moat Carnival delivered second-quarter results that were ahead of both company and our expectations and lifted its full-year outlook, a slower-than-expected reduction in expenses sent shares tumbling more than 10%. We surmise concern surrounds an increase in advertising spending, which could imply consumers need motivation to book. In contrast, we see higher incentive compensation (retaining talent) and a slower decline in inflation as cost inputs that are largely out of management's control. Net cruise costs excluding fuel jumped 12%, much faster than the 8%-9% guidance and our 8% estimate. With the full-year cost minus fuel set to rise 8%-9% (up from 6.5%-7.5% prior), the march to full-year profitability remains elusive in 2023. This overshadowed reported second-quarter net per diems that rose 5%, handily outpacing company guidance of 0%-1% and the 1% we had forecast.